[Senate Hearing 113-263]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 113-263

                    IMPORTING ENERGY, EXPORTING JOBS

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                                   ON

       ``IMPORTING ENERGY, EXPORTING JOBS. CAN IT BE REVERSED?''

                               __________

                             MARCH 25, 2014






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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                   MARY L. LANDRIEU, Louisiana, Chair

RON WYDEN, Oregon                    LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            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                 ROB PORTMAN, Ohio
MARTIN HEINRICH, New Mexico          JOHN HOEVEN, North Dakota
TAMMY BALDWIN, Wisconsin

                Elizabeth Leoty Craddock, 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

                              ----------                              

                               STATEMENTS

                                                                   Page

Adam Sieminski, Administrator, Energy Information Administration, 
  Department of Energy...........................................     4
Chow, Edward C., Senior Fellow, Energy and National Security 
  Program, Center for Strategic International Studies (CSIS).....    21
Goldwyn, David L., Nonresident Senior Fellow, Brookings 
  Institution, and President, Goldwyn Global Strategies, LLC.....    14
Landrieu, Hon. Mary U.S. Senator From Louisiana..................     1
Montgomery, W. David, Ph.D., NERA, Economic Consulting...........     8
Neverovic, Jaroslav, Ministry of Energy, The Republic of 
  Lithuania......................................................    27

                               APPENDIXES
                               Appendix I

Responses to additional questions................................    59

                              Appendix II

Additional material submitted for the record.....................    79

 
                    IMPORTING ENERGY, EXPORTING JOBS

                              ----------                              


                        TUESDAY, MARCH 25, 2014

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:06 a.m. in 
room SD-366, Dirksen Senate Office Building, Hon. Mary 
Landrieu, chair, presiding.

  OPENING STATEMENT OF HON. MARY LANDRIEU, U.S. SENATOR FROM 
                           LOUISIANA

    The Chair. Good morning, everyone. Thank the members for 
attending and thank our witnesses for being a part of this 
important hearing.
    It's my pleasure to bring the Energy Committee to an 
opening session this morning on the subject of natural gas. Our 
title, ``Importing Energy, Exporting Jobs. Can this be 
reversed?''
    I just want to say to begin with that Senator Murkowski is 
on her way. She's in a very important meeting. We expect her 
momentarily and looking forward to her opening statement.
    I want to thank Senator Ron Wyden, my dear friend and 
former leader of this committee, for his leadership and his 
support, former chairman of this committee. Look forward to 
continuing to working with him and all members of the committee 
on both sides of the aisle.
    Not quite a decade ago members of this committee attended 
numerous meetings in this room to consider the 2005 Energy 
Policy Act. At that time we discussed, at length, the need to 
import more liquefied natural gas to meet our growing energy 
demands. Thanks to an extraordinarily and swift, extraordinary 
and swift advances in technology to locate, capture and produce 
natural gas, today this committee will discuss the expanded 
opportunities to export liquefied natural gas and the 
possibilities to create high paying jobs in America and support 
our allies in Europe and budding democracies across the world.
    When President George W. Bush signed EPACT in 2005, the 
price of natural gas was averaging $9.50 cents per cubic feet. 
By October of that year, the price had risen to $13 and 
continued to rise in December of that year to $15. These high 
prices force chemical manufacturers to close up their factories 
and head overseas.
    This affected many States, not just Louisiana, Michigan and 
other industrial States around the country. They did so in 
droves. The fact that less than 10 years later we are now in a 
4-year period of domestic gas prices at $5 or less is stunning, 
with only a long term favorable outlook ahead of us.
    Because of this price reduction and price stabilization 
Methanex, for instance, the world's largest producer of 
methanol is literally breaking down a factory piece by piece in 
Chile and shipping it back to Geismar, Louisiana, where it 
originally was.
    What caused this reversal of fortune?
    What game changing technologies were involved?
    What actions should this committee and the U.S. take given 
this new set of data and facts?
    New discoveries in oil and gas have fortified our economy 
in the last few years buffering us from an even deeper 
recession which, I believe, would have occurred and providing 
new, high paying jobs for thousands of Americans. Nowhere is 
this more evident than in my home State of Louisiana and all 
along the Gulf Coast, America's energy coast. According to 
2013, a study by David Dismukes at LSU, over 200,000 jobs will 
be created by new, unconventional production in Louisiana alone 
by 2019. This is not considering the other jobs in other States 
around the country. It is quite promising.
    The oil and gas industry currently supports over 300,000 
jobs in Louisiana and has been a major factor in securing below 
average unemployment for the last 5 years. For also for States 
such as North Dakota that have had increased ongoing 
production, Colorado, etcetera.
    A recent LSU report estimated that from 2012 to 2018 
approximately $47,000,000 of private sector investment will be 
made in new and existing plants and projects in Allen Parish, 
Beauregard, Calcasieu, Cameron and Jefferson Davis. Parishes 
that people on this committee have probably never heard of and 
people in America have never heard of either. But these are 
real places, with real people, 100-mile stretch between I-10 
Lafayette and Lake Charles, Louisiana. That investment is 
expected to create more than 37,000 new jobs, high paying jobs.
    In America LNG exports will not only drive continued 
investment in domestic production and create jobs they're also 
a powerful geo-political tool, particularly in light of 
Russia's illegal aggression in the Ukraine. The events in the 
Ukraine have shown that Russia President Putin is intent on 
using his monopoly on energy supplies to pressure our allies in 
Europe to advance his economic and philosophical agenda.
    Last week Russia sanctioned 9 officials. I was one of them. 
Being sanctioned by President Putin is a badge of honor for me 
and the people that I represent.
    It has only encouraged me to redouble my efforts to 
increase domestic energy production here in the United States 
and make the U.S. a global leader in energy exports. America 
can and should be an energy super power in all aspects of 
conventional and advanced sources of energy including new 
alternative fuels and alternative energy sources. We all know 
that real competition in real open markets drives efficiency 
and lowers prices for everyone.
    The last thing Putin and his cronies want is competition 
from the United States of America in the energy race. Tyrants 
and dictators throughout history have had many reasons to fear 
revolutions. This U.S. energy revolution is one they should all 
keep their eyes on.
    I look forward to playing a role to bring energy security 
independence to America and its democratic allies around the 
world to advance freedom of speech, freedom of religion and 
yes, the freedom of the press and to hold the new promise to 
hold leaders accountable for what they do. Today's hearing is 
part of this effort. Far too often when faced with complex and 
difficult challenges we stand still, unsure, hesitant, moving 
in every different direction. I can assure you this will not be 
the case with this committee under my leadership.
    We will do our part to use our domestic production of gas, 
oil, advanced coal technologies, alternative fuel technologies 
and exciting renewables to meet our energy needs here at home 
and abroad. We will also break the stranglehold of tyrants and 
oppressors who use their energy stockpiles to crush the hopes 
and promise of freedom and democracy for all people, 
particularly women and girls.
    We have a great panel of experts assembled here today. I 
look forward to hearing from them about how we can achieve 
these goals.
    I will turn to Ranking Member Murkowski as soon as she's 
here for her opening statement. Until then, let me call on my--
our witnesses this morning.
    I do want to mention, for the record, and give credit to 
Senator Mark Udall, who is here with us this morning, on a bill 
that he has introduced that is currently pending. Hopefully we 
can take this up at some point, the American Job Creation and 
Strategic Alliances Act, cosponsored by Senator Begich. It 
amends a section of the Natural Gas Act to allow for exports of 
natural gas to world trade organization countries. We'll look 
forward to hearing more specifically about many other pieces of 
legislation on this subject, both pro and con and neutral, as 
we develop our policy. But I want to thank you, Senator Udall, 
for your introduction of this bill.
    I'd like to put into the record an Op Ed that I thought was 
particularly on point from the Wall Street Journal, their 
editorial, a Gas Export Strategy and from the New York Times, 
from Thomas Friedman, From Putin, a Blessing in Disguise, for 
the record.
    The Chair. Now I'd like to begin with our witnesses then we 
will go through a round of questions.
    Our first is Mr. Adam Sieminski, Administrator of U.S. 
Information.
    Next, Mr. David Montgomery, Senior Vice President of NERA 
Economic Consulting.
    Next, Mr. Edward C. Chow, Senior Fellow, Energy and 
National Security Program Center for Strategic International 
Studies.
    We're very pleased to have the Minister of Energy from the 
Republic of Lithuania that I think will give us a really 
extraordinary and very timely view of what's happening in his 
part of the world.
    Then Mr. David Goldwyn, Nonresident Senior Fellow, Energy 
Security Initiative at Brookings Institute.
    So please, Mr. Sieminski, if you could proceed with 5 
minutes of testimony and then a round of questions.
    Thank you.

STATEMENT OF ADAM SIEMINSKI, ADMINISTRATOR, ENERGY INFORMATION 
              ADMINISTRATION, DEPARTMENT OF ENERGY

    Mr. Sieminski. Chair Landrieu, members of the committee, 
thank you very much for the opportunity to be here today. EIA, 
as you know, is the statistical and analytical agency.
    The Chair. Could you speak a little bit closer into your 
microphone? All of you are going to have to press your buttons 
and then lean into the microphone. Thank you.
    Mr. Sieminski. Chair Landrieu, as you know, the EIA is the 
statistical and analytical agency within the Department of 
Energy. By law its data and analyses are independent of 
approval by any other office or employee of the U.S. 
Government. So my views should not be construed as representing 
those of the Department of Energy or any other Federal agency.
    EIA's latest short term outlook forecast total natural gas 
consumption average, 71.3 billion cubic feet a day in 2014. 
That's a slight drop from 2013 as power generators respond to a 
year over year increase in natural gas prices.
    In 2015 forecast natural gas consumption again falls 
slightly as a decline in residential and commercial use more 
than offsets increased demand from industry and electricity 
generation.
    On the supply side, EIA forecasts that natural gas marketed 
production will grow at an average rate of 2 and a half percent 
in 2014 and more than 1 percent in 2015. Production growth in 
the Marcellus formation, centered in Pennsylvania, but also 
evident in West Virginia, is particularly noteworthy. EIA also 
expects increased drilling activity in the Haynesville in 
Louisiana and Arkansas and the Barnett in Texas.
    The past winter of prolonged widespread and very cold 
weather which is continuing throughout the Northeast and 
throughout much of the United States, has led to a record 
breaking natural gas withdraw season. EIA expects natural gas 
inventories at the end of this winter will be at the lowest 
level in 11 years. However, EIA forecasts for production and 
consumption indicate that operators will make record high 
storage injections between April and October in order to 
substantially rebuild inventory levels.
    Growing natural gas production in recent years is already 
having a significant impact on natural gas trade by displacing 
some pipeline imports from Canada while enabling increased 
pipeline exports to Mexico. As world scale domestic natural gas 
liquefaction plants begin to come on stream, EIA expects the 
United States to become a net exporter of natural gas beginning 
later this decade.
    Turning to longer term projections presented in EIA's 
Annual Energy Outlook for 2014, natural gas production from 
shale gas, tight gas and offshore natural gas resources rose 
steadily increasing 56 percent between 2012 and 2040 when 
production reaches 37.6 trillion cubic feet in our reference 
case. The largest contributor, shale gas, will be over 50 
percent of total production at that time with tight gas and 
offshore gas production also increasing. Alaska's natural gas 
production rises with the opportunity in the middle of the next 
decade for liquefied natural gas exports to overseas customers.
    The complete AEO 2014, the Annual Energy Outlook, which 
will be released next month, includes cases that examine 
uncertainties and alternative assumptions that can 
substantially change this outlook.
    For example, projected natural gas production in 2040 is 
roughly 10 percent above the reference case level in the high 
oil price scenario and roughly 20 percent above the reference 
case level in the high oil and gas resource case. Projected 
prices and export levels also differ considerably across these 
cases. As producers develop lower grade resources over time EIA 
sees the spot price at Henry Hub increasing at about 3.7 
percent per year in the reference case from a low of $2.75 
million, 275 per million BTU to $7 and 65 cents per million BTU 
in 2040.
    Even so, energy intensive industries in the United States 
benefit from shale gas as both the availability and price of 
natural gas are attractive compared to the situation in other 
world regions. Generators using natural gas are also expected 
to capture a growing share of total U.S. electricity 
production.
    Turning to natural gas trade, pipeline exports of U.S. 
natural gas to Mexico grow by 6 percent a year in the reference 
case and are more than 3 times net pipeline imports from Canada 
by 2040. From 2012 to 2040 U.S. net exports of LNG increase by 
3.5 trillion cubic feet with the remaining volumes originating 
from export terminals located along the Atlantic and Gulf 
Coasts along with 800 BCF of LNG originating in Alaska.
    Future U.S. LNG exports depend on a number of factors that 
are difficult to anticipate including price convergence in 
global natural gas markets, competition with oil, the pace of 
natural gas supply/growth inside and outside the United States. 
While the AEO 2014 side cases are not yet completed, projected 
exports by 2040 in our high oil price case are nearly twice as 
high as the reference case. LNG exports in the high oil and gas 
resource case which uses a reference case oil price scenario, 
but is more optimistic about the size of the resource base and 
technology advances, falls midway between those in the 
reference and high oil and gas price cases.
    Thank you, Chair Landrieu for the opportunity to testify 
before the committee.
    [The prepared statement of Mr. Sieminski follows:]

Prepared Statement of Adam Sieminski, Administrator, Energy Information 
                  Administration, Department of Energy
    Chair Landrieu, Ranking Member Murkowski, and Members of the 
Committee, I appreciate the opportunity to appear before you today at 
this hearing on the topic of Importing Energy, Exporting Jobs, Can it 
be Reversed?
    The Energy Information Administration (EIA) is the statistical and 
analytical agency within the U.S. Department of Energy. EIA collects, 
analyzes, and disseminates independent and impartial energy information 
to promote sound policymaking, efficient markets, and public 
understanding regarding energy and its interaction with the economy and 
the environment. EIA is the nation's premier source of energy 
information and, by law, its data, analyses, and forecasts are 
independent of approval by any other officer or employee of the United 
States Government. The views expressed herein should therefore not be 
construed as representing those of the Department of Energy or any 
other federal agency.
    As requested, my testimony focuses on natural gas. It draws on 
EIA's data covering production, stocks, demand, imports, exports, and 
prices; on our forecast of trends over the next one to two years that 
is updated each month in the Short-term Energy Outlook (STEO). It also 
draws on long-term projections through 2040 that are updated each year 
in our Annual Energy Outlook (AEO), including a variety of alternative 
cases to reflect the effect of key uncertainties on energy market 
outcomes.
Short Term: U.S. Natural Gas Production, Use and Trade
    This winter of prolonged, widespread frigid weather throughout much 
of the United States led to a record-breaking natural gas withdrawal 
season, bringing inventories of natural gas to an 11-year low at the 
end of the current winter. EIA's weekly natural gas storage report 
issued on March 20 shows that stocks as of March 14 were 953 Billion 
cubic feet (Bcf). However, EIA forecasts for production and consumption 
indicate that operators will make record-high storage injections 
between April and October in order to substantially rebuild inventory 
levels. The demand response to higher natural gas prices should be 
particularly apparent in the electric power sector, where decisions 
made by operators regarding which power plants to run during shoulder 
demand periods are quite sensitive to relative fuel prices.
    EIA expects total natural gas consumption will average 71.3 Bcf per 
day (Bcf/d) in 2014, a drop of 0.1 Bcf/d from 2013. The projected year-
over-year increases in natural gas prices contribute to declines in 
natural gas used for electric power generation from 24.9 Bcf/d in 2012 
to 22.3 Bcf/d in 2013 and 22.0 Bcf/d in 2014. In 2015, total natural 
gas consumption falls by 0.3 Bcf/d as a decline in residential and 
commercial consumption more than offsets consumption growth in the 
industrial and electric power sectors. EIA expects natural gas 
consumption in the power sector to increase to 22.6 Bcf/d in 2015 with 
the retirement of some coal plants.
    Total marketed production averaged 70.2 billion cubic feet per day 
in 2013. The latest STEO forecasts natural gas marketed production to 
grow at an average rate of 2.5 percent in 2014 and 1.1 percent in 2015. 
U.S. natural gas production has increased significantly since 2005 
mainly because of growth in production of shale gas resources. The 
recent rapid natural gas production growth in the Marcellus formation, 
centered in Pennsylvania, but also evident in West Virginia, is 
particularly noteworthy. Supply growth in the Northeast is causing 
natural gas forward prices in that region to fall even with or below 
Henry Hub prices outside of peak-demand winter months. Consequently, 
some drilling activity may again shift towards Gulf Coast plays such as 
the Haynesville in Louisiana and the Barnett in Texas, where prices are 
closer to the Henry Hub spot prices.
    Turning to natural gas trade, growing domestic production over the 
past several years has displaced some pipeline imports from Canada, 
while exports to Mexico have increased. EIA expects these trends will 
continue through 2015. EIA projects net natural gas imports of 3.6 Bcf/
d in 2014 and 2.6 Bcf/d in 2015, which would be the lowest level since 
1987. The latest AEO, which is discussed below, projects the United 
States will be a net exporter of natural gas beginning later in this 
decade.
The Long Term Outlook for U.S. Natural Gas
    EIA released the Reference case projections for the Annual Energy 
Outlook 20014 (AEO2014) in December. The Reference case is intended to 
represent an energy future through 2040 based on given market, 
technological, and demographic trends; current laws and regulations; 
and consumer behavior. EIA recognizes that projections of energy 
markets are highly uncertain and subject to geopolitical disruptions, 
technological breakthroughs, economic fluctuations, and other 
unforeseeable events. In addition, long-term trends in technology 
development, demographics, economic growth, and energy resources may 
evolve along a different path than represented in the Reference case 
projections. The complete AEO2014, which will be released next month, 
includes a number of alternative cases that examine uncertainties and 
alternative assumptions regarding resources, technology advances, and 
world energy prices that can significantly affect projections for 
natural gas production, use, and trade.
    In the AEO2014 Reference case, natural gas production grows 
steadily, with a 56 percent increase between 2012 and 2040, when 
production reaches 37.6 trillion cubic feet (Tcf). Shale gas production 
is the largest contributor, growing by more than 10 Tcf, from 9.7 Tcf 
in 2012 to 19.8 Tcf in 2040. The shale gas share of total U.S. natural 
gas production increases to over 50 percent. Tight gas production and 
offshore gas production both increase significantly, but their share of 
total production remains relatively constant. Alaska's natural gas 
production also increases during the projection period, driven by the 
opportunity for Alaska liquefied natural gas (LNG) exports to overseas 
customers, which is projected to be economic in the middle of the next 
decade.
    One key uncertainty that influences projected U.S. natural gas 
production is the level of oil prices, relative to natural gas prices, 
which significantly affects projected use of natural gas in the 
transportation sector and projected foreign demand for U.S. natural gas 
exports. A second key uncertainty influencing projected domestic 
natural gas production relates to the abundance of tight oil and shale 
gas resources and the pace of technology advances that influence both 
drilling costs and the recovery factor. The impact of alternative 
assumptions in these two areas will be explored in AEO2014 side cases 
that address high and low oil price scenarios and more optimistic and 
pessimistic assumptions regarding the resource base and the pace of 
technology advances. The impacts of revised assumptions and scenarios 
can be substantial. For example, projected natural gas production in 
2040 is roughly 4 Tcf above the Reference case level in the High Oil 
Price scenario, and roughly 8 Tcf above the Reference case level in the 
High Oil and Gas Resource case. Projected prices and export levels also 
differ considerably across these cases.
    Average annual U.S. natural gas prices have remained relatively low 
over the past several years as a result of the availability of abundant 
domestic resources and the application of improved production 
technologies. Growth in demand for natural gas, largely from the 
electric power and industrial sectors (including oil refineries), and 
for LNG exports, supports higher prices, particularly toward the end of 
the present decade. To meet that rising demand, producers move into 
basins where the recovery of natural gas is more difficult and 
expensive, which leads to an increase in Henry Hub spot prices of 3.7 
percent per year in the Reference case, from $2.75 per million Btu 
(MMbtu) in 2012 to $7.65 per MMbtu (2012 dollars) in 2040.
Energy intensive Industries benefit from shale gas
    Availability of natural gas and hydrocarbon gas liquids (HGL) from 
wet gas production at prices that are attractive relative to those in 
other regions supports the growth of energy intensive industries that 
rely on those as both a fuel and as a feedstock in the United States.
    Overall, industrial shipments grow at a 3.0 percent annual rate 
over the first 10 years of the AEO2014 Reference case projection and 
then slow to 1.6 percent annual growth from 2025 through 2040. Bulk 
chemicals and metals-based durables account for much of the increased 
growth in industrial shipments in AEO2014. Industrial shipments of bulk 
chemicals, which benefit from an increased supply of natural gas 
liquids, grow by 3.4 percent per year from 2012 to 2025 in AEO2014. The 
higher level of industrial shipments leads to more natural gas 
consumption in the U.S. industrial sector, increasing from 8.7 
quadrillion British thermal units (Btu) in 2012 to 10.6 quadrillion Btu 
in 2025 in AEO2014, compared to 9.8 quadrillion Btu in 2025 in AEO2013. 
Natural gas use in manufacturing, the single largest component of 
overall industrial gas use, rises rapidly over the next decade. 
Projected prices for natural gas also make it a very attractive fuel 
for new generating capacity. In 2040, natural gas accounts for 35 
percent of total electricity generation, while coal accounts for 32 
percent.
Growth in Transportation Demand and Exports
    Some of the largest changes in consumption are seen for natural gas 
consumed in transportation and exported as LNG, since the profitability 
of natural gas as transportation fuel or as LNG for export depends 
primarily on the price differential between crude oil and natural gas. 
Although transportation use currently accounts for only a small portion 
of total U.S. natural gas consumption, the percentage growth in natural 
gas demand by heavy-duty vehicles, ships, and trains is significant. 
Consumption in the transportation sector, excluding natural gas use at 
compressor stations, grows from about 40 billion cubic feet in 2012 to 
850 billion cubic feet in 2040.
    U.S. exports of natural gas also increase in the AEO2014 Reference 
case. Pipeline exports of U.S. natural gas to Mexico grow by 6 percent 
per year, from 0.6 Tcf in 2012 to 3.1 Tcf in 2040. Over the same 
period, as more U.S. demand is met by domestic production, net pipeline 
imports from Canada fall to less than 1 Tcf. From 2012 to 2040, U.S. 
net exports of LNG increase by 3.5 Tcf, including 800 Bcf of LNG 
originating in Alaska, with the remaining volumes originating from 
export terminals located along the Atlantic and Gulf coasts. In 
general, future U.S. LNG exports depend on a number of factors that are 
difficult to anticipate, including the speed and extent of price 
convergence in global natural gas markets, the extent to which natural 
gas competes with oil in U.S. and international gas markets, and the 
pace of natural gas supply growth outside the United States.
    Projected U.S. natural gas exports are sensitive to the abundance 
of tight oil and shale gas resources, the pace of technology advances 
that influences drilling costs, the recovery factor, and evolution of 
global oil prices. While the AEO2014 side cases are not yet completed, 
projected LNG exports by 2040 in the High Oil Price case are nearly 
twice as high as in the Reference case. Projected LNG exports in the 
High Oil and Gas Resource case, which uses the Reference case oil price 
scenario but is more optimistic about the size of the resource base and 
technology advance, fall midway between those in the Reference and High 
Oil Price cases.
    Thank you for the opportunity to testify before the Committee.

    The Chair. Thank you very much.
    Please proceed.

    STATEMENT OF W. DAVID MONTGOMERY, PH.D., NERA, ECONOMIC 
                           CONSULTING

    Mr. Montgomery. Thank you, Madame Chair. I thought you were 
going to ask questions of Mr. Sieminski.
    The Chair. No, no. We do the whole panel. Then we'll have 
questions.
    Mr. Montgomery. Thank you.
    Madame Chair and members of the committee, I'm also honored 
by your invitation to testify today in this distinguished 
company. It was my privilege to lead the study of the macro 
economic impacts of U.S. LNG exports that my company, National 
Economic Research Associates, did for the Department of Energy 
and of our recent update to that study. I've provided a copy of 
the updated report along with my testimony. I'd like to request 
that that be entered into the record.
    The Chair. Without objection.
    Mr. Montgomery. Thank you.
    My testimony and these reports represent my own opinions 
and conclusions and do not necessarily represent the opinions 
of any other consultant at NERA or its clients and in 
particular, I do not speak for Cheniere Energy which funded the 
update or for NERA, but only for myself. We tried to address 
some issues that have been raised about our earlier study for 
DOE in this update.
    Two, in particular, one that using 2011 data made our study 
too out of date, well we updated it to the Energy Information 
Administration's most recent full set of long term forecasts. 
We used the 2013 outlook because, as Mr. Sieminski just said, 
they have not yet published the side cases that were critical 
for our analysis of the scenarios. We agree with Mr. Sieminski 
that we have to look at scenarios because it is very difficult 
to predict exactly what the level of exports will be.
    Then to deal with concerns that DOE does not have access to 
a full analysis of the cumulative impacts of exports we 
examined levels of exports all the way up to what they could be 
if the Department of Energy put no restrictions on exports. We 
again found that LNG exports provide net economic benefits in 
all the scenarios we examined, the greater the exports, the 
greater the benefits. Put another way, there's no sweet spot 
that would justify limiting LNG exports below market determined 
levels on the basis of their net economic benefits.
    Another point that's been raised frequently is about the 
notion that somehow if we export natural gas it won't be 
available for manufacturing in the U.S. That's simply a false 
dichotomy. We looked at it very closely.
    You're absolutely right, Madame Chair, the U.S. chemicals 
industry was very threatened in 2005. But at this point it has 
moved to being tied for the world's lowest cost producer of 
chemicals with a very large advantage over any of its rivals 
that import natural gas which will not be taken away to any 
noticeable extent by the effect of LNG exports. It's simply a 
false dichotomy.
    There is ample gas for both. We find that in fact in our 
scenarios the increased demand for exports is almost all 
satisfied by increased production. None of it, almost none of 
it is taken away from any domestic uses because of higher 
prices.
    I'd like to cover 2 other topics.
    One, just extending the economic analysis to talk about 
jobs. There are 2 things about LNG exports that I am convinced 
are true no matter what level of exports we look at.
    First is that LNG export facilities in shale gas production 
require workers. They're going to be drawn from all over the 
economy. Since the facilities have to be built before the gas 
can be loaded the investment in employment associated with that 
investment is going to be coming up front.
    We calculated, this is on page 8 of my testimony, and I 
believe the committee may have a handout. We calculated the 
annual employment, just direct jobs, building liquefaction 
facilities. Those jobs could hit a peak between 2,000 and 
30,000 jobs onsite building liquefaction facilities between now 
and 2018. Of course the faster we export gas, the more jobs 
there will be. The faster we get going on exporting gas, 
building the facilities, the more jobs there will be.
    I mentioned the year 2018 because I think it's really 
important. The Congressional Budget Office, where I used to be 
an Assistant Director, does economic forecasts for the budget. 
It always assumes that the economy will be back at full 
employment after we come out of the current cycle simply 
because we can't do any better than that at forecasting what 
will happen. It has been the long term secular trend in the 
economy.
    So what's really important about employment is the period 
between now and when we reach full employment which CBO now 
projects for 2018. So these jobs are actually coming exactly 
when they're needed, which is during a period when we are still 
looking at unemployed workers, who can be brought back into the 
labor force. We project that somewhere between 2,000 and 45,000 
unemployed would be put back to work between now and 2018 by 
the construction of these, by basically, the entire enterprise 
of gearing up for LNG exports.
    The final point I would like to make is about Russia which 
we all are, really, the focus of this hearing.
    I've looked at our new study and asked myself what is it 
that is effective and sufficiently attractive on its own merits 
that would be a credible promise of punishment for Russian 
aggression?
    I believe that that is LNG exports. If you look quickly at 
another handout that I believe you have or on page 13 of my 
testimony. We've taken a look at what would happen to Russia's 
revenues if 2 things happened.
    One of them is we've removed, you know, a policy, you know, 
however it is actually phrased in law, that committed the U.S. 
not to put a cap on LNG exports combined with putting serious 
effort into being sure that we do not cutoff the shale gas 
revolution through ham handed regulation or giving in to, you 
know, groundless fears and encourage production. Those 2 things 
together are needed.
    But with that we could see Russia's exports dropping by up 
to 5 trillion cubic feet per year in 2038 due to this 
competition from the U.S. That's what would happen if Russia 
does not meet the prices that the U.S and other competitive 
producers. We would take away a huge amount of their market.
    If they do meet the competition they're going to have to 
sell at lower prices. What that adds up to me in this chart is 
somewhere between a 40 percent and a 60 percent loss in export 
revenues from natural gas for Russia through this policy of the 
U.S. entering the LNG market aggressively. I think that's a 
punishment that would mean something.
    Thank you.
    [The prepared statement of Mr. Montgomery follows:]

        Prepared Statement of W. David Montgomery, Ph.D., NERA 
                          Economic Consulting
    Chairman Landrieu, Ranking Member Murkowski and Members of the 
Committee:
Introduction
    I am honored by your invitation to testify on this very important 
topic. I am an economist and Senior Vice President at NERA Economic 
Consulting. I had the privilege of leading the study of the 
``Macroeconomic Impacts of U.S. LNG Exports'' that was issued by the 
Department of Energy (DOE) in December 2012 and of the update to that 
study, ``Updated Macroeconomic Impacts of LNG Exports from the United 
States,'' that my colleagues and I have just completed. I have provided 
a copy of this report along with my testimony and I request that it be 
entered into the record. I would like to thank Cheniere Energy, Inc. 
for their sponsorship of this update, and in particular to thank them 
for giving us the same freedom to conduct an objective and independent 
study that the U.S. Department of Energy gave us.
    Statements in this testimony represent my own opinions and 
conclusions and do not necessarily represent opinions of any other 
consultant at NERA or any of its clients. I do not speak for Cheniere 
Energy, Inc. or NERA, in particular, but only for myself.
Findings of the NERA 2014 Study
    We based our updated analysis on the Energy Information Agency's 
(EIA) 2013 Annual Energy Outlook (AEO 2013), in order to address claims 
that our original study was out of date. Compared to our 2012 report, 
natural gas prices are lower, LNG exports are larger, and economic 
benefits are greater. We again find that LNG exports provide net 
economic benefits in all scenarios, and the less regulators restrict 
U.S. exports, the greater the benefits from natural gas production.
    We used AEO 2013 in this update because the preliminary release of 
AEO 2014 did not contain the side cases exploring high and low oil and 
gas resources that were needed to recapitulate the scenarios of our 
2012 study. I do not expect our findings to change when we incorporate 
AEO 2014 scenarios because when we jumped forward two years from AEO 
2011 to AEO 2013 everything became more favorable to LNG exports: lower 
U.S. natural gas prices, higher LNG exports and greater economic 
benefits in every case.
    In order to address concerns about the ``cumulative'' impact of LNG 
exports above levels that DOE asked us to study, our update considers 
additional scenarios in which we assume no constraints on LNG exports 
and let the market determine their level. These scenarios of LNG 
exports unconstrained by government policy provided the largest net 
benefits.
    Another goal that we had in this update was to dispel some myths 
that are still being retold about natural gas exports, and I will turn 
to them now:
    LNG exports will not cause runaway increases in natural gas 
prices.--Both LNG export volumes and price impacts will be limited by 
the market, by rival exporters ready to undercut high prices, and by 
price-sensitive buyers. Only if natural gas prices fall and remain 
below today's levels will there be high levels of exports. If 
regulatory ham-handedness chokes off the shale revolution, not even the 
currently authorized LNG export projects will be running. The U.S. 
would not find buyers at high prices for large volumes of LNG exports, 
even with extraordinary global demand and supply shocks. There are too 
many other sellers that can beat high U.S. prices.
    Exhibit 1* shows the impact of LNG exports on U.S. natural gas 
prices with EIA Reference Case supply assumptions and a global demand 
shock\1\ for unconstrained exports. The historical variation in prices 
around their mean from 2000 to 2013 is superimposed on projected 
natural gas prices and their mean from 2025 to 2038. We can see that 
the difference of less than $1 is dwarfed by historical variations.
---------------------------------------------------------------------------
    * All Exhibits have been retained in committee files.
    \1\ The demand shock assumes greater international demand for 
natural gas than assumed in the 2013 International Energy Outlook.
---------------------------------------------------------------------------
    Exhibit 1--Price Impacts of LNG Exports Are Dwarfed by Historical 
Variation
    Exhibit 2 shows the maximum increase in natural gas prices that we 
find across all scenarios to be about $1 per Mcf. In contrast, the 
difference in natural gas prices between EIA's High Oil and Gas 
Resource (HOGR) case and its Low Oil and Gas Resource (LOGR) case is 
over $3.50. We find that natural gas prices as high as in the LOGR case 
would choke off LNG exports at levels less than what DOE has already 
authorized.

    Exhibit 2--Price Impacts of LNG Exports, Limited Shale Development, 
and Winter Weather

    Price spikes will not become more damaging.--Returning to our own 
analysis, short term natural gas price spikes, as we observed last 
winter, have been a frequent occurrence in natural gas markets even 
with zero LNG exports. They are caused by unexpected weather events and 
problems in the pipeline system, and have always been temporary. 
Referring again to Exhibit 1, Henry Hub prices that rose to almost 
$8.00/Mcf last winter are already down to $4.50. There has always been 
a solution for price spikes: which is increased storage and 
overbuilding of the pipeline system. But neither natural gas suppliers 
nor their customers have found the permanent cost of this extra 
security worth the temporary cost of price spikes.
    LNG exports actually provide a deliverability cushion for domestic 
consumers. Our analysis shows that when U.S. wellhead prices become as 
high as they were last winter, they would likely choke off LNG exports 
and free up that gas for domestic use. The additional natural gas 
deliverability built up to serve LNG exports would then become 
available to surge deliveries for domestic needs. Thus LNG exports 
provide a built in buffer of supply like a Strategic Petroleum Reserve.
    Limiting LNG exports would take away this deliverability cushion, 
and the disastrous consequences of past governmental attempts to 
allocate supplies and control prices during price spikes should be a 
warning against trying again. Natural gas prices were regulated through 
the 1970s, and the consequence was an allocation system that cut off 
major users--mostly industrial customers--when shortages appeared. 
Decisions by government regulators and politicians about who should be 
awarded the benefits of price-controlled gas just made things worse for 
everyone. There have been no such curtailments since we created an open 
market for natural gas in the U.S.
    Natural gas will not be taken away from U.S. manufacturing or 
residential consumers to supply LNG exports.--LNG exports occur 
precisely because there is enough natural gas to satisfy needs inside 
and outside the U.S. We consistently find that most of the demand for 
increased natural gas exports is satisfied by new production, and that 
demand reduction is largely confined to the electric power sector 
(Exhibit 3).
    In the electric power sector, an increased price of natural gas as 
a fuel for generation would lead to a small reduction in demand, but 
for the most part natural gas is displaced by additional generation 
from nuclear, renewables, and (depending on forthcoming EPA rules) 
possibly coal.

