[Senate Hearing 116-243]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 116-243
 
   THE OUTLOOK FOR ENERGY AND MINERALS MARKETS IN THE 116TH CONGRESS

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

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            FEBRUARY 5, 2019

                               __________
                               
                               
 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                              
                               


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

        Available via the World Wide Web: http://www.govinfo.gov
        
        
        
                             ______

             U.S. GOVERNMENT PUBLISHING OFFICE 
35-553                 WASHINGTON : 2020         
        
        
               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                    LISA MURKOWSKI, Alaska, Chairman
JOHN BARRASSO, Wyoming               JOE MANCHIN III, West Virginia
JAMES E. RISCH, Idaho                RON WYDEN, Oregon
MIKE LEE, Utah                       MARIA CANTWELL, Washington
STEVE DAINES, Montana                BERNARD SANDERS, Vermont
BILL CASSIDY, Louisiana              DEBBIE STABENOW, Michigan
CORY GARDNER, Colorado               MARTIN HEINRICH, New Mexico
CINDY HYDE-SMITH, Mississippi        MAZIE K. HIRONO, Hawaii
MARTHA MCSALLY, Arizona              ANGUS S. KING, JR., Maine
LAMAR ALEXANDER, Tennessee           CATHERINE CORTEZ MASTO, Nevada
JOHN HOEVEN, North Dakota

                      Brian Hughes, Staff Director
                     Kellie Donnelly, Chief Counsel
  Brianne Miller, Senior Professional Staff Member and Energy Policy 
                                Advisor
                      Jed Dearborn, Senior Counsel
                Sarah Venuto, Democratic Staff Director
                Sam E. Fowler, Democratic Chief Counsel
          Brie Van Cleve, Democratic Professional Staff Member
                David Gillers, Democratic Senior Counsel
                
                
                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Murkowski, Hon. Lisa, Chairman and a U.S. Senator from Alaska....     1
Manchin III, Hon. Joe, Ranking Member and a U.S. Senator from 
  West Virginia..................................................     3
Cantwell, Hon. Maria, a U.S. Senator from Washington.............     5

                               WITNESSES

Capuano, Hon. Linda, Administrator, U.S. Energy Information 
  Administration, U.S. Department of Energy......................     7
Book, Kevin, Managing Director, ClearView Energy Partners, LLC...    23
Kavulla, Travis, Director, Energy & Environmental Policy, R 
  Street Insti-
  tute...........................................................    34
Moores, Simon, Managing Director, Benchmark Mineral Intelligence.    48
Zindler, Ethan, Head of Americas, BloombergNEF...................    59

          ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

Annual Energy Outlook 2019 by the U.S. Energy Information 
  Administration dated January 24, 2019..........................   109
Book, Kevin:
    Opening Statement............................................    23
    Written Testimony............................................    25
    Responses to Questions for the Record........................    98
Cantwell, Hon. Maria:
    Opening Statement............................................     5
Capuano, Hon. Linda:
    Opening Statement............................................     7
    Written Testimony............................................    10
    For the Record information in response to Senator King.......    75
    For the Record information in response to Senator Cassidy....    79
    Responses to Questions for the Record........................    93
Kavulla, Travis:
    Opening Statement............................................    34
    Written Testimony............................................    36
    Responses to Questions for the Record........................   100
Manchin III, Hon. Joe:
    Opening Statement............................................     3
Moores, Simon:
    Opening Statement............................................    48
    Written Testimony............................................    50
    Responses to Questions for the Record........................   102
Murkowski, Hon. Lisa:
    Opening Statement............................................     1
Western Governors' Association:
    Letter for the Record........................................   192
    WGA Policy Resolution 2018-09 for the Record.................   193
    WGA Policy Resolution 2018-04 for the Record.................   196
    WGA Energy Vision for the West...............................   199
Zindler, Ethan:
    Opening Statement............................................    59
    Written Testimony............................................    61
    Responses to Questions for the Record........................   107


   THE OUTLOOK FOR ENERGY AND MINERALS MARKETS IN THE 116TH CONGRESS

                              ----------                              


                       TUESDAY, FEBRUARY 5, 2019

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:51 a.m. in Room 
SD-366, Dirksen Senate Office Building, Hon. Lisa Murkowski, 
Chairman of the Committee, presiding.

  OPENING STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR FROM 
                             ALASKA

    The Chairman. Good morning, everyone. The Committee will 
come to order.
    This is our first hearing for the 116th Congress. It is 
good to be back at work. We have had a little bit slower start 
than we anticipated, but we are making up for it today with 
both our organizational meeting as well as our first official 
hearing.
    This is an action-packed energy day because we have an 
opportunity to take a cloture vote on a motion to proceed to 
our bipartisan lands package. This will happen later this 
afternoon. So many of you have been working with us on that, 
and we are really very pleased that we are going to be moving 
forward with that.
    While we wait for a quorum to begin the business meeting 
here this morning, I want to acknowledge and thank my former 
Ranking Member, Senator Cantwell, who for the past couple of 
years has been sitting right here and now she is a couple 
chairs down. But thank you, Senator Cantwell, for all that you 
have done as we worked together in this Committee to make good 
things happen, not the least of which is this lands package 
that we have been working on and so many other things. We are 
continuing to work in good faith and good measure on that, but 
I greatly, greatly appreciate what you have provided.
    I would like to recognize my new Ranking Member, Senator 
Manchin, a long-time friend and colleague from West Virginia. 
We have had more than a couple of meetings already, going 
through what the Committee might anticipate for the year ahead 
and some of the opportunities. I think we both look at this 
from the perspective of coming from states that are producing 
states, but we have a lot of challenges within the demographics 
of our state, working together to address some of those 
challenges and to advance the opportunities is what we are all 
about.
    I would also like to welcome our new members to the 
Committee. We have Senator Hyde-Smith who is with us from 
Mississippi, and Senator McSally from Arizona. I think we 
always have an Arizonan on the Committee. It must be a 
mandatory requirement or something, but we are very pleased to 
have you with us. I think you will find that you made an 
excellent choice in selecting the Energy Committee. We are a 
good committee. We work hard. We work in a bipartisan manner, 
and it is always good.
    Let me just give a little bit of a rundown in terms of what 
we are dealing with this morning. For the business meeting 
portion, we need to approve the Committee's funding resolution, 
ratify Subcommittee assignments and update our rules and our 
jurisdictional listings. These materials were transmitted to 
members last week, and copies have been provided.
    Our funding resolution in agenda item one authorizes the 
Committee to make expenditures out of the Senate's contingent 
fund to pay staff salaries, mailing expenses and other 
administrative costs. The Rules Committee, which provides the 
authorization levels, has requested that we report this 
resolution this week.
    With regards to agenda item two, the subcommittee 
assignments, I welcome our new Chairmen and Ranking Members to 
their roles. Senator Cassidy is going to be serving as the 
Chairman of the Energy Subcommittee with Senator Henrich as his 
Ranking Member. Senator Daines will be back as the Chairman of 
the National Parks Subcommittee with Senator King as his 
Ranking Member. Senator Lee is again Chairman of the Public 
Lands, Forests, and Mining Subcommittee and Senator Wyden will 
be his counterpart as the Ranking Member. And then finally, 
Senator McSally will serve as the Chairman of the Water and 
Power Subcommittee, and Senator Cortez Masto will be her 
Ranking Member. So, a great opportunity for all of you. I 
congratulate you on that. We are slightly modifying our 
jurisdictional listing so that bills relating to outdoor 
recreation resources are referred to the appropriate 
subcommittee on a case-by-case basis.
    Agenda item three contains certain changes to our Committee 
rules. As we explained in the materials that were provided, we 
are lowering the number of members needed for both a working 
and a reporting requirement. This reflects the decrease in the 
Committee's membership from 23 members down to 20 members in 
this Congress.
    Additionally, we are clarifying that an amendment filing 
deadline may be imposed for business meetings, if needed. 
Typically, we set these deadlines only once or twice a Congress 
and always in consultation with the Ranking Member.
    We are also making a few technical updates to reflect the 
fact that women actually serve on this Committee.
    [Laughter.]
    So we went through the language and noted that while we 
give a lot of support to the hes, maybe we just add an s to 
that as well, just kind of updating things.
    So before we are able to do any business, Senator Manchin, 
why don't I turn to you for a moment for any opening comments 
that you might make as we are waiting. Otherwise, once you are 
done with that if we still do not have a quorum, we will move 
to our hearing. I know that several members have conflicting 
obligations here just about ten o'clock.
    Senator Manchin.

              STATEMENT OF HON. JOE MANCHIN III, 
                U.S. SENATOR FROM WEST VIRGINIA

    Senator Manchin. Well, Chairman Murkowski, first of all, it 
is a pleasure to be with you in this position. Also, I want to 
thank Senator Cantwell for her leadership in what she has done 
and how hard she has worked and gotten the land bill ready to 
go. We are going to carry the ball over the goal line, if we 
can, today--starting today, anyway.
    But anyway, it is an honor to sit next to you. We are 
friends. We have been friends for a long time, and this is our 
first full Committee hearing in the Congress.
    I am honored to serve as Ranking Member of the Committee 
which has been around for 42 years as of--yesterday was its 
birthday, I believe. Right, Sam?
    I look forward to working with you, Madam Chairman, to 
tackle the biggest energy and natural resource questions facing 
our country, as well as beginning discussions on how we, as a 
Committee, can contribute pragmatic solutions to the climate 
challenges facing our country and the world.
    I would also like to thank Senators Wyden, King, and Cortez 
Masto for continuing to serve as Ranking Members on the Public 
Lands, Parks, and Water and Power Subcommittees. Also, I am 
glad to turn over the Ranking Membership of the Energy 
Subcommittee to Senator Heinrich and thank him for agreeing to 
do so.
    I want to take a moment to briefly touch on one rule change 
before us today which allows for filing deadlines to be set for 
amendments. I want to be clear that my understanding is that 
this is to provide all of our members more notice and time to 
consider what they will be asked to vote on, rather than to 
limit the ability of our members to offer amendments. We have 
drafted this to encourage collaboration and maintain the most 
flexibility.
    I am excited to welcome those witnesses here today with 
Chairman Murkowski and look forward to the conversation.
    In 2016, West Virginia, my little state, ranked fifth among 
the states in total energy production, according to the EIA. 
Our state has also consistently exported more electricity than 
we consume. We are a net producer. It is for that reason other 
states depend on us for reliable electric generation as well as 
coal and natural gas production. In fact, West Virginia is the 
seventh largest producer of marketable natural gas in the 
nation. Our underground gas storage capacity accounts for 
almost six percent of the nation's total capacity, which is 
critical in the winter months for the northeast.
    West Virginia, along with its neighbors, also has the 
historic opportunity to develop an Appalachian Storage Hub. 
This innovative regional storage and distribution hub would 
attract manufacturing investment, create jobs and reduce the 
rejection rate of natural gas liquids to the ethane, thereby 
reducing greenhouse gas emissions.
    West Virginia also accounts for 11 percent of the nation's 
coal production and is among the top three states in the amount 
of recoverable coal reserves at producing mines. Despite coal 
production declines around the country, Appalachian coal 
production increased for the second year in a row based largely 
on growth in coal exports to India, the Ukraine, Brazil and 
other nations.
    Beyond my state's leadership on energy production, I know 
all of West Virginia is committed to solving the climate 
crisis. The impacts of climate change are felt in every economy 
in every community across the world, and that includes my State 
of West Virginia.
    I have never met a West Virginian who wants to drink dirty 
water or breathe dirty air. The urgent need to clean up our 
climate is felt by everyone, and there is no reason rural 
America cannot be part of the cleaner energy solutions that we 
are working toward. We must work together to solve the problem 
and act now to lead the world in commercialization of carbon-
reducing energy technology that keeps energy generation 
resources cost competitive and reliable, 24/7.
    This is especially important during events like last week's 
polar vortex, where I know communities around the country are 
grateful for the energy supply and reliability that West 
Virginia provides.
    Last week's brutal cold provided another test case for how 
our electricity grid is often stressed and changing. On 
Wednesday and Thursday regional grid operators for the 
Northeast--which is PJM, and Midwest--which is MISO, put 
emergency procedures in place. PJM serves approximately 65 
million customers and includes my home State of West Virginia. 
On Thursday morning, PJM had one of its top 10 winter peak 
demand days in the last five years.
    While the system performed well, rising natural gas demand 
made it economical to bring on coal to keep the lights on and 
homes warm, and coal will continue to be a critical part of the 
fuel mix in extreme weather situations like this, even in 
states with aggressive clean energy goals. If it gets cold, we 
are still going to need to work together.
    Events like the polar vortex will continue to happen, 
continuing to underscore the importance of reliable energy; but 
it is clear as day that the United States does not lead in 
developing the technologies that will incentivize China and 
India to burn coal and natural gas in a cleaner way. It will 
not matter how much we do here.
    In 2040, the International Energy Agency predicts that coal 
will make up about 51 percent of China's electric mix. For 
India, it could be up to 57 percent.
    That is why I am encouraged to see leaders like Bill Gates, 
who is putting his money where his mouth is, in the clean 
energy race, particularly with respect to advanced nuclear 
technology.
    Climate change is real and communities across our nation 
have suffered the destructive effects associated with it. In 
2016, our little state was devastated by a flood that took the 
lives of 23 West Virginians. In the last four years, I have 
asked the White House for emergency funding six times due to 
flooding.
    There is no silver bullet. And I have spoken with Chairman 
Murkowski. I look forward to innovation discussions in expected 
climate hearings to see how this Committee can contribute to 
the pragmatic solutions that will work for every American.
    With that, I look forward to hearing from our witnesses 
today.
    The Chairman. Wonderful, thank you.
    Well it appears, quite clearly, that we are not going to 
have a quorum. I think this is what happens when you get back 
to work, and we have committee hearings that have just been 
stacked up. I know that there are three others that I am 
supposed to be at, but this is the one that I am going to be 
at.
    So let's go ahead and acknowledge that our business meeting 
will have to be held off the Floor at some later point in time.
    Senator Cantwell.

