[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
ENERGY REVOLUTION IN THE WESTERN
HEMISPHERE: OPPORTUNITIES AND
CHALLENGES FOR THE U.S.
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
THE WESTERN HEMISPHERE
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
MAY 14, 2015
__________
Serial No. 114-44
__________
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
TOM EMMER, MinnesotaUntil
5/18/15 deg.
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
TOM EMMER, MinnesotaUntil
5/18/15 deg.
C O N T E N T S
----------
Page
WITNESSES
James H. Knapp, Ph.D., professor, Department of Earth and Ocean
Sciences, University of South Carolina......................... 5
Mr. Kevin Book, managing director, Clearview Energy Partners..... 16
Mr. Jamie Webster, senior director, IHS Energy................... 23
Mr. Jeremy Martin, director, Energy Program, Institute of the
Americas....................................................... 32
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
James H. Knapp, Ph.D.: Prepared statement........................ 8
Mr. Kevin Book: Prepared statement............................... 19
Mr. Jamie Webster: Prepared statement............................ 26
Mr. Jeremy Martin: Prepared statement............................ 36
APPENDIX
Hearing notice................................................... 62
Hearing minutes.................................................. 63
ENERGY REVOLUTION IN THE WESTERN
HEMISPHERE: OPPORTUNITIES AND
CHALLENGES FOR THE U.S.
----------
THURSDAY, MAY 14, 2015
House of Representatives,
Subcommittee on the Western Hemisphere,
Committee on Foreign Affairs,
Washington, DC.
The committee met, pursuant to notice, at 2 o'clock p.m.,
in room 2200 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.
The Western Hemisphere is home to an abundance of natural
resources, including nearly a third of the world's oil
reserves. With their own U.S. supplies of oil, natural gas and
shale gas resources, the capacity to export liquified and
compressed natural gas and the option of offshore drilling in
the Atlantic, we have many reasons to deepen our energy
engagement in the region.
Such action would spur economic growth and energy security
while reducing energy costs, which will go a long ways toward
building a more stable and prosperous hemisphere. Currently,
our top crude oil imports come from Canada and Mexico.
Yet, the Obama administration's policies, while seeking to
appease dictators in Cuba, have refused to take common sense
approaches with Canada and Mexico.
The Keystone Pipeline decision remains mired in White House
delaying tactics and State Department bureaucracy while the
U.S. continues to unfairly prohibit crude oil exports to
Mexico, and it is unlike our treatment toward Canada.
So earlier this year, President Obama used just the third
veto of his presidency to stop House- and Senate-passed
authorizing legislation to finally begin construction of the
pipeline, even saying at the time that the pipeline wouldn't
actually create that many jobs for the U.S.
Approval of the Keystone XL Pipeline would not only inject
over $7 billion in private investment into our economy, it
would also create thousands of good-paying jobs for the
American people. Energy security is a segue to job creation.
Keystone XL also represents an important piece of ensuring
our national security interest. Reducing our dependence on
energy from unstable parts of the world and from regimes
hostile to the U.S. interests has long been a crucial element
in protecting our broader national security interests.
Canada and the United States enjoy a very close bilateral
relationship with robust commercial ties. Our two countries
enjoy the world's largest bilateral trade relationship,
translating into over $1 billion crossing our shared northern
border each day.
Moreover, Canada is the world's fifth largest petroleum
producer and its reserves are believed to be third largest in
the world only after those of Saudi Arabia and Venezuela.
Canada is already the United States' largest supplier of
energy, and approval of the Keystone Pipeline from Canada to
refineries in the Midwest and the Gulf Coast would translate
into approximately 1 million additional barrels of oil per day,
along with tens of thousands of high quality good-paying U.S.
jobs.
It is telling when you remember that President Obama
managed to force Obamacare onto the America people in just over
400 days, yet it has been over 2,000 days since the application
for Keystone XL Pipeline from Canada was submitted to the State
Department, and the administration continues to stall on
approving or disapproving the project.
On this question I believe our treatment of our neighbor to
the north, one of our best and largest trading partners and on
so many other issues, is shameful.
So because of this, as chairman of the Subcommittee on the
Western Hemisphere of the House Foreign Affairs Committee, I
convened the first meeting of this panel earlier this year to
host senior leaders from several Caribbean countries in
conjunction with the administration's Caribbean Energy Security
Summit.
These CARICOM countries suffer from some of the most
expensive energy prices in the world, hampering the growth of
their island economies.
Isn't it time that we figure out innovative and cost-
effective ways to export our recently discovered energy
abundance to help these small countries once and for all get
off their dependence on subsidized energy from Venezuela?
Not only does this make economic sense, but it also might
actually help the U.S. geopolitically when the votes are cast
at the U.N. and the OAS.
Today, the Western Hemisphere has some amazing
opportunities for deeper U.S. engagement with Mexico's energy
sector reforms, energy revolutions in Argentina, Brazil,
Colombia, Peru, offshore exploration activities by Caribbean
countries, and potentially new resources in the Arctic.
In Mexico, the promise of opening Pemex to foreign
investment will not only potentially benefit U.S. companies but
will go a long way in improving the efficiency of Pemex while
stabilizing, indeed, increasing Mexico's stalled oil
production.
This will lead to a more prosperous Mexico and that,
unquestionably, is in the national interest of the United
States.
The imminent approval of the United States Commerce
Department to allow Mexico to swap up to 100,000 barrels of
heavy crude for similar amounts of lighter U.S. oil could yet
be a milestone toward eventual loosening of the four-decade-old
ban on U.S. oil exports. This is truly a win-win.
In South America, despite simmering domestic political
challenges with the vast offshore pre-salt oil reserves in
Brazil and with Argentina sitting on the world's second largest
shale gas reserves in the Vaca Meurta, opportunities for U.S.
engagement abound.
The discoveries made in the pre-salt are among the world's
most important in the past decade as the pre-salt province
comprises large accumulations of excellent quality high
commercial value light oil.
With elections set for this fall, it remains to be seen
what the investment climate will look like in a post-Kirchner
regime in Argentina. The world will be watching.
This hearing will explore how we can grow and enhance our
existing partnerships with countries in this hemisphere, and
preserve U.S. energy security, increase investment
opportunities for U.S. companies and high-paying jobs for the
American people.
Challenges for U.S. business investment remain in the
region, but it is my hope that through hearings like this we
will determine ways in which the U.S. can better engage on
energy issues with our neighbors in the hemisphere.
Just returning from the Summit of the Americas, I really
started thinking about hemispheric energy independence. If we
think about some of the things I have talked about, whether it
is Keystone Pipeline oil to U.S. refineries, whether it is the
abundance of natural gas that we are finding in the United
States, whether it is shale oil in the Bakken and our ability
to extract that, possible energy exports of oil to the
Caribbean nations limiting or effectively ending Petrocaribe's
influence in the region, natural gas exports to Mexico, natural
gas LNG and CNG through Central America and all throughout the
hemisphere, working with our partners in Colombia and allies in
Colombia and Brazil, expansions of possibly energy in
Argentina, and what Peru and Chile are wanting to do, just so
many different things that could happen, especially if
political winds shift in Venezuela and that Venezuelan oil
becomes more productive--oil fields become more productive and
opportunity to utilize that oil in this hemisphere.
If you take every piece of that equation that I talked
about--and there are others, I am sure, that we will hear from
the panelists today--if you factor all those in to the Western
Hemisphere and think about it in terms of hemispheric energy
independence, then we negate a lot of the geopolitical concerns
that are happening in other parts of the world.
So I look forward to today's hearing as we delve into this
and I now turn to Ranking Member Sires for his opening
statement.
Mr. Sires. Thank you, Mr. Chairman, and thank you to our
witnesses for being here this afternoon.
Today's hearing looks at both the opportunities and
challenges enhancing our energy cooperation within the Western
Hemisphere.
I believe integrating our energy interests in the region
have been ignored for far too long. That is why I am encouraged
to see the administration's recent efforts to deepen energy
cooperation within the hemisphere.
The administration hosted the White House Caribbean Energy
Security Summit in January and launched the Caribbean Energy
Security Initiative to facilitate an energy transition for the
islands that have been far too dependent on Venezuela's shaky
energy sector for their needs.
While we continue to focus energy policy on the Middle
East, taking a look at our own back yard shows the opportunity
that exists right next door.
We get about half of our oil and petroleum from the Western
Hemisphere, half of which is from Canada. Canada is the single
largest foreign supplier of petroleum and natural gas to the
United States, and after Saudi Arabia, Mexico is the United
States' third largest supplier of petroleum.
Venezuela is home to 88 percent of the region's proven oil
reserves. In regards to nontraditional sources of energy,
Brazil is the world's second larger producer of ethanol after
the United States.