    Exhibit 3--Where Do Exports Come From?

    The competitive advantage of U.S. manufacturing will not be taken 
away, at least not by LNG exports.--Right now U.S. chemical producers 
enjoy about a 4 to 1 cost advantage over their rivals in Europe and 
Asia. Exhibit 4 from the American Chemical Council shows how the 
competitive position of this sector has become fundamentally 
invulnerable to effects of LNG exports. For ethylene, an important bulk 
chemical and indicator of competitiveness used by the American Chemical 
Council, costs in the U.S. are about 20 cents per pound and in China 
and Europe over 80 cents per pound. The maximum impact that LNG exports 
could have on U.S. natural gas prices would raise costs in the U.S. by 
about 5 cents per pound--still leaving a 55 cent per pound cost 
advantage.

    Exhibit 4--Competitive Position of U.S. Chemical Industry

    For ethylene producers, the picture is even rosier because their 
primary feedstock, ethane, is a natural gas liquid that is produced in 
large quantities along with tight gas. Ethane is so ``hot'' that the 
amount that can be mixed into natural gas in pipelines is limited, so 
that a glut of ethane has developed over the past two years and lowered 
the price of ethane relative to natural gas. And, the more LNG we 
export, the greater the glut of ethane will be and the greater the 
advantage to chemical producers.
    All U.S. manufacturing continues to enjoy a cushion of low natural 
gas costs no matter how high LNG exports go. Any importer of natural 
gas from the U.S. will be paying a landed price more than twice the 
price that U.S. manufacturers pay--because the cost of transporting gas 
to Europe or Asia is about equal to the price of gas in the U.S. Adding 
the two together means that rivals importing gas from the U.S. will be 
paying double the U.S. price. As a result, we find across all sectors 
and in all scenarios that LNG exports alter the rate of growth in U.S. 
manufacturing by no more than a few hundredths of a percentage point.
    And at that, natural gas will be a bargain to the countries that 
import from the U.S. LNG imports in Asia and pipeline imports into 
Europe from Russia are now for the most part indexed to oil prices. 
That makes the current price of natural gas 3 to 4 times higher in 
those countries than in the U.S. That is what makes the prospect of LNG 
exports so attractive to both buyers and sellers, and why LNG exports 
from the U.S. are such a threat to Russia.
    LNG exports will not cost U.S. jobs.--Just the construction of 
liquefaction capacity sufficient to support the LNG exports projected 
in our study would create a peak of 2000 to 40,000 onsite jobs, largely 
in the Gulf Coast region and in the critical years between now and 2018 
(Exhibit 5). That year is important, because it is the year when CBO 
forecasts that the U.S. will return to a normal state of full 
employment. The investment in LNG export facilities and in additional 
natural gas exploration and production for export would take from 3,000 
to 45,000 workers off the unemployment rolls during the next four years 
of continued softness in the labor market, and hasten the return to 
full employment by as much as two months. The faster projects are 
authorized and the sooner they begin construction, the greater the 
impact on unemployment will be.

    Exhibit 5--Eployment Impacts

    Benefits of LNG exports will be distributed broadly.--Employment, 
labor income and investment income will continue to grow no matter what 
level of LNG exports the market demands from the U.S. In the scenario 
with the highest level of LNG exports across all those we examined, GDP 
in 2038 will increase by about $25 billion compared to the no export 
case. In terms of the components of GDP, government revenues will 
increase by over $10 billion, investment income by about $15 billion, 
and resource income by about $10 billion, and labor income will be 
about $15 billion less, all compared to the no export case.

    Exhibit 6--LNG Exports Lead to Higher GDP

    There is no point in turning these findings into class warfare. A 
considerably larger share of royalty income could accrue to the Federal 
government if more Federal lands opened up for oil and gas exploration 
and production, and that would in turn likely reduce resource income to 
private landowners. The increase in investment income more than offsets 
a decline in wage income, and that increase plus a share of resource 
income will accrue to all Americans who invest and who hold their 401k 
plans in a reasonably diversified portfolio of stocks.
    There is no ``sweet spot'' lower than the market-determined level 
of exports--Finally, we found no sweet spot that would justify 
government interference with U.S. obligations under the WTO to allow 
free trade in commodities like natural gas. In every scenario we 
investigated, higher levels of LNG exports led to larger economic 
benefits to the U.S. (See Exhibit 7).

    Exhibit 7--When the Market Decides, the More We Export, the More We 
Benefit

    We examined a range of LNG exports in our study, including market-
determined levels of exports that could be expected if DOE 
automatically approved all applications. Even in cases where worldwide 
supply and demand shocks were combined with optimistic assumptions 
about U.S. natural gas resources to lead to LNG exports approaching 
one-half of total domestic supply, the U.S. gained larger benefits by 
allowing unlimited LNG exports than it would have achieved in those 
cases with restricted exports
Strategic Energy Policy
    Now let me turn to the subject of this hearing. LNG exports from 
the U.S. could reduce Russia's stranglehold on energy supplies to 
Europe. Immediate announcement of a policy of allowing unlimited LNG 
exports would signal potential competition that Russia would have to 
meet by offering lower natural gas prices as it renegotiates its supply 
contracts with Europe. The power of this signal will depend on whether 
it is accompanied by effective action to accelerate the shale gas 
revolution by avoiding or removing unreasonable regulations, costs, and 
constraints on natural gas exploration and production.
    In order to estimate the potential demand for U.S. LNG exports and 
the prices at which LNG exports could be sold, we analyzed supply and 
demand for natural gas around the world. Russia supplies about 25 
percent of the natural gas consumed in Europe and Russian exports are 
projected by EIA to increase by 33 Bcfd from current levels by 2040, 
making Russia the largest potential rival to the U.S. in global LNG 
supply. Much of this gas is now supplied by Russia under long term 
contracts that link natural gas prices to oil prices. As these 
contracts come up for renewal or renegotiation, Russia's power to 
extract high prices will depend greatly on the competition expected to 
appear in the market during that contract term.
    Monopolists can be restrained as effectively by potential 
competition as by actual production by their rivals. Eliminating any 
possibility of a cap on U.S. exports is necessary to create effective 
potential competition. The existence of a major competitor with the 
capacity and willingness to sell large quantities of natural gas will 
discipline Russia's pricing even if actual LNG exports are low. To 
provide such competition, it must be possible to move additional LNG 
exports into the market on a large enough scale to punish any Russian 
effort to raise prices above competitive levels with a substantial loss 
of market share.
    Our results show that if U.S. policies encourage growth in natural 
gas production and remove all limits on exports, Russia would face the 
choice of ceding a large share of its market to the U.S. and other 
rivals or lowering its prices to levels determined by gas-on-gas 
competition. Even if it takes 5 to 10 years for U.S. LNG exports to 
equal a large share of Russian natural gas exports, the effect of a 
clear policy to encourage domestic oil and gas production and remove 
obstacles to LNG exports would have an immediate effect on the pricing 
of natural gas and Russia's revenues.
    To be specific, I would like to refer to Exhibit 8. The shows the 
range of impacts that a policy of unlimited U.S. LNG exports could have 
on Russia's natural gas export revenues if shale gas resources and 
regulatory policy toward drilling lead to levels of production 
approximating the most recent EIA High Oil and Gas Resource case. Since 
U.S. LNG exports will affect Russian pipeline as well as LNG exports, 
these estimates of Russia's revenues include both pipeline and 
waterborne shipments. The U.S. need not be competing directly with 
Russia for U.S. exports to have the effect of reducing Russia's exports 
and revenues. Even if U.S. exports move to Asia, they would divert LNG 
to Europe and thus take away Russia's sales and revenues.

    Exhibit 8--Effective U.S. Competition Would Force Russia to Cut 
Prices or Lose Sales

    Thus, we estimate that in the next 5 years, U.S. competition could 
drive Russia's revenues from natural gas exports down by as much as 30 
percent, and in the longer term could cut those revenues by as much as 
60 percent. Since energy exports are the mainstay of the still 
inefficient and lagging Russian economy, this is a penalty with teeth. 
LNG exports will not alone be sufficient to discipline Russian 
aggression, but it is a step in the right direction.
    A likely consequence of high levels of U.S. LNG exports based on 
Henry Hub prices lower than today is that they could break the system 
of oil-linked pricing by which Russia has enriched itself at Europe's 
expense. This outbreak of gas-on-gas competition is a major part of the 
erosion of Russia's export revenues found in our results, and it would 
limit Russia's energy and economic power.
    Gas-on-gas competition will also benefit U.S. consumers by lowering 
costs of manufacturing in countries that import natural gas, and 
thereby lowering the cost of consumer goods imported from those 
regions. This reduction in costs of our trade partners can only benefit 
the U.S. consumer, but it may be opposed by some manufacturing 
interests. The outbreak of gas-on-gas competition may erode further the 
profits of U.S. chemical producers that I discussed earlier, by 
bringing their rivals' costs for feedstocks down closer to U.S. levels. 
The competitive advantage of the U.S. will not disappear because the 
U.S. as an exporter will have natural gas prices half those that 
importers must pay to obtain LNG plus shipping. But the profits of some 
of those U.S. chemical producers could be eroded, by the same events 
that provide U.S. consumers with the benefit of lower prices of many 
other imported goods and the world with a meaningful counter to Russian 
aggression.
    Since oil, natural gas, and coal markets in Europe are linked, 
exports of any of the three energy forms could contribute to weakening 
Russia's power over Europe and eroding its export revenues. By 
increasing coal exports to Europe, the U.S. would likely displace 
natural gas used for power generation in Europe and thereby allow 
either more rapid refilling of European storage or directly cut back 
needs for Russian natural gas. Crude oil exports might not directly 
compete with Russian supplies to Europe, but to the extent that crude 
oil exports make greater U.S. production possible they would shift the 
global supply-demand balance toward excess supply and put downward 
pressure globally on oil prices. This would then reduce Russia's oil 
export revenues. The combined loss of oil and natural gas export 
revenue would further weaken the Russian economy and its ability to 
finance military expansion, and uneconomic withholding of energy 
supplies to blackmail its neighbors. Much as the efforts of the Soviet 
Union to match U.S. military strength in the 1980s broke its centrally 
planned economy and led to the downfall of communism, U.S. energy 
strength fostered by a strategic commitment to production and exports 
could ultimately break Russia's energy dominance and restrain its 
revanchist ambitions.
    Like the victory over Communism, these changes will take years. The 
FERC process for approving export terminals will remain, and market 
conditions and financing will stretch out construction. The fears 
promoted by some that the entire 8 Bcf/day of capacity approved by DOE 
to date to non-FTA countries will appear overnight and suddenly drain 
the U.S. of natural gas are entirely unfounded. There will be an 
immediate effect on Russia's ability to hold up European customers for 
oil linked prices in long term contracts, because of the potential 
competition of U.S. exporters and the expectation that U.S. entry into 
the global market could wreck the oil-based pricing system. It is also 
true that Russia's exports to Europe will not be replaced overnight, 
but countering the Russian Anschluss is not the only reason for 
removing limits on LNG exports.
    However rapidly LNG exports actually grow over the next few years, 
a strategy of maximizing U.S. oil and natural gas production by 
removing unreasonable constraints and obstacles and of pre-authorizing 
exports without any quantitative cap will have a long run effect of 
weakening the Russian economy. The Cold War lasted for 50 years before 
the economic superiority of the Free World defeated Communism, and a 
long view is necessary to resist what appears to be resurgent Russian 
nationalism and territorial expansion. Fortunately, that long strategic 
view is in this case in line with U.S. immediate economic interests, 
which are served best by removing limits on LNG exports.

    The Chair. Thank you, Doctor.
    Mr. Goldwyn.
    Then I'm going to come back to the Minister at the end and 
let this group go first. Thank you.
    Mr. Goldwyn.

   STATEMENT OF DAVID L. GOLDWYN, NONRESIDENT SENIOR FELLOW, 
     BROOKINGS INSTITUTION, AND PRESIDENT, GOLDWYN GLOBAL 
                        STRATEGIES, LLC

    Mr. Goldwyn. Great. Thank you, madame chair and ranking 
member and members of the committee for this opportunity to be 
here today and with my distinguished panelists. I also speak on 
my own behalf and not for Brookings.
    The dramatic growth in natural gas reserves and production 
in the United States over the last 5 years has resulted in 
economic growth, relative reductions in greenhouse gas 
emissions and greater energy security. Every credible estimate 
of our future energy supply suggests we will have exportable 
surpluses of natural gas for decades to come. This bounty could 
enhance our national power by positioning our Nation as a 
reliable supplier of natural gas to regions of the world that 
suffer from intimidation from their suppliers or simply the 
economy crushing burden of oil linked prices.
    The question before us is not whether we have this 
geopolitical potential, but whether we will realize it in time 
to help our friends and allies.
    Countries enhance their national power when they act as 
reliable suppliers of strategic commodities to the global 
market. This power can be wielded for good to stabilize markets 
and create competitive prices. But it can also be wielded for 
ill as we have seen with Russia using its market power to 
intimidate its neighbors.
    The U.S. can be a strategic supplier to the global gas 
market.
    While our government doesn't dictate where that supply will 
go it does control how fast we will connect to the global 
market. The Natural Gas Act has inadvertently put our friends 
and allies, those who don't have free trade agreements with us, 
at the back of the line. In addition the process and the tempo 
for reviewing these exports to LNG counties that we don't have 
free trade agreements with is potentially out of sync with 
commercial realities.
    The crisis in Ukraine should cause us to think anew on this 
process. See if we can leverage our natural gas bounty to help 
our allies by accelerating the consideration of export 
applications so they can plan for the day when they can reduce 
their reliance on Russian gas or on the oil linked prices that 
are crippling their economies. In addition we should begin now 
to compete actively with Russia for Asia's markets before we 
see that region as well to dependence on Russian supply.
    While the benefits of U.S. LNG exports would be global, my 
remarks will focus on Europe because of the crisis in Ukraine. 
Also--they also reflect an article that I published for 
Brookings which I'd also like to enter into the record.
    Russia's annexation of Crimea illustrates both the 
challenge and opportunity that we face. The challenge is grave. 
This Russian challenge will be with us as long as President 
Putin remains in power. His unabashed desire to recover 
territories that became independent after the fall of the 
Soviet Union is a threat to European security and to American 
leadership.
    The President has responded, I think, with savvy and with 
skill by targeting the kleptocratic inner circle that tries to 
use Russia's private, well, public resources for private gain.
    But Russia's neighbors, especially the Nations of Central 
and Eastern Europe remain dependent on Russian gas and Russian 
oil linked supplies. Now to address its energy insecurity 
Europe has to do a lot on its own.
    It needs to make strides toward further integrating its gas 
markets so it can move from point to point.
    It needs to promote internal market reform in member 
countries so someone would want to invest there.
    It needs to develop further infrastructure to support 
alternative gas supply, interconnections among member countries 
and indigenous gas development.
    The U.S. will also need to recommit to our Caspian policy 
to ensure that the southern corridor is completed and that 
Azerbaijan and Kazakhstan maintain their autonomy and sustain 
their roles as suppliers of oil and gas to Europe. We can make 
further integration of Europe's gas markets a key tenant of our 
engagement as well. But a clear signal from the U.S. that LNG 
exports will be available to European allies for future 
purchase would put immediate pressure on Russia's market share 
and would also help accelerate investment in and construction 
of gas transportation infrastructure in Europe.
    Their LNG import project is tabled in Lithuania, Ukraine, 
Poland, Croatia and Estonia. There are interconnections planned 
to move gas to Poland, Latvia and Finland.
    While it's no panacea and I don't profess that it is, 
removing the uncertainty as to whether and when U.S. LNG export 
projects that contract with European empires can get that 
approval will accelerate both the financing of U.S. LNG export 
projects and European import projects. Those who dismiss the 
utility of accelerating these approvals underestimate the 
impact it can have on eroding Russia's market power now. We 
signal the availability of Henry Hub LNG pricing it impacts 
price formation for the future and erodes the price Russia can 
get for its gas in Europe and Asia. Reducing Russia's market 
share in Europe makes its companies less attractive and 
investment in its upstream less valuable.
    Witness the fall in the prices of Novatek just after we 
announced sanctions. Markets react today to news in the future.
    Finally, allowing European LNG projects to access Henry Hub 
pricing makes those projects more financeable. It may be true 
that Asian buyers rather than European buyers buy U.S. LNG. But 
from a geopolitical perspective it doesn't make a difference. 
Eroding Russia's Asian market share and pricing power also 
hurts their cash-flow. The more U.S. Henry Hub priced gas hits 
the market, the greater the bargaining power of European 
buyers.
    So, as I said at the outset, these are serious times that 
call for serious solutions. Having a refreshed European energy 
security policy and accelerated U.S. LNG exports are part of 
that tool box. They may be long term measures, but they're 
serious measures. The time to get started is now.
    [The prepared statement of Mr. Goldwyn follows:]

  Statement of David L. Goldwyn, Nonresident Senior Fellow, Brookings 
       Institution, and President, Goldwyn Global Strategies, LLC
         the role of natural gas exports in u.s. foreign policy
    Madam Chairwoman and Members of the Committee, it is an honor to 
speak with you today about the geopolitical benefits of America's 
natural gas bounty. The dramatic growth in natural gas reserves and 
production in the United States over the past five years has resulted 
in economic growth, relative reductions in greenhouse gas emissions, 
and greater energy security. Every credible estimate of our energy 
future suggests we will have substantial exportable surpluses of 
natural gas for decades to come. This bounty could enhance our national 
power by positioning our nation as a reliable supplier of natural gas 
to regions of the world that suffer from intimidation from their 
suppliers or simply the economy crushing burden of oil linked prices. 
The question before us is not whether we have this geopolitical 
potential, but whether we will realize it in time to help our friends 
and allies.
    Several reports and studies have established a consensus that the 
benefits of liquefied natural gas (LNG) exports from the U.S. 
significantly outweigh the costs. As the co-chair of the Brookings 
Institution Natural Gas Task Force, we explored many of the issues 
surrounding LNG exports. Following the completion of the Task Force 
sessions, my colleagues at Brookings published a well-received report 
that found that price impacts of LNG exports would be minimal, and that 
the effects of LNG export on the U.S. gross domestic product and trade 
balance would be positive\1\ The macroeconomic LNG study commissioned 
by the Department of Energy, prepared by NERA Economic Consulting,\2\ 
found that there would be net economic benefits to the U.S. at all 
levels of exports modeled. Just last month, NERA released an update to 
that study which added several new scenarios,\3\ once again finding 
that ``LNG exports provide net economic benefits in all the scenarios 
investigated, and the greater the level of exports, the greater the 
benefits.''\4\
---------------------------------------------------------------------------
    \1\ Charles Ebinger, Kevin Massy, and Govinda Avasarala, ``Liquid 
Markets: Assessing the Case for U.S. Exports of Liquefied Natural 
Gas,'' Brookings Institution, May 2012, p. xiii. (Ebinger, 2012)
    \2\ W. David Montgomery, Robert Baron, Paul Bernstein, Sugandha D. 
Tuladhar, Shirley Xiong and Mei Yuan, ``Macroeconomic Impacts of LNG 
Exports from the United States,'' NERA Economic Consulting, December 
2012.
    \3\ Robert Baron, Paul Bernstein, W. David Montgomery and Sugandha 
D. Tuladhar, ``Updated Macroeconomic Impacts of LNG Exports from the 
United States,'' NERA Economic Consulting, February 2014.
    \4\ ``NERA Releases Updated Study on Economic Impacts of LNG 
Exports,'' March 6, 2014. http://www.nera.com/83__8451.htm
---------------------------------------------------------------------------
    I am here today to speak about the foreign policy benefits that LNG 
exports can provide. Countries enhance their national power when they 
act as reliable suppliers of strategic commodities to the global 
market. This power can be wielded for good, to stabilize markets and 
create competitive prices. It can also be used for ill, as we have seen 
with Russia, using its market power to intimidate its neighbors. The 
U.S. can be a strategic supplier to the global gas market. While our 
government does not dictate where that supply will go, it does control 
how fast we will connect to the global market. The Natural Gas Act has 
inadvertently put the friends and allies who need us most at the back 
of the line. The process for reviewing exports of LNG to countries we 
do not have free trade agreements with has proven to be cumbersome, and 
potentially out of sync with commercial realities.
    The crisis in Ukraine should cause us to think anew on this process 
and see if we can leverage our natural gas bounty to help our allies by 
accelerating the consideration of export applications so that they can 
plan for the day when they can reduce their reliance on Russian gas or 
on the oil-linked prices that are crippling their economies. In 
addition, we should begin now to compete actively with Russia for 
Asia's markets before we cede that region as well to dependence on 
Russian supply.
    While the benefits of U.S. LNG exports would be global, my remarks 
will focus on the impact to Europe in light of the current crisis in 
Ukraine. I will briefly address the implications for Asia towards the 
end of my testimony. My remarks today reflect an article that I 
published just last week at the Brookings Institution,\5\ which I will 
also submit for the record.
---------------------------------------------------------------------------
    \5\ David L. Goldwyn, ``Refreshing European Energy Security Policy: 
How the U.S. Can Help,'' Brookings Institution, March 2014 (Goldwyn, 
2014)
---------------------------------------------------------------------------
    If the U.S. were to accelerate the consideration of exports to non-
FTA countries, by allowing projects that have received environmental 
clearance to receive expedited consideration,\6\ or by agreeing to 
consider all projects with environmental clearance from the Federal 
Energy Regulatory Commission (FERC) within 90 days of receiving that 
clearance,\7\ or more broadly by deeming exports of LNG to all 
countries to be in the national interest,\8\ the energy security of 
import dependent countries like Japan and the nations of Central and 
Eastern Europe would be improved. Expectations of future supply drive 
energy prices and impact infrastructure investment decisions made 
today. While no panacea, U.S. LNG exports would have a significant 
impact on global markets for natural gas and the energy security of 
some of our closest partners and allies.
---------------------------------------------------------------------------
    \6\ David L. Goldwyn, ``A Modest Proposal for Improving the 
Department of Energy Non-FTA Liquefied Natural Gas Export Application 
Process,'' Brookings Institution, May 2013
    \7\ The Energy Policy and Conservation Act can be interpreted to 
require that all agencies responsible for issuing national interest 
determinations have a responsibility to do so within 90 days after FERC 
completes its review: ``a final decision on a request for a Federal 
authorization is due no later than 90 days after the Commission issues 
its final environmental document, unless a schedule is otherwise 
authorized by Federal law.'' 18 C.F.R. Sec. 157.22
    \8\ Such a determination would only affect the approval of the 
export permit application at the Department of Energy, and would not 
release a company from its environmental assessment requirements before 
the Federal Energy Regulatory Commission (FERC)
---------------------------------------------------------------------------
The U.S.'s European Energy Security Policy
    Europe is in a unique position with regard to energy security. The 
region's energy insecurity varies greatly. The nations of Western 
Europe have traditionally had greater access to diverse supplies of 
energy resources at competitive prices, particularly natural gas, than 
their Central and Eastern European counterparts. This is due in part to 
successful Western European efforts to diversify their sources of 
supply after Russian gas exports through Ukraine were disrupted in 
2006, and once again in 2009. Yet as Western Europe has enjoyed 
progress, Central and Eastern Europe remain heavily dependent on Russia 
for their energy supplies, with some NATO allies, like Bulgaria and 
Lithuania, wholly dependent on Russian gas. This situation has become 
starkly clear in the wake of the ongoing events in Crimea.
    For many years now, the U.S. has made European energy security a 
top foreign policy objective. U.S. policy focused on encouraging new 
suppliers (such as Azerbaijan, Turkmenistan, and Iraq) to send energy 
to Europe, the promotion of new pipelines and infrastructure, and 
utilization clean energy technology and energy efficiency. The U.S. has 
promoted infrastructure projects, like the Baku-Tbilisi-Ceyhan and the 
Southern Corridor (particularly the Nabucco pipeline), with differing 
levels of success. We believed a more secure Europe equals a more 
secure U.S. Independently, Europe has, of course, taken major steps to 
increase its energy security- approving the Third Energy Package, 
making destination clauses for natural gas illegal and seeking to 
create integrated EU markets for electricity and natural gas.
    Despite these successes, much of Europe remains energy insecure. In 
the wake of the crisis in Crimea, energy importing nations were left to 
wonder whether they would once again suffer as a result of the Russian-
Ukrainian dispute, grateful that this crisis did not take place in the 
depth of winter when another gas shut-off could have been hugely 
disruptive to their economies. While Western Europe has been able to 
work to diversify its gas imports through LNG import terminals and 
agreements with other suppliers, the beneficiaries of geography and 
relatively strong economies, the nations of Central and Eastern Europe 
remain dependent on Russia.
    To address its energy insecurity Europe will have to make 
significant strides internally towards further integrating its markets, 
promoting internal market reform in member countries, developing 
further infrastructure to support alternative gas supplies and 
interconnections among member countries, and encouraging indigenous gas 
development. The U.S. will need to recommit to its Caspian policy, to 
ensure that the Southern Corridor is completed and that Azerbaijan and 
Kazakhstan maintain their autonomy and sustain their roles as suppliers 
of oil and gas to Europe. Refocusing the U.S. policy towards European 
energy security to consider all of these topics is vital. The U.S. is 
already active in helping European nations develop their indigenous 
shale gas resources, through the Global Shale Gas Initiative (GSGI), 
which I started during my tenure at the U.S. Department of State, now 
known as the Unconventional Gas Technical Engagement Program (UGTEP), 
but the U.S. can do more. We can make further integration of European 
gas markets a key tenet of our engagement in the U.S.-EU Energy 
Council, and continue to encourage the responsible development of local 
gas resources. Because the focus of this hearing is U.S. LNG exports, I 
will limit my remarks on those topics and direct you to the Brookings 
article submitted to the record for further information.
How Could U.S. LNG Exports Help?
    A clear signal from the U.S. that LNG exports will be available to 
European allies for future purchase would put immediate pressure on 
Russia's market share, and would also help accelerate investment in and 
construction of gas transportation infrastructure in Europe. Russia, 
through its national natural gas company Gazprom, has already found it 
necessary to renegotiate contracts for natural gas with Western 
European customers as a result of the U.S. shale gas boom. As many 
observers have noted, including very recently the Czech Republic's 
Ambassador-at-Large for Energy Security,\9\ the U.S. shale boom 
resulted in the unexpected availability of LNG cargoes originally 
destined for the U.S., which increased gas supply to Europe and put 
downward pressure on prices. Exports of LNG from the U.S. could ensure 
that the increased negotiating power that Western Europe has had for 
the past few years is not diminished, and may even be able to extend 
that negotiating power to the Central and Eastern European nations that 
remain heavily dependent on Russian exports of natural gas.
---------------------------------------------------------------------------
    \9\ Remarks of Czech Republic Ambassador-at-Large for Energy 
Security Vaclav Bartuska, Atlantic Council of the United States 
Conference Call, ``Crisis in Ukraine: The Energy Factor,'' March 17, 
2014.
---------------------------------------------------------------------------
    A Deloitte report on the international implications of U.S. LNG 
exports found that even modest levels of U.S. exports, roughly six 
billion cubic feet per day, would result in wealth transfers from 
Russia to European consumers of up to four billion dollars, simply as a 
result of reduced contract prices and lost Russian market share.\10\ In 
terms of European energy security, not to mention economic 
productivity, that could be considered a success.
---------------------------------------------------------------------------
    \10\ ``Exporting the American Renaissance: Global impacts of LNG 
exports from the United States,'' Deloitte Center for Energy Solutions 
and Deloitte MarketPoint, 2013.
---------------------------------------------------------------------------
    Some respected analysts have been too quick to dismiss the 
connection between U.S. LNG exports and increased European energy 
security. In dismissing that connection, they make four mistakes: `` . 
. . 1) assuming most U.S. LNG exports will go to Asia, 2) assuming the 
post 2016 delivery time for U.S. LNG will not impact price formation 
today, 3) underestimating the importance of securing Henry Hub based 
LNG supply for financing European infrastructure projects and 4) 
failing to see the immediate strategic importance of degrading Russia's 
future share of the European gas market.''\11\
---------------------------------------------------------------------------
    \11\ Goldwyn, 2014

---------------------------------------------------------------------------
          1) LNG exports to Europe

    A number of skeptics have questioned whether Europe would receive 
any LNG exports from the U.S., arguing that higher priced markets in 
Asia are more likely to win the cargoes. This view is simplistic. While 
it is true that gas prices remain higher in Asia than in Europe today, 
European gas prices remain approximately twice as high as Henry Hub 
prices. Indeed, European buyers, including Central and Eastern European 
consumers, have contracts with high-priced suppliers like Russia and 
Qatar that they are currently seeking to renegotiate. In the event that 
Russia cuts off supply to Western Europe, European prices could easily 
approach Asian pricing levels. Asian demand may prove to be weaker than 
expected in the short to medium term, as a result of nuclear capacity 
coming back online, and those consumers are also seeking to erode oil-
linked pricing. ``Meanwhile, the governments of CEE nations are using 
diplomatic channels to make it clear that they see imports of U.S. gas 
to be a vital component of their energy diversification strategies.\12\ 
Purchasers weigh price heavily of course, but they also weigh the 
diversity of supply source, and the likelihood of timely project 
completion.''\13\,\14\
---------------------------------------------------------------------------
    \12\ Multiple nations have been vocal about their desire to import 
U.S. LNG. The Ambassadors of the Visegrad 4 nations (Poland, the Czech 
Republic, Hungary and Slovakia) sent a letter to Congressional 
Leadership asking them to remove the bureaucratic hurdles surrounding 
export permits; meanwhile plans are in the works to create a lobbying 
group named ``LNG Allies,'' which will represent a larger group of 
countries and lobby the U.S. government in favor of LNG exports. (Amy 
Harder, ``Europe to America: We Want Your Gas,'' National Journal, 
January 16, 2014; Veronika Gulyas, ``Central Europe Turns to U.S. for 
Natural Gas,'' Wall Street Journal, March 10, 2014)
    \13\ While LNG projects are being developed globally, many of the 
projects abroad have suffered from major delays and cost overruns, 
including some of the large-scale projects under development in 
Australia and the South Pacific. (Ed Crooks, ``Cost of Australia's 
Gorgon LNG project rises to $54bn,'' Financial Times, December 12, 
2013)
    \14\ Goldwyn, 2014

---------------------------------------------------------------------------
          2) Price Formation

    As stated previously, long-term gas supply prices are formed based 
on future price and supply expectations. Energy is a business where the 
marginal barrel (or cargo) sets the price, and the lead times for 
project development can be long. Every decision, from investments in 
oil and gas to production to power generation infrastructure to the 
construction of LNG import or export terminals, is based on future 
price expectations. Allowing US based LNG to compete for market share 
in Europe could decrease Russia's future market share in Europe, and 
ensure that the gas that they do provide is competitively priced. The 
availability of alternative supply is central to the continent's energy 
security, and the availability of American LNG supplies may be the only 
direct tool that the U.S. has to achieve that goal.

          3) Financing New Infrastructure

    It is true that commercial parties, rather than governments, make 
final investment decisions about infrastructure development in Western 
nations. However, commercial energy infrastructure projects are 
difficult to develop without access to reliable, competitively priced 
sources of supply. The availability of U.S. LNG supply at prices that 
are competitive against piped Russian gas or oil-linked Qatar gas will 
make it easier to develop much-needed infrastructure projects in 
Europe.

