[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
THE IMPACT OF LOW OIL PRICES ON ENERGY SECURITY IN THE AMERICAS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
THE WESTERN HEMISPHERE
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
JUNE 9, 2016
__________
Serial No. 114-214
__________
Printed for the use of the Committee on Foreign Affairs
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COMMITTEE ON FOREIGN AFFAIRS
EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida BRAD SHERMAN, California
DANA ROHRABACHER, California GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio ALBIO SIRES, New Jersey
JOE WILSON, South Carolina GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas THEODORE E. DEUTCH, Florida
TED POE, Texas BRIAN HIGGINS, New York
MATT SALMON, Arizona KAREN BASS, California
DARRELL E. ISSA, California WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania DAVID CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina ALAN GRAYSON, Florida
MO BROOKS, Alabama AMI BERA, California
PAUL COOK, California ALAN S. LOWENTHAL, California
RANDY K. WEBER SR., Texas GRACE MENG, New York
SCOTT PERRY, Pennsylvania LOIS FRANKEL, Florida
RON DeSANTIS, Florida TULSI GABBARD, Hawaii
MARK MEADOWS, North Carolina JOAQUIN CASTRO, Texas
TED S. YOHO, Florida ROBIN L. KELLY, Illinois
CURT CLAWSON, Florida BRENDAN F. BOYLE, Pennsylvania
SCOTT DesJARLAIS, Tennessee
REID J. RIBBLE, Wisconsin
DAVID A. TROTT, Michigan
LEE M. ZELDIN, New York
DANIEL DONOVAN, New York
Amy Porter, Chief of Staff Thomas Sheehy, Staff Director
Jason Steinbaum, Democratic Staff Director
------
Subcommittee on the Western Hemisphere
JEFF DUNCAN, South Carolina, Chairman
CHRISTOPHER H. SMITH, New Jersey ALBIO SIRES, New Jersey
ILEANA ROS-LEHTINEN, Florida JOAQUIN CASTRO, Texas
MICHAEL T. McCAUL, Texas ROBIN L. KELLY, Illinois
MATT SALMON, Arizona GREGORY W. MEEKS, New York
RON DeSANTIS, Florida ALAN GRAYSON, Florida
TED S. YOHO, Florida ALAN S. LOWENTHAL, California
DANIEL DONOVAN, New York
C O N T E N T S
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Page
WITNESSES
The Honorable Adam Sieminski, Administrator, U.S. Energy
Information Administration..................................... 5
Mr. Amos Hochstein, Special Envoy and Coordinator for
International Energy Affairs, Bureau of Energy Resources, U.S.
Department of State............................................ 34
Ms. Melanie Kenderdine, Director, Office of Energy Policy and
Systems Analysis, U.S. Department of Energy.................... 41
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
The Honorable Adam Sieminski: Prepared statement................. 8
Mr. Amos Hochstein: Prepared statement........................... 36
Ms. Melanie Kenderdine: Prepared statement....................... 43
APPENDIX
Hearing notice................................................... 70
Hearing minutes.................................................. 71
The Honorable Jeff Duncan, a Representative in Congress from the
State of South Carolina, and chairman, Subcommittee on the
Western Hemisphere: Questions submitted for the record to the
Honorable Adam Sieminski, Mr. Amos Hochstein, and Ms. Melanie
Kenderdine..................................................... 72
The Honorable Daniel Donovan, a Representative in Congress from
the State of New York: Questions submitted for the record to
Ms. Melanie Kenderdine......................................... 75
Written responses from Mr. Amos Hochstein to questions submitted
for the record by the Honorable Daniel Donovan................. 76
THE IMPACT OF LOW OIL PRICES ON ENERGY SECURITY IN THE AMERICAS
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THURSDAY, JUNE 9, 2016
House of Representatives,
Subcommittee on the Western Hemisphere,
Committee on Foreign Affairs,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:33 a.m., in
room 2172, Rayburn House Office Building, Hon. Jeff Duncan
(chairman of the subcommittee) presiding.
Mr. Duncan. A quorum being present, the subcommittee will
come to order. I would now like to recognize myself for an
opening statement.
First off, let me just say that I am excited about today's
hearing. This is a very timely topic and I look forward to
delving into it. I appreciate the witnesses being here.
Today we meet to examine the impact of low oil prices and
the impact that it has on the countries of the Western
Hemisphere, and to consider how the United States, with our
abundance of natural resources and technical expertise, can
play a more effective role in supporting regional stability and
strengthening energy security, especially for our friends in
the Caribbean and in Central America.
This is the third hearing on energy issues in the
subcommittee in this Congress, because energy is a passion of
mine, and I firmly believe that energy can be a
transformational issue for the societies by providing security
and independence, economic growth and jobs, and prosperity and
empowerment for many people.
In fact, this subcommittee's first event of the 114th
Congress included energy ministers who were in town for the
2015 Caribbean Energy Security Summit. We hosted a breakfast
with conversation for Members of Congress and ministers to
discuss how the U.S. and the Caribbean could build stronger
energy collaboration. These conversations were very fruitful.
And I am interested to hear from our witnesses today about the
deliverables that resulted from last year's summit and last
month's U.S.-Caribbean-Central American Energy Summit.
Specifically, I am curious about post-summit actions to
continue advancing efforts to achieve greater energy security
through exporting U.S. liquefied natural gas, or LNG, assisting
U.S. small businesses with entering the Caribbean and Central
American markets, and considering ways to effectively provide
technical assistance and assist with infrastructure and
financing to achieve sustainable energy solutions.
The Western Hemisphere contains abundant energy resources,
with over a third of the world's proven crude oil reserves and
10 percent of the world's natural gas resources. While the
United States is the largest energy producer in the hemisphere,
Venezuela accounts for 53 percent of the region's crude oil
reserves and 28 percent of the natural gas reserves, with
Argentina, Bolivia, Brazil, Colombia, Ecuador, Peru, and
Trinidad and Tobago having significant oil and gas production.
In addition, the Western Hemisphere also produces the
world's largest amount of hydroelectric power, Brazil and the
United States are among the world's leading ethanol producers,
and Uruguay has the fastest growing wind market in the region
as of 2014.
Our hemisphere is greatly blessed with a diverse mix of
energy resources. However, the drop in oil prices from nearly
$114 a barrel in 2014 to below $30 a barrel earlier this year
had a significant impact on the region. And although oil prices
have increased over the past few months, since Latin America
contains some of the world's largest reserves of oil, the
decline in oil prices results in economic, social, and even
political consequences for many, primarily what we see in
Venezuela.
Last year, the region's economy contracted 0.2 percent,
entering recession for the first time since 2009. Many
countries have experienced severe budget cuts due to the drop
in oil prices, combined with low commodity prices. Mexico,
which receives one-third of its budget from oil revenues,
adopted a more austere 2016 budget, but then had to go on and
cut spending by an additional $7 billion earlier this year.
Similarly, Brazil's state-run oil company, Petrobras, weighed
down by the low oil prices and its corruption scandal, cut its
planned investments for the next few years by nearly 25
percent.
And most significantly, Venezuela has been hardest hit by
the drop in oil prices. Its contracting economy projects a
negative 8 percent growth in 2016, its projected year-end
inflation is 720 percent, and its people are suffering a severe
humanitarian crisis due to the government's gross mismanagement
of the economic situation, compounded by rampant corruption. I
just got off the phone with our representative to the OAS today
talking about some of these same issues.
The United States stands with the people of Venezuela, who
are the ones suffering most from this crisis, which includes
electricity and water rationing, 9 out of 10 homes not having
enough to eat, and hospitals lacking basic medicines and
equipment. And I am deeply worried about the Venezuelan people,
the unsustainability of Venezuela's current trajectory, and the
regional instability likely to result from any potential
collapse of the country.
Related to this subject of oil prices, I am also gravely
concerned about the resounding impact to countries in the
Caribbean and Central America who are currently dependent on
Venezuela's PetroCaribe program for energy. While former
PetroCaribe clients Jamaica and Dominican Republic have paid
off their debts to Venezuela at heavy discounts, more countries
still remain reliant on PetroCaribe, which is in serious
economic trouble.
Small countries in the Caribbean need energy assistance,
because they do not have local fossil fuel reserves, they have
limited infrastructure for delivering energy, and their energy
markets are not well integrated to attract investment and
financing to establish pipelines and LNG infrastructure.
Similarly, Central American countries depend on oil imports and
hydropower, and while some commercial natural gas projects are
under development, there are very few and they have a long way
to go. Countries dependent on PetroCaribe urgently need greater
U.S. engagement before the crisis reaches a tipping point.
In view of the deteriorating situation in Venezuela, which
may severely disrupt the region, the United States has a unique
opportunity to use our strength--that is U.S. oil and gas,
business expertise, technical expertise, market-oriented
policies, et cetera--to begin exercising an effective disaster
prevention response.