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

    Senator Cantwell. Madam Chairman, thank you so much for 
your comments earlier. I certainly want to recognize the great 
working relationship that existed between us and the great work 
in passing both the energy bill out of the Senate and our 
determination to get our House colleagues to understand the 
importance of cybersecurity, energy efficiency, and so many 
other things. I know that work will continue, and I am 
certainly very excited that we are apparently going to get to 
the lands package and finally get that over the transom.
    I did want to mention on the rule change--first I also want 
to say congratulations to Senator Manchin. I am looking forward 
to working with him and all of his interests, particularly in 
the areas of grid reliability and modernization, because I 
think there is so much that our nation can do in that regard. 
And so, I am very happy with your new role on this Committee.
    I definitely plan to, obviously, with the State of 
Washington's immense interest in the Committee, continue to be 
an active member. I am really looking forward to working with 
both of you in that capacity.
    On the rule five change, I was just trying to seek a little 
clarification. That is, I think we had a 24-hour notice on 
amendments. And so, I just want some transparency on--what is 
this now? Is it--will it be determined, you know, on a case-by-
case basis about the filing deadline or will it--I am just 
trying to get a sense of what that actually means?
    The Chairman. Well, Senator Cantwell, we will have staff 
also speak to us, but it is my understanding that there was a 
discussion about whether or not we wanted this 24 hours to be 
hard and fast in terms of a hard and fast deadline or more of a 
guideline, if you will. And so, that was why the language 
before the Committee to impose the filing deadline is softened 
with ``as warranted and in consultation with the Ranking 
Member.'' I think that was much of the back and forth and 
either Kellie or Sam, if you want to speak to that?
    Ms. Donnelly. We did not have a specific rule in the rules 
for the filing deadline. The Committee has had a longstanding 
practice of trying to work things out on a unanimous case basis 
between joint staff.
    And so, only a couple of times in Congress have we had to 
impose a deadline. This is just a signal in the rules that a 
deadline can be imposed, if warranted, but in consultation with 
the Ranking Member. So it would be done on a case-by-case basis 
and the instructions would go out three days in advance, along 
with the business meeting notice, so that everybody has 
appropriate time.
    Mr. Fowler. And I would simply add that more than two-
thirds of the standing committees of the Senate do have filing 
deadlines and none of them are the same, but this is probably 
one of the most flexible, most lenient deadlines.
    Senator Cantwell. Well, since we don't have an official 
adoption of this today, I guess I would hope that we could 
think about, you know, how we ensure transparency because you 
don't want for one week it to be 24 hours, the next week it be 
one hour before the business meeting and another time it's, you 
know, different.
    I think the fact that we had a standard was good. But, I am 
all for exemptions to the standard because I know there have 
been moments here in the Committee where we have come up with a 
brilliant idea to get out of a jam and wanted to offer the 
amendment right then and there. And so, I am not opposed to 
having that safeguard, if you will, to get through that 
process. But I am more interested in what kind of standard we 
can establish so people know and can plan for it as opposed to 
it being different from time to time. And then that way, 
members don't really plan accordingly.
    So I guess that all supposes that we are going to mark up 
lots of legislation which I hope we are going to continue----
    The Chairman. I hope we are going to.
    [Laughter.]
    Senator Cantwell. I hope we are going to continue to mark 
up things.
    I don't know if the other committees have--I think you can 
waive the rule, is that right, Sam?
    Mr. Fowler. Yes, and I would just point out that the 
Committee has never had a filing deadline in the rules before. 
Various chairmen and ranking members have agreed to encourage 
members to file by a certain deadline which has never been 
enforceable. This simply gives the Committee a basis in the 
rules to do what the chairs and ranking members have been 
trying to do on an informal basis in the past.
    The Chairman. Fair enough, and I hear your comments.
    Senator Cantwell. Food for thought.
    The Chairman. Yes, I hear your comments, Senator Cantwell, 
and I appreciate that. I think it just speaks, once again, to 
the very collaborative nature of this Committee that we really 
have not had an issue with this, that typically things are 
worked out between the staffs. And I think that is a real 
testament to their efforts as well, but consider that. Thank 
you.
    Well, let's go ahead and begin our first official hearing 
then. I really cannot think of a better way to set the stage 
here for this Congress than to welcome this panel of witnesses 
to look at the outlook for the energy and mineral markets.
    Whether we realize it or not, energy and minerals fuel our 
21st century economy and our standard of living. Access to 
energy and minerals, or perhaps lack thereof, can impact 
everything from health care to poverty levels, to defense 
readiness, to the strength of our manufacturing center.
    And the markets for energy and minerals are rapidly 
changing. In just the past decade we have seen a dramatic 
increase in domestic energy production with a corresponding 
decrease in energy imports. Our domestic demand has remained 
relatively flat, but world demand has risen. So it is a good 
thing that we are now the world's largest producer of oil and 
natural gas, with renewables growing rapidly as well.
    This remarkable shift has been a game-changer. We have 
realized substantial economic benefits here at home while also 
giving us options to help our allies to achieve a greater level 
of energy security. But we also face potential challenges, 
including questions about the reliability and resiliency of our 
nation's grid system as we lose baseload coal and nuclear.
    In contrast to the energy sector, our nation, in my view, 
is headed the wrong way on mineral imports. In 2017, we 
imported 50 percent of 50 mineral commodities, including 100 
percent of 21 minerals. This is a dangerous trend. It is really 
our Achilles heel that serves to empower and enrich other 
nations, while costing us jobs and international 
competitiveness. Over the past several years, our Committee has 
sought to call attention to our reliance on foreign nations for 
our minerals. The Administration has taken several important 
steps, but we must complement their actions with our own 
legislative actions.
    We have a great panel with us this morning to help us 
understand these market trends. Our witnesses are testifying on 
behalf of the Energy Information Administration (EIA), the 
ClearView Energy Partners, the R Street Institute, Bloomberg 
New Energy Finance and Benchmark Mineral Intelligence. We 
appreciate your willingness to share your expertise with the 
Committee.
    Senator Manchin, you had provided your opening comments. I 
don't know if you want to add anything at this point in time 
before I begin their introductions and have them--let's go 
right ahead.
    We are joined this morning, as I mentioned, from the U.S. 
Energy Information Administration by Dr. Linda Capuano. It is 
nice to have you back before the Committee. Mr. Kevin Book has 
been before the Energy Committee multiple times. He is with 
ClearView Energy Partners. Mr. Travis Kavulla is the Director 
of Energy and Environmental Policy at R Street Institute. Simon 
Moores is the Managing Director for Benchmark Mineral 
Intelligence, and Mr. Ethan Zindler, who has also been before 
this Committee several times, is Head of the Americas for 
Bloomberg New Energy Finance. Welcome to all of you.
    We ask that you provide us your comments and try to keep 
them to about five minutes. Your full statements will be 
included as part of the record.
    Again, we appreciate you being here and helping kick off 
this very informative session for the Energy Committee.
    Dr. Capuano.

        STATEMENT OF HON. LINDA CAPUANO, ADMINISTRATOR, 
  U.S. ENERGY INFORMATION ADMINISTRATION, U.S. DEPARTMENT OF 
                             ENERGY

    Dr. Capuano. Chairman Murkowski, Ranking Member Manchin and 
members of the Committee, I appreciate the opportunity to 
appear before you today to provide testimony on U.S. energy.
    This is a transformational time for the United States 
energy industry. After decades of importing more energy than it 
exports, EIA now forecasts that the United States will become a 
net energy exporter in 2020. The crossover to net exporter 
occurs as crude production increases and domestic consumption 
of petroleum products decreases. The U.S. produced almost 11 
million barrels per day of crude oil in 2018, and EIA expects 
the U.S. crude oil production will remain greater than 14 
million barrels per day through 2040. Favorable geology and 
recent technological and operational improvements have allowed 
petroleum liquids production from tight rock formations within 
the Permian region in Texas and New Mexico to grow to an 
average of 3.5 million barrels per day in 2018, compared with 
2.5 in 2017.
    The United States is now the world's largest producer of 
crude oil, surpassing Saudi Arabia and Russia. Our natural gas 
plant liquids production set an all-time high of 4.4 million 
barrels per day in 2018. The combined increases in crude oil 
and NGPL output, coupled with our refining capacity, has led 
the United States to become a major exporter of petroleum 
products. By the fourth quarter of 2020, EIA expects exports of 
petroleum products from the United States to exceed imports by 
an average of 0.9 million barrels per day.
    The steady increase in U.S. crude oil production 
contributes to a relatively steady oil price of $73 to $74 per 
barrel until 2022, after which crude oil prices are projected 
to steadily rise to $108 per barrel in 2050.
    U.S. liquid fuels net imports, which include crude oil and 
petroleum products, have declined steadily and we estimate they 
average 1.2 million barrels per day in the fourth quarter of 
2018. This is less than half of the volume the United States 
imported last year; however, while imports have declined, the 
United States will continue to import crude oil.
    Similar developments in domestic shale natural gas 
resources have enabled the United States to emerge as a net 
exporter of natural gas. In 2017, total natural gas exports 
from the United States exceeded imports and natural gas 
production reached an all-time high of 30 trillion cubic feet 
in 2018. In the longer-term, EIA projects that natural gas 
production will initially grow by seven percent per year, then 
slow to grow less than one percent per year after 2020. As a 
result, net U.S. exports will continue to grow as liquefied 
natural gas and pipeline exports increase.
    Abundant natural gas supplies and the resulting relatively 
low natural gas prices have led to other changes. Despite total 
U.S. electricity demand remaining relatively flat over the past 
decade, natural gas displaced less economically competitive 
sources of electric power generation to become the largest 
share of electric power generation in 2016.
    Wind and solar capacity and generation also reached all-
time highs in 2018. And under current policies and regulations, 
EIA's Reference case in our just-released Annual Energy Outlook 
for 2019 projects that renewable sources will surpass nuclear 
in 2019 and coal in 2025. As a result, EIA projects that carbon 
dioxide emissions will remain about two percent below the 2020 
level across the projection period to 2050.
    Relative to consumption, the AEO2019 Reference case assumes 
1.9 percent compound annual growth rate for real U.S. gross 
domestic product through 2050 and total energy consumption 
grows by 0.2 percent per year through 2050. Industrial 
consumption grows the fastest, taking advantage of relatively 
low natural gas prices, while electricity power consumption 
increases at a slower rate due to efficiency improvements. EIA 
projects that residential and commercial buildings will 
maintain relatively flat energy consumption and growth, and 
demographic shifts offset policy gains.
    EIA projects that the U.S. transportation sector will see a 
decrease in consumption through the mid-'30s as fuel economy 
increase offsets growth in vehicle miles traveled. However, as 
current regulations requiring additional efficiency increases 
expire after 2027, we project that motor gasoline consumption 
will start rising again, leading to total transportation sector 
consumption increases past 2040.
    And so, this is an exciting and transformational time for 
the United States' energy industry as world energy markets 
adjust to the United States becoming a major global supplier 
and exporter for the years to come.
    [The prepared statement of Dr. Capuano follows:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
    
    
    
    The Chairman. Thank you, Dr. Capuano.
    Mr. Book, welcome.