          4) Degrading Russia's Market Share

    Disregarding the benefits of U.S. LNG exports simply because they 
won't be available until 2016 or beyond is short sighted, at best. 
Energy consumers are looking for natural gas supplies to purchase in 
the future, because they have generally already contracted long-term 
supply through 2016 or so. The U.S. policy regarding European energy 
security has been predicated on the pursuit of long-term projects that 
would ensure supply diversity. The Southern Corridor will not be in 
place till 2018. Potential supplies from East Africa will not enter the 
market until after 2020. Our litmus test (and time horizon) for 
assisting European consumers dependent on Russian gas supply should be 
forward-looking, extending far beyond how we help them next week.
The LNG Approval Process: A Source of Uncertainty
    Today, companies seeking to export LNG from the U.S. are required 
to seek a national interest determination from the U.S. Department of 
Energy. Applications to export LNG to countries that the U.S. has free 
trade agreements (FTA) with are automatically determined to be in the 
national interest, in accordance with Section 3 of the Natural Gas 
Act.\15\ Applications for exports to non-FTA nations, on the other 
hand, go through a longer national interest determination process, in 
which the Department of Energy considers the applications on a case-by-
case basis, assessing the cumulative impacts of LNG exports. The 
uncertainty that results from this process is a result of the 
opaqueness of the process and there is no clear timeline for the 
approval or denial of projects. This uncertainty makes it difficult for 
potential suppliers of U.S. LNG to secure financing for their projects 
and for consumers abroad to accurately assess and compare potential 
suppliers when they seek to sign contracts.
---------------------------------------------------------------------------
    \15\ 15 USC Sec. 717b
---------------------------------------------------------------------------
    The U.S. could minimize this uncertainty by deeming exports of 
natural gas to be in the national interest, regardless of whether their 
destination is to FTA or non-FTA nations. This would allow the market 
to decide whether supplies will go to Europe or Asia. While this might 
be the economically optimal approach, it has obvious political 
challenges and the Department of Energy has other choices. One would be 
to grant early preference to the countries of Central and Eastern 
Europe and Japan, which would allow projects with those customers to 
enjoy a financing advantage and accelerated consideration. This will 
help countries most in need but picks winners in a way that could 
invite trade based challenges. A process-based improvement would be to 
allow commercially mature projects (those with contracts and which have 
obtained FERC environmental clearance) to be considered promptly by 
DOE, either by jumping to the head of the queue or by agreeing to 
consider them within 90 days of obtaining FERC approval. There are 
multiple options available; the U.S. should choose an option that will 
signal certainty that U.S.-based LNG can be available to the market 
sooner rather than later. These regulations were developed in an era 
where today's abundance of natural gas could not be predicted or 
expected, and, as a result, bear reconsideration.
The Impact on Asia
    Removing uncertainty from the LNG permitting process would also 
benefit Asian consumers, and assist the U.S. as it refocuses a larger 
share of diplomatic attention to Asian partners and allies. Natural gas 
consumers in Asia pay extraordinarily high prices to secure LNG 
supplies, and are actively seeking new supplies abroad. As U.S. natural 
gas prices hover around $4.50/mmBtu, Asian LNG benchmarks have at times 
exceeded $20.00/mmBtu this year.\16\ Henry Hub-linked U.S. LNG 
contracts should thus prove highly competitive in Asia even when one 
factors in liquefaction, transportation, and regasification costs, 
which are widely anticipated to be around $6-$8/mmBtu. Henry Hub-linked 
contracts will provide Asian buyers, including U.S. allies and top 
global LNG importers South Korea and Japan, with increased negotiating 
leverage and pricing flexibility. This may prove especially crucial to 
Japan, which is suffering from record trade deficits stemming from 
increased LNG purchases following the 2011 Fukushima Daiichi nuclear 
disaster.
---------------------------------------------------------------------------
    \16\ Eric Yep, ``Spot LNG Prices Hit Record in Asia,'' Wall Street 
Journal, February 14, 2013
---------------------------------------------------------------------------
    Other nations are also seeking to develop LNG export capabilities, 
some of them closer to Asia geographically. Yet many of these projects 
have been plagued by unanticipated cost overruns, while others are 
located in areas where scarce infrastructure and government corruption 
and rent seeking threaten to delay export timetables. Consumers in Asia 
have the same commercial concerns as consumers elsewhere in the world, 
and they value competitive costs, reliability and timeliness. The U.S. 
is known worldwide as a reliable trading partner, and it can play that 
role for Asia as well. Exports of LNG to Asia would be in the U.S.'s 
economic and strategic interests. Given recent events, it is worth 
mentioning that Russia aspires to double its share of the global LNG 
trade by 2020 in large part by meeting large shares of Asian demand 
growth. Russia is seeking closer relationships with Asian consumers 
like Japan and is negotiating a gas pipeline deal with China that would 
provide almost 40 bcm per year to China for 30 years and cost roughly 
$50 billion\17\--but not until after 2018. We need to ask ourselves if 
we would prefer for Asia to plan to rely on Russian gas or on U.S. LNG 
as it builds its strategic alliances. As in Europe, U.S. LNG exports 
may one of the few direct tools the U.S. possesses to limit Russian 
market share and better ensure the Russian gas that is exported to Asia 
is done so at competitive prices.
---------------------------------------------------------------------------
    \17\ Jack Farchy, ``Russia looks to sell energy beyond Europe,'' 
Financial Times, March 20, 2014
---------------------------------------------------------------------------
Conclusion
    U.S. LNG exports, while no panacea, provide the U.S. with a 
strategic advantage for achieving greater global energy security and 
greater stability in natural gas markets. My colleagues at Brookings 
concluded in 2012 that the optimal policy regarding LNG exports from 
the U.S. would be to allow the market to decide where exports should go 
and at what volume, without promoting or restricting them.\18\ I share 
that view, and believe that significantly speeding up the national 
interest determination process at the Department of Energy would allow 
the market to work more efficiently. Unfortunately, that optimal policy 
arrangement is unavailable to us today.
---------------------------------------------------------------------------
    \18\ Ebinger, 2012
---------------------------------------------------------------------------
    As General Martin Dempsey, Chairman of the Joint Chiefs of Staff, 
observed in a House Committee on Appropriations hearing less than two 
weeks ago, ``an energy-independent and net-exporter of energy as a 
nation [sic] has the potential to change the security environment 
around the world, notably in Europe and in the Middle East. And so, as 
we look at our strategies for the future, I think we've got to pay more 
and particular attention to energy as an instrument of national 
power.''\19\ A number of influential observers in Washington and 
beyond, from both sides of the partisan aisle, concur that LNG exports 
are in the interest of the U.S., and have weighed in in favor of 
exports as a tool for reducing Russia's dominance in European energy 
markets. Several pieces of bipartisan legislation have been introduced 
in both Chambers of the Congress that would authorize exports of U.S. 
LNG to our allies, be they NATO or WTO members.
---------------------------------------------------------------------------
    \19\ ``A Gas Export Strategy: Opponents don't understand energy 
markets or price expectations.'' Wall Street Journal, March 19, 2014.
---------------------------------------------------------------------------
    The geopolitical imperative is clear. The Russian dominance of 
European energy markets and the predominance of high-cost oil-linked 
gas prices in both Europe and Asia threaten the energy security of our 
friends and allies, and of the U.S. by extension. In an increasingly 
globalized world, an insular policy regarding LNG exports is not in the 
interest of the U.S. The U.S. consistently supports opening markets 
throughout the world to create new opportunities and shared prosperity 
with our allies and partners. Our broader policies and goals are at 
odds with current restrictions on both LNG and crude oil exports, and 
this inconsistency does not go unnoticed by negotiating partners. These 
policies, which were developed during an era of energy scarcity, merit 
reconsideration given our current energy abundance. In the absence of 
the optimal policy arrangement, in which LNG exports would be free to 
flow as directed by the market, we should consider unfettering LNG 
exports to our friends and allies in Europe as a first step.
    I close today as I closed my article for Brookings:

          We have spent nearly two decades of intense diplomacy trying 
        to diversify Europe's energy supply by getting Azerbaijan, 
        Kazakhstan, Turkmenistan and even Iraq to sell them energy. 
        Baku-Tbilisi-Ceyhan. Nabucco. The Southern Corridor. The Trans-
        Caspian Gas Pipeline. We finally have a tool at our disposal 
        that can provide direct relief to Europe over time, and 
        accelerate the competitiveness of that market today. We want 
        everyone else to help. Shouldn't we?\20\
---------------------------------------------------------------------------
    \20\  Goldwyn, 2014

    The Chair. Thank you very much.
    Mr. Chow.

STATEMENT OF EDWARD C. CHOW, SENIOR FELLOW, ENERGY AND NATIONAL 
   SECURITY PROGRAM, CENTER FOR STRATEGIC AND INTERNATIONAL 
                         STUDIES (CSIS)

    Mr. Chow. Madame Chair, members of the committee, it is my 
honor to appear before you today to discuss the important 
questions you have posed.
    First of all, let me congratulate you, Senator Landrieu, 
for chairing what I understand to be, your first full committee 
hearing and also for being on the Kremlin's sanctioned list.
    [Laughter.]
    Mr. Chow. You must the envy of your colleagues in more ways 
than one.
    I understand the committee would like me to focus on the 
international impact of the unconventional oil and gas 
revolution, particularly in light of the current crises over 
Russia's invasion of Ukraine's territory of Crimea and the 
potential threat it poses for gas supply disruptions for 
Ukraine as well as for Europe. Of course the long term impact 
of the unconventional revolution is just beginning to be felt 
internationally. Much depends on whether the American 
experience can be replicated around the world.
    Studies indicate shale plays exist in different parts of 
the world. The history of technology makes me optimistic that 
this advancement will be transferred to other countries. It 
would just take time as the application of new technology is 
adapted to local conditions.
    Even before spreading to other countries the tight oil and 
shale gas revolution has already made important contributions 
to the stability of global markets. Thanks to tight oil U.S. 
oil production increased by more than 2 million barrels per day 
since 2010 partially offsetting global supply disruptions in 
recent years. American shale gas already had significant impact 
on the global LNG market even before the start of exports.
    As you pointed out, Madame Chair, more than 30 
regassification terminals were proposed in the U.S. for 
imports, not exports, at one time. Imagine what the 
international LNG market would be like if the U.S. had become a 
major importer rather than expected to become a net gas 
exporter by 2018. U.S. LNG exports could lead to important 
changes to the global gas market.
    Because we have gas on gas competition in North America 
natural gas prices are not linked to oil prices as they are in 
most of the rest of the world when gas is traded 
internationally. Our exports will also contribute to increased 
spot LNG cargoes that are not tied to long term contracts.
    When the first project for exporting LNG from the lower 48 
States is completed Sabine Pass, which I'm sure Madame Chair, 
you are very familiar with, will have taken more than 5 years 
to complete. It is not merely governmental approval such as 
those from DOE or FERC and local permitting that takes time, 
but also negotiating purchase agreements with qualified buyers, 
securing financing and the standard engineering procurement and 
construction work to build the export terminal.
    The combined capacity of the projects DOE has already 
conditionally approved is higher than the total gas consumption 
of Germany. The U.S. will become a major LNG exporter if all 
the projects are completed. More export projects are in the 
queue for DOE approval.
    There are ample domestic economic reasons why restrictions 
on oil and gas exports should be relaxed. With oil, the light, 
sweet crude being produced from shale plays, like the Bakken, 
cannot be run optimally by our sophisticated refineries which 
are designed to process less expensive, heavier, sour crudes. 
We would maximize the economic benefits of tight oil production 
by exporting some light, sweet crudes and condensate while 
continuing to import heavier and sour crudes.
    With gas, exports would help to sustain the level of 
investment in production when priced with price levels that 
benefit both producers and long term consumers without 
depressed prices choking off the expected growth. These are 
complicated issues that deserve full debate in Congress as has 
already begun. Decades of perceived energy scarcity informed 
our existing oil and gas export policies and it takes time to 
reexamine these policies and amend applicable law in a new era 
of energy abundance.
    A degree of regulatory certainty is important when billions 
of dollars are at stake in investments that take years to 
complete. Russian aggression against Ukraine has added 
geopolitical and foreign policy dimensions to these issues. 
Some argue that hastening approvals of crude oil and LNG 
exports by the United States would have a deterrent effect on 
hostile actions by Russia. Unfortunately this is unlikely to 
have much immediate effect.
    Russia produces more than 10 million barrels per day of oil 
and exports about 7 million barrels in crude and petroleum 
products. No amount of increases in U.S. exports can begin to 
replace such large volumes. Russian exports of natural gas are 
more than twice the combined capacity of DOE approved U.S. LNG 
export projects so far.
    In order to reduce the influence Russia exerts through oil 
and gas Europe plays the crucial role as Russia is more 
dependent on Europe as the destination of its exports than 
Europe is reliant on Russia for supply. Europe would do well to 
focus on developing indigenous energy resources in order to be 
less import dependent and fully integrating its gas and 
electricity networks so that supply can flow more easily to 
countries vulnerable to cutoffs. Unfortunately Lithuania, where 
the Minister is from, is one of the few European countries 
committed to developing shale gas.
    Export of U.S. LNG is not a silver bullet for Europe. In 
fact, LNG imports declined significantly in Europe last year as 
a result of more favorable pricing terms authored by 
traditional pipeline suppliers such as Norway and Russia. 
Unlike countries such as Russia, the United States does not 
direct commerce and leave it to private companies to operate 
freely in the market, except in times of war and other national 
emergency. Indeed we have historically taken a stance against 
the use of energy as the geopolitical weapon, especially after 
the Arab oil embargo of 1973.
    Inflating the rhetoric on exports could actually embolden 
Russia since it recognizes it's irrelevant and a short run. 
More importantly, it can distract us from the critical task of 
shoring Ukraine economically.
    I know the committee may have more questions on Ukraine. It 
is a country I've spent some time working in. I will wait until 
the question and answer period to address those.
    [The prepared statement of Mr. Chow follows:]

    Statement of Edward C. Chow, Senior Fellow, Energy and National 
Security Program, Center for Strategic and International Studies (CSIS)
 international impact of the u.s. unconventional oil and gas revolution
    Madam Chair, Members of the Committee: It is my honor to appear 
before your Committee today to discuss the important questions you have 
posed.
    My fellow panelists have already described very well the 
significant impact of the shale gas and tight oil revolution and the 
long lasting effects on America's energy supply. Indeed this is the 
most important development in energy production in the 21st Century so 
far, driven in part by the equally phenomenal increases in oil prices 
since the beginning of the century.
    I understand the Committee would like me to focus on the 
international impact of the unconventional oil and gas revolution, 
particularly in light of the current crisis over Russia's invasion of 
Ukraine's territory of Crimea and the potential threat it poses for gas 
supply disruptions for Ukraine as well as for Europe, and the 
possibility for U.S. oil and gas exports to enhance global energy 
security.
    Of course, the international impact of unconventional revolution in 
North America is just beginning to be felt. Much depends on whether the 
North American experience can be replicated around the world and how 
quickly the new technology can be introduced in countries with 
significant unconventional resource potential like China and Argentina. 
Numerous studies, including those commissioned by the Energy 
Information Administration of the Department of Energy (DOE), suggest 
that similar shale plays exist in different parts of the world. 
However, even if the geology is similar, the above-ground conditions in 
most of the world are so different from those in the U.S. that it will 
take some time, at least another three to five years, before we can 
know whether and how the American success can be repeated in other 
countries.
    These non-geological conditions, which are somewhat unique for the 
U.S., include private landholders' ownership of subsurface mineral 
rights, a geological data base from a century and half of oil and gas 
production, a robust and competitive oil and gas industry (especially 
the presence of small to medium-size, nimble and innovative producers, 
equipment suppliers, and service companies), existing infrastructure to 
transport and process production, liberalized market pricing, and well-
established and a transparent regulatory environment, which took 
decades to develop.
    Most of these conditions do not exist elsewhere in the world. 
However, the history of technology transfer makes me optimistic that 
this technological advancement will be introduced successfully in other 
countries. It will just take time as it did for our country and longer 
than some of its eager champions would like. The way it will be 
implemented may also differ from how it is done in the U.S., but it 
will be adapted to local conditions.
    Nevertheless, tight oil and shale gas developments in the U.S. have 
already made important contributions to the stability of global energy 
markets. Thanks to tight oil, U.S. oil production increased by more 
than two million barrels per day since 2010. This is a remarkable 
achievement. Without this additional supply, it is difficult to imagine 
how global oil prices could have remained around $100 per barrel. 
Supply disruptions from Libya, Sudan and Iran, as well as 
underperformance in production in Iraq, Nigeria, and Venezuela were 
partially offset by the greatest volume increase in the history of oil 
production in the U.S.
    Even before we start exporting liquefied natural gas (LNG) from the 
lower 48 states, the American shale gas revolution has already made a 
significant impact on the global LNG market. As recently as 2004, more 
than 30 LNG regasification terminals were proposed in the U.S. for 
imports, not exports. The long-term impact of natural gas deregulation 
under President Carter in 1978 allowed market clearing pricing, 
unshackled by state and federal controls, to encourage conservation and 
domestic production. Thirty-five years of stable and predictable 
regulatory regimes created investment conditions for energy efficiency 
improvements and innovation in production, such as hydraulic 
fracturing. Of the 30 some LNG import terminals proposed, only five 
were actually completed and became operational.
    What would the global LNG market be like if the U.S. had become a 
major LNG importer rather than expected to become a net gas exporter by 
2018? LNG from Qatar, West Africa, Trinidad/Tobago and elsewhere, 
slated for the U.S. market, all became available for Europe and, more 
importantly, to satisfy increased needs from Japan after the Fukushima 
disaster and rising import demand by China and India.
    When U.S. LNG exports begin by 2016, in addition to adding more 
global supply, they may also lead to evolution of the global gas 
market. Because we have gas-on-gas competition in North America, 
natural gas prices are not linked to oil prices as they are in the rest 
of the world when gas is traded internationally. The U.S. will become a 
net gas exporter before the end of this decade. Higher LNG volumes 
globally, including those from increased production from Australia, 
potential new production from East Africa, Russia and the Eastern 
Mediterranean, may contribute to increased spot LNG cargoes that are 
not tied to long-term contracts with strict volume commitments by both 
buyers and sellers.
    In time, the LNG market may look more like the more liquid and 
flexible international oil market. However, this will take some time to 
develop, particularly since the new liquefaction projects are high-
cost, demanding tens of billions of dollars in investment, which will 
continue to require long-term contracts from committed, creditworthy 
buyers and predictable gas pricing or tolling charges in order to 
secure financing.
    An indication of the radical change the shale gas revolution caused 
in the U.S. is Cheniere Energy's Sabine Pass LNG project. Sabine Pass 
was completed as a receiving terminal only in 2009 and almost 
immediately sought to become a bi-directional terminal that can liquefy 
and export gas as well. It will become the first LNG export terminal in 
the lower 48 states when it is completed by yearend 2015, a journey of 
more than five years from conception to completion, which is quick for 
a multi-billion project in the oil and gas industry. It is not merely 
governmental approvals, such as those from DOE or the Federal Energy 
Regulatory Commission (FERC) and local permitting, that take time, but 
also negotiating purchase agreements with qualified buyers, securing 
financing, and the standard engineering, procurement, and construction 
work to build the export terminal.
    So far, DOE has granted conditional approvals to six LNG 
liquefaction and export projects. (Sabine Pass is the only one that 
also has FERC approval.) The last project, Jordan Cove, received its 
approval only yesterday morning. In fact, DOE has been remarkably 
speedy in granting such conditional approvals in the last year or so, 
as confidence grew on the resource base estimates and recovery rates 
for shale gas.
    The combined capacity of the six projects (9.3 bcf/day or 95 bcma) 
is higher than the total gas consumption of Germany. The U.S. will 
truly become a major LNG exporter if all six projects are completed. 
Another twenty-four export projects are in the queue for DOE approval. 
Consequently, the potential impact on the global gas market could be 
even greater. Of course, just because a project is proposed does not 
mean it will be built, as we discovered with the 30-some LNG receiving 
terminal proposed not too long ago.
    There are ample domestic economic reasons why restrictions on oil 
and gas exports should be relaxed. With oil, the light sweet crude 
being produced from shale plays like the Bakken cannot be optimally 
utilized by our sophisticated refineries, which are configured to 
process less-expensive heavier sour crudes. The U.S. would maximize the 
economic benefits of tight oil production by exporting some 
domestically produced light sweet crudes and condensate while 
continuing to import heavier and sour grades.
    With gas, exports would help to sustain the level of investment in 
production with market prices that benefit producers and long-term 
consumers without depressed pricing choking off the expected growth, as 
has happened in the past. This includes gas consumers who are 
considering expansion of petrochemical capacity, increased utilization 
in power generation, and new uses for gas such as in the transportation 
sector.
    These are complicated issues that deserve full debate in Congress, 
as has already begun. Ever since the end of World War II, the U.S. has 
championed free trade around the world and its benefits extend equally 
to oil and gas trade. However, decades of perceived energy scarcity 
have informed our existing oil and gas export policies and it will take 
time to reexamine these policies and amend applicable laws for a period 
of relative domestic energy abundance. A degree of certainty in 
investment climate is important when billions of dollars are at stake 
in projects that take years to complete in order to produce, process, 
and consume more domestic oil and gas.
    Russia's aggression against Ukraine has added a geopolitical and 
foreign policy dimension to these questions. Some have argued that 
hastening U.S. approvals of crude oil and LNG exports would have a 
deterrent effect on further Russian actions and enhance the energy 
supply security of our allies and trading partners in Europe. 
Unfortunately, this is unlikely to have much immediate effect.
    Russia produces more than 10 million barrels of oil per day and 
exports about 7 million barrels in crude and petroleum products. No 
amount of increases in U.S. oil exports, including possible drawdown 
from the Strategic Petroleum Reserve (at a maximum rate of 4 million 
barrels per day for 90 days), can replace such large volumes. Russian 
exports of natural gas are equivalent to twice the combined capacity of 
the seven DOE-approved U.S. LNG export projects, which may be completed 
by the end of this decade. Certainly increased exports of oil and gas 
from the U.S. and other countries would reduce over time the 
significance of Russian exports, but none of this will happen quickly.
    In order to reduce the influence Russia exerts through its oil and 
gas exports, it is Europe's role that is crucial. Whereas it is true 
that Europe relies on Russia as its major oil and gas supplier, Russia 
is even more reliant on the European market as the destination of 80 
percent of its oil and gas exports. Oil and gas represent more than 70 
percent of Russia's export earnings and more than 50 percent of its 
federal budget. So, who is more reliant on whom? This has more to do 
with the exercise of political will rather than of economic leverage.
    Europe would do well to focus on the development of indigenous 
energy resources, including shale gas through hydraulic fracturing 
(unfortunately the Lithuanian Minister's country is one of the few 
which has committed to do so), and to fully integrating its gas and 
electricity networks so that supply can flow more easily to countries 
vulnerable to cutoffs.
    Export of U.S. LNG is not a silver bullet for Europe. In fact, 
imports of LNG declined significantly in Europe last year as a result 
of more favorable pricing terms offered by traditional pipeline 
suppliers such as Norway and Russia, and as an indirect result of 
American shale gas reducing our imports. Operators of European LNG 
terminals are hurting financially because of low utilization rates. The 
future volumes of U.S. LNG are already contractually committed to 
buyers, mostly in Asia where LNG prices are significantly higher than 
Europe's. Of course, some of these volumes could be redirected if 
Europe is willing to pay equally high prices for LNG.
    Unlike countries such as Russia that have oil and gas sectors 
dominated by state-owned and controlled companies, the U.S. Government 
does not direct commerce and leaves this to private companies operating 
in a free market, except in times of war and other national emergency. 
Indeed we have historically taken a stance against the use of energy as 
a geopolitical weapon, especially after the Arab oil embargo of 1973. 
These are principles worth considering before we decide to select 
politically the countries with which we trade oil and gas rather than 
through internationally negotiated trade agreements.
    Since U.S. exports of oil and natural gas would have no impact on 
Russia's market position in the short to medium term, there is a danger 
that inflating the rhetoric on exports would actually embolden Russia, 
which will recognize this as an empty threat, to act even more 
recklessly. It can also distract us from the more critical task of 
shoring up Ukraine economically. Two years ago, I testified before the 
Europe Subcommittee of the Senate Foreign Relations Committee to warn 
that for more than twenty years ``Ukraine has been on a dangerous path 
toward energy insecurity, which has accelerated'' under the Yanukovych 
administration and that at this rate ``Ukraine (will) become an energy 
appendage of Russia's.''
    The situation has only worsened in the intervening two years. 
Ukraine is truly vulnerable to energy blackmail by Russia because of 
past leaders, not just Yanukovych, who personally benefited from 
pervasive corruption in the sector, especially in the gas trade with 
Russia, that led to wasteful consumption, depressed domestic 
production, and fed the overreliance on Russia for energy supplies. 
Ukraine is one of the most natural gas dependent countries in the 
world, with gas supplying 40 percent of primary energy, 60 percent of 
which is imported from Russia. Potential economic collapse presents the 
greatest long-term threat to Ukraine's national unity and its 
territorial integrity beyond Crimea.
    Reverse flows of pipelines from Central and Eastern Europe can 
supply, at most, less than half of the gas Ukraine currently imports 
from Russia. They are also worthless in a true supply cutoff by Russia 
lasting for more than a few weeks, since countries like Poland, 
Slovakia, Hungary and Romania will then have no gas to spare for export 
to Ukraine. Ukraine has no LNG receiving terminal and, even if it had 
the wherewithal to build one, which it does not, it would take at least 
two years to put a receiving facility in place.
    Fortunately more than half of the Russian gas sold to Europe still 
transits Ukraine and Russia cannot cut off Ukraine without cutting off 
its European customers, upon whom it depends for revenue (as we learned 
from the 2006 and 2009 gas crisis). Therefore, unless the security and 
political situation deteriorates further between the two countries, 
neither Russia nor Ukraine would precipitate a gas supply cutoff. 
Unfortunately, the risks have increased in recent days.
    Nevertheless, urgent actions are needed to remedy Ukraine's long-
term gas supply vulnerability, which also affects Europe. Fortunately, 
the solutions are well known since Ukrainian and Western experts have 
recommended sensible reform steps for many years, including two 
separate studies by the International Energy Agency, most recently in 
2012. Almost all of these reform plans were commissioned by the same 
Ukrainian governments that lacked the political will to implement them.
    Especially important is gas price decontrol at the burner tip, as 
the IMF insists for fiscal and balance of payments reasons, but also at 
the wellhead to provide incentives to invest in domestic production. 
Current gas price regulations encourage wasteful consumption and 
chronic shortage, as well as depress domestic production since domestic 
gas price is controlled at a small fraction of imported gas price. This 
also has the intended effect of facilitating widespread corruption in 
gas trade. This must stop.
    All Western financial aid to Ukraine from the U.S., E.U., and 
international financial institutions (IMF, World Bank, EBRD, EIB) 
should be conditional on the agreement by the interim government of 
Ukraine to international monitoring of fundamental reforms of the 
energy sector and a sufficient share of the Western aid money devoted 
to funding the implementation of reforms, especially in gas pricing, in 
order to improve energy efficiency and promote domestic production. 
Naftogaz, the state oil and gas monopoly, which is at the center of 
energy corruption in Ukraine, must be completely restructured as soon 
as possible.
    There is no point pretending with the new authorities in Kyiv that 
there are solutions, absent fundamental reform, to Ukraine's energy 
supply vulnerability, which hangs like a Sword of Damocles over it and 
Europe because of Ukraine's central position in energy transit. If the 
Ukrainian government commits to such reforms, the U.S. and E.U. must 
assist in capacity building for proper execution of reforms steps by 
providing teams of technical, financial, business and regulatory 
experts to help.
    Frankly, $1 billion in loan guarantees is not sufficient to the 
challenge at hand if the U.S. is serious about helping Ukraine's long-
delayed transition into a market economy, including modernizing its 
energy sector. Ukraine's long-suffering public also has to be prepared 
for the short-term pain energy reform will bring in order to reap its 
long-term benefits. This will not be easy.
    Ukraine's geological endowment for producing more oil and gas is 
well known. The fastest way of tapping into this potential is to revive 
its conventional oil and gas production, which has stagnated for more 
than twenty years in spite of high imported prices, by deregulating 
wellhead prices as the U.S. did more than thirty years ago. With 
liberalized pricing, Ukraine may even lead the rest of Europe in 
replicating American success in shale gas, as it appears similarly well 
endowed in potential shale plays and major international oil companies 
seem interested to invest under the right conditions. That would be the 
best and most realistic way for America's unconventional oil and gas 
revolution to contribute to the future of European energy security.

    The Chair. Thank you very much. An interesting perspective.
    We now will hear from the Minister of Lithuania, the 
Honorable Jaroslav Neverovi.

   STATEMENT OF JAROSLAV NEVEROVIC, MINISTRY OF ENERGY, THE 
                     REPUBLIC OF LITHUANIA

    Mr. Neverovic. Thank you, Madame Chair, members of the 
committee, thank you very much for making----
    The Chair. Speak into your mic. You have to lean in. It's a 
little awkward, sorry.
    Mr. Neverovic. Yes.
    Thank you very much for making me a part of this hearing. I 
will share with you Lithuania's story which I can summarize 
with one phrase and which is, ``Freedom is not for free.''
    But before I make my point I want to return to May 8th, 
2003 when the historic vote happened on the Senate Floor on 
enlargement of NATO. One year later we became formal members of 
NATO. This year we celebrate tenth anniversary of our 
membership. Senators, Senate's role could not be 
underestimated. So thank you very much for your leadership 
then.
    During the past quarter of a century Lithuania emerged from 
the ruined Soviet economy to become a free market Nation with a 
robust economy, stable political system. We have become a 
trusted international partner. We are cooperating closely with 
the United States including fighting terrorism in places such 
as Afghanistan. We are very proud of our achievements.
    I'm honored to appear here before a such distinguished 
group of American officials led by chairwoman of this 
committee, Senator Mary Landrieu, the respective of political 
affiliation you individually and collectively stand proudly for 
the principles of free and fair trade and understand implicitly 
that unrestricted flow of good services and energy resources 
benefits both the United States and your trading partners.
    Madame chairwoman and committee members we have common 
vision for democratic system which are same values in 
international relations. But despite our unwavering commitment 
to those principles and ideals a law enacted in your country 
some 75 years ago denies us access to your abundant energy 
resources. Let's change that situation in the spirit of allies, 
let the energy strengthen and deepen our strategic cooperation.
    At present we are completely 100 percent dependent upon 
single supplier of natural gas. As a result are forced to pay a 
political price for this vital energy resource. Lithuanian 
families and businesses pay 30 percent more for natural gas 
than citizens in other European countries. This is not fair. 
That's abuse of monopoly position.
    I'm here today to tell you that Lithuania is taking steps 
to achieve energy independence and thereby strengthen our 
national security. But let me also be 100 percent transparent. 
I am also here to plead with you and your colleagues to do 
everything within your power to expedite the release of some of 
your abundant natural gas resources into the world market, 
especially to those Nations beholden to monopolistic supplier. 
The United States, with your enormous natural gas resources and 
highly developed infrastructure, has the kind of liquid market 
that Europe is trying to build right now.
    So what is the potential in Europe to receive U.S. LNG?
    There are currently 22 operating LNG import facilities 
within the EU with total combined capacity of 6.7 trillion 
cubic feet per year and another 6 terminals with additional 
capacity of over one trillion cubic feet per year under 
construction. However, the actual import of LNG into Europe 
fell about almost half between 2010 and last year. Because LNG 
prices are generally pegged to the global price of oil, current 
prices are just too high to supplant natural gas produced in 
Russia and elsewhere on the continent.
    As a consequence LNG terminals across Europe are 
functioning near their minimum technical capacities.
    However, America's entry into the global natural gas market 
can change this situation completely. Last week Vice President 
Biden visited Vilnius, Lithuania. During his visit the Vice 
President said, ``We have learned the hard way that protecting 
the sovereignty of Nations depends on having more than one 
supplier of energy.'' Vice President Biden expressed support to 
our efforts by encouragement for further energy cooperation.
    Indeed Baltic States are working successfully to overcome 
``energy island'' situation.
    I'm pleased to tell you that in just 250 more days 
Lithuania will have an instrument, our own LNG import terminal 
in our seaport, Klaip.da. The newly built, floating storage and 
regassification vessel has been symbolically named, 
``Independence.'' Also its primary goal is to satisfy our 
national needs, the terminal will operate under so-called third 
party access regime. That means that our neighboring countries 
could use terminal's capacity to meet their own needs. Thus our 
terminal, the first, large scale LNG import facility on the 
Baltic Sea will be the ice breaker for the region, helping to 
ensure alternative gas supply.
    While the United States appears positioned to be a key 
player in the global LNG marketplace there is, as you know, a 
sticking point. The majority of your LNG exports are subject to 
a public interest review. We understand that the U.S. President 
has the authority to deem all of the pending applications to 
export LNG to non-FTA Nations to be in public interest. We hope 
that this Administration will do just that by opening the doors 
to LNG exports to non-FTA countries.
    But if they don't act in a timely way we urge Congress to 
step in and amend the law. Accelerating America's entry into 
the global natural gas market is a win/win/win situation.
    America wins through job creation, economic growth, more 
avenues for the government.
    Customers in Europe win by access to more competitively 
priced gas from U.S.
    Strategic operation of NATO allies would be strengthened.
    Consequently stability on the European continent wins when 
monopolistic levers of influence are reduced or eliminated.
    The present situation in Ukraine has taught us one lesson. 
No Nation should be able to use its monopolistic energy 
supplies to punish any other Nation.
    So in conclusion, we should work together to let 
competition in, to keep the monopoly out and to bring natural 
gas prices down for customers in America and in Europe.
    Thank you.
    [The prepared statement of Mr. Neverovic follows:]

   Prepared Statement of Jaroslav Neverovic, Minister of Energy, The 
                         Republic of Lithuania
    Madam Chairwoman and members of the committee. Thank you for the 
opportunity to appear before you this morning to tell Lithuania's 
story, which I would summarize in a simple phrase: Freedom Isn't Free!
    Just eleven years ago-on May 8, 2003-the historic vote of the 
Senate occurred, unanimously ratifying the accession of Lithuania and 
six other European democracies to NATO. As a result during these days 
we are celebrating the 10th anniversary of our membership at the 
Alliance.
    During the past quarter century, Lithuania emerged from the ruined 
Soviet economy to become a free market nation with a robust economy, 
stable political system. We've become a trusted international partner, 
we are cooperating closely with the United States. We've put our own 
soldiers shoulder-to-shoulder with yours to fight terrorism in places 
such as Afghanistan. And, we're very proud of that.
    So, I am humbled and honored to be here today as the energy 
minister of the free and independent state of Lithuania!
    I am also honored to appear here because this body-the United 
States Senate-always stood beside us, never once recognizing the 
illegal and immoral annexation of the Baltic States by the Soviet 
Union.
    And, finally, I am honored to appear before such a distinguished 
group of American officials, led by the chairwoman of this committee, 
Senator Mary Landrieu from the great state of Louisiana. Irrespective 
of political affiliation, you individually and collectively stand 
proudly for the principles of free and fair trade and understand 
implicitly that the unrestricted flow of goods, services, and energy 
resources benefits both the United States and your trading partners.
    Madam Chairwoman and committee members, the Lithuanian message is 
simple. We have common democratic vision; we share the same values in 
international relations. But, despite our unwavering commitment to 
those principles and ideals, a law enacted in your country some 75 
years ago denies us access to your abundant and affordably priced 
energy resources.
    Let's change this strange situation. In the spirit of allies let 
the energy strengthen and deepen our strategic cooperation.
    At present, we are completely-100 percent-dependent upon single 
supplier of natural gas and, as a result, are forced to pay a political 
price for this vital energy resource. Lithuanian families and 
businesses pay 30 percent more for natural gas than citizens in other 
European countries. This is not just unfair. This is abuse of 
monopolist position.
    Madam Chairwoman and committee members, I am here today to tell you 
about the steps Lithuania is taking to achieve energy independence and 
thereby strengthen our national security. But, let me also be 100 
percent transparent. I am also here to plead with you and your 
colleagues to do everything within your power to help us achieve that 
objective by expediting the release of some of your abundant natural 
gas resources into the world market, especially to those nations 
beholden to a monopolistic supplier.
    The United States, with your enormous natural gas resources and 
highly developed infrastructure, has the kind of liquid market that 
Europe is trying mightily to achieve.
    What is the potential in Europe to receive US LNG? There are 
currently 22 operating LNG import facilities within the EU with a total 
combined capacity of 6,7 trillion cubic feet (Tcf) per year and another 
six terminals with an additional capacity of 1,06 trillion cubic feet 
per year are under construction (one of those new facilities, as I 
shall explain, is located in Lithuania's Port of Klaipeda on the Baltic 
Sea).
    However, the actual import of LNG into Europe fell by almost half 
between 2010 and 2013, from 3 trillion cubic feet per year to 1,6 Tcf 
per year. The reason for this decline is simple. Because LNG prices are 
generally pegged to the global price of oil, current prices are just 
too high to supplant natural gas produced in Russia and elsewhere on 
the continent. As a consequence, LNG terminal across Europe are 
functioning near their minimum technical capacities.
    However, America's entry into the global natural gas market can 
change this situation completely.
    Last week Vice President Biden visited Lithuania. During his visit, 
the Vice President said: ``We have learned the hard way that protecting 
the sovereignty of nations depends on having more than one supplier of 
energy''. Vice President Biden expressed support to our efforts by 
encouragement for further energy cooperation.
    Lack of gas and electricity interconnections with other EU members 
and extremely high dependency on energy from a single monopolistic 
supplier, makes us highly vulnerable. Fortunately, the Baltic States 
are working successfully to overcome this ``energy island'' situation.
    I am pleased to tell you that in just 250 more days, Lithuania will 
have an instrument-our own LNG import terminal in our seaport Klaipeda-
and once this facility is operational, we will have a functional 
natural gas market at last.
    I cannot overstress the strategic importance of the LNG terminal to 
Lithuania. The newly-built floating storage and regasification vessel 
has been symbolically named ``Independence'' and although its primary 
goal is to satisfy our national needs, the terminal will operate under 
a so-called ``third party access'' regime. That means that our 
neighboring countries could use terminal's capacity to meet their own 
needs. Thus our terminal-the first large-scale LNG import facility on 
the Baltic Sea-will be the ice-breaker for the region, helping to 
ensure an alternative gas supply and create a functioning gas market.
    While the United States appears positioned to be a key player in 
the global LNG marketplace, there is, as you know, a sticking point. 
The majority of your LNG exports are subject to a ``public interest'' 
review conducted by your Department of Energy. At present, only exports 
destined for nations with which you have a free trade agreement are 
automatically deemed to be ``in the public interest.''
    However, the U.S. President has the authority to deem all of the 
pending applications to export LNG to non-FTA nations to be ``in the 
public interest''. We hope that his administration will do just that by 
opening the doors to LNG export to non-FTA NATO members. But, if they 
don't act in a timely way, we urge Congress to step in and amend the 
law.
    Accelerating America's entry into the global natural gas market is 
a win-win-win situation. America wins through job creation, economic 
growth, more revenues for government. Customers across Europe win by 
access to more competitive, clean-burning U.S. natural gas. And, 
strategic cooperation of NATO allies would be strengthened-consequently 
stability on the European continent wins when monopolistic levers of 
influence are reduced or eliminated.
    The present situation in Ukraine has taught us all one lesson-no 
nation should be able to use its monopolistic energy supplies to punish 
any other nation. So, in conclusion, my message to you is simple. Let's 
work together to let competition in, push the monopolists out, and 
bring natural gas prices down in Europe as they have come down in 
America.
    Thank you for the opportunity to make this statement. I look 
forward to your questions.

