    [Senate Hearing 114-309]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 114-309

      THE POTENTIAL MODERNIZATION OF THE STRATEGIC PETROLEUM RESERVE AND
                         RELATED ENERGY SECURITY ISSUES

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

                                    HEARING

                                   BEFORE THE

                                  COMMITTEE ON
                          ENERGY AND NATURAL RESOURCES
                              UNITED STATES SENATE

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION

                                       ON

      THE POTENTIAL MODERNIZATION OF THE STRATEGIC PETROLEUM RESERVE AND
                         RELATED ENERGY SECURITY ISSUES

                                   __________

                            TUESDAY, OCTOBER 6, 2015

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                           Printed for the use of the
                   Committee on Energy and Natural Resources

                                       ______

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                              Washington, DC 20402-0001

                   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
                        Karen K. Billups, Staff Director
                    Patrick J. McCormick III, Chief Counsel
                Tristan Abbey, Senior 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
    Cantwell, Hon. Maria, Ranking Member, and a U.S. Senator from
      Washington.....................................................    21

                                   WITNESSES

    Moniz, Hon. Ernest, Secretary, U.S. Department of Energy.........    23
    Blair, Adm. Dennis C., USN (Ret.), Former Director of National
      Intelligence and Commander-in-Chief, U.S. Pacific Command and
      Co-Chair, Commission on Energy and Geopolitics, Securing
      America's Future Energy........................................    64
    Book, Kevin, Managing Director, ClearView Energy Partners, LLC...    75
    Bordoff, Jason, Founding Director, Center on Global Energy
      Policy, and Professor of Professional Practice in International
      and Public Affairs, Columbia University........................    88
    Ladislaw, Sarah, Director and Senior Fellow, Energy and National
      Security Program, Center for Strategic and International
      Studies........................................................    99

              ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

    Blair, Adm. Dennis C.:
        Opening Statement............................................    64
        Written Testimony............................................    67
        Responses to Questions for the Record........................   125
    Book, Kevin:
        Opening Statement............................................    75
        Written Testimony............................................    78
        Responses to Questions for the Record........................   127
    Bordoff, Jason:
        Opening Statement............................................    88
        Written Testimony............................................    90
    Cantwell, Hon. Maria:
        Opening Statement............................................    21
    Ladislaw, Sarah:
        Opening Statement............................................    99
        Written Testimony............................................   102
    Moniz, Hon. Ernest:
        Opening Statement............................................    23
        Written Testimony............................................    25
        Responses to Questions for the Record........................   117
    Murkowski, Hon. Lisa:
        Opening Statement............................................     1
        A Turbulent World: In Defense of the Strategic Petroleum
          Reserve dated July 27, 2015................................     2
    Wyden, Hon. Ron:
        Statement for the Record.....................................   130

      THE POTENTIAL MODERNIZATION OF THE STRATEGIC PETROLEUM RESERVE AND
                         RELATED ENERGY SECURITY ISSUES

                                  ----------

                            TUESDAY, OCTOBER 6, 2015

                                            U.S. Senate
                      Committee on Energy and Natural Resources
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 10:37 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. I call this hearing of the
    Committee to order.
        We have a lot of ground to cover this morning. We have a
    couple excellent panels of witnesses, so let us begin.
        We are honored and pleased to once again have before the
    Committee the Secretary of Energy, Dr. Ernest Moniz. Welcome
    back. It is always good to see you.
        We have an opportunity this morning to talk about the
    Strategic Petroleum Reserve (SPR) and other energy security
    related issues. Back in July, I prepared for the Committee a
    report on the Strategic Petroleum Reserve, A Turbulent World:
    In Defense of the Strategic Petroleum Reserve. If I must say so
    myself, it is pretty darn good. [Laughter.]
        [The information referred to follows:]

      [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The Chairman. I would recommend it to you all if you have
    not had an opportunity to read it.
        We have some pretty unparalleled opportunities here in the
    United States with regards to our oil and our oil production.
    While it is good and strong, I think it is important that we be
    ever vigilant in this area. OPEC's spare capacity has fallen,
    unplanned production outages persist in Iraq, in Libya and
    elsewhere and further trouble always seems to lurk just over
    the horizon.
        The Strategic Petroleum Reserve remains critical to our
    nation's energy security, and it is an asset. You will hear me
    repeat, as often as I possibly can, that this is about a
    national security asset.
        I think it is important that we focus on the energy
    security aspect of it. It is an insurance policy, absolutely.
    It is a source of leverage and stability for us from a
    geopolitical perspective, absolutely.
        While I believe it should be modernized, I think the
    question that many of us have asked is, what exactly does
    modernization really mean? I am going to make four brief points
    this morning in that direction.
        The Administration proposes some $2 billion in new funding
    for SPR life extension projects and to improve marine
    distribution capability. I think that these proposals merit
    careful consideration by the Committee. I look forward to
    hearing from Secretary Moniz as he makes the case on these.
        I had an opportunity back in July to tour one of our
    Strategic Petroleum Reserves, and I think that ensuring
    operational effectiveness of the Reserve should be a first
    priority for us. We cannot let these lapse into disrepair so
    that they cannot fulfill the purpose which is intended and
    again, taking us back to energy security.
        Second, the Administration is also studying the creation of
    petroleum product reserves on the West Coast. This is PADD 5
    and on the East Coast, PADD 1. I am not opposed, in principle,
    to building additional product reserves, but I do have some
    reservations about them. Petroleum products have a much shorter
    shelf life than crude and a much more direct impact on the
    American consumer. Guarding against the use of the SPR for
    political purposes, I think, should be an enduring concern for
    all of us.
        Third, I am also not opposed, in principle, to revising the
    emergency release authorities as the Administration and some of
    my colleagues have proposed, but generally, I am wary of
    proposals that expand the power and the ability of the Federal
    Government to intervene in the free market. Any sort of
    ``preemptive release'' clause must be very carefully examined.
    While the Quadrennial Energy Review briefly discusses this
    proposal, I do not think that the Administration has, as of
    this point in time, made a convincing case for new authority. I
    look forward to the discussion on that as well.
        The final point, and I raised this in the white paper that
    we released in July, the Strategic Petroleum Reserve does not
    necessarily exist in a vacuum. Up in Alaska the Trans-Alaska
    Pipeline (TAPS) is another vital piece of energy infrastructure
    and it too is vital to our national security, yet we are seeing
    its throughput decline at a deeply troubling pace. TAPS must
    operate for decades to come. We have got the resources in our
    state to ensure that it does.
        I think when we are talking about energy security our focus
    should be broad in evaluating our energy security, pursuing all
    of our options, including further increases in domestic
    production.
        I am going to close my comments again by reiterating that
    we call it the ``Strategic Petroleum Reserve'' for a reason. As
    the name suggests, we hope never to use it. We hope to use it
    as that strategic reserve, but we keep it around for good
    reason. In the event that something happens, if there is an
    event, whether it is in the Straits of Hormuz or wherever it
    may be, in case the world slips and we find ourselves in need,
    we need to know the strategic asset, this national energy
    security asset, is there.
        I have said before that it would be a mistake to treat the
    reserve as anything but a reserve. It is not an ATM for new
    spending or a vestige of our national energy policy. If we
    begin to treat it as that, I think, we risk selling at the
    wrong time, at the wrong price and losing its substantial
    benefits.
        So again, I am looking forward to having a good discussion
    about energy security in this context with not only the
    comments from the Secretary, but our second panel as well.
        With that I will turn to Ranking Member Cantwell.

     STATEMENT OF HON. MARIA CANTWELL, U.S. SENATOR FROM WASHINGTON

        Senator Cantwell. Thank you Madam Chairman, and thank you
    for holding this hearing on modernization of the Strategic
    Petroleum Reserve and related energy security issues. I thank
    Secretary Moniz and the other witnesses for joining us for this
    very important discussion. I especially want to thank the
    Secretary for his leadership on the Quadrennial Energy Review,
    which is an important document that helps frame the discussion
    of our nation's energy policy priorities and infrastructure
    needs.
        In July, this committee successfully reported out the
    Energy Policy Modernization Act on a bipartisan basis. Senator
    Murkowski and I had many discussions about the pieces of that
    legislation but there was one thing that we could easily agree
    on. And that was the critical importance of the Strategic
    Petroleum Reserve.
        Forty years ago, we created the Strategic Petroleum Reserve
    to prevent economic and security impacts of crude oil supply
    disruptions. That's exactly what had happened with the Arab oil
    embargo in 1973. The 1975 law that created the SPR specifically
    authorizes the president to draw down the SPR, if he or she
    determines there is a severe energy supply interruption. The
    core policy reason for the reserve hasn't changed since then-
    nor should it.
        The Strategic Petroleum Reserve is our most important,
    Federal, energy security asset. We need it just as much today
    as we did then. Perhaps even more so, given the energy market
    volatility we have seen over the past decade. The global oil
    markets may have changed--but so have the nature of the threats
    to the infrastructure, which is so key to our economic and
    national security.
        We make commitments to the International Energy Program,
    and supply interruptions could happen at any time. Whether it's
    response to volatility somewhere else in the world or a natural
    disaster like hurricanes, we are seeing with increasing
    frequency devastation to our critical energy infrastructure. So
    you just never know when you may need to use the oil in the
    SPR.
        Even with more U.S. oil being produced today, we need to
    have emergency crude oil contingency plans.
        There are several immediate and medium-term geopolitical
    risks capable of rendering severe or even catastrophic oil
    supply losses, such as possible attacks on major Middle East
    supply nodes or routes, major weather events, or severe
    disruptions originating in places like Nigeria or Venezuela.
    Any of these situations could result in major disruptions and
    trigger an SPR drawdown.
        Our colleagues on this committee are quite familiar with
    the findings of the Quadrennial Energy Review (QER).
        The report notes that, ``Challenges remain in maximizing
    the energy security benefits of our resources in ways that
    enhance our competitiveness and minimize the environmental
    impacts of their use....the network of the oil distribution has
    changed significantly.''
        The QER explains that the Strategic Petroleum Reserve's
    ability to protect the U.S. economy from severe economic
    impacts in the event of a supply emergency or associated price
    spike has been diminished by infrastructure congestion--
    literally, the congestion of too much product not being able to
    get the product to where we want and when we want.
        In fact, the Department of Energy did a test sale in 2014
    and identified a series of challenges within the SPR
    distribution system. Investments are needed to modernize the
    SPR to make sure the infrastructure has the ability to respond.
        The SPR is in need of $2 billion worth of repairs and
    upgrades. However, it is estimated that the $2 billion
    investment to modernize the SPR can help save the U.S. economy
    approximately $200 billion in the event of a sustained and
    large oil supply disruption.
        So we'll hear from Secretary Moniz about some of these
    issues--about the fact that some of the salt caverns were built
    in the 1930's and that some of them raise issues of their
    integrity. At least two caverns have been taken offline. Some
    of the wells are more than 60 years old. We need to invest in
    above-ground infrastructure like water, brine disposal, power
    distribution systems and physical security--all the things that
    will help us respond to an emergency.
        And because pipelines have essentially reversed direction
    of flow since the SPR was built 40 years ago, that's where this
    issue of congestion comes in and a strategy of how are we going
    to deal with that congestion to make sure that we are going to
    get product to the market, so it would have the intended impact
    that we would like it to have.
        So once again, I thank the Secretary Moniz for his work on
    the QER--a long process but a good roadmap for telling us what
    we need to do to improve our infrastructure--not just on the
    SPR, but on other issues as well. And I thank the chair for
    holding this important hearing.''
        The Chairman. Thank you, Senator Cantwell.
        At this time we will turn to the Secretary of Energy, Dr.
    Ernest Moniz.
        Welcome to the Committee. We look forward to hearing from
    you about this very important national energy security asset.