In countries like Venezuela, Bolivia, Ecuador and
Argentina, the troubling trends of the nationalization of
private industry has become the norm rather than the exception.
Moreover, the region's trade relationships and increasing
presence of anti-democratic actors such as Russia, Iran and
particularly China, whose self-interests are counter to the
strategic concerns of the United States, should not be taken
lightly.
In January, China pledged $250 billion in investments in
Latin America over the next 10 years, seeking to boost their
influence in the resource-rich region.
The United States cannot fall behind, as the Western
Hemisphere plays a critical role in our energy security.
Specifically, it is clear that maintaining and strengthening
our energy relationship with Canada and Mexico is in the
national interests of the United States.
That is why I believe the proposed Keystone XL Pipeline and
the Transboundary Hydrocarbon Agreement with Mexico are in the
national interests of the United States. I am sensitive to the
environment and the concerns associated with the development of
the Keystone Pipeline project.
But the conversation has stagnated. The concerned parties
need to avoid further delays of a constructive dialogue and
chart a path forward.
This is true especially in light of declining foreign oil
supplies from Mexico and Venezuela. Our national security
requires that energy policy be a central component of our
foreign policy.
Furthermore, we should build upon and expand our energy
diplomacy efforts and mitigate the Caribbean's dependence on
subsidized Venezuela oil and support the economic growth of the
region in ways that are both relevant and practical to the
needs of everyday people.
No one single project or initiative is a cure-all for
energy security needs, and no proposal will satisfy everyone's
needs or alleviate every doubt. But we must continue to work
with our neighbors to develop a beneficial energy policy for
the region.
I look forward to the hearing--to hearing from our
panelists on how we can address these critical issues.
Thank you.
Mr. Duncan. I thank the ranking member, and other members
are reminded they can provide written testimony for the record.
In the essence of time, we are going to move on to the
witnesses. They are thinking about calling votes around 2:30,
possibly 3 o'clock.
We may get through all that. Before I recognize each of
you, I want to explain the lighting system, and I don't know
where the lights are right near the----
Mr. Sires. One minute, 2 minutes, 3 minutes.
Mr. Duncan. One minute. Yes, that is right. So 5, 1--5
minutes we are going to start, 1 minute it will give you a
warning.
At the end of that 5 minutes I am going to need to cut you
off. I will give a little leeway but and before I recognize the
witnesses we have got their bios in the books. So I am not
going to recognize each of you but I do want to recognize Dr.
Knapp, who is from South Carolina.
He has testified on the Hill a couple times for me in this
committee and in Natural Resources as well. At the University
of South Carolina, he is a professor training the new minds on
geophysical and seismic and all the things that we are going to
need to take advantage of energy security in the future and I
appreciate him being here.
So Dr. Knapp, I am going to go ahead and recognize you for
5 minutes.
STATEMENT OF JAMES H. KNAPP, PH.D., PROFESSOR, DEPARTMENT OF
EARTH AND OCEAN SCIENCES, UNIVERSITY OF SOUTH CAROLINA
Mr. Knapp. Good afternoon, Chairman Duncan, Ranking Member
Sires and esteemed member of the House Foreign Affairs'
Subcommittee on the Western Hemisphere.
It is my great pleasure and high honor to be here today and
I thank each of you both for your continued dedicated service
as Members of Congress and for the opportunity to appear before
you today.
For the record, I am James H. Knapp, professor in the
Department of Earth and Ocean Sciences in the School of the
Earth, Ocean and Environment at the University of South
Carolina, and I currently serve as chair of the faculty senate
at the University of South Carolina, Columbia campus. I will be
summarizing my written testimony in these opening comments.
I am also taking the liberty to introduce some graphics
here which, hopefully, will supplement the comments I will
make.
By way of background, I was born and raised in California
and have lived in six and travelled to 49 states and through my
profession as an earth scientist have worked in or visited more
than 40 countries, many of those in the Western Hemisphere.
I hold a Bachelor of Science degree with distinction in
geological sciences from Stanford University and a Ph.D. in
geology from the Massachusetts Institute of Technology, and
from 1988 to 1991 I worked with Shell Oil where I participated
directly in oil and gas exploration in the Gulf of Mexico.
For more than 20 years since then, my research team and I
have carried out both fundamental and applied research in earth
sciences including the design, acquisition, processing and
interpretation of seismic surveys both onshore and offshore and
many of my former students are now gainfully employed in the
energy industry.
Access to energy is and will for future generations
continue to be an essential foundation upon which modern
society operates.
On a personal level, one need only experience a prolonged
power outage to be poignantly reminded of the ways in which we
on a daily basis depend on energy to illuminate, heat and cool
our homes and businesses, preserve and prepare our food, and of
critical importance in this digital age, power our numerous IT
devices.
As many have come to appreciate in recent years, we simply
cannot turn off the power switch overnight regardless of the
perceived societal imperatives.
Safe, efficient and environmentally responsible development
of energy resources is critical for the long-term energy
security of this country and the Western Hemisphere.
In all of the above energy strategy, which includes
continued exploration for and development of conventional and
unconventional hydrocarbon resources, as we develop
economically viable technologies for alternative and renewable
energy resources is clearly the best path forward. Much of the
future promise of renewable and alternative energy sources
awaits the capacity for efficient storage through research and
development.
The title of this hearing is most appropriate. As many will
know, for the better part of the last decade we have witnessed
a global energy revolution led by the United States, which few
if any could have predicted.
Harnessing the oil and gas potential of shale reservoirs
through American technological innovation has practically
doubled the estimated volume of undiscovered technically
recoverable oil resources in the United States.
The most recent estimates from the energy information
administration for proven crude oil reserves in the Western
Hemisphere amount to approximately 550 billion barrels of oil
equivalent with well more than half of those in Venezuela.
The countries of the Western Hemisphere combined represent
approximately one-third of the proven global reserves. Clearly,
the major players in terms of conventional production have been
and will continue to be the United States and Canada with
growing contributions from Brazil, Mexico and Argentina.
As seen in the figure on the screen, shale oil and shale
gas potential is abundant throughout the Western Hemisphere
from the North Slope of Alaska to the tip of Tierra del Fuego,
and the offshore potential of such unconventional resources is
yet to be evaluated in any significant way. Note that these are
all onshore shale gas and shale oil plays.
The presence of this resource potential represents an
opportunity to engage our hemispheric neighbors through both
the public and the private sector.
Methane hydrates, or deposits of natural gas frozen into
sedimentary deposits, represent a significant future resource
potential.
Recent estimates from the Bureau of Ocean Energy Management
suggest that more than 20,000 trillion cubic feet of gas, or as
much as 35 times the inventory of conventional gas resources on
the entire U.S. outer continental shelf, are present on the
Atlantic margin alone, as shown in this figure.
A similar reserve potential has been estimated for the U.S.
waters of the Gulf of Mexico. We need look no further than the
Atlantic shelf of the U.S. for other energy opportunities.
The Bureau of Energy--Ocean Energy Management is charged
with periodic evaluation of the energy and mineral resource
potential of the outer continental shelf.
Their most recent estimate in 2011 of undiscovered
technically recoverable resources for the Atlantic OCS was 8.87
billion barrels of oil equivalent revised only a year ago up to
11.4 billion barrels of oil equivalent without any new data.
This is simply reevaluation of the existing data. Too often
such reserve estimates are dismissed as unworthy of the
investment required to produce them or the anticipated
environmental disruption involved.
However, such volumes represent as much as a tenth of the
combined estimated petroleum resource base of the United
States.
In addition, as much as 80 percent of the Atlantic OCS
territory currently under consideration in the draft proposed
plan of the Bureau of Ocean Energy Management has never been
evaluated with commercial seismic surveys. Only the shelf
portions of the area under consideration have ever been
surveyed.
So if we compare this with the entire remainder of the
Atlantic Basin, essentially the entire Atlantic Basin is
currently under exploration for oil and gas in offshore areas
with the conspicuous exception of the Atlantic Margin and the
eastern Gulf of Mexico of the United States.
In conclusion, I believe the U.S. can and must play a
leading role in promoting energy security for our own citizens
and for the hemisphere at large. In most cases, the biggest
opportunities appear to be here close to home.
New opportunities exist to bring U.S. deepwater technology
and experience to Mexico and the Gulf of Mexico. Additional
steps should be taken to deepen our engagement with Canada by
completing the Keystone XL Pipeline, bringing crude petroleum
to excess refining capacity in the Gulf Coast region and
removing the ban on crude oil exports from the U.S. helping to
bring reliable energy to our neighbors from a stable economic
and political base.
I yield the rest of my time. Thank you.
[The prepared statement of Mr. Knapp follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
----------
Mr. Duncan. Dr. Knapp, thank you, and I felt like I was in
a classroom there with a slide presentation. But very
informative.
Mr. Book.