    The Chair. Thank you very much.
    We'll begin with a round of questioning.
    Senator Murkowski, welcome. She's going to forego her 
opening statement on the matter, for the matter of time. But 
will join me in an opening round of questions.
    Then the order will be Senator Wyden, Senator Scott, 
Senator Udall and then I'll come back to the list.
    Thank you all for being present.
    Let me ask this first, I think, to Mr. Chow and then Dr. 
Montgomery and then to the Minister.
    It's, I think, should be better known in the United States 
that Russia's budget, it's national budget, is 52 percent made 
up of energy revenues. I'm going to ask our staff to get 
information about the U.S. budget which is, I'm sure, 
considerably less. It's been written over the course of several 
years that Russia has continued to use what has been termed, 
it's not my term, but someone else termed this, energy 
blackmail, to ensure they keep their State coffers full.
    Foreign policy reported over the last 20 years Russia has 
used this energy blackmail more than 40 times including 
countries such as Lithuania, who testified.
    You know, Mr. Chow, you said that there's no silver lining, 
our, you know, our actions today might not take immediate 
effect.
    Dr. Montgomery, you were a lot more bullish on your 
position.
    So I'd like to ask you all what are the steps that, in your 
opinion, the U.S. should take to reduce Russia's influence, to 
reduce their quick access to cash, to promote policies that are 
not in our interest and not in the interest of Europe and 
democracies around the world?
    Starting with you, Dr. Montgomery.
    What are the 1 or 2 things that we should do?
    Mr. Montgomery. Thank you, Madame Chair.
    I will stick to energy things that we could do.
    The Chair. Yes.
    Mr. Montgomery. Because I don't----
    The Chair. Right, energy.
    Mr. Montgomery. Offer myself as an expert on others and I'm 
sure there are many others that could accomplish what you're 
talking about as well.
    I make it that based on your numbers revenues from natural 
gas are probably somewhere around 20 percent of energy 
revenues, 10 percent therefore of the Russian budget. If we 
could take out half of that well, that would be about 5 percent 
of their budget. I know what the budget committees and Congress 
would feel about that if it happened to the United States.
    So I think that would be effective.
    I agree with Mr. Goldwyn that it's the potential 
competition that is really important. It is. We see this in 
industry after industry where a monopolist restrains themselves 
because they know that if they go much above competitive 
pricing there are others who are not in the market now, but are 
ready to leap in. That's the position the United States needs 
to be in.
    I agree with the Minister that the critical part for that 
is some form or another of removing the--of moving past the DOE 
process of making it clear that there is a policy commitment 
not to cap natural gas exports, not to stop that, not to 
prevent, you know, trades being made that are the advantage of 
both of our allies and ourselves. But also dealing effectively 
with potential problems with natural gas production, dealing 
with issues of shale gas and potential regulations that could 
hurt its production.
    The Chair. OK.
    Mr. Goldwyn, would you like to add anything?
    Mr. Goldwyn. Yes, please.
    The Chair. Or disagree with anything that was said?
    Mr. Goldwyn. I don't disagree with what's said. I think 
there--I have a short list of 5 things I think the U.S. could 
do that could really reduce Russia's influence.
    The first is diplomatic. We have a big agenda with Europe. 
If they integrate their gas market then they'll be able to move 
gas around and we'll be able to help more.
    The second is I started a program called the Global Shale 
Gas Initiative when I was at the State Department. It's now 
called the Unconventional Gas Technology Program. We could do a 
lot more to provide technical assistance to other countries to 
help them develop their shale gas resources safely and 
efficiently.
    I think the third thing, as we've talked about, obviously, 
would be to accelerate our ability to connect to the global 
market on gas.
    I think we could encourage the Europeans to provide credit 
support to a lot of these projects in Europe. A lot of these 
economies are in bad shape as Dr. Montgomery and Dr. Chow know 
very well. They have a lot of work to do before people want 
to--before they can get prices right so people want to invest 
there. But I think the European Union could give credit support 
to a lot of those countries to enable them to build these 
interconnectors and projects.
    I think we should, as we have for decades, encourage oil 
production both here at home and overseas because the more 
supply there is coming from Mexico or other places or even our 
own exports, if we get to a point where we can do that. We 
drive the global price of oil down. When the price of oil goes 
down, Russia's revenues are reduced and other countries have 
other choices of supply.
    The Chair. Dr. Chow.
    Mr. Chow. Thank you, Madame Chair.
    I actually don't disagree too much with what my colleagues 
have to say except in terms of timing and to be a little bit 
modest as to how much immediate impact that we can make while 
not perhaps attending to more urgent matters such as shoring up 
Ukraine.
    In addition to what my colleagues have already said, I 
would emphasize the fact that our European allies are the ones 
with leverage over Russia on oil and gas imports, not us. 
Eighty percent of Russia's oil and gas exports go to Europe. 
They don't have many alternatives in the short to medium term. 
The pipelines to China are not built yet. Although Mr. Putin 
may be trying to do that when he visits China in May.
    A number of the allies we met with, President Obama met 
with yesterday and today, have shale gas bans. We should send 
David back to Paris where there is an effective ban on even 
looking at exploring the resource that might be in France.
    Germany has an effective ban on fracking. Germany, forty 
percent of Germany's gas demand comes from Russia.
    So getting together with our allies to talk about what they 
can be doing in Europe to improve their own situation, as well 
as lessen their dependency on Russia, would be a very good 
thing in my mind.
    The Chair. Thank you.
    Senator Murkowski.
    Senator Murkowski. You'll get used to it.
    [Laughter.]
    The Chair. I like both of you so much.
    Senator Murkowski. Thank you.
    The Chair. I work with both of you so closely.
    Senator Murkowski. I thank you madame chairman. It's good 
to have you as chair here next to my friend and our former 
chair, Senator Wyden.
    To those on the panel, good morning and welcome. I 
apologize that I was tardy this morning, not because I wasn't 
anxious to hear the wisdom and the opinions of each of you. I 
thank you for your leadership in so many different areas.
    I think it was you, Mr. Goldwyn, that mentioned that it's 
not whether in terms of exports, but whether we act in time to 
help. As I know some of you are aware I have really, a series 
of white papers after my energy 20/20 report from last year. We 
just released one about this narrowing window when it comes to 
our opportunities for export.
    So when we talk about these issues I do think it is 
important to keep it in the context of timing.
    I also recognize that we are in an enviable position as a 
Nation. The fact that we are having a hearing of this nature, 
talking about our energy opportunities for export from a 
position of abundance rather than one of scarcity which we so 
often seem to focus on. To be able to discuss our natural gas, 
our oil, our other resources as truly a strategic asset is 
something that, I think, is a remarkable story coming out of 
the United States. Our ingenuity that's driven by technologies 
is allowing us to access amazing resources in this country.
    So it is a fabulous conversation to be having today.
    I want to drill down a little bit here on the discussion of 
what we can do today to make a difference over in the Ukraine, 
have influence on Russia. The proposal or the discussion that 
we've been having about well, if in fact we were to accelerate 
the permitting process through DOE. In fact, that doesn't get 
gas to Ukraine or anywhere, at least for a couple years.
    So therefore, if we can't do something by gosh, today to 
get our gas over across the water, then it's not worth doing.
    I have suggested that it is about the signal that is sent, 
about the United States' role, our leadership role from a 
geopolitical perspective that is as instrumental as anything.
    Mr. Chow, I think you used the term that it's irrelevant in 
the short run.
    What I'd like to hear from each of you is how important is 
that signal that is sent if we are to accelerate our permitting 
through the DOE process?
    Mr. Sieminski, if you can, kind of, speak to it from the 
pricing perspective? What does it mean, not only in Europe, but 
in Asia if we are to act more aggressively with the signals 
that come out of this Administration saying we're serious about 
being a player on the world scene? If we can truly just go down 
through the panel and each give your observations as to how 
significant a signal is as opposed to actual gas into our 
friends' and our allies' systems.
    Mr. Sieminski, we'll start with you.
    Mr. Sieminski. Senator Murkowski, I think signals could 
certainly be important. They have to be followed up by concrete 
action to have, ultimately have, the impact, not be temporary.
    Senator Murkowski. By concrete action does it need to be 
more than an expedited process?
    Mr. Sieminski. For example the gas actually entering into 
the marketplace in some way. I think you could argue that the 
increase, the very strong increase in domestic production in 
the U.S. has already had some impact because our imports of 
natural gas are much lower now than they were projected to be 
just 5 years ago. So that's freed up other gas in the global 
markets to be available to other consumers like Europe and 
Asia.
    The possibility that the U.S. would enter into the global 
markets with LNG exports after the completion of the LNG 
facility at Sabine Pass, I think has already had some impact on 
the psychology of long term contracts. There have been 
companies who have indicated that they have felt that they had 
more successful opportunities to negotiate with large gas 
suppliers for better contract terms than they would have had 
had the facility in Louisiana not already be under 
construction.
    Senator Murkowski. Let's quickly go down.
    Minister Neverovic, how has--how would signals be received 
over in Lithuania and other Nations?
    Mr. Neverovic. Yes, thank you very much for this question.
    It's absolutely important signal which you can send. I can 
bring your attention to the fact that there are companies which 
trade in gas which already are moving to basically a pricing on 
more sport market model. But majority of the contracts are 
still being done on the basis of long term contracting, long 
term pricing.
    So this is where it is important that any signal which is 
there, which is sent to the market, it could strengthen the 
buyers. They could feel more comfortable knowing that there 
will be more gas in the market. Then their position would be 
much stronger vis-`-vis the especially monopolist suppliers. 
That we don't have to attach ourselves to these long term 
contracts knowing that there will be gas on the market and 
possibly it will be more competitive.
    So this signal would be very important I would say.
    The Chair. If the 3 of you all would answer really quickly 
for the Senator. Just take 30 seconds each. Is it important? 
How important is a signal? Really quickly.
    Mr. Montgomery. Yes, I believe it's important. It's my 
opinion that we see evidence across economic markets that 
signals work. It's also important that they be credible. I 
think that's a great advantage of this kind of a signal because 
it's actually in our narrow economic interest to do, to 
facilate exports as well as strategic.
    The Chair. Mr. Goldwyn.
    Mr. Goldwyn. I think from a diplomatic point of view, a 
signal is important for diplomatic, strategic reassurance. We 
spent decades trying to get other countries to provide gas to 
Europe. If we actually do it ourselves I think that would be 
powerful.
    It impacts financing if you're accessing Henry Hub prices 
opposed to high priced Qatari. It's cheaper to provide, to get 
financing for those projects overseas.
    Third, I think it would impact the market cap for Russian 
companies right now because if they have a lower market share 
or they're getting lower revenues than their prices on global 
markets will be lower.
    I think it impacts price formation. Even Asian buyers, as 
Dr. Sieminski has indicated, are waiting to see if U.S. LNG 
will come into the market so they can get lower prices rather 
than oil linked prices.
    So it's, you know, buy the rumor, sell the fact, whatever 
you're aphorism is, when we do things in the market today, 
those signals have immediate impact even if the end game is 
long term.
    The Chair. Dr. Chow, really quickly and then I'm going to 
turn to Senator Wyden.
    Mr. Chow. I think the most important signal we can give 
right now in response to Russia's aggression in Ukraine is to 
strengthen Ukrainian economy. The Ukraine could be self 
sufficient in gas in a faster period of time than you can build 
a LNG terminal in Ukraine.
    Ukraine, until the 1970s exported gas to the Russian 
republic. It is the corrupt, pervasive corruption, and 
inefficiency in the Ukrainian energy system that makes Ukraine 
vulnerable. Ukraine continues to transit more than 50 percent 
of Russia's gas to Europe.
    If we strengthen Ukraine, that would be the most important 
signal to the Kremlin, it would seem to me.
    Frankly, Senators, a billion dollar loan guarantee is a 
pretty feeble response to what has already happened.
    The Chair. Senator Wyden.
    Senator Wyden. Thank you, Madame Chair.
    Madame Chair I want to congratulate you. I think you're 
going to do a first rate job chairing the committee. I think 
the Landrieu/Murkowski team, colleagues, all of us are going to 
be well served by having the 2 of them lead us.
    Colleagues, in my view, yesterday's decision to approve the 
Jordon Cove facility in my home State reinforces my view that 
there is a sensible place between no energy exports and 
approving every application on offer. Now a year ago in this 
room that was called finding a sweet spot, where you factored 
in the needs of our manufacturers and our consumers and 
environmental questions and national security. My view is there 
still is a sweet spot recognizing that the geo-political and 
national security considerations have certainly changed in the 
last year.
    Now yesterday's decision with respect to Jordan Cove shows 
the kind of considerations that need to go into this mix. For 
example, Jordan Cove is the only West Coast facility that is 
now on track for approval for exports. Also there will be less 
impact on American gas supply which is going to be important to 
our consumers. Senator Stabenow and others made this point 
because a portion of the gas for Jordan Cove will come from 
Canada, not going to be American supply.
    So let me enlighten that. Kind of pick up on what Senator 
Murkowski was talking about with respect to the situation in 
Eastern Europe. In looking at the range of events surrounding 
Ukraine, I was struck by how the mention of potentially 
significant shale formations is coming up more often with 
respect to Eastern European countries. Poland and I'm sure 
there's going to be discussion of it in Lithuania.
    Now everything I have learned and you touched on this, Mr. 
Chow, is that it's going to take a look of money and it's going 
to take a lot of time to build a LNG terminal. We're talking 
about years. We're not talking about months. We're talking 
about years to build one.
    So my question and perhaps for you, Mr. Goldwyn and you, 
Mr. Chow. Wouldn't it be faster to export more of our knowledge 
more quickly to these countries in terms of how we can help get 
them, help them shake free of Russian oil and gas? Wouldn't 
that be the fastest way to move in a manner that really would 
help them shake free of Russian oil and gas? I think I really 
heard you touch on this, Mr. Chow.
    Maybe you could amplify it and maybe we'll start with you, 
Mr. Chow and Mr. Goldwyn because exporting our knowledge could 
really make a difference quickly. I compare that to the years 
that it would take for a terminal and the expense.
    Mr. Chow, first.
    Mr. Chow. Thank you, Senator.
    It's not just shale gas. Actually you can increase 
conventional gas production faster in Ukraine. You don't have 
to wait for shale gas.
    It's not only knowledge, but also of course, investment as 
well as managerial expertise. But before you can do that 
Ukraine needs to clean up its act in terms of its energy 
sector.
    Today Ukraine imports gas from Russia around $300 per 
thousand cubic meters. It may go up to 400 by April 1st. It 
provides $40 per thousand cubic meter for the same gas but to 
domestic production.
    So this incentivizes domestic production. All that needs to 
change. The reason is there. It's not an accident, as they say 
in that part of the world because it facilitates corruption.
    For 20 years the Ukrainian energy sector have been hampered 
by corruption from the very, very top. So if we do anything at 
all we should condition our aid that we're considering giving 
Ukraine for both the IMF and other Western donors on 
fundamental structure reform of the energy sector.
    Senator Wyden. I heard you touch on this too, Mr. Goldwyn, 
in terms of what we could do in addition to what we're doing 
now to help these countries shake free of Russian oil and gas.
    Your comments?
    Mr. Goldwyn. Great. Thank you, Senator Wyden. Thank you for 
your leadership on this issue.
    I think we need to do both. There's no question that 
providing technical assistance to countries like Ukraine but 
also Romania, Bulgaria, Poland, Lithuania which has shales 
also, will help them develop those over time.
    But Europe actually has a number of existing LNG importing 
terminals that have not used their maximum capacity. In fact 
Spain is kind of an island to the rest of Europe.
    So that's why I think the process of interconnection in 
creating a unified gas market will enable countries like 
Ukraine to get gas from LNG imports before they need to build 
new terminals. You can do a lot with interconnection and more 
pipelines, reverse flows into places like Ukraine. So I think 
they need to do both.
    I think the time scale for getting more LNG into Central 
and Eastern Europe can happen much more quickly than the time 
it takes to build a new import facility and the floating 
facility----
    Senator Wyden. My time is up. But I'm very interested in 
this speed question because it is fine to talk about this in 
the abstract. If you could get that to the Chair and the 
ranking minority member so it could be shared with all of us. 
For me the question is speed.
    Thank you, Madame Chair.
    The Chair. Thank you.
    Senator Barrasso, I think or Senator Flake.
    Senator Scott, yes, but Senator Barrasso?
    Senator Barrasso. OK. Thank you, Madame Chairman and 
congratulations to you and your new role leading this 
committee.
    I appreciate your willingness to hold this hearing today. 
We have an excellent panel of witnesses and happy to hear from 
each of you and very much value your opinions.
    I must point out that today's hearing on this is the third 
committee we've had hearing on liquefied natural gas exports in 
the last 2 and a half years. So we've had 3 of those, yet since 
our first hearing on LNG exports in November 2011 the 
Administration has continued to move, I believe, at a snail's 
pace. The Administration has used its discretion to approve 
only 7 applications to export LNG.
    Meanwhile the Administration continues to sit on 24 pending 
applications. 13 of these applications have been pending for 
more than a year. I believe that the delays have been 
inexcusable.
    So I think that we need hearings like this, but more 
importantly we actually need to vote. I think the Senate needs 
to take action on LNG exports.
    Yesterday I filed an amendment to the Ukraine bill which 
would expedite LNG exports to Ukraine and to members of the 
North Atlantic Treaty Organization. These Nations are pleading 
for American natural gas. They want the Senate to actually act, 
to do something.
    What we have heard from the Majority Leader is one excuse 
after another for why the Senate shouldn't act. Two weeks ago 
the Chairman of the Foreign Relations Committee arbitrarily 
blocked my amendment to the Ukraine bill. Other members of the 
majority have said the Administration should stop approving LNG 
exports altogether.
    If my colleagues on this committee are serious about 
promoting LNG exports than we should call on the Majority 
Leader to actually let the Senate do its job. We should call on 
the Majority Leader to allow the Senate to vote on expediting 
LNG exports. This is one way that we can make progress on this 
issue.
    Two days from now, on Thursday, this committee is going to 
be asked to vote on the nomination of Rhea Suh, to be Assistant 
Secretary of the Interior. She has called natural gas 
production, ``easily the single greatest threat to the 
ecological integrity of the West.'' I believe if she is 
confirmed she could block access and would block access to our 
Nation's vast natural gas resources.
    It's very difficult for me to understand why this committee 
would hold a hearing in support of LNG exports today yet be 
asked to vote to approve a natural gas opponent on Thursday. So 
I would urge you, Madame Chairman and our colleagues on this 
committee, to reject this nominee. The committee needs to send 
a strong message that we are all in support of natural gas not 
one in opposition to it.
    Mr. Neverovic, in your testimony you explained that 
Lithuania is totally dependent on Russian natural gas. 
Lithuania, along with 3 other NATO allies and 3 other European 
Nations, is 100 percent dependent on Russian gas. You explained 
that you were here today, you say, to plead with Congress to do 
everything within our power to expedite release of our abundant 
natural gas resources into the world market.
    You say that you hope the Administration will expedite LNG 
exports.
    However, you also state that if the Administration fails to 
act then Congress should work to expedite the LNG exports.
    Has the Administration given you, given Lithuania, any 
indication that it's actually going to expedite LNG exports?
    Mr. Neverovic.. Thank you very much for this question. I 
had very good meetings also planned in a very short time, but 
still good meetings in Department of Energy and Department of 
State. We had a very good discussion where my interlocutors 
introduced their position on whether realizing LNG export.
    As I understand their main preoccupation needs to find this 
sweet spot which Senator previously has mentioned and 
understanding the current situation, geo-politically in Eastern 
Europe. They are looking into ways to expedite this process of 
approving licenses.
    However, I argued that it should made faster. These signals 
are important for countries like us which specifically are 
developing infrastructure which would allow us to bring gas 
from alternative supply. Then American gas which would appear 
on the world market would make a difference.
    So I would continue to encourage both the Administration 
and Congress to do anything possible to speed up these 
processes here.
    Senator Barrasso. So they talked nice to you, but in fact 
they failed to give you the assurance that you hoped for that 
we would actually get the action. I would think that if the 
Administration isn't ready to make that commitment today that 
it is then dependent upon the Congress to act.
    Mr. Goldwyn, in your testimony you stated that a clear 
signal from the U.S. that LNG exports will be available to 
European allies would put immediate pressure on Russia's market 
share. You explained some respected analysts have been too 
quick to dismiss the connection between U.S. LNG exports and 
increased European energy security. You've talked to that and 
answered questions related to that.
    You go on to say that in dismissing that connection they 
make a number of mistakes. Would you please explain these 
mistakes to members of the committee?
    Mr. Goldwyn. I think some analysts say it won't matter to 
have U.S. LNG exports because they'll go to Asia and not 
Europe. I think that's a premature assumption to make.
    For one, we don't know if Russia were to restrict gas 
exports to Europe might, no doubt, European gas prices would go 
up. European buyers, like other buyers, often put a premium on 
diversity of supply or security. So I think it's premature to 
make that judgment.
    The second, I think, they downplay the impact on price 
formation because LNG buyers buy long term. Right now they're 
not buying for next year, they're buying for the 2016 or 2018 
to 2022 period. So they're negotiating now for projects that 
will come online then and for long term projects.
    So they're negotiating today for delivery in the future, 
like anything else that has a futures price. So when you 
increase future supply you provide certainty that U.S. supply 
will reach the market in a certain time. They're going to 
calculate that into global supply and adjust prices.
    I think the third thing they underestimate is this impact 
on financing because, you know, like for all the projects the 
U.S. has approved only one has reached final investment 
decision. So who knows which of these are actually going to get 
financed? But if you're going to try and finance a project and 
you've got oil at Qatari prices or you're going to finance a 
project with Henry Hub, the cost of your project is lower if 
the cost of your gas is cheaper and the amount of money that 
you need is cheaper. So I think it impacts the finance ability.
    Last, I think, it--the markets score prices for equity 
investment today based on future performance. If there is a 
clear signal that Russia's future market share will be less 
than as anticipated, then the price of Rosneft and, you know, 
after the price of Lukoil, the price of any of these companies 
which have publicly traded shares which are calculated in 
future income from gas or from oil into their projections will 
be impacted. Those scores happen today as long as we create 
certainty about tomorrow.
    Senator Barrasso. Thank you, Madame Chairman.
    The Chair. Thank you very much.
    Senator Udall.
    Again, thank you for the bill that you've introduced along 
with Senator Begich.
    Senator Udall. Thank you, Madame Chair.
    I want to start out by acknowledging and welcoming our new 
Chair, Senator Landrieu. She has a vast amount of energy 
expertise and a vast amount of energy.
    [Laughter.]
    Senator Udall. She'll bring both of those to the committee.
    I wanted to also acknowledge Minister Neverovic . and 
forgive me if I didn't get your name pronounced properly. But I 
did want to acknowledge that your country is small 
geographically, but it's an enormous country when it comes to 
your courage and resolve. America is proud to be your ally and 
we're well aware of the history of the Baltic States and all 
its various iterations.
    So thank you for being here today.
    I, too, want to acknowledge that I'm really pleased that 
Chairman Landrieu has focused her first hearing on such an 
important issue. Our Nation's clean burning and job creating 
natural gas should and can play an important role in 
strengthening global security. The ongoing crisis in Ukraine 
which we're discussing here today and of course, around the 
world, and Russia's threat to use its natural gas exports as a 
weapon shows why we need to responsibly develop our own natural 
gas reserves and expand our capacity to export this resource 
abroad.
    I do share the frustration of many of my colleagues like 
Senator Barrasso that the Department of Energy has moved 
slowly. I can put it another way, has not moved more quickly to 
approve exports to non-FTA countries. That's why I introduced a 
bill just a few weeks ago that would end the current log jam at 
the Department of Energy by deeming export to all WTO countries 
to be in the public interest, in effect, approving the pending 
application queue.
    This bill is bipartisan and bicameral. In fact shortly 
after introducing my legislation, my home State colleague, 
Representative Gardner, presented a virtually identical measure 
in the House which will be marked up soon. I welcome him in 
joining me in this effort.
    I've made this point publicly and with the Secretary 
numerous times over the last few weeks. The crisis in Ukraine 
has refocused on how U.S. natural gas exports can stabilize 
global security. That's why I also will file my bill that will 
allow immediate DOE approval for the WTO countries as an 
amendment to the pending Ukraine Sanctions bill.
    I do think the Department of Energy is finally heeding the 
calls that I put forth and others have put forth to approve 
additional LNG permits. As Senator Wyden mentioned yesterday, 
the Department approved a permit for the Jordan Cove facility, 
something that I've been pushing for. A real signal that we've 
made a difference in demanding action.
    I'd like to thank the Department and Secretary Moniz for 
putting additional emphasis on global energy security and the 
importance of our allies as a part of their rationale for 
approval.
    So in sum, I'm hopeful that this refocused emphasis on the 
energy security of energy exports will lead to even more 
movement from the Department of Energy in the coming weeks and 
months. After all there are still 24 permits pending.
    With that let me turn to the witnesses. I want to direct 
this question to the panel.
    Much of the focus of LNG exports has been at the DOE's 
review of applications. But isn't it true that even with DOE 
approval the volume of natural gas to be exported is dependent 
on many other economic and financial considerations as well as 
FERC approval for environmental and other considerations?
    Would it be fair to say that the DOE approval simply gives 
the green light for a market driven process?
    I would welcome comment from any of you on the panel.
    Mr. Chow, you've, I think, shed some important light on 
some of the broader dynamics at play and maybe we'll start with 
you.
    Mr. Chow. Senator, thank you for your question.
    As I said in my testimony there are lots of good reasons 
why we should proceed with serious consideration and maybe 
speeding up the process for licensing of crude exports as well 
as more LNG facilities.
    I think one point that I would make is that in not only 
does it send a signal to the market, but the fact of the matter 
is that sweet spot that Senator Wyden mentioned, grows as the 
resource base estimates grow, as our ability to recover more 
from gas from the shale grows. So I imagine that it also sends 
a message to the market that the Department of Energy's 
confidence that we have sufficient resource to both entertain 
exports as well as meet domestic demand.
    Senator Udall. Mr. Goldwyn.
    Mr. Goldwyn. I would say the answer to your question is yes 
really. The DOE license is really just a license to market. It 
just says that you're able to go to customers who we don't have 
free trade agreements with and say that you can sell gas to 
them.
    It's not an indication that you've made environmental 
clearance. That comes from FERC.
    It's not an indication that you have got community assent 
to build a project where you want.
    It doesn't mean you've got financing.
    I think that's probably the challenge of the process right 
now is people score these DOE approvals like they're real 
projects, but they're not. All you need for the DOE approval is 
a letter and a stamp. You know, to get FERC approval you've got 
to have, you know, millions of dollars of environmental 
assessment and you have to have credible financing.
    If I could, actually, I've written an alternative proposal 
at Brookings if I could enter for the record, called, ``A 
Modest Proposal for Improving the Department of Energy Non-FTA 
LNG Export Application Process.''
    Mr. Goldwyn. But essentially if you just let projects which 
had cleared FERC. They had a formal FERC application go to the 
head of the line then you would be accelerating projects which 
are not just licenses to market, but projects which have--are 
ready and are commercially mature.
    I think that would solve a lot of this confusion about 
whether or not we're going to have 18 BCF a day in projects. 
We're not going to by just getting the DOE to give its approval 
to projects that are ready to go.
    Senator Udall. Mr. Sieminski, let me turn to you for a 
follow on question, the seasonality of natural gas prices.
    LNG exports might be able to stabilize these fluctuations 
for consumers and producers. Of course in my home State of 
Colorado and across the Nation you see a surge in the winter. 
Would exports create an opportunity to maintain production 
levels during seasons of high demand?
    Mr. Sieminski. It's certainly possible. The availability of 
the storage that's associated with LNG export facilities might, 
some of that gas, might be available domestically. If prices 
got higher in the domestic markets than what the gas could get 
in the global markets that could have been a useful thing for 
example if there had been some way to get LNG quickly into 
Boston during the polar vortex.
    Senator, back to your earlier question.
    EIA believes that there are lots of factors that enter into 
the LNG export calculation including what oil prices are in the 
global markets, how quickly oil and gas prices converge, what 
the pace of growth in supply and demand is outside. So yes, I 
would also agree that there are many factors, both in the 
energy markets and in the financial markets that would come 
into play in determining whether an LNG export facility 
actually got built and used.
    Senator Udall. Thank you for that.
    Madame Chair, thank you. Let's find this sweet spot that 
seems to be the phase.
    The Chair. Thank you very much for bringing up the queue 
process.
    Senator Murkowski and I are really focus on that because 
there are a lot of questions. Thank you, Mr. Goldwyn, your 
report will be submitted for the record, the one that you 
referenced in response to that question.
    Alright, I think we have Senator Flake. I hope I'm not 
going out of order here.
    I'm sorry, Senator Manchin is next. I'm going in order. I'm 
sorry, go ahead Senator Flake and then Senator Manchin.
    Thank you.
    Senator Flake. If he's changed sides that's alright.
    [Laughter.]
    Senator Flake. I mean, I'll take it.
    The Chair. We will never allow that.
    [Laughter.]
    The Chair. Although he has tried on occasion. We will never 
allow it.
    Senator Flake. Just checking.
    Mr. Sieminski, give me a sense of the world market here for 
LNG. I visited, several years ago, a facility in Trinidad and 
Tobago. At that time most of that LNG was coming to the States. 
Now we're almost no longer a net importer, just barely a net 
importer.
    Where is that going? What kind of margin do they operate 
under? Is some of that going back to South America or is it 
elsewhere in the Caribbean or is some of that going to Europe? 
What is the price point needed where existing natural gas 
facilities like this can export to Europe?
    Mr. Sieminski. I don't have those numbers right in front of 
me, but my guess is that gas from Trinidad and Tobago is going 
to European markets. There is also--there are a couple of 
terminals, LNG terminals, one in Chile, one in Mexico, that 
might be available. The LNG markets are developing very 
rapidly, but even with the estimates that EIA has made for U.S. 
LNG exports, it's still a fairly small portion of the global 
LNG market. There are many other competitors in that market 
including Australia, Indonesia, some of the West African 
countries and others who are entering the markets.
    Senator Flake. I'm just wondering, somebody, maybe Dr. 
Goldwyn, if you could tell me how will Russia react if we were 
to start permitting process, the signal was sent, prices drop. 
Will Russia act much like OPEC did earlier or does or any 
cartel in this fashion that they will lower prices to 
discourage investment in other facilities elsewhere?
    How will Russia react here? At what point, how much lower 
will their prices have to be in order to discourage investment 
that needs to happen in these other countries including the 
U.S.''
    Mr. Goldwyn. Thank you for the question, Senator.
    I only went to law school, I didn't get my PhD. My wife 
did, so I can't claim the doctor.
    But I think, well first, Russia has not shown any ability 
because it doesn't control enough of world supply to try and 
lower its prices to impact other's investments. But Russia has 
had to lower its prices in order to save its market. So as Dr. 
Sieminski and Dr. Montgomery both explained, the surplus of LNG 
when we stopped importing it forced Russia to renegotiate a lot 
of its long term contracts with Europe because they were able 
to buy spot.
    So that was one impact.
    They also had this famous Shtokman project where they 
thought they were going to be a major LNG export. The fact that 
they didn't have our market anymore made their project too 
expensive. So it wasn't so much they're deciding that they were 
going to kill investment elsewhere by lowering prices and 
getting more market share. It's that they were going to lose 
market share to the spot market, you know, if they didn't lower 
their prices.
    So we're about to see, with Russia's negotiation with 
China, whether in fact they will lower their prices or lower 
their correlation between gas and oil prices in order to save 
market share. They've been negotiating for China for a huge 
pipeline, 40 BCM. Frankly in terms of China's dependence, 
something we need to worry about a little bit.
    But they've been at loggerheads for years over price. This 
June, we're going to see if the Russians are going to cave. My 
guess is that they will. They will lower their correlation. 
They will agree to a better price deal, not because they're 
trying to kill our investment, but because they have no other 
choice.
    That's the trend that we want to drive further because that 
just squeezes their cash-flow.
    Senator Flake. Right. That's important. I just wondered how 
big their market share is or how--what ability they have to 
actually lower prices and undercut investment elsewhere but not 
as much.
    Dr. Montgomery or somebody else, Ukraine, itself, because 
of corruption and Mr. Chow you mentioned their inability to 
produce their own whether it's shale gas or traditional gas. If 
they were to ramp up production significantly can they become--
how quickly could they become completely independent of Russian 
gas or could they?
    Yes.
    Mr. Chow. I don't think it's the aim necessarily is to be 
completely independent of Russian gas, but not to be so 
dependent on Russian gas. They're currently 60 percent 
dependent on Russian gas in an economy that's very gas heavy. 
Fourty percent of primary energy in Ukraine comes from natural 
gas. So that dependency on Russia is very significant.
    I think to get about a 50 percent self sufficiency level 
Ukraine can probably do it within 2, 3 years with the right 
kind of policies and the right kind of investments.
    Senator Flake. That's likely a combination of production 
increases and conservation measures that are highly 
inefficient, I understand, in terms of the use of gas.
    Mr. Chow. Certainly efficiency would help.
    Right now their demand has come down mainly because of the 
collapse of the domestic economy not because of efficiency 
improvement. So when the economy grows some of that demand will 
come back, although creating greater GDP with the use of the 
same amount of gas.
    Senator Flake. Thank you.
    Thank you, Mr. Chair.
    The Chair. Thank you very much.
