[Senate Hearing 114-468]
[From the U.S. Government Publishing Office]
S. Hrg. 114-468
CHALLENGES AND OPPORTUNITIES FOR OIL AND GAS DEVELOPMENT IN DIFFERENT
PRICE ENVIRONMENTS
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HEARING
BEFORE THE
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
APRIL 26, 2016
__________
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
LISA MURKOWSKI, Alaska, Chairman
JOHN BARRASSO, Wyoming MARIA CANTWELL, Washington
JAMES E. RISCH, Idaho RON WYDEN, Oregon
MIKE LEE, Utah BERNARD SANDERS, Vermont
JEFF FLAKE, Arizona DEBBIE STABENOW, Michigan
STEVE DAINES, Montana AL FRANKEN, Minnesota
BILL CASSIDY, Louisiana JOE MANCHIN III, West Virginia
CORY GARDNER, Colorado MARTIN HEINRICH, New Mexico
ROB PORTMAN, Ohio MAZIE K. HIRONO, Hawaii
JOHN HOEVEN, North Dakota ANGUS S. KING, JR., Maine
LAMAR ALEXANDER, Tennessee ELIZABETH WARREN, Massachusetts
SHELLEY MOORE CAPITO, West Virginia
Colin Hayes, Staff Director
Patrick J. McCormick III, Chief Counsel
Tristan Abbey, Senior Professional Staff Member
Kip Knudson, Professional Staff Member
Angela Becker-Dippmann, Democratic Staff Director
Sam E. Fowler, Democratic Chief Counsel
Scott McKee, Democratic Professional Staff Member
C O N T E N T S
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OPENING STATEMENTS
Page
Murkowski, Hon. Lisa, Chairman and a U.S. Senator from Alaska.... 1
Heinrich, Hon. Martin, a U.S. Senator from New Mexico............ 50
WITNESSES
Bordoff, Jason, Founding Director, Center on Global Energy
Policy, and Professor of Professional Practice in International
and Public Affairs, Columbia University School of International
and Public Affairs............................................. 53
Cass, Oren, Senior Fellow, Manhattan Institute for Policy
Research....................................................... 64
Minter, Suzanne, Manager, Oil and Gas Consulting, Platts
Analytics...................................................... 72
Palti-Guzman, Leslie, Director, Global Gas, The Rapidan Group LLC 82
Ratner, Michael, Specialist in Energy Policy, Congressional
Research Service 87
ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED
Bordoff, Jason:
Opening Statement............................................ 53
Written Testimony............................................ 55
Responses to Questions for the Record........................ 121
Cass, Oren:
Opening Statement............................................ 64
Written Testimony............................................ 66
Heinrich, Hon. Martin:
Opening Statement............................................ 50
Minter, Suzanne:
Opening Statement............................................ 72
Written Testimony............................................ 74
Responses to Questions for the Record........................ 129
Murkowski, Hon. Lisa:
Opening Statement............................................ 1
``The Alaska Exception: Energy and the Frontier'' dated April
26, 2016................................................... 3
Chart entitled ``ANWR Development Timeline''................. 107
Palti-Guzman, Leslie:
Opening Statement............................................ 82
Written Testimony............................................ 84
Response to Question for the Record.......................... 132
Ratner, Michael:
Opening Statement............................................ 87
Written Testimony............................................ 89
CHALLENGES AND OPPORTUNITIES FOR OIL AND GAS DEVELOPMENT IN DIFFERENT
PRICE ENVIRONMENTS
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TUESDAY, APRIL 26, 2016
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The Committee met, pursuant to notice, at 10:07 a.m. in
Room SD-366, Dirksen Senate Office Building, Hon. Lisa
Murkowski, Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR FROM
ALASKA
The Chairman. Good morning. The Committee will come to
order.
The subject of challenges and opportunities in oil and gas
development under different price environments is certainly one
of national significance. There has been a lot of discussion in
the news about what these low oil prices mean for us as a
nation and truly given the geopolitics of oil, but it has
impact, certainly, for our security, for our economy and for
the environment itself.
A special thank you to our witnesses today, all of whom had
agreed to testify last week but you were bumped and we
apologize for that. But we do not apologize that we were able
to get the energy bill to the floor. So we are sorry for any
inconvenience but hope that you find some comfort in the fact
that you were moved off to the sidelines for a very important
legislative priority here. It allowed the first significant
energy reform package to clear the Senate in nearly a decade. I
think the Committee is proud of that and I thank all of my
colleagues for their support in making that happen.
Oil and gas prices are low today, but I think we all
recognize they are not going to be low forever. They come and
they go. In fact, the only way that drawdowns from the
Strategic Petroleum Reserve fill revenue gaps on paper is
because CBO assumes price levels in the future to double to
perhaps $80 or more from today's level hanging around $40 a
barrel.
Oil and gas production is heavily capital intensive. It
takes a long time for these projects to come online. The Energy
Information Administration (EIA), for example, we were just
speaking about this when I came in, estimates that the
development in the non-wilderness portion of ANWR would take 8
to 12 years after legislation is enacted to open up the 10 02
area for exploration or production.
I joined the Alaska State Legislature at a time when oil
was at $9 a barrel. For an oil producing state, that was a
pretty tough reality for us. As we were looking at legislative
issues, we were actually debating whether or not we had enough
funding within the state's budget to provide for bullets for
the state troopers as they go out to provide for a level of
safety.
We had some really tough decisions to make. Our executive
and legislative branches, at the time they were controlled by
Democrats and Republicans so it was not all tilted in favor of
one party, but they all worked diligently to ensure that our
public policy remained attractive to resource development
because we are a resource development state so we needed to be
able to attract resource investment. I think that that should
be part of our goal, to ensure that America remains an
attractive place to produce the resources that we need and will
use right here at home.
When you look at our energy mix that means that we need to
provide new access, we need to establish reasonable systems for
leasing and development and we need to reform what is often an
overly cumbersome permitting process.
Right now, we do not have that system at the Federal level,
but with policy improvements I think we can get there. I think
we should be tackling this right now not the next time that oil
is sitting at $100 a barrel or even more.
So today I am pleased to announce to my colleagues, and you
should be receiving a copy, but we have launched a new series
of white papers. For those of you that have been on the
Committee for some time, you know that we like to provide you
with these thoughtful, insightful papers about major
initiatives in the energy space that we have been focused on.
We take a pretty rigorous analysis, and we build the case. We
built the case for oil exports. We built the case with the
Energy 20/20 white paper that we had released at the start of
2013.
We have moved through a series of other initiatives where,
again, we lay forth the efforts that we are focusing on. So it
was the efforts to expedite LNG exports, again, lift the ban on
oil exports. These were all supported by a series of staff
reports on condensate, on cross border swaps and much else that
we actually saw got adopted by the Administration.
Today I have got a new report out there, a new white paper.
We are calling it the ``Alaska Exception, Energy and the
Frontier.'' It is the first in a series that we are entitling
``Alaska, First in Energy.''
[The information referred to follows:]
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What we have done in this white paper, and it is not very
long so I would commend it to you all, but it details the
various special exceptions that have been made for the State of
Alaska, not because we are so special, other than the fact that
we believe that we are pretty special, but we are special
because of our resources. We have seen exceptions made over the
years on LNG, on the renewable fuel standards, crude oil, FERC
and then our signature achievement which is the Trans-Alaska
pipeline.
So as I lay out more of these I will be sure to give you
all a heads up. But as we think about the role that a state
like Alaska can play or really any of our energy producing
states, I think we recognize that there is a time that is
required to put infrastructure in place to allow for
exploration and production to move forward.
While some are panicked at the notion that we are sitting
at low oil prices and have been for some period of time and are
suggesting that we should not be looking to make longer-term
investment, I am looking at it and taking the exact opposite
view. I will be interested in hearing from our panelists this
morning in terms of your thoughts and your comments in this
vein.
With that, I am going to turn to Senator Heinrich, who is
standing in this morning for the Ranking Member, Senator
Cantwell.
Senator Heinrich, I appreciate your leadership on this
panel at all times, but I also want to particularly thank you
for your help with the Energy Policy Modernization Act and the
Sportsmen's provisions that we were able to include in that. So
thank you.
We look forward to your comments this morning.
STATEMENT OF HON. MARTIN HEINRICH, U.S. SENATOR FROM NEW MEXICO
Senator Heinrich. Thank you, Madam Chairman.
I think it is a testament, a testimony, to your leadership
and to Ranking Member Cantwell's leadership that this
particular Committee has been so productive at a time where we
will find that to be the exception rather than the rule around
here.
I want to thank you for scheduling this hearing to examine
challenges and opportunities for oil and gas developments in
different price environments. Senator Cantwell was not able to
attend and asked me to fill in for her, and I want to thank our
witnesses for joining us today.
Energy markets have been changing pretty rapidly in the
last couple of years, particularly in the oil and gas sector.
At the end of 2015 there were several policy changes that
affect energy markets including removing the restrictions on
exports of crude oil. Just last week, obviously, we passed the
Energy Policy and Modernization Act of 2016 on a big,
bipartisan vote, 85 to 12.
It is the first broad, comprehensive bill that the Senate
has passed since 2007 when my predecessor was on this
Committee, Senator Bingaman.
It is important to understand that the recent developments
in expectations for the market, such as oil and natural gas, as
we consider any new policy changes. Earlier this year, in
January and February, the global and domestic crude oil prices
fell to $26 a barrel, prices we have not seen in over a decade,
and just last month natural gas prices fell below $1.60 per
million BTUs. Those are prices we have not seen since the
1990s.
This current low price environment for oil and natural gas
presents both challenges and opportunities, the topic of
today's hearing. For oil and natural gas producers in New
Mexico and elsewhere the low prices are reducing investments
and causing significant job losses, even bankruptcies, for some
companies.
The economies in the major producing parts of my state, San
Juan County and the San Juan Basin, the Permian Basin in
Southeast New Mexico, are struggling.
Though the recent growth in production is starting to slow,
unfortunately, price volatility is not a new phenomenon. The
long history of the oil and gas industry has been one of boom
and bust cycles.
While oil and gas companies are looking for ways to cut
costs in a current low price environment, we must remain
vigilant about ensuring both safety and protecting our land and
water.
For example, last week was the sixth anniversary of the BP
Deepwater Horizon explosion and oil spill which was a human,
economic and ecological disaster of epic proportions. Eleven
members of the crew were killed in the explosion, and 17 others
were injured. Oil spewed into the ocean unmitigated for nearly
three months, a mile below the surface.
I remember having conversations with the Director of Sandia
National Labs at that time who was one of the experts who was
pulled in to help plug that well.
It is clear now that this disaster could have been avoided.
Multiple blue ribbon panels all have concluded that the
immediate cause of the Macondo blow out can be traced to a
series of systematic failures in risk management and a broken
safety culture.
The final version of the Offshore Drilling Safety
regulations was published a couple of weeks ago. The final
regulations tightened standards for blowout preventers and
address the other primary causes of the Deepwater Horizon
disaster, inadequate risk management and safety oversight, by
codifying the advances made by industry experts and regulators
over the last five years.
Today's low oil and natural gas prices also present an
opportunity for consumers in the larger economy. Recent low oil
and natural gas prices have provided real savings for
consumers.
For example, AAA estimates that Americans saved more than
$115 billion on gasoline in 2015 compared to 2014, which was an
average of more than $550 per driver, real money.
In its monthly, short-term energy outlook, the U.S. Energy
Information Administration predicts that this year's April to
September driving season will feature the lowest gasoline
prices in 12 years, averaging $2.40 a gallon this summer, down
from $2.63 last summer.
EIA data on natural gas also paints a picture friendly to
consumers. The agency forecasts low natural gas prices will
push down average residential electricity prices this year for
the first time since 2002; however, these fossil fuel
commodities are still susceptible to price swings. Less than
two years ago, oil prices were over $100 a barrel and natural
gas prices were spiking to levels four times those today, but
experts agree that we are in a new era of natural gas abundance
and low prices.
Most experts also agree that oil prices will go up again.
It is just a matter of when and how much. The low natural gas
prices and increasing supplies of natural gas have helped with
diversification of the electric power sector both here and
abroad, but the same is not true related to low oil prices.
Over 70 percent of the petroleum consumption in the U.S. is for
the transportation sector, and 91 percent of the transportation
sector is fueled by petroleum.
We need to embrace policies that encourage efficiency and
diversification of the transportation sector so that it is not
dependent on one volatilely-priced commodity. These policies
can provide additional savings for consumers. The CAFE
standards put in place in 2007 are estimated to save consumers
$140 billion by 2030.