     STATEMENT OF HON. ERNEST MONIZ, SECRETARY, U.S. DEPARTMENT OF
                                 ENERGY

        Secretary Moniz. Thank you, Chairman Murkowski, Ranking
    Member Cantwell, and distinguished members of the Committee. I
    have submitted a fairly detailed testimony, so I will just make
    a few summary comments here to open up the discussion.
        Clearly we need an energy security policy based on 21st
    century energy market changes, challenges, vulnerabilities and
    needs. Its key components are a modernized SPR configured to
    enable appropriate draw down and distribution capacity, energy
    infrastructure, the resilience and reliability including
    emergency response and a broader concept of energy security to
    include our international engagements, our allies and our
    partners.
        I'll touch on the latter two points very briefly and make a
    few more comments on the petroleum reserve.
        As you have both said, it's our nation's most central
    Federal energy security asset, and it should be treated as
    such. Some have concluded that selling large volumes of oil
    from the SPR for purposes not related to energy security will
    have no or little impacts on its energy security benefits, and
    I do not subscribe to those views. In fact, I believe the SPR
    remains an extremely powerful and valuable energy security
    tool.
        As we evaluate the energy security value of the SPR we must
    take into account several factors including, this is
    particularly relevant--relative to 1975, the change nature of
    oil markets since the SPR was established. We are linked to the
    global market, we are exposed to global prices and including
    disruption driven global price spikes, and these historically
    have had significant economic impact even if there is little
    direct impact on our imports today.
        Second, our international commitments not only our
    obligation of 90 days of import protection but also another
    international obligation which is based upon oil use, not oil
    imports, and that is our obligation based upon the last data to
    provide 43 and a half percent of the amount of a total
    coordinated OECD response to a disruption. So again, I think
    it's important to emphasize that we have an import obligation
    and an oil use dependent obligation.
        And then third, the actual distribution capacity of the
    SPR. The 2014 test sale did identify a significant gap between
    the SPR's drawdown and distribution capacities. Much of that is
    driven by what's happened in the last several years in terms of
    the changed scale and geography of our oil production.
        To address disruption scenarios a key need would be our
    ability to get SPR oil onto the water to supply coastal
    refineries.
        Changing markets and international commitments are not the
    only concern with the SPR. Like much of our publicly supported
    infrastructure the SPR needs additional investment to maximize
    its value. In this case funding in three distinct areas.
        One is deferred maintenance. The President's budget for
    Fiscal Year 2016 proposes a major down payment on the backlog
    of SPR deferred maintenance, cutting it in half. Unfortunately
    the House and Senate Appropriation bills marks, if enacted,
    would not support that. Indeed we might be going in the wrong
    direction in terms of increased deferred maintenance.
        Second, life extension. Almost 40 years old and some
    caverns are much older than that. The SPR needs a significant
    life extension program to ensure its effectiveness for decades
    to come in such areas as crude oil transfer and security.
        And third, modernization. We also need to modernize the SPR
    to accommodate, again, the dramatically different locations and
    volumes of domestic oil production and changes in global oil
    markets.
        The Quadrennial Energy Review, a QER, that's been alluded
    to, released in April, examined what the SPR would need to
    protect the U.S. economy in an energy supply emergency. As
    already stated, roughly $2 billion are needed, about $800
    million for life extension and about $1.2 billion for
    modernization such as dedicated marine terminals to respond
    quickly in emergencies.
        The return on these could be huge. A study out of Oak Ridge
    suggests that, for example, adding about two million barrels
    per day distribution capacity could save our economy in a major
    disruption tens of billions of dollars, up to $200 billion
    depending upon the nature of the disruption.
        So we need a robust SPR to guard against the economic harm
    of such a major disruption, and this is not theoretical. If we
    look at many events in the Middle East, including just last
    week the Russian military intervention in Syria, adding another
    element of geopolitical uncertainty in that entire region.
        Just to finish with a couple of words on energy
    infrastructure, resiliency and reliability. This was discussed
    extensively in the QER. This is challenging.
        Our existing infrastructure is not always well matched to
    our supplies. We have aging facilities prone to failure. We
    have climate change impacts that we must guard against which
    put many facilities at risk. And of course, we have enhanced
    concerns about cyber and physical attacks that could take a
    heavy toll. The QER had over 60 recommendations for addressing
    infrastructure needs.
        Finally, just to end by saying that a collective approach
    to energy security in the international sphere is what we need
    today. This situation in Ukraine and growing European
    dependence on a dominant supplier of energy is what stimulated
    a lot of discussion within the G7 plus EU in terms of this
    collective responsibility. I've just returned from the G20
    Energy Ministers Meeting in Istanbul where this dialog
    continues, and the reality is that this is an important and
    sensitive time in this arena. It's a time when we are, in fact,
    encouraging other major countries to buildup their petroleum
    reserves to work collectively with ours. And so, I think, we
    need to be very careful about the signals we send today in
    terms of collective energy security.
        I appreciate the opportunity to come here and look forward
    to the discussion and to working further with the Committee.
        [The prepared statement of Secretary Moniz follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The Chairman. Thank you, Mr. Secretary.
        Your concluding words are the ones that I find most
    intriguing. You are over in Europe, you are in Istanbul at the
    G20, you are working in this collective approach that you have
    been talking about with our G7 or EU allies and the focus is on
    improving energy security from a broader perspective. You come
    home from that meeting and the discussion here is the Congress
    is looking to sell off parts of that strategic reserve that we
    are encouraging other nations to participate in, to again,
    build out and enhance this collective energy security.
        Tell me how this works when the United States is trying to
    persuade China, trying to persuade India, to participate in
    these international energy security conversations? Isn't it a
    little bit hypocritical for us, as a country, to be saying come
    on in and yet we are basically treating our energy security
    asset as the cash machine here?
        Secretary Moniz. Well of course we are, as you know, and as
    called for in a product of your Committee, we are carrying out
    a strategic study which we expect to finish next May basically,
    in terms of what we need to do in terms of the size and the
    authorities of the petroleum reserve.
        Now without those I am not going to talk about a specific
    size. But the fact is that, as I said, that the markets are
    totally different today than they were in the 70's. The real
    issue is a major disruption that leads to a substantial price
    excursion which affects all of us. And that's why we are
    working with China and by the way, the collaboration is
    excellent. They have come and visited our SPR. We have a visit
    to their developing SPR in November. They are building up
    toward a 500 million barrel petroleum reserve in China. India
    is building up reserves as well.
        So again, as I said earlier, I think this is a time of
    considerable geopolitical uncertainty and what we need is a
    more unified international collective response to the economic
    risks we would all face.
        The Chairman. I would certainly hope that we would agree
    that we need a consistent response too. We cannot ask them to
    move forward in this collective approach while at the same time
    we are weakening our own energy security cushion, if you will.
        I appreciate you saying you cannot comment on the right
    sizing of the SPR at this point in time. You are going through
    the studies. I was walked through all of the varied layers of
    analysis that will be part of that review, but wouldn't it be
    premature for us to be selling off portions of the reserve
    before we have that considered analysis, before we really know
    what the right size is, before we really understand how aspects
    of this modernization need to proceed?
        Secretary Moniz. Well I would certainly assume that that's
    why Congress has asked us to do the study.
        The Chairman. Well.
        Secretary Moniz. Was to be able to have a detailed and
    significant analysis. And this analysis is being performed with
    many, both analytical companies and universities to bring
    together, I think, the first really integrated strategic look
    in a very, very long time.
        The Chairman. And a very necessary...
        Secretary Moniz. And we certainly would like to have that
    answer.
        The Chairman. A very necessary review. I think it is
    something that we asked for a reason, and I would certainly
    hope that we would take advantage of this considered review
    before we weaken our ability to utilize the recommendations
    that come with this.
        Right now we have a mindset here in this Congress, and I,
    unfortunately, even with your guidance here, even within the
    Administration, that says we need this money now because we
    need to spend it on a transportation bill, and if we do not
    spend it on a transportation bill somebody is looking for
    another bill on the House side. They have already identified it
    for research in the healthcare world.
        We are looking at this as nothing more than a cash machine
    at a time when we are looking for more money, and I think that
    this is wrong and irresponsible.
        I believe very, very strongly that what we need to do is
    make sure that as we move to modernize, as we move to make sure
    that we have that strong energy asset, we do not erode our
    ability to utilize it in the time of an emergency when we do
    not know what is going on. We do not know what may come next,
    but we know that if we drained it out and we do not have the
    flexibility to move when we need it then there is going to be a
    lot of fingers pointing saying where did it go? I think part of
    what we are trying to ascertain here is what is it that we need
    and how can we be smart with this as our energy asset?
        Senator Cantwell?
        Senator Cantwell. Thank you, Madam Chair, and thank you,
    Mr. Secretary, again, for your work on the document that helped
    produce the focus here.
        Explain why the 90-day requirement should not be the only
    consideration that we should be looking at when we are talking
    about modernization?
        Secretary Moniz. Well, Senator Cantwell, again, the 90 days
    is certainly an international obligation based upon imports.
    But as I said, we also have an international obligation based
    upon the use and that is the 43 and a half percent of draw down
    capacity for a coordinated response.
        But second, beyond the international obligations I just
    believe it's in our best interest to have a very strong
    petroleum reserve. That is what gives us the flexibility to
    respond if there is a very major disruption. And we have had
    brainstorming sessions, workshops, with external experts
    looking at what are the risks of major disruptions and they
    certainly are there, major disruptions, perhaps more than three
    million barrels a day, for example, suddenly disrupted. And by
    the way, the risk also of multiple disruptions because things
    could be linked.
        So, as I said, that has the expected impact of a major
    price spike in those cases. We are in a situation with a
    diminished global reserve capacity, and so it's being able to
    use government stocks in a rapid way that could ameliorate the
    economic harm that we might face.
        Senator Cantwell. Do you think the President should have
    new authority in this area?
        Secretary Moniz. Well we have said that in the QER it
    raised the issue of a variety of authorities. Some of them are
    very specific such as with the two product reserves they have
    very, very different authorities for use. And we think that
    should be harmonized within the petroleum reserve.
        But then there are more, bigger policy issues, such as how
    one defines what a major disruption is in the sense of having
    the ability to respond when there is likely to be a major price
    spike as opposed to after there's been a major price spike. So
    those are the kinds of policy issues that I think we need to
    discuss in terms of looking at authorities appropriate to what
    is now a genuine global market in contrast to the market of the
    1970's.
        Senator Cantwell. In the Quadrennial Energy Review you also
    talked about and we had a couple of votes here in Committee
    about commodity congestion--the inability for utilities to even
    get products, based on the competing commodity needs. So I
    think the Quadrennial Review does a pretty good job of
    outlining the fact that we need to improve there as well. I
    wish people here would swim in their own lanes when it comes to
    these things, but usually that is not how the legislative
    process works. Clearly we have to do both. Is that correct? We
    have to improve infrastructure commodity passage or as my
    colleague from Minnesota who is not here at the moment talked
    about the fact that utilities in Minnesota who have
    requirements to serve their consumers could not get their coal
    supply actually to them because of commodity congestion. That
    is the same problem, the underlying issue here is about the oil
    market. So it is getting the oil and getting other commodities
    to market takes both an infrastructure improvement and a
    modernization of the SPR. Is that correct?
        Secretary Moniz. Yes, it does. And there, in terms of the
    SPR modernization, yes, there is a congestion issue in terms of
    the Gulf of Mexico. But that issue, as you say, is much, much
    broader than that in terms of our energy infrastructure. I
    believe there has been some progress, for example, with regard
    to the train congestion. I met with the CEO of one of the major
    railroads, BNSF, and understood the steps that they are taking
    to try to not have a repeat of those kinds of issues.
        So I think there's a lot of work going on in the private
    sector, but the fact is we haven't yet caught up to the
    incredible increase in our gas and oil production from new
    geographies. We also have things like large crops, etcetera,
    all coming together to lead to some congestion.
        So in the QER in addition to specific energy
    infrastructure, we also had recommendations because it was an
    Administration-wide document. We also had shared
    infrastructures that all commodities use as part of the focus
    as well.
        Senator Cantwell. Thank you.
        Thank you, Madam Chair.
        The Chairman. Senator Barrasso?
        Senator Barrasso. Thank you very much, Madam Chair.
        Welcome back.
        As you talk about the role that energy plays in our
    national security, global security, in your testimony you
    advocate for an expanded view of energy security that broadly
    encompasses the needs of the United States, our allies and
    trading partners. You go on to say the crisis in Ukraine
    highlighted the vulnerability of our European allies to
    increasing reliance on a single dominant supplier for much of
    its energy supplies. You explained, it is not only true in
    regard to natural gas, but also crude oil. Your words. You cite
    the European Commission's finding that some European refineries
    are optimized for using Russian crude, and the EU refining
    capacity is increasingly in the hands of a shrinking number of
    Russian owners.
        So I am encouraged the Administration continues to approve
    U.S. liquefied natural gas exports, but I question about the
    Administration, why it seems to be dithering when it comes to
    crude oil exports. Do you agree the U.S. crude oil exports
    would benefit the energy security of our allies and trading
    partners and if not, why not?
        Secretary Moniz. Well, sir, again, first I think, it's
    important that we do distinguish, you had this discussion
    before, I think, in terms of the natural gas and oil situations
    in the United States being quite different. In natural gas we
    are, of course, I mean, we, with some Canadian imports,
    although those have gone down too. We are essentially self
    sufficient and our export will very shortly start the exports
    with LNG out of the lower 48.
        On oil it's still very different where we are a seven
    million barrel a day importer of crude oil, a much greater
    exporter now of oil products, of course.
        So the specific issue raised, as you well know, it's in the
    responsibility of the Department of Commerce to make that
    policy judgment. But it is also true that recent studies
    including the last summary study of the EIA on the
    congressionally requested studies on exports show that the
    impacts for the next 10 years or so are likely to be pretty
    modest, to put it mildly, in terms of exports.
        Senator Barrasso. Because I guess I would ask if that is
    your litmus test if crude oil imports have to get to zero or
    near zero before the Administration would support crude oil
    exports because we all know that much of our nation's refining
    capacity really was built to handle heavy crudes that are
    imported from outside the United States, not what is being
    produced in the United States right now as a result of
    technological advances and with fracking and how we get to this
    oil. It is very different in terms of what our refining
    capacity is. But is that your litmus test? We have to get to
    zero of imports before we can export what is essentially a
    different product.
        Secretary Moniz. No, sir, I did not say that. Of course, we
    should emphasize again, we are exporting. I think it's now four
    million barrels, maybe a bit more, of product. That goes to
    South America and Europe, so they are getting the benefit of
    our increased production. That's the first point. I've
    forgotten my second point now. [Laughter.]
        Secretary Moniz. The product, okay, maybe that was----
        Senator Barrasso. Last month the White House Press
    Secretary said we will not support legislation like the one
    that has been put forward by Republicans, but last week the
    Senate Banking Committee advanced legislation introduced by
    Senator Heitkamp, a Democrat, to repeal the crude oil export
    ban.
        It does not seem the Administration supports efforts to
    move this bill according to the White House spokesperson. Does
    the Obama Administration oppose all legislative efforts to
    repeal this crude oil ban?
        Secretary Moniz. Well the, by the way, I thought of my
    other point.
        Senator Barrasso. Oh, good.
        Secretary Moniz. Which was on the additional production of
    light oil. The fact is that when you look at spreads, Brents,
    WTI, Louisiana Light, it's hard to argue that there's been a
    lot of production being hemmed in by current rules.
        Secondly, I would note again, of course, commerce, again,
    is responsible. They have taken two steps. One was the ruling
    on lightly processed, high API oil to be exported as a product.
    Secondly, more recently, the approval of the swap with Mexico
    of light for heavy.
        So I think the Commerce has taken steps to address this and
    it's on their desk in terms of any further steps.
        Senator Barrasso. When you talk about production being
    hemmed in, of course that means jobs lost in the United States
    in the oil industry from people that are actually out there
    working, trying to just make a living and put food on the
    table. So it is a consideration for our economy.
        Secretary Moniz. But Senator, again, the evidence today is
    that this is not occurring. The EIA's analysis would say that
    if there were substantially greater production in the United
    States somewhere up north of 12, then there might become an
    impact there. But right now the evidence does not suggest a
    major impact.
        Senator Barrasso. Final question. The Nord Stream pipeline
    running from Russia to Germany under the Baltic Sea circumvents
    Eastern Europe. I understand a number of Eastern European
    leaders have expressed opposition to expanding Nord Stream. I
    do not know if that came up at your recent meeting. But what,
    if any, steps is this Administration taking to stop the
    expansion of Nord Stream?
        Secretary Moniz. Well, of course, we are working with our
    European colleagues both at the national level and at the
    European Commission level. The European Commission has made it
    very clear in their energy security plan that they are looking
    for diversification of supply which the Nord Stream would not
    do.
        We have been advocates and frankly, to answer your
    question, yes, these were discussed a few days ago in with the
    G20. We remain, for example, very strong advocates of getting
    Caspian gas into Europe, through the Southern corridor that
    needs additional interconnections. Greece to Bulgaria,
    etcetera.
        In addition we're very interested in, don't have a direct
    role, but we maintain the discussions in terms of the
    production and monetization of Eastern Mediterranean gas,
    Israeli, Cypriot and of course, Egypt now, potentially with a
    major find.
        I think those are the issues that really add to diversity
    of supply and would increase European energy security.
        Senator Barrasso. Thank you.
        Thank you, Madam Chairman.
        The Chairman. Thank you.
        Senator Manchin?
        Senator Manchin. Thank you, Madam Chairman, and thank you,