    Senator Manchin.
    Senator Manchin. Thank you, madame chairman and thank all 
of you for your presentations today.
    I want to thank first of all, Senator Landrieu and 
congratulate her on her first hearing as our new chairman of 
this committee. Look forward to working with her on truly 
creating an all of the above national energy policy.
    Also I brought, at the time Chairman Wyden and Ranking 
Member Murkowski, to the State of West Virginia to see an all 
of the above energy policy that we use in our State. We try to 
use everything we have, our coal, our gas, our wind, our solar, 
everything. We think it's most needed as far as a policy for 
this country also.
    My home State of West Virginia has been blessed, as you 
know, to have a little bit of everything. We use everything 
that we have also. I believe that we need to do that more in 
this country and look at a way to be more energy independent by 
using all and not writing one off against the other.
    So what I would do, as I would like to ask a question to 
Mr. Sieminski.
    Sir, with the Polar Vortex that we just had and basically 
the EIA saying that we're going to be needed fossil coal for 
the next 2, 3, 4 decades. You know the problems that we're 
having with EPA as far as producing that coal here in America. 
Are you concerned about the mix that we're having right now, 
the utilities are having, the mix of their portfolio and the--
I'm told that we were very critically close to having some real 
serious black outs or brown outs during this Polar Vortex 
because of the coal fired plants that are going offline.
    Mr. Sieminski. There were some electricity issues in New 
England, mainly because of the growing dependence of New 
England on natural gas to fire their plants and the pipeline 
constraints getting gas into New England. Some of that was 
dealt with by the switching to fuel oil.
    In EIA's longer term projections we actually have coal 
consumption just coming off a little bit. That is on the basis 
of existing law and regulation which does include things like 
the mercury air toxic rule and so on.
    One of the interesting things, Senator, that you brought up 
and I might just add since we're talking and the question was 
asked, is there something that Europe could do? As you know the 
U.S. has been exporting coal to Europe.
    Senator Manchin. If it wasn't for the export market we'd 
have no market in West Virginia.
    Mr. Sieminski. Right.
    In fact the all of the above strategy that you indicated 
that the Administration is pursuing here in America is one that 
probably makes sense for many countries.
    Senator Manchin. Do you truly believe that we are pursuing 
an all of the above energy policy?
    Mr. Sieminski. I'm going to stay out of the policy.
    Senator Manchin. OK, I figured you would.
    [Laughter.]
    Mr. Sieminski. But EIA, back to your question of the energy 
mix.
    Senator Manchin. You've been pretty straight forward on 
EIA. What is it going to take to run this country?
    Mr. Sieminski. EIA's--what we see is natural gas and 
renewables growing faster than some of the others.
    Senator Manchin. But natural gas and coal, even for the 
next 2 to 3 decades, is going to be----
    Mr. Sieminski. Right.
    Senator Manchin. Seventy, 75 percent of the energy 
production that we need. Anyone that doesn't think that's true 
they are deniers.
    Mr. Sieminski. Right.
    But the overall mix of fuels in the U.S. changes somewhat, 
but we're still, even in 2040 going to be very reliant on 
fossil fuels for our energy consumption.
    Senator Manchin. You've got to tell some of our friends 
that truly don't want to hear the facts of what we're dealing 
with in the country and how we can do it much better. There's 
more demand around the world than ever before, right, for 
fossil?
    Mr. Sieminski. Demand.
    Senator Manchin. It's growing, yes?
    Mr. Sieminski. Demand in general is rising very rapidly. We 
think overall energy demand between now and 2040 is going to be 
up by more than half. A lot of that growth, half of that growth 
is going to be in 2 countries, China and India alone. So it's 
going to be a challenge, Senator, to fill that----
    Senator Manchin. A little bit better policy for global 
climate if we basically were using the technology that we have 
been able to reduce to particulates in this country and make, 
through our trade policies being used in other countries that 
are polluting more.
    Mr. Sieminski. One of the things that I've been asked in 
the past is when you look back at EIA's forecast 3 or 4 years 
ago and back to 2011, you know, had we seen demand increases 
for natural gas and how does that relate back to the export 
question.
    Yes, we do see higher demand, but our supply numbers look 
even more robust. What that suggests is that there is ample gas 
for both domestic and exports.
    Senator Manchin. I could, Mr. Neverovic, if I may ask you, 
do you all believe that you have the, I mean, geological 
deposits to where we could explore more and do more, more 
development, in your country and other European countries that 
would give you more freedom as far as from Russia's grip?
    Mr. Neverovic. Thank you very much for your question.
    I certainly believe that we should investigate. Then if we 
have such gas deposits we should explore them.
    I had learned that in U.S. for shale gas revolution to 
happen it took many support from Department of Energy to 
investigate how to get out this shale gas. It took 30 years for 
this revolution to happen. So it's hard to expect that in 
Europe or for this matter in Lithuania it could be possible to 
do this very quickly, even considering that we can have the 
possibility to use your know how.
    We need to have this learning process both on the level of 
Administration and also on the level of local communities where 
unfortunately usually some groups which are presenting shale 
gas investigation or exploration as a threat, major threat, to 
local communities which is usually not the case. With 
appropriate protection for the environment it's possible to 
investigate.
    So I think after we get through all this legal environment 
adjustment so that investment is encouraged it will be possible 
to do it in Lithuania. It's already happening in other European 
countries.
    Senator Manchin. Thank you.
    The Chair. Thank you. Thank you so much.
    Senator Stabenow and then Senator Baldwin and we'll be 
wrapping up about 12 o'clock.
    Senator Stabenow. Thanks very much and congratulations, 
again, on chairing the committee. Looking forward to working 
with you.
    I do want to take a few moments because it's a perspective 
not represented here today on the committee to talk about not 
only the U.S. energy revolution, but the fact that we also need 
to make sure it's coupled with U.S. manufacturing revolution. 
We note, we've been talking a lot about signals today, sending 
signals overseas. It's also important to send a signal to 
American manufacturers who are looking at bringing jobs home 
because of low energy prices to make sure that there's a signal 
for them as well because the low energy prices, Madame Chair, 
that you've been talking about, really are making a difference 
in terms of creating jobs here at home in manufacturing.
    I welcome each of you and to have our Minister of Energy, 
welcome to each of you.
    But I think it is important to put, for the record that 
last month there was a study by the Charles River Associates. 
They found that using our own low cost natural gas to increase 
American manufacturing output is twice as valuable to our 
overall economy and creates 8 times as many jobs as sending 
this important American resource overseas.
    I'm not suggesting that we should cap or end exports. What 
I am advocating for is a thoughtful, balanced approach, as 
others have said, to make sure we find the sweet spot. We've 
still got 10 million people out of work in this country. People 
know that manufacturing jobs are good jobs for us.
    So I think we have an important balance to do.
    With Monday's announcement the DOE has now approved 6 
export facilities with a capacity of over 9 billion cubic feet 
per day. I think it's really important that we move forward 
with the right kind of analysis about the impact on prices. We 
don't know for sure. I'm concerned that as we've looked at 
updating studies that the company building an export facility 
actually funded the update of the NERA study. So I think there 
are other perspectives that are important.
    We have a study from Purdue University that found that LNG 
exports between 6 and twelve billion cubic feet a day result in 
declining American GDP and higher energy prices for consumers. 
The Purdue study concludes that while the natural gas sector 
benefits from more exports. Other industries and residential 
consumers lose out due to high energy costs.
    I think it's important. We can debate that. That may be 
true, that may not be true. It may be it's not true. It may be 
that as we move forward we will find that we can do both as the 
panel has talked about which would be the best of both worlds 
to be able to do that.
    But I do believe that the DOE should conduct a new study on 
the economic impacts of exports and move forward in a 
thoughtful way because of the impact on the American economy. 
I'm deeply concerned about what's happening in Ukraine. I do 
not underestimate what is happening around the world. But I 
also know what is happening here at home, what is happening 
here at home with 10 million people out of work and a 
renaissance in manufacturing leading our recovery that is so 
very important.
    The Boston consulting group concluded that affordable 
natural gas prices could lead to 5 million more manufacturing 
jobs by the end of the decade.
    The American Chemistry Council has identified 120 newly 
announced chemical and plastics manufacturing projects with 
over 100 billion investment. This is great news for us.
    Yet NERA's study did not include these projects nor does 
the EIA's 2013 Annual Energy Outlook which NERA used to update 
its study.
    So I just think it's important to say that for the record. 
Will get in a question.
    That is, all of you talk greatly about this being long term 
as we look at developing export potential. So first I think it 
is important to talk about it will take several years to get 
something online. Once they're approved it's up to private 
companies to decide where to send the gas. They'll decide based 
on market pressures.
    So it seems to me when we look at the fact that in Asia 
right now prices are nearly $16 million per million BTUs verses 
Europe where prices are $10 per BTUs. I'm sorry, per million 
BTUs.
    I would ask Mr. Chow wouldn't you think a company would 
want to go to the highest bidder? Chances are our natural gas 
will be going to Asia?
    Mr. Chow. While that may be true, Senator, I also think 
that we will continue to maintain a level of competitiveness in 
this country because we have the advantage of being sitting at 
the source of that gas rather than having to spend $4 to $6 per 
million BTUs just to liquefy and transport that gas and 
regassification. So some level of competiveness edge will be 
retained in the U.S.
    The other point I would want to make to you is that to 
consider that long term investors in manufacturing also need to 
know that there will be a stable supply of gas that's 
available.
    Senator Stabenow. Absolutely.
    Mr. Chow. We have had times in this country when the 
natural gas price dropped so low as to make us concerned about 
long term viability of sustaining that supply when it dropped 
below $3 per million BTU. Where that sweet spot is is for 
elected officials and policymakers to make, not for foreign 
analysts.
    Senator Stabenow. Thank you.
    Madame Chair, I know my time is up. I look forward to 
working with you, but I do think, you know, this is not easy. I 
don't support stopping exports or capping exports, but I do 
think it's important that we move forward in a thoughtful way.
    The Chair. Thank you, Senator. I appreciate that. We will 
get to the bottom of these facts.
    Senator Scott, who was here first, we will recognize you, 
then Senator Baldwin and Senator Hoeven and then Senator 
Murkowski and I will do some closing questions. It's been an 
excellent hearing so far.
    Thank you, Senator Scott for being here so early. I know 
you had to slip out so we're happy for your questions now.
    Senator Scott. Thank you, Madame Chairwoman. Thank you for 
holding this hearing today and thank you to the panelists for 
being a part of the conversation which is, obviously, a very 
timely conversation as we look at this as a geopolitical tool 
using our resources in an effective way.
    I think it's also important to note that later this week 
the committee will hold an important vote for the future of 
American natural gas production with the nomination of Ms. Rhea 
Suh to become the Assistant Secretary for Fish, Wildlife and 
Parks. In fact it's almost hard to ignore the dichotomy that 
exists between the strong support for natural gas and 
production and the LNG exports that have been displayed at this 
hearing and Ms. Suh's stated opposition to increase natural gas 
production.
    My first question to Dr. Montgomery or Mr. Goldwyn is that 
in both of your testimonies you've essentially said that an 
immediate announcement of unlimited LNG exports by the U.S. 
would signal competition to Russia that could impact their 
contract prices with Europe. Do you think the same could be 
said or is true if the U.S. immediately allowed crude oil 
exports as well?
    Dr. Montgomery.
    Mr. Montgomery. Thank you, Senator Scott.
    I think that both crude oil exports and natural gas exports 
can serve to diminish Russia's revenues and therefore would 
have an effect. I think that it's less a matter of immediacy in 
terms of crude oil verses natural gas than of magnitude. I 
think in both cases, yes, the importance of the announcement is 
that it establishes expectations over the longer term, as Mr. 
Goldwyn was saying about what terms natural gas would be 
available over the, you know, the long term contracts that 
people are now signing. Over that term we can look at pretty 
substantial LNG exports being possible and having substantial 
effect on Russia.
    At this point our issue with crude oil exports appears to 
be more one of the mismatch between the light crudes that we 
are producing----
    Senator Scott Shale.
    Mr. Montgomery. In our complex refineries.
    I'm not sure whether--and so I think an announcement of 
crude oil exports that, you know, a policy toward crude oil 
exports would certainly have a signaling effect. We're just 
starting to work on the subject to try to understand how large 
a magnitude that might have. It has to go in the right 
direction.
    If we allow crude oil exports it will mean more crude 
production in the United States. If there's more crude 
production in the United States that tips the balance, more 
supply, less demand, lower world oil prices, that has benefits 
in many ways in depriving strategic rivals and clearly declared 
enemies of revenues.
    Senator Scott. Yes, it's a consistent formula that produces 
a consistent result it seems.
    Mr. Goldwyn.
    Mr. Goldwyn. Yes, I agree with Dr. Montgomery. 
Directionally the more we export crude oil or condensate we 
will increase global supply and put pressure particularly on 
brand prices and that's what a lot Russian crudes are priced 
to. Right now at Brookings we have a task force on accessing 
crude oil exports. In fact we've commissioned NERA and Dr. 
Montgomery to do the econometric study, much as was done on LNG 
exports because everyone is asking this question about whether 
there will be a day of reckoning.
    I think it's clear that there will be a day of reckoning 
when we will maximize how much we can use light, tight oil in 
our refineries or to Canada or topping. Then it will start to 
impact production negatively.
    The question of when that day of reckoning is is a 
complicated answer that we need some serious analysis. We hope 
by June that we'll have that study from NERA and a Brookings 
Task Force report to address exactly that question.
    Senator Scott. I only have about a minute left so I'll skip 
to my last question for Dr. Montgomery.
    Would you call natural gas production the single greatest 
threat to the ecological integrity of the West and if the Obama 
Administration or any Administration held that view how could 
that mindset impact natural gas production in the future of 
U.S. LNG exports?
    Mr. Montgomery. I do not think it is that natural gas 
production is a major ecological threat. I think that natural 
gas production can be carried out in an environmentally 
sensitive way that avoids harm to ecologically important 
regions that's consistent with wildlife preservation.
    My son lives in Colorado too. He's an avid 
environmentalist. He works doing oil and gas exploration.
    I think there is a great deal of misinformation and sheer 
fear mongering about the effects of shale gas production, many 
of the claims being completely untrue. I've tried to study the 
geology here is just expert opinion is quite clear that 
fracking does not produce ground water problems. The problems, 
if they exist, are because of waste water disposal practices.
    But anyway, without getting into the details, it is clear 
industry wants to solve this problem. They've worked closely 
with the Governor of Colorado to develop a set of regulations 
that they agree, in a bipartisan way. I'm sorry Senator Udall 
isn't here to take credit for this too.
    It can be done without--I mean, everything we do has a 
risk. But it can be done with nothing more than manageable 
risks to the environment.
    Senator Scott. Thank you, Dr. Montgomery.
    Madame Chairwoman----
    The Chair. Thank you very much.
    Senator Baldwin, thank you for your extraordinary patience. 
You've been here early the whole morning. Just in order of 
seniority we find you toward the end. But thank you very much 
for being attentive.
    Senator Baldwin. Thank you.
    Let me start out by congratulating you, Chair Landrieu, on 
your new role. It is great to see you in the Chair. I look 
forward to our work together in the years to come.
    I want to associate myself with some of the comments made 
by Senator Stabenow before she had to depart because, you know, 
they say all politics is local. When you think about it this is 
obviously a large country and I think it's fair to say that, as 
with other energy issues, the polices that we're discussing 
today don't necessarily affect all of our States in an even 
manner.
    Like Senator Stabenow's State, Wisconsin is one of the 
leading manufacturing States in the United States. In fact I 
think right now it can boast the role of No. 1 manufacturing 
State as a percent of our overall economy. I note because of 
the focus of today's hearing that we don't have a witness 
that's representing consumer voices today. Obviously they are a 
very important part of this weighty discussion. So I look 
forward to future opportunities to hear from those witnesses 
also.
    Mr. Sieminski, I'd like to ask you a few questions this 
morning. Or--well, no, it is still this morning.
    [Laughter.]
    Senator Baldwin. Just checking.
    The paper industry is a major part of Wisconsin's 
manufacturing and economy. Our paper companies are working hard 
to compete in a very trade sensitive, trade impacted industry 
while also complying, obviously, with environmental quality 
standards that some of their, well most of their foreign 
competitors do not face. Paper mills that would like to switch 
over to natural gas have been unable to secure a supply of fuel 
because of inadequate infrastructure.
    Many companies don't have adequate access to natural gas. 
Yet today we're, of course, talking about increasing our 
exports of natural gas.
    So my first question for you is how will increased exports 
impact the construction of gas infrastructure for companies, 
that companies in Wisconsin might be able to rely on?
    Mr. Sieminski. Senator Baldwin, let me just start off by 
saying that in EIA's reference case forecast we have natural 
gas consumption in the paper industry overall nearly doubling 
between 2010 and 2040. In general we have very strong growth in 
industrial natural gas consumption. I don't think that there is 
a shortage of gas in a sense that would lead to problems in the 
manufacturing industries.
    On the issue of infrastructure----
    Senator Baldwin. Yes.
    Mr. Sieminski. Which you asked about. You know, there is 
the Secretary of Energy's, Secretary Moniz, has a big and the 
President have a quadrennial energy review underway that 
intends to directly address these infrastructure issues.
    Let me back up just a second and start with on the issue of 
natural gas production in the U.S. there is no dispute that I 
can find in the economic literature on either, you know, side 
of this that the positive impacts on jobs and GDP from the 
production activity are really strong.
    On the jobs impact of exports the literature is somewhat 
mixed. But interestingly it seems to be relatively minor.
    So the impacts on GDP and the impacts on jobs from exports 
are small because the exports are a small proportion of the 
overall production in the U.S. and the overall global markets.
    The--one of the things that I think Mr. Chow said that I'd 
like to come back to is that U.S. manufacturers are always, you 
know, anybody that's an industrial consumer of gas or even 
electric utility consumer of gas is always going to have an 
advantage over a global LNG market which is going to tend to go 
into--it's going to be 2 or 3 times higher in price than the 
average price for gas at the well head in the U.S.
    So then if we come back to the question of well, what is 
the difficulty that you're having in your State of Wisconsin 
with the paper industry being able to get gas. I think it's 
really not so much a question of the overall availability of 
gas. It's how do you get those pipelines built to take the gas 
from where it is to get it into those companies?
    That's something that the utilities and the companies 
themselves are going to have to work out. I think that the 
intent of the quadrennial energy review is to try to see if 
there are any policy bottlenecks that could help in that area.
    Senator Baldwin. I would, if I might, Chair Landrieu, my 
time has run out and I did want to ask some other questions.
    But on that comment, you have perhaps a deep skepticism 
this particular year. I'm going to switch fuels for a second. 
But having been told that there were adequate supplies of 
propane at a time when there were incredible increases in 
exports we had a dire emergency where a quarter million people 
were having trouble heating their homes in Wisconsin. A lot of 
it had to do with that transfer, that infrastructure and being 
diverted for more profitable fuels so that they could, you 
know, even change directions and put other fuels in them.
    So, you know, being able to respond to this need in 
manufacturing is going to be real critical to our domestic 
employment, our domestic economy.
    Thank you. I note my time has run out.
    The Chair. Thank you very much.
    Senator, I've committed to you and Senator Franken who 
continually have raised this issue. It's very important to the 
people of Wisconsin, of course and Minnesota. We don't heat our 
homes the same way that you do. We normally don't have to. This 
winter has been an exception. But we will be doing some kind of 
hearing on that to help you all, to help us figure that out.
    Senator Hoeven.
    Senator Hoeven. Thank you, Madame Chairman. Also, I want to 
congratulate you on your new position as chairman of this 
committee and express that I look forward to continuing to work 
with you.
    To the good Senator from Wisconsin, we're flaring off huge 
amounts of natural gas in my State. We would love nothing 
better than to bring more of it to you and to others.
    My question to our panelists starting with Mr. Sieminski is 
right now the European Union gets about a third of its natural 
gas from Russia. I would like each of you to tell me how you 
think we can help the EU reduce its dependence on Russian gas.
    Mr. Sieminski. Again Senator, EIA is a statistical agency 
and not a policy agency so I'm not going to offer policy 
prescriptions other than to say that the all of the above 
energy strategy seems to make sense for the United States. It 
might make sense for other countries.
    One thing that I can say in terms of EIA's data is that the 
growth in supply that we're seeing over the last few years is 
extraordinary and it leaves an opportunity for both growth in 
domestic consumption of natural gas as well as exports.
    Senator Hoeven. Sir.
    Mr. Neverovic. Thank you for the question.
    The problem that we have is that we have a fragmented and 
closed markets in some of the EU countries. Lithuania is one of 
those countries. As I said, we are dependent 100 percent on 
supply from Gazprom.
    So what we have to do at our home to address this problem 
is to diversify, to create alternative routes of supply. That 
is our LNG floating ship which will help to bring gas from 
alternative direction.
    But then there is a question of where do we get the gas 
because, of course, diversification would serve already the 
purpose of having more objective price than to for monopoly not 
being able to charge this margin of a closed market. But on the 
other hand increased and newly created global gas market would 
definitely help to bring down those prices, globally.
    So this would be definitely the direction which all actions 
on the part of the U.S. Government and Congress could help and 
specifically liberalizing LNG exports.
    Senator Hoeven. Thank you, Minister.
    Dr. Montgomery.
    Mr. Montgomery. Yes, I think that U.S. exports of LNG, 
wherever they go in the world, will help to reduce Europe's 
dependence on Russia even if our exports go to Asia and are 
competing with exports that Russia might be sending through a 
pipeline to China. That frees up other gas to move to Europe so 
that, you know, it, you know, we look in the long run in the 
global market where if we put gas into it, it is going to be 
benefiting Europe eventually.
    That Europe would then be facing either a chase into Russia 
who has to accept lower prices for gas or be less physically 
dependent on the Russian gas. I'm not quite sure which way it 
will play out.
    Senator Hoeven. Thank you, Doctor.
    Mr. Goldwyn.
    Mr. Goldwyn. Six steps, Senator.
    First we should encourage the European Union to complete 
the integration of a gas market so you can move gas from Spain 
all the way to Kiev.
    Second we should encourage----
    Senator Hoeven. They have a fair amount of that in place 
already, don't they?
    Mr. Goldwyn. A fair amount. But actually it's very hard to 
move gas from point to point. Although they've eliminated the 
destination clauses there's enough pipeline capacity to move 
from the Iberian Peninsula into the rest of Europe. So they 
need more pipelines there.
    You have to negotiate the entry and exit price at each 
point along the pipeline. So it's, you know, it can be up to 10 
steps to figure out where it is. They're not transparent about 
capacity of those pipelines either. So there's more work that 
they could do which would really make it easier for LNG to get 
into that system from whatever terminal it comes into.
    So the gas market is No. 1.
    Interconnections, I would say, are No. 2.
    Getting prices right internally which the hedge I always 
talked about at length is important both to control demand and 
also to attract investment.
    Promoting indigenous gas, shale gas, in countries in 
Europe.
    Enhancing energy efficiency and renewables in places where 
that's appropriate in Europe.
    Accelerating the consideration of applications to export 
U.S. LNG.
    The Chair. Mr. Chow, before you answer. Would you all put 
that graph up because this will explain some things that you 
all are talking about? This is the pipeline system in Europe. 
Both of you all are commenting on it.
    Senator Hoeven. I think that's an interesting point 
particularly with the Energy Minister's meeting now.
    The Chair. Would you please, yes.
    Senator Hoeven. In is it April on this very issue?
    The Chair. Could you all explain? Just, that's fine. Just 
hold it up there.
    The blue are the already constructed gas pipelines, 
correct?
    Staff? Yes.
    The red are proposed oil, gas.
    Mr. Goldwyn and Mr. Chow, look at this map and just comment 
1 minute in answer of Senator Hoeven's question which I think 
is important. Is Europe integrated with its gas pipeline?
    Go ahead, Dr. Chow.
    Mr. Chow. It is not and for 2 basic reasons.
    One, the infrastructure is not necessarily connected as 
well as it needs to be.
    Two is market practices. The fact that you have incumbents 
in some of these countries while also trying to protect their 
own monopoly power and not let gas and electricity flow freely 
across the continent is a big problem in Europe.
    You're right, Senator. The U.S./EU Energy Council will be 
meeting next month, I believe in Europe.
    Senator Hoeven. Right. So this is certainly an area where 
they can do some substantive work.
    Mr. Chow. I would add one more, Madame Chair, if am I 
allowed, which is they really need to look at developing 
further their own energy resources in Europe beyond renewables 
which they do a good job in.
    But why not look at the resources, particularly in oil and 
gas, but also coal that is in Western Europe already that 
they're not taking advantage of rather than importing those 
resources from faraway places. That's something they can do to 
help themselves very much.
    I think I have a sense of irony that it is the Central and 
Eastern European countries who are most dependent on Russia for 
its oil and gas today who wants to take the strongest position 
on Russia because of the aggression that it has caused in 
Ukraine as opposed to the Western European countries who are, 
by definition, more diversified, who are reluctant to respond 
to Russia's aggression.
    So something that we can do to get our allies and ourselves 
on the same page in that area is certainly something that's 
worth doing in the coming days and weeks.
    Senator Hoeven. Madame Chairman.
    The Chair. A very important insight.
    Senator Hoeven. I apologize I know I'm over my time, but if 
I could beg your indulgence.
    On that point, Mr. Chow and maybe Mr. Goldwyn wants to 
weigh in here as well. I visited with companies like Exxon, 
Chevron, Shell and others that are willing to do more both 
onshore but also offshore in the Black Sea as well as companies 
like Statoil that are doing a lot of oil and gas development, 
obviously, in the North Sea and so forth.
    What about their ability in the near term here to provide 
more natural gas to these counties? Is there something we can 
do to help make that happen?
    Mr. Goldwyn. I would say with respect to the Norwegians, 
they do have search capacity to move more gas. At times over 
the last year and a half or so they have been the larger 
supplier of gas over Gazprom. So they have the ability. There's 
really nothing we need to do in order to help them capture that 
market.
    But on the other 2 points something I would echo what Ed 
Chow has said. We could be a lot more forthright in, you know, 
and less timid about encouraging unconventional and 
conventional gas development in Europe.
    I've been to 8 of those countries trying to teach safe 
shale gas practices to regulators over there. They don't have 
private ownership. They don't have access to infrastructure. In 
places like Bulgaria, you've got Gazprom actively undermining 
development there.
    So technical assistance, getting regulators comfortable, 
those are things we are doing, but we could do a lot more of.
    The second one I think is the point Ed made and that Chair 
Landrieu has made with the map is really important. The 
European story is that we eliminated destination clauses. We're 
done. We have an integrated gas market. It's just not the case.
    There's much more work that needs to be done. I've talked 
to my colleagues at the State Department and encouraged them to 
put that at the top of their agenda because you get that market 
unblocked you get more connections between there. You don't 
strand Iberian gas. You get connections between Lithuania and 
Latvia.
    You can move a lot more gas around that continent a lot 
faster than it takes to build a new LNG export terminal. You 
can use the ones that they've got.
    The Chair. This has been an excellent hearing. We're going 
to have to bring it to a close.
    I have just one or 2 comments and questions and turn it 
over to Senator Murkowski for final remarks.
    But I want to thank you all for your patience, you 
excellent testimony. Of course, everything will be submitted to 
the record.
    But let me just bring this back locally, to the U.S. and 
particularly to Louisiana and the energy coast. Designing an 
energy policy, which this committee will be focused on, 
promoting America as an energy super power will create 
thousands and thousands of jobs here at home and abroad and 
will help us promote democracy which is one of the central 
principles of the existence of our Nation.
    I know that we've spent a lot of time talking about Europe 
and the Ukraine. But we've also started this hearing by talking 
about the 37,000 jobs in Louisiana and Texas and the Gulf Coast 
that can be created right now with the production and opening 
up of exports for liquefied natural gas.
    Let me also assure my colleagues, mostly Senator Stabenow 
and Senator Baldwin, who were very respectful and appropriate 
in their comments. I want to be the same. Louisiana is the 
second largest producer of gas in this country, offshore and 
on. But we're also the third largest consumer of gas.
    It is certainly not in this Senator's interest to promote a 
policy where the prices would skyrocket and put our consumers 
at a disadvantage. We have industrial consumers, commercial 
consumers, residential consumers.
    But the facts are and I think the case has been made 
overwhelmingly by a variety of different reports that opening 
up export markets helps to increase domestic supply, not close 
it down, increase it, of gas and natural gas.
    It also will help to create jobs here at home and abroad.
    The price, as you all said, Louisiana, Louisiana--the U.S. 
because it's North Dakota production, Texas, Oklahoma, 
Colorado, will always have an advantage because we are the 
source of the product.
    Now, yes, does thought have to go into it? Is it the silver 
bullet, you know, the silver bullet? No. But it's part of, I 
think, the equation of how to create jobs at home, promote 
America's strength abroad.
    The 3 questions I have and we're not going to take time. I 
may just ask you all to submit these in writing for the 
committee.
    One other thing that we can export and Alaska is proud of 
this. Louisiana and Texas are proud of this, is our technology. 
It's not just our gas and oil that we can export, both refined 
and crude, but our technology.
    What could we do better as a country? We're going to do 
these answers in writing. To encourage technology, not just 
from the big oil companies that, of course, have their own 
ability to do that. But the thousands of small, independent 
producers that sometimes find it difficult to work overseas. 
How could we assist them to, you know, to promote and export 
their technology which is value added to American inventors, 
etcetera?
    That's one question for the writing.
    The other is we've talked a lot about America. I'd like to 
talk about North America. I'd like to talk about the power of 
Canada, America and Mexico as a major energy producer and 
supplier. What's recently happened is a game changer with the 
government of Mexico moving for the first time to privatize 
their energy sector.
    So they're reducing their corruption, opening up the 
private market. Mexico is a really big place with a lot of big 
promise. It sits very close to us. I'd like our country to 
start thinking about Mexico.
    Of course, building the keystone pipeline, in my view, and 
using Canada and Mexico, the North American alliance of energy 
is a powerful, powerful tool.
    Finally I don't want to underestimate my colleague that's 
Senator Barrasso, you know, says that if we would just 
streamline these processes. Yes. I'm for streamlining. I'm for 
expediting.
    But I also hope that critics of the Administration will 
focus on what can we do to help the Ukraine minimize its 
corruption. What can we do to, you know, enhance the $1 billion 
that you said, Mr. Chow, was just a drop in the bucket.
    For the record you should submit what you think a 
significant investment to the Ukraine would be that would send 
the most positive signal.
    So while there's a lot of criticism going around from one 
side to the Administration. I would also like to go on record 
saying for my colleagues and this is not Senator Murkowski, but 
others on the Republican side, put your money where your mouth 
is. You want to help, let's step up with some additional 
funding to help the Ukraine and not just blame somebody else 
because permits are going a little slowly.
    I'll let you have the last word.
    Senator Murkowski. Thank you, Madame Chairman.
    This has been, I think, a great hearing. Certainly a good 
way to kick off your first full committee hearing as chair on 
an issue that is clearly timely and I think holds so much 
promise for America's position in the world as an energy 
leader.
    Again, an opportunity for us as a Nation to wield some 
influence in a positive way and a way, you started off the 
questioning talking about Russia and energy blackmail. I don't 
think that the U.S. would ever assert that they would come at 
it from that kind of a dictatorial type of a position, but one 
where we can help our friends and allies. One where we can 
engage in an environment where as we seek to increase 
production domestically how that influences and positively 
impacts those around the globe, all things being equal, you 
know, all are benefited by the U.S. and our increasing role, 
our increasing presence in this market.
    I wanted to ask one very, very quick question. This relates 
to the issue that Senator Barrasso brought up with the 
amendment that he had attempted to advance in foreign 
relations. As you know, we have the Ukraine legislation on the 
Floor in front of us and the push from Senator Barrasso and 
others to extend the FTA fast tracking to NATO and WTO members.
    There has been the issue raised of potential trade 
violations based on this expedited treatment to NATO members 
and other specific countries like Japan, but not to all WTO 
members.
    Can anybody speak to that issue in terms of whether or not 
you believe that it does present a trade violation?
    Mr. Goldwyn.
    We all look to you, so you get to step up.
    Mr. Goldwyn. I'm the lawyer and not----
    I confess to not having, being familiar with all the text 
to the bill. But I think to the extent that we have a trade 
agreement with a country and we adopt a practice which excludes 
anybody that we have that kind of a trade agreement with then 
we could be accused of discriminatory practice and violation of 
it.
    Now I don't know when you looked at which version of the 
bill whether it covers everybody that we have a trade agreement 
with. But if it doesn't than I think that's an issue. I would 
also worry, a little bit, that even if it covers everybody we 
have a trade agreement with Ukraine, I don't think, is a WTO 
member and they're not a NATO member.
    They are WTO? OK. So I worry, I would make sure that we 
want to capture all of the countries that we want to help and 
make sure they're not excluded as well.
    It's the challenge with picking winners.
    Senator Murkowski. Madame Chairman, thank you. Again, I 
think that this has been very, very beneficial, very timely and 
thank each and every one of the witnesses, your leadership as 
well. Looking forward to working with you.
    The Chair. Thank you. Meeting adjourned.
    [Whereupon, at 12:16 p.m. the hearing was adjourned.]
                               APPENDIXES