Once again, I want to thank the Chair for holding this
hearing, and I am looking forward to the testimony of all of
our witnesses.
The Chairman. Thank you, Senator Heinrich.
Before I introduce the witnesses and ask you to provide us
with your statements, I will remind colleagues we have three
votes set for 11 o'clock this morning. It is my intention to
keep the Committee moving throughout those votes, so I would
advise you to keep plugged into your electronic devices so you
do not miss the vote. We will continue on, and we will just
pass the gavel back and forth here.
To our witnesses, we apologize for bumping you last week
and now we apologize for being jumping jacks here at the
Committee, but this is the U.S. Senate and we are doing
business. We have work to do today and certainly not the least
of which is to hear your comments and your contributions.
We are joined this morning by Mr. Jason Bordoff, the
Founding Director for the Center on Global Energy Policy, and
Professor of Professional Practice in International and Public
Affairs at Columbia University. Welcome.
Mr. Oren Cass is a Senior Fellow at the Manhattan
Institute. We welcome you this morning.
Ms. Suzanne Minter is the Manager of Oil and Gas Consulting
Services for Platts Analytics. Thank you.
Ms. Leslie Palti-Guzman, I hope I am pronouncing that
right, is the Director of Global Gas for the Rapidan Group.
Welcome.
Rounding out the panel we have Mr. Michael Ratner, who is a
specialist in Energy Policy at the Congressional Research
Service.
So we welcome you all.
We ask that you try to keep your comments to five minutes.
Your full statements will be included as part of the record.
Once you have concluded, we will all begin our questions.
Thank you. Mr. Bordoff, would you please proceed?
STATEMENT OF JASON BORDOFF, FOUNDING DIRECTOR, CENTER ON GLOBAL
ENERGY POLICY, AND PROFESSOR OF PROFESSIONAL PRACTICE IN
INTERNATIONAL AND PUBLIC AFFAIRS, COLUMBIA UNIVERSITY SCHOOL OF
INTERNATIONAL AND PUBLIC AFFAIRS
Mr. Bordoff. Thank you, Chairman Murkowski. Thank you,
Senator Heinrich, members of the Committee. Thanks for the
invitation to be here today.
I will just briefly summarize the three points that I make
and elaborate in my written testimony.
First, on the impacts of the oil price collapse. The oil
price collapse has hurt workers, families, communities. U.S.
oil production is now falling rapidly, although on net, lower
prices are still a boost to the U.S. economy, albeit a smaller
one than has been the case in the past.
In the face of the oil price collapse, U.S. oil production
has been much more resilient than many people expected it to
be. U.S. oil production peaked in April 2015, has since fallen
and will continue to fall, certainly, over the next year. Oil
and gas companies have slashed capital investment and jobs
causing hardship for communities, especially in oil-producing
states like Alaska and many others. At the same time, the U.S.
oil sector has lowered costs, has improved technology and
productivity and efficiency to cope with the pressure of the
low oil price and in many ways will be in a stronger position
to weather the next inevitable future downturn in oil prices.
On net the U.S. is still the world's largest consumer and a
very large importer of oil. And so, a decline in the oil price
offers a macro economic boost. But as I said, this positive
impact is smaller than many had anticipated. And that's because
consumers are spending less of the savings from lower fuel
prices. The big employment gains from the shale boom are being
thrown into reverse. And as a smaller importer, more of the
consumer benefit of low prices is coming at the expense of
domestic producer revenue.
My second point in the testimony is that while oil prices
are low today it goes without saying that it's very far from
clear that they will remain low and in fact, may be more
volatile going forward. Currently the oil market is over-
supplied, but low oil prices are starting to do what low oil
prices do and take their toll on supply, not only in the U.S.
but in other countries too, like China and Mexico and Colombia
and others.
Roughly $400 billion in global capital investment has been
cut back, meaning less supply is coming online in the years to
come. And low oil prices are stimulating more global oil demand
including here in the U.S.
Iran is ramping up production after the lifting of
sanctions, although running into some difficulty in doing that.
OPEC may yet try to reinsert itself. We'll see. That doesn't
seem all that likely right now, but it's certainly a
possibility. And geopolitical risks abound in major oil
producing states.
Recent supply disruptions and pipeline sabotage in Iraq and
Nigeria, the looming economic and social collapse in Venezuela,
the recent worker strike in Kuwait, the ongoing civil strife in
Libya, all of these, I think, are reminders of the risk to
supply from conflict, from poor governance, from political
dynamics, from economic turmoil. And moreover, with OPEC's
spare capacity at historic lows any disruption that does occur
to global oil supply can have an outsized impact in the market
because there's little buffer in the event of a supply
disruption.
U.S. shale is a short cycle source of supply. It can
respond more quickly to changes in price, but that doesn't
happen overnight the way spare capacity can be brought to the
market in a matter of weeks. And it takes, certainly shorter
than conventional oil, but still can take, we don't fully know
for sure, we're kind of learning as we go with shale oil, but
can take maybe up to a year to respond to changes in price. And
the result of that without adequate inventories which we do
have plump inventories now, may mean more price volatility
looking forward.
My final point is that regardless of price, government must
ensure oil and gas is produced safely and responsibly. It must
correct market failures like pollution. It must assess risks
and benefits in determining whether to allow drilling on
Federal lands. It must consider permit applications for energy
infrastructure to ensure environmental impacts are understood
and that they're mitigated.
And those fundamental roles for government don't change in
different oil price environments. In all cases government needs
to design smart, cost effective, narrowly tailored regulations.
But it would be short sighted to weaken, in my view, well
designed, necessary regulations because of short term oil price
fluctuations.
I think methane leakage is a good example of that where a
lot of good work has shown that that can be reduced at fairly
low cost in the market.
So in short, just to close, I think today's oil market is
in the midst of profound transformation creating new
challenges, opportunities for workers and communities for the
oil industry, for climate policy and for the economy, overall.
Predicting oil prices is fraught with pitfalls but whatever
they are, government's regulatory responsibility that remains
to protect air and water or other resources and do it as smart
and cost effective a manner as possible.
Thank you for the opportunity to testify today.
[The prepared statement of Mr. Bordoff follows:]
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The Chairman. Thank you, Mr. Bordoff.
Mr. Cass.
STATEMENT OF OREN CASS, SENIOR FELLOW, MANHATTAN INSTITUTE FOR
POLICY RESEARCH
Mr. Cass. Thank you for inviting me to participate in
today's hearing.
In my view, natural resource policy should disregard the
energy price environment for three reasons. First, because
policy decisions take decades to play out. Second, because
market prices and predictions say little about what future
prices will actually be. And third, because innovation and
exploration change the scale and economics of resources
constantly. Therefore, the appropriate Federal role is to
establish a clear, stable framework within which the private
sector can make long-term investments. This approach is likely
to maximize output and minimize the cost of that output.
Of course, those who oppose development of American energy
will therefore oppose it across price environments, and they
do. But when energy prices are high, they argue the timelines
are too long to justify investment. And when prices are low,
they ask what's the rush? This is disingenuous. The debate over
domestic production should proceed on the merits not with
reference to yesterday's closing price.
And if anyone ever doubted the true value of American
energy, the boom of the past ten years should have settled it.
The benefits are broad and large, including reduced energy
costs, increased employment, reduced dependence on imports and
increased geostrategic power for the United States.
I'd like to offer a few examples that underscore the
inappropriateness of reacting to the price environment and then
turn to policy reforms.
First, it took Gulf of Mexico production 50 years to
mature. Production began in the 1940's but it was not until the
1990's that advancements drove production costs down by 60
percent in a single decade and output first exceeded a million
barrels per day.
The shale revolution was entirely unexpected, even after
decades of research and experimentation. As recently at 2003
the USGS downgraded the estimate for our discovered,
technically recoverable resources in the Eagle Ford Basin in
Texas from 270 million barrels to 33 million barrels, total. In
2015 alone, the formation produced more than 500 million
barrels.
And as recently as 2010 the EIA forecasted no foreseeable
rise in U.S. oil production. Five years later it was reporting
a 66 percent increase. Today some analysts believe the shale
boom is over. Others say it is just beginning.
So with no credible forecast of how energy markets will
evolve, but with the opportunity for enormous production under
our feet, the best course for the nation is to let markets
work. Private industry is best positioned and incentivized to
put its own capital behind its own judgments about when and
where to invest. It will place bets efficiently as long as it
can trust the regulatory environment in which it must act.
And government must, in turn, make clear that it is open
for business, that it supports efforts to expand production and
that it is committed to not whiplashing policy back and forth
on the basis of the price environment.
Here are five examples of those types of policy reforms:
First, clear legislatively binding road maps should dictate the
opening of new areas both offshore and onshore; second, states
should hold permitting authority over Federal lands within
their borders; third, irresponsible calls to limit or ban
fracking should be actively refuted with unambiguous
legislation; fourth, looking downstream pipelines and export
terminals for both oil and natural gas should be deemed in the
national interest, and energy products should be placed on the
same legal footing as other commodities for export; and fifth,
new and expanded drilling sites, power plants, refineries and
manufacturing facilities should face no heightened new source
requirements.
I agree with Mr. Bordoff that environmental protection
remains important regardless of the price environment, but that
doesn't mean that it needs to stand in the way of production.
In closing, I would urge you not to underestimate the long-
term potential of resources under Federal control. In fact,
they hold the opportunity to repeat or even exceed the shale
boom underway.
ANWR alone is estimated to have greater reserves than the
entire Bakken formation in North Dakota and Montana. Estimates
for other off limits areas offshore are expected to be four
times larger still, and those estimates are often decades old
and made without benefits of exploration and development.
Actual production in the Gulf of Mexico led to a fivefold
increase in the estimates of resources there.
If the question is what resources will America and the
world need in future decades, the answer is that no one knows.
But if the question is what course to pursue, we do know.
Innovation and exploration have always benefited us and in
hindsight, we are always glad they occurred.
The moment when new supply seems less critical is no less a
moment when future investment should be encouraged.
Thank you again for the opportunity, and I look forward to
answering your questions.
[The prepared statement of Mr. Cass follows:]
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The Chairman. Thank you, Mr. Cass.
Ms. Minter, welcome.
STATEMENT OF SUZANNE MINTER, MANAGER, OIL AND GAS CONSULTING,
PLATTS ANALYTICS
Ms. Minter. Good morning and thank you for inviting me to
share the views of Platts Analytics, the forecasting and
analytics unit of Platts division of McGraw Hill Financial. As
a Manager in oil and gas consulting, my primary work pertains
to global crude oil and liquids dynamics with a focus on global
upstream investment, trade flow dynamics and supply trends. I
have over 30 years of experience in the energy industry across
multiple commodities including natural gas, power and crude
oil.
As we sit in the second quarter of 2016, the U.S. energy
producer continues to navigate his way through a volatile and
overall low price environment. After reaching the most current
peak of $107 in the summer of 2014, crude prices fell swiftly
and steeply into the end and of 2014, and with a brief
exception during 2015, have remained well below $50, ultimately
reaching $26 this last February.
This price environment has dramatically affected producer
and service company balance sheets as well as spending and
producing behavior. It is believed that in 2015 the average
producer recognized capital expenditure cuts of 35 percent at
an incremental 40 percent in 2016. In hindsight it is obvious
to all involved that the current price environment is
indicative of an extremely oversupplied global energy market.
The shale revolution, which began with natural gas, allowed
the U.S. producer to increase nat gas production by 25 percent
in just five years between 2010 and 2015. As this technology
that drove natural gas production found its way into the oil
fields it allowed an even more staggering 57 percent increase
in oil production in just three years between 2012 and 2015.
When one combines oil, liquids and natural gas production, the
U.S. has introduced 8.3 million barrels of oil equivalent into
the global market since 2010.
Despite the fact that prices have fallen over 75 percent,
global energy production has continued to grow. Since January
2014 the International Energy Agency estimates that global oil
and liquids production grew by 5.8 million barrels a day with
the U.S. contributing 2.1 million barrels of that growth. The
remaining volumes have come primarily from Saudi Arabia and
Iraq for a combined 1.9 million barrels and the other 2.1 come
from other countries in aggregate.
This is where it becomes very important to consider that,
while the U.S. producer is primarily motivated by his own
balance sheet, for the most part our global competition
produces primarily for revenues. When one considers the
contribution of GDP of energy production to OPEC nations in
other countries with national oil companies it is apparent that
the economic decisions that drive production in these regions
are not the same as those of the U.S. independent producer.
Given the fact that they are currently receiving less than
half of the revenues per barrel of oil produced as they were as
recently of June 2014, basic math says that these countries
need to create and sell more volumes at current low price
levels in order to keep their economies viable.