STATEMENT OF MR. KEVIN BOOK, MANAGING DIRECTOR, CLEARVIEW
ENERGY PARTNERS
Mr. Book. Thank you, Chairman Duncan, Ranking Member Sires
and distinguished members of this committee.
Good afternoon, and I appreciate the invitation to
participate in this important discussion about energy
revolutions in the Western Hemisphere.
My name is Kevin Book. I head the research team at
Clearview Energy Partners, LLC, a Washington, DC-based
independent research firm. We serve financial investors and
corporate strategists, and we look at macro energy trends.
Here is a trend. It is hard to miss the dramatic shift in
U.S. energy security during the last decade. In May 2005, net
petroleum imports accounted for 59 percent of our consumption,
according to EIA data.
This fact linked our economic fate to the sometimes
unstable political circumstances of foreign producers and the
insatiable energy appetites of emerging economies. As of
February 2015, the most recent month for which robust EIA data
are available, net imports represented only about 26 percent of
our petroleum consumption.
Much of this can be explained by the incremental production
from shale and other type formations. We also reduced petroleum
consumption by about 1.7 million barrels per day, or 8.1
percent.
According to International Energy Agency data, Canadian
crude oil and natural gas liquids production grew by 47 percent
between the first quarter of 2005 and the first quarter of
2015, which was from about 3 million barrels per day to 4.3
million barrels per day.
Last June, the Canadian Association of Petroleum Producers
projected that production will rise to 6.4 million barrels per
day by 2030. Although to be fair, that forecast preceded the
recent price collapse.
In Mexico, where the last decade brought a bruising 29
percent production decline, constitutional reforms have ended
the state oil company's 75-year monopoly. Pemex will retain 83
percent of Mexico's probable and possible reserves and 21
percent of prospective reserves.
But Mexico opened its first round of bidding for the
remainder in December 2014. This week, bidding opened for the
third of five first round tenders and the first onshore
offering.
Brazil opened its oil and gas sector to foreign competition
in 1997. In October 2006, a joint venture between Petrobras and
private operators discovered Tupi, which is now called Lula,
the first of Brazil's many promising pre-salt offshore finds.
In June 2010, Brazil amended its regulatory framework. The
new regime gives state entities substantially greater control
over the pre-salt fields. The first competitive auction in
October 2013 attracted only one bid.
It remains to be seen whether, and to what extent, Brazil's
tighter grip on the pre-salt might deter further foreign
investment.
As the U.S. transitions out of an era of energy scarcity
into an age of adequacy and, hopefully, abundance, we are
likely to encounter new opportunities to contribute to the
energy security of our regional neighbors.
For example, financial pressures forced Venezuela to pare
back subsidized crude oil and products exports to Petrocaribe
signatories.
The U.S. became a net petroleum products exporter in July
2011, which is if you look backwards 12 months an average as
analysts are prone to do. Since then, average products exports
to Petrocaribe member countries rose about 14 percent from
194,000 barrels per day in July 2011 to 221,000 barrels per day
in February 2015.
U.S. exporters aren't likely to offer the same financing
terms that Venezuela does. But U.S.-refined products can
provide Caribbean importers with volumes to cover supply
shortfalls.
Two U.S. policy changes--liberalizing crude oil exports and
approving the Keystone XL Pipeline and any other southbound
conduit out of the oil sands could contribute so similar cover
for Petrocaribe's crude importers. U.S. natural gas provides
another opportunity.
EIA's reference case for natural gas in this year's annual
energy outlook projects net exports of a little less than half
of 1 billion cubic feet per day in 2017, rising to almost 6
billion cubic feet per day by 2040.
Pipeline exports to Mexico appear likely to continue
growing and LNG exports from the lower 48 have potential to
enhance energy security throughout the Western Hemisphere.
Liquefied gas has to be regasified to be used and the high
total costs of onshore facilities may be out of reach for many
nations, especially in the Caribbean.
Floating storage and regasification units provide a
possible alternative at lower capital cost and with faster
construction times, albeit with higher operating costs.
Completion of an offshore facility in Colombia will bring
Latin American floating regas capacity to more than 2.8 BCF a
day, most of it in Brazil.
Finally, Latin American electrification provides another
opportunity. The IEA estimated that approximately 23 million
people in Latin America lacked access to electricity in 2012.
My written testimony suggests that countries that cannot
harness endogenous hydroelectric resources may short of fossil
fuel baseload generation. Many of these countries do not rely
primarily on natural gas generation.
With outside financing including facilities outlined in a
bill that was passed by the House last year--the Electrify
Africa Act of 2014--a number of them could theoretically
operate new gas-fired turbines fueled by water-borne LNG
imports.
The data on Latin America point to energy transportation
challenges, in addition to generation capacity deficits. Simply
put, the region needs pipelines and transmission lines, too.
That said, Latin America gets plenty of sunlight, creating
an opportunity for distributive solar photovoltaic generation
to supplement regions where economic development, population
density, and/or topography might make the build-out of pipes
and wires impractical or unfeasible.
Mr. Chairman, this concludes my prepared testimony. I will
look forward to responding to any questions you might have at
the appropriate time.
[The prepared statement of Mr. Book follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
----------
Mr. Duncan. Thank you, Mr. Book, and the Chair will
recognize Mr. Webster for 5 minutes.
STATEMENT OF MR. JAMIE WEBSTER, SENIOR DIRECTOR, IHS ENERGY
Mr. Webster. Thank you very much, Chairman Duncan, Ranking
Member Sires and distinguished members of the committee.
I appreciate the opportunity to testify before you today on
the immense changes in the energy market, its landscape, its
impacts on the Western Hemisphere and the importance of crude
exports in continuing this change.
I am Jamie Webster and I appear before you today in my
capacity as senior director at IHS where I lead the company's
oil markets practice.
In that role, I travel regularly, not just nationally in
the United States but also internationally. I also attend the
OPEC meetings and was at the OPEC meeting on Thanksgiving when
OPEC took the historic role--the historic stance of deciding to
stand down in the face of growing U.S. production. This
provides me a unique view in terms of what is going on not just
in energy today but where it may go in the future.
Today, I want to address a few issues. One, the recent
changes that we have seen in the global oil market, North
America's critical place in it and what it means for both
energy security and energy independence.
I will address the crude export issue and market-related
issues as they relate to Keystone XL, and given I am just
returning from Mexico last night, a brief update on where I see
the energy reforms there.
The catalyst for the oil price decline that began in June
of last year was the restart of Libya production. But what
really supported it underneath that was the huge growth that we
saw in U.S. production from 5.6 million barrels a day to 9.2
million barrels a day here in the United States.
OPEC's decision on Thanksgiving was really about its
recognition that it could not compete in terms of these volumes
that were coming online incessantly, and its decision was
really one to focus on volume since it could no longer focus on
price.
This underscores a serious shift that you are seeing in the
market that we have not seen since the beginning of the 1970s
when we shifted from the power of the Texas Railroad Commission
to OPEC.
The market balancer, as us market analysts call it, is that
entity that is able to bring production on and offline
relatively quickly to handle changes in demand.
The boom in U.S. production actually has the potential to,
again, allow a shift in this market balancer, and it is not
just about the volumes but it is about the character of those
volumes and the scope of those volumes.
One, it is the time scale. U.S. production can come online
in 4 months versus conventional production that can take years
to be planned, financed, and allowed online. The other is the
decline rates.
U.S. production brings oil out of the ground so quickly
that it actually brings the decline rate down very, very fast,
which essentially has the impact of being able to slow U.S.
production by slowing down on investment.
This shift from OPEC to the potential for the first time,
perhaps, to a market-driven oil-based economy by shale is far
from certain and it is far from complete. One of the key policy
changes that would actually help to continue this drive is
actually allowing U.S. exports.
Energy flows out of the United States and the growth in
U.S. production on oil has already shifted the world
dramatically. Nigeria used to export 1.1 million barrels a day
to the United States. It is now essentially zero and we are
providing large portions of their refined products.
Additionally, Mexico is taking increasing amounts of
natural gas from the United States in order to support its
economy both on the industrial side and electric side.
LNG soon will be allowing our natural gas to reach parts
around the world and we have also go an increased tie with
Canada. While we are continue to receive increased volumes from
Canada, we are now exporting about 490,000 barrels a day up to
Canada. This is up from 30,000 barrels a day in 2010.
This tight interconnection between the countries extends
from power lines to rail lines to pipelines. The Keystone
Pipeline can help to economically move oil from Canada down to
refiners that are ready to take it.
Our view is very much that this is a useful and helpful
pipeline. While the slowdown in oil prices has impacted Canada,
over the next several years it is going to be bringing on
another 800,000 barrels a day of new production. The obvious
home for this is in the United States Gulf system.
The decision on Keystone is really a decision between
importing oil from our near neighbor, Canada--our largest
trading--or Venezuela, whose hostility to the United States is
manifest.