    Mr. Secretary, for being here and I appreciate your input.
        Sir, you just mentioned that we have about seven million
    barrels a day of imports that we depend on, and that is going
    to stay, I think EIA even forecasts are about four million even
    way up into the future.
        Secretary Moniz. Of crude oil?
        Senator Manchin. Of crude oil, coming into the United
    States of America, right?
        Your predecessor, Secretary Chu was here, and I asked him a
    question. I said, about coal to liquids since we have 250
    million known reserved tons of coal and what I think, two
    barrels of oil can be produced from one ton of coal. Now that
    is about 500 million barrels of reserves and I think Saudi
    Arabia only has about 260 billion barrels of reserves. Sooner
    or later we are going to have to use the resources we have not
    to be dependent on foreign oil. If you use the coal to liquids
    incorporated with biomass feed stock he believed it would have
    a neutral, if any, a reduction of carbon footprint. Do you feel
    the same about that? I mean if we would advance that type of
    technology? The only thing we are considering is asking for a
    pilot project to show that we can do it.
        Secretary Moniz. So, Senator Manchin, first of all I think
    the interesting technology prospect it would be coal with
    carbon capture and potentially biomass feed stock together.
        Senator Manchin. Yes, CBD.
        Secretary Moniz. Theoretically possibly even become
    completely carbon neutral or negative.
        Senator Manchin. Negative.
        Secretary Moniz. Potentially.
        Senator Manchin. Right.
        Secretary Moniz. In terms of the biomass part. So these
    are, these kinds of conversion technologies are being
    researched right now. As with a number of technologies there's
    a ways to go on terms of cost.
        Senator Manchin. You are claiming from the investment from
    a pilot project?
        Secretary Moniz. Yes, no, so I think on the research side,
    I think, this is the kind of potential, you know, home run
    that----
        Senator Manchin. The State of West Virginia, as you know,
    would be very much interested in using and developing this
    pilot project.
        Secretary Moniz. Right, right.
        Senator Manchin. With the DOE because we think down the
    road you are going to, with the Bakken and all that kind of
    leveling out, we are going to have to have an energy policy
    here that does not make us more dependent on foreign oil.
        Secretary Moniz. Yes, I might also add that, our military
    has also been interested in exploring this technology.
        Senator Manchin. Yes and I think they have used it in B52s
    and found that it performed extremely well, if not better, than
    the conventional fuel.
        Secretary Moniz. Yes, I think making the fuel to, as a
    perfectly replaceable fuel.
        Senator Manchin. Yes.
        Secretary Moniz. Is certainly possible.
        Senator Manchin. Well, sir, I would hope.
        Secretary Moniz. So we can talk about that.
        Senator Manchin. Yes, I hope that you would consider that
    because the whole State of West Virginia will continue to do
    the heavy lifting if you help us, work with us.
        With that being said, on the export of crude I know my
    concern was this with the export of crude. It is hard to go
    home and explain why we would be exporting when, basically, the
    prices here can be so volatile.
        But the more you look into it, I thought if we did it from
    a strategic standpoint, I think in the legislation that the
    Chairman has been moving, it makes a lot of sense to me. I
    support it wholeheartedly. It moves it strategically and also
    gives the President a chance to use a trigger and basically
    stop the export if the oil prices spike here and the pump price
    goes up.
        Would it not be advantageous for us to use our strategic
    oil, using it basically to help our allies not be dependent on
    the oils around the world that do not benefit us and revenues
    that are used against us, strategically? If you looked at
    export strategically?
        Secretary Moniz. Well, again, the again, to repeat. We,
    again, we are significant net, significant net importers of
    crude oil or we are importers.
        Senator Manchin. Right.
        Secretary Moniz. Of crude oil, and we are major exporters
    of oil products.
        So the issue is, for example, okay, if I take the Mexico
    situation. There, as I said earlier, Commerce approved a swap
    of light for heavy. So it was a question of grade, in this
    case, because the Mexican refineries are quite short of light
    oil. So that's a case where there was a good match between a
    swap. Okay?
        But also as I said earlier the reality is, in terms of the
    big picture, the current oil market analysis does not suggest
    that there is an inability, for example, of the American
    refining system to handle the light oil at least at today's
    production levels. So again, the EIA analysis really requires a
    seasoned impact only when the production gets significantly
    larger, and you see that in terms of the spreads of the various
    prices.
        As far as price goes, by the way, it's again worth
    repeating. Another EIA result of, I forget, maybe six months
    ago, part of the series of five that the Congress requested.
    And that it showed, pretty clearly, that our domestic product
    prices, like gasoline, are linked to the global price and not
    to the domestic price of say, WTI.
        Senator Manchin. Yes, well, I thank you, sir. My time is
    running out.
        I would just say that the State of West Virginia would be
    very interested in partnering up with the Department of Energy
    for a coal biomass to liquid with carbon capture. We think we
    can show it can be done. It can be a tremendous advantage for
    our country and put us, strategically, in a position, I think,
    that would make us independent, very much independent of
    foreign oil.
        Secretary Moniz. I'm happy to follow that up with you,
    Senator Manchin.
        Senator Manchin. Thank you, sir.
        Secretary Moniz. Yup.
        The Chairman. Let us go to Senator Cassidy.
        Senator Cassidy. Mr. Secretary, I want to point out that we
    could do a lot for train congestion moving crops to market by
    building the Keystone XL pipeline as the State Department
    reports said would save workers lives and lower carbon
    footprint. I do not know why we don't, but nonetheless, it is a
    political decision.
        You, in your testimony, repeatedly referred to the relative
    sea level rise in the Central part of the Gulf Coast which is
    Louisiana. I emphasize ``the relative'' because it is
    subsidence, as you point out in your testimony, much more so
    than it is rising sea levels.
        So just to put it on record, will you agree that we should
    take whatever steps we can to make Louisiana's coast line more
    resilient so that as these LNG export facilities are being
    built they are not going to get wiped out, as you mention on
    page 13, or the refinery capacity, you spoke of going down
    after Hurricanes Rita and Katrina, were preserved even in the
    setting of another storm? Is that a fair statement?
        Secretary Moniz. Absolutely. The Gulf is, obviously, as you
    well know, absolutely a critical energy hub for the whole
    country. And the coastline issues, the storm surge issues, are
    very, very important for the Gulf and therefore, I think, for
    the country's energy system.
        Senator Cassidy. Thank you for saying that.
        I will point out that both Senator Cantwell's energy
    statement as well as the Department of Interior's would take
    the money that Louisiana is slated to receive under the GOMESA
    program which by our state's constitution has to be used for
    coastal restoration and redirects it elsewhere. If you will, it
    removes the very resources needed to increase that resilience
    that you, several times in your testimony, point the national
    importance thereof.
        So thank you. I did not mean to set you up on that, but it
    just so flows. [Laughter.]
        Secretary Moniz. I----
        Senator Cassidy. It just so flows that it is just like I
    cannot understand why people concerned about sea level rise are
    taking resources away from Louisiana which are so critical to
    our nation's infrastructure.
        Next, one of the things, oh, by the way, this is also in
    the EIA report. It also points out that there have been spreads
    as much as $20 in the relatively recent past between Brent and
    WTI. Now, as we know, Louisiana Light Sweet typically sells at
    a premium relative to Brent and so the report, just to point
    out, when you say significantly it is not astronomic. It goes
    up to 13.5 million barrels per day by 2025 which would actually
    be a reasonable increase. We certainly have the capability to
    do that, and it does point out that if we did so and we
    exported oil, gasoline prices would fall for the American
    consumer. So we have to point out that if we lift the export
    ban, gasoline prices fall. I am not sure, but that might have
    been a little bit lost. You did not intend to obfuscate that,
    but it may have been a little lost in what you were saying.
    So----
        Secretary Moniz. If I may comment, Senator Cassidy? I do
    want to emphasize again, the 13 and a half million barrels a
    day production was in the high resource case, not in the
    reference case.
        Senator Cassidy. Correct.
        Secretary Moniz. So and the high resource case without a
    low price is the one where one got a significant, about a
    400,000 barrel a day impact, as I recall.
        Senator Cassidy. Yes, but also it pointed out that----
        Secretary Moniz. In that high case.
        Senator Cassidy. I think it is the Aspen Institute, but it
    was echoed by Larry Summers who said that if we allow oil
    exports we could increase the American GDP by as much as 1
    percent by 2020 resulting in hundreds of thousands of jobs.
    Those are the blue collar workers who are independent of the
    decreased price of gasoline. I will point that out again, the
    Aspen Institute, Larry Summers, both touting that we could
    increase GDP by 1 percent and that would be really good for the
    average American family right now.
        Granted it might not happen just because of market
    conditions, but if it does occur we increase GDP, we lower
    gasoline prices, and we create more American jobs. Again, it
    just seems like something we should be doing.
        Let me ask one more thing, and this is purely out of
    curiosity. Chris Smith, I think it was, testified to Energy and
    Commerce last April. He made a statement which I do not quite
    follow. He says, ``the impacts of overall supply disruption of
    global oil markets would have the same effect on domestic
    petroleum product prices regardless of U.S. import levels or
    whether or not U.S. refineries import crude oil from disrupted
    countries.''
        Now I am all for the SPR but I have to admit I read that in
    preparation for this hearing and I was thinking what is the
    purpose of the SPR if there is no lessening of the impact upon
    us? Do you follow what I am saying? I can show you the quote.
    It is from Chris Smith's testimony and, for everybody else's
    reference, he is the Assistant Secretary.
        Secretary Moniz. Yes.
        Senator Cassidy. I know you know. [Laughter.]
        Secretary Moniz. I would have to discuss his quote with
    Chris Smith. But let me just say that, again, the issue of a
    SPR use in the current market could be very important even in
    some scenarios of major disruptions where the disruption is not
    to our direct imports. It's actually----
        Senator Cassidy. I get that. It is global.
        Secretary Moniz. That actually we'd have to have
    incremental barrels from the SPR get in there to back out some
    of those imports so that the global market can be rebalanced.
        Senator Cassidy. Well, I told----
        Secretary Moniz. So I'm not sure if that's what he was
    discussing or not.
        Senator Cassidy. It just seemed like kind of counter to the
    whole thing, but looking at this quote and if you can get back
    to us.
        Secretary Moniz. Okay.
        Senator Cassidy. Thank you all.
        Secretary Moniz. Certainly.
        Senator Cassidy. I yield back.
        The Chairman. Senator Stabenow?
        Senator Stabenow. Well thank you, Madam Chair.
        First, thank you for holding this hearing. I could not
    agree with you more in your comments, as well as our Ranking
    Member, about the fact that the SPR should be kept for energy
    security and infrastructure investments and the idea of doing
    one offs for some other bill makes absolutely no sense. So
    thank you very much for holding the hearing.
        Let me also say that I think this really is a long game. I
    think we would all agree with the fact that when we look at
    energy security it is about the long game. Whether it is the
    Strategic Petroleum Reserve or frankly if it is how we expedite
    LNG exports or ending restrictions on U.S. exports of crude
    oil, these really are all the long game for us in terms of our
    country and where we go.
        I just have one comment and I do not know, Mr. Secretary,
    if you would want to respond to this. But it seems interesting
    to me that we are talking about selling off reserves right now
    when prices are so low. It seems like, from a purely financial
    standpoint, a taxpayer dollars standpoint, that we would want
    to be selling off reserves when prices are high not when they
    are low. It seems like even from a financial standpoint this
    does not make any sense. I do not know if you have analyzed it
    from that standpoint but----
        Secretary Moniz. Well I would just observe that with the
    2014 test sale, I would say we sold high and we bought low.
    [Laughter.]
        Senator Stabenow. Yes, my point, Okay.
        Let me ask something slightly different on energy security,
    but a very, very important piece of this as we look at all of
    our infrastructure, and that is something that has impacted
    Michigan very directly. The safety of our pipelines and
    particularly in the area of oil pipelines we have had, as you
    know, a devastating pipeline break back in 2010, the largest
    domestic cleanup, $1.2 billion to clean up the Kalamazoo River.
    It was just a disaster.
        Now we have a situation where we are very, very concerned,
    people all over Michigan, the state is concerned, about a 62-
    year old pipeline that runs under the Mackinac Straits that
    connects Lake Michigan and Lake Huron that if, in fact there
    was a break, would devastate the Great Lakes, 20 percent of the
    world's fresh water. There have been a number of different
    models that have been done of what this would mean, but it is
    devastating.
        Senator Peters and I introduced legislation to address the
    safety concerns around the pipelines that run throughout the
    Great Lakes both under the water as well as along the water
    line, and I understand that accelerating natural gas pipeline
    replacements is one of the 60 actions of the Quadrennial Energy
    Review recommendations as it relates to enhancing energy
    infrastructure. I know that PHMSA has direct safety oversight
    as it relates to oil pipelines, but is there an opportunity for
    the Department of Energy to help modernize as well as improve
    the safety of oil pipelines because it is going to serve no one
    if we have these pipelines breaking whether it is from a safety
    standpoint, environmental standpoint or from an energy security
    standpoint?
        Secretary Moniz. Well Senator Stabenow, I think you've
    obviously raised a critical question in terms of the aging of a
    lot of our energy infrastructure, gas pipes, oil pipes in this
    case, etcetera. So I personally think that we need a national
    commitment to really upgrade our infrastructure and while doing
    it also make it much more resilient to the kinds of risks that
    we are seeing.
        Now as far as DOE and the specific area, as you said, PHMSA
    has the responsibility and Secretary Fox is certainly very
    concerned about this. We do work with PHMSA in providing,
    essentially, technical assistance. So our laboratories, for
    example, work with them on that. We don't have the regulatory
    authority but we do provide technical assistance.
        Senator Stabenow. I would just say, Madam Chair, that as we
    look at infrastructure, I would hope, as we are talking about
    upgrading pipelines and so on, that we include safety, even
    though it has a broader jurisdiction across other agencies. The
    whole question of what is happening in terms of the lines,
    obviously, has very broad implications and again is something
    that we are deeply concerned about given what happened back in
    2010. In 2010 in Michigan we saw the devastation, and we want
    to make sure our pipelines are working and that they are safe.
        Thank you.
        The Chairman. Thank you, Senator Stabenow.
        Senator Portman?
        Senator Portman. Thank you, Madam Chair. Thanks for holding
    the hearing today on SPR. Dr. Moniz, thanks for appearing
    before us and for our conversation last night.
        We have talked a lot today about SPR in relation to energy
    security and national security. I want to talk to you about
    another energy and national security issue, and that is having
    a domestic source of enriched uranium.
        You have said consistently when you dab a domestic source
    for our nuclear navy, for our nuclear arsenal, particularly the
    production of tritium which comes from lowly enriched uranium,
    also for our commercial power plants and of course, for our
    efforts at non-proliferation around the world to be able to
    offer a source. I am very concerned, as you know, about the
    fact that we seem to be pulling the plug on our ability to have
    that enrichment capability.
        I am also concerned about the cleanup at the Piketonsite. I
    was very concerned when warn notices were given to about 500
    employees at the Piketon plant. We also have about 236
    employees who are with the new technology, the American
    Centrifuge project, who were affected by those warn notices.
    They could have been laid off by the end of this month.
        When I was at Piketon about 10 days ago I got a chance to
    speak to employees there. They are frustrated. They are angry,
    understandably, and so am I, particularly by the total surprise
    on the American Centrifuge announcement with regard to the new
    technology.
        For 3 years now we have been requesting two things from the
    Administration, two very simple things. One, tell us how much
    you need to complete the funding consistent with the
    commitments that you all have made. Second, give us a plan, a
    long term plan, for the funding of the cleanup. Unfortunately
    the Department of Energy has done neither.
        In 2008 candidate Obama made specific commitments to
    support the plant and cleanup the site quickly. He talked about
    the fact when it goes long you increase the costs. It has undue
    environmental risk, as he said. I totally agree with him.
        In 2009 DOE made a Secretarial commitment to the community
    to accelerate the cleanup and complete the work by 2024. That
    was a Secretarial commitment made to us. The DOE press release
    at the time said the agency was accelerating the cleanup, among
    other things, in an effort to jump start the local economy and
    create jobs. The community is now being told that the cleanup
    will not be completed until 2044 at the earliest. They are
    saying between 2044 and 2050.
        The Federal Government has a responsibility, obviously, and
    a commitment to clean up this site. It has got to be cleaned up
    so that the site can be redeveloped, and it has to be cleaned
    up for the safety of the community. As the President said in
    his comments and, of course, it has to do so to be sure we
    would make and keep the commitment to the work force and the
    local economy which is already troubled.
        Last week Congress passed a spending bill, as you know,
    which funded the government until December 11th, 2015. A number
    of us worked on this, and we got language in that bill that
    includes additional funding authority for the cleanup and for
    the American Centrifuge plant for the layoff, to keep the
    layoffs from happening while the CR continues in operation.
        If you could give me a yes or no answer on these questions
    I would appreciate it. First, does DOE intend to use the
    funding authority we have in the CR to spend at the FY'15
    levels for the D and D work done at the gaseous diffusion plant
    to prevent the involuntary layoffs from happening on the
    cleanup side?
        Secretary Moniz. As we discussed we are getting close to
    finalizing a plan where we think we can accomplish the
    avoidance of involuntary layoffs on the D and D work, hopefully
    for the entire fiscal year, but it does depend upon our
    receiving the House mark.
        Senator Portman. I am talking about the CR. Are you saying
    that between now and December 11th there will not be layoffs?
        Secretary Moniz. Well, so the plan that we're finalizing is
    to, yes, avoid involuntary layoffs during the CR. It entails
    risk for the rest of the year to----
        Senator Portman. I am going to get to the rest of the year.
        Secretary Moniz. Oh, okay.
        Senator Portman. I need a commitment to just yes or no on
    using the authority we have given you in the CR.
        Secretary Moniz. Again, we're finalizing the plan. We're
    getting very close. That is what I am----
        Senator Portman. Dr. Moniz, you cannot even give us a
    commitment that there will not be layoffs between now and
    December 11th?
        Secretary Moniz. I feel very confident that we will get
    there. I need a little more time to finish the plan and notify
    the contractor, but that's what we are working toward, no
    involuntary layoffs during the CR for the D and D work.
        Senator Portman. Well that is a surprise, because I thought
    we had a commitment from you all during the CR at least not to
    have any layoffs. We have been given the authority. We worked
    hard to get this language in there.
        Secretary Moniz. The issue, again, the issue is one of
    risk. And that's why we want to be very open with you, as I was
    last night, that if we make----
        Senator Portman. Last night you were talking about next
    steps which is after December 11th. You were not talking about
    the CR.