So far, the U.S. Department of Energy has taken some
encouraging steps to facilitate Caribbean access to natural gas
liquids by processing small-scale export applications. Why not
declare all projects of a certain size and selling to Caribbean
nations to be deemed in the U.S. national and public interest
and have DOE approve all of them expeditiously?
The best example we have seen so far of a country
successfully transitioning from PetroCaribe to energy
independence is Jamaica, which has adopted LNG as an energy
source. Other countries pursuing LNG projects in the region
include Dominican Republic and Barbados.
While a diversified energy matrix sounds appealing to many,
in the short term, given the regional developments, I am
hopeful that the United States will do more to support LNG
import infrastructure for countries where renewable energy
alone simply cannot provide an effective energy source.
We must also keep in mind that OPEC has strategically
decided to keep the oil market oversupplied, resulting in
alarming effects to U.S. production, both onshore and offshore,
and affecting the U.S. ability to possibly fill any void left
by Venezuela in the destabilizing situation there.
That is why today I have cosponsored H.R. 4559. And H.R.
4599, if it is enacted, will be a 1-year commission of experts
who would assess whether the cartel's actions are designed to
disadvantage U.S. oil producers and secure market power through
anticompetitive behavior, assess the impact of OPEC's policies
on U.S. economic and energy security interests, including on
innovation in both energy production and transportation of
goods and people, and make policy recommendations that counter
these problems.
That ought to be part of our discussion today, because when
we look at the fact that the United States now ranks fourth in
energy production according to, I believe, the U.S. Chamber,
and that is down from number six, so we are improving in energy
production, through 2015. That is prior to OPEC's decision and
Saudi Arabia's decision to oversupply the energy markets, which
has resulted, just since this reduction in our ranking to
number four in the world, we have seen 100 bankruptcies in the
energy market, we have seen 150,000 layoffs in the energy
sector, we have seen a 78 percent reduction in oil rigs, and we
have seen billions in deferred investment.
So as we talk about the situation in this region, we have
to keep in mind the impacts of OPEC policies on the U.S.'s
possibility of engaging in the region more going forward, and
possibly not being able to fill the void left by a
deteriorating situation in Venezuela.
So I look forward to hearing from our witnesses today on
this issue. And we have a guest ranking member, a substitute
ranking member today, Mr. Castro, filling in for Mr. Sires. I
look forward to his comments, and I yield to him for his
opening statement.
Mr. Castro. Thank you, Mr. Chairman, for holding this
hearing.
And thank you to our witness for being here to talk about
the impact of low oil prices on the energy security of the
Americas.
As you know, the Western Hemisphere is home to over a third
of the world's proven crude oil reserves and 10 percent of the
world's natural gas reserves, with the U.S. being, by far, the
largest energy producer in the region. The United States has
extensive oil and natural gas trade relations with the other
nations of the Western Hemisphere, particularly Canada and
Mexico. At the same time, the Obama administration has made
energy diversification a priority, helping to decrease our
dependence on foreign oil and create jobs.
The administration's focus regarding energy policy in the
region has been on promoting the adoption of renewable energy
resources. In recent years, the hemisphere has made strides in
shifting to more renewable and diversified resources and as a
result has become the world's leading producer of hydroelectric
power.
However, the drastic shifts in oil prices have greatly
affected many countries in the region that are more heavily
reliant on hydrocarbons. A large portion of the world's oil
reserves are located in Venezuela, a country currently
suffering from severe economic and political turmoil with an
unstable regime at the helm.
High oil prices greatly benefitted Venezuela and other
energy producers in the Western Hemisphere over the last 10
years. Bolivia, Brazil, Ecuador, and Venezuela funded vast
social spending and energy subsidy programs rather than protect
their proven energy reserves and diversify their economies.
For Venezuela and other energy producers in the region,
such as Ecuador and Brazil, the drastic decrease in oil prices
has led to substantial shortages to their revenue streams and
affected their ability to provide basic services to their
people and grow their economies. Countries like Mexico and
Colombia have diversified their economies and are better
prepared to absorb shifts in international oil prices.
In contrast to the region's energy producers, most
Caribbean and Central American countries have few energy
resources and depend heavily on imports from their neighbors.
High oil prices during the last decade hit many Caribbean and
Central American nations particularly hard, serving as a
bottleneck to economic growth.
Since 2005, the impact of high oil prices was somewhat
mitigated by Venezuela's establishment of PetroCaribe, which
provides oil to other Caribbean Basin nations at a highly
discounted rate in exchange for political influence in the
region. Low oil prices are now forcing Venezuela to reduce the
amount of subsidized oil it sends to its neighbors. I am
interested in hearing how the possible end of PetroCaribe may
affect these small economies.
I look forward to the testimony of our witnesses as they
help this committee understand how the considerable drop in oil
prices since 2014 is affecting our region and as they lay out
the conditions needed in order for oil prices to recover.
Thank you, and I yield back my time.
Mr. Duncan. I want to thank the gentleman.
Other members can provide their opening statements for the
record.
And I hope I don't have to explain the lighting system. We
are going to recognize all the witnesses for 5 minutes. I will
have a little lenience, but not much. If you hear the tap of
the gavel, please wrap up, and then you can finish your
comments during the questions if you would like. But we are
going to try to work expeditiously here today.
So I would like to go ahead and recognize the witnesses,
and their biographies are in your notebooks, so we are not
going to go through their full biographies.
But, Mr. Sieminski, you are going to be recognized first.
And we thank you for being here and look forward to your
testimony. You are recognized for 5 minutes.
STATEMENT OF THE HONORABLE ADAM SIEMINSKI, ADMINISTRATOR, U.S.
ENERGY INFORMATION ADMINISTRATION
Mr. Sieminski. Chairman Duncan, thank you very much. Mr.
Castro and members of the committee, I appreciate the
opportunity to be here before you today.
The Energy Information Administration is the statistical
and analytical agency within the Department of Energy, and by
law EIA's data analysis and projections are independent, so my
views should not be construed as representing those of the
Department of Energy or any other Federal agency.
My testimony will summarize some key findings from EIA's
short-term energy outlook on the near-term price and supply
situation. Then I am going to address some of the regional
dynamics in the energy sector in the Western Hemisphere.
Crude oil prices have recently recovered from a low of $26
in January of this year. Prices for North Sea Brent, which is
the global benchmark price, averaged under $47 a barrel in May.
West Texas Intermediate was about the same.
Today, prices are actually up over $50 a barrel for WTI and
close to $52 for Brent. EIA forecasts that Brent prices will
average close to $43 a barrel this year and $52 a barrel in
2017.
I would kind of offer a warning, though, that trading
markets suggest considerable uncertainty in the outlook,
indicating an average WTI price in September of this year could
range from anywhere between $35 and $70 a barrel.
EIA estimates that oil production in countries outside of
OPEC grew by 1\1/2\ million barrels a day last year, with most
of that growth occurring in the United States and Canada. EIA
forecasts non-OPEC production to decline by a little over \1/2\
million barrels a day this year and an additional 200,000
barrels a day next year, most of that in the United States.
This reflects the decline that both of you talked about in
terms of the drop in drilling activity, especially in the lower
48 onshore states. This is going to be offset by some growth in
the Federal Gulf of Mexico.
Within the OPEC countries, crude production increased by
800,000 barrels a day last year, mostly in Iraq and Saudi
Arabia. We are forecasting almost as much this year, but it
will be coming from Iran. OPEC noncrude liquids also will be up
in 2016 and 2017.
EIA expects major OPEC producers to continue a strategy of
market share rather than production cuts. However, EIA
estimates that inventory builds of global petroleum and other
liquid fuels will start to taper off. They are very large now,
but they will taper off, and that should bring the markets back
into some kind of balance next year.
Over time, a continued slowing of the investment that
started in 2015 will make it difficult for supply to respond
quickly to future growth and demand for oil. As a result,
prices are expected to return to nearly $80 a barrel in the
next decade.
In South America, notably Brazil, Colombia, and Peru, long-
term economic expansion is expected to support growing demand
for oil, primarily for transportation uses and also in the
industrial sector. Brazil, with the region's largest economy,
accounts for about 60 percent of the regional growth in oil
demand over the period out to 2040.
Just turning to natural gas for a bit, we expect a gradual
rise through the summer as demand from the electric power
sector increases, but we expect prices here in the U.S. will
remain below $3 a million BTU through the end of the year.
Natural gas production and consumption continues to grow
fairly dramatically across the hemisphere. In addition to the
U.S. natural gas pipeline trade with Canada and Mexico since
the beginning of 2016, multiple cargoes from the Sabine Pass
LNG export facility are delivering gas to Argentina, Brazil,
and Barbados in the form of liquefied natural gas. The U.S. is
going to become a net exporter of gas by 2017.