The competitive oils between these two countries has about
the same carbon footprint. But that is about the only thing
that is similar between Canada and Venezuela.
The U.S. liberal trade policy on natural gas, coal, refined
products, and processed condensate also needs to extend to oil.
Eliminating this is even more important when prices are
low, as producers are in a much more difficult position in
order to continue this production going forward. Additionally,
removing this ban would actually help to bring down gasoline
prices in the United States because the gasoline price in the
United States is largely set by the global marker Brent, and so
by pushing more volumes into the global market we will actually
bring prices down on--leaving everything equal.
This brings me to Mexico. This country is eager to extend
its imports of U.S. natural gas to also include oil. While
there have been discussions about being able to execute oil
swaps with Mexico, in reality there are a number of commercial
hurdles that must be surmounted in order for this to occur.
The easier thing would be to allow crude oil exports so
that this can be done on a single transaction rather than
having to get at complex transactions to get around the current
and outdated policy that currently exists.
Right now, Mexico, as Kevin mentioned, is undergoing a huge
renaissance and a huge change in its energy reform, which is
allowing a lot of opportunities for U.S. companies to
participate, and I know they look forward to increased working
with U.S. companies in the future.
Thank you very much for being here.
[The prepared statement of Mr. Webster follows:]
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----------
Mr. Duncan. I want to thank the gentleman. Great comments.
We are going to come back to some of that.
Mr. Martin, whose parents are from South Carolina, a
Citadel graduate, recognized for 5 minutes.
STATEMENT OF MR. JEREMY MARTIN, DIRECTOR, ENERGY PROGRAM,
INSTITUTE OF THE AMERICAS
Mr. Martin. Oh, boy. Thank you, Mr. Chairman. Good
afternoon.
Chairman Duncan, Ranking Member Sires, it is a delight and
pleasure to be here. Flew in on a red-eye so I may be over-
caffeinated, so bear with me if I blow through this too
quickly.
Mr. Sires. We want to thank you, all of you.
Mr. Martin. Thank you so much, Ranking Member.
Thank you all to the subcommittee. This hearing, obviously,
all my colleagues here at the table have underscored how much
the topic of energy is of relevance to the United States, but
to our hemisphere.
And yes, my name is Jeremy Martin. I am the director of the
energy program at the Institute of the Americas. We are based
at the University of California San Diego out in La Jolla.
So second time I have been before this subcommittee, so it
is a pleasure. I am going to summarize my written testimony and
in doing so I would like to offer some insights on several of
the most important energy-producing nations in the region,
their production outlook, geopolitics and challenges and
opportunities for the United States.
And in order to do so, I would like to discuss three main
points. First, not all countries are the same, and it is
important to distinguish between above ground and below ground
issues.
Secondly, the lessons learned from the energy boom in the
United States, particularly in terms of unconventionals,
provide a major opportunity to export knowledge, technology
goods, and services as well as energy to the region, as several
of my colleagues have underscored.
Thirdly, Latin America offers important investment and
energy diplomacy opportunities for the United States. So not
all countries are the same.
In discussing major energy-producing nations in Latin
America, a country's oil and gas potential, its resources in
the ground, as Dr. Knapp put up on the screen, may be actually
less important than what is occurring in Congress, the halls of
government and in the geopolitics of the day, or, as I like to
say, not all countries are the same.
From Canada to Argentina, as the chairman and ranking
member underscored, our region has a formidable natural
resource endowment.
But beyond the resource potential below ground, the above
ground, or nontechnical risks such as political, financial,
social, and environmental issues, are often just as critical to
a project's success.
So how government, industry, NGOs, and communities engage
and interact warrants increased attention by companies and
policy makers alike. And, of course, as we have talked a little
bit about already, volatility in international oil markets that
we have seen since last June and today's lower price
environment demands even closer attention to these above ground
ramifications.
So in a way of trying to talk about some of the above
grounds, I wanted to talk about three countries in the region.
I would like to start with Argentina.
And after a rocky decade for the Argentine economy and
energy industry, the nation is now faced with the onerous task
of restoring investor confidence damaged by years of political
and institutional instability.
Many are hopeful, as the chairman mentioned, that the
October Presidential elections will usher in a more business-
friendly administration. The potential reversal of the nation's
fortunes is rooted in its vast unconventional oil and gas
potential.
Argentina holds the world's second largest shale gas
resources and fourth largest shale oil. And Argentina, it
should be noted, is one of just four nations to produce
commercial quantities of shale oil or gas, along with U.S.,
Canada, and Mexico--excuse me, China.
I want to move on to Mexico. We have talked about Mexico.
Mexico has entered a new energy era. In the years since the
nation passed a constitutional amendment and major energy
reform legislation, progress has been remarkable.
Round One, launched last December, is considered the first
real opportunity in Mexico's new energy landscape. This year,
the government will auction 169 blocks for exploration and
production across a range of oil and gas prospects from mature
fields to shale to deepwater.
The outcome of the Round One oil and gas auction as well as
the creation of a wholesale electric market in Mexico by the
end of this year will have a significant impact on determining
the reform's durability and eventual success.
Venezuela, for my last country to talk about--Venezuela's
woes are very, very well documented. We all have read the
headlines and the stories. But, unfortunately, these woes have
occurred during the largest oil-derived windfall in the history
of the country.
Oil production has declined by more than 350,000 barrels a
day since 2008 and more than 800,000 barrels a day since its
peak level in 1998. At the same time, oil exports from
Venezuela declined approximately 28 percent between 1999 and
2013.
But, again, talking about the below ground potential,
despite this grim news, Venezuela has unbelievable energy
potential. It has the hemisphere's second largest gas and
natural gas resources, after the United States, and in terms of
oil, holds 298 billion barrels of proven reserves, and
Venezuela's famous Orinoco Belt contains one of the world's
largest oil accumulations.
The next main point I want to talk about is exporting the
lessons learned from the U.S. energy boom. Latin America has
much to learn from the shale revolution in the United States
but policy makers in the region must also understand the
critical factors that drove this success and I want to
highlight four of them--natural resource ownership, finance,
technology, and infrastructure.
That is to say, who owns the right to the subsoil, the
hydrocarbons in the ground, the ease in access to finance and
risk capital and cutting-edge technology and the ability to use
infrastructure to move the product to market.
A key hurdle for the region is to adapt innovative
techniques developed in the United States to local conditions
both above ground and below. Argentina is doing so to a certain
degree.
For example, it is using technology to almost have
unconventional well costs in the last 5 years. Firms,
hopefully, will also have a similar opportunity in Mexico when
they tender unconventional blocks as part of the Round Process
perhaps later this year.
My third--my third and final main point--Latin America's
investment in energy diplomacy opportunities, and let us start
with U.S. energy exports.
The U.S. energy revolution in the United States has created
an unprecedented opportunity for natural gas and crude exports
to the region. Natural gas exports by pipeline to Mexico have
more than doubled in the last 5 years.
At the same time, several liquefied natural gas projects
along the coastal United States are nearing completion and will
firmly plug the U.S. into the global gas market.
Countries from Central America and the Caribbean to Chile
stand to benefit from greater access to the cleaner-burning
fuel.
In the debate over exporting crude oil, it is important to
appreciate how the boom in U.S. production has affected oil
trade flows.
Oil that once flowed east to west is now flowing from west
to east, and the shift in oil trade flows underscore how
important it is to address this topic of the U.S. export ban,
and I would suggest starting with Mexico and Pemex's request
for an exemption.
However, the proposed oil swap is not just about the
relationship between the U.S. and Mexico. It is also about
North American energy integration. And another point I would
make is that joint development of unconventional resources in
North America and greater electric integration bring economic,
environmental and political benefits to all three countries of
North America.
Briefly, Central America and the Caribbean--for nations of
Central America and the Caribbean, the possible arrival of an
era of abundant and cheap natural gas propelled by the shale
boom in the United States has greatly advanced the case for a
natural gas market in those regions.
U.S. leadership and commitment to energy security in the
Caribbean, as the ranking member talked about, has been
extremely encouraging. The summit by the White House in
January--the Caribbean Energy Security Initiative--are
extremely important initiatives, trade finance initiatives.
But I would suggest they are only the beginning of what
must be a continued, consistent and concentrated effort to
provide an alternative to Venezuela's Petrocaribe.
Finally, very briefly, the role of China--the world's
largest energy consumer, China has devised a strategy to deal
with spiking energy demand and insufficient domestic
production, and some have called that checkbook diplomacy.
And the point is that Chinese, state-owned enterprises have
fanned out across the hemisphere with the support of Beijing to
secure access to resources, to secure access to Latin America's
oil patch.
Venezuela has been the largest beneficiary, but they have
also made loans and invested in Argentina, Ecuador, Brazil, and
the Caribbean.
