[Senate Hearing 113-1]
[From the U.S. Government Publishing Office]

                                                          S. Hrg. 113-1
                         NATURAL GAS RESOURCES



                               before the

                              COMMITTEE ON

                      ENERGY AND NATURAL RESOURCES

                          UNITED STATES SENATE


                             FIRST SESSION


                             GAS RESOURCES


                           FEBRUARY 12, 2013

                       Printed for the use of the
               Committee on Energy and Natural Resources

80-132                    WASHINGTON : 2013
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 


                      RON WYDEN, Oregon, Chairman

TIM JOHNSON, South Dakota            LISA MURKOWSKI, Alaska
MARY L. LANDRIEU, Louisiana          JOHN BARRASSO, Wyoming
MARIA CANTWELL, Washington           JAMES E. RISCH, Idaho
BERNARD SANDERS, Vermont             MIKE LEE, Utah
DEBBIE STABENOW, Michigan            DEAN HELLER, Nevada
MARK UDALL, Colorado                 JEFF FLAKE, Arizona
AL FRANKEN, Minnesota                TIM SCOTT, South Carolina
JOE MANCHIN, III, West Virginia      LAMAR ALEXANDER, Tennessee
BRIAN SCHATZ, Hawaii                 JOHN HOEVEN, North Dakota

                    Joshua Sheinkman, Staff Director
                      Sam E. Fowler, Chief Counsel
              Karen K. Billups, Republican Staff Director
           Patrick J. McCormick III, Republican Chief Counsel

                            C O N T E N T S




Beinecke, Frances, President, Natural Resources Defense Council, 
  New York, NY...................................................    29
Eisenberg, Ross, Vice President, Energy and Resources Policy, 
  National Association of Manufacturers..........................    21
Gerard, Jack N., President and Chief Executive Officer, American 
  Petroleum Institute............................................    51
Hickenlooper, John W., Governor of Colorado, Denver, CO..........     7
Landrieu, Hon. Mary L., U.S. Senator From Louisiana..............     3
Liveris, Andrew N., Chairman and Chief Executive Officer, The Dow 
  Chemical Company, Midland, MI..................................    13
Medlock, Kenneth B., III, James A. Baker III, and Susan G. Baker, 
  Fellow in Energy and Resource Economics, and Senior Director, 
  Center for Energy Studies, James A. Baker III Institute for 
  Public Policy, Rice University, Houston, TX....................    42
Murkowski, Hon. Lisa, U.S. Senator From Alaska...................     4
Wyden, Hon. Ron, U.S. Senator From Oregon........................     1

                               Appendix I

Responses to additional questions................................    95

                              Appendix II

Additional material submitted for the record.....................   121

                         NATURAL GAS RESOURCES


                       TUESDAY, FEBRUARY 12, 2013

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m. in room 
SD-366, Dirksen Senate Office Building, Hon. Ron Wyden, 
chairman, presiding.

                          FROM OREGON

    The Chairman. As the witnesses come in, I want to note to 
my colleagues this is going to be, even by Senate scheduling, a 
hectic morning. We anticipate having votes at 11 o'clock. We 
will go from now until about 11:15 on the hearing topic, which 
is natural gas challenges and opportunities. We will take a 
break at 11:15 for what I anticipate will be about an hour.
    When it comes to natural gas, America is truly the land of 
    First it's an economic opportunity. An affordable, stable 
gas supply provides a competitive advantage for American 
business that can spark a U.S. manufacturing renaissance. 
Second, it is an environmental opportunity. Gas is 50 percent 
cleaner than other fossil fuels, and it is a major reason why 
American CO2 emissions have actually gone down in 
recent years.
    Finally, it's an energy security opportunity. For the first 
time in decades, our Nation will be able to rely on its own 
U.S. energy resources, especially new oil and gas development 
from shale instead of being dependent on imports from the 
Middle East and other parts of the world that haven't always 
had our best interests at heart.
    This is a major change for American energy policy. Thirty-
six years ago the predecessor to this committee called the 
Interior an Insular Affairs Committee, and they held hearings 
on natural gas as the country faced a supply emergency that 
triggered shortages across the Northeastern United States. 
During that supply emergency hundreds of thousands of people 
were laid off as commerce and industry reduced hours or simply 
shut down altogether.
    We in the Northwest, particularly Senator Cantwell and I, 
note that the committee at that time was chaired by our 
legendary Senator, Henry ``Scoop'' Jackson, and the committee 
released a report prepared by the Department of Defense 
predicting that liquefied natural gas imports would account for 
10 percent of the country's gas supply.
    The view expressed in that 1997-1977 committee report has 
dominated American energy policy until just a few years ago. In 
2005, Congress, over the objection of some, swept aside the 
ability of States to even approve the siting of LNG import 
terminals. As recently as 2007, when the Congress last enacted 
major legislation the focus was still overwhelmingly on energy 
    Today, the outlook could not be more different. Instead of 
scarcity and shortages, the prediction is that domestic 
production will soon outstrip American demand.
    Given the dramatic change in the outlook for natural gas 
supply, it is clearly time for a fresh look at our current 
policies and to start thinking about how to update those 
policies to reflect a very new reality.
    As part of today's hearing, the committee is interested in 
hearing from the witnesses what they think is needed to 
safeguard the advantages of affordable, stable gas supplies for 
our country. Now some of our witnesses are going to say the 
best approach is that the market will take care of things. 
Others are going to say caution is in order. Just a few years 
ago investors were still betting on building new natural gas 
import terminals. They now face, in communities across the 
country, billions of dollars worth of stranded investment.
    It is hard to see the logic behind replacing that kind of 
speculation on gas imports with similar speculation on gas 
    My own view is we have to make sure we don't miss this 
opportunity for our Nation's economy and millions of unemployed 
workers who are now looking for good paying, family-wage jobs 
in the American manufacturing sector.
    As the CEO of Dow Chemical, Mr. Andrew Liveris will testify 
that if unfettered exports drive the price of gas back toward 
the $10 per thousand cubic feet (mcf) price America has seen in 
recent years, that would essentially eliminate any competitive 
advantage for American manufacturers and investment that could 
be made here at home, and it will essentially advantage 
overseas opportunities.
    Instead of a manufacturing renaissance, major gas consumers 
could find themselves hit hard with energy price hikes and 
forced to side line job-creating efforts.
    It's also important to keep in mind that the guidance the 
Energy Department now uses for evaluating gas export 
applications was originally created almost a quarter century 
ago for import policy.
    It seems to me that it's now time to have a serious 
discussion as to whether the guidelines that are now in place 
at the Energy Department for approving export applications are 
what they need to be. A recent study commissioned by the 
Department of Energy to examine the impact of natural gas 
exports, in my view, raised more questions than it answered.
    Now export policy is not the only issue on the table. It 
would also be a missed opportunity if the environmental 
benefits that natural gas can provide in terms of reduced 
CO2 emissions were lost, lost because of inadequate 
attention to issues such as fracking, methane emissions 
flaring, and underground aquifers.
    Communities across the country have already been in touch 
with the committee to share their thoughts and concerns about 
whether the hydraulic fracturing process that's used to produce 
shale gas near their communities could result in the 
contamination of their groundwater supplies. That type of 
situation would not only be tragic for the affected community, 
but also could lead to citizens? pressure to shut down not only 
unsafe production, but also operations that were safe.
    Colorado's Governor, who is here with us, the Honorable 
John Hickenlooper, who has been on the front lines in terms of 
grappling with these issues, is going to testify today on how 
he's worked to strike a balance between the economic and 
environmental interests in regulating natural gas production in 
his State. Governor, we are anxious to hear about how your 
approach could be a model for the country.
    Here's my bottom line. Let's see if there is an economic 
and environmental sweet spot where U.S. gas producers can make 
enough money to continue producing, and U.S. manufacturers have 
an affordable, stable supply of natural gas and where the 
environment is not only protected, but actually benefits from 
greater use of natural gas to lower CO2 emissions.
    Today's hearing gives us a chance to look at these and 
other issues. I look forward to hearing from our witnesses.
    Senator Murkowski and I have talked about these issues on a 
number of occasions, and I've worked very closely with her. 
Senator Murkowski, it's going to be a pleasure to serve with 
you during this session, and please go forward with any 
comments you'd like to make.
    [The prepared statement of Senator Landrieu follows:]
    Prepared Statement of Hon. Mary L. Landrieu, U.S. Senator From 
    First, let me thank you all for taking time to appear today before 
this committee to share your expertise on the issue of natural gas 
development. You are here today because it is vital that we treat our 
newfound wealth of natural gas in a fashion which protects the 
interests of states, like Colorado, represented here by Governor 
Hickenlooper, manufacturing, represented by Mr. Liveris of Dow and Mr. 
Eisenberg of the National Association of manufacturers, the 
environmental community, represented by Ms. Beinecke and finally our 
producers, represented by Mr. Gerard.
    This wealth of natural gas is extraordinary, with estimates 
indicating America currently has 317 trillion cubic feet of proven, 
accessible reserves, and a further 2,000 tcf in total resource base 
    This is enough to fulfill our current demand, a little over 24 bcf 
per day, for over 100 years.
    Louisiana ranks second in natural gas production, behind only 
Texas, with 29 tcf in 2011, representing 10% of total national 
    This increased production has a direct impact on our economy, 
supporting 2.8 million jobs nationally, along with tens of billions in 
new investment.
    In Louisiana, Methanex Corporation, which moved its last U.S. plant 
overseas in 1999, is now spending over $1 billion to move a methanol 
plant from Chile to Ascension parish, near Baton Rouge. This plant will 
produce the raw materials for everything from windshield washer fluid 
to paints and sealants, even wrinkle free shirts.
    Williams, a petrochemical company based in Tulsa, is planning a new 
$400 ethylene plant also in Ascension parish, where they will supply 
our plastics manufacturers.
    Finally, CF Industries, one of the world's largest producers of 
nitrogen fertilizer, is looking to spend $2.1 billion to build a new 
fertilizer plant in Ascension.
    That's over $3.5 billion being invested in one parish in Louisiana, 
all thanks to our new abundance of domestic natural gas.
    Statewide, this could add over 200,000 new jobs, in addition to the 
81,000 already supported by natural gas development.
    Of course, that isn't the whole story; nationwide, these same 
petrochemical, plastics, steel and fertilizer industries are planning 
to invest upwards of $80 billion in new plants and new capabilities.
    One of the most important topics in our conversation about how best 
to approach this new wealth of natural gas is the issue of exports, 
specifically liquefied natural gas, to nations around the world. There 
are strong arguments to be made on each side, for and against the 
expansion of these exports, and I am sensitive to both.
    I believe, however, that there is enough domestic production, and 
the capacity for enough production increase to support our vital 
manufacturing industry and allow for responsible levels of export.
    The recent NERA study, commissioned by DOE, supports this view, and 
indicates that it is possible for a level of export to exist that both 
incentivizes increased production while at the same time continuing to 
provide our domestic consumers with reliable, low-cost natural gas.
    I look forward to your testimonies, and to working with my 
colleagues to develop a commonsense approach to managing our natural 
gas supply.

                          FROM ALASKA

    Senator Murkowski. Thank you Mr. Chairman.
    I'm pleased that for the first hearing of the 113th 
Congress that we are focusing on natural gas, the opportunities 
that natural gas clearly presents within the energy discussion 
as we look at our energy mix, our energy portfolio.
    I think it is absolutely clear that much of the economic 
stimulus that we have seen--the jobs that have been created in 
recent years--is coming from our States that are providing 
opportunities within the natural gas sector.
    So, I'm pleased that that's our focus today.
    I welcome all of our witnesses.
    Without a doubt, the new technology that we are seeing has 
enabled a natural gas boom that has changed our energy 
landscape and the outlook for our economy.
    I have often said, this natural gas just didn't all of a 
sudden migrate to these areas. It's been there for a long time. 
But what has changed is our ability to access this resource 
using the new technology.
    Natural gas is now an abundant, affordable, clean source of 
energy, providing great opportunities for economic growth, and 
an energy security.
    Mr. Chairman, you mentioned, the position that we have 
moved to as a Nation, when we look at our energy sources just a 
few years ago, we were talking about the scarcity of our 
resources. We have now moved from a discussion about scarcity 
to one of abundance.
    This requires us to look critically and perhaps rethink 
some of the conversations that we have had about energy.
    Last week I introduced a proposal in a document about 115 
pages, Energy 20-20, that I hope will spur us to conversations 
about energy and how we should be looking differently at energy 
because of exactly this--this paradigm shift, going from one of 
scarcity to relative abundance. Our resource base estimates 
have increased 44 percent for natural gas in less than 5 years. 
That's pretty incredible.
    Production is up, prices are low.
    There's been a positive impact on our greenhouse gas 
    In addition, our allies overseas are now looking at the 
United States, they want our natural gas, and we've got enough 
resources to help make that happen.
    For these reasons though, we have to be thoughtful.
    I would certainly agree in how we proceed in dealing with 
the issues that impact natural gas.
    There are several pending reports and studies looking at 
hydraulic fracturing. We need to make sure that these efforts 
are reasonable, based on sound science and they don't result in 
unnecessary and overly burdensome regulatory requirements.
    I think we need to take a very close look, a critical look, 
at existing State regulations before we move to impose blanket 
Federal rules that perhaps might cause more problems than they 
    I've had an opportunity to be out in the Bakken Region.
    I've been out in the Marcellus with my colleague, Senator 
Manchin, talking with my friends down in Texas about the Eagle 
    The fact of the matter is we've got different geology all 
around the country.
    So when you're talking about a one-size-fits-all approach, 
maybe we need to look a little more critically at that.
    We also need to be careful about intervening in efforts to 
export our LNG. There's a long established regulatory process 
for natural gas exports through the Department of Energy and 
through the FERC. This includes environmental review under 
NEPA. So before we reinvent the wheel, I think we need to look 
at existing laws and regulations and determine if and where 
there are deficiencies.
    The debate on this issue has focused on the impacts to 
domestic natural gas prices and supply, but I think we also 
need to include within this discussion an understanding of the 
role that the market forces will play, not only on domestic 
prices, but the number of projects that may actually be built. 
These are mega projects that we are dealing with, in every 
sense of the word, ranging from $8 billion to $25 billion, 
depending on the amount of existing infrastructure.
    Up in Alaska, we're talking about a project of about $65 
    This is real money.
    Gas is a global commodity, and other countries, including 
Canada, are already moving forward.
    So I don't think that dragging our feet is an option here, 
if we want to export our LNG.
    We should also not forget the positive impacts that exports 
would have on our trade imbalance and the geopolitical benefits 
of exporting to our allies.
    There are also other issues to discuss related to the 
natural gas industry, but I'd certainly be remiss if I didn't 
bring up the dire need for new pipeline infrastructure to move 
our natural gas resources to domestic markets and consumers.
    We need to address the roadblocks that prevent many of 
these projects from moving forward.
    I do hope that this hearing is just the start of a very 
important discussion on these and many other issues impacting 
our natural gas industry.
    With that, I look forward to the comments from the 
witnesses that have gathered here this morning, and thank them 
for coming before the committee.
    The Chairman. Thank you for an excellent statement Senator 
    I think all of us would agree that in a big and diverse 
country people have different impressions of the energy 
    I know that I will never forget when I went to Alaska and 
you served me a graham cracker treated with LNG,
    Senator Murkowski. Dinner.
    The Chairman. and that, uh,
    Senator Murkowski. You're still alive to tell the story.
    The Chairman [continuing]. I lived to tell about it.
    So let's move now to our witnesses. Let me introduce them. 
The Honorable John Hickenlooper, Governor of Colorado; Mr. 
Andrew Liveris, Chairman and Chief Executive Officer of Dow 
Chemical; Mr. Ross Eisenberg, Vice President of the National 
Association of Manufacturers; Ms. Frances Beinecke of the 
Natural Resources Defense Council; Dr. Kenneth Medlock, a 
senior director for energy studies at the Baker Institute at 
Rice; and Mr. Jack Gerard, Ppresident of the American Petroleum 
    I would like to let a couple of our colleagues, Senator 
Udall and Senator Stabenow, introduce witnesses.
    Why don't we begin with you, Senator Udall, since Governor 
Hickenlooper will be first, and then we'll go to Senator 
    Senator Udall.
    Senator Udall. Thank you Senator Wyden, Senator Murkowski.
    It's great to start this new Congress off on this footing 
and with this important topic.
    It's a true pleasure and treat for me to introduce our 
Governor, John Hickenlooper.
    I know our other Senator, Michael Bennett, with whom I have 
a strong working relationship, shares the sentiments I'm going 
to share with the committee.
    The Governor brings a great deal of policy expertise to 
natural gas legislation and the issues that we're discussing 
here today. John, I would tell you in part you're among 
    There are 4 former Governors on the energy committee: 
Senator Alexander, Senator Hoeven, Senator Risch and Senator 
Manchin, and I know they share the experiences you've had 
leading an important State.
    The Governor is a geologist.
    He worked in the energy industry long before he became 
Denver's mayor and Colorado's Governor. By the way, I should 
mention, Mr. Chairman, that the Governor was in another energy 
industry between his days as a geologist and a public servant.
    He started what's now recognized known as the No. 1 Craft 
Brewing industry in the country.
    Colorado ranks No. 1 for beer production.
    We also have a very robust Craft Brewing sector, if you 
will, and the Governor became a very successful businessman and 
    We are an all-of-the-above energy State.
    The Governor's work is keeping us on the forefront of 
energy innovation and a creator of jobs in the energy industry.
    I'm really pleased he's here, as he can talk directly and 
firsthand about the opportunities that we face, but also the 
lessons from the challenges that are in front of Colorado 
    So, again Governor, it's good to have you here. Thank you 
for taking time from a very busy schedule that you have.
    I know our legislature is in session. It has 120 days to 
get up to mischief, as we sometimes do here in the Congress.
    So I really appreciate you taking the time to join us here 
in Washington, DC. So welcome. It's great to see you here.
    The Chairman. Senator Udall, thank you. We will not compare 
Oregon and Colorado now on the brew pub issue. That will be 
    Senator Stabenow.
    Senator Stabenow. Good morning.
    First Mr. Chairman, you look great sitting there, and 
welcome to the committee as our chairman. I know you and our 
ranking member are going to do great work leading us.
    It's my great pleasure to introduce Andrew Liveris. I said 
before I corrected it, Ron is--Andrew Liveris, who is the CEO 
of Dow Chemical Company.
    I think that doesn't really describe what Dow's about, 
though, because under Mr. Liveris' leadership, Dow has really 
become an energy and advanced manufacturing leader in the 
    So I'm very pleased that you're here in this very important 
    Mr. Liveris came to Dow in Australia in 1976 and moved up 
as president of Asia and Pacific operations to be chairman in 
2006 and has a very deep knowledge of the importance of natural 
gas as a source of energy in manufacturing, as well as chemical 
feedstock to make so many of the products that we use every 
    He also serves on the President's Export Council and a 
number of other positions.
    So welcome. It's wonderful to have you with us.
    We are very proud to have you located in Michigan and 
touching so many important areas of innovation for the future.
    The Chairman. Thank you Senator Stabenow.
    We welcome all our witnesses.
    We'd like you to try to see if you could stay in the 
vicinity of 6 minutes for your remarks. I know that there's 
always a compulsion to, you know, read everything. If you'd 
like to just summarize your views, that'll be accepted, and 
we'll make your prepared statement a part of the record in its 
    Governor, welcome.

                           DENVER, CO

    Governor Hickenlooper. Thank you Chairman Wyden. Senator 
Udall, thank you for your kind introduction.
    The truth is I'm--I refer to myself as a recovering 
geologist these days.
    It is true I went from one fluid to another in my business 
    Ranking Member Murkowski, thank you again for your efforts 
on behalf of energy and this country and to the rest of the 
Senate Energy and Natural Resources Committee.
    Thank you for allowing us this opportunity.
    The 3 interconnected issues right now facing our country--
obviously the economy is undergoing a steady recovery, but we 
still have high unemployment, a deficit makes investment 
difficult, we're vulnerable to shocks from overseas and our 
productivity increases continue to demonstrate there are a lot 
of people out of work.
    At the same time the Persian Gulf is more volatile than 
ever, and we see our national security--40 years after our 
first energy crisis, the oil is controlled by unfriendly 
regimes in many cases. A national security issue that remains.
    Last, climate change. We've seen some serious drought and 
wildfires that remind us in Colorado of what the potential 
threat is from climate change.
    I'm not about to get into a discussion of how fast the 
climate is changing or what the causes are, but I think these 3 
issues: the economic recovery, the national security, and 
climate are tough challenges, but the crux of each of them is 
    We recognize that domestic energy creates jobs, that less 
foreign imported oil enhances our national security and that we 
have a much cleaner energy that will lead to ability to protect 
our environment.
    The key, of course, is to thread each of these needles.
    Energy independence used to be a catch phrase, right, that 
people would throw around, but I think we are legitimately on 
the threshold of achieving it for the first time in my 
    You know I studied geology back in the--I'm not trying to 
date myself--back in the 1970s when plate tectonics were just 
being begun to be believed and yet what we've seen in the last 
decade is truly transformational.
    In 2005, 60 percent of our oil was imported. Last year, 41 
percent was imported. That trend is going to go further.
    Wind and solar, some of the alternative energies, have 
added diversity to our energy portfolio. Twenty years ago that 
was ridiculed, and now we see it very--in a very real sense.
    I think our future is more secure with energy that's 
renewable, that's sustainable.
    One way that that happens is by integrating, as Senator 
Udall mentioned, a kind of all-of-the-above policy.
    We see that having cheaper natural gas means that we're 
more competitive as a country. My friend, Mr. Liveris, Liveris, 
we all have that challenge. Try having a name like 
Hickenlooper, Andrew, and you'll see.
    But we see that chemical industries, the American 
fertilizer industries, a lot of these associated industries 
beginning to really take off.
    Foreign investment in electricity-intensive industries also 
is coming home for the first time in decades largely because of 
inexpensive natural gas.
    It's also worth pointing out that carbon emissions, because 
of inexpensive natural gas and the conversion of older, 
inefficient electrical generation plants fueled by coal, are 
per capita--CO2 emissions are the lowest since 
Eisenhower turned over the White House to John Kennedy.
    We are, as a country,--even though we didn't ratify the 
Kyoto Protocols--we are half way toward compliance, and we have 
reduced our carbon emissions in the United States more than all 
that other signatories to the Kyoto Protocols.
    This really is game-changing.
    When I was a geologist this was unheard of. We'd find a big 
field, and we'd think, well, we're going to adjust how the 
value of coal--the value of oil, or the value of gas was going 
to be projected.
    This has been a technological revolution.
    We did fracking when I was a geologist. I--The first well I 
sat back in 1981 was a--we did a hydraulic fracking enterprise 
on that.
    What's happened is we've had better technology, the 
discovery of massive--these tight shale and shale oil deposits.
    The real transformation here is that we could see a natural 
gas supply that is legitimately a hundred years long, and we 
continue as the technology continues to improve, we find more 
gas at lower cost.
    At the same time, this has brought exploration to the 
doorstep of communities that didn't have to deal with it 
before, and I think the issues around health and safety, of 
increased drilling, I mean these are industrial processes as 
they come close to our--closer to our schools, our homes and 
neighborhoods, we really have to take full advantage of the 
technology by insuring that we have the absolute strongest 
safeguards that you could possibly have and that includes 
regulations that capture methane emissions, that we reduce 
flaring of these emissions, make sure that we don't have any, I 
mean zero, fugitive methane, and that we protect our precious 
    We passed years ago, or a year ago, regulations that 
required disclosure of the composition of fracking fluids so 
that we could protect intellectual property but at the same 
time reassure the public.
    We worked with the NRDC, the Environmental Defense Fund, 
Halliburton and several large service companies.
    At one point in my office, I'm not sure how this happened, 
but the new frack fluid is made with food additives, and 
somehow we all took a swig of frack fluid-the new frack fluid, 
and it was not terribly tasty, but again, I'm still alive to--
like Senator Wyden coming back from Alaska is still alive to 
tell the story.
    What we're trying to do is create a national model for how 
do we regulate gas extraction. We want to make sure we have, 
anytime we're remotely near neighborhoods, that we have green 
completions of drilling sites, robust groundwater manage--
monitoring. We're going--making it mandatory for testing both 
before and after wells are drilled, that we have appropriate 
setbacks and that we focus on well bore integrity, make sure 
that we don't have communication around that well. We're 
pursuing each of these in Colorado and try to move aggressively 
to implement the EPA's greenhouse emissions regulations.
    Simultaneously we're engaging on the universities and doing 
the most comprehensive study of air quality around some of 
these large fields to really be able to give facts instead of 
estimates around a lot of these issues.
    But recognizing that we are creating thousands of jobs by 
having these--this energy created and extracted at home, we are 
increasing our national security, and we are dramatically 
reducing ground--greenhouse gas emissions.
    I think our focus is to make sure that we continue this 
momentum that we seize upon this opportunity in such a way that 
we can have a regulatory environment that is comprehensive and 
rigorous, but at the same time allows us to continue these 
    One primary goal throughout this is to make sure that we 
have sufficient public involvement in the creation of these 
rules and having industry have a voice, as well, so that we are 
in all ways balanced and that we can be transparent to the 
level that the public can feel that they are not working that 
they are not working against an unseen villain.
    [The prepared statement of Governor Hickenlooper follows:]

  Prepared Statement of John W. Hickenlooper, Governor, of Colorado, 
                               Denver, CO
    Mr. Chairman and members of the committee, thank you for this 
opportunity to offer Colorado's perspective on energy policy, as it 
relates to natural gas, the focus of this hearing.
    Our economy is making a steady recovery, but we are still fragile. 
Too many Americans are out of work and the worldwide competition for 
jobs is a great challenge. The international situation is still 
volatile, particularly in the Persian Gulf. And record-setting high 
temperatures over the last decade remind us that climate change could 
have profoundly negative impacts on our planet.
    Economic prosperity, national security and climate: Three 
generational challenges of tremendous importance.
    Energy is at the crux of all these challenges.
    If we get energy policy right, we'll make progress on all three.
    Responsible development of natural gas--the subject of this 
hearing--is fundamental to a successful energy strategy.
    Natural gas has made American industry more competitive. We have 
seen new investment in energy-intensive companies. American chemical 
and fertilizer industries are growing because of inexpensive natural 
gas. Foreign investment in electricity-intensive industries has also 
been flowing into the country, as natural gas helps keep utility rates 
low, even as domestic coal remains cheaper.
    We are on target to be a net exporter of natural gas by 2020.
    Domestic development of shale gas and oil, homegrown renewable 
energy and efficiency strategies are leading us toward energy 
independence. With less reliance on foreign sources, our exposure to 
the impacts of global events is reduced. Our oil imports are falling--
to approximately 40 percent of our consumption, down from 60 percent as 
recently as 2006. By next year, imported oil is projected to make up 
just 32 percent of demand. More energy dollars will stay home, our 
dependence on foreign supplies will decrease.
    A revolution in shale gas has brought welcome news. Inexpensive gas 
is driving down carbon emissions in the United States. Last year, the 
U.S. Energy Information Agency found CO2 emissions in the first four 
months of 2012 had fallen to 1992 levels. When you consider that our 
population has grown by 57 million since then, it translates to per 
capita carbon emissions at the lowest level since President Eisenhower 
left office in 1961.
    Inexpensive natural gas, its associated efficiencies, and its 
limited environmental impact are leading utilities to switch from coal 
to gas. David Victor, Vice-Chairman on the World Economic Forum's 
Global Agenda Council on Energy Security, has written that this shift 
means U.S. emissions in 2012 are projected to be approximately 450 
million tons lower than otherwise. That number is double the global 
impact of all the Kyoto treaty's signatories combined, including the 
European Union. This month, the Environmental Protection Agency 
reported that U.S. power plants in 2011 produced 4.5 percent less 
CO2 than in 2010, a drop the agency attributed to the 
benefits in switching from coal to gas, as well as increasing use of 
renewable energy.
    This emerging data is nothing short of transformative. By improving 
extraction technologies and extending natural gas to new markets and 
new applications--including transportation--we can not only make the 
U.S. economy stronger and enhance our security and independence, but we 
can take significant steps toward reducing climate-warming emissions.
    This doesn't mean abandoning a strategy focused on renewable 
energy; quite the opposite.
    We must chart a parallel path, continuing investments in wind, 
solar and other renewable sources of energy, including conservation and 
efficiency. A coherent strategy for the future cannot be dependent on 
one fuel source. We need a diverse energy portfolio that drives the 
economy, and at the same time prepares for future contingencies.
    This is the approach that President Obama has rightly championed--
an ``all-of-the-above'' strategy--one that encourages domestic oil and 
gas production, continues investment in clean energy research and 
technologies, and partners with industry for dramatically more 
efficient automobiles. It is a forward-looking strategy that combines 
American ingenuity with a commitment to sustainability.
    Colorado is moving forward with our own version of an ``all-of-the-
above'' strategy, and natural gas is a significant part of our energy 
mix. We are also more broadly utilizing our abundant renewable sources, 
as well as working on legislation and other initiatives to mine 
efficiency and conservation for all they are worth.
    We believe Colorado presents a model for the nation. Our approach 
is balanced. We are reaping the benefits of advanced technologies, not 
just in shale gas but also in renewable energy. We are encouraging 
efforts to make coal a cleaner source of energy, but while that 
research continues, we will work with the resources at hand.
    Colorado has a long and proud history of oil and gas development. 
Our first oil well dates back to when Abraham Lincoln was president.
    We rank fifth in natural gas production and tenth in oil 
production. Our diverse hydrocarbon resources encompass a variety of 
shale, tight sand, coal bed methane, and other formations that span the 
state. This landscape has changed over the years, and has taken a 
significant turn as operators combine improvements in hydraulic 
fracturing and horizontal drilling to unlock reserves of oil and gas in 
formations, such as the Niobrara in Colorado, historically considered 
impractical for extraction.
    As a former geologist, I have some experience with this technology. 
We worked on so-called ``frack jobs'' when I was in the industry in the 
1980s. The industry, incidentally funded by billions of federal 
research dollars in the 1990's, has made great advances since that 
    Colorado also has a history of creativity in its approach to 
energy. In 2004, we became the first state in the country to launch a 
renewable energy standard through a statewide voter initiative, one our 
legislature has strengthened in years since to become--at 30 percent--
the second highest in the country. In 2010, we passed the landmark 
Clean Air Clean Jobs Act which switches much of our electrical 
generation from coal power plants to natural gas, thereby addressing 
both climate and air quality, and reducing water consumption.
    Natural gas and renewable sources are proving to be ideal partners, 
since gas efficiently cycles on and off to pair with intermittent 
resources such as wind and solar power.
    We are achieving these energy goals across party lines. Gov. Mary 
Fallin of Oklahoma and I are leading a bipartisan effort to promote the 
use of natural gas as a transportation fuel for state vehicles. What 
started with Oklahoma and Colorado a little over a year ago has now 
expanded to 22 states representing every region of the country.
    With a little effort we see the potential for including the federal 
government and perhaps Canadian provinces and other partners to build a 
market for large vehicle fleets using natural gas.
    These initiatives target larger and heavy duty vehicles. Converting 
from diesel power to compressed natural gas reaps the biggest benefit 
in reductions of carbon, particulates and other pollutants. We are also 
finding ways to expand the fueling infrastructure, so trash haulers, 
delivery vehicles, buses, and trucks have more options for refueling.
    Electric vehicles also hold tremendous promise, particularly for 
automobile consumers in the future, and we should pursue their 
development. But we do not need to pick winners and losers at the start 
of the game. Let's continue to pursue a comprehensive approach and let 
the market work.
    The expansion of natural gas certainly brings regulatory 
challenges. As development moves into more urbanized areas we must be 
responsive to public concerns about the health and safety of industrial 
processes near homes and schools. Working together state and local 
governments can minimize hazards through effective oversight and 
    As patterns and the extent of oil and gas activities change due to 
constantly evolving technologies and economic demands, our regulatory 
approach has to adapt.
    Mr. Chairman, to put it bluntly, natural gas has a place in making 
us more secure and is addressing climate change, but we'll need to make 
sure that the production side is as protective of our environment and 
human health as possible.
    Our goal in Colorado is to be accountable for the highest ethical 
and environmental standards with a regulatory structure based on three 
principals--namely, that our regulations are reasonable, 
scientifically-based, and protective of health and safety.
    Our aim is to reduce emissions including the capture of methane, 
and with, by necessity, the strictest rules in the country to protect 
air and water.
    In 2008, Governor Bill Ritter secured legislative support for 
restructuring the composition of Colorado's Oil and Gas Conservation 
Commission, reducing industry representation and diversifying 
membership. This revamped commission embarked on a sweeping 18-month 
overhaul of regulations that produced new protections for the 
environment. These rules have become the basis for regulatory 
initiatives in other states and even other countries, the latest being 
    A year ago, working with such diverse partners as the Environmental 
Defense Fund and Halliburton, we passed regulations requiring 
disclosure of chemicals in hydraulic fracturing fluid. As described in 
a recent edition of The Economist these rules suggest an international 
model for disclosure, protecting trade secrets and intellectual 
property, while providing a basis for public accountability.
    Colorado now requires mandatory water testing near drilling and 
completion sites both before and after operators conduct their 
activities. We are one of just three states in the country that has 
rules for mandatory groundwater sampling and the only state that 
requires post-drilling sampling.
    This month we are also finalizing rules to reduce the impacts of 
drilling near communities. These rules increase the minimum distances 
between drilling sites and occupied buildings and require the most 
stringent mitigation requirements in the country to ensure work occurs 
with the least disturbance to nearby residents, with ``green 
completions'' required within 1,000 ft. of hospitals or schools.
    In partnership with our universities, we are launching a 
comprehensive study of the impacts of natural gas drilling on air 
quality and public health. This comes after several steps in recent 
years to reduce the pollutants that originate at oil and gas 
facilities, including requirements for emission-control devices to 
capture the emissions that can otherwise escape prior to a pipeline 
    Increased communication is central to our regulatory reform. Our 
Commission has two staff members dedicated exclusively to local 
government outreach and other staff members have devoted significant 
time working with government officials. We formed a task force to 
develop protocols for local government engagement that will further 
address the impacts of development.
    Our new rules also include extensive notice and outreach 
requirements on the part of operators, both to local government 
representatives and citizens. All this has resulted in greater 
collaboration between our state regulators and officials at the local 
level, reinforcing what we know to be true about most difficult 
problems, namely, that conversation at the front-end reduces problems 
at the back-end.
    In short, the natural gas revolution and growth of renewable energy 
technologies, present Colorado and the country with an extraordinary 
opportunity: to create jobs, to make us more secure, more energy-
independent, and to do a better job of protecting the environment by 
reducing greenhouse gas emissions.
    These are mission critical goals for our country.
    Mr. Chairman, the history of Colorado is largely a story about 
American energy. From mining to oil exploration in the last century, 
and, in this century, leading a green energy revolution, Colorado has 
lessons to offer the country.
    Our first oil well dates back to when Abraham Lincoln was 
    Of course, with the country torn apart by war, Mr. Lincoln faced 
deeper challenges than crafting bipartisan energy policy, but his 
second address to Congress has wisdom we can still draw from. He said, 
``We can succeed only by concert. It is not `can any of us imagine 
better?' but `can we all do better?' The dogmas of the quiet past are 
inadequate to the stormy present. The occasion is piled high with 
difficulty, and we must rise with the occasion. As our case is new, so 
we must think anew, and act anew. We must disenthrall ourselves, and 
then we shall save our country.''
    We should--all of us--no matter our perspective or experience--
disenthrall ourselves from bias and ideology to find a new path 
    Our future depends on how well we find this path together.
    We know you share this view and look forward to this morning's 

    The Chairman. Governor, we are at 7 minutes, and I know the 
Senators want to ask you questions.
    Governor Hickenlooper. Sure.
    The Chairman. Would you like to wrap up?
    Governor Hickenlooper. Yes. I was at that point right there 
just saying that as long as we can maintain a focus on science-
based applications and make sure we have the competing interest 
at the table, I think that we'll be able to continue the 
pursuit of these innovations.
    The Chairman. Well said.
    Mr. Liveris.


    Mr. Liveris. Thank you Mr. Chairman, Senator Murkowski, 
distinguished members of the committee.
    Senator Stabenow, thank you for that great introduction.
    I'm Andrew Liveris now and that can go on the public 
record. Thank you here for inviting me here to celebrate our 
democracy in the intersection of government, business, and 
civil society practiced in this chamber under your leadership.
    Your collective leadership is something an individual like 
me, as a foreigner living in this great country, does not take 
    Thank you very much for inviting us to talk about this 
important conversation.
    As already stated, it has the promise of tapping this vast 
new natural gas resource and coming up with a better answer.
    This is being called the Shale Gale.
    It's afforded America a new competitive advantage, 
advantages which we now are becoming quite familiar with.
    But it does pose us with these challenges, and I believe 
that our democracy can rise to the better answer by having 
these conversations.
    How much of this natural bounty should we export?
    I'm here because the answer is neither simple nor just 
obvious. It actually isn't either binary. It's not binary to 
talk about a neither-nor proposition here. It's not binary to 
talk about for or against free trade.
    As you know, the Shale Gale has only fueled the increases 
in natural gas production--not only done that, but it's 
provided this manufacturing renaissance.
    For companies like Dow, the compounds that make up natural 
gas, as already stated by Senator Stabenow, are the feedstocks 
for vital manufacturing processes that create value across the 
entire economy.
    We use them as the first indispensable ingredient for 
everything that is made and consumed in this country.
    So when natural gas is not sold just as an export, when 
it's used instead as a building block for these manufactured 
goods, it creates 8 times more value across our entire 
economy--8 times.
    In this way, America's natural gas bounty is more than a 
simple commodity. It's a once in a generation opportunity for 
America to export advanced products, not just be to use.
    It's a unique opportunity to make America's economy 
stronger, more balanced, more sustainable.
    This is not to say that America ought to keep all of this 
gas onshore'not at all.
    Exports are part of America's economy. It's one of the life 
bloods of America's economy and the world's economy.
    The U.S. should lead in both the sale and shipment of the 
raw material and the finished goods.
    But the fact is if we shipped half or more of this bounty 
overseas today, as some propose, it'll have severe, unintended 
consequences on the manufacturing and the sector inside the 
United States on prices.
    Not just domestic companies, because we're going to have to 
compete with whatever's left over. Not just the effect on us.
    It would actually mean higher gas and electricity prices.
    It'll mean actually higher transportation and utility costs 
for consumers, as well as industry.
    These higher and more volatile energy prices would also 
cause domestic energy producers to once again to ship 
operations and to ship jobs overseas to ship factories overseas 
to countries where natural gas is cheaper.
    There are countries where natural gas is cheaper.
    America would sacrifice this once in a generation 
competitive advantage because gas is not an openly traded 
    It is not and therefore does not have a world price.
    European and Asian natural gas prices are actually indexed 
directly to oil price, which makes them up to 5 times more 
expensive than in the United States.
    So it's very easy to see why other Nations want our gas. 
They want to lower their prices.
    What's harder to see is why would we be willing to do that 
at such a potentially severe cost to the American consumer and 
the American industry.
    Globally, we need to continue our progression to rules-
based free trade, especially for gas.
    Domestically, we need to choose a more prudent, 
responsible, balanced approach, an all-of-the-above approach.
    This is now, in our view, a pressing issue.
    As you're aware, the Natural Gas Act requires the 
Department of Energy to weigh the public interest in evaluating 
applications to export liquefied natural gas.
    Today, they are considering 12 such applications that taken 
together would permit exports equal to half of today's U.S. 
production, in effect exporting our competitive advantage away 
and importing the world oil price for our domestic sector.
    Our view is that DOE should thoroughly examine each and 
every one of these applications to see what it is on its 
    Regulators should consider a full array of criteria, should 
weigh the impact on everything from food prices to home heating 
bills to jobs and job creation.
    Let me be particularly clear. We're not asking lawmakers to 
ignore the interests of any stakeholder to the contrary.
    We believe that everyone affected by DOE's decisions should 
be part and have a voice in informing these choices.
    If we make these decisions cautiously and incrementally, if 
we measure the effects of our decisions and adjust our actions 
accordingly, then we can achieve not just a win-win, but a 
quadruple win, and believe you me, I really see a quadruple 
win--really in the world of business.
    Firstly, energy producers can win. Energy producers can win 
like those in Alaska because they explore and export more.
    Second, manufacturers win because they, in fact, access 
these fuel and feedstocks at stable, not volatile prices set by 
some world oil cartel.
    Third, the American people win. They win because they will 
see, not just see the huge spikes in utility bills and home 
heating bills like we did a decade ago, but actually will see 
lower costs and create more jobs for the American consumer.
    Last the U.S. economy wins. The U.S. economy wins because 
it'll become advantaged and competitive, better balanced, 
better insulated from price shocks and volatility, more 
resilient and more robust.
    So the question in front of us, can we do all of this and 
act in the public interest?
    This year is only the 4th or 5th year of a 100-year 
advantage. We have the time.
    Let's take the time.
    Let's get this intersection right.
    Let's manage this with prudence and caution in the public 
    Let's do it in the interest of American workers, American 
consumers, American industry, American producers.
    Let's put America first. We should all share that goal.
    I thank you for the opportunity to discuss it.
    [The prepared statement of Mr. Liveris follows:]

 Prepared Statement of Andrew N. Liveris, Chairman and Chief Executive 
             Officer, The Dow Chemical Company, Midland, MI
    The Dow Chemical Company appreciates the opportunity to submit 
these written comments to the Committee on Energy and Natural 
Resources. Dow is committed to sustainable market-based approaches that 
further the national interest and competitiveness of the United States.
    We applaud the Committee for holding a hearing on opportunities and 
challenges for natural gas. With forward-looking government policy, the 
shale gas revolution presents a once-in-a-lifetime opportunity for the 
country to further critical national goals like economic growth, job 
creation and investment, energy security and independence.
About Dow
    Dow was founded in Michigan in 1897 and is one of the world's 
leading manufacturers of chemicals, plastics and advanced materials. 
Dow combines the power of science and technology to passionately 
innovate what is essential to human progress. Dow connects chemistry 
and innovation with the principles of sustainability to help address 
many of the world's most challenging problems such as the need for 
clean water, renewable energy generation and conservation, and 
increasing agricultural productivity. Dow's diversified industry-
leading portfolio of specialty chemical, advanced materials, 
agrosciences and plastics businesses delivers a broad range of 
technology-based products and solutions to customers in approximately 
160 countries and in high growth sectors such as electronics, water, 
energy, coatings and agriculture. More information about Dow can be 
found at www.dow.com.
    Dow is a major user of natural gas and natural gas liquids (NGL), 
both as an energy source and as feedstock for production of our 
products. Consequently, we have vast experience that can help inform 
development of thoughtful, constructive policies on the availability 
and consumption of natural gas. Natural gas plays a critical role in 
the U.S. economy, energy policy and the global competitiveness of the 
United States. In this submission, we will discuss our views on 
government policies that impact natural gas and the effect of those 
policies on U.S. competitiveness.
    Dow uses natural gas to drive the chemical reactions necessary to 
turn our feedstocks into useful products, many of which lead to net 
energy savings. Dow's global hydrocarbon and energy use amounts to the 
oil equivalent of 850,000 barrels per day, approximately the daily 
energy use of Australia.
    Notwithstanding the challenges of being an energy-intensive 
manufacturing company, Dow has continually improved its energy and 
environmental performance, including limiting greenhouse gas emissions, 
and we are committed to continuous improvement moving forward. Our 
manufacturing energy intensity, measured in British thermal units 
(BTUs) per pound of product, has improved more than 40% since 1990, 
saving the company more than $24 billion and 5,200 trillion BTUs. Our 
2015 sustainability goals, available at www.dow.com/sustainability/, 
underscore our energy, climate and other commitments.
    As both a consumer and an innovator in energy efficiency and 
renewable energy technologies, Dow represents a company that believes 
in an ``all of the above'' energy policy. As important as the promise 
of natural gas is, we cannot call upon a single fuel source to do 
everything we are asking of it.
Manufacturing renaissance
    Natural gas is essential for American industry, and growth in shale 
gas production has been a bright spot for the U.S. economy. Natural gas 
is an essential component in thousands of everyday consumer products 
such as cars, appliances, paper, steel, plastic products, 
pharmaceuticals, and in fertilizer for our farms, in addition to 
providing heat, hot water, cooking and electric power to tens of 
millions of residential consumers.
    Manufacturing in the United States is undergoing a renaissance, 
facilitated in substantial part by reasonable and stable natural gas 
prices. For the first time in over a decade, domestic manufacturers in 
multiple industries, including petrochemicals, fertilizers, glass, 
aluminum and steel, are planning to invest in production facilities in 
the United States. Over 100 new projects have been announced so far, 
representing approximately $95 billion in new investments. According to 
Boston Consulting Group, natural gas price reductions could lead to the 
addition of approximately 5 million manufacturing jobs. This 
manufacturing renaissance was unimaginable but a few short years ago.
    Dow alone is investing about $4 billion in new U.S. facilities that 
will create thousands of new American manufacturing jobs. The outlook 
for affordable U.S. natural gas was a significant factor behind our 
decision to invest on this scale in facilities on the U.S. Gulf Coast. 
To a great extent, continuing optimism for U.S. manufacturing is 
founded on the prospect of an adequate, reliable and reasonably priced 
supply of natural gas.
    In and of itself, manufacturing is a critical part of a growing, 
diversified economy and a major job creator. Beyond that, however, 
benefits from a strong manufacturing sector ripple throughout the 
American economy by creating jobs and increasing investments and 
spending on research and development. For example:

   Each job created in the manufacturing sector leads to at 
        least five more jobs in the larger economy.
   Each job in petrochemical manufacturing creates at least 
        eight more jobs in the larger economy.
   Industrial manufacturing creates $8 of value in the larger 
        economy for every $1 of natural gas consumed. The manufacturing 
        sector contributes a higher value added multiplier to the 
        economy than any other sector or any other use of natural gas.
   Manufacturing firms drive innovation by conducting two-
        thirds of U.S. research and development.

    For these reasons, plentiful and affordable natural gas represents 
a tremendous competitive advantage for American industry. It would be 
misguided to take actions that threaten this advantage.
Natural gas supply and demand in context
    As with any other commodity, the supply of and demand for natural 
gas determine its price, and the balance between the two is affected by 
governmental policies. At the same time, U.S. manufacturers are 
particularly sensitive to natural gas price fluctuations. As natural 
gas prices rise, manufacturers are more likely than other sectors of 
the economy to reduce their consumption.
    Because of this relatively high demand elasticity, manufacturers 
tend to serve as ``shock absorbers'' for the economy when natural gas 
prices rise. They cut consumption of natural gas, which reduces demand 
and mutes price volatility for others.
    Gas price increases undermine manufacturing jobs. The United States 
enjoyed relatively stable natural gas prices from the 1970s to around 
2000. Between 2000 and 2009, however, U.S. industrial gas demand fell 
24% as prices rose to highs of almost $14.50/MMBtu from a base of 
roughly $3.50/MMBtu. Job losses in the manufacturing sector totaled 
approximately 5.4 million between 2000 and 2009, and volatile natural 
gas prices were a significant factor. Manufacturing's high demand 
elasticity also means that governmental policies that tend to encourage 
upward pressure on natural gas prices affect manufacturers more than 
other sectors.
    Utilizing natural gas domestically would enhance employment and 
value added throughout the economy. As demonstrated in the chart 
below*, the effect of deploying 5bcf/day of natural gas in the domestic 
manufacturing sector would be an increase of $4.9 billion in the 
national value added (GDP) and a manufacturing employment increase of 
180,000 jobs, both directly and through the supply chain.
    * All charts have been retained in committee files.
    In stark contrast, exporting that same 5bcf/day of natural gas 
overseas as liquefied natural gas (LNG) would lead to a GDP increase of 
only $2.3 billion and an employment increase of only 22,000 jobs. 
Moreover, even within the construction sector the payoff from using 
natural gas domestically far exceeds the benefits of exporting LNG, as 
the plant-building construction activity associated with increasing the 
supply of natural gas to energy intensive, trade exposed industries is 
more than four and one-half times greater than the construction 
activity associated with LNG exports.
    Shale gas production has created a short-term focus on expanded 
supply and the effect of that supply on market clearing prices. We 
believe that focus is misplaced because very few policy-making and 
investment decisions have an impact over such a short time horizon. 
Instead, investment and policy-making should be focused on both the 
medium-and long-term outlook for natural gas.
    In the medium-and long-term, domestic natural gas demand growth is 
expected to be driven by several factors, including:

   The policy-driven shift in electricity production from coal 
        to natural gas,
   Increased investments by industry, which uses forty percent 
        of the nation's natural gas and gas-produced electricity, and
   Increasing numbers of truck and fleet vehicles that use 
        natural gas in lieu of conventional motor fuels.

    Companies in the manufacturing, transportation and utility sectors 
are already making investment decisions based on today's competitive 
prices and the outlook for affordable and stable natural gas into the 
future. These decisions will play out over the next ten to twenty 
years. Our assessments indicate that demand for U.S. natural gas may 
increase by approximately 60 percent above current levels by 2035. An 
important corollary question is whether supply can possibly keep up 
with this new demand.
Sound policy attracts investments and creates jobs
    Federal policies on environmental regulation, transportation, 
electric generation, exports and taxes will have a major impact on 
natural gas supply and demand, which in turn will have a decisive 
effect on business investment and job creation for manufacturers. Dow 
supports policies that stimulate economic growth by facilitating 
adequate and reliable natural gas supplies at reasonable prices. 
Congress should be circumspect about policies that could disrupt 
natural gas supply and pricing, such as:

   Policies that focus consumption on one fuel source or that 
        artificially accelerate demand ahead of supply, such as 
        regulations that encourage rapid replacement of coal fired 
        power plants with natural gas power plants.
   Bans or unreasonable limitations on recovering natural gas 
        and oil through hydraulic fracturing.
   Exporting LNG without a thorough and inclusive process for 
        evaluating the implications for domestic supply and demand, 
        costs to consumers and manufacturers, jobs and economic growth.

    Advances in hydraulic fracturing have spurred shale gas supply 
abundance. Hydraulic fracturing technologies have existed for decades, 
but recent innovation has made it possible to more economically recover 
natural gas from shale deposits. While these advances have expanded the 
supply of natural gas, regulatory authorities at the federal and state 
levels are scrutinizing the environment effects of this production 
technology. Dow believes that hydraulic fracturing can be done in a 
safe and environmentally responsible way. But overly restrictive 
environmental regulations or moratoria on hydraulic fracturing could 
greatly reduce future supplies of natural gas, which would have a 
dramatic impact on the manufacturing sector. A governmental policy that 
incentivizes use and discourages production is a recipe for higher 
    Likewise, federal and state regulation of electricity generation 
could affect demand for natural gas. In the power generation sector, a 
transformation is underway as utilities and merchant generators switch 
from predominantly older coal-fired power plants to newer, more 
efficient natural gas-fired generation. The low price of natural gas is 
driving some of these changes. Because natural gas power plants emit 
fewer greenhouse gases than do coal plants, however, several 
environmental policies, both enacted and proposed, would also encourage 
fuel switching.
    Over the last few years, Congress has considered legislation that 
would establish a clean energy standard for domestic power generation 
or that would tax carbon emissions. Such a standard would affect 
resource allocations and would credit sources of generation that are 
cleaner than coal. Under some policies, natural gas-fired generation 
would qualify for this treatment. We urge caution in considering 
policies that encourage fuel switching between natural gas and coal: 
electricity producers are already choosing to add gas-fired generation 
without these additional regulations. Unlike power generation, which 
can rely on other sources such as nuclear, hydro, wind, solar, biomass, 
demand response or efficiency measures to meet capacity requirements, 
homeowners, farmers and the industrial sector do not always have 
economic alternatives to natural gas.
    EPA rulemakings have increased the cost of owning and operating 
coal-fired power plants. Each of these policies will have the effect of 
increasing demand for electric generation from natural gas-fired power 
plants, which will put upward pressure on natural gas prices. Such 
policies should be designed to avoid precipitously tipping the supply/
demand balance in a way that causes volatility in natural gas prices.
    Tax policy also affects supply of and demand for natural gas. For 
example, as part of recent negotiations, some lawmakers have also 
proposed limits on certain tax incentives that encourage oil and gas 
exploration and production. Tax policymaking should account for the 
potential impact of policies on the availability and affordability of 
natural gas.
    As these examples show, government policies may profoundly impact 
natural gas supply and demand, and thus, the manufacturing sector. At 
Dow, we understand that forward-looking, thoughtful public policy is a 
necessary part of addressing the challenges that confront the United 
States today. At the same time, these policies should also focus on 
renewing and sustaining our newfound American manufacturing advantage, 
which we believe is critical to ensuring continued economic and job 
growth in the United States and overall U.S. competitiveness.
Export licensing
    Over 70 years ago, Congress recognized that the import and export 
of natural gas, a finite natural resource, can have critical 
implications for U.S. prosperity. In the Natural Gas Act, Congress 
charged the executive branch with regulating the import and export of 
natural gas in accordance with the public interest.
    The Department of Energy (DOE) has extensive experience evaluating 
import applications, but it has had limited experience with export 
applications. Perhaps not surprisingly, there are no clearly 
established criteria for DOE to apply in determining the public 
interest with regard to natural gas exporting.
    Dow supports expanded exports and trade. However, we also believe 
it is crucial that DOE have the information and analysis necessary to 
properly apply the Natural Gas Act requirement that exports be 
consistent with the public interest. We applaud DOE's recent 
acknowledgement that an economic study that it commissioned is but one 
data point in the broad array of considerations that are relevant for a 
public interest determination. In short, Dow supports an approach to 
such determinations by DOE that is based on objective criteria and 
metrics, established through a public process and applied on an 
incremental, case-by-case basis in a consistent and balanced manner.
    Today, DOE is considering 16 applications to export LNG. Since the 
proposed importing countries do not have a particular type of free 
trade agreement (FTA) with the United States, these applications are 
not covered by the statute's presumption that an FTA represents a 
determination that the application meets the public interest test. 
After approving one such application, DOE has temporarily suspended the 
processing of ``non-FTA'' LNG export applications. Implicitly 
recognizing that more is at stake than can be resolved through its 
traditional approach to processing export applications, DOE 
commissioned a report from a private firm to evaluate the macroeconomic 
effects of higher LNG exports.
    As detailed in Dow's January 24 submission to DOE\1\, this 
consultant report is fundamentally flawed and underestimates the 
potential harmful effects of sharply higher LNG exports. More broadly, 
though, commissioning the report should be the first step in developing 
policies that will enable DOE to administer appropriate public interest 
determinations for LNG export applications. No economic study can 
account for the full profile of U.S. values that should inform a 
determination of the public interest with regard to natural gas 
    \1\ Dow's submission is available at http://www.fossil.energy.gov/
programs/gasregulation/authorizations/export study/peter molinario em01 
24 13.pdf.
    The outstanding authorization requests present what is essentially 
a new challenge. In the modern era, the U.S. government has not faced 
the need to determine the public interest in connection with requests 
to authorize exports of large volumes of natural gas. This Committee 
should encourage DOE to continue its effort to improve the process for 
evaluating LNG export applications by providing an opportunity for all 
affected constituencies and the public at large to comment on how best 
to assess the public interest as it pertains to exports of natural gas.
    Newly discovered sources of natural gas present a great opportunity 
for the United States. At the same time, natural gas remains a finite 
natural resource with important implications for U.S. energy security, 
energy independence and the environment. Exports can have supply and 
price effects that have major impacts throughout the country. The 
economic impact of LNG exports is also likely to vary by geographic 
region and by business center. Consequently, public interest 
determinations should be thorough enough to evaluate nation-wide 
implications of LNG exports as well as localized effects.
    Unchecked LNG export licensing can cause demand shocks, and the 
resulting price volatility can have substantial adverse impacts on U.S. 
manufacturing and competitiveness. In the recent past, the price of 
natural gas was very high and volatile until the advent of substantial 
shale gas production. Gas supplies and demand are inherently difficult 
to predict accurately. Thus, Dow urges a cautious, considered, 
comprehensive and deliberate approach to assessing the public interest.
    Currently, DOE regulations provide for the adjudication of LNG 
export applications on a case-by-case basis in proceedings that depend 
on the parties to raise issues relevant to a public interest 
determination and to support their positions with persuasive evidence. 
DOE interprets the Natural Gas Act's public interest standard as 
creating a rebuttable presumption that a proposed export of natural gas 
is in the public interest. This means that DOE is to approve an 
application unless those who oppose the application can overcome this 
    In its principal order to date authorizing exports of LNG to non-
FTA countries, DOE identified certain topics as being relevant to its 
evaluation of the impact of LNG exports on the public interest:

   the domestic need for the natural gas proposed to be 
   whether proposed exports threaten the security of domestic 
        natural gas supplies, and
   any other issue DOE deems to be important, including whether 
        the export arrangement is consistent with DOE's policy of 
        promoting competition in the marketplace by allowing commercial 
        parties to freely negotiate their own trade arrangements.\2\
    \2\ We are encouraged that the Deputy Secretary of Energy recently 
acknowledged to the Chairman of this Committee that a variety of other 
topics merit evaluation in connection with LNG export application 
public interest determinations.

    The topics that DOE has identified for evaluating the public 
interest are too narrow and vague to capture all of the critical 
national, regional and local issues at stake with LNG exports or to 
offer any useful guidance. In response to the economic study it 
commissioned, DOE has received more than 370 submissions from a broad 
array of stakeholders covering an equally broad array of topics. The 
sheer number of submitted comments reflects the depth of interest 
regarding this issue. Unfortunately, the current process provides no 
assurance that DOE will consider all aspects of the public interest in 
any given proceeding. This is inevitable for an administrative process 
that depends on arguments and evidence submitted by the parties to a 
specific export application process. These parties are representing 
their specific interests, and may not adequately represent the totality 
of the public interest.
    A timely DOE rulemaking process to formulate criteria for 
determining the public interest as it relates to LNG exports could 
ameliorate some of the shortcomings of the current process. All of the 
major constituencies affected by LNG exports should have an opportunity 
to be heard, which could enable DOE to obtain much broader public input 
and do so efficiently in a single forum. This would increase the 
likelihood that all relevant considerations will be identified and that 
cumulative and national effects will be addressed as well as regional 
effects. The result of such a rulemaking process-establishment of 
uniform and actionable criteria with measurable metrics-would 
facilitate balanced, comprehensive consideration of the public interest 
by DOE, give parties in individual proceedings advance notice of many 
of the most relevant considerations, and reduce the risk of 
inconsistent adjudications across applications. DOE would then apply 
these criteria and metrics incrementally over time in individual 
application proceedings, which would assure fairness and uniformity, 
while allowing DOE to consider changes in circumstances from one 
application to the next.
    More importantly, DOE could adopt a mechanism to balance, in the 
aggregate, exports and U.S. interests that inform the public interest. 
A new rule of this kind should generally ensure that DOE is presented 
with adequate and accurate evidentiary records in each licensing 
    While criteria for determining the public interest should be 
developed as part of the rulemaking described above, we believe the 
list below provides a good starting point for identifying specific, 
concrete and forward-looking criteria that DOE should evaluate in 
connection with LNG export applications:

   Domestic manufacturing--How will exports impact natural gas 
        prices and the supply/demand balance? Will natural gas supply 
        be reduced? Will there be less feedstock for announced 
        investment projects? Will the jobs created by increased exports 
        exceed jobs lost by the manufacturing industry? Will additional 
        exports displace U.S. consumption?
   U.S. consumers--Will exports reduce the supply of natural 
        gas available for utilities or affect consumer prices or energy 
        costs? Will utilities decrease fuel switching to natural gas?
   Energy security--Will exports reduce the volume of natural 
        gas available for domestic use or increase the need to rely on 
        imported petroleum?
   Employment--How many new jobs will be created or existing 
        jobs impacted? Are employment gains in the oil and gas sector 
        offset by job losses in other areas of the economy affected by 
        relatively higher natural gas prices?
   International trade--Will exports improve the U.S. balance 
        of trade payments sufficiently to offset falling exports in 
        other value-adding sectors of the economy? As to proposed 
        exports to FTA countries, are the exports destined for 
        consumption in the FTA country or will there be transshipment 
        of natural gas to non-FTA countries? How can export 
        applications be disposed of in a manner consistent with U.S. 
        trade obligations?
   Environmental--What would the proposed exports' 
        environmental impact be?
   Strategic interests--Will the exports support a strategic 
        American ally in a meaningful way and consistent with stated 
        policy priorities? Do proposed importing countries accord the 
        United States reciprocal favorable international trade 
        treatment? What are the implications for any current or 
        proposed FTA negotiations?
   Price and volatility--How is the LNG contract being priced, 
        and is it linked to oil in some manner? What is the expected 
        short and long term impact on natural gas and electricity price 
   Other regulatory impacts--What is the potential impact of 
        other regulatory decisions on natural gas demand or supply and 
        what is the interplay between those impacts and exports of 
        natural gas?

    DOE should apply criteria that result from this rulemaking to 
applications on a case-by-case basis and in an incremental fashion. 
This would entail evaluating whether approving each individual 
application is in the public interest, and whether the incremental 
impact of approving that application, in light of DOE's prior 
approvals, would be consistent with the public interest. Again, the 
last ten years have seen great fluctuations in domestic gas prices, and 
circumstances can change as drilling techniques are improved, sources 
of consumption are expanded or the condition of the economy evolves.
Forward thinking public policy can spur American industry
    At Dow, we are implementing a comprehensive plan to take advantage 
of the structural change that has occurred in the natural gas market, a 
market that we believe is working. Indeed, we have announced plans to 
invest in American plants based on our belief that natural gas will 
remain affordable for American industry and consumers. We are not alone 
in our desire to expand our American footprint and create thousands of 
new American manufacturing jobs.
    Forward-thinking policy is essential for maintaining this momentum. 
Dow wishes to support U.S. officials at all levels of government to 
realize a shared vision of affordable natural gas continuing to 
revitalize American manufacturing and enhancing U.S. competitiveness. 
We are in year four or five of a 100 year energy advantage, and a 
thoughtful, prudent approach to policy-making can ensure that we can 
leverage the competitive advantage to the benefit of all Americans. The 
country deserves no less.
    We appreciate the opportunity to submit this statement. For more 
information on Dow and our energy plans visit www.dow.com/energy/

    The Chairman. Very good. America first-sums it up.
    Mr. Eisenberg, welcome.


    Mr. Eisenberg. Thank you Chairman Wyden. Good morning. Good 
morning Chairman Wyden, Ranking Member Murkowski, and members 
of this committee. My name is Ross Eisenberg. I'm vice 
president of Energy and Resources Policy for the National 
Association of Manufacturers.
    The NAM is the Nation's largest industrial trade 
association, and we represent nearly 12,000 small, medium, and 
large manufacturers in nearly every industrial sector and in 
all 50 States. Now manufacturers are major energy consumers. We 
use about 1/3 of the energy consumed in the United States. So 
for manufacturers, natural gas is a critical component of an 
all-of-the-above energy strategy that embraces all forms of 
domestic energy production, including oil, gas, coal, nuclear, 
energy efficiency, alternative fuels, and renewable energy 
    Thirteen years ago, or sorry, 13 months ago, 
PricewaterhouseCoopers, with support from the NAM, released a 
report called Shale Gas, a Manufac-Renaissance in U.S. 
Manufacturing, and that report found that full-scale and robust 
development of U.S. shale gas plays could lead to 1 million new 
manufacturing jobs by the year 2025. Now that's just 
manufacturing jobs by 2025. In addition, lower feedstock and 
energy costs could help manufacturers reduce manufacturing gas 
expenses by as much as $11.6 billion annually in that same 
timeframe. PWC's predictions are very quickly becoming a 
reality. Some are calling it the reindustrialization of 
America. Almost weekly, we're seeing companies announce new 
ventures and facilities to manufacture iron, steel, fertilizer, 
chemicals, plastics, acrylic rosins, diesel fuel, and a wide 
range of other energy-intensive products.
    There's really no better example of the impact that natural 
gas is having than the announcement last year by a Canadian 
manufacturer that it plans to actually take apart a working 
methanol plant in Chile and move it to Senator Landrieu's State 
of Louisiana.
    The natural gas boom has provided major opportunities to 
manufacturers across the supply chain. Manufacturers design and 
construct the drilling facilities, supply machinery and 
materials for hydraulic fracturing and well completion, and 
they provide needed infrastructure like pipelines, compression 
stations, storage facilities, and processing facilities. All of 
this new activity will require roads and bridges which, in 
turn, require concrete, brick, gravel, and steel. Drilling 
sites will need vehicles, fuel, and significant water supplies, 
which will need to be supplied, transported, and treated, all 
by manufacturers.
    Downstream, the possibilities from chemicals to windows to 
toys to electricity are truly endless.
    But let's not kid ourselves here. None of this is going to 
happen if we can't get the natural gas out of the ground. We've 
got plenty of natural gas, and we believe the free market can 
generally resolve any disputes over how the gas should be used.
    But if the Federal Government takes an overly prescriptive 
or reactive approach to permitting, to regulation, or to 
exports, than our natural gas field manufacturing renaissance 
will be over quicker than it began.
    That is the NAM's message to the committee today. If we 
truly want to create 1 million new manufacturing jobs by 2025, 
we should be encouraging the responsible development of natural 
gas, balanced by reasonable State-based regulation, a 
manageable permitting process, and a free market approach to 
potential exports.
    If that happens, we can all be winners.
    States have long been the primary regulators of hydraulic 
fracturing, and the NAM believes that it should stay that way. 
Governor Hickenlooper's testimony today shows that State 
governments are up to the challenge. Where there's a perceived 
efficiency in any one State's regulatory mechanisms, the 
Federal Government should work with the State to fill in those 
gaps rather than applying a one-size-fits-all Federal rule on 
States like Colorado where really no deficiencies exist.
    The NAM was founded in 1895 on principles of free trade. 
With respect to LNG exports, the NAM fundamentally supports 
free trade and open markets and opposes bans or similar market 
destroying barriers to exports of natural gas or any other 
    The NAM is not calling for policies that favor LNG exports 
over the use of natural gas domestically nor are we calling for 
the opposite. What we're calling for is for the free market to 
be allowed to work.
    The NAM encourages the cost effective use of natural gas to 
grow American manufacturing and believes in a natural gas 
policy that is open--a process that is open, transparent, and 
objective, and we urge policymakers to rely on the best quality 
of information regarding the impact of LNG exports on economic, 
environmental, and national security interests.
    Finally, the long and complex and often unmanageable 
permitting process remains a major obstacle, if not the major 
obstacle, to full and robust development of our Nation's energy 
resources. For instance, the average time to complete an 
environmental impact statement, under the National 
Environmental Policy Act, takes an average of 3.4 years and 
that gets longer by 37 days with each passing year. The 
developer can then be sued for 6 years after a final 
determination is made.
    Manufacturers really must be able to depend on a 
predictable, reliable, and efficient permitting process. The 
NAM believes strong actions must be taken to streamline the 
permitting process for energy projects before it is too late.
    To conclude, with the right energy policies in place, 
manufacturers can experience a true resurgence. Robust 
development of our Nation's vast natural resources--natural gas 
resources will help drive domestic manufacturing as a critical 
component of a true all-of-the-above energy strategy.
    The NAM stands ready to support the committee's efforts to 
promote natural gas development and the manufacturing jobs that 
it will provide.
    Thank you very much for the privilege of testifying today. 
I look forward to any questions.
    [The prepared statement of Mr. Eisenberg follows:]

   Prepared Statement of Ross Eisenberg, Vice President, Energy and 
        Resources Policy, National Association of Manufacturers
    Good morning, Chairman Wyden, Ranking Member Murkowski and members 
of the Senate Committee on Energy and Natural Resources. My name is 
Ross Eisenberg, and I am vice president of energy and resources policy 
at the National Association of Manufacturers (NAM). I am pleased to 
share the NAM's views on the importance of America's natural gas 
resources and the vital role they can play for manufacturing, jobs and 
the economy.
    The NAM is the nation's largest industrial trade association, 
representing nearly 12,000 small, medium and large manufacturers in 
every industrial sector and in all 50 states. Manufacturers are major 
energy consumers, using one-third of the energy consumed in the United 
States. For manufacturers, natural gas is a critical component of an 
``all-of-the-above'' energy strategy that embraces all forms of 
domestic energy production, including oil, gas, coal, nuclear, energy 
efficiency, alternative fuels and renewable energy sources.
    The United States has a mix of energy resources and innovative 
technologies unmatched by any other nation in the world. The United 
States is the ``Saudi Arabia of coal'' and has for years relied on its 
dominant coal reserves for baseload power generation; more than 100 
nuclear power plants cleanly and efficiently produce a substantial 
portion of the nation's electricity; renewable sources are growing 
quickly and diversifying the nation's energy portfolio; and advances in 
energy efficiency continue to cut manufacturers' energy costs. Most 
recently, technological breakthroughs have made vast domestic deposits 
of oil and gas cheaply and easily accessible, offshore and onshore. 
What was once a potential weakness has become a major strength for 
Natural Gas--Fueling Growth in the Manufacturing Sector
    The natural gas boom has provided major opportunities for 
manufacturers across the supply chain. Upstream, manufacturers design 
and construct drilling facilities; supply machinery and materials, such 
as cement and steel for hydraulic fracturing and well completion; and 
perform a wide range of support activities and services for the natural 
gas extraction process. Midstream, manufacturers provide needed 
infrastructure, such as pipelines, compressor stations, storage 
facilities and processing facilities. And downstream, the 
possibilities-from chemicals to windows to toys to electricity-are 
truly endless.
    The natural gas manufacturing supply chain extends even further. 
All of this new activity will require roads and bridges, which, in 
turn, requires concrete, brick, gravel and steel. Drilling sites will 
need vehicles, fuel and significant water supplies-which will need to 
be supplied, transported and treated. Site employees will need 
uniforms, and those uniforms will need to be cleaned and maintained. 
The list goes on and on.
    As more natural gas is recovered, domestic manufacturers gain a 
substantial cost benefit relative to their international competitors. 
Thanks to newfound supply and price stability, manufacturers in the 
United States enjoy natural gas prices considerably lower than in 
China, India, Brazil, Japan and the United Kingdom.\1\ This is a very 
important point, since the NAM estimates that due to domestic tax, tort 
and regulatory policies, it is 20 percent more expensive to manufacture 
in the United States than in any of its nine largest trading partners-
and that excludes the cost of labor. Manufacturers in the United States 
enjoy a slight competitive advantage regarding energy, and with the 
right policies, this advantage can grow.
    \1\ ``Shale Gas Will Fuel a U.S. Manufacturing Boom,'' MIT 
Technology Review, Jan. 9, 2013, available at http://
    In December 2011, PricewaterhouseCoopers (PwC), with support from 
the NAM, released the report Shale Gas: A renaissance in US 
manufacturing?\2\ PwC's study examined what a growing shale gas 
industry could truly mean for manufacturing job creation in the United 
States. The results are impressive: PwC found that full-scale and 
robust development of U.S. shale gas plays could result in 1 million 
new manufacturing jobs by 2025. In addition, lower feedstock and energy 
costs could help manufacturers in the United States reduce natural gas 
expenses by as much as $11.6 billion annually in that same time frame. 
Chemical manufacturers had been the largest beneficiaries of this new 
abundance of natural gas, owing primarily to less expensive ethane, a 
natural gas liquid derived from shale gas. PwC identified Bayer 
Corporation, Chevron Phillips Chemical Company, Formosa Plastics 
Corporation and Westlake Chemical Corporation as companies taking early 
advantage of the shale gas boom.
    \2\ Available at http://www.pwc.com/us/en/industrial-products/
    PwC found that the benefits of shale gas for manufacturers were not 
limited to the major natural gas users; the benefits extended 
throughout the supply chain. According to PwC, companies that sell 
goods, such as metal tubular products and drilling and power equipment, 
were likely to experience near-term growth in sales as domestic natural 
gas production rates increased. PwC identified projects by U.S. Steel 
and Vallourec Ohio intended to supply steel pipe and related materials 
for shale gas extraction activities. These higher production levels 
would also yield benefits higher in the value chain, such as 
manufacturers of components used in drilling equipment. Overall, PwC 
found that 17 chemical, metal and industrial manufacturers commented in 
SEC filings in 2011 that shale gas development drove demands for their 
products, compared to none in 2008.
    In the 13 months that have passed since PwC released its study, the 
impact of new supplies of natural gas on manufacturing has become even 
more pronounced. Nucor embarked on plans to develop a $750 million iron 
facility in Louisiana and announced a $3 billion joint venture with 
Canadian oil and gas producer Encana for 20 years of access to its 
natural gas wells.\3\ Mitsubishi announced plans to build an acrylic-
resin processing plant adjacent to a newly constructed ethylene 
plant.\4\ Fertilizer manufacturer CF Industries announced that it will 
spend $2.1 billion to expand its fertilizer manufacturing 
operations.\5\ Formosa Plastics Corporation increased the size of its 
Texas ethylene plant included in the 2011 PwC\6\ report. Even foreign 
manufacturers are now seeking to build operations in the United States. 
Austrian steel manufacturer Voestalpine AG announced in late 2012 it 
plans to build a $661 million steel factory in the United States.\7\ 
South African energy company Sasol announced plans to construct 
America's first commercial gas-to-liquids plant in Louisiana, an $11 
billion-$14 billion venture.\8\ Egyptian fertilizer manufacturer 
Orascom Construction Industries plans to build a $1.4 billion nitrogen 
fertilizer production plant in Wever, Iowa.\9\ Canadian methanol 
producer Methanex announced in 2012 that it will dismantle a methanol 
plant in Chile and move it to Ascension Parish, Louisiana.\10\ 
BlueScope Steel Limited, an Australian company, is building a steel 
factory in Ohio in partnership with U.S. manufacturer Cargill.\11\ And 
Indian manufacturer Essar Global Limited is planning a steel facility 
for Minnesota.\12\
    \3\ ``Encana, Nucor report joint Piceance basin gas drilling 
program,'' Oil & Gas Journal, Nov. 9, 2012, available at http://
    \4\ ``Mitsubishi Chemical to build $710 million U.S. plant, eyes 
shale gas cost savings,'' Reuters, Dec. 23, 2012, available at http://
    \5\ ``The new boom: Shale gas fueling an American industrial 
revival,'' The Washington Post, Nov. 14, 2012, available at http://
    \6\ ``Formosa Plastics U.S.A. Will Invest US$1.7 B. in Expansion,'' 
CENS, Dec. 14, 2012, available at http://cens.com/cens/html/en/news/
    \7\ ``Shale-Gas Revolution Spurs Wave of New U.S. Steel Plants,'' 
Bloomberg, Dec. 31, 2012, available at http://www.bloomberg.com/news/
    \8\ ``Sasol Betting Big on Gas-to-Liquid Plant in U.S.,'' The New 
York Times, Dec. 17, 2012, available at http://www.nytimes.com/2012/12/
    \9\ ``Egyptian Bets $1,4 Billion on Natural Gas--In Iowa,'' The 
Wall Street Journal, Sept. 5, 2012, available at http://online.wsj.com/
    \10\ ``The new boom: Shale gas fueling an American industrial 
revival,'' The Washington Post, Nov. 14, 2012, available at http://
    \11\ ``Shale Gas Revolution Spurs Wave of New U.S. Steel Plants,'' 
Bloomberg, Dec. 31, 2012, available at http://www.bloomberg.com/news/
    \12\ Id.
    Last June, a report by independent global energy research firm IHS 
CERA predicted that the share of U.S. natural gas produced from 
unconventional sources will reach 67 percent by 2015 and 79 percent by 
2035\13\. This would lead to $3.2 trillion in investments to develop 
the resource and 1.4 million new jobs (on top of the 1 million already 
created by the industry). These economic benefits are not limited to 
gas-producing states; non-gas-producing states contributed 18 percent 
of the total U.S. employment generated by unconventional gas activity 
in 2010. IHS CERA concluded that increased unconventional gas activity 
will contribute to capital investment, job opportunities, economic 
growth, government revenue and lower prices across the country.
    \13\ Fullenbaum, Richard, and John Larson, The Economic and 
Employment contributions of Unconventional Gas Development in State 
Economies, June 2012, available at http://www.anga.us/media/content/
Opportunities and Challenges for Natural Gas Development
    This newfound natural gas renaissance has brought with it increased 
scrutiny from our nation's capital. With increased scrutiny comes a 
host of policy-related issues, from debates over how best to use this 
valuable new resource to the need for federal oversight and regulation.