U.S. natural gas production remains high. Gas imports from
Canada are coming down, growing exports of U.S. gas to Mexico.
U.S. gas exports by both pipeline and LNG tanker shipments are
expected to continue to go up. Mexico's electric power demand
is creating an opportunity for U.S. companies in selling gas by
pipeline.
EIA's International Energy Outlook Reference case projects
that natural gas production in the Americas, OECD countries,
grows by almost half by 2040, with the U.S. accounting for most
of that. Natural gas production in the non-OECD Americas region
nearly doubles in EIA's international outlook by 2040.
Argentina, the country with potentially the largest gas
resource, could become South America's leading natural gas
producer by 2040. YPF, the national energy company, has joint
ventures with a number of international oil companies,
including American companies.
Brazil's natural gas production is projected to triple by
2040. EIA projects that natural gas consumption in South
America overall will increase by 2 percent per year out to the
year 2040, with electric power accounting for most of that
growth.
Summing up, Mr. Chairman, the Americas are the world's
second leading producer and consumer of liquid fuels, they are
the leading producer and consumer of natural gas, and
hemisphere crude oil and petroleum products trade is large and
growing.
Lastly, I would just like to mention the successful
collaboration on energy data that EIA has underway with our
statistical counterparts in Canada and Mexico. This trilateral
effort has already resulted in the development of maps of
energy infrastructure across all of North America, a cross-
reference of energy terminology in three languages, English,
Spanish, and French, because of Canada, and a better
understanding of the differences in trade statistics that will
enable us to improve the data accuracy and transparency over
time.
I would like to thank you very much for the opportunity to
testify, and I would be delighted to answer your questions.
Thank you.
[The prepared statement of Mr. Sieminski follows:]
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Mr. Duncan. Thank you so much for your testimony.
Mr. Hochstein, thank you for being here today. And you are
recognized for 5 minutes.
STATEMENT OF MR. AMOS HOCHSTEIN, SPECIAL ENVOY AND COORDINATOR
FOR INTERNATIONAL ENERGY AFFAIRS, BUREAU OF ENERGY RESOURCES,
U.S. DEPARTMENT OF STATE
Mr. Hochstein. Thank you, Chairman Duncan, Ranking Member
Castro, and members of the subcommittee.
Mr. Chairman, we are living through a global energy
revolution that has established the United States as an energy
superpower. When I say energy superpower, it is because the
United States is a leader in the full range of energy issues.
In oil, we went from producing less than 6 million barrels per
day a few years ago to a peak of 9.5 barrels a day in 2015. In
natural gas, we have gone from being the world's largest
importer to becoming a significant exporter. When it comes to
wind, solar, geothermal, in R&D, in innovation, in efficiency,
in technology, the United States is the lead across the entire
spectrum. However you define energy, the United States is the
center of it and a position of global leadership.
In our hemisphere, Mexico has undertaken historic action to
reform and modernize the structure of the oil, gas, and
electricity sectors. However, the timing of the reforms was
unlucky. As the reforms were being finalized, oil prices
tumbled. The Mexican Government was faced with the challenge of
demonstrating that the negative impacts being felt throughout
the sector were not the result of reforms, but rather of the
oil price decline.
Argentina, in spite of having the world's second largest
reserves of shale gas and great wind potential, it saw little
investment in the sector in the previous decade due to
restrictive policy and a negative regulatory environment. The
new Macri administration, which found itself facing a state of
emergency in the electricity sector shortly after coming into
office, has demonstrated an awareness of the opportunities of
reform in both shale gas and electricity sectors, as well as
the need to attract international investment. This is the new
chapter in Argentina's history, and I will be traveling there
in 2 weeks.
In Colombia, low oil prices have led to a fall in
production, difficulty in stimulating the country's limited
petroleum reserves, and reduced government revenues. The
compounding effects of a serious drought this year further
obligated Colombia to turn to more costly electricity options.
In all three of these countries, we are deeply engaged to
provide technical assistance in the power and renewable
sectors, as well as the conventional and unconventional
hydrocarbon sectors. With their political leadership and a
strong partnership, their prospects to weather the storms are
quite good. However, countries that are less diversified,
fiscally constrained, and less progressive in their energy
governance are facing a far more severe set of consequences.
The clearest example is Venezuela, where oil generates
about 95 percent of the country's total exports and contributes
almost half of the government's revenue. Venezuela's crude oil
production fell from 3\1/2\ million barrels a day in 1997 to
below 2\1/2\ million barrels per day today. This is in spite of
the fact that Venezuela has the largest oil resources in the
world. Its mismanagement of the sector, its lack of
reinvestment, and corruption means that the low oil price is
one blow too many for the Venezuela economy. By accepting in-
kind financing deals repaid in oil, Venezuela has constrained
even further its cash flow, to the detriment of its own people.
However, while the oil exporters struggle, importers in the
region are hopeful. Up until 2012, the high Caribbean and
Central American energy costs were frequently cited as a major
impediment to economic growth. For these countries, the fall in
oil prices was a blessing, but they are living on borrowed
time. Without establishing meaningful reforms now, oil prices
will rise and the fiscal shocks will return.
Venezuela has long used energy as a political lever through
the PetroCaribe scheme, which has created not just an oil
dependency, but a financial one, linking the fate of
Venezuela's declining capacity with the region's energy and
fiscal security. An awareness of this risk has led some
countries, as you mentioned, Mr. Chairman, to take advantage of
the current context to buy back debt and pursue reforms. These
steps will help, but they are not enough.
This is why our level of engagement in Central America and
the Caribbean has been unprecedented. Vice President Biden
announced the Caribbean Energy Security Initiative, which you
mentioned, in 2014, and I served as the President's U.S. chair
for the Central American and Caribbean Energy Security Task
Force.
Instead of depending on Venezuelan oil, the Caribbean
nations can utilize 11 months of sun, wind, or geothermal, and
in some cases countries have the scale for natural gas. Sitting
so close to the U.S. shores, with our abundance of gas and the
lowest price globally, means those countries will be less
reliant on one supplier and will spend less on energy costs.
Technology is advancing quickly and the private sector is
already reducing the scale and size necessary for natural gas
for the Caribbean, and U.S. renewables companies are actively
exploring the opportunities in the region. Already U.S.
companies are announcing significant projects there.
The exciting potential for Central America is the
opportunity to connect to itself. Through the SIEPAC and
Connect 2022 initiatives, we are working with the region to
establish a single Central America power market from Mexico in
the north to Colombia in the south. This will turn eight small,
isolated electricity markets into one market, boosting
investment and lowering costs.
We all agree that it is time to move beyond short-term
fixes and take action to establish a new energy paradigm. This
is not just about economic prosperity or environmental and
climate goals. It is also in the interest of a more security
hemisphere and key to the national security of the United
States. The 21st century, I believe, could see a shift of the
energy center of the world to the Americas. U.S. engagement is
helping to get us there.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Hochstein follows:]
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Mr. Duncan. Thank you so much.
Ms. Kenderdine, 5 minutes.
STATEMENT OF MS. MELANIE KENDERDINE, DIRECTOR, OFFICE OF ENERGY
POLICY AND SYSTEMS ANALYSIS, U.S. DEPARTMENT OF ENERGY
Ms. Kenderdine. Thank you, Chairman Duncan, Ranking Member
Castro, and distinguished members of the subcommittee. I
appreciate the opportunity to be here today to discuss the
impact low oil prices have had on countries in the Western
Hemisphere and ways the United States can enhance our energy
security by assisting our allies and partners in the region.
I am going to focus my remarks on the changed U.S. energy
profile, how we view energy security in the context of the 21st
century energy marketplace, and some of DOE's initiatives in
the Western Hemisphere.
Until recently, the U.S. definition of energy security has
been oil-centric, a narrow view that provides an inadequate
framework for U.S. energy security policy in the 21st century.
In June 2014, after the Russian aggression in Ukraine, the G7
leaders and the EU noted that ``Energy security is not only
domestic; it is dependent on interaction in the global
interconnected market.''
The leaders endorsed a set of seven broad collective and
modern energy security principles summarized as follows: One,
development of flexible, transparent, and competitive energy
markets; two, diversification of energy fuel sources and roots;
three, reducing our greenhouse gas emissions and accelerating
the transition to a low-carbon economy; four, enhancing energy
efficiency; five, continued investment in game-changing
research and innovation; six, improving energy system
resilience; and seven, putting emergency response systems in
place.
Within this framework, we need to consider the fact that
the U.S. is now the largest liquid fuels producer in the world,
the world's largest gas producer, and is also poised to be one
of the largest gas exporters as well. These dramatic changes in
domestic oil and gas production were both enabled by technology
investments started at DOE in 1978, along with supportive tax
incentives sustained for over two decades. They also have
significant infrastructure and supply chain implications.
