[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

                              ----------                              
                                                                   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

                              ----------                              


                         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.]

                                     
                                    

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