          1. Federal Regulation

    Whether and how the federal government plans to regulate shale gas 
continues to pose a major concern for manufacturers. By early 2012, no 
fewer than 12 federal agencies were considering some form of oversight 
or regulation of the practice of hydraulic fracturing. The NAM brought 
this issue to the White House, and in response, President Obama issued 
an Executive Order in April 2012 requiring federal agencies to better 
communicate and coordinate with one another.\14\ The pace of federal 
oversight appears to have slowed, but there are still a number of 
regulations under development. There is no easier way to limit the job-
creating potential of natural gas to manufacturers than to lump so many 
costly, time-consuming regulations onto the drilling process that the 
gas never gets out of the ground.
    \14\ ``Executive Order--Supporting Safe and Responsible Development 
of Unconventional Domestic Natural Gas Resources,'' Apr. 13, 2012.
    One regulation that greatly concerns manufacturers is the pending 
disclosure and well stimulation rule under development at the Bureau of 
Land Management (BLM). The BLM performed a cost-benefit analysis for 
the proposed regulation, and under virtually every scenario modeled, 
the rule's costs outweighed its benefits. The BLM recently announced 
that it has revised the rule and will issue a new proposal for public 
comment. The NAM is cautiously optimistic that the BLM will fix the 
rule, which an economic analysis by John Dunham & Associates for the 
Western Energy Alliance found would cost $1.615 billion for new and 
existing wells in the 13 western states that contain the preponderance 
of the nation's federal and Indian lands. The regulation would impact 
an estimated 5,058 wells waiting to be permitted or drilled. The study 
found that Wyoming would see the biggest cost impact from the proposed 
rule, with an average $771.7 million in costs, followed by New Mexico 
with $169.0 million, Utah with $155.2 million and Colorado with $142.7 
    States have long been the primary regulators of hydraulic 
fracturing. The NAM believes states should continue to be the main 
regulators of this industry and is concerned that reactive federal 
regulation could harm any potential gains resulting from increased 
exploration of shale oil and gas. Where there is a perceived deficiency 
in any one state's regulatory mechanisms, the federal government should 
work with the state to fill in the gaps rather than imposing a one-
size-fits-all federal rule on states where no deficiencies exist. In 
fact, there are existing programs in place to ensure that state 
regulation is sufficient. The State Review of Oil & Natural Gas 
Environmental Regulations (STRONGER) program reviews states' oil and 
gas regulatory programs and recommends improvements. The Interstate Oil 
and Gas Compact Commission also supports the states with model 
regulations. There is no legitimate reason why the continued operation 
of these programs will not be sufficient to ensure effective state 
regulation that meets the federal government's goals.

          2. Liquefied Natural Gas (LNG) Exports
    The NAM was founded in 1895 on principles of free trade. At the 
time, the United States was in the midst of a deep recession, and many 
of the nation's manufacturers saw a strong need to export their 
products. This commitment to free trade and open markets continues to 
be embedded in the NAM's policies today. Exports have been and continue 
to be a critical source of growth and opportunity for manufacturers 
throughout the United States. The 40 percent increase in goods exports 
that the United States has enjoyed between 2009 and 2011 has enabled 
many manufacturers to sustain and, in some cases, even grow employment 
during very difficult economic times. Export growth is vital not just 
for those businesses that directly export, but for the many suppliers 
of inputs and services to those businesses throughout every state.
    Natural gas liquefaction is a manufacturing process. To convert 
natural gas to LNG, the gas is purified by removing any condensates, 
such as water, oil and mud, as well as other gases, such as carbon 
dioxide and hydrogen sulfide and trace amounts of mercury. The gas is 
then supercooled in several stages until it is liquefied and ready for 
    The Department of Energy (DOE) has received applications for 15 
proposed terminals seeking to export LNG to non-free trade agreement 
(FTA) countries. While most of these proposed terminals have received 
approval to export to FTA countries, only one terminal in the United 
States-Sabine Pass in Louisiana-has been permitted to export to non-FTA 
countries. Under the Natural Gas Act of 1938, anyone seeking to export 
natural gas must obtain prior authorization to do so from the DOE. The 
Act instructs the DOE to issue an order allowing natural gas exports 
unless, after opportunity for hearing, it finds that the proposed 
exports would not be consistent with public interests. Exports to FTA 
countries are deemed to be in the public interest and thus enjoy an 
expedited permitting process. Even for exports to non-FTA countries, 
the public interest of LNG exports is presumed, but this presumption is 
rebuttable on a successful showing that the exports at issue are 
contrary to the economic, environmental and/or energy security 
interests\15\ of the United States. The public interest finding is 
specific to and required for each individual export terminal seeking 
exports to non-FTA countries; thus, each of the 15 pending applicants 
will need to successfully navigate the public interest determination 
    \15\ Economic, environmental and energy security interests are the 
factors the DOE traditionally considers, although it is within its 
authority to consider other factors in making the public interest 
    The NAM believes that LNG exports should be governed by principles 
of free trade and open markets. The NAM also opposes bans or similar 
market-distorting barriers to exports of LNG or any other commodity.
    Natural gas is vitally important to manufacturers and job creation, 
as well as achieving affordable energy in this country. We are 
committed to increasing our vast domestic onshore and offshore energy 
resources with balanced and sensible regulation. Regarding LNG and 
natural gas, the NAM's official policy positions were established in 
March 2012 by the NAM Board of Directors, with full participation in 
the drafting by both energy producers and users. They are as follows:

                  Liquefied Natural Gas

                  The dramatic increase in the domestic natural gas 
                resource base has reduced the likelihood of the need 
                for significant Liquefied Natural Gas (LNG) imports. 
                Some now believe the U.S. could eventually become a net 
                exporter of natural gas. An adequate supply of natural 
                gas is needed to meet the growing demand of the U.S. 
                manufacturing sector in a recovering economy. The NAM 
                strongly supports federal and state policies to 
                accommodate growth in domestic natural gas production. 
                We further believe abundant domestic natural gas 
                resources can fuel a renaissance in U.S. manufacturing. 
                The NAM fundamentally supports free trade and open 
                markets. We support a natural gas policy process that 
                is open, transparent and objective.

                  Natural Gas and Manufacturing

                  Industry relies on natural gas for much of its energy 
                needs and as a raw material. The NAM believes policies 
                that encourage the cost-effective use of natural gas to 
                grow American manufacturing should be encouraged.

                  The U.S. economy relies on natural gas for much of 
                its energy needs and as a feedstock for commercial 
                products. Natural gas is and will remain an important 
                manufacturing commodity because of its scalability, 
                affordability, versatility and efficiency. The NAM 
                supports policies at the federal and state level that 
                facilitate the responsible and expeditious development 
                of natural gas resources, allowing these benefits to 
                contribute to America's economic recovery and to accrue 
                for energy consumers.

    The principles above remain the policy of the NAM on LNG and 
natural gas.
    As clearly indicated by the policy language above, the NAM is not 
calling for policies that favor LNG exports over the use of natural gas 
domestically. Nor are we calling for policies that would engineer the 
opposite. Our policy statements highlight the important role domestic 
natural gas resources can have for the manufacturing economy. Natural 
gas truly does have the potential to be a game-changer that could fuel 
major investments across the manufacturing supply chain, supporting 
millions of jobs and ensuring that the United States remains the 
world's top manufacturing economy. As our policy makes clear, we 
believe ``abundant domestic natural gas resources can fuel a 
renaissance in U.S. manufacturing,'' and ``encourage the cost-effective 
use of natural gas to grow American manufacturing.'' We believe in ``a 
natural gas policy process that is open, transparent and objective.'' 
With that in mind, the NAM urges the DOE and policymakers to rely on 
the best-quality information regarding the impact of LNG exports on 
economic, environmental and energy security interests.
    The NAM also opposes bans on the export of LNG. From the 
President's first State of the Union address, doubling U.S. exports has 
been a top U.S. goal. From its origins, the United States has been 
built on exports. In fact, Article I, Section 9 of the U.S. 
Constitution provides quite explicitly that ``[n]o Tax or duty shall be 
laid on Articles exported from any State,'' evincing a strong 
disinclination to limit exports of any product.
    With 95 percent of the world's consumers living outside of the 
United States, export bans on any product, including LNG, can be 
expected to have far-reaching negative effects, including on domestic 
economic opportunities, employment and ultimately economic growth. The 
NAM's policies on international trade, established by the NAM Board of 
Directors in March 2012, form the basis for this position:

                  International Trade

                  The objective of the NAM's international trade policy 
                is to strengthen manufacturing in America and improve 
                the competitiveness of American manufacturing in the 
                worldwide economy. Fairly conducted trade provides 
                opportunities for growth and expansion of manufacturing 
                in America, increases the range of goods and services 
                available to consumers, enhances market-based 
                production globally and contributes to closer 
                understanding and cooperation among nations. The NAM 
                believes this objective can best be achieved by 
                limiting costs and other impediments imposed on U.S. 
                manufacturers and by pursuing and utilizing a rules-
                based international trading system that enhances the 
                role of free market forces while seeking to eliminate 
                market-distorting governmental intervention.

                  WTO Dispute Settlement

                  The NAM believes all WTO member economies, including 
                the United States, should comply with WTO agreements, 
                including the Dispute Settlement Understanding.

    The United States and its G-20 partners have repeatedly expressed 
their deep concern about rising protectionism, including, in 
particular, export restrictions, which began to proliferate globally as 
the world economy declined in 2008. Export restrictions are viewed as 
one of the fastest-growing forms of distortion in the international 
trading system. The Organisation for Economic Co-operation and 
Development (OECD) has been keeping an inventory on export restrictions 
and has published analytical work examining the economic concerns with 
imposing such restrictions.\16\
    \16\ The Economic Impact of Export Restrictions on Raw Materials, 
OECD (Nov. 2010)
    The United States has been in the forefront of challenging other 
countries' export prohibitions, starting with China's restrictions on 
raw material exports and more recently China's restraints on rare earth 
exports. In the raw materials case the WTO found conclusively that 
China's raw material export quantitative restrictions were contrary to 
the core international trade disciplines of the WTO, including GATT 
Articles XI:1\17\ that generally prohibit the use of export bans and 
quantitative export restraints. These obligations apply equally to the 
United States, China and all other WTO members.
    \17\ GATT XI:1 states: ``No prohibitions or restrictions other than 
duties, taxes or other charges, whether made effective through quotas, 
import or export licenses or other measures, shall be instituted or 
maintained by any contracting party on the importation of any product 
of the territory of any other contracting party or on the exportation 
or sale for export of any product destined for the territory of any 
other contracting party.''
    The United States' ability to challenge other countries' existing 
exports restraints on agricultural, forestry, mineral and ferrous scrap 
products-just to name a few-will be virtually nonexistent if the United 
States begins imposing its own export restrictions. Even worse, as the 
world's largest economy and largest trading country, U.S. actions are 
often replicated by our trading partners to our own dismay. If the 
United States went down the path of export restrictions, even more 
countries would quickly follow suit and could easily limit U.S. access 
to other key natural resources or inputs that are not readily available 
in the United States.

          3. Permitting

    The long, complex and often unmanageable permitting process remains 
a major obstacle-if not the major obstacle-to full and robust 
development of our nation's energy resources. Natural gas development 
is no exception. The NAM strongly urges this Committee to consider 
legislation to streamline the permitting process for energy projects.
    Natural gas producers must generally obtain permits that include 
approval of well design, casing and cementing, the well stimulation 
(hydraulic fracturing) program, chemicals used, waste disposal and 
storage. They now must also comply with EPA New Source Performance 
Standards (NSPS) for emissions. For wells on Federal or Indian lands, 
the BLM proposed rule would add an open-ended new layer of permitting 
that governs many of the same areas (well construction, water 
protection, chemical disclosure) as the state permits. Those drilling-
specific permits must be obtained in addition to other general state 
and local permits for construction and related activities.
    For an LNG export facility, the permitting process is truly 
daunting. Applicants not only must apply to the DOE for an export 
license, but also must engage in an environmental review of their 
project under the National Environmental Policy Act (NEPA) led by the 
Federal Energy Regulatory Commission (FERC). Compliance with NEPA 
requires that the project developer first acquire land and begin design 
and engineering plans, a two-year time commitment. The NEPA review 
process requires the input of up to 20 federal and state agencies 
coordinated by FERC that have a say in the review. During the course of 
the NEPA review, applicants must obtain, among other things, a dredge-
and-fill permit from the Army Corps of Engineers (with input from EPA), 
a Waterway Suitability Assessment from the U.S. Coast Guard, air 
permits from EPA and state agencies, and the usual state and local 
permits for construction and related activities. Detailed project 
engineering design work and project study is required for compliance 
with NEPA, requiring tens of millions of dollars in up-front capital 
and a significant commitment in time. The average time to complete an 
environmental impact statement (EIS) under NEPA takes an average of 3.4 
years, a number that increases by an average of 37 days with each 
passing year.\18\ Assuming the applicant can make it through this 
process and receives final NEPA approval, the project is still subject 
to lawsuits from private parties over the substance of the NEPA 
environmental review for six years. If the applicant somehow survives 
that process, it also must find long-term contracts to sell the product 
and approach the financial community to secure financing (roughly $10 
billion) to construct and operate the project. All of this is in 
addition to the export license that must also be obtained from DOE at 
some point during the process.
    \18\ Piet deWitt, Carole A. deWitt, ``How Long Does It Take to 
Prepare an Environmental Impact Statement?'' Environmental Practice 
10(4), December 2008.
    The permitting process appears to be getting worse. The EPA and the 
Sierra Club recently urged FERC to consider the upstream implications 
of natural gas development when permitting LNG terminals and related 
pipeline infrastructure in Maryland and Oregon. FERC concluded that 
upstream natural gas development is not a reasonably foreseeable impact 
of the construction of an export terminal or related pipeline 
infrastructure, a finding consistent with NEPA, which requires a 
``reasonably close causal relationship'' in order for an impact to be 
relevant.\19\ However, the EPA and other officials are making a similar 
argument to extend NEPA with respect to coal export facilities in the 
Pacific Northwest, and negative precedent established in that context 
could migrate to natural gas permitting. The NAM strongly opposes using 
NEPA to require a cradle-to-grave, lifecycle impact analysis that 
assesses the impact of the cargo and all similar cargo transported 
through the region, which would create a very dangerous precedent that 
could be used to block exports of all types.
    \19\ U.S. Department of Transportation v. Public Citizen, 541 U.S. 
752, 767 (2004).
    If manufacturers are to create jobs and boost the economy through 
natural gas development, they must be able to depend on a predictable, 
reliable and efficient permitting process. The NAM believes strong 
actions must be taken to streamline the permitting process for energy 
projects before it is too late.
    With the right energy policies in place, manufacturers could 
experience a true resurgence. Robust development of our nation's vast 
natural gas resources will help drive domestic manufacturing as a 
critical component of a true ``all-of-the-above'' energy strategy. We 
must expect that other nations will soon develop the technologies and 
methods to access their own unconventional gas resources, giving the 
United States a relatively limited window of time in which it can truly 
exploit the current cost advantage. The NAM stands ready to support the 
Committee's efforts to promote natural gas development and the 
manufacturing jobs it can provide.

    The Chairman. Thank you very much Mr. Eisenberg.
    We will be working closely with you.
    Our next witness, Ms. Frances Beinecke, has been a leading 
advocate for clean air, water, and protecting our land for many 
years. We welcome you.

                 DEFENSE COUNCIL, NEW YORK, NY

    Ms. Beinecke. Thank you very much Chairman Wyden, Senator 
Murkowski, and members of the committee.
    Thank you for holding this hearing today and for inviting 
me on this critical to testify on this critical issue.
    We all know that shale gas is changing our Nation's energy 
    If extracted and used in ways that minimize environmental 
risks, natural gas can be one part of a broader strategy to 
reduce carbon emissions while providing potential economic 
    But natural gas cannot be the ultimate answer to our energy 
future. For that we need clean and renewable power that is used 
as efficiently as possible.
    With stakes this large, it is imperative that we have in 
place the national safeguards necessary to protect our 
communities, our environment, and the public health from 
needless and unnecessary harm. As of now, we lack such 
safeguards, and those protections we do have are no match for 
the explosive growth in the use of hydraulic fracturing or 
fracking in some 30 States across the country.
    NRDC believes we need to put those safeguards in place 
before any further expansion in the use of fracking.
    It is important and essential that we get this right as a 
    In more than 3 decades as an environmental advocate, I have 
never seen a single issue that has frightened, antagonized, and 
activated people across the country like the practice of 
fracking. Families are angered and frustrated by their 
inability to control fracking in their towns and sometimes on 
their own property. They want to know that their water is safe, 
that their air is clean, and that their lands and farms are 
protected, and they want to know that their children are 
    Now against that background, I'd like you to imagine for a 
moment that someone came to your community today and said they 
had a new technology to try out near your home. It would use 
massive amounts of fresh water and undisclosed toxic chemicals 
to break up the bedrock deep underground. It would then bring 
to the surface substances known to cause illness and 
environmental harm while polluting the air and creating toxic 
wastes. If someone said that to you today, would your first 
reaction be to exempt those operations from existing 
environmental protections and leave control to a patchwork 
across the entire country? Not likely, and yet that's what's 
happening with fracking.
    Congress has exempted many fracking activities from the 
most fundamental safeguards we all depend on to protect our 
environment and health: The Clean Water Act, the Safe Drinking 
Water Act, the Clean Air Act, waste disposal standards, and the 
National Environmental Policy Act. No wonder people across the 
country are worried, and we need to fix that.
    Instead Federal agencies have only just begun, 
halfheartedly at that, to use what authority they do have to 
protect the public. It's still unclear how much they will 
ultimately do as Chairman Wyden's letter to the Bureau of Land 
Management indicated just last week.
    A BLM document leaked to the press later in the week 
indicated that BLM may be going in exactly the wrong direction, 
weakening even proposed disclosure requirements that were 
initially identified. There is no justification for these 
exemptions and lack of action.
    We ask this Congress to act and close these dangerous 
loopholes which deprive Americans of the basic protections they 
have come to expect.
    Meanwhile, as I detail in my written testimony, scientific 
evidence is mounting about the negative impacts of fracking on 
the environment. These include damage to health from air 
pollution that comes from industrializing our landscapes, 
damage from industrial spills and poorly managed wastewater, 
and damage to the climate from methane leaks and venting. At 
the very minimum, the research shows there is no reason to have 
a default assumption that fracking is harmless or somehow less 
in need of the kind of Federal oversight that has been routine 
for similar activities for decades.
    Yet, we're not arguing for a complete hands-off approach 
from the public.
    The industry calls for regulation to be left to the States. 
Let's be clear. We see this as forum shopping.
    States often lack the technical resources or the political 
wherewithal to enforce adequate safeguards. If a number of 
States were to begin effectively to oversee this industry, 
companies would come running to Washington to demand Federal 
rules to preempt what they would surely call a patchwork of 
State laws.
    Instead, industry now claims that the specifics of fracking 
are too local to allow for Federal standards. That argument is 
belied by the industry's own actions because industry has begun 
working to block Local Governments from controlling fracking.
    There is simply no legitimate argument for not using the 
same cooperative federalism model to oversee fracking that is 
used for all the other industrial activities that are covered 
by Federal law.
    One final but important point, natural gas, even if 
properly produced and consumed, is not a complete panacea for 
our energy challenges. It is still a fossil fuel. When burned, 
it produces fossil fuel pollution and contributes to climate 
change. That means that even as we work together to put in 
place the safeguards we need to protect our environment and 
health, we must strengthen those policies that promote the 
energy solutions of tomorrow, including efficiency and 
renewable power.
    We have learned as a country some hard lessons about the 
consequences of uncontrolled resource extraction. As we 
confront the emerging challenges of fracking, we must learn 
from our history and not repeat mistakes of the past. We must 
get these protections right because we may not get a second 
    Thank you for the opportunity to appear today, and I look 
forward to your questions.
    [The prepared statement of Ms. Beinecke follows:]

 Prepared Statement of Frances Beinecke, President, Natural Resources 
                     Defense Council, New York, NY
    Thank you, Chairman Wyden and Ranking Member Murkowski, for the 
opportunity to testify today. My name is Frances Beinecke and I am the 
President of the Natural Resources Defense Council (NRDC). I have 
worked with NRDC for more than 30 years. Prior to becoming NRDC's 
President in 2006, I served as NRDC's Executive Director for eight 
years. In addition to my work at NRDC, I was appointed by President 
Obama in 2010 to the National Commission on the BP Deepwater Horizon 
Oil Spill and Offshore Drilling.
    NRDC is a nonprofit organization of more than 350 scientists, 
lawyers, and environmental specialists dedicated to protecting public 
health and the environment in the United States and internationally, 
with offices in New York, Washington D.C., Montana, Los Angeles, San 
Francisco, Chicago, and Beijing. Founded in 1970, NRDC uses law, 
science and the support of 1.3 million members and online activists to 
protect the planet's wildlife and wild places and to ensure a safe and 
healthy environment for all living things.
                            i. introduction
    Today's hearing addresses ``opportunities and challenges for 
natural gas.'' This is a timely and critically important topic. We all 
know that shale gas is changing our nation's energy profile. If strong 
national and state environmental standards for natural gas were in 
place and strictly enforced--that is, standards to protect health and 
limit climate change--natural gas could be one part of a broader 
strategy to reduce carbon emissions, with potential economic gain, even 
as our country moves forward to a clean energy future centered on 
renewable energy and energy efficiency. We must make sure that the 
shale gas boom does not distract us from, or prevent investment in 
these crucial clean energy strategies, which represent the best path 
    My testimony focuses on the significant environmental, health and 
community risks of natural gas production as it takes place today. NRDC 
opposes expanded fracking until effective safeguards are in place.\1\
    \1\ See http://www.nrdc.org/energy/gasdrilling/.
    Today, there is an extraordinary mismatch between the ever growing 
scale of fracking--which is occurring in about thirty states--and the 
limited scope of measures to govern it. Indeed, companies engaged in 
fracking are not even required to provide enough information to enable 
scientists and the public to fully understand the nature or extent of 
the environmental and health risks fracking poses.
    We can't eliminate all the risks of natural gas production, but 
there are many actions the federal government--both Congress and the 
Administration--as well as the states can and must take to reduce them. 
Now shale gas production is expanding with supersonic speed without 
having in place even the basic environmental and public health 
requirements that apply to other industries. And the passionate and 
growing community opposition to shale gas production, spurred by 
concern about its environmental and health impacts, is becoming a major 
challenge for the natural gas industry
    Even George P. Mitchell, the Texas oil and gas magnate known as the 
``grandfather of fracking,'' has recognized the need for stronger 
federal oversight of fracking. In an article in Forbes last year, 
Mitchell was quoted as saying: ``The administration is trying to 
tighten up controls . . . . I think it's a good idea. They should have 
very strict controls.''\2\
    \2\ Billionaire Father of Fracking Says Government Must Step Up 
Regulation, July 19, 2012, Christoper Hellman, Forbes, http://
    Improved regulation at both the federal and state level can greatly 
reduce the risks presented by shale gas development by, among other 
things, requiring the use of best practices and technologies, coupled 
with strict enforcement. Some companies are already using such 
practices as green completions, wastewater recycling, closed-loop waste 
management systems, and more in some locations. These methods have 
proved to be both economically and technically feasible. But these 
practices are not being used by all companies in all locations even 
though they can often save companies money by, for example, capturing 
more natural gas rather than wasting it and by reducing other forms of 
waste. Rigorous federal standards and requirements to improve 
environmental performance are needed to mandate that all operators 
employ best practices wherever hydraulic fracturing occurs.
     ii. the environmental and public health challenges of natural
                             gas production
    Oil and natural gas production are expanding across the nation, 
largely because advanced hydraulic fracturing (also known as 
``fracking'') and horizontal drilling have made it easier to extract 
oil and gas from previously inaccessible or uneconomical sites. 
Fracking involves injecting water and chemicals deep into the earth at 
extremely high pressure to break up layers of rock that harbor deposits 
of natural gas and/or oil. Hundreds of thousands of new oil and gas 
wells have been drilled in the past decade, and oil and gas development 
is now occurring in about thirty states and under consideration in 
other states.\3\ According to some reports, about 90 percent of new 
wells in North America are fracked.\4\
    \3\ http://www.eia.gov/dnav/pet/hist/
    \4\ Fracking Hazards Obscured in Failure to Disclose Wells, 
Bloomberg, Benjamin Haas (Aug. 14, 2012), http://www.bloomberg.com/
    Shale gas production comes with the risk of a range of 
environmental and health impacts, including contaminated drinking water 
supplies; the release of methane, a potent greenhouse gas; unhealthy 
air quality; poorly managed toxic waste disposal; impairment of rivers 
and streams; disruption of communities; and destruction of landscapes 
and wildlife habitat. These impacts stem from all aspects of the shale 
gas extraction process, including hydraulic fracturing itself, site 
development, well construction , water, wastewater and waste 
management; and well operation, trucking and other activities that 
result in air emissions-especially emissions of air toxics, ozone-
forming pollutants and methane, a highly potent greenhouse gas.\5\
    \5\ For that reason, in this testimony, when I refer to hydraulic 
fracturing or fracking, I am referring to all aspects of shale gas 
production, including site preparation, drilling, fracking, well 
integrity, waste storage and management and air emissions.
    Real world impacts are occurring right now across the country. Just 
last week, Ohio regulators observed 20,000 gallons of fracking waste 
being illegally dumped into a waterway.\6\
    \6\ Ohio EPA investigating dumping of drilling waste water in 
Youngstown area, Feb. 4, 2013, Bob Downing, Beacon Journal, http://
    The risks and impacts of fracking are becoming more widely 
acknowledged by a broad range of stakeholders. In 2011, Department of 
Energy Secretary Steven Chu appointed a Shale Gas Subcommittee of the 
Secretary of Energy Advisory Board (SEAB Shale Gas Subcommittee)\7\. In 
their report, the members of this subcommittee, including leading 
academic experts with a range of perspectives, identified four major 
areas of concern: possible pollution of drinking water from methane and 
chemicals used in fracturing fluids; air pollution; community 
disruption during shale gas production; and cumulative adverse impacts 
that intensive shale production can have on communities and ecosystems. 
The Subcommittee concluded:

    \7\ I serve on the Secretary of Energy's Advisory board, but not 
the Shale Gas Subcommittee.

          There are serious environmental impacts underlying these 
        concerns and these adverse environmental impacts need to be 
        prevented, reduced and, where possible, eliminated as soon as 
        possible. Absent effective control, public opposition will 
        grow, thus putting continued production at risk.\8\
    \8\ http://www.shalegas.energy.gov/resources/

    The SEAB Subcommittee recommended that the federal government take 
a series of actions to address these issues; many of these 
recommendations have not yet been acted upon.
    Public concern is also increasing. A December 2012 Bloomberg 
National Poll found that 66 percent of Americans want more government 
oversight of fracking, an increase from 56 percent in a September 
    \9\ Tougher Fracking Regulations Backed by 66%, Poll Shows, 
Bloomberg, Dec. 13, 2012, Mark Drajem, http://www.bloomberg.com/news/
    The concerns are well founded. Let's look in more detail at each of 
the problems and risks associated with fracking.
A. Chemical Disclosure
    Natural gas producers are not required by any federal law to 
identify the chemicals in the fracking fluids they are injecting into 
the ground, and state disclosure requirements vary widely. Of the 
states where fracking takes place, only fourteen states require some 
level of public hydraulic fracturing disclosure and none of these 
provides comprehensive disclosure. An NRDC analysis found that even 
where some disclosure is required, the public is hampered in getting 
this most basic information about fracking. For example,

   In some states it is difficult for the public to access the 
        information disclosed;
   Only seven of fourteen states mandate the chemical 
        identification of all additives used in fracking fluids;
   Only one state has a clear process for evaluating and 
        approving or denying trade secret exemption claims; and
   Only six states provide for access to trade secret 
        information by health care providers.\10\
    \10\ NRDC Issue Brief, State Hydraulic Fracturing Disclosure Rules 
and Enforcement: A Comparison (July 2012), Matthew McFeeley, http://

    In addition, enforcement of state rules is uneven; NRDC has found 
that state agencies have accepted disclosure reports that lack required 
    The lack of standardized, national disclosure greatly hampers the 
ability of researchers to study the impacts of fracking on health and 
the environment. Scientists need transparent, thorough and consistent 
information on what chemicals different communities are being exposed 
to. The variation in disclosure requirements among states makes it 
difficult to do comparative studies and deprives communities of 
information they have a right to know.
B. Health Concerns Related to Drinking Water and Air Pollution
    Scientific concern about the health impacts of fracking are 
growing. In April 2012, the Institute of Medicine (IOM), part of the 
National Academy of Sciences, convened a two-day workshop of public 
health experts that included more than a dozen presentations raising 
concerns about the health implications from natural gas 
development.\11\ Additionally, government agencies, including the 
Agency for Toxic Substances Disease Registry (ATSDR) within the 
Department of Health and Human Services (HHS) and the Environmental 
Protection Agency (EPA), have investigated and found risks from 
individual sites and practices.\12\ Health-related advisories and 
informational resources have been made available by the National 
Institute for Occupational Safety and Health (NIOSH), the Occupational 
Safety and Health Administration (OSHA)\13\ and the Pediatric 
Environmental Health Specialty Units (PEHSU).\14\
    \11\ Institute of Medicine. 2012. Workshop on the Health Impact 
Assessment of New Energy sources: Shale Gas Extraction. April 30-May 1, 
2012. Washington, DC. http://www.iom.edu/Activities/Environment/
Environmental HealthRT/2012-APR-30aspx.
    \12\ Masten, S. 2012. HHS & NIEHS Activities Related to Hydraulic 
Fracturing and Natural Gas Extraction. Presentation made at the 2012 
Shale Gas Extraction Summit: October 2, 2012. http://
environmentalhealthcollaborative.org/images/ScottPlenary.pdf; ATSDR, 
Health Consultation: Public Health Implications of Ambient air 
Exposures to Volatile Organic Compounds as Measured in Rural, Urban, 
and Oil & Gas Development Areas Garfield County Colorado (2008); United 
States Environmental Protection Agency (US EPA). 2012. EPA's Study of 
Hydraulic Fracturing and Its Potential Impact on Drinking Water 
Resources. http://www.epa.gov/hfstudy/.
    \13\ Occupational Safety Health Administration (OSHA) 2012. Hazard 
Alert, Worker Exposure to Silica During Hydraulic Fracturing. 
    \14\ Pediatric Environmental Health Specialty Units and the 
American Academy of Pediatrics. 2011. PEHSU Information on Natural Gas 
Extraction and Hydraulic Fracturing for Health Professionals. http://
    A growing number of people have reported health problems that they 
attribute to chemical exposures from nearby fracking and production 
activities. As noted above, research is stymied by the lack of 
disclosure of information on chemicals used in fracking. In addition, 
little if any on-site monitoring is required of emissions into air or 
water. But some of the pollutants associated with fracking are also 
known to cause the same types of respiratory and/or neurological 
problems that are the focus of concern in impacted communities. Some of 
these chemicals are also well-established as carcinogens.\15\
    \15\ ATSDR, Health Consultation: Public Health Implications of 
Ambient Air Exposures to Volatile Organic Compounds as Measured in 
Rural, Urban, and Oil & Gas Development Areas Garfield County Colorado 
    Fracking also can generate pollution from hazardous substances, 
including metals, radioactive material, methane and other volatile 
organic compounds (VOCs), that are found in the geologic deposits being 
exploited and brought to the surface in the drilling, fracking, and 
production processes.
    Chemicals in Drinking Water.--Because fracking is exempt from many 
environmental monitoring requirements, there are inadequate data on the 
impact of natural gas production on water contamination. However, data 
from private wells and a published investigation raise concerns that 
water contamination from fracking is creating health risks. Potential 
contaminants include methane, organic chemicals (including benzene, a 
known carcinogen), metals and radioactive elements.
    A published study from Pennsylvania documented evidence of drinking 
water contamination with methane associated with shale gas extraction. 
These researchers found increased levels of methane in wells closer to 
well sites including levels that present an explosion hazard for 
residents.\16\ Other household-level investigations conducted by state 
and federal agencies have also found methane levels in drinking water 
in homes near drill sites that were caused or are suspected to have 
been caused by oil and gas operations and present an explosion hazard 
as well as an asphyxiation hazard for residents.\17\
    \16\ Osborn, SG, A Vengosh, NR Warner, RB Jackson. 2011. Methane 
contamination of drinking water accompanying gas-well drilling and 
hydraulic fracturing. Proceedings of the National Academy of Sciences, 
U.S.A. 108:8172-8176. http://www.biology.duke.edu/jackson/pnas2011.pdf.
    \17\ See, e.g., USEPA 2011. Draft Investigation of Ground 
Contamination near Pavillion, Wyoming. EPA 600/R-00/000
    One study reported severe impacts to livestock, including 
reproductive abnormalities, acute kidney or liver failure and death, in 
animals that drank from polluted ponds and creeks near fracking 
    \18\ Bamberger M, Oswald RE. Impacts of gas drilling on human and 
animal health. New Solut. 2012;22(1):51-77.
    The same study also documented a family living near a fracking site 
that reported symptoms such as headaches, nosebleeds, and skin rashes; 
the symptoms subsided when the family was relocated, suggesting a 
causal link with the nearby fracking operations.
    Studies linking specific health impacts to drinking water 
contamination resulting from fracking operations have not yet been 
conducted, which illustrates the results of under-regulating this 
industry, but the evidence suggests that current practices may be 
exposing families to unsafe levels of contaminants.
    Air Emissions. Fracking operations release air pollutants that can 
have health consequences at the local and regional level. As with 
water, researchers are hampered because fracking operations have been 
exempted from many monitoring requirements. But some of the health 
complaints reported by people living near fracking sites, particularly 
respiratory and neurological symptoms, are consistent with exposure to 
the chemical contaminants identified in some monitoring reports./19/ 
All of this underscores the urgent need to require effective pollution 
control equipment and community-level air quality monitoring to better 
assess the exposures and potential health risks. In the meantime, there 
is a strong rationale for reducing this contamination immediately to 
prevent potentially harmful exposures.
    \19\ McKenzie Witter RZ, Newman LS, Adgate JL. 2012. Human Health 
Risk Assessment of air Emissions from Development of Unconventional 
Natural Gas Resources. Sci Total Environ. 2012 May 1;424:79-87.
    The research, monitoring data, and public health expertise 
available to date indicate that natural gas facilities produce air 
pollution that can increase health risks. These risks increase with 
proximity, particularly for populations more vulnerable to the impacts 
of air pollution, which include children, elderly, and those with 
underlying health problems.
    Fracking activities expose communities to a range of harmful air 
pollutants, including known carcinogens, and respiratory, neurological, 
immunological and reproductive toxins. These pollutants are present in 
the diesel emissions released by truck traffic and heavy equipment use. 
Additionally, fracking operations can expose communities to silica 
dust, which causes lung disease. Workplace investigations at fracking 
sites have identified both silica and diesel as posing a health hazard 
for workers exposed on the job site.\20\ Since state laws allow 
drilling as close as 100 feet to residences, sensitive populations, 
such as children, may also be threatened by this pollution.
    \20\ Esswein E et al 2012. NIOSH Field Effort to Assess Chemical 
Exposures in Oil and Gas Workers: Health Hazards in Hydraulic 
Fracturing. Presentation made at IOM Roundtable: The Health Impact 
Assessment of New Energy Sources: Shale Gas Extraction. April 30-May 1, 
    VOCs released from natural gas wells and processing facilities have 
been shown to play a significant role in increasing unhealthy air 
quality, including from ground-level ozone. In the past year, four 
published studies have identified pollution from oil and gas 
facilities, where fracking is being deployed, as a source of pollutants 
contributing to regional ozone in Colorado, Texas, and 
Pennsylvania.21 22 23 24 Ground-level ozone is a powerful 
respiratory toxicant that is well known to aggravate asthma and other 
respiratory conditions.
    \21\ Petron G, Frost G Miller BR, Hirsch AI, Montzka SA, Karion A., 
Trainer M, Sweeney C, Andrews AE, Miller L, Kofler J, Bar-Iian A, 
Dlugokencky EJ, Patrick L, Moore CF, Ryerson TB, Siso C, Kolodzey, W, 
Lang PM, Conway, T, Novelli P, Masarie K, Hall B, Guenther D, Kitzis, 
D, Miller J, Welsh, D, Wolfe D, Neff W, Tans P. 2012. Hydrocarbon 
emissions characterization in the Colorado Front Range: A pilot study. 
Journal of Geophysical Research, VOL. 117.
    \22\ Gilman JB, Lerner BM, Kister WC, de Gouw J, 2013. Source 
signature of volatile organic compounds (VOCs) from oil and natural gas 
operations in northeastern Colorado. Environ Sci Technology DOI: 10. 
    \23\ Litovitz A, Curtright A, Abramzon S, Burger N. Samaras C. 
2013. Estimation of regional air-quality damages from Marcellus Shale 
natural gas extraction in Pennsylvania. Environ. Res. Lett. 8.
    \24\ Olaguer E 2012. The potential near-source ozone impacts of 
upstream oil and gas industry emissions. Journal of Air and Waste 
Management. 62:8, 966-977
    Additionally, a study in Colorado found elevated levels of air 
pollutants close to well sites during well production. Taken together, 
these pollutants were found to be high enough to put nearby residents 
at risk for respiratory and neurological health impacts.\25\
    \25\ McKenzie Witter RZ, Newman LS, Adgate LS, Adgate JL. 2012. 
Human Health Risk Assessment of air Emissions from Development of 
Unconventional Natural Gas Resources. Sci Total Environ. 2012 May 
    In addition, proximity to these facilities can also subject 
individuals to light and noise pollution, wastewater spills, noxious 
odors, and increased health and safety risks from explosions and other 
malfunctions. For this reason, as noted above, separating vulnerable 
populations from sources of air pollution and other hazards, should be 
an integral part of ensuring health and safety.
    All of these indications of health risks are cause for concern, 
underscoring the need to better protect the public. That means 
requiring mandatory disclosure of all chemicals used in fracking, 
thorough evaluations of potential health threats, the best possible 
pollution controls and drilling and fracking standards, and increased 
air and water monitoring both before and after drilling and fracking 
C. Climate Change Impacts
    When natural gas is burned at a power plant to generate 
electricity, it emits far less carbon pollution than coal-based 
electricity.\26\ But the production of natural gas produces significant 
methane emissions\27\ Methane, which makes up as much as 90 percent of 
natural gas, is a potent global warming pollutant, trapping at least 25 
times more solar radiation than carbon dioxide over a 100-year period. 
According to both the EPA's national inventory of greenhouse gas 
emissions and the EPA's tabulation of individual companies' emission 
data reports,\28\ the oil and gas industry is the nation's second 
largest industrial emitter of greenhouse gases (mainly methane and 
carbon dioxide), surpassed only by electric power plants.\29\
    \26\ U.S. Environmental Protection Agency, Clean Energy-Air 
emissions, available at http://www.epa.gov/cleanenergy/energy-and-you/
    \27\ NRDC, Leaking Profits: The U.S. Oil and Gas Industry Can 
Reduce Pollution, Conserve Resources, and Make Money by Preventing 
Methane Waste (Mar. 2012), available at http://www.nrdc.org/energy/
    \28\ EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 
1990-2010, Table ES-2, http:/www.epa.gov/climatechange/Downloads/
    \29\ EPA, Greenhouse Gas Reporting Program, 2011 Data, http://
    Currently, methane leaks into the atmosphere at many points in the 
natural gas production and distribution process--from wells during 
extraction, from processing equipment while compressing or drying gas, 
and from poorly sealed equipment while transporting and storing it. 
While much better data are needed, EPA estimates that at least 2 to 3 
percent of all natural gas produced by the U.S. oil and gas industry is 
lost to leaks or vented into the atmosphere each year\30\, and some 
recent studies suggest that the actual leak rate could be much 
higher.\31\ Preventing the leakage and venting of methane from natural 
gas facilities would reduce pollution, enhance air quality, improve 
human health, and conserve energy resources.
    \30\ U.S. Energy Information Administration, Natural Gas Gross 
Withdrawals and Production, 2010 data. available at http://www.eia.gov/
dnav/ng/ng_prod_sum_dcu_NUS_a.htm; U.S. Environmental Protection 
Agency, Inventory of U.S. Greenhouse Gas Emissions and Sinks (1990-
2009) (Apr. 15, 2012). Net emissions of methane are just over 600 bcf 
(billions of standard cubic feet), while gross withdrawals were 
approximately 26,800 bcf; this implies a net leakage of approximately 
2.3 percent.
    \31\ Robert Howarth et al., ``Methane Emissions from Natural Gas 
Systems,'' Background Paper Prepared for the National Climate 
Assessment (reference number 2011-0003) (Feb. 25, 2012), available at 
    The oil and gas industry can afford methane control technologies. 
Indeed, capturing currently wasted methane for sale could bring in more 
than $2 billion of additional revenue each year. Ten technically 
proven, commercially available, and profitable methane emission control 
technologies together can capture up to 80 percent of the methane 
currently going to waste.\32\ EPA, other federal agencies, and the 
states should move to require use of these technologies for methane 
control, and industry itself should move quickly to adopt these 
    \32\ NRDC, Leaking Profits: The U.S. Oil and Gas Industry Can 
Reduce Pollution, Conserve Resources, and Make Money by Preventing 
Methane Waste (Mar. 2012), available at http://www.nrdc.org/energy/
    Last year, EPA issued a Clean Air Act rule to curb VOC emissions 
from new and modified sources in the oil and gas industry.\33\ While 
this is a step forward, the rule is not strong enough and doesn't cover 
existing sources. EPA should also regulate methane directly, which 
would achieve much larger emission reductions.
    \33\ U.S. Environmental Protection Agency, Federal Register Vol. 
77, No. 159, Oil and Natural Gas Sector: New Source Performance 
Standards and National Emission Standards for Hazardous Air Pollutants 
Reviews (Aug. 16, 2012), available at https://www.federalregister.gov/
D. Water Pollution
    In addition to the risk of contaminating drinking water, shale gas 
extraction can pollute streams, rivers, lakes and other 
waterbodies.\34\ This can happen in a number of ways, including the 
    \34\ Hydraulic Fracturing Can Potentially Contaminate Drinking 
Water sources, NRDC, http://www.nrdc.org/water/files/fracking-drinking-

          1. Depletion of Water Resources.--Large volumes of water are 
        required for fracking operations. Fresh water is often taken 
        from local waterbodies. Because water can be contaminated when 
        it has been used for fracking, it cannot be easily be returned 
        to these waterbodies. Permanent loss of water from fresh water 
        resources can harm water quality and availability and also 
        aquatic species and habitat.\35\
    \35\ Soeder, D.J., and Kappel, W.M., 2009, Water Resources and 
Natural Gas Production fromt he Marcellus Shale: U.S. Geological Survey 
Fact Sheet 2009-3032, 6 p., available at: http://pubs.usgs.gov/fs/2009/
          2. Spills and Leaks of Fracking Chemicals and Fluids.--
        Fluids, including hazardous chemicals and proppants used in the 
        fracking process, are typically stored in tanks or pits on 
        site. If not stored properly, they can leak or spill, polluting 
        nearby waterbodies. Fluids can also be stored at a centralized 
        facility near multiple wellpads and then be transported to the 
        well by trucks or by pipeline, providing another opportunity 
        for leaks and spills during transit. Fracking fluid can also 
        spill during the fracking process. Leaks from tanks, valves, 
        and pipes, as a result of mechanical failure or operator error 
        at any point during these processes, can and do contaminate 
        groundwater and surface water.\36\
    \36\ See, e.g., DEP Investigating Lycoming County Fracking Fluid 
Spill at XTO Energy Marcellus Well, http://www.portal.state.pa.us/
          3. Mismanagement of fracking waste.--After fracking, some of 
        the fracking fluid, often referred to as flowback, returns up 
        the wellbore to the surface. In addition, naturally occurring 
        fluid is brought to the surface along with the produced oil or 
        gas (referred to as ``produced water''). This waste, consisting 
        of both flowback and produced water, can be toxic, and the oil 
        and gas industry generates hundreds of billions of gallons of 
        it each year.\37\ In addition to the chemicals that were 
        initially injected, flowback and produced water may also 
        contain hydrocarbons, heavy metals, salts,\38\ and naturally 
        occurring radioactive material. The wastewater is sometimes 
        stored in surface pits. If the pits are inadequately 
        regulated\39\ or constructed, they run the risk of leaking or 
        overflowing and can pollute groundwater and surface water.\40\ 
        The waste may also be disposed of on the surface, reused in 
        another well, re-injected underground, or transported to a 
        treatment facility. Each of these forms of wastewater 
        management carries its own inherent risks, including spills, 
        leaks, earthquakes (in the case of underground injection) and 
        threats to groundwater and surface water.
    \37\ U.S. Government Accountability Office, Energy-Water Nexus: 
Information on the Quantity, Quality, and Management of Water Produced 
during Oil and Gas Production, GAO-12-156 (Washington, D.C.: Jan 9, 
    \38\ Otton, J.K., 2006, Environmental aspects of produced-water 
salt releases in onshore and estuarine petroleum-producing areas of the 
United States: a bibliography: U.S. Geological Survey Open-File report 
2006-1154, 223p.
    \39\ NRDC, ``Petition for Rulemaking Pursuant to Section 6974(a) of 
the Resource Conservation and Recovery Act Concerning the Regulation of 
Wastes Associated with the Exploration, Development, or Production of 
Crude Oil or Natural Gas or Geothermal Energy,'' September 8, 2010, 18-
    \40\ See, e.g., DEP Fines Atlas Resources for Drilling Wastewater 
Spill in Washington County, http://www.portal.state.pa.us/portal/
          4. Stormwater Pollution.--During a rainstorm or snowstorm, 
        flowing water causes soil erosion and picks up pollutants along 
        the way, including toxic materials and sediment, and these 
        materials can flow into local waterbodies. Stormwater from 
        fracking operations can be particularly polluted because of 
        chemical and oil and gas residues. (Yet, as is described below, 
        the oil and gas industry is exempt from the stormwater 
        permitting requirements of the Clean Water Act).

    I must stress that there are numerous examples of these types of 
water pollution impacts occurring. I mentioned that just last week Ohio 
regulators observed 20,000 gallons of fracking waste being illegally 
dumped into a waterway.\41\ And a September 2011 Denver Post 
investigation found that four oil and natural gas companies were 
responsible for 350 spills in Colorado since January, 2010. The Post 
reported that one of these companies was responsible for three spills 
in one month alone, including benzene, a known carcinogen, and had 
contaminated both local lands and water.\42\ Ironically, state 
regulators had lauded these four companies as ``outstanding 
operators.'' Overall, the investigation found that spills took place in 
Colorado at the rate of seven per week and that from January to 
September 2011, more than two million gallons of diesel, oil, drilling 
wastewater and chemicals were spilled, and state regulators issued few 
fines. A 2012 Post investigation found that over a five year period, 
oil and gas operations were responsible for 2,078 spills and slow 
releases and that 17 percent of these spills had reached groundwater. 
In one county alone, Weld County, 40 percent of spills reached 
    \41\ Ohio EPA investigating dumping of drilling waste water in 
Youngstown area, Feb. 4, 2013, Bob Downing, Beacon Journal, http://
    \42\ http://www.denverpost.com/breakingnews/ci_18880544
    \43\ http://www.denverpost.com/environment/ci_22154751/drilling-
E. Impacts on Wildlife Habitat and Sensitive Lands
    Oil and gas development can destroy wildlife habitat and sensitive 
lands if siting does not take these factors into account. Natural gas 
production operations involve extensive road building and construction 
of wellpads that can fragment and destroy habitat and cause species to 
leave their historic breeding and nesting grounds. Light and noise 
disturb wildlife populations and may drive them to lower quality 
habitat, and runoff and spills can pollute aquatic habitat.\44\
    \44\ Energy Development and Impacts on Wildlife (Sept. 11, 2012), 
Center for Western Priorities; http://westernpriorities.org/2012/09/11/
F. Community Impacts
    Oil and gas development can fundamentally change the nature of 
communities. Fracking is a heavy industrial activity that entails 
substantial construction, heavy truck traffic, traffic accidents, and 
noise and light pollution\45\. It often attracts an influx of out-of-
state workers that can bring increases in crime and violence, sexually 
transmitted diseases and community strife that can stress local 
emergency, health and other community resources.\46\
    \45\ MISSING
    \46\ Whitter R. 2012. Community Impacts of Natural Gas Development 
and Human Health. Presentation made at IOM Roundtable: The Health 
Impact Assessment of New Energy Sources: Shale Gas Extraction. April 
30-May 1, 2012
    Under many state laws, oil and gas rights take precedence--or are 
interpreted as taking precedence--over surface ownership, so oil and 
gas wells and the associated industrial activity-including chemical and 
waste storage and disposal-can be located in residential or 
agricultural areas regardless of zoning or even the wishes of 
individual property owners. To address these issues, NRDC has launched 
a Community Defense initiative to provide legal assistance to 
localities that seek to hold natural gas extraction to appropriate 
scientific standards, protect their property or exclude oil and gas 
production from their communities.\47\
    \47\ http://switchboard.nrdc.org/blogs/ksinding/
iii. congress should close federal loopholes for oil and gas production
    The oil and gas industry has succeeded over many years in getting 
statutory exemptions from standard environmental protection laws and 
practices. These unjustifiable loopholes appear in the Clean Air Act, 
Clean Water Act, the Superfund statute, the Resource Conservation and 
Recovery Act, and the Safe Drinking Water Act, among others.
    There is simply no justification for exempting fracking from the 
basic environmental laws that have applied to other industrial 
activities for four decades. Fracking presents at least as many risks 
as other regulated activities and has just as many interstate 
implications. Moreover, the current level of disclosure and regulation 
clearly demonstrates that states lack the technical expertise and 
political wherewithal to govern fracking. Congress must close the 
loopholes in cornerstone federal environmental laws.
    This is not to say that states have no role to play. Under our 
system of ``cooperative federalism,'' states can play the lead role in 
the regulation, permitting, and oversight process. They can try out and 
adopt different regulatory approaches, as long as they meet federal 
minimum requirements. But all citizens deserve the protection of 
federal standards.
    Some of the key exemptions for oil and gas production facilities in 
bedrock U.S. environmental laws are:
                     safe drinking water act (sdwa)
    Fracking is exempted from the SDWA unless diesel is used in the 
fracking process, under a provision enacted in the Energy Policy Act of 
2005.\48\ This exemption prevents the Safe Drinking Water Act from 
protecting underground sources of drinking water from fracking impacts 
and exempts the siting, construction, operation, maintenance, 
monitoring, testing, and closing of fracking sites from regulation 
under the SDWA.
    \48\ Energy Policy Act of 2005, Pub. L. No. 109-58, Sec.  322, 42 
U.S.C. Sec.  300h(d)(1)(B)(ii). This provision bypassed a court 
decision that had previously ordered the EPA to regulate hydraulic 
fracturing under the SDWA. Legal Environmental Assistance Foundation v. 
United States Environmental Protection Agency, 118 F.3d 1467 (11th Cir. 
                            clean water act
    Oil and gas operations are exempt from the stormwater runoff 
permitting requirements of the Clean Water Act.\49\ With this 
exemption, there is no way to know if a company has an adequate Storm 
Water Pollution Prevention Plan in place to reduce the discharge of 
pollutants to receiving waters, and to eliminate illegal discharges.
    \49\ 33 U.S.C. Sec.  1342(l)(2); 33 U.S.C. Sec.  1362(24).
                             clean air act
    The oil and gas exploration and production industry is exempt from 
critical Clean Air Act requirements to adequately assess, monitor, and 
control hazardous air pollutants.\50\ This makes it impossible, under 
existing regulatory statutes, to perform an adequate assessment of air 
pollution health risks to nearby communities and require adequate 
safeguards. Excluding this important category of air pollution and air 
contaminants significantly underestimates the health risks posed by 
this industry.
    \50\ 42 U.S.C. Sec.  7412(a)(1)-(2); 42 U.S.C. Sec.  7412(n)(4).
           hazardous waste management and superfund statutes
    Oil and gas waste is exempt from the central federal hazardous 
waste management law--the Resource Conservation and Recovery Act--
including testing, treatment and disposal provisions that govern the 
assessment, control and clean-up of hazardous waste.\51\ Similarly, the 
oil and gas industry is protected from liability for spills under the 
Comprehensive Environmental Response, Compensation and Liability Act 
(the Superfund statute), which adopts the same definition of hazardous 
    \51\ 42 U.S.C. Sec.  6921(b)(2). Under this provision, EPA may act 
to close this gap under specified circumstances, but has not done so.
    \52\ 42 U.S.C. Sec.  9601(14).
                national environmental policy act (nepa)
    Under a special provision of NEPA, when oil and gas companies lease 
federal lands, they are often exempt from customary environmental 
review requirements applicable to other industries.\53\ A recent 
Government Accountability Office study found that in a sample from 
fiscal years 2006-2008, the oil and gas industry received almost 6,900 
categorical exclusions (CXs) that waived further environmental review 
under NEPA. Of that total, almost 6,100 of those CXs were used to waive 
requirements for permits to drill.\54\
    \53\ 42 U.S.C. Sec.  15942.
    \54\ U.S. Gov't Accountability Office, GAO-11-941T, Energy Policy 
Act of 2005: BLM's Use of Section 390 Categorical Exclusions for Oil 
and Gas Development (2011).
   iv. blm's potential role in providing national leadership on best 
                  practices for natural gas production
    Given this Committee's jurisdiction, I want to stress an important 
opportunity for the Bureau of Land Management (BLM) to show leadership 
on this issue. The BLM oversees approximately 700 million subsurface 
acres of Federal mineral estate and 56 million subsurface acres of 
Indian mineral estate across forty states. As of 2011, 38.5 million 
acres of oil and gas resources were leased by the federal government. 
These lands include private property in a split estate situation, or 
national forests that are watersheds for large populations. A March 
2012 Department of Interior report found that 56 percent of federal 
onshore leases were neither in exploration nor production-an area about 
the size of South Carolina. This is the time to minimize the impacts 
that will come with future fracking. As Chairman Wyden noted in his 
recent letter to BLM, new BLM rules must require best practices for 
fracking and protect environmentand health . But the latest indications 
are that BLM is going in exactly the wrong direction.
    A version of the draft rule leaked to the press last week indicates 
that BLM is in the process of weakening disclosure requirements and 
environmental protections in its proposed rule.\55\
    \55\ Revised Interior rule loops in industry-favored FracFocus, 
EnergyWire, Feb. 8, 2013, Mike Soraghan and Ellen M. Gilmer, http://
    The BLM rule should

   provide adequate and comprehensive disclosure of chemical 
        and other information to the public;
   place sensitive areas off limits;
   require safe setbacks for homes, schools, and streams;
   establishe strong standards for well construction that 
        ensure mechanical integrity;
   require baseline testing of water sources; and
   increase the safety of toxic waste management by prohibiting 
        open air pits.
    Details on NRDC's proposals are available in our comments to the 
    \56\ http://docs.nrdc.org/energy/files/ene_12091101a.pdf
                  v. climate change and energy policy
    Federal law and policy must also take into account the need to move 
the U.S. away from the use of fossil fuels, including natural gas. The 
United States' largest source of climate-changing pollution remains the 
air emissions from hundreds of existing power plants. We must curb this 
dangerous source of pollution and do so in a way that will build the 
economy and promote energy efficiency and renewable energy. NRDC has 
crafted a groundbreaking proposal\57\ that will help the United States 
create jobs, grow the economy, and curb climate change by reducing 
emissions from hundreds of existing power plants. NRDC's proposal shows 
how EPA, in partnership with the states, can set new carbon pollution 
standards under existing authority in the Clean Air Act that will cut 
existing power plant emissions 26 percent by 2020 (relative to peak 
emissions in 2005).
    \57\ Daniel A. Lashof ET AL., Closing the Power Plant Carbon 
Pollution Loophole: Smart Ways the Clean Air Act Can Clean Up America's 
Biggest Climate Polluters, NRDC (Dec. 2012), http://www.nrdc.org/air/
    The approach includes an innovative provision that will provide 
states with flexibility and drive investment in cost-effective electric 
energy efficiency, substantially lowering the cost of compliance, 
lowering electricity bills, and creating thousands of jobs across the 
country. The benefits of this approach--in saved lives, reduced 
illnesses, and climate change-exceed the costs by as much as 15-to-one. 
The Administration should move quickly to finalize the carbon standards 
they have proposed for new power plants and propose a system of 
regulation for existing plants, building on the ideas we have proposed.
    After electric generation, other primary uses of natural gas energy 
are in buildings and industrial applications. There are many 
opportunities to use natural gas more efficiently in these settings. 
Enhanced building energy codes and stronger efficiency standards for 
appliances, equipment and cooling and heating systems are among the 
best ways to use natural gas more efficiently. As is explained in a 
recent report by the Alliance to Save Energy's Commission on National 
Energy Efficiency Policy (on which I served), it is important that DOE 
stay on track to meet all of its statutory deadlines and 
responsibilities to strengthen energy efficiency standards for natural 
gas and electric appliances.\58\ After a strong start at the beginning 
of the last term, DOE has fallen behind on this important 
    \58\ Doubling U.S. Energy Productivity by 2030, ALLIANCE COMMISSION 
ON NATIONAL ENERGY EFFICIENCY POLICY (Feb. 7, 2013), http://ase.org/
     vi. next steps: building the overdue regulatory framework for 
                   addressing the impacts of fracking
    I've discussed above the need for Congress to take strong action to 
protect the environment and health, including by requiring full 
disclosure of fracking chemicals and closing loopholes in existing 
environmental statutes. And I've reviewed the need for BLM to issue 
rules properly governing fracking on public lands. Other significant 
actions that the federal government should take to limit the damaging 
impacts of fracking include:
   Congress should mandate and fund comprehensive studies on 
        the environmental and health impacts of fracking and on how to 
        address them. EPA is conducting a comprehensive scientific 
        study into the risks of fracking on drinking water, due in 
        2014. This will be the first independent study of its kind. The 
        Agency for Toxic Substances and Disease Registry , the National 
        Institute of Environmental Health Sciences and the National 
        Institute for Occupational Safety and Health should conduct 
        worker and community health investigations.
   Congress should ensure that both the BLM and EPA have 
        sufficient funding to inspect natural gas production facilities 
        and to enforce compliance. These agencies must be able to 
        vigorously investigate complaints.
   Congress and the Administration should take action to 
        implement the recommendations of the 2011 Shale Gas 
        Subcommittee of the Secretary of Energy Advisory Board.
Bureau of Land Management
BLM should
   Revise all of its rules for natural gas production including 
        leasing and management plans to reflect current technologies 
        and the extent of development so it protects the resources that 
        are used by Americans for hunting, fishing, hiking, and other 
        activities. The BLM is too often allowing oil and gas 
        development without conducting the proper environmental 
        analysis or considering the impacts on human health, the 
        environment, wildlife, and vital natural resources.
   Together with other federal land management agencies, 
        protect the most sensitive public lands, placing them off 
        limits to oil and gas development. This includes important 
        drinking water sources and wilderness quality lands. For 
        example, the George Washington National Forest in Virginia is 
        home to the headwaters of the Potomac and James Rivers which 
        supplies water for approximately four million people, including 
        all of Washington, D.C. and Maryland and Virginia suburbs, yet 
        the Forest Service is considering allowing fracking there.
    EPA should use its existing authority to the fullest extent 
possible to address the impacts and risks of fracking, including taking 
the following actions
   Issue stringent standards to limit methane, carbon dioxide, 
        and hazardous emissions from natural gas production from both 
        from new and existing sources. Cost-effective technology exists 
        to do so, as noted above. In addition, EPA must adopt standards 
        for VOCs and methane from fracked oil wells, which can emit 
        huge amounts of this ozone-forming pollutant.
   Ban the use of diesel in fracking fluid to protect drinking 
        water and waterbodies.
   Issue strong Clean Water Act rules for the discharge of 
        wastewater generated by natural gas fracking and production.
   To the extent possible under existing law, conduct a 
        thorough assessment of air toxic emissions, health threats, and 
        available pollution control technology that includes all 
        relevant sources of emissions of all contaminants. Based on 
        this assessment, EPA should set strong standards to limit 
        pollution that threatens nearby populations from new and 
        existing facilities.
   Make resources available to state and local clean water 
        agencies as needed for the monitoring of groundwater, 
        investigation of drinking water contamination and remediation.
                            vii. conclusion
    This testimony has focused on the scientific and legal issues posed 
by the expansion of fracking, but in closing I want to bring us back to 
the experiences and fears of real people to underscore what is at 
stake. On a recent trip to western Pennsylvania, I spoke to many 
families affected by shale gas production. These families told me that 
they fear that their water is contaminated with toxic substances from 
shale gas operations. They worry the air pollution coming from 
compressor stations or well pads is harming their families. And they 
believe their property values have been compromised. I witnessed two 
instances of flammable water, one in a field, another in a jug of 
drinking water. I don't know what caused them, and sadly the state 
doesn't seem to have investigated to determine the causes, but I could 
see how disturbing it was for homeowners to have flaming water. Every 
single person we spoke with had stories of contaminated water or air.
    I sensed a lot of fear in the communities I visited in 
Pennsylvania. It reminded me of when I served on the National 
Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling 
and people in Louisiana and Mississippi told me how scared they were 
for the health of their families. They knew they had been exposed to 
oil and to chemicals used in the dispersants, but they didn't know if 
that exposure would be harmful or how to keep their families safe.
    I know that we can do better for these families and communities, 
and hope that today's hearing will provide the basis for positive 
    As I've indicated, a lot of action is needed, and it is needed now. 
The federal government has been asleep at the switch--although it may 
be more accurate to say it's been anesthetized, given all the 
exemptions that have been worked into statute. NRDC stands ready to 
assist this Committee in its further deliberations. Thank you again for 
the opportunity to participate in this discussion.

    The Chairman. Thank you very much Ms. Beinecke.
    I think you'll find a lot of bipartisan interest on those 
efficiency issues that you made a point of at the end, and we 
thank you.
    Ms. Beinecke. Thank you.
    The Chairman. Dr. Medlock, welcome.


    Mr. Medlock. Thank you for the opportunity to be here.
    I want to begin by just commenting on the State of the 
regulatory infrastructure that we have in our natural gas 
industry in this country and more broadly, North America. You 
know, beginning with the Natural Gas Act in the 197--in the 
late 1970s followed by several FERC orders that were passed up 
through the 1990s, we've basically seen establishment of a 
market which arguably is the most efficient market in the 
world. Basically the reason we can say that is because any 
consumer that needs or has a desire to get natural gas in any 
given point in time, any producer that has a desire to actually 
access a market, the ability is there.
    This is largely the result of the regulatory infrastructure 
that has been put in place. It encourages competition, it 
encourages entrepreneurship, and it's basically been the reason 
why in this country we've seen, as it's been called already in 
this hearing, the Shale Gale emerge in this country.
    So anything that sort of could stand to disrupt this very 
well functioning market, I think would be a detriment to the 
country and to the natural gas industry.
    It was also referenced that, you know, in terms of the 
number of licenses that have been applied for, we're talking in 
excess of 30 billion cubic feet a day at this point, so it's 
quite a large number. But one thing you have to do is take a 
step back and realize the context in which that volume, that 
potential volume sets. Namely, the global liquefied natural gas 
market today is just over 30 billion cubic feet a day. There is 
no way that if all of those licenses were approved you'd see 30 
BCF a day of capacity constructed in this country. You're 
basically talking about doubling the size of the LNG market. So 
you have to understand and you have to take in to the proper 
context, you know the kind of competition that you're seeing.
    It's a race to win first move or advantage. It's exactly 
what you'd expect to see in a competitive market.
    Now when we sort of step sort of beyond what's happened 
with regard to natural gas and shale gas development in this 
country, we can think about national security issues, which 
have been also referenced and as a matter of fact, we performed 
a study for the International--the Office of International 
Policy and Affairs of the DOE a little over--about 2 years ago 
now where we looked at the broader geopolitical implications of 
shale, and this is a mouthful, and I'm happy to expand in Q&A, 
but there were 3 countries in particular that were most 
affected by the emergence of shale in North America. When you 
think again about foreign policy objectives of this country, 
not only in the short-term, but even in the immediate-to long-
term, this is a mouthful: Russia, Iran, and Venezuela. Those 
are the 3 countries that most--that were most heavily impacted 
by shale developments in this country. You take shale out of 
the mix, and those 3 countries really stand to benefit in a 
very dramatic way because of their massive natural gas 
resources and hydrocarbon resources more generally.
    Moving beyond that, when we think about a lot of the things 
that a lot of people have been talking about with regard to gas 
and to transportation, there's a real potential here for 
natural gas to displace some oil in our transportation 
infrastructure, and I think that's a really very important 
point when we think about national security.
    However, there still exists challenges. Moving gas into 
high use vehicles, into fleet systems, this is something that 
already stands to benefit a lot of companies that already own 
and operate these kinds of fleets, like FedEx, UPS. You're even 
talking about now LNG in long haul trucking. So these sorts of 
applications are already beginning to occur, not because of 
policy, but because the commercial incentive is there. It's 
there right now. So you're starting to see that migration 
    Moving into the cars that you and I drive, that's going to 
be a little bit more challenging because you're not talking 
about vehicles that are driven in excess of 20,000 miles a 
year. You're talking about vehicles that are driven 12 to 
13,000 miles a year and that matters a tremendous amount when 
you talk about fuel choice and the kinds of capital costs 
individuals are willing to incur when they buy new vehicles.
    On the emissions front, there are studies ongoing with 
regard to natural gas throughout the value chain and what 
methane leakage might mean for the real potential that might be 
there associated with natural gas developments and one of the 
things that one of the studies that's ongoing--I'm actually 
very much looking forward to seeing the results of is one 
that's being conducted by the Environmental Defense Fund. 
They're looking at--they're measuring methane leakage not only 
at the well head, but all the way down to the end use. One of 
the things that I fully expect to see as the result of that 
study, because it's something that I've actually looked at a 
little bit in my past is that what you'll see is the most 
egregious source of methane leakage is what we call in 
locations in the market in where we call behind-the-fence. So 
this is after local distribution companies take charge of the 
gas and that opens up a tremendous amount of discussion around 
the appropriate policies for how maintenance is performed on 
systems, not just interstate systems, not just gathering 
systems, but even behind-the-fence systems, so local 
distribution companies.
    Finally, on the environmental front, when we talk about the 
potential for natural gas to reduce or achieve certain climate 
change objectives--emissions objectives. I think we've already 
seen to some extent just in 2012 their preliminary data what 
can actually happen if gas can displace older coal facilities 
from the generation stack and we're talking about our 
generation in particular. What we actually saw was that in 
2012, because of the low price of natural gas, natural gas 
actually rose to surpass coal share in generation for some 
period of the year. What that basically resulted in was 
CO2 emissions being as low in this country as they 
have been since 1990. That's pretty remarkable. What that tells 
you is that natural gas stands to benefit not only domestic 
manufacturing, not only domestic producers to the extent that 
LNG exports actually do occur under a market equilibrium, and I 
think that's an important point, but it also stands to benefit 
various environmental objectives.
    Again, if we're going to think about appropriate policies, 
I think the first thing we need to do is gather more 
information. Which is why I applaud hearings like this and the 
kinds of things that we're seeing going not only academic, but 
in the industrial communities, as well.
    Thank you.
    [The prepared statement of Mr. Medlock follows:]

Prepared Statement of Kenneth B. Medlock, III, James A. Baker, III, and 
  Susan G. Baker, Fellow in Energy and Resource Economics, and Senior 
 Director, Center for Energy Studies, James A. Baker III Institute for 
               Public Policy Rice University, Houston, TX
    During the past decade, innovative new techniques involving 
horizontal drilling and hydraulic fracturing have unlocked a vast 
resource potential and resulted in the rapid growth in production of 
natural gas from shale. According to the US Energy Information 
Administration, gross withdrawals from shale gas wells in the United 
States has increased from virtually nothing in 2000 to over 23 billion 
cubic feet per day (bcfd) in 2011, representing over 29 percent of 
total gross production in the US. Moreover, a recent Baker Institute 
analysis indicates shale gas production could reach over 50 percent of 
all domestic natural gas production by the 2030s.\1\
    \1\ The techniques have also matriculated into the oil sector 
triggering an upstream renaissance in US oil production driven by light 
tight oil, or shale oil. In fact, domestic oil production has increased 
year-on-year since 2008, something that has not occurred since the 
    Without doubt, the natural gas supply picture in North America has 
changed substantially, and it has had a ripple effect around the globe, 
not only through displacement of supplies in global trade, but also by 
fostering interest in shale potential in other parts of the world. 
Prior to the innovations leading to the recent increases in shale gas 
production, declining domestic production in the United States and 
Canada was the consensus view, and was a harbinger of increasing 
reliance in North America on foreign supplies. This resulted in an 
expectation that prices would rise, and that the US would become a 
major global sink for global supplies. While many producers around the 
world began to invest in capabilities to move liquefied natural gas to 
the US, the late 1990s and early 2000s also witnessed a decline in 
industrial demand for natural gas as gas-intensive manufacturing 
activities migrated away. Thus, the North American gas market was 
undergoing a shift in preparation for increasing import reliance, 
higher prices, and reduced domestic demand for industrial activities. 
Even in the power sector, higher prices set the stage for more robust 
growth in renewable energy sources. But, the rapid growth in shale gas 
production has since turned all of these expectations upside down. In 
fact, there is a valuable lesson in what has transpired. Market 
stresses encourage responses on multiple margins, and there is nothing 
different about what is going on currently.
    To wit, the past few years of rising shale gas production has 
contributed to lower domestic natural gas prices. This, in turn, has 
encouraged the substitution of natural gas for coal in power 
generation, and a revitalization of gas-intensive industrial demands. 
There has also been interest in creating new demands, such as the use 
of natural gas in transportation, particularly as the price of crude 
oil remains well above the price of natural gas on an energy equivalent 
basis. Finally, there has been growing interest in developing LNG 
export capability to capture the arbitrage opportunity that currently 
exists with domestic natural gas prices substantially below prices in 
Europe and Asia.
    This paper discusses the feasibility of the pathways for natural 
gas that have emerged in the wake of the shale gas revolution. We begin 
our discussion with the transportation sector, followed by industry, 
power generation and LNG exports. While this is not meant to be 
exhaustive, it will highlight some key points that must be brought 
forth in any policy discussion around natural gas. Namely, there are 
multiple margins of response to low natural gas prices, and one cannot 
consider each in a silo; the market certainly does not.
    In any case, the domestic supply capability is important in 
determining the price impacts of growth in demand, regardless of the 
source. According to a recent Baker Institute study, commercially 
viable shale gas resources have rendered the domestic supply curve to 
be very elastic.\2\ This means that even modest changes in price will 
result in significant changes in production. So, the capacity for the 
US market to absorb large increases in demand without significant 
upward pressure on price is large. In fact, the central tendency of 
prices is now projected to be between $4.50/mcf and $5.50/mcf over the 
next few decades.
    \2\ Indeed, the US supply elasticity with shale included in the 
resource base is roughly 5 times larger than when it is not included, 
see Medlock, Kenneth B., ``US LNG Exports: Truth and Consequences'', 
available at www.bakerinstitute.org (2012). Put another way, the 
domestic supply curve is very flat.
    Altogether, the aim here is to highlight some critical discussion 
points when considering the pathways for growth in U.S. natural gas 
demand. In particular, in traditional end-uses, growth in natural gas 
demand faces few obstacles other than those presented by market forces. 
In new demand sectors, however, there are substantial barriers to 
growth, largely due to high fixed infrastructure costs and return on 
investment considerations. Thus, although the potential for growth is 
large--especially in transportation where current gas use is very low 
relative to total transportation energy use--realizing that potential 
will be challenging.
                    natural gas into transportation
    The transport sector has historically been dominated by crude oil 
products, to the tune of 94% of all transport uses in 2010\3\. So, as a 
point of departure, we must understand how natural gas might penetrate 
the transportation sector. For the purpose of this discussion, we will 
focus on two avenues for natural gas into transportation, one direct 
and the other indirect:
    \3\ Data sourced from IEA Energy Statistics and Balances. Ethanol 
comprises another 4% with natural gas making up the remainder. Note, if 
pipeline uses are excluded, these values shift even more heavily 
towards oil.

   Compressed natural gas vehicles (CNGVs)
   Electric vehicles (EVs).