Because of these changes, DOE has been able to approve 19
liquefied natural gas export applications for non-free trade
agreement countries in the last 4 years. As of March of this
year, U.S. LNG producers have exported 11.5 Bcf of LNG to
Barbados, Jamaica, and Brazil in the Western Hemisphere, as
well as to India.
The U.S. entry into the world LNG markets, with volumes
only exceeded by Qatar's, will put downward pressure on
European and Asian gas prices and could constrain
noncompetitive gas marketing practices, such as those of
Russia.
Finally, it should be noted that the widening of the Panama
Canal is taking place coincident with the growth of LNG exports
from the U.S. This multibillion-dollar infrastructure
improvement could help facilitate and lower transportation
costs for U.S.-origin LNG trade with Asia and possibly to
destinations on the west coast of South America.
Switching gears to North American energy markets, where
Secretary Moniz has invested a great deal of time, I would just
note that the value of energy trade between the U.S., Canada,
and Mexico has exceeded $150 billion annually in recent years.
We have had two trilateral ministerials in the last 3 years and
are working together on a range of initiatives.
There are also major commercial markets in Central and
South America, and we are collaborating with several
countries--Argentina, Brazil, Chile, and the nations in the
Caribbean and Central America--on a range of energy issues that
will both enhance their energy security as well as our
commercial opportunities.
It is also important to note that most of the countries in
our hemisphere, 32 out of 37 from my rough count last night,
signed the Paris Agreement in New York on Earth Day and are
committed to achieving deep carbon reductions. This creates new
market opportunities for clean energy technology, where the
U.S. is another clear leader.
In this regard, DOE started and is a founding member of the
Clean Energy Ministerial, which includes Canada, Mexico,
Brazil, and 20 other countries. The new Mission Innovation
initiative, where 20 countries are working to double their
spending on clean energy R&D to accelerate transformation of
energy systems, includes the U.S., Canada, Mexico, Brazil, and
Chile. We support several other multilateral initiatives. They
are in my written testimony.
Finally, the Strategic Petroleum Reserve remains an
important national security asset, protecting the U.S. economy
and the economy of our allies from oil disruptions. To maximize
the value of the SPR, the administration recommended and the
Congress authorized an investment of $2 billion for its
modernization.
I note here also that Congress recently gave the Department
emergency authorities to respond to cyber attacks on our grid,
a new and growing energy security challenge as electricity
becomes the uber infrastructure on which all other critical
infrastructures rely.
The changing energy landscape in the U.S., the nature of
global energy markets, and the need for accelerated innovation
to transform global energy systems frame our broader, more
collective approach to energy security. It is in this context
that the U.S. is deeply engaged with our allies in the Western
Hemisphere to promote energy security in a wide variety of
ways, irrespective of short-term volatility in commodity
prices, sustained by friendships and alliances and common
interests over time.
Thank you very much.
[The prepared statement of Ms. Kenderdine follows:]
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----------
Mr. Duncan. Thank you so much. And thanks for mentioning
cybersecurity as part of the energy security threat, not only
to delivery systems like the grid, but also to production
facilities as well. We have to keep that in mind.
For the record, I am truly an all-of-the-above energy guy.
I like wind and solar. I fully support countries like Uruguay
and Peru and Chile that are going for more renewables. We
visited on a codel to Chile recently a $200 million investment
in a solar facility just out of Santiago. And so truly like to
see the private investment in those areas.
But when I was at the Summit of the Americas last year,
before I went to the Summit of the Americas, we talked a lot
about North American, really American energy independence and
North American energy independence working with our allies to
the north and south, Canada with the Keystone Pipeline and
their oil fields, but also with Mexico, the expansion of
natural gas pipelines from the Eagle Ford Shale into Mexico,
denationalization of Pemex, and other things that were going on
in North America.
But then in conversations at the summit, we really started
thinking more broadly about the Western Hemisphere and thinking
about hemispheric energy independence, thinking about LNG
exports, thinking about the Panama Canal, thinking about the
pipelines that could supply natural gas from the U.S. to
Central American countries that could be a game changer for
quality of life.
And when I think about renewables, I think about energy, I
also think about 24/7 baseload power, always on, always
available, that you don't get from some intermittent sources.
Proven sources are fossil fuels, oil and gas that work to
provide transportation fuels, but also for electricity.
In addition, we always think about hydroelectricity as
being a prevalent source of energy. But what we see in
Venezuela, due to the El Nino and weather patterns that have
changed, and a drought, low water levels, they are having to
ration electricity due to the hydroelectric dam not having
water levels necessary to provide electricity in Venezuela.
So there are a lot of dynamics and moving pieces with
regard to energy security in the hemisphere.
I do know this: That a robust U.S. energy renaissance due
to the Bakken formation, due to expansion in the Gulf of
Mexico, and other energy sources, new technologies, the impact
of hydraulic fracturing and its impact on the natural gas
production, has led to the United States' ability to export a
lot of natural gas and possibly export oil. Congress lifting
the decades-long oil export ban could make, and was poised to
make, the United States a bigger player in the energy markets
globally.
But then we see OPEC, the information I provided earlier,
really increasing global supply of oil, and the impact that it
has, not only on U.S. producers. I mentioned earlier 100
bankruptcies in the energy sector, 150,000 layoffs. Reduction
in investment in the energy sector was mentioned earlier. But
think about those OPEC policies and their impact on countries
like Venezuela and the Maduro government that does not have the
revenues now to artificially prop up the Socialist government
and provide a lot of things to the citizens of Venezuela. The
Venezuelans are the ones that are hurting.
I think we will look back at OPEC's decision as possibly
being a game changer in a positive way for Venezuela--my hopes
anyway--in regime change there, to lead to more democracy, more
popular involvement in government, and more democratic
principles applied in reality, not just on paper. So I hope
that we will look back and see that.
So, Mr. Hochstein, we talk about North American energy
independence. You have heard all that I said. How can North
American governments work better together to promote the energy
resources that we have? We know what Mexico and the U.S. are
doing in the Eagle Ford, just south of Mr. Castro's district.
We know what Canada and the U.S. have historically done and
want to do with bringing Canadian oil to the refining capacity
it will have in the U.S. We know we have lifted the decades-
long oil export ban. We know that hydraulic fracturing has led
to an expansion of natural gas so that we can export LNG. We
know that we are trying to do all we can to expedite the
permitting for LNG terminals so that we can be ready to export
that. We know that Caribbean, as well as European countries,
are wanting U.S. gas.
What can we do more to make sure that the U.S. plays a part
in energy stability, is what I am going to call it, within the
Caribbean, but also in the Western Hemisphere region? And I
will let you answer.
Mr. Hochstein. Mr. Chairman, thank you for that question. I
have spent a considerable amount of time thinking and working
on this issue.
I think that the way you have described it correctly is
about the stability and security of the region, which is why we
called it in 2014, when oil prices were at $100, the Caribbean
Energy Security Initiative. And it is about looking at just in
our hemisphere, in the Caribbean you have islands that are
dependent on fuel oil from Venezuela, where the dependency is
not really on the oil, you can replace the oil with a different
supplier, but the PetroCaribe scheme has indebted them and,
through some additional aspects of corruption, has made an
untenable situation for most of these countries to be able to
sustain their economies long-term with this kind of debt
structure. And we saw recently, you were in Paraguay recently,
where PetroCaribe Venezuela tried to call the debt on Paraguay
as a political leverage.
So we have to get away from that paradigm. And we are in an
era where, I think that you are right, that we have to have a
mix, whether it is some renewables and natural gas. But none of
that has been taken advantage of. And if you look at the case
that you mentioned in Jamaica, where it has been renewables and
natural gas, we are starting to see a real change in what we
can do.
And the leadership of the United States is necessary, not
only in the permitting process, but the innovation on the
corporate side, on the private sector, in addressing the
smaller-scale capability to deliver gas, LNG, from the United
States to the Caribbean islands is advancing very quickly. We
are now talking about companies putting barges as a floating
gas terminal so that you lower both the cost and the ability
for the scale size of it.
The first LNG cooperation between the United States and
Jamaica started because an American company met with the
Jamaican Prime Minister at the first Caribbean Energy Security
Summit last year, a year and a half go. They met there, and we
encouraged it through there. We have to expand that, but we
have to do it not--we can't be the sole answer. It cannot be
just about the United States. We have to bring in Canada and
Mexico and the EU and other member states from the EU
individually that will support us both financially, in working
with the IDB, the World Bank, and others to create the kind of
financial environment that will allow investment.
