[Senate Hearing 116-246]
[From the U.S. Government Publishing Office]
S. Hrg. 116-246
PROSPECTS FOR GLOBAL ENERGY MARKETS,
INCLUDING THE ROLE OF THE UNITED STATES_
PERSPECTIVES FROM THE INTERNATIONAL ENERGY AGENCY
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HEARING
BEFORE THE
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
FEBRUARY 28, 2019
__________
[GRAPHIC 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
35-557 WASHINGTON : 2020
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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
Sarah Venuto, Democratic Staff Director
Sam E. Fowler, Democratic Chief Counsel
Renae Black, Democratic General Counsel
David Gillers, Democratic Senior Counsel
C O N T E N T S
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OPENING STATEMENTS
Page
Murkowski, Hon. Lisa, Chairman and a U.S. Senator from Alaska.... 1
Manchin III, Hon. Joe, Ranking Member and a U.S. Senator from
West Virginia.................................................. 2
WITNESS
Birol, Dr. Fatih, Executive Director, International Energy Agency 4
ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED
Birol, Dr. Fatih:
Opening Statement............................................ 4
Quote from the launch presentation of WEO-2012, London, 11/
12/12...................................................... 7
Written Testimony............................................ 10
Responses to Questions for the Record........................ 39
Manchin III, Hon. Joe:
Opening Statement............................................ 2
Murkowski, Hon. Lisa:
Opening Statement............................................ 1
PROSPECTS FOR GLOBAL ENERGY MARKETS, INCLUDING THE ROLE OF THE UNITED
STATES--PERSPECTIVES FROM THE INTERNATIONAL ENERGY AGENCY
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THURSDAY, FEBRUARY 28, 2019
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The Committee met, pursuant to notice, at 10:06 a.m. in
Room SD-366, Dirksen Senate Office Building, Hon. Lisa
Murkowski, Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. LISA MURKOWSKI,
U.S. SENATOR FROM ALASKA
The Chairman. Good morning. The Committee will come to
order.
This is the second hearing of the week, so we are moving
along aggressively, which is a good thing. We are here this
morning to consider the perspective of the International Energy
Agency (IEA) on global energy markets.
It has been a busy couple of weeks here. We have done some
scene-setting hearings. We have covered the energy and minerals
sectors, we have discussed the outlook for domestic policy, we
have looked to the future of innovation, and we have examined
the very real and persistent cyber threats to our critical
infrastructure.
This morning we are very, very pleased to welcome back to
the Committee Dr. Fatih Birol, who is the Executive Director of
the IEA. He has had an opportunity to be before this Committee
on numerous occasions. I am always, always, very pleased with
the opportunity that we have to ask you your views, your
perspectives and for the information that you are able to
provide to all of us for this global outlook for the year.
The IEA is one of the world's premier organizations for
energy information, insight, and analysis. So, again, the
opportunity to discuss the agency's new World Energy Outlook is
greatly appreciated.
The good news for us right now is I think we are in a
pretty good place. Over the past decade, the United States has
transformed into a dominant player in global energy markets.
Breakthroughs in hydraulic fracturing and horizontal drilling
have allowed the United States to avoid building LNG import
terminals up and down our coasts and instead export to our
friends and our allies.
We ended the arbitrary prohibition on domestic crude oil
exports a few years ago. Since then, we have watched our
exports take off and OPEC's power start to decline, all while
prices remained at low to moderate levels.
New technologies have substantially reduced our nation's
greenhouse gas emission levels, and that points to our most
reasonable path forward on climate change, which is lowering
the cost of clean technologies--as opposed to burdensome new
taxes, or endless regulations.
We have also continued our strong commitment to research
and development which allows the United States to be a
technology driver with an impact that reaches far beyond our
borders. As more of the world electrifies, we have an
opportunity to build a supply that is more resilient, more
affordable, and more reliable.
