[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

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

                                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

                              ----------                              

                           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

                              ----------                              


                        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:]
    
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    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:]
    
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    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:]
    
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    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.]

                      APPENDIX MATERIAL SUBMITTED

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