    One could argue that other issues should enter the discussion, 
particularly if the goal is to reduce reliance on imported oil. For 
example, fuel efficiency improvements ultimately lower fuel use per 
mile driven. We could also discuss methanol and gas-to-liquids (GTL) 
technologies, in particular because they both require natural gas as a 
feedstock and could displace crude oil in transportation. Moreover, we 
cannot ignore the developments in light tight oil (LTO) that have been 
driving U.S. oil production up since 2008, reversing a downward trend 
that had persisted since the early 1970s. But, we will return to all of 
these options below when discussing the considerations that influence 
investments in different fuel types.
CNG Vehicles
    Currently, natural gas use in transportation is only 0.13% of total 
gasoline use. So, there is a lot of room for growth. In fact, a ten-
fold increase in demand would push demand to about 0.9 bcf/day, which 
is an increase the U.S. market could absorb with relative ease. But, 
for the low levels of demand that currently exist to change, it will 
take substantial investment in fueling infrastructure and large 
adoption of compressed natural gas vehicles (CNGV) by consumers.\4\
    \4\ We could also discuss liquefied natural gas (LNG) options into 
transportation, but this is primarily for large trucks and local 
maritime transport. The arguments presented herein still generally 
    One thousand cubic feet of natural gas yields eight gallons of CNG. 
So, if natural gas price is $4/mcf then the cost of natural gas as a 
feedstock for CNG production is $0.50/gallon. Adding the processing 
costs for CNG of approximately $1.00/gallon, we have an estimated 
wholesale price of $1.50/gallon. In addition, regional prices may 
differ due to differences in the price of gas, but the price changes by 
only $0.10/gallon for every $0.80/mcf change in the gas price, so the 
wholesale price will not vary substantially by region. As a basis for 
comparison, the wholesale price of gasoline on the NYMEX is currently 
at $3.00/gallon. If these prices persist, the per gallon fuel cost of 
CNG is about half the cost of gasoline, before accounting for things 
such as distribution costs, profits, local and national taxes, and 
lease payments by station owners. Assuming all these additional costs 
are equal for CNG and gasoline, we still have a differential between 
fuels of about $1.50/gallon.
    Despite the preceding cost per gallon comparison, cost per gallon 
is not the appropriate metric for comparison. We must compare the cost 
per mile of each fuel option. In order to do this for privately-owned 
vehicles, we need to incorporate the efficiency of a CNGV and a 
comparable gasoline hybrid vehicle. Then, we can calculate the annual 
fuel cost savings for each vehicle type. Importantly, we compare the 
CNGV with the hybrid because these are the two ``next generation'' 
technology options currently available.
    If we compare the Honda Civic, for example, we have a gasoline 
hybrid engine efficiency of 44 miles per gallon in the city. The Honda 
Civic CNGV has a city driving efficiency of 27 miles per gallon. Thus, 
the cost per mile is $0.0126 lower for the Civic CNGV. If we assume 
annual driving of 12,000 miles, the fuel savings is $151/year. Assuming 
a 7 year vehicle life, we see an undiscounted lifetime savings of just 
over $1,060. The current MSRP for a Civic CNGV is $26,305, and the 
current MSRP for a Civic Hybrid is $24,200, meaning the price 
difference is currently $2,105. Thus, the fuel cost savings does not 
compensate the higher upfront cost of the vehicle. If we discount 
future savings, the disparity grows. So, the CNGV is not the most 
attractive option to the consumer looking to purchase a vehicle that 
also reduces gasoline demand. If, however, the annual mileage jumps to 
24,000 miles per year, then the undiscounted fuel cost savings just 
compensates for the fixed cost differential over seven years. So, high 
mileage is a prerequisite for the CNGV option to make economic sense 
given these fuel costs.
    The current pricing differential between natural gas and gasoline 
has been sufficient to promote adoption of CNGVs in commercial fleets. 
However, commercial fleet opportunities are small when compared to the 
fleet of privately owned motor vehicles. So, while an economic argument 
can be made for natural gas into high-mileage commercial fleets, the 
same is not true for private vehicles, which, absent a change in fixed 
costs differentials, will limit the movement of natural gas into 
private vehicles.
    Aside from the cost differences, another issue that stands in the 
way of large scale CNGV adoption is a lack of re-fueling 
infrastructure. There are currently about 1,100 CNG fueling stations 
and 59 LNG fueling stations nationwide. These facilities primarily 
serve large trucks in the case of LNG and light duty trucks in the case 
of CNG. But, the ability to refuel becomes an issue when one considers 
the current consumer driving behaviors. In particular, the flexibility 
implicit in the existing fuel delivery infrastructure (for gasoline) 
allows drivers the freedom to plan their activities without necessarily 
planning routes so that they coordinate with re-fueling opportunities. 
This point is what leads us to the so-called ``chicken-and-egg'' 
problem. Namely, consumers bear a cost if they have to search for re-
fueling stations (a so-called ``search cost''), and this cost can 
prevent them from buying a CNG vehicle, even if the projected fuel 
savings compensates for the incremental fixed cost. In turn, station 
owners may be reluctant to install CNG re-fueling capability if CNGVs 
are not prevalent enough in the vehicle stock to guarantee some demand 
for the station's services. Hence, the conundrum--how does one overcome 
this mismatch to ensure coordinated growth in both CNGVs and re-fueling 
Electric Vehicles
    Many of the issues facing CNGV adoption into the private vehicle 
fleet are also faced by EVs, but by differing degrees. Cost of 
ownership is certainly an issue, as most EVs are more expensive than 
their non-EV counterparts. Of course, the low cost of electricity can 
provide significant fuel savings, but even if EV fuel costs are driven 
down near zero, the projected 7 year undiscounted savings approaches 
$5,600. The base model Ford Focus EV lists an MSRP of $39,200. This 
compares with the gasoline-powered base model Ford Focus MSRP of 
$16,200. So, just as with EVs, the difference in fixed cost is not 
fully compensated by the fuel savings. Even with the federal tax credit 
of $7,500, the fuel savings is not sufficient. In other words, rational 
individuals who buy an EV are doing so for some additional derived 
    Aside from the issue of cost, there are also issues associated with 
re-fueling. Refueling electric vehicles has both short term and long 
term components. In the short term, the existing generating fleet is 
sufficient to meet almost any expectation of electricity demand growth 
associated with EV penetration. Moreover, many consumers can re-charge 
at home, and in some cases re-charging capability is available at work 
and other non-residential locations. But, the availability of non-
residential re-charging stations is not sufficient to support wider 
adoption of EVs. As of September 2012, according to the EIA there were 
4,592 non-residential re-charging locations in the U.S., where some 
locations have multiple charging units. Moreover, most of these 
locations are in only a couple of states.
    The location of re-charging stations becomes a relevant issue 
primarily when long distance travel is desired. Currently, range is 
limited to less than 100 miles per charge in most commercially 
available EVs on the market today.\5\ This creates logistical issues 
for consumers who wish to drive more than 100 miles for a weekend 
    \5\ For example, the Ford Focus EV has a range of 76 miles and the 
Nissan Leaf has a range of 73 miles. The Tesla S has an estimated range 
of over 250 miles, but its cost makes it a prohibitive option for most 
car buyers.
    If we think about the prospects of EVs longer term, investments in 
charging stations can be made, particularly if consumers show a 
propensity to buy EVs. However, even if the proverbial ``chicken-and-
egg'' problem of vehicles and infrastructure can be overcome, the 
resulting requirements for new electric generation capacity cannot be 
understated. For instance, if EVs are widely adopted into the vehicle 
fleet, a recent Baker Institute report put the projected growth in 
power generation requirements are 5%, 12% and 21% higher than the 
``business as usual'' case in 2030, 2040 and 2050, respectively.\6\ 
Given the regulatory burden facing other alternatives, the majority of 
this incremental demand for electricity would likely be met by natural 
gas. However, it is important to recognize that this incremental demand 
will take decades to materialize, absent government regulations that 
accelerate the process.
    \6\ See ``Energy Market Consequences of Emerging Renewable Energy 
and Carbon Dioxide Abatement Policies in the United States,'' by Peter 
Hartley and Kenneth B Medlock III (Sept 2010), available at 
Some other factors to consider for natural gas into transportation
    There are other costs that exist, some of which are not even in the 
current discussion. Cost of expanding and upgrading electricity 
infrastructure can become an issue. Effectively, current mechanisms 
would force non-EV owners to subsidize EV expansion. This could become 
a political issue. Moreover, currently 18.4 cents per gallon of 
gasoline purchased flows into the National Highway Fund to support 
construction and maintenance of public infrastructure. As the gasoline 
base diminishes, the fund will still need to be solvent, so electricity 
and natural gas will need to be taxed accordingly. Currently, no such 
tax exists, so it is left out of most breakeven calculations for 
purchase of CNGVs and EVs. In the case CNGVs, assuming refueling 
infrastructure is added, a tax at the pump can be instituted in much 
the same manner as is currently done with gasoline purchases. But, its 
implementation will almost certainly be protested by early adopters of 
CNGVs as it could represent an ex post unexpected increase in the cost 
of ownership.
    In the case of EVs, if mechanisms are proposed whereby electricity 
sales are taxed, then again, non-EV owners are subsidizing EV 
expansion. While centralized refueling stations are a possibility, 
their installation is still a pre-requisite capital expense. Moreover, 
the issue of tax payments is still present. It is more likely that EV 
owners will recharge at home. So, a mechanism to tax the owners of EVs 
specifically must be considered. Just as with early adopters of CNGVs, 
any tax implemented will represent an ex post unexpected increase in 
the cost of ownership, and will likely be met with resistance.
                   industrial demand for natural gas
    There are, of course, also ample opportunities for demand growth in 
traditional, non-transportation end-uses. Power generation and 
industrial uses make up the bulk of natural gas demand on an annual 
basis. Seasonally, the balance shifts more heavily to space heating 
applications in residential and commercial end-uses, specifically in 
winter months, but the general trends in annual demand growth are set 
by industrial and power generation uses. In 2012, power generation 
comprised 36.1% of annual demand and industrial comprised 32.1%.\7\ 
Moreover, the recent low price environment has natural gas use in both 
sectors poised to grow.
    \7\ Data sourced from the U.S. Energy Information Administration.
    Industrial most recently demand peaked in 1997 (see Figure 1*) 
reaching levels similar to what was witnessed in the early 1970s. It 
steadily declined thereafter due to lower cost natural gas in 
international locations. Industries such as the ammonia and fertilizer 
industries were heavily favored by lower cost feedstocks elsewhere, and 
the late 1990s and early 2000s saw many of these types of industrial 
gas consumers shutter operations in the US Gulf Coast region choosing 
to move abroad. However, much of this has changed in the last few 
years, and industrial demand has actually grown since 2009, a trend 
bolstered by low cost natural gas supply due to growth in shale gas 
    * All figures have been retained in committee files.
    An expectation for continued strong supply and stable pricing is 
being seen in the slate of recent announcements by firms to expand 
their businesses that rely on natural gas as a feedstock and energy 
source. Dow Chemical, an industrial user of natural gas, has recently 
announced a number of significant expansion plans in Texas. Other 
industrial firms have also announced plans to expand domestically. 
Methanex has moved forward with plans to relocate its Chilean facility 
to Geismar, Louisiana, and Sasol has announced intent to move forward 
with a GTL project in Southwest Louisiana. In short, if price does stay 
low and relatively stable, it is possible that industrial demand could 
rise to levels not seen since the mid-1990s. This would represent an 
over 18% increase in industrial gas demand from its current levels.
    It is important to point out that the long term trend seen in the 
industrial demand sector bears resemblance to a cycle. Indeed, even the 
recent growth in industrial demand has been modest in comparison to 
power generation use. Nevertheless, the past few years have seen a 
renewal of industrial demand for natural gas. Moreover, the planned 
capital expenditures by gas-intensive industrial players are quite 
large, signaling a substantial comparative advantage exists to siting 
production in the US.
                power generation demand for natural gas
    Natural gas demand in the power generation sector has substantial 
growth opportunity through fuel substitution, and it can occur in a 
relatively short time frame. In 2012 we saw a dramatic increase in the 
use of natural gas in power generation through substitution with coal. 
In fact, the natural gas share of power generation in 2012 rose to over 
30%, which was up from an annual average of 17.9% just 10 years ago. 
This is in stark contrast to coal, which has seen its market share 
deteriorate from 50.8% to 36% in the same time frame. In fact, much of 
the drop in coal's share in power generation is directly attributable 
to grid-level switching to natural gas.
    The rise of gas use at the expense of coal was primarily the result 
of relatively low natural gas prices, and the fact that there is 
sufficient natural gas generating capability to allow for large scale, 
grid-level fuel switching. Much of the existing natural gas fleet that 
can capitalize on relative price movements was brought into service 
between 2000 and 2005 (see Figure 2). In fact, natural gas generation 
capacity surpassed the installed capacity of coal in the US in the 
early 2000s. Moreover, most of the capacity that was added employs the 
latest generation combined cycle technology, meaning its thermal 
efficiency is substantially higher than the majority of the existing 
coal fleet.
    Figure 3 indicates the prices at which existing capacity of natural 
gas displaces coal in power generation when the price of coal is $65/
short ton (the average 2012 NYMEX price of Central Appalachian coal), 
and the heat rate of the competing natural gas plant is 7,000 btu/kWh 
(which is representative of about 30 percent of the existing natural 
gas fleet). We see that when the price of natural gas drifts below 
$2.80/mcf, then gas will displace coal capacities with heat rates above 
11,000 btu/kWh, meaning roughly 17% of existing coal capacity (or 52 
GWs) could be displaced. Of course, this example is specific to a coal 
price of $65/ton, but we can see in general that when gas price falls, 
we have the possibility to see substantial fuel switching.\8\ If coal 
trades at price levels seen in the international marketplace in the 
last few years (over $130/ton), then the parity point for natural gas 
price to displace 17% of coal capacity rises to around $5/mcf.
    \8\ Of course this is only a necessary condition. It may not be 
sufficient. For example, if contracted coal deliveries continue to pile 
into inventory, then the shadow value of coal will drop toward zero 
when inventory nears capacity. Then, coal-fired generating stations 
will operate even if the price of natural gas dips below this level. 
This is, however, distinctly a short run phenomenon.
    If we see the price of natural gas regularly at a competitive 
advantage to coal in power generation then older units of the coal 
fleet will be retired. Initially, the existing natural gas generation 
fleet will pick up the slack, but eventually, new builds of high 
efficiency natural gas combined cycle units will be required. This 
raises the natural gas pricing point for parity because a greenfield 
expansion must include the cost of capital. However, when one also 
accounts for the environmental regulations that the US Environmental 
Protection Agency (EPA) seeks to impose via recent rule-makings, then 
the competitive balance shifts in favor of natural gas.\9\
    \9\ The current rule-makings the EPA has made are all under various 
levels of protest in US courts. So, it remains to be seen exactly how 
binding the recent EPA actions may ultimately be.

    Importantly, the EPAs recent rule-makings are focused on pollutants 
other than carbon dioxide. However, a displacement of coal by natural 
gas will have a substantial impact on US CO2 emissions. 
Evidence of this was seen in 2012. The low price of natural gas 
encouraged significant fuel switching to natural gas away from coal, 
and US CO2 emissions were the lowest they have been since 
1992. In fact, according to the EIA, CO2 emissions where 
5,293 million metric tons in 2012 and 5,343 million metric tons in 
1992. Moreover, this occurred without the EPA rule-makings in force, 
and the real price of electricity was on average lower in 2012 than in 
1992, dropping from $0.1361/kWh to $0.1187/kWh on an average basis 
delivered to residential customers.
    The above highlights a substantial opportunity for growth in 
natural gas demand, particularly if resource abundance translates into 
relatively stable and low prices of natural gas. Moreover, increased 
use of natural gas in power generation, particularly if it comes at the 
expense of coal, conveys desired environmental benefits. Government 
action on air and water emissions and mandated pollution control 
mechanisms will provide a substantial push in this direction.
                              lng exports
    A recent paper by Medlock (2012)\19\ argues that the volume of LNG 
exports from the US will ultimately be contingent upon domestic market 
interactions with the international market. This is because US LNG 
exports will occur in a global setting, meaning the entire issue must 
be considered as a classic international trade problem. Only then will 
any insight be gained with regard to export volumes and thus US 
domestic price impacts. The paper goes on to argue that (a) the impact 
on US domestic prices will not be large if exports are allowed, and (b) 
the long-term volume of exports from the US will not likely be very 
large given expected market developments abroad. The bottom line is 
that the entities involved in LNG export projects may be exposed to 
significant commercial risk.
    \19\ ``US LNG Exports: Truth and Consequence'' available at 
    Much of this conclusion derives from a relatively straightforward 
analysis of domestic and international natural gas prices taking into 
consideration the effects of short term deliverability constraints. 
Indeed, the argument is made that the existing spread in prices between 
the US, Asia and Europe is transitory. Referencing Figure 4 can 
illustrate this argument. Specifically, spot prices in the UK, US and 
Asia all move together until the middle of 2010. At that point, the US 
price begins to drift below the prices in the UK and Asia. This is 
largely the result of growth in shale gas production in the US.
    A significant break in the pricing relationship between Asia and 
Europe occurs at a specific date, March 11, 2011, the day of the 
disaster at Fukushima. The Asian spot price jumped by almost $2/mmbtu 
within a week and continued to climb through the end of the year with 
the closure of every nuclear power plant in Japan. This was the result 
of an unexpected demand shock as Japanese utilities scrambled to buy 
any available LNG for power generation. At the same time, the spread 
between the US and Asia was exacerbated by a negative demand shock in 
the US. Namely, the winter of 2011/12 was one of the warmest on record 
in the US, resulting in very low winter heating demands. As a result, 
natural gas inventories remained very robust and the market was 
oversupplied, leading to a price collapse to below $2/mmbtu in April 
2012. As a result, the spread between the US and Asia rose to as high 
as $15/mmbtu. The interest in exporting LNG from the US also 
accelerated during this period. However, it is reasonable to expect 
Asian price to revert back to its pre-Fukushima relationship with 
European price as the current deliverability constraints subside--due 
to new supplies and reactivation of nuclear capacity in Japan. The LNG 
export opportunity looks a bit more sobering if that occurs.
    Importantly, if we consider a longer term view of regional prices, 
we can begin to understand the potential risk in myopic decision 
making. Figure 5 indicates annual average price delivered to consumers 
in Asia, the UK and the US from 1980 through 2012. We can see from 
2000-2008 the US price was rising, and it coincides with the period 
during which LNG regasification capacity was constructed with an aim to 
import LNG to the US. However, the period since 2008 is characterized 
by a wide divergence in regional prices, and this coincides with the 
emerging interest to export LNG.
    One must consider the longer term price relationships because the 
recent past is not a prelude to the future. In fact, the 20 years prior 
to the 2000s is characterized by a relatively stable relationship 
between the regional market prices that saw Asian prices at a 
consistent but relatively small (to recent history anyway) premium to 
prices in Europe and the US. One must, therefore, question the nature 
of the recent divergence in regional prices.
    The conclusion reached in the study by Medlock was one of very low 
export volumes from the US because the pricing premiums that exist 
today will not likely persist due to new supplies from a variety of 
sources as well as reactivation of nuclear reactors in Japan. In 
effect, the high prices in Asia encourage responses on many margins and 
thus result in a reduction in price. This follows from the adage, ``the 
best cure for high prices is high prices.''
              concluding remarks--bringing it all together
    All the information, when taken together, points to a series of 
cause-and-effect relationships that present challenges for some margins 
of response and opportunities for others. It will be surprising if 
``all of the above'' actually results in a market-driven equilibrium. 
The traditional consuming sectors, specifically industry and power 
generation, face fewer obstacles because the mechanisms for demand 
growth--infrastructure and technology--are already in place. Natural 
gas into transportation may be a mixed outcome, with fleet vehicles--
because they are high mileage vehicles--being the most successful in 
migrating natural gas into the fuel mix. Absent a policy intervention 
or a cost reduction, passenger vehicles still face hurdles to large 
scale penetration of CNG due to lower mileage.
    The likelihood of demand pull coming from international sources in 
the form of LNG exports is high, but not in large quantities. This 
follows from the fact that US prices will likely rise to reflect 
marginal costs and international prices are not likely to remain at 
their current premiums. In fact, if the Asian price reverts back to its 
pre-Fukushima relationship with European price then the margin for 
profitable export of LNG from the US becomes razor thin. Thus, market 
forces will ultimately limit the volume of US LNG exports.
    So, perhaps what is needed for demand growth for natural gas is a 
relatively simply prescription--economic growth. Economic growth 
stimulates demand for electricity and industrial goods, both of which 
favor natural gas. Moreover, as demands in these traditional sectors 
grow, this will create competition for supplies of natural gas for LNG 
exports and new demands. It is for this reason that the most likely 
demand for the robust supply of natural gas in the US will come from 
industrial and power generation uses. Transportation and LNG exports 
will likely remain marginal influences at best.

    The Chairman. Well said doctor.
    Mr. Gerard, welcome.

                      PETROLEUM INSTITUTE

    Mr. Gerard. Thank you Mr. Chairman, Ranking Member 
Murkowski, and members of the committee. It's great to be with 
you today.
    In the interest of time, I will abbreviate my statement 
consistent with your earlier counsel Mr. Chairman.
    The invitation to join today is really an opportunity to 
talk about the game-changing opportunity that's occurring in 
the United States today, one that's unprecedented and that no 
one would've predicted just 5 or 6 short years ago. Today's 
hearing opportunities challenges natural gas is extremely 
timely in light of our Nation's emergence now as a super power 
in energy production.
    This change in the global energy equation is due largely to 
technological advances in the extraction of natural gas and oil 
from shale formations. These technologies, though they have 
been around for many years, are now being improved dramatically 
in driving America's 21st century energy renaissance and have 
the potential to benefit our Nation well beyond what we might 
consider traditional energy policy. In the words of Pulitzer 
Prize winning author, Dan Yergin, just last week he said ``this 
is the most important energy innovation so far of the 21st 
    Recent research shows that in the upstream segment of the 
oil and natural gas industry, and I want to emphasize this is 
just in unconventional production of natural gas, we today 
support 1.7 million jobs. That number is expected to grow to 
2.5 million jobs by 2015, 3 million jobs by 2020, and 3.5 
million American jobs by 2035. According to the Bureau of Labor 
Statistics, jobs in the oil and natural gas industry, 
exploration of production sector pay on average more than 
$100,000 per year, more than twice the national average. These 
are good jobs that our economy desperately needs.
    Currently the entire natural gas and oil industry today in 
the United States supports 9.2 million jobs, we're responsible 
for 7.7 percent of our gross domestic product, and we 
contribute $86 million a day to the Federal Government.
    In addition to job creation, unconventional natural gas and 
oil paid $62 billion in Local, Federal, and State taxes in 
2011. By 2020, this number is expected to grow to $111 billion.
    On a cumulative basis, unconventional natural gas and oil 
activity is expected and projected to generate more than $2.5 
trillion that's a T, 2.5 trillion in tax revenues between 2012 
and 2035.
    We should remember, this isn't happening in just a vacuum. 
The world is watching us and understands that decisions you 
will make as a committee, and more broadly the Congress, could 
literally alter the geopolitical energy dynamic of the world.
    Case in point, LNG exports which will create thousands of 
U.S. jobs, generate billions in additional revenue, improve our 
trade deficit, and spur major investment in infrastructure, all 
while improving our energy security.
    Additionally, the increased use of natural gas is critical 
to reducing carbon emissions, which many have spoken about 
already today. In fact, as mentioned earlier, carbon emissions 
are at 1992 levels due largely to natural gas.
    The question before us is not whether we have the energy to 
grow and to prosper. We clearly do.
    The question is whether we have the political wisdom and 
foresight to create a national energy policy that harnesses our 
great potential as literally an energy super power.
    We look forward to working with you to make this potential 
a reality. This hearing is a good start in that process.
    Thank you very much Mr. Chairman for the invitation.
    [The prepared statement of Mr. Gerard follows:]

  Prepared Statement of Jack N. Gerard, President and CEO of American 
                          Petroleum Institute
    Good morning Chairman Wyden, ranking member Murkowski and members 
of the committee. Thank you for the invitation to join you as we 
consider the game changing energy opportunity before us resulting from 
our abundant domestic natural gas supply.
    My name is Jack Gerard, president and CEO of the American Petroleum 
Institute. We represent all aspects of the oil and natural gas industry 
with more than 500 members who supply most of the nation's energy.
    Today's hearing, ``opportunities and challenges for natural gas,'' 
is extremely timely given our nation's emergence as a global energy 
leader. This change in the global energy equation is due largely to 
technological advances in the extraction of natural gas and oil from 
shale formations. These technologies are driving America's 21st century 
energy renaissance and have the potential to benefit our nation well 
beyond traditional energy policy.
    In the words of Pulitzer Prize winning author Dan Yergin, ``[this 
is] . the most important energy innovation so far of the 21st 
    Recent research shows that in the upstream segment of the oil and 
natural gas industry alone, unconventional natural gas production 
supports 1.7 million jobs. That number is expected to grow to 2.5 
million jobs by 2015; 3 million jobs by 2020 and 3.5 million jobs by 
2035. According to the Bureau of Labor Statistics, jobs in the oil and 
natural gas exploration and production sector pay on average more than 
$100,000 per year, more than twice the national average. These are good 
jobs our economy desperately needs.
    Currently, the entire natural gas and oil industry supports 9.2 
million U.S. jobs; accounts for 7.7 percent of the U.S. economy and 
delivers $86 million per day in revenue to our government.
    In addition to job creation, unconventional natural gas and oil 
paid $62 billion in local, state and federal government taxes in 2011. 
By 2020, this number is expected to grow to $111 billion. On a 
cumulative basis, unconventional natural gas and oil activity is 
projected to generate more than $2.5 trillion in tax revenues between 
2012 and 2035.
    And we should remember this isn't happening in a vacuum. The world 
is watching and understands that our decisions could alter the 
geopolitical energy equation for generations.
    Case in point are LNG exports, which will create thousands of U.S. 
jobs, generate billions of dollar in revenue, improve our trade deficit 
and spur major investment in infrastructure, which will strengthen our 
energy security.
    Additionally, the increased use of natural gas is critical to 
reducing greenhouse gas emissions. In fact, U.S. carbon emissions are 
at 1992 levels due largely to increased use of natural gas in the 
generation of electricity.
    The question before us is not whether we have the energy we need to 
grow and prosper. We do. The question is whether we have the political 
wisdom and foresight to create a national energy policy that harnesses 
our great potential as an energy superpower. We look forward to working 
with you to make this potential a reality.
    This hearing is a step in the right direction. Thank you for your 
time and attention.

    The Chairman. You get the record for the shortest 
testimony, and----
    Mr. Gerard. Thank you.
    The Chairman [continuing]. We thank you.
    So we're going to have votes in a few minutes.
    I'm going to ask just one question to each of you. Senator 
Murkowski, we'll get as many colleagues in as we can, and then 
we're going to break probably around 11:15.
    Here's my question for each of you that's willing to 
comment. I think you heard Senator Murkowski and I both talking 
about the importance of working in a bipartisan way. That's 
what it's going to take in order to get anything done. What I'd 
like is to, in effect, assess your views on one issue and that 
is: Is there a way to a natural gas policy where America can 
have it all? Economic growth, lower emissions, cheaper power, 
and reduced trade deficits certainly are what come to mind. 
What would each of you recommend that the committee do in order 
to have it all, in effect find that sweet spot where we can 
attain so many of these important objectives to the country? 
Why don't we start with you Governor?
    Governor Hickenlooper. That's certainly no easy question.
    Again, I come back to the notion of regulation--appropriate 
regulation, and my own inclination, obviously being a Governor 
and knowing there are enough former Governors up there is that 
States are the laboratory of democracy and that we are focusing 
on how do we create a rigorous set of regulations that will 
be--I mean we steal from each other every day, and I think the 
Federal Government Lisa Jackson at EPA's been a great partner 
with us in terms of trying to push us further and trying to 
figure out where those sweet spots are by using some of the 
technical expertise that she has had at her disposal. But I 
think that that's going to take a, you know, certain amount of 
time although we should have our full regulatory environment 
together within--by the end of this year, and at that point 
we're still doing testing and measuring the air pollution 
issues and air quality around these large fields, trying to 
push our large companies to do less trucking back and forth, 
more pipeline transfers, to convert more of their diesel 
operations to be fueled with LNG.
    I--One of the large exploration companies, Noble Energy in 
Colorado, they're based out of Houston, but they are now 
building their own LNG plant in Colorado so that they can sell 
it and run these operations in a more clean fashion.
    The Chairman. If I can get some others in, Mr. Liveris.
    Governor Hickenlooper. Yes.
    Mr. Liveris. Yes, Mr. Chairman.
    I had mentioned the quadruple win. We believe that if the 
American public benefits and we get the benefit of jobs from 
exports and domestic manufacturing, America can be an energy 
and manufacturing super power.
    All you have to do is follow the current law of the regular 
regime that exists, which is--look at the public interests with 
each application, take a cautious approach.
    Our numbers suggest somewhere between 5 and 8 bcf a day 
should be what we see in this first little while while we're in 
the fifth year of these great energy finds.
    I think we also have conversations around responsible 
    We should have a con-responsible supply and making sure 
demand and supply don't get out of check like they did 10 years 
    We should not let the market, call it the speculators, call 
it Wall Street, call it the financial world, set the price 
domestically because as we all have seen with commodities like 
oil, that price is set in the main by financial markets as much 
as real supply and demand.
    So there is a way to have it all, I believe.
    The Chairman. Very good.
    We were just given a reprieve for 15 minutes. So we're 
going to go until 11:30. Then we'll take a break.
    Mr. Eisenberg.
    Mr. Eisenberg. Thank you.
    I think this committee is taking a very thoughtful approach 
to the issue.
    I note this is not the very--it's not the first time this 
committee's had a hearing on the issue of LNG exports. I mean 
you did this 14 months ago.
    You're taking a very thoughtful and cautious approach to 
try and understand all of the challenges.
    If I could focus on one thing, it would be permitting. In 
my written testimony, and I'll walk through it a little bit 
again, I talk about some of the hoops that you really have to 
jump through to actually get an LNG export facility up and 
    So not only the DOE license is not the final hoop that they 
have to jump through here. They have to engage in a very, very 
broad environmental review of their project led by FERC.
    Compliance with NEPA requires that the developer acquire 
the land and begin design engineering plans. That takes about 2 
years. Then NEPA requires the input of up to about 20 Federal 
and State agencies, including the Army Corps for dredge and 
fill permits, which we know can be very controversial; a 
waterway suitability assessment from the U.S. Coast Guard; air 
permits from State and EPA agencies; and then the usual State 
and Local construction permits.
    If they can somehow get through that and get a final EIS, 
then you can be sued for 6 years.
    If you can somehow get through that, then you have to get 
the long-term financing in place and you have to get contracts 
in place. Then when you get the contracts in place, then you 
have to go find $10 billion to go building a facility.
    This is not an easy process.
    I really recommend to try and take on some real legislation 
to try to make the permitting process work faster.
    The Chairman. Let's do this Ms. Beinecke and for each of 
you, understand the tradeoffs because if we all just go back to 
our positions, then it's going to be hard to find the sweet 
    Ms. Beinecke.
    Ms. Beinecke. Senator I think that one of the key issues is 
gain--how you gain public confidence, and I think having minim 
Federal standards and public disclosure of chemicals.
    There--right now there in the 30 States in which fracking 
is occurring. There's only chemical disclosure in 14, and those 
States vary considerably.
    So in order for natural gas to provide the benefit that my 
colleagues on this panel have identified, you have to figure 
out how you're going to assure the public that their health and 
that their well-being is protected, and there need to be 
minimum Federal standards that provide that, and they don't 
exist now.
    The Chairman. Very good.
    Mr. Medlock.
    Mr. Medlock. Yes, well, I actually second what Ms. Beinecke 
just said with regard to Federal standards.
    The one place I think the Federal Government could actually 
have a very active role is in promoting transparency. I think 
that's something that is lacking, with the exception of a few 
States where certain States have actually taken initiatives to 
make sure transparency regulations are put in place.
    The other thing, and I'll shift gears here, that I think 
could really help benefit an all-of-the-above kind of outcome 
is to allow markets to do what they do, what they've always 
done. They've actually resulted, as I mentioned in my 
testimony, in a very efficient natural gas market in this 
country, and it's hard to imagine anything that would be 
adopted that would disrupt that.
    But one thing that we need in this country that would 
really benefit, not only the immediate-term, but in the long-
term, is the ability to store electricity. If we get to that 
point, it actually changes the entire landscape of the energy 
infrastructure in this country and would convey a lot of 
benefits associated with renewables, associated with natural 
gas, associated with nuclear power that we simply can't reap 
right now.
    The Chairman. You're spot out on storage. I'm over my time.
    Mr. Gerard, just if you----
    Mr. Gerard. I'll be brief. The first thing we can do is 
remember how we got to where we are today. In a very real way 
we are today at a sweet spot.
    We got here because of market conditions and the free 
market brought us to the point of $3 gas when it was $14 gas 
just 4 or 5 years ago.
    So the worst thing for us to do, and this is just where I 
take strong exception with my friend Andrew, is to get 
government involved in trying to set the price and trying to 
control the market.
    The market will sort this out and find the equilibrium.
    We will from that we benefit from the improved environment 
with lower emissions, having low cost, affordable natural gas.
    We'll generate 2 million jobs, we'll generate $2.5 trillion 
in revenue to the Federal Government, all while finding the 
opportunity to literally have it both ways in terms of exports 
and domestic production.
    The Chairman. Very good.
    Senator Murkowski. I'm just going to continue on the 
discussion of exports. Several of you have raised the fact that 
there are multiple applications pending right now. There are 18 
that are for export to non-FTA countries and 3 that are for 
export to FTA countries.
    The suggestion has been, and not necessary with this panel 
but out in the public discussion that somehow or other if all 
these applications were to be approved, all of a sudden we 
wouldn't have access to the natural gas in the volumes and the 
quantities that we would hope for this manufacturing 
    I think it was you, Mr. Eisenberg, that noted some of the 
    I noted in my opening comments that we're talking about 
billions of dollars to build out the infrastructure. Was over 
in Japan a couple of weeks ago. They're looking at our prices 
somewhat with envy, but when they account for the 
transportation costs and the liquefaction costs, at the end of 
the day there's not that much difference between what they're 
currently paying and what they might pay if they were able to 
take benefit of export from the United States here.
    If I can ask, and Mr. Liveris you had mentioned that 
potentially we could see half of our natural gas being exported 
if, in fact, all of these applications were to be approved. The 
question is: Do any of you believe that we will be in a 
situation where we will see a dozen export applications 
approved in this near term?
    I throw it out to any of you, given the cost, given the 
need for long-term contracts with other Nations, and the need 
to obtain financing.
    Mr. Liveris.
    Mr. Liveris. I would actually firstly agree with my good 
friend Jack, assuming we're friends, the conversation about 
adding jobs is what we should be having 2 million plus 5 
million, not 2 million or 5 million.
    I think this conversation is seen before.
    None of us get the gas price right. Five years ago we had 
it wrong. We were building import terminals. Five years from 
now, what's it going to be?
    How many terminals should the public interest demand?
    What is the public interest here?
    It is to get volatility and instability out of an energy 
    We care about agriculture here in this country.
    We care about defense.
    We should care about energy. This opportunity to get it 
right by doing both in the public interest means we should take 
a crawl-walk-run approach to how many terminals we approve and 
how many of these occur over time.
    As I said in my testimony, we're in the fifth year of our 
100-year advantage. You can't move factories overnight, to 
state the obvious.
    Why put at risk the 5 million jobs, the $96 billion worth 
of investment that are on the books today? Over 60 companies, 
why put that at risk by doing either or? Why transfer the risk?
    So be cautious, do what the public interest demands and the 
DOE application process.
    I agree, financing will be difficult.
    I agree, prices will be volatile.
    But why take the risk and let the speculators set the gas 
price like they did 10 years ago, and we all remember the 
Enron's and what the efficient market did for us 10 years ago. 
It was hardly efficient. OK. It was very inefficient.
    Senator Murkowski. We can talk about whether or not the 
public interest determination includes the specific criteria 
that we need to look at. I think that's going to be an 
important part of it.
    I have suggested, too, that we need to be very thorough in 
the review. You don't just willy-nilly grant applications. 
These all need to be recognized for what they might provide.
    Governor, I want to take the balance of my time to talk to 
you because I am interested in what Colorado has done in terms 
of your leadership with the State's regulatory system. You 
indicate that Colorado could be this national model. You speak 
very highly of what you've been able to accomplish in terms of 
the balance.
    I happen to believe that the other States should be models 
just as Colorado is a model and, again, as a former geologist 
or a recovering geologist, however you recognize yourself, that 
in your State and in your region you want to make sure that 
things work for you.
    I guess my question to you is: Given that you feel pretty 
comfortable with your State's regulatory system and what you 
have built there, do you think that we need new Federal rules 
on top of what Colorado already has in place to provide for 
further levels of safety or assurance or does it add another 
layer and perhaps an unnecessary regulatory layer?
    Governor Hickenlooper. Historically the way the regulatory 
environment traditionally works in this country is the States 
are the laboratories, and we are now--there are other States 
that are aggressive in creating their own integrated and 
comprehensive regulatory environment, and we--for the National 
Governors Association, you former Governors know how 
competitive Governors can be. But we also collaborate.
    So I--the Republican Governor, Mary Fallin, from Oklahoma, 
she and I went to Detroit last June to try and convince car 
manu-automobile manufacturers that they should do more 
compressed natural gas vehicles right off the assembly line.
    At the same time, we're looking at how do we take our 
regulatory environments and have those 30 States where we are 
facing the issues of innovation technologies in horizontal 
drilling and hydraulic fracturing, and how can we work together 
to create a template where we would have sufficient flexibility 
to respond to the different environments in different States, 
different depth of the shale, the different quality of the 
rock, but at the same time allow us to move toward some level 
of Federal regulation.
    So I think ultimately we will get to that Federal 
    I want to make sure that the States work together in terms 
of making sure we don't put one State or another at a 
    Senator Murkowski. So then, in addition to what you already 
have within your State, you think that additional Federal 
regulation on top of that is a wise thing?
    Governor Hickenlooper. I think what would happen Federal 
regulations would probably be modeled after a group of States. 
It wouldn't be in addition to.
    They would--we talked to Secretary Salazar when he was with 
the Interior in terms of what the appropriate regulation would 
be for BLM land. What we came up with was Wyoming, Colorado, 
Utah all have fairly strict transparency rules around frack 
fluids, some of the same basic regulatory environments, very 
aggressive about escaped fugitive methane. We got to the point 
where, and we haven't done this yet, but we're talking about 
having one application form that you would send if you wanted 
to drill a well in Colorado or Wyoming on BLM land. It would be 
the same form that you send in to the State. So you send the 
same form to the Federal Government as to the State. So that--I 
mean, isn't that the ultimate goal?
    We're trying to get different States and the Federal 
Government to work together so we cut the red tape and yet 
still maintain a very, very, very high and rigorous set of 
regulatory environments.
    Senator Murkowski. Chairman, I'm well over my time, but it 
seems to me that we're talking about regions, not necessarily 
one level of Federal overlay.
    But I'd like to pursue this conversation further with you 
if I may.
    The Chairman. Very good.
    Unless things change now, again, we will go until 11:45, 
then we're going to have 2 votes, and then we'll take a break 
and will come back.
    Next in line is Senator Udall, and then Senator Flake is 
after Senator Udall.
    Senator Udall. Thank you Mr. Chairman, again. Welcome to 
all of you on the panel.
    I want to turn to my Governor who provided an initial, very 
insightful summary of what's happening in Colorado.
    We have seen a big economic boost from the current oil and 
gas boom, as the Governor mentioned.
    It's also brought some challenges. In our neighborhoods and 
communities we've seen additional drilling and concern from our 
citizenry. I think the Governor and I both believe that there's 
a great economic opportunity here, but our No. 1 priority is to 
protect the health and well-being of our citizens.
    We hear a lot about fracking and drilling, and there are 
some efforts underway that have been challenging in Colorado 
when it comes to those communities? rights versus the State's 
rights versus the industry's rights.
    Governor would you speak, because I know you're going to 
field--and have already--some questions on how we balance all 
of this, but speak in particular of the fugitive emissions 
questions that have been raised?
    There was a study that the EPA released last week that 
concluded that oil and gas operations are the second largest 
emitter of methane in the country. You've spoken about the need 
to eliminate fugitive methane emissions, so we can get that 
full environmental benefit.
    Would you share with the committee what your vision is for 
how we do that and what the industry's been saying to you in 
    Governor Hickenlooper. Sure, and thank you Senator for your 
balanced approach on all of this.
    I'm sure you senators all know this, but there's no one 
who's climbed more mountains, I mean real mountains, in terms 
of their life and at the same time recognizes and tries to 
balance the needs of our communities for jobs and commerce so 
that we can protect our natural environment at the highest 
level but still focus on the realities of day to day life.
    You know the issue around methane is crucial because it 
is--fugitive methane is very harmful to our environment and 
even as you burn gasoline, you know compressed natural gas is 
cleaner than gasoline, but if you allow fugitive methane to 
escape from where it's collected and then during transportation 
and more importantly where it is put into vehicles or used by 
end, whether it's commercial facilities or wherever, if that's 
escaping, we lose much of the environmental benefit.
    The one beauty of this is you don't have to push industry 
too far to let them recognize this is something that they can 
sell. Right? This is something that they can value and that a 
higher level of regulatory oversight to make sure that 
they're--that we measure fugitive methane really allows them to 
benefit long-term by making those infrastructure investments.
    We have--we're doing a $1.5 million project right now 
through Colorado State University. We're going to go out to a 
couple of our largest fields, but eventually within 2 years we 
will have measured the air quality at different times of the 
day at different seasons in most of our major oil producing 
parts of the State so that we can actually demonstrate what are 
the real, not just the estimates, but what are the real 
consequences of this and how much methane is escaping and get 
ourselves back down to a zero tolerance.
    Most of the responsible oil and gas producers recognize the 
imperativeness, and they willingly accept that regulatory 
    Senator Udall. Thank you Governor.
    If I might, I'd like to ask Ms. Beinecke for her thoughts 
on fugitive emissions. I know, Frances, you've really taken a 
close look at this and----
    Ms. Beinecke. We have Senator, and thank you for asking.
    Our concern is--I mean we have concerns about all the air 
emissions coming from natural gas. Methane is of particular 
concern because of its potency as a climate-forcing emission. 
So we think that the measurement that's going on now, trying to 
find out where the methane is leaking from, putting forth the 
technologies to stop it as quickly as possible is absolutely 
imperative to protecting the climate.
    We're also concerned with the other air emissions coming 
from fracking, particularly coming from the trucking 
    There are people all across the country who are concerned 
about what they're being exposed to. They don't know exactly.
    We need ongoing air monitoring, and I'm happy to hear the 
Governor saying that that's going to be something Colorado is 
going to be doing because there's a huge gap between the 
information that the public has and what is happening in their 
own communities and until we, as a country, take that on and 
address it head on, there is--there just a huge conflict 
between the opportunity that people hear of identified with 
natural gas and the concern that people have about their health 
and well-being in their own homes.
    I'm just saying that that is growing so quickly across the 
    We hear from people each and every day, and just a poll 
that Bloomberg did in January shows that 66 percent of people 
in the country wanted stronger protections from fracking and 
that went up from 55 percent in September.
    So, this is an issue that is really exploding in the public 
mind, and they need to know that you will all take on their 
concerns and put in place those safeguards that will assure 
them that they're protected in the future.
    Senator Udall. As the Governor pointed out, these are 
industrial processes, and we've all become comfortable with the 
industrial zones around our cities and wherever they may be 
located. But when these industrial processes come to people's 
backyards and school yards and community areas, it really 
drawns people's attention.
    I know my time's expired.
    I want to, for the record, thank the Governor for his 
comments about my mountain climbing exploits, but I also wanted 
to be clear that the great French climber, Lionel Torrace, said 
that climbers are conquistadors of the useless.
    We'll leave that there, but I did want to comment on 
natural gas exports. I think there's real potential when it 
comes to exporting natural gas, as long as it doesn't come at 
the cost of our land, our water, and our air, or consumer 
energy prices.
    I want to keep exploring the national security implications 
of exports, especially to our NATO allies. I think there could 
be a real benefit. I sit on the Armed Services Committee, as 
well as the Intelligence Committee, and I believe there's more 
to this question that we ought to discuss, and I look forward 
to continuing that conversation.
    There's real geopolitical ramifications of this Shale Gale 
that we now have available to us.
    So, again Mr. Chairman, thank you, Ranking Member 
Murkowski, thank you.
    The Chairman. Thank you Senator Udall.
    Senator Flake.
    Senator Flake. Thanks.
    In the interest of time, I'll just ask one question. Mr. 
Liveris in your testimony you note the competitive advantage to 
American industry by maintaining affordable gas prices. I think 
we all agree with that. You talk when you look at Dow's online 
policy statements, they will tout the benefits of a competitive 
open market, particularly as it pertains to exporting 
chemicals. Why do open markets work there in driving down price 
and benefits to everybody, but they don't in terms of producing 
natural gas and export of natural gas?
    Mr. Liveris. I'll try and be brief.
    It is a complex conversation.
    Number 1, open markets we are very much for.
    We are for exports, we are for balanced exports, so we 
don't lose competitive advantage domestically.
    Gas, as already noted, has to be liquefied and shipped at 
billions and billions of dollars. That is not an open market, 
that's a point to point contract. There's probably 30 of these 
contracts around the world from nation states to nation states.
    Not all go to free market NATO allies. These are countries 
that need gas because they don't have oil. They--actually their 
equivalent is to import oil. That's why there is a national 
security interest.
    But to take gas and actually export it as a primary-10 
producers in the world that are gas rich, only one of them 
chooses to disadvantage the domestic sector by not looking at 
the efficiency of the domestic market because it takes so much 
to make this shippable versus in oil. OK? You actually can 
leave it home in an efficient market home.
    So how do you actually balance how much of it goes offshore 
versus home is a conversation that should be in a conversation 
like this.
    Domestic manufacturers in places like Saudi Arabia, in 
places like Russia, who actually have top-down policies say I'm 
going to keep the gas home to diversity my economy away from 
just being exposed as an oil exporter and a gas exporter in 
their 2 cases.
    In a free market democracy, we need to get the balance of 
all stakeholders to the table, but recognize that this is not a 
commodity world price yet. One day it might be. There may be 
enough LNG traders that's why I disagree with this market of 
LNG being 30 BCF a day.
    If the world energy market is the gas market, the gas will 
substitute the oil.
    The gas will substitute the coal.
    The gas will substitute ultimately nuclear where nuclear is 
not allowed.
    So it's the world energy market that this serves. 
Therefore, it's fairly infinite in that sense.
    So you've got to be careful you don't let the current world 
energy price, which is oil, set the domestic gas price as an 
unintended consequence.
    So, crawl-walk-run. Let some of this occur. Let the BCFs go 
up. Let it rise as supply rises with responsible regulation. 
Let's look at the public interest and the effect on the 
domestic competitiveness in both the consumer and the 
industrial user. Let's get both of them.
    That's my quadruple win.
    Senator Flake. If I understand right, Mr. Gerard, you're 
saying that the best way to let that happen, to find that 
balance, is to let markets to do that. Is that correct?
    Mr. Gerard. Absolutely.
    In fact, Senator when you look at the reality of what we're 
dealing with today, there's already about 37 to 40 bcf a day 
capacity that exists in the world. The expectation between now 
and 2025/2030 is that the entire market for LNG is going to be 
in the 50 to 60/65 bcf.
    The amount that we're talking about in the U.S.'s potential 
proposals or permits is about 30 bcf.
    The potential additional build across the world is 50.
    So if you look at all of the proposal to export LNG today, 
you've got 114 bcf potential trying to satisfy a 50 bcf a day 
    The amount that would leave here, and most of the studies 
show, at most perhaps 5 to 6 bcf.
    The natural gas industry increased our production in the 
United States by 6 bcf in 2 years in the United States, and 
we're just at the verge of figuring out how to further be more 
efficient to produce even greater volumes.
    The likelihood of this having any significant impact on 
price, in fact all the other independent studies have done show 
somewhere between 2 and potentially 11 percent impact on price, 
is highly unlikely.
    It's the market that brought us here today.
    The market will continue to drive the price down.
    The other added advantage is we're creating jobs in this 
country, great paying jobs, as we try to fulfill the demand on 
a global basis. We shouldn't overlook that, and we're really at 
an opportunity to change the equation.
    We're now the largest producer of natural gas in the world, 
surpassing Russia. It's a great opportunity.
    We shouldn't go slow and let that market dissipate because 
it will be filled by others around the world, and we're putting 
at disadvantage our own Americans and others who are prepared 
to risk market capital and to build the facility to export the 
    Senator Flake. Thank you, Mr. Chairman.
    The Chairman. Senator Franken.
    Senator Franken. Thank you Mr. Chairman.
    Natural gas has contributed to lower U.S. emissions, which 
is great, but oil and gas production is still the second 
biggest contributor to greenhouse gases and eventually we need 
to shift more emphasis to renewables.
    When this committee heard testimony from former Lockheed 
Martin CEO, Norman Augustine, on a report by the American 
Energy Council, we were told that the country has yet to embark 
on a clean energy innovation program deserving of the 
priorities that are at stake.
    Part of that is because my colleagues often criticize 
government support for renewables. They believe it is only the 
marketplace that can determine which technologies will become 
    But the history of fracking tells a very different story.
    The Breakthrough Institute has looked extensively into 
this. They've examined the Eastern Gas Shales Project which was 
an initiative of the Federal Government back in 1976 before 
hydrofracking was a mature industry. The Project set up dozens 
of pilot demonstration projects with universities and private 
gas companies testing, drilling, and fracturing methods.
    This was instrumental in the development of the commercial 
extraction of natural gas from coal.
    Other tool used in fracking, microseismic imaging, was 
originally developed by Sandia National Laboratory, a Federal 
energy laboratory.
    The industry is also supported through tax breaks and 
subsidies. In fact, according to former Mitchell Energy Vice 
President Dan Stewart, Mitchell Energy's first horizontal well 
was subsidized by the Federal Government. Mr. Mitchell said in 
an interview, and I quote, DOE started it and other people took 
the ball and ran with it. You can't finish DOE's involvement.
    Anyone here but Mr. Gerard, Mr. Medlock do you agree with 
Mr. Stewart that you can't dismiss DOE's role in the 
development of this technology?
    Mr. Medlock. I'm actually 100 percent with that. It's 
actually a point I've made many times in talks that I've given. 
I think it's actually remarkable how the foresight that was 
demonstrated by the Federal Government back in the 1970s to 
actually initiate the Eastern Gas Shales Project because it 
didn't pay off in 5 or 10 years. It took over 30.
    Now we're sitting in the midst of talking about what should 
we do with this abundance of natural gas, and it owes its roots 
to Federal Government programs, so I don't disagree with that 
at all.
    Senator Franken. I just want to emphasize that because we 
hear this so often. But then if you look back at the actual 
history of this, this thing that we celebrate now, this 
abundance of natural gas came from the expenditure of Federal 
    We need to do the same thing when it comes to renewables.
    Governor Hickenlooper. Senator, I think you're right on 
point, and I know some of those guys from Mitchell Energy, and 
they are the first to recognize over the 1980s--I remember that 
I think it was 1982 and 1995 that the Federal Government 
invested over $5 billion in terms of trying to create this 
ability to extract shale gas from tight shales and to get oil 
from tight shales.
    Simultaneously, I think also we have to recognize that 
renewable energy such as wind and solar is intermittent and 
certainly as we are faced with challenges on storage we need 
ways to be able to have electrical energy generation go on and 
off efficiently.
    Natural gas does that at a level that literally almost no 
other energy can do, so it becomes a perfect partner for solar 
and wind.
    I think it will prove to be the transition energy that will 
allow us eventually to get to a fully renewable energy 
    Senator Franken. Thank you Governor.
    Since I have you, I just want to talk to you a little bit 
about, and I'll do this very quickly because I'm running out of 
time, the 2005 Energy Policy Act exempted underground 
injections associated with fracking from Federal Safe Drinking 
Water Act jurisdiction.
    The only exemption was from fracking fluids that used 
    Now we've had concerns over groundwater contamination that 
have been raised, even documented by EPA in places like 
Pavilion, Wyoming.
    You've developed regulations in your State that include 
disclosure of chemicals that are used. Have these regulations 
prevented your State from sustaining a strong natural gas 
industry? I think I know the answer, but I want to ask it.
    Governor Hickenlooper. No, not at all.
    But I think the key there is to make sure that all the 
actors are at the table and so that as you're recognizing one 
of the real issues when we sat down with executives from 
Halliburton, they have a frack fluid that is made out of food 
additives. You can drink it.
    We did drink it around the table, almost ritual-like in a 
funny way, but it demonstrated----
    Senator Franken. Like a pact.
    Governor Hickenlooper. Not like a pact.
    It was a demonstration. We had environmental----
    Senator Franken. Oh.
    Governor Hickenlooper.--representatives. We had industry 
representatives--everybody around the table.
    Senator Franken. It was not like an occult?
    Governor Hickenlooper. Not an occult.
    Senator Franken. OK.
    Governor Hickenlooper. No, there were no religious 
    Senator Franken. Yes.
    Governor Hickenlooper.--in any sense.
    But I think the key was that there--that that was more 
expensive that they've invested millions of dollars to create 
what is really a benign fluid in every sense. It doesn't have 
benzene or any of the other components that we generally get 
from crude oil or hydrocarbons.
    So, but if we were not a--if we were overly zealous in 
forcing them to disclose what they had created, they wouldn't 
bring it in to our State.
    So it was an alignment of self interest to make sure that 
we had a regulatory environment where they could protect their 
investment in their intellectual property but at the same time 
be sufficiently transparent so that the Marmel Defense Fund, 
the NRDC, the representatives of environmental quality were 
willing to say this is sufficiently transparent to--we know we 
understand what's being pumped into the ground.
    The Chairman. I don't want to be Draconian, but we have a 
number of Senators who are trying to get in before the break.
    Senator Franken, I'm going to follow up with, though, 
because you're making good points.
    Senator Franken. Thank you Mr. Chairman.
    The Chairman. Senator Lee.
    Senator Lee. Thank you Mr. Chairman, and thanks to all of 
you for coming.
    I appreciate your testimony and the thoughtfulness with 
which you've addressed each of these issues.
    I've got a few questions. I'd like to start with Mr. 
Liveris, if I could.
    In your testimony you suggest that increased exports are 
likely to bring about upward price pressure on natural gas.
    But it appears to me that you may not have taken into 
account the impact that Mr. Gerard referred to a few minutes 
ago, the impact that would result from increased demand 
resulting in higher prices resulting in increased production 
activity. Plus, and likely in more production of natural gas, 
perhaps enough to keep the price of gas even, or close to even.
    Is it--is that a correct characterization that Mr. Gerard 
made, that we need to take that into account?
    Mr. Liveris. So, I made several points.
    Firstly, the world market for gas does not exist; it's a 
world oil price.
    The world oil price is currently $117 Brent.
    It's got nothing to do with the cost of world production.
    It's got nothing to do with the actually the affordability 
of oil around the world.
    It's got everything to do with speculation and geopolitics.
    Before you index the domestic gas price to the world oil 
price domestically and this up-swirl that Mr. Gerard refers to, 
which is why you want to export in the first place, I said we 
are for exports.
    But we should be very careful that we don't do what is 
called Dutch Disease. Economic theory brings back the highest 
price back to your domestic sector with unintended 
    Be careful of unintended consequences.
    Have the production.
    Have the exploration.
    Gas prices should rise from where they are today.
    They putting in-locking in wells because the gas price is 
too low.
    We fully expect domestic gas prices to rise, and that's not 
even a question of----
    Senator Lee. You're OK with that?
    Mr. Liveris. Of course, of course.
    Senator Lee. Some of this is going to have----
    Mr. Liveris. There should be a return for everyone here.
    A return for the people who have taken the risk.
    A return for society.
    Let's use some of this bounty and transition to a low 
carbon economy, as Senator Franken talked about.
    We're for an all-of-the-above energy strategy.
    Let's use natural gas as a transition for our economy 
first. Let's let that up swirl occur as a reasonable return for 
everyone and for American manufacturing jobs and the American 
    That's a thoughtful approach to how many of these 
applications to approve.
    Senator Lee. OK, so this is what you are referring to on 
page 6 of your written testimony then when you refer to the 
need to promote and enforce policies that would keep prices at 
reasonable levels.
    I think reasonable was the term you used.
    Mr. Liveris. Absolutely.
    Reasonable meaning to cover the risk of everyone in the 
value chain, including the explorers, including the 
entrepreneurs, including the producers, but including society 
that needs smart regulations so as to produce responsibly.
    Senator Lee. OK. One person's conception--one person's 
concept of what is a reasonable price might be different than 
    Mr. Liveris. Clearly.
    Senator Lee. Who gets to decide that?
    Isn't that a highly unavoidably subjective standard?
    Mr. Liveris. Senator, you would agree that if I go to a 
completely different world, the world of agriculture, who sets 
world food prices? Does the agricultural sector from every 
country follow everyone's rules?
    There is rules-based free trade in everything we do, 
including my products.
    I have standards in Japan I can't meet because the 
government of Japan sets that standard so I can't export 
anything from here into Japan.
    The oil industry's quite familiar with that.
    Senator Lee. OK, so you----
    Mr. Liveris. Who sets the rules is where everyone has to be 
at the table and figures out what the right rule for free trade 
    Senator Lee. OK, so everyone's at the table and they do 
make their arguments.
    But you're suggesting a system in which the rule would 
ultimately be made by the Department of Energy, and you suggest 
that the Department of Energy should implement a rulemaking 
process that would require the Department of Energy to analyze 
a comprehensive list of criteria before they approve any LNG 
    That one of those criteria ought to include an 
identification by the wood-be exporter of any jobs that might 
be lost in the manufacturing industry, is that right?
    Mr. Liveris. So the current law, the public interest 
criteria in the Department of Energy is our law, your law, 
everyone's law.
    You set the law.
    So the regulatory regime has worked in the past by doing it 
    This is a new found bounty. The criteria should be all-of-
the-above: responsible production, does society benefit as a 
whole, and is job creation something that is additive here, can 
we get job creation in the oil and gas sector and the 
manufacturing sector, and I think that should be one of the 
criteria that the gov-DOE looks at.
    Senator Lee. Should----
    Mr. Liveris. I'm not suggesting----
    Senator Lee [continuing]. Anyone who wants to export 
anything from the United States also be required before 
exporting it to prove to government officials that it wouldn't 
cost any jobs in any other industry in the United States?
    Mr. Liveris. I didn't actually answer you by saying it 
should be jobs only.
    It should be all of the criteria:
    Senator Lee. But that should be one of them?
    Mr. Liveris [continuing]. Food security, national defense, 
and energy security, in my view, are national interests.
    So the DOE has public interests for some reasons, and I 
would imagine the national interests being at the highest 
hierarchy. The national interests includes lots of things, of 
which job creation is one of them.
    Senator Lee. OK. I see my time's expired.
    Thank you very much Mr. Liveris. Thank you, Mr. Chairman.
    The Chairman. Thank you Senator Lee.
    Senator Stabenow.
    Senator Stabenow. Thank you Mr. Chairman.
    I want to talk more about exports, but I do want to start 
by agreeing with Ms. Beinecke that we've got to make sure we 
have the public confidence and the safeguards in place to make 
sure that this--that this actually can be done in a safe, 
responsible way.
    But I do want to follow up as we talk about public 
    I find it interesting conversation that we--that there's 
some surprise about talking about the need to not only export a 
new natural resource that's--we have now, that is an incredible 
opportunity, but also weighing how we leverage that, keep it at 
a reasonable cost basis in order to create American jobs.
    It seems to me that's what our job is to do, is to find 
that balance to be able to do that.
    When we look at what the DOE is looking at right now in 
terms of their studies and so on, I would follow up. Mr. 
Liveris you talked about the 100 new projects that have been 
announced at a value of over $95 billion and that if we keep 
natural gas affordable, we're looking at 5 million 
manufacturing jobs and that's certainly something that seems to 
me would be of significant importance in this economy as we're 
trying to turn around, and manufacturing has really been 
inching along leading the way.
    But when we look at the study that the Department of Energy 
has used, to your knowledge did it include the 100 new projects 
and if not, how would that affect the reliability of that 
    Mr. Liveris. Yes, we thank you Senator Stabenow.
    The study did not include the $96 billion of projects that 
are now on the books. It actually used the EIA re-Demand 
Scenario as of 2010-2011.
    These projects were not on the books in States like Senator 
Landrieu's State. By the way, happy Mardi Gras Senator 
    We definitely feel that this study should be reexamined. 
It's not just us that said it's flawed. Many people have looked 
at it and said this is a part that needs to be upgraded.
    By the way, I think that we should do 2 or 3 or 4 more 
studies and get everything on the table. I think that's the 
whole discussion we're having here because one study does not 
make a strategy. OK. One study does not make the decision.
    I think we have lots of inputs to this decision, not the 
least of them being making sure we have responsible supply.
    Senator Stabenow. Would you discuss a little bit more what 
you think is missing from the DOE approach at this point. What 
more would you like to see considered in the broad 
consideration of what we should be exporting and the approvals 
of the export terminals?
    Mr. Liveris. I think it's trying to describe almost the 
unforecastable. Just like we were here 5 to 7 years ago.
    I--last time, I only ever testified once before. It was on 
the issue of natural gas, and I was actually trying to help the 
oil and gas industry get more drilling rights offshore and get 
more drilling rights to actually produce more.
    So I understand what restricted supply does to markets, but 
I cannot forecast energy demand. No one can, because it's 
    So what we have to do is in the process look at responsible 
exports over time that allows the win. I talked about. Job 
creation in the oil and gas sector and the exploration side, 
job creation downstream, and not hurting the American consumer 
with the unintended consequence of bringing the oil price back 
to the domestic consumers' electricity bills.
    I think there's lots of factors that can be put into place 
in there, and you've mentioned some of them. We can go into it, 
and we have views on it, but I think that's what we should 
study in fulsome detail.
    In the meantime, let's allow exports to our FTA partners.
    Senator Stabenow. Let me just ask in my final minute, 
because it seems to me Mr. Chairman our goal ought to be to 
export natural gas, but also export finished products.
    Mr. Liveris you talked about the 8 times factor on a 
finished product. Could you tell us a little bit more about how 
the components of natural gas are used and how many different 
things around us have those components in it?
    Mr. Liveris. So the ingredients of natural gas are what we 
call feedstocks, natural gas liquids. The bounty of shale gas 
is, thanks to our great oil and gas sisters and brothers, 
they--the bounty, the geology, is that the gas is very wet, so-
called NGO rich.
    A God-given gift.
    This is very unusual. The gas fields around the world are 
not as rich as these gas fields.
    Therefore there's a new unintended consequence, which is 
all the ingredients for everything from laptops to smart phones 
to pharmaceuticals to paints and varnishes to carpets to 
cosmetics, all the vital ingredients, 95 percent of them come 
from fossil fuels.
    The best and lightest fossil fuel is natural gas for the 
reasons the Governor and others have talked about, and natural 
gas liquids should not be shipped overseas and be burnt in 
Japanese cooking ovens. It should be kept home so we can add 
value at 8 times by building these facilities.
    There's $4 billion an ounce in Louisiana and Texas alone by 
Dow Chemical, $20 billion by Sasol, $15 billion by Shell to 
    This is a big bet that we're going to get responsible 
supply and responsible production.
    It's a risk. It's a managed risk, as long as we don't 
interfere and create a new unfettered demand for it overseas 
and stop all this value-add in the country.
    We should be thoughtful on how to have our cake and eat it 
too here by doing all these building blocks, all these jobs, 
small businesses.
    For every supplier to Dow that is less than $50 million in 
size, I build a community. A hundred and fifty communities in 
America--small businesses benefit from this value-add. That's 
why there's a job multiplier of 5.
    For every job I create, 5 jobs get created around me. This 
is why it's a manufacturing renaissance that I never thought 
I'd see in my career lifetime, right here in America.
    Let's try and get it right.
    Senator Stabenow. Thank you.
    The Chairman. With the schedule of the witnesses and what 
we're dealing with in the Senate today, I'm going to call 
another audible.
    Senator Barrasso is going to be back next. He will have 
questions and other colleagues are going to come back.
    We are going to stay here and just keep going. So if you 
all will indulge us, you can be sure, Mr. Liveris, you are 
going to get your discussion of fulsome detail on this 
    We'll stand in recess until Senator Barrasso comes back.
    Senator Barrasso. Thank you for reconvening.
    We'll ask some questions and then we're going to try to get 
back and forth to vote so that all of you who have traveled 
great distances and have spent your time will still have an 
opportunity to share your wisdom and your thoughts with all of 
the members of the committee. This is one of the best attended 
of our committee meetings that I've ever seen.
    So there's obviously a great deal of interest in this, even 
to the point that in Investors Business Daily this morning, 
front page, Natural Gas Exports Where The Jobs Are. We're 
focused on obviously jobs and the economy.
    Tonight the President promises in his State of the Union, 
at least the White House Press has promised, that he will pivot 
to jobs and the economy. This is apparently his eighth pivot to 
jobs over the last 4 years.
    So I'm--as someone from the State of Wyoming, a State with 
exceptional amounts of energy reserves, this is a big issue for 
    Mr. Eisenberg, I'd like to just ask you if I could, is in 
your testimony you state, quote, the United States ability to 
challenge other countries? existing export restraints will be 
virtually nonexistent if the United States begins imposing its 
own export restrictions. You go on to say U.S. actions are 
often replicated by other trading partners, to our own dismay, 
and if the United States went down the path of export 
restrictions, even more countries would quickly follow suit and 
could easily limit U.S. access to other key natural resources 
that are not readily available in the United States.
    So, would you please expand on this, in your comments for 
the committee?
    Mr. Eisenberg. Sure, and thank you for the question.
    I should probably preface that by saying we have a team of 
international trade experts who would be very happy to support 
any questions for the record beyond what I can answer here 
    Senator Barrasso. Great.
    Mr. Eisenberg. But yes, I think if you look, certainly most 
recently, at the China raw materials case that the U.S. just 
won, and we're in a situation where if we actually turn around 
and make the exact same argument, then we could basically be 
laying the foundation for further challenges by others to our 
commodities overseas.
    So, yes, as I understand it there are significant WTO 
issues here.
    Senator Barrasso. Dr. Medlock, the--I'd like to ask you 
about LNG exports to national security, and your comments 
specifically made some focus points there.
    Currently many of our closest allies in Europe are heavily 
dependent on Russian gas.
    Russia has used its natural gas resources for political 
leverage against these countries.
    Other allies are dependent on Iran's energy. Turkey, a NATO 
ally, receives 20 percent of its natural gas from Iran. In 
addition, Japan, one of our closest allies in Asia imports 
significant amounts of Iranian oil.
    I've introduced bipartisan legislation which is not always 
that common here on Capital Hill-bipartisan legislation to 
expedite LNG exports to our NATO allies, to Japan and to 
    Would you explain how LNG exports would promote the 
national security interests of the United States and its 
    Mr. Medlock. As briefly as possible.
    Yes, in fact one of the----
    Senator Barrasso. I thought we'd go until somebody else 
shows up----
    Mr. Medlock. Sounds good to me.
    Senator Barrasso. Go ahead. That sounds fine.
    Mr. Medlock. In a nutshell, and you've already seen a 
microcosm of markets changing within Europe alone since what's 
happened with shale in North America started to happen.
    In particular, you had players that were invested all the 
way to the upstream end to bring natural gas in the form of LNG 
to the United States that were investing very heavily 
throughout the value chain to do that.
    As soon as shale took off in North America, those supplies 
basically had to find a place to go, and the first point they 
were actually directed to was Europe.
    What that did was it created pressure on the existing 
pricing paradigms, the existing contractual relationships 
between large buyers in Europe and Russians, and in particular, 
gas prime.
    What that has basically led to is a destruction of the 
preexisting pricing paradigm, which was one of oil indexation.
    Now what you've actually seen is gas prime relent to a lot 
of their major buyers in Europe and actually allow an element 
of spot indexation in their pricing structures, and what that 
tells you is that when you add liquidity to a market, you 
change a lot.
    What that means is it begins to challenges the revenue--it 
begins to challenge the revenue streams the gas primes value so 
much and puts them in a very precarious position because no 
longer do they have a captive customer. Now they actually have 
to think actively about price and negotiate on pricing terms 
which basically changes their negotiating tactics, not only at 
the bargaining table for natural gas, but also around other 
geopolitical interests, visa vie Belarus, visa vie Georgia.
    So we can think about lots of different things that this 
begins to impact because ultimately they don't want to lose the 
market. So that's but one example.
    You can think about this spilling over into Asia, as well, 
where the oil index paradigm has continued to persist until 
recently when you actually see CO Gas actually signing up a 
long-term contract for a cost plus, a Hub plus index, for gas 
out of the Cheniere facility, it's a bean pass.
    What do you think they're going to do with that contract at 
every subsequent pricing negotiation they have?
    They're going to walk in, they're going to put it on the 
table and say look, I want a gas index deal because I've got 
one and I've got a line of suppliers willing to provide it to 
    It changes everything.
    It's about liquidity, and that's something that has been 
lost in a lot of the comments I've heard today, as there's been 
no discussion of what liquidity actually means for the way 
commodities are priced.
    Gas has been indexed to oil because it has not had 
liquidity. That's something that's changing in a dramatic way 
largely because of what's happened with shale in this country.
    Senator Barrasso. Thank you, appreciate it.
    Mr. Gerard, I'd like to ask you about natural gas 
production on public lands, Federal public lands.
    Many in Congress are looking for ways to create jobs while 
at the same time raise revenue for the Federal Government.
    We can do this by increasing natural gas production on 
Federal public lands, in my opinion. Right now companies are 
unfortunately shutting in natural gas production on Federal 
public lands.
    Workers are losing their jobs.
    Federal revenue is being lost, so would you explain how LNG 
exports will help create jobs in this country and increase 
revenues to the Federal Government?
    Mr. Gerard. I think there's 2 issues there Senator.
    The first relates to the public land itself, Federal lands, 
and of course there's a question there of leases, permits, 
etcetera. Unfortunately today, production coming off Federal 
lands generally is going down. The number of permits, the 
number of leases are going down. You're seeing a great 
disparity being created between Federal land and private land.
    I think the Congressional Research Service sent a report to 
somebody here in the Senate-recently reported that this vast 
Shale Gale we're talking about, particularly in unconventional 
resources, 96 percent of that increase in production in the 
United States is occurring on State and private land. So we've 
got to get the politics right and the permitting right, back to 
the Governor's earlier comments about the need to be more 
efficient and thoughtful and actually allow access to the 
Federal land.
    Now a lot of the resource we're talking about today 
excludes the potential for resource on the Federal estate. For 
example, today 85 percent of the outer continental shelf has 
been placed off limits. We're not sure just how large that 
resource could be.
    So when we have estimates talking specifically about 
natural gas estimates today showing at least 150-year supply, 
it could be multiples of that if we had true access to the 
Federal lands to develop it there.
    Laws of supply and demand will show that if given the 
access to produce what we have on the Federal estate clearly 
could help meet any demand for LNG exports would once again 
find the market.
    The issue today is not a supply question. We have abundant 
supply. It's a demand question. How do we make sure there are 
markets in place that we can fill?
    LNG export is a perfect opportunity and that's why under 
the Natural Gas Act we would strongly encourage the Department 
of Energy to move quickly to approve those.
    The market will sort out who eventually builds those 
facilities, but if we don't get there quick, for all the other 
economic reasons we talked about, that's going to be filled by 
somebody else, and we're going to miss the window.
    Senator Barrasso. Could you talk a little bit about how the 
BLM's pending hydraulic fracturing rule could hurt jobs and 
decrease Federal revenues?
    Mr. Gerard. It goes back to the same issue of our ability 
to produce on the Federal land and back to what Governor 
Hickenlooper had said earlier.
    Historically oil and natural gas have been regulated by the 
States. For the past many, many years there's been a good 
relationship between State and Federal Governments, in terms of 
permitting access to the land and eventually producing the 
energy on those lands.
    When you add multiple layers, particularly Federal layers, 
that potentially conflict, confuse, and further delay, it 
further discourages the private investment on the Federal land.
    So once again you create a great disparity in where the 
investment dollars move away from the Federal estate because 
they know there's a better market opportunity on private and 
State land.
    The days to permit on private land--you're looking at 
places like North Dakota, today the second largest oil producer 
in the country.
    It takes days or weeks to get a permit compared to months, 
and in some instances years, to get a permit on Federal land. 
It's a big difference and something that ought to be looked at 
by the committee.
    Senator Barrasso. Mr. Eisenberg, I want to get back to you. 
You talked about the National Association of Manufacturers and 
how they strongly oppose using NEPA to require cradle-to-grave 
lifecycle impact analysis that assesses the impact of exported 
    Explain the EPA's asked Federal agencies to conduct such an 
analysis for LNG export terminals and coal export facilities in 
the Pacific Northwest, You go on to state that such a move 
would create a very dangerous precedent that could be used to 
block exports of all types.
    So the question is: would you please elaborate on the types 
of exports that could be negatively impacted by the EPA's 
    Mr. Eisenberg. I mean, we're--thank you very much for that 
question, Senator.
    We are very worried that if we get a precedent that 
requires a lifecycle cradle-to-grave environmental impact 
analysis that the possibilities truly are endless for what you 
could block to export.
    Looking at the coal export projects in the Pacific 
Northwest, what some have called for up there is to go all the 
way back, to take an exam-underneath the impacts of the mining, 
which are already permitted things, the transportation, the 
construction of the port, the shipping overseas, and then the 
ultimate burning of the commodity.
    It would be a significant change in law and policy to look 
at the environmental impact of cargo, and this is something 
that can, I think, all manufacturers really have a concern 
about because where do you draw that line? Is it agriculture, I 
mean you could really bend this in a way----
    Senator Barrasso. Could it be automobiles?
    Mr. Eisenberg. It could be automobiles. It could be planes
    Senator Barrasso. It could be airplanes, heavy equipment, 
    Mr. Eisenberg. Anything.
    So manufacturers are very, very concerned about heading 
down that path for no matter what that commodity is.
    Senator Barrasso. Thank you very much.
    Mr. Liveris you argue that we shouldn't export LNG so we 
can create jobs here in the United States, and you say that you 
just want to see natural gas exported in solid form products 
instead of liquid form. You say you want to give American 
companies the opportunity to add value to natural gas and earn 
a higher return for the resource.
    Why shouldn't, you know, the Federal Government set up a 
policy to benefit manufacturers higher up on the value chain?
    You know, why shouldn't you just limit exports of chemicals 
so that domestic manufacturers can add value to them before 
they're shipped overseas, and the question is where you draw 
that line, isn't it?
    Mr. Liveris. Actually in my testimony Senator I didn't 
actually say that it's either or. In fact I went to great 
lengths to say it's and.
    I think we should do both.
    We should export LNG, and I think definitely we should look 
at the public interests with respect to our NATO allies.
    That's something we should have on the table.
    But in addition, let's put the power of the and in place.
    Let's look at the unintended consequences of a non rules-
based free trade market, gas. One day it may well have the 
liquidity to be a rules-based free trade market, but today it 
does not. OK?
    The unintended consequence of trying to do one or the other 
is you transfer the risk away and you let the risk be assumed 
by American manufacturers and consumers to the positive of 
someone else being de-risked overseas.
    Let's do both. Let's have exports and look at the 
intended--unintended consequences on domestic consumers.
    Senator Barrasso. Mr. Medlock, can I ask you to respond to 
what Mr. Liveris just said?
    Mr. Medlock. Sure.
    Liquidity is something that is gained as markets mature, as 
you have more entrance of suppliers and demanders and that's 
precisely what we're seeing in natural gas markets around the 
world right now.
    If you do anything to impede that progress than you slow 
that progress of liquidity, you actually end up creating rents 
along pieces of the value chain.
    In this particular case, let's say hypothetically there was 
a cap placed on the amount of LNG that could be exported that 
was a nonmarket cap. Basically what you do is you provide rents 
to those first movers, the ones who actually build the export 
infrastructure because the prices will never adjust abroad to 
actually bring them down so that you actually end up with super 
profits basically for companies involved in the export 
    So, I would not promote that because by actually limiting 
how liquidity grows you actually support certain elements of 
the value chain which is not competitive, to be quite frank.
    Senator Barrasso. Thank you.
    Senator Coons.
    Senator Coons. Thank you very much Senator Barrasso, and 
thank you to the panel for a chance to be with you.
    I'm excited that this first energy committee hearing is 
focusing on such a basic question about how we embrace the 
broad energy future in front of us.
    Let me start if I might with Mr. Eisenberg and Mr. Liveris, 
from NAM and from Dow.
    Just regarding the potential approaches for how to balance 
the factors that you've spoken to: the competing environmental, 
economic, and national security interests. You note that 
policymakers should aspirationally rely on the best quality 
information, on objective material, and on metrics that allow 
making the best decision in a public policy process. This is 
because of the inherently limited nature of projections and 
modeling, particularly for world market conditions, especially 
in energy.
    What type of systems do you suggest might be put in place 
to evaluate ongoing and potential impacts intended--not 
intended, even while the DOE and FERC licensing processes are 
underway. In your view, if we phase in licensing for export of 
natural gas, what would be the most prudent timing in which you 
would phase that at?
    Mr. Eisenberg. Thank you.
    I do think, and as you know in our testimony we do call for 
the best quality information in this process, and I think it's 
important, and this is a question that Senator Wyden raised in 
his comments on the DOE study, which are that they used the 
2011 Annual Energy Outlook Statistics, and we absolutely agreed 
that that should be updated.
    But at the same time that can be updated while the 
permitting process is ongoing. Right now we are building none. 
We are permitting none. We have a complete moratorium. So let's 
get on with it and continue to have the best quality 
information for the fact-specific determinations that DOE must 
make as they go through this licensing process.
    You know, there is, as Mr. Liveris said, there are 2 
studies that DOE has done on this matter. There--I read them 
over the weekend. There are no shortages of studies out there 
that Delloyd and IHS and others are doing on this issue, and I 
appreciate and am happy with the continuing dedication to 
understanding the impact of this.
    But that's not a reason not to let the free market work. 
We--our policy says that we fundamentally believe in free trade 
and open markets, and we do. We view it with respect to this 
and just about any other commodity.
    So we think we can have it all here, and we do think that 
we should strive to have the best quality information.
    But it shouldn't be a reason to continue with the 
    Senator Coons. Thank you.
    Mr. Liveris. Senator Coons, I'm all for studies and 
consultants. I'm all for academia, but they don't buy gas.
    I buy, as Dow, more gas than most countries. OK? So we are 
a significant purchaser of this risk and, therefore, when you 
fool with this risk by not having the public interest in mind 
in its totality, you have to get your criteria right by looking 
at all the angles.
    All the angles did not get looked at 10 years ago when we 
deregulated power in the19 90s in the Clinton era. It had an 
unintended consequences to the domestic sector.
    We had gas prices spiking as high as $15 and $18 and $20 
per million BTU.
    Manufacturing was fleeing the country. Factories were being 
announced across the world. It wasn't labor offshoring. It was 
energy offshoring.
    Energy is the lifeblood of an economy in all of its forms.
    In its value-added form, the one that Senator Stabenow 
asked me about, the consumer, the home heating bill of the 
consumer, in all of its forms.
    So be careful of one or 2 or 3 studies giving you the 
absolute criteria. As you said in your comments and Chairman 
Wyman made comment, as well, no one gets this right.
    We're in the 4th or 5th year of trying to understand what 
this bounty is. Can we produce it responsibly across the 
country? There are regions that differ already. We know that. 
The geology is different. We don't know how much supply we 
    Let's be careful testing our country on when a market gets 
to maturity on liquidity risk. Why should we take the liquidity 
risk as a country in a totality while someone overseas benefits 
from our bounty.
    Be measured in the criteria, let's crawl-walk-run through 
these applications.
    Exports should be allowed. They should be allowed through 
our FTA partners, that's the public interest.
    Develop the criteria as we go along.
    Figure out what the unintended consequences are.
    I want to clarify I said over and over, there is no such 
thing as free trade. It's rules-base free trade.
    There is no GATT, there is no Doha. Why? Countries don't 
agree on the rules.
    What rules are we agreeing to here when we decide to 
approve 12 applications overnight?
    Be careful that we look at this treasure and set the rules 
with America in mind. That's all.
    Senator Coons. Thank you Mr. Liveris.
    I'm very sympathetic to the strong perspective you've 
presented that urges us to focus on job opportunities and on 
the difference in portability between natural gas and 
    Natural gas is distributed throughout the United States 
largely by a robust, nationwide network of more than 300,000 
miles of pipelines, and we have a remarkable transmission 
capacity in the United States. If I understand right, we've had 
a more than 50 percent increase in pipeline capacity since 
1995, and I just wondered, Mr. Gerard, if you had any comment 
about the policies that have been adopted that have helped 
facilitate that creation of that significant robust nationwide 
transmission infrastructure?
    Mr. Gerard. It's a great question Senator. One that we, I 
believe, need to turn our thoughts to more often. For example, 
the infrastructure issue in the United States will help 
facilitate to continue to drive prices down for commodities, 
particularly for oil and natural gas.
    Yet today we find ourselves hamstrung in some 
circumstances, I think as Mr. Eisenberg spoke of earlier in 
permitting processes. But that infrastructure that exists today 
needs to be expanded to truly seize the opportunity we have 
before us to become an energy super power.
    Where Andrew and I might take a strong difference is there 
are other aspects of this view that we need to think of, as 
well. That's the job creation opportunity in the oil and gas 
sector itself and the opportunity to have it all.
    But the government can't better--can't understand that risk 
any better than the private sector can. So the worst thing for 
us to do is to get the Government in the process to try to 
determine through an export mechanism what that price should 
    If the market signal to my people is that there's going to 
be a limitation on where that demand might go, they then pull 
back on their rig counts, on the production itself. So you have 
a reverse adverse multiplier effect throughout the economy 
because you're limiting potential demand where that market can 
    As I mentioned earlier, we shouldn't underestimate supply 
is not the issue. We have a vast supply, and it's by and large 
due to our modern techniques and technologies.
    It's really a question of demand and if we get the 
government involved in limiting demand through slow walk 
processes, review after review after review, we're then at a 
disadvantage in the global market because there are others 
pursuing that market very aggressively and providing liquidity 
to the natural gas market.
    Senator Coons. One of the mechanisms, if I might Mr. 
Gerard, that I understand has made possible the financing and 
construction of a world class transmission and terminal system 
in this country is a tax structure called Master Limited 
    In your view have master limited partnerships been 
essential to deploying and developing the natural gas 
infrastructure of the country?
    Mr. Gerard. Yes, they've been very important to us. In fact 
I know there's talk now of potentially looking at the renewable 
space in the energy development, something we and the oil and 
gas industry strongly support and spend billions of dollars to 
try to figure out those new technologies.
    But yes, they are important because they allow us to bring 
in investors and others, not to put their resource at risk, so 
that we can bring these commodities to the marketplace.
    Senator Coons. Does that strike you as a structure that 
might be able to support both natural gas, oil development as 
it has in the past, and renewables? It would literally be an 
all-of-the-above financing strategy.
    Mr. Gerard. I know folks are looking at it and I understand 
you are as well Senator.
    We'd be happy to get some people much smarter than I am to 
take a close look at that and come back to you with some 
details on how that might be viewed in the marketplace.
    Senator Coons. Thank you. I'd be grateful.
    Mr. Gerard. Thank you.
    Senator Coons. Before I yield the gavel to Senator 
Alexander, I'd just if I might--a question to Dr. Medlock and 
Ms. Beinecke. I also chair the Africa Subcommittee on Foreign 
Relations, and I'm interested in what you think of the 
potential impact of natural gas development on Africa. They're 
fully exploiting both the dramatic new offshore gas discoveries 
and the potential for shale gas, which exists in many places 
across the continent.
    What positive or negative consequences might there be for 
U.S. businesses and technology export and how might this affect 
development trajectory of the continent?
    Ms. Beinecke. I'm going to defer to Dr. Medlock on that 
because I don't--haven't looked at the issues in Africa, and so 
I don't, we don't have an opinion on that.
    Mr. Medlock. So, at a very high level, certainly the 
discoveries off the east coast of Africa: Tanzania, Mozambique, 
those portend to really convey a tremendous economic benefit to 
a region of the world that needs it.
    There are large shale gas resources that have been 
identified in Algeria, already a large gas producer and 
supplier to Europe, but also in South Africa, an area that 
hasn't really seen a lot of natural gas development in the 
    So the potential for, you know, the conveyance of benefit 
is definitely there.
    I think the thing that you really have to think about that 
differentiates Africa from the United States is the regulatory 
overlay. In particular, when you think about the mechanisms in 
place in the United States to really insure the safety of the 
general public, the safety of the environment, the safety of 
the workers involved in these activities, those mechanisms 
don't exist, more or less, anywhere else in the world the way 
they do here.
    So I think, you know, a real understanding of how to carry 
what we've learned in this country, being such a large oil and 
gas producer for so many years abroad we really will sort of 
help to allow the development in a responsible way of those 
    Senator Murkowski [presiding]. Senator Coons, we're over 
time. I'm sorry.
    Senator Alexander.
    Senator Alexander. Thanks Madame Chairman. Thanks to the 
witnesses. I see the chairman and the ranking member here. I 
want to thank them both not just for the subject of the 
hearing, but for the even-handed way in which they've pursued 
this, and I really appreciate that. I'm looking forward to 
working with them on this committee.
    Just an observation and then a question. The observation is 
maybe one thing we can agree on here is that energy research is 
a good thing. I mean it's hard to think of--well this is an 
overstatement, it's hard to think of an important technological 
advantage over the last couple of years that hasn't had some 
government research and as the earlier discussion went back and 
forth with unconventional gas clearly the Department of Energy 
Demonstration Project, maybe even the Tax Credit, the Sandia 
laboratories work on mapping all of that was essential, but I 
keep thinking that-that maybe we actually have an energy policy 
in the United States and don't know it and it boils down to 
government sponsored research, private ownership of property, 
entrepreneurial attitude, big market and free market and that 
all of those things have suddenly given us what amounts to a 
terrific advantage in energy.
    I was in Germany recently, and they've got a big 
complicated CAP and trade. They're closing their nuclear 
plants. They're buying nuclear power from France. They're 
subsidizing Chinese solar panels and they're buying coal from 
the United States so we-we've ended up with a pretty sensible 
policy and the one thing it would seem to me that it would 
encourage that would be doubling the amount of Federal dollars 
we spend on research for such things as what do we do with 
CO2 from coal plants, how do we get a better battery 
that's been mentioned by several people in terms of storage, 
    Now here's my question: Do we really have a problem here? I 
have 3 images in my mind.
    One is this weekend I went quail hunting in south Texas and 
we didn't find any quail because of the drought. But what we 
found--I hadn't been there in 3 years in that section. We were 
in the midst of the Eagle Ford shale and there were 5 motels 
where there was one, there were oil rigs everywhere, there were 
new networks of roads, there were big lakes, big trucks going 
back and forth. I mean it's an astonishing thing, gas flares 
everywhere so it's easy to see the great production value and 
the dollars that come in North Dakota and south Texas in our 
economy from this production. Now that's one image.
    The second image is Australia last year where they're 
selling their gas to Asia at 5 times our price. Not only are 
they selling it to Asia at 5 times their, our price, they're 
paying 5 times our price for their own gas because they're 
paying the world price for natural gas. I think back to 
Tennessee about the number of workers at Eastman Chemical, 
about the farmers we have, about the auto jobs we have, about 
the truckers we have, and I see the enormous, incredible 
advantage the United States has at the moment from having a 
domestic price of natural gas. It's really a Godsend, and it's 
very unusual, and I think our policy got us there, but I think 
we should examine it very, very carefully which is what we're 
doing today. I suspect it's a much bigger source of jobs than 
the production value of oil and gas is in the United States. 
The production value of all the farmers, all the chemical 
companies, all the manufacturers in our State is a huge 
    Then the third image I have is the United States going into 
Iraq because of oil and because Iraq had gone into Kuwait and 
there we are. So while I'm a big free market, free enterprise 
person, I also see the value of the domestic price. I don't 
want to lose that. I also see the national security 
consequences of this.
    So my question is, though, do we really have a problem?
    One witness said that we might not export more than 5 or 6 
bcf. That's about 10 percent of what we produce today, if I'm 
correct. Is that about right? At what point at what percentage 
of exports, and let me just go down the line and ask this 
question. If we don't have time today to do it, maybe you could 
write me out--the question has an A and B part. A--at what 
point--at what percentage of exports begins--do we begin to 
lose the domestic price advantage of natural gas that we have 
today and No. 2, under present policies if you had to make a 
guess, what would be the range of the percent of our natural 
gas production that we'd be exporting in 10 years?
    Mr. Liveris. I can't help but pass up the comment on my 
home country of Australia who's desperately got it wrong. OK?
    It's one of the only gas rich countries of the world that, 
in fact, has the phenomena you just talked about. So, one 
sector exports from the Northwest shelf of Australia, the oil 
price bleeds back into the Southeast corner of Australia, 
manufacturing is collapsed, and 2 of the 5 most expensive 
cities in the world are Sydney and Melbourne. The retail prices 
are through the roof.
    So if you want a poster child for getting it wrong, and 
this may cause me never to get back to my home country but I'm 
going to say it, my home country is the poster child.
    So, the questions. Is there a number? It's unknowable and 
unforecastable which is why I believe the process has to work 
with the public interests as its lens. Every single one of 
these applications as you build up these terminals from one to 
2 to 3, from 2 billion mcf to 3 to 4 to 5, the market will send 
a signal. I'm a free marketer, but the market sends signals 
like it did in 01-02 when the market read there wasn't enough 
gas to meet current demand, the price went through the roof.
    Eastman and other companies like Eastman suffered the 
    So we've got to be careful. The market will work.
    But don't just flood the market with one answer. It's not 
an either or. Don't do 12 bcf. Don't do 20 bcf.
    Senator, I can't give you the exact number. I'm not that 
smart. All I can tell you is this is not an open market. As I 
said, LNG, you have to work hard to make LNG work.
    So I would think that as these terminals get built, we'll 
get the better of job creation upstream and job creation 
downstream. I already indicated that's a 5 times multiple.
    We can get the farmers to win, we can get the Eastmans to 
win, we can get the consumer to win, and we can have exports.
    The Chairman [presiding]. Thank you Senator Alexander.
    Senator Heinrich.
    Senator Heinrich. Thank you Mr. Chair----
    Senator Alexander. Mr. Chairman can I ask that the 
witnesses answer that question in writing after the hearing?
    The Chairman. Yes, that would be great.
    Senator Alexander. Thank you.
    The Chairman. Senator Heinrich.
    Senator Heinrich. I want to thank Senator Alexander for his 
comments about basic research and development. Obviously Sandia 
National labs played a real role in the fracking phenomena, but 
also in a whole range of energy development and research over 
the years and that ought to be something I think we can agree 
on that that is a good thing.
    I want to ask our witnesses today about something that 
hasn't received a whole lot of attention yet but Mr. Liveris 
touched on it during Senator Stabenow's comments, and I want to 
drill down a little further and get people's thoughts on this 
and maybe Mr. Liveris, Mr. Medlock, and anyone else who wants 
to comment, it's the issue of wet versus dry gas and we're 
talking about natural gas here today, but that means many 
different things and certainly what gas provides these 
feedstocks that have been discussed as a lever, a job, as a 
lever to create more jobs than just the energy production.
    Then we also have in New Mexico we have basins that some 
are wet and some are dry. So what I wanted to ask is do our 
policies and does the market, and I'm not going to describe 
this particular market as a free market because I don't think 
it is yet, but do our policies both at the Federal level and 
then do the economics recognize the distinctions between these 
different products between natural gas liquids, natural gas and 
the fact that it may have very different ramifications to 
export dry gas to be used as an energy support versus exporting 
gas that is rich with these natural gas liquids that are so 
important for the manufacturing sector, and how do we make sure 
that as we move forward that both our policies and economics 
align with those job creation goals. Mr. Liveris and then----
    Mr. Liveris. Yes, I think it's a very, very educated 
question Senator, so thank you for asking it.
    It allows me to make a new point and that is exactly your 
    Wet gas, the LPGs, propane and butane, do have a market. 
The market tends to work. It's the fuel equivalent of cooking 
oil and home heating oil so if you extract propane and butane, 
yes it can go to petrochemicals and other uses but it has a 
heating market. That market is out there and it's working. No 
one is suggesting anything different.
    The real toggle in this conversation is that other 
ingredient that only chemical engineers like me talk about and 
that's called ethylene. Ethylene is unfortunately--can stay in 
the gas. It doesn't get rejected.
    It can go to Japanese power stations and when they set the 
BTU speck they like to keep it in because it gives them more 
BTUs. They like to pay the domestic, they like to pay a gas 
price for a rich ingredient.
    Some of these countries actually extract it and add value 
to their own countries. So I think every country in the world 
who extracts ethylene goes to the trouble of answering your 
question in a very educated way. They put aside the ethylene 
for their domestic economy.
    Now that sounds like interrupting free markets doesn't it? 
But ethylene doesn't trade. There is no real world ethylene 
price. I can get ethylene in Saudi Arabia at a very different 
price than I can get it in the United States.
    That's where I think we have to be very measured on what we 
export, but that opens up a whole new line of questioning, and 
I'm happy to answer it at some future time.
    Senator Heinrich. Mr. Medlock.
    Mr. Medlock. Just real briefly with all of the longer chain 
hydrocarbons which you're talking about here gas processors 
when they actually see the gas at gathering systems come to 
them will make a decision about the value of extraction versus 
the value of leaving a certain component of those longer chain 
hydrocarbons in the stream.
    In a situation where the ethylene price and the propane 
price and the butane prices are actually elevated sufficiently 
enough, then you'll see them extracted. You'll see leaner gas.
    It has to be within a particular range if it's going to be 
pipeline inspected in the U.S., but there is a market mechanism 
that actually drives how high that gas is in effect.
    Senator Heinrich. Is that highly dependent on that sort of 
the state of infrastructure and the local conditions because 
many of these things are being produced in places that don't 
have the long history of infrastructure that say the basins in 
the Southwest like New Mexico and Colorado have? I mean----
    Mr. Medlock. Oh certainly it does, certainly it does. 
You're talking about gas coming on line say in south Texas. 
This is an interesting example actually, what's happened in the 
Eagle Ford and what it's done to actual NGL prices at Mont 
    You've seen a massive disconnect between where Mont Belview 
NGL prices have been in the past couple of years relative to 
where they were in, previously in relation to crude oil prices 
and it's because you've got a lot of NGLs coming into the 
market that are being extracted because there's high value 
associated with them.
    But what that's done is it's led to a glut in that 
particular market and so it argues for infrastructure.
    Mr. Gerard. Senator I'd just like to say quickly, yes, it 
does have a market because if you watch our rig count, you'll 
see it move from what we call the dry gas to the wet gas. I 
would also add one of the great benefits, particularly the 
manufacturing sector today, more specifically even to 
chemicals, is that we are now at record highs, unprecedented 
highs for natural gas liquids production in the United States.
    It's a very significant development by and large as part of 
associated development with natural gas.
    Senator Heinrich. Mr. Chairman, I yield back.
    The Chairman. I thank my colleague.
    We appear to have another vote, so I think we'll go with 
Senator Manchin at this time and obviously Senator Cantwell's 
great expertise in this area, so we want to get her in too.
    Senator Manchin.
    Senator Manchin. Thank you so much Mr. Chairman and Ranking 
Member Murkowski.
    Let me just say first of all as one of the greatest 
concerns I think all of you, and I think I know that Mr. 
Liveris that you said I'm more concerned about how we start 
getting priced, who controls the American pricing, and once you 
go into that overseas market you lose your ability to set your 
own destiny. Is that correct? Is that probably one of the--I 
mean people are coming to me and saying you know you keep 
telling us how much oil you're developing now in America but 
our gas prices haven't gone down. How come?
    Mr. Liveris. Yes, the ultimate point here is that energy, 
its fungible price around the world basis is oil.
    Make no mistake. Everything else is domestic, nuclear, even 
coal tracks oil.
    Senator Manchin. Has OPEC always controlled the pricing of 
    I mean we developed our Nation on oil we found. We have a 
State that was rich in oil back at the turn of the 19th 
century/20th century.
    Mr. Liveris. State-owned enterprises own 75 percent of the 
world's oil reserves and 50 percent of the production.
    So State-owned enterprises (OPEC) from the early 1970s to 
this very day sets the world price based on supply.
    They regulate supply. You know this, right?
    Senator Manchin. I don't think anybody in the gas industry 
want that to happen to gas prices, would you?
    Mr. Gerard. Senator, let me respond to that if I can first 
as it's been predicted due to this great technology we've been 
talking about, this game-changing opportunity.
    Experts now predict if we continue down this road that the 
free market has brought us, the United States will surpass 
Saudi Arabia as the No. 1 oil producer in the world in 7 short 
years by 2020. We can ultimately have an impact and it all 
comes back to the free market.
    That's why we've got to be very sensitive and mindful of 
attempting to intervene or to manage price or spots in the 
    Senator Manchin. When you, and I'm so sorry we've been 
running back and forth in committees but I've been keeping up 
with what was going on here, you all do agree that basically 
this is our last great chance to have this type of a find in 
energy that could be game-changing for our country. A 
renaissance in manufacturing, transportation fuel, and what I 
think the question was asked by the Chairman, where's the sweet 
    What I think we're saying is how can we work with you on 
exporting certain amounts, give us a timeframe to build up the 
demand in this market here in the United States?
    Can you all live with something like that?
    Mr. Gerard. Senator, most of us believe we're just at the 
front end of this Gale, if you will, both on shale gas and oil, 
that we haven't yet fully appreciate, just recently there was 
an announcement in California at Monterey which some estimate 
to be an oil reserve 4 times larger than what we found in North 
    Senator Manchin. But that didn't do us any good at all 
because the price is still $4 a gallon. At $3.50 to $4 a gallon 
so you can find, until the cows come home.
    Mr. Gerard. It all comes back to supply and demand. It 
comes back to what we produce and how we put that into that 
global marketplace. Trust me----
    Senator Manchin. To be on a level with a consumer in 
America today hearing reports that we have more energy now and 
we're about to be a net exporter, and yet they haven't seen any 
of their costs come down?
    Mr. Gerard. No, let's use natural gas as a price as a 
great--as an example. That's a great question.
    Today as a result of the natural gas price coming from 
about $14 to $3, the average family in America that consumes 
natural gas costs have gone down $1,000 a year. That's 
estimated to increase to a couple thousand dollars year as we 
become even more energy efficient.
    Senator Manchin. OK.
    Mr. Gerard. So there is a very significant consumer-
positive consumer impact, not to mention the environmental 
benefits, etcetera, as the Chairman's----
    Senator Manchin. I think finally the question I want to try 
to get to--I'm looking for the--I guess as the Chairman keeps 
saying the sweet spot. There's got to be an area where we can 
say OK we can with the prudent measures we have with the 
anticipated reserves we have export this much. We can dedicate 
this much time to develop the markets in America. We can 
transform our transportational fuels.
    I've always said that I thought every State when I was a 
Governor if someone said listen, we'll help you transfer all of 
your commercial fleet which would be our school buses, our mass 
transportation, our State road vehicles into gas-propelled 
vehicles working out of bulk stations. It would be the most 
cost-effective thing we could do. We could develop that within 
a 5-year period. We could have a renaissance in manufacturing. 
We have the crackers as we're talking about. If that's a 
possibility we need some time to develop that. That's what I 
would be asking for.
    What is the time period? If we don't hit that mark, and 
let's say it's 10 years, then we should open up the market 
completely. If we can't get our act together, go for it 
gentlemen--and ladies, I'm sorry. Let's just do this.
    Mr. Gerard. Senator, Senator, I guess the thing that 
concerns me in your comment is how you manage that, that 
    Where we are today, the opportunity's been created that no 
one would have predicted 5 or 6 years ago because the market 
found that equilibrium. It found the opportunity to put the 
downward pressure on the price.
    The same is true of the discussion that we're having. The 
market will find that. Let's let the market fine-tune that 
recognizing we have a vast supply in the United States which is 
what's driving that price today in this country.
    The Chairman. My colleague and I are going to miss the 
vote. We're going to let you all have about a 10 minute recess 
and then we're going to come back.
    Senator Manchin's asking important questions we need to 
continue to dig into.
    Thank you all.
    The Chairman [Presiding]. The committee will come to order.
    Senator Manchin was practically in mid-sentence so he is 
going to raise his additional question and then Senator 
    Senator Manchin. I think where I am--if I can get an 
answer. Has anyone come to an agreement identified on a 
reserve, an amount of reserves that we have, proven reserves 
that we have and how many years based on demand right now? 
Because I read yesterday that no one can agree on anything--
brightest people in the country.
    Mr. Gerard. It continues to change Senator. In fact----
    Senator Manchin. OK.
    Mr. Gerard. Six/seven years ago someone estimated that it 
was about 20 to 30 years. Most recently the EIA has estimated 
that it's at least 90-95 years. Other independent analysis--
ICF, etcetera have estimated it's 150 years, and there's some 
who've believe it's 200-300 years worth of supply at current 
levels of consumption. So that's----
    Senator Manchin. That's a good thing.
    Mr. Gerard. It's evolving quickly because of breakthrough 
technology as we define more resource. It's going up 
dramatically quickly.
    Senator Manchin. Here it is. I am--I come from the private 
sector. I'm a free trader, and I'm concerned. I'm concerned 
that we're going to lose this opportunity of a lifetime, 
generational if more, if not more.
    But there has to be a balance too. That's what we keep 
looking for, that balance. So if we're saying we had a 10-year 
window and we come to an agreement with the industry that as 
government, we come to an agreement for a 10-year window that 
will have X amount of exporting while we develop the demand in 
this country basically on transportational, manufacturing and 
other things that we can develop that was left us that will 
come back, I think Mr. Liveris' company has been all over the 
world and they're coming back because of this energy, and 
making sure that we never get caught in a world pricing such as 
an OPEC. Those are the concerns I would have as a citizen of 
this great country and definitely as a U.S. Senator from my 
    I think that's what we're asking, and I'll use this as a 
hypothetically. Let's say we agree to 5 bcf a day, just for the 
sake of throwing a figure out. How--what are we exporting now?
    Mr. Gerard. Virtually none. Small----
    Senator Manchin. OK. So 5 billion, 5 billion, 5 bcf a day 
is pretty substantial, correct?
    Mr. Gerard. Less than 10 percent of what we currently 
produce and consume.
    Senator Manchin. OK. So 10--so if you're going to err on 
the side of caution while we're building up our consumption in 
this country, I'm not saying that's a hard rock figure, but 
let's just say for, and we have a 10-year window, f we can't 
get our act together and have an energy policy that works for 
this country, then all bets should be off, and you should be 
able to do whatever you have to do.
    That's what I think we're kind of talking about and asking 
if that's a possible--and I understand sitting, if I was 
sitting where you, I would be cautious about that.
    Mr. Gerard. I don't want to comment on your ability to get 
an energy policy in the next 10 years but----
    Senator Manchin. No, no we've got to move quicker than 
    Mr. Gerard. But let me respond this way Senator. I think 
the key is to look at the market fundamentals.
    Senator Manchin. Yes.
    Mr. Gerard. What happened today, and I can't overstate 
this, what is happening today is unprecedented in the history 
of our country in terms of our opportunity to become energy 
secure and self sufficient. Just think back 5 or 6 years ago 
nobody was having this conversation. Today we're the world's 
No. 1 gas producer.
    It's now estimated through this advancement in technology, 
we'll be the world's No. 1 oil producer by 2020, 7 short years. 
That's how significant this is.
    That's why we're very reluctant to go down a road where we 
say, well, let's take this great opportunity that indicates 
where you've got vast supplies, and now let's bring the 
Government in and see where we can manage the development of 
the market.
    Senator Manchin. Do you think it's a fair evaluation when 
you look at all of the human sacrifices this country has made 
because of our lack of independence on energy?
    It's a tremendous price we've paid in human life and value, 
if you would.
    Mr. Gerard. I think the point, Senator, is if we've, again, 
going back to the supply, we've got ample supply, we've got 
vast supplies as far as the eye can see.
    What we're seeing domestically, and those job numbers we're 
talking about are so realistic. Production in Pennsylvania. Who 
would've thought? Pennsylvania is a huge natural gas State 
today. Your good State today, as you know, is on the verge of a 
major breakthrough to become a big producer. Pennsylvania 
production has gone up 526 percent.
    Senator Manchin. We're trying to create the jobs in West 
Virginia to use the product you're unleashing.
    Mr. Gerard. I understand, I understand. I'm just using that 
as an example because of what's happening all across the 
country where we least expect it, Ohio, etcetera, etcetera. 
We're creating hundreds of thousands of new jobs, and we don't 
need to view it as we used to view it in terms of scarcity. We 
don't have a scarce resource anymore. It's abundant. It's rich.
    Senator Manchin. I've heard that before. I've got to be 
honest with you.
    Mr. Gerard. I understand.
    Senator Manchin. I've heard it all before. OK.
    Mr. Gerard. I understand. I understand.
    Senator Manchin. The bottom line is we have a real golden 
opportunity to be able to use the product in America, in West 
Virginia, and other States around that had this find and 
develop a whole new renaissance of jobs, quality jobs. So you 
can imagine if we're being a little bit----
    Mr. Gerard. I understand.
    Senator Manchin [continuing]. Cautious about this. We want 
to work with you, Sir. I can assure you.
    Thank you.
    Mr. Gerard. Thank you.
    The Chairman. Thank you Senator Manchin.
    Senator Cantwell.
    Senator Cantwell. Thank you Mr. Chairman. I have been back 
and forth between votes because first of all I wanted to make 
sure that I was here to congratulate you on your new leadership 
position as the chair of this committee, and I certainly look 
forward to working with you and Senator Murkowski because I 
know you're both very serious about moving legislation. I also 
think this hearing is an example of the type of process by 
which you intend to air these issues and to move forward. So I 
thank you for that, and it's definitely worth coming back 2 or 
3 times.
    My question--I know I had some questions for Mr. Medlock, 
but I understand how people's schedules don't always conform to 
the Senate schedule.
    But Ms. Beinecke you know the NRDC released a study 
recently that found out that by 2025 taxpayers will be forced 
to spend more than $270 billion a year for disaster relief if 
we don't tackle climate change. While we're having this 
conversation about natural gas, I don't know if you can make a 
further comment on. Don't we, if we're going to see cost in the 
future, have to do something better, putting a true market 
price on carbon.
    Ms. Beinecke. Senator Cantwell. First thank you for the 
    Clearly we're seeing climate impacts now. Our study was 
projecting to the future but here in this country just this 
year the consequences of Hurricane Sandy which the Senate just 
passed what was it, $60 billion of disaster relief for the New 
York Metropolitan area. It's a huge expense. The drought that's 
been going on in the Midwest all year, another huge expense, 
almost stopped shipping in the Mississippi River just a few 
short weeks ago. The consequences of wildfires in the West; we 
are having extreme weather events all across the country. I was 
talking to Mr. Liveris earlier today about what's been 
happening in Australia, his home country, where the extreme 
weather events have been even more serious.
    So climate change is here. We need to take it seriously.
    We have to get to a clean energy future that invests in 
renewables and efficiency. Even as we use natural gas, it's not 
the solution over the long term because it is a fossil fuel.
    We have to develop it as responsibly as possible. There are 
people who are so alarmed with what's happening unknowingly to 
their health because of the lack of disclosure and the lack of 
safeguards. So we have to deal with the consequences now but 
we--and this of course if the committee's charge to deal with 
the long-term future of the country and look at what the 
investments we need to make in a cleaner energy future that 
absolutely minimize the impacts of climate change, some of 
which we will experience.
    Our aim is to insure that this Nation experiences as few as 
possible and that the planet does, as well. The U.S. is a major 
contributor so we have a major leadership role to play.
    Senator Cantwell. Thank you for that. I mean we're talking 
about this now about what to do price-wise with export and 
import, but to me it seems like a microcosm of a larger issue, 
which is how to put the right signal on in general. Mr. Gerard 
I just want to ask you, you know there's a lot of discussion 
about the price today, but do you think that people developed 
natural gas for the export market? Did they have that in mind 
or were they developing it for the domestic market?
    Mr. Gerard. Have export in mind when they developed it did 
you say?
    Senator Cantwell. Yes. Do you think the decision to invest 
in natural gas in 2010 was driven by the look for large export 
terminals or do you think they were looking at the domestic 
    Mr. Gerard. I think the thinking has evolved on that, and 
my sense is that over the past few years, yes, they look more 
and more to look to other markets because our supply is so vast 
here today to meet demand. Otherwise what will happen obviously 
is we'll begin to cut back on the amount of jobs we create as 
part of that energy production. So while 3 or 4 years ago when 
this, we were all talking about LNG imports at the time, 
clearly they weren't thinking about exports in that context. 
But over the past few years, as you see the evolution, the 
change in opportunity, today they clearly focus on that as 
being a potential market opportunity that we should take 
advantage of because it assists us here at home in creating the 
energy, producing the energy, and all the other benefits we've 
talked about to consumers and others.
    Senator Cantwell. Oh, I'm just trying to sort through some 
of this because some people are saying, well a lot of people 
are, I think--I don't know if it was Mr. Tillerson or somebody 
said, ``well, we're not making any money and this is why.''
    So my question was whether you were looking just 
domestically when you had the idea to expand or did you truly 
have in mind these international markets.
    Mr. Gerard. It goes back to the market itself and looked at 
in a global context. Before when we were relying on other 
imports for natural gas there wasn't focus on the potential 
export market. Today the world has literally changed as we've 
talked about.
    No one would've predicted this a few years ago.
    But today we're looking for all the markets, all the 
potential for the United States to really establish itself as 
the energy super power.
    You know it's significant that we've got an opportunity now 
to become energy secure as a Nation, but much of that with the 
job creation potential, the economic recovery will come because 
we allow the market to work and we allow that demand to be 
created elsewhere that we can meet with this vast supply.
    That's how we will influence on a more global context the 
    Senator Cantwell. I'm probably in more agreement with you 
than you think on allowing the market to work, but I just think 
the market has to have a true price on carbon as well because 
it's affecting us. So, I'm more than happy to look at this from 
a global perspective, andI definitely think it's interesting to 
see some of the applications like in my home State.
    The shipping industry is going to go to natural gas which 
is welcome but to me it's going to be a question of what are 
those domestic applications--again this is why I wanted to 
direct them to Mr. Medlock and I don't know whether Mr. 
Eisenberg has something to say on that. What are those 
transportation applications that could take us further down the 
road of diversification in the United States, like the shipping 
industry or truck transportation or other things?
    Again, I thank the Chair for the hearing and I look forward 
to how you're going to untangle all of this.
    The Chairman. Thank you Senator Cantwell, and to untangle 
it we're going to need your expertise on global markets and 
global economics.
    For those of you that don't know, in another part of our 
Senate life we serve on the Finance Committee and arguably are 
2 of the most ardent pro-trade members of the committee 
because, in our part of the world, one out of 6 jobs depends on 
international trade. What we try to generally do in the Pacific 
Northwest is to grow things there, make things there, add value 
to them there, and then ship them somewhere.
    So the challenge is how to take that strongly expansionist 
view with respect to trade and apply it in this area. It's 
easier said than done, but it definitely gets easier if Senator 
Cantwell is in the room because she understands global markets 
and actually was in the private sector dealing with them.
    So I thank my colleague.
    We're joined by the Senator from North Dakota who has 
already been gracious enough to spend a lot of time educating 
me on natural gas issues because he lives it every single day 
in his part of the world, and we really appreciate his 
expertise. Please proceed with your questions.
    Senator Hoeven. Thank you Mr. Chairman and I look forward 
to having you in North Dakota to see what we're doing there.
    I'm disappointed that Governor Hickenlooper had to go. I 
wanted to commend him on building an energy policy for the 
State of Colorado that he said is really about developing all-
of-the-above. I commend him for doing that.
    So the question I wanted to put before him, but I'll start 
by putting before Ms. Beinecke is: What about a States-first 
approach just like that? In other words to have transparency at 
the Federal level and to have certain standards that may be set 
at the Federal level, but then beyond that having a States-
first approach to regulation on these issues of energy 
    From what I heard from Governor Hickenlooper that's exactly 
what he was talking about so would you support a State-led 
approach to regulation and give States like Colorado and others 
the flexibility to truly develop their energy resources?
    Ms. Beinecke. Senator I think that first of all we do have 
a States-first approach because right now the legislation is at 
the State level. What I'm saying is that it's a patchwork quilt 
really across the 30 States where fracking is going forward.
    Some States have disclosure. What kind of disclosure 
requirements they have vary considerably.
    There are other different rules on setbacks, on well 
    In each State it's quite different.
    What we're asking for is that the committee look at what 
kind of Federal standards-minimum should be applied across the 
    If the States, and I thought Governor Hickenlooper was very 
eloquent on this point, that the States are working on this 
every day. They're trying to figure out what the best standards 
are. There may be a standard that the States, that a number of 
States have developed which, in effect, becomes a Federal 
standard which would apply then to all States.
    I think the challenge now is the differentiation and the 
diversity in the 30 States in which fracking is going on and 
for potentially additional States in the future.
    So what we're looking at from the environmental point of 
view is how do you insure the public that this activity is 
going on as safely as possible, that they have transparency, 
they have access to information, there's ongoing disclosure and 
monitoring and that the health impacts where there is growing 
alarm across the country of what they're being exposed to from 
water and air pollution, that they have the information on what 
those chemical and what those emissions are and that the data's 
available and that they are confident that the standards that 
are being set will protect them.
    Senator Hoeven. Would you say hydraulic fracturing is the 
same everywhere in the United States?
    Are they pursuing the same energy product?
    Are they pursuing the same geological zones so Federal 
    Ms. Beinecke. The geology differs across the country but 
the technology----
    Senator Hoeven. Excuse me. Let me ask my question, please.
    Ms. Beinecke. I'm sorry.
    Senator Hoeven. You're talking about a Federal standard and 
having it the same across the United States.
    But isn't it true that hydraulic fracturing and what 
they're doing in different places is different?
    Ms. Beinecke. Senator I think that in many of our 
environmental safeguards there's recognition that there are 
conditions that differ in different parts of the country.
    I mean our State implementation plans are on air quality 
are differentiated State by State but they're based on Federal 
standards and most of our environmental laws actually do 
recognize that the conditions in States vary considerably. But 
it does set a minimum standard that the public can be confident 
is designed to protect them and that is a combination of 
learning from the experience of what's going on in the States, 
but then looking at what the Federal responsibility is and 
applying that in a way that allows differentiation, but meets a 
certain standard so the public is protected,----
    Senator Hoeven. Are----
    Ms. Beinecke [continuing]. I think that our focus here--
this really is a direct response to what we're hearing from 
people all over the country.
    Right now they don't feel protected because they don't have 
access to information.
    The growing health concerns are just beginning to be looked 
at by EPA, by the National Institute of Environmental Health, 
by the National Academy of Sciences.
    I thought Mr. Liveris was very eloquent on this point that 
we're 4 or 5 years into a major boom that could take as much as 
a century.
    Let's get it right at the start, and that's really what 
we're asking for.
    Senator Hoeven. Mr. Chairman, I'm going to ask for a little 
leniency on my 5 minutes given the length of time it took to 
get the answer questions and the length of some of the 
responses. So if you would please bear with me for just a 
    Mr. Gerard, so in the conversation that Ms. Beinecke and I 
just had clearly whether it's hydraulic fracturing or other 
energy development, we develop different types of energy in 
different places in different ways around the country. That 
argues for a State-led approach with some Federal standard of, 
you know, basic safety and transparency, which I think captures 
your answer, which is exactly the kind of legislation that I've 
tried to put forward.
    Why isn't that a good approach? What's the concern with 
that? Why do we run into resistance when we say State-led 
approach, but we have to recognize there are differences in 
different parts of the country and how we produce the energy 
and what we're doing so you allow flexibility rather than a 
Federal one-size-fits-all standard? Can you address that for 
    Mr. Gerard. Yes, I think there are a couple of factors that 
are--and it's a great point and goes back to Governor 
Hickenlooper and I wished he was still here to address this 
because he's dealt with it in Colorado where he's been able to 
harmonize all those different interests.
    But I think part of the conversation is based, in my view, 
on a false premise. That premise is that somehow Washington is 
the best place to regulate. We shouldn't forget in these States 
which are the incubators of ideas with different hydrology and 
geology, there is no one more highly motivated to protect their 
water and to protect their air than the people who live in 
those communities, governed by their State regulatory 
activities, etcetera.
    The phenomenon that we see today in the oil and gas 
business is one of increase in terms of activity. Hydraulic 
fracturing has been around for 65 years. We've drilled over 1.2 
million wells with it, and as Lisa Jackson the administrator of 
EPA has said, here in the United States there's never been a 
confirmed case of groundwater contamination as a result of 
hydraulic fracturing.
    So this myth, in my view, of somehow we've got to rush in 
and overlay a potential level of regulation that conflicts with 
the States who know best about hydrology, water quality, 
etcetera, and the geology they deal with--with their State 
geologist, we need to look closely and look at those States and 
say what's taking place here today.
    I'll tell you the States have moved very quickly. The State 
of Pennsylvania I mentioned earlier, they've modified their 
State's standards, regulatory legislative activity 4 times 
already to keep up with the fast-moving industry. The States 
have moved quickly. Governor Hickenlooper and others--they're 
very active, great blessing there, he gets it, he's a 
geologist, he's been part of it and he's been able in a very 
positive way to bring the different interests together and find 
the proper role where the States historically have led in 
regulating oil and natural gas.
    Senator Hoeven. OK, so for each one of you, and I'm 
wrapping up here, but I would like each one of you to respond 
with a State-led approach where you have that ultimate Federal 
backstop because I think this takes into account both your 
    How do we get people working?
    We've all agreed we need a comprehensive energy plan for 
this country. Governor Hickenlooper talked about it for his 
State of Colorado. I could spend a long time telling you about 
our State of North Dakota. Senator Murkowski could talk about 
Alaska. Each one is different, but each State is doing amazing 
things. We all want a comprehensive national energy policy, 
jobs, energy, the whole ball of wax, but we've got to give the 
flexibility and empower the private investment.
    A State-led approach with this Federal transparency and 
backstop does exactly that. I'm building off both your answers.
    How do we get consensus built in this committee and this 
Congress to get this legislation passed which myself and others 
are putting forward? How do we bring people together to get the 
consensus to do that? States-first approach, State-led approach 
with that Federal transparency and backstop.
    Ms. Beinecke if you could start on that and just an answer 
from each of you, again, how do we get it done?
    Ms. Beinecke. Senator I think that----
    Senator Hoeven. We've been talking about it for years, how 
do we get it done?
    Ms. Beinecke. I would emphasize the important Federal role 
here because I think there is differentiation among the States.
    I thought Governor Hickenlooper really identified what 
needed to happen is you need all the stakeholders at the table. 
Now the way a lot of these standards that have been developed 
at the States, the public is not at the table. The people that 
have concerns in their local communities in some places are not 
allowed to express those concerns. That's a situation we have 
in New York State right now. So if you have a process that 
really does bring all the stakeholders together to insure that 
the concerns that the public actually have and are very deeply 
concerned about are addressed as you work with the industry to 
see how this industry is going to be developed, that would be a 
good process.
    I think up until this point a lot of concerned citizens 
have felt they haven't had a participatory role in the process 
and they're looking for one.
    Senator Hoeven. It seems to me that's what the whole 
comment process is all about that States have when they develop 
their laws and regulations. I think that was what we were 
trying to do, but I'm about trying to reach out and get people 
working together here.
    Mr. Gerard.
    Mr. Gerard. Senator I'm just going to read 2 quick 
sentences, and this is Lisa Jackson, the administrator of the 
EPA, the vast majority of oil and gas production is regulated 
at the State level. Then she goes on to say, so it's not to say 
that there isn't a Federal role, but you can't start to talk 
about a Federal role without acknowledging the very strong 
State role. End quote.
    My counsel would be as we look at the issues, let's 
identify the real issues, let's talk about the issues that are 
really a concern.
    I take strong exception to what Ms. Beinecke said here. 
There's a very active, transparent process taking place in 
these States, and no place is it more evident than in the State 
of New York and what's going on up there in terms of citizens 
being involved, expressing their views and the Governors very 
active in taking all of this in.
    So let's sort through some of our own perceptions, our own 
wishes of what should happen.
    Let's look at the issues in light of the historic 
regulatory role for the States and identify if there is 
anything there we need to look at, but once again defer.
    The States have done this well. Lisa Jackson said they're 
this well.
    There's no reason for the Feds to step in, overlay it, and 
create conflict.
    Senator Hoeven. OK Mr. Eisenberg. Now you're going to 
explain in 2 sentences how we bring those 2 groups together and 
get her done.
    Mr. Eisenberg. That's a very good question.
    You know I think the one-size-fits-all approach, I mean 
there needs to be some trepidation on the part of the Federal 
Government to regulate without understanding the consequences 
of it.
    How do we get those 2 groups together? Good luck. I mean 
it's starting----
    Senator Hoeven. But it's the key to a national energy 
policy that works, and Senator Wyden I think if anybody can do 
it, I think our Chairman's the kind of guy that can build that 
kind of consensus. So we've got to figure out how to do this.
    Mr. Eisenberg. Yes, an--I mean, and we're certainly at the 
NAM certainly willing to work with the committee toward it, 
toward that sort of goal.
    I mean we would like to see more bipartisanship energy 
issues. We don't think that energy, and particularly natural 
gas, should be a partisan issue. In fact, on this committee I 
don't view it as being that.
    But we are certainly willing to work beyond that.
    Senator Hoeven. We'll need your help.
    Thank you all very much.
    The Chairman. I thank the Senator from North Dakota. I 
don't want to make this a bouquet-tossing contest, but I think 
the Senator from North Dakota has really put his finger on it 
because if you listen to how you described it, Senator, you 
talked about Federal transparency.
    You talked about a Federal backstop and, of course, a very 
strong role for the States recognizing that there are 
differences. When you look at the architecture of the 
environmental laws, you see what the Senator from North Dakota 
described all over the place, essentially these Federal minimum 
standards and then a wide berth for the States to do their 
    I was telling Senator Murkowski I came to the U.S. Senate 
in 1996, the first new senator from Oregon in 30 years. I had a 
full head of hair and rugged good looks and the first thing I 
voted for which dismayed some of my supporters, was for the 
Kempthorne Amendment, which in effect had what you all are 
talking about: a strong transparency and backstop role, but the 
States could do their own thing.
    So I know that as we go back and forth on this, it looks 
like the gaps are insurmountable. But it looks like you 3 souls 
have been willing to stay here as we got up and came back and 
we got up and we came back. I so appreciate the good faith in 
terms of desire to figure this out and that's why Senator 
Murkowski and I are committed.
    I'll just make 2 last points and let my colleague have the 
last word. On this point with respect to confidence, Ms. 
Beinecke, which I think is central, one of the ideas I have 
heard has a lot of bipartisan interest from both industry and 
environmental folks is if we can have a strong disclosure 
program, a program, for example, where people are going to 
really understand ahead of time, for example on fracking fluids 
and these kinds of things. I'm very interested in following up 
with you on that, and I think it's fair to say there are a lot 
of people in industry who see this confidence issue as 
extraordinarily important as well because there's tremendous 
concern. We're hearing about it from communities around the 
country, and if we can get some of these big elements right-
like what the Senator from North Dakota talked about-how you 
can figure out how to have a strong disclosure program and 
maybe address some of the issues that Governor Hickenlooper 
brought up in connection with how you do it in addressing 
various concerns. I think we're on our way.
    The last point I want to make is the reason Senator 
Murkowski and I are putting so much time into this- and we 
thought together about what we ought to proceed on first-is 
this issue has the potential to be a real American success 
story where in effect if we work together, have all the 
stakeholders at the table as you, Ms. Beinecke, said and the 
Senator from North Dakota has indicated to me he's more than 
open to, this has the potential to be an extraordinary success 
story, a story for the times, an American success story.
    That's the objective we're going to take in the committee, 
and I'm going to let the last word go to my friend and 
colleague, Senator Murkowski.
    Senator Murkowski. Is this yours?
    The Chairman. No.
    Senator Murkowski. See we're just so close we don't even 
know which microphone belongs to who.
    Senator Wyden, I want to thank you for your summation 
comments and also to acknowledge where you have been taking us, 
Senator Hoeven, in this discussion because I think we've had an 
opportunity here to have almost 3 hearings.
    We started our overview of what natural gas has brought us 
in terms of the manufacturing renaissance, jobs, and the 
opportunity for reduced emissions.
    As I point out in my Energy 20-20 document, it comes down 
to one bumper sticker and that is ENERGY IS GOOD. I think when 
we're talking about natural gas we recognize the benefits.
    But we've also had a hearing for all intents and purposes 
talking about the issues as they relate to export of this now 
abundant resource and what that might mean to us and how we 
might deal with some of the concerns that have been raised 
    One of the things that I heard very clearly around the 
Dias, we want to be careful. We don't want to run out and do 
something precipitice that we might regret in terms of policy 
later. Let's make sure that we've got our eyes open and are 
mindful in terms of how we advance these issues.
    Then the focus that Senator Hoeven has given us on the 
issue of hydraulic fracking and really what that has meant in 
terms of being able to access a considerable resource, but 
recognizing that in this amazing country of ours that this 
resource is not just situated in North Dakota. We've been 
utilizing hydraulic fracking on the North Slope for decades now 
without incident.
    What Senator Manchin has been talking about regarding the 
opportunities in his part of the country, States like Ohio and 
Pennsylvania where people have been for decades and generations 
and never envisioned themselves as coming from an energy-
producing State, and now all of a sudden they're in an energy 
producing State.
    The dynamics that are going on right now within the energy 
sector are really quite profound so our responsibility is as a 
committee to thoughtfully take up these issues and consider all 
aspects of them, not rushing to judgment, but really allow good 
thoughtful discussion. I think that this is critically, 
critically important.
    It's important that we look to our history when we talk 
about LNG exports. I'm always quick to remind folks that we've 
been doing it in Alaska for over 40 years now. The longest 
contract in the country for export of anything has been 
shipping natural gas to Japan. It's been a very quiet success 
story, and in 4 decades they've never missed a shipment. It was 
a remarkable run, and nobody really knows about it. That's 
probably a good thing. When it doesn't make the headlines, it's 
probably a good thing.
    Mr. Chairman I want to--I want to commend you for how we 
started off our first hearing in this committee. Maybe all of 
them won't go until well after the expired hour, but I do think 
what we took up here today and the manner in which we addressed 
it is a good marker for how we can move forward on some very 
difficult policy issues, but I think policy issues that have an 
opportunity to really direct the economic future and well-being 
of our country.
    The Chairman. Thank you, thank you.
    With that the committee's adjourned.
    [Whereupon, at 1:10 p.m., the hearing was adjourned.]