So in conclusion, Latin America's importance to the United
States makes it critical that we continue to engage,
particularly with the largest oil- and gas-producing nations.
Without question, Latin America's outlook and opportunities
are complex and at times challenging. But given the region's
potential, the energy glass is at least half full over the long
term.
Thanks so much for allowing me to testify. I look forward
to the conversation.
[The prepared statement of Mr. Martin follows:]
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----------
Mr. Duncan. Thank you so much.
Great testimony, and I just want to reiterate a statistic
that I think Mr. Webster threw out there. Twenty-three million
people in Latin America lack access to energy or electricity.
Is that the number you threw out there?
Mr. Webster. It was a different number, Chairman.
Mr. Duncan. Twenty-three million?
Mr. Webster. But that is--that is an accurate number, yes.
Mr. Duncan. It is pretty--I am all about improving the
quality of life. I think electricity does that for so many
people around the world. If there is a way we can electrify
Africa or electrify more in Latin America, you improve quality
of life.
If people are cooking over charcoal or other things, air
quality issues, lack of education ability, having to stop
reading or hurting your eyes reading by candlelight, or other
things, there are just so many different ways. So I appreciate
you bringing that up.
Question for Mr. Webster--there are two different types of
oil, really--heavy and light crude--and I am generalizing, of
course. We have talked a lot about Keystone Pipeline today.
What kind of oil is coming out of the ground in Canada?
Isn't it the more heavy type?
Mr. Webster. Thanks for your question, Chairman.
Absolutely. It is quite heavy oil and this is important
because the U.S. refining in the Gulf Coast is what we call a
world class refining system and when we say it is world class,
that means it can take some of the toughest oils to refine,
which include Canadian oil.
Mr. Duncan. We are set up--our refineries are set up?
Mr. Webster. We are set up.
Mr. Duncan. Because it is very similar to the oil we are
importing from Saudi Arabia.
Mr. Webster. Actually, it is even heavier than what we get
from Saudi Arabia, yes.
Mr. Duncan. And so the oil we are bringing out the ground,
say, in the Bakken is a lighter, sweeter oil is my
understanding.
Mr. Webster. That is absolutely correct.
Mr. Duncan. So in order to refine that oil it takes
retooling or actually new refineries or heavy investment in
U.S. refineries to refine that end of the--all the hydrocarbon
products?
Mr. Webster. That is correct. That is correct, yes.
Mr. Duncan. That is missed in a lot of the debate on why
bringing the Keystone Pipeline and bringing that Canadian oil
down.
Our refineries are set up to handle it without a lot of
significant investment on behalf of U.S. companies. So that is
why it makes sense.
One thing that came to mind while one of you was speaking
is some of the understandings that we have in talking with
people in Peru and other South American countries is just
private property rights, who owns the resources--a little
different than the U.S. where we own air rights and mineral
rights of a piece of property.
Down there you don't and, generally, ownership and surveys
and deeded property and all that is not applicable in the
jungles of Peru or a lot of indigenous people live in villages.
The head of the village knows well, that property belongs to
that family, but there is no deeded record of that.
So you run into a lot of problems with energy exploration
and leases. So we have learned a lot about that in the last
year travelling down there and talking with folks.
I think that is going to provide an impediment in a lot of
ways--and I think Mr. Martin was talking kind of along those
lines--as energy companies continue to try to explore and
produce in South America and possibly in Central America. But I
think that is an issue that they need to address, and I will
just raise that. So with falling oil prices in the world, who
gets hurt the most in this hemisphere? Mr. Book.
Mr. Book. Well, the--you know, the problem with saying who
gets hurt is that there is two groups of the United States that
you want to think about.
The U.S. consumer is helped. The U.S. producer is hurt.
And, arguably, the U.S. producer in some cases is being hurt
very badly. In the Western Hemisphere, though, the greatest
pain probably belongs to Venezuela.
Ultimately, their dependence on oil to fund their economy,
the high breakeven price they need for all of their fiscal
obligations and their lack of sourcing capital to produce that
oil means that a low price really squeezes them hard.
Mr. Duncan. Do you think Pemex is hurt a little bit with
U.S. and global investors looking to help them change their
infrastructure and update and modernize?
Mr. Book. Well, it is a bad time to be selling. You don't
want to auction off blocks at the bottom of the market, and I
think Pemex isn't necessarily going to have as much competition
as it might have had if we had been at $100 a barrel.
On the other hand, it seems like the petroleum industry in
Mexico is rationalizing their auctions and trying to time for
maybe right sizing it and timing it to not get totally burned.
Mr. Duncan. Right.
Mr. Martin. Mr. Chairman, if you don't mind, just a--there
was an important deal about a month ago that I think also
offers an alternative that Pemex, now more than ever, needs to
partner with outside foreign private capital and there was a
deal that First Reserve and Black Rock did about $900 million
on the natural gas pipeline that some people considered the tip
of the iceberg in potential partnerships. So I think that is
one thing to talk about the block, talk about the government
auctions.
But I think under the new restructure of Pemex, their
ability to partner in that First Reserve/Black Rock deal could
be important to watch.
Mr. Duncan. I think it is not unfortunate. The American
consumer is definitely benefiting and, you know, we are going
to see that trickle down in consumer goods and a lot of
different things because transportation fuels are cheaper now.
But when Pemex is going through the reforms that I applaud,
and I have made a lot of assumptions on what falling oil prices
would have--the impact they would have on energy reforms in
Mexico but offshore development not only here in the U.S.
because we see a lot of production starting to fall off but
also investment in other countries--that probably may have
taken place had energy prices, barrels of oil been a little bit
higher.
So let me ask this, Dr. Knapp. Arctic drilling--in your
opinion, what is the energy potential in the Arctic?
Mr. Knapp. Thank you for your question, Chairman.
I think for a long time we have known that there is a very
high potential of petroleum exploration in the Arctic and I was
heartened to see the move by the administration earlier this
week to approve the project that Shell has been pursuing in the
Arctic of Alaska.
There, again, we really won't know for sure until we go up
there and collect the data--the basic data that tell us what
the geological conditions are.
But we can certainly speculate that it has got the right
conditions for formation of oil. We tend to think of the Arctic
as a frozen wasteland, but it actually has only been that for
relatively recent geologic time and the time when the
conditions would have been right for generating petroleum would
have existed in the geologic past. So I think it is quite a
perspective.
Mr. Duncan. That is an interesting map you've got up there
where seismic work has happened all around the Atlantic, with
the exception of a big gap there alone the Atlantic coast of
the U.S.
Mr. Knapp. Well, this reflects current activities, right,
not even just historic ones but current ones. So yes, that is
why I wanted to leave it up there so we got a good look at it.
Mr. Duncan. That is current drilling?
Mr. Knapp. Well, yes, exploration, which would include both
seismic and drilling of well, yes.
Mr. Duncan. Okay.
Mr. Knapp. That is courtesy of a colleague from Shell Oil.
Mr. Duncan. I see a big gap off the coast of South Carolina
where there are no production or activities happening. We would
love to see that.
Mr. Knapp. It is interesting that the area off of Florida
that is actually being done by the Bahamas, Cuba, all the
Caribbean nations are actively exploring.
Mr. Duncan. That is right. U.S. LNG exports--the Department
of Energy approval process authorized that, has repeatedly got
criticism by industry, experiencing lengthy delays. I think on
May 7th the DOE granted final approval to a facility in
Maryland. I am very bullish on exporting LNG.
I am talking with the folks in Latin America. They would
love to see more U.S. exports of LNG. I think it is a win for
the Caribbean nations that are struggling for cheap or
affordable energy sources.
So what impact do you think would have--this would have on
U.S. ability to export LNG, Mr. Book?
Mr. Book. The question, Mr. Chairman, is what ability would
the DOE approvals have? What--I mean, there is really--the DOE
is turning around their approvals pretty quickly right now,
which is good.
What they did is they have essentially now taken a bunch of
brownfields projects, which are relatively good bets, given the
cost of building one of these facilities, and they have said--
they have given final approval to them.
This week they gave final approval to the first greenfields
project, the Corpus Christi project. And now the question
starts to become whether or not the investment decisions will
get taken on some of these incremental projects.
But we are going to probably have--we have final investment
decisions. We are under construction already, about 6\2/3\
billion cubic feet per day of LNG export capacity. We might end
up having ten to 15 built.
Mr. Duncan. Right. You know, Mexico is looking to Eagle
Ford in Texas to look for some pipelines that are in the works
to bring natural gas into Mexico to assist them.
But in talking with the Panamanians, they would love to be
that sort of natural hub for Central America. You know, ships
are coming through the canal anyway--why not offload some LNG
and allow that to be regasified and distributed by pipeline
throughout some of the Central American countries? I think it
is a win for the region.