Since the collapse of U.S. prices, the U.S. producer has
developed more technical prowness than anyone could have
imagined in such a short period of time. We have seen the rate
count fall over 80 percent from all-time highs to all-time
lows, yet the production response to date has been quite muted.
The remaining rig fleet sits atop the best known acreage
and resultantly over the past 20 months in many basins initial
production rates have increased by 50 percent while drill times
have decreased 25 percent. These two factors are among the
major determinants of how much production a producer can get
from his acreage with the rigs available to him.
The other key item to consider, aside from rig count, is
the rate at which producers are completing wells they are
drilling. In order to manage the reduced CAPEX budgets many
producers are drilling but not completing all of the wells they
drill. We believe that producers are completing enough wells to
hold production flat during 2016 and intentionally creating an
inventory of drilled but uncompleted wells, known as DUC, that
they will carry into 2017 in hopes of completing them in a
future higher price environment.
This growing DUC inventory holds reserves that can be
brought online in a short period of time which in turn, defines
the concept of spare capacity.
The global energy market, as broad as it is, is a closed
physical environment where ultimately supply and demand must
balance for the market to function properly. The current price
environment is sending a signal to producers as witnessed by
the balance sheets here in the U.S. and to revenues globally
that production must slow and allow demand to catch up with the
glut of energy that has been introduced into the market in such
a short period of time.
Platts expects there to be an even flow in the recovery,
both price wise and volumetrically. Until we find balance and a
way to manage supply growth with demand growth, the recovery
for all will be tenuous.
However, due to spare capacity and the unique economic
environment which drives producer activity, it is believed that
the U.S. producer may be best positioned to lead the recovery
and bolster economic growth.
I'm happy to provide any more information on any of these
issues discussed here today or any other questions offered
during this session.
Thank you.
[The prepared statement of Ms. Minter follows:]
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The Chairman. Thank you, Ms. Minter, I appreciate it.
Ms. Palti-Guzman?
STATEMENT OF LESLIE PALTI-GUZMAN, DIRECTOR, GLOBAL GAS, THE
RAPIDAN GROUP LLC
Ms. Palti-Guzman. Chairman Murkowski, Ranking Member
Cantwell, Senator Heinrich and members of the Committee, my
name is Leslie Palti-Guzman and I'm the Director of Global Gas
at the Rapidan Group, an independent energy market, policy and
geopolitical consulting firm based in Bethesda with a
representation in New York, where I'm based. I'm very honored
to speak with you today.
As a European gas analyst, who is familiar with EU energy
security and as a U.S. resident for the past ten years who has
witnessed the transformative U.S. energy boom and what it means
for the rest of the world, I will focus my remarks on the new
global gas order that has emerged and what it means for U.S.
LNG exports, global gas trade and the geopolitics of gas.
Three main drivers have ushered the new global gas order
since the second half of 2014. One, low oil index gas prices as
a result of large oil prices decline. Two, rock bottom European
and Asian spot gas prices as a result of the evidence of new
LNG supply. Three, all of this is happening at a time when
demand has been disappointing notably in traditional Asian
markets.
As a result, we see LNG buyers' market with greater
flexibility, a growing competition between exporters, the entry
of more diverse LNG players, a convergence of European and
Asian gas prices below $5 per million BTU, and the wait and see
approach when it comes to new investments for new
infrastructure. What does it mean for U.S. LNG? In retrospect
permitting, contracting and financing U.S. shale to LNG
facilities was the easy part. Now U.S. LNG needs to sell.
The current market environment could make the U.S. shale to
LNG market less attractive along with its unique Henry Hub
pricing. U.S. LNG is all about flexibility which has made U.S.
LNG very attractive to purchasers, but at the same time it
creates unpredictability for market players, governments and
market forecasters in two regards. First, the amount of future
exports. Second, their destination.
Regarding the volume uncertainty how much of U.S. LNG will
eventually be exported? Due to flexible contract agreements
there is no guarantee that the customers of U.S. LNG facilities
will export the gas if the economics do not work. If there is
high global demand for LNG, U.S. LNG will run at a high
utilization rate. If there is low demand, U.S. LNG exports will
be cut.
Second, uncertainty is the destination. Current narrowing
regional spreads makes Asia a less popular destination for U.S.
LNG which will benefit to other consumer centers around the
world.
What about the next wave of U.S. LNG investments? I believe
that the most critical element to watch in determining whether
the world needs additional U.S. LNG is demand for LNG.
In many countries natural gas must compete for market share
with cheaper coal and zero emission renewables which makes the
future LNG demand uncertain. Post Cop 21 has raised the profile
of gas as the best partner to a greener economy but prices
matter. Gas and LNG have to remain competitive.
True, more affordable gas creates renewed or new appetite
in several countries. It makes also the environmental argument
of favoring gas over coal or fuel oil more compelling.
Opportunistic demand for spot LNG is on the rise in new niche
markets or even higher risk markets due to cheaper and wider
availability of non-long term LNG supply as well as extended
use of new technologies such as floating storage and
regasification units. However, demand for those new importers
could be fickle if prices rebound and some alternative gas
supplies or displaced natural gas with competing fuels.
That said, I believe the U.S. LNG plays will continue to be
attractive for new investment decision given their low costs,
unique pricing and stable source of supply; however, it is
important to keep in mind that Asian and European buyers like
to diversify their sources and pricing exposure which implies
that they don't solely want U.S. LNG only in their portfolio.
When it comes to the geopolitics of gas current structural
overcapacity mitigates the risk of any isolated geopolitical
event that could disrupt the LNG flow. In addition, the rise of
more geopolitical stable suppliers such as Australia and the
U.S. reduce the exposure of global gas market to geopolitical
disruptions.
The more liquid, competitive and transparent the market is,
the more consumers will accept this new notion of energy
security that LNG brings that is not related to a land pipeline
or additional storage capacity.
Also, the more liquid the market is, the more steady
suppliers such as Qatar and Russia will continue to adapt their
pricing downward and offer more flexible terms which in turn,
will improve the odds of the golden age of gas beyond the U.S.
Thank you.
[The prepared statement of Ms. Palti-Guzman follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Thank you.
Mr. Ratner, welcome.
STATEMENT OF MICHAEL RATNER, SPECIALIST IN ENERGY POLICY,
CONGRESSIONAL RESEARCH SERVICE
Mr. Ratner. Thank you.
Chairman Murkowski, Ranking Member Cantwell, Senator
Heinrich, members of the Committee, my name is Michael Ratner.
I'm a specialist in Energy Policy at the Congressional Research
Service. CRS appreciates the opportunity to testify on the
important issue of oil and natural gas development in different
price environments.
In accordance with our statutes CRS takes no position on
policy or legislation.
Why prices for oil and gas have declined so drastically in
recent years is directly related to the advent of U.S. shale
gas production and the application of related techniques to the
oil sector.
The drop in oil prices since mid-2014 has attracted a lot
of attention and has prompted producers to improve their
production methods. This has contributed to the resiliency of
U.S. output. U.S. crude oil production in January 2016, the
latest data available, remained over nine million barrels per
day. Although it was the fourth month of decline, oil prices
remained low.
Natural gas is different. U.S. natural gas production
continues to rise despite sustained low prices. In January 2016
U.S. natural gas production hit a new monthly high, and in
March the United States started exporting liquefied natural gas
from the lower 48.
In the United States, oil and natural gas prices are no
longer linked. Outside of the United States, contract natural
gas prices tend to be indexed oil but that is changing. Prices
for both commodities are currently low compared to just five
years ago.
Regardless of the price level, some analysts contend that
an external cost, such as national security and the
environment, are not fully incorporated into the price,
although analysts disagree about the magnitude of
externalities.
Oil is in the $40 per barrel range, up recently, but still
relatively low. And U.S. natural gas is under $2 per million
British Thermal Units (BTU). One does not have to think back,
far back, to when prices for both commodities were much higher.
In 2011 oil was close to $100 per barrel, and natural gas was
about $4 per MMBTU. Also, keep in mind that ten years ago shale
gas and tight oil were almost unknown.
Any price assumptions in my testimony are not forecasts,
and CRS has not evaluated the likelihood of any scenario.
In a low price environment both oil and natural gas
producers, as well as service companies, face financial
challenges. Companies have cut capital expenditures, laid off
workers, filed for bankruptcy protection, gone into bankruptcy,
sold assets or been downgraded by credit agencies. Cutting
capital expenditures, in particular, will have effects on
production beyond a five-year timeframe, especially in more
challenging areas.
However, the responsiveness of shale production could
potentially smooth any related price events. The longer prices
stay low, the harder it will be for companies to survive.
Nevertheless, some companies will remain financially solid and
will weather the low prices better. As prices rise, companies
will reassess their strategies.
On the other hand, consumers of all types should benefit
from the low prices. Individuals and companies have seen their
oil and natural gas related expenses decline. How consumers
view the future of oil and natural gas, especially prices,
influences their decision on purchasing new equipment that uses
oil or natural gas. This will have an impact on future
production needs and prices.
As an example, prior to the fall in oil prices there was a
lot of discussion on sectors where natural gas could replace
oil products, mainly long haul trucking, rail and marine. Now
there is less talk of substitution in trucking or rail,
although marine remains an area of interest which appears to be
driven more by regulation than by prices.
Similarly on electricity, there's been a shift to natural
gas by generation verses coal. While this has mostly been an
increase in utilization, new construction tends to focus on
natural gas or renewables in part because of the regulatory
issues and financial incentives.
Oil remains the dominant fuel for transportation and
different price levels may affect the fuel efficiency of a car
one buys but it is not as likely to significantly influence the
fuel type consumed.
There are a variety of other areas that will be affected by
high or low prices including related sectors like
infrastructure, trade, the environment and geopolitics, among
other topics.
As I mentioned, the United States began exporting liquefied
natural gas earlier this year. With the lifting of restrictions
at the end of last year exporting crude oil from the United
States has become easier.
Regarding the environment, they'll be positive and negative
consequences that are outside my expertise. For geopolitics,
countries that rely on oil and natural gas revenues for their
budget have been hurt by low prices. This includes both U.S.
allies and adversaries.
Finally, oil and natural gas prices are big economic
factors; however, the U.S. economy is well diversified and not
reliant on state-controlled energy companies. Nevertheless,
some local economies will benefit while others do not,
depending upon the scenario.
Thank you for the opportunity to appear before the
Committee. I'll be happy to elaborate on my opening remarks and
address any questions you may have.
Thank you.
[The prepared statement of Mr. Ratner follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Thank you, Mr. Ratner. Your final remarks
there about certain areas benefiting and others not, when the
comment was made earlier that the anticipated average price of
fuel here in the country is going to be $2.04 a gallon, I am
reminded that in about 80 percent of my communities that are
not attached by road and their fuel is either flown in or
barged in, they are going to still be looking at $5, $5.50 a
gallon. So we do not all enjoy the same benefits.
I want to talk about LNG just for a moment. I mentioned the
Energy 20/20 white paper that we put out in 2013. At that time
I had said that there was this narrowing window of opportunity
for LNG exports because of all the things that many of you have
said here today, and a recognition that for Alaska with the LNG
that we have historically exported. For 40 years we exported
limited amounts to Japan, and I mentioned that we have
exceptions to some of what we are able to produce in Alaska for
a host of different reasons.
I have always said that our LNG opportunities are also
subject to narrow window. We are pushing very hard to try to
get our natural gas to market, but we have some logistical
challenges that we are dealing with.
In the meantime, the politics, the geopolitics, of LNG are
playing out. The issues that you have mentioned, Ms. Palti-
Guzman, are ones that I am particularly paying attention to and
recognize that how we are viewed, we, being Alaska, may be
different than the resource that comes from the lower 48 in
terms of the markets that we might be attractive to. And you
indicate that Asia looks to be a less popular U.S. destination.
I am curious, and I would direct this question both to you
and to Mr. Ratner, in terms of Alaska's LNG opportunities, do
you view that through a different lens than LNG, other domestic
sources of LNG, or is it all in the same pot? Either one? Ms.
Palti-Guzman?
Ms. Palti-Guzman. Thank you for your question.
I think if you look globally at all supply of LNG port and
shale supply of LNG, there will be stranded assets because
there is too much of it. Now the projects that are going to go
ahead are the ones that will manage to make cost mitigations,
that will have customers already on board.