                               Appendix I

                   Responses to Additional Questions


    Responses of Ross Eisenberg to Questions From Senator Alexander
    Question 1. Given the advantage of low domestic natural gas prices 
that resulted from increased production from unconventional natural gas 
reserves, do we really have a problem since we might only export 10 
percent of our natural gas?
    Answer. Thank you for this question. A great deal of the discussion 
at the hearing centered on finding a ``sweet spot'' for LNG exports. 
The NAM does not believe it is the role of the federal government to 
find the ``sweet spot.'' If the market is allowed to work, the ``sweet 
spot'' should happen naturally.
    The LNG export study commissioned by the Department of Energy (DOE) 
from NERA Economic Consulting helps illustrate this point. One of 
NERA's key findings-which often goes overlooked-is that in the 
scenarios NERA believes most likely to represent future conditions, we 
will not export large amounts of LNG because we will not have enough 
international customers willing to buy it at the price at which we 
would have to sell it to make a profit. Specifically, NERA states:

          NERA concluded that in many cases the world natural gas 
        market would not accept the full amount of exports specified by 
        FE in the EIA scenarios at prices high enough to cover the U.S. 
        wellhead price projected by EIA. In particular, NERA found that 
        there would be no U.S. exports in the International Reference 
        case with U.S. Reference case conditions. In the U.S. Reference 
        case with an International Demand Shock, exports were projected 
        but in quantities below any of the export limits.\1\
    \1\ DOE 2012 LNG Export Study at 4.

    DOE asked NERA to model price impacts of 6 and 12 billion cubic 
feet (bcf) of exports. NERA concluded that, unless production costs 
substantially declined or international demand spiked, the U.S. would 
be unable to export the full amount.\2\
    \2\ Id. at 76.
    Question 2. At what percentage of exports, compared with the 
overall U.S. production of natural gas, does the U.S. lose its price 
advantage of natural gas that we have today?
    Answer. Strictly speaking, U.S. consumers of U.S.-produced natural 
gas will always have a price advantage over foreign consumers of U.S.-
produced natural gas due to liquefaction and transportation costs. LNG 
export companies estimate that liquefaction and transportation of 
natural gas adds roughly six dollars per billion cubic foot (bcf); 
domestic consumers of this gas will therefore always have a six dollar 
price advantage over foreign consumers of this same gas.
    Your question also asks whether there is a point at which LNG 
exports would cause U.S. natural gas prices to rise high enough that 
domestic manufacturers no longer take advantage of it. That is a much 
more difficult question, and unfortunately one that depends on much 
more than simply LNG exports. It will depend on a multitude of factors, 
including: whether we can continue to develop our vast natural gas 
resources efficiently and inexpensively, how much gas we ultimately use 
for electric generation for manufacturing and in the transportation 
sector, whether we will discover even more domestic natural gas 
reserves, how quickly other nations such as China increase their own 
natural gas production, and whether international demand for LNG 
exports will increase substantially. The NAM firmly believes that 
responsible development of natural gas, balanced by reasonable state-
based regulation, a manageable permitting process, and a policy on LNG 
exports governed by free trade and open markets will ensure that the 
U.S. can export natural gas while maintaining a growing and vibrant 
manufacturing sector.
    Question 3. What are your projections for the amount of natural gas 
the U.S. will be producing in 10 years?
    Answer. The NAM has not made specific projections for the amount of 
natural gas the U.S. will be producing in 10 years. However, the PwC 
study supported by the NAM in December 2011, ``Shale Gas: A Renaissance 
in U.S. Manufacturing,'' based its projection of one million 
manufacturing jobs that could be created from shale gas development in 
2025 on the Energy Information Administration's estimate of 862 
trillion cubic feet (tcf) of technically recoverable shale gas 
    Question 4. Under present policies, if you had to make a guess, 
what would be the range of the percentage of U.S. natural gas 
production that we would be exporting in 10 years?
    Answer. If the DOE's current policy-a full moratorium on new export 
licenses-were allowed to remain in place, we would be exporting the 
same amount of natural gas in 10 years that we do today: none.
    That said, we do expect the DOE to move forward with licensing at 
some point. Again, the NERA study performed for the DOE is helpful 
because it clearly states that current market conditions will not allow 
for exports even at the 12 bcf level. If NERA is correct, the market 
will ensure that a balance exists between exports and domestic 
availability of natural gas.
                                            Jack N. Gerard,
                                            API, February 28, 2013.
Hon. Ronald Wyden,
Chairman, Senate Committee on Energy and Natural Resources, 304 Dirksen 
        Senate Building, Washington, DC.
    Dear Chairman Wyden,
    Thank you again for the opportunity to testify before the committee 
on the game-changing opportunity that we have before us through the 
development, use and export of domestic natural gas. The application of 
the proven technologies of horizontal drilling and hydraulic fracturing 
have allowed the United States to become the global leader in natural 
gas production, and we are on our way to becoming the global leader in 
oil production. This will enhance our energy security tremendously, 
considering that the U.S. will rely on natural gas and oil for decades 
to come for energy consumption, and the world will require 
significantly more natural gas and oil. Domestically, the story is 
compelling: the upstream oil and natural gas sector is now responsible 
for 1.7 million jobs in the country in unconventional resource 
development alone. And as I stated in my testimony to the committee, 
that number is expected to grow to 2.5 million jobs by 2015; 3 million 
jobs by 2020 and 3.5 million jobs by 2035. According to the Bureau of 
Labor Statistics, jobs in the oil and natural gas exploration and 
production sector pay on average more than $100,000 per year, more than 
twice the national average. As we move forward with this important 
debate, we must ensure that move down a path that fosters this 
important economic and job growth through responsible development of 
these resources.
       Response of Jack N. Gerard to Question From Senator Wyden
    Question 1. Ms. Beinecke noted in her testimony that one of the 
benefits of natural gas, of course, is that when you burn it; it 
releases fewer greenhouse gas emissions than resources like coal. This 
benefit, though, can be offset if more natural gas leaks in to the 
atmosphere. There are conflicting reports about the level of methane 
leakage from natural gas production and transport, ranging from as 
little as 0% leaked to as much as 9% in some reports for some basins. 
How can we get our arms around this question of how much methane is 
being leaked, and what are your thoughts for how we can make sure that 
leakage is minimized?
    Answer. API is keenly aware of the widely divergent estimates of 
methane emissions from the U.S. petroleum and natural gas industry and 
has been working to improve methane emission estimates. Methane 
emissions associated with petroleum and natural gas production have 
been typically assessed by engineering estimation. Such estimates are 
typically used by EPA when compiling the national U.S. Greenhouse Gas 
(GHG) Inventory and more recently by companies for reporting under the 
mandatory Greenhouse Gas Reporting Program (GHGRP).

          I. In order to make a comparison to ``% leaked'' as 
        identified in Question 1 (Senator Wyden), the analysis in 
        section I and II, reports methane emissions per production as a 
        comparable percentage.This variability of methane emission 
        estimates extends to the official inventory of methane 
        emissions in the annual U.S. GHG inventory prepared by EPA and 
        submitted to the UNFCCC. This inventory estimates GHG emissions 
        from various sectors including the Natural Gas Systems 
        sector.\1\ In the 2008 inventory (published in 2010), EPA 
        estimated methane emissions from Natural Gas Systems to be 
        4,591 Gg of methane (96.4 Tg CO2e) which equates to 
        about 1.2%\2\ of 2008 natural gas withdrawals\3\ (production) 
        from the natural gas industry. The 2009 and 2010 inventories 
        (published 2011 and 2012 respectively) estimated significantly 
        higher methane emissions with the 2010 inventory estimating 
        methane emissions of 10,259 Gg (215.4 Tg CO2e), 
        equating to about 2.6%\4\ of natural gas withdrawals from the 
        natural gas sector. The majority of this increase was due to 
        different assumptions and methodologies associated with the 
        onshore natural gas production segment. The 2009 inventory 
        played a significant role in public, policy, and regulatory 
        debates surrounding methane emissions from natural gas systems. 
        The 2011 inventory, released for public review on February 22, 
        2013, estimates methane emissions of 6,646 Gg (139.6 Tg 
        CO2e); equating to about 1.5%\5\ of natural gas 
        withdrawals from the natural gas sector.
    \1\ Natural Gas Systems is comprised of sources in production field 
operations (both onshore and offshore); natural gas processing; natural 
gas transmission and storage (including LNG); and natural gas 
    \2\ Calculated based on 239,115 MMscf of CH4 emissions 
divided by 20,026,832 MMscf natural gas withdrawals.
    \3\ Natural gas withdrawals mean EIA's gross gas withdrawals less 
associated gas from oil wells, which for 2008 withdrawals = 20,026,832 
MMscf; 2010 = 20,981,382 MMscf; and 2011 = 22,571,108; http://
    \4\ Calculated based on 534,323 MMscf of CH4 emissions 
divided by 20,981,382 MMscf natural gas withdrawals.
    \5\ Calculated based on 346,230 MMscf of CH4 emissions 
divided by 22,571,108 MMscf natural gas withdrawals.
          The emission sources, and their respective methane emissions, 
        included in EPA's calendar year 2011 inventory estimate are 
        shown in the table provided in the supplemental technical 
        information that follows on page 16.
          II. Based on the 2011 data reported to EPA under the GHG 
        Reporting Program (which is designed to capture 85-90% of the 
        petroleum and natural gas operations in the U.S.) one can also 
        assess a leakage rate for petroleum and natural gas operations. 
        The data released in early February 2013 by the U.S. EPA 
        indicates that methane emissions for all sources within the 
        Petroleum and Natural Gas Systems category\6\ are 83 million 
        metric tonnes of CO2 equivalents, which equates to 
        an average methane leakage rate of about 0.7% of 2011 natural 
        gas gross withdrawals.\7\
    \6\ Petroleum and Natural Gas Systems for EPA's GHG Reporting 
Program is comprised of sources in petroleum and natural gas production 
(both onshore and offshore); natural gas processing; natural gas 
transmission/compression; natural gas distribution; natural gas 
storage; LNG storage, import, and export; and other petroleum and 
natural gas combustion sources.
    \7\ Natural gas gross withdrawals is taken directly from EIA, which 
for 2011 = 28,479,026. This includes gross withdrawals from oil wells 
to be consistent with emissions reported under the GHGRP, which 
includes petroleum and natural gas production. http://www.eia.gov/dnav/
                   measurements of methane emissions
    In order to gather more information on methane leakage rates, and 
the adequacy of the engineering estimation methods, a series of studies 
is emerging over the past couple of years each providing a snapshot of 
leakage from a specific region and a specific segment of the natural 
gas system at a specific point in time.

          I. Fort Worth, Texas Study, 2010\8\.--Analysis of reported 
        routine emissions from over 250 well sites (with no compressor 
        engines) in Barnett Shale gas well sites in the City of Fort 
        Worth was conducted for the City of Fort Worth by Eastern 
        Research Group Inc. (ERG). The results revealed a highly-skewed 
        distribution of emissions, with 10% of the well sites 
        accounting for nearly 70% of total emissions. Natural gas leak 
        rates were calculated based on operator-reported, daily gas 
        production data at these well sites and ranged from 0% to 5%, 
        with six sites out of 203 showing leak rates of 2.6% or greater 
        due to routine emissions alone.
    \8\ Natural Gas Air Quality Study (Final Report), http://
fortworthtexas.gov/gaswells/default.aspx?id=87074, Posted July 14, 
2011, Updated July 19, 2011

          II. Denver-Julesburg Basin, Colorado, February 2012\9\.--A 
        study by NOAA/University of Colorado scientists published in 
        February 2012 suggested that up to 4% of the natural gas 
        produced at a field near Denver was escaping into the 
        atmosphere. The study relied on 2008 ambient concentration 
        measurements, and estimated a leakage rate based on 
        concentration ratios, using a methodology that remains in 
        dispute. In a comment on this publication, Levi\10\ questions 
        the authors' assumptions about the composition of the gas being 
        leaked and where it is coming from (methane from natural gas 
        production or other hydrocarbon liquids from condensates). 
        Levi's analysis underscores the uncertainty about the study's 
        conclusion regarding methane leakage from natural-gas 
        operations elsewhere.
    \9\ Petron, G. et al. J. Geophys. Res. 117, D04304 (2012).
    \10\ M. Levi, Revisiting a Major Methane Study, October 2012; 

          III. Joint Institute for Strategic Energy Analysis (JISEA), 
        November 2012\11\.--This study of the Barnett Shale area was 
        conducted by JISEA\12\ and released in November 2012. The study 
        analyzed 2009 emissions inventories of regulated air pollutants 
        submitted to the Texas Commission on Environmental Quality 
        (TCEQ) from more than 16,000 individual sources in shale gas 
        production and processing sub-sectors. Based on the estimated 
        methane content of this produced gas and the assumed average 
        lifetime of production from a well, JISEA estimated a methane 
        leakage rate--for the Barnett Shale basin--as 1.3% across its 
        life cycle.
    \11\ Natural Gas and the Transformation of the U.S. Energy Sector: 
Electricity. Logan, J., Heath, G., Paranhos, E., Boyd, W., Carlson, K., 
Macknick, J. NREL/TP-6A50-55538. Golden, CO, USA: National Renewable 
Energy Laboratory.
    \12\ The Joint Institute for Strategic Energy Analysis is operated 
by the Alliance for Sustainable Energy, LLC, on behalf of the U.S. 
Department of Energy's National Renewable Energy Laboratory, the 
University of Colorado-Boulder, the Colorado School of Mines, the 
Colorado State University, the Massachusetts Institute of Technology, 
and Stanford University

          IV. Uinta Basin, Utah, December 2012\13\.--In December of 
        2012, NOAA described the unpublished results of an airborne 
        ambient measurement study in the Uinta Basin, Utah. The data 
        was collected as part of a broad investigation of air quality 
        in the Uinta Basin, using ground-based equipment and an 
        aircraft to make detailed measurements, including methane 
        concentrations. Using what we believe are simplified mass 
        calculations and assumptions along with the aircraft 
        concentration measurements, the researchers suggest that the 
        rate of methane leakage may be as high as 9% of total 
        production, when compared to industry production data. A paper 
        detailing the study methodologies, data, and results has not 
        yet been published or released.
    \13\ Methane leaks erode green credentials of natural gas, Nature 
News, 02 January 2013; http://www.nature.com/news/methane-leaks-erode-

          V. University of Texas/EDF Study\14\.--A measurement campaign 
        was conducted in 2012 by the University of Texas at Austin (in 
        collaboration with nine petroleum and natural gas industry 
        corporate partners and EDF--Environmental Defense Fund) to 
        quantify emissions from natural gas production. Our 
        understanding is the results of this study will be published 
        later in 2013.
    \14\ What will it take to get sustained benefits from natural gas? 
    Engineering estimation methods, source measurement methods, and 
ambient concentration measurement studies have inherent limitations and 
are associated with a considerable level of uncertainty. Each piece of 
information taken alone cannot provide an accurate picture of system-
wide leakage, due to spatial and temporal variability. Great care is 
needed not to rely on partial data provided by various studies to-date, 
hence indicating the need for additional investigations.
    Most notably, the science of estimating leakage rates from ambient 
concentration data is still evolving. The uncertainties and limitations 
of the various methodologies being used have yet to be independently 
validated and as such cannot be viewed as definitive measurements at 
this time. They should also be viewed as snapshots in time and 
    As Jeff Tollefson states in the journal Nature\15\, ``Whether the 
high leakage rates claimed in Colorado and Utah are typical across the 
U.S natural-gas industry remains unclear. The NOAA data represent a 
'small snapshot' of a much larger picture that the broader scientific 
community is now assembling.'' API and its members recognize the need 
to improve both the scientific understanding of the range of data being 
collected as well as operating practices that would minimize methane 
    \15\ See http://www.gpo.gov/fdsys/pkg/FR-2013-02-21/pdf/2013-
    Furthermore, it should be noted that implementation of the final 
Oil and Natural Gas Sector New Source Performance Standard (NSPS OOOO) 
will achieve significant reductions of methane as a co-benefit from 
regulating volatile organic compound (VOC) emissions. EPA estimated 
that the final rule will reduce methane by the equivalent of 19 to 33 
million tonnes of CO2. The use of Reduced Emission 
Completions (RECs) in the final rule, a process developed by industry 
to minimize emissions and maximize resource recovery, will 
significantly reduce emissions resulting from completion of gas wells. 
Over the long term, this rule will have an ever-broadening impact on 
our operations as new sources are regulated.
    API recommends four steps:

          1. Collaborative efforts between industry, government and 
        academia to agree upon a common set of methane measurement 
        methods and `best practices' for relating ambient concentration 
        measurements to source emissions in the field.
          2. In-depth analysis of newly emerging data--from different 
        studies around the country--to assess the range and regional 
        variability of potential methane leakage and quantify the 
        economic benefits from its capture for sale.
          3. Collaboration between EPA, the industry, and stakeholders 
        to mine the data reported under the GHGRP to improve methane 
        emission estimates in the U.S. GHG Inventory along with 
        improving the accuracy of methodologies in the GHGRP.
          4. Evaluation of the impact of recently promulgated new 
        source performance standards (NSPS) for the Petroleum and 
        Natural Gas sector to forecast expected methane emissions 
        reduction trends once the new regulations are fully implemented 
        in 2015 and beyond.
      Response of Jack N. Gerard to Question From Senator Landrieu
    Question 1. It is obvious that everyone testifying today recognizes 
the importance of environmental protection and responsible production. 
While regulation is a vital part of ensuring that natural gas 
production proceeds in a responsible fashion, it is also vital that 
industry play an active role in self-regulation. What efforts are you 
aware of that industry has undertaken to ensure that they operate in a 
safe and responsible manner?
    Answer. The industry's commitment to excellence and continuous 
improvement in hydraulic fracturing operations is evident in its work 
to develop best practices for oil and gas operations. More than 65 of 
API's standards and recommended practices for completion of wells apply 
to hydraulic fracturing operations. And over the past several years, 
API has developed three additional new guidance documents uniquely 
tailored to hydraulic fracturing in order to offer additional guidance 
to operators. The API standards process, its work applicable to 
hydraulic fracturing operations, and recent outreach efforts are 
described below.
1. API's Standards Program.
    API's standards program has been a recognized leader in the 
development and dissemination of industry standards since 1924. New API 
standards, certifications, and practices are developed through a broad-
based, formal consensus process that allows companies, regulators, 
organizations, and other stakeholders to participate in an interactive 
dialogue, addressing both cutting-edge issues and regulatory needs. API 
is accredited by the American National Standards Institute (ANSI), and 
API undergoes regular program audits by ANSI. API's standards process 
utilizes the ANSI-approved API Procedures for Standards Development. 
This process ensures that there is openness in participation on API 
standardization committees; committee balance between users, 
manufacturers, contractors/consultants and government; consensus based 
documents (does not mean unanimity); and due process, within which all 
comments and objections must be considered. API standards are 
considered ``American National Standards'' for adhering to this 
    In part because of this openness and consistency, API's standards 
are the most widely cited in the petroleum and natural gas industries. 
More than 100 standards have been cited 270 times in U.S. federal 
regulations and 184 standards have been cited more than 3,300 times in 
U.S. state regulations. Without specific codification in state or 
federal legislation, the standards are not mandatory; however, they are 
widely respected indicators of strong operations and therefore 
routinely mandated by companies, service providers, and their insurers 
even where compliance is not legally required.
    API's standards are evergreen and reviewed a minimum of once every 
five years. Announcements of upcoming standards work programs such as 
formalizing the current hydraulic fracturing guidance are made in the 
U.S. Federal Register through an agreement with the U.S. National 
Institute of Standards and Technology, as well as API's own Web site to 
encourage diverse participation.
2. Work Applicable to Hydraulic Fracturing.
    The industry understands that the integrity of wells and effective 
wastewater management is central to producing natural gas safely and 
responsibly. API's existing body of rigorous internationally recognized 
good practice supplements the extensive federal and state regulation 
governing virtually every aspect of resource extraction. More than 65 
of API's existing standards and recommended practices for completion of 
wells apply to hydraulic fracturing operations. They address topics 
ranging from planning and design of wells to post-production 
            a. Hydraulic Fracturing Operations-Well Construction and 
                    Integrity Guidelines.
    API HF1 (currently undergoing revision as RP 100-1) addresses 
casing, pressure testing, and cement job evaluation (including cement 
bond logs on a selective basis). Safe and responsible development 
begins with strong wells, these standards and practices include, but 
are not limited to, pressure testing of cemented casing, cement bond 
logging, and inspections beyond those required by local permitting 
procedures. API HF1 incorporates existing API guidance such as API 
Specification 5CT (9th Edition, July 2011, pertaining to the design, 
manufacturing, testing, and transportation of casing and tubing) and 
API Standard 65 Part 2 Isolating Potential Flow Zones During Well 
Construction (2nd Edition, December 2010, covering best practices to 
isolate potential flow of hydrocarbons and other fluids throughout the 
hydraulic fracturing process). API HF1 speaks extensively about the 
variables operators should consider in planning and completing wells. 
These include local considerations (e.g., regional geology, pressure 
differentials, and temperature variations that affect cement slurry 
composition), as well as advances in technology.
    It is important to note that constantly evolving data collection, 
analysis, and monitoring techniques offer operators access to an ever-
improving array of real-time information about well activities. API HF1 
emphasizes that wholly isolated, solidly constructed wells and 
conscientious monitoring are essential elements to responsible 
            b. Water Management Associated with Hydraulic Fracturing.
    API HF2 (currently under revision as RP 100-2) identifies practices 
used to minimize the environmental and societal impacts from the 
acquisition, use, management, treatment, and disposal of water and 
other fluids used in hydraulic fracturing. This document focuses 
primarily on issues associated with hydraulic fracturing in deep shale 
gas development; however, its guidance also extends to many other 
applications of hydraulic fracturing technology, including shale oil 
development. In an attempt to address the development-related issues 
stemming from the increasingly urban nature of shale gas development 
and competing uses, API HF2 recommends that water quality be evaluated 
on a regional level throughout the planning and completion process. It 
also acknowledges opportunities for creative water use strategies 
(e.g., companies that have used treatment facilities to make water from 
non-potable aquifers appropriate for fracturing) and the continuously 
evolving possibilities for greener fracturing additives (e.g., 
stimulants like propane or ultraviolet antibacterial agents). API HF2 
strongly encourages companies to conduct baseline water quality 
testing, and to continue periodic water quality testing throughout the 
fracturing process. Careful water management in fracturing can often 
help companies reduce costs, while protecting the environment. For 
example, on-site storage facilities and pipelines can help minimize 
truck traffic, thereby lowering the greenhouse gas footprint of the 
extraction process. Similarly, treating and recycling water for future 
fracturing projects can help eliminate community concerns about 
releasing treated produced water for public consumption while also 
reducing operator costs. Disposal options--whether through underground 
well injection or treatment at specially accredited facilities--vary 
according to region; however, the overarching theme of this document is 
that responsible operators are careful planners who consider the 
regional, state, and local environmental implications of every decision 
in the water use lifecycle.
            c. Practices for Mitigating Surface Impacts Associated with 
                    Hydraulic Fracturing.
    API HF3 (currently under revision as RP 100-2) summarizes the 
strategies to protect surface water, soil, wildlife, other surface 
ecosystems, and nearby communities. One of the great benefits of 
hydraulic fracturing is that a multi-well production site the size of a 
two-car garage regularly contains as many as five wells that can 
produce gas for up to 40 years. This is one of the most compact 
footprints of any large-scale energy source. That being said, however, 
careful planning for on-site storage and stormwater management, as well 
as continuous site inspections of both equipment and liners can 
minimize the risk of any inadvertent surface discharge. Baseline water 
samples and advanced disclosure about the additives used in fracturing 
fluids can also help increase community comfort with operational 
activities. HF3 draws heavily on API Recommended Practice 51R.
            d. General Environmental Considerations.
    API RP 51R--Environmental Protection for Onshore Oil and Gas 
Operations and Leases, covers diverse operational areas, including the 
design and construction of access roads, the placement of well 
locations, and practices for restoring sites after production has 
ceased. Notably, Annex A of Recommended Practice 51R focuses on ``Good 
Neighbor Guidance'' and encourages operators to be proactive in 
protecting public safety and the environment, while respecting the 
property rights of all neighbors (e.g., the landowner, the surface 
user, and adjoining landowners) and communicating effectively with 
community stakeholders. These documents are available to the pubic 
online at www.api.org/oil-and-natural-gasoverview/exploration-and-
production/hydraulic-fracturing.aspx and focus on some of the most 
pressing water management issues in hydraulic fracturing (e.g., 
baseline water quality sampling, and regional water planning). 
Additionally, they are currently being expanded thanks to additional 
input from industry and other stakeholders (including regulators) as 
they progress through API's open, ANSI-accredited standards review 
3. Stakeholder Outreach.
    The task of improving the industry's ability to respond to public 
concerns and to address issues important to communities and regions 
where shale gas development is occurring continues through efforts at 
the state, county and local levels. Toward that end, API is willing to 
work with local and regional governments to identify and publicize 
recommended practices for community engagement toward prevention, 
mitigation and remediation of surface impacts and effects upon 
communities from exploration and production activities. API has already 
engaged in outreach to various county governments to address specific 
issues brought to the attention of API by the county representatives.
    In October 2011, API and its sister trade associations held the 
first in a series of technical workshops specifically devoted to 
analyzing and promoting industry guidance documents on hydraulic 
fracturing operations. The workshop was held in Pittsburgh, 
Pennsylvania and was open to industry members, community stakeholders, 
environmentalists, state and federal regulators, and journalists. 
Registration fees were reduced for nonprofits and community members to 
encourage participation. More than 250 individuals attended and 
contributed to active discussions throughout the workshop.
    Based on the success of this model, API offered over 15 additional 
regional one-day workshops throughout 2012. These workshops offered a 
valuable opportunity to understand and address regional concerns, as 
well as educate regulators and the public about the considerable safety 
measures accompanying hydraulic fracturing operations.
    These workshops were only one element of the ongoing dialogue that 
industry has with regulators about continually evolving good practices 
and effective regulations. Discussions occur regularly on a state-
specific basis, as well as through organizations like the Interstate 
Oil and Gas Compact Commission (IOGCC) and the State Review of Oil and 
Natural Gas Environmental Regulations (STRONGER). STRONGER is an 
organization that specializes in recommending improvements to state 
regulatory frameworks.
    At a variety of meetings, industry has shared existing good 
practices with state regulators, and discussed where improvements to 
state regulations could effectively provide additional safeguards for 
local communities and their water sources. These briefings have 
occurred in Ohio, Pennsylvania, West Virginia, and Michigan and will 
continue in these and other states, as long as regulators want to learn 
more about industry practices.
    Building on momentum from previous recent efforts, API is also 
planning to continue outreach to both industry and regulators to foster 
a dialogue of collaboration and continuous improvement. Industry and 
government together must meet the challenge of developing our nation's 
shale gas endowment in a sustainable way over time in ways that protect 
the environment, respect other uses of lands and waters in the vicinity 
and that are appropriately tailored to the character and context of the 
regions in which shale gas development occurs.
    With conventional well technology, development of shale energy 
would have been prohibitively expensive. However, horizontal drilling 
and hydraulic fracturing not only make harvesting shale resources 
commercially viable--they allow it to be done with remarkably decreased 
surface impacts.
    The United States Department of Energy has recognized both 
hydraulic fracturing and horizontal drilling as advanced technologies 
that provide environmental benefits in a 1999 report entitled 
``Environmental Benefits of Advanced Oil and Gas Production 
Technology.'' According to DOE, hydraulic fracturing was first 
introduced in 1947 and ``quickly became the most commonly used 
technique to stimulate oil and gas wells. . . .  By 1988, fracturing 
had already been applied nearly a million times. Each year, 
approximately 25,000 gas and oil wells are hydraulically fractured.'' 
Since the release of that report, hundreds of thousands of additional 
wells have been hydraulically fractured. The report explains hydraulic 
fracturing results in optimized recovery of oil and gas resources, 
protection of groundwater resources, and less waste requiring disposal, 
while horizontal drilling results in less impact in environmentally 
sensitive areas, fewer wells needed to achieve desired level of reserve 
additions, less produced water and less drilling waste. Furthermore, as 
described above, the industry has actively developed standards and best 
practices for safe and environmentally responsible operations.
     Responses of Jack N. Gerard to Questions From Senator Barrasso
    On March 14, 2012, the then-Bureau of Land Management (BLM) 
Director, Bob Abbey, testified in the Senate that there has been ``a 
shift [in oil and natural gas production] to private lands in the East 
and to the South where there are fewer amounts of Federal mineral 
    Question 1(a). What specific steps should the Federal government 
take to make Federal public lands and Indian lands more competitive 
with private and state lands for the purposes of oil and natural gas 
    Answer. The federal government should take positive steps to 
increase the number leases issued on federal lands, to expedite the 
timeframe for completing environmental analysis, and expedite the 
timeframe for issuing permits to drill.
    According to a study titled, ``Employment, Government Revenue, and 
Energy Security Impacts of Current Federal Lands Policy in the Western 
U.S.'', prepared for API by EIS Solutions of Grand Junction, Colorado, 
January 2012, which relies upon an examination of BLM Oil and Gas 
Statistics compiled in 2010 and 2011 (the EIS Solutions report):

   The number of new federal oil and gas leases issued by the 
        BLM in Western states is down 44% from an average of 1,874 
        leases in 2007/2008 to 1,053 in 2009/2010.
   The number of new permits to drill issued by the BLM is down 
        39%, from an average of 6,444 permits to an average of 3,962.
   The number of new wells drilled on federal land has 
        declined, 39%, from an average of 4,890 wells to 2,973.
   The economic downturn starting in 2007 is recognized as a 
        factor contributing to these results. However, if market 
        factors were the sole driver of the federal lands permitting 
        slowdown, it would be reasonable to assume that non-federal 
        drilling permits would generally track the trends occurring 
        with their federal counterpart. But this is not the case.