I think there is a lot of opportunity not only for Panama
but also for American energy companies. And so I have got a lot
of questions, but my time is up, so in the essence of time I am
going to yield to the ranking member.
Mr. Sires. Thank you, Mr. Chairman.
You know, I listened carefully with the--all these
unprecedented opportunities that we have, and I am always
concerned about Petrocaribe--you know, Venezuela--because
basically Petrocaribe has everybody by the throat in the
Caribbean.
What percentage do you think of the LNG that the Caribbean
needs that we can supply by us now opening up to export since
last year, you said--last July, somebody mentioned here?
Mr. Book. I think--if you are referring to my testimony I
was talking about July 2011 we started exporting refined
products, not LNG, and----
Mr. Sires. I thought energy and, you know, I am trying to
get rid of this stranglehold that Venezuela has on these
islands. So with the energy that we have, what do you think is
the possibility of us basically getting rid of that, that
Petro--the stranglehold that Petrocaribe has on these islands?
Mr. Book. Well, thank you for the question. It is a great
question, because we are doing it right now.
We are actually already now supplying slightly more than
Petrocaribe is to the destination countries--that Venezuela is
to the destination countries, and part of that is because our
refineries are, as Jamie mentioned, world class.
We have low feedstock costs, low energy costs. We are
getting out there in the world. There is more we can do,
though. Some of those countries are buying crude as well, and
if we opened up our crude exports that could be a solution
also.
Mr. Sires. You know what? For example, I look at Dominican
Republic. They are totally basically dependent on Venezuela for
their energy. I was just wondering if you can answer that, Mr.
Martin.
Mr. Martin. The good news is Venezuela paid off their debt
to--excuse me, the Dominican Republic paid off their debt to
Venezuela and Petrocaribe early part of this year.
So they don't have--and I agree with my colleague, this
stranglehold is not a stranglehold anymore. It is a very loose
grip at best. The Dominican Republic is bringing gas from
Trinidad but what we could do is send some gas from the United
States.
There are a lot of hurdles. In my full written testimony I
have talked about some of the financial issues, the credit
issues that smaller markets deal with when they need to import
the scale of natural gas via LNG or CNG.
But the fact of the matter is via the fine product exports
as well as Venezuela just destroying themselves in terms of
their incapacity to export product we are loosening if not have
completely loosened that stranglehold.
In the case like Dominican where they have paid off their
debt they do not owe Venezuela any money and so therefore are
in a position to completely move forward.
Mr. Sires. And some of the islands are still dependent?
Mr. Martin. Yes. Other islands--it is a different--I mean,
Dominican is very unique in a situation where for about 10
years they have had a liquefied natural gas importation
terminal that American company AES based here in Arlington
built and now that has been able to--at a period of time it
wasn't doing so well but in the last several years it has been
able to really move the Dominicans' power supply away from a
fuel oil dependency, not to a natural gas dependency but to a
diversified matrix.
Mr. Sires. Thank you.
You know, the other day in the news I saw that Tesla had a
battery for houses. You know how there are battery cars. How
might oil prices affect the development of unconventional
energy throughout the hemisphere? In other words, what other
alternative--how are prices affecting the alternative energy
industry?
Mr. Webster. I will go ahead and take that. I will try
that.
Mr. Sires. I mean, these countries don't have the
infrastructure.
Mr. Webster. Thanks. Yes.
Mr. Sires. Even if we send it to these countries they don't
have the infrastructure to get it. We are talking about these
23 million people that do not have energy.
Mr. Webster. Thank you very much for your question, Ranking
Member.
So, you know, one of the big things that people who look at
either battery power or renewable energies is, you know, when
oil prices are higher than it makes more sense to start looking
for alternatives.
Oil price is quite a bit lower now and you can see here in
the United States we are starting to buy larger cars. But I
think what is going to happen over the next couple of years is
we are going to have quite a bit of volatility on oil prices
and that volatility is actually going to be something that both
consumers and producers are going to want to get away from, and
so one of those ways to do that is this potential for battery
technology.
So while in the short term this is not exactly what I would
consider positive for moving towards, you know, electric cars
and things like that, longer term this up and down in prices
and the desire to kind of escape that volatility so that you
can have better planning for your budgets is actually going to
favor other alternatives.
Mr. Sires. Thank you.
And I read about a deal between Argentina and China just
recently. Can you talk a little bit about the----
Mr. Martin. I am not sure, Mr. Ranking Member, what deal
but there are several deals. China--I mean, a crude description
of its checkbook diplomacy--China has financed billions and
billions of dollars of loans to Venezuela are guaranteed by oil
supplies.
In Argentina, it has been more in the investment in some of
the local companies. They have bought stakes in companies
through their national companies--you know, Sinopec.
So I am not sure exactly what deal you are referring to but
there are--Venezuela is the number-one recipient of China's
checkbook diplomacy but Argentina is obviously also an
important target for what I call China's go out and secure
access to the oil patch, in this case Latin America's oil
patch.
Mr. Sires. I really believe that one of the reasons that we
are refocusing on this region is because China now is stepping
into this region, and we just don't want to give this region to
China.
I mean, I was in Colombia a few years ago, and I had dinner
with one of the presidents of the colleges or the colleges
there, and he told me that the second most studied language in
Colombia today is Mandarin, after English.
So, you know, the wave is coming, and I think we finally
realized here in this country that we just cannot surrender
this region to China. So I think that is one of the reasons we
are focusing more on these places.
Mr. Martin. Mr. Ranking Member, in terms of Argentina I
think it is the perfect example. When I talked about exporting
technology, goods and services, know-how, and the lessons we
have learned from the unconventional revolution in the United
States, there is no way China is going to do that in Argentina.
The United States is going to do that, is already doing
that. We have helped them halve the cost of an unconventional
well in Argentina through partnerships with Dow Chemical,
Chevron.
There is a lot of other U.S. companies that are very
interested in exporting all of those lessons and technology
business services to really move Argentina from a 40,000 barrel
a day of unconventional production to a real player.
Mr. Sires. How does this scandal in Venezuela affect in the
industry? Does anybody know? This energy scandal where the
President is involved. There is a big scandal. Not Venezuela,
excuse me. Brazil. In Brazil.
Mr. Book. I think----
Mr. Sires. We visited--this committee, with Matt Salmon,
the chairman, we visited Brazil. We visited that whole complex
that they have, and all their plants that they have for, you
know, working with us in terms of trying to get oil from the
ocean, you know, and everything. But, you know, this scandal
has paralysed, I think, Brazil.
Mr. Book. Thank you for the question, Mr. Ranking Member.
I think the answer is it is bad news not just for Brazil
but for the world.
The pre-salt resources, as I mentioned, are--it is a way to
think about--it is the oil the world needs in the next decade.
What is not being invested in now is going to matter much more
to us later.
We have seen a big surge in shale. That is great. But the
world is declining at 4 to 5 percent a year that has to be
replaced. This is that replacement. It is an amazing resource.
It requires world class companies making hundreds of millions
to billions of dollars of investment in each of the producing
assets they put to work.
And so for two things that have gone wrong, one is that
they have changed rules, and that may have had an effect of
dulling some of the investment enthusiasm.
And the second thing is that the corruption scandal is
going to result in significant delays, in all likelihood, and
therefore under investment. So bad news, I think, not just for
Brazil but for the world.
Mr. Sires. And my last comment--this is a basic problem
with these countries. You go there and invest and then they
change the rules.
I mean, I don't get it where they think a company is going
to spend hundreds of millions of dollars and then they say
well, I don't think--the percentage you charge is too high--we
are not going to pay you.
I think that is why they don't get any--you know, any real
investment in some of these places. And that was the case in
Argentina. They didn't want to pay.
So, you know, to me, making a large investment in energy
and to have a country say, well, we don't want to do it
anymore, and mark my words, this is going to happen in Cuba
when people make investments there.
They will wake up one day and say, well, I don't think this
deal is that good--we are going to take this back. And I don't
know any company that is willing to take that risk.
I am sorry, Chairman. I didn't want to----
Mr. Duncan. It has happened before, and there are a lot of
companies and individuals that have lost ownership. I think the
ranking member is right about engagement in this hemisphere.
We have neglected, I think, as a nation and maybe even just
Congress have neglected countries in this hemisphere way too
long and we allow China or Russia to get a foothold.
But one thing that we are trying to do with this
subcommittee is get re-engaged from the United States Congress
with countries in the hemisphere and I think energy as a segue
toward that re-engagement because I think energy is a win-win
for everybody.
It improves quality of life. It helps electrify. It also
helps U.S. businesses be able to export or to go down and
invest in infrastructure. I just think it is a win-win. So we
are going to continue with these type hearings about U.S.
engagement in the hemisphere. Energy, I think, is the primary
one right now.
