[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


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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                    LISA MURKOWSKI, Alaska, Chairman
JOHN BARRASSO, Wyoming               MARIA CANTWELL, Washington
JAMES E. RISCH, Idaho                RON WYDEN, Oregon
MIKE LEE, Utah                       BERNARD SANDERS, Vermont
JEFF FLAKE, Arizona                  DEBBIE STABENOW, Michigan
STEVE DAINES, Montana                AL FRANKEN, Minnesota
BILL CASSIDY, Louisiana              JOE MANCHIN III, West Virginia
CORY GARDNER, Colorado               MARTIN HEINRICH, New Mexico
ROB PORTMAN, Ohio                    MAZIE K. HIRONO, Hawaii
JOHN HOEVEN, North Dakota            ANGUS S. KING, JR., Maine
LAMAR ALEXANDER, Tennessee           ELIZABETH WARREN, Massachusetts
SHELLEY MOORE CAPITO, West Virginia
                    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

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                           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:]
    
    
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    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:]
    
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    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:]
    
    
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    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:]
    
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    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.]

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