    We have attached the full report from EIS Solutions, which 
describes in further detail the significant decrease in leasing, 
permitting and the drilling of wells on federal BLM lands.
    When comparing BLM statistics for the entire U.S. related to the 
years from 2008 to 2012, the numbers paint a similar portrait. Natural 
gas production increased on nonfederal lands nationwide and in Wyoming 
when comparing 2008 to 2012, but it decreased on federal lands in the 
same areas over the same timeframe. Nationwide, natural gas production 
increased from 42.1 bcf/day to 56.8 bcf/day on nonfederal land, and 
decreased from 8.4 bcf/day to 8.0 bcf/day on federal land. In Wyoming, 
natural gas production increased from 1.8 bcf/day to 1.9 bcf/day on 
nonfederal land, and decreased from 4.2 bcf/day to 4.0 bcf/day on 
federal land. In terms of total wells drilled, nationally the number of 
wells drilling on federal lands decreased from 5,044 in 2008 to 3,022 
in 2012, which is a 40 percent drop. In Wyoming, federal wells drilled 
decreased from 2,275 in 2008 to 776 in 2012, which is a 66 percent 
drop. In terms of drilling permits issued, nationally the number of 
permits decreased from 6,617 in 2008 to 4,256 in 2012, which is a 36 
percent drop. In Wyoming, federal permits issued decreased from 3,155 
in 2008 to 1,229 in 2012, which is a 61 percent drop. This information 
is provided in a one-page attachment.
    certainty and timeliness in the leasing and permitting process:
    For years, western producers have been frustrated by the 
uncertainty that the long timelines for operating on federal land 
create. From leasing through project approval and drilling permits, 
increasing regulatory requirements and often inefficient administrative 
processes increase time and cost while reducing the certainty producers 
need to create long term business plans for exploration, production and 
resource development. Policies and priorities vary widely from 
administration to administration, creating even more uncertainly and 
leaving companies unable to determine timelines and costs, raise 
capital, and to plan development. States and field offices operate 
under widely varying interpretations of regulations, and producers are 
subject to the different approaches among agency field offices that can 
add ad hoc requirements to permits that have no basis in law. Improving 
and clarifying current regulations was needed even before the addition 
of recently enacted leasing policies which added more redundancy to the 
process. In order to realize the full economic and jobs potential that 
western oil and natural gas offer, companies must have certainty in the 
process along with reasonable time and cost expectations to enable them 
to execute their business plans.
  streamlining the timeframe for completion of environmental analysis
    Many large projects are held up in multi-year delays in processing 
and completing environmental analysis under the National Environmental 
Policy Act. The BLM should undertake reform to streamline the process 
so that smaller projects that may include a dozen or so wells do not 
take months and years to complete the associated analysis, and that 
larger projects that may include thousands of wells do not take 3 to 10 
years to complete the associated analysis. We are including an analysis 
of NEPA delays that was completed by SWCA Environmental Consultants for 
the Western Energy Alliance for your consideration.
     re-examining and re-engineering the present permitting process
    The government needs a reorientation of the federal onshore oil and 
natural gas program. This should include a comprehensive re-engineering 
and reform of the entire federal onshore process, including leasing, 
project NEPA analysis, and permitting, to ensure the timely, efficient, 
predictable and responsible development of federal energy resources. 
Comprehensive reform should take advantage of emerging technologies and 
best practices, eliminate redundancies, and explore market mechanisms 
for achieving environmental protection. Government should refrain from 
implementation of new regulations without careful examination of the 
cost and benefit of current regulations.
    Question 1(b). Would you please explain how the BLM's pending 
regulations on hydraulic fracturing would push oil and natural gas 
production off Federal public lands and Indian lands and onto state and 
private lands?
    Answer. States have demonstrated that they are in the best position 
to regulate oil and gas development and have a proven track record of 
regulating oil and gas activities. Governors Matt Mead (Wyoming), 
Susana Martinez (New Mexico), Gary Herbert (Utah), Jack Dalrymple 
(North Dakota), Brian Schweitzer (Montana) and Robert McDonnell 
(Virginia), as well as Attorney General Scott Pruitt (Oklahoma) have 
provided written statements that testify to the strong and efficient 
track record of states to regulate oil and natural gas production. 
States are in the best position to understand the unique aspects of 
their hydrology and geology to inform and tailor their regulations. 
Furthermore, states have demonstrated the ability to adapt their 
regulations to address any changes in oil and gas activities in a 
prompt manner.
    When the BLM rule was originally proposed, we requested that the 
BLM reconsider the rules and recognize the strong oversight provided by 
existing state and federal regulations because conflicting or 
duplicative federal requirements would delay development of abundant 
oil and natural gas without providing additional environmental 
    We believe that the need for the proposed rule has not been 
supported by technical or scientific information that demonstrate that 
present federal and state regulations are inadequate to assure that 
hydraulic fracturing of oil and natural gas wells drilled on federal 
public lands takes place in a safe an environmentally responsible 
manner. As we will explain further, API recommends that the proposed 
rule be withdrawn and that prior to promulgating a new rule, the BLM 
should undertake a careful analysis of the agency's current 
regulations, onshore orders and other administrative practices 
concerning the regulation of drilling, well completion and production 
operations in collaboration with state agencies with similar regulatory 
mandates, and organizations such as the Ground Water Protection Council 
and STRONGER (State Review of Oil and Natural Gas Environmental 
    The record shows that there have been no incidents of contamination 
from hydraulic fracturing in over 1.2 million wells drilled over more 
than sixty years, and no groundwater contamination incidents from 
hydraulic fracturing operations that have occurred on federal public 
lands. Claims concerning the environmental and health impacts of 
hydraulic fracturing have turned out to be unsubstantiated or have 
resulted from activities or natural occurrences unrelated to hydraulic 
fracturing--the application of fluids under pressure for the purpose of 
initiating or propagating fractures in a target geologic formation in 
order to enhance production of oil and/or natural gas.
    We are concerned that the BLM has yet to show that it has carefully 
examined the potential effects of the proposed regulation on the costs 
of drilling operations on federal and tribal lands, and whether such 
costs might discourage new investment in such drilling operations 
without significant environmental benefit. More importantly, BLM has 
not shown that it has carefully examined whether the proposed 
regulations will increase or decrease production of natural gas and oil 
resources on federal lands that belong to the American people and 
provide revenues to the U.S. Treasury. The energy sector represented by 
API supports 9.2 million jobs and 7.7 percent of America's GDP. Even as 
the overall economy weakened the past several years, and millions of 
jobs were lost, the oil and natural gas industry expanded and created 
more than 86,000 new American jobs since the recession began. The 
resource basins of the American West are projected to generate 1.3 
million barrels of domestic oil and condensate production a day by the 
year 2020, an amount that exceeds the current daily oil imports from 
Russia, Iraq and Kuwait combined. These basins likewise hold the 
potential to produce 6.2 trillion cubic feet (Tcf) of natural gas 
annually by 2020, an additional one Tcf from 2010 levels. The benefits 
to the nation and the region in terms of capital investment, jobs and 
energy security from development of these resource basins, the majority 
of which underlie multiple use federal public lands, are enormous, 
especially in this time of economic uncertainty.
    BLM states in the proposed rule's preamble that it has developed 
the rule in response to ``public concerns'' related to hydraulic 
fracturing activities. The preamble states that ``[T]he resulting 
expansion of oil and gas drilling into new parts of the country as a 
result of the availability of new horizontal drilling technologies has 
significantly increased public awareness of hydraulic fracturing and 
the potential impacts that it may have on water quality and water 
consumption.'' Nevertheless, the agency has not shown that it has 
carefully examined whether those concerns are warranted based on the 
volume of information publicly available related to well stimulation 
activities that have occurred nationwide for decades. This operating 
record fails to show that actual instances of hydraulic fracturing 
operations have adversely affected public health or the environment. A 
rule of this significance should be based on facts, science, and 
engineering, not on unsubstantiated concerns that lack empirical 
demonstration. It has been long established that agencies must provide 
some factual basis for their policy decisions, and ``that those facts 
have some basis in the record,'' or they are arbitrary and capricious.
    As API noted in written comments provided to the Office of 
Management and Budget's Office of Information and Regulatory Affairs 
June 11, 2012, API believes that the estimate of benefits and costs 
associated with the BLM's proposed rule as described in the May 11, 
2012 notice in the Federal Register is flawed and should be scrutinized 
and re-determined. The benefits of the proposed rule are overstated by 
unrealistic assumptions of baseline risks of subsurface contamination 
in the Low Environmental Risk Case and grossly unrealistic in the High 
Environmental Risk Case. The costs of implementing the proposed rule 
are understated by the assumption that there will be no additional 
delays in operations even though the proposed rule describes a number 
of additional approvals that will be required throughout operations to 
bring a well to completion, should the proposed rule be implemented. 
Rules that impose regulatory burdens and delay without net benefit are 
exactly the type of rules that the Administration has sought to 
prevent. See Executive Order 13563 (agencies ``must'' craft regulations 
``only upon a reasoned determination that [their] benefits justify 
their costs,'' that they ``impose the least burden on society,'' and 
``maximize net benefits . . . '').
    More recently, in its study ``Future of Natural Gas,'' MIT examined 
the potential risks of hydraulic fracturing to groundwater aquifers and 
found that ``no incidents of direct invasion of shallow water zones by 
fracture fluids during the fracturing process have been recorded.'' MIT 
based its conclusions on the environmental record of more than 20,000 
shale gas wells drilled over a 10 year period. MIT reviewed the results 
of fracturing operations in the Barnett and Marcellus Shales and found 
that in all cases the highest growth of the fractures remains separated 
from the groundwater aquifers by thousands of feet of formation.
    In addition, former BLM Director Bob Abbey testified before 
Congress and stated that BLM ``has never seen any evidence of impacts 
to groundwater from the use of fracking technology on wells that have 
been approved by'' BLM. Director Abbey added that BLM believes ``that 
based upon the track record so far, [hydraulic fracturing] is safe.'' 
Director Abbey's testimony on the safety of hydraulic fracturing is in 
accord with former U.S. Environmental Protection Agency (EPA) 
Administrator Lisa Jackson's testimony that there is no ``proven case 
where the fracking process itself has affected water.'' The evidence to 
date supports the conclusion that hydraulic fracturing poses no risk of 
subsurface contamination--a conclusion with which BLM and EPA 
apparently agree.
    Moreover, the relationship between hydraulic fracturing and 
drinking water resources is already the subject of a multi-year multi-
million dollar research study currently being undertaken by the EPA. 
This national study includes a review of published literature, analysis 
of existing data, scenario evaluation and modeling, laboratory studies, 
and retrospective and prospective case studies. EPA released a 2012 
progress report and will release the final report at the end of 2014.
    API believes that the case has not been made for a federal, one-
size-fits-all approach. Oil and natural gas exploration and production 
is currently regulated by comprehensive state and federal laws. These 
include laws regulating well design, water use, waste management and 
disposal, air emissions, surface impacts, health, safety, location, 
spacing, and operation. State regulation of oil and natural gas 
activities pre-dated federal regulation, and is particularly important 
because it allows laws to be tailored to local geology and hydrology. 
Organizations like STRONGER are available to help assess the overall 
framework of environmental regulations supporting oil and gas 
operations in a particular state, and could likewise be a resource for 
the BLM. States also exchange information on regulatory experiences and 
practices through periodic meetings of interstate organizations such as 
the Interstate Oil and Gas Compact Commission (IOGCC) and the 
Groundwater Protection Council (GWPC).
    Question 2(a). Please explain how liquefied natural gas exports 
    Increase natural gas production and jobs in public land states, 
such as Wyoming, and Indian Reservations; and
    Answer. Exporting LNG will open up new markets which will increase 
natural gas production, including additional production on private, 
state, tribal and federal lands and in Wyoming. LNG exports will create 
jobs in the oil and natural gas industry, as well as the industries 
supplying the oil and natural gas sector with materials, equipment, and 
labor. These jobs would be created by the activities associated with 
the construction and maintenance of liquefaction facilities and 
increased natural gas production that would be required to support 
export markets. Recent studies indicate that each bcf per day of 
production supports between 25,000 and 35,000 jobs. To put this in 
perspective, as a result of the current energy renaissance, the United 
States increased its production of natural gas from approximately 60 
bcf/day in 2010 to approximately 70 bcf/day in late 2012, a significant 
increase to occur over just two short years.
    Virtually all studies concur that natural gas production will 
increase to support export volumes. The NERA study finds that in all 
three baseline scenarios, natural gas production increases. The EIA has 
estimated that 60 to 70 percent of LNG exports will be from increased 
production, with about 75 percent of the increased production coming 
from shale gas. The production of additional unconventional natural gas 
will support the creation of many new jobs as highlighted by the series 
of studies recently released by IHS. For example, an IHS report 
estimated that in 2012, 36 Bcf/d of unconventional natural gas 
production already supports over 900,000 jobs.
    A preliminary report by ICF International that modeled the impacts 
of LNG exports on the macro economy finds that there is a net gain in 
overall employment with LNG exports and that the jobs impact are larger 
the greater the export volumes. For example, in the mid-export case, 
where LNG export volumes reach about 8 Bcf/d by 2035, approximately 
309,000 jobs are created in 2035. The preliminary report by ICF 
International shows that even in the manufacturing sector there is a 
net increase in jobs because potential losses are offset by gains 
related to building and supplying LNG and olefin plants with equipment, 
building and supplying of materials and equipment for oil and gas 
production and processing, and general economic growth. According to 
the preliminary ICF International report, in the mid-export case, where 
LNG export volumes reach about 8 bcf/d by 2035, manufacturing job 
growth reaches 31,000 jobs in 2035.
    Other studies that have analyzed the employment impact of increased 
LNG exports conclude that the gains in jobs are greater than the 
losses. For example, in summarizing the employment of LNG exports, Levi 
concludes ``The bottom line . . .  is robust: job gains in directly 
affected markets are highly likely to be greater than job losses in 
markets hurt by higher natural gas prices.'' In addition, Levi noted 
that ``Most jobs supported by exports will be in gas production and in 
its supplies--including in energy intensive areas like steel and 
cement. My study estimates that those jobs will be roughly an order of 
magnitude larger than the jobs lost due to higher natural gas prices.''
    We are including with our response the preliminary results from the 
ICF International analysis of the economic impacts of LNG exports, 
which includes information on the positive employment opportunities.
    Question 2(b). Increase revenues (e.g., through severance taxes or 
royalties) to states, Indian tribes, and the Federal government?
    Answer. Corporate income taxes accrue to both State and Federal 
governments from oil and natural gas development. Any time that 
production occurs on federal, state, or tribal lands, the respective 
government receives the added benefit of additional revenue that is 
associated with the bonus bids, rentals, and royalties. From a federal 
standpoint, oil and natural gas production has provided billions of 
dollars to the government, and the potential is there for the 
government to receive billions more if production opportunities are 
expanded. In fact, the oil and natural gas industry contributes over 
$86 million a day to the federal government and we have the potential 
to do much more. With LNG exports, the country would see expanded 
production to meet the additional demand. The potential is certainly 
there for this additional production to occur on federal, state and 
tribal land, and those governments would in turn benefit from the 
additional revenues accruing. A recent IHS report estimates that 
projected revenue from unconventional development alone could reach a 
cumulative $2.5 trillion by 2035 with roughly half going to the federal 
government and half to state and local governments.
    Responses of Jack N. Gerard to Questions From Senator Alexander
    Question 1. Given the advantage of low domestic natural gas prices 
that resulted from increased production from unconventional natural gas 
reserves, do we really have a problem since we might only export 10 
percent of our natural gas?
    Answer. We are hopeful that we do not have a problem given the 
undeniable benefits that will accrue to the nation as a whole with the 
export of LNG from the United States. However, the U.S. is in a global 
competition for the development of LNG export facilities. According to 
ICF International, the current world LNG liquefaction capacity is 
estimated to be approximately 37 Bcf/d.\16\ A survey of under 
construction, planned, and proposed facilities around the world 
indicates approximately 49.6 Bcf/d of new liquefaction capacity could 
come online by 2025 outside of the U.S.\17\ Approximately 11.3 bcf/d of 
capacity is currently under construction in Australia, Indonesia, 
Algeria and Angola. Add to that the fact that approximately 28.7 Bcf/d 
of U.S. liquefaction capacity has been proposed and you get a potential 
total world LNG capacity of 115 Bcf/d. The expected worldwide demand 
for LNG falls far short of that potential supply. Various projections 
show that expected world demand for LNG will be in the range of 
approximately 50 Bcf/d to 65 Bcf/d by the year 2025.\18\ A significant 
share of the proposed liquefaction capacity may not be built (i.e., of 
the 45 proposed LNG import facilities for construction in the United 
States, only 7 were actually built).
    \16\ ICF International estimate for year end 2011 figure.
    \17\ ICF International estimate as of Dec. 2012 based on current 
project list.
    \18\ Poten, BG Group, Credit Suisse, Facts Global.
    Each day that we delay affirmative decisions on export applications 
puts U.S. projects at a competitive disadvantage in the global race to 
construct LNG facilities. Therefore, we must ensure that DOE acts 
expeditiously and moves forward with the approval of the pending 
applications so that we do not lose this critical opportunity.
    Question 2. At what percentage of exports, compared with the 
overall U.S. production of natural gas, does the U.S. lose its price 
advantage of natural gas that we have today?
    Answer. The expert analysis to date indicates that the U.S. will 
not lose its price advantage of natural gas under any of the scenarios 
examined. Testimony from representatives of industrial consumers 
demonstrates that the U.S. petrochemical industry can operate 
competitively if U.S. natural gas prices remain in the $6-8 range. In 
testimony before the Senate Energy and Natural Resources Committee in 
October 2009, Dow Chemical Company Director of Energy Risk Management 
Edward Stone stated that ``U.S. petrochemical competitiveness depends 
on a multitude of factors, such as the relative cost of energy 
(including crude oil, coal, etc.), the relative cost of new facility 
construction, the strength of the economy in each global area, and the 
extent to which local industry is protected by local government 
policies. In general, we believe that if crude were in the $75-$100 
range, and natural gas were available at a consistent $6-$8 dollar per 
MMBtu range, U.S. petrochemical facilities could be globally 
competitive.'' If this is the case, then according to Dow Chemical 
Company's own recent analysis, LNG exports should not jeopardize recent 
petrochemical industry expansion plans. As summarized by a May 2012 
Brookings report, the reference natural gas price forecast for all 
recent major studies, projected total natural gas prices even with LNG 
exports are in a range from $5.10 to $7.21 per MMBtu, well within or 
below the $6-8 range. In the NERA study, all of NERA's reference case 
core scenarios projected prices below $7.50 per Mcf. NERA's 
unconstrained LNG export case, which reached an export level of over 15 
Bcf/d, projected a natural gas price as high as $7.50 per Mcf, but only 
in 2030 or at the end of the forecast projection. Therefore, recent 
studies projecting natural gas prices, even with very high and 
unconstrained LNG export levels, do not forecast natural gas prices 
that jeopardize planned petrochemical industry investment.
    In fact, the additional additive LNG costs of liquefaction and 
transportation create a natural ceiling on exports. For example, the 
NERA study compiled costs of exporting LNG from the U.S. Gulf Coast to 
various demand regions around the world. See Fig. 62 in the NERA 
report.\19\ NERA estimates that the total LNG transport costs to 
Europe, Korea/Japan and China/India can range from $6.30 to $7.14 and 
$8.39 per MMBtu in 2015, respectively. If the U.S. Henry Hub natural 
gas prices are trading at $4, then U.S. LNG exports are economic in 
these consuming markets since the current prevailing LNG prices into 
Japan of about $16.50 per MMBtu is higher than the U.S. sourced LNG 
price of $11.14. If, however, U.S. Henry Hub prices rise to $10, then 
the price of LNG into Japan becomes greater than $16.50 per MMBtu 
effectively rendering U.S. LNG uneconomic. As Japan adjusts further to 
the tsunami impact on its nuclear power sector and LNG export projects 
come on stream around the world, the tsunami-impacted price of $16.50 
is likely to decrease. If the price of LNG delivered to Japan were to 
drop to, say, $11.00, the incentive to export from the U.S. could 
    \19\ NERA, ``Macroeconomic Impacts of LNG Exports from the United 
States,'' December 10, 2012, p. 90.
    The NERA study is one of the few studies to date that has 
incorporated the potential supply response by foreign competing 
suppliers of LNG that would limit the ability of the U.S. to export 
volumes of LNG.\20\ According to NERA*, this consideration proved to be 
quite important since in many of the hypothetical LNG export volumes 
considered in the EIA study*, the world market could not fully absorb 
the export volumes due to strong international competition from foreign 
LNG and natural gas thereby further limiting the potential for domestic 
price increases. Medlock summarizes this point by stating that ``the 
analysis herein indicates that international market response will 
ultimately limit the amount of LNG that the US exports as a matter of 
commercial rationing.''\21\
    * All reports have been retained in committee files.
    \20\ The Jan. 2013 Deloitte study, ``Exporting the American 
Renaissance; Global Impacts of LNG Exports from the United States,'' 
also analyzes international markets.
    \21\ Medlock, K.B. III, ``U.S. LNG Exports: Truth and 
Consequence,'' James A. Baker III Institute for Public Policy (Aug. 10, 
2012), pp. 32-33.
    Brookings' Study-by-study comparison of the Average Price Impact 
from 2015-2035 of 6 bcf/day of LNG exports (unless otherwise noted):
    Question 3. What are your projections for the amount of natural gas 
the U.S. will be producing in 10 years?
    Answer. As a trade association, API defers to the opinions and 
projections of the experts in the government and in the energy 
consulting business when it comes to future production. An analysis of 
projections of natural gas production from these organizations 
indicates that the U.S has an abundant natural gas resource base and 
outlook for natural gas production is more than sufficient to 
accommodate LNG exports as well as growing domestic demand. For 
example, the U.S. Energy Information Administration (EIA) projects that 
natural gas production will reach 78 bcf/d by 2025 in their latest AEO 
2013 ER. In AEO 2012, the EIA was projecting 72 bcf/d of natural gas 
production by 2025, while in the AEO 2011, the EIA was projecting 66 
bcf/d. (The AEO 2011 is the baseline that the EIA and NERA Consulting 
used in their analysis of the impact of LNG exports.) The upward trend 
in the outlook for natural gas production in the recent AEOs indicates 
the positive prognosis for shale gas and the continued expectation of 
robust supply growth in the next 10 years. Commercial forecasters are 
even more optimistic than the EIA. ICF International and IHS Inc. 
project 88 bcf/d and 89 bcf/d of natural gas production by 
2025.\22\ \23\ Since commercial forecasters are continuously 
updating their assumptions on such parameters as well spacing, 
estimated ultimate recovery, and other factors that affect the outlook 
for natural gas supply, it is reasonable to conclude that the outlook 
for natural gas may be even rosier.
    \22\ ICF International, ``ICF Base Case,'' February 2013.
    \23\ IHS Inc., ``IHS America's New Energy Future: The 
Unconventional Oil and Gas Revolution and the U.S. Economy,'' October 
2012, p.15.
    Question 4. Under present policies, if you had to make a guess, 
what would be the range of the percentage of U.S. natural gas 
production that we would be exporting in 10 years?
    Answer. Similarly, API defers to the experts on the question of 
projected future exports. EIA currently projects that the U.S. will be 
exporting 3.4 bcf/d of natural gas by 2025. This of course will be 
contingent upon a host of complex factors that will play out in the 
global market, including global supply, global demand, and global LNG 
export capacity. However, API will reiterate its concern that our 
potential to export natural gas from the U.S. becomes less likely with 
each day that we delay the approval of LNG export applications.
    It is important to point out that the U.S. has demonstrated the 
ability to increase production significantly over a short period of 
time. In early 2006, U.S. marketed natural gas production was under 52 
billion cubic feet per day (bcf/d). By late 2012, U.S. marketed 
production grew by over 18 bcf/d to 70 bcf/d, which equates to a 36 
percent increase in seven years. The growth rate for U.S. natural gas 
production was even greater in 2010 and 2011. From January 2010 to 
January 2012, U.S. production grew by over 10 bcf/d or 18 percent in 
just two years. These production increases are larger than many 
projections of the volume for LNG exports, and this demonstrates that 
the capacity is clearly there for the U.S. to increase domestic 
production of natural gas to satisfy the demands of the export market, 
while at the same time providing affordable supplies domestically.
    Once again, it was a privilege to have the opportunity to highlight 
the tremendous opportunity that we now have before us given our 
nation's emergence as a global energy leader. The oil and natural gas 
industry stands ready to harness this great potential and help the 
country realize the important and significant benefits to be gained, 
which include the creation of thousands of jobs, the generation of 
government revenues, and enhanced energy security.
    Response of John W. Hickenlooper to Question From Senator Wyden
    Question 1. Last week, I sent a letter to the Secretary of the 
Interior and to the White House encouraging the Administration to issue 
a strong regulation for hydraulic fracturing on Federal lands. At least 
four states (Wyoming, Arkansas, Idaho, and Montana) have a requirement 
for disclosure of the anticipated contents of the fracking fluid prior 
to the operation taking place. Colorado decided against that approach. 
What was the state's reasoning?
    Answer. We heard from operators that they sometimes alter the 
contents of the fracking fluid at the last minute. It made sense to 
require the disclosure after the operation to avoid the unnecessary 
cost and confusion resulting from amending reports, especially since it 
didn't seem to the Colorado Oil and Gas Conservation Commission 
(``COGCC'') that in the end there would be any substantive difference 
in the information that COGCC obtained.
   Response of John W. Hickenlooper to Question From Senator Landrieu
    Recently, BLM announced that it would be issuing a new version of a 
proposed rule regulating hydraulic fracturing on Federal lands. This 
would be a revision of an earlier proposal that threatened to 
drastically increase the cost of hydraulic fracturing on Federal lands. 
I am hopeful that this new rule will represent a more levelheaded 
approach to regulation, one that leaves the final authority to regulate 
in the hands of states, who have successfully managed hydraulic 
fracturing for over 60 years, with the help of the production industry, 
which has created a system of disclosure and self-regulation resulting 
in increased safety and public awareness.
    Question 1a. Given the successful track record of states and 
industry regulating the process of hydraulic fracturing, do you agree 
that it makes the most sense to retain final authority in the hands of 
states, recognizing that government would assist in the creation of 
broad standards, rather than ceding total control to the Federal 
    Answer. We don't believe there is no role for the federal 
government, but, on balance, we believe the states are better 
positioned to regulate effectively. Given differences in geology, as 
well as development patterns, locations and drilling intensity, a ``one 
size fits all'' approach is not as efficient as state-by-state 
regulations. In January 2012, Colorado passed one of the strongest 
rules in the country for disclosure of hydraulic fracturing fluids and 
since then many other states have followed Colorado's lead. If the 
federal agencies do proceed with rules, we would hope that they look to 
the state rules as models, defer to states that meet certain regulatory 
control thresholds and avoid duplication of the regulatory process in 
terms of paperwork and other aspects of permitting and control.
    Question 1b. Do you believe that increased Federal regulation would 
result in a decline in production activities, negatively affecting the 
economies of many communities which rely on these industries for 
economic support?
    Answer. Increased regulation does not necessarily result in a 
decline in production activities. In Colorado, we have undergone three 
rulemakings: a regulatory overhaul in 2008; hydraulic fracturing 
disclosure in 2012; and this year COGCC adopted rules for setbacks and 
groundwater monitoring which are among the strongest in the country. 
Regulations must constantly evolve to accommodate changing development 
patterns and technologies and, in Colorado, production has not declined 
as a result of these rules. Nevertheless, for the reasons stated above, 
we do think the states are best suited to establish their regulatory 
frameworks. In Colorado, we believe that we can best ensure our natural 
resources and environment are protected, while fostering the 
responsible development of oil and gas resources.
 Responses of John W. Hickenlooper to Questions From Senator Alexander
    Question 1. Given the advantage of low domestic natural gas prices 
that resulted from increased production from unconventional natural gas 
reserves, do we really have a [domestic price] problem [if U.S. exports 
increase] since we might only export 10% of our natural gas?
    Answer. We understand that there is intense debate over the future 
of U.S. natural gas exports. Proponents say increased exports would 
create thousands of jobs, reduce the trade deficit and enhance national 
security. Opponents argue shipping large amounts of natural gas abroad 
could cause price hikes for consumers and manufacturers, many of which 
have benefited from recent low natural gas prices.
    A December 2012 study commissioned by the U.S. Department of Energy 
and conducted by NERA Economic Consulting found that U.S. natural gas 
prices will increase when the U.S. exports liquefied natural gas 
(LNG\1\). They conclude, however, that the global market will limit how 
high U.S. natural gas prices can rise under pressure of LNG exports. 
This report projects that in spite of limited price fluctuations, even 
in the most extreme exporting scenario, the U.S. will gain net economic 
benefits from allowing exports. In every one of the market scenarios 
examined, net economic benefits increased as the level of LNG exports 
    \1\ NERA Economic Consulting, Macroeconomic Impacts of LNG Exports 
from the United States, December 2012.
    Question 2. At what percentage of exports, compared with the 
overall U.S. production of natural gas, does the U.S. lose its price 
advantage of natural gas that we have today?
    Answer. This is a very complex question since there are several 
factors that influence the future price of LNG exports from the U.S. 
into world markets, including global supply and demand conditions and 
the future availability of shale gas in the U.S. The same study 
referenced above, conducted by NERA Economic Consulting and 
commissioned by the U.S. DOE, provides an analysis of natural gas 
prices in the U.S. relative to several different export scenarios. The 
study concludes that natural gas price changes attributable to LNG 
exports remain in a relatively narrow range across the entire suite of 
export scenarios studied. Natural gas price increases at the time LNG 
exports begin could range from zero to $0.33 in 2010 dollars per 
thousand cubic feet (2010$/Mcf). The largest price increases that would 
likely be observed after 5 more years of potentially growing exports 
could range from $0.22 to $1.11 (2010$/Mcf). The study employs a 
complex macroeconomic model to derive these estimates and corresponding 
export percentages are not clearly identified in the report.
    Question 3. What are your projections for the amount of natural gas 
the U.S. will be producing in 10 years?
    Answer. We must defer to national experts on projections for the 
amount of natural gas the country will be producing in the next decade. 
The U.S. Energy Information Administration (EIA) is the statistical and 
analytical agency within the U.S. DOE and their products are 
independent of approval by any other officer or employee of the U.S. 
Government. EIA's 2012 Annual Energy Outlook projects that natural gas 
production in the U.S. will increase by three trillion cubic feet (Tcf) 
in the next decade, to approximately 26 Tcf in 2023.\2\
    \2\ U.S. Energy Information Association, U.S. Department of Energy, 
Annual Energy Outlook 2012, http://www.eia.gov/forecasts/aeo/
    Question 4. Under present policies, if you had to make a guess, 
what would be the range of the percentage of U.S. natural gas 
production that we would be exporting in 10 years?
    Answer. Many factors within the global natural gas market will 
affect U.S. exports, including international supply and demand for 
natural gas. Again, we must defer to national experts on projections of 
U.S. natural gas exports in the next decade. The EIA's 2012 Annual 
Energy Outlook projects that natural gas exports will be approximately 
3.32 Tcf in 2023, which would be just under 13% of U.S. production.\3\
    \3\ Ibid.
   Responses of Andrew N. Liveris to Question From Senator Murkowski
    Question 1. Dow stated previously before this committee (2009) that 
U.S. petrochemical facilities could be globally competitive if U.S. 
domestic prices fell within the $6-$8 per MMBtu range. Has your 
position changed today and if so, can you explain why?
    Answer. Dow's statement relates to competitiveness, which is a 
function of several interdependent variables. There is no absolute 
price range that can guarantee competitiveness. When making investment 
decisions, we look at the following parameters with respect to 
feedstock and energy costs: the expected absolute cost, the cost 
relative to competing geographies/the world price of oil, and 
volatility. The expected absolute cost must be lower than our other 
geographic alternatives. The same is true for volatility. Price and 
volatility are generally a function of supply/demand balance but can be 
subject to market shocks and distortions.
    Question 2. You indicated in testimony before this committee that 
you support the requirement for a public interest determination to 
obtain a license to export LNG to non-FTA countries, particularly 
because natural gas is utilized by certain industries as a feedstock. 
Do you support a similar public interest determination for exports of 
products that other industries in the U.S. may use for value-added 
products? If not, why not? Why should LNG exports be regulated 
differently than other exports?
    Answer. Over 70 years ago, Congress determined that natural gas 
exports should be measured against the public interest and enacted into 
law an export licensing regime to require that natural gas exports not 
be inconsistent with the public interest. The rationale for this action 
in the Natural Gas Act was that natural gas is a strategic commodity 
that has a critical impact on the well-being of consumers, the health 
of the economy, the security of the nation and other public interests. 
States and the federal government have enacted policies that virtually 
compel consumers to purchase natural gas, whether through environmental 
regulations or mandated fuel switching. The same cannot be said for 
other commodities, making natural gas fundamentally unique.
    Dow, as just one of many affected constituencies, has submitted 
comments to the DOE dated January 24, 2013 and February 25 2013 urging 
DOE to take the steps necessary to ensure that, the licensing of 
natural gas exports fully meets the public interest.
    Response of Andrew N. Liveris to Question From Senator Landrieu
    Dow is one of several companies which have greatly benefitted from 
increased natural gas production, with this new, affordable source of 
gas allowing your company to invest billion in my state and others, 
reopening one facility and planning more. You have expressed a desire 
to see that natural gas exports are managed in a responsible manner, so 
as not to place undue burden on American manufacturing. One of your key 
points has been the number of proposed export facilities, which, if all 
were approved and operating at full capacity, would represent 19 bcf 
per day of export, almost 1/3 our current demand. However, many believe 
that this figure is not achievable and will be limited by the capital 
available to finance construction. Indeed, in a New York Times article 
published January 5, Charif Souki, CEO of Cheniere, one of the 
companies proposing an export terminal predicted that by 2018, the 
country would manage to export only one billion to two billion cubic 
feet of gas a day, or roughly 2 percent of current domestic 
consumption. In 10 years, after two to four projects have received 
permits and have been built, he said he expected exports to grow to 
three billion to five billion cubic feet a day.
    Question 1. Do you believe that a market-determined level of 
export, reflecting the realities of financing and market entry, could 
be maintained without placing undue pressure on manufacturers like 
yourself who are poised to invest billions in new and existing 
    Answer. It is critical to remember that although natural gas is a 
newly abundant resource, natural gas exports should not be viewed in 
isolation from the overall dynamics of the aggregate natural gas 
market. In fact, it is important to note that there are currently 29.4 
bcf/d of LNG export projects that have applied to the DOE. Before 
acting on export applications, DOE should establish criteria and 
metrics for natural gas export public interest determinations required 
by the Natural Gas Act through an open process that elicits input from 
the broad spectrum of affected U.S. stakeholders. Established criteria 
and metrics will enable DOE to consider, based on appropriate data, 
projections and analysis, anticipated demand and the supply needed to 
maintain market balance (among other factors). An approach that rushes 
toward exports without a full understanding of the implications builds 
higher risk into the system and will change how investors plan for the 
    Further, we do not believe that financing will be a limiting factor 
as many have suggested. As evidence, financing for LNG projects in 
Australia has not been a factor despite having relatively higher 
natural gas prices. In fact, the Ichthys LNG projects recently 
announced the biggest projected financing ever arranged in 
international financial market at roughly US$20 billion. The role of 
export credit agencies in financing projects cannot be discounted. 
Financing was not an issue in overbuilding LNG import facilities in the 
U.S. not so long ago.
    We believe the normal dynamics of a market for domestic natural gas 
can co-exist with preserving the public interest so long as abrupt 
shocks, such as severe speculative price volatility, and major 
artificial distortions, such as cartel pricing, can be ameliorated. 
This is the challenge facing DOE: how to balance natural gas exports 
with all of the other aspects of the public interest in the short, 
medium and the long term.
   Responses of Andrew N. Liveris to Questions From Senator Barrasso
    Question 1. In your testimony, you express concern about 
environmental regulations. You state ``overly restrictive environmental 
regulations.on hydraulic fracturing could greatly reduce future 
supplies of natural gas.'' You also ``urge caution in considering 
policies that encourage fuel switching between natural gas and coal.'' 
To what extent is DOW concerned about: (a) Federal hydraulic fracturing 
regulations; (b) EPA rulemakings that encourage fuel switching between 
natural gas and coal; (c) a tax on carbon emissions; and (d) proposals 
to establish a clean energy standard?
    Answer. We are concerned about governmental actions that would 
restrict supply and/or accelerate demand because of the potential 
impact on domestic natural gas prices. We believe it is critical that 
DOE, in making its public interest determination under the Natural Gas 
Act, consider the impact of all policies that could affect either 
supply or demand.
    We are also concerned about policies that would rapidly and 
excessively drive coal and other energy sources out of power 
generation. We firmly believe that the nation's interest is best served 
by maintaining robust diversity in power generation sources. Dow has 
and will continue to evaluate any climate change policies in the 
context of its effects on U.S. competitiveness in general and energy 
sources such as natural gas. We would be very concerned about any 
policies that call on a single fuel source to carry a disproportionate 
share of the nation's energy burden. History shows us that whenever we 
have done so, we have been disappointed.
   Response of Andrew N. Liveris to Questions From Senator Alexander
    Question 1. Given the advantage of low domestic natural gas prices 
that resulted from increased production from unconventional natural gas 
reserves, do we really have a problem since we might only export 10 
percent of our natural gas?
    Answer. There is a significant level of uncertainty regarding 
exports and the broader natural gas market, and the stakes are quite 
high. Some parties claim that exports will not exceed 10 percent of 
natural gas production; we believe that it is quite likely that higher 
levels of exports would occur. DOE has already approved natural gas 
exports accounting for well over 50 percent of annual production. If 
even a significant portion of that already-approved volume is exported, 
then exports could easily exceed 10 percent of production. Approval of 
pending LNG export applications would permit LNG exports to flow to 
non-FTA countries that have markedly more demand for U.S. natural gas, 
making it far more likely that a higher percentage of production would 
be exported, with potentially severe consequences for domestic users of 
natural gas.
    Given the threat of exports at that level, broad issuance of 
natural gas export permits could lead to natural gas price spikes. 
Speculation in natural gas trading has in the past driven the price up 
beyond what the purely physical market would indicate. This is what 
drove prices up in the last decade. Therefore, the price movement would 
likely occur well before the actual exports occur, due to expectations 
in the market.
    In these circumstances, we believe DOE should take a cautious and 
measured approach to assuring an appropriate balance between natural 
gas exports and the public interest based on criteria and metrics 
established through a public comment process.
    Question 2. At what percentage of exports, compared with the 
overall U.S. production of natural gas, does the U.S. lose its price 
advantage of natural gas that we have today?
    Answer. We believe that the domestic demand for natural gas is 
going to increase significantly over the next 10 to 15 years and we are 
skeptical that supply will be able to keep pace. Accordingly, we see 
prices increasing from their current levels regardless of the level of 
exports. Exports will constitute additional demand and will serve to 
move prices even higher than they would otherwise be. Today we might be 
able to export 10 percent of our production without a significant 
impact on price. In out years, that may not be the case. Our analysis 
shows the potential for significant demand spikes in the 2017-2020 
timeframe, and that an unprecedented level of production will be needed 
to balance the market. In a supply-constrained market, or even a 
balanced market, exports will have a far greater price impact than they 
would in a market with ample supply such as now. Australia currently 
exports roughly half of its natural gas production and in doing so it 
has imported much higher natural gas prices, placing its energy-
intensive industries in a difficult competitive position and subjecting 
its population to much higher energy costs.
    We believe that exports of natural gas should not be viewed in 
isolation from the overall supply/demand dynamics of the aggregate 
natural gas market. Indeed, current law requires exactly just such an 
evaluation prior to approval of natural gas export applications. 
Congress and the administration should work to define what is in the 
public interest to determine a prudent and rational approach that 
balances the interests of the American consumer and domestic needs with 
exports. Rather than a particular level of exports, Dow advocates 
movement beyond a single report by one economic consultancy to an open 
process to enable the full profile of U.S. stakeholders to provide 
economic and non-economic input to DOE to inform establishment of 
criteria to make public interest determinations. We are in year 4 or 5 
of a 100 year energy advantage. There are still many unknowns, so we 
should exercise prudence as we move ahead.
    Question 3. What are your projections for the amount of natural gas 
the U.S. will be producing in 10 years?
    Answer. Dow is not a natural gas producer, but rather we are one of 
the world's largest consumers. For that reason, our focus is on 
understanding demand first and then the supply that would be required 
to maintain balance. Our analysis shows the potential for significant 
disconnect of demand from supply in the 2017-2020 timeframe in a high 
export case, and that an unprecedented level of production will be 
needed to balance the market without harming manufacturers and raising 
prices significantly for consumers. With regard to increasing supply/
production, it is currently unclear how quickly this can happen and at 
what cost.
    Question 4. Under present policies, if you had to make a guess, 
what would be the range of the percentage of U.S. natural gas 
production that we would be exporting in 10 years?
    Answer. Natural gas is a vital and finite natural resource that 
plays a significant role in the overall health of the U.S. economy. 
Under present policy, the DOE is required by law to determine whether 
export applications are in the public interest and the level of exports 
in 10 years will in large part be based on that determination. We 
believe DOE needs more information in order to accurately assess the 
public interest and determine an appropriate balance with the public 
interest. Dow is asking DOE to solicit additional comments regarding 
the impact of natural gas exports on jobs, consumer energy prices, 
trade levels, environmental issues, and U.S. energy independence and to 
establish public interest criteria against which to measure exports.
    However, as noted above, our analysis shows the potential for 
significant demand spikes in the 2017-2020 timeframe, and that an 
unprecedented level of production will be needed to balance the market 
without harming manufacturers and raising prices significantly for 
consumers. It is for the reason that we are urging a cautious approach.
      Response of Frances Beinecke to Question From Senator Wyden
    Question 1. Ms. Beinecke, you note in your testimony that one of 
the benefits of natural gas, of course, is that when you burn it, it 
releases fewer greenhouse gas emissions than resources like coal. This 
benefit, though, can be offset if more natural gas leaks in to the 
atmosphere. There are conflicting reports about the level of methane 
leakage from natural gas production and transport, ranging from as 
little as 0 percent leaked to as much as 9 percent in some reports for 
some basins. How can we get our arms around this question of how much 
methane is being leaked, and what are your thoughts for how we can make 
sure that leakage is minimized?
    Answer. Natural gas contains less carbon per unit of energy than 
coal and thus produces fewer greenhouse gas emissions per unit of 
useful electric or thermal output when combusted.\1\ But that is not 
the whole picture--natural gas operations also emit significant amounts 
of methane, a powerful greenhouse gas, during the extraction, 
production, processing, transmission, and distribution steps.
    \1\ U.S. Environmental Protection Agency, Clean Energy - Air 
Emissions, available at http://www.epa.gov/cleanenergy/energy-and-you/
    According to most comparative lifecycle assessments of greenhouse 
gas emissions during electricity production from natural gas and coal, 
natural gas would produce approximately 50 to 60 percent fewer 
emissions than coal, if there were no methane emissions at all from the 
natural gas industry.\2\
    \2\ Deutsche Bank Group-DB Climate Change Advisors, Comparing Life-
Cycle Greenhouse Gas Emissions from Natural Gas and Coal (2011), 
available at http://www.worldwatch.org/system/files/pdf/
    However, when the impact of methane emissions from the natural gas 
industry is included in the analysis, it can be estimated that natural 
gas provides a clear advantage over coal only when methane emissions as 
a fraction of total production are below 3 percent. When emissions are 
between 3 percent and around 7-8 percent, natural gas does not have an 
advantage over coal in the near-term, from a greenhouse gas 
perspective; this is because methane leakage has more deleterious 
effects in the nearer term. When emissions exceed 7-8 percent, natural 
gas has no advantage over coal at any time, from a greenhouse gas 
perspective.\3\ The numbers above are for electricity generation from 
natural gas or coal; when using these fuels directly for useful thermal 
output, natural gas squanders its advantage over coal from a greenhouse 
gas perspective at even lower methane leakage levels.
    \3\ Alvarez, R. et al., Greater focus needed on methane leakage 
from natural gas infrastructure, published in Proceedings of the 
National Academy of Sciences (2012), available at http://www.pnas.org/
    In its latest comprehensive inventory, the EPA estimated methane 
emissions from the oil and gas industry to be about 2.5 percent as a 
fraction of total production.\4\ Recent studies have suggested that 
emissions could be much higher, in the range of 7 percent or higher in 
certain basins.\5\ The oil and gas industry claims that industry-wide 
emissions may be even lower than EPA's current estimate. Also, EPA 
recently released the first set of greenhouse gas emissions reporting 
data from the oil and gas sector, required by Congress in 2008\6\. The 
reporting rule data confirms that methane leakage is significant and 
provides additional insight into sources of leakage. However, the 
reporting requirements omit a number of methane sources within the 
industry, and so the data does not provide a complete picture of total 
methane emissions from the sector. As such, much more accurate and 
verified data is needed to ascertain the true extent of methane 
emissions from the oil and gas sector. NRDC is encouraged that more 
studies are beginning to be conducted to address this important 
    \4\ U.S. Energy Information Administration, Natural Gas Gross 
Withdrawals and Production, 2010 data. available at http://www.eia.gov/
dnav/ng/ng_prod_sum_dcu_NUS_a.htm; U.S. Environmental Protection 
Agency, Inventory of U.S. Greenhouse Gas Emissions and Sinks (1990-
2009) (Apr. 15, 2012). Net emissions of methane were just over 600 bcf 
(billions of standard cubic feet), while gross withdrawals were 
approximately 26,800 bcf; this implies a net leakage of approximately 
2.3 percent
    \5\ Howarth, R. et al., Methane Emissions from Natural Gas Systems, 
Background Paper Prepared for the National Climate Assessment 
(reference number 2011-0003) (Feb. 25, 2012), available at http://
    \6\ U.S. Environmental Protection Agency, Greenhouse Gas Reporting 
Program, 2011 Data, available at http://epa.gov/ghgreporting/ghgdata/
    \7\ Environmental Defense Fund, New Study To Provide Important, 
Direct Measurement Data On Methane Emissions From Natural Gas 
Production (2012), available at http://blogs.edf.org/energyexchange/
    Regardless of exactly how much methane is being leaked, it is 
imperative to reduce methane emissions to the greatest extent possible, 
to a sector leakage rate of well below 1 percent. Fortunately, 
according to our report last year,\8\ NRDC found that 10 tried and 
tested, cost-effective technologies exist today that could control up 
to about 80 percent of these emissions. Some of these are: a) 
technologies to control emissions soon after a well is fracked, as well 
as while the well is operating; b) better seals for compressors; c) gas 
flow controllers with reduced leakage; and d) better leak detection and 
repair programs. (Importantly, these same technologies would help 
control toxic air pollutants that are known to cause serious health 
    \8\ NRDC, Leaking Profits: The U.S. Oil and Gas Industry Can Reduce 
Pollution, Conserve Resources, and Make Money by Preventing Methane 
Waste (Mar. 2012), available at http://www.nrdc.org/energy/leaking-
    The technologies described in NRDC's report are cost-effective. 
Most require a modest upfront investment. But in most cases these 
investments would pay for themselves in less than two years, while some 
investments could take a little longer. This is because these 
technologies reduce the leakage of methane, which after being retained 
or captured can be sold as fuel or used onsite. However, these 
technologies are not currently being used widely enough by industry.
    A number of these controls are required for some sources under 
EPA's recently updated new source performance standards to control 
volatile organic compounds, or VOCs, which are co-emitted with 
methane.\9\ But due to their incomplete coverage, the standards fail to 
reach the vast majority of methane emissions from the sector. Thus, 
more can and needs to be done. Methane pollution should be addressed 
directly, instead of as a co-benefit of other pollution standards, 
which will more effectively control methane leakage by reaching methane 
sources not covered by the VOC standards. More importantly, existing 
sources of methane leakage should be addressed, as they contribute to 
the bulk of methane leakage from the industry. The Clean Air Act 
confers EPA with the authority and obligation to undertake these 
    \9\ U.S. Environmental Protection Agency, Federal Register Vol. 77, 
No. 159, Oil and Natural Gas Sector: New Source Performance Standards 
and National Emission Standards for Hazardous Air Pollutants Reviews 
(Aug. 16, 2012), available at https://www.federalregister.gov/articles/
    Accordingly, we need stronger standards from the EPA to ensure that 
methane emissions from the oil and gas industry are significantly 
reduced, using technologies that are viable and cost-effective. This 
can be done by EPA at the national level, and the agency has legal 
tools available to address region-specific circumstances in conjunction 
with the states.
    Response of Frances Beinecke to Questions From Senator Alexander
    Question 1. Given the advantage of low domestic natural gas prices 
that resulted from increased production from unconventional natural gas 
reserves, do we really have a problem since we might only export 10 
percent of our natural gas?
    Question 2. At what percentage of exports, compared with the 
overall U.S. production of natural gas, does the U.S. lose its price 
advantage of natural gas that we have today?
    Question 3. What are your projections for the amount of natural gas 
the U.S. will be producing in 10 years?
    Question 4. Under present policies, if you had to make a guess, 
what would be the range of the percentage of U.S. natural gas 
production that we would be exporting in 10 years?
    Answer. NRDC does not have a position on LNG exports and has not 
yet engaged in analysis on these issues.
    Right now, NRDC's shale oil and gas work is focused on the 
environmental, health and community impacts of the fracking production 
process. However and wherever shale has is used, protecting against the 
environmental and health impacts of production is critically important.
    Specifically, we've been working aggressively to advance stringent 
and protective safeguards at the local, state and national level. And 
in addition to our regulatory efforts, we recently launched NRDC's 
Community Defense Project, a major new initiative to help local 
communities protect and defend themselves against the risks presented 
by fracking through the courts and the halls of state capitols.
    Additionally, we are devoted to advancing policies to promote the 
development of real clean energy sources, like energy efficiency and 
renewable power sources, like wind and solar, as quickly as possible.
    NRDC did submit comments to DOE on the specific issue of a study 
that DOE commissioned on the price and economic impacts in the United 
States of LNG exports. We pointed out some flaws in the study that 
tended to underestimate the price impact of LNG exports and also 
critiqued the study for failing to take into account the economic 
impacts (social costs) of carbon pollution. Finally, we urged DOE to 
look at the potential economic and environmental impacts of LNG exports 
in other countries, including China and India, which are heavily 
dependent on coal.
  Responses of Kenneth B. Medlock to Questions From Senator Murkowski
    Question 1. Dow has expressed concern about the ability of the 
natural gas supply in the U.S. to meet potential increases in domestic 
demand, particularly from the manufacturing, power and transportation 
sectors. Do you have a response to this concern?
    Answer. The concern seems to be actually one of how price will 
respond to demand growth from many sectors. First, the price impact of 
demand growth in multiple sectors is ultimately dependent upon the 
elasticity of supply. If supply can expand significantly as price rises 
(meaning it is very elastic--such as in Case 1 in Figure SM.1*), then 
the capabilities of the upstream sector are more than adequate to meet 
demands from multiple sectors. Figure SM.1 indicates the effect of 
different supply capabilities in response to a particular demand 
increase due to exports. Research done at the Baker Institute indicates 
that domestic supply is highly elastic, which would suggest that price 
will not rise substantially as demand grows.
    * All figures have been retained in committee files.
    Second, the opportunity for demand growth in each of the 
aforementioned sectors is a function of the domestic price of gas. If 
the price of gas begins to rise, then the opportunities for demand 
growth are mitigated, although not at the same pace in each sector. For 
example, as gas prices rise, the opportunity for natural gas into 
transportation is likely reduced first. Then, certain sectors in 
manufacturing will be affected, followed by power generation. 
Importantly, the rank order is not independent from policy. For 
example, as EPA actions aimed at reducing certain pollutants become 
binding, coal-fired power generation will be displaced in favor of 
natural gas, largely due to the already large installed natural gas 
generation capacity in the US. So, gas demand in power is likely to be 
the most responsive margin along which demand growth occurs in the US.
    Industrial sector opportunities will persist as long as the price 
of natural gas in the US is lower relative to price in other regions. 
This is a very important point because low price in the US is but one 
necessary condition--it is not sufficient. In fact, in the late 1990s 
domestic gas price scarcely increases and was averaging in the mid $2/
mcf range, but domestic industrial gas demand was declining due to 
efficiency improvement and certain activities moving offshore to 
cheaper supplies (places such as Trinidad). So, the price abroad is 
also an important factor when determining industrial demand 
opportunities domestically. Indeed, if domestic demand rises to the 
point that domestic price also rises, then some of the presupposed 
industrial demand may not actually materialize because the 
opportunities for expansion will be deemed greater elsewhere.
    Policy makers must ultimately grapple with (i) whether or not 
intervention is warranted and (ii) if so, what can (and perhaps even 
should) be done to limit the increases in demand for US-produced 
natural gas. For example, if there is a policy orientation to seeing 
the industrial sector expand, then the EPA rule-makings that stand to 
promote the expansion of gas demand in power generation must ultimately 
be challenged. More generally, if the concerns are that expanded demand 
will compromise the opportunity for industrial activity, then one could 
argue government should take steps to limit demand growth on multiple 
fronts--power generation demands, transportation demand, and exports. 
This seems ill-advised when prices are allowed to serve a rationing 
function that will ensure the greatest overall economic benefit--for 
example, when price discovery occurs in a transparent marketplace 
driven by supply-demand fundamentals.
    However, if domestic supply is indeed highly elastic, as Baker 
Institute research indicates, then the concerns are inconsequential. In 
effect, there is room for growth from multiple sectors because supply 
is adequate.
    Question 2. The debate about LNG exports has included arguments for 
action by the government to limit the volume of LNG exports to ensure 
the domestic price of natural gas remains low. When the U.S. has 
imposed price controls in the past, this has resulted in gas shortages. 
What would be the impacts to the natural gas industry and U.S. economy 
from efforts by the government today to restrict the level of exports?
    Answer. Restrictions on export volumes, or any restrictions for 
that matter, create market distortions. Constraining the margins of 
demand response can have undesirable consequences because it 
effectively subsidizes certain sectors at the expense of others. More 
specifically, rents accrue to the consumers who are not constrained, 
largely because revenue earning opportunities are diverted from other 
sectors. This is distortionary by definition. Accordingly, the overall 
welfare effect of such a policy is generally negative.
    Importantly, it is not likely that shortages such as those in the 
1970s would emerge, because the proposed policy is not one of direct 
price control. It is indirect via quantity controls. The domestic 
price, under a policy of export restrictions, would still equilibrate 
supply and demand, so the central tendency should still reflect long 
run marginal cost. The quantity control would result in lower domestic 
production, but the result would be driven by lower demand.
    Question 3. During the hearing before this committee, there was 
testimony that natural gas prices index to oil prices worldwide and 
concern expressed that this will lead to higher gas prices in the U.S. 
if LNG exports to non-FTA countries are approved. Do you have a 
response to this concern?
    Answer. This is simply not true. To begin, oil indexation of 
natural gas occurs in a contract-specific manner. So, an individual 
buyer might be willing to contract a certain proportion of their supply 
using oil-indexed terms. This only occurs if the buyer has concerns 
about the ability to procure supply, which is indicative of a lack of 
liquidity. Historically, this has been true in Asian and European 
markets due to high fixed costs of entry. However, the oil-indexed 
paradigm has already been significantly altered in Europe following the 
opening of several hubs on the continent and expansion of various 
supply options. In Asia, the market is changing much more sluggishly, 
but buyers in the Asian market are already arguing for gas-indexed 
purchase agreements, a development triggered by supply growth not only 
in the US, but also Australia, East Africa, the Middle East, and 
    In fact, in the last 10 years the spot (or short term) market in 
both Asia and Europe has grown substantially. In Europe, spot and short 
term sales have jumped from less than 10 percent of total LNG sales in 
2000 to almost 25 percent of total LNG sales in 2011, and the pipeline 
market is witnessing a similar evolution. In Asia, the trend is 
similar, with spot and short term sales increasing from around 2 
percent of total LNG sales in 2000 to just over 20 percent of total LNG 
sales in 2011 (see *Figures SM.2 and SM.3). In addition, the contracts 
in place to consumers in each market are not dictating flow. In fact, 
Figures SM.2 and SM.3 together indicate significant diversion from the 
Atlantic to Pacific basin as total trade in the Atlantic basin falls 
well short of contracted volume in 2011 but the opposite is true in the 
Pacific basin.
    Importantly, the spot price in Europe is below the typical oil-
indexed price, as was the spot price in Asia until the disaster at 
Fukushima, which led to an unexpected demand shock that drove a classic 
basis blowout in the Asian price (see *Figure SM.4--Asian price is JKM, 
European price is NBP, and US price is Henry Hub). As nuclear capacity 
comes back online in Japan, the spot price in Asia will decline back to 
its ``normal'' relationship with NBP. Growth in spot market trade is 
expected to continue, so the price in any exporting region will at most 
be the spot price in the importing region minus the cost of 
liquefaction and transportation. Thus, if the long run price of gas in 
Asia is $10/mcf, then the price in the US should be approximately 
$4.50-$5/mcf, which is still significantly lower than oil-parity. This 
simply means is that a basis differential should persist due to 
transport costs. This is even true across the pipeline network in the 
most liquid natural gas market in the world--North America.
    Response of Kenneth B. Medlock to Question From Senator Barrasso
    Question 1. In your opening statement, you mentioned that the three 
countries ``most heavily impacted'' by the increase in natural gas 
production in North America would be Russia, Iran, and Venezuela.

    a. Would you please explain how liquefied natural gas (LNG) exports 
from the United States would impact each of these nations (and their 
state-owned enterprises), respectively?
    b. Would you please explain how LNG exports from the United States 
would promote U.S. national security interests and the energy security 
of key U.S. allies such as NATO member nations and Japan?

    Answer. To begin, the statement was made in reference to a study we 
performed for the Department of Energy Office of International Policy 
and Affairs. In that study (attached as an addendum), we simulated a 
world with known shale resources and compared it to a world without any 
shale. The second case was meant to capture the outcome that most 
anticipated would occur in the early 2000s, when large investments were 
being made to import natural gas to the US. A key result of that work 
was that Russia, Iran and Venezuela were the three countries most 
disadvantaged by the emergence of shale in the United States. So, the 
dramatic change in North American gas market has already had a 
significant ripple effect throughout the global gas market. 
Importantly, this result is one very important reason why this question 
has to be considered in an international trade context, as pointed out 
in ``US LNG Exports: Truth and Consequence'' (also attached as an 
    LNG exports from the US--were they to occur--would likely extend 
those impacts. This follows from the fact that US LNG exports would be 
directed at markets in Asia, and potentially Europe. Asian demands, 
should they continue to grow, will naturally pull on resources in 
Russia and the Middle East, as well as Southeast Asia, Africa and 
Australia. In fact, Russia is a natural partner for pipeline trade with 
Asia--barring of course any geopolitical constraints--and the Middle 
East is a natural waterborne trade partner with Asian consumers--as 
witnessed by trade in multiple commodities. To the extent that US 
supplies are sold to Asian consumers, then, all else equal, this would 
displace supplies from other locations. This would reduce dependence of 
Asian consumers, and the world for that matter, on supplies from Russia 
and the Middle East. Since Iranian reserves are among the world's 
largest, Iran is impacted directly. Importantly, much of this is an 
impact that is most likely immaterial in the near term, but longer term 
could be substantial. However, expectations about future market 
conditions are very much governed by actions today, and, in turn, those 
expectations drive future investment decisions and hence are 
influential to future outcomes.
    LNG exports will not likely have any real impact in the short to 
medium term on Venezuela. It is not currently a significant player in 
global natural gas markets, and the political and economic fate of the 
nation--and the resultant impacts on PDVSA for that matter--are highly 
uncertain in the wake of the passing of Hugo Chavez. The only thing 
that can be said is that global demands for Venezuelan natural gas are 
generally abated with US LNG exports. But there could emerge regional 
trading partners--such as Chile, Argentina, Brazil, and Colombia--that 
enjoy a distinct transportation cost advantage to the US due their 
proximity to Venezuela. But, even that is an uncertain stipulation as 
gas resources exist in many of those countries as well, although 
political pressures hinder development.
    The effects on NOCs such as Gazprom and INOC are different and to 
an extent uncertain largely due to the response pathways available to 
each. In the case of Gazprom, domestic prices are highly subsidized in 
Russia, and domestic sales account for almost 70 percent of Russian 
volumes. So, export revenues have historically been a critical source 
of revenue for the government and for field development. To the extent 
export revenues are compromised, one option available is to phase out 
domestic subsidies. This has, in fact, been discussed for different 
classes of consumers--i.e.-industrial, commercial, residential, power 
generators. It is not a politically palatable solution, as industrial 
users in Russia argue decreased competitiveness, and residential and 
commercial users argue a right to Russia's national wealth. 
Nevertheless, a decrease in the subsidy levels would compensate for 
lost revenues if exports are lower. Of course, if Russia cannot 
accomplish a reduction in subsidies and it loses export markets, it 
runs the risk of beginning to look like Mexico--a nation with resource 
wealth that it cannot tap and, as a result, years of slowly declining 
    In the case of INOC, a significant portion of current gas 
production is used for enhanced oil recovery and the rest is sold 
domestically at prices well below international market parity. This has 
led to domestic gas shortages that have pushed up imports from 
Turkmenistan, an almost inconceivable outcome given Iran's resource 
wealth. But, this is an oft repeated unintended consequence of 
artificial price setting. If Iran could export, it would likely do so 
via pipeline to Pakistan and India and LNG to other Asian buyers. This 
would provide valuable revenue uplift associated with gas production 
that could be used to enhance Iran's position in global gas markets 
through further development and bolster the government's budget. So, by 
delaying the need for Iranian resources, the only real market for 
Iranian natural gas is domestic, and unwinding subsidies is a tenable 
and highly unlikely proposition, meaning Iranian natural gas is 
effectively a stranded resource in terms of its global impacts. It also 
denies Iran a potentially important revenue stream.
    Any US national security interests and energy security benefits 
bestowed to US allies follow directly from the above. By reducing 
dependence on trading partners in volatile regions of the world and/or 
trading partners who have demonstrated a willingness to manipulate 
supply to gain a political advantage, any concerns about security of 
supply are mitigated. Thus, it follows that more direct trade with a 
stable trading partner where market forces are instrumental in 
determining supply-demand balance will enhance security of supply. This 
is, in fact, among the reasons that some Asian buyers are seeking to 
add US LNG supplies to their portfolios.
    Another important reasons Asian buyers seek trade with the US is 
the desirability of a gas price indexed purchase rather than a price 
indexed to oil for contracted flows. In fact, as the US enters the 
global LNG market, liquidity will be enhanced. This is a very important 
point that ties directly back to the impacts of US LNG exports on NOCs 
and the gas market more generally. Oil indexation of gas sales is still 
prevalent, particularly in Asia, as it provides a means of ensuring 
delivery of supplies where there is no ability to buy at a hub or on an 
exchange, and it follows from a lack of market liquidity. As liquidity 
grows, the desirability of this paradigm wanes. In fact, short term and 
spot sales of LNG have increased from around 5 percent of the global 
LNG market in 2000 to over 20 percent in 2011. This is indicative of 
the ongoing paradigm shift. Adding US LNG to the supply portfolio 
enhances liquidity by adding a supply option as well as a direct link 
to a liquid gas market, which will further erode the traditional LNG 
contract paradigm. This will have direct implications for revenues for 
all gas exporters, even those with existing contracts as LNG contracts 
typically have re-openers (or price renegotiation clauses) that can be 
triggered when markets shift in particular ways. So, the liquidity 
effects of US LNG exports could indeed be significant and 
transformative of the way LNG is traded globally. Note this could 
happen even if export capacity is added but very little gas is actually 
  Responses of Kenneth B. Medlock to Questions From Senator Alexander
    Question 1. Given the advantage of low domestic natural gas prices 
that resulted from increased production from unconventional natural gas 
reserves, do we really have a problem since we might only export 10 
percent of our natural gas?
    Answer. The answer depends entirely on how responsive domestic 
supply is to price. The price impact of LNG exports, or any increase in 
demand for that matter, is ultimately dependent upon the elasticity of 
supply. Consider *Figure SA.1, which indicates the effect of different 
supply capabilities in response to a particular demand increase due to 
exports. If supply can expand significantly as price rises (meaning it 
is very elastic--such as in Case 1 in Figure SA.1), then domestic 
supply capabilities are more than adequate to meet such demand growth. 
However, if one takes the view that supply is relatively unresponsive 
to price, as in Case 2 in Figure SA.1, then the price impacts could be 
significant for even small volumes of LNG exports. This would have 
adverse effects on all sources of demand and would ultimately serve to 
limit demand growth in all sectors as well as limit LNG exports.
    * All SA figures have been retained in committee files.
    Research done at the Baker Institute indicates that domestic supply 
is highly elastic, as in Case 1, which would suggest that price will 
not rise substantially as demand grows. So, this indicates that LNG 
exports will not have a significant price impact domestically.
    It is important to also note that an assumption about volume must 
be made in the context of a fully responsive international trade 
paradigm. In other words, export volumes are not simply given volumes. 
They are arrived at through the equilibration of demand and supply 
around price. Trade affects price in both exporting and importing 
markets. This point is highlighted in ``US LNG Exports: Truth and 
Consequence'' which is attached for your reference.
    Question 2. At what percentage of exports, compared with the 
overall U.S. production of natural gas, does the U.S. lose its price 
advantage of natural gas that we have today?
    Answer. There is no such volume. If the price advantage is 
completely eroded than exports will fall until a price differential 
exists that supports the cost of the trade. In fact, the price in an 
exporting region will always be lower than the price in the importing 
region. If it is not, then trade will cease. See *Figure SA.2 for an 
illustration of equilibrium in an international trade context.
    Importantly, this is not simply an academic exercise. It is proven 
time and again in multiple markets where trade between regions exists. 
Only when the cost of the trade (t in Figure SA.2) is diminishingly 
small do we see price convergence in an absolute sense between trading 
partners. For natural gas, the full cost of the estimated trade from 
the US Gulf Coast to Japan is about $5/mcf, meaning the price 
differential between the two markets should gravitate toward that 
value. Even if one removes the fixed cost of infrastructure from the 
calculation, the differential still persists at over $2/mcf. So, if 
trade is occurring, a differential will exist, and as long as the US is 
the exporting country, the price in the US will be lower.
    During the testimony, it was claimed that the price to a consumer 
in Australia is at parity with the price of LNG delivered to Japan. 
Apparently, this was done to support the notion that the domestic price 
for the exporter will rise to parity with the price paid by the 
importer. This comparison is not apples-to-apples. The LNG price is an 
ex-ship price, whereas the price to a consumer in Australia reflects 
the cost of local distribution, taxes, fees and other costs. Even in 
the US in 2012, when the price at Henry Hub averaged $2.76/mcf, the 
national average price of gas delivered to the city gate, where the 
local distribution company (LDC) takes possession of the gas, was 
$4.73. Then, the LDC must account for its fees and costs thus resulting 
in a national average price delivered to residential users of $10.68/
mcf and commercial users of $8.13/mcf. To make matters more 
complicated, the fees and costs vary widely by LDC, so some US 
consumers pay much more than indicated by the national average, such as 
in Massachusetts where the average price to a residential consumer in 
2012 was $13.42/mcf. Even industrial and power generation users of gas 
who are not LDC customers pay more than Henry Hub as they must pay to 
ship gas along the interstate pipelines.
    In 2012, the spot price of delivered LNG was $15.09/mcf in Japan 
and $9.48/mcf in the UK. But, comparing these wholesale spot prices to 
delivered end-user prices is completely inappropriate when evaluating 
the effects of trade. Moreover, the East Australian (or Sydney) market 
is not connected to West Australia, which is where Australia's LNG 
exports originate. Prices in East Australia are set entirely by East 
Australian supply-demand factors having nothing to do with exports from 
the Australian Northwest shelf to Japan. Moreover, the wholesale price 
of gas in West Australia is well below the current price of LNG 
delivered to Japan.
    As one final point, it is important to note that US competitive 
advantage can be compromised if other countries, who may also export 
but need not, heavily subsidize prices to industrial users. This tilts 
the scale, but also creates an unsustainable situation, as has been 
witnessed many times over--Indonesia, Argentina, Iran, etc. Notably, 
the advantage is not about absolute price, it is about relative price. 
Even if the price in the US averages $2.50/mcf, industrial users will 
offshore if the price abroad is lower. This, in fact, happened in the 
late 1990s in the US.
    Question 3. What are your projections for the amount of natural gas 
the U.S. will be producing in 10 years?
    Answer. The work done at the Baker Institute under the Center for 
Energy Studies indicates the US marketed production volumes will be 
about 8 percent higher than currently. Importantly, this volume is 
projected to primarily be used to meet domestic demands, as the 
prediction for export volume by then is just under 2 bcf/d, which is 
less than 3 percent of current marketed production. The above 
referenced paper ``US LNG Exports: Truth and Consequence'' highlights 
the primary drivers of this result. Namely, international market 
responses to current high prices will serve to ultimately lower them--
i.e.-the best cure for high prices is high prices.
    Question 4. Under present policies, if you had to make a guess, 
what would be the range of the percentage of U.S. natural gas 
production that we would be exporting in 10 years?
    Answer. We have done various scenarios to assess the market 
potential for US LNG exports. We consistently see a range of between 
0.5 bcf/d and 3.5 bcf/d, which equates to a range of between less than 
one percent to about five percent. In order to drive export volumes to 
the high end, we must make very strong assumptions about the long term 
supply responsiveness of Russia, China (due to shale resources), and 
                              Appendix II

              Additional Material Submitted for the Record


            Statement of the American Public Gas Association
    On behalf of the American Public Gas Association (APGA), thank you 
for the opportunity to submit testimony on the Senate Committee on 
Energy and Natural Resources hearing titled, ``Opportunities and 
Challenges for Natural Gas.'' APGA believes that the Committee should 
consider two issues critical for U.S. consumers of natural gas, which 
are reform of Section 5 of the Natural Gas Act (NGA) and the export of 
domestically produced natural gas in the form of liquefied natural gas 
(LNG). We sincerely appreciate the opportunity to present our views and 
stand ready to work with the Committee on these and any other natural 
gas issues that may be considered.
    APGA is the national association for publicly-owned natural gas 
distribution systems. There are approximately 1,000 public gas systems 
located in 36 states. Publicly-owned gas systems are not-for-profit, 
retail distribution entities owned by, and accountable to, the citizens 
they serve. They include municipal gas distribution systems, public 
utility districts, county districts, and other public agencies that 
have natural gas distribution facilities.
          issue 1--reform of section 5 of the natural gas act
    In 1938, Congress gave the Federal Power Commission (now the 
Federal Energy Regulatory Commission (FERC)) authority under the NGA to 
regulate transportation rates charged by interstate natural gas 
transmission pipelines. The NGA mandates that customers of interstate 
pipelines are to be charged ``just and reasonable'' rates, mirroring 
the core rate sections of the Federal Power Act (FPA), which mandate 
just and reasonable rates for electric utilities.
    Periodically, Congress has updated both the FPA and the NGA as the 
electric and natural gas industries have evolved. Significantly for 
these purposes, Congress amended the FPA in 1988 and again in 2005 
allowing FERC to provide refunds to the extent customers were charged 
unjust and unreasonable rates as found by FERC; with such refunds to be 
effective as of the refund-effective date, which may be set by FERC as 
early as the date that a complaint is filed under FPA Section 206. 
Unfortunately, no such amendments were made to the NGA.
    Until 1992, interstate pipeline companies were required to have 
their rates evaluated every three years by the FERC to ensure that they 
were just and reasonable, so the need for such reform was not as 
    However, in 1992, FERC issued Order 636 as part of the transition 
to unbundled open access transportation and ended the three-year rate 
review process. The practical result of this has been that pipelines 
with increasing costs file for and receive rate increases under NGA 
Section 4; while pipelines with decreasing costs, ,whose rates have 
long since ceased to be just and reasonable, simply continue charging 
consumers excessive rates, often for very extended periods of time, 
sometimes 10 or more years.
    Even if customers or the FERC initiates an NGA Section 5 complaint 
case against an interstate pipeline company, and the FERC agrees that 
the just and reasonable standard was violated, the FERC can only change 
the company's rates prospectively from and after the date of the FERC 
final order, with no refunds to affected consumers during the often 
lengthy period required to process such a complaint case. It goes 
almost without saying that unless pipelines can settle such cases on 
terms very favorable to themselves, as is usually the case, they have 
every incentive and the resources to drag out the litigation of the 
complaint case for years since there are no refund repercussions at the 
end of the proceeding. This lack of parity between the complaint 
sections of the NGA and FPA leaves natural gas customers ranging from 
homeowners to industrial enterprises exposed to overcharges for 
extended periods in violation of the NGA's just and reasonable 
standard. This lack of protection has resulted in millions of customers 
paying excessive, unjust and unreasonable rates for natural gas 
transportation, affecting families' bottom lines and businesses' 
ability to compete and create jobs.
Recent Developments
    Since November 2009, FERC has initiated approximately three Section 
5 cases each year. Whether or not Section 5 cases are initiated at all 
is at the discretion of the Commissioners--there is no statutory 
requirement that FERC do so. APGA believes that the recent FERC Section 
5 actions are important for a number of reasons. First, the Commission 
to its credit is taking the initiative to review pipeline Form 2 
filings (annual filings containing pipeline financial data) and calling 
out the most egregious over-earners, most of which have not been before 
the Commission in many years for a rate review. The Form 2 data shows 
that these entities are often earning returns in excess of 20 percent, 
which, all seem to concede, is exorbitant for a regulated monopoly.\1\
    \1\ The annual report of the Natural Gas Supply Association, 
``Pipeline Cost Recovery Report: 32 Major Pipelines 2006-2010,'' shows 
that the twelve companies called on the carpet are but a small fraction 
of the total number of over-earners (see Report at pp. 4-5).
    The second point that these cases illustrate is the futility of 
bringing such complaint cases if the goal is to achieve just and 
reasonable rates under the NGA. The pipelines are able to use delay 
tactics and threats of time-consuming NGA Section 4 filings to bully 
both the customers into settling the cases on terms very favorable to 
the pipelines and the commission into approving these unbalanced 
settlements. These points have been made by the various parties to 
these cases\2\ and fully recognized by the commissioners themselves. 
For example, in one of the first complaint cases initiated by the 
commission, involving Northern Natural Gas Company, Docket No. RP10-
148, Commissioner LaFleur observed as follows in a concurring 
    \2\ Natural Gas Pipeline Co. of America, RP10-147, comments of PGC 
et al at 1-3, comments of Missouri Public Service Commission at 3-6; 
comments of APGA at 1-3; comments of Pennsylvania Public Utility 
Commission at 1; and in Northern Natural Gas Co., RP10-148, comments of 
Northern Municipal Distributors Group et al at 2-3, 5-6; comments of 
Michigan Public Service Commission at 1-2; response of APGA at 1-4.