                              ----------                              


                               Appendix I

                   Responses to Additional Questions

                              ----------                              

   Responses of Jaroslav Neverovic to Questions From Senator Landrieu
    Question 1. The focus of our hearing was on LNG exports and the US' 
role as a global energy power, but I believe we can export more than 
just LNG. We can also export our technical expertise, which is 
substantial, to help our allies develop their own resources. Louisiana, 
Oklahoma, Colorado and Texas, just to name a few, have world class 
energy service industries. Do you have any specific ideas about how 
their expertise may be better developed to assist other countries?
    Answer. The U.S. can ``export'' a vision and share technological 
know-how in the LNG sector and unconventional oil & gas production with 
countries in Europe. Energy consumers in Eastern Europe are still 
locked not only in a technical lockout of gas supplies from one source, 
but also in a notion that there is no alternative to ``pipelines'', 
``Russian gas'' and ``Gazprom''.
    Message about shale gas and oil revolution, clean and 
environmentally production, liquefaction and transportability of LNG 
should be delivered to broader Eastern European constituencies. The 
U.S. could not only liberalize LNG export to Europe, but also share the 
notion that through technological advance and innovations more and more 
alternative gas and other energy resources will be available for 
``energy islands'' like the Baltic States or other European countries.
    More specifically that would assist Lithuania and other Russian-gas 
dependent countries in countering the Russian-inspired propaganda 
campaign to stop any local or alternative energy resource development 
in these countries that undermine Gazprom's market interests, but meet 
those countries' strategic energy independence goals. Support to those 
countries should be voiced by the U.S. Government and company officials 
at all levels and as frequently as possible.
    Lithuania has good examples of the U.S. technical expertise in 
developing hydrocarbon resources and providing energy advisory services 
in nuclear energy, LNG terminal construction in our country. During the 
recent years Lithuania has been successfully cooperating with a number 
of the U.S. energy companies in implementing strategic energy 
projects--Fluor (Klaipeda LNG terminal), General Electric, Exelon 
(Visaginas Nuclear Power Plant), Science Applications International 
Corporation.
    The U.S. expertise in utilization of municipal waste or biomass 
(wood, straw, short rotation coppice, etc.) for energy (electricity and 
heat) generation, exchange of know-how in technological solutions of 
utilization of municipal waste could also be useful for Lithuania as 
well as for other countries.
    Question 2. What can the US do now to help our friends in Ukraine 
develop their own energy resources?
    Answer. Being heavily dependent on gas imported from Russia (in 
2010, 68 percent of gas came from Russia), Ukraine needs both short-
term and long-term solutions. The U.S. administration and U.S. business 
could help Ukraine to diversify its imports and develop its own natural 
gas production capacity.
    Firstly, in the short run, the EU and the U.S. could pull together 
their efforts to supply gas into the Ukrainian gas transmission system 
from Europe via Slovakia as well as fill Ukrainian underground gas 
storages with gas other than from Gazprom. We highly support efforts 
led by the U.S. diplomats and EU officials. We are hearing encouraging 
statements from the Slovakian leadership. Besides the diplomatic 
efforts, investments into infrastructure of reverse supplies and 
additional capacities of gas are necessary. At least 13 percent of 
annual Ukrainian gas needs could be imported from Europe via Slovakia, 
given that the price of gas is competitive and amounts are available. 
Therefore, more liberal gas exports from the U.S. to Europe definitely 
would make a change.
    Secondly, in the long term, the U.S. and Europe (including private 
capital) could work together in helping Ukraine in 4 areas: 1) build 
its own LNG import facility on the shores of the Black Sea (as we have 
entered the final stage of completing our own LNG terminal in Klaipeda, 
our project management team is very well experienced on swift and 
``state of the art'' project implementation and it can be used for 
similar purposes in Ukraine); 2) increasing natural gas production in 
Ukraine from conventional and unconventional gas fields, supporting 
Ukraine's switch from ``net energy importer'' to ``net energy 
exporter'' (it is expected that Ukraine can be rich of shale gas); 3) 
modernizing and jointly with Western investors exploiting Ukrainian gas 
transportation system (Ukraine has the biggest gas storage capacities 
in Europe); 4) substantially increasing energy efficiency in Ukraine 
(currently energy intensity in Ukraine is 11 times higher than the EU 
average). All these efforts will need long-term commitments from the 
U.S. and the EU, substantial financial support and technical expertise, 
but if successful, will transform the energy landscape in Ukraine.
    Question 3. Also please outline what kind of investment from the 
U.S. you believe would make a significant impact in Ukraine?
    Answer. The U.S. Government and businesses can work closely with 
the Ukrainian Government in creating favorable investment climate. This 
would attract more foreign investors in increasing gas and oil 
production in Ukraine, which has been falling from 68 bcm in 1975 to 20 
bcm in recent years.
    Question 4. Can you discuss what role the North American energy 
alliance of the United States, Mexico, and Canada, can play in helping 
not only Ukraine but the rest of our allies around the world?
    Answer. Global gas market is only at creation stage. Global players 
like the U.S. and Canada could become global exporters of gas and 
substantially push forward the creation of a global gas market. 
Contemporary technologies are already enabling energy companies to 
transport gas at a relatively low cost. Energy islands like the Baltic 
States or other heavily dependent Eastern European countries like 
Ukraine would benefit greatly and immediately. Europe and the U.S. 
should act together and speedily.
    Question 5a. I believe that a strong case has been made for the 
U.S. to have a measurable impact on the global LNG market. We must 
allow export terminals to enter the market quickly enough to seize a 
piece of the growing global demand for LNG. It would seem, then, 
accelerated approval for those projects most likely to be built would 
have the greatest positive impact on our allies and our most reliable 
trade partners-what is your opinion on:
    Separating those projects that have spent considerable time and 
money to file with FERC into a separate approval queue?
    Answer. Lithuania is currently 100 percent dependent on Russian gas 
and will start importing LNG as an alternative to pipeline gas from 
2015 onwards. Adding extra export capacities to the global LNG market 
would directly or indirectly impact LNG importing countries such as 
Lithuania that are aiming to secure LNG supply under the current LNG 
market conditions of growing demand and limited supply.
    Therefore, we consider increasing demand in LNG market as very 
important and we prefer this happening sooner rather than later.
    Question 5b. Separating those projects under the jurisdiction of 
United States Maritime Administration (MARAD), which currently has 
jurisdiction over two projects, into a separate queue in order to 
better reflect their different approval process and timeline?
    Answer. See the answer 5 (a) above.
    Response of Jaroslav Neverovic to Question From Senator Barrasso
    Question 1. In your testimony, you discuss the Independence. You 
say that: ``you cannot overstress the strategic importance of the LNG 
terminal to Lithuania.'' You explain that the Independence will be: 
``the ice-breaker for the region, helping to ensure an alternative gas 
supply and create a functioning gas market.'' Would you please expand 
upon your comments for the Committee?
    Answer. The Baltic States and Finland are compared to an ``energy 
island'' in the context of the EU internal energy market due to the 
absence of gas interconnections with any other EU Member States (see 
the map* below) and a 100 percent dependency on gas supply from Russia 
when the EU average is around 25 percent.
---------------------------------------------------------------------------
    * All maps have been retained in committee files.
---------------------------------------------------------------------------
    This isolation and lack of gas pipeline interconnections with other 
EU Member States was largely determined by the historical circumstances 
of the Post--WWII period. This creates potential energy security 
threats thus leaving the Baltic States and Finland gas consumers and 
national economies vulnerable to gas supply interruptions and 
fluctuations of gas prices compared to countries with more diversified 
(better connected) or self-sufficient energy systems.
    The Baltic States together with Finland have annual gas consumption 
of around 325 bcf (Lithuania alone--117 bcf) with a potential to grow. 
So far this whole demand is being covered by a single gas supplier--
Gazprom. Due to the absence of competition in gas supply, the Eastern-
Baltic region is paying one of the highest prices for gas among EU 
Member States. Lithuania, in fact, in the 2nd Q of 2013 was paying the 
highest price for natural gas among all EU Member States (around 14$/
million Btu).
    Even a small increase in the already high energy price creates a 
painful spill-over effect on Lithuania's economy, which is based on 
exports, by hindering the ability to compete in the EU and global 
markets. In this context, enhancement or assurance of energy security 
and development of competition through alternative gas supply sources 
are urgently needed.
    Klaipeda LNG Terminal project in Lithuania is seen as the most 
effective way for creating an alternative source of natural gas supply, 
eliminating the dependence on the sole external gas supplier, providing 
coverage of emergency demand, creating conditions for national and 
regional gas markets, and enabling the country to access gas spot 
markets.
    Lithuanian LNG terminal will have up to 141,2 bcf annual import 
capacity and that will be a key game changer for the three Baltic 
States with total annual gas consumption of 194,2 bcf.
    The newly-built FSRU for the Lithuanian LNG terminal has been 
symbolically named ``Independence''. Although the primary goal of the 
Lithuanian LNG terminal is to satisfy national needs, the terminal will 
operate under the so called ``third party access'' regime, which means 
that our neighbors and partners will also have a possibility to use the 
spare terminal's capacity for their own needs. Klaipeda LNG Terminal 
will be the first large scale LNG terminal in the Baltic Sea with a 
capability to provide bunkering opportunities from all year round ice-
free port. FSRU ``Independence'' will be ``the ice-breaker'' for the 
region, helping to ensure an alternative gas supply and create a 
functioning gas market.
                                 ______
                                 
     Responses of Edward C. Chow to Questions From Senator Landrieu
    Question 1. The focus of our hearing was on LNG exports and the US' 
role as a global energy power, but I believe we can export more than 
just LNG. We can also export our technical expertise, which is 
substantial, to help our allies develop their own resources. Louisiana, 
Oklahoma, Colorado and Texas, just to name a few, have world class 
energy service industries. Do you have any specific ideas about how 
their expertise may be better developed to assist other countries?
    Answer. Ukraine has well-known geological potential to produce 
indigenous energy, including oil and gas. However, resource development 
and modernization of the energy sector have been blocked by pervasive 
corruption involving the highest levels of Ukrainian government which 
siphoned off billions of dollars every year since independence in 1991. 
This negatively affects equity investors as well as oilfield service 
and equipment suppliers. Until a new Ukrainian government commits to 
reform of the energy sector and actually implements concrete steps, 
outside assistance can make very little impact beyond bailing Ukraine 
out of an immediate crisis, only to have the same problem return a 
couple of years later as it has for more than two decades.
    Question 2. What can the US do now to help our friends in Ukraine 
develop their own energy resources?
    Answer. All Western assistance should be strictly conditional on 
real energy sector reform, with regular monitoring of the performance 
of the Ukrainian government by the donor community. This should apply 
to direct U.S. assistance, as well as those from international 
financial institutions such as the International Monetary Fund, World 
Bank, European Bank for Reconstruction and Development in which the 
U.S. holds major voting shares. Reform must start with pricing reform 
at both the burner-tip as well as the wellhead. Naftogaz, the Ukrainian 
national oil and gas company which is at the center of energy sector 
corruption, must be completely restructured and ultimately broken up 
and privatized. In order to do this in a proper and transparent way, 
Ukraine will need a lot of capacity building help including teams of 
technical, business, and regulatory experts. The U.S. must be prepared 
to do this if we are serious about helping Ukraine on energy.
    Question 3. Also please outline what kind of investment from the 
U.S. you believe would make a significant impact in Ukraine?
    Answer. Provision of aid without capacity building help and close 
supervision would be a total waste of taxpayers' money. Once the 
business climate is fundamentally improved, private-sector investments 
will flow to take advantage of the tremendous economic opportunities 
available in Ukraine, including in the energy sector.
    Question 4. Can you discuss what role the North American energy 
alliance of the United States, Mexico, and Canada, can play in helping 
not only Ukraine but the rest of our allies around the world?
    Answer. Both the U.S. and Canada possess the capability, including 
by independent producers and service providers, which can benefit 
Ukraine and other Central and Eastern European countries on energy 
innovation, such as shale gas and tight oil. Mexico is a country which 
is finally opening up its oil and gas sector to private investment as 
part of an overall modernization program for its economy in spite 
decades of political roadblocks. It offers an example Ukraine should 
follow.
    Question 5. I believe that a strong case has been made for the U.S. 
to have a measurable impact on the global LNG market. We must allow 
export terminals to enter the market quickly enough to seize a piece of 
the growing global demand for LNG. It would seem, then, accelerated 
approval for those projects most likely to be built would have the 
greatest positive impact on our allies and our most reliable trade 
partners-what is your opinion on:

    a. Separating those projects that have spent considerable time and 
money to file with FERC into a separate approval queue?
    b. Separating those projects under the jurisdiction of United 
States Maritime Administration (MARAD), which currently has 
jurisdiction over two projects, into a separate queue in order to 
better reflect their different approval process and timeline?

    Answer. A LNG export terminal project takes 3 to 5 years to finish 
from conception to completion. The DOE-approval is just the initial 
step in that process. There are good domestic economic reasons to 
remove restrictions from energy trade which were formulated decades ago 
in a much different environment. However, American LNG is unlikely to 
have much impact on the global market in the short to medium term.
    Question 6. What, in your opinion, is the likelihood that Russia 
will continue to raise prices of its natural gas exports?
    Answer. Russia has actually provided more contract flexibility and 
lowered its exported gas prices in the last couple of years to all its 
major West European customers in order to meet market prices and 
protect market share. As a result, West European LNG import terminals 
are severely underutilized. Russia has not provided similar contract 
flexibility and pricing discounts to Central and East European 
customers because they have not developed alternative sources of gas 
imports and Russia is often their only supplier.
    Question 7. What other ways does Russia have to raise revenue?
    Answer. Actually natural gas contributes a much smaller portion of 
Russia's export earnings and budget revenue than oil, which is ten 
times more important. Russia is propped up economically by historically 
high global oil prices. Gas has a bigger impact politically. Together 
oil and gas represent more than 50 percent of Russia's federal budget 
and 70 percent of export earnings.
    Responses of Edward C. Chow to Questions From Senator Murkowski
    Question 8. Is the deployment of floating LNG facilities to the 
Black Sea a practical way of delivering gas to Ukraine?
    Answer. No, not in the short to medium term and not without 
structural reform of Ukraine's gas market. Importing LNG will certainly 
be more expensive than increasing domestic gas production and pipeline 
imports. A LNG import terminal for Ukraine would not be economically 
viable and will be difficult to finance. Turkish objection over LNG 
transit via the Bosphorus is another practical obstacle.
    Question 9. In your opinion, are there reasons for expediting the 
build-out of U.S. liquefaction capacity that are separate from the 
situation in Ukraine?
    Answer. Yes, as I stated in my testimony, there are ample domestic 
economic reasons to revisit the policy of restricting U.S. gas and 
crude oil exports. With gas, it has to do with ensuring investment 
conditions exist to sustain shale gas production at a level that is 
beneficial to domestic producers as well as to long-term consumers of 
gas. With crude oil, it has to do with maintaining the competitive 
advantage of our highly-sophisticated refineries to process cheaper, 
heavy and sour, imported crudes while gaining maximum economic benefits 
for the country by exporting light, sweet crudes.
                                 ______
                                 
    Responses of David Montgomery to Questions From Senator Landrieu
    Question 1. The focus of our hearing was on LNG exports and the US' 
role as a global energy power, but I believe we can export more than 
just LNG. We can also export our technical expertise, which is 
substantial, to help our allies develop their own resources. Louisiana, 
Oklahoma, Colorado and Texas, just to name a few, have world class 
energy service industries. Do you have any specific ideas about how 
their expertise may be better developed to assist other countries?
    Answer. I believe oil and gas E&P companies and oil field service 
companies are ready to move anywhere in the world where there is a 
demand for their services. For them to do so in particular countries 
requires manageable levels of corruption, sound geology, property 
rights that favor development, fair taxation, and a secure investment 
climate. Oil service companies have been able to work in many dangerous 
and risky countries. To expand those opportunities the best role for 
the U.S. government is to aid in resolving conflict situations and 
provide incentives for institutional change toward a more favorable 
investment climate.
    Question 2. What can the U.S. do now to help our friends in Ukraine 
develop their own energy resources?
    Answer. In previous work (available at http://www.iccfglobal.org/
pdf/APPsummary.pdf), I have studied the role of institutional reform 
and strategies to overcome barriers that are common across developing 
countries (including Ukraine in this case) in a different context 
(climate and economic growth nexus), never the less the message still 
remains the same. To develop efficient market in Ukraine there are 
certain fundamental reforms that are necessary and my research in the 
past has highlighted that.
    The critical enabling actions need to be taken by the Ukraine 
government. Under the previous regime, the Ukraine was rated as one of 
the most corrupt countries in the world. This has to change before 
there can be an investment climate favorable to energy development. 
Providing whatever aid the Ukraine can use to root out corruption in 
its bureaucracy and establish open procedures for governance of energy 
activities is probably the best direct action we could take now. But 
the U.S. could help Ukraine indirectly if it were to remove barriers to 
exporting energy of all kinds. U.S. natural gas supplies won't make a 
big impact in the near-term, but lifting the crude oil export ban could 
affect the world oil market and lessen Russia's grip.
    Question 3. Also please outline what kind of investment from the 
U.S. you believe would make a significant impact in Ukraine?
    Answer. If the new government can suppress corruption and create a 
more open economy, investment will flow into development of its energy 
resources with no other action by the U.S. government. As a response to 
Russian aggression, the U.S. could acquire floating LNG regasification 
barges for use by Ukraine and grant emergency clearance for floating 
liquefaction plants to begin operation off the U.S. Gulf Coast. The 
purpose of this short run strategy would be to break Russia's ability 
to extort higher prices for natural gas. This would have to be done for 
strategic reasons, since it likely would not provide an economic 
return. This step could be part of a broader strategy to signal to the 
world that the U.S. is open to exporting its gas, and therefore if 
Russia wants to maintain sales it will have to give Ukraine more 
favorable terms when it renegotiates its long-term gas contracts.
    Question 4. Can you discuss what role the North American energy 
alliance of the United States, Mexico, and Canada, can play in helping 
not only Ukraine but the rest of our allies around the world?
    Answer. Maximizing production and freeing up exports will have a 
long term effect of reducing Russia's energy export revenues, economic 
power, and ability to reconquer the former Soviet Republics and 
intimidate Eastern Europe. Approval of the Keystone pipeline and 
removing the crude oil export ban would be two concrete actions that 
would free up exports.
    Question 5. I believe that a strong case has been made for the U.S. 
to have a measurable impact on the global LNG market. We must allow 
export terminals to enter the market quickly enough to seize a piece of 
the growing global demand for LNG. It would seem, then, accelerated 
approval for those projects most likely to be built would have the 
greatest positive impact on our allies and our most reliable trade 
partners-what is your opinion on:
    5a. Separating those projects that have spent considerable time and 
money to file with FERC into a separate approval queue?
    5b. Separating those projects under the jurisdiction of United 
States Maritime Administration (MARAD), which currently has 
jurisdiction over two projects, into a separate queue in order to 
better reflect their different approval process and timeline?
    Answer. Yes, both would speed up the process. Neither would 
constitute a complete signal of our willingness to be an effective 
potential competitor to Russia because neither eliminates the 
possibility that politics could change and place a limit on exports 
sufficiently low to prevent them from reducing Russia's market share 
and/or price. A much stronger signal would be sent by the declaration 
that all LNG exports are in the public interest.
    Question 6a. You make the case in your study that exports will 
drive additional production levels, and that additional production will 
fill a majority of the increased demand for natural gas in the U.S. 
associated with export. What is your estimate of the employment impact 
of this increased production.
    Could you explain the scale of the impact that unconstrained export 
would have on the most gas intensive manufacturing sectors? 
Specifically, why ethylene and polyethylene industries are predicted to 
grow even in the case of unconstrained exports?
    Answer. There clearly will be increased employment in natural gas 
production as a result of LNG exports, since natural gas production 
will increase by almost the amount of exports. We did not make a 
separate calculation of increased employment in natural gas exploration 
and production attributable to LNG exports in our updated study.
    LNG exports would have very little effect on even the most gas 
intensive manufacturing sectors, because LNG exports cannot change U.S. 
natural gas prices nearly enough to erase the built in advantage of 
domestic manufacturers over their rivals in countries that import 
natural gas. Even with the maximum LNG exports projected in our 
scenarios, The price of natural gas for U.S. manufacturers will remain 
about half the natural gas prices faced in countries that import LNG. 
This is because the cost of liquefying, transporting and regasifying 
LNG from the U.S. to the most attractive importing region is 
approximately equal to the wellhead price of natural gas in the U.S. 
(*See Exhibit ). 1 Adding this cost to the wellhead price in the U.S. 
implies that Asian manufacturers will continue to pay at least twice as 
much for natural gas as U.S. manufacturers.
---------------------------------------------------------------------------
    * All exhibits have been retained in committee files.
---------------------------------------------------------------------------
    The impacts of LNG exports on natural gas prices in the U.S. are 
likely to be modest, and in no case do they come close to the 
differential between U.S. natural gas prices and those paid by rivals 
to U.S. manufacturing in other countries. Exhibit 2 below shows that 
when we base the international demand for LNG on EIA's reference case 
from the most recent International Energy Outlook (indicated by red 
icons in the Exhibit), we find that the increase in natural gas prices 
is about 25 cents per Mcf with EIA Reference Case assumptions about 
U.S. oil and gas supply from AEO2013. The largest price impact 
attributable to LNG exports is about $1.00 per Mcf in a case that is 
constructed to incorporate a very unlikely level of global demand for 
U.S. LNG. Even this highly unlikely impact would not come close to 
closing the cost advantage for U.S. manufacturing of about $6.00 per 
Mcf.
    It is incorrect to label the $.75 to $1.06 maximum price impacts 
seen in Exhibit 3 as price forecasts. They occur in cases that were 
constructed as stress tests, to determine impacts on the U.S. economy 
if global natural gas markets were severely disrupted by widespread and 
permanent shutdown of nuclear power and cancellation of even currently 
planned LNG export projects in major exporting countries. Leaving aside 
questions of whether global demand for LNG could remain as high as 
projected at these prices, it is highly likely that the high global 
natural gas prices projected in the supply and demand shock cases would 
lead to appearance of other projects and supplies to get around the 
assumed constraints on global production. Even in these cases, LNG 
exports provide net benefits to the U.S. and the net benefits of LNG 
exports are greatest with no limits placed on those exports.
    Exhibit 3\1\ displays global supply curves for ethylene, a major 
chemical product and export, before and after the shale revolution. The 
curve labeled 2005 shows the relative position of the U.S. before the 
shale revolution. At that time, the U.S. was the highest cost producer 
and highly vulnerable to expanded production in other regions. The 
shale revolution reversed all that, and put the U.S. in a virtual tie 
with the Middle East as the lowest cost producer of ethylene. Moreover, 
the next lowest cost producer, China, has a cost at least 50 cents per 
pound greater than the U.S. cost of manufacturing ethylene. Western 
Europe and Japan, the highest cost producers and therefore relevant 
competitors to the U.S., have costs 90 cents to $1.00 per pound greater 
than the U.S.
---------------------------------------------------------------------------
    \1\ American Chemistry Council, Shale Gas, Competitiveness, and New 
US Chemical Industry Investment: An Analysis Based on Announced 
Projects, May 2013, p. 21
---------------------------------------------------------------------------
    We calculated the amount that even the highly unlikely maximum 
price increase of $1 per Mcf would make in the cost of producing 
ethylene. It amounts to about 5 cents per pound, or about 5 percent--10 
percent of the current cost advantage that the U.S. has over rivals in 
countries that import natural gas.
    With this wide a cost advantage, LNG exports do not threaten the 
competitive position of U.S. manufacturing. Moreover, ethylene and 
polyethylene benefit from the excess supply of its specific feedstock, 
ethane, that will grow with increased exports. Ethane used to sell for 
about $2 per Mcf more than pipeline quality natural gas, but that has 
changed because shale formations produce much wetter gas than 
conventional formations. Ethane is a large component of this wetter 
gas, and the ratio of ethane to dry gas production exceeds the level 
that is allowed to be shipped in interstate pipelines due to safety 
risks. This has stranded ethane, driving its price down to rough parity 
with natural gas. Producing more natural gas for export will increase 
the amount of stranded ethane, and likely keep its price depressed from 
historical levels for some time. This is one of the primary reasons 
that ethylene and polyethylene production in the U.S. increase as LNG 
exports increase.
   Responses of David Montgomery to Questions From Senator Murkowski
    Question 1. U.S. natural gas exports via pipeline are at record 
high levels. Have you observed any detrimental impact on the U.S. 
economy, either in terms of supply availability or price volatility? 
Would you expect liquefied natural gas exports to be any different?
    Answer. No. From an economic perspective LNG exports and pipeline 
exports are the same. They involve investment in infrastructure, open 
markets to goods (natural gas) where we enjoy a global competitive 
advantage, and improve our balance of payments. Regarding price 
volatility, short-term price upsets like those experienced this winter 
will not go away if we prohibit exports. These rapid changes in price 
are caused by local supply/demand factors. More storage would alleviate 
price spikes, but storage is expensive and may not be economic on a 
long term basis.
    Exports of any kind add to natural gas infrastructure and have 
created a larger and better connected market that is able to move 
natural gas to wherever increased demand exists. This is also true of 
LNG exports, which could lead to creation of additional natural gas 
infrastructure in certain regions, which has the potential to alleviate 
some existing bottlenecks, increase supply availability and reduce 
price volatility. For example, if additional pipeline capacity had been 
built to move natural gas through New England to Atlantic LNG export 
terminals, that gas could have been bid away from exports and added to 
New England supply during the price spikes that developed last winter. 
Moreover, LNG exports would likely be served by increased production 
from shale gas formations, these sources are in locations where they 
are not as vulnerable to the extreme weather events that threaten Gulf 
Coast production. This increase in geographical diversity will reduce 
the impact of weather related events on natural gas prices.
    Question 2. How sensitive is your analysis to unexpected domestic 
consumption of natural gas? In other words, if the industrial, 
transportation, or electricity sectors end up consuming more than 
forecasted, would that force a reappraisal of your views on LNG 
exports?
    Answer. No. It would lead to a different forecast of exports, but 
would not change my view that market-determined levels of exports 
provide the largest economic benefits whatever the level of 
consumption. Higher levels of demand than contained in our scenarios 
would be accompanied by increased supply; if that led to upward 
pressure on prices, LNG exports would expand less rapidly because the 
U.S. would be a less competitive supplier in global markets. Thus 
higher demand in the U.S. could lead to higher prices than in scenarios 
with lower demand, but those price increases would be ameliorated by 
lower export levels. I am confident that it would remain true that a 
policy of placing no limits on exports would even in these cases 
provide larger benefits than any restrictive policy. My opinion is 
based on our examination of scenarios in which we did assume reference 
levels of supply and higher growth in demand. In none of these 
alternative high demand baselines did domestic natural gas prices rise 
as high as they did in the low supply cases; therefore the impacts of 
LNG exports in high demand cases would fall within the range of cases 
we did examine.
    Question 3. How real is the possibility that LNG exports would 
divert domestic gas away from domestic consumers?
    Answer. Our analysis shows that most LNG exported from the U.S. 
will come from increased production, and very little will be diverted 
from domestic customers. This is simply a matter of the relatively flat 
supply curve for shale gas that is found by most independent studies, 
and the high value in use of natural gas in U.S. manufacturing.
    The chart below (Exhibit 1) shows the sources from which exports 
are drawn in a relatively high export case, our reference case with 
unconstrained exports and a global demand shock. Increases in natural 
gas production equal about 80 percent of the volume exported plus 
losses and consumption in liquefaction. The largest demand reduction 
occurs in the electric power sector, where renewables and, to the 
extent allowable under EPA rules, coal substitute for natural gas. 
Changes in residential, transportation and energy-intensive 
manufacturing uses of natural gas are negligible compared to the level 
of exports.
    Question 4. How real is the possibility that LNG exports would harm 
other sectors of the U.S. economy by raising natural gas prices 
domestically and/or becoming linked with worldwide energy markets? Is 
``parity'' a threat?
    Answer. LNG exports are not a threat to other sectors of the U.S. 
economy. LNG exports are unlikely to affect U.S. natural gas prices 
nearly enough to erase the built in advantage of domestic manufacturers 
over their rivals in countries that import natural gas. Even with the 
maximum LNG exports projected in our scenarios, The price of natural 
gas for U.S. manufacturers will remain about half the natural gas 
prices faced in countries that import LNG. This is because the cost of 
liquefying, transporting and regasifying LNG from the U.S. to the most 
attractive importing region is approximately equal to the wellhead 
price of natural gas in the U.S. (See Exhibit 2). Adding this cost to 
the wellhead price in the U.S. implies that Asian manufacturers will 
continue to pay at least twice as much for natural gas as U.S. 
manufacturers.
    The impacts of LNG exports on natural gas prices in the U.S. are 
likely to be modest, and in no case do they come close to the 
differential between U.S. natural gas prices and those paid by rivals 
to U.S. manufacturing in other countries. Exhibit 3 below shows that 
when we base the international demand for LNG on EIA's reference case 
from the most recent International Energy Outlook (indicated by red 
icons in the Exhibit), we find that the increase in natural gas prices 
is about 25 cents per Mcf with EIA Reference Case assumptions about 
U.S. oil and gas supply from AEO2013. The largest price impact 
attributable to LNG exports is about $1.00 per Mcf in a case that is 
constructed to incorporate a very unlikely level of global demand for 
U.S. LNG. Even this highly unlikely impact would not come close to 
closing the cost advantage for U.S. manufacturing of about $6.00 per 
Mcf.
    It is incorrect to label the $.75 to $1.06 maximum price impacts 
seen in Exhibit 3 as price forecasts. They occur in cases that were 
constructed as stress tests, to determine impacts on the U.S. economy 
if global natural gas markets were severely disrupted by widespread and 
permanent shutdown of nuclear power and cancellation of even currently 
planned LNG export projects in major exporting countries. Leaving aside 
questions of whether global demand for LNG could remain as high as 
projected at these prices, it is highly likely that the high global 
natural gas prices projected in the supply and demand shock cases would 
lead to appearance of other projects and supplies to get around the 
assumed constraints on global production. Even in these cases, LNG 
exports provide net benefits to the U.S. and the net benefits of LNG 
exports are greatest with no limits placed on those exports.
    Exhibit 4\2\ displays global supply curves for ethylene, a major 
chemical product and export, before and after the shale revolution. The 
curve labeled 2005 shows the relative position of the U.S. before the 
shale revolution. At that time, the U.S. was the highest cost producer 
and highly vulnerable to expanded production in other regions. The 
shale revolution reversed all that, and put the U.S. in a virtual tie 
with the Middle East as the lowest cost producer of ethylene. Moreover, 
the next lowest cost producer, China, has a cost at least 50 cents per 
pound greater than the U.S. cost of manufacturing ethylene. Western 
Europe and Japan, the highest cost producers and therefore relevant 
competitors to the U.S., have costs 90 cents to $1.00 per pound greater 
than the U.S.
---------------------------------------------------------------------------
    \2\ American Chemistry Council, Shale Gas, Competitiveness, and New 
US Chemical Indstry Investment: An Analysis Based on Announced 
Projects, May 2013, p. 21
---------------------------------------------------------------------------
    We calculated the amount that even the highly unlikely maximum 
price increase of $1 per Mcf would make in the cost of producing 
ethylene. It amounts to about 5 cents per pound, or about 5 percent--10 
percent of the current cost advantage that the U.S. has over rivals in 
countries that import natural gas.
    With this wide a cost advantage, LNG exports do not threaten the 
competitive position of U.S. manufacturing. Moreover, ethylene in 
particular benefits from the excess supply of its specific feedstock, 
ethane, that will grow with increased exports. Ethane used to sell for 
about $2 per Mcf more than pipeline quality natural gas, but that has 
changed because shale formations produce much wetter gas than 
conventional formations. Ethane is a large component of this wetter 
gas, and the ratio of ethane to dry gas production exceeds the level 
that is allowed to be shipped in interstate pipelines due to safety 
risks. This has stranded ethane, driving its price down to rough parity 
with natural gas. Producing more natural gas for export will increase 
the amount of stranded ethane, and likely keep its price depressed from 
historical levels for some time. This will be a further benefit to U.S. 
chemicals producers from LNG exports that we did not include in our 
calculations.
    Question 5. Please discuss the differences between the NERA 
analysis and the Charles River Associates' report on the same subject. 
Where do you diverge on price impact, reference cast forecasts, and 
other important areas?
    Answer. There is almost no relevant point of comparison between the 
statements found in CRA's report and NERA's analysis of the impact of 
LNG exports.

          1. CRA does not discuss the impact of LNG exports on prices, 
        but rather compares current prices to its own forecast of 
        future prices. Most of the increase in prices forecasted by CRA 
        occurs in their reference case, and LNG exports have no greater 
        impact on prices than in our study. The statement in their 
        report that LNG exports will make prices nearly triple is 
        grossly misleading. CRA makes that happen by choosing to label 
        as a ``reference case'' a forecast that is at or above just 
        about every other independent production of natural gas prices 
        with continued production of shale gas.
          2. NERA did not make a ``reference case forecast'' as claimed 
        by CRA; rather, we developed scenarios based on EIA's high oil 
        and gas resource, reference, and low oil and gas resource cases 
        from AEO2013. Both EIA and NERA recognize that there is great 
        uncertainty about future natural gas prices, and that any 
        specific forecast has only a slim chance of turning out to be 
        correct. Therefore, we use a scenario approach and ask whether 
        the consequences of a policy change, such as removing limits on 
        LNG exports, are similar across all scenarios.\3\ We find that 
        in all the scenarios, unlimited LNG exports provide greater 
        economic benefits than any lesser level constrained by DOE, 
        U.S. consumers are not ``deprived'' of gas by exports, and U.S. 
        natural gas prices never rise to oil parity levels or to levels 
        seen in gas importing countries. For what it is worth, even 
        CRA's price forecasts fall within the range of the scenarios we 
        considered, and therefore their efforts to create an issue out 
        of forecasts are pointless.
---------------------------------------------------------------------------
    \3\ I have written previously on the topic of the problems of 
forecasting natural gas prices and the need for scenario analysis for 
robust decisions (see http://www.regulations.gov/
#!documentDetail;D=EPA-HQ-OAR-2011-0660-9966) and our approach to 
scenario analysis is consistent with those opinions.
---------------------------------------------------------------------------
          3. CRA does no integrated economic analysis of the impacts of 
        LNG exports on energy supply and demand and the overall 
        economy. Instead, CRA makes a series of calculations unrelated 
        to the actual effects of exports on the economy, and uses these 
        to conjure up images of disaster. Their images of disaster 
        arise from three fundamental errors:

          a. No analysis of global supply and demand to determine 
        whether any importer would be willing to buy the amount of LNG 
        exports claimed by CRA at the prices calculated by CRA
          b. The false assumption that there will be no response of 
        domestic gas production to LNG export demand, creating the 
        false dichotomy of gas going either to manufacturing or to 
        exports
          c. Misuse of input-output data to support the impossible 
        conclusion that more GDP will be created if the government 
        rather than the market allocates energy, and does so in a 
        manner that gives the largest allocation to those industries 
        that use the least amount of energy relative to their cost of 
        production.
          d. Failure to compare current data on the relative cost of 
        chemical production in the U.S. to costs in other countries. As 
        shown in Exhibit 4, U.S. producers are now able to produce 
        basic chemicals like ethylene at cost far below those of global 
        competitors. There has been a surge of investment in capacity 
        for producing ethylene in the U.S. since natural gas prices 
        fell. According to the ACC, ``the mix of projects announced 
        thus far has been heavily slanted toward bulk petrochemicals, 
        mainly steam crackers for ethylene . . . ''\4\ and these are 
        not in any way at risk from LNG exports, which at most could 
        erode 5--10 percent of U.S. manufacturers cost advantage. Thus 
        CRA's dire warnings of the loss of nearly $100 billion in 
        chemical investment are a fiction.
---------------------------------------------------------------------------
    \4\ American Chemistry Council, Shale Gas, Competitiveness, and New 
US Chemical Industry Investment: An Analysis Based on Announced 
Projects, May 2013, p. 25

    Several absurd conclusions follow from the claims that CRA makes 
about the benefits of allocating natural gas to manufacturing and away 
---------------------------------------------------------------------------
from exports.