We have a problem. We can find solutions to the energy
security in the Caribbean. But as long as you don't have a
regulatory environment, a legal structure that American
companies can trust, you are not going to have the investment,
no matter what the price of gas is, no matter what the price of
renewals are.
Mr. Duncan. Talking about the rule of law, legal structure
in the countries in the Caribbean and also in other Latin
American countries that would make American companies feel
comfortable doing best there.
Mr. Hochstein. That is right.
Mr. Duncan. Let me ask you, and in the interests of time,
you mentioned Argentina. So the Macri government is very
interested in expanding the bountiful resources in Argentina.
When we were in Chile and Argentina on the same codel, there is
a gas pipeline that runs from Argentina to Chile. It was once
used to export natural gas from Argentina to Chile. Now it is
used to import natural gas from Chile, and that doesn't make
the Argentine people very happy.
Mr. Hochstein. That is right.
Mr. Duncan. They want to be an exporter.
So the Macri government wants to really start exploring and
exploiting the natural resources to make Argentina a player
once again. How does he do that? How does he attract that
investment at $30 to $50 a barrel of oil? And what is the price
point that will make it attractive for foreign investment in
Argentina?
Mr. Hochstein. So, again, I think what we are seeing is
that putting together good governance and good tenders that are
supportive, the kind of terms that will be supportive of
investment, have already been successful, and American
companies and international companies are coming to Argentina.
Our teams have already been down to Argentina. I will be
there in a couple of weeks. They have tremendous unconventional
shale gas potential, some of the best that we have seen in the
world. We would like to be supportive of them, looking at how
to develop that, bringing in the kind of companies that would
be able to support them. So I think their production can rise
in natural gas while at the same time looking at other power
solutions in the power sector.
But it is not only there. We are seeing that by bringing
the costs down of LNG and of floating storage and
regasification units, so SFRUs, and the concept of a floating
terminal, we are seeing that throughout Central America and
South America. So Colombia is going to have a floating
terminal. Honduras, El Salvador, and Guatemala all are talking
about how do you utilize floating terminals while also
interconnecting pipelines.
So you talked about, sir, the interconnection between the
United States, the Eagle Ford, with Mexico, but if we can also
have an interconnection from Mexico to Guatemala of natural
gas, that will allow for bringing, essentially interconnecting
the American market all the way down to Mexico and from Mexico
down to Guatemala, and you are starting to see us develop a
broader market that can support their economies while also
bringing down costs by broadening the base of what the sector--
--
Mr. Duncan. It would be a huge game changer for the quality
of life in some of these Third World countries. Mexican gas
coming from the north, LNG coming from the Panama Canal as a
distribution hub going north and south could be a game changer
for some of those countries, and I truly believe it. Thanks for
mentioning that.
I am out of time. I am going to yield to the ranking member
for 5 minutes.
Mr. Castro. Thank you, Chairman.
And thank you to each of you for your testimony, and most
of all for your service to our Nation.
You know, I sponsored legislation, was one of the sponsors
of legislation last year on expediting LNG exports. And then
this Congress voted in December, I believe, on the omnibus
bill, which lifted the decades-long oil export ban. And Texas,
of course, is a big oil and gas State. I represent San Antonio,
and just south of that is the Eagle Ford Shale, one of the
largest shale plays in the Nation. But I also see a bit of a
cautionary tale in the Eagle Ford, and I will tell you why.
When the price of oil was very high, there were lots of
predictions, that were considered very solid predictions, that
things would be that way for 20 years or more, that the times
would be great. And if you looked at all of these small towns,
you had landowners who suddenly were wealthy because they were
able to lease the rights for drilling and so forth, towns built
more hotels and infrastructure to accommodate the new traffic
that was coming through there, both commercial and visitors,
all of the workers who were then staying in these towns. And
then, when the price of oil started to go down, the number of
rigs also went down, and many of those towns are now left kind
of in a lurch and trying to figure out what to do.
So you mentioned the case of Argentina, for example. As we
think about the direction that these countries are going to go,
how do they avoid getting into that same boom-and-bust cycle?
And perhaps it is not avoidable, we have gone through it before
in the United States.
And also I agree with the chairman's comment about the
issue of baseload versus intermittent sources of energy. I
think that is a legitimate concern. That has to do with the
predictability of availability, right? But what about the
predictability of pricing? Because in the Eagle Ford Shale,
what you saw was an issue with the predictability of pricing.
In other words, people thought it was going to be $100 or more
for years to come.
So, please, any of you, if you would discuss those things.
Mr. Sieminski. I hear my colleagues sighing with relief
that I would be delighted to answer your question, Mr. Castro.
I think, actually, something that Chairman Duncan mentioned
during his question, the two comments are really running
parallel. It is how can the U.S. help energy security in a
period of low prices, cautionary tale of Eagle Ford, how do you
attract capital at $30 to $40 a barrel crude oil, and this
issue of volatility. When I mentioned during my opening remarks
that the market-implied volatility for the month of September
coming up could range from roughly $35 to $70 a barrel, you
kind of go wow. I mean, that is plus or minus $20 from where we
are now basically.
Why is that? And it is not a prediction from EIA. It is not
a prediction from consensus forecasts of market analysts. It is
actually the market itself. It is producers and refiners and
airlines and trucking companies and hedge funds and others who
are involved in the options market. And you can actually take
the prices that they are paying in the futures markets and
options and work it backwards to say what that means to
volatility.
So this is just the reality. The reality is you really
don't know what the price is going to be. So what companies
tend to do, and countries need to understand this as well, they
can't manage the price, they have to manage their costs.
Companies have to be careful in what they spend, they have got
to be very disciplined in how they build up their cost
structures.
And for countries, I think as Amos was saying, they have to
look at the contract structure. So if prices were to go back to
$30 or $40 a barrel, countries have to be very careful how they
set the contracts up, because they could get companies to come
in if they made it attractive for the companies to participate
at those levels.
Ms. Kenderdine. I would say a couple of things. That
looking at it, the low oil prices have had a small but positive
impact on the U.S. economy, on U.S. GDP. And it is the same for
countries in Latin America, that if you are an importer and
relying on imports, you benefit from low oil prices.
The countries that are producers in Latin and South America
that have diversified economies, one of them is Mexico--Mexico
has the most diversified economy--has not suffered as much from
low oil prices, because it has a large manufacturing sector,
and that manufacturing sector benefits from low energy prices.
And so I would say that diversification of economies is
important so that you can avoid some of the boom-and-bust
cycles.
And I agree with Adam that managing price is not what we
do. But I would say one other thing, talking about Argentina--
all of Latin America, actually. Development of flexible,
transparent, and competitive markets is one of the principles
that we are using for defining energy security. So that is
important, as is diversification of energy fuel sources and
roots. And so it is not just diversification of your economy,
it is diversification of your infrastructure and sources of
supply and types of supply.
Mr. Hochstein. First, never believe projections, long-term
projections on oil price, and don't make plans based on them.
Mr. Castro. Well, I won't anymore.
Mr. Hochstein. Even EIA's. That is my first advice to any
country.
Mr. Castro. Well, but let me ask you. We are talking about
oil and gas, right? How does that stack up against the
predictability of pricing for wind or solar or hydro, I mean,
these other sources of energy? We know with respect to
baseload, the fossil fuel has obviously been more reliable,
right? But with respect to the predictability of the pricing,
how do these others stack up against fossil fuel?
Mr. Hochstein. Well, I think there it is different, because
there is not a global price, benchmark price for wind or for
solar the way there is for oil.
Mr. Castro. So it is more predictable?
Mr. Hochstein. So you are doing tenders and essentially
companies are bidding on what they will charge you for the long
term or for medium term if they get the contract to build it
out.
But I will say on how these two issues that you just asked
in Argentina play out, we have two programs that we are running
right now in Argentina that we just started. One is in the
power sector, a power sector program that works specifically on
this issue to help them on the technical expertise side, how do
you figure out how to put together a good tender where you will
get the maximum benefit for the country and understand how to
deal with some of these countries that are bidding and put it
together in an open, transparent, but also economically and
something that works well.
The same in the unconventional in shale gas. We have a
program called the Unconventional Gas Technical Engagement
Program. And in Argentina it is working really on how do you
make sure that you have internationally competitive contractual
and fiscal regimes that will support Argentina as they
negotiate to bring in companies.
What you don't want is in some cases where we have seen
over the last 40, 50 years in the oil and gas sector, countries
have a newfound resource, they don't have the same legal
expertise on how to deal with the oil sector, company comes in,
30 years later they realize they have been paying--all the
profits have gone to the company, none have been able to be
used for the country.
So we are trying to help, specifically on shale where we
have expertise that nobody in the world has, to be able to
support them. So we have a program that just started in
Argentina on that.
Mr. Castro. Thank you.
Mr. Duncan. The gentleman's time has expired.