        Secretary Moniz. No, they are linked.
        Senator Portman. I am concerned about this.
        Secretary Moniz. They are linked and----
        Senator Portman. Well, obviously we would like to see----
        Secretary Moniz. We are----
        Senator Portman. I was going to ask you about the
    commitment after that, and I appreciate your interest in
    suggesting last night that you would, indeed, be willing to put
    an anomaly.
        Secretary Moniz. Yes, we are----
        Senator Portman. For the----
        Secretary Moniz. All I am going to say, Senator, again, we
    are finalizing the plan that will not have involuntary layoffs
    in D and D through the CR with the idea that that will continue
    for the rest of the year if we get the House mark. That's the
    situation.
        Senator Portman. Well, that is of course what we all hope
    for.
        Secretary Moniz. Right.
        Senator Portman. And beyond that we need to have that
    commitment that in your budget for next year which you are
    already preparing which is going to be here in the House and
    Senate right after the first of the year that you will have
    adequate funding in there. Last year you underfunded it by
    about $80 million.
        Can you give us a commitment that you will have in the
    President's budget for the next fiscal year, Fiscal Year 1917,
    adequate funding for cleanup?
        Secretary Moniz. Well I cannot discuss the FY'17 budget at
    this stage. That is clear.
        We are trying to get adequate funding for all of our
    cleanup activities, and right now it's hard to fit everything
    into the budget box.
        Senator Portman. Your cleanup request in this last Fiscal
    Year was $80 million less than what was appropriated by
    Congress in FY'15. Again, we are talking about extending the
    cleanup even further, more and more layoffs, if you all do not
    put in your budget the funding that you have committed to over
    time, not just the President, but the Secretarial commitment.
    We are talking about just keeping the funding at least level so
    there is some certainty and predictability at the site. I do
    not think that is too much to ask.
        Secretary Moniz. I have every intention, hope, to do
    exactly that but I cannot discuss the FY'17 budget until we've
    gone through all the tradeoffs and working with, as you know
    very well, with OMB on this.
        Senator Portman. So with regard to the cleanup itself we
    cannot even get a commitment on the CR. That concerns me a lot.
    But a commitment for you to try to work with us on both the CR
    and beyond the CR with regard to having an anomaly in the
    longer term budget whether it is an omnibus or a CR or some
    combination.
        With regard to the new technology, the American Centrifuge
    project, again, I was surprised, as were the workers at the
    site, to learn that you were planning to pull the plug on the
    new technology. This is the only domestic source. You have
    testified before this Committee in the past that we need to
    have a domestic source of enriched uranium to support our
    nuclear weapons program and our nuclear naval reactor program.
    Have you changed your mind on that?
        Secretary Moniz. Absolutely not. And we are not pulling the
    plug on this technology. The program continues. The issue is
    that for the last two years operating the pilot facility
    without spinning the pilot machines we have learned things of
    an operational nature. We were able to resolve a technical
    issue with the machines.
        But two things led to that and I have to say,
    unfortunately, I completely agree for the site a decision
    namely No. 1 is that scrubbing really hard on the need for
    enriched uranium using American origin technology we were able
    to extend the timeframe for that very, very dramatically.
    Something I'm happy to come and discuss with you in the days
    ahead. Secondly, the technical judgment made is that continuing
    to spin the machines will not give us any more technical
    knowledge on the technology that we will preserve. We are not
    pulling the plug, but right now it's hard to justify to
    taxpayer's $50 million for something that we think will have
    little to no technical return.
        Senator Portman. Mr. Secretary, my time is up.
        Just quickly let me make this point very clearly. There are
    120 centrifuges spinning. This is a test site, as you say. Its
    application, it can go to commercial grade because of that.
        You are pulling the plug on that entirely and $6 billion of
    taxpayer funding into that. To have to reconstruct that it is
    going to be enormously costly. You said you would only do it
    after issuing a report that was due to Congress in April. You
    never gave us the report.
        I received the report last night, last night, after you had
    already made your decision two weeks ago without informing us.
    We had to hear about it from the press. I think those 326
    workers deserve to know what is going on, but also our country
    deserves what is going on.
        We are not going to have the ability to say that we can
    enrich uranium in this country with a domestic source. I think
    that is frightening. I think it is bad for our national and
    economic security and energy security and certainly consistent
    with what we talked about in the SPR today.
        Thank you, Madam Chair.
        The Chairman. Let's go to Senator Franken.
        These are important questions to the Secretary, and I
    appreciate that but I will remind colleagues we do have a
    second panel as well.
        Senator Franken?
        Senator Franken. Thank you, Madam Chair.
        Thank you, Mr. Secretary for all your service.
        As you note in your testimony a continued need for the
    Strategic Petroleum Reserve partially stems from continued
    reliance on oil for transportation. This suggests that energy
    security can also come from diversifying our transportation
    fuels portfolio and improving vehicle efficiency. I believe
    that the best way to protect our economy from oil supply shocks
    may be to reduce the need for that oil in the first place.
        Can you talk more about the advantages of alternative fuel
    sources as they relate to energy security? Wouldn't an abundant
    source of alternative fuels lower the likelihood that we would
    have to draw down from the Strategic Petroleum Reserve?
        Secretary Moniz. Senator Franken, yes, in fact the G7 plus
    EU energy security principles that were updated in 2014
    reflected exactly the point that you made that efficiency and
    alternatives are part of energy security.
        So what we are doing to continue to focus on reducing oil
    dependence is three fold. One, both regulation and substantial
    technology development for much more efficient vehicles,
    automobiles all the way up to Class A trucks. Secondly, the
    development of advanced alternative fuels and particularly
    liquid fuels, biofuels. Third, electrification of
    transportation as three thrusts that can lower our oil
    dependence.
        Senator Franken. Well, speaking of biofuels, one of the key
    motivations for the RFS, the renewable fuel standards, is to
    diversify our transportation fuel supply so we are not
    dependent on imported oil.
        There is a bill that has been proposed in the Senate that
    really targets ethanol. Ethanol is something that increases the
    octane of gasoline in the mix that helps us replace lead and it
    is something that is required.
        Do you think that maintaining the RFS target line with the
    Energy Independence and Security Act of 2007 helps reduce U.S.
    reliance on international oil?
        Secretary Moniz. Well I'm not going to get into the issue
    of those kinds of standards which, of course, the EPA has
    responsibility. But what we will----
        Senator Franken. Oh, come on. [Laughter.]
        Secretary Moniz. What we will continue to do, however, is
    to develop the technologies for advanced biofuels.
        Senator Franken. And look at----
        Secretary Moniz. And clearly ethanol today is 10 percent of
    our gasoline.
        Senator Franken. I am conscious of time so I want to make
    sure I get in under the five.
        What I took from your testimony was basically not so fast
    on the SPR. Basically that oil is low now, but what you are
    saying is these markets change and there is a reason to have
    this there to prevent shocks and that part of that might be, we
    do not export oil now, but we export oil products. That if
    there is a spike around the world, we cannot let it hurt the
    global economy. That we fall victim to shocks, even though we
    are now because of the oil and gas revolution here, fracking
    etcetera, we are in pretty good shape but that we need this in
    order to make sure that we are able to respond to global shocks
    and that we are able to help our global partners so that their
    economies are strong. That is why we need to keep the
    infrastructure and respond to the different--I am summarizing
    your testimony.
        Secretary Moniz. Mm-hmm.
        Senator Franken. I want to thank you for that, and I want
    to urge my colleagues to read that very thoroughly.
        Thank you.
        Secretary Moniz. If I may, just to add a little color to
    it. In fact, if you go back----
        Senator Franken. I am sorry about my colorless description.
    [Laughter.]
        Secretary Moniz. Sorry?
        Oh, no, no. [Laughter.]
        Secretary Moniz. Well that is because you were reading my
    testimony. [Laughter.]
        Secretary Moniz. But actually there's an interesting event
    if you look back to 2000, the Fall of 2000, August/September
    time period. That's when Britain was having the trucker's
    strikes and slow downs. They were exporting a million barrels a
    day of net exporters. It did not protect them from global price
    spike which led to all those problems. And then it turned out
    somewhat, well, not by accident, that perhaps simultaneously we
    used the SPR, not for a sale, but for a swap, a time swap. And
    that, let's just say it took a lot of froth out of the market.
        Senator Franken. Could you add that color next time to your
    written testimony? [Laughter.]
        Secretary Moniz. Okay, or I could send you and make like,
    do notes.
        Senator Franken. No, I am not that particular color.
        Secretary Moniz. Oh.
        Senator Franken. I am just saying that----
        Secretary Moniz. Oh.
        Senator Franken. In your written testimony that it be more
    interesting.
        Secretary Moniz. Okay, alright. I will. [Laughter.]
        Senator Franken. I mean it is interesting but in a----
        Secretary Moniz. I'm not sure my colleagues would
    appreciate that. [Laughter.]
        The Chairman. Senator Daines?
        Senator Daines. Thank you, Madam Chair.
        Speaking of color, going back to, and this is for Senator
    Franken as well, 1973 with the oil embargo and then the 1975
    ban on oil exports. Senator Franken in 1975 was a new writer
    for a brand new show called Saturday Night Live--in 1975 when
    the oil export ban was put in place. I was looking at the
    stats. Senator Murphy would have been two years old. Senator
    Gardner was a year old, and Tom Cotton was not yet born.
    [Laughter.]
        In 1975, 40 years ago and to think about that, I mean, it
    was ABBA, it was Captain and Tennille, it was the Eagles, and I
    was in seventh grade. But it was a response to an acute crisis
    that we had, certainly. I remember it with what happened there
    with the oil embargo.
        Secretary Moniz. Gas lines.
        Senator Daines. Now as we go back we fast forward here, and
    I think, Secretary Moniz, you are a brilliant man. You are a
    forward thinker.
        I am still somewhat surprised that we have a policy in
    place that is 40 years old that served a purpose 40 years ago
    but argue is irrelevant today as we move from a scarcity
    environment to one of abundance. Now the United States is the
    largest producer of oil and liquids in the world, surpassing
    both Russia and Saudi Arabia.
        My question is now that it looks as if the ban on Iranian
    oil exports will be lifted, what countries in the world have a
    ban on oil exports?
        Secretary Moniz. I don't know the full answer to that
    question. Obviously in the United States, we have partial, a
    partial ban.
        Senator Daines. I want to make sure I have my facts right,
    but I do not know of another country that has a ban on oil
    exports now that we are going to be lifting the ban on Iranian
    exports with----
        Secretary Moniz. I just don't know that.
        Senator Daines. Right. So why? Why should we have this ban
    in place? Why should the United States be the only country in
    the world with a ban on most oil exports when we export coal,
    natural gas, gasoline? Why not export oil?
        Secretary Moniz. Well again, we are, as you just inferred,
    we are major exporters of oil products. So we refine the
    product----
        Senator Daines. But why have the ban on oil?
        Secretary Moniz. So again, the, look, again, as I said
    earlier, that's obviously a policy decision in the Department
    of Commerce. But I go back to the fact that the EIA analysis
    certainly shows, certainly in anything like today's and
    projected markets, rather small impact of whether that's in
    place or not.
        Senator Daines. But does it make sense? You think about all
    the countries in the world and now the United States is the
    leading producer of oil and liquids, No. 1 in the world, and we
    have a ban on exports because of a law passed by Congress 40
    years ago. Why does that make sense?
        Secretary Moniz. Well, I mean, of course, again, just to
    repeat. We are also a seven million barrel a day importer of
    oil. So we are a huge importer of oil. That's just a fact. So I
    think what it still----
        Senator Daines. But Senator Barrasso got back to you
    though, you know, the forces driving that certainly is the way
    of refining capacity is laid out in terms of the heavy verses
    light.
        But I am looking forward to continuing to work with the
    Chair here as well as having a good, vigorous debate on lifting
    this ban, allowing the forces here. The jobs that will be
    created, the tax revenues created and importantly the topic of
    this hearing is back on energy security and the importance
    thereof, that I hope we move forward and remove that ban.
        Secretary Moniz. Well, it's the law.
        Senator Daines. It is and this is the body that makes the
    laws and can change the law. I hope we can get the White House
    to work with us to remove that ban. I think it will be
    tremendous for our national security, global security as well
    as for economy.
        We have one drilling rig right now operating in Montana.
    The Bakken carries over from North Dakota into Montana. We have
    one drilling rig currently operating in Montana. I recognize
    you have the ups and downs in prices, but I think we have a
    tremendous possibility.
        Secretary Moniz. But again, Senator, I think the current
    global market is one that does not look, it does not seem to
    be, in a reality, looking for that oil. That's just a fact. In
    fact if you----
        Senator Daines. But why not allow the forces of the free
    market? Why would we, unilaterally, be the only country in the
    world to ban oil exports? Now that Iran's ban is lifted why
    would we be the only country to have an oil export ban?
        Secretary Moniz. I look forward to your answer. [Laughter.]
        Senator Daines. I do not have a good answer. I am looking
    forward to your answer, those who oppose lifting the ban.
        I am out of time, Madam Chair. Thank you.
        The Chairman. Thank you, Senator Daines.
        We keep trying to get an answer here about when the
    Administration is going to support us in removing this outdated
    ban. We will keep working on it.
        Senator Warren?
        Senator Warren. Thank you, Madam Chair.
        Thank you, Mr. Secretary, for being here.
        I want to ask about Strategic Petroleum Reserve. I
    understand that under certain circumstances drawing down our
    emergency oil reserves could make good financial sense, could
    make good strategic sense. We should have a conversation about
    how large the Strategic Petroleum Reserve needs to be on a
    going forward basis.
        There have been recent congressional proposals to sell off
    a large amount of this emergency supply of oil. I want to focus
    on just two features of these bills that have been proposed.
    They are not there because anyone has made the case that we
    need a smaller reserve nor is there a proposal to sell it off
    because anyone thinks this is a great time to sell.
        Nope, the reason for the proposed sales of the emergency
    oil supply is to fund the government. In fact, the bills would
    set the quantities of oil to be sold years in advance with no
    flexibility at all. If oil prices are low they could drop to $1
    a barrel and under these provisions you would still have to
    sell them or if there were good policy reasons not to sell like
    we have emergency needs to hold on to the reserve.
        Secretary Moniz, is this approach an efficient way to
    manage the Strategic Petroleum Reserve?
        Secretary Moniz. Well again, I think it's key that I think
    we are doing an unprecedented, integrated, strategic study of
    this to be ready in May and that this Committee has certainly
    encouraged that. So I think, obviously, one would like to have
    the results of that analysis before moving forward.
        I might say there are even other factors that have not yet
    been discussed. For example, there are special authorities to
    be able to use 30 million barrels of the reserve only if one
    has a base of at least 500. So there are a whole variety of
    issues.
        As I mentioned earlier, our international obligations are
    not based only on imports, they are also based on use and so
    because of our responsibilities in the show down, in a draw
    down. So I think, clearly, I think our analysis will greatly
    inform, I think, this discussion.
        Senator Warren. Well, thank you, Mr. Secretary.
        I just want to be clear about what is happening with these
    current proposals mandating a massive, inefficient and
    inflexible sell off of the Strategic Petroleum Reserve years in
    advance is just one more bad idea for how to finance
    government. Look around. Oil prices are at strategic lows. This
    is a high cost gimmick to let some people avoid facing the fact
    that loopholes for billionaires and giant corporations are
    leaving us with too little money to keep our highways in
    working order and to fund essential services like medical
    research.
        It is time to act like grownups and figure out how we are
    going to pay for the critical investments that will help build
    a future for everyone. We will never get there if we do not get
    serious about making sure that everyone in this country, even
    billionaires, even big and powerful corporations, that everyone
    is pulling their weight. Selling off our Strategic Petroleum
    Reserve is just not a way to do that.
        Thank you, Madam Chair.
        The Chairman. Senator Capito?
        Senator Capito. Thank you, Madam Chair.
        Thank you, Mr. Secretary.
        Mr. Secretary, during the 2014 test sale a number of
    infrastructure concerns were brought to light. You said
    repeatedly today and then throughout your testimony the woeful
    situation in terms of our infrastructure in moving the product
    whether it would be pipeline capacity because of the geographic
    shifts in our oil markets, the dock availability, you talked
    about the rail as well. Well I share your concern here, and it
    has been estimated that $1.5 to $2 billion would be needed to
    increase distribution capacity.
        Here is my concern. All of our states, I am certain,
    certainly my state of West Virginia, have a lot of coal as we
    have talked about with Senator Manchin. We also have a lot of
    natural gas. Trying to site pipelines through residential,
    national forests, certainly throughout all of our states is
    getting more and more difficult.
        So if the need is as big as $1.5 to $2 billion, what kind
    of leadership can we expect from the Administration? It was
    already mentioned that the Keystone Pipeline was vetoed. What
    kind of leadership can we expect from the Administration to
    help meet this challenge of not just making sure existing
    pipelines are safe, but creating and building those new
    pipelines that we know we are going to need?
        Secretary Moniz. Thank you, Senator.
        If I may just clarify two things. One is just the
    distribution requirements of the petroleum reserve,
    particularly the Maritime requirements are about a billion or
    1.2 of that total, not----
        Senator Capito. Oh.
        Secretary Moniz. Because 800, roughly speaking 800 million,
    we think, is what we need for the life extension and then 1.2
    would be for the Maritime distribution.
        Senator Capito. So when you say life extension of existing
    pipelines?
        Secretary Moniz. No, no, no. So this is up in the petroleum
    reserve so----
        Senator Capito. Okay.
        Secretary Moniz. So it's basically, it's just old.
    [Laughter.]
        Senator Capito. Right, I get that.
        Secretary Moniz. And we need to extend its life for
    another----
        Senator Capito. So this estimate does not really even
    include creation and modernizing the infrastructure?
        Secretary Moniz. Pipeline distribution, no, it does not. So
    it's----
        Senator Capito. So what would your estimate on that be? I
    mean, we heard Senator Stabenow talk about safety issues.
        Secretary Moniz. I really don't have an answer to that. I
    can give you an answer to a slightly different question but to
    give you an idea of scale in the QER we estimate that the
    modernization, the replacement, the upgrading of natural gas
    distribution pipes which are mainly in urban areas, that's in
    the hundreds of billions of dollars. So that's the scale of
    that----
        Senator Capito. So we have the same problem with----
        Secretary Moniz. So we have a huge infrastructure issue. We
    heard from Senator Stabenow about the pipe protecting the Great
    Lakes, etcetera. I don't know how to pay for it, but I think we
    need to have an enormous infrastructure renewal program.
        Senator Capito. I would agree with that. I think my
    question sort of goes to another issue of this we have to have
    a leader here who is going to lead the way through this very