    1. CRA assumes that there is an infinite supply of capital and 
labor, so that the additional amount of labor and capital needed to 
turn 1 Bcf of natural gas into manufactured products does not have to 
be taken away from any other productive enterprise (no opportunity cost 
for capital and labor). At the same time, CRA assumes that there is a 
fixed supply of natural gas, and that no matter how much capital and 
labor is added, it is impossible to produce any larger quantity. These 
are the only circumstances in which their hypothetical comparison of 
using 1 Bcf in manufacturing versus exporting 1 Bcf could have any 
relevance in the real world.
    2. The recommendation based on this irrelevant calculation that 
exports of natural gas should be limited does not go far enough. Value 
added is nothing more or less than payments to labor and capital made 
out of the revenue of an industry. CRA calculates the ratio of value 
added to natural gas used in manufacturing and the ratio of value added 
to natural gas used for exports.

          a. The ratios their argument rests on are not comparable. CRA 
        calculates the ratio of value added to natural gas inputs for 
        manufacturing and natural gas outputs for natural gas 
        production. This is foolish. A consistent definition for NAICS 
        211, natural gas (and oil) production, would calculate the 
        ratio of value added in NAICS 211 to the use of natural gas as 
        an input to natural gas production. This ratio is in fact very 
        high--around 98 percent. [If we look at natural gas production 
        and export as an integrated operation, we see that there is 
        very little natural gas used as an input to production of 
        natural gas. Thus on CRA's argument, we should be putting more 
        resources into natural gas exports in order to make production 
        as high as possible.
          b. CRA claims that natural gas should be allocated to 
        chemical production rather than exports because there is more 
        value added in chemical production than in exports. But CRA 
        stops too soon. Value added per Bcf of natural gas use in 
        chemicals is greater than in manufacturing as a whole, and in 
        manufacturing as a whole, less than in services. Therefore, if 
        CRA is correct about how to maximize GDP, we should first stop 
        exporting any chemicals, so as to make the natural gas embodied 
        in those chemicals available to the rest of manufacturing. But 
        then we should go further and kill off the manufacturing 
        renaissance itself, which is taking gas away from the service 
        sector that has even higher value added per Btu of gas used.
          c. A moment's reflection on these absurd results would have 
        revealed how foolish CRA's argument for limiting exports really 
        is. There is not a fixed supply of natural gas, nor an infinite 
        supply of capital and labor. Making it the overriding goal of 
        economic policy to expand the industries that have the highest 
        value added per Bcf of natural gas used leads to obviously 
        undesirable outcomes.
          d. Thus, CRA has added nothing to the rent-seeking claim of 
        chemical manufacturers that government should favor them by 
        reducing their cost of production, and theirs alone, by 
        preventing suppliers of their inputs from selling them to 
        others. The logic of their argument should have forced CRA to 
        conclude that the industry with the value added per Bcf of gas 
        input should be allocated all the natural gas we produce. 
        Likewise, the logic of the Dow claim could also be adopted by 
        U.S. users of polyethylene and other bulk chemicals, who could 
        equally well argue to prevent exports of bulk chemicals because 
        there is more value added in manufacturing plastic components 
        and finished goods from polyethylene than in exporting it.

    NERA finds that there is no conflict between exporting natural gas 
and using it at home, except at the level of rent-seeking and attempts 
to enhance profits through favoritism by regulators. In a market with 
unrestricted natural gas and chemical exports, U.S. chemical producers 
would be able to purchase all the natural gas feedstocks they can 
profitably use. U.S. manufacturers would be able to choose between 
obtaining chemicals from U.S. or foreign producers depending on price, 
and would largely find that U.S. chemical producers could give a better 
deal because even with unlimited exports their natural gas costs would 
be far below competitors in importing countries. Natural gas producers 
would supply enough gas to satisfy export demand and all the gas that 
domestic consumers want to buy. The result is a higher level of GDP 
than could be achieved through any combination of restrictions on 
exports at any level.
    Question 6. What does economic history tell us, if anything, about 
the real world consequences of government policies that constrain 
exports of energy (or other analogous commodities)?
    Answer. The policy of constraining commodity exports in order to 
subsidize domestic processing and manufacturing industries has been 
uniformly rejected in the literature of economic development.\5\
---------------------------------------------------------------------------
    \5\ See, for example, Angus Deaton, Commodity prices and growth in 
Africa, Journal of Economic Perspectives--Volume 13, Number 3--Summer 
1999--Pages 23-40
---------------------------------------------------------------------------
    Ghana provides a good example of the consequences of policies 
intended to shift income from producers of basic commodities to 
industries that use those products to create more value added. A 
government dominated by elites with an economic interest in development 
of industry adopted policies to keep prices of agricultural products 
low. These price controls made exports a much more attractive outlet 
for agricultural commodities, and to prevent this the government 
established marketing boards with exclusive rights to buy commodities 
from farmers and resell them. The outcome of depressed prices to 
farmers, contraction of a previously successful agricultural sector, 
and no success in creating sustainable industries with subsidies.\6\
---------------------------------------------------------------------------
    \6\ Robert Bates, Markets and states in tropical Africa: the 
political basis of agricultural policies, Univ of California Press, 
1981
---------------------------------------------------------------------------
    Question 7. Do exports of ``finished products'' add to GDP more 
than exports of so-called ``raw materials''? Should one category be 
more restricted than the other, or restricted at all?
    Answer. No. The market test is which category of exports obtains 
the most revenue per dollar of resources devoted. Value added is a 
cost, not a benefit, as it is the payment made for labor and for 
capital services. If an hour of labor and 1 million of capital are put 
to work in one industry, they are no longer available for another. So 
the idea is to get as much revenue as possible for the capital and 
labor employed, not to employ as much labor and capital as possible per 
dollar of revenue.
    The contention that there is a choice is also false. There is 
enough gas for both.
    Question 8. Can U.S. LNG exports solely to Asia still affect the 
Europe-Russia dynamic in any meaningful way?
    Answer. Yes. The LNG market is a global market so the more LNG 
supplies that are added to the market the more the world price of gas 
will be driven down . By virtue of there being a world gas market, any 
supplies that the U.S. sends to Asia will eventually back out some of 
the suppliers to Europe since the suppliers that lose market share in 
Asia because of being displaced by the U.S. will likely shift some of 
their supplies to Europe thus possibly displacing some Russian supplies 
and certainly lowering the price of gas in Europe. Already see it in 
U.S. demand for LNG imports disappearing, reducing Russian exports and 
prices. Now if the U.S. becomes a significant exporter, it will 
increase the pressure on Russia to lower its prices. Doesn't matter 
where our gas goes, it will send gas to Europe by displacement
    Question 9. When did NERA submit a complete draft of its 2012 LNG 
study to the Department of Energy? Were substantive edits required?
    Answer. NERA delivered a final complete draft of its report to DOE 
on July 11, 2012. No substantive edits were requested, and except for 
changing the date and removing the ``draft'' labels, the identical 
report was released by DOE in December 2012.
     Response of David Montgomery to Question From Senator Cantwell
    Question 1. NERA's statistics and analysis of the economic impacts 
of liquefied natural gas exports differ quite a bit from statistics and 
analysis from some other institutions that are studying natural gas 
export issues, such as Charles River Associates and Purdue University. 
Could you please explain the differences between Purdue University, 
Charles River Associates and NERA data and analysis?
    Answer. There is almost no relevant point of comparison between the 
statements found in CRA's report and NERA's analysis of the impact of 
LNG exports. CRA does not

    1. CRA does not discuss the impact of LNG exports on prices, but 
rather compares current prices to its own forecast of future prices. 
Most of the increase in prices forecasted by CRA occurs in their 
reference case, and LNG exports have no greater impact on prices than 
in our study. The statement in their report that LNG exports will make 
prices nearly triple is grossly misleading. CRA makes that happen by 
choosing to label as a ``reference case'' a forecast that is at or 
above just about every other independent production of natural gas 
prices with continued production of shale gas.
    2. NERA did not make a ``reference case forecast'' as claimed by 
CRA; rather, we developed scenarios based on EIA's high oil and gas 
resource, reference, and low oil and gas resource cases from AEO2013. 
Both EIA and NERA recognize that there is great uncertainty about 
future natural gas prices, and that any specific forecast has only a 
slim chance of turning out to be correct. Therefore, we use a scenario 
approach and ask whether the consequences of a policy change, such as 
removing limits on LNG exports, are similar across all scenarios.\7\ We 
find that in all the scenarios, unlimited LNG exports provide greater 
economic benefits than any lesser level constrained by DOE, U.S. 
consumers are not ``deprived'' of gas by exports, and U.S. natural gas 
prices never rise to oil parity levels or to levels seen in gas 
importing countries. For what it is worth, even CRA's price forecasts 
fall within the range of the scenarios we considered, and therefore 
their efforts to create an issue out of forecasts are pointless.
---------------------------------------------------------------------------
    \7\ I have written previously on the topic of the problems of 
forecasting natural gas prices and the need for scenario analysis for 
robust decisions (see http://www.regulations.gov/
#!documentDetail;D=EPA-HQ-OAR-2011-0660-9966) and our approach to 
scenario analysis is consistent with those opinions.
---------------------------------------------------------------------------
    3. CRA does no integrated economic analysis of the impacts of LNG 
exports on energy supply and demand and the overall economy. Instead, 
CRA makes a series of calculations unrelated to the actual effects of 
exports on the economy, cherrrypicks data to create an unrealistically 
gloomy picture of the vulnerability of chemicals production to foreign 
competition, and uses these to conjure up images of disaster. Their 
images of disaster arise from four fundamental errors:

          a. No analysis of global supply and demand to determine 
        whether any importer would be willing to buy the amount of LNG 
        exports claimed by CRA at the prices calculated by CRA
          b. The false assumption that there will be no response of 
        domestic gas production to LNG export demand, creating the 
        false dichotomy of gas going either to manufacturing or to 
        exports
          c. Misuse of input-output data to support the impossible 
        conclusion that more GDP will be created if the government 
        rather than the market allocates energy, and does so in a 
        manner that gives the largest allocation to those industries 
        that use the least amount of energy relative to their cost of 
        production.
          d. Failure to compare current data on the relative cost of 
        chemical production in the U.S. to costs in other countries. As 
        shown in Exhibit 4, U.S. producers are now able to produce 
        basic chemicals like ethylene at cost far below those of global 
        competitors. There has been a surge of investment in capacity 
        for producing ethylene in the U.S. since natural gas prices 
        fell. According to the ACC, ``the mix of projects announced 
        thus far has been heavily slanted toward bulk petrochemicals, 
        mainly steam crackers for ethylene . . . ''\8\ and these are 
        not in any way at risk from LNG exports, which at most could 
        erode 5--10 percent of U.S. manufacturers cost advantage. Thus 
        CRA's dire warnings of the loss of nearly $100 billion in 
        chemical investment are a fiction.
---------------------------------------------------------------------------
    \8\ American Chemistry Council, Shale Gas, Competitiveness, and New 
US Chemical Industry Investment: An Analysis Based on Announced 
Projects, May 2013, p. 25

    Several absurd conclusions follow from the claims that CRA makes 
about the benefits of allocating natural gas to manufacturing and away 
---------------------------------------------------------------------------
from exports.

    1. CRA assumes that there is an infinite supply of capital and 
labor, so that the additional amount of labor and capital needed to 
turn 1 Bcf of natural gas into manufactured products does not have to 
be taken away from any other productive enterprise (no opportunity cost 
for capital and labor). At the same time, CRA assumes that there is a 
fixed supply of natural gas, and that no matter how much capital and 
labor is added, it is impossible to produce any larger quantity. These 
are the only circumstances in which their hypothetical comparison of 
using 1 Bcf in manufacturing versus exporting 1 Bcf could have any 
relevance in the real world.
    2. The recommendation based on this irrelevant calculation that 
exports of natural gas should be limited does not go far enough. Value 
added is nothing more or less than payments to labor and capital made 
out of the revenue of an industry. CRA calculates the ratio of value 
added to natural gas used in manufacturing and the ratio of value added 
to natural gas used for exports.

          a. The ratios their argument rests on are not comparable. CRA 
        calculates the ratio of value added to natural gas inputs for 
        manufacturing and natural gas outputs for natural gas 
        production. This is foolish. A consistent definition for NAICS 
        211, natural gas (and oil) production, would calculate the 
        ratio of value added in NAICS 211 to the use of natural gas as 
        an input to natural gas production. This ratio is in fact very 
        high--around 98 percent. [If we look at natural gas production 
        and export as an integrated operation, we see that there is 
        very little natural gas used as an input to production of 
        natural gas. Thus on CRA's argument, we should be putting more 
        resources into natural gas exports in order to make production 
        as high as possible.
          b. CRA claims that natural gas should be allocated to 
        chemical production rather than exports because there is more 
        value added in chemical production than in exports. But CRA 
        stops too soon. Value added per Bcf of natural gas use in 
        chemicals is greater than in manufacturing as a whole, and in 
        manufacturing as a whole, less than in services. Therefore, if 
        CRA is correct about how to maximize GDP, we should first stop 
        exporting any chemicals, so as to make the natural gas embodied 
        in those chemicals available to the rest of manufacturing. But 
        then we should go further and kill off the manufacturing 
        renaissance itself, which is taking gas away from the service 
        sector that has even higher value added per Btu of gas used.
          c. A moment's reflection on these absurd results would have 
        revealed how foolish CRA's argument for limiting exports really 
        is. There is not a fixed supply of natural gas, nor an infinite 
        supply of capital and labor. Making it the overriding goal of 
        economic policy to expand the industries that have the highest 
        value added per Bcf of natural gas used leads to obviously 
        undesirable outcomes.
          d. Thus, CRA has added nothing to the rent-seeking claim of 
        chemical manufacturers that government should favor them by 
        reducing their cost of production, and theirs alone, by 
        preventing suppliers of their inputs from selling them to 
        others. The logic of their argument should have forced CRA to 
        conclude that the industry with the value added per Bcf of gas 
        input should be allocated all the natural gas we produce. 
        Likewise, the logic of the Dow claim could also be adopted by 
        U.S. users of polyethylene and other bulk chemicals, who could 
        equally well argue to prevent exports of bulk chemicals because 
        there is more value added in manufacturing plastic components 
        and finished goods from polyethylene than in exporting it.

    As to the Purdue analysis, we have reviewed in detail their 
published articles and the model code that they have made available. 
The model that they use to evaluate impacts of LNG exports does not 
appear to include a complete accounting of the costs and benefits of 
exports. Costs are fully represented, but we are unable to find 
anywhere in their model code a term that represents the benefits of LNG 
exports as the difference between the cost of producing the incremental 
production that supports exports and the revenues received for those 
exports. When the market determines supply and demand for exports, as 
it would if exports are not limited, that difference must be positive. 
When exports are restricted, the difference is still positive but 
smaller. In other words, the revenues from selling a quantity of 
natural gas overseas must exceed the cost of producing it or no one 
would be willing to sell. This component of the gain from trade appears 
to be missing from Purdue's calculation of GDP impacts.
                                 ______
                                 
    Responses of David L. Goldwyn to Questions From Senator Landrieu
    Question 1. The focus of our hearing was on LNG exports and the US' 
role as a global energy power, but I believe we can export more than 
just LNG. We can also export our technical expertise, which is 
substantial, to help our allies develop their own resources. Louisiana, 
Oklahoma, Colorado and Texas, just to name a few, have world-class 
energy service industries. Do you have any specific ideas about how 
their expertise may be better developed to assist other countries?
    Answer. The U.S. oil and gas industry is world-class, and has 
extensive experience with energy development in the U.S. and abroad. 
U.S. companies routinely bid on and develop resources abroad, and U.S. 
based service companies provide foreign oil companies (be they national 
oil companies or privately-held companies) with experienced labor and 
cutting edge technologies. The industry is already active abroad in 
developing indigenous supplies of oil and gas, including shale and 
other unconventionals, in ways that are beneficial to both the host 
companies and the companies themselves. Greater involvement of U.S. 
industry in oil and gas development abroad will raise the likelihood 
that indigenous resource development will be successful, and that the 
advanced technologies and best practices that have been perfected over 
time in the U.S. will be safely and efficiently implemented abroad. 
Industry can also help by participating in and/or helping to shape 
vocational education programs to help train skilled labor abroad, 
another effort that benefits the host government, local communities and 
U.S. companies that may later need that skilled labor to complete its 
projects in that country.
    Industry can also assist by encouraging foreign nations interested 
in shale oil and gas development to participate in the Unconventional 
Gas Technical Engagement Program run by the Department of State. 
Intended to help nations abroad set legal, regulatory and fiscal 
frameworks that will both ensure safe development and encourage foreign 
investment, UGTEP connects foreign countries with multiple U.S. 
Government agencies that work in tandem to share the U.S. experience 
and lessons learned. Both the industry and the host government will 
benefit from strong legal, regulatory and fiscal frameworks that will 
protect investments and the environment.
    Question 2. What can the US do now to help our friends in Ukraine 
develop their own energy resources?
    Answer. Today, the U.S. can continue to engage Ukraine on a 
bilateral basis to encourage the prudent development of its domestic 
resources, but the prospects for short-term success are limited so long 
as there is a high risk of civil war or Russian intervention in 
Ukraine. Such security challenges and political uncertainty raise the 
risks for any company interested in investing in Ukraine, and it is 
important that the resolution of those security concerns is the first 
priority.
    In the long run, it is likely that U.S. companies will remain 
interested in the prospect of developing Ukraine's energy resources. 
The U.S. government can work with the new Ukrainian government to 
ensure that the legal and fiscal frameworks that it puts in place 
respect and protect foreign investments, providing a measure of 
certainty to companies interested in investing.
    Question 3. Also please outline what kind of investment from the 
U.S. you believe would make a significant impact in Ukraine?
    Answer. U.S. investment in energy efficiency technologies, offshore 
and unconventional gas, and energy transportation services would be 
helpful to Ukraine. All of these technologies would help to reduce 
Ukrainian dependence on gas imported from Russia, either by reducing 
the gas demand (through energy efficiency), or by reducing the need for 
Russian imports by increasing domestic production or creating new 
connections to European gas infrastructure.
    Question 4. Can you discuss what role the North American energy 
alliance of the United States, Mexico, and Canada, can play in helping 
not only Ukraine but the rest of our allies around the world?
    Answer. North America is growing increasingly more self-sufficient 
in energy production, a trend that has huge implications for our allies 
around the globe. While I focused on the growth of oil and gas 
production in the U.S. in my testimony, Canada has also seen its 
domestic production grow significantly and Mexico is currently 
undertaking major energy reforms that may change the outlook for their 
production as well. The benefits of increased self-sufficiency for 
North America are numerous: increased energy security, limited exposure 
to global price fluctuations, and even climate benefits from the 
production of natural gas. Our allies will also benefit, and in fact 
already have- Europe benefitted from the availability of LNG cargoes 
that were no longer needed by U.S. consumers after the beginning of the 
shale gas boom. The availability of North American energy on 
international markets will give our allies, many of who are dependent 
on imported energy, greater power when it comes to negotiating 
contracts for imports. The U.S. is considering energy exports today, 
and so is Canada. Like the U.S., Canada is viewed as a reliable global 
trading partner, and the availability of its energy resources on the 
global market would have a similar effect as exports of U.S. oil and 
gas. Our allies will benefit from reliable, competitively priced 
supplies of oil and gas, as well as from increased negotiating power.
    Question 5. I believe that a strong case has been made for the U.S. 
to have a measurable impact on the global LNG market. We must allow 
export terminals to enter the market quickly enough to seize a piece of 
the growing global demand for LNG. It would seem, then, accelerated 
approval for those projects most likely to be built would have the 
greatest positive impact on our allies and our most reliable trade 
partners- what is your opinion on:

    5a. Separating those projects that have spent considerable time and 
money to file with FERC into a separate approval queue?
    5b. Separating those projects under the jurisdiction of United 
States Maritime Administration (MARAD), which currently has 
jurisdiction over two projects, into a separate queue in order to 
better reflect their different approval process and timeline?
    Answer. Accelerating approval of commercially mature projects would 
provide an additional measure of certainty to the companies seeking to 
develop those projects, as well as to the foreign consumers that seek 
to contracts supplies of U.S. LNG. The Department of Energy has been 
diligently completing the national interest determinations it is 
statutorily required to complete, and there have been few complaints 
about the agencies ability to successfully complete that process. 
Unfortunately, the chronological queue set by the Department does not 
take issues of commercial maturity into consideration. As such, mature 
projects that have spent considerably more time and money to attain 
their FERC approval may be forced to wait for DOE approval, in line 
behind projects that may not have even filed with FERC yet. I believe 
that there are ways to improve this process and provide commercially 
mature projects with some level of certainty that they will receive 
their export permits in time to complete their financing obligations 
and sign contracts with consumers. One option would be for DOE to make 
it clear that it will consider the applications of projects that have 
completed the FERC process or the MARAD process in advance of projects 
that have not. I explained more about this idea, which I have referred 
to as `jump the queue,' in a piece for the Brookings Institution last 
year. It is my understanding that such a policy would within the 
Department's jurisdiction, and could even fall within the requirements 
of the Natural Gas Act that the agency should complete its national 
interest determination within 90 days of a final decision by FERC or 
MARAD.
    Question 6. During the hearing we discussed the need for America to 
become an energy super power and ensure our allies have the ability to 
secure contracts and access natural gas free from fear of price gouging 
from non-democratic and anti-free market nations.

    6a. With the current situation in Ukraine much has been made about 
Russia's long term gas contracts in Europe. Can you go into further 
detail about how many contracts Russia has in place with what countries 
and when they are set to expire?
    Answer. Russia has long-term contracts with German and other gas 
consumers. The details of these contracts are not easily available and 
some of those contracts may be the subject, at least in part, of the 
European Union's anti-trust case against Gazprom. Russia has already 
renegotiated some of its long-term contracts to reflect more 
competitive prices, but they will have little impetus to renegotiate 
more contracts in the absence of competition for the European market 
from the U.S. and other alternative suppliers.
   Responses of David L. Goldwyn to Questions From Senator Murkowski
    Question 1. Please briefly describe your involvement in the 
creation of State Department's unconventional gas technical engagement 
function.
    Answer. While serving as Secretary Clinton's Special Envoy for 
International Energy Affairs, my team and I evolved bilateral shale gas 
initiatives with China and India into the Global Shale Gas Initiative. 
We invited over 23 countries to a two-day workshop and site visit in 
August 2010 to learn how to develop their shale resources safely and 
efficiently. We subsequently began bilateral engagement under this 
rubric with Poland, Jordan, Morocco and Ukraine.
    Question 2. Is expediting LNG exports from the U.S. still warranted 
even if the State Department technical engagement program is enhanced?
    Answer. Yes, I believe that expedited LNG exports from the U.S. 
would be warranted even in the light of enhanced State Department UGTEP 
activity. Both increased availability of U.S. LNG and increased 
production of indigenous European natural gas would serve to help 
diversify Europe's gas supplies and provide the continent with greater 
negotiating power vis-a-vis Russia and other major exporters of natural 
gas. Both of these are long-term strategies in that neither will 
immediately provide additional gas to European consumers, but both 
could still provide immediate relief in the form of price negotiating 
power because of the importance of expectations in price-setting. The 
expectation of future supplies of gas, be they indigenous production or 
U.S. LNG, will help to push down prices of gas today.
    Question 3. Is expediting LNG exports from the U.S. still warranted 
even if structural reforms are needed in Ukraine?
    Answer. Yes, I would argue that the expedition of LNG exports from 
the U.S. is warranted regardless of the need for structural reforms in 
Ukraine, or in other countries. Access to competitively priced LNG 
supplies will benefit the economies of our allies significantly, even 
before structural reforms are complete. Structural reforms will remain 
important in the long run, in order to ensure that European energy 
markets operate efficiently and accurately price valuable goods like 
natural gas, but these reforms will take time. Market reforms are 
particularly important in Ukraine, which has long had disputes with 
Russia over the pricing of natural gas. If the price at which natural 
gas is sold internally in Ukraine continues to not reflect the true 
international market price of that commodity, then the nation will have 
significant difficulty meeting the terms of contracts for natural gas 
with suppliers other than Russia as well. While expedited LNG exports 
from the U.S. will be beneficial regardless of the status of structural 
reform, because they will put downward pressure on prices, Ukraine and 
many of its European neighbors will be unable to take full advantage of 
those benefits until reforms are fully implemented.
     Response of David L. Goldwyn to Question From Senator Barrasso
    Question 1. In your testimony, you state that: ``[e]xports of LNG 
to Asia would be in the U.S.'s economic and strategic interests.'' You 
go on to explain that: ``Russia aspires to double its share of the 
global LNG trade by 2020 in large part by meeting large shares of Asian 
demand growth.'' You note that Russia is seeking closer relationships 
with Japan and China. Finally, you ask whether: ``we would prefer for 
Asia to plan to rely on Russian gas or on U.S. LNG as it builds its 
strategic alliances.''
    a. Would you explain how U.S. LNG exports are one of the few direct 
tools we possess to limit Russian market share in Asia?
    Answer. As you noted from my testimony, Russia is moving 
aggressively to increase its market share in Asia. Asian buyers, 
including U.S. allies, will make decisions to enter into supply 
contracts largely on the basis of commercial interests rather than 
geopolitical concerns. Geopolitical issues will be taken into account 
only to the extent that they affect the competitiveness and reliability 
of the supplier. With these issues in mind, it is clear that one of the 
few tools the U.S. can utilize to directly limit Russia's market share 
is to allow U.S. firms to offer LNG at competitive prices in a way that 
is responsive to the commercial interests and needs that are preeminent 
in the minds of Asian buyers.
    b. Would you explain how U.S. LNG exports will ensure that any 
Russian gas that is exported to Asia is done so at competitive prices?
    Answer. In recent years LNG supplies made surplus by the US shale 
gas boom created a spot market for LNG that put downward pressure on 
Russian prices, forcing Gazprom to renegotiate contracts with several 
Western and Central European customers. In that case, the shale gas 
boom freed up LNG cargoes initially destined for the U.S. to European 
customers. Henry Hub-linked U.S. LNG contracts, even after accounting 
for liquefaction, transportation, and regasification costs, could 
render similar impacts in Asia. Like other consumers, Asian buyers 
value competitive costs, reliability, and timeliness. Russia has a 
history of expensive oil-linked contract prices, and ongoing events in 
Ukraine may bring into question whether it is a reliable, competitive 
supplier. To gain market share in Asia and obviate buyer concerns, 
Russia will therefore have to offer customers incentives--including 
concessions on price--if it is forced to compete with U.S. suppliers.
    c. How does ensuring that Russian gas is sold at competitive 
prices-whether in Asia or Europe-serve U.S. strategic interests?
    Answer. Continued high oil and gas export revenues are crucial to 
Russia's economy. The U.S. Energy Information Administration (EIA) 
estimates they account for over 50 percent of total Russian federal 
budget revenues. Declining oil and gas revenues may force Russia to 
diversify its economy and gradually embrace a model of broader, market-
based economic growth, where new industries emerge whose leaders are 
less dependent on the largesse and goodwill from the authorities in 
Moscow. Lowering natural gas prices for allies in Asia and Europe helps 
their balance of trade, promotes growth in important export markets for 
the U.S. strengthens the economies of struggling allies, and makes 
natural gas more cost competitive versus coal, which advances US 
climate goals.
                                 ______
                                 
     Responses of Adam Sieminski to Questions From Senator Landrieu
    Question 1. What are the prospects for increased production in the 
Haynesville shale? As you know, rig counts have been going down for 
some time, but your testimony seems to indicate it could be due for a 
comeback. What is driving this resurgence and could increasing exports 
expand it further? And why?
    Answer. The number of drilling rigs in the Haynesville has risen 
from 45 in late 2013 to 54 as of March 2014. Recent increases in 
drilling activity and the high productivity of the wells currently 
being drilled has stemmed the decline in natural gas production from 
the Haynesville, which peaked at 10.5 billion cubic feet per day (Bcf/
d) in November 2011 and has now stabilized around 6.5 Bcf/d in the 
first quarter of 2014. Natural gas production in the Haynesville is 
expected to increase in the coming months.
    The Haynesville is currently an attractive and resurgent play for 
four reasons.

   Higher prices: With Henry Hub natural gas futures prices 
        above $4.00, producers see an opportunity to drill profitable 
        wells even outside of the most productive acreage.
   Below-average natural gas storage levels: After a very cold 
        winter, working natural gas inventory is below normal levels 
        going into the April through October injection season. 
        Increased natural gas storage demand is supporting higher 
        prices, and producers in the Haynesville may deploy more rigs 
        to meet this demand.
   Pipeline capacity: With ample pipeline capacity to bring 
        natural gas to nearby markets, producers do not experience long 
        delays to tie new wells into takeaway infrastructure, as can be 
        the case with new wells in the Marcellus.
   Proximity to proposed LNG export facilities: The Haynesville 
        shale play is located in relative close proximity to the Sabine 
        Pass LNG export terminal project, of which the first 1.1 Bcf/d 
        of capacity is expected start operations during the fourth 
        quarter of 2015, with another 1.1 Bcf/d of export capacity from 
        that facility expected to become operational within the 
        following two years. There are other proposed LNG export 
        facilities in the Gulf region, which, if built, would also 
        support demand for natural gas from the Haynesville.