When I look at Alaska we need to think about Asia, and Asia
is not one block. The traditional buyers in Asia, Japan, South
Korea, have declining demand or stagnating demand. But there
are also a lot of uncertainties, and Japan's may be related to
the restarts of nuclear reactors and they are undergoing their
regulation in their own markets. India and China, the two
emerging economies, have huge upside for LNG demand, and then
there is Southeast Asia that is a growing niche market. So when
we look at Asia we need to distinguish between those different
markets. And I still think that they are the growth motor for
LNG demand globally. But we've seen in 2015 that their share in
the global gas trade declined from 75 percent to 72 percent and
maybe was related to slowdown in demand in China because of the
slowdown of the economy but also less demand in South Korea and
Japan.
The Chairman. Let me ask Mr. Ratner.
Mr. Ratner. Sure. Thank you for the question.
I mean, when it comes to Alaska, as you indicated, it is
viewed as different for a gas, and DOE has said that in their
permitting process when they granted permits for Alaskan
projects.
And I think that the, as far as, Asia is definitely the
most logical market given the proximity of Alaskan gas. And I
think, one of the things looking forward, is also that any new
project in Alaska is not going to be entering the market in the
next two years. It's going to be entering further out.
And so, we need to see how the current low prices will
affect demand globally, particularly in Asia. But that those
are going to be factors of what type of market is--will the
Alaskan gas, if it gets built, will it be entering at that
time.
And so, I would expect that any new project in Alaska is
going to take a good number of years to build the pipeline,
build a facility, go through the permitting, etcetera, before
it hits the market.
And I think, going forward, if you look at the current low
prices, that's going to have a big impact on countries that may
view, that currently don't import LNG, but may view it as an
alternative fuel in the future that may benefit potential
exports from Alaska.
The Chairman. This is just part of the struggle we have.
People look at the prices today and say, well this is a lousy
time to make such an investment. And as I have mentioned,
whether you are talking oil and the potential within ANWR or
eight to 12 years to build a pipeline that we are talking about
for LNG, is again, about an eight to ten-year prospect for a
$50 billion project.
So how you marry this up, get people away from the
imperative of now and the concern over prices now and focused
on where we are going to be a decade from now in terms of our
need and our demand is a big challenge for us.
Let me go to my colleague, Senator Heinrich.
Senator Heinrich. Thank you, Chairman.
Ms. Palti-Guzman, the four corners region in my state is
heavily invested in the natural gas industry. Because of the
oversupply that you mentioned, gas prices have now been very
low for some time. The region is going through some difficult
economic times, as you can imagine. With gas prices continuing
to hover around $2 per million BTU, something like a fourth of
the existing wells in San Juan County are losing money today.
You can imagine people working in that industry in my state are
hurting.
What are the prospects and the opportunities for places
like San Juan County that gas prices will soon return to more
profitable levels? In particular, do you expect the increase in
the use of combined cycle combustion turbines for electric
power generation or the increases in natural gas exports to
impact those prices?
Ms. Palti-Guzman. I definitely think that exports, you
know, natural gas producers are looking for new outlets and
more outlets. There is so much gas around.
And so, U.S. LNG exports there have already started, that
was yesterday at the ceremony for the opening of Sabine Pass,
they have already sent seven cargos and then commercial
operation will start. But we need to wait for another two years
before the second liquefaction plans start.
In the next two years there will be the ramp up of the
Sabine Pass liquefaction plant, but the big increase in U.S.
LNG exports will happen beyond 2017. And then there is, at the
same time, more pipeline exports to Mexico.
So those are two areas where exports for U.S. natural gas
producers that will have an impact on U.S. natural gas
production.
Senator Heinrich. Thank you.
Mr. Bordoff, you mentioned in your testimony recent methane
waste regulations, and you stated that methane leaks can be
greatly reduced at very low cost. We all know that unburned
methane is a powerful climate disruption, pollutant.
Have you had a chance to look at some of the particular
rules, in particular, I point you to the Bureau of Land
Management's rule on methane waste? And would you expect those
to conform to that pattern?
Mr. Bordoff. I think the regulations that have been
proposed do a good job of trying to find the lowest cost
opportunities to reduce methane emissions. We know that methane
emissions, when the right steps are taken, can be reduced for
just pennies on the dollar.
Really good work by the Environmental Defense Fund, many
universities and others have found opportunities to find
different leaks in the pipeline system, different areas of
production and take, you know, take targeted steps that are
quite cost effective, again, considering the cost of methane
emissions as a fairly potent climate forcer. So I think those
are steps that are quite sensible to take where the, you know,
benefits exceed the costs.
Senator Heinrich. Thank you.
Ms. Minter, what do you see as some of the near-term
impacts that you would expect on crude prices and refined
products as well now that restrictions on exports of crude oil
have been removed?
Ms. Minter. I think it's really important to realize that
for all practical purposes the U.S. has been exporting oil as a
net export via refined products since 2012.
Senator Heinrich. Refined products.
Ms. Minter. So what we're seeing now is refining margins
across the board for the U.S. refiner are collapsing as we have
this oversupply of refined product.
So allowing exports for crude out the door will probably be
helpful to some producers of a particular grade. However, we've
really got to resolve the overall glut of refined products that
we're finding in inventories and they're also being reflected
in low prices before we can recover.
Senator Heinrich. Madam Chair, in the interest of letting a
few more folks get to questions before we go to the floor, I am
going to go ahead and give my time back.
The Chairman. Senator Cassidy?
Senator Cassidy. Ms. Minter and maybe Mr. Bordoff, I am
struck by the fact that it is easy to look at the capital
expenditures and all the infrastructure in the DUCs. I would
have said ducks, so thank you for making it clear.
But the one thing I have heard consistently and see
articles pertaining to is that we are also losing a work force.
That folks who have gone to North Dakota to work in the Bakken
may decide they don't wish to stay there. Because the prices
have fallen now, they have moved back. They marry, whatever.
Do you have any comments upon the age of our current work
force and the difficulty in replacing well-trained workers with
those who have previously not be trained?
Ms. Minter first.
Ms. Minter. There is definitely some concern in how quickly
we're able to respond when the price signal comes. As producers
and service companies sit in this low price environment for a
longer and longer period of time, producers may not have
adequate cash to address the price signal when it comes to
bring production back on. And resultingly, we may not have
adequate, you may not have the ability to bring qualified crews
back in, in a quick period of time.
If that's the case where we go longer and longer in between
the cycle of, you know, ramping production up and keeping it
and dropping it back down, you could potentially see more
extreme price spikes as producers have to throw money, really,
out into the work force to bring back qualified workers.
Senator Cassidy. So even the presence of these drill but
not completed or uncompleted, we would still be susceptible to
that because those are only on the cusp of production but
nonetheless without an adequate work force even those might not
be quickly?
Ms. Minter. Right.
And I think, like I said, what I was trying to say, is I
think it's going to be a function of the amount of time that we
sit in this low price environment. There's real potential that
the commodity cycles can become very shortened. You know, given
the recent price rise we've seen lately to this low 40s price
area, it would not surprise me to see some producers actually
have production coming back on right now from these docks which
in turn will force us to slow back down. However, if we sit in
a sub 40 price environment for a year or 18 months then you're
absolutely right, there could be a risk of losing.
Senator Cassidy. So there is one theory that the Saudis are
doing this on purpose to drive out, not just our shale
production, but also to make non-profitable our offshore work.
The offshore work, of course, continues to produce no matter,
and that is the bigger threat to the Saudis, so some say.
In a sense, if that is true, just imagine that it is, the
Saudis sort of predatory pricing is actually not only hurting
those 750,000 people who are employed but it is actually
subjecting our economy to greater risk for price spikes going
forward. Fair statement?
Ms. Minter. I think it's a fair statement to say that we
are in a very competitive global market and right now producer
behavior across the globe is one of everybody trying to get
their market share any way they can.
On those offshore projects that you referenced, they do
produce and they will produce. In the long run they are much
more capital intensive projects and they are longer-term
projects.
Senator Cassidy. So in a sense, those are a better hedge
against future price spikes because they are going to produce
no matter what.
Ms. Minter. Possibly, yeah.
Senator Cassidy. Yes. Again, that would probably be the
reason for us to think about that.
Mr. Bordoff, similarly, you said that we should not allow
current pricing to dictate that. Would you agree that we should
remain interested in those outer continental shelf projects
with such tremendous capital expenditures to develop that are
going to produce?
Mr. Bordoff. Well I mean, I would leave it to the companies
that are investing billions of dollars in capital to, you know,
make a decision about whether they're interested in these----
Senator Cassidy. The only reason I say that, by the way, is
that it is also Federal policy. Mr. Cass references that, but
Secretary Jewell recently said now is not the time to begin
producing oil off the Atlantic Coast.
I think it is, kind of, among other things, ignoring the
time frame it calls to develop such things. I'm sorry,
continue.
Mr. Bordoff. Yes, no, no.
I think the point, I mean, the first thing I would say is I
think the honest answer is we don't totally know because we've
never been through an extreme boom/bust cycle in the area of
tight oil production before. And it's a really----
Senator Cassidy. Boom/bust?
Mr. Bordoff. Shale oil, right? So the question of how
quickly at what price does it take for U.S. tight oil
production to start growing again, on average. The Basin is
very different, and how long does that take to restart is an
open question.
But I think it can take a little bit longer than some
people think, maybe nine months, maybe 12 months because you
have to get the capital markets to open back up again. You need
the workers to come back and people have moved off to do other
things. You need the rigs to come back.
It is true that the drill but uncompleted wells can help.
That's probably a slug of a couple hundred thousand barrels a
day. So the question is how much do you need shale to----
Senator Cassidy. Let me stop you on that because I was
struck that even though we have this incredible decline in rig
count we still have not nearly the same amount of decline in
production.
Mr. Bordoff. Right.
Senator Cassidy. And so it seems as if those DUCs have a
potential, because I am assuming they are doing those in the
upgraded or the high graded sites. Ms. Minter, would you agree
with that?
Ms. Minter. Yes, actually we estimate that the DUC
inventory, that the spare capacity, could potentially be close
to one and a half million barrels a day if all of that
production were brought online at one time.
Senator Cassidy. One and a half million a day?
Ms. Minter. Barrels, yes.
Senator Cassidy. Yes.
I'm sorry. Mr. Bordoff, I am over my time, but if you can
quickly answer?
Mr. Bordoff. No, so I think that there are, obviously,
different estimates out there about exactly what the total
volume of drill but uncompleted volume could be brought online
quickly.
So the point I was trying to make was in response to some
supply disruption in the world the way, four or five years ago
we have a million and a half barrels' loss of Libyan supply
with very narrow margin of spare capacity being held by OPEC,
mostly Saudi Arabia now.
Are we in for more price volatility moving forward? And the
question is to what extent drilled but uncompleted wells can
very quickly come back or high levels of inventory can quickly
provide some support. But if you need to wait for the U.S. to
respond and that takes six, nine, 12 months, that may mean, as
you said, prices sort of over and under shoot which means more
volatility moving forward, potentially.
Senator Cassidy. I yield back. Thank you.
The Chairman. Thank you, Senator Cassidy.
Just for the information of members, the first vote has
started. Again, we will keep the Committee moving through these
votes.
Senator Franken?
Senator Franken. Thank you, Madam Chair.
Mr. Bordoff, you write in your testimony about the benefits
from widespread use of hydraulic fracturing technology or
fracking in the oil and gas sector. These benefits include
lower oil and natural gas prices for consumers, of course.
For natural gas the Department of Energy also states that
when used in modern, efficient power plants it emits half as
much carbon dioxide emissions as coal.
However, we hear a lot about possible downsides of
fracking. Many argue that the climate benefits of natural gas
electricity generation verses coal is entirely dependent on how
much methane leaks, something Senator Heinrich brought up about
its potency as a greenhouse gas. Some states and localities
have even banned fracking because of concerns about the impacts
on the water table and water resources.
What I would like you to do is talk about the tradeoffs of
hydraulic fracking as you see it because this is an argument
that we are having right now.
Mr. Bordoff. Yes, and it's a really important one. Thank
you for the question, Senator Franken.
It--we've seen over the last five, six, seven years U.S.
oil production almost double before it started to recently tail
off. We've seen a very large increase in natural gas
production. You know, just ten years ago in 2005 the Energy
Information Administration projected that this year or last
year, in 2015, we'd be importing about 18 or 19 billion cubic
feet a day of LNG imports.
And now we just had our first export of LNG, and we'll soon
be a net exporter. That has added jobs. It has added a boost to
the domestic economy.
I think Ms. Palti-Guzman talked about the potential
geopolitical implications that increased, that U.S. LNG exports
could have and increased global trade could have in providing
more diversity, optionality, sources of supply whether you're
in Europe dependent on Russian pipeline gas or in Asia paying
very high prices for LNG a couple of years ago.