    difficult permitting issue that we are seeing all across the
    country, whether it is, kind of, dragging your heels and not
    meeting deadlines, bringing up road blocks when permitting is
    almost at the end. Well we have a real problem here with this,
    not to mention the money.
        Even if you had the money in the best of the world, we are
    still not able to move a lot of these projects forward and that
    is very frustrating, I think.
        Secretary Moniz. I might add, just to add to what you're
    saying, it's not only pipelines, but it's also high voltage
    transmission lines.
        Senator Capito. Right.
        Secretary Moniz. Have challenges.
        Senator Capito. Windmills. Yes?
        Secretary Moniz. Including to bring distant wind.
        Senator Capito. Right.
        Secretary Moniz. To market, so----
        Senator Capito. I am talking about just siting a windmill.
        Secretary Moniz. So one thing that--oh, I see, but I'm in
    but then you have to do that.
        Senator Capito. It is different.
        Secretary Moniz. You have to be able to move it.
        Senator Capito. Right.
        Secretary Moniz. And so, well, I think one thing that we
    did and maybe I take some comfort in that I think the
    Quadrennial Energy Review that we did, I think, is in fact,
    helping get a discussion going, at least, of this. And that's
    something that we want to continue.
        Senator Capito. Thank you.
        Secretary Moniz. Yes.
        Senator Capito. Thank you, Madam Chair.
        The Chairman. Thank you, Senator Capito.
        Senator Risch?
        Senator Risch. Mr. Secretary, thank you for coming today.
        To go off topic, just slightly, I am sure you have on your
    calendar, October 21st which is----
        Secretary Moniz. I do have October 21st on my calendar
        Senator Risch. Well, actually more than just the date
    itself. As you know I appreciate your warm affinity for the
    labs. Senator Durbin and I, as you know, are co-chairmen of the
    National Lab Caucus and we are going to host that event right
    here in this building, the historic Dirksen building on October
    21st. Last year on our inaugural event you blessed us with your
    presence, and I hope you will do likewise again this year.
        Secretary Moniz. Oh that is certainly my intention.
        Senator Risch. We appreciate that.
        Secretary Moniz. And in fact----
        Senator Risch. It is a great, great time to show off the
    labs. It amazes me, the lack of understanding that most members
    have of the labs, what they do, how many there are and the
    important role they play in advancement of certain things that
    the private sector cannot advance. I will be looking forward to
    seeing you there and showing off the Idaho National Laboratory
    again.
        Secretary Moniz. Absolutely.
        As you know the theme will be on national security this
    time. Maybe I will note another October 21st invitation. In the
    morning, preceding lab day, we will also have an event that
    will celebrate 20 years of science/space stockpile stewardship
    which has been an enormous success not only in certifying
    reliability of our stockpile, but in literally, inventing new
    science and technology to accomplish the job. So I'm always
    happy to advertise for the labs.
        Senator Risch. I am looking forward to it.
        On topic could you talk for just a minute about, from a
    30,000 foot level, how our new found ability to produce
    petroleum through fracking and otherwise plays into the SPR?
    Obviously that is very old, our strategic reserve philosophy
    and facilities, but since then we have become a lot better
    producers, if you would, than what we had before. So how does
    that dovetail together? What does that speak to?
        Secretary Moniz. Well I would say there are two distinct
    issues. One is let's say at the operational sense. In the
    operational sense things like the Bakken, for example and more
    Canadian imports have really changed and Eagle Ford and Permian
    Basin going to the Gulf, etcetera. A lot of pipeline reversals,
    a lot of flow going North to South whereas historically it was
    South to North, that plus the sheer volume, increase in volume,
    leading to Gulf of Mexico Maritime congestion. Those are the
    issues that, in fact, have led us to say that we should really
    update the distribution capacity of the SPR. So that's one
    effect.
        The second, very different kind of effect, is obviously the
    impact in terms of U.S. and global markets. Again, even though
    we are still major importers, we import a lot less than we
    were, especially net with products.
        So now we are part of this global market which again, is a
    market that did not exist in the 70's. It is a whole different
    focus away from, kind of, national supply to the issue of the
    global market functioning and frankly, major disruptions
    leading to potential economic shocks that hurt us and the
    global economy. It's really those two different aspects, I
    would say.
        Senator Risch. Okay, it is a good description. Thank you so
    much.
        Thank you, Madam Chairman.
        The Chairman. Thank you, Senator Risch.
        Senator Lee?
        Senator Lee. Thank you, Madam Chair.
        Thank you, Mr. Secretary, for being here today and for your
    service for our country.
        I wanted to followup on some other questions including some
    of the questions that were asked by Senator Warren with regard
    to the SPR.
        Can you tell me, first of all, do you have any idea as to
    when would be the optimal time to sell either all or part of
    our Strategic Petroleum Reserve inventory and what factors do
    you think Congress should consider before authorizing any
    effort to draw down the SPR?
        Secretary Moniz. Well, for one thing I think it's, again,
    this analysis, that's a rather extensive analysis, a year long
    analysis, that we are carrying out which Congress has asked
    for. Again, that will be probably in May that we'll have that
    analysis. So that's critical.
        But then I think it's also connected to the authorities.
    Again, we've recommended a reexamination of the authorities
    appropriate to current markets. That comes in because, as I
    mentioned earlier, there's already in law a threshold for being
    able to use certain authorities in terms of likely impacts on
    prices. So I think it's a complicated intersection, but
    certainly the analysis will be a major, major, hopefully, major
    stimulus to our discussion.
        Senator Lee. Yes, I certainly hope so. It could have major
    implications. For example, if we were to sell 200 million
    barrels next year that would generate by most estimates a
    little over $17 billion, $17.3 billion, I think. Whereas if we
    sold the same 10 years later, 200 billion barrels, it is
    estimated that would generate about $22 billion. So there is a
    $4.7 billion, almost $5 billion, delta between what that would
    yield next year and what it would yield 10 years from now. So I
    think we have to be careful about that.
        Secretary Moniz. May I just interject?
        Senator Lee. Sure, sure, please do.
        Secretary Moniz. Just to say that for example, I know you
    just picked a number, 200 million barrels. But that's an
    example of something that would impact the authorities that are
    currently available in law in terms of this threshold. So it's
    a big deal.
        Second, there are issues of, you know, ultimately the
    question we're asking is how do we configure the petroleum
    reserve, physically and in terms of regulations and
    authorities, to maximize our energy security?
        Well one of the things that we discussed earlier is that we
    have this analysis from Oak Ridge that investing $2 billion in
    life extension and modernization can give us protection at the
    tens of billions to potentially $200 billion in one single,
    major, global disruption.
        So I think those are the things we have to balance and see
    how to best use the asset.
        Senator Lee. Right, we also have to balance what it is
    costing. Having it is not free. I think we have spent $24
    billion in putting it together and maintaining it over the
    years. We----
        Secretary Moniz. Well, it's about $200 million a year of
    annual operating costs although we should add to that about $50
    million for maintenance, deferred maintenance.
        Senator Lee. Right, right, and if you use it only three
    times, relatively modest quantities, but----
        Secretary Moniz. When I buy my home fire insurance I hope
    to use it zero times.
        Senator Lee. Sure, sure. [Laughter.]
        Senator Lee. But I hope there are things we can do to find
    some efficiencies.
        Another question I wanted to ask you, and it just relates
    to the fact that in order to become a member of the
    International Energy Agency (IEA) and it is part of that
    organization's agreement on international energy, the U.S. is
    required to hold stocks that are equivalent to no less than 90
    days of net imports.
        Now my understanding is that that can be satisfied either
    through a government held reserve like the SPR or through
    reserves held by industry. My understanding is also that the
    U.S. private industry held stocks as of June 2015 that are
    equivalent to 208 days of net imports. Does the industry's
    large petroleum reserves obviate or in any way lessen the need
    for the government owned, government operated, Strategic
    Petroleum Reserve?
        Secretary Moniz. Not in my view. Let me comment that again,
    I'll spend most of the time on what you asked, but again, our
    international obligations are twofold. One is the import
    metric, and the other is the oil use metric of 43 and a half
    percent of coordinated distribution.
        Now going to the first metric, if you like, well today, if
    you talk about crude oil we have 99 days. But if you talk about
    the net crude oil end products, we have about 137 days, okay.
    That's just a fact. Now with regard to the--and again, I'm not
    saying that's the right metric, but that's--those are the
    facts.
        Now if we go to this question of the private stocks. First
    of all, today, of course, those stocks are somewhat anomalously
    high because of the market conditions and the supply/demand
    questions. So those will go up and down. However, when other
    countries, let's say European countries, obviously, in the IEA,
    use their private stocks it's because they also have statutes
    requiring what the private sector does. We don't have that. And
    I'm not sure that's the place we want to go or you want to go.
    So that's one point.
        And the second point is that, obviously, government's
    motivation really is the public good. And you know, there can
    be in some circumstances mismatches between a private sector
    imperative which, after all, their imperative is actually to
    minimize inventories consistent with their operating
    requirements and you know, etcetera. I mean, that's really what
    their job is.
        So I just think there's a, certainly in the absence of the
    current legislative approach that I mentioned earlier, I just
    think that having it in the public hands to respond to a
    disruption that affects our entire economy is the place that we
    should be.
        Senator Lee. Thank you, Mr. Secretary.
        Thank you, Madam Chair.
        The Chairman. Thank you.
        Senator Hoeven?
        Senator Hoeven. Thank you, Madam Chairman.
        Thank you, Mr. Secretary, for being here today.
        Perhaps in a counterintuitive way isn't it very important
    that we allow, that we lift the oil export ban in order to
    reduce our dependence on the SPR based on studies performed by
    the Energy Information Administration, part of the Department
    of Energy?
        Now what they indicate is that for our industry to expand
    and grow in this country, our energy industry, including oil
    and gas, it is important that we are able to compete in a
    global market. We are disadvantaged by the ban on oil exports.
    So if we want our industry, our domestic industry, to continue
    to expand and grow, we need to lift the ban on oil export per
    the studies the EIA has put forward from your agency;
    therefore, that would make us less dependent on the SPR.
        Secretary Moniz. I'm not--well, okay----
        Senator Hoeven. With a more robust industry----
        Secretary Moniz. Two issues.
        Senator Hoeven. We are less dependent on the SPR.
        Secretary Moniz. One is, one point I'll just make is, okay,
    the main point I'll make is that I don't really see that.
        First of all, okay, the EIA reference case to 2025 did not
    have any material impact in terms of the ban. It's only in the
    very high resource case, stretching it and without low price,
    that you got some material impact of a few hundred thousand
    barrels a day in 2025 but not in the reference case, the
    expected case.
        Secondly, even if we are producing, okay, a few hundred
    thousand barrels a day more that in no way changes our linkage
    to the global oil price and the exposure to a price spike. In
    fact, if anything, it's both the fact that we are connected to
    the crude oil global market and the fact that we are and, I
    believe, will continue to be major oil product exporters, we
    are exposed, just as in that anecdote I gave about Britain in
    2000. We are exposed to the global oil price spike and that's
    really the modern issue in terms of what the SPR does for us.
        Senator Hoeven. The point being if we are allowed to
    compete in the global economy we will have a more robust oil
    and gas industry in this country than we will have if we are
    not allowed to compete. With a more robust industry we are less
    dependent on the SPR.
        Secretary Moniz. Well, again, I'm sorry, Senator Hoeven, I
    don't----
        Senator Hoeven. And it is not only the EIA. The other
    studies have shown that by lifting the oil export ban we not
    only expand our industry, we also create more jobs and economic
    activity in our country. So why wouldn't we want to do that and
    in fact make ourselves less dependent on the SPR by having a
    more robust industry?
        Secretary Moniz. I can't--the reference EIA case in the
    recent report does not, does not, predict a big increase in
    production at all. It simply does not. And again, and second,
    we have a very robust industry right now. And it again, just to
    repeat, it does not shield us from the global oil.
        Senator Hoeven. So you would argue that even if we are not
    able to get the global price, the Brent crude price, and we
    have to compete in the global economy, you are saying, that
    that would not affect the size and scope of our industry?
        Secretary Moniz. Again, if exports were allowed, you know,
    it certainly could lead to an increase in production. All I'm
    saying is the EIA reference case did not show any material
    impact to 2025, only in the high resource case did it show
    that. But whatever it----
        Senator Hoeven. But it did show an impact.
        Secretary Moniz. In the very high resource case, only.
        Senator Hoeven. And with what is going on now you would not
    assert that that is having a deleterious effect on our industry
    when--our ability to compete when our competitors purposely try
    to put our companies out of business? You do not think that
    impacts industry in this country?
        Secretary Moniz. The global oil price obviously is
    affecting the industry in our country and everywhere else which
    just reinforces the point we are exposed to the global oil
    price.
        Senator Hoeven. Which you would acknowledge is a function
    of how much OPEC and our competitors produce?
        Secretary Moniz. It's what everybody produces and consumes.
        Senator Hoeven. And they may have objectives----
        Secretary Moniz. And in fact on----
        Senator Hoeven. To maintain and expand market share at our
    expense. Would you acknowledge that?
        Secretary Moniz. That's the market.
        Senator Hoeven. Nature of competition.
        Secretary Moniz. That's the nature of the competition.
        Senator Hoeven. Right? You would agree with that?
        Secretary Moniz. The market, absolutely.
        Senator Hoeven. Let me shift to one other question as I
    have limited time here.
        In your Quadrennial Energy Review you talk about the
    importance of having the energy infrastructure we need to truly
    get energy security or energy independence in our country. That
    is one of the key points in the Quadrennial Energy Review.
        So my question to you is if somebody is going to follow all
    the laws, follow all the regulations and invest millions of
    dollars and still wait seven years for a siting decision,
    whether somebody is trying to produce traditional energy or
    renewable energy, what is the message there if they cannot make
    the investment and rely on the laws and regulations and still
    have to wait for a decision for seven years--how are we going
    to get people, companies, to make the investment to build the
    energy infrastructure to make this country energy independent,
    energy secure?
        Secretary Moniz. Well, again, as Senator Capito said, let's
    face it, we do have challenges in terms of all kinds of
    infrastructure. And it's not only energy infrastructure,
    infrastructure in construction in many parts of the country.
    And all we can do is we keep pushing on that to go forward. Our
    authorities, with regard to international energy, is on LNG
    exports, of course, and electricity----
        Senator Hoeven. Would you invest millions of dollars in
    order to build either a traditional or a renewable project if
    you might have to wait seven years to get a decision on whether
    you could site the pipeline or the transmission line to move
    that energy to market?
        Secretary Moniz. Successful companies make decisions under
    risk evaluations.
        Senator Hoeven. So whether you had to wait seven years, or
    10 years, even when you spend millions of dollars, comply with
    all the laws and regulations that that would not deter you from
    making an investment?
        Secretary Moniz. I didn't, I said you--one makes decisions.
    That's what CEOs get paid for is to make decisions under risk
    and understanding the situation and then----
        Senator Hoeven. But you would----
        The Chairman. Gentlemen, we're going to interrupt and then
    wrap it up.
        Senator Hoeven. Wouldn't you favor certainty in terms of
    trying to get investors in companies to make the decisions to
    invest in energy infrastructure?
        Secretary Moniz. I think it's a fair statement that in any
    of the dimensions, it's good to have certainty for a long time
    horizon. I would especially note that for something like carbon
    emissions.
        Senator Hoeven. Thanks for coming to our state. I am not
    going to have time, but I did want to bring up that subject
    since you have been to our state and you understand what we are
    doing in CO2.
        Secretary Moniz. I do.
        Senator Hoeven. Thank you, Mr. Secretary, for being here.
        Secretary Moniz. Thank you.
        The Chairman. Mr. Secretary, thank you for being here. We
    got off on some other issues that clearly relate to our
    nation's energy security when we talk about lifting the
    outdated oil export ban.
        As we think about our emergency stockpiles here around the
    country I would remind the Administration and remind colleagues
    that up in Alaska we have our Alaska North Slope crude that is
    chemically similar to the oils that we have in the Strategic
    Petroleum Reserve. We have stored this oil there in the past,
    and it is a great resource. We just need more of it.
        As we are thinking about these petroleum product reserves
    in certain parts of the country, maybe we should consider how,
    for instance, in Alaska we continue to supply our West Coast
    refineries in the event of severe supply disruptions.
        There is a lot more to talk about, and we barely even
    scratched the surface. I really wish that we had been able to
    have a little greater discussion about how we make sure that,
    as we are responding to a SPR release, that we are making
    certain that we are adding to the supply and that it is an
    incremental gain rather than just filling in what we have moved
    out.
        There is an awful lot more that, I think, we need to
    discuss on this. I think it is imperative that we get this
    review so we really understand, when we are talking about
    modernization of the Strategic Petroleum Reserve, really what
    that does entail. It is my hope that we will be able to defer
    those that would tap into the Strategic Petroleum Reserve
    before we have better understanding. We have got a lot of work
    in front of us. We have a second panel, and we have,
    unfortunately, lost Committee members to other issues. We have
    a vote that is beginning at one, but as a courtesy to those who
    have scheduled their day around this, I am certainly going to
    be here to hear your comments and would welcome you to come to
    the witness table at this time.
        Mr. Secretary, we thank you for being here and we look
    forward to continued conversations.
        Secretary Moniz. Thank you, Madam Chair. Thank you, Ranking
    Member Cantwell.
        The Chairman. At this time we will invite the second panel
    to move to the table. We have Admiral Dennis Blair, former
    Director of National Intelligence and Commander-in-Chief, U.S.
    Pacific Command, and also Co-Chair of the Commission on Energy
    and Geopolitics for Securing America's Future Energy. We also
    have Mr. Kevin Book, who is the Managing Director for ClearView
    Energy Partners. We have Mr. Jason Bordoff, who is a Professor
    of Professional Practice in International and Public Affairs.
    He is a Founding Director for the Center on Global Energy
    Policy at Columbia University. Our final panel member will be
    Ms. Sarah Ladislaw, who is the Director and Senior Fellow for
    Energy and National Security Program at the Center for
    Strategic and International Studies.
        Thank you for your patience this morning. Hopefully you
    have gained good insight from the questions that were posed by
    the Committee members to the Secretary and his responses as
    well. Again, thank you for your willingness to be before the
    Committee. I would just remind you all that your full written
    statement will be incorporated as part of the records and would
    ask that you please keep your comments to no more than 5
    minutes.
        Thank you and welcome, Admiral Blair.