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

    Mr. Book. Good morning, Chairman Murkowski, good morning 
and congratulations, Ranking Member Manchin and distinguished 
members of the Committee.
    My name is Kevin Book and I head the research team at 
ClearView Energy Partners, an independent firm that serves 
institutional investors and corporate strategists. Thank you 
for inviting me to contribute to your outlook for energy and 
minerals markets. I'm grateful for the work you do to maximize 
economic and environmental security. The rapid pace of change 
in energy markets can make this task as difficult as it is 
important.
    Let me briefly summarize several takeaways from my written 
testimony.
    First, over the decade from 2008 to 2018, U.S. liquids 
supply vastly outgrew U.S. liquids demand. Supply rose by 9.3 
million barrels per day, a compound growth rate of 7.6 percent. 
And as EIA has noted, roughly 68 percent of global supply 
growth came from the U.S. Demand grew a little less than one 
million barrels per day, a compound growth rate of 0.5 percent, 
whereas global demand grew at nearly three times that rate.
    That is one case for exports and here is another. The oil 
we add to global supply benefits U.S. producers and overseas 
buyers but also U.S. drivers because U.S. pump prices tend to 
reflect global oil balances.
    Second, thanks to diversification and efficiency, 
generating $1.00 of U.S. GDP today requires about four-fifths 
as much oil as it did a decade ago. From a personal consumption 
standpoint, the average American now puts 17 percent less of 
his or her wallet into the gas tank and compared to other major 
consumer nations. U.S. demand looks more price responsive and 
less GDP bound. Put another way, overseas demand looks robust 
and pretty stable. ``Peak demand'' zeitgeist today may be as 
premature as peak supply seemed a decade ago.
    Third, for all that, demand risks do loom. Instead of 
gasoline leading global demand growth as it did from 2013 to 
2017, jet fuel and liquid petroleum gases drove demand growth 
last year. This may reflect efficiency gains and demand 
responses to higher prices, especially in countries with weaker 
currencies.
    Weaker global growth prospects could bring demand headwinds 
this year. So, too, could trade war. Import adjustments like 
steel tariffs can impair producer economics. It could be hard 
to see in a favorable price environment, but when price is 
weakened tariffs can deter or delay investment in production 
and infrastructure. Trade war can diminish market access.
    Oil tends to be highly fungible but not perfectly 
interchangeable. Mismatches between crude quality and refinery 
configuration can force producers to sell at discounts. And 
because LNG requires specialized regasification infrastructure, 
it can be particularly trade vulnerable.
    Trade war can also chill global activity economically by 
introducing frictional costs and stalling investment. This too 
is hard to measure, but deals that don't happen today may 
explain future export opportunities that fail to materialize.
    Fourth, OPEC continues to play a major role. Last year 
Saudi monthly output ranged from 9.9 million barrels per day at 
the low end to 11.1 million barrels per day at the high end. 
Full compliance with the targets OPEC and cooperating parties 
set last December imply output cuts totalling 1.3 million 
barrels per day.
    Meanwhile, unplanned outages are rising, Venezuela's output 
was collapsing before the latest U.S. sanctions, and new 
sanctions seem likely to accelerate production declines. Even 
so, new projects in Angola and Nigeria could help to offset 
Venezuelan losses, as could a continued output surge in Iraq.
    Thus, our firm currently anticipates a slightly 
oversupplied crude market for the year as a whole with key 
uncertainties remaining, Iran and Saudi Arabia.
    To close with three observations.
    For one, we are seeing a newfound energy security giving 
American diplomats greater flexibility to address geostrategic 
rivals by an economic statecraft. This is a big difference.
    Second, thanks to the demand changes I mentioned, high oil 
prices don't hurt our economy as much as they used to, but 
thanks to the supply changes I mentioned, low oil prices may 
start to hurt it more. Let me be very clear, few people want 
higher gasoline prices, but we may not want rock bottom crude 
prices either.
    Last, in 10 years the U.S. went from trying to survive 
scarcity to adapting to adequacy. Thanks to your strong 
leadership, Madam Chairman, and your colleagues, the Congress 
reconfigured America's energy security policy. The coming era 
of net exports that the Administrator mentioned promises even 
more opportunity, but realizing it could require even bigger 
policy changes.
    For example, as regulators reinterpret old laws for new 
realities, legal challenges create investment delays and 
uncertainty, especially for energy transportation 
infrastructure. Maximizing the benefits of exports may require 
greater regulatory clarity concerning the pipelines that move 
liquids and natural gas resources to export facilities, and to 
the extent that energy transportation has become a proxy 
climate battleground, such pipeline challenges may prove both 
less economically efficient and less politically durable than 
market-based price signals.
    Madam Chairman, this concludes my prepared testimony. I 
look forward to answering any questions you or your colleagues 
may have at the appropriate time.
    [The prepared statement of Mr. Book follows:]
    
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    The Chairman. Thank you, Mr. Book. We always appreciate 
your input.
    Mr. Kavulla.

 STATEMENT OF TRAVIS KAVULLA, DIRECTOR, ENERGY & ENVIRONMENTAL 
                   POLICY, R STREET INSTITUTE

    Mr. Kavulla. Thank you, Madam Chairman and Ranking Member 
Manchin, for the opportunity today.
    As Dr. Capuano noted, the electricity market is wrapping up 
a decade that has seen tremendous change that few analysts 
would have projected at the beginning of the decade. That fact, 
the unpredictability of the energy economy, suggests that it is 
important to have an electric market that does not pre-ordain 
outcomes through mandates or subsidies. Yet in some parts of 
the country, such as the western United States, many power 
plants still obtain contracts not through market-based pricing 
or competitive solicitations but instead based on regulators' 
guesses about what energy will cost over the next 20 years. 
Nearly all of these guesses have turned out to be wrong and 
consumers have suffered because of it.
    The Public Utility Regulatory Policies Act, or PURPA, was 
modified 15 years ago by Congress to allow FERC to update its 
implementation for changing market conditions. It is now time 
for FERC to do so by allowing states to use a robust system of 
competitive solicitations to meet their PURPA obligations.
    Elsewhere, states rely on regional transmission 
organizations, or RTOs, to deliver price signals to indicate 
whether a power plant should be built or an existing one should 
be retired. Because of this, Ohio and Pennsylvania have seen 
huge investments in shale gas and the Great Plains have seen a 
surge of wind.
    Unfortunately, not everyone is satisfied with competition. 
The sector is seeing a growing number of state legislatures 
intervene to stack the deck in favor of a particular outcome. 
We now have a sorry situation where many states are either 
mandating that certain resources enter the market or 
subsidizing other resources to prevent them from leaving the 
market. Some states are doing both at the same time.
    The unfortunate result of this trend is that nearly 
everywhere consumers are paying more than they need to for 
power plants that are not necessary to deliver them energy. In 
fact, NERC reports that all but a single region of the country, 
Texas, has generating capacity well in excess of customer 
needs. Wholesale prices reflect this glut of power capacity. In 
PJM, the RTO that spans from Virginia to Illinois, wholesale 
prices declined 40 percent over a decade. But even so, 
regulated retail rates, the dumping ground for the costs of 
these subsidies which consumers pay, have risen in the same 
area.
    Subsidizing uneconomic power plants leaves the remaining 
unsubsidized plants at a competitive disadvantage. FERC has 
attempted to deal fairness in the situation, but the proposals 
that it is now contemplating are sadly a road to nowhere. For 
example, FERC is now entertaining a proposal by PJM called, 
``carve out and repricing.'' Under this market design PJM would 
``carve out'' subsidized resources from participating in the 
capacity auction and ``reprice'' the auction's outcome as if 
those power plants simply did not exist. The PJM proposal thus 
invents a kind of parallel universe in order to get the right, 
which is to say higher, price.
    In the meantime, FERC has a lot of other work it could and 
should be doing. It has no more important job than to ensure 
the prices on wholesale electric markets actually reflect the 
system conditions underlying them, especially in times when the 
grid is stressed and resources are scarce. To give an example, 
last week parts of the United States saw the coldest 
temperatures in decades. Energy emergencies, as Senator Manchin 
pointed out, were declared by governors and the mid-continent 
independent system operators scrapped business as usual 
practices to ensure power plants were available.
    And yet, prices did not appear to reflect these stressed 
conditions. Market data from MISO and PJM show that at the 
Minnesota and Chicago pricing hubs, where temperatures were 
very cold, prices on January 31st peaked at $167 and $126 per 
megawatt-hour, respectively. These are four to six times higher 
than the average annual prices but they hardly reflect an 
emergency or anything close to stressed system conditions. In a 
grid that will eventually be more volatile because of a 
significant number of weather-dependent renewables, it is 
important that the prices actually reflect real-time system 
operating conditions and reward generators that are online 
during these times.
    Finally, as Mr. Book pointed out, the electricity markets 
operate across a physical network that needs to be robust in 
order to ensure the grid is reliable. There are too many 
examples where one state's siting and permitting decisions 
effectively act to obstruct one or more states' energy 
policies.
    Here it is worth contemplating the role of the Federal 
Government. There is a strong economic and reliability case 
that certain areas, such as New England, need more natural gas 
capacity while other areas, such as the West, could use more 
electric transmission. If efficient siting of this 
infrastructure cannot occur, then the robustness and 
reliability of the electricity market will always be in 
question.
    Madam Chairman, Ranking Member Manchin, I appreciate the 
opportunity and I've filed a full set of written testimony.
    [The prepared statement of Mr. Kavulla follows:]
    
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      the record.
    Thank you for joining us.
    Mr. Moores, welcome to the Committee.

STATEMENT OF SIMON MOORES, MANAGING DIRECTOR, BENCHMARK MINERAL 
                          INTELLIGENCE

    Mr. Moores. Great, thank you very much, Chairman Murkowski, 
Ranking Member Manchin, fellow Committee members. It's a 
pleasure to be back and for you to welcome Benchmark Mineral 
Intelligence.
    We are in the midst of a global battery arms race in which 
so far the U.S. is a bystander. The advent of electric vehicles 
(EVs) and energy storage has sparked a wave of battery 
megafactories that are being built around the world.
    Since my last testimony only 14 months ago, we have gone 
from 17 lithium-ion battery megafactories to 70. So, 17 to 70. 
In gigawatt-hour terms we have gone from 289 gigawatt-hours to 
1,549 gigawatt-hours which is equivalent to 22 million pure 
electric vehicles worth of battery capacity in the pipeline. 
The scale and speed of this growth is unprecedented, and it 
will have a profound impact on the raw materials that fuel 
these battery plants. The scale of investment will also drive 
the cost of lithium-ion battery production down below $100 per 
kilowatt-hour in this year. This adds extra impetus to this 
mega trend of battery megafactories and the impacts on the 
demand for critical battery raw materials of lithium, cobalt, 
nickel and graphite, have been unprecedented. For example, in 
the next decade the demand for lithium is set to go up nine 
times--this is lithium used in the battery industry. Cobalt is 
set to go up six times, nickel, set to go up five times and 
graphite anode, set to go up nine times. The question is how 
much of this mineral to EV battery supply chain does the U.S. 
control?
    So the way I view the battery supply chain is in three main 
elements: you've got the mine where the minerals come from, 
you've got the chemical refining aspect which is absolutely key 
to using those minerals or chemicals in the batteries, and then 
you've got the battery plants.
    For stage one, how much of that mined supply does the U.S. 
control? For nickel it's zero, for cobalt it's zero, for 
graphite it's zero, and for lithium it's one percent or 
something.
    For the chemical stage, where the know-how comes in for 
using these minerals in batteries, how much capacity does the 
U.S. control? Nickel it's zero percent, cobalt it's zero 
percent, graphite it's zero percent, and lithium it's seven 
percent.
    Battery capacity stage, where they make the actual 
batteries, the consuming plants: in 2018 the U.S. had nine 
percent, that was mainly from the Tesla Gigafactory in Nevada 
and by 2028 we're only forecasting 10 percent. So we're 
forecasting a relative flatline as this industry grows.
    Incidentally, China is on track to have 65 percent of 
battery capacity by 2028. It already has 51 percent of lithium 
chemical capacity, 80 percent of cobalt chemical capacity, 100 
percent of graphite anode capacity, and a third of nickel 
chemical capacity.
    Those that control these supply chains will hold the 
balance of industrial power for the 21st century auto and 
energy industries. And the question I have for this Committee 
is, does the U.S. or--what role does the U.S. want to have in 
this global energy storage revolution? Because it starts with 
these supply chains.
    I would like to extend my appreciation to Senator Murkowski 
and the Committee for holding hearings like this because they 
are vitally important to the industry and the supply chains.
    [The prepared statement of Mr. Moores follows:]
    
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    The Chairman. Thank you, Mr. Moores, for reminding us so 
clearly and directly of the importance of these significant 
minerals.
    Mr. Zindler, welcome.