So there are a host of economic and geopolitical benefits
and in some cases we have seen cheap gas as one of the drivers,
not the only driver, of displacement of coal which is high
pollution, including but not limited to, carbon benefits here
in the U.S.
There are really important and very valid concerns that
have been raised about the environmental impacts of shale
production. They need to be understood, better than they are
today. They need to be properly regulated.
We need different states and localities to reach different
judgments about the level of risk that they're going to decide
to accept and different places have different risk associated
with them.
And whether it's the risk of moving a lot of oil by rail or
the risk of seismic activity, if you're doing underground
injection of waste water, other things. These are real
important issues that shouldn't be dismissed with the right set
of regulations, with better understanding and with really good,
local, State and Federal, there is a Federal role to play, in
regulating this activity to make sure it's done safely and
responsibly. Hopefully we can find that right tradeoff between
the risks and the benefits.
Senator Franken. Sure.
One of the other tradeoffs, I mean, it is replacing coal in
many coal-fired plants. Is an over reliance on cheap natural
gas going to inhibit the deployment of renewable energy
generation?
I want to ask Ms. Minter a question. I am interested in
your research to break even prices of production or the
necessary global market price for companies to make a profit in
different geological formations. I noticed in your testimony
that the average, break-even price for oil companies drilling
in the U.S. shale formations is about $45 to $55 per barrel of
oil. Is that correct?
Ms. Minter. What we have heard from producers in
conversations with them is that yes, they tell us the break-
even prices are between $45 to $55 per barrel.
This varies broadly, though, across the U.S. depending upon
play and the infrastructure available as well as the quality of
oil. Not all oil is the same oil, and lighter oils are actually
discounted significantly in the marketplace so those producers
will probably need a higher price point to come back on.
Senator Franken. Okay. I see I am out of time, and I know
we have votes so I will submit a couple questions for the
record.
Ms. Minter. Thank you.
Senator Franken. If that is okay, Mr. Chairman.
Senator Barrasso. Absolutely.
Senator Franken. Thank you.
Senator Barrasso [presiding]. Mr. Bordoff, I want to
discuss the effects of the low oil prices nationwide. In your
testimony you stated the oil price fall is providing less of a
macro economic boost and it may have been anticipated. You
explained that while there was some boost to consumer spending
from the lower gasoline price, it was much lower than would
have been expected. And in the magazine, The Economist, it said
exactly the same thing that you said. You also said that the
net benefit to the U.S. is smaller because the U.S. is such a
large producer and that the big employment gains from the shale
boom are now being thrown into reverse. Finally, you stated
that because the U.S. is a much smaller net oil importer than
it was before, when the price falls more of the consumer
benefit comes at the expense of domestic producing/producer
revenue.
So the question is would you please expand a little bit
upon your comments and explain how lower oil prices are
providing far fewer economic benefits than in years past?
Mr. Bordoff. Yeah, thank you for the question, Senator
Barrasso.
If you, I think the White House Council of Economic
Advisors in a report, recent report, looked at the domestic
economic benefit of an oil price drop and there's, sort of,
been a rule of thumb that a $10 move in the price of oil might
boost GDP somewhere between 1.1 and 2.0 percentage points.
We've seen about a $50 on average, and it's been larger than
that at certain points drop. And they estimated that in 2015,
relative to '14, the positive GDP in fact was 0.2 percentage
points. So that's small.
And what they broke it down and as the consumer benefit was
about 0.5 percentage points which is the low end, but roughly
what you'd expect based on the historic rule of thumb. But
you--they subtracted from that 0.3 percentage points because of
decline in drilling and mining investment. And so partly
because consumers coming out of the great recession are saving
more of the money they've saved with lower gasoline prices,
paying down debt and other things. That's reduced the positive
impacts on what, partly because we are a much larger producer
and industry is a much larger, is a larger part of the economy.
And that's taken a hit.
And then the third part is that because we're a smaller
importer when we spend less on gasoline that has a
distributional impact between either benefiting or hurting
producers or consumers but more of that savings or increased
spending on gasoline is circulating within the U.S. economy
rather than flowing overseas. So the result of that is that
when we have lower gasoline prices consumers save and producers
lose.
The flip side is when prices are inevitably going to spike
again we're also a little bit more resilient from a
macroeconomic perspective because when consumers spend more and
more of that increased spending circulates within the U.S.
economy.
Senator Barrasso. Now thinking about your article that you
wrote last month for Foreign Affairs, it was titled, ``The
United States turns on the Gas, the Benign Energy Superpower.''
In the article you discuss how exports of LNG from the United
States will pose serious challenges for Russia. You make a
point that over the last several years Russia has placed its
bets on vast strategic gas pipeline projects such as the very
controversial, the Nord Stream Two, that would connect Russia
to Germany bypassing Ukraine.
You go on to say that Russia will try to retain its market
share by lowering prices and using its spare production
capacity to crowd out U.S. imports from the European market.
Many European leaders remain concerned about projects like Nord
Stream Two, the gas pipeline. It is only going to increase
Russia's share of Europe's gas market, I believe, and reduce
Europe's energy security.
You served as Special Assistant to President Obama and
Senior Director of Energy and Climate Change at the National
Security Council. Do you believe the Obama Administration is
actually doing enough to discourage Germany from going forward
with this Nord Stream Two gas pipeline?
Mr. Bordoff. I don't--it's been a long time since I've had
a clear sense of exactly what steps the Administration is
taking, so I don't have a strong view on that.
Obviously, I know the Administration's position is a lot of
the similar concerns that you have over the Nord Stream Two
pipeline. And a lot of steps, a lot of positive steps, I think,
have been taken by the U.S. Government, by the Obama
Administration, by the Energy Department and the State
Department to help encourage Europe and work with European
countries to increase diversity of flow and optionality of gas
supply.
So I think what makes Europe more secure in the face of
heavy dependence on Russian gas is not to get off Russian gas.
That's probably not economically viable and it's a fairly low
cost source of gas.
What makes them more secure is when they have increased
pipeline interconnections, increased reverse flow capabilities.
So that reduces the leverage that Russia might have to try to
threaten to turn off the taps of gas supply because you can
look elsewhere. You can bring in supply from LNG or from other
sources.
I think a lot of progress has been made in working with
countries, and this is a big part of the European Union's
Energy Union Package proposal to try to work with countries to
make the European market more connected.
Senator Barrasso. Well I was just curious. It just seems to
me that top ranking officials within the Administration are not
really publicly speaking out against Nord Stream Two. Do you
agree with that? We just have not heard much from the
Administration on it.
Mr. Bordoff. I feel like I can't--I feel like I have heard
about it. I can't go back and say----
Senator Barrasso. That is fine.
Mr. Bordoff. Particular things here. But I do think the
Administration has expressed concerns about what Nord Stream
Two might do to European energy security.
Senator Barrasso. Thank you.
Senator Gardner?
Senator Gardner. Thank you, Mr. Chairman. Thank you for the
opportunity for questions. Thanks to the panelists for your
time and testimony today.
Mr. Bordoff, in your opening statement you talked about
geopolitical risk and political dynamics. There are those who
wish to ban hydraulic fracturing in Colorado and at the Federal
level as well. But we have seen, as you have just had an
exchange about, in terms of natural gas we have seen an
increase in natural gas as a foreign policy tool thanks to the
development of energy through hydraulic fracturing.
Should this hydraulic fracturing ban effort take hold, do
you believe that that presents a political dynamic, a
geopolitical risk, to foreign policy as well as energy
stability in this country?
Mr. Bordoff. So, as I said in response to the questions
from Senator Franken, I think that, obviously, you need states
and localities to feel comfortable moving forward with this
form of energy production. And when they do you need the right
form of regulation in place to make sure that natural gas,
however it's produced, whether shale or otherwise, is produced
safely and responsibly.
And then if that moves forward that increased domestic
energy production and supply into the global market, I think as
I wrote in Foreign Affairs, can have significant geopolitical
benefits because the U.S. is indexed to Henry Hub prices. We
have total destination flexibility and diversity of supply and
our gas.
Senator Gardner. I understand what you are saying but I
think there are some who, regardless of the regulatory system
put in place, structure put in place, would ban hydraulic
fracturing. They have said as much on national television,
regardless of the regulatory environment.
So do you believe that a ban, for instance, if you were to
ban hydraulic fracturing on public lands and other areas of
this country, do you believe that that would create a political
dynamic that would put at risk our ability to use energy as a
foreign policy tool?
Mr. Bordoff. I think that there, as I said, there are a lot
of benefits to increasing domestic energy production. One of
those is geopolitical. So that would be reduced if we had less
domestic energy production.
And in terms of the risks and the tradeoffs that people
make between the risks and benefits, you know, that's for
Federal, State and local regulators to decide.
Senator Gardner. But how would a ban on hydraulic
fracturing affect domestic oil and gas production?
Mr. Bordoff. Well, I mean, we've seen an increase of U.S.
oil production from 5.0 to 9.7, at its peak, million barrels
per day. And that----
Senator Gardner. So it would decrease. It would decrease
domestic oil and gas production, correct?
Mr. Bordoff. Yes.
Senator Gardner. And it would decrease our ability to use
that as a foreign policy tool, correct?
Mr. Bordoff. It would----
Senator Gardner. Like you just said, I believe you just
said that through your answer. And if I misunderstood you,
please correct it.
Mr. Bordoff. Well I think the question is whether we use it
as a foreign policy tool in the way some other major oil
producing countries do or whether we allow markets to decide
where to invest and where to have oil and gas flow into the
global market because now we have allowed oil exports because
the Department of Energy is allowing LNG exports. And then
those have impacts in the world.
Senator Gardner. But if you do not have enough to export
that would affect our ability to use it as a foreign policy
tool, correct?
Mr. Bordoff. If we, as a government, were to decide we
wanted to use it as a foreign policy tool, I think it's having
geopolitical impacts that are important.
Senator Gardner. Right. So a decline in production would
affect that ability. I think that is true.
What would a ban on hydraulic fracturing do to a price of
oil or gas?
Mr. Bordoff. You would see prices go up because you'd have
reduced supply.
Senator Gardner. Ms. Minter, if you could respond to the
same set of questions, what would happen to affect domestic oil
and gas production if these ideas were to be implemented to ban
hydraulic fracturing? What would it do to price or to the
balance of trade and our ability to use it as a foreign policy
tool?
Ms. Minter. Thank you.
Clearly much of the boom that we've seen in energy
production has been driven by increased technology, driven
primarily by fracturing. So one would assume that should we
deny producers the ability to frack that our production costs
would go up rather dramatically and ultimately we'll, we will,
no longer enjoy the ability to be a low cost provider into the
global markets.
Senator Gardner. And it would have, certainly, negative
economic impact on communities around the country, correct?
Ms. Minter. As far as energy production? Absolutely.
Senator Gardner. And the amount of jobs that would be lost
would certainly be significant. Is that correct?
Ms. Minter. I cannot quantify that but one would assume
there would be an impact to producer behavior.
Senator Gardner. One of the challenges we have, I think, in
Colorado, of course, is Rocky Mountain-produced gas. Colorado
can be a little bit of--the Rocky Mountain gas can be a little
bit isolated, some people would believe it is isolated due to
market access.
And so, a question for Ms. Palti-Guzman. The Rocky Mountain
oil and gas production may be seen as a disadvantage to
geography to infrastructure and ports. It is why the Jordan
Cove LNG export facility is so critically important to Coos
Bay, Oregon and would be such a beneficial project to producers
in the Western Slope of Colorado, Wyoming and beyond. So
further Federal land restrictions on the Western Slope, like
some who wish to ban hydraulic fracturing, present a
significant challenge to our producers.
In today's price environment, higher fees, royalties on our
Federal lands, I do not believe those are the answers, higher
royalties on our Federal lands. How should the Federal
Government be proceeding during this low price environment
besides lowering higher fees and royalties on our producers and
besides approaching things like hydraulic fracturing bans to
encourage producers to have more ability to develop their
resources on public lands?
Ms. Palti-Guzman. To your previous question on what would
be the impact of the ban on hydro fracking I think first of all
it would be a psychological impact for buyers all around the
world that the U.S. is not open for business and that there
would be potentially less for exports.
And that could fit into our earlier discussion on Nord
Stream Two, for instance, what Russia is doing in Europe is
creating frack underground. So they are ready to build an
expansion of the pipeline even without new long-term contracts.
So without even knowing if demand will be there, necessarily.
But the infrastructure will be there in place.
Same for U.S. LNG exports and the Jordan Cove potentially.
There is uncertainty about long-term projections on demand that
investments are being decided now for the future.