Global demand has an impact on that as well. I don't think
you all touched on that. I drive a diesel truck. And in the
times I have driven a diesel truck, historically diesel fuel
has been higher than unleaded gasoline. Now what we have seen
is diesel fuel is actually less than the per gallon price of
unleaded gasoline.
And I have chewed on that a lot. I ask everyone listening
in the audience today to think about that, because I really
believe global demand on diesel fuel has an impact on low
diesel prices right now, because the supply of crude oil is the
same. Both of them are refined products. So after the refining
process, the amount is pretty much the same. So now we have
diesel prices at a low. I have been driving a diesel for 6 or 7
years, and I have never seen that until just recently. So it is
an interesting impact.
I will go to the gentleman from New York, Mr. Donovan.
Mr. Donovan. Thank you, Mr. Chairman.
I have two questions for the panel, one dealing with the
use of ethanol, the increase of ethanol in Mexico in their gas,
and the other is about our national security and the oil
reserve.
Over the last decade in the United States, we have
experimented with an ethanol mandate requiring ethanol be
blended into our gasoline. The mandate was created in about
2005 and expanded in 2007 with a goal to decrease the United
States reliance on foreign sources of oil. While we were
sitting here, the AP just reported that the EPA is holding a
hearing in Kansas City, Missouri, today about reaching the
goals that they set in 2007. Obviously, the oil market has
changed with the revolution of hydrofracking for natural gas,
the world has an abundance of oil, and the United States is now
an exporter.
We also have seen the unintentional adverse impact of the
ethanol mandate, including harming our environment, increasing
the cost of food, and a negative impact on various types of
engines. With the recent liberation of Mexico's energy sector
and the mandate, or the push to increase ethanol use in Mexico,
I was just wondering if you could comment on how that would
affect the environment, how that is going to affect the food
prices for the Mexican people, and how it would affect the
engines in the cars in Mexico.
Ms. Kenderdine. Well, the ethanol mandate is a mandate
passed by Congress, and it is volumetric, it is not percentage,
which has always been interesting to me, because if your
consumption of fuel goes down, the percentage of ethanol goes
up, because it is volumetric. But it is the law, and I think
that it has generated a significant industry, and I am certain
that it will do so in Mexico as well.
What I would say about DOE is that we have invested
significantly in non-food biofuels, and so we are very
interested in that. We will continue to do that and have been
working with many countries in Latin America on technical
expertise in nonfuel biofuels, in Brazil, Mexico, I believe,
Canada. We are working with them on advanced biofuels, et
cetera. So I can't say how it will turn out in Mexico, but I
know that it has generated a significant industry there.
Mr. Donovan. Does anybody else care to comment?
My second question actually has to do with our national
security, the oil reserve. The ban on exporting oil was to
protect our national security. Now that that is lifted, are
there any related threats to our national security that any of
you see?
Mr. Hochstein. Well, first, I am going to let Adam talk
about sort of the numbers, but even though we have seen this
dramatic rise in production of oil and gas in the United States
and that our rate of imports has decreased significantly, from
over 60 percent to below 30 percent, that doesn't mean that we
are isolated or insulated from the world markets. So a
disruption anywhere in the world has impacts everywhere in the
world, including the United States.
We are now living through the largest disruption level in
oil production that we have seen in 5 years or so. We have seen
through the fires in Canada 1 million barrels a day went off
the market. Due to the terrorist attacks in Nigeria in the
delta against the platforms, Nigeria has significantly cut its
oil production, almost by half, to just around 1 million, 1.1
million barrels a day. So that is a significant decline in
production all of a sudden. So if you can see, other shortages
or outages will affect the United States without a doubt.
So I think I would look at energy security not as how do we
become independent of the rest of the world, because it is a
commodity and it is always going to be tied, but rather see how
much we can improve our diversified situation, how do we work
closely with our allies and friends around the world, whether
it is through the IEA, the International Energy Administration,
or through other bilateral relationships, to make sure that we
are working together on the stability in the market itself and
to secure energy supplies and routes.
So I think that is our best bet in protecting our own
national security, and making sure that no country in the world
is beholden to one supplier, whether it is, as Melanie
mentioned before, Russia and Eastern Europe, where that is
using its monopoly on gas to politically coerce and use it as a
weapon, or Venezuela, as we discussed before, in this
hemisphere. Those are the things that we can do to ensure our
national security.
Ms. Kenderdine. If I could say something about the
Strategic Petroleum Reserve. The requirement in law is to use
it to protect the U.S. from the economic harm caused by oil
disruptions. And Amos is right, it has very much changed since
we first established the SPR in 1979, where you actually did
have physical shortages. Now you get much more harm from the
price spikes and prolonged outages than you do from actual
physical loss of supply, and that is because we now have an oil
market, a global oil market. We didn't have one when we started
the SPR in 1979.
But another thing I would say is that we have been
authorized for $2 billion to modernize the Strategic Petroleum
Reserve, and we need to do that in part because we need to get
oil on the water. And we are producing enough additional oil in
the United States that a lot of that oil is moving to the Gulf
of Mexico where the SPR oil facilities are located, and we need
to be able to get incremental oil onto the water when there is
a disruption in the world. And so it is thanks to the Congress
for authorizing that. It is very important for our energy
security in the future.
Mr. Donovan. I thank you all.
Chairman, my time has expired. Thank you.
Mr. Duncan. Thank you. I thank the gentleman.
I go now to the gentlelady from Illinois, Ms. Kelly.
Ms. Kelly. Thank you, Mr. Chair.
The last few years, we have seen declining oil prices.
However, historic patterns of lower oil prices resulting in
economic growth have yet to materialize. Quite simply, consumer
demand is changing, and we are creating an oversupply of oil.
Another market where we already have an oversupply is in
the international corn market. Corn is trading at roughly $4.30
a barrel. Years of high crop yields have resulted in excess
corn. Seeing an oversupply in both marketplaces, with an
overinvestment in oil and an underinvestment in corn and
cellulosic ethanol as forms of alternative energy, I have seen
the opportunity for ripe--ripe for growth and diversification.
I will say, my district is urban, suburban, and rural, but
the rural part of my district has 1,200 family farms, and they
grow $367 million worth of corn, wheat, and soybeans every
year.
And expanding upon my colleague's question, Mr. Donovan,
can you just explain more how you are working with Latin
American countries to use non-edible portions from corn and
ethanol?
Ms. Kenderdine. Well, basically, it is technical assistance
on how you produce ethanol and et cetera from non-food
products--cellulosic ethanol. We worked with Brazil to produce
bagasse, which is the non-edible part of sugarcane. And what I
would say--one, we are an R&D organization, by and large, so
that is what we do for a living.
Something I would say about the Caribbean and Central and
South America is the production of ethanol will help with some
of the energy security issues that we are talking about here
today associated with Venezuela and oil. We need to find
alternatives for these countries to oil, and that is one of the
things that we can do.
And so we are also, in the U.S. and with some countries,
working on advanced biorefineries. That is one of the things we
are doing here and--I forget which country we have been working
on biorefineries as well.
So it is, by and large, a technical assistance and R&D
program but with the underlying motivation of enhancing the
energy security of these countries in Latin America.
Ms. Kelly. What do you see the opportunities are with Cuba
and the sugar ethanol?
Whoever----
Ms. Kenderdine. Sorry. I don't know.
Amos, do you--I haven't looked at Cuba and sugar ethanol.
So, sorry. I can get more information for you.
Ms. Kelly. Okay. Thank you.
Did you want to take a crack?
Mr. Hochstein. No. I have to be honest, I don't know much
about Cuba's ethanol production. I have looked at Cuba from
other perspectives but not that. We are happy to get back to
you, I think collectively between the two of us, after the
hearing.
Ms. Kelly. Okay. Thank you.
And, Mr. Chair, I yield back.
Mr. Duncan. Thank you. I thank the gentlelady. Great
questions.
I go now to Mr. Yoho from Florida.
Mr. Yoho. Thank you, Mr. Chairman.
And I appreciate the panel being here.
As Venezuela goes through their tumultuous time, how much
of the market have they lost? Or their production, I guess is a
better question. How much is their production down in
Venezuela?
Mr. Hochstein. What I said in my testimony earlier, sir,
was that in 1997 they were at 3\1/2\ million barrels a day.
Today they are somewhere between 2.2 and 2.5 but definitely
below 2.5 million barrels a day.
Mr. Yoho. And they are doing most of their refinery in the
United States with Citgo, right?
Mr. Hochstein. They do a lot of--they sell a lot of their
oil to themselves through Citgo.
Mr. Yoho. Okay. Has that been impacted much by that
reduction, or are they filling that void with their decreased
production by U.S. suppliers?
Mr. Hochstein. No. The United States is actually one of few
places they get market price for their oil, so I suspect that
that is going to continue to be a good supply source for them.
