[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
ENERGY OPPORTUNITIES IN NORTH AMERICA
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
THE WESTERN HEMISPHERE
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
JUNE 7, 2017
__________
Serial No. 115-48
__________
Printed for the use of the Committee on Foreign Affairs
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Available via the World Wide Web: http://www.foreignaffairs.house.gov/
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COMMITTEE ON FOREIGN AFFAIRS
EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida BRAD SHERMAN, California
DANA ROHRABACHER, California GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio ALBIO SIRES, New Jersey
JOE WILSON, South Carolina GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas THEODORE E. DEUTCH, Florida
TED POE, Texas KAREN BASS, California
DARRELL E. ISSA, California WILLIAM R. KEATING, Massachusetts
TOM MARINO, Pennsylvania DAVID N. CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina AMI BERA, California
MO BROOKS, Alabama LOIS FRANKEL, Florida
PAUL COOK, California TULSI GABBARD, Hawaii
SCOTT PERRY, Pennsylvania JOAQUIN CASTRO, Texas
RON DeSANTIS, Florida ROBIN L. KELLY, Illinois
MARK MEADOWS, North Carolina BRENDAN F. BOYLE, Pennsylvania
TED S. YOHO, Florida DINA TITUS, Nevada
ADAM KINZINGER, Illinois NORMA J. TORRES, California
LEE M. ZELDIN, New York BRADLEY SCOTT SCHNEIDER, Illinois
DANIEL M. DONOVAN, Jr., New York THOMAS R. SUOZZI, New York
F. JAMES SENSENBRENNER, Jr., ADRIANO ESPAILLAT, New York
Wisconsin TED LIEU, California
ANN WAGNER, Missouri
BRIAN J. MAST, Florida
FRANCIS ROONEY, Florida
BRIAN K. FITZPATRICK, Pennsylvania
THOMAS A. GARRETT, Jr., Virginia
Amy Porter, Chief of Staff Thomas Sheehy, Staff Director
Jason Steinbaum, Democratic Staff Director
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Subcommittee on the Western Hemisphere
JEFF DUNCAN, South Carolina, Chairman
CHRISTOPHER H. SMITH, New Jersey ALBIO SIRES, New Jersey
ILEANA ROS-LEHTINEN, Florida JOAQUIN CASTRO, Texas
MICHAEL T. McCAUL, Texas ROBIN L. KELLY, Illinois
MO BROOKS, Alabama NORMA J. TORRES, California
RON DeSANTIS, Florida ADRIANO ESPAILLAT, New York
TED S. YOHO, Florida GREGORY W. MEEKS, New York
FRANCIS ROONEY, Florida
C O N T E N T S
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Page
WITNESSES
Ms. Sarah Ladislaw, director and senior fellow, Energy and
National Security Program, Center for Strategic and
International Studies.......................................... 9
Aaron Padilla, Ph.D., senior advisor, International Policy,
American Petroleum Institute................................... 17
Duncan Wood, Ph.D., director, Mexico Institute, Woodrow Wilson
International Center for Scholars.............................. 28
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
The Honorable Jeff Duncan, a Representative in Congress from the
State of South Carolina, and chairman, Subcommittee on the
Western Hemisphere: Prepared statement......................... 4
Ms. Sarah Ladislaw: Prepared statement........................... 12
Aaron Padilla, Ph.D.: Prepared statement......................... 19
Duncan Wood, Ph.D.: Prepared statement........................... 30
APPENDIX
Hearing notice................................................... 60
Hearing minutes.................................................. 61
Questions submitted for the record by the Honorable Jeff Duncan,
a Representative in Congress from the State of South Carolina,
and chairman, Subcommittee on the Western Hemisphere, and the
Honorable Norma J. Torres, a Representative in Congress from
the State of California, and written responses from:
Ms. Sarah Ladislaw............................................. 62
Aaron Padilla, Ph.D............................................ 65
Duncan Wood, Ph.D.............................................. 72
ENERGY OPPORTUNITIES IN NORTH AMERICA
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WEDNESDAY, JUNE 7, 2017
House of Representatives,
Subcommittee on the Western Hemisphere,
Committee on Foreign Affairs,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room 2172, Rayburn House Office Building, Hon. Jeff Duncan
(chairman of the subcommittee) presiding.
Mr. Duncan. A quorum being present, the subcommittee will
come to order.
Before we get started, first off, let me apologize to my
subcommittee for the markup last week or 2 weeks ago and the
snafu with me getting here. I am glad we got the markup
finished. But Ileana actually chaired it for me, so I apologize
to the subcommittee.
We also have some staff changes on the majority side. We
have promoted Rebecca Ulrich to staff director, and we also
have a professional staff member, Juan Carlos Monje here. So
there are new additions on our side. And we are losing, Ron
Criscuolo, he is headed to the Department of Homeland Security.
So we have got some changes on the subcommittee on the
Republican side. I just wanted to let y'all know about those.
So you can welcome them to the staff.
Anyway, so we will go ahead and get started.
Over the past few years, this subcommittee has prioritized
the issue of energy very intentionally. Not only is it in my
wheelhouse, but we have taken time to examine opportunities in
the region and consider how the U.S. can increase energy
cooperation with our neighbors to pursue greater economic
growth, create jobs, lower gas prices, and increase our energy
security.
Today's hearing on North American energy opportunities
follows legislation that I authored in the 113th Congress to
approve the U.S.-Mexico Transboundary Hydrocarbon Agreement.
The Agreement was negotiated with Secretary Clinton, and we had
to provide the implementing language. And it was actually
included in the CR/Omnibus, but became law and opened up about
1\1/2\ million acres in the western Gulf of Mexico. In the last
Congress, we had numerous subcommittee energy hearings; a
Government Accountability study on North American energy that
Ranking Member Sires and I requested, which is currently
ongoing; a hearing on South American energy potential was held
last month.
In my view, energy holds a very important key to unlocking
untapped potential for the hemisphere. That potential is both
energy potential but also ways that we can collectively work
together for energy independence.
And I believe the Trump administration has an incredible
opportunity now to increase U.S. energy engagement in the
region to the benefit of U.S. interests, as well as those of
the region as a whole. After all, the United States is the
largest energy producer in the Western Hemisphere, producing
over 12 million barrels of oil, 27 trillion cubic feet of dry
natural gas per day. Collectively, as of 2015, North America
accounted for 72 percent of Western Hemisphere oil production,
85 percent of natural gas production. As tight oil and shale
gas in the United States, Canada's oil sands, and Mexico's
energy reforms and offshore oil prospects create circumstances
for a far more highly integrated and interdependent North
American energy market.
A stronger North American energy partnership would expand
the size of our energy market, lead to more jobs, reduce costs
for consumers, and enhance North American energy security and
independence. Of course, global oil prices will continue to
impact U.S. energy interests. However, the U.S. would likely
experience less impact from the volatility in the Middle East,
attempts by OPEC to regulate energy output and prices, and even
Venezuela's energy production free fall if we relied less on
these sources of energy and instead built a stronger North
American energy market to lower our risks and meet our needs
more effectively.
I have long talked about American energy independence and
North American energy independence. I have broadened that to a
hemispheric energy independence, which is a little broader than
today's hearing. But if we think hemispherically, the
opportunities are boundless.
Consequently, I believe the Trump administration has an
excellent opportunity now in efforts to improve NAFTA, to
include energy issues in any future deal. The energy landscape
has changed substantially since NAFTA was first negotiated and
thus warrants closer examination and potential inclusion, in my
view. I hope to work with USTR on that issue as well as the
Trump administration.
In addition, the Trump administration has another
opportunity with the recently concluded negotiation of the
U.S.-Mexico Section 123 agreement to consider how U.S. nuclear
exports to Mexico might assist our southern neighbor with its
stated objectives to reduce the use of fossil fuels and carbon
emissions through nuclear power. This agreement awaits White
House consideration and submission to Congress for review.
According to U.S. industry, if this Section 123 agreement
moves forward, Mexico plans to construct two new nuclear
plants, which could potentially generate more than $2 billion
in direct U.S. exports and support more than 10,000 jobs in
more than 20 U.S. States if U.S. firms end up constructing
those new power plants.
Let's consider for a moment the recent energy developments
in North America that have brought us here today. The U.S. has
experienced the greatest natural gas supply transformation of
any country in the world in recent years due to shale. Today,
Canada's the fifth largest energy producer in the world and our
largest foreign supplier of energy. It also has the world's
third largest proved oil reserves and is one of the largest
producers of dry natural gas.
Likewise, Mexico is a major producer of petroleum in the
world. It is the fourth largest in the Americas. Several recent
discoveries of oil and natural gas in Mexico, the development
of unconventional resources, and considerable shale resources
near the U.S.-Mexico border offer additional promising
opportunities. Furthermore, Canada's privatized oil sector and
Mexico's 2013 reforms opening its energy sector to private
investments make further energy cooperation with these non-OPEC
members more critical to U.S. national interests.
We have a slide on the board today from API which shows the
trilateral trade and energy across our northern and southern
border with Mexico and Canada. I would ask everyone to take a
look at that. It is available for all the members on our
screens.
In conclusion, the collected value of the energy trade
between U.S. and Canada and Mexico exceeded $140 billion in
2015. More can be done, and President Trump's America First
energy plan is an important blueprint for achieving greater
U.S. energy security and independence. However, I believe that
in order for that plan to maximize its potential, we need to
expand North American energy cooperation. Currently, our
trilateral trade in crude oil, natural gas, refined products,
and electricity is joint and integrated in many ways.