I was pleased as I looked at the Outlook, Dr. Birol, that
you take a very, very close look at the global power sector for
these trends. And key to so much of this is the
interconnectedness of our energy systems. No longer do we need
to wonder what is happening on a pipeline or wind turbine in a
remote part of the world. We have sensors that can provide its
status almost instantly. And while this technology is
remarkable and transformative, it is also critical to ensure
that worldwide networks are protected against the evolving
cyber threats and other vulnerabilities as interconnectedness
grows in the energy sector.
I am certainly among those who look to the IEA on energy
policy, and what I find, what I hear from IEA helps ensure that
our policies here are well-considered. I appreciate that the
agency has branched into sectors beyond oil and gas, which had
been that focus historically. I would also note that IEA's
membership has now grown to 30 countries, each with dynamic and
diverse energy portfolios.
So again, Dr. Birol, it is wonderful to have you here, we
appreciate your leadership. We all know that Paris is a long
way away. We appreciate that you take the time to come here to
Washington, DC, and particularly that you accept our invitation
to speak before the Energy and Natural Resources Committee. You
provide a very valuable perspective to the Committee. This is a
hearing that I look forward to each year. And again, I welcome
you.
With that, I turn to my colleague and Ranking Member,
Senator Manchin.
STATEMENT OF HON. JOE MANCHIN III,
U.S. SENATOR FROM WEST VIRGINIA
Senator Manchin. Chair Murkowski, thank you for convening
the Committee today, and Dr. Birol, thank you so much for
joining us.
I have been so impressed with the energy scene-setting
hearings we have held in recent weeks, and hearing your view
from the International Energy Agency is a great way to round
those out for us.
I also want to thank you for your focus on CCUS as an
important part of our energy future. Both the Chairman and I
come from energy producing states that have helped lead the
U.S. to energy independence.
West Virginia's coal and coal miners have done a lot of the
heavy lifting for this country's economy, and West Virginia
continues to be an energy exporter. Additionally, the Marcellus
and Utica shale plays in West Virginia and Appalachia, more
generally, have been key drivers in our nation's ability to
further establish ourselves as a global energy leader. Of
course Alaska, in turn, has long been a leader in oil and gas
production. So the Chairman and I both believe that the U.S.
needs to continue to lead in sustainable energy production as
well as develop the energy technologies that incentivize other
nations to reduce emissions to address the climate crisis.
It has been some time since the Senate took a hard look at
where we stand in terms of the power sector as it relates to
climate change, so I am excited that Senator Murkowski and I
will be holding a climate hearing next week to discuss where
things stand here in the U.S. and globally. And this is most
timely for you to be here today. Energy is often looked to as
being at the heart of the climate debate, so I am very happy
Dr. Birol is here to give us the global picture on energy
needs.
As we have discussed at previous hearings, breakthrough
technologies will help us reliably meet our energy needs in the
future while decarbonizing our energy system, and that is an
all-of-the-above conversation. It can't just be about one fuel
type, renewables or otherwise. If we are being realistic, we
need to pursue solutions across the board. And the United
States as a leader in energy production has a unique role to
play in developing and commercializing innovative technology
solutions. We need to prioritize advancing technologies like
carbon capture that we can employ both here at home and
overseas.
According to the IEA in 2017, China and India used coal for
67 and 74 percent of their electricity, respectively. Under
current policies, that will be 51 and 57 percent by 2040. While
I understand both countries are taking steps to reduce
emissions and add more renewable generation, fossil fuels are
still a part of their future in all three of the scenarios that
IEA models in its most recent report. In other words, no matter
how you slice it, coal is going to be part of the energy mix
for decades to come around the world. So innovation in carbon
capture, advanced nuclear, storage, energy efficiency, and
other technologies are going to be key.
I also want to touch on a topic that I believe you can
speak to which concerns my colleagues and me deeply, that is
the use of energy as a geo-political weapon by countries such
as China and Russia.
Russia has for years relied on their energy resources to
exert influence and exact concessions. Central and Eastern
Europe are relying on Russia for approximately 75 percent of
their gas import needs. Russia, in turn, uses that reliance for
political coercion and influence, and that is why I oppose the
Nord Stream 2 pipeline.