   STATEMENT OF ETHAN ZINDLER, HEAD OF AMERICAS, BLOOMBERGNEF

    Mr. Zindler. Good morning, Madam Chair, and thanks so much 
for having me here at the first hearing of the year.
    I'm here today in my role as analyst at BloombergNEF 
(BNEF), a division of financial information provider Bloomberg 
L.P. Our group provides investors, utilities, oil majors, 
policymakers, and others with data and insights on the energy 
world and other sectors of the global economy undergoing rapid 
transformation.
    My remarks today represent my views alone, not the 
corporate positions of Bloomberg L.P. And, of course, they do 
not represent investment advice.
    As you've all heard, and I very much agree with the panel, 
how the world has been generating, delivering, and consuming 
energy are all evolving very, very quickly and radically. These 
changes have allowed new industries to flourish. The wind and 
solar sectors, for instance, now employ over 450,000 Americans 
while over 2.2 million Americans perform work related to energy 
efficiency. Meanwhile, major capital flows are flowing into the 
sector. Our firm counted $332 billion invested in new energy 
technologies in 2018 and have counted over $3 trillion, 
cumulatively, over the last decade.
    We believe that more change, much more change, inevitably 
lies ahead. In fact, the riskiest bet that investors, 
utilities, carmakers, oil companies, and even policymakers can 
make is to assume that the energy world that we live in today 
is the one that we will have tomorrow.
    To take one example, consider how personal transportation 
is changing and the implications for motor fuels demand. In 
2013, pure electric vehicles--that's EVs, not hybrid cars--
represented well under one percent of total vehicle sales in 
the U.S. By the fourth quarter of 2018, they topped four 
percent. China, which is the world's largest auto market, added 
1.1 million EVs in 2018 alone and there are now about 5 million 
of these cars on the road worldwide. By 2030, we project 1 in 
11 cars will be electric and by 2040, 1 in 3.
    Growth will be propelled by declines in the cost of 
lithium-ion batteries, the most expensive components of any EV. 
Typical battery prices have already dropped 85 percent since 
2010. As China, South Korea and others ramp up production, 
economies of scale will depress prices further. By the mid-
2020s, consumers will choose EVs purely based on price, not 
subsidy like today, and this important crossover could occur 
sooner if oil prices rise.
    We at BNEF are hardly alone in our outlook. The major oil 
producers have repeatedly raised their own projections for EV 
sales in recent years. More importantly, Total, BP, Shell, and 
Chevron have all invested in or outright bought, acquired, 
vehicle charging companies or even power utilities.
    One potential reason: electric transportation will by 2040 
subtract 7.5 billion barrels a day of demand for crude products 
by our estimate. We also think that much more change is 
inevitable in the power sector driven by cost declines and a 
move toward ``decentralized energy.''
    Prices for photovoltaic modules (PV)--the solar panels you 
might put on your roof--have fallen from approximately $4.50 a 
watt in 2008 to $0.25 a watt as of year-end 2018. For millions 
of U.S. businesses and homeowners, the decision to ``go solar'' 
is being driven by the chance to cut monthly electricity bills 
or lock in fixed rates for power. I'd also note that PV panels 
actually function perfectly well in cold weather. By the end of 
the next decade, solar will be cost competitive in most parts 
of the U.S. without the benefit of subsidies. PV generation 
will grow from about three percent today to approximately one-
quarter by 2050.
    The wind industry can tell a similar story as its 
generation costs have sunk by more than half since 2009 thanks 
to more efficient turbines, and we expect that eventually wind 
will grow to about 14 percent of generation by 2030.
    Of course, it's needed to accompany all this as greater 
penetration of ``flexible resources'' such as batteries, demand 
response, and pumped hydro. And along those lines, companies 
like AES, AEP, Southern California Edison, and Southern Company 
and others are already deploying large-scale batteries on the 
grid, or at smaller scale ``behind the meter'' in homes and 
businesses.
    I'd just like to close with one quick point about energy 
consumption and its role in climate change, because I would 
argue that no responsible conversation about energy policy can 
take place without thinking about CO2 emissions. Last year, 
U.S. CO2 emissions bucked what had been an 11-year trend 
generally downward. Instead, they rose 2.5 percent from the 
prior year, based on our preliminary analysis.
    The economy grew much faster in 2018 and that probably 
played a role. But the year also saw more extremely hot and 
cold days and, of course, last week we saw the same in 2019 and 
these appear to have prompted greater use of heating and air 
conditioning. That, in turn, boosted CO2 emissions. This raises 
the possibility that as we live with the effects of climate 
change today, it is becoming more challenging to cut emissions 
and address climate change tomorrow.
    As you can tell, I am fundamentally optimistic about the 
transformative potential of new energy technologies. But I am 
under no illusions. The dramatic changes we anticipate over the 
next three decades will not sufficiently cut CO2 emissions in 
the U.S. or worldwide to curtail the worst impacts of climate 
change as detailed by the scientific community. In other words, 
technology and economics alone cannot save us. New and better 
policies are needed to accelerate the transition. But that is 
where policymakers, not energy analysts, must have their say.
    And so with that, I'll stop and say thank you, Madam Chair.
    [The prepared statement of Mr. Zindler follows:]
    