Our neighbors are major buyers of petroleum products
refined here in our country, and energy products cross our
borders multiple times. Natural gas originating in Canada is
often exported to the United States in one part of the country
and then reexported back into Canada in another part just due
to the logistics.
Over 50 natural gas pipelines link North American energy
markets, 6 oil pipeline systems link the U.S. and Canada, and
over 30 major electricity transmissions connect the U.S. and
Canada. Yet while we have substantial room to improve and grow
our energy partnership, especially with Mexico, I look forward
to hearing from our witnesses on how the U.S. can work with our
neighbors to build a stronger North America.
I would now turn to the ranking member Sires for his
opening remarks.
[The prepared statement of Mr. Duncan follows:]
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Mr. Sires. Good morning. Congratulations, Rebecca and
Carlos. Welcome on board.
Good morning to everyone. And thank you, Chairman Duncan,
for holding this hearing.
Today's hearing will focus on the relationship, prospective
opportunities, and upcoming challenges in energy cooperation
between the United States and our close neighbors and allies,
Mexico and Canada.
The energy market in North America has become large and
integrated. Because of this, North America must take particular
steps to ensure that our energy cooperation remains beneficial
to all parties. The current relationship between the U.S. and
its North American partners is strong.
For instance, Canada is currently the largest single
supplier of crude oil to the U.S. Electricity trade between the
U.S. and Canada has increased 230 percent between 2006 and
2015, and Mexico is the largest customer of U.S. natural gas.
Mexico and the U.S. have exponentially increased the amount of
pipelines between the countries to expand on its ability for
future trade. While our current integration is stronger than
ever, there are opportunities in the future to have an even
more robust relationship.
With large potential in solar, wind, and hydropower, I
believe that working toward further integration within the
renewable energy industry is in the national interest of the
U.S. Countries all over the world are already seeing that
investing in renewable energy sources is driving their
economies into the future and producing jobs for the next
generation. We must work with our allies to make sure the U.S.
isn't just a part of this trend, but one of the leaders.
Unfortunately, President Trump's decision to pull out of
the Paris climate agreement leaves the U.S. out in the cold,
joined by only Syria and Nicaragua, the only two other nations
not party to the agreement. I am heartened by the response of
many American cities and companies to state their commitment to
energy diversity and making sure the American people have
access to the jobs and stability that comes with a more
efficient and independent energy matrix.
These challenges present unique circumstances for North
America to strengthen its commitment to energy integration. The
U.S. needs to reassure its southern and northern neighbors that
we are dedicated to energy integration and will help where
possible to pursue this interest. However, this requires
dedication and cooperation on all fronts. I am confident that
the U.S. will continue to develop an official energy policy
with its neighbors.
I look forward to hearing from our panelists how we can
address the challenges and where the future of North America
and energy industry lies. Thank you.
Mr. Duncan. The gentlelady from New Jersey is recognized--I
am sorry, New York. Ms. Kelly is recognized.
Ms. Kelly. Thank you, Mr. Chairman.
I was disappointed by the Trump administration's recent
decision to withdraw from the Paris Agreement and retreat into
diplomatic isolation. This decision not only endangers our
planet, but also hurts America's credibility abroad. And let us
not forget that President Trump has already strained our
relationships with Mexico following degrading remarks about
Mexican citizens and threats to slap a 20 percent tariff on
imports. This threatens our position as Mexico's largest
trading partner and foreign supplier of natural gas.
How do these actions add to U.S. energy security? How do
they promote U.S. interests? It is my hope that this hearing
will shed light on the path forward to promote general economic
growth and job creation that is as mutually beneficial as
possible. The future of North American energy is changing as
renewable energy becomes cheaper and electric grids become more
efficient. Supporting these different technologies will promote
not only a clean environment, but also decrease our reliance on
foreign energy.
I look forward to hearing from the witnesses on charting a
responsible path forward for North American energy policy. And
I thank you, Mr. Chair.
Mr. Duncan. I thank the gentlelady.
The chair will go to the gentleman from Florida for a brief
opening statement.
Mr. Yoho. Thank you, Mr. Chairman. I appreciate you
convening this meeting. And I think this is very important that
we have this meeting today.
You know, with the abundance that America and North America
has been blessed with, as far as natural resources, and with
our Caribbean Basin and our South American basin, our neighbors
so close that we have so much energy that we utilize that to
bolster the security, especially of the Caribbean islands.
You know, if you look at Puerto Rico, the majority of their
oil or energy production is from heavy oil that comes from
Venezuela. If you look at the U.S. Virgin Islands, they have an
energy shortage. That region pays the most for electricity than
anybody else when you look at the Continental United States.
And so exporting LNG out of North America makes sense to bring
clean energy to those areas, in addition to national security.
You know, to have a steady supply from an ally to U.S.
territories, versus getting it from Venezuela just makes sense.
And this is something I look forward to hearing your
testimonies on.
And I just have to say, Mr. Chairman, about President Trump
pulling out of the Paris accord, I think it was the right thing
to do. I think that tied our hands as Americans. It indebted
this country to paying and transferring wealth from this
country to other countries, and it wasn't going to really
change anything. He has said he is going to renegotiate this.
And it is not that he doesn't want clean air or clean energy.
He wants to do it where it is best for this country. And if it
is best for this country, it is going to be better for the
people that we work with.
I yield back.
Mr. Duncan. I thank the gentleman.
Mr. Espaillat.
Mr. Espaillat. Thank you, Mr. Chairman. Ranking Member
Sires, thank you for putting together this hearing on the
energy opportunities in North America.
Certainly, this is an opportune time to discuss this
particular issue as we see the impact of the collapse of the
oil industry and how it has impacted the Caribbean and central
South America from Venezuela. And we saw for many years how the
Petrocaribe initiative was used as a political tool in that
region. Now, many of those countries in the Caribbean are
either facing extremely high rates of electrical costs or have
spotty energy supplies, leading to their economic development
to be delayed, if not stifled.
But for the longest time, Canada and Mexico have been the
United States' allies in matters of energies, commodities and
vice versa. There has been an active and increased energy trade
between our countries where Canada and Mexico have each
represented a crucial part in the United States' energy
independence and security. Unfortunately, this economic
relationship risks disruption due to the actions taken by the
current administration, most notably the withdrawal from the
Paris climate accord, which even North Korea has signed onto
and stayed there.
So when we hear that Syria and Nicaragua are the only two
that have opted out, we also should look at the ones, the
countries that are still in the agreement. And even North Korea
is still in the agreement. And, of course, the President's
talks on building the wall has strained relationships with
Mexico. So all these actions may clearly put at risk our lives
with Canada and Mexico to continue to excel in topics related
to energy. I hope that your testimony will shed some light on
some of these issues. Thank you.
Thank you, Mr. Chairman.
Mr. Duncan. You are welcome.
Mrs. Torres, do you have an opening statement, briefly?
Mrs. Torres. No, thank you.
Mr. Duncan. All right. So we will turn to the testimony
from our witnesses. We thank you for being here today.
Before we get started, you will notice some lights in front
of you: Green, yellow, and red. We are going to operate on a 5-
minute timeframe. As it gets close to the end of your time, it
will start going to yellow. When it gets to red, your time is
up, and you can just wrap up. Try to stay on time. Many members
have other meetings today, but we want to get to as much as
possible.
So at this time, I will recognize Ms. Ladislaw for 5
minutes.
STATEMENT OF MS. SARAH LADISLAW, DIRECTOR AND SENIOR FELLOW,
ENERGY AND NATIONAL SECURITY PROGRAM, CENTER FOR STRATEGIC AND
INTERNATIONAL STUDIES
Ms. Ladislaw. Thank you very much.
Good morning, Chairman Duncan, Ranking Member Sires, and
members of the committee. It is my pleasure to be here today to
speak with you about energy opportunities in North America. My
name is Sarah Ladislaw, and I direct the Energy and National
Security Program at the Center for Strategic and International
Studies. We are a bipartisan, nonprofit organization
headquartered in Washington, DC, and we provide strategic
insights and sound policy guidance on matters relating to
energy. My remarks and written testimony today represent my
views and not the views of my colleagues or the institution
that I represent.
One thing that Democrat and Republican candidates had in
common during our last round of elections is that they
recognized the United States has amazing energy resources. And
these resources can play an important role in sealing our
economy, creating jobs, and advancing our foreign policy
objectives.
This newfound energy confidence is a shift from the
sentiment of years past when growing energy import dependence
and high prices left the United States feeling vulnerable to
global market disruptions and searching for secure
alternatives.
For decades, as part of this quest for greater energy
security, the United States worked with its neighbors Canada
and Mexico to cultivate the kind of economic and security
advantages that come with an integrated, close proximity market
in energy trade. We signed trade arrangements, fostered cross-
border infrastructure, and met regularly to discuss energy
policy and regulatory issues. And we even sought to harmonize
standards relating to electric reliability, offshore drilling
safety, and a host of other issues.
Because of those efforts, North America is now one of the
most energy advantaged continents on the planet with ample oil,
natural gas, coal, nuclear, solar, biomass, wind, and
hydropower resources. Even beyond its basic resource base,
North America has attributes that make it additionally
advantaged. As one longtime energy executive once told me,
resources alone are not enough. To make an energy project work,
you must have the critical math: A market for these resources;
access to financing and technology and skilled labor;
infrastructure; a sound political, legal, and commercial
environment; and a proper return on investment. And North
America has this critical math.