    I Irecognize the concerns raised by the Industrials on rehearing 
regarding the unfair advantage pipelines may have in a section 5 
proceeding vis-a-vis their customers. The Commission can only act, 
however, within the existing statutory scheme. I believe that this 
proceeding clearly demonstrates the need for reform of section 5 of the 
NGA to prevent the asymmetry of leverage between applicants under 
section 4 and complainants or the Commission under section 5. As 
happened here, without Commission authority to set a refund effective 
date upon institution of a complaint or investigation under section 5, 
a pipeline can threaten to file a general section 4 rate case and move 
those rates into effect prior to the date by which a Commission order 
in the section 5 proceeding could lower those rates. This situation 
places the parties supporting the section 5 proceeding in a difficult 
situation in that they may be forced to pay even higher rates without 
refund relief for some period of time. It also hampers the Commission's 
efforts to ensure just and reasonable rates. I therefore support 
legislative action to amend the NGA to provide the Commission with 
refund authority in section 5, similar to that provided under section 
206 of the Federal Power Act.\3\ ''
    \3\ Comm'r LaFleur concurring statement (p. 2) in Northern Natural 
Gas Co., RP10-148, Oct. 29, 2010
    Similarly, in a dissenting statement in that same case Chairman 
Wellinghoff stated:
    ``As a general matter, the lack of refund authority under section 5 
of the NGA allows the regulated community to defeat the purpose of 
section 5 at least in some circumstances. This is not the case under 
the Federal Power Act (FPA). The Commission must establish a refund 
effective date for a section 206 proceeding and has the authority to 
order refunds for the period ending 15 months after the refund 
effective date. Thus, the incentive for game-playing is removed and the 
Commission can determine on the merits that a public utility's rates 
are just and reasonable. For this reason, I support legislative changes 
providing for NGA refund authority paralleling that provided to the 
Commission in the FPA.\4\ ''
    \4\ Chairman Wellinghoff dissenting statement (p. 4) in Northern 
Natural Gas Co., RP10-148, Nov. 2 , 2010
    In fact, all of the sitting commissioners including (newly 
appointed Commissioner Clark has expressed his support for Section 5 
reform in a meeting with APGA), being fully familiar with the outcomes 
in these Section 5 proceedings, have stated their support for amendment 
of NGA Section 5 to provide refund authority comparable to that 
available under FPA Section 206.
    The prospect of continuing to pay excessive rates for natural gas 
transportation has brought together a diverse group of stakeholders 
that is growing. Groups that have supported reform include: the 
Industrial Energy Consumers of America; American Iron and Steel 
Institute; American Forest and Paper Association; American Public Power 
Association; National Farmers Union; Public Citizen; and, most 
recently, the National League of Cities, which represents 19,000 
cities, villages, and towns. This growing coalition of organizations 
recognizes that the only way to protect individual consumers as well as 
the competitiveness of major industrial users of natural gas is to 
reform Section 5 of the NGA. As significant as the number and type of 
entities supporting reform is the absence of entities opposing reform. 
To date, only pipelines and their trade association have opposed the 
efforts to amend NGA Section 5 to afford consumers meaningful 
protection against rate overcharges.
    The arguments for reform are straight-forward and persuasive. First 
and foremost is the NGA mandate that pipelines charge just and 
reasonable rates and that customers be protected from paying unjust and 
unreasonable rates for natural gas transportation. The fact that 
overcharges are an ongoing problem is illustrated both by the 
pipeline's own (Form 2) data cited in the Section 5 complaints 
initiated by the commission and by the data released each year by the 
Natural Gas Supply Association (NGSA). In 2012, NGSA released a study 
of the 32 largest interstate pipelines (representing 80 percent of the 
transmission market), which found that these companies overcharged 
customers by $4.2 billion from 2006-2010 (this is an increase of $100 
million compared to the 2011 report).\5\ The study also used Form 2 
data submitted by interstate pipeline companies and assumed an average 
return on equity (ROE) of 12 percent to be acceptable.\6\ Over the five 
year period, several companies averaged an ROE above 20 percent and one 
above 42 percent.\7\
    \5\ Natural Gas Supply Association, ``Pipeline Cost Recovery 
Report: 32 Pipelines 2006-2010'' pgs 4-5.
    \6\ Of course, in today's financial markets, the assumed 12% ROE is 
several hundred basis points above what could be justified.
    \7\ Natural Gas Supply Association, ``Pipeline Cost Recovery 
Report: 32 Pipelines 2006-2010'', p. 5
    Overcharging for natural gas transportation does not simply mean 
fewer dollars available for businesses and consumers, but also means 
fewer jobs in an economy where job growth is more critical than ever. 
Major industrial enterprises spend millions of dollars on natural gas, 
which constitutes a major input cost. The fact that many of these 
enterprises are paying excessive rates for natural gas transportation 
limits their ability to create new jobs in the midst of strong 
competition from companies around the world. The money spent on 
excessive natural gas rates could be better spent by creating new jobs 
here in the U.S. and taking advantage of our nation's vast, newly 
accessible shale gas reserves.\8\
    \8\ Energy Information Administration ``Annual Energy Outlook 2012 
Early Release,'' pgs: 1 and 5.
Addressing Pipeline Arguments Against Reform
    The benefits to businesses and consumers of reforming Section 5 of 
the NGA to limit pipelines to rates that are just and reasonable are 
clear and compelling: lower costs and greater domestic job creation. 
However, to date, interstate pipelines continue to resist reform since 
it affects their bottom line, so it is important to address each of 
their arguments to determine their merit or lack thereof.
    Interstate pipeline companies' arguments against reform may be 
summarized as follows: FERC-established rates remain just and 
reasonable until changed; ordering refunds would constitute 
``retroactive ratemaking''; providing for refunds would undermine 
infrastructure development; and reform is unnecessary because 
transportation rates themselves are a relatively small component of the 
total bundled cost of natural gas to consumers. Each of those points 
will be addressed below.
    The pipelines argue that since the rates being charged by a 
pipeline at any given point in time were previously approved by the 
FERC, they must still be just and reasonable, and thus refunds should 
be denied. This contention is self-evidently inaccurate since a rate 
that is just and reasonable at any given point in time may become 
unjust and unreasonable at a subsequent point in time if costs 
materially increase or decrease. Pipelines are not bashful about filing 
to increase their rates when costs are rising, and such rate increases 
go into effect virtually immediately subject to refund after a nominal 
suspension period under NGA Section 4. The suggestion that pipelines 
should be allowed to supersede previous rates determined to be just and 
reasonable after a nominal suspension period but that consumers should 
have to wait potentially years before getting relief from unjust and 
unreasonable rates is absurd on its face. This argument was obviously 
found wanting in 1988 when Congress amended FPA Section 206 to provide 
for refunds where rates were ultimately determined to be excessive.
    Interstate pipelines also argue that reform of Section 5 to provide 
refund protection for consumers is tantamount to ``retroactive 
ratemaking.'' This statement is legally inaccurate and is designed to 
conjure fears amongst policymakers of overzealous regulators 
intrusively altering pipeline rates, creating uncertainty and harming 
pipelines' business. In reality, if a customer files a complaint under 
a reformed Section 5, the Commission, if it believes that the 
complainant has shown good cause to set the matter down for hearing, 
will set a refund-effective date, which date may not precede the date 
the complaint is filed. Hence, all refunds are prospective from the 
refund-effective date, and there will be no refunds unless the 
Commission at the end of the proceeding determines that the pipelines' 
rates are excessive under the ``just and reasonable'' standard. In 
short, unless FERC determines that interstate pipelines are violating 
the NGA, no refunds will be required. The identical provision under the 
FPA has been upheld against charges of retroactive ratemaking.
    The interstate pipeline companies also argue that reforming Section 
5 will harm their ability to build infrastructure. This argument is a 
red-herring and is misleading in at least five different ways:
    First, new infrastructure projects are certificated to earn healthy 
equity returns, usually in the 12 percent range. NGA Section 5 reform 
does not affect by one iota the ability of these projects to earn such 
returns; rather, NGA Section 5 reform is only applicable to those 
egregious over-earners whose customers are underwriting returns far in 
excess of the allowed returns.
    Second, almost all significant new infrastructure projects are 
undertaken on the basis of ``negotiated'' contracts between the 
transporter and the shippers. Negotiated contracts are not subject to 
rate changes by the transporter under NGA Section 4 or rate challenges 
by shippers under NGA Section 5; the rate is fixed for the term through 
bilateral negotiations. These negotiated contracts form the basis for 
the project developer to go to the marketplace and provide the 
developer with known returns for the contract terms. Thus, the argument 
that NGA Section 5 reform would deter new infrastructure development is 
false and misleading.
    Third, the FERC is required by law in setting rates to provide for 
a rate of return that permits the affected pipeline to recover all debt 
costs plus raise capital in the marketplace at reasonable rates. FERC 
has done just that, and the financial markets understand this, so NGA 
Section 5 reform will not affect at all the ability of interstate 
pipelines to raise capital in the marketplace.
    Fourth, the FERC itself, which is pro-business and pro-
infrastructure, understands that the argument that Section 5 reform 
would be bad for infrastructure development and thus bad for job 
development is rash, for all of the reasons noted above, which explains 
why all sitting commissioners, including the Chairman and prior two 
Chairmen, support NGA Section 5 reform. Commissioner Clark has also 
expressed his support in a private meeting with APGA.
    Fifth, many of the leading builders of infrastructure are not the 
more egregious over-earners, and they have successfully gone to the 
marketplace for billions of dollars for new infrastructure 
construction. For example, El Paso Natural Gas Company touts on their 
website that in 2010 they invested $318 million in new infrastructure 
projects.\9\ According to the NGSA study, El Paso had an ROE of 8.3 
percent for 2010 and a five year average ROE of 10.7 percent.\10\ In 
other words, there is no correlation between over-earning pipelines and 
infrastructure construction.
    \9\ El Paso Natural Gas Company website: http://
    \10\ Natural Gas Supply Association, ``Pipeline Cost Recovery 
Report: 32 Pipelines 2005-2009,'' pg. 5.
    In brief, this ``infrastructure'' argument is nothing but a 
strawman raised by the pipelines because they have no defense on the 
merits against Section 5 reform--they are overcharging customers 
because the rates of many of them are no longer just and reasonable. 
Absent NGA Section 5 reform, FERC, which is supposed to ensure that 
pipelines charge and consumers pay just and reasonable rates, is 
basically helpless to prevent allowing pipelines to defeat the purpose 
of the NGA.
    Finally, the interstate pipelines also argue that transportation 
rates for natural gas are a small part of the overall cost to 
consumers, so policymakers should ignore it. First, this contention 
tries to obscure the fact that excessive rates for transportation cost 
consumers and businesses some $4.2 billion over a five-year 
period\11\--money that should remain in the communities of the 
customers that are being overcharged. The fact of the matter is that 
the price of gas at the wellhead, which is the major component of the 
blended gas cost paid by consumers, is deregulated and thus that 
component is not at issue here. What is at issue is the FERC-regulated 
component: pipeline rates to move the gas from the field to local 
distribution companies and industrial loads and the issue that there is 
no basis for a regulated entity under the Natural Gas Act to over-
recover its allowed return by hundreds of millions of dollars, as is 
the case today, simply because the production component of the ultimate 
charge paid by consumers is unregulated.
    \11\ Natural Gas Supply Association, ``Pipeline Cost Recovery 
Report: 32 Major Pipelines 2006-2010,'' pgs 4-5.
    APGA believes that it is critical that businesses and individual 
consumers pay a fair price for natural gas and for its transportation. 
FERC is charged with ensuring this result, but in contrast to the 
situation under the FPA, it is handcuffed from carrying out its mandate 
by the same flaw in the NGA that handicapped the Commission under the 
FPA until Congress acted in 1988. As FERC Chairman Wellinghoff (and his 
predecessors) and all sitting FERC commissioners have observed 
publically and/or privately, no credible public policy reason exists to 
treat electric and natural gas customers differently in regard to 
ensuring that rates of jurisdictional companies are just and 
    APGA thanks the Committee for its interest in this important issue 
and respectfully requests a hearing at the Senate Committee on Energy 
and Natural Resources so these issues can be debated in an open, on-
the-record forum.
                          issue 2--lng export
    The Department of Energy Office of Fossil Energy (``DOE/FE'') 
commissioned two studies regarding the effects of LNG exports. The 
first, conducted by the U.S. Energy Information Administration 
(``EIA''), studied the impact of LNG exports on domestic prices and 
concluded that the exports will increase prices, with higher volumes 
causing more drastic increases.\12\ The second, conducted by NERA 
Economic Consulting, focused on the macroeconomic effects of LNG 
exports, which it found would be a net positive while at the same time 
confirming that LNG exports would raise domestic natural gas prices, 
which would burden the U.S. consumers who can least afford the increase 
and disadvantage domestic manufacturing.\13\ Policymakers must consider 
both of these studies and the many non-governmental studies, but also 
go beyond them to consider the profound tradeoffs entailed by exporting 
away an increasingly valuable U.S. fuel rather than supporting its use 
    \12\ Effect of Increased Natural Gas Exports on Domestic Energy 
Markets, U.S. Energy Information Administration (Jan. 2012) (``EIA 
Export Report''). As requested by the DOE/FE, the EIA Export Report 
considered four scenarios: (1) 6 Bcf/d phased in at a rate of 1 Bcf/d 
per year (low/slow scenario); (2) 6 Bcf/d phased in at a rate of 3 Bcf/
d per year (low/rapid scenario); (3) 12 Bcf/d phased in at a rate of 1 
Bcf/d per year (high/slow scenario); and (4) 12 Bcf/d phased in at a 
rate of 3 Bcf/d per year (high/rapid scenario).
    \13\ Macroeconomic Impacts of LNG Exports from the United States, 
NERA Economic Consulting (Dec. 2012) (``NERA Study''). APGA understands 
(and applauds the fact) that the merits and demerits of the NERA Study 
will be assessed independently by DOE/FE in a separate proceeding (77 
Fed. Reg. 73627); and hence APGA's comments here on the NERA Study are 
only preliminary and not intended to represent its complete assessment 
of the NERA Study.
    Increased production of natural gas in the U.S. provides the nation 
with an unprecedented opportunity to pursue energy independence and 
sustained economic growth through a manufacturing renaissance grounded 
in plentiful, low cost natural gas. Price increases will also 
jeopardize the viability of natural gas as a ``bridge-fuel'' in the 
transition away from carbon-intensive and otherwise environmentally 
problematic coal-fired electric generation and inhibit efforts to 
foster natural gas as a major transportation fuel, which is important 
to wean the U.S. from its historic and high-risk dependence on foreign 
    To date, 22 applications have been submitted to DOE to export 
domestic LNG from the contiguous United States to Free Trade Agreement 
(FTA) or non-FTA nations based on the promise of huge unconventional 
domestic gas reserves. Many of those 22 applicants own or are 
affiliated with companies that own existing or previously planned LNG 
import terminals. Also to date, the total export capacity applied for 
is 29.41Bcf/d and 24.8 Bcf/d to FTA and non-FTA nations, respectively. 
Total marketed natural gas production was approximately 66 Bcf/d in the 
U.S. in 201l; therefore, based on current marketed production data, the 
total applied-for export capacity would have the effect of increasing 
the demand for natural gas by nearly 48 percent.
    Policymakers in Congress and at DOE have a duty to ensure that any 
application before it for export authority is not inconsistent with the 
public interest pursuant to NGA section 3(a).\14\ The ``public interest 
analysis of export applications'' should be ``focused on domestic need 
for natural gas,'' threats to domestic supply, and ``other factors to 
the extent they are shown to be relevant.''\15\
    \14\ 15 U.S.C. Sec.  717b(a).
    \15\ Sabine Pass Liquefaction, LLC, Opinion and Order Denying 
Request for Review Under Section 3(c) of the Natural Gas Act, October 
21, 2010, FE Docket No. 10-111-LNG.
LNG Exports Will Increase Domestic Natural Gas Prices
    According to the EIA Export Report, ``[l]arger export levels lead 
to larger domestic price increases.''\16\ EIA also concluded that 
``rapid increases in export levels lead to large initial price 
increases,'' but that slower increases in export levels will 
``eventually produce higher average prices during the decade between 
2025 and 2035.''\17\
    \16\ Id. at 6. As requested by the DOE/FE, the EIA Export Report 
considered four scenarios: (1) 6 Bcf/d phased in at a rate of 1 Bcf/d 
per year (low/slow scenario); (2) 6 Bcf/d phased in at a rate of 3 Bcf/
d per year (low/rapid scenario); (3) 12 Bcf/d phased in at a rate of 1 
Bcf/d per year (high/slow scenario); and (4) 12 Bcf/d phased in at a 
rate of 3 Bcf/d per year (high/rapid scenario).
    \17\ Id.
    Even under the ``low/slow'' baseline scenario in the EIA Export 
Report, price impacts will peak at about 14 percent.\18\ Under the low/
rapid baseline scenario, EIA projects that wellhead prices will be 
approximately 18 percent higher in 2016 than they otherwise would 
be\19\. In fact, under all of the ``low'' scenarios accounting for 
different economic and shale reserve conditions, EIA predicts price 
impacts well above 10 percent that then moderate.\20\ Under the ``high/
rapid scenario,'' EIA projects that prices will increase by 36 percent 
to 54 percent by 2018 depending on natural gas supplies and economic 
    \18\ Id. at 8.
    \19\ Id.
    \20\ Id. at 9.
    The NERA study also concluded that the higher the volume of LNG 
exports, the more domestic natural gas prices will rise. Both studies 
underestimate potential price increases because they are based on 
outdated projections of domestic demand for natural gas and the 
questionable assumption that the demand for natural gas is sufficiently 
elastic to prevent significant price spikes.
Domestic Demand Underestimated
    On December 5, 2012, the EIA issued the Early Release of its Annual 
Energy Outlook for 2013 (``AEO2013''). The AEO2013 projects greater 
increases in domestic demand for natural gas than projected in prior 
Annual Energy Outlooks. In particular, the AEO2013 projects greater 
increases in demand for natural gas from domestic industry, 
particularly from the bulk chemicals and primary metals industries and 
as a result of ``higher output in the manufacturing sector.''\21\ 
However, even AEO2013 appears to underestimate the coming growth in 
natural gas use for manufacturing, if domestic prices remain low.\22\
    \21\ AEO2013 Early Release Overview at 2.
    \22\ See Steven Mufson, The New Boom: Shale Gas Fueling an American 
Industrial Revival, Washington Post (Nov. 14 (2012) (reporting that 
manufacturers have plans to invest as much as $80 billion in U.S. 
chemical, fertilizer, steel, aluminum, tire and plastics plants); 
Letter from Edward J. Markey, Ranking Member, House of Representatives 
Committee on Natural Resources, to Steven Chu, Secretary of Energy 
(Dec. 14, 2012)(``Markey Letter'') (stating that AEO2013 domestic 
demand projections ``fail to capture many of the more than 100 newly 
announced natural gas-intensive manufacturing projects that have been 
announced over the past 18 months. Those projects represent of $90 
billion in investment and billions of cubic feet of additional future 
daily natural gas use.'').
    AEO2013 also projects greater increases in future reliance on 
natural gas for electric generation than projected by the EIA in 
previous Annual Energy Outlooks. The increased reliance on natural gas 
for electric generation is partially based on low natural gas prices, 
but also on implementation of the Environmental Protection Agency's 
(EPA) pending Mercury Air Toxic Standards (``MATS''), which will force 
the retirement of a number of coal-fired generators.
    Both studies commissioned by DOE/FE rely on projected natural gas 
demand from AEO2011. These outdated projections fail to account for 
current EIA expectations regarding future demand and tend to 
overestimate demand elasticity, or the ability of natural gas consumers 
to curtail their purchases in response to higher prices in the electric 
generation sector. Once a coal plant is retired due to MATS, or for any 
other reason, the operator of the retired plant cannot switch it back 
on in response to higher natural gas costs. Meanwhile, the EPA's new 
greenhouse gas standards for new electric generators virtually ensure 
that new coal plants will not be constructed to replace those that are 
retired.\23\ Soon, electric generation companies will not only demand 
more gas but also rely on it more heavily for base load production, 
altering expectations about demand elasticity that prognosticators have 
relied on when assuming that natural gas prices will not raise sharply 
due to LNG exports.\24\ This same trend would also exacerbate the 
increases in the price of electricity caused by LNG exports that are 
projected by the EIA and NERA.
    \23\ ``Standards of Performance for Greenhouse Gas Emissions for 
New Stationary Sources: Electric Utility Generating Units'' 77 C.F.R. 
22392 (Apr. 13, 2012).
    \24\ See Energy Information Administration, Fuel Competition in 
Power Generation and Elasticities of Substitution (June 2012) (general 
description of fuel switching and price elasticity among fuels in the 
power generation sector) available at http://www.eia.gov/analysis/
    While demand elasticity will shrink in the electric sector, leading 
to sharper increases in natural gas and electricity prices than 
previously forecasted, manufacturers will continue to be ``responsive'' 
to increases in the price of natural gas--meaning that manufacturers 
will curtail consumption and hence production due to higher prices. 
Congress and the DOE need to examine what this means for the economy 
and the broader public interest of the nation in its consideration of 
this and other LNG export applications.
Effects of Higher Prices
    Increases in the price of natural gas will impact the U.S. 
consumers who can least afford the price increase, inhibit the 
expansion of domestic manufacturing, and forestall the further use of 
natural gas as a bridge fuel away from the carbon-intensive coal and 
foreign sourced oil for transportation. The NERA study specifically 
describes the effects of LNG exports and the attendant price increases 
in terms of a ``wealth transfer.'' The DOE/FE must examine what this 
wealth transfer would entail for the public interest when evaluating 
LNG export applications.
Hurts Economically Vulnerable Households
    Proposed LNG exports would raise domestic natural gas prices, which 
will increase costs to households that rely on natural gas for heating 
and cooking. NERA projects that these higher costs will be offset by 
increases in the value of natural gas resources and related companies, 
which NERA assumes many Americans own through retirement savings and 
other investments.\25\ NERA admits, however, that ``[h]ouseholds with 
income solely from wages or government transfers,'' will not share in 
the benefits of increased profits from natural gas.\25\ Therefore, the 
increase in natural gas prices due to exports will impact most those 
consumers without investments or retirement savings, those living 
paycheck-to-paycheck or relying on government assistance--in other 
words, the most needy in our society.
    \25\ See Markey Letter (casting doubt on the assumption that 
benefits to the natural gas sector will be widely enjoyed by ordinary 
American via retirement investments).
    \26\ NERA Study at 8.
Suppresses Other Domestic Industries
    The NERA study indicates that as the price of natural gas 
increases, the economy demands or produces fewer goods and services. 
This results in lower wages and capital income for consumers; under 
such economic conditions, consumers save less of their income for 
    As a result, industries that rely on natural gas will experience 
``a reduction in overall output,'' mitigated by a ``switch to fuels 
that are relatively cheaper.''\27\ The latter argument assumes that 
alternatives to natural gas are affordable and available, which is an 
invalid assumption for fertilizer manufacturers and other industries.
    \27\ NERA Study at 53.
    Moreover, the NERA study identified chemical manufacturing as one 
of the natural gas and energy intensive industries that will be among 
the most severely disadvantaged due to natural gas price increases 
caused by LNG exports.\28\ According to NERA ``[d]omestic industries 
for which natural gas is a significant component of their cost 
structure will experience increases in their cost of production, which 
will adversely impact their competitive position in a global market and 
harm U.S. consumers who purchase their goods.''\29\ Leaders in the 
chemical sector have voiced concern regarding LNG exports and adverse 
impacts on the industry caused by inflated natural gas prices.\30\
    \28\ NERA Study at 64
    \29\ NERA Study at 13.
    \30\ Press Release, Dow Chemical, DOE Report on LNG Exports Short 
Changes Manufacturing and U.S. Competitiveness (Dec. 6, 2012) available 
at http://www.dow.com/news/press-releases/article/?id=6138
    When evaluating whether export applications are consistent with the 
public interest, policymakers must ask not only ``what will we gain 
from LNG exports,'' but also ``what will we give up.'' A U.S. 
manufacturing renaissance that promises greater economic growth and job 
creation with positive effects rippling throughout the economy hangs in 
the balance. Right now, industry is poised to invest billions of 
dollars in new natural gas intensive facilities in the U.S. premised on 
the promise of low domestic natural gas prices. For example, Sasol 
North America, Inc. is currently considering investing in the first gas 
to liquids plant in the U.S., an innovative technology for producing 
diesel and other liquid fuels without oil, and U.S. natural gas prices 
are a primary consideration regarding whether the investment will go 
    \31\ Clifford Kraus, South African Company to Build U.S. Plant to 
Convert Gas to Liquids, New York Times (Dec. 3, 2012) available at: 
    Last year, in his State of the Union address, President Obama spoke 
of ``an America that attracts a new generation of high-tech 
manufacturing and high-paying jobs--a future where we're in control of 
our own energy, and our security and prosperity aren't so tied to 
unstable parts of the world,'' and ``an economy built on American 
manufacturing, American energy.''\32\ Low natural gas prices in the 
U.S. provide the path forward. Higher natural gas prices due to LNG 
exports threaten this nascent return to American manufacturing, and 
prior economic data demonstrate that when domestic energy prices 
increase, the country loses manufacturing jobs, particularly in the 
fertilizer, plastics, chemicals, and steel industries.\33\
    \32\ President Barack Obama, State of the Union Address (Jan. 24, 
2011), transcript available at: http://www.whitehouse.gov/state-of-the-
    \33\ U.S. House Committee on Natural Resources Democrats, Drill 
Here, Sell There, Pay More: The Painful Price of Exporting Natural Gas 
(March 2012) available at http://democrats.naturalresources.house.gov/
    Rather than trading a few existing manufacturing jobs for a few 
natural gas and construction jobs, the DOE/FE should pursue policies 
that create new manufacturing jobs and broader economic growth in the 
U.S. Using natural gas for manufacturing provides a value-added benefit 
to the economy because industry multiplies the value of every dollar it 
expends on natural gas for energy or as a raw material. Rather than 
investing in natural gas exports, which squeeze out investments from 
other sectors of the economy, the U.S. should pursue policies that 
allow industry to invest in natural gas dependent manufacturing. Energy 
and natural gas intensive manufacturing produces chemicals, metals, 
cement and other materials that may be low-value adding but create 
positive ripple effects up the value-chain and throughout the 
economy.\34\ Rather than exporting natural gas as a raw natural 
resource, the U.S. could export processed materials, such as steel, or 
higher value-added goods at more competitive prices, with greater 
benefits to the U.S. job market and GDP.
    \34\ NERA claims that harm resulting from exports will ``likely be 
confined to very narrow segments of industry,'' namely low value-added, 
energy intensive manufacturing. NERA Study at 67-69. NERA, however, 
ignores the benefits of producing materials in the U.S. that can then 
be used by other U.S. manufactures that are less energy intensive and 
higher up the value chain. For instance, if plastics are produced at 
competitive prices in the U.S., toy manufacturers may find it 
economical to ``re-shore'' toy manufacturing plants. Steven Mufson, The 
New Boom: Shale Gas Fueling an American Industrial Revival, Washington 
Post (Nov. 14, 2012).
Threaten Transition from Coal
    Current low natural gas prices provide an opportunity to wean the 
U.S. off of carbon-intensive coal. Inflated natural gas prices due to 
LNG exports will decrease the viability of natural gas as a bridge-fuel 
to a lower carbon future. Current low prices make natural gas-fired 
electricity generation an economically sound alternative to coal-fired 
generation. Sustained low prices may encourage this transition by 
private initiative regardless of increased environmental regulations as 
investors find natural gas competitive with coal. If exports inflate 
natural gas prices, the economics turn against cleaner burning natural 
    \35\ EIA Export Report at 17.
    In addition, as discussed above, new environmental regulations will 
soon force coal retirements. Future greenhouse gas regulation could 
cause additional retirements in the future. If natural gas prices 
remain low, the U.S. may be able to transition away from carbon 
intensive coal without causing electricity prices to increase 
significantly. If natural gas prices are high, however, electricity 
prices will spike as relatively cheap coal-fired generators are forced 
to retire for regulatory reasons. Spiking electricity rates will have 
rippling effects on the U.S. economy, especially energy intensive, 
cost-sensitive manufacturing.
Keeps the U.S. Dependent on Foreign Oil
    Currently, the U.S. imports billions of dollars worth of oil from 
around the globe, a great deal of which is used as gasoline to fuel 
vehicles. The replacement of current gasoline-powered fleets with 
natural gas vehicles would significantly reduce U.S. dependence on 
foreign oil, and thereby enhance U.S. security and strategic interests 
and reduce our trade deficit.\36\ State governments and businesses are 
expending substantial resources today to put the needed infrastructure 
in place.\37\
    \36\ Cheniere and other exporters claim that their proposed exports 
will benefit the U.S. balance of trade, but it does not consider the 
benefits to the trade balance of cutting oil imports and exporting 
value-added goods manufactured in the U.S. with affordable natural gas.
    \37\ Officials are planning a series of compressed natural gas 
(``CNG'') filling pumps at existing filling stations across the 
Pennsylvania US Route 6, stretching 400 miles from New York State near 
Milford, Pike County, Pa. in the east and through Crawford County, Pa. 
to the Ohio state line on the west, known as ``PA Route 6 CNG 
Corridor;'' at the same time, Chesapeake Energy is converting its 
vehicles in northeastern Pennsylvania to CNG and working with a local 
convenience-store chain and transit authority to foster further CNG 
integration. Eric Hrin, Pennsylvania Looks to CNG, The Daily Review 
Online (May 26, 2011) available at http://thedailyreview.com/news/
pennsylvania-looks-to-cng-1.1135267; see also, Texas S.B. 20 (On July 
15, 2011, the governor of Texas signed S.B. 20, supporting a network of 
natural gas-refueling stations along the Texas Triangle between Dallas/
Ft. Worth, San Antonio, and Houston. The new legislation will lay a 
foundation for wider-scale deployment of heavy-duty, mid- and light-
duty natural gas vehicles (``NGVs'') in the Texas market).
    Automobiles are not the only modes of transportation that 
businesses are interested in transitioning to natural gas; a company in 
Canada is investing in commercial locomotives powered by LNG and 
teaming up with Caterpillar to employ similar technology in heavy duty 
equipment that currently runs on diesel.\38\ If Congress and the DOE 
allow export applications to go through, the resulting increase in 
natural gas prices would undermine recent investments to expand natural 
gas as a transportation fuel.
    \38\ Rodney White, Firm on Track to Build LNG-Fueled Locomotive, 
Platts Gas Daily (Nov. 28, 2012).
    Policymakers should not pursue an export policy that undermines the 
efficient, domestic use of a domestic fuel stock and America's first 
and best opportunity to move toward energy independence by decreasing 
reliance on foreign oil.
U.S. and Foreign Natural Gas Prices Will Converge
    Currently, there are significant disparities between domestic 
natural gas commodity prices and prices in some nations that rely on 
LNG imports. These disparities provide would-be exporters with 
appealing arbitrage opportunities in the short-term, but they will not 
last. Gas rich shale deposits are a global phenomenon, just now 
beginning to be tapped. Also, despite relatively low domestic natural 
gas prices, certain countries, such as Qatar, can produce massive 
quantities of natural gas at even lower prices. As other nations 
develop their resources and export capacity and as U.S. natural gas 
prices increase due to export, international and domestic prices will 
converge, leaving the U.S. with higher domestic prices that thwart 
energy independence and that undermine the competitiveness of the 
manufacturing sector that relies heavily on natural gas as a process 
    The U.S. is at the forefront of technology in the development of 
shale gas reserves. A recent study by MIT concludes that the U.S. 
should export its technology and expertise.\39\ According to MIT, the 
development of international non-conventional natural gas reserves will 
create a more liquid market with less disparity between prices around 
the globe\40\
    \39\ MIT Energy Initiative, The Future of Natural Gas, at 14 
    \40\ Id.
    The U.S. should follow this strategy, instead of spending billions 
of dollars to build facilities in order to export a commodity that will 
possibly be abundant world-wide before the LNG export facilities can 
even be completed.
    The U.S. has an opportunity not even imagined two or three years 
ago to significantly expand its manufacturing sector, transition away 
from our reliance on coal-fired electricity generation (without risking 
price shocks), and finally make real progress towards energy 
independence. All of this, however, depends on relatively low and 
stable natural gas prices (which sharply contrasts with the history of 
natural gas price volatility). Congress and the DOE should not turn a 
blind eye and allow the same businesses that gambled and lost on 
projections of the need for future natural gas imports to now 
potentially squander our nation's future on what may well turn out to 
be another failed venture as natural gas production and export capacity 
develop throughout the world.
    APGA respectfully requests that the Committee hold at least one 
hearing dedicated to examining the domestic impacts of LNG export on 
consumers and businesses.
    APGA appreciates the opportunity to submit testimony to the Senate 
Committee on Energy and Natural Resources on these two critical natural 
gas issues. We stand ready to work with the Committee on these and all 
other natural gas issues.
     Statement of Fred Krupp, President, Environmental Defense Fund
    The United States is in the midst of a natural gas boom. Shale gas 
accounted for only two percent of total U.S. natural gas production in 
2001.\1\ With the development of horizontal drilling, hydraulic 
fracturing, and advanced seismography, that number has grown 
extensively to 34 percent in 2011. The U.S. Energy Information 
Administration projects shale gas will account for 50 percent of 
domestic natural gas production by 2040, spanning the nation from New 
York and Pennsylvania to Ohio, Texas, Colorado, and California.\2\
SUBCOMMITTEE 90-DAY REPORT 6 (Aug. 18, 2011), available at http://
    \2\ U.S. Energy Information Administration, Annual Energy Outlook 
Early Release 2012, http://www.eia.gov/forecasts/aeo/er/
    New supplies of domestic natural gas have caused a drop in price 
that has benefited the economy and the environment alike. Low-cost 
natural gas is one reason why proposals for new coal-fired power plants 
have been withdrawn across the country and why old, inefficient, highly 
polluting coal plants are finally retiring. Environmental Defense Fund 
recognizes the potentially important benefits this shift from coal to 
natural gas can achieve, particularly for air quality and the climate.
    However, new natural gas development presents serious risks to 
public health, the environment, and the climate. EDF believes that no 
community should be forced to sacrifice health or a quality environment 
for the sake of cheap energy production, nor should the potential 
greenhouse gas benefits of switching from coal or oil to natural gas be 
squandered through wasteful production and distribution practices. The 
opportunity for natural gas to be a net ``win'' for America depends 
upon whether we take serious steps to minimize these risks.
    Fortunately, there are steps that can be taken now to significantly 
reduce the risk to public health and the environment from 
unconventional natural gas operations and to maximize the greenhouse 
gas benefits that natural gas can provide in comparison with coal or 
oil. As the committee goes about the important work of assessing the 
future of natural gas in the United States, I respectfully urge you to 
consider the following three points.

          1. Strong regulation and enforcement is critical to safe 
        production of unconventional natural gas.--Oil and gas 
        production is governed by a web of federal, state, and local 
        regulation. The challenge is to strengthen those strands that 
        are weakest and to add new strands as necessary to ensure that 
        the web is complete. The federal government can start by 
        reviewing how oil and gas development is conducted on land that 
        it owns. The Department of Interior is currently in the process 
        of re-proposing a set of environmental standards for natural 
        gas development on public land, and it is important that these 
        rules be comprehensive and rigorous. I would also recommend 
        that the committee review how states are carrying out their 
        responsibilities and what the federal government can do to 
        support them in their necessary and important work, both 
        individually, and collectively through organizations such as 
        the Groundwater Protection Council.
          2. Measuring and reducing fugitive methane emissions is an 
        urgent task.--The primary constituent in natural gas is 
        methane--a powerful greenhouse gas many times more potent than 
        carbon dioxide itself over 20 years. Even small leaks of 
        natural gas at the wellhead or along the infrastructure used to 
        process and transport the gas to our power plants, home, and 
        businesses can work to undo much, if not all, of the greenhouse 
        gas benefits we think we are getting when we substitute natural 
        gas for coal or oil.

    A paper published in the Proceedings of the National Academy of 
Sciences (PNAS) last April concluded that for natural gas to have a net 
climate benefit, methane leakage needs to be reduced to one percent or 
less. This finding was based on the best available science, which 
indicated that natural gas offered a climate advantage, when 
substituting natural gas for other fuels used in electric generation or 
transportation. Current EPA data estimates methane leakage at 
approximately 2.5 percent, and even the American Petroleum Institute 
believes that the leakage rate is greater than 1 percent.
    Reducing methane from the oil and gas sector can achieve 
significant benefits, and while efforts are underway to replace leakage 
estimates with hard data, we know enough and have the technology to get 
started now. Enormous climate benefits could be realized if a 1 percent 
methane emissions target is achieved--comparable to the impact that 
increasing the fuel economy by about 10 miles per gallon across the 
entire U.S. light-duty vehicle fleet could yield by 2035.
    EPA's recently finalized national emissions standards for the oil 
and gas sector helped to create a strong foundation on which to build. 
Those standards, however, did not explicitly address methane, and as a 
result, left too many emissions unaddressed. Right now there are three 
steps that EPA can take to reduce methane emissions from the oil and 
gas sector:

   Include all significant methane emissions sources in the 
        national emissions standards.--The NSPS included green 
        completion requirements, but limited those requirements to gas 
        wells. Market fundamentals, however, have driven producers to 
        target oil-rich deposits that produce significant amounts of 
        gas. While the full scope of emissions from these sources is 
        not precisely known, we know they can produce a lot of 
        emissions and they're growing fast. In addition to emissions 
        resulting from oil and gas co-producing wells, other important 
        sources to address are liquids unloading activities and leaky 
        equipment at well-sites. By building out these protections, we 
        can ensure new sources are deploying state-of-the-art pollution 
        control technologies to reduce methane emissions.
   Existing sources.--New sources are only part of the problem. 
        We need rigorous protections for existing sources in the oil 
        and gas sector under the NSPS. EPA can also help to lay the 
        groundwork by encouraging states with ozone non-attainment 
        concerns to deploy oil and gas controls as cost-effective 
        solutions. EPA can do this by providing clear pollution control 
        guidelines, documenting emissions reductions states can 
        achieve, and by underscoring the obvious cost advantages of 
        emission reductions from the oil and gas sector.
          Accountability.--Finally, it is important for EPA's 
        greenhouse gas reporting program for oil and gas sources to be 
        comprehensive by expanding coverage to sources that don't 
        currently have to report (like co-producing wells and gathering 
        and boosting infrastructure). Additionally, EPA should move 
        away from emissions factors and non-standardized measurement 
        methodologies and toward reliance on direct, continuous 
        emissions measurement.

          3. Natural gas is only a piece of our energy future.--We 
        cannot allow the recent abundance and market conditions of 
        natural gas to distract us from pursuing the policies that 
        continue our nation's progress in developing the energy 
        technologies and services necessary to accelerate our 
        transition to a modern, clean, low-carbon energy economy. 
        Numerous studies demonstrate that natural gas is not a panacea. 
        Investments in energy efficiency and renewables, along with a 
        transmission and distribution grid capable of supporting them, 
        are critical to our nation's energy future. There is much that 
        the federal government can and should do to accelerate the 
        development and deployment of efficiency and renewables, and I 
        would be pleased to share these ideas with the committee at the 
        appropriate time.

    Natural gas has indeed transformed our nation's energy mix. And the 
economic and environmental benefits of natural gas are clear. But the 
jury is still out on whether gas production can and will be done safely 
and responsibly--and whether it will help or hurt our efforts to solve 
climate change. Getting strong, effective rules in place is the key. 
Irrespective of whether the U.S. becomes an LNG exporter, or whether 
the nation expands the use of natural gas vehicles, natural gas needs 
to be produced responsibly. If we fail, the positive role it can play 
in helping to accelerate our transition to a clean, low-carbon energy 
future will be lost.
 Statement of Paul Kouroupas, Vice President of Public Policy, VNG.CO, 
                             Bala Cynwd, PA
    My name is Paul Kouroupas. I am the Vice President of Public Policy 
of VNG.CO (VNG), a start-up compressed natural gas refueling 
infrastructure company based in Bala Cynwd, Pennsylvania. VNG offers a 
nationwide retail CNG fueling program to support the widespread use of 
light-duty natural gas vehicles (NGVs). VNG will install, operate and 
maintain CNG fueling equipment, co-located within existing retail 
gasoline stations. VNG will initially deploy its compressed natural gas 
pumps to support fleets with CNG fueling services in the retail market 
and ultimately expand its deployment to support the mass-market 
consumer segment.
    The purpose of the present hearing is to ``explore opportunities 
and challenges associated with America's natural gas resources.'' By 
and large, the current discussion has focused on the benefits of low-
cost natural gas for chemical and manufacturing companies, as well as 
the benefits (and potential costs) of allowing gas producers to export 
this resource overseas. While these opportunities are considerable and 
certainly merit discussion, this focus misses the greatest opportunity 
for natural gas to improve our economy, environment, and national 
security while also benefitting American consumers directly: the 
potential of natural gas to fuel light-duty vehicles on a mass-market 
basis, which could be our most potent weapon in the fight to eliminate 
U.S. dependence on foreign oil.
    On behalf of VNG, I am pleased to share with the members of the 
Committee our company's perspective on the unique benefits of using 
natural gas to fuel light-duty NGVs, as well several minor regulatory 
changes that can unleash these benefits for the American economy.

   NGVs provide direct benefits to consumers--Development of 
        the light-duty NGV market allows Americans to directly benefit 
        from the shale revolution, instead of limiting direct benefits 
        to manufacturers, trucking fleets, or exporters. With natural 
        gas priced 40% below gasoline for a gallon equivalent, the 
        average U.S. household that currently spends $3,000 per year on 
        gasoline could save $1,200 per year on fuel costs with natural 
   The greatest mass-market potential of any alternative fuel--
        With over 15 million light-duty NGVs on the road worldwide, 
        NGVs are an established technology, and the shale gas 
        revolution gives America unprecedented potential to 
        commercialize them on a mass-market basis. The National 
        Petroleum Council of the U.S. Department of Energy last year 
        released a comprehensive report analyzing alternative fuels and 
        concluded that NGVs have the potential to achieve 17% of new 
        light-duty vehicle sales by 2020--far higher than other 
        alternatives, which face significant technological obstacles 
        and higher costs.
   International clean energy technology leadership--
        Development of the domestic market for light-duty NGVs can help 
        U.S. automakers lead in the burgeoning international NGV 
        market, which is already growing rapidly in countries like 
        Germany, Italy, Brazil, and Argentina. NGVs can also serve as a 
        platform for innovation and development of renewable natural 
        gas (RNG) and hydrogen fuel cell technologies, gaseous fuels 
        which can dramatically reduce transportation GHG emissions.

    Despite this unique potential, light-duty NGVs have received 
relatively little attention from policymakers, and this technology 
still suffers from an uneven playing field compared to other 
transportation alternatives like electric vehicles (EVs) and biofuels. 
As the Committee considers the various opportunities and challenges 
associated with America's natural gas abundance, the light-duty NGV 
market ought to be included in the discussion as perhaps the greatest 
opportunity of all, and lawmakers should seek to provide NGVs with a 
level playing field compared to other alternative fuels. There is 
substantial private investment in compressed natural gas (CNG) fueling 
infrastructure and automakers are beginning to offer a growing breadth 
of vehicles that run on CNG. By leveling the playing field for NGVs, 
Congress will encourage additional private investment.
                     the light-duty ngv opportunity
    The ability of natural gas to serve as a fuel for heavy-duty fleets 
has been well known to policymakers for many years, but these vehicles 
consume just a quarter of the total on-road fuels in the U.S.\1\ Thanks 
to the vast new low-cost gas supplies unlocked by the shale drilling 
revolution, it is now possible to consider the potential to bring the 
benefits of natural gas fuel to the light-duty cars, vans, SUVs and 
pickups that are driven by U.S. business and government fleets as well 
as families that consume 75% of U.S. on-road fuels.
    \1\ Energy Information Administration. ``Annual Energy Outlook.'' 5 
Dec 2012 http://www.eia.gov/forecasts/aeo/er/index.cfm
    Despite a relative lack of policy support, U.S. automakers and 
natural gas refueling infrastructure providers like VNG have already 
recognized the enormous opportunity represented by the light-duty NGV 
market. GM and Chrysler have both introduced new bi-fueled\2\ NGV 
versions of popular pickup truck models for fleet customers, and VNG is 
working to develop the kind of retail-oriented fueling infrastructure 
for these fleets that will also seed the market for future mass-market 
consumers. Furthermore, natural gas producers like Chesapeake and 
Encana are making their own efforts to promote widespread adoption of 
natural gas in recognition of the fact that this market could be vital 
to the long-term profitability of the U.S. gas drillers.
    \2\ Bi-fuel natural gas vehicles are capable of running the same 
internal combustion engine on either gasoline or natural gas. Retaining 
a gasoline tank while the natural gas refueling infrastructure is being 
developed eliminates drivers' ``range anxiety.''
    While progress is already being made by the private sector in 
developing the light-duty NGV market, greater policymaker understanding 
of NGVs and support for a level playing field for them will help this 
market achieve its full potential sooner.
Light-Duty Vehicles Are Chief Driver of Oil Dependence
    Transportation accounts for 70% of U.S. oil consumption and 30% of 
greenhouse gas emissions, making it a critical sector to address in the 
pursuit of U.S. energy independence and climate change goals. And, 
while other sectors of the economy (including power, manufacturing, and 
home heating) have moved away from oil use over the past three decades, 
the transportation sector is still almost completely dependent on 
gasoline and diesel, leaving U.S. businesses, government, and 
households at the mercy of volatile global markets. Increasing domestic 
production of unconventional oil is a welcome development, but it does 
not affect our vulnerability to global price swings, nor is it 
sufficient to significantly reduce global prices.
    Light-duty vehicles (including cars, SUVs, vans, and pickups) are 
the main source of this dependency, accounting for 75% of on-road 
transportation fuel use in the U.S. According to new data from the EIA, 
the average American household spent nearly $3,000 on gasoline to fill 
these light-duty vehicles last year--nearly 4% of household pretax 
income, the highest level in three decades.\3\ Addressing the near-
total dependence of light-duty vehicles on oil must remain a central 
priority of U.S. energy policy, for the sake of the economy, our 
national security, and the environment.
    \3\ U.S. Energy Information Administration. ``U.S. household 
expenditures for gasoline account for nearly 4% of pretax income.'' 4 
Feb 2013. http://www.eia.gov/todayinenergy/detail.cfm?id=9831
Other Alternatives Are Falling Short of Expectations
    While policymakers have touted various preferred alternative fuel 
technologies in recent years, these technologies have failed to make an 
impact thus far and may not for the foreseeable future.

   Electric Vehicles--Sales of the Chevy Volt and Nissan Leaf 
        in 2012 were less than half of automaker projections, combining 
        for less than 35,000 sold nationwide.\4\ The Administration, a 
        staunch backer of EV technology in the 2009 stimulus bill, 
        recently acknowledged the struggles of the industry and backed 
        off its 2011 goal of having one million plug-in electric 
        vehicles on U.S. roads by 2015.\5\ In fact, some industry 
        observers believe that EVs will not be able to overcome the 
        cost and recharging issues that limit their appeal to consumers 
        until there is a new breakthrough in battery technology--which 
        could be decades away.\6\
    \4\ Eisenstein, Paul. ``Are battery-powered cars losing their 
charge?'' Autoblog. 6 Dec 2012. http://www.autoblog.com/2012/12/06/are-
    \5\ Rascoe, Ayesha and Deepa Seetharaman. ``U.S. backs off goal of 
one million electric cars by 2015.'' Reuters. 31 Jan 2013. http://
    \6\ Borenstein, Seth. ``What holds energy tech back? The infernal 
battery.'' Associated Press. 22
   Cellulosic Biofuels--Both the current and previous 
        Administrations have hailed the potential of cellulosic 
        biofuels made from non-food feedstocks to provide a sustainable 
        source of renewable transportation fuel. However, this 
        technology faces fundamental challenges in cellulosic feedstock 
        production and distribution as well as the high cost of 
        processing these feedstocks into fuels, which have prevented 
        any significant commercial volume of these fuels from being 
        produced despite government mandates for millions of gallons 
        per year under the Renewable Fuels Standard.\7\ Indeed, a 
        district court recently vacated EPA's 2012 requirement for 
        cellulosic biofuels due to a lack of availability.\8\

    \7\ Congressional Research Service. ``Renewable Fuel Standard 
(RFS): Overview and Issues.'' 23 Jan 2012. http://www.fas.org/sgp/crs/
    \8\ Green Car Congress. ``DC Circuit court vacates 2012 cellulosic 
RFS standard, affirms 2012 advanced biofuel standard.'' 27 Jan 2013. 
    While both EV and advanced biofuels technologies may hold merit in 
the long term, the fact is that both face substantial near-term 
technological barriers to their success. The seriousness and urgency of 
our near-total transportation dependence on oil requires a focus on 
solutions that are ready to make a difference today--not technology 
gambles that may or may not become a viable solution five or ten years 
down the road.
``Larger, Faster, Earlier'' Impacts for Light-Duty NGVs
    In contrast to EVs and biofuels, NGVs are the only alternative fuel 
solution to offer a ready technology at an affordable price--today. 
Natural gas can save drivers up to 40% on fuel costs (or $1,200 per 
year based on average household gasoline expenses of $3,000), and our 
vast shale reserves guarantee stable, low-cost domestic supplies for 
decades. Light-duty NGVs are also a proven technology with no `learning 
curve' similar to electric vehicles (EVs)--indeed, there are over 15 
million light-duty NGVs on the road worldwide in countries in Europe, 
Asia, and South America.\9\ Since the engine and performance is the 
same, natural gas can power any sort of vehicle that currently uses 
gasoline, and fleets and consumers can continue to buy the vehicles 
they like and need.
    \9\ Gas Vehicles Report. http://www.ngvjournal.com/en/magazines/
    These advantages were recognized in a landmark new comprehensive 
study of alternative fuel technologies by the National Petroleum 
Council of the U.S. Department of Energy. According to this ``Future 
Transportation Fuels'' report*, NGVs have potential for ``larger, 
earlier, and faster'' impacts on U.S. oil dependence compared to other 
alternatives due to a lack of technological barriers combined with the 
economic rationale presented by fuel savings. In the composite ``best 
case'' scenario developed by the NPC, light-duty NGVs were able to 
achieve a 17% share of new light-duty vehicle sales by 2020--double the 
share of plug-in hybrid electrics (PHEVs) and pure EVs combined.\10\
    * All reports have been retained in committee files.
    \10\ National Petroleum Council. ``Future Transportation Fuels 
Study.'' Aug 2012. http://www.npc.org/FTF-80112.html
    A key finding of the NPC report* is the potential for rapid cost 
reductions in the incremental costs of NGVs compared to gasoline 
vehicles through simple manufacturing economies of scale. While today's 
NGV incremental costs in the U.S. may be $10,000 or more, this is due 
to the inefficiencies of low-volume conversions, and not due to the use 
of expensive components (as is the case with EVs, whose even greater 
incremental costs are due to costs of lithium-ion batteries, which are 
already mass produced). The NPC projects that incremental costs could 
be reduced by 2/3rds in the near term with a move to high-volume, 
assembly-line production of 100,000 vehicles/year.
    The European experience clearly shows that rapid cost reductions of 
this magnitude are possible. Indeed, in Italy, Fiat already sells some 
bi-fuel models at an incremental cost of less than $3,000, and Opel 
(the European arm of GM) is offering rebates that can completely 
eliminate incremental costs.\11\ This ability to achieve incremental 
cost reductions in the near term without need for any technological 
advances is key to understanding the vastly greater potential of NGVs 
compared to other alternatives, as it gives NGVs a realistic path 
towards mass-market viability--without the need for long-term 
subsidies. EVs and advanced biofuels simply cannot claim a similar 
path, as both depend on subsidies and technological breakthroughs which 
may or may not materialize even in the long term.
    \11\ Ebhardt, Tommaso and Craig Trudell. ``Gasoline Sticker Shock 
Fuels Fiat Natural Gas Auto Sales.'' Bloomberg. 17 Sept 2012. http://
An Opportunity for U.S. Companies to Lead in Key Clean Energy 
    NGVs may be an established technology compared to EVs and biofuels, 
but the global market for these vehicles is just beginning to realize 
its potential. U.S.-developed shale gas drilling technology is being 
exported to countries all over the world, helping to usher in what the 
International Energy Agency has called a ``Golden Age of Gas.''\12\ By 
establishing America as the center of development for NGVs in the years 
ahead, U.S. automakers will be positioned to take advantage of new 
opportunities in overseas markets in Asia, Europe, and South America 
that are just beginning to develop their shale gas resources.
    \12\ International Energy Agency. ``Are we entering a golden age of 
gas?'' World Energy Outlook 2011. http://www.worldenergyoutlook.org/
    NGVs are also a platform for the development of even cleaner, 
ultra-low-carbon transportation fuels and technologies that will be 
needed to combat climate change. NGVs can fuel on biogas (or renewable 
natural gas, or ``RNG'') captured from landfills, wastewater plants, 
and other sources, resulting in ultra-low lifecycle GHGs of 90% below 
gasoline or less.\13\ Moreover, unlike cellulosic biofuels mandated in 
the RFS, biogas is a renewable fuel derived from non-food feedstocks 
that is being produced and used in commercial applications today.\14\
    \13\ National Petroleum Council. ``Renewable Natural Gas for 
Transportation.'' 1 Aug 2012. http://www.npc.org/FTF_Topic_papers/22-
    \14\ Energy Vision. ``Renewable Natural Gas: The Solution to a 
Major Transportation Challenge.'' 2012. http://energy-vision.org/
    In the longer term, natural gas will also facilitate the 
development of hydrogen fuel cell vehicles (FCVs) due to numerous fuel 
storage and refueling infrastructure synergies between these gaseous 
fuels.\15\ FCVs are a crucial technology for meeting long-term climate 
change goals, combining the zero-emission performance of EVs with the 
gasoline-like range and refueling characteristics of NGVs.
    \15\ Cannon, James S. ``Natural Gas: An Essential Bridge to 
Hydrogen Fuel Cell Vehicles.'' January 2012. http://vng.co/wp-content/
    In comments on the 2017-2025 light-duty vehicle regulations,\16\ 
VNG argued that the development of the light-duty NGV market would 
reduce several specific ``near-term market barriers to FCV adoption'' 
identified by EPA and NHTSA, including:
    \16\ VNG.CO. ``Comments of VNG.CO.'' 6 Feb 2012. http://vng.co/wp-

   Refueling Infrastructure--NGV refueling stations use most of 
        the same hardware used to dispense hydrogen fuel, enabling them 
        to be adapted to supply hydrogen or even hydrogen-natural gas 
        blends in the future;
   Fuel Cost--Hydrogen produced through the steam reforming of 
        natural gas is the lowest-cost method of distributed hydrogen 
        production available today;
   Vehicle Cost--Natural gas and hydrogen also share gaseous 
        storage technologies, and innovations and cost improvements for 
        advanced on-board storage and fuel management technologies for 
        NGVs will benefit FCVs as well.

    The EPA acknowledged these linkages in its rationale for giving 
NGVs additional ``advanced technology'' multiplier incentives in the 
new 2017-2025 light-duty vehicle regulations, and cited VNG's comments 
as well as those of Natural Gas Vehicles for America in support of this 
    \17\ Federal Register. ``2017 and Later Model Year Light-Duty 
Vehicle Greenhouse Gas and Corporate Average Fuel Economy Standards; 
Final Rule.'' 15 Oct 2012. P. 62814. http://www.gpo.gov/fdsys/pkg/FR-
           maximizing domestic benefits of the u.s. gas boom
    Despite concerns expressed by some parties over potential increases 
in natural gas demand from NGVs or LNG exports, the reality is that the 
shale gas revolution has unlocked an enormous amount of natural gas 
supply capacity that can be tapped at relatively low costs.

   A recent study by (hearing witness) Dr. Kenneth Medlock III 
        of the James Baker III Institute for Public Policy\18\ finds 
        that shale gas supplies have effectively increased the 
        elasticity of domestic gas supplies fivefold. Thus, the long 
        term price of gas will remain between $4-$6 per MMCF for 
        ``decades'' even with substantial increases in demand.
    \18\ Medlock, Dr. Kenneth. ``U.S. LNG Exports: Truth and 
Consequences.'' August 2012. http://bakerinstitute.org/publications/
   Chesapeake Energy has similarly noted that, based on the 
        production economics of current domestic gas plays, the U.S. 
        could add gas production sufficient to meet the fuel needs of 
        2/3rds of the entire domestic light-and heavy-duty 
        transportation fleet while maintaining long-term natural gas 
        prices of less than $7 per MMCF--still low by historic 

    When considering the ``opportunities and challenges'' for natural 
gas, light duty NGVs offer the opportunity to save consumers an average 
of $1,200 per year on their fuel costs, reduce greenhouse gas emissions 
by 24% (and up to 90% with renewable natural gas), and achieve energy 
independence by replacing oil use in the vehicles consuming 75% of on-
road transportation fuels. And if the domestic NGV market develops 
robustly, natural gas producers will have strong domestic demand for 
their product, reducing the incentive to export natural gas--and its 
economic, environmental, and energy security benefits--overseas.
           policy changes to level the playing field for ngvs
    Policymakers can realize this vision for light-duty NGVs simply by 
providing them with a level playing field to compete with other 
alternative fuel technologies, potentially including the following 

   Remove Regulatory Barriers--While the new 2017-2025 light-
        duty vehicle regulations promulgated by EPA and NHTSA take 
        important steps towards creating a level playing field for 
        NGVs, they still face arbitrary and unfair obstacles under the 
        CAFE program due to outdated legislative restrictions intended 
        to limit credits for E85 flex-fuel vehicles. Legislation is 
        necessary to harmonize treatment for NGVs, granting them the 
        fair, no-cost regulatory incentives that EPA and NHTSA have 
        already said they deserve.
   Tax Credit Parity for NGVs--EVs currently benefit from tax 
        credits of up to $7,500 per vehicle included in the 2009 
        stimulus bill, while light-duty NGVs receive no tax credits. As 
        detailed in the NPC report, although NGVs do not face the same 
        long-term cost obstacles as EVs (which are unique to EV 
        dependence on expensive lithium-ion battery packs), incremental 
        NGV costs are high today simply due to low production volumes. 
        The current Administration has previously advocated for 
        identical tax credits for both EVs and NGVs,\19\ and such a 
        level playing field would help increase NGV demand and bring 
        down prices in the near term.
    \19\ The White House. ``Fact Sheet: All-of-the-Above Approach to 
American Energy.'' 7 March 2012. http://www.whitehouse.gov/the-press-
   Federal Vehicle Fleets--Federal vehicle fleets should be 
        leaders in adopting light-duty NGVs, which would save taxpayer 
        money through lower fuel costs, help reduce vehicle costs for 
        consumers and businesses through increasing production 
        economies of scale, and support the private sector development 
        of retail-oriented CNG refueling networks for public use. 
        However, current federal fleet procurement of alternative fuel 
        vehicles is focused almost entirely on flex-fuel E85 vehicles 
        due to their low incremental costs--despite the fact that these 
        vehicles may end up costing more over their lifetime due to E85 
        costs that are higher than gasoline on a per-BTU basis. E85 
        also yields fewer environmental and energy security benefits 
        than natural gas. Federal fleets should be required to evaluate 
        the lifecycle costs and benefits of all fleet purchases, which 
        would reward the superior cost savings and environmental 
        performance of NGVs.
   Alternative Fuel Standard--The current RFS, which as noted 
        calls for unattainable volumes of cellulosic biofuels that do 
        not yet exist, is broken and unfairly focuses only on biofuels. 
        Expanding this program to an ``Alternative Fuel Standard'' 
        would allow refiners to meet requirements with credits 
        generated by any alternative fuel that reduces GHG emissions by 
        20% or more--including CNG and electricity as well as biofuels. 
        This type of ``fuel neutral'' policy would encourage much more 
        rapid progress towards energy independence goals than the 
        current biofuel-only RFS.

    VNG played an active role in facilitating recent progress on the 
regulatory treatment of NGVs by EPA, and is recommending Congress take 
additional action to address these issues that cannot be addressed 
simply through administrative action.
    VNG appreciates the opportunity to submit this testimony and looks 
forward to working with the Committee and other policymakers to support 
the light-duty NGV market, which will reduce the cost of driving for 
American households and businesses, reduce climate change impacts for 
transportation, and help this country achieve energy independence. If 
you have any questions or would like additional information, please 
contact me at [email protected] (973-886-7675).
                Statement of American Chemistry Council
    February 12, 2013 The American Chemistry Council* is pleased to 
submit for the hearing record our Executive Committee's unanimously 
approved position related to energy and competitiveness (see attached). 
The policy re-emphasizes our strong support for a comprehensive ``all 
of the above'' energy strategy to support U.S. economic growth and the 
growth of the chemical industry.
    The policy also restates ACC's support for free market policies 
that promote the export of American-made goods, including liquefied 
natural gas. The Executive Committee unanimously expressed its 
opposition to any new export bans or restrictions on liquefied natural 
gas, such as a moratorium on export terminals or the prohibition on the 
export of natural gas produced on public lands.
    While there is broad agreement among ACC members on these key 
principles, there is not a clear consensus on the issue of whether the 
Natural Gas Act's public interest requirement should be further defined 
in export permitting to non-FTA countries.
    ACC will continue to discuss this issue. ACC members will also 
continue to work together to vigorously advocate for sound energy and 
related regulatory policies that will ensure the availability of 
abundant, diverse energy supplies and stable reliable energy markets.
    *The American Chemistry Council (ACC) represents the leading 
companies engaged in the business of chemistry. ACC members apply the 
science of chemistry to make innovative products and services that make 
people's lives better, healthier and safer. ACC is committed to 
improved environmental, health and safety performance through 
Responsible Care, common sense advocacy designed to address major 
public policy issues, and health and environmental research and product 
testing. The business of chemistry is a $760 billion enterprise and a 
key element of the nation's economy. It is one of the nation's largest 
exporters, accounting for ten cents out of every dollar in U.S. 
exports. Chemistry companies are among the largest investors in 
research and development. Safety and security have always been primary 
concerns of ACC members, and they have intensified their efforts, 
working closely with government agencies to improve security and to 
defend against any threat to the nation's critical infrastructure.
                acc policy on energy and competitiveness
    ACC supports public policies that promote the availability of 
competitively priced natural gas and feedstock to support the continued 
growth of the chemical industry in the United States. To that end, ACC 
supports free trade principles in the context of U.S. energy policy. 
Natural gas has enormous potential to renew and grow the American 
chemistry industry, the entire domestic manufacturing sector, and the 
U.S. economy at large, creating jobs and more exports of manufactured 
goods. America needs to couple rules-based free trade principles with 
an ``all of the above'' energy strategy to ensure we are fully 
developing our domestic energy resources, including natural gas, and 
taking full advantage of each energy source to promote sustained 
economic growth.
          elements of acc policy on energy and competitiveness
   ACC supports a market-based ``all of the above'' national 
        energy policy anchored in maximizing access to competitively 
        priced domestic energy supplies, using energy efficiently and 
        developing a diverse set of energy sources.
   An abundant, competitively priced and reliable supply of 
        natural gas and natural gas liquids (NGLs) has created a 
        manufacturing renaissance in the United States. ACC supports 
        policies that promote our industry's competitive advantage, 
        such as public policies and positions that encourage the 
        responsible production of natural gas and NGLs.
   As America's largest export industry, we support exports of 
        American-made products, including liquefied natural gas (LNG).
   ACC supports the application of existing trade rules 
        (including WTO commitments and bilateral Free Trade Agreements) 
        to all exports, including LNG.
   Consistent with U.S. trade laws, we oppose imposition of any 
        new LNG export bans or restrictions, such as those that would 
        impose a moratorium on export terminals or prohibit exports of 
        gas produced on public land. We support full compliance with 
        the Natural Gas Act in the issuance of LNG export permits, 
        including the presumption that exports to Free Trade Agreement 
        countries are in the public interest.
   There is a lack of clear consensus among our members 
        concerning whether the Natural Gas Act's ``public interest'' 
        requirement should be further defined in export permitting for 
        non-FTA countries. ACC therefore will further study this issue 
        and ways to achieve consensus.
   ACC will also continue to monitor the U.S. energy situation, 
        including natural gas supply/demand scenarios, and their 
        implications for global competitiveness of the industry.
 Statement of Bill Cooper, President, Center for Liquefied Natural Gas
    As President of the Center for Liquefied Natural Gas, I would like 
to thank Chairman Ron Wyden and Ranking Member Lisa Murkowski of the 
Senate Energy and Natural Resources Committee for accepting the 
following testimony, to be entered into the public record.
    I will be focusing on the topic of liquefied natural gas (LNG) 
exports, specifically by identifying common myths and then providing a 
summary of the facts. As you will see from this testimony, the United 
States has abundant supplies of natural gas, more than enough to allow 
for exports while also meeting growing domestic demand.
    The ability to export LNG represents a window of opportunity to 
create more jobs, generate more public revenues and reduce our trade 
deficit. A multitude of industries and communities will benefit from 
this opportunity to export some of America's abundant natural gas 
resources in global markets.
    By resuming its approval process for LNG export applications, the 
U.S. Department of Energy can allow the United States to begin reaping 
those benefits, without hurting U.S. consumers.
    MYTH 1--We should use natural gas here in the United States instead 
of exporting it.
    Data compiled by the U.S. government and independent experts show 
clearly that the United States has an abundant supply of natural gas, 
more than enough to meet growing domestic demand and allow for exports.
    For example, the U.S. Energy Information Administration's 2013 
Annual Energy Outlook shows that U.S. natural gas production is 
projected to grow by roughly 40 percent from 2012 to 2040. Over the 
same period, U.S. consumption of natural gas is expected to grow by 
less than 20 percent. Because production of U.S. natural gas is 
projected to rise faster than consumption by 2040, the U.S. has a 
natural gas surplus available for export.
    Meanwhile, a recent report from Deloitte observed the following:

          Producers can develop more reserves in anticipation of demand 
        growth, such as LNG exports. Indeed, LNG export projects will 
        likely be backed by long-term supply contracts, as well as 
        long-term contracts with buyers. There will be ample notice and 
        time in advance of the exports to make supplies available.

    Furthermore, reports from the Brookings Institution, the 
Congressional Research Service and the Baker Institute at Rice 
University--among many others--have stressed the enormous size of 
America's natural gas resource base, which in turn underscores the 
large surplus, a portion of which the United States can leverage for 
exports to create additional jobs, new tax revenues and a reduction in 
our trade deficit.
    In addition to fundamental economic realities about the benefits of 
free trade, this large natural gas surplus is a key reason why a recent 
macroeconomic report from the U.S. Department of Energy concluded that 
``LNG export has net benefits to the U.S. economy.'' The DOE report 
also observed that exports would specifically benefit consumers by 
stating that the net result of allowing LNG exports ``is an increase in 
U.S. households' real income and welfare.'' The report added that 
``consumers, in aggregate, are better off as a result of opening up LNG 
    MYTH 2--Natural gas exports would harm U.S. manufacturing.
    Many of the largest U.S. manufacturers have voiced support for LNG 
exports. Companies like General Electric and Caterpillar, for example, 
have both written to the U.S. Department of Energy urging approval for 
LNG export applications, stressing the economic benefits that exports 
would yield, as well as the potential economic harm from retaliatory 
trade restrictions that other countries could impose upon the United 
    In a blog post entitled ``Banning LNG Exports Will Hurt Jobs and 
Economy,'' the National Association of Manufacturers observed the 

          Proposals that seek to limit LNG or coal or any other product 
        would have far-reaching negative effects on the United States 
        and should be rejected. Such restrictions limit economic 
        opportunities and stifle job growth rather than provide a 
        source of increased economic growth.

          Export growth has created and saved manufacturing jobs over 
        the past few years, which were tough economically for the 
        United States. Export growth is vital not just for businesses 
        across-the-board that directly export, but also for the many 
        manufacturers in the supply chain.

    In its Initial Comments to DOE on the NERA LNG Export Study, the 
National Association of Manufacturers also noted:

          With 95 percent of the world's consumers outside the United 
        States, export bans on any product, including LNG, can be 
        expected to have far-reaching negative effects, including on 
        domestic economic opportunities, employment and ultimately 
        economic growth.

          The United States' ability to challenge other countries' 
        existing exports restraints on agricultural, forestry, mineral 
        and ferrous scrap products--just to name a few--will be 
        virtually non-existent if the United States itself begins 
        imposing its own export restrictions. Even worse, as the 
        world's largest economy and largest trading country, U.S. 
        actions are often replicated by our trading partners to our own 
        dismay. If the U.S. were to go down the path of export 
        restrictions, even more countries would quickly follow suit and 
        could easily limit U.S. access to other key natural resources 
        or inputs that are not readily available in the United States.

    As added proof, major chemical manufacturers that also support LNG 
exports are moving forward with plans to invest billions of dollars to 
expand their existing petrochemical operations. Put simply, companies 
would not be investing heavily in operations that rely on affordable 
and abundant supplies of natural gas and natural gas liquids (NGLs) if 
LNG exports truly posed a credible threat to that business.
    MYTH 3--Unfettered exports could undermine our economic 
    In addition to the points outlined above, which detail how LNG 
exports would actually grow the U.S. economy, it's important to note 
that arguing against ``unfettered'' or ``uncontrolled'' exports is a 
straw man. There is no such thing as unfettered or uncontrolled LNG 
    The U.S. government--through the Department of Energy (DOE) and the 
Federal Energy Regulatory Commission (FERC)--has a robust regulatory 
review process in place for LNG exports. Absent affirmative evidence 
from opponents that the proposed project is not in the ``public 
interest,'' DOE is required to approve the applications, thereby 
assuring a level playing field for all participants. Further studies 
are not warranted; the NERA study was robust with 63 scenarios 
including high and low side supply/demand cases. Every export scenario 
yielded positive net benefits for the U.S. economy. The DOE has also 
been studying LNG exports for more than one year already. DOE needs to 
actively resume the review process for all projects in the permitting 
queue and it needs to move expeditiously on those applications.
    The opportunity to export liquefied natural gas (LNG) will not 
remain on the table on the same scale, with the same benefits, 
indefinitely. The U.S. is not the only nation with abundant shale gas 
reserves. And while some debate the value of free trade in a global 
economy, other nations are trying to duplicate the success of America's 
shale industry.
    Worldwide demand for LNG between 2020 and 2025 is projected to be 
around 60 billion cubic feet per day (bcf/d), up from approximately 37 
bcf/d today. The sizeable gap between future demand and current 
capacity, 23 bcf/d, makes the global LNG market an attractive 
opportunity. However, the United States is not the only nation capable 
of seizing this opportunity.
    The capacity of non-U.S. projects that are either planned, proposed 
or under construction is approximately 50 bcf/d. In fact, proposed 
foreign LNG capacity is more than double the expected global market 
opportunity in 2025. If you add on proposed U.S. LNG capacity, the 
global marketplace has a proposed supply of 80 bcf/d competing to fill 
only 23 bcf/d of demand. The longer the U.S. delays, the more likely 
other nations will satisfy that demand.
    MYTH 4--Exports will lead to significant price increases for 
natural gas in the United States.
    Numerous assessments of potential LNG exports have found that any 
impact on domestic prices would be minimal.
    For example, the Brookings Institution observed that producers of 
natural gas ``will likely anticipate future demand from LNG exports and 
will increase production accordingly, limiting price spikes.'' 
Brookings also noted that any price impact would be ``modest.'' Kenneth 
Medlock with the Baker Institute has said: ``The impact on U.S. 
domestic prices will not be large if [LNG] exports are allowed.''
    In a report commissioned for the U.S. Department of Energy, NERA 
Economic Consulting found that ``price changes attributable to LNG 
exports remain in a relatively narrow range across the entire range of 
scenarios,'' adding that any such price changes ``do not offset the 
positive impacts'' from exports.
    What many opponents of exports cite in reference to prices is the 
EIA's price impact study from 2012, which analyzed four different 
export scenarios. In the most dramatic (and most unlikely) scenario, 
the model suggested an extreme upper limit price impact of 54 percent. 
But the scenario that many experts agree is the most likely is that 
natural gas price impacts would peak at less than 10 percent. At least 
one analysis, from Deloitte, pegged the price impact at only two 
    To provide a real-world example of how the price issue differs in 
rhetoric from reality, Methanex is relocating one of its methanol 
plants from Chile to Louisiana to take advantage of abundant and low-
cost natural gas supplies. Addressing the export concern head on, 
Methanex CEO John Floren said it signed long-term supply contracts to 
hedge against any potential price impacts, reflecting a fundamental 
market reality of chemical manufacturing in the United States that 
undermines the suggestion that future price volatility would prevent 
the future growth of this industry.
    Interestingly, at least one of the chemical companies that has 
voiced opposition to LNG exports on the basis of price impacts has 
stated that if ``natural gas were available at a consistent $6-$8 
dollar per MMBtu range, U.S. petrochemical facilities could be globally 
competitive.'' Current Henry Hub natural gas prices are less than $3.50 
per MMBtu, meaning even in the worst-case and most unrealistic scenario 
modeled by EIA (where LNG exports increase domestic prices by 54 
percent), the cost of natural gas would be $5.39 per MMBtu--below the 
price range that at least one major chemical manufacturer has said 
publicly would keep the industry competitive.
    A common criticism by opponents of LNG exports is that natural gas 
production will lag demand, causing price spikes if there are LNG 
exports. Since 2008, we've seen production increase by 10 bcf/d and 
natural gas prices fall by more than $8 per thousand cubic feet (mcf). 
Clearly, natural gas production was running faster than demand or there 
wouldn't have been such a dramatic decline in natural gas prices. Given 
the new shale gas realities, producers should be able to ramp up 
production in anticipation of demand growth.
    MYTH 5--The ``value-add'' for exports is low.
    According to the U.S. International Trade Administration (ITA), 
each $1 billion of exports could result in more than 5,000 new jobs, 
many of which would be permanent manufacturing jobs. Thus, $13 billion 
to $25 billion worth of LNG exports--the current range of investment 
possibilities--could mean the creation of between 70,000 and 140,000 
new American jobs. ITA has also observed that the value per export-
supported job is almost $165,000.
    Construction and operation of new LNG projects will create as many 
as 50,000 new jobs in design, engineering and construction, which 
translate into hundreds of millions of dollars in new wages for U.S. 
workers during the construction of the facility.
    LNG exports will also lead to additional domestic natural gas 
production, which will in turn create hundreds of thousands of new jobs 
in the United States.
    The enormous potential for new jobs is a major reason why labor 
unions have also voiced support for LNG exports. Brad Karbowsky with 
the United Association of Plumbers, Fitters and HVAC Techs said the 
following about potential jobs created as a result of LNG exports:

          The billions of dollars in wages generated by these well-
        paying jobs will be multiplied throughout communities across 
        the country in the form of investment and taxes, which will in 
        turn be used to support schools, fire stations and other 
        essential public services. This new source of shared prosperity 
        will provide a foundation for future growth.

    Harry Melander, President of the Minnesota State Building and 
Construction Trade Council, has also observed:

          Exporting America's abundant natural gas to global markets is 
        yet another excellent opportunity to increase job production 
        and investment as a result of the burgeoning U.S. domestic 
        energy production.

    Nor are the benefits all directly related to the LNG industry. As 
natural gas production has expanded in recent years due to the 
responsible development of shale, local businesses like hotels and 
restaurants in production areas have benefitted from a growth in demand 
for their products and services. Adam Diaz, a small business owner in 
Susquehanna County, Pa., recently observed:

          In the last three years since the natural gas industry came 
        to Susquehanna County, Pennsylvania, my company has been able 
        to grow from 30 employees to 250, while our revenue has 
        increased from less than $2 million annually to almost $50 
        million today. This growth has led to an increased tax 
        contribution of almost $3.5 million in federal, state and local 
        taxes. Recently though, drilling rig counts have been falling 
        in my area. LNG exports will increase demand, bring back the 
        rigs and allow businesses like mine to grow and add much needed 
        jobs to local economies to keep them strong.

    With LNG exports, U.S. natural gas production will grow even more. 
That production will create U.S. jobs in support sectors that 
manufacture steel pipe, equipment, control panels, heavy duty trucks, 
and cement, in addition to well-paying jobs for welders, pipefitters, 
cement masons, plumbers, machinery mechanics, pump operators and 
    MYTH 6--Exports could lead to competitive disadvantages of U.S. 
manufacturers in global trade
    The price of natural gas in the U.S. will be priced below what 
competitors will face in Asia, for example, even with U.S. exports. 
There is a substantial cost to liquefying natural gas and transporting 
it specialized tankers to distant markets (ranges from $8 billion to 
$20 billion per project of 2 bcf/d), and that fact means the U.S. 
domestic price for natural gas will be several dollars per thousand 
cubic feet lower than the price of natural gas in countries which 
import our LNG.
    Rice University professor Ken Medlock notes in his 2012 LNG Export 
study that these costs will average $2.92/mcf for liquefaction and 
$2.15/mcf for transportation to Asia ($5.07/mcf total). Other studies 
show the cost range to be higher, including the NERA study that has a 
cost range between $6.30/mcf to $8.39/mcf.
    Therefore, according to these studies, U.S. manufacturers would 
still enjoy a $5/mcf to $8/mcf cost advantage over Asian competitors, 
even if Asian prices and U.S. LNG delivered prices in Japan equalize. 
That provides a huge competitive advantage to U.S. manufacturers even 
with LNG exports from the United States.
    MYTH 7--LNG exports will back out the same amount of gas used by 
    Critics assume a zero-sum game in natural gas markets, where 1 bcf 
of LNG exports takes exactly 1 bcf in supply away from the 
manufacturing sector. Those critics assert that supply doesn't 
increase; there is merely a reallocation of given volume of U.S. gas 
production. History shows that markets don't work that way. They adjust 
to increasing demands and gas supply can be expected to increase in 
response to any increase in demand. Of course, producers will respond 
to demand growth and changes in gas prices; they will develop more 
projects and produce more gas.
    Critics never mention that there will be more gas production to 
feed LNG exports and to feed increased gas use by manufacturing. A more 
realistic view of the world actually takes into account that producers 
will respond to demand changes--i.e., that the supply curve is very 
elastic and not completely inelastic as in the zero sum 
mischaracterization of the critics. As producers increase gas 
production in response to growing demand, manufacturing use of gas can 
still increase.
    An economically realistic depiction of what the shale gas 
revolution is all about would yield benefits of exports plus the value 
of the additional U.S. gas production and growth in manufacturing use. 
In fact, the discussions about the benefits of manufacturing asserted 
by critics are misleading because they try to make it appear that the 
choice is stark between either manufacturing or exports, when the real 
choice involves whether the U.S. wants to reap the benefits from 
exports plus more natural gas production plus more manufacturing use of 
    This is not a zero sum game. The shale gas revolution requires a 
change in this zero-sum mind-set in which natural gas supplies are 
fixed or diminishing over time, and in which the policy issue is one of 
deciding which sector gets what share of an ever-diminishing natural 
gas resource. As Dr. Daniel Yergin, Vice Chairman of IHS and founder of 
IHS CERA, explained in his testimony before the House Energy and 
Commerce Committee's Subcommittee on Energy and Power on February 5, 

          [O]wing to the very large resource base, the market in the 
        U.S. is demand-constrained, rather than supply-constrained. 
        Larger markets--whether they be in electric power, industrial 
        consumption, transportation, or exports--are required to 
        maintain the investment flow into the development of the 

    It is worth repeating: the natural gas market is not supply 
constrained as the zero sum mind set argues; it is demand constrained. 
If additional demand comes, additional natural gas supply will come 
along as well. The new shale gas reality is that there is an increasing 
gas supply available for LNG exports in addition to increasing domestic 
demand, including power generation, manufacturing and other gas 
    MYTH 8--Natural gas deserves special restraints that apply to no 
other product.
    Critics argue that it is better for the economy to export finished 
products made using natural gas rather than exporting natural gas. 
Taken to its logical conclusion, that prescription would mean that it 
is not beneficial to export chemicals or aluminum or any intermediate 
product that is used by another manufacturer. American automobile 
makers use considerable materials made from chemicals, plastics and 
aluminum, so according to the critics' logic, exports of chemicals, 
plastics and aluminum should be restricted to ensure low U.S. prices of 
these products for the benefit of automakers or other consumers. The 
long history of support for free trade by Democrat and Republican 
administrations would be thrown out with this logic. There is no sound 
economic rationale for claiming natural gas is a special case requiring 
laborious study before exports are allowed; nor are chemicals, 
plastics, lumber, wheat, aluminum, and countless other manufacturing 
and agricultural products special cases calling out for extensive 
review and study before their exports are allowed. The U.S. economy 
would be a net beneficiary from unrestricted LNG exports, just as the 
U.S. is a net beneficiary of unrestricted exports of chemicals, 
plastics, and aluminum and countless other products.
    Additionally, restraints on LNG exports run afoul of the United 
States' obligations under WTO and GATT, as well as the long-standing 
policy of the United States to support exports. As stated in the 
comments filed with DOE by the Peterson Institute for International 

          If the United States nevertheless does impose restraints [on 
        LNG exports], U.S. actions will certainly be cited in the 
        future by other countries that decide to flout international 
        trade rules and restrict their own exports of natural resources 
        as a means of subsidizing downstream industrial users. What's 
        more, it is likely that countries that are not FTA partners 
        will either retaliate with their own natural resource 
        restrictions or challenge U.S. policies at the WTO.