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    The Chairman. Thank you, Mr. Zindler.
    Your comments this morning remind us that what we are 
talking about this morning is the outlook. I was reading an 
article from a few days back that was throwing rocks at the EIA 
analysis and saying, oh, you know, ``it underplays how rapidly 
coal will retreat from the market,'' ``fails to grasp the scale 
of growth for renewable energy,'' and ``it paints a picture of 
the future few utilities and energy analysts actually expect to 
see.''
    I am just reminded that whenever anybody gets out there and 
provides an analysis or an outlook, it is what you are dealing 
with at that moment in time. It is difficult to forecast what 
changes in policies we may see.
    So much of what all of you have outlined on the panel here 
this morning just reminds us that this is very much 
forecasting. In the political world we pay attention to those 
pollsters that we think are usually right and amongst the 
pollsters they have little side bets, I think, as to who is 
closest to being right. Maybe we need to do some kind of a pool 
for our analysts to see how close we got to the mark at the end 
of the year. But again, recognizing that we have an opportunity 
at the policy level to help change some of this in ways that, 
perhaps, we cannot even anticipate.
    I wanted to ask about some of the variables that are out 
there. Obviously there is a great deal of discussion and 
speculation about the impact of the situation in Venezuela as 
we are seeing those sanctions there. The impact, clearly, of 
the Iranian sanctions and how these all factor in.
    There have been multiple articles over the past couple days 
about what it means to our U.S. refineries and our ability here 
to do the mixing that goes on within our own infrastructure and 
structure.
    So, Dr. Capuano, Mr. Book, if you want to just comment real 
briefly on some of these external forces. I think you raised 
the issue--maybe both of you spoke to OPEC and that influence--
but you have some really external forces here that are 
difficult to factor in.
    Dr. Capuano. We put out our STEO monthly which does 
adjustments for production changes or shocks to the market. And 
if you read our last STEO, and our next one will be coming out 
in the next week, what we see are adjustments. So as production 
declines in some areas, we're finding that production in the 
U.S. will increase or production in other locations will 
increase. So we're finding that while it's disruptive, that 
there are adjustments that get made. And so, the oil and gas 
are flowing.
    But the question around the refineries gets into fuel mix 
so, you know, of course Venezuela has a heavy crude. Our 
refiners use the heavy crude in order to produce products. But 
there are other sources of heavy crude, for example, from 
Canada and others.
    And so, so far, if you read our STEOs we're seeing that 
adjustments are being made and while prices are changing 
modestly, that things are happening.
    The Chairman. Good.
    Mr. Book.
    Mr. Book. Just to amplify what the Administrator said, the 
heavy crude tends to price at a discount to the light, sweet 
crude that is the benchmark price you see on TV. And so, when 
refiners are bidding up for heavy crude, they're essentially 
buying a lower quality product that requires more processing. 
That eats into their margins.
    It happens to be occurring at a time when gasoline demand 
is weakening for a variety of reasons, probably some cyclical, 
some that I mentioned, efficiency-based. And so that's hurting 
their margins a little bit, having to chase heavy crude around 
the world where it can be found means a frictional cost.
    If the sanctions have an unexpected effect of shutting down 
production at a far greater rate, then it isn't just a question 
of Venezuelan barrels not coming to the U.S. but it actually 
becomes a question of Venezuelan barrels not going into the 
world. And in that shortfall environment the heavy price goes 
up still higher and actually you start to see some, sort of, 
secular move throughout the petroleum pricing structure upward 
because, in general, there's going to be less product in the 
world and folks are going to have to bid for it. The effect 
could still be very modest. There's a lot of dynamism in the 
system. One of the dynamics is that we have a strategic 
reserve. It's not perfect for heavy crude but it could add to a 
volumetric shortfall. The other dynamism is OPEC. The partners 
that we have in the Middle East are sensitive to our economic 
situation and sometimes respond.
    The Chairman. Thank you.
    Senator Manchin.
    Senator Manchin. This is going to be an interesting 
discussion because you all have a unique position in looking at 
the practical end of what we need to do.
    Mr. Moores, on the rare earth minerals, the challenges that 
we face right now--you kept saying zero, zero, zero, one. We 
are more dependent on that if we are going to reduce our 
footprint in the climate arena but not having any, you know, 
with batteries and storage and things of this sort, of not 
having control of our destiny. Should we be doing more with the 
rare earth minerals as far as strategically mining or basically 
processing them in the U.S. so we have our own reserves?
    Mr. Moores. Yes, that's a good point.
    Yeah, I think, I mean, to get U.S. supply security for 
these supply chains, the answer is simply, yes. The key is to 
value add, though, and try and build that supply chain within 
the U.S. So you have the resources but then you have to add on 
the two or three steps to get to a battery-grade chemical 
level.
    Senator Manchin. Sure.
    Mr. Moores. And I think that's the true challenge. But the 
U.S. does have the resources and in the main has the know-how.
    So really, it's got to have the impetus, and right now it's 
coming from the industry in a stop and start way. They're, kind 
of, almost waiting on demand to be even bigger and even more in 
their face than it is now. And so, there needs to be more 
impetus from, certainly from a government level, I think.
    Senator Manchin. What I would like to ask--maybe any of you 
who want to chime in on this--is what is the lowest hanging 
fruit that you see in the energy arena as far as reducing 
carbon pollution and being more efficient in what we are using? 
What is the lowest hanging fruit that we have that you all see?
    People make a decision to drive an electric car or not. 
They make personal decisions instead of taking a practical 
approach to what really needs to change. What moves India? What 
moves China? Their demand on using fossil fuels is greater than 
ever. Their appetite for it is well into 2040, 2050 in all 
predictions that you, Dr. Capuano, have mentioned.
    What is the low hanging fruit and what would drive us to 
make it more efficient in view of how we pollute, I guess? 
Kevin, you might want to start----
    Mr. Book. Sure, I'd be happy to, Senator.
    The importance of EVs is easy to overlook when it's such a 
small part of the base. As Ethan rightly noted, it will be a 
big part of the long-term picture. But while it is a small part 
of the base, it also isn't a big part of the solution. Every 
million electric, light duty vehicles is about 25,000 barrels 
per day of oil demand destruction, which isn't very much in a 
100 million barrel per day world. And right now, particularly 
in the U.S., consumers of electric vehicles tend to be wealthy 
and to use them less than typical users of primary cars.
    There's been a lot of efficiency gains in buildings and for 
that matter in industrial infrastructure in response to high 
prices, but there's a lot more room to be had in efficiency.
    Part of the issue----
    Senator Manchin. That is one of the lowest hanging fruits 
that you--I mean, we have identified and talked about that also 
is right there----
    Mr. Book. Absolutely.
    Senator Manchin. ----for the picking.
    Mr. Book. Yes.
    Mr. Kavulla. Maybe, Senator, rather than calling out a 
particular technology in terms of a regulatory structure, 
you're seeing the greatest decarbonization trend happening in 
the states that allow customers to go directly to the market to 
access sources of clean energy.
    So if customers don't have to rely on a utility which has a 
supply monopoly but can instead execute power purchase 
agreements or rely on retailers, that's seldom clean energy. 
You're seeing the greatest decarbonization happen there.
    So not a technology but rather a regulatory----
    Senator Manchin. What is the biggest challenge to that 
power purchase agreement? If a person wants to produce their 
own off the grid, then they want to sell back, they have to pay 
a price to get back in at the grid, correct?
    Mr. Kavulla. That's right----
    Senator Manchin. That has been the biggest obstacle----
    Mr. Kavulla. That's right.
    Senator Manchin. ----or challenge we have.
    Mr. Zindler?
    Mr. Zindler. Well just, the panel, both made some great 
points.
    Definitely on the corporate PPA side, or power purchase 
agreement, we saw a record last year and you see large 
technology companies, like Microsoft, Google and others, who 
have giant server farms that they can provide entirely clean 
energy for. You may have seen the Budweiser advertisement 
during the Super Bowl--they're bragging about their use of wind 
power as well. So that trend has definitely been something 
we've seen going up.
    You did mention something about China and I did want to 
just jump in and say one quick thing about that is that China 
does everything really big.
    Senator Manchin. They have to.
    Mr. Zindler. You're right, they are a consumer of fossil 
fuels.
    They also, as Simon mentioned, they are the largest 
manufacturer, and soon to be much bigger, and we agree with his 
research in terms of batteries. And that's because they're 
actually serving the domestic market. It's the largest market 
for electric vehicles and they're making a lot of batteries 
because they're going to sell a lot of them to cars. We don't 
have that same demand pull here in the United States, at least 
not yet.
    Senator Manchin. Doctor, do you have any input on that?
    Dr. Capuano. Well, when you look at--I think the low 
hanging fruit is gone but if you look at our graphs, and we've 
submitted some of these, you'll see that through technology 
investment and policy combined, we have been driving down the 
carbon intensity both of the grid, transportation and 
residential.
    And I think the very encouraging piece of data is that as 
you get out toward the next 10 or 20 years as our reference 
case, which is the base case to refer from, where you see the 
rolling off of policies, the investments in technology combined 
with the polices have allowed costs to come down so that you 
see that solar and wind, for example, are economically 
competitive and continue to grow at a slower rate.
    So the expectation is there will be more policy, but our 
reference case shows that there have been some successes now 
and that that's very encouraging. And the same thing in 
residential, it's, you know, we're seeing the shifts in 
demographics in terms of where people live, houses are getting 
bigger, and so, as a result the per square foot energy 
efficiency may be going down but the square footage is 
increasing. And so, again, more investments and more 
encouraging policies would reduce the energy intensity.
    There's no magic, I guess.
    Senator Manchin. I know that. Thank you.
    The Chairman. Thank you, Senator Manchin.
    Senator Barrasso.
    Senator Barrasso. Thank you, Madam Chairman.
    Several months ago, the U.S. became an energy exporter for 
the first time in half a century. According to projections, the 
U.S. is going to be a consistent energy exporter by 2020. To 
achieve this and ensure reliable, long-term energy supply to 
our allies, I think we need to build out the infrastructure to 
transport and export our energy sources.
    Dr. Capuano, do the EIA's projections consider expanded 
export infrastructure, including additional LNG export 
terminals and expanded pipeline networks?
    Dr. Capuano. Yes, LNG terminals and pipeline networks are 
included as they become approved or are getting very close to 
execution. They're included in our models.
    Senator Barrasso. And are there things that Congress can do 
to ensure that the United States maintains the title of energy 
exporter into the future, basically energy being the master 
resource that it is and our role in the world?
    Dr. Capuano. Pardon me, I didn't quite get that?
    Senator Barrasso. What are the things that Congress can do, 
I think, as a fact of energy being the master resource because 
it is a force multiplier? It could be used in so many ways as 
other countries use it as a weapon, as Putin has done. Are 
there things that Congress could do?
    Dr. Capuano. Yeah, I think the EIA data shows that policies 
have had an effect, because as they roll away you see changes. 
And so, I think that data can be used to help support your 
conversations about what kind of policies to execute.
    And again, EIA would be very happy to provide more details 
from our data. We publish our data but help explain the data in 
more detail.
    Senator Barrasso. Thank you.
    Mr. Kavulla, in your written testimony you note that states 
can sometimes unilaterally frustrate multistate energy 
projects. You highlight the millennium bulk export terminal as 
an example. In this case the State of Washington blocked 
construction of a coal export terminal that would ship Powder 
River Basin coal, much of it mined in my state, to Asian 
markets. We have it, the United States has it, Asian markets 
want to purchase it.
    How can states work together to ensure that the success of 
American energy is not threatened by a conflict between the 
states, because that is what we have going on right now with 
Washington State and its blockage of something that is a U.S. 
export that others want to buy and are happy to pay for but one 
state is unilaterally blind.
    Mr. Kavulla. Senator Barrasso, I think a good way to think 
about this is to consider those situations that you've just 
identified, where a state's energy policy is preconditioned or 
antecedent on a particular type of infrastructure which can be 
frustrated by another state, say by exercises of their Clean 
Water Act authorities. Trying to find those situations where 
those blockades can occur, whether it be on export terminals or 
electric transmission or natural gas pipelines, and then find a 
way for Congress to intervene or states to work together.
    Congress has previously tried to do that for electric 
transmission by building in shock clocks. The Federal 
Communications Commission does this for communications 
infrastructure siting, but sadly, there's a real lack of 
parallels to that that have really stuck in the federal courts 
based on their interpretations for energy infrastructure.
    But I think the framing that you've put on it is correct. 
It's really, it's become a state versus state conflict which 
seems to require some kind of federal oversight for 
intervention. And it will ultimately hamper not just the 
development of coal exports but even renewable electricity from 
interior states that have robust renewable resources.
    Senator Barrasso. Thank you very much.
    Thank you, Madam Chairman.
    The Chairman. Thank you, Senator.
    Senator Heinrich.
    Senator Heinrich. Madam Chair, I know you know that I am 
reticent to differ with you, given your expertise on these 
issues, but with regard to this particular issue you said it is 
kind of like forecasting. I want to suggest that predictive 
analytics should not be about forecasting. It should be about 
modeling, and we should be asking about these models and what 
goes into them and how that impacts what comes out of them, and 
then comparing what comes out of them to the patterns that we 
actually see in the industry.
    I have long been incredibly concerned with the wild 
inaccuracies in EIA's projections in the electric power sector 
and the failure to factor in the trends and technology to lead, 
not only to lower generation, to lower cost generation, but 
also early retirements of uneconomic generation. And year after 
year, we have seen EIA spectacularly estimate, underestimate, 
growth in renewable energy and gas generation, and this year's 
version seems to be no better, frankly.
    For example, the idea that coal will still provide 17 
percent of electric power in 2050, I think for most people in 
the industry today, is not credible. We have no new coal plants 
that are planned. Existing plants will be well past their 
useful lifetime. We are shutting down plants in my region of 
the country. I see similar trends in other regions of the 
country. So, more fundamentally, is it time, Dr. Capuano, to 
revisit your underlying model?
    Dr. Capuano. So I would point out that we do something that 
no one else does in the United States or, I think, globally, is 
we do a base case. It's a reference case. It tells you what 
will happen if nothing changes. That is not a forecast of where 
things will go. It's not trying to do a probability of where 
things are going.
    Senator Heinrich. But is that useful?
    Dr. Capuano. It is useful.
    Senator Heinrich. Because we all know that----
    Dr. Capuano. I would hope that it would be.
    Senator Heinrich. ----change is the only thing that we can 
truly rely on.
    Dr. Capuano. I would hope it would be useful to help you 
understand how much work has to be done to get to where you 
want to go. So where else do you go to find out how impactful 
your policies are or whether your policies are being effective 
or what happens if they go away?
    Aspirational or visionary models or statistical or 
probability models of what's the probability it's going to 