Because of this energy advantage and the slowing of our
energy demand growth, North America is coming close to
achieving energy self-sufficiency. According to the 2017 BP
energy outlook, North America is projected to be energy self-
sufficient by 2020.
So does self-sufficiency mean that we have achieved all the
promises of energy independence? Definitely not. North America
will need access to markets to sell its energy resources in
technologies. We will also need our energy trading partners
within the hemisphere and around the world to achieve economic
and security advantages that come from building trade
relationships.
Even with all these energy advantages, North America still
faces energy-related challenges, many related to the important
changes taking place in the energy sectors of our respective
economies. Over a period of two decades, as many of you have
noted, North America's low production landscape has undergone
some profound changes that have altered the oil delivery
infrastructure on the continent, led us to lift a decades long
oil export ban in the United States, to historically
significant changes in the Mexican Constitution allowing for
private investment.
Similarly, dramatic shifts are taking place in natural gas
supply and delivery in North America, with the United States
now serving as an LNG exporter and a major supplier of gas to
Mexico; and, in the electric power sector, where shifts in
consumer preferences, available technologies, the cost of
renewable energy, and preferences for low-carbon energy sources
are challenging the existing systems and creating new
opportunities in electric power markets throughout the
continent.
Indeed, these are exciting and complex times for the North
American energy landscape. So what should North America do with
its energy advantage? In my view, we should foster it by
promoting much of what has made it successful thus far: Working
toward greater integration and shared priorities.
In order to make the most of these energy advantages,
Canada, Mexico, and the United States should continue to
prioritize high-level energy policy dialogues that have proven
very successful in the past, modernize NAFTA to reflect
progress that has been made and to prepare for future energy
challenges, adopt a regional approach to energy infrastructure
discussions, and assess and address our shared vulnerabilities.
In closing, I want to thank the committee for taking on
this important topic, and I look forward to the discussion.
[The prepared statement of Ms. Ladislaw follows:]
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Mr. Duncan. Thank you.
The chair will now recognize Mr. Padilla.
STATEMENT OF AARON PADILLA, PH.D., SENIOR ADVISOR,
INTERNATIONAL POLICY, AMERICAN PETROLEUM INSTITUTE
Mr. Padilla. Chairman Duncan, Ranking Member Sires, and
members of the subcommittee, thank you for the opportunity to
speak with you today. My name is Aaron Padilla, and I am a
senior advisor for international policy at the American
Petroleum Institute, which represents all facets of U.S. oil
and natural gas industry.
Today's North American energy market, including oil and
natural gas, is highly integrated and interdependent. A
critical component of the North American energy market is the
U.S. energy renaissance. The U.S. is now the largest producer
of oil and natural gas. According to the EIA, the U.S. is
projected to surpass the historical 1970 peak in crude oil
production by 2018. Since 2005, natural gas production in the
U.S. has increased by 47 percent.
In recent years, U.S. companies have also experienced
unprecedented productivity gains, enhancing the ability of U.S.
producers to quickly increase production in response to
changing global market demand. For example, in 2011, a typical
rig operating in the Bakken basin in North Dakota or Montana
would create 234 barrels per day of new oil production in a
month. Today, Bakken rigs are nearly five times more
productive, generating over 1,100 barrels per day of new oil
production every month.
Greater export market opportunities also have emerged for
U.S. energy. In 2016, the U.S. exported more than 190 million
barrels of crude oil to 26 countries, including 11 in the
Western Hemisphere. That same year, the U.S. began shipments of
liquified natural gas from the lower 48 States. And since
February 2016 through March 2017, the U.S. exported 331 billion
cubic feet of LNG to 21 countries, including six in the Western
Hemisphere.
Looking closer at North America, the U.S., Canada, and
Mexico together form a unique global energy center. According
to the EIA, North America is on the verge of achieving energy
self-sufficiency, as Sarah mentioned, when you consider the
consumption of liquid fuels production against the production
of liquid fuels and that we are on the verge of meeting that as
soon as 2020.
Energy flows between the U.S., Canada, and Mexico are
multidirectional, as depicted on the map from the graphic that
we produced that the chairman mentioned at the beginning of his
remarks.
Canada is the top export market for U.S. crude oil, motor
gasoline blending components, and kerosene type jet fuel.
Mexico is the largest export market for U.S. pipeline natural
gas, total refined products, finished motor gasoline, and
distillate fuel oil. In addition, significant U.S. crude oil
imports from Mexico are manufactured in the U.S. into the
refined products that are exported back to Mexico.
As for natural gas in 2016, the U.S. exported 2.1 trillion
cubic feet of natural gas by pipeline to Canada and Mexico.
The U.S. pipeline capacity for natural gas exports to
Mexico have rapidly expanded in the past few years, and they
are expected to nearly double in the next 3 years. Mexico is
also a new market for U.S. LNG, receiving 67 billion cubic feet
of natural gas shipped since February 2016.
U.S. refineries also receive crude oil from Canada and
Mexico, which all supports U.S. jobs. In 2016, 69 U.S.
refineries, primarily in the Midwest, processed heavy sour
crude oil from Canada. Also in 2016, 12 U.S. refineries along
the Gulf Coast imported crude oil from Mexico, producing
refined products for both the U.S. and Mexican markets. And
since 2000, Mexico's net imports of gasoline and diesel have
tripled, most of which are supplied by refineries here in the
U.S.
Canada and Mexico are also significant markets for U.S.
investment in oil and natural gas. Mexico's hydrocarbon sector
is just now opening to foreign investment for the first time in
nearly a century. In Mexico's December 2016 bid round of
deepwater blocks, U.S. companies were successful in capturing
five of the eight blocks awarded.
The North American region has a strong and vibrant energy
market. It is imperative that U.S. policy continues to
facilitate our energy renaissance here at home, allowing for
responsible domestic oil and natural gas development, and
continuing to foster the dynamic energy flows in the region. We
also need sufficient infrastructure to ensure additional energy
supplies can reach U.S. consumers and international markets.
In addition, as the President and Congress begin to
consider potential changes to NAFTA, we urge them to keep in
mind the important role this agreement has played in the North
American energy market. NAFTA has eliminated tariffs for oil
and natural gas products, liberalized natural gas exports to
Canada and Mexico, and provided strong investment protections
which are consistent with U.S. law and that are essential for
U.S. oil and natural gas investments in the region.
In conclusion, we have a robust and dynamic regional market
that supports U.S. jobs and U.S. consumers with access to
affordable energy. We look forward to working with Congress and
the administration to continue the U.S. energy renaissance,
energy linkages to North America, to the rest of the Western
Hemisphere, and to the world.
Thank you, and I look forward to answering your questions.
[The prepared statement of Mr. Padilla follows:]
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Mr. Duncan. Dr. Padilla, thank you. I like the words
``North American energy renaissance''; great for saying that.
Dr. Wood, you are recognized for 5 minutes. Welcome back.
STATEMENT OF DUNCAN WOOD, PH.D., DIRECTOR, MEXICO INSTITUTE,
WOODROW WILSON INTERNATIONAL CENTER FOR SCHOLARS
Mr. Wood. It is a great pleasure to be here.
Mr. Duncan. Is your mike on? There you go.
Mr. Wood. Now I am on.
Thank you very much, Chairman Duncan, Ranking Member Sires,
committee members. It is a great pleasure to be here.
I have been studying Mexican energy for more than a decade
and been studying U.S.-Mexico energy relations throughout all
of that period. I now have the privilege directing the Mexico
Institute at the Woodrow Wilson Center, and a lot of my time is
actually spent trying to understand the reforms that have taken
place in Mexico and the path forward. And I will be talking
about those in my comments.
There are three things that I want to get across to you
today. One is the transformation of the government-to-
government energy relationship that we have seen over the past
3 years. The second is the areas for collaboration that I see
looking ahead that would be most productive for both sides. And
thirdly, that question of political change in Mexico.
Throughout all of these points, I think that it is
important to emphasize that dialogue and institutional
cooperation are fundamental elements to preserve the prosperity
and interests of both the United States and Mexico.
Let me begin by talking about the transformation of that
government-to-government relationship. The Mexican energy
reform of 2013 is a watershed moment in Mexican history
because, of course, it pushes the possibility of Mexican
cooperation with other countries and allowing for an
investment.
We have seen, since 2014, regular meetings between the
energy ministers of the countries of North America. And those
meetings of the energy ministers have been enormously
productive, bringing forth the North American Cooperation on
Energy Information initiative, which produces maps of
infrastructure and resources across the region, which allow us
to understand the real potential of North America's energy
markets. There has also been a process of harmonizing the
statistical reporting from the three countries, which as nerdy
as that sounds, is incredibly important in understanding how
things can actually move forward.
On climate change, from Felipe Calderon's government
through the Pena Nieto government, we have actually seen Mexico
being a leader amongst emerging markets for climate change
action, in particular, their legislation which forces Mexico to
reduce its carbon emissions by 50 percent by 2050. We have seen
that play out on the North American stage with cooperation on
reducing methane emissions from the oil and gas industry, the
Ottawa accord of July of last year.