    As General Electric stated in its comments filed with the DOE:

          [D]eclining to approve exports of natural gas would be 
        squarely at odds with the United States' longstanding policy 
        and international trade norms disfavoring export restraints 
        (see GATT Article XI). Indeed the United States has been the 
        vanguard of those challenging such restraints globally. (See 
        US/EU/Mexico Challenge to China's Export Restraints on Raw 
        Materials--WTO DS 394, 395, 398, successfully challenging 
        China's export restraints on certain raw materials).For the 
        United States to now adopt such restrictions itself would 
        fundamentally undermine its own international trade policy, 
        which has served to preserve critical access to raw materials 

    MYTH 9--No clearly established criteria exist for DOE to apply the 
public interest standard in permitting applications for LNG exports.
    The DOE has provided regulatory clarity as to what constitutes the 
public interest, establishing a clear standard for future decisions.
    For example, in the Kenai LNG case, the DOE concluded: ``DOE 
considers domestic need for the gas and any other issue determined to 
be appropriate, including whether the arrangement is consistent with 
DOE's policy of promoting competition in the marketplace . . . '' Since 
then, DOE has added several considerations to the ``domestic need,'' 
but most appear to flow from the concept that the primary concern is to 
have enough natural gas to meet the domestic needs of U.S. consumers.
    For instance, DOE has added the following considerations, quoting 
from the Federal Register notice in the Golden Pass Products LLC 

          To the extent determined to be relevant or appropriate, these 
        issues [considerations] will include the impact of LNG exports 
        associated with this Application, and the cumulative impact of 
        any other application(s) previously approved, on domestic need 
        for the gas proposed for export, adequacy of domestic natural 
        gas supply, U.S. energy security, and any other issues, 
        including the impact on the U.S. economy (GDP), consumers, and 
        industry, job creation, U.S. balance of trade, international 
        considerations, and whether the arrangement is consistent with 
        DOE's policy of promoting competition in the marketplace by 
        allowing commercial parties to freely negotiate their own trade 

    The record for the various proceedings at DOE overwhelmingly 
contains evidence that the U.S. has an abundance of natural gas, more 
than enough to meet growing domestic needs for years to come and allow 
LNG exports. That evidence is in the form of the factual studies filed 
in support of the various applications now pending before the DOE.
    For further clarification, DOE issued its 1984 Policy Guidelines, 
which were later amended to include exports, stating:

          [t]he market, not government, should determine the price and 
        other contract terms of imported [or exported] natural gas. The 
        federal government's primary responsibility in authorizing 
        imports [or exports] will be to evaluate the need for the gas 
        and whether the import [or export] arrangement will provide the 
        gas on a competitively priced basis for the duration of the 
        contract while minimizing regulatory impediments to a freely 
        operating market.'' DOE's three stated responsibilities are: 
        One, ``to evaluate the need for the gas"; two, assure that the 
        ``arrangement will provide the gas on a competitively priced 
        basis for the duration of the contract"; and three, to 
        ``minimiz[e] regulatory impediments to a freely operating 

    As to the need for the gas, borrowing from the Sabine Pass order, 
there has been ``substantial evidence showing an existing and a 
projected future supply of domestic natural gas sufficient to 
simultaneously support export and domestic natural gas demand both 
currently'' and over the terms of the projects proposed.
    Concerning competitive pricing, there is a very liquid, competitive 
domestic market for natural gas with a multitude of producers, 
marketers, sellers, and buyers, thus assuring that the natural gas is 
competitively priced in the U.S. market.
    The third stated responsibility of DOE is to ``minimize regulatory 
impediments to a freely operating market.'' Such a responsibility 
certainly cannot mean that any one market determinant, such as price or 
export volumes, could be used to impede the development of the free 
market. What it surely means is that applicants that meet the statutory 
and regulatory requirements should be granted the authorizations to 
export LNG from the United States without regulatory limitation as to 
export volumes. The ``freely operating market'' will then allocate 
scarce and finite economic resources such as financing and end-use 
contracts to determine which projects will be built and become 
operational. For as some projects will likely be built, others may not.
    The role of the regulator is to assure a level playing field for 
all participants and to monitor developments for continued consistency 
with the public interest, not to be a predictor of future events. DOE's 
policy to allow a ``freely operating market'' to function with minimal 
regulatory impediments directly acknowledges the plain reading of the 
Natural Gas Act, which gives DOE the tools to respond to market 
conditions that adversely affect the public interest, not to predict 
future events during the authorization proceeding for projects with 
lifespans in excess of 20 years each. Those market conditions are not 
short-term phenomena such as temporary price increases.
    Far from being vague in its regulatory framework, DOE has a clearly 
defined set of criteria for making its LNG export determinations, with 
that framework focusing on the domestic need for the natural gas 
proposed to be exported in order to protect the U.S. consumer.
    MYTH 10--DOE's process lacks opportunity for all affected 
stakeholders and the general public to comment on what constitutes the 
``public interest.''
    Once DOE determines that an application is complete, it publishes a 
notice in the Federal Register informing the public of the opportunity 
to submit motions to intervene, protest, and/or to comment on the 
proceedings. The opponents complaining about the lack of opportunity to 
get involved have been publicly outspoken on the issue of LNG exports 
since prior to the closing of those public comment periods and have 
sufficient resources to monitor events and take such action as 
necessary to protect their interests. They simply chose not to do so.
    LNG exports would provide the United States with enormous economic 
benefits--new jobs, new tax revenue, new economic growth and a reduced 
trade deficit. Better yet, these benefits will not come at the expense 
of domestic consumers of natural gas, whether they are industrial users 
or individual households.
    Those opposed to LNG exports have employed a series of inaccurate 
characterizations about LNG and the impacts that would result from 
allowing exports. As such, I thank the Committee for providing me the 
opportunity to explain why such claims are myths, and that the 
overwhelming evidence shows that allowing LNG exports will be a net 
benefit to the United States. I respectfully request that the Committee 
urge DOE to commence issuing export approvals so the U.S. can reap all 
of the benefits of our natural gas resources.
            Statement of Paul Sansone, Sansone & Associates
    The `Shale Gale', a huge expansion of available domestically 
produced natural gas, is the subject of the hearing. I am writing to 
provide documentation that the legal and regulatory oversight of the 
industry was manipulated by apparent fraud to secure exception from 
environmental regulation (Clean Air Act, and Clean Water Act 
exemptions), fast track approval for LNG ``import'' terminals ( FERC 
review not State review), and the right of eminent domain for natural 
gas pipelines connected to these terminals. Substantial evidence exists 
that the use of false and misleading information and industry wide 
racketeering was utilized to allow industry to produce the current 
oversupply of natural gas and create a political and economic 
conditions necessary to convert the ``stranded assets'' of import 
terminals and pipelines for the export of natural gas. The goal of the 
apparent fraud and racketeering appears to be a covert effort to 
convert limited regional natural gas markets into an internationally 
traded commodity which could be used for speculative investment. The 
scope and impact of this apparent fraud obligates an immediate 
investigation, the cessation of any natural gas export permits until 
the full facts are made public, and the criminal prosecution of those 
responsible for misleading Congress and the American people.
    Please find attached an Issue summary prepared in March of 2011, 
before the industry was openly calling for the conversion of LNG 
``import'' terminals to ``export'' facilities. Developers seeking 
permits for a LNG ``import'' facility in Oregon (Oregon LNG, Leucadia 
Corp.) publicly solicited investors for the project promoting 
``import'' permits as a short-cut to more profitable ``export'' 
    Industry projections of domestic natural gas resource size and 
estimated costs of production have been consistently unreliable. A 
newly released analysis of the domestic natural gas resource entitled 
``Drill, Baby, Drill--Can unconventional fuels usher in a new era of 
energy abundance'' by J. David (http://www.postcarbon.org/reports/DBD-
report-FINAL.pdf) calls into question the actual size of the domestic 
natural gas resource.
                             summary of lng
            LNG export fraud--legal and policy options
          We're truly going to go down as the dumbest generation.. It's 
        bad public policy to export natural gas--a cleaner, cheaper 
        domestic resource--and import more expensive, dirtier OPEC 
    \1\ Natural gas prices set to jump with exports - Pittsburgh 
Tribune-Review http://www.pittsburghlive.com/x/pittsburghtrib/
T. Boone Pickens in response to U.S. Dept. of Energy's approval of the 
        first U.S. LNG export terminal
          1. Summary--Booming U.S. natural gas production from shale 
        gas and the resulting low prices have triggered a wave of now 
        public proposals to export U.S. gas as LNG. The proposed LNG 
        export terminals were all either recently constructed or 
        expanded for the stated purpose of LNG import. While the 
        companies built their core facility infrastructure, such as 
        docks, pipelines and storage tanks, claiming they would 
        increase U.S. gas supplies, these same companies are now moving 
        to use this infrastructure to sell U.S. gas into the high-
        priced Pacific Rim and European markets. With China's recent 
        announcement that it will increase is natural gas use by over 
        300 percent in the next five years,\2\ China is positioning 
        itself as the most likely purchaser of U.S. LNG pending 
        development of its own shale gas resources. Opening the door to 
        U.S. LNG export would cause a major increase in the price of 
        natural gas for consumers and unprecedented profits for gas 

    \2\ http://gulfnews.com/business/markets/china-s-natural-gas-push-
    Despite the lack of any rational economic basis for LNG import and 
Oregon's unique location for LNG export, investors behind two LNG 
terminals planned for Oregon continue to claim to state and federal 
regulators, their investors and the public that the Oregon terminals 
are intended to import LNG. While the Jordan Cove terminal in Coos Bay 
recently acknowledged it was considering export, its formal regulatory 
filings continue to assert the terminals would be used for LNG import. 
There is a strong basis, however, to believe that the claims that the 
Oregon terminals are intended for LNG import are fraudulent and that 
the planned terminals have long been intended to export expanding 
Rockies shale gas production to the Asian market.
    A review of the five existing U.S. LNG terminals now proposing to 
export LNG supports that the Oregon projects are following a pattern of 
intentional deception that involves some of the largest U.S. natural 
gas producers and pipeline companies when they allege that their 
terminals are for LNG import.
    If true, falsely claiming intended export projects are import 
projects to investors and government regulators would violate a host of 
state and federal laws. These range from the federal Securities and 
Exchange Act and criminal prohibitions against making false statements 
to federal agencies to violations of Oregon's criminal prohibition 
against ``unsworn falsification'' which prohibits providing false 
information to a state agency in an effort to obtain a ``benefit'' such 
as a wetland fill permit or state land lease.\3\ Furthermore, providing 
false information to a state agency under ORS 162.085(1) is a predicate 
offense under Oregon's Racketeer Influenced and Corrupt Organization 
Act (ORICO). Oregon Federation of Teachers v. Oregon Taxpayers United, 
345 Ore. 1; 189 P.3d 9(2008) (specifically affirming that violations of 
ORS 162.085(1) qualified as ORICO predicate offenses.
    \3\ ORS 162.085(1), ``(1) A person commits the crime of unsworn 
falsification if the person knowingly makes any false written statement 
to a public servant in connection with an application for any 
benefit.'' The term ``benefit'' is broadly defined to mean ``gain or 
advantage to the beneficiary or to a third person pursuant to the 
desire or consent of the beneficiary.'' ORS 162.055(1). See Oregon 
Federation of Teachers v. Oregon Taxpayers United, 345 Ore. 1; 189 P.3d 
9(2008)(broadly defining what constitutes a ``benefit'' under ORS 
    Because of the price impacts on consumers in states near proposed 
LNG export terminals and the very similar pattern of expansion or 
development for import followed quickly by a switch to export that has 
occurred at each of the LNG terminals now proposing export there may be 
grounds for a coordinated investigation with other states such as New 
York and Maryland.
    In addition to any potential criminal or civil enforcements, there 
are strong public policy reasons for pressuring the investors pushing 
LNG terminals in Oregon to stop their false claims that the planned 
terminals are still intended for LNG import.
          2. The national rush to export LNG
    The largest gas producers and pipeline companies in the United 
States are moving to convert at least five of the 11 existing U.S. LNG 
import terminals into LNG export terminals that would export low-priced 
U.S. natural gas to the Asian (primarily Chinese) and European markets. 
The plans come as new drilling technology has opened up a surge in 
natural gas production that has sent average gas prices in 2009 and 
2010 to half of their 2005 levels.\4\ Asian LNG prices, however, remain 
more than 300 percent above U.S. prices\5\ and LNG prices in Europe are 
on the order of 200 percent above U.S. prices.
    \4\ U.S. Energy Information Administration (2005 averge wellhead 
price of $7.33/thousand cubic feet compared to 2009 and 2010 average 
wellhead prices of $3.67 and $4.16.)
    \5\ Henry Hub price of June 15, 2011 of $4.52/mmbtu. http://
www.neo.ne.gov/statshtml/124.htm; Japanese pre-earthquake LNG prices 
from January 2011 were $11.96/mmbtu and as of June 2011 had risen to 
nearly $ 14 mmbtu. Japan's December LNG Import Bill Rises 3.9% on 
Crude, Bloomberg News By Dinakar Sethuraman - Jan 30, 2011 http://
increases-6-after-crude-oil-prices-gain.html; http://www.asahi.com/
    The price equation has brought U.S. LNG imports to almost a 
standstill and the Cove Point Maryland LNG terminal in June 2011 even 
asked FERC to order LNG tankers to deliver LNG to its facility against 
their will to maintain safety systems that depend on LNG for 
cooling.\6\ In April 2011, Excelerate Energy announced it was 
completely abandoning the offshore LNG import facility it built in 2005 
in the Gulf because of abundant U.S. gas supplies.\7\
    \6\ http://www.lngworldnews.com/usa-cove-point-lng-requests-ferc-
    \7\ http://www.excelerateenergy.com/2011/04/04-13-2011.html
    In May, 2011, the U.S. Dept. of Energy (DOE) approved Cheniere 
Energy's plan to export U.S. produced gas as LNG from its Sabine Pass, 
LA LNG terminal which was permitted and constructed as an LNG import 
terminal.\8\ Cheniere already has a contract to export the U.S. 
produced LNG to China.\9\ The terminal is the world's largest and the 
project is now pending FERC approval. DOE approved the project despite 
Cheniere's own study showing that allowing just this one export 
terminal could result in up to an 11.6 percent increase in the price of 
U.S. natural gas.\10\ This price increase alone would generate more 
than $10 billion a year in increased revenues for U.S. gas producers 
based on 2010 gas revenues and would come directly from consumers' 
pockets.\11\ But the potential 11 percent price increase from just one 
LNG terminal highlights just how much producers would benefit from 
opening the door to broader LNG export and what is at stake for U.S. 
    \8\ http://www.bloomberg.com/news/2011-05-20/cheniere-surges-45-
    \9\ http://www.pennenergy.com/index/blogs/all-energyall-the-time/
    \10\ U.S. DOE Order approving LNG export from Sabine Pass LNG 
terminal at p. 11, citing Navigant Consulting's Market Analysis for 
Sabine Pass LNG Export Project (NCI Report) at p. 14. See also Natural 
gas prices set to jump with exports - Pittsburgh Tribune-Review http://
    \11\ Estimate is based on a U.S. EIA 2010 reported marketed NG 
price of 4.16/ thousand cubic feet and total marketed production of 
22,568,863 million cubic feet. http://www.eia.gov/dnav/ng/
    In a recent Pittsburgh Times article on the potential for LNG 
export to increase gas prices, the Times reported that if the five 
already proposed export terminals were approved they could collectively 
export 13.9 percent of total U.S. gas production\12\ and fundamentally 
change the U.S gas market. But even this is a gross underestimate. If 
the two proposed Oregon LNG terminals are included, as well as other 
terminals that will likely soon move to export, the potential export 
percentage number jumps significantly higher.
    \12\ Natural gas prices set to jump with exports - Pittsburgh 
Tribune-Review http://www.pittsburghlive.com/x/pittsburghtrib/
    The ease at which the United States could feel the pain of LNG 
exports is highlighted by the fact that a modern large scale QMAX LNG 
tanker (266,000 cubic meters), which has already docked at the Sabine 
Pass LNG terminal, can export more than 8.8 percent of total U.S. daily 
gas production in a single shipment.\13\
    \13\ 1 cubic meter of LNG = 20,631 cubic feet x 266,000 cubic meter 
LNG (for a QMAX tanker)= 5487846000 cubic feet of natural gas per 
tanker. 5,487,846,000 cubic feet per tanker/total average daily of 2010 
U.S. marketed natural gas production of 61,832,501,370 = 0.08875 = 8.8 
% of average daily US marketed natural gas production.
    Major energy consumers are finally waking up to the reality of how 
LNG exports would drive a major increase in U.S. gas prices. The 
Industrial Energy Consumers of America, which represents American 
manufacturers with annual sales of $800 billion and 750,000 employees, 
is now fighting Cheniere's Sabine Pass LNG export plans with its saying 
that the impact on gas prices would be ``absolutely frightening.''\14\ 
T. Boone Pickens opposed the Cheniere LNG export saying that if the 
United States approved LNG export we ``we're truly going to go down as 
the dumbest generation.. It's bad public policy to export natural gas--
a cleaner, cheaper domestic resource--and import more expensive, 
dirtier OPEC oil.''\15\ The American Public Gas Association, which 
represents 700 public gas companies in 36 states is also opposing LNG 
export because of the threat to increased prices.\16\
    \14\ Natural gas prices set to jump with exports - Pittsburgh 
Tribune-Review http://www.pittsburghlive.com/x/pittsburghtrib/
    \15\ Natural gas prices set to jump with exports - Pittsburgh 
Tribune-Review http://www.pittsburghlive.com/x/pittsburghtrib/
    \16\ Natural gas prices set to jump with exports - Pittsburgh 
Tribune-Review http://www.pittsburghlive.com/x/pittsburghtrib/
    The potential for LNG exports to drain seemingly abundant supplies 
is not merely hypothetical. Alaskan industrial gas users, consumers and 
some elected leaders strongly opposed Conoco's plans to extend its FERC 
permit at its LNG export terminal in Kenai Alaska, which at the time 
was the only U.S. export terminal. Alaska's largest electric utility 
even filed suit to challenge the exports saying that the terminal, 
which exported a third of all locally produced gas, drove up prices and 
left it without adequate supply to meet local 
needs.\17\ \18\ But with the facility nearing the end of its 
FERC license, Conoco announced in February 2011 it was closing the 
export facility because it could not obtain sufficient gas supplies to 
export and meet local needs.\19\ Ironically, Conoco (which is now 
proposing LNG export from its Freeport Texas LNG terminal) also said it 
was considering converting the Kenai facility into an LNG import 
    \17\ http://www.adn.com/2008/11/09/583470/utility-petitions-to-
    \18\ http://www.adn.com/2010/07/08/1359592/give-southcentral-
priority-on.html; http://www.adn.com/2010/08/14/1410315/parnell-backs-
    \19\ http://www.adn.com/2011/02/09/1692895/ap-newsbreak-alaska-lng-
    In a similar example, Indonesia, for which for years was a major 
LNG exporter, has recently found itself planning its first LNG import 
terminal as it now faces gas shortages caused by LNG export.\20\
    \20\ http://www.lngworldnews.com/indonesia-may-import-4-5-mtpa-of-
          3. Change to U.S. natural gas market
    Allowing LNG exports would change the fundamental mechanics of the 
U.S. natural gas market, which is currently defined by massive new gas 
discoveries in shale formations, production increases, and low prices. 
The United States recently outpaced Russia as the World's largest 
natural gas producer\21\ and is by far the largest natural gas consumer 
using 47 percent more natural gas than Russia, which is the second 
largest consumer.\22\ Globally, the U.S. has the fourth largest proven 
gas reserves with well over a hundred years of supply and only Russia, 
Iran and Qatar have larger reserves.\23\ Exporting LNG, however, would 
drive both increased prices and major increases in U.S. gas production 
that could meaningfully reduce U.S. gas supplies.
    \21\ http://www.bloomberg.com/apps/
    \22\ http://www.indexmundi.com/
    \23\ U.S. EIA, 2010.
          4. Investors claim Oregon projects still for LNG import
    Despite the fundamentals of the U.S. gas market and agreement from 
federal, state and private sector experts that there is no 
justification for new LNG import terminals,\24\ the investors pushing 
the two Oregon LNG terminals continue to tell federal and regulators, 
investors and the public that their projects are for LNG import. While 
the proposed Jordan Cove terminal in Coos Bay has recently acknowledged 
that it is considering LNG export, it continues to formally claim to 
FERC and the State of Oregon that its terminal is for LNG import. Both 
companies are relying on the benefits of LNG imports to support that 
the project is in the ``public interest'' and entitles them to the 
powers of eminent domain.
    \24\ ``Palomar gas partners pull the plug on controversial pipeline 
proposal,'' Oregonian, March 23, 2011. http://www.oregonlive.com/
    There is a strong basis for believing that such representations are 
fraudulent and that there is no genuine intent to import LNG. As even 
the Oregonian recently reported, ``Experts say export economics from 
Oregon are a slam dunk, potentially doubling the price that Canadian 
and U.S. producers net for their gas domestically.''\25\
    \25\ http://www.oregonlive.com/business/index.ssf/2011/07/
    A number of factors strongly support that the Oregon LNG projects 
are intended for export. These factors include:

          1. The absence of any market rationale for importing LNG 
        given the abundance and low price of U.S. gas and the 
        comparatively high price of global LNG;
          2. The high profit margin from exporting low-cost U.S. gas to 
        the nearby Pacific Rim market and the increased revenues that 
        would result from the higher gas prices generally;
          3. The new FERC-permitted pipeline infrastructure to the 
        Jordan Cove terminal would create a direct connection from 
        William's Opal Wyoming gas hub to the Coos Bay LNG terminal 
        with at least one company (PG&E Strategic Capital) owning gas 
        capacity on the new Ruby Pipeline (Opal Wyoming to Malin, 
        Oregon) and owning a 1/3rd interest in the Pacific Connector 
        (Malin, OR to Coos Bay);
          4. Gas producers have a strong incentive to export abundant 
        Rockies' gas supplies which are driving low Rockies' prices. 
        Williams, which is Wyoming's largest gas producer as well as a 
        major pipeline owner, for example, is the co-owner and lead 
        player in developing the 234-mile Pacific Connector pipeline 
        that would connect the Jordan Cove terminal to the western 
        terminus of the new Ruby Pipeline from Wyoming at Malin, 
        Oregon.\26\ \27\ The 680-mile nearly completed Ruby 
        Pipeline, in fact, originates at the Opal Hub, which Williams 
        operates and is considered the gas epicenter of the 
        Rockies.\28\ Williams is well aware of the need for new export 
        capacity from the Rockies and decreased its Wyoming production 
        by 15 percent in 2009 due to low prices.\29\ \30\

    \26\ http://www.williams.com/midstream/ms_operations.aspx
    \27\ http://www.pacificconnectorgp.com/overview.php
    \28\ Ruby Pipeline, Final EIS at p. 1-2.
    \29\ http://www.investorvillage.com/
    \30\ http://www.pacificconnectorgp.com/partners.php; http://
    While Ruby's owner, El Paso Energy, (which is also large U.S. gas 
producer (22nd largest in 2009) will clearly benefit from the large 
California gas market, El Paso is no stranger to LNG and actually owns 
the Elba Island LNG terminal in Georgia. The terminal is operated by BG 
Group, which has already proposed LNG exports from its Lake Charles 
terminal and there is every reason to expect that LNG export will soon 
be proposed from El Paso's Elba Island, GA terminal.
          4. Oregon terminals are following a familiar path
    The Oregon terminals appear to be following a similar path of 
intentional misrepresentation which has become more obvious as U.S gas 
supplies have remained high and prices low. A review of each of the 
five LNG terminals now proposing LNG export shows that these facilities 
were either constructed or significantly expanded in the last two to 
three years with the project backers claiming that they would help 
import low cost LNG into the U.S. market. Completion of construction 
was soon following by announcement of plans to export.
    The bonanza of new shale gas has been well known to gas industry 
insiders since well before 2003,\31\ when even USGS described the 
Barnett Shale formation in Texas, which was the first mega shale find, 
as a ``giant gas accumulation'' and ``one of the most significant 
domestic onshore gas plays.''\32\ Just as these shale gas formations 
were spiking production and similarly massive gas reserves were being 
discovered in the Haynesville shale in east Texas and Louisiana, a 
group of companies all heavily involved in gas production (Exxon-Mobil, 
Cheniere, Conoco-Phillips) launched plans for LNG ``import'' terminals 
on the Gulf Coast in pipeline-close proximity to the Barnett Shale. 
Four new terminals in the Gulf were completed between 2008 and 2010, as 
were major terminal expansions at three existing LNG terminals on the 
East Coast.
    \31\ Huge natural gas field 'discovered' in Texas, World Net Daily 
News; November 30, 2005 http://www.wnd.com/?pageId=33642
    \32\ Richard M. Pollastro, U.S. Geological Survey, Denver, 
Colorado, Geologic and Production Characteristics Utilized in Assessing 
the Barnett Shale Continuous (Unconventional) Gas Accumulation, 
Barnett-Paleozoic Total Petroleum System, Fort Worth Basin, Texas; 
presented at Barnett Shale Symposium Ellison Miles Geotechnology 
Institute Brookhaven College, Farmers Branch, Dallas, Texas 2003. On 
    Each project cost on the order of a billion dollars and was built 
at a time when the then-existing LNG terminals were not even operating 
at half capacity. Once the projects were completed, these same 
companies effectively declared their LNG import projects obsolete given 
the high price of LNG and low cost of U.S. gas and quickly re-
positioned to obtain export approval. While an LNG terminal needs to 
install expensive liquefaction equipment to be converted to LNG export, 
the roughly $3 billion costs are minimal given the potential price 
differential between U.S. gas and Pacific Rim LNG prices. Although 
permit modifications from FERC and U.S. DOE are needed, DOE approved 
Cheniere's export application within nine months and FERC is moving 
quickly on the application.\33\
    \33\ Cheniere applied to US DOE in September 2010 and the 
application was approved in May 2010.
    These companies now frame their unique ability to quickly modify 
their terminals to switch to lucrative LNG export as something they 
stumbled into as a chance to salvage their expensive investments in LNG 
import. As Cheniere Energy, which was exclusively a gas producer before 
proposing the Sabine Pass and Freeport LNG terminals, explained in 
announcing that the Sabine Pass import terminal would switch to LNG 
export, ``[t]he 853-acre Sabine Pass site is strategically situated to 
provide export services given its large acreage position, proximity to 
unconventional gas plays in Louisiana and Texas, and its 
interconnections with multiple interstate and intrastate pipeline 
systems.''\34\ Cheniere further explained that, ``the Sabine Pass 
terminal already has many of the needed facilities for an export 
terminal. Cheniere would use its existing infrastructure, including 
five storage tanks and two berths at the Sabine Pass terminal, as well 
as Cheniere Energy Inc.'s 94-mile Creole Trail Pipeline . . . ''\35\
    \34\ http://www.firstenercastfinancial.com/forums/
    \35\ http://www.firstenercastfinancial.com/forums/
    When Dominion Resources, which owns the recently expanded Cove 
Point Maryland LNG terminal and is a Marcellus shale gas producer, 
announced it was considering LNG export its Chief Executive made nearly 
the same comment stating, ``If you think about Cove Point, where it 
sits there in the Mid-Atlantic, a couple hundred miles from the 
Marcellus region, it has got all the facilities it needs other than the 
liquefaction itself.''\36\
    \36\ http://uk.reuters.com/article/2011/02/01/lng-dominion-export-
    The idea, however, that the world's largest and most sophisticated 
gas industry players, such as Conoco-Phillips, Sempra, Dominion and 
Exxon-Mobil, all collectively responded to news of massive new U.S. 
shale gas discoveries by making catastrophically poor decisions to 
invest in costly LNG import projects that can now coincidentally be 
used as the springboard for far more lucrative LNG export projects is 
strained. While there clearly were assessments supporting the need for 
new LNG terminals, there is no question that gas producers were well 
aware of the unprecedented U.S. shale reserves when they proposed LNG 
import projects.
    From a geographical perspective alone, it is worth noting that the 
biggest new LNG ``import'' projects in Freeport, TX (Conoco), Golden 
Pass, LA(Exxon-Mobil), Sabine Pass, LA(Cheniere Energy),, and Cameron, 
TX(Sempra) all constructed in the last two to three years, were all 
built at the close proximity to Texas' Barnett Shale which was the 
first mega-shale reserves to be ``discovered'' and commercially 
produced with Halliburton's fracking technology in the 1990s and early 
          5. Companies acquire shale gas interests while expanding LNG 
        ``import'' terminals
    It is also telling that many of the companies building new LNG 
``import'' terminals or expanding existing terminals were acquiring 
major interests in U.S. shale gas reserves at the same time they were 
developing and expanding their nearby LNG terminal infrastructure for 
the purported purpose of LNG import.\37\ For example:
    \37\ Additional research is needed to better detail the timing of 
LNG terminal development and shale gas acquisition generally described 
below which should be considered preliminary.
    Lake Charles and Elba Island LNG terminals--BG Group(formerly 
British Gas), spent over $900 million expanding the Elba Island and 
Lake Charles LNG terminals and constructing new gas pipelines while at 
the same time acquiring gas production rights for almost a million 
acres in the Marcellus and Haynesville shale formations.\38\ BG Group, 
which controls almost 50 percent of the total LNG terminal capacity on 
the East Coast, is now seeking permission to export LNG its Lake 
Charles terminal.\39\ BG Group recently signed a 20-year $70 billion 
deal in March 2010 to export LNG to the China National Offshore Oil 
Corp (CNOOC) from Australia and the Chinese are potential purchasers 
for the Lake Charles LNG as well.\40\
    \38\ http://www.reuters.com/article/2010/03/02/lng-elba-expansion-
    \39\ http://www.ft.com/cms/s/0/d0443c62-7b26-11e0-9b06-
    \40\ http://www.nytimes.com/2010/03/25/business/global/
    Cove Point Maryland--Statoil (Europe's second largest gas importer) 
doubled the storage and output capacity of the Cove Point Maryland LNG 
terminal in 2009, shortly after buying a 32 percent interest in 1.8 
million acres of the nearby Marcellus shale in 2008.\41\ At the same 
time Dominion Resources, which owns the Cove Point terminal and is also 
a Marcellus shale gas producer, expanded the pipeline infrastructure to 
the terminal.
    \41\ http://www.thestreet.com/story/10447133/1/chesapeake-statoil-
    Cove Point Statoil's deal was with Chesapeake Energy(2nd largest 
U.S. gas producer) who is a partner in the Cheniere LNG export project 
and has likely been the most active industry proponent of LNG exports.
    Freeport LNG terminal--Conoco-Phillips, the 3rd largest U.S. gas 
producer and the 50 percent owner and operator of the Freeport LNG 
terminal, received its first LNG shipment at its new billion dollar LNG 
import terminal in April 2008, but less than four months later it 
sought permission to re-export the LNG it had imported.\42\
    \42\ http://www.chron.com/disp/story.mpl/headline/biz/5956709.html
    Golden Pass LNG terminal--Exxon-Mobil, the largest U.S. gas 
producer, and co-owner of the newly built Golden Pass LNG terminal 
(which it co-owns with Conoco and Qatar Gas) in Texas received its 
first LNG shipment in October 2010 with commenters noting that there 
was no domestic market for the gas.\43\ As a part of that project Exxon 
built a new 69-mile pipeline that connects the facility with Williams' 
Transco Pipeline system which is near capacity with a flood of new 
shale gas production.\44\ While Exxon-Mobil has thus far denied any 
interest in exporting, or interesting even re-exporting LNG\45\, it 
globally has significant experience in LNG and is currently building a 
$15 billion LNG export terminal in Papua New Guinea.\46\ Exxon-Mobile 
has also been aggressively acquiring shale gas producers in the 
Haynesville Shale (LA/TX) and Marcellus Shale (NY, PA) including its 
2009 $41 billion purchase of XTO Energy\47\ (3rd largest owner of U.S. 
gas reserves), Haynesville shale producer Ellora Energy for $695 
million in 2010\48\, and $1.6 billion for two Marcellus Shale producers 
in 2011.\49\ These major acquisitions have made Exxon-Mobil by far the 
largest holder of U.S. gas reserves.\50\ Its current silence on LNG 
exports may reflect an effort to minimize attention while the first LNG 
export terminals from lower visibility companies are being approved.
    \43\ http://panews.com/local/x847473509/Golden-Pass-LNG-receives-
    \44\ http://thetimes-tribune.com/news/gas-drilling/marcellus-gas-
    \45\ http://www.advfn.com/news__Exxon-CEO-No-Thought-Of-Exporting-
    \46\ http://www.bloomberg.com/news/2011-06-01/exxon-mobil-targets-
    \47\ http://www.marketwatch.com/story/exxon-mobil-to-buy-xto-
    \48\ http://www.denverpost.com/business/ci--16462625
    \49\ http://www.haynesvilleplay.com/2011/06/exxon-still-buying-
    \50\ U.S. EIA, 2009.
    Cameron LNG terminal and Costa Azul (Baja)--Sempra, which is the 
largest gas company in the U.S. in terms of coverage area and 
population, served has said it is considering LNG export from its 
Cameron LNG terminal in Louisiana and potentially its Costa Azul 
terminal in Baja.\51\ The Cameron terminal was opened in June 2009\52\ 
as an LNG import terminal but within just a year and a half after 
opening it had received full FERC permission to export LNG.\53\
    \51\ http://www.reuters.com/article/2011/06/07/lng-export-sempra-
    \52\ http://www.lngpedia.com/2009/06/24/sempra-cameron-lng-
    \53\ http://www.lngworldnews.com/usa-ferc-approves-sempra-to-re-
    Kitimat, B.C.--When the Kitimat import terminal was approved in 
2006 it's investors claimed, ``The Kitimat LNG terminal is designed to 
meet a supply shortage of natural gas in the North American 
market.''\54\ But by November of 2008 Kitimat sought state and federal 
permission to change the plant from an import to export facility citing 
the abundant gas supplies in the ``worldclass unconventional gas 
developments in northeastern BC (Horn River and Monterey fields).''\55\ 
Less than two months later, Kitimat had won a permit amendment that 
authorized the export terminal and announced a deal to sell LNG to 
Mitsubishi.\56\ Kitimat is now co-owned by major shale gas producers 
Encana (7th largest gas producer), EOG Resources (9th largest U.S. gas 
producer) and Apache.
    \54\ a100.gov.bc.ca/.../1137189645610--
    \55\ a100.gov.bc.ca/.../1226700475492--
    \56\ http://www.nrcan.gc.ca/eneene/sources/natnat/kitimat-eng.php
          6. Laying the foundation to export LNG from shale gas
    The gas industry was well aware of the massive potential for new 
shale gas before 2003.\57\ Those interests, in fact, were very visible 
in the 2005 Energy Policy Act, which was crafted with strong influence 
from U.S. gas producers working under the Cheney Energy Task Force. The 
2005 Act gave major tax breaks for shale gas development and the so-
called ``Halliburton Loophole,'' exempted shale gas extraction from the 
Safe Drinking Water Act.\58\ Halliburton is considered the pioneer of 
the ``fracking'' technologies needed for shale gas development and by 
the mid-1990s was highly active in Texas' Barnett Shale.
    \57\ Richard M. Pollastro, U.S. Geological Survey, Denver, 
Colorado, Geologic and Production Characteristics Utilized in Assessing 
the Barnett Shale Continuous (Unconventional) Gas Accumulation, 
Barnett-Paleozoic Total Petroleum System, Fort Worth Basin, Texas; 
presented at Barnett Shale Symposium Ellison Miles Geotechnology 
Institute Brookhaven College, Farmers Branch, Dallas, Texas 2003
    \58\ http://www.nytimes.com/gwire/2011/05/20/20greenwire-frack-
    But the same people promoting special treatment for shale gas were 
intimately familiar with LNG export. Halliburton subsidiary KBR, for 
example, has built 40 percent of the world's LNG export terminals\59\ 
and recently won the design contract for the Kitimat LNG export 
terminal (originally permitted for LNG import) in British Columbia.\60\
    \59\ http://www.kbr.com/Newsroom/Articles/Features/Did-You-Know/
    \60\ http://www.lngworldnews.com/canada-apache-eog-award-kitimat-
    There are even signs that those crafting the 2005 Energy Act 
actively planned to facilitate LNG export. For example, the Act 
included a condition that for the first time allowed LNG terminal 
operators obtaining permits before 2015 to use their terminal (import 
or export) exclusively for natural gas owned by the terminal's 
operators and with the assurance that FERC was prohibited from, ``any 
regulation of the rates, charges, terms, or conditions of service of 
the LNG terminal.''\61\ This opened the door for gas producers to own 
an LNG terminal to export the gas they owned (or independently 
contracted for) free from the type of ``open access'' requirements that 
FERC had required for LNG terminals (and still does require for gas 
pipelines) and operate the terminal for maximum profitability. While 
this would benefit any LNG terminal operator, this special treatment 
provides a unique incentive for vertically integrated gas producers who 
are interested in export.
    \61\ 15 U.S.C. Sec.  717(b)(e)(3)(b)(ii).
          7. Potential criminal and civil violations for 
        misrepresenting export terminals as import terminals
    If LNG terminal developers, pipeline companies and gas producers 
are misrepresenting efforts to develop LNG export infrastructure by 
falsely claiming to investors, federal and state regulators and the 
public that they are seeking to develop LNG ``import'' projects they 
may be violating a host of state and federal laws. Cooperation with 
U.S. DOJ would be needed for the investigation of any federal 
violations and coordination with other states, such as Maryland and New 
York, could make sense given the particular impacts on these states 
from nearby export terminals. Because LNG export would likely trigger a 
major increase in hydraulic fracturing of shale gas in New York City's 
drinking watershed, where controversy over fracing is already high, New 
York may be a particularly interested in investigating LNG export-
related fraud.
    While a more detailed review of potential legal violations would be 
useful, at least several areas for further consideration and review 

                  A. False statements to state regulators
    The planned Oregon LNG terminal applicants have applied for a range 
of state permits, such as wetland fill permits and water right permits. 
In doing so the applicants have consistently claimed that the ``purpose 
and need'' for their projects was LNG import and that the facilities 
would in fact import LNG. While not sworn statements, Oregon law 
prohibits false unsworn statements related to obtaining a ``benefit'' 
from the state. ORS 162.085(1) states: ``(1) A person commits the crime 
of unsworn falsification if the person knowingly makes any false 
written statement to a public servant in connection with an application 
for any benefit.''
    The term ``benefit'' is broadly defined to mean ``gain or advantage 
to the beneficiary or to a third person pursuant to the desire or 
consent of the beneficiary'' and would definitely appear to include a 
water right, wetland fill permit or state land lease. ORS 162.055(1). 
Oregon's Supreme Court has interpreted the term ``benefit'' very 
broadly finding that even annual non-profit charity financial reporting 
submitted to the Attorney General's office was in effect an application 
for a ``benefit'' since the information in the form could lead to 
withdrawl of an entity's charitable status. Oregon Federation of 
Teachers v. Oregon Taxpayers United, 345 Ore. 1; 189 P.3d 9(2008). The 
Court further held that ORS 162.085(1) extended not only to a permit 
application itself, but any false statements made ``in connection'' to 
that application. Id. at 15. Violation of ORS 162.085(1) is a Class B 
    Investigation of such a crime would obviously open the door to the 
subpoena of internal documents related to potential LNG export under 
ORS 180.073.
                  B. Oregon's Racketeer Influenced and Corrupt 
                Organization Act
    Violating ORS 162.085(1)'s restriction against unsworn 
falsification is a predicate crime under Oregon's Racketeer Influenced 
and Corrupt Organization Act (ORICO). ORS 166.715(6)(a)(B). This has 
been specifically affirmed by the Oregon Supreme Court. Oregon 
Federation of Teachers v. Oregon Taxpayers United, 345 Ore. 1, 12; 189 
P.3d 9(2008). While additional research regarding a potential ORICO 
action is needed, ORICO's powerful remedial provisions could even allow 
a court to order a defendant to abandon a permit obtained under 
fraudulent pretenses. ORS 166.725(1). Furthermore, ORICO's attorney fee 
recovery provisions under ORS 166.725(14) have obvious practical 
                  C. False filings with federal regulators
    Federal law makes it a crime for any person to ``knowingly and 
willingly'' make ``any materially false, fictitious or fraudulent 
statement or misrepresentation'' or ``falsifies, conceals, or covers up 
by any trick, scheme, or device a material fact'' or ``makes or uses 
any false writing or document knowing the same to contain any 
materially false, fictitious, or fraudulent statement or entry'' to any 
Agency or department of the United States regarding a matter within its 
jurisdiction. 18 U.S.C. Sec.  1001(a). Violations are punishable by up 
to five years in prison. Id. The companies seeking LNG terminals in 
Oregon have filed a broad spectrum of documents with federal agencies, 
such Federal Energy Regulatory Commission (FERC) and the U.S. Coast 
Guard, representing that their LNG terminals are planned and intended 
for LNG import. The LNG terminal investors now seeking LNG export from 
the Gulf and East Coast filed similar documents while seeking permits 
for construction and expansion approvals. To the extent that projects 
ultimately intended to be LNG export terminals were fraudulently 
misrepresented to federal regulators as ``import'' terminals violations 
of 18 U.S.C. Sec. 1001(a) may have occurred. Unlike Oregon law, such 
false statements are not a federal RICO predicate act.
                  D. Federal and state securities fraud.
    Numerous companies associated with the five LNG terminals now 
proposing LNG export reported to investors and the Securities and 
Exchange Commission (SEC) for years that they were pursuing LNG import 
projects. Leucadia National, which has proposed the Oregon LNG 
terminal, and Veresen (formerly Fort Chicago), which is co-owner of the 
Jordan Cove project, continues to assert that such projects are for LNG 
import. Verseen, however, in May 2011 first acknowledged in a letter to 
shareholders it was considering LNG export.\62\ To the extent the 
actual purpose of planned LNG terminals was to facility LNG export, 
contrary statements to investors and the SEC may have violated the 
federal Securities and Exchange Act and related statutes. 15 USC Sec.  
77(q); 77(w). Securities and Exchange Act violations carry criminal 
penalties of up to five years and $10,000. 15 USC Sec.  77(x). 
Potential violations of Oregon's securities statutes should also be 
considered if applicable. ORS Chapter 59.
    \62\ Veresen May 12, 2011 Media release. http://
                  E. Violations of the Natural Gas Act's prohibition 
                against market manipulation
    Misrepresenting plans for LNG export projects as import projects 
may violate the Natural Gas Act's prohibition against market 
manipulation given the potential for export projects to significantly 
increase domestic natural gas prices. 15 USC Sec.  717(c)1; 18 C.F.R. 
Sec.  (1)(c)(1). This anti-manipulation provision was first passed in 
the 2005 Energy Policy Act and carries a maximum criminal penalty of 
five years and $1,000,000 and additional penalties of up to $50,000 a 
day. 15 USC Sec.  717(t)(1), (2). Civil penalties can be up to $ 1 
million a day. 15 USC Sec.  717t-1. To prevail it would presumably be 
necessary to show a specific intent to use export as a tool to increase 
natural gas prices.
    The potential impacts of LNG export are very real and threaten to 
squander a resource that is both a unique U.S. competitive advantage 
and offers a chance to reduce U.S. dependency on foreign oil and 
greenhouse gas emissions. There are opportunities, however, for using 
the unprecedented price increases and potential supply shortages that 
would result from export to motivate energy consumers to fight a 
concerted effort by gas producers to open large scale U.S. gas exports. 
This effort would be greatly strengthened by the exposure of fraudulent 
efforts by some of the largest U.S. gas players to build the 
infrastructure for LNG export terminals under the guise that they would 
be used for ``import.''
   Statement of Lee Fuller, Vice President of Government Relations, 
              Independent Petroleum Association of America
    This testimony is submitted to the record for the Senate Energy and 
Natural Resources Committee hearing examining the role of natural gas 
in United States' energy policy on behalf of the Independent Petroleum 
Association of America (IPAA).
    IPAA represents thousands of independent oil and natural gas 
explorers and producers, as well as the service and supply industries 
that support their efforts, which will be significantly affected by 
federal action. Independent producers develop 95 percent of American 
oil and natural gas wells, produce 54 percent of American oil and 
produce 85 percent of American natural gas. The average independent has 
been in business for 26 years and employs 12 full-time and three part-
time employees. In total, America's onshore independent oil and natural 
gas producers supported 2.1 million direct jobs in the United States in 
    American natural gas presents an opportunity for the United States 
to utilize a clean burning, secure and affordable fuel. Projections 
suggest that identified resources could provide enough natural gas to 
meet America's needs based on current demand for as much as 100 years. 
This abundance allows the opportunity for the American economy to 
utilize natural gas in new ways--an expansion of US chemical 
production, greater use of natural gas for electricity generation, 
natural gas vehicle development and exports of liquefied natural gas. 
The federal government can enhance or impede the development of 
American natural gas. Two areas that can have substantial impact are 
the regulatory framework for new production and tax policies that 
affect the capital essential to meeting future American natural gas 
demand. This testimony will address these issues.
Regulation of Hydraulic Fracturing
    The notion that oil and natural gas production generally, and 
hydraulic fracturing in particular, are unregulated flies in the face 
of reality. The allegation that oil and natural gas production is 
unregulated ignores the long, successful history of state-based 
regulation of natural gas production. Drilling permitting is grounded 
in state regulatory systems because it involves state land use 
authority; the federal government has never--nor should it ever--
determine the use of lands properly governed by state jurisdictions.
    Hydraulic fracturing has been used as a well stimulation technology 
since the late 1940s for oil, natural gas, geothermal and water wells 
that is regulated as a part of the drilling permits issued by state 
regulators. Over the past decade, the combination of horizontal 
drilling and hydraulic fracturing has allowed industry to produce oil 
and natural gas from shale and tight sands that, previously, was 
uneconomic to produce.
    Hydraulic fracturing refers to one, temporal step in the oil and 
natural gas production process. The term hydraulic fracturing has been 
misconstrued to mean anything related to oil and natural gas 
development. To be clear, when industry references ``hydraulic 
fracturing,'' the industry is referencing the step in the oil and 
natural gas development process that uses water, sand and additives to 
break apart the hydrocarbon bearing formation (i.e. shale) to create 
permeability and release oil and natural gas.
    Regulation of oil and natural gas production depends, largely, on 
where the oil and natural gas production is taking place. The federal 
government has permitting and regulatory authority over production in 
the Outer Continental Shelf (OCS) and on federally managed lands. These 
regulations are frequently updated. The Bureau of Land Management, for 
example, is currently in the process of promulgating new regulations 
entitled, ``Oil and Gas; Well Stimulation, Including Hydraulic 
Fracturing, on Federal and Indian Lands.''
    Natural gas and oil production on state and private lands are, 
generally, regulated by state regulatory authorities. The proximity 
state oil and gas regulators to the operations occurring in their 
respective states, combined with the regulators' understanding of the 
unique circumstances in their states, creates the most efficient system 
create for environmentally responsible oil and natural gas development. 
Additionally, state regulators generally have the technical expertise, 
resources and capabilities to manage the permitting process.
    State oil and gas regulators, for example, have successfully 
regulated the process of hydraulic fracturing for decades. Fracturing 
regulations were developed and have been implemented by state oil and 
natural gas regulatory agencies through well construction and 
completion requirements. These regulations have effectively managed the 
limited environmental risks of the fracturing process. Over the 60 plus 
years since the earliest use of hydraulic fracturing, there have been 
no incidents related to the fracturing process that suggests the 
existence of a systemic environmental management problem.
    Responsible, common-sense regulations on development are a 
foundation of the oil and natural gas industry's operations--and 
rightly so. Protecting the environment and developing our resources 
must go hand-in-hand. Today, the oil and natural gas industry is 
regulated by both state and federal environmental agencies. However, 
uniform federal standards that usurp longstanding, state regulatory 
authority are not the answer. In fact, most federal environmental laws 
create a broad, overarching federal framework that delegates to the 
states the responsibility of creating the specific regulations--
regulations that reflect the realities that circumstances differ in 
each state are require different approaches.
    These federal environmental laws apply regardless of whether 
natural gas and oil production are occurring on federal, state or 
private lands. Moreover, because most federal environmental laws are 
drafted using a manufacturing facility as a model for the regulatory 
framework, these laws have provisions that reflect industries that do 
not fit that model including forestry, agriculture, mining and oil and 
natural gas production. Uniformity is simply a flawed concept for 
regulation. Examples of environmental laws adopting a broad framework 
but delegating implementation to state regulatory agencies, including 
the Clean Air Act, Clean Water Act, Safe Drinking Water Act and others. 
IPAA has enclosed legal analysis of applicable federal environmental 
laws to the upstream oil and natural gas industry.
    Despite the numerous federal and state regulations applicable to 
the oil and natural gas production process, fossil fuel opponents 
frequently posit the need to create federal, baseline regulations for 
hydraulic fracturing without any evidence that the current regulatory 
approach is inadequate.
    To the contrary, federal officials, state regulators, and 
independent experts have publicly stated that shale development--
including hydraulic fracturing--does not pose ``substantial'' risks.

   Interior Secretary Ken Salazar: Responding to what he deemed 
        ``hysteria'' about hydraulic fracturing, Salazar said the 
        process ``can be done safely and has been done safely hundreds 
        of thousands of times.'' (Feb. 2012)
   EPA Administrator Lisa Jackson: ``In no case have we made a 
        definitive determination that the [fracturing] process has 
        caused chemicals to enter groundwater.'' (April 2012) Jackson 
        also has said: ``I'm not aware of any proven case where 
        [hydraulic fracturing] itself has affected water.'' (May 2011)
   U.S. EPA: ``EPA did not find confirmed evidence that 
        drinking water wells have been contaminated by hydraulic 
        fracturing fluid injection . . . '' (2004)
   Former EPA Administrator Carol Browner: ``There is no 
        evidence that the hydraulic fracturing at issue has resulted in 
        any contamination or endangerment of underground sources of 
        drinking water.'' (May 1995)
   U.S. Dept. of Energy and Ground Water Protection Council: 
        ``[B]ased on over sixty years of practical application and a 
        lack of evidence to the contrary, there is nothing to indicate 
        that when coupled with appropriate well construction; the 
        practice of hydraulic fracturing in deep formations endangers 
        ground water. There is also a lack of demonstrated evidence 
        that hydraulic fracturing conducted in many shallower 
        formations presents a substantial risk of endangerment to 
        ground water.'' (May 2009)
   CardnoEntrix (Inglewood Oil Field Study): ``Before-and-after 
        monitoring of groundwater quality in monitor wells did not show 
        impacts from high-volume hydraulic fracturing and high-rate 
        gravel packing.'' (October 2012)
   Center for Rural Pennsylvania: ``[S]tatistical analyses of 
        post-drilling versus pre-drilling water chemistry did not 
        suggest major influences from gas well drilling or 
        hydrofracturing (fracking) on nearby water wells . . . '' (Oct. 
   John Hanger, Former Pa. DEP Secretary: ``We've never had one 
        case of fracking fluid going down the gas well and coming back 
        up and contaminating someone's water well.'' (2012)
   Dr. Stephen Holditch, Department of Petroleum Engineering, 
        Texas A&M University; member of Natural Gas Subcommittee of the 
        Secretary of Energy Advisory Board: ``I have been working in 
        hydraulic fracturing for 40+ years and there is absolutely no 
        evidence hydraulic fractures can grow from miles below the 
        surface to the fresh water aquifers.'' (October 2011)
   Dr. Mark Zoback, Professor of Geophysics, Stanford 
        University: ``Fracturing fluids have not contaminated any water 
        supply and with that much distance to an aquifer, it is very 
        unlikely they could.'' (August 2011)

    Despite this consistent experience showing effective regulation, 
the Obama Administration has sought to encroach upon the progress of 
even state and private land development through instructions to 
virtually every agency to find opportunities to federalize the 
regulation of oil and natural gas production, particularly hydraulic 
fracturing--the very technology that has unlocked the oil and natural 
gas reserves from shale. In the spring of 2012, there were no less than 
11 federal agencies trying to find ways to regulation hydraulic 
fracturing. Since there has been no evidence of hydraulic fracturing 
contaminating groundwater or suggestions that systemic regulatory 
failure exists in the current regulatory framework, IPAA would 
encourage Members of the Committee to oppose any new federal 
regulations on the oil and natural gas industry to allow America's oil 
and natural gas producers to create jobs and the energy to power the 
American economy.
Tax Policy
    Federal tax policy has historically played a substantial role in 
developing America's natural gas and petroleum. Early on, after the 
creation of the federal income tax, the treatment of costs associated 
with the exploration and development of this critical national resource 
helped attract capital and retain it in this inherently capital 
intensive and risky business. Allowing the expensing of intangible 
drilling and development costs and percentage depletion rates of 27.5 
percent are examples of such policy decisions that resulted in the 
United States extensive development of its petroleum.
    But, the converse is equally true. By 1969, the depletion rate was 
reduced and later eliminated for all producers except independents. 
However, even for independents, the rate was dropped to 15 percent and 
allowed for only the first 1000 barrels per day of petroleum produced. 
A higher rate is allowed for marginal wells which increases as the 
petroleum price drops, but even this is constrained--in the underlying 
code--by net income limitations and net taxable income limits. In the 
Windfall Profits Tax, federal tax policy extracted some $44 billion 
from the industry that could have otherwise been invested in more 
production. Then, in 1986 as the industry was trying to recover from 
the last long petroleum price drop before the 1998-99 crisis, federal 
tax policy was changed to create the Alternative Minimum Tax that 
sucked millions more dollars from the exploration and production of 
petroleum and natural gas. These changes have discouraged capital from 
flowing toward this industry.
    Independent producers historically reinvest over 100 percent of 
American oil and natural gas cash flow back into new American 
    The Obama Administration's budget request--and recurring advocacy 
statements on an almost daily basis--would strip essential capital from 
new American natural gas and oil investment by radically raising taxes 
on American production. American natural gas and oil production would 
be reduced. It runs counter to the Administration's clean energy and 
energy security objectives. The following is a review of some of the 
Obama Administration proposed changes to natural gas and oil taxation.
    Intangible Drilling and Development Costs (IDC)--Expensing IDC has 
been part of the tax code since 1913. IDC generally include any cost 
incurred that has no salvage value and is necessary for the drilling of 
wells or the preparation of wells for the production of natural gas or 
oil. Only independent producers can fully expense IDC on American 
production. Loss of IDC for independent producers will have significant 
effects on their capital development budgets. A Raymond James analysis 
in 2009 reported that the loss of IDC would result in capital drilling 
budgets being reduced by 25 to 30 percent. This compares with 
information provided to IPAA by its members indicating that drilling 
budgets would be cut by 25 to 40 percent. Regardless of the exactness 
of the assessments, clearly, the consequences would be significant. 
And, the consequences would soon be evident. Roughly half of America's 
current natural gas production is provided by wells developed during 
the past four years.
    Percentage Depletion--All natural resources minerals are eligible 
for a percentage depletion income tax deduction. Percentage depletion 
for natural gas and oil has been in the tax code since 1926 after 
Congress determined that relying solely on cost depletion was leading 
to the loss of important American mineral resources. Unlike percentage 
depletion for all other resources, natural gas and oil percentage 
depletion is highly limited. It is available only for American 
production, only available to independent producers and for royalty 
owners, only available for the first 1000 barrels per day (6000 mcfd of 
natural gas) of production, limited to the net income of a property and 
limited to 65 percent of the producer's net income. Percentage 
depletion provides capital primarily for smaller independents and is 
particularly important for marginal well operators. These wells--that 
account for 20 percent of American oil and 12-13 percent of American 
natural gas--are the most vulnerable economically. Input to IPAA from 
its operators who take percentage depletion indicates that the combined 
effect of the Obama Administration proposals on IDC and percentage 
depletion would reduce drilling budgets in half. At this lower rate, 
new production will not offset the natural decline in production from 
existing wells. For example, one producer now drills ten wells per 
year; without IDC and percentage depletion, this producer could only 
drill five wells per year. A five well program will not replace 
declining production in existing wells and the small business company 
will have to shutdown. Congress' choice is straightforward: reduce 
American oil production by 20 percent and its natural gas production by 
12 percent or retain the current historic tax policies that have 
encouraged American production.
    Passive Loss Exception for Working Interests in Oil and Gas 
Properties--The Tax Reform Act of 1986 divided investment income/
expense into two baskets--active and passive. The Tax Reform Act 
exempted working interests in natural gas and oil from being part of 
the passive income basket and, if a loss resulted (from expenditures 
for drilling wells), it was deemed to be an active loss that could be 
used to offset active income as long as the investor's liabilities were 
not limited. Natural gas and oil development require large sums of 
capital and producers frequently join together to diversify risk. 
Additionally, natural gas and oil operators have sought individual 
investors to contribute capital and share the risk of drilling wells. 
Most American wells today are drilled by small and independent 
companies, many of which depend on individual investors. There is no 
sound reason for Congress to enact tax rules that would discourage 
individual investors from continuing to participate in this system. 
Moreover, Congress applied the passive loss rules only to individuals 
and not to corporations. The repeal of the working interest rule, 
therefore, would senselessly drive natural gas and oil investments away 
from individuals and toward corporations. There is no apparent reason 
why Congress would or should favor corporate ownership over individual 
ownership of working interests. Furthermore, since AMT restrictions 
apply to IDC of individual working interest investors, the application 
of the passive loss rules to those investors is unnecessary and 
excessive. In sum, to qualify for the exception, the taxpayer must have 
liability exposure and definitely be at risk for any losses. If income/
loss, arising from natural gas and oil working interests, is treated as 
passive income/loss, the primary income tax incentive for taxpayers to 
risk an investment in natural gas and oil development would be 
significantly diminished. In today's banking climate, smaller producers 
find banks uninterested or incapable of providing capital; taking 
private investors away will further exacerbate the challenge of raising 
capital to sustain American marginal well production.
    Geological and Geophysical (G&G) Amortization--G&G costs are 
associated with developing new American natural gas and oil resources. 
For decades, they were expensed until a tax court case concluded that 
they should be amortized over the life of the well. After years of 
consideration and constrained by budget impacts, in 2005, Congress set 
the amortization period at two years. It also simplified G&G 
amortization by applying the two year amortization to failed as well as 
successful wells; previously, failed wells could be expensed. Later, 
Congress extended the amortization period to five years for large major 
integrated oil companies and then extended the period to seven years. 
Early recovery of G&G costs allows for more investment in finding new 
resources. Congress recognized that America benefitted if capital used 
to explore for new natural gas and oil could be quickly reinvested in 
more exploration or production of American resources, it was in the 
national interest. Nothing has changed to alter that conclusion. If 
anything, current capital and credit limitations enhance the rationale 
to get these funds back into new investment.
    Marginal Well Tax Credit--This countercyclical tax credit was 
recommended by the National Petroleum Council in 1994 to create a 
safety net for marginal wells during periods of low prices. These wells 
as stated above account for 20 percent of American oil and 12 percent 
of American natural gas. They are the most vulnerable to shutting down 
forever when prices fall to low levels. Congress enacted in this 
countercyclical tax credit in 2004 after ten years of consideration. It 
concluded that the nation benefitted if these marginal operations were 
supported during times of low prices, that the production from these 
wells were--in effect--a national resource reserve that would be lost 
forever if the wells had to be shutdown and plugged during difficult 
economic times. No different conclusion is now warranted. A year ago, 
as America faced high energy prices, the clear risk of foreign energy 
dependency was all too evident; America's marginal wells are a first 
defense against more foreign imports. Fortunately, to date, the 
marginal well tax credit has not been needed, but it remains a key 
element of support for American production--and American energy 
    Enhanced Oil Recovery (EOR) Tax Credit--The EOR credit is designed 
to encourage oil production using costly technologies that are required 
after a well passes through its initial phase of production. 
Conventional oil well production declines regularly after it begins 
production. However, millions of barrels of oil remain in formations 
when the initial production phase is over. The 2001 National Energy 
Report indicated that ``anywhere from 30 to 70 percent of oil, and 10 
to 20 percent of natural gas, is not recovered in field development. It 
is estimated that enhanced oil recovery projects, including development 
of new recovery techniques, could add about 60 billion barrels of oil 
nationwide through increased use of existing fields.'' For example, one 
of the technologies is the use of carbon dioxide as an injectant. In 
2006, the Department of Energy studied the potential for using carbon 
dioxide enhanced oil recovery (CO2-EOR) and concluded that: 
``Ten basin-oriented assessments- four new, three updated and three 
previously released- estimate that 89 billion barrels of additional oil 
from currently `stranded' oil resources in ten U.S. regions could be 
technically recoverable by applying state-of-the-art CO2-EOR 
technologies.'' Given the increased interest in carbon capture and 
sequestration, CO2-EOR offers the potential to sequester the 
carbon dioxide while increasing American oil production. Currently, the 
oil price threshold for the EOR tax credit has been exceeded and the 
oil value is considered adequate to justify the EOR efforts. However, 
at lower prices EOR becomes uneconomic and these costly wells would be 
shutdown. The EOR tax credit was enacted in 1990 and provides the 
potential to maintain important US oil production by supporting the 
development of these wells in low price periods.
    The Administration justifies its proposals based on two flawed 
rationales. First, the provision `` . . .  like other oil and gas 
preferences the Administration proposes to repeal, distorts markets by 
encouraging more investment in the oil and gas industry than would 
occur under a neutral system.'' Second, to the extent that the 
provision `` . . . encourages overproduction of oil, it is detrimental 
to long-term energy security and is also inconsistent with the 
Administration's policy of reducing carbon emissions and encouraging 
the use of renewable energy sources through a cap-and-trade program.'' 

    The Administration's second rationale is similarly irrational. 
Production of American oil and natural gas serves the nation's goal of 
improving its energy security. Production of American oil and natural 
gas has been regulated to assure that wells are limited to volumes that 
conserve the long term production of its reservoir. These limitations 
have been entrenched since the mid-1930s. Current production reflects 
the need for American production to be maximized and nothing suggests 
that it should not be. Similarly, the Administration's climate goals of 
reducing carbon emissions and encouraging the use of renewable energy 
sources are enhanced by American natural gas and oil production. 
Natural gas is a clean, abundant, affordable and American resource that 
must be a part of any climate initiative. Oil will continue to be a key 
component of America's energy supply for the foreseeable future and any 
policies should rely first on American oil rather than foreign sources.
    As the Committee considers policies related to America's natural 
gas resources, it must recognize that federal actions can dramatically 
affect the future of the nation's energy security and the nation's 
ability to meet the potential for its economic growth. IPAA urges the 
Committee to support those actions that enhance that future and reject 
the ill-advised calls for adverse restrictions to capital and 
unnecessary federal regulation of production.
    The federal Emergency Planning and Community Right-to-Know Act 
(EPCRA)\1\ was enacted by Congress as Title III to the Superfund 
Amendments and Reauthorization Act of 1986. Adopted in response to 
several highly-visible chemical incidents, EPCRA primarily addresses 
two key issues: (1) support for emergency planning to respond to 
chemical accidents, and (2) ``provid[ing] the public with important 
information on hazardous chemicals in their communities.''\2\ In order 
to achieve its first goal, EPCRA sets up a broad, comprehensive 
framework for emergency planning at the state and local levels. For 
example, EPCRA requires that owners or operators of facilities at which 
hazardous chemicals are present to provide information contained in the 
Material Safety Data Sheets (MSDSs) for these chemicals to various 
state and local authorities. These MSDSs provide a variety of 
information concerning chemical products, including information on 
product composition, the physical and chemical properties of the 
product, potential health hazards and toxicity information, and first 
aid information and other steps to take in the event of a spill of the 
product. Addressing its second goal, EPCRA specifically focuses on 
major chemical and other industrial facilities--those categorized as 
falling within Standard Industrial Classification (SIC) Codes 20 to 39 
(covering only manufacturing operations such as chemical manufacturing, 
automobile manufacturing, etc.)--and requires these facilities to 
report annually to the U.S. Environmental Protection Agency (EPA) 
regarding various releases of specified hazardous chemicals, a form of 
reporting that is commonly referred to as ``Toxic Release Inventory'' 
or ``TRI'' reporting.
    \1\ 42 U.S.C. Sec. Sec.  11001-11050.
    \2\ H. R. Rep. No. 99-962 at 281 (1986), reprinted in 1986 
U.S.C.C.A.N. 3276, 3374.
    EPCRA was specifically enacted in response to the tragic incident 
in Bhopal, India and to domestic chemical release incidents such as one 
that had occurred in Institute, West Virginia. These incidents resulted 
from the atmospheric release of chemicals from large chemical 
manufacturing plants into the surrounding community, raising concerns 
about the risks posed by these releases from large industrial 
facilities.\3\ Based on these incidents, in enacting the TRI provisions 
in Section 313 of EPCRA\4\ Congress specifically focused on the types 
of facilities that created these risks--large chemical production 
plants and other types of concentrated industrial operations using 
significant volumes of hazardous chemicals, particularly where the 
facilities are located in urban environments or other population 
centers. Given this approach, Congress limited the EPCRA Section 313 
reporting requirements only to those facilities that have the 
equivalent of at least 10 full-time employees, are classified as being 
in an industry that has an SIC Code of 20 to 39 (i.e., most 
manufacturing facilities), and have manufactured, imported or processed 
more than 25,000 pounds of any covered toxic chemical or ``otherwise 
used'' more than 10,000 pounds of any such chemical.
    \3\ See, e.g., 132 Cong. Rec. H9595 (Oct. 8, 1986) (statement of 
Rep. Edgar) (``my concerns rest with the families that live in the 
shadow of these chemical and manufacturing plants'').
    \4\ 42 U.S.C. Sec.  11023.
congress did not intend to regulate oil and natural gas exploration and 
                    production under the tri program
    Congress made a conscious decision in enacting the TRI provisions 
of EPCRA in 1986 to focus on the types of large manufacturing 
facilities that were believed to be creating risks to individuals who 
live in the neighborhoods in the vicinity of such facilities. In 
adopting this approach, Congress chose not to impose TRI reporting 
requirements on a wide range of other types of commercial and 
industrial operations, including but certainly not limited to 
facilities involved in the exploration and production of oil and 
natural gas. For example, residential and commercial construction, 
transportation services, and agricultural operations as well as other 
types of decentralized operations were also specifically excluded from 
the scope of the TRI reporting requirements as a result of the 
congressional deliberations.
    Oil and natural gas exploration and production operations in 
particular differ in key respects from the types of manufacturing 
operations on which Congress chose to impose TRI reporting obligations. 
The industrial operations covered by SIC Codes 20-39 which were made 
subject to TRI reporting--including not only chemical manufacturers 
themselves but also manufacturing operations that use chemicals, such 
as motor vehicle, ship, railroad car and aircraft manufacturers, 
manufacturers of electronics and other types of consumer products and 
industrial equipment, manufacturers of materials such as steel, 
plastics and cement and even manufacturers of clothing--typically 
involve manufacturing processes in large, centralized facilities. These 
facilities often use or produce significant quantities of chemicals on 
a consistent, long-term basis and consequently store substantial 
quantities of chemicals as a routine matter. At the same time, these 
manufacturing facilities are often located in urbanized environments 
with many residences surrounding or in close proximity to the 
manufacturing plant. It was these specific types of circumstances, for 
example, that resulted in thousands of nearby residents being exposed 
to the chemicals accidentally released from the chemical manufacturing 
facility in Bhopal.
    In contrast to these concentrated manufacturing operations, oil and 
natural gas exploration and production facilities are generally widely 
scattered. Well pads are spread out through many areas of the country, 
with hundreds or thousands of feet separating individual well pads even 
in those areas with substantial exploration and production activity. In 
addition, these facilities are generally found in rural environments, 
with few if any individuals residing in the vicinity of a well pad 
itself. In fact, many well pads are located in isolated areas far from 
any residential areas. At the same time, the operations at an 
individual well pad typically use very limited amounts of chemicals and 
many uses of chemicals--such as for hydraulic fracturing and other 
stimulation operations--are indeed very short-term. As a result 
operations at individual well pads do not at all create the types of 
significant risks associated with the use of chemicals that are 
specifically posed by large manufacturing operations. Consequently, 
there is no indication that Congress ever intended that highly 
decentralized operations such as oil and natural gas exploration and 
production facilities were to be subject to TRI reporting requirements.
    Moreover, when it first enacted EPCRA Congress gave EPA the 
authority to revisit the scope of the TRI reporting when necessary and 
to add to the categories of facilities that must file TRI reports if 
the Agency deemed it appropriate. Nevertheless, even when EPA 
subsequently decided to expand the scope of the types of facilities 
that must comply with TRI reporting obligations, the Agency again 
decided not to include oil and natural gas exploration and production 
facilities within the scope of this program. In exercising its 
authority, EPA added categories of facilities only when it found that 
these plants engaged in types of activities which are similar to or 
related to the activities conducted at the facilities within the 
manufacturing sector.
    Consistent with this congressionally-directed approach, EPA has 
only added through the years such categories as petroleum bulk 
terminals, wholesaling of chemicals and related products, metal mining, 
facilities engaged in the processing (but not the extraction) of coal, 
solvent recovery services and hazardous waste treatment facilities to 
the industry sectors required to submit TRI reports;\5\ however, EPA 
has specifically rejected adding oil and natural gas exploration and 
production facilities to the list of industry sectors required to 
comply with TRI reporting requirements. In justifying this action, EPA 
stated that ``[t]his industry group is unique in that it may have 
related activities located over significantly large geographic 
areas.''\6\ EPA even noted that for individual well sites, operations 
probably would not have exceeded the thresholds established in the Act 
with respect to the minimum number of employees a particular facility 
must have and the amounts of chemicals it must use in order to be 
subject to the TRI requirements in the first place. Thus, EPA found no 
compelling need to require oil and natural gas exploration and 
production facilities to submit TRI reports, and in fact identified 
significant concerns that might have arisen if it had decided 
    \5\ See 62 Fed. Reg. 23834 (May 1, 1997).
    \6\ 61 Fed. Reg. 33588, 33592 (June 27, 1996).
 tri reporting would be burdensome for oil and natural gas exploration 
   and production facilities and would not yield significant benefits
    If oil and natural gas exploration and production facilities were 
to be subject to TRI reporting, such requirements would be 
unnecessarily burdensome, the usefulness of the data generated by such 
reporting would not justify the costs and those costs, taken together 
with other regulatory burdens, would severely affect the production of 
American oil and natural gas.
    According to its recent analysis of reporting burdens associated 
with TRI reporting, the Agency has estimated that facilities that are 
subject to TRI reporting will spend an average of 48 man hours and over 
$2400 for each ``Form R'' report that must be submitted to EPA.\7\ 
Imposing these types of reporting burdens on operations at individual 
well sites could result in substantial cumulative burdens for well 
operators, many of whom would have to prepare dozens or even hundreds 
of such reports (if they were eventually subjected to these reporting 
obligations) because of the number of individual wells they operate and 
the highly decentralized nature of the operations. These burdens would 
in turn substantially impede the ability of oil and natural gas 
operators to produce adequate supplies of American energy at affordable 
prices. Moreover, these reports would only provide minimal benefit in 
light of the fact the fact that few if any residents would ever be 
exposed to any releases of chemicals from many well sites.
    \7\ EPA, Toxic Release Inventory, TRI Form R Toxic Chemical Release 
Reporting, Information Collection Request Supporting Statement, EPA ICR 
No. 1363.15 at 24 (Dec. 10, 2007
    At the same time, the imposition of such reporting requirements on 
oil and natural gas exploration and production facilities could also 
place substantial administrative burdens on EPA itself and on the TRI 
program generally. EPA currently estimates that approximately 30,000 
facilities throughout the country are subject to TRI reporting 
requirements and will file a total of about 77,000 reporting forms.\8\ 
In contrast, there are over 933,000 operating well sites across the 
country--if any significant portion of these well sites were to become 
subject to TRI reporting, it would obviously result in a dramatic 
increase in the number of reports submitted to the Agency and could 
potentially overwhelm the system with information about facilities that 
pose little risk of the type that EPCRA was designed to address in the 
first place, thereby undermining EPA's ability to focus its attention 
and resources on the types of facilities that Congress actually 
intended to cover--those that pose a potential risk to significant 
    \8\ ICR Supporting Statement at 41.
    In short, Congress intended EPCRA to meet two principal 
objectives--namely, first to provide chemical information for emergency 
planning and response to key state and local governmental agencies, and 
second to focus on large centralized manufacturing operations and 
facilities to obtain information on releases to the environment. Oil 
and natural gas exploration and production activities differ from those 
types of manufacturing operations that are subject to TRI reporting 
obligations in several key respects. First, in contrast to these 
manufacturing facilities, oil and natural gas exploration operations 
are widely scattered and relatively small in scale. Moreover, these 
operations are generally not undertaken near large, urban centers in 
the U.S. Thus, the decision of Congress not to include oil and natural 
gas exploration and production activities within the universe of 
facilities subject to TRI requirements was wholly consistent with 
congressional intent. Indeed, many other commercial and industrial 
sectors were likewise excluded from TRI coverage. In addition, EPA has 
chosen not to add oil and natural gas exploration and production 
activities to the universe of facilities required to comply with TRI 
reporting obligations because there is no compelling reason to impose 
new reporting burdens that would provide no significant benefit and 
that would only serve to drive up the cost of oil and natural gas 
                       ENCLOSURE--CLEAN WATER ACT
    Congress passed the Federal Water Pollution Control Act Amendments 
of 1972 to address pollution of the nation's rivers, lakes, streams and 
ocean waters, with the ultimate goal of eliminating all discharges of 
pollutants into those waters.\1\ Commonly referred to as the federal 
Clean Water Act (CWA), this federal water pollution law is aimed at 
achieving the national goal of making our nation's waters safe for 
swimming and fishing. To achieve these objectives, the CWA regulates 
the discharges of pollutants into the ``waters of the United States'' 
from municipal, industrial and other sources (e.g., persons filling 
wetlands or concentrated animal feeding operations such as feedlots). 
The Act also includes provisions that are designed to prevent spills of 
oil and hazardous substances from entering and contaminating national 
waterways and that assign liability for cleaning up spills that do 
    \1\ 33 U.S.C. Sec. Sec.  1251-1387.
    As a key part of this overall framework, the CWA authorized the 
implementation of the National Pollutant Discharge Elimination System 
(NPDES) program, which established a system for the issuance of permits 
to control discharges of pollutants into the navigable waters and their 
tributaries from wastewater treatment plants, industrial facilities and 
other ``point sources.'' These permits establish limits on the amounts 
of pollutants that a facility may have in the wastewater it discharges 
to a stream, river, lake or other regulated surface water and set forth 
permit conditions that require monitoring of discharges and reporting 
to the appropriate permitting authority. The authority to issue these 
NPDES permits has largely been delegated to the states, most of which 
have developed their own wastewater discharge permitting programs.
    At the same time, the CWA established a system for addressing 
spills of oil and hazardous substances that is largely implemented by 
the federal government through the U.S. Environmental Protection Agency 
(EPA) and other agencies such as the U.S. Coast Guard. The CWA 
prohibits the discharge of harmful quantities of oil or hazardous 
substances into or on U.S. surface waters or adjoining shorelines and 
imposes liability for any spill that contaminates these surface waters 
on the owner and operator of the vessel or on-shore facility that was 
the source of the spill. The Act also requires that the owners and 
operators of vessels and facilities from which oil or hazardous 
substances could be spilled in harmful quantities prepare plans--known 
as Spill Prevention, Control and Countermeasure (SPCC) Plans--for 
preventing these types of spills and outlining measures that are to be 
taken if a spill does occur.
    Oil and natural gas exploration and production operations are 
subject to regulation under the Clean Water Act in various ways. Among 
other things, any discharges of wastewaters such as produced waters 
from well sites to navigable waters or their tributaries are fully 
subject to the NPDES permit requirements under the CWA. In addition, 
stormwater runoff from a well site that contains pollutants is subject 
to the same permitting requirements that are imposed on stormwater 
discharges from various industrial facilities under the CWA. Moreover, 
oil and natural gas exploration and production facilities are fully 
subject to the spill requirements of the CWA, including the need to 
prepare SPCC plans to minimize any potential for spills that could harm 
nearby waters.
   the exemption from stormwater permitting requirements for oil and 
                natural gas exploration is quite limited
    In adopting the CWA, Congress has at various times considered how 
the provisions of the Act should apply to oil and natural gas 
exploration and production activities in light of the unique 
circumstances of well sites so as not to unnecessarily impede vital 
energy production. For example, in fashioning the scope of the 
stormwater permit program included in the CWA in 1987, Congress 
specifically considered how these new permitting requirements should 
specifically apply to stormwater runoff from oil and natural gas 
exploration and production facilities.\2\ Following its review Congress 
determined that it was appropriate to provide a limited exemption from 
stormwater permitting requirements for oil and natural gas exploration 
and production sites because of their unique nature. This exemption 
applies only in those specific situations where the stormwater runoff 
is not contaminated by and does not come into contact with raw 
materials, intermediate or finished products, byproducts or waste 
products in the first place. Thus, if the stormwater runoff from an oil 
or natural gas well site is contaminated with materials such as oil, 
grease or hazardous substances, the operator of the well site is not 
exempt from the regulations under the CWA and must still obtain permit 
coverage from EPA or from the appropriate state permitting authority 
under the NPDES program.
    \2\ 33 U.S.C. Sec.  1342(l)(2).
    In enacting this limited permitting exemption, Congress recognized 
that oil and natural gas operators were already taking the proper steps 
to control stormwater runoff from well sites and other facilities. 
Congress also recognized that if such runoff was uncontaminated there 
was little more to be gained by requiring operators to incur the costs 
and potential delays of obtaining a new burdensome permit. Therefore, 
the congressional committee responsible for fashioning the stormwater 
permit program concluded that:

          to avoid penalizing operators for using good management 
        practices designed to prevent or minimize pollution and for 
        making expenditures to prevent stormwater run-off 
        contamination, uncontaminated stormwater diversion devices 
        should not be regulated under the permit scheme of the Act.\3\
    \3\ H.R. Rep. No. 99-189, at 37 (1985).