I think same for Alaska and the western coast of the U.S.
for new LNG and price structure. You know, there is so much
competition globally between different LNG projects that delay,
some delay in Western Canada or some delay in Mozambique could
be a boon for Alaska or the western coast of the U.S.
So you need to look at the global LNG market evolves how
this project can remain competitive. And I think how this LNG
would be priced is one of the most important questions because
there is a lot of discussion now with buyers, between buyers
and suppliers of what will be the right price for LNG and what
will be the right indexation. So U.S. LNG from the Gulf Coast
is Henry Hub index. Most of the LNG in Asia is still oil
indexed.
But there is a lot of push to create a hub in Asia. And in
Europe there are already some hub index gas prices. So in the
future the pricing of LNG will be much more diverse with
different source of indexation. And if a project like in Jordan
Cove or in Alaska are offering a more innovative pricing, that
could be an attractive component for buyers.
Senator Gardner. Thank you.
Thank you, Madam Chair.
The Chairman [presiding]. Thank you, Senator Gardner.
The whole discussion of geopolitics and how this all knits
together is, of course, very, very interesting for us here in
this country because we have gone from a nation where we
thought we were going to hit peak oil. We thought we were
building LNG import terminals rather than trying to figure out
ways to export. All of a sudden, we are in the game when it
comes to the geopolitics of our resources.
I was reminded of an article I read a few months back. It
was about a community in Lithuania, I believe, that celebrated
the arrival of an LNG tanker into the community with a parade
and fireworks. The final line in that article from one of the
community leaders was LNG means freedom to them. Pretty simple,
summing it up.
Rather than take my five minutes, I am going to turn to
Senator Warren because she has not had an opportunity to
question. Go ahead, please.
Senator Warren. Thank you very much, Madam Chair.
Mr. Cass, you said in your written testimony that, and I am
quoting here, ``Congress should not design energy development
policy independent of--Congress should design energy
development policy independent of prevailing market prices.''
This was all through your work and, I think, in your
testimony just now. You argue that oil prices are fundamentally
unpredictable and that we should not make long-term policy
decisions based on short-term fluctuations, so it makes a lot
of sense to me. I just want to understand what that means in
practice.
The Obama Administration last month released a proposed
plan for oil and gas leasing through 2022. As I understand it,
your position is that the current price of oil and gas should
not play a role in the Administration's plan. Is that correct?
Mr. Cass. Yeah.
Senator Warren. Good.
The Obama Administration recently finalized a well safety
rule for offshore drilling. I am guessing you and I might
disagree on whether that is a good idea, but if I understand
you correctly we should not decide whether to enforce this new
offshore development rule based on whether energy prices are
high or low. Is that fair?
Mr. Cass. I think we probably agree we need offshore well
safety regulation, but I would also say that enforcing it
should not be based on the market price.
Senator Warren. Okay, ``shouldn't'' be based on the market
price of oil.
Now next year we are scheduled to reevaluate fuel economy
standards for cars from the years 2022 through 2025. So just
one more time, even if you do not like these standards, we
should not change our policy based on the current price of oil.
Is that right?
Mr. Cass. I would put efficiency standards in a completely
different category from production decisions and so we could--
--
Senator Warren. Why is that?
Mr. Cass. Well, the decisions that we make about
production-related policy have implication for investments that
are going to play out decades into the future.
When we talk about efficiency policy I think,
unfortunately, the problem with a lot of the efficiency policy
analysis that we do is it only makes economic sense if we
believe that government is better positioned than consumers to,
for instance, decide what kind of car they should drive.
Senator Warren. Hold on just a sec here.
I am not debating with you whether or not we believe in
more efficiency standards, right, what the CAFE standards
should be, who you think is the best decision maker of the role
of the government here. I am just asking that single question.
Whether or not the current price of oil should affect long-term
planning like the efficiency standards? And you have told me in
other areas, no, the current fluctuations in price should not
matter. I just want to know why you think they should matter
then on CAFE standards?
Mr. Cass. I think you might be misunderstanding me. I think
that efficiency standards also should be set independent of
short-term prices, but I also think that that means that the
cost benefit analyses conducted to justify those efficiency
standards need to recognize that the prevailing price, at some
point in time, may not be the long-term price.
Senator Warren. Well, fair enough then.
So, I just want to make sure then, it sounds like we are
coming to the same place. And that is right now, as we are
trying to decide what the appropriate standards are for 2022
through 2025, the current price of oil just simply should not
bear on that.
Mr. Cass. I think that's correct.
Senator Warren. Good.
Mr. Cass. But I would also say that EPA's cost benefit
analysis, assuming a $4 per gallon price of gasoline in setting
those efficiency standards was probably not well researched.
Senator Warren. Well, but the question is should we make a
change now because we have seen a change in oil prices. I think
what you are saying, you said pretty consistently, I will quote
you, ``The same policies that make sense in a low price
environment, make sense in a high price environment.''
You know, I think the relevance of this is that the auto
industry agreed to these fuel economy standards back in 2012
and now they are arguing that we should weaken these standards
because oil prices are low. I am glad to know that even
conservative policy experts might not like the fuel economy
standards or the process by which they're done, but that low
oil prices today are not sufficient reason to change them.
So let me ask Mr. Bordoff another question. Do you think
that today's low energy prices are a good reason to roll back
the policies that protect the environment and consumers?
Mr. Bordoff. I do not, as I said in my testimony. I think
government's role is to protect air and water, to correct
market failures like pollution, to look at permit decisions on
energy infrastructure and do that smartly, cost effectively,
weigh cost and benefits, but do that largely independently of
short-term fluctuations in the energy price.
I would say regulations do/can impose, potentially, a cost
on consumers and on the industry, but the lack of regulation
can as well. From Flint to the Aliso Canyon in California we
can see the cost to the communities and to the environment when
something goes wrong.
Senator Warren. Well, thank you very much.
You know, we hear over and over how low energy prices mean
that we need to go easy on oil and gas companies and that auto
makers, despite their track record of success, cannot possibly
be expected to meet fuel economy goals. But if we really want
policies that are going to work for the long-term, policies
that protect consumers and protect the environment, policies
that encourage innovation and that create predictability, we
cannot reverse course every time prices shift.
I think that means upholding tough, achievable fuel economy
standards and it also means not backing down just because the
industry does not like it.
Thank you, Madam Chair.
The Chairman. Thank you.
This is probably directed to you, Mr. Cass and Mr. Bordoff.
This is regarding the position that some of my colleagues have
suggested that this country needs to embark on and that is a
policy that has been dubbed the keep it in the ground movement.
That basically these resources that we are talking about here
this morning, oil and gas, should be best kept in the ground,
apparently, for some future point in time or from an
environmental perspective.
I am assuming that I know what your answer is and Senator
Gardner alluded to it when he was speaking about a ban on
fracking, but this is broader than just a ban on fracking. Do
you think that this is wise Federal policy to basically
prohibit production of fossil fuels on our Federal lands? What
do you think of the policy or the proposed policy?
Mr. Cass. No, I don't think it's sensible for two reasons.
One is that, even if one's primary focus is combating climate
change, the keep it in the ground policy will do almost nothing
to address that goal. And the second problem is that we
continue to, for instance, sell millions of cars onto our roads
in America and build all of the infrastructure that's going to
require the consumption of oil and natural gas. So the only
question is whether we're going to produce that energy
ourselves or import it. And as long as our economy is going to
consume that energy, we're certainly best served to be
producing it here as well.
The Chairman. Mr. Bordoff, if you can speak to that, but
also speak to the energy security and the national security
implications. I think Senator Cassidy also alluded to the jobs
perspective. But when we talk about a policy that would take us
in a direction that says we are just going to keep these
valuable resources in the ground. Your comments and thoughts,
Mr. Bordoff?
Mr. Bordoff. Yep. Thank you for the question, Chairman
Murkowski.
I think that on the supply side what is important, as I
said earlier, is having the right government regulations to
make sure that oil production, gas production, hydrocarbon
production is done safely and responsibly, protects air and
water resources.
I think what we need to do is we need to take--put in place
policies that address problems like climate change that
internalize social costs. And over time that will reduce
demand, potentially, for hydrocarbon resources and that will
have an effect over the long term of reducing the supply that
is produced.
I think that is the more effective way of achieving the
goals of reducing carbon emissions by focusing on policies that
reduce demand. And if all one did were to ban domestic
production in a certain place, demand would still be there and
it's going to be produced somewhere in the world.
And secondly, as you said, there are economic and
geopolitical benefits that need to be considered that would be
lost and that need to be considered and weighed against, you
know, potential environmental risks and make sure that we
manage those with the right regulations.
The Chairman. Thank you.
Mr. Ratner, I mentioned in my opening comments and it has
been suggested here that the lag time between the decision to
move on a lease, whether it is oil, natural gas and actual
production, is oftentimes a decade plus, and my example was
ANWR. We have a chart that shows that year zero when
legislation could be enacted, producing oil still requires
eight to 12 years of work.
[The information referred to follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
You have an EIS that would take two to three years.
Drilling a single exploration well, another two to three years.
BLM approving a production plan, one to two years. Then
constructing the pipelines, the fabrication, the treatment
plants, drilling pads, well complications, you know, another
three to four years. This all assumes that there are no legal
challenges and that the exploration is successful and on and on
and on.
The question to you is whether it stands to reason that the
oil that we are consuming today, that we are seeing here in
this country, was made possible by regulations and commercial
decisions that were made eight, ten, 15 years prior to that
time. Is that a rational, reasonable assumption to make?
Mr. Ratner. Yes, I believe that's correct.
I mean the industry, as you know, plans out when they're
looking forward to how they evaluate the market as things have
been said, going out to five, ten, 15 years based on the
existing regulations at the time and where they think the
regulations may be going as well.
The Chairman. When we are thinking about the direction that
we take, recognizing the importance of some certainty and
stability and transparency, when it comes to our regulatory
process, not only for today, but for what it means for future
development, I think is key.
Senator Cassidy?
Senator Cassidy. Ms. Palti-Guzman, you mentioned in your
testimony that one of the contingencies as to whether or not
there would be a market for our liquefied natural gas is
whether there is a price on carbon.
Europe does have a price on carbon, correct? I mean, a
significant price on carbon. Obviously BTU per carbon is much
more favorable for natural gas than coal. So I just pose that
question because it seems as if you were putting that as a
variable, but it does not seem a variable at all because it
seems already in place.
Ms. Palti-Guzman. I think the current price on carbon is
maybe not the right one, and what we've seen in most European
countries is that natural gas has not been competitive with
coal over the past.
Senator Cassidy. Excuse me?
So even if that price has fallen as it appears to be, and
it does seem a matter of time before it is disassociated from
the price of oil, if nothing else, there is Azerbaijani, there
are the Israelis. There are all these other pipelines bringing
gas.
So I am asking, I do not know this at all. Do you imagine
that that price will come up with a hub, as you referred to,
and at that point will become competitive with the price of
coal?
Ms. Palti-Guzman. So what we're seeing right now in Europe
is a price war. And we see the established producers, Russia
and Norway, bringing the prices down at record bottom prices,
around $4 per million BTU to price out other competitors,
notably LNG suppliers.
So the price of natural gas right now in Europe is really
low, and it could potentially be triggering more coal to gas
switching in power generation. And last year, in 2015, for the
first time we saw a little recovery in natural gas demand in
Europe. That was, you know, I think it was since, for the past
four or five years we saw a decline in natural gas demand in
Europe.
So there is no obviousness of the role of gas in Europe if
gas doesn't remain competitive, and there is really a fight for
market shares between all the different suppliers because----
Senator Cassidy. Now I get that, but just in the interest
of time, as we drive that price down there could be, if you
will, more of an uptake in use. I say that because, obviously,
it would be for those concerned about carbon emissions, it
would be a way to fuel your economy, literally, with
significantly less carbon emissions.
Ms. Minter, I read a very interesting book, The Accidental
Superpower, and it suggested that fracking is really not
something that will go worldwide because it takes a certain
geologic formation. It takes certain capital markets. It takes
a certain risk and willingness to tolerate risk that the U.S.
is fairly kind of unique in. Would you agree with that?
Ms. Minter. Absolutely, thank you.
It is really important, when we think about what's happened
here in North America as far as the American energy story, to
realize that this is the only place on the globe where we have
this unique set of investment, of land ownership----
Senator Cassidy. So let me ask then. What about the
Chinese, who do not have our same sort of property rights, but
that in itself, they can basically say you have now volunteered
your land, I gather? Would they be able to reproduce because
that has been mentioned as a possibility?
Mr. Minter. It's clearly a function of geology.
It is believed that the U.S. only holds 30 percent of the
global shale reserves. That being said, we also have 60 to 100
years of infrastructure in the ground that allowed us to bring
this production to bear on the market so quickly.