When I looked forward to the future of energy cooperation
between Mexico and the United States, I see that there are
three main areas in which this can happen. The first is the
energy trade, which my colleagues have already talked about,
but let me point out one thing that hasn't been mentioned.
There has been a complete reversal in that energy trade over
the past 3 years. It used to be that Mexico had a significant
surplus with the United States. The United States now has a
very, very important surplus with Mexico. That is because of
the decline of Mexican oil production, the drop in the price of
crude oil and, of course, because Mexico is seeing soaring
demand for refined products from the United States and for
natural gas.
The natural gas story is extraordinary. Because of the
opening of Mexico's energy sector, in particular, electricity
generation, we are seeing natural gas exports rising
dramatically. They are currently, I think the numbers we have
up on the board here, we have seen them peak at around 4.4 BCF.
Some experts are predicting that within a few years they will
get up to almost 10 BCF. That is predicted to be around 10
percent of U.S. production. So you can imagine the impact of
that on prices of natural gas here.
Secondary for cooperation is regulatory cooperation. In
particular, the question of regulatory simplification or
efficient regulation. I know a theme which is dear to the heart
of the current administration. Mexico desperately needs to
eliminate repetitive paperwork. They need to improve
interagency cooperation and they need to work on online
compliance mechanisms. And these are things where the United
States and Mexico can work together.
Lastly, infrastructure. Of course, when we are talking
about cross-border infrastructure, be it pipelines or
transmission lines, Mexico and the United States have to sit
down together and talk these things out. And that is why the
institutional mechanisms matter.
Let me say a few words about the future for Mexico. As most
of you know, there is a Presidential election next year in
Mexico. A lot of people are predicting that the far left
candidate Andres Manuel Lopez Obrador will win. He has
committed himself to repealing the energy reform that was
passed in 2013. My own prediction on that is that if he does
win, and that is far from guaranteed, but if he does win, he is
going to face an incredibly tough time repealing the energy
reform, because congress in Mexico will provide a barrier to
doing that. He will not have the two-thirds majority that he
needs in both chambers in order to revoke or repeal the energy
reform of 2013.
So let me just close there and emphasize once again that I
think the institutional mechanisms that we have existing
between the two countries are vitally important and we need to
focus on how we can preserve those. Thank you.
[The prepared statement of Mr. Wood follows:]
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Mr. Duncan. Thank you, Dr. Wood.
I will recognize myself for 5 minutes for questioning.
And it is interesting that the events in Qatar, with what
the other Arab nations have done to try to isolate Qatar to
some degree, will have an impact on global natural gas
primarily, but possibly global energy prices altogether. I say
that because it is important and it shows the need for this
trilateral cooperation between the North American countries and
the energy sector to lessen the volatility of what goes on in
the Middle East in so many other ways, other than just the
Qatar happenings of this week.
One other thing I want to mention before I get into
questioning is, we talk about this trilateral opportunity and
the energy sector. It is more than just the resources that are
going back and forth, oil and gas; it is the technology. And we
can learn from the Canadians from how they extract oil from the
oil sands, the technology they are using there. The fracking
technology that we have here, horizontal drilling as well.
As Mexico tries to reengage and attract more private sector
investment based on the 2013 energy reforms that Dr. Wood just
mentioned, they are just opportunities for American businesses
in the oil and gas industry to bring that technology to bear.
And I think, you know, I am going to expand a little bit beyond
the three countries here, but Venezuela, assuming the political
situation down there changes, there is opportunity there for
that technology to improve and bring in the 21st century the
oil and gas sector there. I think this applies all across Latin
America as well. People, jobs, and technology are a big
component of what we are talking about here with the three
countries.
We have got opportunity abounds beyond Canada and Mexico. I
think Mr. Yoho mentioned the Caribbean Basin. Relying on
Venezuela right now, there is opportunity for American LNG to
be exported from Florida into the Caribbean to lessen their
dependence on the volatility of a country like Venezuela. There
is opportunity there as well.
I appreciate Dr. Wood mentioning Mexico. How effective do
you think Mexico's energy reforms have been thus far? You
touched on that a little bit. I watched that debate in the
Mexican Congress. You know, people were stripping clothes off
to make points. And that was a political debate unseen in
Mexico or in congress in a very long time. I am not talking
about stripping clothes off, but I am just talking about the
heated debate that went on about what is the right role of the
government in the nationalization of the energy sector or the
privatization of the energy sector? What investment may or may
not come, and what it meant for long-term viability of Mexico's
energy sector in 2013. Then we saw the lease sale and the first
one kind of stumble along. We have seen more robust lease sales
after that.
So I would like for you to just talk a little bit more
about Mexico. You mentioned that they may try to reverse some
of that. That is the first I have heard, honestly. So if you
could just expand a little bit about that, Dr. Wood.
Mr. Wood. Sure. Thank you for the question. The first thing
is, is that nudity is a recognized form of political protest in
Mexico, and most of the people who do it should never, ever be
seen naked in public; I can say that.
Secondly, that debate in Congress recognized the deep
divides in Mexican society over a liberalization of the energy
sector. And still today, the energy reform is deeply unpopular
amongst the Mexican electorate. That is why the far left party
has seized upon that issue for its campaign platform for 2018.
Now, as I said, there is no guarantee that the--Andres
Manuel Lopez Obrador, the leader of the Morena party, will win
in December of next year. Currently, he is at the top of the
polls, but not by very much. This is his third time running. In
previous years, he has been out in front at this point in the
campaign process by a much bigger margin. However, there was an
election this weekend in the state of Mexico, and his candidate
there failed to win, but came very, very close. And the Federal
Government used a lot of resources to support their candidate
in that state. So we are going to have to follow that over the
next 12 months.
If he does win office, though, as I said in my statement,
it is basically an impossibility for him to repeal the energy
reform through Congress because of the need for a two-thirds
majority and the majority of the state legislatures. And his
party will not have that. So his answer is actually to go to a
national referendum. And based upon a political reform that
took place a few years ago in Mexico, a referendum has the
possibility of reversing or enacting new legislation. However,
there is a caveat. Money bills are not included in that. And
the constitution--the legal interpretation of the energy reform
is that it affects Federal revenue because, of course, Pemex,
the national oil company, and the oil royalties are directly
affected by the energy reform.
So constitutionally speaking, I don't think that referendum
would actually be successful.
The other part of the question, is this actually a
successful energy reform? It is deeply successful, and the
reason is because of the diversity of companies that have come
in and invested, the amount of money that has come in, the
resources that are going to be released on the oil and gas
side, and secondly, on the electricity side. The electricity
story is an extraordinary success. We have seen massive
investment producing very, very low generation prices which
will lower the cost for industry and for the Mexican consumer.
Mr. Duncan. Thank you for that answer.
I want to talk about Section 123 for just a minute. And
before I do, let me preface it with South Carolina is one of
the southeastern States that is expanding its nuclear power
with the nuclear power plant in Jenkinsville on Lake
Monticello, right in Fairfield County. And one of the main
contractors to provide the reactor was Westinghouse.
Westinghouse just filed bankruptcy and has basically put the
completion of that project in jeopardy. Not only the site there
in South Carolina, but Southern Power has a site just across
the Savannah River in Georgia around the Augusta, Georgia area.
They have got a little different contingency there, but
Westinghouse bankruptcy could impact what we are talking about
with Section 123.
There are other vendors out there that can provide those
components, but I am going to ask and, Ms. Ladislaw, if you
could talk about Section 123 nuclear power in Mexico,
possibility inject Westinghouse bankruptcy into this and what
that means for U.S. contractors possibly providing components
in the Mexican nuclear sector, and how that might affect
competition of other international firms. So if you could touch
base on 123, please.
Ms. Ladislaw. Sure. I think the way that you have
characterized it is really helpful, because I think one of the
things we are looking for in the global nuclear energy market
is more markets where nuclear can succeed. And one of the real
difficulties that we keep experiencing is if you don't have
regulated guaranteed return on electricity prices, plus some
financing, it is really hard to make nuclear work. There are
some markets where it is working, there are some markets where,
like the U.K., where they are really trying to create new
nuclear opportunities. But as we are seeing in a wide variety
of instances in places where you don't have a guaranteed return
on electricity pricing, where you don't have advantageous
financing, a lot of the plans are still running over cost and
over time. And that is not something that you can't work out of
the system, but it is certainly something that is hurting sort
of, you know, the environment around nuclear.
I think it is one of those issues where it will actually be
quite helpful for the North American dialogue to talk about
nuclear and to talk about the opportunity of nuclear in Mexico.
I will be honest, I do think, as you brightly pointed out, it
does save some headwinds, not only in the sort of commercial
industry infrastructure with the challenges that we really
won't know where Westinghouse ends up until we understand where
Toshiba stands as well. And so we have got to sort of let that
process work its way out.
But I think that when you look at everything that Mexico is
doing to try and incentivize nuclear power, and then you look
at all of the things that they are also doing to incentivize
renewable energy, the fact that we are trying to sell a lot of
U.S. low price gas into the Mexican electric power system, I
think you set up a pretty competitive dynamic for nuclear power
to succeed. And so if we are to really want to create a market
for nuclear in the United States, we are going to have to
understand what kind of support that is going to require in a
North American basis, but also for the existing plants that we
have in Illinois and New York and Pennsylvania, Three Mile
Island didn't pass their capacity market bid round.