They have had to discount their oil significantly due to other
reasons.
Mr. Yoho. Okay.
Where do you see the Venezuelan production in the near
future, in, say, 5 to 10 years? And I know it is such an
uncertainty, with the state of their politics and economy, but
your prediction?
Mr. Hochstein. Sir, I said before to Mr. Castro that one
should be wary of projections. So I don't want to----
Mr. Yoho. Yeah, I heard you say that. I was trying to get
you to come clean on that. But----
Mr. Hochstein. But----
Mr. Yoho. Go ahead.
Mr. Hochstein [continuing]. Absent any change, their
production will continue to decline below 2 million.
But I will say that it is not--what is happening now is not
sustainable. At the end of the day, Venezuela's oil is easy to
produce. It is not complicated. And the minute there is a
political and economic change, you will see an increase in
production. Because companies want to go to Venezuela; they are
just forced out by both the politics, the corruption, and the--
I would accuse the government of malpractice when it comes to
management of the resource. When you have the largest resource
in the world and you are declining at this rate, that is
malpractice.
So, as long as this continues, the same situation as is
today, they will continue to see declines--not to zero. There
will be--because oil is too easy and PDVSA is too to good at
producing it. But there is going to have to be some kind of
change.
Mr. Yoho. How much does that influence the market and the
security, I guess, of the Caribbean areas, especially the most
important, you know, the U.S. Virgin Islands and, like, Puerto
Rico? How much does that, number one, affect the price and then
the stability of a reliable baseline energy production?
Mr. Hochstein. Well, our message has been, to the region,
to the Caribbean in particular, is: You need to get off
PetroCaribe, and you need to do it now.
Mr. Yoho. Okay.
Mr. Hochstein. And at low oil price is the right time to do
that.
And you can do that--every island is going to be different
because they have different resources, different capabilities,
and different financial outlooks.
The other is not the issue of the oil itself but the issue
of the debt and the credit. So if you look at Jamaica or
Dominican Republic that use the cash crunch in Venezuela to buy
back their debt at a few cents on the dollar, not everybody is
able to do that.
You know, Haiti, while their reliance on PetroCaribe has
decreased significantly--but if you look at their statistics,
86 percent of Haiti's foreign debt is held by Venezuela, which
is 15 percent of their GDP. That is massive. And if you look at
what Venezuela just did to Paraguay, where they tried to, for
political reason, call the debt, what happens to Haiti if they
call that debt?
So we have to work on a number of things. One is diversify
the energy economy in each island. The second is to make sure
that we support them in getting out of the debt structure that
they have to PetroCaribe and Venezuela.
That is why I said before they are living on borrowed time.
They cannot celebrate the low oil prices as consumers because,
as Adam talked about before, the oil prices are going to rise.
We know that. We just don't know when. So we have to do it now.
Mr. Yoho. All right. And that brings me to another question
then. It is talking about the floating LNG platforms. How
feasible is that? Are they using that in U.S. Virgin Islands
and/or Puerto Rico at this time?
Whoever wants to answer.
Mr. Hochstein. I don't believe they are using it yet, but I
think what we are seeing is a proliferation of FSRUs and new
technologies to make it even cheaper and easier to manage the
scale. So, now, for the first time, there are companies
discussing how to do it, instead of on a big ship that is an
FRSU, do it with a barge.
There is another company, a U.S. company, that is looking
at having a container ship in the Caribbean----
Mr. Yoho. Right.
Mr. Hochstein [continuing]. Where you would basically have
it like a wheel and spoke. So you would come in there, and then
smaller containers going out to islands.
So I think you are going to see a lot more. The bigger-
scale ones of the FSRUs we are seeing in Central America. And
with the expansion, as Melanie talked about before, of the
Panama Canal, you are going to see a lot more traffic there and
a lot more opportunities. Colombia just the other day started
talking about an FSRU there as well.
So I think you are going to see that mix--small-scale for
the Caribbean and LNG FSRUs for the larger countries.
Mr. Yoho. All right.
And, you know, in the Caribbean, we know how the hurricanes
come through there, and they can pop up pretty quickly. I
assume those things are agile enough that we will know ahead of
time, that they can get them out of harm's way. And I am
certain they have done the research on that.
Mr. Hochstein. Well, I think the companies that are
deploying these ships are well aware of that.
Mr. Yoho. Yeah.
Mr. Hochstein. It has actually been discussed between them
and the countries. But I think we have to be aware of that,
too, because it will fall onto us----
Mr. Yoho. Right.
Mr. Hochstein [continuing]. If there is any disaster of any
kind.
Mr. Yoho. Thank you for your time. I appreciate you being
here.
I yield back, Mr. Chairman.
Mr. Duncan. I thank the gentleman from Florida.
I will now go to Mr. Lowenthal for 5 minutes.
Mr. Lowenthal. Thank you, Mr. Chair.
As the chair, myself, of the Safe Climate Caucus, I would
like to drill down a little bit more deeply in terms of
renewable and alternative energies and how we are really
advancing our clean, low-carbon energy in the Western
Hemisphere, as we have already pointed out; that renewal energy
sources have the benefit of being virtually free of the
negative health implements and are not subject to some of the
international volatility in the fuel supply costs, which also,
I believe, strengthens our energy security.
And, as you pointed out, we have seen the economies of many
of the countries in our hemisphere falter because of their
dependence on oil prices. That has already been made clear. As
to the same matter, so have we seen some of the economies of
budgets of oil extraction states have also been faltered.
So the question is, as I move forward, the Paris Climate
Agreement has signaled the world is transitioning away from
carbon-intensive energy. And I am glad, when I went through the
readings, to hear of our efforts through initiatives like
Connecting the Americas 2022 and the Energy and Climate
Partnerships of the Americas that are going to help our
neighbors diversity their energy portfolio and strengthen their
energy security.
So the questions of any of the witnesses are: How do we
measure the successes of these programs? Do we have any
specific data to indicate the specific increase in alternative
energy usage in the region?
And the third thing is, you know, we are talking about
energy in terms of development on one hand, but we are also
talking about both transportation sectors and power sectors.
And I haven't heard the word ``coal'' at all mentioned once. Is
coal a major player in the creation in Latin America of the
power sector? And are we seeing specific changes in that also?
And so those are the questions that I have.
Ms. Kenderdine. Let me say--and on coal in Latin American
and South America, I am sure that Adam knows the data. South
America is much more dependent on hydro----
Mr. Lowenthal. Hydro.
Ms. Kenderdine [continuing]. Hydro than a lot of places in
the world, certainly in the U.S. And I have long been worried
about the melting of glaciers and the loss of hydro--somebody
discussed it earlier, in Chile, the problems with hydropower
when the glaciers are melting--and have thought about natural
gas as adaptation strategy for climate change in South America,
which is something I think we need to think about.
The Department of Energy has several initiatives. The Clean
Energy Ministerial, that is more a best practices and kind of a
deployment focus. There are 24 countries in the Clean Energy
Ministerial, and Brazil, Mexico, U.S., Canada are the Western
Hemisphere countries.
We also just launched Mission Innovation. And Mission
Innovation is an initiative of 20 countries. There are five
countries in the Western Hemisphere--Brazil, Canada, Mexico,
and Chile. The commitment in Mission Innovation is to double
our government spending on clean energy R&D to accelerate
transformation of our energy systems.
Each country can define clean how they want it. We would
define clean as all of the above. Coal would have a role in
that, with carbon capture and sequestration. Our definition is
reducing CO2 emissions. But that Mission Innovation I think
holds enormous promise for accelerating the R&D that we need
for that transformation for renewables for zero-carbon power
generation, et cetera, et cetera.
How you measure it, it is--the course of R&D is hard to
know. I don't think Adam's forecast 30 years ago would have
picked up on the shale gas revolution. We didn't know about it
then, although the Department was investing in it.
But one thing I would say on Mission Innovation, the
doubling of the government R&D, clean energy R&D, of those 20
countries is not trivial. That is 85 percent of the world's
total spending on clean-energy R&D. So I think it is something
that is worth supporting. Innovation is good in general. And so
we are excited about it. And we just came from a ministerial in
San Francisco.
Mr. Hochstein. Mr. Chairman, if I may, we are putting quite
a bit of resources--as the chairman talked before in his
opening remarks about the conversations that the committee had,
that you had led, with the leaders from the Caribbean during
summits when they were here. We are working with them, but I
don't want this to be a Band-Aid. I don't want to see, okay, a
project is going up. Because the bottom line is, if they don't
make the fundamental change in their regulatory environment,
their legal structures, you are not going to see long-term
investment of the right kind of companies to come in.
What we have done is we are putting resources behind,
working with island by island, country by country, that have
the political will to face the difficult task of facing the
incumbents and some of the other special interests to be able
to do that.