I will turn to the gentleman from Florida, Mr. Yoho, for 5
minutes.
Mr. Yoho. Thank you, Mr. Chairman.
I appreciate you all being here and I share the chairman
and ranking member's goal and my vision is to make North
America energy secure, energy independent in this region in the
Western Hemisphere, to bring stability to the fuel prices.
You know, we have seen the volatility and we saw a lot in
the 2004-2008 area when it was just going up and I was paying
$5 a gallon for diesel for my Ford Excursion. Luckily, it got
22 miles to the gallon.
But we saw that fluctuation, and when the fluctuation was
there it was just--you know, it disrupts the economy, from the
guy out there planting corn to the, you know, the cosmetics on
the aisle that people buy. It affected everything--
pharmaceuticals. And so there is no reason, with our natural
resources--correct me if I am wrong--that we should be
importing oil from anybody outside of the Western Hemisphere.
Would you agree with that? Is there a need to with the
natural resources here?
Mr. Book. I would--Congressman, I think the good news is
that we have everything we need in the Western Hemisphere. The
bad news is that if you don't allow the world to compete the
price might be too high.
Let me give an example. The Keystone Pipeline would bring
Canadian oil down to the Gulf of Mexico. Right now, Venezuela
and Mexico sell most of the crude that goes into those
refineries from overseas, and Canada would democratize that
market ever so slightly.
I think we might find that we get most of our energy from
the Western Hemisphere, but we would always want to have
somebody out there bidding against them just to keep the prices
fair.
Mr. Yoho. No, I agree with that. But if we had enough
production here--I don't want to control the oil market. It
would be nice to stabilize it, you know, and if we stabilize it
prices wouldn't show the volatility that they have, and I think
if we work together as the Western Hemisphere we could
accomplish that.
Let the Middle East, or whoever else wants to produce
energy, do that but not to where it affects our market. And,
you know, the competition is always good because it keeps the
price down and the stable supply will stabilize, you know, the
prices.
So with what we have in this hemisphere, I don't see why we
are not doing that. And Mr. Sires brought up a perfect example
of the geopolitical landscape.
When you have an unstable government or a government that
doesn't follow the rule of law or civil society or property
rights or they are corrupt you get what we see in a lot of the
Latin American countries.
And if I was an oil company I would be hard pressed to
invest there when I look at that map and I see what is in North
America, and certainly there is a lot of resources off the
coasts.
But with what is on the interior is there really a need to
do deepwater exploration, deepwater drilling with the risks of
that when we have so much on the interior. What are your
thoughts on that? Get the low laying fruit?
Mr. Knapp. I will take a shot at that. We currently produce
more than a quarter of our domestic production offshore and one
of the issues about the offshore is that these are more complex
longer-term projects.
So if we wanted to be developing that resource we are
looking at a 10- to 15-year time frame from the time we start
on that to before we could ever be producing the product.
The reality is that other than the unconventional play,
which has really energized the market in the last few years,
the conventional plays onshore are, largely, highly explored in
North America and the only place where we are likely to find
major new resources is the 87 percent of the outer continental
shelf that we have never explored in.
So I think that still remains the big opportunity here in
North America for new reserves that we might discover.
Mr. Yoho. Okay. On the Keystone Pipeline we get a lot of
questions where people say well, it is not going to benefit
America at all--all that product is going to be exported.
What are your thoughts on that? How much of that oil would
be exported? How much would stay here? How much would be used
domestically?
Mr. Webster. So IHS actually conducted a study on this to
try to better examine this and our view is very much that 70
percent of both the crude and refined products would be kept
here in the United States.
The remainder of it would actually tend to back out to that
Venezuelan oil and, again, it goes back to what the chairman's
point was earlier, which is that the Gulf Coast refinery is
perfectly suited to this oil.
So it actually doesn't make a whole lot of sense to bring
that oil down to the perfect market for it and then say you are
going to export it to someplace else. There is no better place
for it.
Mr. Yoho. So 70 percent of that oil would stay here
domestically and, you know, it is funny how many different
things are out there.
When people say it is all going to be exported, it won't
benefit America at all and, you know, you try to explain facts
and people don't want to listen to that.
What would you recommend about removing our export bans on
all petroleum or energy products? I mean, it sounds like you
are all in agreement with that, right?
That would help our producers. It would lower prices. It
would stabilize the region, and especially if we focus on the
Caribbean and our allies with Mexico and any other country in
the Western Hemisphere that wanted to be our friends.
I think it would just be a win-win situation and I don't
see any reason not to do that. When you look at that
possibility and you look at this body, Congress, what do you
see as the biggest stumbling block? Is it just the political
will? You are amongst friends.
Mr. Webster. Yes, I will go ahead and try it. One, I would
agree with you that crude oil exports is, to me--it is very
difficult for me to come up with--as an analyst to come up with
an intellectually credible argument on why you would not allow
crude oil exports when petroleum products are okay, natural gas
is okay, coal is okay, electricity is okay but crude oil is
not.
Mr. Yoho. But not crude. Don't do--that is dirty oil.
Mr. Webster. Yes. I would--my estimate would be that the
reason why is because of a concern is that when people see the
price on television they look at the oil price and so they
often link oil price with gasoline price, not recognizing that
actually exporting oil is actually going to increase the supply
around the world and as I often say a free barrel of oil
anywhere actually increases energy security everywhere. And so
that actually would bring down gasoline prices.
Mr. Book. If I might add to that.
Mr. Yoho. Yes, sir.
Mr. Book. I have some sympathy for you and your colleagues
who are addressing this challenge. You pay your utility bill
usually about once a month. You fill up your tank 40 or 50
times a year, which is 40 or 50 times you are reminded how much
you are spending. That makes it a much more emotional and
politically volatile issue.
The American public on average is spending 6 to 7 percent
of disposable income on energy writ large. Two-thirds of that
is gasoline.
If you think about who it hurts when gasoline prices go up,
it hurts the poorest the most, the people who drive longest
distances inflexibly.
Mr. Yoho. Right.
Mr. Book. The problem then is that there is a perception
risk. Right now, if you go back to January '14, gasoline prices
are now down about 66 cents or so per gallon. On the other
hand, they are up 62 cents per gallon from where they were
January of '15.
So if--you know, if this is something that you and some of
your colleagues are worried about in terms of the perceptions,
the sweet spot is behind us right now. It shouldn't be there.
I think Jamie is absolutely right. What people need to be
focused on is the broader economic picture. But I certainly
understand what the concerns are getting to that focus.
Mr. Yoho. Mr. Chairman, can I add one more thing? When
you--when you and I were in South America and we were sitting--
I think it was in Colombia and the oil executives were there,
they were talking about the world asset tax they had to pay.
Have you heard of that? Good. Do you remember that comment?
I haven't been able to find it and I am, like, what is
that, and I haven't been able to find it. So that is good that
you don't know about it. Thank you.
Mr. Duncan. I will yield a little bit of time to the
ranking member.
Mr. Sires. Dr. Knapp, you know, I see this map and I see
all these areas of exploration, and I remember a few years ago
we had this big hoopla that Cuba was sitting on I don't know
how many barrels of oil and everything else and there was, you
know, Spain went in there and invested.
I think Italy went in there and invested. They didn't find
a drop of oil. So where is all this oil that I see this line
going through there?
Mr. Knapp. Thank you for a question that I feel qualified
to answer, Mr. Ranking Member. So much of this ultimately gets
back to the geology and that is do you have the right geologic
conditions, first of all, to form the oil or gas and, second of
all, to trap it in some geologic formation where you can then
go and recover it.
And when we are in areas like the Atlantic margin, which is
right out our door here, where we have basically what is called
the passive margin, we have got areas where there is lots of
marine sedimentation that takes place and we get sediments
deposited on top of that that then mature into oil, and it is
subsequently not disturbed in some significant way by
geological processes then the oil is going to be preserved.
Cuba, on the other hand, sits on a plate boundary. It is
the collision of the Caribbean Plate with the North American
Plate and it has got faults all through it and it is highly
deformed, and if the conditions ever were right for the oil to
form there, chances are it has long since been released through
geologic time.
So it doesn't surprise me. As geologists, we can have a
fairly great insight in where we are likely to find oil and gas
reserves and where we are not.
Mr. Sires. People were talking about the rigs and the oil,
if there was an accident it would go on the beaches in Florida.
I mean, it went beyond.
Mr. Knapp. Well, they are still doing that now in--down
where we live.
Mr. Sires. Thank you.
Mr. Martin. Ranking Member, if I could just add, I think
there is three reasons why Cuba doesn't even need to worry
about it right now.
Number one is the price of oil. Number two is the number of
dry holes that--you could down the list of who has drilled a
dry hole in Cuba. And number three is we talk about Mexico.
The enormous opportunity that Mexico provides I think makes
anyone who might think Cuba is another opportunity to take a
little back.