So nuclear, even existing nuclear is being challenged by
some of the changing electricity dynamics. I think the same
thing will be true in Mexico, and so I think that the nuclear
energy industry, quite frankly, globally has to think about how
it is going to be more competitive. Is it through existing
technology? Is it through a next version of nuclear energy
technology, something smaller, more modular? Or do you just
really have to make sure you have the system of financial
incentives and the return on investment on a guaranteed rate
for electricity prices that protects nuclear within your
market? Because it does have advantages. It is base load. And
it is really hard to envision a future where you don't have any
nuclear power whatsoever. And so I think there is a lot to work
out.
Mr. Duncan. So I am glad you mentioned SMR, small modular
reactors, and I think that is a viable option going forward.
When I hear about nuclear energy in Mexico and expansion of
nuclear power production there, one of my gut reactions is that
we have seen nuclear components, whether it was low-level waste
from a hospital or whatnot, disappear for a period of time,
stolen, mishandled; they have had to find it, get it back in
their possession. The possibility of proliferation, the
possibility of terrorists getting their hands on that for a
dirty bomb of some sort on a country that is on our southern
border. They are very close to home. It is not like it is
overseas. So that is a gut reaction I think a lot of my
constituents would even have if they follow those type issues.
So with that, I will turn to the ranking member for 5
minutes.
Mr. Sires. Thank you, Mr. Chairman.
With the emergence of Lopez Obrador, obviously, he wants to
revert to get rid of this 2013 agreement. So that makes him a
little bit popular in Mexico.
How about the rhetoric coming out of this country? How is
that impacting also this emergence from this candidate?
Mr. Wood. It is a very, very important question. And at the
beginning of the year, it was clear that the breakdown in
bilateral relations, the increased tension, the conflict, in
particular the communications between the two Presidents, were
causing a highly nationalistic reaction in Mexico. All
politicians across all party lines were moving toward a more
nationalistic perspective.
In recent times, things have calmed down a great deal. And
the reason for that, I would argue, is that the institutional
mechanism between the two countries are working. Mexico has
been very, very smart about how it has approached the United
States, it has laid the entire relationship on the table, and
said you need us for lots of reasons: For export markets, for
integrated production, for security on your southern border,
for controlling Central American migration. And, of course, the
energy piece is there as well. Mexico has been putting that
forward over and over again.
But the effect of the election campaigns last year and the
volatility of this year so far is having an effect on the
Mexican election. It is not as dramatic as we feared it might
be, but there is clearly an anti-Yankee sentiment among certain
sectors of the Mexican electorate, and that will help Andres
Manuel Lopez Obrador.
Now, he is putting himself forward as a candidate who is
much better equipped to negotiate with the United States than
the current government. And he has said that if you really want
to renegotiate NAFTA, if you really want to reestablish--or
establish equality between Mexico and the United States at the
diplomatic level, then he is your man. Mexicans are not
completely convinced by this.
So the energy reform process, as it stands right now,
although it is unpopular, will begin to deliver a lot of the
benefits in a couple of years' time, as oil production
increases, as royalties start to come in, and as Mexicans begin
to reap the benefits of having a liberalized downstream and
retail market in Mexico. As you may have seen, a lot of U.S.
firms are opening up gasoline stations in Mexico right now, and
Mexicans are flocking to them because they recognize that,
although the price is probably the same as they are going to
pay at the Pemex station, the quality of the product and the
fact that they are probably not going to get ripped off in
terms of the amount of fuel that is being put into their gas
tank is a big advantage.
So we are actually seeing one gas station in the state of
Mexico which was recently taken over by a U.S. firm saw its
sales double the month after a U.S. firm took it over. This is
a huge opportunity, and Mexicans are beginning to understand
those consumer benefits of the reform.
Mr. Sires. Thank you.
Venezuela is obviously a disaster. And the political on
Venezuela used to be oil. How do you see America playing a role
in substituting Venezuela in the region, especially in the
Caribbean? Dr. Padilla, can you talk to us about that? I know
you mentioned a little bit about export to the Caribbean.
Mr. Padilla. Yes, thank you. You are right to bring the
conversation back to Venezuela. The conditions there are very
unfortunate. I would say that the primary way in which the U.S.
can continue to exert some influence with regards to global oil
markets is through the energy renaissance here in the U.S. So
our growing production of oil in the United States has had
significant effects on global markets and driven down prices
globally, which has had an impact on states in Venezuela that
depend on oil revenue.
So the primary way which we have already had an impact on
Venezuela and its role in energy markets is through our
increasing production here. We just had that effect on global
energy markets.
With regards to the Caribbean, the U.S. also stands ready
with its increased production in natural gas to offer an
alternative and more diversified supply to Caribbean countries
that have previously relied on crude oil imports from
Venezuela. So we already see U.S. LNG exports that are going
from the lower 48 in the United States to the Dominican
Republic. We see ISO container LNG exports that are going from
Florida to Barbados.
So these are examples of how the United States and its
exports in oil and natural gas can have impacts on global
markets that affect Venezuela and can have an effect on
providing alternative sources of fuel to Caribbean nations that
have previously depended upon Venezuela.
Mr. Sires. Thank you.
Would you like to add something to that?
Ms. Ladislaw. You know, I agree with everything that Dr.
Padilla just said. I would also say that we have a lot of
renewable energy technologies that we, under the last
administration, were also using within the region to--diversity
is the source of security. And so really being able to try and
help those countries attract those technologies as well so that
they have a number of different energy resources to rely on as
well.
Mr. Sires. Thank you. I was going to go bring the renewable
question up. With all this growth and all this different
energy, how are we integrating in North America the renewable
energy part? I mean, what part does it play?
And since you brought up renewable energy, can you----
Ms. Ladislaw. Well, it really is the funny thing about
talking about energy in a continental basis is the continent is
very big, and all different states and regions and provinces
have different approaches. I think one of the things we have
seen, and maybe Dr. Padilla wants to talk more on the renewable
fuel side of the equation, but on the electric power side we
are seeing markets all over the continent really grappling to
deal with the fact that things like solar power, in particular
things like wind, are not only competitive with conventional
energy sources, but they have to figure out how to integrate
them into their energy system in a way that utilities continue
to make a return on the investment.
People always will ask me, when will renewables pass a
tipping point where they are actually competitive? I think we
are well past that point. I think that when you look at places
that have net metering policies or when you look at, even in
Mexico, recently starting a lot of their renewable energy
policies under their electricity reform and already having to
ask themselves, how is our electric power system going to
integrate more and more of these resources, not just from
utility scale solar farms or wind farms, but also from people's
homes through distributed energy resources?
I think you are starting to see folks used to think that
renewables would have to get to 30 to 40 percent penetration
within the electric power mix for it to really start to cause
some questions about how utilities make a return on their
investment and how we manage those electric power systems, we
think about things like reliability to realizing, no, that is
actually here today.
And so I think there is actually a renaissance going on in
the electric power sector in North America that if you talk to
anyone who is in a public utility commission at a State or
regional or local level, they are grappling with each and every
day. And when you add low natural gas prices onto that, for
some regions of the country, it just becomes more and more
profound. So I actually think we are in the midst of a
transition from just trying to figure out how to build more
renewable energy generation into the electric power mix to
actually scaling those up to higher levels and figuring out
what that mix looks like going forward.
Mr. Sires. Thank you. Thank you, Chairman.
Mr. Duncan. I thank the ranking member.
And the chair will now go to the Republican side, to Mr.
Yoho.
Mr. Yoho. Thank you, Mr. Chairman. Sorry, I had to step
out. We appreciate you guys being here.
When you look at the situation, with our natural energies
that we have here, the abundant resources, and I am
particularly focused on LNG, when you look at the feasibility
of exporting that, do you see any restrictions on that as far
as the mobilization of that or the transportation of that to
taking it down to the Caribbean and what we could do to
expedite that?
Mr. Padilla. Thank you, Congressman, for the question. LNG
exports are a great potential for the U.S. with our rising
natural gas production. I would underscore a couple of things,
I think, that can help in terms of facilitating policy.
The first is understanding the important role that free
trade agreements play. Free trade agreements, when they are in
place between the U.S. and another country, automatically
liberalize LNG exports to that country by the provisions of the
U.S. Natural Gas Act. So that is certainly a priority for the
U.S. oil and natural gas industry, for example, with regards to
NAFTA in the way that it provides that automatic liberalization
of LNG exports and the growing market that Mexico represents.
And then another policy priority for API member companies
and natural gas producers is expedited approval of permitting
and determinations by the Department of Energy with regards to
nonforeign trade agreement partner countries. We welcome the
most expedited process possible to approve those exports to
non-NTA countries so that they too can enjoy the benefits of
the abundance of natural gas production here that allows us to
also export the LNG.
Mr. Yoho. Okay. And does anybody else want to weigh in on
that?
Mr. Wood. The only thing I would like to point out here is
that I think that very often we think too small about these
issues. There are possibilities for exporting U.S. natural gas
and LNG through Mexico. In many cases, it may be easier to
build an LNG plant in Mexico than it is here in the United
States, which will provide an outlet that would otherwise not
be possible here in the United States because of zoning and
permitting.
In the same way, we need to think seriously about getting
U.S. natural gas to Central America, which means working very
closely with the Mexicans on building out that pipeline network
in Mexico and making sure it gets southwards. I think that
those are the ideas that we need to put forward on the table.
And I would even stretch it further.