    Question 2. Concerns around exports have often been based on 
concerns around long term U.S. supply. Since you have been 
Administrator, estimates of U.S. gas supply have consistently gone in 
only one direction-up.
    2a. Is EIA confident in the long term stability of natural gas 
supply?
    2b. How have recent advances in technology and other factors 
contributed to this?
    Answer. The U.S. has a relatively abundant supply of dry natural 
gas with technically recoverable resources at over 2,200 trillion cubic 
feet (Tcf) as of January 1, 2012. The growth in domestic natural gas 
production is supported primarily by increases in shale and tight gas 
investment and development, which is, in turn, supported by continual 
improvements in technology. Continued investment in the development of 
shale and tight gas is expected given the healthy demand growth for 
natural gas. In addition, further technological improvement and the 
continued application of `best practices' in current developing plays 
will contribute to the economic viability of domestic natural gas 
supply. However, growth potential and sustainability of domestic 
production hinge around uncertainties in key assumptions, such as well 
production decline, lifespan, drainage areas, geologic extent, and 
technological improvement-both in areas currently being drilled and in 
those yet to be drilled. EIA reviews well-level production performances 
on a regular, on-going, basis and revises assumptions accordingly. The 
Low Oil and Gas Resource and High Oil and Gas Resource cases in the 
AEO2014 explore the effects of changes in Reference case assumptions 
about resource size and quality and technology advances. In all three 
cases, domestic natural gas production is projected to increase from 
the 2013 level of 24 Tcf. In the Reference case and the High Resource 
case, total natural gas production grows to 38 Tcf and 46 Tcf per year 
in 2040, respectively. In the Low Resource case, total natural gas 
production plateaus at just under 29 Tcf per year from 2027 through 
2036, then declines to 28 Tcf in 2040.
    An article in the Issues in focus section, ``U.S. tight oil 
production: Alternative supply projections and an overview of EIA's 
analysis of well-level data aggregated to the county level,'' provides 
more information on the alternative resource cases.
    Responses of Adam Sieminski to Questions From Senator Murkowski
    Question 1. Has the Energy Information Administration noticed any 
supply disruptions or price dislocations resulting from increased 
natural gas exports via pipeline to Mexico and Canada in recent years?
    Answer. EIA has not noticed any supply disruptions or price 
dislocations resulting from increased natural gas exports via pipeline 
to Mexico and Canada in recent years. U.S. natural gas exports via 
pipeline have grown 46% between 2010 and 2013.
    U.S. natural gas pipeline exports to Canada accounted for 58% of 
total U.S. pipeline exports in 2013. The 911 billion cubic feet (Bcf) 
that was exported in 2013 is a 23% increase over 2010 export levels. 
Most U.S. natural gas exports to Canada occur at St. Clair, Michigan, 
which accounted for about 64% of total exports to Canada, although some 
of the gas exported at St. Clair originates in Canada. While exports 
have risen and imports have decreased in recent years, the United 
States was still a net importer from Canada in 2013.
    In 2013, U.S. natural gas exports to Mexico were nearly double the 
level they were in 2010. In 2013, the U.S. exported a record 658 Bcf to 
Mexico. Exports to Mexico are largely used to supply electric power 
plants. As such, natural gas exports to Mexico show levels of 
seasonality counter to the majority of U.S. gas, peaking during the 
summer rather than winter months, when electric demand in Mexico is 
higher due to increased air conditioning load.
    Question 2. The EIA forecasts certain levels of LNG exports from 
the U.S. in its reference case. Do you expect these export levels to 
have any impact on global LNG markets (e.g., on price, contract 
negotiations, etc.)?
    Answer. EIA expects that introducing new lower priced supplies from 
the United States into the LNG market will place downward pressure on 
LNG prices and provide some additional leverage for buyers during 
contract negotiations, particularly in Asia. The degree that prices 
actually fall will also depend on additional supply, as well as demand, 
in the rest of the world. EIA is projecting U.S. LNG exports to reach 
3.7 trillion cubic feet (Tcf) by 2030, with world LNG volumes at 20.6 
Tcf. For perspective, in 2012, LNG supplied 12 Tcf or 10% of world 
consumption, imports via pipelines supplied 21%, and domestic 
production supplied the remaining.
    While EIA has not studied the current or potential impact of U.S. 
LNG exports on contract negotiations, there is some anecdotal evidence 
and expert opinion that having potential U.S. LNG exporters negotiating 
with potential buyers around the world is influencing other contract 
negotiations, even before the United States has started to export LNG.
    Question 3. Does the Department of Energy's Office of Fossil Energy 
have access to the latest EIA data and analysis pertaining to U.S. 
natural gas production and consumption, and forecasts of both?
    Answer. All of EIA's data and analyses pertaining to U.S. natural 
gas production and consumption, and forecasts of both, are published on 
EIA's website. Staff within EIA and the Office of Fossil Energy have 
productive working relationships and regularly interact on both data 
and analysis issues, but there are no special access arrangements.
      Response of Adam Sieminski to Question From Senator Cantwell
    Question 1. During the hearing, there was much discussion of the 
analysis and forecasting of the effects of different levels of 
liquefied natural gas exports. I note that considerable government 
resources have been spent, and will continue to be spent, to ensure 
that our natural gas export policy remains in the public interest.
    I am concerned that no such analysis yet exists to consider the 
effects of a potential reversal of the long-standing ban on crude oil 
exports. On February 3rd (over seven weeks ago), then-Chairman Wyden 
and I requested that your Administration look into potential market 
impacts of such a major policy change. While I understand that this 
kind of analysis requires considerable time and attention, I am 
concerned that it is not yet clear what kind of analysis EIA plans to 
undertake on this issue.
    Our constituents would feel the impacts of any market changes that 
would be associated with such a major policy change, both in terms of 
prices that they would pay at the pump and the increased quantities of 
oil that would be finding new export transit routes, potentially via 
rail through Washington State.
    How can we assure our constituents that their federal government 
will consider this issue thoroughly and thoughtfully?
    Answer. The potential reversal of the long-standing ban on crude 
oil exports is one of a number of issues related to the implications of 
the dramatic rise in domestic oil production that the Energy 
Information Administration (EIA) is considering and about which EIA has 
already published information (see list that follows). EIA is 
continuing to analyze and address these issues and implications and 
intends to publish a series of focused analyses that will address 
effects of a possible relaxation of current limitations on U.S. oil 
exports as well as the following topics and issues related to the 
implications of the dramatic rise in domestic crude oil production:

   growth in U.S. oil production and trends in liquid fuels 
        consumption
   impacts on oil logistics and refining
   crude oil and petroleum product prices
   crude oil and petroleum product trade patterns

    Because of the dynamic nature of the U.S. crude oil and petroleum 
products markets, EIA intends to publish its findings in stages over 
the course of 2014. This will ensure that the most up-to-date data is 
incorporated in its work.
Short Term Energy Outlook
    3/11/2014 STEO: EIA expects net import share to decline to 25% in 
2015, lowest level since 1971
Annual Energy Outlook
    12/16/2014 Slide 10: U.S. maintains status as a net exporter of 
petroleum products
Today In Energy
    3/24/2014 China is now the world's largest net importer of 
petroleum and other liquid fuels
    2/25/2014 Oil net imports have declined since 2011, with their 
value falling slower than volume
    1/30/2014 Americas are an important market for liquid fuels and 
natural gas trade
    1/22/2014 Oil and natural gas import reliance of major economies 
projected to change rapidly
    1/9/2014 U.S. crude oil production growth contributes to global oil 
price stability in 2013
    10/4/2013 U.S. expected to be largest producer of petroleum and 
natural gas hydrocarbons in 2013
This Week in Petroleum
    3/12/2014 U.S. crude oil production in 2013 reaches highest level 
since 1989
    1/23/2014 Crude oil imports continue to decline
    1/8/2014 Strong U.S. crude oil production growth forecast through 
2015
    1/3/2014 Shifting production, demand patterns alter oil markets in 
2013
    10/30/2013 Recent decline in Gulf Coast crude oil imports mainly 
affects lighter grades
    9/18/2013 Rail is Likely Supplying an Increasing Share of East 
Coast Crude Oil
    8/14/2013 New Traffic Patterns Emerge to Supply Crude Oil to West 
Coast Refiners
    7/10/2013 U.S. crude oil increasingly moves by barge, truck and 
rail
    5/30/2013 Eastern Canadian refineries are increasing their use of 
U.S.-sourced crude oil
    5/1/2013 Absorbing Increases in U.S. Crude Oil Production
    4/3/2013 Mid-Continent Crude Oil Markets Continue to Adjust to 
Rapid Rise in Bakken Production
    3/20/2013 Total U.S. crude oil imports continue to decline in 2012 
but regional differences persist
    1/16/2013 Upcoming Pipeline Capacity Additions Will Facilitate 
Continued Growth in Crude Oil Shipments from Midwest to Gulf Coast
    1/9/2013 Strong U.S. Crude Oil Production Growth Forecast Through 
2014
    11/28/2012 Market Implications of Increased Domestic Production of 
Light Sweet Crude Oil
    10/26/2012 The Impact of U.S. Crude Oil Production on Gulf Coast 
Crude Imports
                              Appendix II

              Additional Material Submitted for the Record

                              ----------                              

 Statement of Anita Orban, Ministry of Foreign Affairs, Hungary Before 
  the House Subcommittee on Energy and Power of the Energy & Commerce 
 Committee of the United States House of Representatives Geopolitical 
        Implications of LNG Export Liberalization March 25, 2014
    Thank you Chairman Whitfield, Ranking Member Rush, and Members of 
the subcommittee. I appreciate the opportunity to be here today to 
provide my perspective on the importance of LNG export liberalization 
for the Central Eastern European region. I applaud the leadership of 
this Committee to look at the geostrategic aspect of US natural gas 
exports, which along with my colleagues from the Visegrad Group 
(currently chaired by Hungary), the Baltics and Eastern Europe we have 
been long advocating.
    Mr. Chairman, we are in the middle of the largest security crisis 
that Europe has seen since the end of the Cold War. And energy 
dependence, especially that of Central Eastern Europe and Ukraine, is 
once again on everybody's mind. With every new Russo-Ukrainian crisis, 
US awareness about the strategic vulnerability of our region, and the 
determination to mitigate it, should only grow. Energy import 
dependence is one of the key factors that limit the political options 
available to these countries as US allies and adherents of a rules-
based international order. Russian ambitions in the former post-
Communist space are very clear and energy security is at the heart of 
this.
    The European Union's dependence on external energy sources is 
massive. Today, Europe covers over 64 percent of its natural gas demand 
from imports. Approximately four-tenth of this import, i.e. 28 percent 
of Europe's total gas consumption, comes from Russia via three 
different routes--the Brotherhood pipeline via Ukraine, the Yamal 
pipeline via Belarus and the North Stream pipeline under the Baltic 
Sea. Sixty-two percent of Russia's natural gas exports to the EU go 
through the first route, i.e. via Ukraine.
    The import dependence of EU member states varies widely, in the 
most extreme cases reaching 100 percent of their total gas consumption 
(Baltic States, Slovakia). But there is no country on the eastern side 
of the EU where the share of Russian gas imports is lower than 70 
percent of its total gas import. One can contrast these figures with 
the situation in the United States, which in 2007, before the onset of 
the shale gas revolution, imported only 16 percent of its natural gas 
needs and U.S. unconventional gas explorations could make America the 
largest natural gas exporter by 2015.
    The popular interpretation of energy dependence, and natural gas 
dependence, in particular, is widely associated with supply cut-offs 
which wouldn't be without precedent in Central Europe. Supply cut may 
indeed happen again with unpredictable consequences for countries along 
the Eastern border of the European Union, as well as for Ukraine. Yet, 
if used, it would seriously hurt the supplier as well: in the short 
term with loss of revenue, in the mid-term with loss of its markets. 
Supply cut-offs are so dramatic and so obviously political that they 
invariably trigger actions on the receiving end to ease the dependency. 
Moreover, one cannot cut off the supply for one country only--everybody 
along the pipeline route will suffer. A supply cut-off mobilizes and 
unites the dependent parties and results in decreasing dependency in 
the medium term. It is an absolute last-resort measure that ultimately 
undermines the very dependence that enabled it in the first place.
    The best example to illustrate this point is the natural gas crisis 
of 2009. Then, Russia wanted to teach a lesson to Ukraine and cut off 
the gas going into the country. With it, Moscow discontinued the supply 
to most of Central Eastern Europe, as well. The crisis itself lasted 
for less than two weeks, but its most important impact was the ensuing 
cooperation and diversification efforts among the affected countries. A 
new approach emerged, whereby these countries connected their 
pipelines' North-South direction and enhanced their storage capacities, 
ultimately making each of them more crisis-resistant. Even more 
importantly, energy security came to the forefront of security 
considerations and became a flagship topic within the European Union. 
The Hungarian Visegrad Presidency also put this on top of the group's 
agenda for 2013-2014. Looking back, it would be hard to deny that the 
2009 supply cut off was the single most important trigger event for 
improving the Central Eastern European region's energy security.
    It is prices that provide the best economic and political tool for 
the monopoly supplier. Whoever has the monopoly, calls the shots: 
higher prices afflict a very tangible cost on the dependent country's 
economy and population, while stuffing the supplier's coffers and 
allowing it to reap the economic rents to finance further political, 
economic or military actions. Hiking prices can always be presented as 
pure business action as opposed to a foreign policy measure. Most 
importantly, it can be applied in a discriminatory manner. The supplier 
can raise the price for the non-cooperative and lower it for the 
friendly. Price movements, especially price discrimination, lead to 
asymmetrical negotiations and side-deals as opposed to transparency 
and, ultimately an affordable and secure energy supply for Europe.
    The example of Ukraine is the most telling of all. The country 
currently imports about 26 billion cubic meters, or half of its 
consumption, of natural gas. All of its imports 4 come from Russia. 
Consequently, Moscow has been free to use price discrimination as it 
saw fit. Although the cost of gas grows linearly with the distance it 
travels, Germany pays less for the same Russian gas than any country on 
the route between the two. In fact, Russian gas in Germany was so much 
cheaper than the price paid by Ukraine that traders resold 2 billion 
cubic meters of this Russian-German gas to Ukraine in 2013.
    In December 2013, Russia rewarded the former leaders of Ukraine 
with a 33 percent discount in natural gas prices for not signing the 
Association Agreement with the European Union. The new price of 268.5 
dollars per thousand cubic meters is about 30 percent lower than the 
lowest price in the EU. As recent events in Ukraine have gone against 
the interests of Russia, Moscow is now raising the price to 400 
dollars. Such a price would exact a massive toll on the already heavily 
indebted Ukrainian state. The only way to limit the monopoly supplier's 
ability to exact damage and sow discord through the deployment of the 
price weapon is to establish alternative supply routes. Once they are 
in place, the monopoly supplier can no longer use the price 
discrimination tool freely, as it needs to consider how its actions 
affect the viability and attractiveness of alternative supply channels.
    The recent deal between Gazprom and the Greek gas company DEPA is a 
case in point. In February this year, Gazprom agreed to a 15 percent 
price cut for Greece to be applied retroactively for about 7 months. 
Experts claim that Greece's LNG terminal and the recent developments in 
the Southern Gas Corridor, which will bring Azeri gas to Greece, among 
other countries, in the medium term factored into the negotiations. 
Simply put, the mere existence of a credible alternative supplier 
exerted significant downward pressure on the natural gas prices set by 
the dominant supplier.
    We are well aware of the fact that alternative pipeline gas won't 
reach Europe before 2019 the earliest. Azeri gas coming in via the 
Southern Gas Corridor will benefit Western Europe via Italy rather than 
Central and South Eastern Europe. Consequently, for Central Eastern 
European countries, the most important task is to create a credible 
prospect for alternative natural gas imports.
    To do that, Central Eastern Europe needs to ensure both the 
capacity and the volume to receive alternative gas. The first is our 
homework, which only we can do to build up capacities internally which 
allow gas-to-gas competition, create access to different supply options 
and create a robust internal European energy infrastructure. In Central 
Eastern Europe we need to overcome the dependency inherent in the 
traditional East-West pipeline infrastructure in the former Soviet 
satellite states by constructing North-South and South-North 
interconnectors with the aim to have a robust North-South and South-
North pipeline infrastructure from the Agean to the Baltic Sea. Another 
important aspect is enabling the reverse flow of natural gas on these 
newly built, as well as older interconnections especially from the West 
to the East to ensure that regional markets become truly integrated.
    However, Europe has been much less successful in building up the 
necessary volumes for alternative supply. This has been largely out of 
Europe's control. EU and US sanctions against Iran, the slower than 
expected progress in Iraq, the upheaval in North Africa postponed or 
put on hold indefinitely most of the potential alternative pipeline 
supplies. The only new supply volumes coming in from Azerbaijan as of 
2019 are exactly the same quantity as the total supply from Libya which 
stopped entirely at the end of 2013, an annual 10 billion cubic meters.
    What Central Eastern Europe and the EU in general needs right now 
is the additional volume of gas. The most viable option Central Eastern 
Europeans have today is LNG. The LNG market has numerous advantages: 
many suppliers, liquidity and prices set by supply and demand with no 
political strings attached. Access to the LNG market would much weaken 
the dependence inherently present in pipeline deliveries.
    Access to LNG would also assist Ukraine. During 2013, two 
additional capacities were opened from Hungary to Ukraine and from 
Poland to Ukraine, enabling the supply of natural gas to Ukraine on 
purely market terms. If successful, the LNG supply together with the 
existing and planned additional reverse flow capabilities, combined 
with Ukraine's own shale gas resources, could provide a reasonably 
sized alternative to Russian gas in Ukraine.
    However, in the absence of an energy security contribution from US 
exports, the global supply of LNG is not at all reassuring. Among LNG 
exporters, terrorist and insurgent activity impacts gas operations in 
Yemen, Libya, Egypt, Nigeria and Algeria. Qatar has a moratorium on 
further exports, while in Asia, some important traditional exporters 
like Indonesia are now in decline. To the extent supply grows, it is 
locked into rigid long term contracts that can't provide flexible 
resilience. Without the large shale gas resources and efficient 
competitive markets of the United States, LNG cannot provide an 
adequate energy security answer.
    The urgency of establishing the region's access to LNG means that 
the United States Congress has a potent foreign policy/energy diplomacy 
tool at its disposal. By clearing the way for US shale gas to reach 
America's Central European NATO allies would provide significant 
protection against the deployment of the energy/price weapon.
    Today, natural gas prices in the United States are one-third to 
one-fourth of the gas prices in Europe, including in Central Europe. 
Liberalizing US LNG exports would send a signal to market actors to 
kick-start the development of missing infrastructure (LNG terminals, 
interconnectors). These developments in turn would put an immediate 
downward pressure on gas prices in Central Eastern Europe well before a 
single American gas molecule reaches the shores of our region. Energy 
diplomacy is not about short term fixes, we operate with long-term 
investments and decades long contracts, we know that the timeframe for 
US gas exports is 3-7 years.
    But it is simply not true that lifting the natural gas export ban 
today would not have an immediate effect in the region. It would 
immediately change the business calculus of infrastructure investments 
and send an extremely important message of strategic reassurance to the 
region which currently feels more threatened than any time since the 
Cold War. Even with regasification, shipping and associated costs, US 
gas would be regarded as an important alternative. And let's not forget 
that countries in our region are ready to pay a premium price for 
energy security.
    In short, by liberalizing LNG exports, by eliminating the legal and 
administrative obstacles to the free trading of this vital, 
domestically produced commodity, the United States would provide fast 
and long-lasting protection for its allies against the most important 
dangers of natural gas dependency. Moreover, it would also enable them 
to act more freely in assisting Ukraine in case of an energy crisis 
developed there. Such a help would be in line with past US leadership 
in Central Eastern Europe, which many in our region have perceived to 
be waning in the past few years. It is important to note that this is 
an elegant, yet very effective tool, which is relatively cheap to use. 
It incurs no threat of loss of life, not even a disruption of economic 
activities: it is only a removal of a self-imposed barrier. Moreover, 
it cannot be seen as targeting any single entity- it is only a form of 
help for allies, a common sense solution that helps allies and US 
businesses at home. It would be hard to find any other tool so 
obviously at hand to the US to demonstrate leadership right now, have 
an immediate security impact at a relatively low cost.
    Hungary, as chair of the Visegrad group (Poland, Czech Republic, 
Slovakia, Hungary) together with several other US allies argued for LNG 
export liberalization even before the Ukraine crisis started. We have 
reached out to members of Congress and the administration to argue that 
the US has a historic opportunity to send a strong message of freedom 
to the region by simply letting the markets work. Together with my 
Czech colleague, Vaclav Bartuska, we have argued that ``accelerating 
the export licensing procedure to allow increased sales to trustworthy, 
reliable foreign partners should be a policy that politicians on both 
sides of the aisle can support.'' This is not a partisan issue. It is 
an American issue that all statesmen in this country must show 
leadership on. Numerous Members of Congress recognized the geopolitical 
importance of LNG export by introducing and co-sponsoring the different 
bills that proposed to lift the ban on export licensing. The situation 
in Ukraine only underlines how timely this issue is--but also gives it 
additional urgency. The US should seize the opportunity and act now.
    Mr. Chairman, Members of the Committee, I believe that doing away 
with these export limitations would make economic sense even in better 
times. But there is nothing like a crisis to focus the mind. As 
representatives of a country that Central Europe has traditionally 
looked to for leadership, you know well that you do not always have the 
luxury of choosing the time to make some of the most necessary 
decisions. But with the post-Cold War settlement crumbling before our 
eyes, if there was ever a time for your leadership, it is now--and if 
there was ever an issue that would do as much good at as little cost, 
it is the issue at hand.
                                 ______
                                 
            Statement of the American Public Gas Association
                         a consumer perspective
    On behalf of the American Public Gas Association (APGA), thank you 
for the opportunity to submit testimony for the hearing titled, 
``Importing Energy, Exporting Jobs. Can it be Reversed?''
    APGA is the national association for publicly owned natural gas 
distribution systems. There are approximately 1,000 public gas systems 
in 36 states and over 700 of these systems are APGA members. 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 own and operate natural gas 
distribution facilities in their communities. Public gas systems' 
primary focus is on providing safe, reliable, and affordable service to 
their customers. The long-term affordability of natural gas has been a 
focus of APGA and its members.
    APGA has the privilege of representing the views of American 
natural gas consumers. We represent the homeowners and small businesses 
that rely on affordable natural gas to heat their homes, cook their 
meals, power their restaurants, operate small manufacturing entities, 
and service businesses. The interests of these millions of Americans 
have often been lost in the contentious debate about liquefied natural 
gas (LNG) exports. Media outlets have framed the debate as oil and gas 
companies on one side and manufacturers on the other.\1\
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    \1\ PGA is a proud member of America's Energy Advantage (AEA), 
which represents the interests of bothmanufacturers and natural gas 
consumers.
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    However, as advocates for natural gas consumers, our position is 
slightly different from the manufacturing companies that have spoken 
out on the issue. Simply put, APGA opposes all exports of LNG from the 
lower 48 states. The simple economics of supply and demand, along with 
every study that has been conducted on the subject, whether done by the 
federal government or by private consulting companies, all reach one 
conclusion: exports will increase the price of domestic natural gas. 
How adverse that upward pressure on price will be, no one knows. Based 
on past experience though, APGA believes the experts who supported the 
export of propane would not have predicted the significant adverse 
prices homeowners paid this winter for their propane.
    What this means for average consumers is that their energy bill for 
natural gas service, electricity, and the goods and services they 
purchase--all of which have the cost of energy built into their 
prices--will escalate. We can debate about net benefits, aggregate 
welfare measures, and other economic metrics, but ultimately LNG export 
translates into people paying more for energy and other goods and 
services, and consequently having less disposable income. This fact 
applies to businesses as well. As energy costs go up, companies are 
less competitive and hire fewer workers, whether they serve customers 
down the street or compete for customers around the globe.
    Before discussing the details of APGA's opposition to the export of 
LNG, there is one message that we would like Congress to focus on when 
thinking about this issue: it is irrefutable that consumers and 
businesses will pay increased prices for energy and all goods and 
services if LNG exports are sanctioned.
LNG Export
    The Department of Energy Office of Fossil Energy (DO- 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 
exports will increase prices with higher volumes causing more drastic 
increases.\2\ The second, conducted by NERA Economic Consulting, 
focused on the macroeconomic effects of LNG exports, which were found 
to be a net positive while at the same time confirming that LNG exports 
would raise domestic natural gas prices. This would ultimately burden 
the U.S. consumers who can least afford the increase and disadvantage 
domestic manufacturing.\3\ Policymakers must consider both of these 
studies-and and other non-governmental studies on the subject-and in 
doing so, consider the profound tradeoffs entailed by exporting away an 
increasingly valuable U.S. fuel resource rather than supporting its use 
domestically.
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    \2\ 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).
    \3\ 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.
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    Increased production of natural gas in the U.S. to meet domestic 
demand 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 in weaning the U.S. from its historic and high-risk 
dependence on foreign oil.
Background
    To date, over 30 applications have been submitted to DOE to export 
domestic LNG from the United States to free trade agreement (FTA) or 
non-FTA nations based on the promise of huge unconventional domestic 
gas reserves and huge profits for the few affected companies. Of those 
applications, six have already been approved, meaning that 8.5 Bcf/day 
has been approved by DOE for export to non-FTA countries. Also to date, 
the total export capacity applied for is 38.51Bcf/d and 35.86 Bcf/d to 
FTA and non-FTA nations, respectively. Total natural gas production was 
approximately 67 Bcf/d in the U.S. in 2013\4\; therefore, based on 
current data, the total applied-for export capacity, if authorized, 
would have the potential effect of increasing the demand for natural 
gas by nearly 54 percent.
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    \4\ See: http://www.eia.gov/naturalgas/issuesandtrends/production/
2013/
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    Policymakers in Congress and at DOE have a duty to ensure that any 
non-FTA application under consideration for export authority is not 
inconsistent with the public interest pursuant to NGA section 3(a).\5\ 
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.''\6\
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    \5\ 15 U.S.C. Sec.  717b(a).
    \6\ 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.
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    For exports of LNG to countries with which the United States has a 
free trade agreement, the application for export authority is 
automatically assumed to be in the public interest and is granted 
almost instantly without opportunity for the public to comment.
    For exports to non-FTA countries, which are the focal point for the 
current export debate, DOE adopts a rebuttable presumption that exports 
are in the public interest. Those opposed to exports face a nearly 
insurmountable challenge of proving a negative; more specifically, that 
each individual application is not in the public interest. APGA has 
filed motions to intervene and protests every non-FTA application, 
pointing out the deleterious impacts of the applications on the 
nation's consumers and businesses, relying on, among other materials, 
the EIA Export Report and the NERA Study. But since APGA does not have 
the resources to conduct independent detailed market impact analyses 
for each application in order to prove to DOE that exports are not in 
the public interest, the die is cast and the export applications are 
granted.
    APGA believes that the burden of proof should be shifted to 
exporting companies. Companies that seek to export the U.S.'s 
plentiful--but ultimately finite-reserves of a strategic commodity 
should have to prove to DOE that exporting LNG benefits not merely 
their bottom line, nor oil and gas producers, but all sectors of the 
economy including natural gas consumers. Surely, consideration of the 
public interest requires no less.
LNG Exports Will Increase Domestic Natural Gas Prices
    According to the EIA Export Report, ``[l]arger export levels lead 
to larger domestic price increases.''\7\ 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.''\8\
---------------------------------------------------------------------------
    \7\ Id. at 6.
    \8\ Id.
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    Even under the ``low/slow'' baseline scenario in the EIA Export 
Report, price impacts will reach about 14 percent.\9\ Under the ``low/
rapid'' baseline scenario, EIA projects that wellhead prices will be 
approximately 18 percent higher in 2016 than they otherwise would 
be.\10\ 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.\11\ 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 
growth. It is important to note that the low/slow baseline assumed an 
export level of 6 Bcf/day, which as noted above has already been 
exceeded in terms of approvals, and that the high/rapid scenario 
assumed an export level of 12 Bcf/day, which appears imminent given 
recent actions by DOE.
---------------------------------------------------------------------------
    \9\ Id. at 8.
    \10\ Id.
    \11\ Id. at 9.
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    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 16, 2013, the EIA issued the Early Release of its 
Annual Energy Outlook for 2014 (AEO2014). The AEO2014 projects greater 
increases in domestic demand for natural gas than projected in prior 
Annual Energy Outlooks. In particular, the AEO2014 projects greater 
increases in demand for natural gas from domestic industry, 
particularly from the bulk chemicals and metals-based durables 
shipments, which ``grow by 3.4 percent per year from 2012-2025.as 
compared to 1.9 percent in AEO 2013.''\12\
---------------------------------------------------------------------------
    \12\ AEO2014 Early Release Overview at 1.
---------------------------------------------------------------------------
    AEO2014 also projects greater increases in future reliance on 
natural gas for electric generation than projected by the EIA in 
previous Annual Energy Outlooks. In fact, the AEO2014 Reference case 
projects that by 2040 natural gas will account, ``for 35 percent of 
total electricity generation, while coal accounts for 32 percent.''\13\ 
In AEO2013, natural gas would only overtake coal in terms of the share 
of electric generation by 2040 under the High Oil and Gas Resource 
scenario and would not have done so under the Reference case.
---------------------------------------------------------------------------
    \13\ AEO2014 Early Release at 2.
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    Moreover, the shift to natural gas for electric generation will be 
further increased by the forthcoming implementation of the 
Environmental Protection Agency's (EPA) pending Mercury Air Toxic 
Standards (MATS), which will force the retirement of a large 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.\14\ 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 rise sharply 
due to LNG exports.\15\ 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.
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    \14\ ``Standards of Performance for Greenhouse Gas Emissions for 
New Stationary Sources: Electric Utility Generating Units'' 77 C.F.R. 
22392 (Apr. 13, 2012).
    \15\ 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/
studies/fuelelasticities/pdf/eia-fuelelasticities.pdf.
---------------------------------------------------------------------------
    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 carbon-intensive coal for 
generation and from foreign sourced oil for transportation. The NERA 
study demonstrates that the effects of LNG exports and the attendant 
price increases are tantamount to a ``wealth transfer'' from poor and 
middle class Americans to those with investments in the natural gas 
industry. The DOE-FE should examine what this wealth transfer would 
entail for the public interest when evaluating LNG export applications. 
Congress must do likewise in considering the state of LNG exports.
Hurts Economically Vulnerable Households
    LNG exports will 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.\16\
---------------------------------------------------------------------------
    \16\ 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).
---------------------------------------------------------------------------
    However, the validity of that assumption is highly questionable 
since according to a Pew Research survey, ``53 percent of Americans say 
they have no money at all invested in the stock market, including 
retirement accounts.''\17\
---------------------------------------------------------------------------
    \17\ See: http://www.pewresearch.org/fact-tank/2013/05/31/stocks-
and-the-recovery-majority-of-americans- not-invested-in-the-market/
---------------------------------------------------------------------------
    Furthermore, merely owning stock does not guarantee an individual 
will own stock in an oil and gas company or exporting company, without 
which an individual will not directly benefit from LNG exports. Taking 
the analysis a step further, even if an individual does own stock and 
owns oil and gas company/exporting company stock, the key question is, 
does that person own enough shares to offset the price increases for 
energy, goods, and services that will result from LNG exports. This 
distribution of stock ownership casts significant doubt that a majority 
of Americans own oil and gas/exporter stock in sufficient quantities to 
offset energy price increases.
    NERA does admit, however, that ``[h]ouseholds with income solely 
from wages or government transfers,'' will not share in the benefits of 
increased profits from natural gas.\18\ 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, which includes the 46.5 
million people that live in poverty in the U.S.\19\ Even beyond 
Americans who live in poverty, the majority of Americans, some 167 
million people, will only incur the costs of exports and none of the 
benefits.
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    \18\ NERA Study at 8.
    \19\ See: http://www.nclej.org/poverty-in-the-us.php
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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 
investment.
    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.''\20\ The latter argument assumes that 
alternatives to natural gas are affordable and available, which is an 
invalid assumption for fertilizer manufacturers and many other 
industries.
---------------------------------------------------------------------------
    \20\ NERA Study at 53.
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    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.\21\ 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.''\22\ Leaders in the 
chemical sector have voiced concern regarding LNG exports and adverse 
impacts on the industry caused by inflated natural gas prices.\23\
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    \21\ NERA Study at 64.
    \22\ NERA Study at 13.
    \23\ 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 
forward.\24\
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    \24\ Clifford Kraus, South African Company to Build U.S. Plant to 
Convert Gas to Liquids, New York Times (Dec. 3, 2012) available at: 
http://www.nytimes.com/2012/12/04/business/energy-environment/sasol-
plans-first-gas-to-liquids-plant-in-us.html?__r=0.
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    Affordable natural gas prices in the U.S. provide the path forward 
for the manufacturing renaissance. Higher natural gas prices due to LNG 
exports threaten this promising 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.\25\
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    \25\ 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/
reports/drill-here-sell-there-pay-more.
---------------------------------------------------------------------------
    Rather than trading long-term manufacturing jobs for short-term 
natural gas-related 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 add low-
value, but create positive ripple effects up the value chain and 
throughout the economy.\26\ 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.
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    \26\ 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).
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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 
gas.\27\
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    \27\ EIA Export Report at 17.
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    As discussed above, new greenhouse gas regulations will also soon 
force coal retirements. 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 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.\28\ State governments, businesses and many of APGA's 
members are expending substantial resources today to put the needed 
infrastructure in place.\29\
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    \28\ 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.
    \29\ 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).
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    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.\30\ If Congress and the DOE 
allow export applications to go through, the resulting increase in 
natural gas prices could undermine recent investments to expand natural 
gas as a transportation fuel.
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    \30\ Rodney White, Firm on Track to Build LNG-Fueled Locomotive, 
Platts Gas Daily (Nov. 28, 2012).
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    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 
fuel.
    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.\31\ According to MIT, the 
development of international unconventional natural gas reserves will 
create a more liquid market with less disparity between prices around 
the globe.\32\
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    \31\ MIT Energy Initiative, The Future of Natural Gas, at 14 
(2011).
    \32\ Id.
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    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 worldwide before the LNG export facilities can 
even be completed.\33\
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    \33\ The U.S. should be ever mindful of the billions of dollars 
invested in LNG import facilities, which are white elephants that stand 
as testaments to the extent to which technology at home or abroad can 
undermine investments that ignore the portability of technology.
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    The U.S. has an opportunity that was unimaginable 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.
Alternative Approach
    The United States should be exporting the drilling technology that 
has enabled producers in this country to tap into our huge shale 
reserves. There are likewise vast shale reserves in Europe, including 
in Ukraine, that are there for the taking, assuming the selfsame 
countries are willing to invest in the technology to access those 
reserves and also to permit drilling for shale gas reserves. There is 
certainly no good reason why the U.S should undertake a domestic LNG 
export policy that has numerous downsides for the American gas 
consumers when many of the very countries we are seeking to help are 
capable of helping themselves by accessing their own domestic shale gas 
reserves.
    In lieu of exporting our affordable premium fossil fuel, Congress 
should focus on adopting policies that encourage greater domestic 
demand for natural gas and greater emphasis on exporting drilling 
technology to WTO and other countries that have the capability to 
access natural gas reserves. It is a much better choice, in both the 
short and long term, to accelerate the transition in the United States 
from imported oil to domestic natural gas to fuel our transportation 
sector, revitalize our manufacturing industry, and improve our balance 
of trade.
Conclusion
    APGA appreciates the opportunity to submit testimony on this 
critical natural gas and public interest issue. We stand ready to work 
with the Committee on these and all other natural gas issues.
                                 ______
                                 
                    North America's Building Trades Unions,
                                                    March 26, 2014.
Hon. Mary Landrieu,
Chairwoman,
Hon. Lisa Murkowski,
Ranking Member, 304 Dirksen Senate Office Building, Washington, DC.
    Dear Chairwoman Landrieu & Ranking Member Murkowski;
    On behalf of the three million skilled craft professionals in the 
United States and Canada comprising the fourteen national and 
international unions of the Building and Construction Trades 
Department, AFL-CIO, I am pleased the Senate Energy and Natural 
Resources Committee held the March 25, 2014, hearing entitled Importing 
Energy, Exporting Jobs. Can it be Reversed? Our members stand ready to 
be part of a solution. We believe a modern U.S. energy policy, 
encompassing enhanced energy security and a self-reliant North American 
production capacity, will result in economic prosperity and robust job 
creation.
    During this shift from a net energy importer to one of the world's 
largest producers, a labor force comprised of skilled craftsmen and 
women will be necessary to construct the pipelines and build the 
facilities needed to support domestic production. The Building Trades 
can provide the skilled labor and craftsmanship needed to meet this 
looming construction boom. And our 100 years of experience with 
successful, sustainable, high quality joint labor-management 
apprenticeship programs (JATC) ensure the demand for skilled craft 
professionals will be met with the best-trained, most well-equipped 
workforce in the world.
    JATCs collectively spend more than $1 billion in private funding 
annually on apprenticeship instructors, curriculum, and job placement. 
The unionized construction industry (labor and management acting 
together) also invest, through collective bargaining, an additional $11 
billion annually on wages and benefits. To give some perspective to the 
size of our JATC training system, managing and operating roughly 1,900 
training centers across North America, if it was a singular college or 
university, it would be the second largest in the US.
    Our system of apprenticeship training and education has become 
world renowned for several reasons:

   We maintain a direct linkage to the labor market
   Our apprentices earn while they learn
   There is continuity of employment over the three to five 
        year training program driven by labor-management commitment
   We integrate employment and training

    In addition to our apprenticeship programs, we are extremely proud 
of our ``Helmets to Hardhats'' program. This non-profit organization 
connects National Guard, Reserve, retired and transitioning active-duty 
military service members with apprenticeship training and career 
opportunities in the construction industry. The program's Wounded 
Warrior initiative connects wounded veterans with non-field careers and 
accommodations in construction. During its ten-year existence, 
``Helmets to Hardhats'' has placed thousands of veterans in jobs and 
career training opportunities.
    Given our track record of training and supplying world-class 
craftsmen and women to work in the construction industry, North 
America's Building Trades members stand ready to serve as the 
foundation of this exciting energy revolution and construct the 
infrastructure needed to transform our domestic energy industry into 
the envy of the world.
    We are thrilled your chairmanship coincides with this pivotal point 
in US energy policy. We stand ready to work with you and the committee 
in any capacity to ensure our energy policy drives job creation and 
economic prosperity.
            Sincerely,
                                             Sean McGarvey,
                                                         President.

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