happen are rampant, and they are very useful but no one else 
does one that says this is what happens if everything stays the 
same.
    Senator Heinrich. I think my challenge is that for the vast 
majority of businesses, as well as the public, most people 
don't understand that there is a reference case or what that 
even means.
    So they look at examples such as wind energy, and in this 
model you see almost no additional capacity either onshore or 
offshore after 2022. And yet, we look around at what is going 
on right now and you have the Department of the Interior 
awarding wind leases for up to four gigawatts off the 
Massachusetts coast in the last few weeks. You have New Jersey 
planning a gigawatt. You have Virginia planning multiple 
gigawatts. You have New York announcing a wind target of nine 
gigawatts. And you look at the testimony today from Mr. Zindler 
who suggests that wind power is probably going to grow from 6.5 
percent of generation to 14 percent of generation by 2020 which 
is roughly double your base case estimation.
    And if people see that, I don't know that this is a useful 
exercise for us to go through when the base case is so far 
removed from reality, especially given the fact that many 
people will look at that and they will make business decisions 
about where to place bets, where to invest, based on a 
misinterpretation of a model.
    Ms. Capuano. Thank you.
    Senator Heinrich. Mr. Zindler, let me go to you.
    How do your clients at Bloomberg New Energy Finance view 
EIA's Annual Energy Outlook in terms of its usefulness for 
making business decisions?
    Mr. Zindler. Well, let me try and be diplomatic here and 
just say that----
    [Laughter.]
    ----first of all, as was noted, making predictions is hard 
as Yogi Berra once said much more artfully than I just did. And 
we, as a firm, have been forecasting the price of solar for 10 
years and we've been much more aggressive in our projections of 
how fast prices will come down and how fast adoption will pick 
up. And we have been consistently wrong on the low side.
    Senator Heinrich. On the low side.
    Mr. Zindler. Right.
    So, it's hard to do. I just want, sort of, to preface that.
    The second point I would make is that with well respect, we 
actually, our forecast, we do think is actually, is policy 
neutral. We assume policies sunset. Well, for instance, we 
don't assume that production tax credit sticks around forever.
    And third, small correction, which is that we think that 
wind gets to about 14 percent by 2030, not by 2020.
    Senator Heinrich. Yes. My mistake, not yours.
    Mr. Zindler. But to your question, I think the short answer 
is, it is the EIA, yes, has been a source of frustration to 
those in the clean energy sector for a long time and, I think 
increasingly, in the conventional energy sector as well.
    We forecast coal doesn't disappear by the way. We think it 
does eventually drop to about 10 percent of generation but not 
17 percent.
    Senator Heinrich. Thank you, Madam Chair.
    The Chairman. Thank you, Senator Heinrich.
    I can take that. It is okay. We are going to be just fine 
this Congress.
    Senator Cortez Masto.
    Senator Cortez Masto. Thank you. Thank you, Madam Chair and 
thank you and welcome to the new Ranking Member. I look forward 
to working with this Committee.
    Let me open this up to the panelists. One thing I am very 
excited about which has been brought up, specifically in Mr. 
Simon's testimony, is the recent rise in the use of electric 
vehicles. Last year there were, I think, about 361,000 electric 
cars sold, which is up 81 percent over 2017.
    But despite this exciting growth, Dr. Capuano notes in her 
testimony that assuming no further policy action, the 
plateauing of fuel efficiency gains in 2027 is projected to 
result in increasing consumption of motor gasoline after that 
time.
    I think we need a broader national outlook and strategy to 
increase the adoption of zero emission vehicles to ensure we 
can compete with countries like China and the EU.
    So my question for the panelists is, what are some 
challenges with differing state by state approaches to energy 
markets and regulation that need to be overcome to help develop 
a consistent national framework for integrating electric 
vehicles and their infrastructure into our energy system?
    I don't know where we would like to start, if anybody has 
comments on that or can provide enlightenment on this?
    Mr. Kavulla. I can start on the regulatory framework 
because I'm a former public utility commissioner (PUC); you're 
right that it's all over the map with PUCs.
    Some PUCs have regarded their regulated utilities as 
central investors in electric vehicle charging infrastructure, 
something that would go in rate base, be paid for by their 
captive set of customers. Other people favor a more liberalized 
model of electric vehicle charging stations. That's a policy 
debate that right now is being resolved on a state by state 
level. Obviously, if we hope to have nationwide deployment of 
electric vehicles and across state transport with electric 
vehicles, much will depend on how that question is resolved in 
the state level.
    Senator Cortez Masto. Right.
    Mr. Kavulla. And I think other people would probably have 
something to say about the technical aspects.
    Senator Cortez Masto. Anyone else?
    Mr. Book. I would just say that there's, when you look at 
EV penetration, there's a lot of factors to consider. The 
hardware cost is higher. The variable cost is lower. So, the 
average cost will start to become very competitive with 
conventional vehicles when the hardware cost converges to the 
cost of conventional vehicles.
    One of the things that changes those is the variable cost 
of those conventional vehicles. The more efficient internal 
combustion engines get the more it pushes back that organic 
break-even point. The reason that's important is that part of 
the policy question you're asking is theoretical in nature 
right now and it will become a panic when it stops being. The 
curve doesn't go gently upward. It hits a kink and then it 
rockets off the page. There's essentially a point where the 
economic proposition dominates and consumer choice probably 
takes us into a very different vehicle mix. And so, not having 
policy set ahead of that time can be problematic, but setting 
the wrong policy ahead of time is also problematic.
    Senator Cortez Masto. Right.
    Mr. Book. So you don't want to get too far ahead of it.
    Senator Cortez Masto. Are there things we should be doing 
at a federal level to help address this or take a look at this 
and plan for the long-term?
    Mr. Zindler. I mean, I'm not quite sure I know enough about 
the law to know how you could intervene on some of these state 
questions. But to me, one of the interesting ones to your 
original question is who gets to sell electricity?
    You know, certain states it's very heavily regulated about 
who can actually have those responsibilities. And you know, 
we're going to need a lot more charging infrastructure and it 
would sure be nice to be able to charge my electric vehicle at 
Starbucks every time I went there or where ever that is, you 
know, where I spend a logical half hour, you know, every week 
or two. So, there's not always the freedom to do that kind of 
thing.
    To Kevin's point also, I would just agree that there's a 
lot of ways to look at what the economic crossover point will 
be and in a perfectly logical, economic world, the consumer 
would look at the sticker price of the vehicle, do the math of 
how much gasoline they might have to buy, do the math on how 
much electricity they'd have to buy. Net that all out and then, 
you know, make a decision.
    We tend to think consumers are just more likely, like Kevin 
said, the moment they walk into the showroom and the EV is 
cheaper, then they'll buy it. And that's probably what will 
influence behavior going forward.
    Mr. Kavulla. One very concrete idea for you, Senator, would 
be and it's somewhere where the federal Congress would be 
involved is the prohibition on any commercial activity or most 
commercial activity at federal highway rest stops. Obviously, 
the introduction of electric vehicle charging stations there 
could facilitate some of the cross-state aspirations of 
drivers. Right now, they face an impediment because of that 
prohibition.
    It's something my R Street colleagues and I have been 
working on, and I'd be happy to follow up with you.
    Senator Cortez Masto. Thank you.
    Thank you to the panelists. I notice my time is up.
    Thank you.
    The Chairman. Thank you.
    I understand Senator Cassidy is going to defer to Senator 
King?
    Senator Cassidy. He owes me his first-born child.
    [Laughter.]
    Senator King, it is up to you.
    [Laughter.]
    Senator King. Thank you, Senator, I appreciate it.
    We are talking about a lot of the studies about exports and 
imports. We are now exporting a great deal more. Do you have 
any data on exports of natural gas and where that has gone? 
There has been a lot of talk in the last two or three years; 
are those LNG facilities actually being built and are they 
exporting and, of course, what I am interested in, in the long 
run, is will those exports reach a point where they will have 
an effect on domestic prices?
    Dr. Capuano. So you're asking what's happening with the----
so in my opening remarks I did----
    Senator King. We know oil is being exported. Is natural gas 
being exported in a substantial----
    Dr. Capuano. Yeah, yeah.
    So in my opening remarks I did comment on the fact that 
natural gas--let's see, where are they?
    Senator King. I apologize.
    Dr. Capuano. Yeah, that's okay.
    So, that same developments in domestic shale and natural 
gas resources have enabled the U.S. to emerge as a net exporter 
of natural gas. The total natural gas exports from the U.S. 
exceeded imports and our production is at an all-time high of 
30 trillion cubic feet in 2018. And we project that it will 
grow, initially, by seven percent per year and then slow to one 
percent per year after 2020.
    And so, we now are seeing an increase in both pipeline and 
liquefied natural gas and there are going to be more facilities 
built.
    Senator King. What I would like to urge you to do in your 
data collection is to integrate those projections with price 
projections.
    My concern is that we start to export and reach a point 
where supply is tighter and domestic prices go up. So perhaps 
that is something we could follow up later.
    Dr. Capuano. Yes, we can follow up with you when we do 
address that in some of our projections. What we're seeing is 
that production, as the prices go up, production will increase 
and so, we do not see a lot of that.
    But yes, we have more details that we can provide to you, 
yes.
    Senator King. I would appreciate that. Thank you.
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    Senator King. Mr. Moores, we were talking about raw 
materials components. In your testimony you talked about the 
greater demand. Are we adequately prepared for a rapid 
transition to greater electrification which is going to require 
more of these battery materials?
    Mr. Moores. Yes, quite simply.
    Senator King. I mean, are we prepared for it, do you think?
    Mr. Moores. No, sorry, you are not prepared for it.
    Senator King. I was surprised.
    [Laughter.]
    Mr. Moores. No, no.
    You have the ingredients, the raw material, the know-how, 
but there's just no impetus to link that all together in the 
moment. There's no encouragement of converted integration in 
the supply chain from the mine to the lithium-ion battery 
plants. So, yeah.
    Senator King. Do you foresee a bottleneck here as 
electrification increases, that the minerals for the batteries 
will be a bottleneck?
    Mr. Moores. Yes, globally actually, not just for the U.S. 
but the U.S. has zero of these raw materials, almost zero of 
these raw materials actually being mined at the moment. So----
    Senator King. That is obviously a concern I think we have 
to be thinking about so we are not cutting off a promising 
development.
    On the question of electric vehicles, one of the things 
that has always occurred to me is that when will most--I am 
asking a question. When will most people charge their cars? At 
night.
    The grid is grossly inefficient in the sense that it has 
great excess capacity at night. We have excess generating 
capacity at night. It seems to me one of the keys to this would 
be time-of-day pricing to make it even more economically 
advantageous and to benefit all ratepayers, because the grid 
doesn't need much in the way of additional wires and poles to 
accommodate this if we come in at night when there is so much 
excess capacity.
    What are your thoughts about that as a former state 
regulator?
    Mr. Kavulla. I absolutely agree. I mean, we're not 
sending----
    Senator King. That's great. I like that.
    Mr. Kavulla. Yeah, we're not sending efficient price 
signals in general to consumers, only----
    Senator King. I mean, power at night has no value, almost.
    Mr. Kavulla. That's right. And the fact is we were talking 
earlier about the cold last week. Retail customers were paying 
the same retail rates when it was cold and the system was 
stressed as they will when the system has tons of surplus 
capacity.
    There's good policy reasons and equitable considerations to 
make sure that retail customers don't experience volatile price 
spikes, but there is some good sense in trying to send signals 
to certain customers that could have their own cars or homes 
act as resources to help balance the system and provide 
reliability. And time of use pricing gets you there.
    Senator King. You are singing my song, distributed energy, 
more self-healing grid, national security, all of those things.
    I am old enough to remember when phone rates went down at 9 
p.m. and people sat around and watched their watch and when it 
crossed 9 p.m., you called mom. People will adjust their 
behavior given the proper price signals.
    And right now, at least in most places in the electrical 
sector, those signals do not exist.
    Sir? Mr. Zindler?
    Mr. Zindler. Can I just add a real quick thing which is, I 
wholeheartedly agree although I will add one other point which 
is that I think actually, a lot of electric vehicle charging 
will take place overnight anyway. I mean, I've had an EV in my 
garage for five years and I think we've used a public charging 
station about two or three times because we can just literally 
plug it in the wall when we go to bed. We all sleep. It's a 
good time to charge your car.
    So, yeah, you could incentivize it and I think that's a 
great idea. It definitely helps.
    Senator King. I wouldn't call it an incentive. I would call 
it rational economic pricing.
    Mr. Zindler. Agreed, totally--it may not help, but I think 
the consumers will trend that way anyway which is a good thing 
as long as they have a garage. That's a big asterisk there.
    Senator King. I have an EV and don't have a garage, so I 
have to pay the Senate an arm and leg to charge it here at the 
garage.
    [Laughter.]
    Thank you, Madam Chair.
    The Chairman. I don't know, Senator King, what does it say 
about those of us that still wait until after 9 p.m. to make 
that telephone call?
    [Laughter.]
    Senator King. Those price signals stick with us, Madam 
Chair.
    The Chairman. They do. They do.
    But I am on Alaska time too.
    Senator Cassidy.
    Senator Cassidy. It could mean you don't want to call your 
mother, but that is another issue.
    Thank you all, great testimony.
    Dr. Capuano, there has been a lot of discussion regarding 
the increased use of renewables but as I understand, the 
physics of our current technology, kind of, top out as to the 
efficiency both the wind turbines and the ability of the 
batteries to store energy and that these are immutable, if you 
will, there are laws of physics which in turn will top out the 
contribution that renewables can make to an overall energy mix.
    I think I know that IEA has, kind of, begun to taper off 
the growth in renewables as a mix of U.S. economy.
    Any comments on that? Would you agree, disagree?
    Dr. Capuano. So when you look at the EIA projections out to 
2050, what you're seeing is the roll off of policies that are 
causing the slow down and the renewables are being absorbed 
into the grid.
    And so, that obviously, there are mechanisms that can 
change that.
    You're not seeing that the physics limits are not causing 
the slow down out to 2050. And I, you know, the investments in 
technology are causing improvements and cost reductions. And 
so, out to 2050 we're not seeing those limits.
    Senator Cassidy. But let me, kind of, quote here and I just 
say that because obviously for increased use of renewables 
there will have to be substantially increase in efficiency, not 
marginal, not going up 6 percent or even 10 percent, but rather 
50 percent, if you will or more deployment. But I am also told 
that, for example, where wind is deployed the choicest places 
have been filled, if you will.
    So, let's see if I have it right here. Of course, if I look 
for it, I won't find it.
    Oh well, that the, suffice it to say, well for example here 
for the batteries. ``The physics of using silicon to convert 
photons into electrons ends at about 33 percent conversion 
called the Shockley-Queisser Limit. The most recent 
announcement of high efficient silicon sells with 26 percent 
efficiency are approaching the limit. More efficiency is 
possible but no tenfold gains left.'' This is out of the 
Manhattan Institute.
    Would you dispute that or kind of acknowledge it and say 
maybe we will find something else to do?
    Dr. Capuano. So, EIA is not really the technology end of 