I recognize your question is about gas, but think of the
possibilities, and the Mexicans have begun to talk about this,
of building transmission lines in Mexico to move U.S. electrons
from one U.S. State to another; in other words, go south from
Texas, along northern Mexico, back up into California where the
demand is. It will be easier to do it that way than it is to do
it in the United States.
So I think we need to think bigger, we need to think much
more outside of the box than we are doing at this point in
time.
Mr. Yoho. I assume you say that because it would be easier
regulatorywise in Mexico than here.
Mr. Wood. Yeah. And it is not because their regulations are
more lax; it is because they have a unified regulatory system
for zoning and permitting for these things. Whereas here in the
United States, of course, you have to go through the Federal,
the State, and the local.
Mr. Yoho. Right. You know, I also have the honor and the
privilege of being the chairman of the Asia Pacific
Subcommittee on Foreign Affairs, and we hear probably weekly
from Ambassadors from different countries around that region
how they want to start importing LNG from the U.S. And this is
something that it would be great for our economy, it would be
great for using our natural resources, and it would be great
for building that stability around the world. And we have got
companies that can do this.
And our focus in this hearing is obviously the Western
Hemisphere. And my goal is for our own territories. You know,
why should we be a U.S. territory buying oil from Venezuela
that is bolstering up a regime that is not friendly to this
country? So anything that you can do as far as ideas and how to
expedite that and help the commercial companies in the islands,
whether it is Puerto Rico or the U.S. Virgin Islands, how we
can help transition them from using number 2 petrol to LNG?
And I think Puerto Rico is in the process of doing some of
that, but the U.S. Virgin Islands, we need to do that, and
along with wind and solar, absolutely. And if there are any
ideas that you have, we would sure love to hear them.
Do you have any comments, Ms. Ladislaw?
Ms. Ladislaw. Ladislaw, just like it is written.
I think the only thing I would say is I think we in the
U.S. are really taken by the fact that we have a lot of natural
gas. But we have got to really watch out, because a lot of
times the midstream infrastructure to get that gas to export,
as we consider to do more of this, as we are attracting more
petrochemical investments in certain regions, we are not immune
to the sort of complications that come from growth. And I would
just point to the recent experience in Australia. Australia
built out a huge amount of LNG export capacity, and they didn't
consider all the domestic politics and infrastructure around
being able to make sure their own industrial consumers were
paying a low enough price for the gas that they needed and they
started to curtail their exports. I am not saying that is going
to happen here, but I think that those are things that, as we
think about building out all these opportunities, we have got
to make sure we have got the midstream infrastructure.
Mr. Yoho. That is why we depend on experts like you. Thank
you guys.
I yield back.
Mr. Duncan. Thank you. We will now go to Ms. Torres for 5
minutes.
Mrs. Torres. Thank you, Mr. Chairman. I just got back from
a trip to Mexico with an interparliamentarian group of 11
members. Chairman McCaul was leading that delegation. And while
I think it is true we found--I mean, we were there during the
gubernatorial election on Sunday. We actually landed on Sunday.
It was very interesting to see how, just like what is happening
here with a very populist agenda, the Morena party was able to
garner a lot of support. However, they were still within three
points behind and finished further than they expected.
So I found that a little bit concerning, specifically as it
relates to the comments that have been made by our President
against Mexicans, against the Mexican people. They are
certainly very angry about that. They are even more angry, or
upset, that we have withdrawn from the Paris Agreement. They
are feeling that they have been left out. America has, in the
past, been a great leader to them, and they look to us for
forward-thinking policy, so they are extremely disappointed.
However, I heard something about an anti-American
sentiment, and I did not find that, not within the people, not
within the comments of their local media, and certainly, not
from the representatives of both houses that we met with.
On the issue of nuclear plants, I just want to caution you
as your State looks at that. In California, we had to recently
shut one down because we found an earthquake fault beneath
that. So as you are looking to build out on nuclear facilities
that we look at climate change and issues of tornadoes and
earthquakes that are now not limited to the State of
California.
My question to Dr. Wood is following the withdrawal from
the Paris Agreement, where do you think Mexico and Canada will
look for leadership on climate change? California, for example,
Governor Brown was just in China, and certainly, California,
and other mayors and other governors across the U.S. are
stepping up. What role can they play since the Federal
Government has really left them behind?
Mr. Wood. It is a terrific question, and we were discussing
this actually just before we came into this room.
Back in the period from 2000 to 2008, Mexico's Government
began to collaborate increasingly with U.S. States on questions
of climate and renewable energy, because there wasn't a great
enthusiasm at the level of the Federal Government. That is
where we are going to go back to, that is where we are going
back to. Already we have seen extraordinary energy diplomacy
from the States of California and Texas, interestingly enough,
as well as some others who are--Arizona, for example, is
engaging very, very actively with the State of Sonora. They are
talking about an Arizona-Sonora megaregion.
Mrs. Torres. Right.
Mr. Wood. One of things--just a tangential point here--one
of the things that is remarkable about this period of
volatility is that people have realized how important, how
vital Mexico is to the United States' national interest.
Friends that we didn't know existed have come forward and said
Mexico matters. Friends who didn't even know they were friends
of Mexico have come forward and said, oh, my goodness, I have
just realized that Mexico matters.
Mrs. Torres. And they recognize that we recognize that.
Mr. Wood. Absolutely and that is it. So I think what we are
going to see is a lot more cooperation between Mexican Federal
Government and Mexican states and cities and their counterparts
here in the United States. Cities are going to matter more than
ever, and as I said, there is a precedent for this happening,
and I think it is going to be very, very productive.
Mrs. Torres. Thank you. I have two more questions and very
limited time, so I am going state them, and I hope you will
have an opportunity to follow up with my office.
Should renewable energy be included in the NAFTA agreement,
and certainly, from their perspective, they absolutely believe
that it should be part of what we discuss. And I want to
further tease your intelligence on the issue of transportation
as the Federal Government is looking at an infrastructure bill.
In California, I have been talking to our State Department
about a highway of things. Is this something that is possible
as we look to continue to trade and expand our highways within
Mexico, and as Mexico looks down to Central America for renewal
energy? Is that something that could be possible, a highway of
things, meaning fiber optics, gas pipes, in addition to vehicle
traffic. And I understand I already extended my time, but I
would love to hear your follow-up and ideas on how something
like that could be possible?
Mr. Duncan. I thank the gentlelady, and the chair will now
go to Mr. Castro.
Mr. Castro. I am fine.
Mr. Duncan. No questions there. We can go through a second
round if the ranking member would like.
So there was an interesting article in The Wall Street
Journal recently about peak demand, okay. So when I was growing
up in the 1970s, we heard peak oil, that the world had found
all the recoverable oil resources, and that we were going to
see the amount of oil available for production decline. It has
never done that. It has only gone up.
But the article in The Wall Street Journal, was interesting
because of peak demand, and focusing really on the U.S., and I
don't disagree with the article that we may be at peak demand
for fossil fuel usage, just to shift into renewables and that
sort of thing. But I disagree with The Wall Street Journal in
that peak demand has been met globally, because we have got a
lot of countries around the world that are emerging, and they
are going to use energy, energy for manufacturing, energy for
heating and cooling homes. I am one that believes that energy
is a great segue to improve the quality of lives of people all
over the globe, especially in Third World countries where they
can't keep food fresh for very long because they don't have
electrical power, or even propane for refrigeration. You still
have a huge threat of dengue, yellow fever, malaria, Zika and
other mosquito-borne illnesses in areas of the world that don't
have air-conditioning, because they don't have electrical power
and they have to leave the windows open. There is just that
sort of threat.
You have got poor air quality in homes around the globe
because no electricity. They are having to heat their homes
with wood or charcoal. They are having to cook over wood and
charcoal. There is just a lot of things that are putting
particles in the area that folks are breathing. So electricity
is a life changer for many people. You run into what is the
source of electricity is a nuclear power hydro--there is this
battle in Patagonia for more hydro. The environmentalists don't
want that. Huge hydro area possibly, the potential there is
immense. Africa, you just don't have a whole lot of hydro that
hadn't already been put in place, and then you have a lot of
logistics there for transmission lines and country boundaries
and instability.
And when you talk about nuclear power, then you have got
proliferation issues, you have got nuclear waste issues, you
have got a threat of terrorism. So when you talk about energy
globally from the peak demand aspect, peak demand has not been
met globally. There is opportunity globally. There is
opportunity within Mexico. There is opportunity within North
America in general, and Latin America. So I wanted to touch on
that.
We heard a lot in the last 4, 6, 8 years about Keystone
Pipeline. Keystone Pipeline was a vital component to refining
Canadian oil. And the argument was, well, they can ship that
oil somewhere else. Well, you got logistics across the
continent of Canada, but there was a reason that oil was slated
to come to the United States. That oil is very similar to the
oil coming out of the Middle East. Our refineries are set up to
handle that type of oil.
I have made or had the discussion with the energy sector
about retooling America's refineries to meet the needs for
American oil produced in the Bakken and the Permian Basin and
other places, that is very costly. It is more attractive to
U.S. energy producers to export that crude which is light sweet
and bring in that heavier Canadian oil that resembles the oil
coming from the Middle East that comes to U.S. refineries and
is refined into all the different components that a barrel of
hydrocarbon is refined into.
So, that was never talked about enough, I don't think, in
the whole Keystone Pipeline debate about why it made sense to
bring that Canadian oil to U.S. refineries. At the same time,
we were exporting American produced oil, crude oil, to other
parts of the globe that were set up to refine that type of oil.