Meanwhile, China is buying up energy and natural resources
around the world, from large parts of Africa, Latin America, to
Asia, to right here in the United States. For certain
commodities, China has become the price setter and exerts
enormous influence. When it comes to using energy and natural
resources for manipulation or influence, it sometimes feels
like we are short-sighted while Russia and, particularly, China
are playing the long game. We have to get back in the game and
lead in order to promote American energy independence and serve
as a bulwark against Russia and China's aggression.
I very much appreciate you making the trip to be here today
for your third annual visit to share your views on the global
energy markets and the role of the United States.
With that, Chairman Murkowski, I look forward to hearing
from our witness today.
The Chairman. Thank you, Senator Manchin.
I have introduced Dr. Birol as head of the IEA, the
Executive Director. We all have a little bit of a background
and a biography contained within our background memo, so I
won't read it in detail.
But I do think that it is important to note that in
addition to his tenure there at IEA, the background, the
experience that he brings to these issues, not only before us
in the Committee here, but really, around the world, Dr. Birol
has been named by Forbes magazine as among the most influential
people on the world's energy scene. He was recognized by the
Financial Times in 2017 as Energy Personality of the Year. What
a great title.
[Laughter.]
Energy Personality of the Year. We are honored, truly
honored, to have you here again--your leadership at IEA and
your willingness to share so much of it with us.
Typically, we ask our witnesses to try to limit their
testimony to about five minutes, and their full statements are
incorporated as part of the record. But because you are the
sole witness this morning, we certainly give you discretion to
share with us this morning the time that you need to present on
the outlook for 2019 and then we will move to questions and
your responses.
So, again, Dr. Birol, welcome.
STATEMENT OF DR. FATIH BIROL, EXECUTIVE DIRECTOR, INTERNATIONAL
ENERGY AGENCY
Dr. Birol. Thank you very much, Madam Chair.
Chairman Murkowski, Ranking Member Manchin, distinguished
members of the Committee, thank you very much for this great
opportunity and honor for me and for my agency to appear in
front of you.
I am since almost two decades with the International Energy
Agency and I appear in front of this Committee as the Chief
Economist before you have invited me, Madam Chair. But I am the
head of the Agency since three years, almost, and then I had
the pleasure to be here each of the past three years and to
share with you our views. And I benefited from that discussion
very much. Thank you very much, Madam Chair.
Perhaps more information about the IEA. This year is our
45th anniversary. We are 45 years old, and we were founded by
Henry Kissinger in the State Department just over here with 16
other countries. In fact, after this very meeting I will go to
the State Department for some celebration for our 45th
birthday.
Now, I thought the following, Committee. First, I will
share with you some of the trends in the global energy markets
because even though the United States is perhaps the most
important energy country in the world, today no country is an
energy island. So I want to highlight what's happening in the
world. And second, some observations about the U.S. role in the
global energy picture.
First of all, I start with general trends. We see that the
global energy demand is growing strongly, mainly driven by
Asia, but also Africa, Latin America with the increase in
income levels, increase in population, urbanization,
modernization because energy means better lives and energy
means more comfort, more productivity. We see a growth across
the world, and this is solid growth.
Particularly, natural gas is growing very, very strongly,
driven by Asia. And when I say Asia, one country is very
important here which is China. The China effect we have seen in
the oil markets some ten years ago, we are seeing now in the
natural gas markets. As we speak now, China is overtaking Japan
as the largest gas importer of the world, and most of this gas
imports will be in the form of LNG. So gas is growing and LNG
will have a very important part of it.
Second, oil. We also see the global oil demand is growing
very strong. Some observers look at the changes in the
automotive sector and calling the end of the oil era which we
believe is not right because, first of all, global oil demand
growth is not driven by the cars, it is driven by trucks,
aviation and petrochemical industry. And on top of that the
share of cars in the world oil consumption is about 18
percent--82 percent everything else put together and cars are
only 18 percent.