       STATEMENT OF ADMIRAL DENNIS C. BLAIR, USN (RET.), FORMER
    DIRECTOR OF NATIONAL INTELLIGENCE AND COMMANDER-IN-CHIEF, U.S.
        PACIFIC COMMAND, AND CO-CHAIR, COMMISSION ON ENERGY AND
             GEOPOLITICS, SECURING AMERICA'S FUTURE ENERGY

        Admiral Blair. Thank you very much, Madam Chair, Ranking
    Member Cantwell. I have the feeling that everything may have
    been said, but it hasn't been said by everybody, so we will try
    to fill in those.
        The Chairman. Thank you for recognizing that. [Laughter.]
        Admiral Blair. Those lines.
        As we approach this 40th anniversary of the creation of the
    Strategic Petroleum Reserve a lot of the landscape, energy
    landscape, has changed. But there are three things that are
    really just the same. The oil market remains volatile, American
    businesses and American families are vulnerable, and the SPR is
    really our only short term line of defense against supply
    interruptions. It would be foolhardy to draw down the single
    immediate weapon that we have to counteract oil supply
    disruptions and price spikes.
        Madam Chairman, you emphasized that your concern was
    national security and that's my background. And I certainly
    agree. But economic security and national security are tightly
    intertwined.
        If geopolitical actions are causing an interruption in the
    global supply there's great pressure for military involvement
    and military action. When I was the Pacific Commander my
    counterparts in the Central Command knew that the free flow of
    oil from that swing region was one of their most important
    concerns. However when a crisis occurs we need time. We need
    time to work with allies, to apply political pressure, to
    negotiate before we send in troops. And the SPR is essential to
    a smart region of national security response.
        Today's low oil prices make it easy to forget that a little
    more than a year ago unrest in key oil producing regions was
    pushing already high oil prices even higher. As ISIL advanced
    in the summer of 2014, it sent oil prices to $115 a barrels on
    fears that the three million barrels of oil per day from Iraq
    would be knocked offline. Had ISIL disrupted the Southern Iraqi
    infrastructure, prices would have soared and a significant SPR
    increase would have been necessary to protect the U.S.
    economy--and that was only a year ago.
        Would any responsible American leader count on continued
    stability and steady petroleum supplies from Venezuela, Iraq,
    Russia, Libya, Iran, even Saudi Arabia?
        Civil unrest, the impact of reduced revenues from current
    low prices, product or production manipulation, all of these
    are very real possibilities. In this turbulent, geopolitical
    landscape why are we even considering reducing our only short
    term means of offsetting supply interruptions?
        Yes, the dramatic increase in U.S. oil production has
    reduced our dependence on oil imports and it has contributed to
    a drop in global oil prices, but as the Secretary repeatedly
    pointed out, it's a global market. 92 percent of our
    transportation sector runs on petroleum, a disruption anywhere,
    at fixed prices everywhere at the pump for American consumers,
    for American businesses. The SPR protects our economy from
    unpredictable violent swings in a global oil market dominated
    by outside actors who share neither our values nor our
    interests, nor are they particularly fond of us.
        So policymakers should take advantage of current low prices
    to upgrade and modernize the SPR, as you have recommended so
    that it will be ready to respond when disruptions inevitably
    occur when price increases, when prices will inevitably rise.
    Just having the petroleum in the salt caverns is not enough, as
    discussed repeatedly by Secretary Moniz. The equipment at the
    SPR itself needs maintenance and modernization. The flows of
    both crude oil and petroleum have changed over the last 40
    years since the SPR was built, and without modernization the
    SPR could not do its job of fully and flexibly offsetting a
    large supply disruption. We have to be able to deliver the oil
    that it holds at the right place in this extremely complex, oil
    refining system that we have in the country.
        So I would make five recommendations.
        Congress should fully fund and the Department of Energy
    should accelerate the completion of deferred maintenance.
        The Department of Energy should construct dedicated docks
    and loading capacity so SPR oil can be loaded on marine vessels
    for delivery to the market as incremental supply without
    displacing privately-owned oil on the market.
        Congress should update release criteria to clearly allow
    for release of oil from the SPR in response to a supply
    emergency even if it does not affect domestic production or
    imports if, and I think this is a criteria, if the interruption
    is likely to affect the price of oil and therefore posing a
    substantial risk of severe economic consequences. I share the
    sentiments that you described about doing this carefully, but I
    think we need that flexibility when a crisis hits.
        The White House and Department of Energy should complete
    that study that the Secretary mentioned about the appropriate
    size of the SPR given the changes in the energy landscape, but
    my guess is that when all is said and done an appropriate size
    will be not far from what we have today. It feels about right
    to me.
        After reaching a consensus on the size and the guidelines
    for using the SPR, then the Department of Energy should
    initiate a long term program to update and upgrade and update
    that infrastructure so that it's reliable for decades to come.
        In today's uncertain and dangerous political, geopolitical,
    environment the SPR is our most immediate defense against oil
    supply disruptions and price spikes. It needs to be preserved
    and modernized not reduced. However, it's only one part of a
    comprehensive energy strategy to reduce America's dependence on
    oil. As has been mentioned in the previous panel, we need
    increased efficiency. We need fuel diversity in the
    transportation sector, and a strong energy policy is imperative
    to improving our national security. I think this Committee can
    play a key role in forging that comprehensive national energy
    security policy.
        Thank you.
        [The prepared statement of Admiral Blair follows:]

      [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The Chairman. Thank you, Admiral Blair.
        Mr. Book, welcome.