Mr. Sires. But people will want to invest there because at
the moment----
Mr. Martin. I think there's three reasons I can think of
off the top of my head why it doesn't make a whole lot of sense
in 2015.
Mr. Sires. That's terrible.
Mr. Duncan. Why are--why did gas prices come down?
Mr. Book. Gasoline prices are mostly linked to crude oil
prices. There is local--if you look at California recently you
can see that when the refineries went out and just in general
because they have a special blend of California gasoline the
prices tends to be a bit higher.
It doesn't move necessarily the same direction all the
time. But by and large, it was the collapse in oil prices that
brought down gasoline prices.
Mr. Duncan. Okay. So why did--why did global oil--crude oil
prices come down?
Mr. Book. Well, there is three easy explanations. Demand
was weak, supply was long and OPEC decided that they wouldn't
cut. Those are--each of those requires a Master's thesis to
give you all the details.
The first one was the one that I think a lot of people
didn't expect. We have seen effectively a low-energy recovery
from the Great Recession. Whether it is structural or whether
it is just a slow recovery of consumer patterns is yet to be
seen.
Mr. Duncan. Well, global--slow recovery globally, right?
Mr. Book. Basically, yes.
Mr. Duncan. So global demand was down. Supply was up.
Mr. Book. Supply was up and----
Mr. Duncan. You had the Bakken onlining, but you also had
the Saudis and OPEC keeping production levels up?
Mr. Book. And the thing that broke the camel's back, Jamie
mentioned, was Libya. Libya had been blinking on and off like a
bad light bulb for a while at 300,000, 400,000 barrels a day.
It suddenly shot up to 800,000, 900,000 barrels per day and
shocked the market.
When you look down after you have run off the edge of the
cliff in the Roadrunner cartoons there is a moment before you
fall. That was the moment. When they looked down, that was when
the market moved.
Mr. Duncan. Right. So just to simplify things, demand was
down, supply was up. That affects prices. If the U.S. was able
to export our crude oil on the global market then it would
increase global supply to meet maybe a stagnant global demand,
even decreasing--increasing global demand. But if you got more
supply, then you are going to keep prices relatively stable or
inexpensive.
Mr. Book. Well, there is good news out there, which is that
if you put oil out there cheap enough for long enough, demands
wakes back up and that is a good thing because with it brings
economic opportunity.
What you have is most of the growth in oil demand right now
is not coming from the OECD. The OECD is pretty stagnant, as
you say, and very efficient. There's wing tips in all our
planes. We are all buying new cars.
So when the price drops, it doesn't unlock a lot of new
demand. Where does that demand come from? It comes from GDP
growth in the non-OECD and that is where the flagging economic
fortunes of the world have been a problem.
But if you see that oil price low enough for long enough,
the investment that comes with it brings demand back, and I
think we are starting to see that.
Mr. Duncan. Do you think there is demand in the Western
Hemisphere for energy resources?
Mr. Book. Writ large, absolutely. Just the electrification
issue I mentioned in my testimony that is a lot of--that is a
big energy gap right there. But let us not kid ourselves. There
is--even if we are driving cars less we want to fly planes and
move trucks. There is freight and commerce to be done.
Mr. Duncan. Right. Exactly.
So talk about Colombia just for a minute. We were down
there in November. Wasn't it November we were down? And FARC
had just blown up a natural gas pipeline and it is a pipeline
that they have attacked numerous times.
There is a lot of work on the Colombians' part just to keep
that safe. Then you throw in the reduction in the price of oil.
Colombia pulled back from its offshore development somewhat.
So I am not talking about global prices but just safety and
security in the region is very, very important, I would think.
I mean, I have--people contact my office that do business down
in Latin America that are needing security and caravans just to
go out and do exploration or even the hydroelectric projects
that they are working on to replace turbines or work on
turbines they have got to have a security team with them just
for safety and security.
How do you--how does that factor into what we are talking
about today, and that is energy in this hemisphere when you
factor in a security threat like FARC or any others? Can you
all talk to that?
Mr. Webster. Well, one, it--you know, a lot of the
companies that are looking at this in terms of energy they look
at the risk profile for each of these countries, and one of the
benefits of both the United States being a bigger producer of
oil and gas is it gives them another safer opportunity that is
certainly present within Canada and increasingly within Mexico.
What ends up happening is for these countries is they
essentially, you know, either price themselves out of the
market, so to speak, which then reduces the opportunity that
the world has for those energy--additional energy supplies from
those regions.
Mr. Duncan. So it is not--it is an impediment but it is not
going to--that can't be overcome, I guess, is what I am hearing
from you?
Mr. Webster. That is correct.
Mr. Martin. Mr. Chairman, yes, I think that is exactly what
I was trying to get at with my above ground--the concept of
being sure you understand the above ground, the nontechnical
risk, the political, the security.
Those things can all, as Jamie said, be mitigated or
figured into the project life cycle--how do deal with them,
community engagement. All of these things, all these
nontechnical issues, have certain components and ways to deal
with them.
The problem is you have to be aware, and you have to really
understand where you are operating and where you are going
into. And I would just say a final point about Colombia.
We talked about--I think the question from the ranking
member which country is the hardest hit in our hemisphere by
lower oil prices and Venezuela is, you know, surely a winner.
But Colombia has been really hard hit by low oil prices as
well.
Colombia was a wonderful story for 5 or 6 years in terms of
rewriting their oil and gas investment framework, launching bid
rounds year upon year, attracting billions of dollars of
investment.
That has been paralysed, in part, because of some of the
security issues, but the low price of oil has really impacted
Colombia as well.
Mr. Duncan. Well, the last thing--they are going to call
votes in just a second. It has been a great hearing. The last
thing I want to--we have talked about the Caribbean and how we
can lessen the influence of Venezuela in Petrocaribe by U.S.
engagement in the Caribbean with the, you know, crude oil, with
electrification and all that.
So the questions is, for each of you, how can countries in
the Western Hemisphere work more closely together to achieve
Western Hemisphere energy independence and wean ourselves off
the resources from the Middle East and Africa?
If you had to put your hand on one thing that we could do
as a hemisphere, what would that be? How can we work together?
And I will start at Dr. Knapp and work across.
Mr. Knapp. Thank you for that question, Mr. Chairman, and I
would say first and foremost the thing that we need to do is
develop the resources that we have such that they are on the
table for those partnerships with those other companies and to
the extent that we have identified significant resources here
in our own country that is where we need to begin.
Mr. Duncan. That is all countries need to develop the
resources?
Mr. Knapp. Sure.
Mr. Duncan. Yes. Mr. Book?
Mr. Book. Well, since Dr. Knapp has already picked the
drill it, I am going to pick the ship it. The next--the next
thing you might want to put on your list is removing the
barriers to trade that we control.
We are the ones who have decided not to export our oil.
There are other barriers we don't control, but this one is
ours.
Mr. Webster. Thank you for the question, Chairman. Since
drill it and ship it have been taken, I will take share it,
which is actually--and Senator Murkowski has put out some
language on this--which is that you actually need to continue
to increase the integration of both data, both--just in terms
of flows and trade, but also in terms of technical data between
these different countries to understand what those resources
are so that you can then drill it and ship it.
Mr. Martin. I don't know if that leaves me to flip it or
what here, but maybe we could say flip it in terms of the
switch or what Petrocaribe is doing. But look, full
liberalization of energy trade and everything that that
statement encompasses is what I would say.
Energy diplomacy--the Caribbean Energy Security Initiative
is a great start. It is a small piece. We need to do more. We
need to export more and that is the way we have always, as the
United States, been able to champion engagement, in this case,
in energy diplomacy.
Mr. Duncan. Well, I want to thank the ranking member. I
want to thank the members of the committee. I want to thank you
for your great testimony and answering the questions.
We are just scratching the surface, really, of what we need
to be doing about energy engagement and engagement all across
the board on a lot of different fronts whether it is
agriculture or other things in this hemisphere.
I am excited about the future. I think there is opportunity
and I use that word in all caps. There is opportunity for
American businesses. There is an opportunity for America and
safety and security, national security, energy security.
But this is our neighborhood. It is not our back yard. I
hate when people say well, that country is in our back yard.
No, they are neighbors in this hemisphere. This is a
Neighborhood.
We need to work with our neighbors in the Western
Hemisphere to help everybody. I mean, a rising tide floats all
boats and I think energy is a segue to rise the quality of
living and standards and other things in this hemisphere and it
is a way for the U.S. to get engaged once again to thwart any
efforts by China or Russia or Iran or others that may be
sticking a toe in the water here in our neighborhood.
So I look forward to continuing engagement with you, and
with nothing further, I will stand adjourned.
[Whereupon, at 3:24 p.m., the committee was adjourned.]
A P P E N D I X
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