So there is a lot of dynamics there.
Let me get to a question real quick. We talked about
Keystone, I did all the talking, but NAFTA, you know, President
Trump has talked about a lot of terrorists and people in Mexico
are concerned about a border wall and all this is going to be
injected into the NAFTA debate as NAFTA is renegotiated, which
I think it should, and I think the energy sector, as you heard
in my opening comments, ought to be a big part of that NAFTA
debate to bring NAFTA into the 21st century. We see on the
chart the changes in energy trade. We are now importing less
crude oil from Mexico, and we are exporting more refined
products to Mexico, as I think one of the panelists mentioned.
So let me just get your take, and we may have talked about
that earlier, but your take on NAFTA, NAFTA renegotiation and
energy in general in regard to that. You can talk about
tariffs, you can talk about trade issue in general, but NAFTA,
and I will just ask all three panelists, and then I will go to
the ranking member. So, Ms. Ladislaw.
Ms. Ladislaw. I think on NAFTA I think there is two
approaches. One is do no harm. So NAFTA has done some great
things for the energy sector without actually dealing with
energy too terribly directly, right? So when we negotiated
NAFTA, Mexico actually didn't insert much about energy because
it wasn't able to do that. But the energy sector benefited from
a lot of the trade protections that we talked about earlier and
the other benefits that come with those sorts of trade
agreements.
And so, I think one of the big concerns in the energy
sector is because everybody feels like the dynamic on energy
has changed in North America, that within the context of NAFTA
renegotiation, energy could be held hostage, right? If you
don't like what you are getting back on lumber or autos or some
other segment of the trade agreement, you can say, well, maybe
I am going to treat my gas differently or maybe we will treat
out oil trade differently. And I think we really have to be
very careful to say we have had a really big boost from all of
this energy trade in North America, we don't want to do any
harm on that side of the equation.
And the other part is modernization, right? Can you embed
some of the progress that has been made in Mexico into the
trade arrangement? Can you modernize it to reflect the kind of
things that you might want in a trade agreement that is coming
with an energy sector that is much more digitized, that is
going to be automated, that is going to have these new sort of
ideas and concepts that just didn't exist in 1994 in a way that
you had to deal with. And so, I see it as first do no harm,
second modernize to be able to prepare for the challenges of
the future, and embed some of the progress we have made over
the last several decades.
Mr. Duncan. Mr. Padilla?
Mr. Padilla. I think we can think of the benefits of NAFTA
with regards to energy in a few key dimensions. The first is
that NAFTA enhances energy security of the United States. So as
the world's energy super power, we enjoy the benefits of that
to an even greater degree due to the integration that we
currently have with Canada and Mexico with regards to oil and
natural gas markets.
NAFTA also supports U.S. jobs and manufacturing here in the
U.S. The examples that you were referencing around importing
crude oil from Canada, which flows to refineries in the United
States and supports the production of fuels that we use here
and even in export, there are jobs that are produced at those
69 refineries that import crude oil from Canada, those 12
refineries that import crude oil from Mexico.
And then NAFTA also helps to enhance the energy security
and affordable energy for our allies. So the benefits that
accrue to us here in the United States are the same for Canada
and Mexico. So it is a classic case of mutual benefits. And
then, also, NAFTA enables U.S. companies to compete and win in
the oil and natural gas bid rounds in Mexico and increasingly,
as they have undertaken investments in Canada as our markets
have become more seamless and integrated.
So there are a few key provisions in NAFTA that I think we
would want to preserve in order to maintain the continuation of
all these benefits. The first is euro tariffs on few key oil
and natural gas products. The second is the automatic
liberalization of natural gas exports, for example, that a free
trade agreement affords. And then another is market access. The
NAFTA agreement, while it originally excluded the Mexican
hydrocarbon sector from investment by foreign investors, now
the constitutional reforms that Mexico has undertaken on its
own have triggered a ratchet clause in NAFTA which solidifies
those and makes that part of the agreement and opens that up to
U.S. investors.
And then, finally, there is also investment protections in
NAFTA that underscore U.S. firms' investments in Mexico and
protect them from extreme cases of potential expropriation, and
act as a deterrent for some of the fears that we have seen and
the realities that we have seen of U.S. investments in oil and
natural gas in other places people are. So all of those are the
elements of NAFTA that have underscored the benefits that we
get from the agreement.
Mr. Duncan. Dr. Wood, quickly.
Mr. Wood. Thank you, yes. Just on the question of peak
demand, the most aggressive scenarios that I have seen suggest
that demand may fall down to 75 million barrels a day by 2040.
To maintain 75 million barrels a day is going to require many,
many billions of dollars of investment just to keep that up.
The oil industry is not going away any time soon. There is
going to be a need for a lot of investment in a lot of jobs
there.
Secondly, on the question of refineries, we need to think
about where we place refineries in North America, not just in
the United States or in Mexico, because there are
complementarities there, and we have already seen this. The
case that you used, Canadian oil being refined in near the Gulf
of Mexico in the United States, but there are Mexican
refineries that are well-equipped to refine U.S. crude as well.
We have to think about moving the product around a lot better.
On NAFTA, all of the points that have been raised already,
I absolutely agree with. The Mexican reform actually allowed
for energy to be included under the existing NAFTA, because
there is a clause in NAFTA which says any sector which is
currently closed and excluded once it is opened will be covered
by the provisions of NAFTA. That is where Chapter 11 comes in.
And the crucial point, I think here, is that the last thing
that any of us want to see is any kind of extra costs on cross-
border movements of energy in North America. It is a
fundamental source of our competitiveness as a region.
Mexico has become more competitive because of lower energy
costs, which means that Mexican components that are part of the
U.S. production process here that makes U.S. products
competitive in global markets, all those prices have come down.
We need to start thinking about this very much in regional
terms, not in national terms.
Mr. Duncan. I tend to agree with you, and that is one of
the messages I will have with USTR. I hope they get it. We
don't need to add more costs to this. It actually benefits all
three countries, and I think that is one benefit of NAFTA in
energy sector, and I look forward to how they negotiate that. I
turn to the ranking member.
Mr. Sires. Thank you, chairman. You know, so I hear all
these tariffs. I think businesses in this country, they panic,
because I don't think when you talk about these tariffs, I
don't think people realize how much economic activity goes
between Mexico and the United States, especially on the border,
and the jobs that are created there on both sides of the
border. So sometimes people speak without really knowing the
facts.
But if we do put a tariff, I think the energy sector in
America is going to get hurt worse, because we are now
currently exporting more into Mexico than we actually are
importing. And if we put something on the imports from Mexico,
you know that they are going to retaliate. You know that this
is going to happen.
So I hope that that goes away, quite frankly, and we just
continue to promote this harmony between North America, quite
frankly, because I think it is only to all our benefits, not
just one country or the other.
And, I was curious what you mentioned about we have to
think about where we place our refineries. I couldn't agree
with you more, coming from New Jersey. You know, the refineries
were placed there years ago, and what has happened is people
have moved all around it, so now it is like the railroads. The
lines went through there, there was nobody there. Now people
have moved all around it. So I think that is a very key
question. If we are ever going to build new refineries, where
are we going to place the refineries because we are growing and
growing, and people are moving to these areas, and the first
thing they want to do is get rid of these things. They were
there before you got there. You know, the railroad lines were
there before you got there. And I am constantly struggling
with, you know, with this.
You know, I represent Bayonne, New Jersey. They have a--it
is not a refinery now, but it is a repository. I think they
move up to like 50 million gallons of fuel a day. Luckily it is
not refined there. It comes in already refined and it is moved,
but even with the tanks, people are still saying, well, can we
get rid of these tanks because they want a view of New York.
So I couldn't agree with you more about where we have to--
we have to really think in terms of where we are going to place
these refineries. And I really don't have a question. You
answered most of my questions. Thank you, chairman.
Mr. Duncan. Thank you, ranking member. I will now go to Mr.
DeSantis from Florida.
Mr. DeSantis. Thank you, Mr. Chairman. Thank you to the
witnesses. The energy sector in Canada, oil, gas, electricity,
the exports are 25 percent of Canada's exports of goods to the
U.S. while agriculture is only about 7 percent, yet as I
understand it, energy was excluded in the original NAFTA
agreement. Since the north American energy market is so
interconnected, do you think energy should be included in any
renegotiation of NAFTA?
Mr. Padilla. We believe that the integrated and
interdependent markets of North America should be borne in mind
by the negotiators as they seek to modernize NAFTA. The way in
which you may do that in terms of the architecture of the
agreement will be determined by the course of those
negotiations, but all of the ways in which our markets are
connected are really what is at stake when NAFTA is being
modernized. And I think we want for there to be key aspects of
a new NAFTA that preserve the provisions of the current NAFTA
that have worked so well that underpin and underscore the ways
in which our markets have become increasingly interdependent
and integrated.
One way to think of this is that when NAFTA----
Mr. DeSantis. Well, before you do that, and I will let you
finish, but so your concern is more renegotiation would hinder
the interconnected markets, rather than facilitate it?
Mr. Padilla. That is correct. And I was just going to say
that in the last generation under the current NAFTA, the free
market and free trade of trade and energy between the U.S. and
Canada has really made that a very seamless and integrated
market. We have the opportunity in the next generation to
achieve that with Mexico.