     STATEMENT OF KEVIN BOOK, MANAGING DIRECTOR, CLEARVIEW ENERGY
                             PARTNERS, LLC

        Mr. Book. Thank you, Madam Chairman.
        I appreciate the work you're doing here to look at the
    energy policies of the past in the context of today's
    fundamentals including crude oil exports and renewable fuels
    and the topics that have come up during the first panel, but I
    think there's one policy that's stood the test of time and
    that's the SPR. It's been an insurance policy, as you described
    it. It's been an asset, as you described it, and I want to make
    some comments about its attributes in that regard.
        It seems appropriate to ask if we have the right amount of
    insurance, whether we're paying a fair price and whether the
    policy we have has the right features.
        So with regard to the size of the SPR we know that the IEA
    obligation is for 90 days of net petroleum import cover. In
    June '05 the SPR had about 54 days, this June the united import
    cover exceeded 140. I think someone else mentioned earlier
    today that 41 percent of net imports this June came from Canada
    and only 16 percent came from Canada, a reliable supplier, in
    June of '05. This is good news, but it's relatively recent good
    news and timeframe matters.
        Let me give an example from my own industry. Early last
    year analysts, many of them, thought oil prices would remain
    above $100 per barrel for years. That may seem silly now, but
    over the last 5 years, through August, real oil prices averaged
    about $100 a barrel. Of course, if you go back over the whole
    series of oil prices for the last 100 years, they averaged
    about $35 a barrel. So which perspective is correct?
        It's tempting to think that the future is going to look a
    lot like the recent past. And in fact, it probably does look
    more like the recent past than the whole history. But recent
    oil market lessons remind us it's important to look at the
    longer trends.
        So I did, in my testimony, a thought experiment. I'll
    summarize. Starting with January '85, I calculated monthly
    results if the nation sold crude whenever inventories got above
    90 days and bought crude whenever they fell below. Now over the
    last 60 calendar months the average result is a win, about $1
    billion of profit in real dollar terms. Over the whole time
    series, it's a loss of about $500 million.
        So downsizing the SPR could be a losing bet and it could be
    for other reasons too. Today it's been mentioned OPEC producers
    are running flat out, so spare capacity is falling. That's not
    going to be there to balance the market and the demand
    recovery. Demand isn't likely to stay weak forever.
        Spare capacity is supposed to come on within 30 days and
    stay on for 90. Shale hasn't worked like that, at least not
    yet. It didn't turn off quickly on the way down and it may not
    turn on quickly on the way back up because job loss, among
    other things, can slow it down.
        Meanwhile the large SPR has other uses and can be a signal
    to OPEC to add supply to a tight market. In essence we can say
    to them, either you can do it and you can earn the money or
    we'll do it and you won't earn the money.
        And finally, insurance tends to be cheaper when the market
    perceives lower degrees of risk. If anything, as the Admiral
    mentioned, a period of low prices seems like it could be a
    better time to expand.
        Now is the insurance a good deal? Well, the premium is
    about $200 million a year right now, $4 billion over 20. If you
    think about that, that's about $576 a barrel in current dollar
    terms.
        Now what does it get you? It sounds like Oak Ridge is doing
    some work. The DOE is too. And you can put a lot of economists
    to work on that question. But I'm in the business of back of
    the envelope answers, so I'll give you one here today. If you
    take what the nation consumes through June this year on a
    trailing 12 month basis, 19.34 million barrels, our firm's
    short run, Brent model, implies that if you put a million
    barrels into the market today prices would drop by about $11
    per barrel. That's the market today though and the market
    changes a lot. So I'm going to give it that kind of number a
    haircut, 75 percent haircut. Let's use 275. Using that number
    every one million barrel draw could save the nation about $53
    million. Multiply it by the size of the SPR and you get about
    $37 billion. So $4 billion in premiums for $37 billion in
    coverage sounds like a pretty good deal, and I'm not using any
    multiplier numbers. If you were to sell it down to 90 days you
    could raise $12.9 billion at $50 dollars a barrel but you'd be
    giving up $13.7 billion in coverage by those numbers. Not sure
    that's a good deal.
        You called it an asset, Madam Chairman, and it is an asset.
    It isn't usually a good idea to liquidate long-term assets for
    short-term financing purposes.
        Another thing that doesn't work very well is buying high
    and selling low. I calculate nominal acquisition costs at an
    average of about $32 per barrel, but in real dollar terms they
    average about $74 per barrel. The Brent forward curve which is
    the monthly prices out for future delivery to the end of 2022
    doesn't get above about $65 a barrel right now. So you have
    some questions about whether or not it's a good time to sell.
        Finally in terms of the coverage we have what product
    should we pick for product reserve? It's not so easy. If you
    look at the 2013 to 2014 propane crisis, right before that
    crisis EIA projected that propane inventories would, I quote,
    ``remain near the middle of the historical range during the
    upcoming winter.'' By definition surprises defy prediction even
    by capable agencies like the EIA.
        Market forces responded, and there was no repeat of the
    propane crisis last year, but government emergency product
    stockpiles could mute price signals that inform the behaviors
    of market participants.
        We don't know what will happen with the Northeast gasoline
    supply reserve. In fact, right now it has about two days of
    supply for New York State in the New York site and about one
    day of supply for Massachusetts, Maine, New Hampshire and
    Vermont. That's big enough to lower prices if you draw it. It's
    also potentially the sort of thing that if you did draw it,
    because drivers know it's a finite resource, they might hoard.
        Finally, you could tell tankers that might be coming in to
    go somewhere else where the price is still higher because the
    reserve is there, an unintended consequence.
        Looking at the New England home heating oil reserve, the
    inventories in PADD 1A, which is the New England part of the
    East Coast region the EIA tracks, fell and didn't come back up
    after the reserve was created even though they rose back up
    toward traditional five year levels in the years that followed.
    That's circumstantial and I wouldn't, you can't fly to the moon
    on that kind of statistic.
        But what I would suggest is that you may have simply
    replaced private inventories with government inventories to no
    net energy security benefit, and that doesn't seem like a very
    good idea.
        Thanks for the time to comment. I look forward to any
    questions.
        [The prepared statement of Mr. Book follows:]

      [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        The Chairman. Thank you.
        Mr. Bordoff?

    STATEMENT OF JASON BORDOFF, FOUNDING DIRECTOR, CENTER ON GLOBAL
       ENERGY POLICY, AND PROFESSOR OF PROFESSIONAL PRACTICE IN
         INTERNATIONAL AND PUBLIC AFFAIRS, COLUMBIA UNIVERSITY

        Mr. Bordoff. Thank you.
        Chairman Murkowski, Ranking Member Cantwell, members of the
    Committee, thanks for the invitation to be here today and for
    your attention to this important issue. As Admiral Blair said,
    I think much has already been said.
        So let me just make three brief points with my time.
        First, it's my view that the SPR remains an important
    national security asset even though the U.S. is a much larger
    producer and a much lower importer than we've been in the past.
    U.S. oil imports have fallen from about 60 to 20 percent of our
    consumption both as a result of more supply and importantly, as
    a result of reduced demand. We talked about how the
    International Energy Agency requires 90 days of import cover,
    so some say that means we need less oil in the SPR.
        But in today's oil market as supply disruption anywhere
    leads to price increases here at home whether we import or not.
    Such price spikes have harmful economic consequences for
    consumers and for the overall economy. All but one of the 11
    post-war recessions, for example, were associated with oil
    price shocks. So the SPR today needs to cushion global supply
    disruptions regardless of whether U.S. refineries import from
    the specific countries where the disruption occurred. I think
    we should be especially cautious about selling the SPR as the
    oil market really enters unchartered territory. OPEC has not
    only allowed the price to collapse, it's actually boosted its
    production leaving almost no spare capacity, extra oil that can
    be brought onto the market with little short notice.
        So with OPEC abandoning its market balance or role and with
    little spare capacity we may be in for sharper ups and downs in
    the future, and then any disruption to global supply can have
    an outsized impact on price because there's no buffer in the
    market left to cushion it. There's still a lot of geopolitical
    risk in the world and key oil producers, even more so when low
    prices threaten instability in some markets.
        A recent study from Columbia Center of Global Energy Policy
    looked carefully at the increased risk of political instability
    in Venezuela, for example, as a result of the price collapse.
    So now is not a time to sell off a strategic asset we've had
    for 40 years.
        Moreover the SPR, I think, gives us more policy
    flexibility. So imagine, for example, that Iran reneged on its
    nuclear deal and there was consensus to tighten sanctions on
    Iran without a buffer of either spare capacity or strategic
    stocks we may well impose a great deal of economic pain on
    ourselves at the same time that we're trying to impose it on
    Iran.
        Second, given how the oil market has changed it, as we
    talked about today, absolutely makes good sense to study
    whether the size, composition, location or use of the SPR
    should be modernized. But the outcome of that analysis about
    whether to reduce the size of the SPR and not an imperative to
    fill a budget hole, no matter how meritorious the intended use,
    it should determine whether we do that. I think that's
    especially true when the oil price is at its lowest point in
    six years.
        Third and finally, there's an urgent need, as we've talked
    about, to modernize the SPR's existing infrastructure to ensure
    that it can remain effective in the event of an emergency. Any
    revenue from selling the SPR, I would argue, should be put
    toward that purpose, that really critical need, before any
    other.
        Since the purpose of the SPR in today's market is to temper
    price shocks from global supply disruptions, barrels must add
    to the total world supply. So that means that when SPR crude is
    delivered to U.S. refineries foreign oil those refineries would
    have purchased is freed up to be used elsewhere, but changes in
    U.S. production and infrastructure have made that harder to
    achieve today for Midwest refineries which have been the
    historic destination for SPR crude.
        SPR crude now needs to move from the water in the Gulf
    Coast to East or West Coast refineries, yet, the oil boom here
    in the U.S. over the last several years has left very little
    unused capacity at these Gulf Coast marine facilities. That
    means that if these docks were used in an emergency to load SPR
    crude other commercial stocks would just be displaced, so
    investments are needed in marine capacity that would allow the
    SPR to add incremental barrels into the global market and this
    was confirmed by the DOE's 2014 test sale.
        To be clear, this is an issue not of stock, barrels in the
    SPR, it's an issue of flow. How much oil is in the SPR is
    important, but what's really important is can we get it out at
    the intended draw down rate of 4.4 million barrels per day. I
    don't think today we'd come anywhere close to that, so
    addressing that urgent need is a critical priority.
        In short the SPR has served as a critical piece of our
    nation's infrastructure and energy security strategy since the
    oil crisis of the 1970's. It remains so today. And while it
    makes sense to consider various measures to modernize it,
    including reducing its size among other reforms, the first
    priority should be to ensure that SPR crude can reach the
    market and be effective in the event of a supply emergency.
        Thank you again for the opportunity to testify today.
        [The prepared statement of Mr. Bordoff follows:]

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        The Chairman. Thank you, Mr. Bordoff, we appreciate your
    comments.
        Ms. Ladislaw?

    STATEMENT OF SARAH LADISLAW, DIRECTOR AND SENIOR FELLOW, ENERGY
        AND NATIONAL SECURITY PROGRAM, CENTER FOR STRATEGIC AND
                         INTERNATIONAL STUDIES

        Ms. Ladislaw. Good afternoon, Chairman Murkowski and
    Ranking Member Cantwell. Thank you for the opportunity to be
    here today. I too, will shorten my comments to make sure we've
    got time for discussion.
        Today I'll make three points about the Strategic Petroleum
    Reserve as an element of U.S. and global oil supply security
    and offer some areas of consideration going forward for the
    ongoing deliberations about how to modernize this important
    reserve.
        First, the U.S. SPR is an important pillar of U.S. and
    global oil supply security. The SPR is not only the world's
    largest government-owned and managed emergency stockpile of
    crude, it's also part of a much larger, globally coordinated
    system of emergency petroleum supplies that have been around in
    the oil market since the mid 1970's. These strategic stockpiles
    are perhaps one of the most invisible and enduring examples of
    shared energy security policies around the world and the
    world's major energy consumers. The SPR in the United States is
    a fundamental pillar of that system and sends an important
    signal.
        Second, changes to the U.S. domestic production profile
    necessitate these changes to the SPR. Greater domestic
    production and new pipeline configurations potentially upend
    the assumptions on which the SPR logistical distribution system
    relies. Assuming that the SPR oil is released, increasing
    production of oil in Midwest and Gulf Coast systems and
    infrastructure changes to accommodate those production changes
    such as certain pipeline flow reversals, may have made it
    considerably more difficult to move this product to market.
    This in combination with ongoing maintenance needs above and
    below ground necessitate this conversation about the SPR
    modernization today.
        Third, oil markets have changed and will continue to
    change. A great deal has changed since the global strategic
    stock system and the U.S. SPR were created which further make
    an assessment necessary and important.
        Oil markets are different and so are the players.
        First, oil plays a different role in the global economy
    than it did in 1974. Half of oil consumed today is for
    transportation compared to 35 percent in the 1970's. And
    according to the International Agency, this concentration of
    oil uses in transportation can accentuate the potential
    economic impact of a supply disruption because of low price
    elasticity of transportation fuel and the broad reach of
    transportation fuel costs into other sectors of the economy.
        Second, while oil trade flows are shifting, the production
    surge in North America combined with growing oil demand in Asia
    means that oil is increasingly traveling East instead of West
    for major production centers. Moreover, the trend toward
    refining crude closer to production centers means that global
    trade in crude oil is likely to decline in the coming years in
    favor of greater product trade flows.
        Finally, OPEC now makes up a smaller share of global oil
    supply. OPEC produced about half the world's oil in 1974
    compared to about 40 percent today. Perhaps more importantly,
    the strategies and capabilities of various oil exporting
    economies has also shifted over that timeframe.
        A strategic review of the SPR should take several issues
    into consideration.
        First, the nature of future oil supply disruptions and
    vulnerabilities. Since the creation of the International Energy
    Agency there have been a number of major supply disruptions and
    three coordinated strategic stock releases and a number of SPR
    exchanges. None of these releases were for the intended purpose
    as the same supply disruption in the Middle East, but arguably
    each provided economic insulation from geopolitical and natural
    disaster related supply disruptions. The severity of a supply
    disruption is often measured in terms of oil supply loss in
    duration, but the economic impact of that disruption depends on
    other factors such as overall market conditions at the time,
    the crude qualities, seasonal factors, logistics and spare
    production capacity. This means answering a simple question
    about what we were guarding against quite complex.
        Second, optimal structure and composition of the U.S. SPR
    as part of a broader energy security strategy. The SPR is only
    one of several policy tools the United States has to provide
    resilience in the face of an oil supply disruption. Long term
    policies committed to greater vehicle efficiency, multimodal
    transportation, infrastructure protection and fuel site source
    diversification are also critically important. The SPR plays an
    important and complimentary role to these policies. Thus far
    the United States has chosen to pursue an almost entirely
    crude-based, government-managed stockpile with the notable
    exception of the heating oil reserve and gasoline reserve in
    the Northeast. This is not the approach taken by many other
    countries. It's important to note that many other countries
    have a mix of public and privately held stockpiles of both
    crude and petroleum products. As the United States considers
    modernization of the SPR, a key question to be answered is what
    is the most effective composition, size and quality of the U.S.
    SPR going forward?
        And finally, the adequacy of the global strategic stock
    system is a valid question. The U.S. SPR does not exist in
    isolation and it is, in fact, used in coordination with certain
    members of the international community. The International
    Strategic Stock System plays an important role in protecting
    the global economy against unforeseen oil supply disruptions.
    When created the IEA represented the majority of oil consuming
    and import dependent countries. OECD economies were three
    quarters of the global oil demand in 1970 compared to 50
    percent today. Going forward emerging markets and developing
    economies share of global oil demand is expected to grow even
    further.
        China has since 2001 been in the process of creating its
    own strategic oil stockpiles and domestic system for deciding
    upon how to release those supplies in the event of a
    disruption. India has also signaled its intent to create oil
    stockpiles but is less far along. Whether and how these future
    stockpiles should be coordinated with OECD strategic stock
    system is an important area for policymaking consideration.
        In conclusion the last 40 years have proven time and again
    that we, as analysts, policymakers and market participants
    should be humble about our ability to forecast future oil
    market dynamics and take prudent measures to protect against
    unanticipated supply disruptions. If my memory serves me
    correctly it was about 10 years ago that the U.S. Congress
    voted to increase the capacity of the SPR to one billion
    barrels of oil.
        The strategic review underway at the U.S. Department of
    Energy and recommended by this Committee are prudent and
    important courses of action. Efforts by other Committees in
    Congress to sell portions of the SPR before that important
    review is completed are shortsighted, and I recommend that you
    wait until the results of the final review before making any of
    those decisions.
        Thank you very much.
        [The prepared statement of Ms. Ladislaw follows:]