So given the fact that private equity has been willing to
invest in the U.S. and U.S. infrastructure, it allowed us to
develop this rather rapidly. It will take a while for other
countries to be able to bring this type of production story
into the global----
Senator Cassidy. Even countries which are somewhat
authoritarian and can override local considerations?
Ms. Minter. I think the lack of infrastructure is really
going to be their whole----
Senator Cassidy. So green field is more difficult?
Ms. Minter. Yes, absolutely.
Senator Cassidy. Good.
Mr. Cass, I am really struck, man. Typically, around here
if you say states are going to take over permitting on
anything, whether it is driver's licenses on up, people say oh,
we cannot do that. You are saying why don't we turn over
permitting on Federal lands to the states involved? Could you
please elaborate on that? Again, fear mongers will say, we
cannot trust the states, whatever our founding fathers said
about federalism we must absorb that power. Will you comment?
Mr. Cass. Sure.
You know, the reality is that states already operate fairly
comprehensive regulatory and permitting regimes because of all
the work they do on private lands and state held lands. And so,
with respect to the fracking related boom, in particular,
almost all of that development has occurred outside of Federal
control, probably not entirely by coincidence. And as a result
it's really the states that are the centers of expertise in a
lot of this type of activity, and frankly have demonstrated
they can do it far more quickly than Washington can and every
bit as effectively.
Senator Cassidy. So if there is a learning curve, the
states have done better with the learning curve, only because
they have been in the curve, as opposed to the Federal
Government which has excused itself, for whatever reason, and
therefore would not have that expertise.
Mr. Cass. That's definitely true there further down the
curve. And I also think that the political dynamics tend to be
different. You know, there are going to be places, like New
York State, where allowing the state to control things might
lead to really bizarre----
Senator Cassidy. Stagnation.
Mr. Cass. And counterproductive policies.
But the flip side is that states that are focused on
economic development and value their energy resources, are
going to be a lot more focused on developing them well and
frankly care a lot more about their local environment than you
would expect from a Washington bureaucracy.
Senator Cassidy. I accept that totally. I am sure others
would not, but it makes total sense to me.
Do you mind if I ask one more question, Senator Heinrich?
Senator Heinrich [presiding]. Sure, go right ahead.
Senator Cassidy. Also the new source requirement that they
expanded, can you elaborate on that?
Mr. Cass. Yeah, you know, I think it's important to
understand that under the regulatory environment, controlled by
the EPA with the Clean Air Act, the Clean Water Act, we have
two very different sets of environmental rules. One for
facilities that already exist, and a much tighter one for new
facilities that want to be built or expanded.
And especially at a time like this when we're seeing such a
revolution in our energy market, different sources, different
price points. It's really unfortunate that you're telling
somebody, an existing coal plant, for instance, gets to play by
different rules than a new natural gas plant would or new
pipelines have to face tighter restrictions than existing ones
would.
And so I think, as Mr. Bordoff has emphasized, we certainly
don't want to ban an environmental regulation in this context.
Environmental regulation is every bit as important as it ever
was. But looking at the regulations that already control the
infrastructure that's out there, we should really be happy to
keep building under those rules rather than tell anybody new
that they need to hit a higher standard.
Senator Cassidy. I will bring this back to both something
Senator Murkowski said and Ms. Palti-Guzman mentioned, the
degree to which we continue to bruise natural gas at a low cost
is the degree to which coal will be replaced worldwide with
natural gas, if only because that initiates the price war, is
the degree to which there is less carbon emissions. So if you
cutoff the carbon here you are penny wise and a pound foolish
if carbon is your concern.
Mr. Cass. That's exactly right.
And I think it's important to understand that the United
States has been a leader in seeing reductions in its carbon
dioxide emissions over the past decade. That's almost entirely
the result of our increased use of natural gas. Natural gas has
reduced our emissions about 13 times faster than solar power
has.
Senator Cassidy. Yes.
I have really enjoyed the panel. Thank you all for your
expertise. I yield back.
Senator Heinrich. Thank you, Senator Cassidy.
Mr. Bordoff, I want to actually look a little bit at that
assumption which is that because the carbon dioxide emissions
from natural gas are approximately 50 percent over those of
coal, that the net impact for climate is twice as effective is
a 50 percent reduction. Now assumed in that is that you
actually capture that natural gas and that you are not putting
methane, which is a very powerful driver, directly into the
atmosphere unburned. What role do you think, if that assumption
is to be correct, what does that mean for our policies with
regard to making sure that we do not waste methane?
Mr. Bordoff. As I said earlier, that I think it means some
really good research and studies have been done showing that at
fairly low cost for just cents on the dollar, you can put smart
policies in place that require people, gradually over time,
building the necessary infrastructure to capture methane and
make sure that it's not leaked or vented. And if we do that and
I think it's a solvable problem. I mean I think natural gas----
Senator Heinrich. Right.
Mr. Bordoff. Has had enormous geopolitical and economic
benefits, as we talked about, the shale boom.
Senator Heinrich. We have talked a lot about the economics
of that.
Mr. Bordoff. Yeah.
Senator Heinrich. But also within the climate piece of
that.
Mr. Bordoff. Right.
Senator Heinrich. All assumptions for those improvements
only hold if we actually use the methane for the purposes that
use the natural gas, burn it and then release carbon dioxide as
opposed to unburned methane into the atmosphere. Is that
correct?
Mr. Bordoff. Yeah. So I mean, I think the way I would put
it is I think cheap gas helps lower the cost of implementing
climate policy. It has been one of the key drivers that has led
to a substitution away from coal and help drive a reduction
over the last decade in U.S. carbon emissions. Cheap gas alone
does not solve the climate problem.
Senator Heinrich. Sure.
Mr. Bordoff. Or get to the kinds of reductions that we
need.
I'd also underline, as Senator Franken said, renewables or
nuclear. But with climate policy, strong climate policy in
place, that's done well, that's cost effective, having lower
priced rather than higher priced natural gas can help achieve
the carbon reduction targets we have at a lower overall cost to
the economy.
Senator Heinrich. Well said.
These policies also can provide additional savings for
consumers if they are well crafted. If you look back at the
CAFE standards that were put in place in 2007, they are
estimated to save consumers $140 billion by 2030, a very
substantive amount.
Do you have thoughts for the impact of low prices on
policies like that and whether or not we will continue to have
the right incentives to utilize these resources conservatively
and efficiently in the face of low prices and how you deal with
that swing in commodity prices because it sends different
market signals at different times?
Mr. Bordoff. Well consumers definitely respond to prices. I
think in 2014 oil demand rose 800,000 barrels a day. Last year
it was 1.8 million barrels a day. So the people are using more.
U.S. vehicle miles traveled last year, I think, was up almost
four percent, the highest increase in almost 30 years.
If you look at the payback period of a Ford Fusion hybrid
versus gasoline, and you assume $2 versus $4 that payback
period is going to be 8.6 years rather than 4.3 years. So you
know, that matters to consumers, who are cash constrained, who
value, as most of us do, a dollar today more than a dollar in
the future.
So, it undermines the--and we've seen that in the sales of
SUVs and the hybrid and electric vehicles in the U.S. today.
We've seen increase in SUVs, reduction in hybrids. So,
consumers are responding to that.
I think that is why it's more important, not less
important, that we move forward with smart policies that over
time help to reduce oil use. Not only because I think that's
important for environmental and carbon reasons, but also
because I think ultimately when we think about U.S. energy
security oil prices are going to go up and down.
They're going to spike and then they're going to fall. That
leads to the kind of volatility that, I think, can harm the
economy. And so I think we're more secure when our economy is
less, when the oil intensity of it goes down.
Senator Heinrich. Thank you very much.
I was going to say running counter to that trend is the
electric car driving the Senator to my right, Senator King.
Senator King. Mr. Bordoff, you talked about the rise and
falls in prices of oil, historically until the last four/five
years oil and natural gas prices moved in box step. That seems
to have broken.
Do you think that that dis-relationship between those two
commodities is permanent or is that a temporary phenomenon?
Mr. Bordoff. I think it's going to continue to break in
many respects. I mean the trends we're seeing, and Ms. Palti-
Guzman talked about this earlier, is where, in places around
the world where the price of natural gas has historically been
linked to the price of oil, that relationship is being broken.
We're seeing increased price for natural gas being set based on
supply and demand for that commodity and based on gas to gas
competition.
You've seen an increase in the European market in spot gas
sales and in gas sales based on gas to gas competition. It's
going to take some time for that to happen in the Asian market,
but we're seeing this really historic transformation, I think,
in the global gas market driven in part by the fact that we
have a surge of liquidity in the market from increased trade in
LNG. And the U.S. along with Australia is the primary driver of
that for the next five or ten years at least.
That is going to, that sort of liquidity in the global gas
market, diversity of supply, increased competition of the kind
of conditions that you need to allow price discovery and to
allow a price for gas that reflects supply and demand for that
commodity rather than supply and demand for another commodity.
Senator King. One of the differences is that oil is a
worldwide commodity. Gas is not, at least at this point.
I am from a region of the country that is becoming very
dependent on natural gas. We used to be the most oil dependent
region in New England. Now we are one of the most. Fifty-five
to sixty percent of our electricity comes from natural gas. A
lot of people's homes are now heated with natural gas.
My concern, to put a fine point on it, is unlimited LNG
exports and their effect on domestic prices. We have had a lot
of discussion here. I would like your view on that, on is there
a point, I mean, we have been given very warm reassurances.
Don't worry. Don't worry, it is going to be fine. The prices
are not going to change.
Yet, the experience in Australia was not that, as you know.
At what point should we start to be concerned, because the low
price of natural gas in the U.S. is a significant competitive
advantage not to mention an advantage to consumers everywhere,
the competitive advantage of manufacturing. Is there a point at
which LNG exports can significantly affect domestic natural gas
prices?
Mr. Bordoff. Yeah, no, it's a really good question. And I
would say I think, first of all an increased use of natural
gas, increased global gas trade, the emergence of gas as a
fuel, not just in the U.S. but globally, has several potential
benefits, economic, geopolitical----
Senator King. Big environmental benefits.
Mr. Bordoff. But it also may present new risks.
I think if you look at the new--I was just, within a week
or two ago, with the International Energy Agency in Paris. And
one of the three mandates, the charges, that the new Executive
Director, Fatih Birol, has from the members of the IEA, is
security of gas supply because the world of gas is changing in
really significant ways. And that, again, presents a lot of
potential benefits, but potentially raises new risks.
I think we need to think about what those are and what
sorts of steps/policy measures might be taken to make
communities that will be increasingly reliant on natural gas,
secure in the event of unforeseen sorts of----
Senator King. So far you have not answered my question. Do
you think----
Mr. Bordoff. So as----
Senator King. LNG exports will affect domestic price?
Mr. Bordoff. So as regards the export of natural gas,
anything that increases demand for natural gas and an export
market will on the margin slightly push up the price of natural
gas. The Department of Energy has estimated that. It's a pretty
small impact.
I think the supply curve we think exists for shale gas is
pretty flat. We've got a lot of gas in the $2, $3, $4 range,
and so I think there are a lot of factors that may affect gas
prices domestically. The potential for LNG is just one of them.
And I wouldn't say that that concern would support banning
trade in natural gas. And actually if U.S. gas prices were to
rise too much, then the arbitrage window would close and the
global market wouldn't be there for U.S. LNG anymore. So it
just wouldn't make economic sense to do it.
Senator King. But the difference is pretty big right now.
Mr. Bordoff. Well, it's----
Senator King. Between $2 or $3.
Mr. Bordoff. Well, it's narrowed a bit.
Senator King. It narrowed a bit.
Mr. Bordoff. I mean, it narrowed a bit, but yeah.
Senator King. But it is still a multiple of like two or
three.
Ms. Minter, your views on the relationship between LNG
exports and domestic natural gas prices?
Ms. Minter. One of the big things to realize about the U.S.
energy story is that it's very much driven by the Northeastern
U.S. which is a gas play. So, you know, we drill. There are two
windows of production in the Northeast. One is a conventional
wet window, and one is a dry window, I'm sorry, a wet window
and one is a dry window. And the U.S. is the only place in the
globe, really, that we drill in that wet window to create
liquids. And with that comes associated natural gas.
Unfortunately, and it's almost ironic, in our five-year
outlook for production in order to grow the way we would like
to grow natural gas, we are looking for exports to make up
almost 50 percent of our demand. So without that demand outlook
we will not be allowed to grow natural gas as much as we would
like to which would basically benefit all of us as consumers of
low cost natural gas and also the producing environment.