the DOE. So if I can get you from DOE the answers to where 
these physical limits are, but since we're doing, we do 
modeling of the energy production, energy consumption and we're 
not hitting those limits, we do, definitely, put technology 
improvements into our models.
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    Senator Cassidy. Okay.
    Dr. Capuano. Okay.
    Senator Cassidy. But you rely upon others to say what those 
technology improvements have the potential to deliver? That is 
fine. That is fine.
    Mr. Book, I really liked your testimony because I think 
that we oftentimes divorce emissions from carbon intensity and 
from GDP growth. We can lower emissions if we go back to a 
stone age economy, but most do not wish to do that. And so, I 
like your pointing out that over the last period of time we 
have actually decreased in several sectors the energy intensity 
by about 20 percent.
    You also point out that India and China are going in a 
different direction. Is that inherent as to the state of their 
economy relative to ours or could they also begin accomplishing 
some of that which we have accomplished?
    Mr. Book. Well, Senator, their energy intensities are also 
falling largely, but they're falling from a much higher place 
and not always at the same slope.
    From the perspective of whether they're doing better or 
worse, they're doing a lot worse from an economic perspective. 
So, that energy intensity that they face is more of an economic 
problem for them because per capita incomes are lower.
    So, we really have it good two ways, right? We're more 
efficient users with higher per capita incomes.
    I think also just to your prior question, I sense that your 
question is about the physical limits and I think the 
Administrator's point was that that's not what's breaking the 
model.
    One of the things though is that energy has tradeoffs. So 
we don't necessarily buy the 33 percent efficient solar panels, 
and there's barely any that I think that have ever been made. 
The highest are in the high 20s. We mostly buy them in the 
teens, and it takes a lot more space as a result.
    So the tradeoff when you have energy that is renewable is 
often that you're going to have to use more space or there's 
other aspects of renewable energy that, just like conventional 
energy, there's a downside that comes with the upside. And one 
of the things that's hard to see when you're at a small 
penetration level is what that downside is like. But as we get 
to a higher penetration level, long before we're stopped by 
those physical limits, we run into real problems. And these are 
some of the problems that you can see in developments where 
environmental challenges against solar arrays in the desert 
because of biodiversity concerns are showing up. That's what 
it's like to be big time. And so, there are definitely other 
factors that create drag on some of the projected growth rates.
    Senator Cassidy. I am out of time. I agree with you. I am 
all for renewables, but I do think we have to be sensible if we 
are going to promote economic growth which obviously requires 
energy. So again, I thank you for your testimony.
    I am out of time. It is the deference of this.
    The Chairman. Go ahead.
    Mr. Zindler. Let me just jump in real quick on solar.
    Just first, I don't think the numbers you quote are wrong 
in terms of the efficiencies and the 33 percent cell is 
probably what you'd find on a NASA, you know, space mobile. As 
Kevin says that we're looking more like 19, 20 percent.
    But very importantly, I think it's important to understand 
and acknowledge what's going on with batteries right now 
because the price of batteries has absolutely collapsed in the 
last seven or eight years. And we forecast that they will 
continue to decline very rapidly. And that's not because I have 
some sort of Messianic religious belief in technology, it's 
because China is about to swamp the market again with battery 
manufacturing. That's going to push prices down.
    And if you look at some of the bids to provide power on a 
more round the clock basis in places like Arizona and, most 
recently, in Hawaii, the cost and the bids that are coming in 
are very, very low for solar plus storage.
    I think, to be clear, that's being subsidized with a 
federal tax credit which is helping to depress those prices but 
it's getting much cheaper. And we view that crossover as 
coming, for sure.
    So you're right, the system is limited in how much you can 
just throw a ton of solar on, but eventually we'll have enough 
storage to help address that.
    Senator Cassidy. But going back to Mr. Book's point, that 
will be a lot of space for that storage.
    Mr. Zindler. Batteries are, by comparison to the acres that 
you need for photovoltaic panels, batteries are relatively 
small.
    Senator Cassidy. Thank you.
    The Chairman. Thank you.
    Senator King. Madam Chair?
    Senator Cassidy, one thing you mentioned about wind, the 
choicest places have been filled and to some extent that is 
true on land, but there is a gigantic, untapped potential for 
wind offshore. That is--it dwarfs what is on the land. The wind 
blows, the efficiency, the capacity factor is higher. So I just 
want to point that out that we've done a lot on land, but 
offshore is where the future is, I think, in terms of really 
large scale.
    Senator Cassidy. Which is why, Senator King, Senators 
Murkowski and Cassidy want you to get on our revenue sharing 
bills.
    [Laughter.]
    Senator King. So we can share some of those revenues from 
those wind turbines.
    The Chairman. That's exactly right.
    [Laughter.]
    Exactly right.
    Senator Hyde-Smith.
    Senator Hyde-Smith. [off-mic]--serving on this Committee, 
and I look forward to working with you and think good things 
will happen. Thank you.
    The Chairman. Thank you, Senator Hyde-Smith. Again, we 
welcome you to the Committee and look forward to your 
engagement.
    Talking about those policy changes that we can actually see 
are coming. Some of them are a little bit speculative, but we 
know that at the end of this year we have a regulation coming 
at us from the International Maritime Organization, IMO. This 
is this IMO 2020. It is going to go in effect overnight. On the 
31st it is business as usual, and on the first we switch over 
to a further capping of the amount of sulphur that is allowed 
in marine fuel. It is a pretty significant drop down with the 
cap, down to 0.5 percent from 3.5 percent that it is now. So 
this is significant. We know that it is going to produce some 
real positive benefits.
    I have been talking to some of the U.S. refiners who have 
been working to incorporate this and they have made the 
investments based on these regulations that they know are 
coming at us. But give me your, again, your assessment and this 
is directed to you, Dr. Capuano and Mr. Book, the best estimate 
for what this shift is going to mean for the middle distillate 
market and the impact on pricing for diesel for jet fuel and 
recognizing that we are leading up to this as well.
    I am assuming this is all factored.
    Dr. Capuano. Well, you actually pointed out that the United 
States' refiners have been positioning. We have many complex 
refiners who deal with heavy, sour crude and we also have 
balancing crude here in the U.S., light and sweet. So not only 
do they, would they put them through the crackers but they 
could also do blending.
    So the refiners, in general as a class, the refiners are 
able to accommodate this. There, of course, is a big shifting 
at the global level in terms of the flow of fuel since the 
location and the bunkers that will have the lower sulphur fuel 
will be in different, you know, different places. And so, 
things will have to be moved around at a different rate.
    And so, I'm going to leave it to you----
    [Laughter.]
    The Chairman. What is going to happen to the prices? That 
is what people want to know.
    Dr. Capuano. Yeah.
    Mr. Book. Okay, well, you know, with the, I think the 
important caveat that Senator Heinrich established that models 
tend to be fraught with peril, particularly the further you go.
    We just yesterday published a projection of a range between 
9 and 26 percent diesel increases for perhaps a short-term with 
a central tendency around 21 percent.
    The Chairman. But during what time period? Beginning this 
year or next year?
    Mr. Book. So, then that's the key question really. There's 
a couple of factors. One is compliance rates. The second, of 
course, is government intervention and if there's an agreement 
to push things back. But right now, we expect the adoption to 
begin well before the first and probably by 3Q.
    The Chairman. Because this is not just adoption by the 
United States.
    Mr. Book. No, no, no, no, no.
    The Chairman. This is actually globally. So it is a big 
market.
    Mr. Book. And it takes a while for these big ships to clean 
out their tanks and to test out new fuels.
    And so, some of the stress that we could see will start to 
emerge, probably if there is stress, in the third and fourth 
quarters ahead of the cutover.
    By the time things start to normalize, there's a lot of 
offsetting factors. One is the ships can steam slower. They can 
be more fuel efficient. There's truly people who could choose 
to disobey the law, although we think compliance is probably, 
you know, 70 to 80 percent, globally.
    But in addition, there's also the call on distillate. You 
can run refineries harder. And when you run refineries harder, 
you start to get to less of a shortfall. So the volumetric 
shortfalls, marine bunker fuels are roughly 3-3.5 million 
barrels of consumption a day. And the shortfall could be 
somewhere in the half million range in the most, sort of, 
beneficial workout for a short period of time while the 
transition continues. It might be as much as 1.5.
    And so, there's a lot of factors that determine it. We're 
thinking it's going to be closer to, sort of, about the one 
million barrel per day. And that exerts a price effect, 
probably. Without that price effect, though, you don't get 
further transitions in the refining kit around the world to 
make the conversion.
    So it's a complicated problem. And in essence, as you say, 
there is an environmental signature to doing this. Here in the 
U.S. and in Europe we're already at a much lower sulphur level 
in our environmental regulations in coastal areas as it is.
    The Chairman. I am just very keenly aware that even with a 
looming deadline, sometimes you have the view or the attitude 
that well, we will just push that deadline off. Well, we are 
not quite ready for it.
    I think it is important to recognize that, again, this is 
not just something that Congress or the Administration has laid 
down. This is an international maritime agreement, if you will, 
in terms of these regulations. How we are teed up to abide by 
that and not to be shocked when we see this change come into 
place is something that we need to start paying attention to.
    Senator Manchin.
    Senator Manchin. On the refineries, I just need to ask the 
question. Even with the refineries that we have in the United 
States today and our newfound position as far as crude 
production, we are still importing, correct? Is that because of 
the refinery capacity, the type of refineries we have, or 
because we have not been able to make the adjustments, or are 
they making the adjustments since we have----
    Mr. Book. It's not a question of not able to make. It's a 
question of optimizing. So, to make the most money here at 
home, create the most jobs here at home.
    What they're doing is they're set up so that they can bring 
in imported crudes at a lower price, heavier, sourer crudes, 
process them, mix them with their light. They are definitely 
tooling up to use more light oil and expanding capacity here in 
the U.S., but the continued use of heavy crudes as to enable 
them to make more profitable products across the slate.
    Senator Manchin. Sure.
    Mr. Book. So we will continue to import those heavy crude.
    Senator Manchin. For economic purposes?
    Mr. Book. Yes.
    Senator Manchin. But not for strategic----
    Mr. Book. Well, if you want to count barrels that have the 
net balance be zero, we're going to get to that point by their 
projection at the end of the next year, potentially. But in 
terms of zeroing out total gross import flows, that's not 
really in our economic interest.
    Senator Manchin. Gotcha.
    Mr. Book. We want to make the most money, create the most 
jobs.
    Senator Manchin. The current nuclear fleet faces severe 
economic challenges in today's market. Since 2013 five nuclear 
plants have closed, and six plants are scheduled to shut down 
by 2025 due to economic challenges.
    Some states have been able to prevent shutdowns with state 
policies like zero emission credits. Even with this assistance, 
the high price tags of nuclear plants and high operating cost 
have put a great deal of financial strain on nuclear plants.
    It appears to me that in order to harness the benefits of 
nuclear power as well as expand in this space, we must ensure 
that the Department of Energy is developing the technology and 
partnership with the private sector to lower the cost for the 
current fleet and develop the next generation of nuclear 
technology.
    So I think, Mr. Book, this question might be to you. How 
can we better direct federal dollars to ensure the current 
reactor fleet can become more economically competitive?
    Mr. Book. I would actually turn to my colleagues on the 
panel who might know more about nuclear power than I.
    Senator Manchin. Okay, who would like to take that?
    Mr. Kavulla?
    Mr. Kavulla. I'll go first.
    You are seeing greater operating cost reductions and 
capital productivity out of the merchant utility fleet that is 
coal and natural gas as opposed to nuclear. I'm not fully sure 
why that is--I assume nuclear's unique regulatory status under 
the NRC, the operating requirements that are imposed on it, the 
relatively limited size of the fleet and its lack of 
modularity, probably all had something to do with it.
    But you're correct Senator that it's bigger, it's clunkier 
and if they're going to survive in a competitive market, they 
need to find those same kind of cost reductions that other 
people have in order to stay afloat in markets like----
    Senator Manchin. Do you have any knowledge of the 
development of small modular reactors?
    Mr. Kavulla. Only that it's often been touted as the next 
generation technology, but none of them have been, so far, 
cleared into the market and there are a couple of those that 
are awaiting deployment.
    But I'll put it this way, no one is sinking their own 
private risk capital----
    Senator Manchin. Mr. Bill Gates is. He is putting billions 
in, and he is committed to put billions more. He is looking for 
a partner. I think the DOE is where he is looking for this 
partnership, and I want to know if any of you have knowledge of 
that or if you have been looking into that?
    Mr. Zindler. A bit. And then I would echo what Travis is 
saying which is that the small modular reactors, SMRs, have 
been through the technologies of the future for, I think, 15, 
20 years now. And we shall see.
    I think it's important technology. I would just echo your 
original point though and add one, amplify one point, which is 
to note that, you know, nuclear represents this huge portion of 
zero carbon energy when it's produced.
    Senator Manchin. Right.
    Mr. Zindler. And if we're serious about climate change, we 
have to have a very rational policy about existing nuclear 
plants and what we can do to keep them online.
    Senator Manchin. Well, Mr. Gates, I think,----
    Mr. Zindler. Thank you, I'll take that.
    Senator Manchin. I know.
    [Laughter.]
    No, I said we had a meeting with Mr. Gates concerning his 
development of reactors using spent fuel. So disposal would not 
be a problem and it would be universal internationally.
    Do you know any of the challenges for advancement of these 
projects?
    Mr. Zindler. Yeah, I would agree with Travis' point which 
is that such a venture requires a lot of private capital and it 
would be good if someone brings that to that conversation.
    Senator Manchin. And then the last thing was basically on 
the grid system.
    I have been hearing for years and years and years that we 
have a tremendous amount of shrinkage or waste as we deliver 
our power on the grid system. Have there been any upgrades you 
have seen?
    I mean, I always thought that ceramics would be much more 
efficient transporting our power than what we're using, the old 
conventional methods. And there's been no changes for years.
    Mr. Book. Well, I mean, technology shifts to a wholesale 
new technology tend to be expensive, particularly for the early 
adoption of those shifts and socialized rate bases don't 
generally welcome newly expensive increases.
    So there have been----
    Senator Manchin. That is a low hanging fruit, same as 
energy efficiency, basically. You are not wasting the fuel.
    Mr. Book. There's been a lot of distribution build out 
that's helped to rationalize the grid and improve its 
efficiency, but moving it to next generation materials which, I 
mean, I don't know if you have comments but there's definitely 
price impacts that can be dissuasive.
    Senator Manchin. Thank you very much.
    Mr. Kavulla. I'll also make the point, if I may, that 
regulatory model is different. You don't necessarily get 
rewarded for efficiencies in deploying that type of capital 
like you would be rewarded for efficiencies if you're operating 
a power plant in a competitive restructured market. And so, 
there's certain regulatory elements that impact here.
    Senator Manchin. Sure.