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        The Chairman. Thank you, Ms. Ladislaw.
        Thank you all for your comments here this morning. I
    listened to the testimony from each of you after the comments
    that we heard from the Secretary, and again, I am just beside
    myself as to why we are having this discussion in Congress
    right now about how much we are going to sell off from the
    Strategic Petroleum Reserve to fund, whether it is the
    Transportation bill or anything else out there. Each of you
    have mentioned the issue of spare capacity and how it is just
    not what it once was. Each of you has mentioned the issues as
    they relate to the volatility of the world at large right now,
    the geopolitical issues that we are facing.
        We have some inherent geographic issues that have not
    changed. The fact that you have significant oil coming out of
    the Middle East that goes through a choke point that is
    inherently dangerous and seemingly more so as the world just
    becomes just more tense and more volatile. The fact that you
    have all recognized that the Strategic Petroleum Reserve really
    is this short term defense to offset the supply disruption.
        This is what we have that we can use quickly, but we can
    only use this stockpile quickly if it functions as we have set
    it up to function. This is where, I think, we have a little
    breakdown in communication amongst, perhaps, your policymakers
    here, who think that the draw down, our ability to draw down a
    certain amount, is all that we need to know. The draw down
    needs to be able to work with our distribution ability right
    now.
        As you have outlined, we have all kinds of changes that
    have come about. Whether it is the flow of oil from North to
    South now moving from South to North, capacity restraints, the
    issues or the limitations within our ports from a maritime
    perspective as to how we can move it, I do not think people
    understand that while we have got this stuff sitting in the
    salt caverns, down primarily in the Gulf area, our ability to
    move it out to respond is not what we need it to be unless we
    work toward the modernization that you have discussed and that
    the Department of Energy has discussed.
        We have a situation here in the Congress where we need to
    be looking critically at this energy security asset, but the
    asset is only as good as its ability to function and this is
    where I am more than just a little bit worried.
        If there were to be a sale, the first thing that you should
    do with those proceeds is to work toward the modernization.
    Whether it is the $800 million that needs to go to the
    modernization and then the $1.2 or $1 billion that the
    Secretary had mentioned about how we provide for the marine
    transport aspect of it, we have got to look critically at this.
    I do not think that we are having sufficient discussion on that
    aspect of our Strategic Petroleum Reserve, and I think it is
    absolutely key.
        The question that I am going to ask to you, and I am going
    to ask you to be quick with your responses, if I may. The
    metric that is used here, what is happening here in Congress--I
    do not mean to make it sound like it is just basic math--but
    you have people who are looking and saying our obligation is a
    90-day supply. So all we need to do is look to how many days'
    supply we have, back out the 90 and that is what we have
    available for sale. Can you please explain in plain English,
    very quickly, why that is not the metric that the Congress
    should be using when you look at the Strategic Petroleum
    Reserve?
        Admiral Blair?
        Admiral Blair. Well we can go in the same order, I guess.
        The Chairman. Okay.
        Admiral Blair. My answer would be that it's not the
    physical supply that matters. It's the impact on the American
    economy and the speed and increasing the amount of time we have
    to solve supply interruptions.
        So my prescription for the right answer is to look at a
    series of scenarios and really think through what we would
    actually want to do in each scenario and then take a step back
    and choose a good, prudent amount that would allow us to have
    that flexibility in most of the cases we can think of;
    therefore, when it happens we have the flexibility to work with
    it. We're not tied to some mechanical number that probably is
    not applicable when an actual event occurs.
        The Chairman. Thank you.
        Mr. Book?
        Mr. Book. Madam Chairman, I think I tried to offer, sort
    of, a way of thinking about it which was the insurance payoff
    value relative to its premium. I think that would be the right
    way to think about it.
        The size of the reserve is really a static amount at this
    point. That oil, unlike the insurance comparison, where if you
    don't pay your premium and you just walk away from the policy,
    it's gone. It's here. So we have, actually, a very small
    carrying cost. If you think about what the modernization might
    involve to keep it working, it's another $2 billion on top of
    the $4 billion I gave you over 20 years. So it's $6 billion
    into $37 billion in yield. That $37 billion is a really low
    number. I took it to be conservative. What we're talking about
    is the difference between having oil and not having oil.
        Why would you give up this carefully amassed 700 million
    barrel stockpile, just try to go out into the market and buy
    700 million barrels in a hurry? I was meeting with oil traders
    in New York yesterday, and I can tell you that they would be
    very, very pleased if you were to bid for that much oil in a
    rush.
        The Chairman. Thank you.
        Mr. Bordoff?
        Mr. Bordoff. I'll just briefly make three points in
    response to your question.
        So the short answer is, in my view, days of import cover is
    not the right metric in today's oil market to determine how
    much we keep in a strategic stockpile. The market has changed
    quite a bit, as we heard, since oil price controls and long
    term contracts and oil, globally traded oil market, like we
    have today didn't exist 40 years ago.
        The risks that we're guarding against today are adverse
    impacts to the macro economy, to consumers, as a result of
    price spikes, and that is going to exist whether we're a large
    importer or not. We saw during the Gulf War, for example, crude
    prices spike. We saw the price of gasoline go up, roughly, the
    same amount in the United States and in the UK, even though the
    UK was a net exporter at the time and the U.S. was a very large
    net importer.
        Secondly, I think it's important to remember we've only had
    this title of boom for a couple of years. While there's good
    reason to think that as prices recover it will continue and
    U.S. oil production will continue to grow, U.S. production is
    declining. It's down about half a million barrels per day so
    far, month on month, from its high point this year. Demand is
    up in response to the lower oil price, so there's no guarantee
    that our imports will remain as low as they are today. I think
    it's likely they, over time, will continue to decline, but you
    want to be careful about shedding a 40-year strategic asset in
    response to a trend that we've seen for a couple of years.
        So the question of how to determine the size, I don't have
    a number. But I suspect the study the DOE is working on would
    look at things like assessing the impact on the macro economy
    of price spikes, trying to estimate the likelihood of supply
    disruptions and associated price spikes. And then, assessing
    the impact of releasing SPR volumes to mitigate those price
    spikes and on the level of spare capacity on the market and
    then you compare those benefits to the carrying and opportunity
    costs of continuing to hold the SPR.
        That's the sort of analysis we should do to answer that
    question before, I think, we sell a large chunk of it.
        The Chairman. Thank you.
        Ms. Ladislaw?
        Ms. Ladislaw. Yes, I just want to make, probably, four
    points.
        First is, as Secretary Moniz stated, that's not the only
    international obligation. If we're actually to use the
    Strategic Petroleum Reserve, our obligation to how much we draw
    down and contribute to that collective draw down is actually a
    different number. So there you have to take that into
    consideration.
        The other is below a certain threshold you don't have the
    ability or the flexibility and the authority to do the 30
    million barrel a day draw down as well. So you want to be
    careful of that.
        Then there's a, sort of, unspoken, sort of, a hard to
    substantiate element of this which is the size of your reserve
    kind of matters and it sends a signal to the global economy
    about what you're willing to put in reserve and how much
    protection you've got. And so, I think, that given the new
    found energy position we have in the United States and what we
    think about the future of that, we have to, sort of, reassess
    that calculus.
        And then fourth is to the extent that you are going to sell
    down any portion of the SPR, it sort of seems like the
    Department of Energy has dibs. If you're going to sell it down
    and the rest of it doesn't work then maybe you haven't invested
    that money wisely because you actually shrunk the size, and it
    still doesn't work the way that you need it to.
        Lastly, the really important part is this international
    context. We don't do this alone. In fact our effectiveness is
    eroded by the international strategic stock system if that's
    increasingly ineffective.
        The way in which we care for, maintain and modernize our
    SPR actually does send signals to the rest of the international
    community about how we would like them to participate in that
    system. I think it's really important for us to realize that
    ours is a shrinking share of that system, not a growing one.
        So I think that all of those things should be taken into
    consideration.
        The Chairman. All very good points, and straight to what I
    raised with Secretary Moniz. It just seems a little crazy that
    we would be urging China and India to come into this
    collaborative energy security network while we are thinking
    about eroding our own. Thank you all for your comments on this.
        Senator Cantwell? This is something that we have been
    working on together, and I think we are certainly of like
    minds.
        Senator Cantwell. Thank you.
        Mr. Bordoff, so you buy into the modernization of the SPR,
    correct? That it needs----
        Mr. Bordoff. Bottom line I guess it depends what we mean by
    modernization, but I think it's important.
        Senator Cantwell. Infrastructure improvement.
        Mr. Bordoff. Absolutely. Yes, I think there is an important
    need to upgrade infrastructure.
        Senator Cantwell. Okay, and would you use SPR sales to do
    that?
        Mr. Bordoff. I guess I don't have a strong view on that. I
    think if the money can be appropriated elsewhere that would
    make sense. If it were the only way to find it was to sell a
    relatively small amount of SPR crude, I guess would be 40, 50
    million barrels, depending on the price, it is an urgent
    priority. I think it's important that we do it because whether
    there's 700 or 650, if we can't get into the market at the
    volume we need it's not going to be effective.
        Senator Cantwell. Okay. In general, do you think of the SPR
    as a surplus ever or not?
        Mr. Bordoff. Well, again, I think we need to, kind of, do
    the kind of analysis I just described to figure out, given how
    much the market has changed and the different kind of risk
    we're protecting against today than we were 40 years ago. Do we
    think it can be much smaller and/or in fact should be much
    bigger? But I think we need to do that work first before we
    decide to sell a large volume for other purposes.
        Senator Cantwell. So there could be, today, or someday in
    the future, someplace where you might consider that a surplus?
        Mr. Bordoff. It's certainly possible that given how the
    market has changed we should make a collective decision to
    adjust the size, up or down, but I think we should do that work
    first.
        Senator Cantwell. Okay, thank you.
        Mr. Book, I am so glad that you mentioned these private
    sector efforts, and Ms. Ladislaw, you mentioned these
    international efforts. This has always been a curious subject
    for somebody who cares about an aviation industry and how much
    they took it on the chin with high fuel prices.
        Have you seen European countries or others make jet fuel
    reserves work successfully for them?
        Mr. Book, would you have any comment on that?
        Ms. Ladislaw. I don't really know very much about jet fuel
    reserves, in particular, as how they're managed in the European
    stock system. I do think that the more you dig away at this
    question, the more complicated it gets. There is a lot of
    analysis about the European strategic stock system and the way
    in which they manage theirs and their own strategic positioning
    of their refineries over the next several decades that will be
    changing as well. And so I think if you don't take that into
    consideration, as you think about the operations of the global
    strategic stock system, it's really hard to assess ours
    relative to theirs.
        Senator Cantwell. How do you think they are doing,
    juxtaposed to us, on this challenge in general? Is it your
    overall analysis that it is a good idea that they have had
    those additional reserves or not?
        Ms. Ladislaw. It's really a question of how the political
    expediency of being able to manage it given, you know, their
    own circumstances. I mean, some countries in Europe actually
    don't even manage the stocks within their own country. They
    actually have them positioned in other countries.
        So it really is, sort of, I think, it's a mixed bag. I
    think there's been some criticism about the ability to draw
    down on something that our private sector held stocks and the
    ability for those actually to be strategic stocks as opposed to
    just, sort of, the normal business of those refinery systems.
        On the other hand I feel like there's a number of instances
    where the global economy has actually benefited from the
    release of their product reserves and the efficiency of some of
    those systems because they're managed differently relative to
    our crude releases. So it really is circumstantially----
        Senator Cantwell. So you would not give them a positive
    mark for having them, so this is something we have not done? We
    have not, well, except for the home heating oil reserve, which
    we are going to hear about a little more. But we have not done
    refined product reserves. We have not done that.
        Is the European or the world market result of that a
    positive? Has that been a positive or has it been neutral or
    negative?
        Ms. Ladislaw. I think in general that the global oil market
    has benefited from the fact that some of the global strategic
    stocks are, in fact, in product stocks.
        Senator Cantwell. Okay.
        Ms. Ladislaw. And that's been a benefit.
        Senator Cantwell. Okay.
        Mr. Book, now tell us about your view on this in general.
        Mr. Book. No, I think that there's a reason why they have
    private stocks which is worth considering also which is that we
    have the best refineries in the world. Their refining system is
    in decline, and they have a lot of refinery capacity that, for
    them, is really going to pose a strategic question in the next
    5 years. Are they going to decide to keep uneconomic facilities
    in place or are they going to rely, perhaps, on imported fuels
    from our refineries?
        We're in a different position, and that enables us to make
    a different choice. For that reason it makes a lot more sense
    for them to do it than for us.
        Senator Cantwell. And your point is that even though we do
    have it on home heating oil it really has not helped because
    the market has not responded quite the way----
        Mr. Book. Well, I don't----
        Senator Cantwell. Or it has not had an impact on the market
    in a way that you would like to have seen.
        Mr. Book. Well, we want to be careful when we say it hasn't
    helped. Like to the extent that sending signals that there's a
    reassuring supply there can be useful in calming speculation
    and hoarding and other negative aspects when it comes to
    critical resources, sure.
        I think sometimes having an insurance policy in place is
    very reassuring to people who might decide that they needed
    twice as much heating oil just in case there wasn't enough, but
    the possibility that all you have done is taken working capital
    that private companies previously put into inventories and gave
    them, essentially, a subsidy. Say here guys, go spend it on
    something that returns a higher value because the Federal
    Government is going to pick it up.
        That is a horrifically uneconomic result, because it leaves
    you with the same energy security but at greater taxpayer
    expense. So that's something you would want to avoid.
        Senator Cantwell. Well, I am not sure. Are all the European
    models done that way, at government expense?
        Mr. Book. Oh, not at all.
        Senator Cantwell. They are done the opposite, right?
        Mr. Book. They actually roll into the commercial system.
        Senator Cantwell. Yes.
        Mr. Book. They have a very different--so the strategic
    stocks that they have are, in many ways, commingled and
    reserved as part of the ongoing capacity in the European
    system.
        Senator Cantwell. I think it just shows a different way of
    looking at things.
        I have always been perplexed by our dear colleagues who had
    to pay so much on home heating oil.
        There are parts of the Northwest, Seattle, North Seattle,
    there is still some home heating oil. But for the most part
    this is not something that we deal with. When you deal with
    certain regions, and we have members of our Committee and have
    had members of our Committee, it is a very, very big issue. So
    you wonder what we could do to help alleviate some of that very
    costly challenges the consumers face on heating oil.
        Madam Chair, thank you for this important hearing, and we
    will continue to work with you and others and try to figure out
    a path forward.
        I certainly believe we need to make the investment here to
    modernize and to keep the Strategic Petroleum Reserve. I
    certainly believe that we need to come up with a resource, as I
    mentioned a number today, but I think we have to get that
    number and make the investment.
        So thank you for the hearing.
        The Chairman. Senator Cantwell, thank you.
        And to each of you, thank you for being here today and for
    giving us a little extra time here this afternoon. We
    appreciate the consideration. Thank you.
        We stand adjourned.
        [Whereupon, at 1:05 p.m. the hearing was adjourned.]

                          APPENDIX MATERIAL SUBMITTED

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