Senator King. Okay. You did not answer my question either.
You talked about a 50 percent increase in exports. Will that
affect domestic natural gas prices?
Ms. Minter. It will. It will. However, it will, in our
price forecast we come to about $4.50 in 2020. That being said,
the current low price environment for natural gas that we're in
is not adequate to sustain the production growth that we're
currently experiencing.
Regardless of LNG exports----
Senator King. So $4.50 is about a doubling of current
prices.
Ms. Minter. It's also about 60 percent lower than where we
have been historically. The reality is the current price
environment will not allow us to continue this sort of
production growth.
March of this year----
Senator King. I understand that $2.50 is unsustainable from
a production point of view on the long run. My concern is
going, heading more toward $10 or $12 which is the price in
Asia.
Ms. Minter. We do not see that happening. We feel that
there is adequate production response that will be profitable
in that $3 to $4 range that will invite producers to come back
in and keep producing.
The technology story has really changed the outlook for
pricing. Producers are showing us that they will bring on
production at volumes, at prices, much lower than anybody ever
expected.
Senator King. Good.
Thank you, Madam Chairman.
The Chairman [presiding]. Thank you, Senator King.
Mr. Bordoff, let me ask you a question because you have
been before this Committee when we had a hearing on our
Strategic Petroleum Reserve (SPR). There has been a little bit
of discussion here about cushion and some availability of
supply that allows us to have some degree of control here.
We have not really talked about the Strategic Petroleum
Reserve. I, as you know, have long been one of those proponents
that says, look, this is a reserve, and it is important that we
preserve this reserve. If we were to see any kind of a
prolonged disruption, how important is it that we continue a
decent level of domestic oil production just from a national
security perspective, an energy perspective?
As you know, we have moved forward with some sale from the
SPR, some drawdowns. Unfortunately I think we have people that
have looked at the Strategic Petroleum Reserve as an avenue or
an opportunity for access to cash. I call it a cash machine
which is not what it was intended to be.
Can you just speak a little bit to the significance of the
Strategic Petroleum Reserve and why it is important that we
keep up a level of domestic production?
Mr. Bordoff. Yeah, thank you for the question, Chairman
Murkowski.
And so I think at the time I talked about the ways in which
the global oil market has changed over the last 40 years and
the extent to which long term contracts and supply on
particular destinations had given way to a very liquid, very
fungible global market, potentially creating new risks.
So whether we're a large producer or not, whether we're a
large importer or not, if there's a supply outage somewhere in
the world, if something were to happen in the Strait of Hormuz
or somewhere else, prices would go up globally for everyone.
The Strategic Petroleum Reserve can play an important role
in mitigating that. But it is a global market. So I mean, when
you sort of think about the limitations of any stockpile that
we would have, but I think the SPR has been a really important
national security resource for 40 years. I think it is
appropriate.
And I think the Department of Energy is doing this, sort of
taking a careful look at how the market has changed and does
that make, should we as a result of that, think about changing
SPR policy whether it's the mix of crude verses refined
products, whether we should be using it more often or less
often, whether we should be increasing or decreasing the size,
I wouldn't do that just to raise revenue.
In terms of increasing domestic supply, the impact of that
in the global, I mean, more supply in the global market on the
margin helps with supply with supply security, helps lower
price of U.S. shale boom of almost five million barrels a day
of supply over the last six years or so I think has been a, or
the primary driver of the oil price decline that we're seeing
now.
As I talked about earlier, I think the macroeconomic
vulnerability we have to price shocks is lower when we're less
of a net importer. So there are benefits both economic and
geopolitical to increasing domestic supply.
The Chairman. My last question is going to be hopefully a
bit of a lightning round here.
What I have heard from each of you is that look, oil prices
go up, they go down. I have not heard any one of you suggest
that oil prices are not going to rise at some point in time. It
is just a question of when and how much.
So the question to you is how do we prepare for that next
increase and do we start preparing now? Can you give me a
couple steps as to what we need to do to prepare for higher oil
prices? If I have misread your comments and you do not think
that we are going to see higher oil prices, you can tell me
that too. But recognizing that it is more likely than not that
it will come, how do we best prepare for that?
We will start with you, Mr. Bordoff, and go straight down
the line. I do not want a long answer, but maybe there are no
short answers.
Senator King. Can I answer? [Laughter.]
The Chairman. Yes, you can answer too. You are after Mr.
Ratner.
Mr. Bordoff. I think it is true we're going to see boom and
bust cycles. We've seen them before when, I think after Edwin
Drake discovered oil in 1859, the price went from $16 to $0.50
back to $8 during the Civil War.
So prices move around a lot, and they're going to again.
And that's why I think we need to make sure we have really good
policies in place, good environmental protections, all the
rest, to make sure we have strong domestic supply. But also, as
I said before, reducing the oil intensity of our economy
reducing our vulnerability to those sharp swings in price.
So things we can do that have economic, national security
and environmental benefits that over time reduce how dependent
our economy is on oil, I think that is what will make us more
energy secure.
The Chairman. Okay, so good policies and reduce our
reliance.
Mr. Cass?
Mr. Cass. Well I should say I have no idea whether oil
prices will go up significantly again or not. It seems like
they might. Forty dollars might be the highest they ever go.
I think the important thing is that the government play the
role of maintaining a market and let private investors place
their bets where they will. And so I think maintaining a good
market for future investment means asking the question what
kind of production do we want to be capable of in 2025 or 2030?
What we've learned from the shale boom is essentially the
more the better that to the extent that private companies would
like to invest in developing additional resources, the better
off America will be. And so that means creating as much
certainty as possible in the market to encourage the investment
and then providing access to the resources with all of the
regulatory controls that Mr. Bordoff described, but providing
access and providing certainty that if people want to make the
investments they can pursue the production.
The Chairman. So the certainty there.
It is an interesting suggestion though that we need to
determine what level of production we actually want a decade or
so from now. Of course, we do not know where our technologies
will take us, but okay, I appreciate that.
Ms. Minter?
Ms. Minter. Thank you.
This will, sort of, feed off of Mr. Cass' comments.
Really what's wrong with the pricing scenario right now is
we clearly just have too much energy, right? Supply and demand
and infrastructure all need to align themselves in order for
the market to work. And when we're oversupplied on one end of
the equation without adequate demand, prices respond.
I do agree with you that prices come up over time, and that
will be a result of the fact that demand growth has matched,
has, demand growth has kicked in. So allowing for supply and
demand to drive the market and also allowing for policy to
continue, that we continue to build out adequate infrastructure
to allow these two pieces to meet, when they occur, will allow
for less volatility in the price markets going forward. They
will be higher, but they will probably become less volatile and
you can get your product to your market and you have a market
to get it to.
The Chairman. Perhaps even accepting a little bit higher
price with less volatility is not a bad thing for your economy.
Ms. Palti-Guzman, would you agree?
Ms. Palti-Guzman. Yes, ma'am.
So next, when we see the next increase in oil prices
potentially beyond 2017 that sub-$100 anyway, I think, there
will be a direct impact on the call for U.S. LNG as the oil
index suppliers to Asia, for instance, will lose
competitiveness again.
But I wouldn't take this for granted. And the U.S. needs to
remain a reliable and stable supplier. And for this, maybe,
alleviate some anxiety from buyers that one day some export
license could be revoked or there will be a policy change.
So for that, I think, that all the trade partnerships that
are being discussed now are definitely encouraging more buyers
to look into U.S. LNG and even more in the future. I think
there is also an institutional role from governments in the
U.S. and all around the world to push for more liquidity and
transparency in the global energy markets.
The Chairman. Very good. Thank you.
Mr. Ratner?
Mr. Ratner. Well as I said in my opening statement CRS
doesn't recommend policy. But I will comment on a couple
observations that I've seen in my career. I think shale gas and
tight oil offer a good example of things that came up when
nobody else was looking at those.
If you think back to the mid-2000's and early 2000's when
we were building the LNG import terminals, there was, I mean,
and I've looked back. There are no articles about shale gas and
what it could mean. And then all of a sudden it showed up on
the scene and changed the way that we do business. So I think
things that encourage market efficiency both on the supply and
the demand side are the most important things.
The Chairman. I appreciate that.
Senator King, what do you think?
Senator King. Well first, I agree. I think it was Robert
Gates who said we have a 100 percent record of predicting the
future, we are always wrong.
The Chairman. Yes.
Senator King. But some thoughts about this and particularly
to the question of how do we keep ourselves from dependency.
One is electric cars powered by natural gas and renewables.
The fact that Elan Musk sold 400,000 cars in two days, I being
one of them, is a remarkable sort of watershed. Now whether
they will be able to deliver those cars and how much they are
actually going to cost and all of those kinds of things. But
that is an enormous potential change and natural gas supplying
the electricity along with renewables.
The other major development, it seems to me that could
change all the calculus, is the development of storage capacity
because once there is a development of grid scale storage
capacity then things like wind and solar become much more
feasible as baseload power sources than they are today,
obviously they are not today.
The other thing that is affecting, I think, dramatically
the future is the decline in price of solar panels.
But shale gas and the decline in price of solar panels, I
think, are the two major energy developments of the last
decade. When solar panels have gone from $70 a watt to $1.80,
that is a huge deal. Storage is going to be an important part
of that.
I really think that over the next ten years it is quite
conceivable that all of our speculation about oil and oil
prices could change.
I have a Nissan Leaf. The little thing, you know, on the
upper left hand corner that tells you when your maintenance is.
On the Nissan Leaf the little sign says at 16,000 miles, rotate
tires.
[Laughter.]
That is it. There is no oil, there is no gas, there is no
transmission. That is it. It is a direct drive electric motor.
I do have a question, however. When does the price of gas
intersect with renewable feasibility? In other words, right now
at $2 nothing can compete with gas. When do solar and wind,
what is the line? I remember in the wind business ten years ago
it was about $6 or $7. My sense is that it is now lower than
that. Does anybody have any thoughts on that?
Do you see what I am asking? In other words, right now gas
is killing everything because the price is so low. Nothing can
really compete. But at what point, when gas gets to $4.50, is
that the number that will make solar and wind more competitive
or coal or other technologies? Any thoughts?
Ms. Palti-Guzman. I don't really see them as competitors.
Actually I think that natural gas is a very flexible source of
supply that can be the best partner to renewables, especially
as long as they're--they need another, kind of, base load
power.
Senator King. Right.
Ms. Palti-Guzman. Or back up power while the----
Senator King. I tend to agree with that as long as the
fracking is done in an environmentally sound way. I think that
is probably accurate.
Ms. Palti-Guzman. And if I may add to one of your previous
questions.
I think that we definitely see a growing convergence of gas
prices around the world and the U.S. will slowly, gas prices in
the U.S. will slowly, marginally increase. But U.S. gas pricing
will and the consumption of natural gas in the U.S. will remain
very low compared to other consumers of natural gas because
they are the producers while the other one needs to import. So
they add the transportation costs----
Senator King. Right.
Ms. Palti-Guzman. And the production costs and so on and so
on. So even if we see----
Senator King. That is about $7, isn't it? $6?
Ms. Palti-Guzman. So right now in Asia the average for
long-term and spot prices, I think, is below $8, but on the
spot it's even lower. It's $5 per million BTU. And in Europe it
went very low since the beginning of 2016 and hub index gas
prices now are around $4 per million BTU.
Senator King. But LNG could not compete in a $4 market in
Europe, could it? Doesn't it cost more than that to condense it
and ship it?
Ms. Palti-Guzman. So if you look at only the short run of
U.S. LNG that can compete and land LNG cargoes at $4 per
million BTU, but it means that the exporters have made the
conscious choice of looking at liquefaction fees, for instance,
as a sum cost and other variable costs that may not be
recovered.
Senator King. Okay. You know, everything works if you do
not have to recover your costs.
Thank you, Madam Chairman.
The Chairman. Thank you, Senator King.
Thank you for very good discussion this morning on,
clearly, an issue that is of great interest, not only to those
of us in the Congress here, but the consuming public interested
in knowing what happens to the prices that impact them whether
it is the production of their power or how they fuel their
vehicles, but also the broader perspective of the geopolitical
impact that we are seeing because of the low prices.
Again, the ability to predict the future here is something
that I have not been able to perfect. I think what we try to
do, as best we are able, is to put in place those policies that
are more balanced, if you will, more evergreen, if you will,
and allowing a playing field that works for a market to
flourish.
I thank you for what you have provided us today. We have
yet one more vote, Senator King. We apologize for jumping up
and down, but thank you again for the flexibility in your
schedule.
We stand adjourned.
[Whereupon, at 12:14 p.m. the hearing was adjourned.]
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