So by preserving what has worked so well in NAFTA to
underscore that for the U.S. and Canada trade, we have that
opportunity in this next generation to achieve that across all
three countries.
Mr. DeSantis. Anyone else?
Mr. Wood. Yes, if I may. First of all, I would just like to
emphasize the point that Ranking Member Sires made earlier on
about the employment dimensions of this. A recent study that
was produced in the Wilson Center showed that 4.9 million jobs
in the United States depend upon that economic relationship
with Mexico. It is partly the exports, but it is also the
imports from Mexico that make U.S. industry more competitive.
In terms of whether energy should be included in the
negotiations, it is very clear that the Mexican Government has
been very enthusiastic about putting energy on the table. One
of the deep concerns that I have about that is that both
governments are now talking about a very short timetable for
getting the negotiations done. If they want to get this wrapped
up by December of this year or January of next year, which is
the kind of time frame they are talking about, then there is
going to be very little time to talk through all of this.
There also seems to be an emerging idea that they don't
want to have to present this to their respective Congresses,
which suggests that the changes they are going to make are
minimal. Now, that is fine, but if you start talking about
energy in there then you open up an entire can of worms, and
that is going to be very, very complicated.
So I actually think that the current existing NAFTA works
incredibly well. One reason why the Mexicans are enthusiastic,
however, is because of the prospect of electoral change next
year, and they want to have an extra guarantee that the energy
reform enacted in 2013 will be respected so that free energy
markets become part of an international treaty that is
enshrined in Mexican law.
Mr. DeSantis. North America has become an energy super
power accounting for 72 percent of Western Hemisphere oil
production, and 85 percent of natural gas production in 2015.
Both Canada and Mexico produce heavy crude oil, which is well
suited for U.S. refineries. New technologies in the U.S. such
as hydraulic fracturing and horizontal drilling, and in Canada,
as well as Mexico's energy reforms, have enhanced opportunities
for further trilateral trade and energy cooperation.
Is North America-wide energy security and independence an
achievable goal in your view, whoever wants to take that?
Ms. Ladislaw. Yes, I will take it. I mean, I think as we
noted, I think we are closer to self-sufficiency on a North
American basis than we have ever been, and I think that that is
wonderful, but I think we also have to recognize that that
comes from open trading relationships with other countries
around the world. And so even though we have this advantaged
position, it has come from interdependence. We get a lot of
economic efficiency and a lot of security from that.
So I think that if we want to focus as a continent on
growing those advantages to create more jobs and to create more
economic growth and to insulate ourselves, I mean, the chairman
brought up the incident in Qatar in the last several days.
There is a period in time not too long ago where even small
incidents like that would really cause us to be concerned, and
we are not sweating it really hard on the energy side, right?
So we are deriving some benefits in the fact that we have a
little bit more strategic latitude in what we would like to do
on energy, but we can't ever assume that that means we can be
isolationists or it leads us to think that we are okay in and
of ourselves. So I think, yes, we are in a much better
position, but we have got to think about growing it.
Mr. DeSantis. Can he answer my----
Mr. Wood. Very, very quickly, I think there is something we
often neglect, which is complementarity of resources. Many of
you may know that Sweetwater, Texas has an extraordinary wind
resource, but, of course, the wind only blows certain times of
the day and not always when Texas needs that wind the most. In
Tamaulipas, there is a very similar quality resource which
blows at a different time of day. You think about linking those
two resources together. You think about linking solar resources
together across the width of the continent so you are actually
able to overcome a lot of the intermittency problem, or even an
easier example what already exists where wind power in the U.S.
is used to pump water back up into Canadian hydroelectric dams
at certain parts of the day, so you are essentially storing
that energy.
That interconnectedness, I think, is one way in which we
are really going to achieve North American energy autonomy.
Mr. DeSantis. Well, thank you. I yield back.
Mr. Duncan. I thank the gentleman. You are right. I mean,
one of the battery storage issues is--or solutions right now is
to pump the water back up, use the water to generate
electricity as a normal hydroelectric project and during peak
wind or peak solar, use that energy to pump the water back up
and just continue the cycle. We have something similar in South
Carolina, although they use regular energy production, had a
Bad Creek project, release water during peak demand and produce
electricity, and then use reversal of the turbines, which are
electric generated, to pump the water back up.
They could use windmill or sun power for that, but that is
one of the holdups, hangups for renewables is just holding that
power to be used when it is necessary or needed. We don't have
that capacity or capability right now to hold large amounts of
energy for a long period of time to be used when the sun isn't
shining or the wind isn't blowing. But reservoir storage is one
battery, so to speak, capacity.
So, Ms. Torres, if you have another question we will
recognize you for 5 minutes.
Mrs. Torres. Thank you, Mr. Chairman. I want to say that
certainly from the Homeland Security perspective, the economic
stability of our closest neighbors to the north and the south
has to be a priority for U.S. policy, and I am not just
speaking to Mexico, but, you know, within Central America, I
think that those governments have worked very closely with us
to ensure that the people that want to come through that
migrant path to hurt us here in the U.S. are detained, and they
have great partnerships with our law enforcement here in the
U.S.
I wonder if we can go back and maybe talk a little bit
about the last question that I asked on this highway of things,
how we can create those opportunities, and then on going back
to the NAFTA agreement, I think you answered that question,
that energy certainly has a role and could be integrated in a
new, improved agreement.
Where do tribal governments, and what sort of role could
they play in that, not just in the U.S., but the indigenous
populations within southern Mexico in looking at areas that
have not been developed within Mexico?
Mr. Wood. Thank you. It is an incredibly important
question, simply because of the diversity of Mexico's
indigenous peoples, and because there is a long tradition there
of protesting any major infrastructure project. So the question
of----
Mrs. Torres. Because it has been at their cost, the cost of
their natural resources.
Mr. Wood. Absolutely. And the case that you mention of
Southern Mexico, both in Oaxaca and in Chiapas, we have seen
local communities including indigenous communities rise up
against energy projects, and not just oil and gas, against
renewal energy projects as well when they feel that they are
not being treated with fairness.
This is a learning process for the industry, I think, and I
am actually very, very encouraged to see how seriously the
industry is taking this in Mexico. They are required by the
law, including the energy reform of 2013, is a need to do a
social impact evaluation in any community, whether it is going
to be in an energy project, in addition to an environmental
evaluation. There is a booming industry right now in these kind
of evaluations. But most importantly, the industry has
recognized that it is in their long-term interest to actually
carry out smart investment strategies to make sure that they
are not going to run into problems down the road so they won't
be able to open their energy projects when it comes out. They
can build them, but they won't be able to actually open them.
This is the case that we have seen in the state of Oaxaca.
In the State of Chiapas, I think what we are going to see
is that there are a lot of prospective oil resources there on
land. It is a very divided political space already. Of course,
we all know about the zapatistas who continue to play a big
role there. But also, I think we have to see that this is an
area which is desperate for development.
And picking up on your point about Central America, we have
to recognize that one of the best ways to get economic
development to Southern Mexico and to Central America is to
make sure that natural gas goes down there. Let's get that down
there as a driver of economic growth, and hopefully that rising
tide will lift everybody's boats.
Mrs. Torres. So do you think that within a renewed NAFTA
agreement, we can focus on areas of the U.S. such as the Rust
Belt and areas of Southern Mexico where--these are areas that
have not seen, and have, in some way, feel that they have been
hurt by these trade agreements, and what sort of possibilities
exist there, opportunities for us to do that?
Mr. Wood. So first, if we don't focus on those areas which
haven't benefited and feel as though they have been hurt by it,
then in a few years' time we are going to have this
conversation all over again. So this is fundamentally
important, I think. And in terms of policy proposals, one of
the things that we are working on right now at the Wilson
Center is a proposal for workforce development at a North
American level. We have to recognize that the economy is
changing. It is actually not trade that is pushing people out
of jobs, it is, of course, the economic transformation, the
fourth industrial revolution, and we need to focus on the ways
in which we can educate, train, and retrain the workforce. We
need to focus on ongoing workforce development plans, and
government needs to think about how it can actually help
businesses to do that, whether it is through tax incentives or
some other scheme. And doing this on a North American basis
makes perfect sense. Because of the educational and training
resources that exist in certain parts of the continent, and the
demand for those skills in others, we need to think about how
we can get workers to benefit from those things.
Mrs. Torres. Thank you. My time has expired, but I do want
to remind you, I would like to hear your opinions on this
highway of things.
Thank you. I yield back.
Mr. Duncan. I want to thank the members' participation. I
want to thank the panelists for their participation today.
Excellent testimony. Excellent answers to the questions. I
think we have just scratched the surface really in the
potential for the three nations here in North America working
together in the energy sector. We talked about technology. We
talked about brain power. We talked about the resources
themselves. We talked about some challenges. It is a changing
world, and I think energy is going to be a big part of that
change, the industrial revolution that you talked about. I
think energy renaissance and what we do with manufacturing
where products are manufactured, whether it is consumer goods
or whether it is energy.
So I thank you all for being here. I think it is great. And
pursuant to Committee Rule 7, members of the subcommittee will
be permitted to submit written statements be included in the
official hearing record. Without objection the hearing record
will remain open for 5 business days to allow statements,
questions, extraneous materials subject to the length
limitation in the rules.
There being no further business, we will stand adjourned.
[Whereupon, at 11:35 a.m., the subcommittee was adjourned.]
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