    Mr. Kavulla. But I'll look at your witness list for 
Thursday and make sure someone is prepared to answer that 
question.
    [Laughter.]
    Senator Manchin. Thank you.
    The Chairman. We better make sure that that one is 
addressed.
    Senator Heinrich.
    Senator Heinrich. I am just glad we are talking about 
bunker fuel and small modular reactors and things that need 
some of this attention. When it comes to bunker fuel, you 
almost never hear about that in the energy conversation. Some 
of the stuff that gets burned in the hulls of ships around the 
world, if it were being burned in your hometown, you would be 
absolutely out on the streets with signs up because of the 
quality or lack of quality of some of that fuel. So I am glad 
you are bringing some attention to these issues.
    I do want to go back to the physics issues for a minute, 
and I am sorry that Senator Cassidy is not here. I have had a 
little bit of experience with solar. I started with some 
students. We built a carbon fiber solar car that we raced from 
Dallas to Minneapolis in 1992 and 1993. I think we were doing 
very well if our efficiency of those actual cells were in the 
double digits, right? I mean, they were like the low double 
digits. And now I have a company in Albuquerque that is up in 
the 30 plus range for efficiencies.
    But when you look at what has really driven penetration, it 
hasn't been changes in efficiency, and certainly the limits of 
the physics are real, but it has been all the other things that 
some people call Swanson's Law which says every time we double 
our manufacturing capacity we see a 20 percent drop in the cost 
of these systems.
    Some of that comes from how we pay for those systems and 
financial models, and some of it comes from manufacturing 
improvements. Some of it comes from improved soft costs of just 
being able to work with your local utility and your local 
municipality to actually get this stuff installed on your roof. 
And that, I would suggest, is probably a bigger impediment than 
the physics in many of these arenas, which is why policy 
matters.
    Mr. Kavulla, I want to ask you a question with respect to 
policy that I am very curious about. In your written testimony, 
you suggest the possibility of FERC acting as a backstop for 
siting of new interstate transmission power lines.
    This is something I have wrestled with for a long time, and 
I do think you are correct in that the incentives for the 
nation as a whole and the incentives for individual states, 
oftentimes, don't match up and that is limiting our ability to 
develop transmission, in particular, as well as other energy 
projects. One option might be to link eligible projects to 
those that have been developed as part of a regional 
transmission plan required under FERC's Order 1000. Is that 
something that you have thought about, and what are your 
opinions on that matter?
    Mr. Kavulla. It is, Senator, something that I've spent a 
lot of time thinking about and a lot of time that FERC has 
spent thinking about as well.
    Unfortunately, the ambitions of Order 1000 to encourage 
greater regional integration and planning are largely 
unfulfilled. FERC, I understand, is thinking about looking at 
Order 1000 again. I think it's a worthy consideration for them 
to do.
    I hope they'll sharp shoot it to particular concerns rather 
than trying to reopen the entire book on it, because the hours 
of life that many lawyers, myself, others spent trying to 
implement Order 1000 are hours that we're not going to get 
back. And I'm almost positive that the transaction cost spent 
on it overwhelms whatever benefits it may have delivered.
    But you know, you can go back to WEX modeling from 10 years 
ago for the United States West and see again and again models, 
again, taking them for what they're worth, models which 
suggested it is overall better for consumers for remotely 
sourced renewables to be developed for the urban population 
centers, so the Western United States.
    Senator Heinrich. Right.
    Mr. Kavulla. But we've never been able to get our act 
together.
    Senator Heinrich. I am running out of time quickly so one 
last one for you, Dr. Capuano.
    In the past, AEO has always included charts with 
projections of economy-wide total carbon emissions. Those 
charts seem to be missing from this document. Why were they? 
Why did you decide to drop those?
    Dr. Capuano. Sorry, I'm not aware that there are charts 
missing. In fact, we've included a carbon intensity graph in 
our AEO. So, I'm not----
    Senator Heinrich. There used to be a total carbon 
projection graph that was included along with the base 
projection and that doesn't seem to be in this.
    Dr. Capuano. Oh, okay, we substituted the intensity graph 
because we thought it was more informative for that graph.
    Senator Heinrich. Okay.
    Well I think total carbon emissions matter, so I would love 
to see them both in there.
    Dr. Capuano. Thank you.
    The Chairman. Thank you, Senator Heinrich.
    Senator Cortez Masto.
    Senator Cortez Masto. Thank you.
    Let me follow up on one discussion on the solar piece 
because I think we, as a country--and I so appreciate this 
conversation--we have to figure out how we take advantage in 
this space, moving forward. We are competing, as we know, with 
other countries, China in particular, when it comes to this 
space. From my perspective, I am always looking at ways we, at 
the federal level, can incentivize, support and move forward. 
The technology is constantly changing, and I think there is 
technology out there that we are not even thinking about, but 
we want to make sure we make it flexible enough for that 
innovation.
    I'm curious if any of you are familiar with the Crescent 
Dunes Solar Energy Facility that is outside of Tonopah? Senator 
King had brought it up once before.
    Senator King. Is that the one with the mirrors?
    Senator Cortez Masto. That is correct.
    Are any of you familiar with that?
    Mr. Zindler. Molten salt.
    Senator Cortez Masto. That is right.
    And so, here we have been talking about batteries and 
battery storage, but this facility uses molten salt for thermal 
storage, and it is connected to our grid in the State of 
Nevada. It is a different technique. It is this idea of solar 
thermal versus what we have been talking about, which is the 
solar PVs.
    It is a new technology. It has energy storage. And 
something that I know after visiting that site is that they are 
also trying to address the environmentally-friendly piece of it 
as well.
    This is an example of why I say we should not be 
restricting any of this innovation. We should be figuring out, 
as a country, how we work together to make sure we are 
incentivizing and allowing that flexibility, but with the 
necessary guard rails that might be there for protection.
    I am curious if anybody has any comments?
    Mr. Zindler. Just real quick, as luck would have it, 
actually last week I was visiting a similar plant in Morocco 
where they've just completed in August what's called the Noor 
Plant which is similarly, you know, a bunch of mirrors focused 
up on a heliostat, boil some fluid then there's molten salt.
    It's a spectacular looking project. It has the potential to 
provide power into the evening hours. It's still pretty costly 
and there's a lot of moving parts and there are risks 
associated with solar thermal technologies as a result of that 
and there have definitely been some challenges over the last 10 
years with getting those projects financed and completed and 
operating successfully. But you're exactly right that it has 
that potential.
    The one thing I would say is, and I mentioned this earlier, 
is photovoltaics plus large-scale lithium-ion batteries could 
potentially provide some of the similar types of services into 
the evening with less moving parts, a little less risk and 
potentially lower cost as well, though we'll have to see on the 
costs.
    Senator Cortez Masto. Thank you.
    I am not saying one is better than the other. Believe me, 
lithium mining in the State of Nevada and the battery storage 
we are looking at, we support that as well. I am just saying, 
from the perspective of the federal level, we should be 
exploring all of it. We should be figuring out how we allow 
that innovation to occur and not really cede this country's 
priority and our ability to take the lead around the world in 
this space. That, to me, is one of the most important things 
that we should be looking at as well.
    Thank you.
    The Chairman. Thank you, Senator, I certainly agree with 
that.
    Senator King.
    Senator King. [Off-mic]
    The Chairman. So just to follow on with the mineral 
dependency, Mr. Moores, I really appreciate your testimony, 
your focus on that. Mr. Zindler, how you have knitted that in 
with the focus on the renewables and our efforts to reduce 
emissions.
    I recognize that part of our challenge is not just the fact 
that we are not accessing the resource here but nowhere within 
this supply chain are we really engaged. And somebody used the 
terminology, you know, we are absent here.
    And what did you say, Mr. Moores, because I actually wrote 
it down. ``Those that hold the supply chain will control the 
balance of power, but we're basically a U.S. bystander.'' It 
kind of reminds me of the view that I think some in this 
country and this Administration have of the Arctic. We are 
just, kind of, the U.S. is just, kind of, a bystander here. And 
we cannot afford to be a bystander when we are looking, really, 
at the future here.
    So much of this goes back to investment, because if people 
are not interested in investing you can have great ideas, you 
can have great resources but you, we don't get anywhere.
    So I guess this is a question to both you, Mr. Moores, and 
Mr. Zindler, whether it is investment in our mineral 
opportunities and the multiple stages within that supply chain 
or whether it is the investment in the new energy technologies.
    Mr. Zindler, you mentioned that worldwide investment in 
these new energy technologies is around $332 billion. I am 
curious what the breakdown is of the global number in terms of 
what comes from the U.S. compared to other countries. Are we 
keeping up with the investment level like we see from China? 
Let's just talk about investments for a second here.
    Mr. Zindler. So just on those numbers, about a third of 
investment typically in a given year in clean energy technology 
or new energy technologies is usually it's China.
    The Chairman. Is coming, is going to China?
    Mr. Zindler. Is investment into China and about $65 billion 
last year was the U.S. So there's a gap and there has been 
pretty consistently over the last three or four years in 
particular with China leading just on pure dollars deployed. To 
be clear, a lot of that money comes out of China and goes into 
China.
    The Chairman. Right.
    Mr. Zindler. So China development bank, state-owned 
enterprises, various domestic companies are plowing money into 
their own operations there.
    The Chairman. How about investment on the mineral side, Mr. 
Moores?
    Mr. Moores. Yes, it's a balance of investment in the 
incentive to source raw materials in the U.S. Okay, right now 
the raw materials to batteries aren't available from the U.S. 
So then you have to build the resource base, because it is 
present.
    But investment globally in battery raw materials is 
happening, it's just at present better opportunities of the 
tier one opportunities from a resource perspective are not in 
the U.S. and that's primarily some of it's down to geology, 
some of it's down to the fact it hasn't been much of a mining 
industry in the U.S. for a long, long time. And so, at present 
the U.S. is almost at the back of the queue for the battery 
supply chain.
    A good example of how this can work is the Tesla 
Gigafactory. So that's a lithium-ion battery plant that Tesla 
built with Panasonic in Nevada, and that's a good example of 
investment. Tesla put up some money. Panasonic put up some 
money. There was state level incentives and that battery plant 
can't make enough lithium-ion batteries for the vehicles that 
it sells. And so, that's almost, should be a case study for the 
EV supply chain within the U.S., and you should be replicating 
that time and time again in different states and then also 
encouraging the supply chain from the battery up to the mine to 
actually build out and build every step and drag in knowledge 
from the chemicals industry, from the mining industry. And a 
key part of that is the discussion. A key part is hearings like 
this that need to continue. We're just at the start.
    The problem is China and Japan and Korea, we spend a lot of 
time there at Benchmark and it's happening at an incredible 
pace the last two years and it would just continue. It will 
just get more intense.
    The Chairman. It is just such a reminder to me. We have 
some pretty good source material in Alaska for rare earth 
elements, but our reality is that we are not processing 
anything in this country so if we were able to extract it, 
where do we send it? To China? Only to get it back here.
    So we are looking at a pretty significant pilot in the 
sense of being able to do something very different, but it is 
pretty small. But again, it is just a reminder that it is more 
than just having the resource itself, it is the access, it is 
the investment that can allow it to happen. But it is also the 
process, it is the workers that are trained. It is, as you 
point out, the whole supply chain.
    My last question. When I talk about the Arctic and the U.S. 
role which, in my view, is still absolutely lacking, but where 
we have seen stepped-up interest in the Arctic and pursuing 
opportunities is with our neighbor, Russia, who has more than 
doubled its LNG exports. And by mid of this year I am told, 
they are scheduled to produce 26 million tons of LNG per year. 
This is going to be 10 percent of worldwide LNG exports. Two-
thirds of this oil and gas is in the EEZ in the Arctic there, 
up in the Yamal Region, primarily.
    I guess this is to you, Mr. Book or Dr. Capuano, just 
speaking to the Russian investment in the Arctic that we are 
seeing, the impact sanctions are having or perhaps not having 
on that development, what it means for the world energy 
markets. We have hit a little bit on Venezuela and Iran, but 
obviously Russia is out there as well. So and then, more broad, 
what do you see as the global Arctic energy future?
    Mr. Book. Well, Madam Chairman, to the first question, the 
Russian supply, you can be of two minds about it. And I think 
in the formation of our sanctions we were. On the one hand, we 
want to punish Russia for malfeasance in Ukraine. On the other 
hand, we don't want to leave global supply short. And so, 
there's a structure of the sanctions to, sort of, leave the 
existing production alone and go after the future, the frontier 
production, the Arctic deep water and shale resources and 
technologies that are an investment from the U.S. companies. 
And what it's shown is that the vastness of their resource was 
such that with the things that they already had they could 
continue moving. The Yamal projects were years in the making 
and proceeded the implementation of sanctions.
    I think that when you look into the difficulty in 
sanctioning a country with such a vast resource base, such a 
willful disregard for our economic state craft and, to be fair, 
even such a large market that depends on that, there's a lot of 
challenges in trying to structure something more punitive 
without having a deleterious price effect for the world. 
There's more power in some of the sanctions that are directed 
against Iran because the third-party nexus is in our reach. The 
Treasury can get into banks that transact in U.S. dollars on 
behalf of Iranian counterparties, and that has helped to, sort 
of, augment the effectiveness.
    In terms of the Arctic, I think it would be a mistake to 
overlook a fifth of the world's petroleum resource, at the 
vastness of the opportunity. A lot of the challenge, I think, 
is always in investment, finding the fastest return with the 
highest degree, the highest probability of success.
    And so, a lot of the changes that you have pioneered and 
the steps that have been taken are opening up new options. And 
I think that we'll really start to see when investor interest 
shows that there's going to be dollars put into some of the new 
developments that have been opened up in the Arctic where 
things can go. The vastness of the resource is not to be 
questioned, and I think it would be a mistake to not look for 
more oil because we're going to need it.
    The Chairman. Dr. Capuano, anything to add?
    Dr. Capuano. We look forward to modeling it.
    [Laughter.]
    The Chairman. Senator Cortez Masto, any final comments?
    I want to thank you all. Very informative, very helpful to 
start off our new year here on the Committee.
    I think, Dr. Capuano, you have used the appropriate term. 
This is a transformational time for us in this country. There 
is so much going on. It is exciting. It is fluid and perhaps 
sometimes difficult to predict because so much is happening as 
rapidly as it is.
    What we want to try to do here in the Congress, in the 
legislative body, is make sure that our policies are as up-to-
date and current as what is happening with the technologies. 
And my assessment on that is we are way behind the innovators 
out there in terms of policies that keep pace with our modern-
day realities.
    Thank you for your guidance as we try to shape our policies 
going forward, and thank you for your expertise and the time 
that you have given the Committee this morning.
    With that, we stand adjourned.
    [Whereupon, at 11:48 a.m. the hearing was adjourned.]

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