We have a great example in Nevis. It is a small country
dependent 100 percent for their power on Venezuela but have
great geothermal opportunities, potential. But they didn't have
the expertise. We worked very closely with them for 2 years to
rewrite their legal and their regulations. And they did a
state-of-the-art tender. A company won the tender, an American
company, and now we are looking at completing the process
toward turning them into a geothermal-based power.
I know it is a small country, but it is a model not only in
the Caribbean, but it is going to be a model for islands of how
to utilize this kind of technology.
So we are working. I think it is entirely quantifiable and
measurable. If you see that projects are happening--like the
chairman mentioned, Jamaica. Jamaica is going on both the gas
and renewables, and they have contracts to prove it. So when
they are negotiating the right kind of contracts, giving the
companies the rights to be able to come and create the
incentives for companies to come and invest, they can spend the
money up front but become far more secure and less expensive
for the future.
And they all have different qualities. All of them have
sun; some wind, some geothermal, et cetera. But I think it is
measurable.
Mr. Lowenthal. Okay. Thank you.
And I yield back.
Mr. Duncan. Okay. Thank you.
We have a little bit of time for a second round, if the
committee would like.
I do have a question for Ms. Kenderdine.
You mentioned five countries that had committed to double
their spending on renewables, I think is what you said. What
were the countries again?
Ms. Kenderdine. Actually, it is 20 countries that have--it
is doubling their government spending on clean-energy R&D, not
renewables necessarily. But the five countries----
Mr. Duncan. On clean-energy R&D?
Ms. Kenderdine. Clean-energy R&D, yes.
Mr. Duncan. Okay.
Ms. Kenderdine. And the five countries in the Western
Hemisphere are Brazil, Canada, Mexico, Chile, and the U.S.
Mr. Duncan. And the U.S. What do we spend currently? What
is the U.S. spending on that?
Ms. Kenderdine. We all have developed baseline numbers. Our
baseline number for clean energy is--for the U.S. Government is
$6.4 billion, $6.6 billion a year. That includes the Defense
Department and other agencies. At DOE, I think it is about $4.6
billion a year.
And so we are a significant percentage of that clean-energy
R&D. The Chinese just came in with a baseline surprisingly
high. I think it was $3.4 billion, something in that range. And
it creates a competitive position, as well. If these other
countries are investing in the R&D, we need to be investing,
too, so we can create commercial opportunities for that R&D, as
well.
Mr. Duncan. So that is U.S. Government spending on R&D.
What do you think the private sector spends in R&D for clean
energy?
Ms. Kenderdine. Clean energy? Much more than that, although
it has been declining pretty significantly lately. The
investment has gone down.
Mr. Duncan. Right. Okay.
We mentioned Jamaica earlier, about, you know, paying off
their debt at a discount, I guess, to Venezuela. And Maduro
went to Jamaica recently to show support for PetroCaribe and
kind of give assurances to the Caribbean nation that it is
still going to be a thriving enterprise. And, at the time, he
mentioned that they were going to invest in upgrades to the
refinery that is there in Jamaica.
I asked the question of OAS today, Mr. Fitzpatrick, you
know, where are they going to get the money. Because they are
struggling to provide, with the low oil prices, for their
citizens. And he said, Well, they are going to borrow it from
China.
That is alarming to me, that Venezuela is going to borrow
from China to invest in their refinery in Jamaica. It just
shows that dwindling oil prices has a dramatic impact not only
on spending and revenues available but also now on the
indebtedness of Venezuela. So I wanted to make that point.
I don't have any further questions. We don't have any other
members on my side of the aisle. Mr. Lowenthal, do you have
any----
Mr. Lowenthal. I just have one.
Mr. Duncan. Okay. You are recognized.
Mr. Lowenthal. We have spent a significant amount of time
talking about the power sector. I am interested also if you are
seeing the same kinds of changes toward renewables in the
transportation sectors also in these countries.
Are we seeing investments in transportation, in renewable,
electric? I know at one time Brazil had had very effective,
kind of, alternative energy. So I am wondering, are we seeing
it also in transportation?
Mr. Sieminski. Thank you for the question, Congressman
Lowenthal. I would like to start off, actually, with your last
question----
Mr. Lowenthal. All right. Go back to the last question.
Mr. Sieminski [continuing]. If you don't mind----
Mr. Lowenthal. Absolutely.
Mr. Sieminski [continuing]. And then maybe we can provide
something for the record on the transportation issue.
You had asked about coal.
Mr. Lowenthal. Right. I want to know about coal.
Mr. Sieminski. And the two biggest countries on the
consumption side for coal are Mexico and Brazil. They use it
largely in power generation.
Mr. Lowenthal. Right. That is where it would be, in the
power side.
Mr. Sieminski. And on the supply side, of course, the
United States is a big coal producer, user, and we export. But
Colombia, the country of Colombia, exports coal, and they
actually dominate the coal trade kind of south of our border.
Now, one of the interesting things about the natural gas
situation, the pipeline gas that is going to go from Mr.
Castro's Eagle Ford into Mexico is probably going to be used
largely to offset coal being used in electricity, so it will be
a cleaner fuel. It is relatively cheap. Natural gas is
tremendously competitive in the electric power markets.
One of the--I think the very first shipment of LNG from the
Sabine Pass facility down on the Texas-Louisiana border went to
Brazil, the LNG went to Brazil, and they are using it in the
same way. So the possibility of U.S. gas competing in these
Latin American power markets is really kind of an interesting
opportunity.
You asked about renewables. The EIA does an international
energy outlook. We try to forecast out, you know, 20 or 25
years. Over the period that we are looking at, renewables
actually grow faster than any other fuel in the outlook, but
oil and coal and natural gas continue to have a higher market
share even at the end of the, you know, 2040 forecast period
than renewables. But renewables are growing very strongly.
A lot of that is--so we count hydro in there, renewables--
--
Mr. Lowenthal. As a renewable.
Mr. Sieminski [continuing]. Wind and power--wind and solar
really go into those electric markets, as you were indicating.
And you have to have something as the base load provider, you
know, unless--the kinds of things that the Department of Energy
was working on--the grid and the infrastructure allows for
renewables to back up renewables. Right now, we need something
like coal or nuclear or natural gas to provide the base load
power. Natural gas is very effective at that.
So, on the coal side, I think that the--in our projections,
with China moving more toward more of a service economy rather
than purely manufacturing, China's use of coal is going to
begin to flatten, and that is probably going to flatten out
coal use on a global basis.
So, back to the renewable side, there is a lot of
opportunity there. It is going to grow pretty rapidly. But, in
our projections, fossil fuel is still going to be needed,
especially in transportation, your last question.
Mr. Lowenthal. Right. That is right.
Mr. Sieminski. So, on renewables, Brazil, of course, has
got ethanol. We have ethanol in the U.S. It is about 900,000
barrels a day of ethanol in the U.S. It is quite a bit, 10
percent of our gasoline consumption.
The other renewables in transportation, Brazil has been
pretty effective in using their sugar-based ethanol in
transportation. But it is very difficult to compete with diesel
fuel, as Chairman Duncan was saying, and gasoline in a lot of
these locations where they don't have the opportunity for
sugarcane production or corn production.
And, Mr. Chairman, just to wrap up my 30 seconds, if you
will give it to me, I have a feeling that one of the reasons
the diesel prices are lower now than gasoline is that the warm
winter resulted in relatively low price differentials for the
heating fuel side of the barrel, which is kind of right in the
same area that diesel fuel occupies when it comes out of
refineries. And so having heating oil around meant that diesel
fuel prices came down.
It is very possible that if we go back to normal winters--
and that is what the NOAA forecasters are saying for this
coming winter--that your diesel prices might go back up again.
Mr. Duncan. Yeah. The dynamics--the gentleman's time has
expired--dynamics of blending and wintertime and summertime
fuel prices and blends are a fact, as well. Most people in
America don't think about that as they are changing over to
that summer blend, but that does affect prices.
It has been a great hearing. We are going to continue to
delve into energy in the hemisphere and also continue to watch
the Venezuela issue very, very closely.
Members of the committee may have questions for the
witnesses, and if we submit those questions, we would ask you
all to provide an answer within 10 days. And I don't know that
that will happen.
You all have been great witnesses.
I want to thank the staff of the committee for working with
the witnesses in providing today's hearing.
So, in wrapping up, pursuant to committee rule 7, members
of the subcommittee will be permitted to submit written
statements to be included in the official hearing record. And
so, without objection, the hearing record will remain open for
5 business days to allow statements, questions, extraneous
materials for the record, subject to the length limitation in
the rules.
With no further business, this committee will stand
adjourned.
[Whereupon, at 11:57 a.m., the subcommittee was adjourned.]
A P P E N D I X
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