    Consequently, ``[w]ith this limitation on the permitting 
requirements for such stormwater runoff, important oil [and] gas . . .  
operations will be able to continue without unnecessary paperwork 
restrictions . . . .''\4\
    \4\ 133 Cong. Rec. H171 (daily ed. Jan. 8, 1987) (statement of Rep. 
    At the same time, decided in 1987 to extend these stormwater 
permitting requirements in general to construction projects. EPA 
initially determined that these stormwater permitting requirements 
should apply to construction projects that disturb more than five 
acres. Moreover, EPA also determined that oil and natural gas well 
sites being prepared for drilling should be treated as construction 
sites and not as oil and natural gas sites subject to the limited 
exemption from stormwater permitting requirements. Even after EPA 
eventually lowered the threshold for the applicability of the 
stormwater permitting requirements to construction activities from five 
acres to one acre in response to litigation, the Agency believed that 
relatively few oil and natural gas sites that were being developed 
would fall under the NPDES stormwater permitting requirements. However, 
it eventually became clear that this fundamental assumption was 
entirely wrong--in fact, members of the oil and natural gas industry 
subsequently made EPA aware that close to 30,000 oil and natural gas 
sites annually could be subject to stormwater permitting under EPA's 
interpretation. Given this key information, EPA decided to reassess 
whether thousands of oil and natural gas sites that were just being 
prepared for drilling should indeed be subject to the burdens of the 
NPDES stormwater permitting program.
    This issue was eventually resolved by Congress in the Energy Policy 
Act of 2005 (``EPAct''). In light of the significant implications of 
any permitting requirements for energy production, Congress clarified 
in the EPAct that the limited exemption from stormwater permitting 
requirements for oil and natural gas exploration and production 
operations originally included in the 1987 amendments to the CWA should 
indeed extend to construction-related activities at oil and natural gas 
sites, including activities that are necessary to prepare a site for 
drilling for oil or natural gas.
    In taking this action, Congress rejected the notion that there 
should be different standards applied for oil and natural gas 
construction sites and simply subjected the process of preparing oil 
and natural gas sites for drilling to the same standards for stormwater 
permitting that already apply once drilling and production commence. In 
doing so, Congress continued to provide an exemption from permitting 
requirements that is limited in scope, i.e., again if stormwater runoff 
from sites being prepared for drilling is contaminated with pollutants 
such as oil or hazardous substances, the permitting exemption does not 
apply and the operator is still required to obtain permit coverage for 
such discharges. It is only when the stormwater runoff from oil and 
natural gas sites--including runoff associated with construction 
activities at these sites--is uncontaminated that operators are exempt 
from permitting requirements. Under these circumstances, a requirement 
that an operator obtain permit coverage would serve little purpose 
other than imposing unnecessary and unjustified regulatory burdens--and 
the associated costs--on oil and natural gas exploration and production 
and would only serve to unreasonably impede the development of American 
energy supplies.
    Even with this limited exemption, there are still many layers of 
other effective controls currently in place which act to ensure that 
stormwater flows off of oil and natural gas sites do not adversely 
affect human health and the environment. One layer of control is the 
standard management practices already adopted by the oil and natural 
gas industry itself to control stormwater runoff. In fact, EPA has 
readily acknowledged that the oil and natural gas industry has already 
implemented effective practices to prevent soil erosion and runoff 
associated with the preparation of sites for drilling and other 
construction activities. The Agency has stated that these industry 
practices ``result in practical, cost-effective approaches that are 
flexible enough to address the variety of situations and water quality 
concerns that might be encountered in the field.''\5\
    \5\ 71 Fed. Reg. at 33633.
    At the same time, states still retain their inherent governmental 
powers to exercise regulatory controls should they become concerned 
about the impact of sediment or other discharges from oil and natural 
gas site operations. In fact, many states with active oil and natural 
gas exploration and production activity already have requirements in 
place independent of their NPDES programs to effectively address 
sediment and erosion control at oil and natural gas sites. For example, 
the State of West Virginia requires the use of BMPs at sites being 
prepared for drilling activity consistent with the erosion and sediment 
control field manual issued by the Office of Oil and Gas of the West 
Virginia Department of Environmental Protection. These requirements 
have proven to be very effective and efficient in ensuring that any 
concerns about sediment deposition are properly addressed. These state 
programs are consistent with the national policy set forth in the CWA 
of preserving the primary responsibilities and rights of the states to 
prevent, reduce and eliminate pollution and to plan the development and 
use of land and serve to supplement the federal permitting programs 
already in place.
                            spcc regulation
    EPA has likewise considered how to apply various other provisions 
of the CWA to oil and natural gas exploration and production 
activities. For example, in promulgating regulations for the SPCC 
program, EPA has only taken very limited actions to accommodate the 
unique circumstances of well sites. As noted above, oil and natural gas 
production facilities are subject to the oil spill provisions of the 
CWA and operators of well sites must therefore prepare SPCC plans for 
their well sites if they meet the same criteria that apply to all 
facilities, i.e., more than a specified amount of oil can be stored on 
the site and if spilled the oil could enter a surface water in harmful 
quantities. The SPCC plan must specify operating procedures that the 
facility uses to prevent oil spills as well as control measures to 
prevent any oil spill from reaching nearby waters and measures to 
contain and clean up any spill that does reach nearby waters or their 
shorelines. Like the owners and operators of other types of facilities 
that are subject to these oil spill requirements, operators of well 
sites must report spills of oil to the proper authorities and are 
responsible for cleaning up and restoring the affected area in the 
event of a spill.
    However, when EPA amended its SPCC regulations in 2002, it imposed 
requirements on oil and natural gas exploration and production 
facilities that were subsequently found to be unduly restrictive and 
burdensome. Accordingly, as part of its revisions to the SPCC 
regulations in 2008, EPA modified certain requirements applicable to 
well sites to provide the operators of these sites with greater 
flexibility in meeting the regulatory requirements while continuing to 
balance the need to ensure that that the potential for any spills of 
oil or hazardous substances from well sites that may reach navigable 
waters is appropriately minimized against the unnecessary burdens 
imposed by new regulations on the production of American oil and 
natural gas resources. These amendments remain subject to public 
comment and may be further revised before they are finalized.
    As can be seen, oil and natural gas exploration and production 
activities are subject to key regulatory requirements imposed by the 
CWA. However, both Congress and EPA have taken reasonable steps to 
minimize unnecessary burdens on oil and natural gas production without 
compromising substantive environmental protection. The congressional 
action in the EPAct extending the limited NPDES stormwater permitting 
exemption to cover drilling and construction-related activities was not 
an attempt to provide special treatment for oil and natural gas sites; 
rather, it was an effort to clear up the unnecessary confusion and make 
sure that these activities were subject to the same standards that 
already apply to oil and natural gas operations themselves. This 
congressional action did not expand any permitting exemptions for these 
operations and the NPDES permitting exemption continues to remain 
limited in scope and apply only where stormwater runoff is not 
contaminated, just as was the case before the passage of the EPAct. 
Likewise, well sites remain subject to the oil spill provisions of the 
SPCC and recent EPA amendments to the SPCC regulations simply represent 
an effort to minimize the impacts of these regulations on oil and 
natural gas production without limiting critical environmental 
protections for the nation's waters.
    The National Environmental Policy Act (NEPA)\1\ was enacted on 
January 1, 1970 in order to establish a national environmental policy 
to be implemented by all federal agencies across the government. Viewed 
as a landmark piece of legislation, NEPA was enacted in order to: (1) 
formally declare a national policy which will encourage productive and 
enjoyable harmony between man and his environment; (2) to promote 
efforts which will prevent or eliminate damage to the environment and 
biosphere and stimulate the health and welfare of man; and (3) to 
enrich the understanding of the ecological systems and natural 
resources important to the nation.
    \1\ 42 U.S.C. Sec. Sec.  4321-4347.
    NEPA imposes a number of key requirements on federal governmental 
agencies in order to achieve these goals. For example, as a general 
matter, the federal government is required to use all practicable means 
to preserve and maintain conditions under which human beings can 
coexist with the natural world in productive harmony. In addition, 
federal agencies are specifically required to lend appropriate support 
to initiatives and programs meant to prevent the degradation of the 
environment, as well as to directly incorporate environmental 
considerations in their decision making, using a systematic, 
interdisciplinary approach.
    Perhaps the most significant element of NEPA is the requirement 
that federal agencies prepare an environmental impact statement (EIS) 
for those actions which are classified as ``major federal actions that 
will significantly affect the quality of the human environment.'' An 
EIS is an in-depth analysis, often several hundred pages in length, of 
the potential environmental impacts associated with a federal action. 
The EIS also examines alternatives to the proposed action and the 
environmental impacts of those alternatives. This requirement 
concerning the preparation of an EIS addresses the federal decision-
making process by creating methods for stakeholders to present 
information and concerns regarding the environmental aspects of various 
federal actions. However, NEPA's EIS requirements are procedural in 
nature; specific environmental standards are addressed under federal or 
state regulatory laws such as the Clean Water Act or the Clean Air Act.
    As directed under NEPA, the federal Council on Environmental 
Quality (CEQ) has promulgated the necessary regulations to implement 
the requirement to prepare these EISs in those cases where major 
Federal actions are proposed. Under these regulations CEQ has specified 
that the federal actions that are potentially subject to these EIS 
requirements are defined broadly to include such actions as federal 
construction projects, the issuance of federal permits and leases, and 
federal funding of state, local or private actions, among various other 
types of federal projects. However, while federal actions are generally 
subject to NEPA, not every federal action requires an EIS; rather, only 
federal actions significantly affecting the quality of the human 
environment must have an EIS.
    In fact, in many cases various federal actions may be exempted from 
the EIS requirement through one of two mechanisms. First, the CEQ 
regulations authorize federal agencies to specifically identify various 
categories of actions that by their nature do not have a significant 
impact on the environment in the first place; these categories of 
activities are generally referred to as ``categorical exclusions.'' 
Most federal agencies have developed their own ``categorical 
exclusions'' that cover a wide variety of routine federal actions, 
including such actions as maintenance activities on federal properties, 
oversight of state environmental programs, and inspections and 
enforcement activities. Any federal actions which fall under a 
categorical exclusion do not require any specific environmental 
analysis and are not subject to EIS requirements.
    Second, for those actions that are not covered by a categorical 
exclusion, CEQ regulations authorize agencies to prepare a limited 
analysis, commonly known as an Environmental Assessment (EA), which 
generally amounts to a very preliminary review of the possible impacts 
of a proposed federal action on human health and the environment. The 
purpose of an EA is to determine whether a federal action will have a 
significant impact on the environment, which would trigger the need for 
an EIS. If the conclusion of the EA is that an action would not 
significantly affect the human environment, the federal agency may then 
issue a Finding of No Significant Impact (FONSI), which concludes the 
agency's NEPA obligations for that action and in these cases the 
federal agency is not required to continue to prepare an EIS in order 
to satisfy NEPA.
  congress has not provided an unwarranted nepa exemption for oil and 
                          natural gas projects
    In an effort to facilitate the prudent development of our nation's 
energy supplies and to move toward energy independence, Congress sought 
to reach a careful balance in the Energy Policy Act of 2005 (EPAct) 
between encouraging oil and natural gas development and assuring the 
protection of human health and the environment. As part of this 
approach, Congress established under Section 390 of EPAct a rebuttable 
presumption that activities related to oil and natural gas development 
on federal land or pursuant to leases of federal interests in oil and 
natural gas reservoirs should be subject to a categorical exclusion 
under NEPA; in these cases the cognizant federal agency would not be 
required to prepare an EIS or an EA. Under EPAct, this rebuttable 
presumption applies where:

   the surface disturbance associated with the activity is less 
        than five acres so long as the total disturbance on a lease 
        area is less than 150 acres and a site-specific analysis under 
        NEPA (i.e., an EA or an EIS) has previously been prepared;
   an oil or natural gas well is being drilled at a location 
        where drilling has previously occurred within the last five 
   an oil or natural gas well is being drilled within a 
        developed field where the drilling activity has been analyzed 
        within the last five years in an approved land use plan or an 
        EA or EIS prepared under NEPA;
   a pipeline is being placed in an approved corridor; or
   the activity consists of maintenance.

    As can be seen, this EPAct requirement cannot be viewed as a 
substantial ``carve-out'' from NEPA--rather it provides a well-
reasoned, limited categorical exclusion that avoids unnecessary, 
duplicative, and costly EIS requirements for those oil and natural gas 
projects that would be deemed to have minimal impacts in the first 
place or have already been adequately studied in other prior NEPA 
reviews. For certain oil and natural gas projects EPAct Section 390 
creates a rebuttable presumption that a NEPA review is not required in 
connection with an Application for Permit to Drill at a specific well 
site where an EA or EIS has already previously examined the potential 
impacts of drilling in the area in which the proposed drilling site is 
located. In other cases this section would simply clarify that no site-
specific environmental review is necessarily required in two situations 
where environmental impacts would be minimal in any event, i.e., where 
the drilling will be conducted on a site that is already disturbed or 
where the only activity being undertaken is maintenance.
    In essence, this provision attempts to strike a balance and is 
indeed quite narrow in scope--it does not at all represent a complete 
exclusion from NEPA requirements for these types of oil and natural gas 
activities. Instead, in enacting Section 390 Congress has established 
only a limited categorical exclusion from the EIS requirements for a 
set of oil and natural gas activities that have already been subject to 
environmental review or are the types of activities that normally have 
minimal environmental impacts. In fact, in any given case the federal 
agency overseeing the activity could nevertheless still decide to 
prepare an analysis of the potential environmental impacts of drilling 
at a well site in the form of an EA or EIS because of particular 
concerns about that impacts at that location.
    In any event, because it only applies to the activities or actions 
of federal agencies or activities on federal lands, NEPA would still by 
its own terms have no application to many oil and natural gas drilling 
operations in the first place even in the absence of the congressional 
action taken in EPAct. For example, NEPA would not apply to most 
drilling activities in the Marcellus Shale in the Northeast, the 
Barnett Shale in Texas, or the Fayetteville Shale in Arkansas, where 
the federal government owns relatively little land and few rights to 
subsurface oil and natural gas. Likewise, it would have no 
applicability to drilling in the coalbeds of the Black Warrior Basin in 
Alabama since drilling activity there is undertaken solely on private 
       federal agencies will continue to protect the environment
    While Congress has acted to reasonably streamline the NEPA approval 
process for oil and natural gas drilling activities, this action does 
not at all suggest that the federal government is actually attempting 
under EPAct to abdicate its responsibilities to ensure that these 
activities are undertaken in a manner protective of human health and 
the environment--rather, just the contrary is true. In fact, the two 
principal federal land management agencies--the U.S. Bureau of Land 
Management (BLM) and the U.S. Forest Service (USFS--part of the U.S. 
Department of Agriculture (USDA))--with responsibilities over federal 
lands where oil and natural gas operations are undertaken have at the 
same time also adopted specific policies under NEPA and other 
applicable federal land management statutes to ensure that ongoing 
operations are conducted in a manner fully protective of human health 
and the environment and in accordance with federal environmental 
policies. For example, BLM has formally stated as part of its agency 
policy that it will:

   conduct on-site inspections of all proposed drilling 
        locations even where a categorical exclusion under NEPA 
   review an Application for Permit to Drill in the same 
        fashion as would have been done in the absence of a categorical 
   continue to consult, where appropriate, with the U.S. Fish 
        and Wildlife Service, state historic preservation offices and 
        other officials regarding the potential impacts of drilling 
        activities; and
   apply mitigation measures identified in previously prepared 
        EAs or EISs in order to minimize the environmental impacts of 

    Similar to BLM, USDA (which includes the USFS) also has emphasized 
in its operational agency policies that the Department will continue to 
ensure that oil and natural gas drilling activities use best management 
practices in order to minimize the effects of these activities on 
surface resources and prevent unnecessary or unreasonable surface 
resource disturbances, stating that:

          It is critical to note that use of Section 390 in no way 
        limits or diminishes the Forest Service's substantive authority 
        or responsibility regarding review and approval of a [Surface 
        Use Plan of Operations] . . . . The Authorized Forest Officer 
        will continue to assure that operations on leaseholds on 
        National Forest System lands will minimize effects on surface 
        resources and prevent unnecessary or unreasonable surface 
        resource disturbance, including effects to cultural and 
        historical resources and fisheries, wildlife and plant habitat. 
        Best management practices are to be applied as necessary to 
        reduce impacts of any actions approved under these categorical 
    In sum, the EPAct was not intended to be integrated as a new 
government policy to excuse oil and natural gas projects from key 
environmental reviews; rather, Congress enacted Section 390 of the 
EPAct merely to eliminate unnecessary, redundant and costly 
environmental reviews for certain types of oil and natural gas drilling 
projects in an effort to streamline the approval process for the 
construction and operation of energy projects that will move our nation 
toward energy independence. In fact, while Congress authorized the 
adoption of a process to exempt certain oil and natural gas projects 
from further NEPA scrutiny in certain cases, this exemption was quite 
narrowly drawn and therefore only applies to a limited number of energy 
projects. It was based on a close review of the estimated impacts of 
these proposed projects in light of actual experience and represents a 
careful balance with respect to encouraging necessary energy 
development while protecting human health and the environment. In any 
event, even in those cases where these categorical exclusions from NEPA 
may apply, the relevant federal land management agencies have 
emphasized that they still continue to take steps to ensure that the 
use of the categorical exclusions will not result in any lessening of 
substantive environmental protections--that is, the permits will 
continue to have specific provisions to manage the environmental risks 
of oil and natural gas development. As a result Section 390 of EPAct 
does not sacrifice environmental protections but simply expedites the 
production of vital American supplies of oil and natural gas that is 
needed for our country.
    Enacted in 1976, the Resource Conservation and Recovery Act 
(RCRA)\1\ was passed to achieve three key goals: namely, to (1) 
conserve energy and natural resources, (2) reduce or eliminate the 
generation of hazardous waste as expeditiously as possible, and (3) 
protect human health and the environment. Congress subsequently amended 
RCRA in 1980 to address a number of key new issues raised in 
implementing this law, and then again in 1984 when it adopted the 
Hazardous and Solid Waste Amendments (HSWA) Act; HSWA established 
further waste cleanup and corrective action requirements, restrictions 
that prohibit the disposal of certain wastes in or on the land unless 
the wastes comply with specified treatment standards and/or waste 
constituent levels, and various other technical requirements for the 
management and disposal of solid and hazardous wastes.
    \1\ 42 U.S.C. Sec. Sec.  6901-6992K.
    One of the key portions of RCRA--Subtitle C--is intended to 
effectively control the management and disposal of hazardous waste from 
``cradle to grave.'' The waste management framework established by 
Subtitle C is designed principally to address ``low volume,'' ``high 
toxicity'' wastes generated at one site and transported to another for 
disposal. Consistent with this framework, RCRA bans the disposal of 
``hazardous wastes''--which are broadly defined under the statute--at 
facilities without valid permits. In order to obtain a permit, any new 
treatment, storage or disposal facility must meet stringent 
specifications for handling RCRA Subtitle C or hazardous wastes. 
Permitted facilities are subject to a wide range of management 
standards mandating ground-water protection, facility closure, and 
post-closure care requirements. Other specific management standards 
apply to targeted waste management units such as containers, tanks, 
surface impoundments, waste piles, land treatment units, landfills and 
    RCRA also establishes a comprehensive system designed to closely 
track the generation, storage, transport and disposal of Subtitle C 
wastes. Any company which generates these wastes above certain 
threshold amounts must register with EPA and/or an authorized state 
agency and comply with their requirements. These generators also must 
satisfy applicable recordkeeping and waste marking, labeling and 
placarding requirements in preparing wastes prior to shipment for off-
site disposal. The Act provides that EPA may delegate to the states the 
authority to administer and enforce these various regulatory 
requirements and in the case of most states, the Agency has done so.
    Taken together, the Subtitle C requirements impose costly and 
rigorous limitations--constraints that were made more demanding by the 
1984 HSWA Act. However, RCRA's broad definition of hazardous waste had 
the effect of expanding RCRA's scope well beyond the ``low volume,'' 
``high toxicity'' wastes it was originally designed to cover.
congress did not intend to regulate oil and natural gas exploration and 
                      production wastes under rcra
    As a result of regulations proposed by EPA in 1978 to implement the 
1976 Act, Congress recognized that certain types of wastes presented 
unique issues and were most likely not well suited to regulation under 
EPA's highly prescriptive Subtitle C regulatory scheme. These concerns 
particularly applied to those wastes that were produced in substantial 
volumes but also had relatively low toxicity. In fact, these wastes 
posed management issues that were far different than the issues posed 
by Subtitle C wastes generated by manufacturing and other industrial 
operations under routine circumstances.
    One particular category of these ``high-volume, ``low-toxicity'' 
wastes consisted of drilling fluids, produced waters and other wastes 
associated with the exploration and production of oil and natural gas. 
In the course of early deliberations concerning potential amendments to 
RCRA, Congress specifically considered regulations for these categories 
of wastes that had previously been proposed by EPA. However, after 
careful deliberation Congress found that the extensive regulatory 
program proposed by EPA to regulate drilling fluids, produced waters 
and related wastes, i.e., wastes generated from oil and natural gas 
exploration and production operations, could have a significant 
economic impact on American oil and natural gas production.\2\ 
Moreover, Congress also recognized that the large volumes of these 
wastes really could not be handled by existing waste management units. 
Based on these concerns, Congress concluded that these wastes should be 
subject to a different regulatory scheme than other more ``mainstream'' 
Subtitle C wastes.
    \2\ S. Rep. No. 96-172 at 6 (1980), reprinted in 1980 U.S.C.C.A.N. 
5019, 5024-25.
 epa has concluded that regulation of oil and natural gas exploration 
and production wastes under the subtitle c waste management program is 
                            not appropriate
    Congress specifically considered the proper way to handle these 
``high-volume,'' ``low-toxicity'' wastes in addressing changes to RCRA 
in 1980. After considering a wealth of information, Congress decided 
that instead of specifically including these wastes under the general 
Subtitle C waste management program, EPA should instead set up a 
specialized way to address the need for any regulatory controls for 
these wastes. As part of this specified process, Congress first 
required EPA to study how these wastes were being managed by the states 
at that time and whether such existing management practices were 
adequate in light of the nature of these wastes. As part of this 
process, EPA was specifically required to look at the sources and 
volume of drilling fluids, produced water and other ``high-volume,'' 
``low-toxicity'' wastes associated with oil and natural gas exploration 
and production; potential risks to human health and the environment 
from surface runoff or leaching from these wastes; existing disposal 
practices, alternatives to such practices and the costs of these 
alternatives; and the impact of any alternatives on oil and natural gas 
exploration and production.
    Once this study was completed, EPA was required to submit it to 
Congress for its review. EPA was further required under this 
specialized process to make a determination within six months from the 
time the report was given to Congress regarding whether the imposition 
of any additional regulatory controls on ``high-volume,'' ``low-
toxicity'' wastes was warranted. In the event that the Agency 
subsequently determined that drilling fluids, produced waters and 
related categories of wastes should be regulated under the standard 
RCRA Subtitle C waste management controls, Congress directed that any 
regulations implementing such a decision would not become effective 
unless specifically approved by Congress. In amending RCRA in 1980 
Congress applied a similar process to other similar types of ``high-
volume,'' ``low-toxicity'' waste such as fly ash waste and slag wastes, 
noting that such amendments were necessary to ``bring the 
implementation of the Act closer to the original intent of 
    \3\ S. Rep. No. 96-172 at 2, reprinted in 1980 U.S.C.C.A.N. at 
    As a result of this mandated study, EPA subsequently determined 
that ``high-volume,'' ``low-toxicity'' wastes associated with oil and 
natural gas production should not be regulated under the RCRA Subtitle 
C waste management program. In reaching this conclusion, the Agency 
first confirmed that the wastes produced in connection with oil and 
natural gas exploration and production were being produced in 
substantial quantities. For example, EPA found that 361 million barrels 
of drilling waste were generated in 1985 as the result of drilling 
activities at about 70,000 well sites and that over 800,000 active well 
sites generated 20.9 billion barrels of produced water. Perhaps even 
more important, EPA also found in this study that a wide range of 
practices for the management of such waste had already been effectively 
adopted under various state regulatory programs as a result of widely 
varying geological, ecological, topographic, economic, geographic and 
other differences among well sites.
    Based on these findings EPA's study came to the conclusion that 
imposing any form of RCRA Subtitle C waste management controls on these 
types of oil and natural gas exploration and production wastes was not 
effective and would not only result in substantial economic hardships 
for the oil and natural gas industry, but would also place severe and 
undue administrative burdens on regulated oil and natural gas companies 
and regulatory authorities themselves. For example, EPA's 1988 study 
found that:

   imposing strict Subtitle C waste management controls on the 
        handling and management of ``high-volume,'' ``low-toxicity'' 
        wastes could impose costs on the oil and natural gas industry 
        exceeding $6.7 billion;
   imposing these controls could also lead to declines in oil 
        and natural gas production of up to 12 percent and costs to 
        consumers of approximately $4.5 billion;
   the current RCRA program did not provide adequate 
        flexibility for addressing this specialized class of wastes;
   regulating oil and natural gas exploration and production 
        wastes under the strict Subtitle C waste management controls 
        could lead to severe permitting delays that would disrupt 
        production of vital American energy supplies and could severely 
        strain the existing capacity of facilities authorized to treat 
        and dispose of hazardous wastes;
   existing state and federal regulatory programs were 
        generally adequate to manage oil and natural gas wastes and any 
        gaps in these regulatory programs could be effectively 
        addressed by regulation under RCRA programs for non-hazardous 
        waste (Subtitle D) and by working with the states on their 
        regulatory programs;
   the state regulatory programs were specifically tailored to 
        the unique circumstances of the oil and natural gas industry 
        and it would be impractical and inefficient to impose the 
        relatively inflexible RCRA Subtitle C waste regulations on oil 
        and natural gas exploration and production wastes because of 
        the potential for disrupting these state regulatory programs; 
   substantial burdens would be imposed on EPA and state 
        regulatory authorities if even a small percentage of the 
        hundreds of thousands of oil and natural gas exploration and 
        production facilities were required to obtain permits to treat, 
        store or dispose of waste under the RCRA Subtitle C waste 
        management program. \4\
    \4\ 53 Fed. Reg. 25446 (July 6, 1988).

    In light of this independent review, EPA's decision not to regulate 
these ``high-volume,'' ``low-toxicity'' wastes from oil and natural gas 
exploration and development was a careful decision based on sound 
science and technical support. In the years since it made its original 
determination, EPA has still not found it necessary to revisit its 
determination or change its conclusions regarding the inappropriateness 
of regulating these oil and natural gas wastes under the RCRA Subtitle 
C waste management system.
    At the same time, consistent with its prior determination EPA has 
continued to work with state regulatory officials to ensure that state 
regulatory programs remain adequate to address any issues with respect 
to the control and disposition of these wastes. For example, in 1988 
the Agency initiated a program in cooperation with state regulators to 
review state programs for the regulation of oil and natural gas 
exploration and production waste on a periodic basis. This process has 
now been formalized through the State Review of Oil & Natural Gas 
Environmental Regulations (STRONGER), which involves representatives of 
state and federal regulatory agencies, industry and environmental 
advocacy organizations. As part of this review process, state 
regulatory programs are compared to a set of national guidelines which 
is regularly updated in order to identify areas for improvement in 
existing state programs. More than 30 reviews of state programs 
responsible for the regulation of over 85 percent of American onshore 
oil and natural gas production have been conducted under this process.
    In enacting RCRA and overseeing its implementation, Congress 
recognized that certain types of ``high-volume,'' ``low-toxicity'' 
waste such as the drilling fluids, produced waters and other wastes 
produced in connection with the exploration and production of oil and 
natural gas are different in key respects from the types of wastes 
typically managed under the RCRA Subtitle C regulatory program and that 
it may not be appropriate to subject such wastes to the strict 
requirements of that program. After careful study EPA has again 
subsequently confirmed that it would be impractical, costly and 
disruptive to manage these oil and natural gas wastes under the RCRA 
Subtitle C waste regulations. The decision not to regulate oil and 
natural gas exploration and production wastes as Subtitle C wastes 
under RCRA reflects the nature of those wastes and the reality that the 
RCRA Subtitle C regulatory program is not designed to and was never 
intended to address these wastes in the first place.
    Congress enacted the federal Safe Drinking Water Act (SDWA)\1\ in 
1974 to ensure that water supply systems serving the public meet 
appropriate standards to protect the public health. As part of SDWA, 
the U.S. Environmental Protection Agency (EPA) is required to establish 
(1) national drinking water regulations to address contaminants that 
might adversely affect human health, and (2) an Underground Injection 
Control (UIC) program to protect underground sources of drinking water 
from contamination. To address these requirements, EPA has implemented 
a program for the treatment and disinfection of water supplies that 
must be met by public water supply systems across the country and also 
has established standards for maximum levels of various contaminants 
that may be found in drinking water provided to the public (these are 
known as maximum contaminant levels or MCLs). SDWA also specifies that 
EPA may delegate to the states the authority to enforce drinking water 
regulations and to issue UIC permits if the state has a program in 
place that meets certain minimum requirements established by Congress, 
and in fact these federal programs are now largely administered by the 
    \1\ H.R. Rep. No. 93-1185 (1974), reprinted in 1974 U.S.C.C.A.N. 
6454, 6481.
    Similar to other landmark federal laws passed at that time, SDWA 
was specifically intended to cover the disposal of wastes that might 
threaten underground sources of drinking water (USDWs) and not 
production-related operations themselves. Congress initially passed 
SDWA based on its recognition that various industrial and agricultural 
practices had resulted in increased concentrations of potentially 
harmful chemicals that were entering the nation's drinking water 
sources.\2\ For example, in the key congressional report from the U.S. 
House of Representatives Committee on Interstate and Foreign Commerce 
accompanying the 1974 law, this congressional committee recognized the 
concerns of the U.S. Geological Survey and the Bureau of Mines 
regarding the ``indiscriminate `sweeping of our wastes underground''' 
and noted that these wastes were coming from many sources, such as 
municipalities that ``increasingly engag[e] in underground injection of 
sewage, sludge and other wastes. Industries are injecting chemicals, 
byproducts and wastes. . . . Even government agencies, including the 
military, are getting rid of difficult to manage waste problems by 
underground disposal methods.''\3\ Consistent with this view, the 
intended focus of the UIC program when it was originally enacted as 
part of SDWA in 1974 was on managing the discharge of wastes into 
geologic formations. In order to ensure that this issue was effectively 
addressed, SDWA was specifically designed to establish a federal-state 
partnership to ``protect drinking water from contamination by the 
underground injection of waste.''\4\
    \2\ H. R. Rep. No. 93-1185 (1974), reprinted in 1974 U.S.C.C.A.N. 
6454, 6459.
    \3\ H.R. Rep. No. 93-1185 (1974), reprinted in 1974 U.S.C.C.A.N. 
6454, 6481.
    \4\ Natural Resources Defense Council v. U.S. Environmental 
Protection Agency, 824 F.2d 1258, 1268 (1st Cir. 1987).
congress did not intend to regulate hydraulic fracturing under the uic 
    At the same time, Congress did not intend that the UIC program 
would be extended to regulate wells that are themselves used for the 
production of oil or natural gas. In considering SDWA, Congress 
recognized that many states already had vigorous regulatory programs in 
place to govern petroleum operations and that these programs had been 
more than adequate through the years to ensure that these operations 
would not harm underground sources of drinking water, particularly in 
many of the energy-producing states in the South and Western portions 
of the country. To ensure that SDWA was properly targeted, Congress 
intended to limit the scope of SDWA to avoid imposing unnecessary 
regulations that would be a constraint on energy production, divert 
funds from energy development and represent an inflationary factor in 
energy costs. In accordance with this approach,
    Congress focused the UIC program on waste disposal activities that 
threatened the quality of underground drinking water sources and never 
sought to regulate wells that were themselves being used for oil and 
natural gas production.
    Given the focus of the UIC program on the underground disposal of 
waste, EPA also had never thought to regulate energy production 
operations such as hydraulic fracturing--a critical oil and natural gas 
production technique that will be essential to the aggressive 
development of the nation's energy resources--under SDWA. In fact, 
EPA's regulations for the UIC program address a variety of wells, 
including wells used for the disposal of hazardous waste (Class I 
wells), wells used for the disposal of wastes from oil and natural gas 
production activities and wells used to enhance oil and natural gas 
production from existing production wells (Class II wells), and other 
types of disposal wells such as cesspools (Class III-V wells). However, 
those regulations do not purport to regulate hydraulic fracturing.
    Hydraulic fracturing is a well stimulation technology that has been 
used for 60 years in millions of energy production operations. As 
Congress has already recognized, hydraulic fracturing has been 
effectively regulated for decades by the states and is essential for 
the future development of America's oil and natural gas supplies. State 
regulations require the use of various techniques to protect drinking 
water aquifers, including the use of steel casing and cement to seal 
off shallow formations containing drinking water sources from materials 
being pumped into and out of an oil or natural gas well. These 
regulations effectively protect against any risks to drinking water 
aquifers; consequently, there would be no additional environmental 
benefits to further federal regulation of hydraulic fracturing under 
    In fact, hydraulic fracturing differs in many key respects from 
what have traditionally been viewed as waste disposal activities 
intended for regulation under EPA's UIC program. As part of these waste 
disposal operations, wastes are specifically injected into subsurface 
formations for purposes of disposal and are intended to be left in the 
subsurface. In contrast, hydraulic fracturing is an activity that takes 
place in the production well itself and is a part of the process of 
completing the well and preparing it for the production of oil and 
natural gas. The fluids used in the hydraulic fracturing process--
consisting mostly of water--are pumped into an oil- or natural gas-
bearing formation that is generally thousands of feet below any 
aquifers being used for drinking water.\5\ Moreover, the fluids that 
are pumped into the subsurface as part of the hydraulic fracturing 
process are intended to be removed from the formations into which they 
are pumped. Indeed, studies of coalbed methane wells in Alabama have 
shown that 80 percent or more of the fluids pumped into a well during 
the hydraulic fracturing process are eventually recovered from the well 
during the production process.\6\
    \5\ While such formations may contain groundwater that would 
technically meet the definition of an ``underground source of drinking 
water'' under SDWA because the water contains less than 10,000 
milligrams per liter of total dissolved solids, such groundwater would 
not in practice be used as drinking water-and would certainly not be 
tapped by a private drinking water well - because it is of low quality, 
would require significant treatment in order to be potable and would be 
quite expensive to access.
    \6\ Palmer, I.D., et al., Comparison between gel-fracture and 
water-fracture stimulations in the Black Warrior basin; Proceedings 
1991 Coalbed Methane Symposium, Univ. of Alabama (Tuscaloosa), pp. 233-
    In light of these fundamental differences between hydraulic 
fracturing and subsurface waste injection, many of the regulations 
developed by EPA to implement the UIC program simply have no 
application to hydraulic fracturing activities whatsoever. For example, 
EPA's regulations require that certain parameters such as injection 
pressure, flow rate and cumulative volume of fluids injected be 
monitored weekly or monthly and in some cases on a daily basis.\7\ 
These requirements for ongoing monitoring would simply not apply or be 
practical for an activity such as hydraulic fracturing that takes only 
a few hours to complete.
    \7\ 40 C.F.R. Sec.  146.23(b)(2).
    SDWA was never meant to create special treatment for these kinds of 
energy-producing operations--instead, SDWA recognized that there was a 
need to regulate waste disposal operations and not to impose undue 
regulatory burdens on production operations if they were not necessary. 
When Congress amended SDWA in 1980, it relied on the fact that the 
states already had existing programs in place to regulate oil and 
natural gas exploration and production activities, including activities 
that could be considered as ``underground injection'' subject to 
regulation under SDWA. In order to take advantage of the experience of 
state regulators and to avoid disrupting existing state programs, 
Congress specifically provided in Section 1425 of the Act that states 
could assume primary authority over Class II injection wells--those 
associated with oil and natural gas production activities--by 
demonstrating that their programs meet the same basic standards as 
those established by Congress for programs administered by EPA.
    While many parties have sought to reexamine this law, even EPA 
itself has specifically emphasized that SDWA was never intended to 
regulate wells that are themselves used for the production of oil or 
natural gas. For example, in addressing the scope of SDWA in Legal 
Environmental Assistance Foundation v. U.S. Environmental Protection 
Agency,\8\ the Agency expressly argued that Congress never intended to 
regulate hydraulic fracturing as ``underground injection'' under SDWA. 
While the U.S. Court of Appeals subsequently decided that hydraulic 
fracturing fit the definition of ``underground injection'' and so had 
to be regulated under the Act, the court's decision ignored the intent 
of Congress and did not consider whether hydraulic fracturing actually 
posed any risk to drinking water supplies in the first place. In fact 
since this ruling the court's decision has been severely criticized for 
its failure to follow the will of Congress and ignoring EPA's long-
standing interpretation of the specific scope of SDWA.
    \8\ 118 F.3d 1467 (11th Cir. 1997).
    Because of the regulatory uncertainty created by this court 
decision, Congress amended SDWA in the Energy Policy Act of 2005 to 
specifically clarify that hydraulic fracturing is not regulated as a 
form of underground injection under SDWA except that EPA does have the 
authority to regulate the use of diesel in the fluids employed in the 
fracturing operations. This exemption simply confirmed the well-
recognized proposition that the UIC provisions of SDWA were primarily 
intended to regulate the subsurface disposal of waste and that Congress 
never intended to regulate an activity such as hydraulic fracturing 
under SDWA. Moreover, Congress's decision to clarify SDWA to exempt 
hydraulic fracturing from unnecessary regulation is consistent with the 
longstanding congressional mandate under this law to avoid impeding oil 
and natural gas production unless restrictions are absolutely necessary 
to protect underground sources of drinking water.
      federal regulation of hydraulic fracturing is not necessary
    Contrary to unsupported claims, Congress's position that hydraulic 
fracturing should be excluded from additional federal controls under 
SDWA is based on sound science. For example, in 2004 EPA completed a 
study of the potential impacts of hydraulic fracturing of coalbed 
methane (CBM) wells on drinking water supplies; the Agency has, in 
fact, characterized this study as the most extensive review of the 
potential impacts of hydraulic fracturing on public health ever 
undertaken.\9\ As part of this study, EPA reviewed information about 
alleged incidents of drinking water well contamination believed by the 
affected parties to be associated with hydraulic fracturing or other 
CBM development activities. A draft of the study report was subject to 
extensive public comment and was thoroughly reviewed by numerous EPA 
offices, other federal agencies and a peer review panel of experts.
    \9\ See Evaluation of Impacts to Underground Sources of Drinking 
Water by Hydraulic Fracturing of Coalbed Methane Reservoirs, EPA Office 
of Water (June 2004).
    After much scrutiny and careful review, the Agency found in this 
key 2004 study that, although thousands of CBM wells are fractured 
annually, there were ``no confirmed cases [of contamination of drinking 
water wells] that are linked to fracturing fluid injection into CBM 
wells or subsequent underground movement of fracturing fluids.'' EPA 
also identified a number of key factors that minimize the risk posed by 
hydraulic fracturing to underground sources of drinking water (USDWs), 
even though that term is very broadly defined in SDWA and may include 
aquifers that are not in fact used as sources of drinking water and 
would be quite unlikely to serve as sources of drinking water. These 
factors include the removal of much of the fracturing fluid from the 
subsurface once fracturing operations are completed and the dilution, 
dispersion and adsorption as well as the potential biodegradation of 
any fluids that remain in the subsurface. Consequently, EPA concluded 
that hydraulic fracturing of CBM wells poses little or no threat to 
USDWs. This EPA study confirmed the results of prior studies by state 
regulators which essentially reached the same conclusion.\10\
    \10\ See Ground Water Protection Council, Survey Results On 
Inventory and Extent of Hydraulic Fracturing In Coalbed Methane Wells 
In the Producing States (Dec. 15, 1998); Interstate Oil and Gas Compact 
Comm'n, States Experience With Hydraulic Fracturing (July 2002
    In addition, Congress recognized that there was little need for 
federal regulation of hydraulic fracturing because the states had been 
quite satisfactorily regulating the practice for many years. For 
example, the Ground Water Protection Council (GWPC), a highly-regarded 
national organization representing state officials charged with 
protection of groundwater, had studied the impacts of hydraulic 
fracturing and came to the conclusion that there are no technical 
threats posed by these oil and natural gas operations to human health 
and the environment. In reaching this conclusion, GWPC noted that:

    As the front line regulators of the state oil and natural gas UIC 
program, we have not seen credible evidence that the hydraulic 
fracturing of coal bed methane reservoirs, or any other deeper 
formations, causes any documented threat to underground sources of 
drinking water. The states have maintained oversight of hydraulic 
fracturing as a part of the oil and natural gas production process. 
This makes good regulatory sense and has stood the test of time for 
over 50 years. Any requirement to regulate this process as underground 
injection would not result in any additional environmental protection 
of under ground sources of drinking water (USDW) and, it would strain 
already depleted state UIC resources. The result would be that money 
that could be used to solve severe contaminant source problems, such as 
urban storm water or large capacity cesspools, would be diverted to a 
practice that is already regulated under another program and is not a 
threat to USDWs.\11\
    \11\ Letter from Thomas P. Richmond, GWPC President, to The Hon. 
James Inhofe and The Hon. James Jeffords (June 8, 2005).
    In short, trying to regulate hydraulic fracturing under the UIC 
program would be like trying to fit a square peg into a round hole. 
Given the lack of harm to drinking water aquifers and the need to focus 
limited regulatory resources on actual threats to drinking water, 
Congress's decision in 2005 to clarify the scope of regulation under 
SDWA to exclude hydraulic fracturing was entirely reasonable and 
reflected the active support of state regulators in charge of 
groundwater protection.
    In 1980 Congress responded to the problems posed by contaminated 
waste sites such as those at Love Canal (near Niagara Falls, New York) 
and Times Beach, Missouri by passing the Comprehensive Environmental 
Response, Compensation and Liability Act (CERCLA).\1\ Commonly referred 
to as the federal ``Superfund'' law, CERCLA was intended to encourage 
the prompt and expeditious cleanup of numerous abandoned hazardous 
waste disposal sites and other contaminated properties scattered across 
the country. In enacting CERCLA, Congress had recognized that there was 
a ``gap'' in addressing the need to remediate hazardous waste sites--
the federal Resource Conservation and Recovery Act (RCRA) was already 
in place to govern the handling and disposal of hazardous wastes from 
active facilities, but there was still a need to address the 
environmental problems posed by the plethora of old, non-operating 
hazardous waste sites in the country.
    \1\ 42 U.S.C. Sec. Sec.  9601-9675.
    To help achieve the statute's goals, CERCLA established a very 
onerous liability scheme under which parties could be held strictly, 
jointly, severally and retroactively liable for the cleanup of 
hazardous waste landfills and other contaminated sites. Under CERCLA 
four categories of parties can be held liable for the cleanup of these 
sites, including current and former owners and operators of the sites 
as well as entities that generated hazardous substances which were 
disposed of at a contaminated site and any entity that transported 
these hazardous substances to these sites. In addition, CERCLA provides 
broad powers to federal and state governments to recover the costs that 
these governments incurred in remediating these sites to required 
cleanup levels.
    As part of the funding mechanisms for the law, CERCLA further 
established a very substantial trust fund referred to as the Hazardous 
Substance Superfund (the ``Trust Fund'') that was intended to be used 
to help fund these cleanup activities. This fund, financed by an excise 
tax on crude oil, petroleum products and other specified chemicals, was 
specifically intended to help support the U.S. Environmental Protection 
Agency (EPA) in carrying out the Agency's responsibilities under the 
law, essentially amounted to a feedstock tax that was imposed on the 
oil and natural gas industry in a manner to reflect the industry's 
responsibilities for these hazardous waste problems. Additional monies 
were provided to this Trust Fund in the amendments to CERCLA adopted as 
part of the Superfund Amendments and Reauthorization Act of 1986 (SARA) 
to further support cleanup activities.
    In enacting CERCLA, Congress attempted to strike a careful balance 
among a number of critical factors shaping the overall cleanup program. 
First, there already were a number of federal laws on the books that 
were intertwined with the scope of CERCLA. For example, the federal 
Clean Water Act (CWA) had previously been adopted to regulate the 
cleanup of oil spills and related remediation activities; RCRA also had 
been passed in order to address cleanup issues at active industrial 
sites. At the same time, there were also a number of other pending 
federal legislative proposals that would have addressed other facets of 
cleanup responsibilities such as the cleanup of oil pollution in the 
nation's navigable waters. Against this background, two key elements of 
CERCLA were included in order to strike a reasonable accommodation with 
these other environmental activities: (1) the ``petroleum exclusion'' 
and (2) the treatment of ``federally-permitted releases.''
                      the ``petroleum exclusion''
    The ``petroleum exclusion'' reflected the numerous reasonable steps 
taken by Congress to fashion a responsible cleanup program in the face 
of many competing pressures. First, Congress recognized that the 
principal focus of the cleanup program should be on releases of 
hazardous chemicals, which was the most serious threat to human health 
and the environment posed by the abandoned waste sites. Indeed, in 
commenting on the need for the Superfund program at that time, then-EPA 
Administrator Douglas Costle noted that ``[t]he problem of hazardous 
spills is acute and more threatening than oil.''\2\ As a result CERCLA 
was passed to provide EPA with the necessary tools to address the 
widespread and serious contamination at old chemical waste sites like 
the Love Canal site in New York or the ``Valley of the Drums'' site in 
Kentucky--these sites included large landfills covering many acres and 
a wide variety of manufacturing and waste processing facilities that 
had handled large volumes of chemicals for many years and that had very 
high levels of hazardous chemical contaminants in the soils and 
extensive plumes of contaminated groundwater that threatened drinking 
water supplies.
    \2\ 126 Cong. Rec. H 9248 (Sept. 18, 1980) (statement of Rep. 
    Second, although the cleanup of chemical waste sites was given a 
high priority by Congress in enacting CERCLA, Congress had never 
intended to ignore the need to clean up petroleum contamination, but 
instead decided to address these issues much more effectively through 
other programs. For example, recognizing the need to address oil 
spills, Congress had already passed key provisions in the CWA as noted 
above to address spills of petroleum into the surface waters, thus 
negating the need to address it again during the deliberations on 
CERCLA. Congress subsequently expanded the regulation of oil spills by 
passing the Oil Pollution Act of 1990 (OPA), which imposes liability on 
any party responsible for a vessel or onshore facility from which oil 
is discharged to the waters of the United States (which includes most 
surface waters and adjacent wetlands) or adjoining shorelines for the 
cost of cleaning up those discharges and for the damages that may 
result from the incident. OPA was adopted to directly respond to the 
concerns raised in the congressional debates on Superfund regarding the 
need to hold parties responsible for a wide range of surface spills of 
petroleum. For underground storage tanks (USTs) containing petroleum, 
Congress also eventually added provisions to RCRA in 1984 to address 
any leaking USTs. This program specifically imposes requirements to 
prevent leaks from USTs containing petroleum as well as to ensure the 
proper monitoring of these tanks and corrective actions if these tanks 
    In any event, the adoption of the so-called ``petroleum exclusion'' 
is consistent with the general principles that the courts themselves 
have adopted in interpreting the scope of CERCLA responsibilities. In 
addressing the question of CERCLA liability, an overwhelming number of 
courts have consistently ruled that companies which sell useful 
products such as petroleum and/or crude-oil products themselves should 
not be subject to CERCLA in the first place. According to this 
universally-standard rule, CERCLA was intended to cover only the 
disposal of contaminated products, not the use of uncontaminated 
petroleum and crude oil supplies.
    Consistent with this view, EPA also has interpreted the ``petroleum 
exclusion'' rule only to cover hauling and transport of crude oil and 
refined petroleum products themselves, including those substances that 
are normally found in crude oil or are normally added to crude oil as 
part of the standard refining process. However, to the extent that 
petroleum or petroleum products eventually become contaminated with 
hazardous substances as a result of use or otherwise, then these 
supplies would no longer be covered under the ``petroleum exclusion'' 
rule and they would then become subject to CERCLA liability just like 
any other contaminated waste materials. As a result, companies which 
have generated waste motor oils or hydraulic oils, or other types of 
used petroleum products, would be required to clean up sites that have 
become contaminated from the disposal of these waste products just as 
with any other hazardous wastes.
                      federally-permitted releases
    CERCLA also contains a provision excluding ``federally-permitted 
releases'' from CERCLA liability. This exclusion covers releases of 
hazardous substances to the environment that have been authorized 
pursuant to a variety of federal permits, such as a National Pollutant 
Discharge Elimination System (NPDES) permit or a dredge or fill permit 
issued under the CWA, or an air permit issued under various provisions 
of the Clean Air Act. In addition, Congress included within the 
exclusion for federally-permitted releases any injection of fluids or 
other materials authorized under state law (i) for the purpose of 
stimulating or treating wells for the production of crude oil, natural 
gas or water, (ii) for the purpose of secondary, tertiary or other 
enhanced recovery of crude oil or natural gas, or (iii) which are 
brought to the surface in conjunction with the production of crude oil 
or natural gas and are subsequently reinjected into the subsurface.
    These ``federally-permitted releases'' exemptions have been quite 
misinterpreted in many cases. This CERCLA exemption was not included as 
a means to avoid imposing any liability on responsible parties, but 
rather to ensure that permitting issues were instead properly addressed 
under the respective federal regulatory programs in which they were 
administered in the first place. Indeed, in enacting this particular 
exclusion, Congress specifically recognized that ``in view of the large 
sums of money spent to comply with specific regulatory programs,'' any 
liability for releases of hazardous substances in accordance with duly 
issued permits ``should be determined based on the facts of each 
individual case.''\3\ Accordingly, Congress provided that liability for 
these types of releases should not arise under CERCLA, but should more 
properly be determined under the law pursuant to which the release was 
authorized or under common law so as to ``give regulated entities 
clarity in their legal duties and responsibilities.''\4\ A similar 
provision is included in the Oil Pollution Act of 1990.
    \3\ S. Rep. No. 96-848 at 46 (1980).
    \4\ 126 Cong. Rec. S 14965 (Nov. 24, 1980) (Statement of Sen. 
    CERCLA was enacted in order to address the environmental problems 
posed by abandoned, inactive contaminated waste sites and hazardous 
substance spills. This law casts a broad web of liability on 
responsible parties for the cleanup of these sites and resulted in a 
dramatic shift in the nature of liability for these problems--imposing 
a new federal standard involving strict, joint and several liability 
that could be imposed retroactively and without regard to fault for 
conduct occurring years earlier.
    In adopting this approach, Congress had to grapple with the impacts 
of imposing this far-reaching new liability regime on other pre-
existing federal environmental regulatory requirements and to try to 
ensure that these other federal laws were still properly implemented. 
To achieve this goal, Congress chose to codify two particularly key 
provisions: the ``petroleum exclusion'' and the exclusion for 
federally-permitted releases. Neither of these exemptions was adopted 
in order to afford special treatment to the oil and natural gas 
industry or any specific industry. Rather, they were included either 
for sound practical reasons or because it was clear that the scope of 
CERCLA should have never covered these situations in the first place. 
There has been no intent to ignore any environmental problems caused by 
the spillage of crude oil or petroleum. In fact, as Congress intended, 
any environmental problems caused by contaminated petroleum or crude 
oil supplies are amply addressed under CERCLA or under a plethora of 
other federal environmental regulatory authorities.
                  Statement of The Wilderness Society
    The oil and gas industry and their allies continue to insist that 
the only way to address our country's energy challenges is to open more 
public lands and waters to oil and natural gas drilling, and reduce 
environmental and safety standards. In truth, oil and gas drilling in 
America is already occurring at an astonishing pace and in a 
bewildering number of places. Yet, in the Rocky Mountain West vast 
expanses of public lands open to drilling and under lease by the 
industry are not being used, and thousands of drilling permits issued 
to companies by the Bureau of Land Management (BLM) are sitting idle.
    More oil and gas drilling occurs in America every year than 
anywhere else in the world.
    As of January 13, there were 1,764 rotary drilling rigs operating 
on U.S. lands and waters.\1\
    \1\ http://investor.shareholder.com/bhi/rig_counts/rc_index.cfm
    America ranks #2 in world natural gas production, and #3 in oil 
    The U.S. is the second largest natural gas producer in the world\2\ 
and the third-largest producer of oil.\3\
    \2\ Data as of 2010 (most recent available). United States Energy 
Information Agency http://www.eia.gov/cfapps/ipdbproject/
    \3\ United States Energy Information Agency. http://www.eia.gov/
    Tens of thousands of wells are drilled every year in the U.S.
    At the beginning of the last decade 27,000 oil and gas wells were 
drilled in the U.S. in one year. But in 2010 over 40,000 new wells were 
drilled on American lands and waters.\4\
    \4\ United States Energy Information Agency. http://
    The West's public lands are already extensively drilled, leased, 
and available for leasing. There are tens of thousands of oil and 
natural gas wells on public lands, with thousands more currently 
approved for drilling and tens of thousands more planned for the 
future.\5\ Tens of millions of acres of federal public lands are 
available for leasing under current BLM Resource Management Plans.
    \5\ As of December 1, 2008, there were 88,357 oil and gas wells on 
BLM lands. Government Accountability Office. http://www.gao.gov/
    Tens of millions of acres of onshore and offshore federal lands are 
already under lease to oil and gas companies--the vast majority of it 
    According to BLM data, as of the end of FY 2012, 37,792,212 acres 
of federal public lands are leased for oil and gas development, an area 
larger than the State of Florida.\6\ However, only one third of these 
leases-- 12,512,974 acres-- are in production. In addition, over 34 
million acres of offshore federal lands are under lease in the Gulf of 
Mexico alone, where roughly 4,000 platforms produce oil and/or gas.\7\
    \6\ Bureau of Land Management, http://www.blm.gov/wo/st/en/prog/
    \7\ BOEMRE, Gulf of Mexico Region Blocks and Active Leases by 
planning Area, January 3, 2011; EIA, Overview of U.S. Legislation and 
Regulations Affecting Offshore Oil and Natural Gas Activity, p. 2, 
September, 2005.
    The United States has become a net exporter of refined petroleum 
    In 2011, the United States exported more petroleum products, such 
as gasoline and diesel fuel, than it imported for the first time in 
decades. The trend has continued into 2012 as the U.S. was exporting 
about 1,000 Mbbl/d in May 2012, according to the United States Energy 
Information Agency.\8\
    \8\ United States Energy Information Agency, http://www.eia.gov/
    The oil and gas industry is sitting on nearly 7,000 approved but 
idle federal drilling permits.
    Though the industry and their political allies persistently 
complain about ``restrictive'' government policies that allegedly are 
thwarting U.S. oil and gas development, the BLM reported in February, 
2013, that 6,990 approved onshore federal drilling permits were sitting 
idle, unused by oil and gas operators who have obtained them\9\.
    \9\ Correspondence from Celia Boddington, BLM, to David 
Alberswerth, TWS, February12, 2012.
    The industry has ``shut in'' thousands of gas wells on western 
public lands during the past four years, but continues to complain 
about their alleged ``lack of access'' to federal lands for drilling.
    For example, according to the Wyoming Oil & Gas Conservation 
Commission, as of 2009, there were over 12,500 shut-in coal bed methane 
wells in the Powder River Basin of Wyoming alone!\10\ Thousands more 
natural gas wells have been shut-in elsewhere in Wyoming and the West, 
primarily due to low natural gas prices.
    \10\ http://www.uwyo.edu/eori/_files/co2conference10/
    Low natural gas prices--not government policies or regulations--are 
causing many companies to reduce spending on natural gas projects on 
federal lands, a strategy intended to drive up prices.
    For example, the CEO of Ultra Petroleum, a large independent 
producer with major investments in gas wells on federal lands in 
Wyoming, recently told his investors of the company's strategy to 
curtail exploration activities because, ``We don't believe in cash flow 
growth or production growth without economic returns.''\11\ Moreover, 
``Industry-wide, you're just beginning to see natural gas production 
roll over. Once it begins, it will accelerate, and I think we are 
looking at a two-year window of monthly reductions in domestic natural 
gas supply. So it's taken us and the industry some time to react to the 
market signals, but we have and we won't be quick to over-invest in the 
coming years. We've seen natural gas prices respond positively, but 
they are a long, long way away from levels that will attract capital.'' 
In other words, natural gas producers will increasingly be curtailing 
their drilling activities, in a strategy designed to raise consumer 
    \11\ http://phx.corporate-ir.net/phoenix.zhtml?c=62256&p=irol-
                                    The Wilderness Society,
                                 Washington, DC, February 19, 2013.
Hon. Ron Wyden,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
Hon. Lisa Murkowski,
Ranking Member, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Chairman Wyden and Ranking Member Murkowski:
    We respectfully request that this letter and the accompanying 
information be included in the Committee on Energy and Natural 
Resources February 12, 2013, hearing record regarding ``Opportunities 
and Challenges for Natural Gas''. Accompanying this letter are two fact 
sheets: ``Oil and Gas Drilling on Federal Lands--Some Key Facts"; and 
``Most BLM Lands in the Five Rocky Mountain States are Open to Oil & 
Gas Leasing.'' These fact sheets document a number of often overlooked 
but relevant facts regarding the availability of federal onshore lands 
for oil and gas development.
    At least one witness during the February 12 hearing implied that 
federal land management polices are somehow inhibiting the oil and gas 
industry's ability to gain access to federal onshore lands for oil and 
gas development. The relevant facts, however, portray a completely 
different reality with regard to this question: tens of millions of 
acres of onshore federal lands are currently available for oil and gas 
development; tens of millions of acres of federal lands are under lease 
to oil and gas companies; nearly 7,000 federal drilling permits have 
been issued to companies but are not being utilized by them; and over 
ninety-two thousand oil and gas wells are operating on federal onshore 
lands, with thousands of new wells permitted by the Bureau of Land 
Management every year.
    In conclusion and as the accompanying documents demonstrate, the 
oil and gas industry has available to it tens of millions of acres of 
onshore federal lands. The real issue that Congress should contemplate 
is not whether federal policies are unnecessarily inhibiting the 
extraction of oil and gas resources from our federal lands, but instead 
whether there are sufficient safeguards in place to assure that (1) the 
most environmentally sensitive public lands are protected from the 
adverse impacts of oil and gas development, and (2) that oil and gas 
extraction and development activities on federal lands are done in an 
environmentally safe manner.
                                         David Alberswerth,
                                             Senior Policy Advisor.

               Theodore Roosevelt Conservation Partnership,
                                 Washington, DC, February 18, 2013.
Hon. Ron Wyden,
Chairman, Senate Energy and Natural Resources Committee.
Hon. Lisa Murkowski,
Ranking Member, Senate Energy and Natural Resources Committee.
    Dear Chairman Wyden, Ranking Member Murkowski and Members of the 
    Thank you for the opportunity to provide testimony and comment on 
the hearing entitled, ``Opportunities and Challenges for Natural Gas.'' 
The Theodore Roosevelt Conservation Partnership (TRCP) agrees that a 
balance must be achieved among the range of natural resource values to 
ensure the proper development of natural gas on federal public lands. 
There must be an even balance between the development of natural gas 
resources and the conservation of our natural resources to ensure 
sustainability of the biological and economic values of these natural 
    TRCP supports responsible energy development and has worked over 
the past decade to promote principles and recommendations that will 
help our country achieve the balance needed to continue producing 
energy while conserving the environment. TRCP and our conservation 
partners, a coalition of 22 conservation and sportsmen organizations 
that make up the Fish, Wildlife, and Energy Working Group, have 
developed the, ``FACTS for Fish and Wildlife'' a set of recommendations 
that, when implemented, resolve conflict that has been evident in the 
past. FACTS, an acronym which stands for Funding, Accountability, 
Coordination, Transparency, and Science, represent the key actions 
needed to resolve on-going conflicts between energy and renewable 
natural resources.
    While the focus of the hearing was on how to manage the increase in 
natural gas extraction and potential exports, it must be recognized 
that there are significant impacts to the landscape during energy 
exploration and production. New technology has allowed previously un-
developable gas resources to be tapped--many in sensitive fish and 
wildlife habitats. This is evident in the serious decline of mule deer 
habitats and populations in portions of Wyoming and Colorado, and also 
has broad implications for development in sage grouse habitats in 11 
western states. On federal public lands the priority for energy 
development has overridden the multiple-use mandate in some sensitive 
    To successfully achieve balance between energy extraction and 
natural resource conservation, we recommend implementation of the FACTS 
principles and taking the following actions:

   Identify habitats that are too valuable or special to have 
        natural gas development at this time and require that any 
        development be done off-site. This includes areas of world 
        class recreational opportunities and irreplaceable habitats or 
   Provide clear direction on what constitutes ``multiple-use'' 
        and what is considered ``undue and unnecessary degradation'' of 
        the environment under Federal Land Planning and Management Act 
   Broadly and consistently implement the 2010 Department of 
        the Interior oil and gas leasing reforms.
   Evaluate the economic and employment loss in local 
        communities due to the impacts of industrialized energy 
        development on outdoor recreation economies and communities.
   Provide new guidance on mitigation at the landscape level 
        and what constitutes adequate compensation where impacts cannot 
        be mitigated effectively.

    We must be aware that many landscapes and communities, particularly 
those with abundant public lands and where natural gas extraction is 
proposed, rely on the significant jobs and economic benefits associated 
with outdoor recreation on public lands. In many cases the identity and 
culture of locales have been built around these opportunities. For 
example, a recent study by Southwick Associates for Sportsmen for 
Responsible Energy Development showed that counties with a higher 
percentage of public lands managed for conservation and recreation 
reported higher levels of job and population growth than those with 
higher percentages of lands managed for commodity production. In Cody, 
Wyoming, hunters, anglers and wildlife watchers contributed over $30 
million to Cody's economy in 2010-2011. Let's not forgo a sustainable 
source of jobs and income based on a recreation economy for one that is 
not sustainable--the key is to find the proper balance in both.
    We are pleased that you chose to hold this hearing so early in the 
113th Congress and look forward to finding the ``sweet spot'' where 
energy development and natural resource conservation can coexist. The 
sportsmen-conservation community has extensive experience in this area 
and we believe TRCP and its partners can help Congress navigate this 
new opportunity and chart the course for a strong domestic energy 
supply that is balanced with the needs of fish, wildlife, and 
    We look forward to working with Congress and the Obama 
Administration on this endeavor.
                                             Whit Fosburgh,
                                                 President and CEO.
                      FACTS for Fish and Wildlife
    energy development recommendations from the theodore roosevelt 
                        conservation partnership
    Energy and our ability to access affordable, reliable fuel and 
electricity are fundamental to the American way of life. All forms of 
energy, oil, natural gas, coal, wind, solar, geo-thermal and nuclear 
energy must be transported via pipelines or transmission lines. These 
two realities pose challenges for energy development and natural 
resource management. Energy production and transmission have been 
controversial for a long time in America, and in 2013 we still have no 
comprehensive policy that drives energy production and transmission. As 
a result, both have followed a scattershot approach, often based around 
variables such as markets, investment, permitting and access instead of 
a national strategy. One consequence of this approach is a great 
underestimation of how energy production and transmission affects fish, 
wildlife and outdoor recreation, often to the detriment or exclusion of 
these values and resources. Sixty-seven percent of U.S. lands are 
privately owned. In the West, the division of private and public lands 
is about 50/50 with some states like Nevada (81%) and Utah (63%) being 
mostly publicly owned. Because wildlife does not understand or respect 
artificial boundaries like state or property lines, it is imperative 
that lands be managed across boundaries.
    Traditionally, conservation and sportsmen organizations with a 
stake in energy issues have focused on public lands, and rightfully so, 
as those lands are held in trust for all Americans and are mandated to 
provide multiple-use, sustained yield for many values, including fish 
and wildlife. But as our need for expanded energy resources 
(particularly renewable energy) and transmission capacity increases, 
the impetus for managing fish and wildlife throughout all lands--
regardless of ownership--is increasing as well. Good stewardship and 
conservation benefit both public and private lands, and management 
recommendations for fish and wildlife on public lands can easily be 
adopted on private lands.
    As part of our Passport for Responsible Development, the TRCP has 
created the ``FACTS for Fish and Wildlife,'' specific recommendations 
for balancing fish and wildlife needs with the development of energy 
resources. First released in 2006, this revision updates those 
recommendations, expands their applicability to broader geographic 
regions and private lands, and addresses forms of energy development 
beyond traditional oil and gas. The ``Passport for Responsible Energy 
Development'' will allow for better fish and wildlife stewardship 
through better policy and management during energy development.
    The FACTS recommendations are applicable, with a few exceptions, to 
land and water, traditional or renewable energy, public or private 
lands, and infrastructure associated with development. They can 
increase our ability to responsibly manage fish and wildlife during 
energy development, balance competing values, become conservation 
stewards and ensure a future for our fish and wildlife populations. 
These practices-driven by the FACTS--will sustain and uphold our 
nation's shared natural resources and unique outdoor legacy.
    The TRCP supports and promotes responsible energy development that 
balances land and resource values that sustain fish and wildlife 
populations and maintain opportunities for hunting and fishing. Our 
work is guided by the TRCP Fish, Wildlife and Energy Working Group 
(FWEWG), a team comprised of representatives of our conservation 
partner organizations, and a staff of experienced wildlife and policy 
experts. By combining the science-based expertise of the FWEWG with an 
active network of sportsmen, the TRCP Center for Responsible Energy 
Development is working with hunters and anglers throughout the country 
to conserve our outdoor traditions by supporting a balanced approach to 
energy development and the management of fish and wildlife resources.
    Too often, sportsmen's voices are not heard when energy policies 
are being decided or when development is implemented. The Theodore 
Roosevelt Conservation Partnership believes that if the principles 
contained in this ``Passport for Responsible Development'' are 
followed, the management of fish and wildlife habitats will be improved 
and American sportsman will be given a voice, thereby resulting in the 
conservation of millions of acres of wild spaces that fish and wildlife 
need and that hunters and anglers cherish.
    Join Hunters and Anglers for Responsible Development, a free 
grassroots movement that will add your voice to those of other 
sportsmen and -women nationwide. Speak up to ensure your values are 
integrated into energy development on your public lands. For more 
information about how join the TRCP go to our website, www.trcp.org, or 
call 202-639-TRCP.
(F) Funding
    Successful fish and wildlife management requires adequate funding. 
Traditionally, fish and wildlife programs are underfunded or rely on 
funding sources other than federal monies. While funding alone will not 
solve the problem, it plays a critical role in our ability to balance 
energy development with the needs of fish and wildlife. Funding must be 
secure, substantial and properly allocated to make a difference.

          F.1 Determine adequate funding for sustainable fish/wildlife 
        management, including monitoring, in areas proposed for energy 
          F.2 Prior to development, identify and secure appropriate 
        funds for fish/wildlife monitoring and mitigation, including 
        compensation if necessary or required.
          F.3 Establish a long-term, dedicated ``mitigation trust'' to 
        benefit fish/wildlife that is funded by royalties, rents, fines 
        or voluntary payments.
          F.4 Ensure that funds designated and intended for fish/
        wildlife management are not redirected to other causes.
          F.5 Work cooperatively with various funding sources to 
        leverage additional federal or state grants.
    Doing what you said or promised defines accountability. It also 
entails accepting responsibility for actions that you may or may not 
have taken. On public lands, promises are made through various decision 
strategies and should be considered ``contracts with the people'' that 
mandate proper stewardship of the nation's lands and minerals. On 
private lands, accountability increases trust, enabling projects to 
transcend conflicts that can delay or stop development.
          A.1 Proactively address fish/wildlife management and needs 
        with a specific ``Conservation Strategy'' for each energy field 
        or project. Finalize strategies before development starts, 
        specify recommendations and actions to minimize impacts and 
        establish plans for mitigation, detailed monitoring and 
        adaptive management.
          A.2 Establish and update regularly a system of tracking 
        commitments, in plans or agreements, along with any actions 
        contrary to those commitments.
          A.3 Ensure that laws, regulations and policies intended to 
        conserve and protect fish/wildlife during energy development 
        are not abdicated or abridged.
          A.4 Utilize lease development plans or master lease planning 
        to evaluate and address potential impacts prior to development.
          A.5 Notify the public and allow comment on development 
        projects involving public lands or resources. Provide the 
        public with information on modifications to current development 
(C) Coordination
    Energy development and natural resource management do not occur in 
a vacuum. Coordination is essential in ensuring that fish and wildlife 
are properly managed between boundaries. All stakeholders must be 
involved, and experts that manage fish and wildlife at the local, state 
or national levels must be included in energy project planning and 
implementation. Coordination enables us to address unanticipated 
actions that arise. A key stakeholder in public lands and fish and 
wildlife resources, the public must be included to build trust and 
brainstorm tactics.
          C.1 Foster broad-based coordination between fish/wildlife 
        managers, landowners and affected stakeholders to ensure fish/
        wildlife sustainability.
          C.2 Establish expanded coordination across geopolitical 
        boundaries between property owners (public and private). Ensure 
        that managers consider the movement corridors of fish/wildlife.
          C.3 Coordinate among all affected stakeholders during 
        planning and implementation of public-lands energy projects.
          C.4 Include state fish/wildlife agencies in energy 
        development planning and monitoring of fish/wildlife during/
        after development. C.5 Establish a process for annual review 
        and adjustments of actions that affect fish/wildlife. An 
        adaptive management strategy is appropriate if based on 
        established adaptive management guidelines and science.
(T) Transparency
    ``There is no disinfectant like sunshine.'' That statement was used 
to describe how transparency can avert undesirable activities, 
particularly in the public interest. Transparency is essential to 
building trust among stakeholders. Transparency can prevent unnecessary 
delays, stoppages or bad press. Openness during energy development 
enables fish and wildlife management that benefits all stakeholders, 
not just project proponents.
          T.1 Identify ``Special Places'' with exceptional resource 
        concerns or values where energy development should not be 
        allowed. Map these places and incorporate these values into 
        management plans.
          T.2 Provide up-to-date information through a range of media 
        and informational outlets to the public and fish/wildlife 
        managers for energy development projects.
          T.3 Guide leasing/development by complete and up-to-date 
        baseline information on fish/wildlife resources and by 
        coordinated plans for energy development and fish/wildlife 
          T.4 Provide the public with information about all proposed 
        public lands energy leases and development; allow sufficient 
        time for public comment.
          1T.5 Make all meetings related to public-lands use and energy 
        development part of the public record.
(S) Science
    Science is the foundation of good land and resource management. It 
is essential to understanding how fish and wildlife react to energy 
development and maintaining sustainable populations during and after 
development. Utilizing known science enables a balanced approach that 
sustains energy AND fish/wildlife instead of energy OR fish and 
          S.1 Utilize science in all fish/wildlife decisions, 
        particularly when specific research has been conducted on the 
        impacts of energy development. Assure that mitigation and 
        monitoring based on new scientific information is implemented 
        in the energy development process.
          S.2 Incorporate science-based mitigation, using tested and 
        proven methods of adaptive management, when making decisions 
        about fish/wildlife management and energy development. Identify 
        and address ``gaps'' in science prior to development and 
        implement coordinated research to address these gaps.
          S.3 If necessary, utilize a third-party review of development 
        and mitigation proposals.
          S.4 Establish a credible and qualified ``science review 
        team'' and engage science-based organizations for fish/wildlife 
        management and development decisions.
          S.5 Establish a process to incorporate new information/
        science into planning/implementation of existing and new energy 
            A new Strategy for Managing Fish and Wildlife
    Managing for impacts before they occur could help conserve some of 
the species at risk from the current energy boom. The TRCP Fish, 
Wildlife and Energy Working Group recommends that a ``Conservation 
Strategy'' for resources be required before development begins. This 
would identify/direct management in coordination to provide a balanced 
approach. It also would allow stakeholders more involvement, 
incorporate the latest science and future information, provide for 
sustainable fish/wildlife, and help produce domestic energy with less 
            The basic elements of a Conservation Strategy are:
          1. Identification and protection of special places where 
        development should not occur, or be significantly restricted.
          2. Establishment of baselines for resources and values for 
        which all future development and mitigation will be compared.
          3. Creation of specific plans showing how fish, wildlife, 
        water and sporting recreation will be maintained during all 
        phases of development, including minimum value levels and 
        impact thresholds.
          4. Coordination of development with the management of fish, 
        wildlife, water and sporting recreation using adaptive 
          5. Establishment of monitoring protocols before development 
        begins, coordination of monitoring with state fish and game 
        agencies, and commitment of adequate funding for completion of 
          6. Creation of mitigation plans for affected resources and 
        values, implementation plans for mitigation actions based on 
        adaptive management plans, and the creation of a mitigation 
        trust to ensure adequate funding for mitigation activities.
          7. Establishment of research protocols to address unknown 
        resource impacts and to provide input to adaptive management 
          8. Confirm a schedule of annual meetings to plan development 
        scenarios, address impacts and incorporate adaptive management.
          9. Commitment to protective stipulations and other 
        restrictions for protecting and sustaining fish, wildlife, 
        water and sporting values.
          10. Development of a process to share information/data 
        including publishing science, stakeholder involvement, and 
        integrating new science and information into future plans, 
        actions and management.
            Species Spotlight--Sage Grouse
    Sage-grouse are synonymous with the expanses of sagebrush prairies 
in the West and have been a favored game bird for Western hunters for 
generations. Human alteration of sage habitats for more than 100 years 
has reduced grouse populations, and there are now less than half the 
number encountered by early western settlers. Sage-grouse behavior is 
negatively affected by the increased level of development from drilling 
and energy production. This fact is confirmed by a growing body of 
research on the impacts to sage-grouse, which have experienced an 
approximately 80% decline in the Powder River Basin of Wyoming. 
Breeding activity is reduced because sage-grouse males are likely to 
abandon key display grounds within four miles of active drilling. Young 
birds do not return to sites with heavy development activity, 
suggesting that populations will not sustain themselves near active 
well fields. Sage-grouse populations are affected by other factors like 
drought and human disturbance, but managers cannot ignore or discount 
the impact we create by developing energy resources. To complicate 
matters further, wind power is now proposed on many of the remaining 
core sage-grouse habitats, and it is unknown how sage-grouse will react 
to this new threat.
    In 2010, the U.S. Fish and Wildlife Service determined that the 
sagegrouse deserved protection under the Endangered Species Act (ESA) 
but was found to be ``precluded from listing'' by higher priority 
species. This move effectively makes the bird a ``candidate'' species 
and efforts are now under way from the western states and federal 
resource agencies to address the deficiencies that will prevent the 
bird from being listed under the ESA. There is also a push by some 
advocates to stop hunting sagegrouse in states that still have healthy 
and viable populations in a misguided attempt to address the declines 
even though the biggest threats are to habitat and the ability of the 
BLM to manage energy operations in occupied sage-grouse habitat. 
Research in the Powder River Basin and the Upper Green River Basin has 
shown that large blocks of undisturbed sage habitat are necessary to 
sustain sage-grouse populations. Scientists predict that sage-grouse 
will disappear from developed areas unless some key habitats are 
protected. If we lose the ability to hunt sage-grouse or have the 
species listed under the ESA, the bird will lose one of the biggest 
advocates they have -American sportsmen.
    Species Spotlight: Mule Deer
    Mule deer, icons of western big game hunting, are declining in many 
parts of their range due to changes in land use, drought, predation, 
disease and periodic severe winters. Accelerated energy development 
that is reducing irreplaceable, critical winter range could spell 
disaster for existing populations. The most significant effects are not 
seen on the land at drilling sites (which can be reclaimed), but are 
caused by the trucks, personnel, equipment, roads and facilities that 
displace wintering mule deer. This is evident on the Pinedale Anticline 
natural gas field called the ``Mesa'' outside of Pinedale, WY where 
mule deer populations have declined approximately 60% in the decade 
since intensive development began. The threats to mule deer range from 
heavy gas drilling and industrialization of the southwestern portion of 
Wyoming to the more dispersed, but pervasive, coal bed methane 
development in the Powder River Basin of Montana and Wyoming. New 
development from south-central Wyoming to Colorado and Utah affects 
deer from the Red Desert, Sierra Madre, Piceance Basin and Book Cliffs.
    These impacts are most often felt in prime hunting destinations--
public lands where multiple-use mandates are supposed to guarantee 
sportsmen that their wildlife will be sustained. Recent analysis 
conducted by the TRCP shows a dismal level of coordination between 
federal land management and state wildlife agencies, making the tough 
job of managing habitats to meet population objectives much harder. 
Combined with severe winters (like 2010-2011), other pressures on 
habitats, the increased risk of poaching and inadvertent road killing, 
mule deer populations are in significant risk. Energy development could 
further reduce already declining populations unless federal agencies 
and industry make changes to current energy development processes. When 
mule deer lose crucial habitats, sportsmen are at risk of losing 
access, opportunities and their hunting traditions.
            Identification of Special Places
    All landscapes and habitats are not created equal, nor do fish and 
wildlife utilize habitats in the same way. The same can be said of 
sportsmen. There are places that provide such unique, important, 
sensitive or extraordinary values that energy development should be 
restricted or significantly limited. The TRCP calls these areas 
``Special Places'' and recommends that during responsible and balanced 
energy development these areas be identified and protected. The 
following criteria are recommended for identification and inclusion 
into special places, but each part of the country will be different and 
affected stakeholders (including state wildlife agencies, NGO's, 
sportsmen, and landowners) should work together to identify areas 
before the commitment to development begins.
          1. Areas where no development takes place because of 
        extremely important resources or values, where energy 
        development would irreparably harm those resources, and where 
        no mitigation or compensation could replace their loss or 
          2. Areas where development would be restricted to avoid or 
        minimize impacts to important resources and where impacts could 
        be mitigated or compensated for so that no net loss is 
          1. Area of concern provides significant recreational 
        opportunity (hunting/fishing) and is a major component of a 
        local economy. The term ``World Class'' may be used to describe 
        this resource. The ``World Class'' designation would indicate 
        that quality of the hunting or fishing experience could not be 
        matched anywhere else in the world.
          2. Area of concern is a designated wilderness, a wilderness 
        study area, currently a roadless area, or provides significant 
        wildlife habitat that is not impacted by motor vehicle access.
          3. Area provides irreplaceable and substantial habitat for 
        one or more game animals or fish at least during one season of 
        the year and is considered a limiting factor in species 
        population management.

    As a nation, we have come to expect energy awareness and 
conservation from corporations but sometimes forget that individuals 
also play a big role. Sportsmen and -women are leaders in fish and 
wildlife conservation and it's no surprise that they are stepping up as 
leaders in energy conservation as well. Here are five simple steps 
every sportsman can take to reduce their demand for energy, save money, 
improve their experiences and ensure they have less impact on our fish, 
wildlife and water resources as they pursue their passions in the great