We also see that the increasing share of electric cars
around the world, it is making some dent on the global oil
demand growth but looking at other factors, it is going very
strongly global oil demand, in any case, one million barrels
per day.
Having said that, looking at the production side to that
where the oil production come from. It will come in the U.S.
part, the exclusive part of the United States, but I have one
major concern, namely the growing geopolitical tensions around
the world, especially in those countries where the significant
amount of oil production is coming from.
I am, Madam Chair, since 13 years I am attending the Davos
meetings at the World Economic Forum, and I have another hat. I
am the Chair of the Energy Board of Davos World Economic Forum
and this year I have never seen that the geopolitics, the
overarching team on the energy sector. Geopolitical
developments with Russia, with the trade tensions around the
world, what's happening in the Middle East Gulf countries, some
Gulf countries, Iran, Venezuela. When we look at all these
issues, including Brexit, if I may say so, geopolitical
tensions are everywhere and, as such, we think that the supply
disruptions is a very important area that we need to pay
attention to.
These geopolitical tensions plus the possible hurricanes
and the others that we experience in this country and abroad
tells us that the main thing in strategic oil stocks is still a
critical issue, we believe. We have to think about the rainy
days and not only looking at the current station.
A few things on the wind and solar. After gas and oil, wind
and solar are growing everywhere across the world mainly
because of the one particular reason--they are getting cheaper
and cheaper and they are also, in many cases, subsidized by the
governments and their share are increasing.
And as a result of that, we are also having some benefits
in terms of environmental benefits, but also some challenges
because, as we all know, solar and wind are intermittent energy
sources. If there is no sun, we don't have electricity. If
there is no wind, we don't have electricity, if we do not take
the necessary measures.
So therefore with the increasing share of renewables, we
also need to pay attention to flexibility of our electricity
systems, including those such as nuclear power, gas, coal and
hydropower and others.
A few words on coal, Senator Manchin also mentioned, now
many people say also, we came to the end of the coal age but
when we look at the numbers, we don't see the same picture. In
the last two years, leading scientists tip decline of coal
globally. We have seen an increase in the global coal
consumption. And China alone is very important in this equation
because China, today, consumes half of the global coal. So
about 50 percent of coal in the world is consumed by China, the
other half, everybody else put together.
So to sum up the global picture--oil, gas, coal--they are
all growing still in the global energy scene, but the
renewables are making strong inroads, especially in the
electricity generation.
A few words about the United States and starting from oil.
We expect that, thanks to shale revolution, United States will
be providing 70 percent, 7-0 percent of the global oil
production growth between now and 2025. And the impact of this
cannot be overemphasized on the prices, on the energy security
and on the geopolitics of finance which means about almost
three-fourths, almost three-fourths of the global oil
production will come from the United States only. And this is
something very important to underline.
And in terms of natural gas, I mentioned to you that
globally there is a demand for natural gas. We expect that the
about one-third of the global gas production will come again
from the United States.
Maybe more importantly, two-thirds, two-thirds of the LNG
exports worldwide comes from the United States between now and
2025. This is extremely important.
Now, Madam Chair, some seven years ago when I was a Chief
Economist, I had made the World Energy Outlook and made the
international press release and in that seven years ago I said,
``United States will overtake Saudi Arabia as the number one
oil producer.'' My colleagues will give a copy of this. It was
in the Wall Street Journal cover page.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] T5557.020
Dr. Birol. And as we expected, as of next year, they are
now, the U.S. is in the same level of production with Saudi
Arabia and Russia. By 2020, U.S. is definitely, by far, the
number one oil producer of the world. This is an incredible,
incredible development as the IEA seven years ago was spot on
said and it was a very daring expectation at that time.
But the most important message I want to give here to you
and to the world is the following. Many people think that this
is we now slow the impact of shale revolution. This is not
exactly right. What I believe this is only the first wave of
the shale revolution impact. The full impact of the shale
revolution is yet to be seen.
It is now coming because the first wave of oil and gas
shale was mainly used domestically to replace the imports for
the petrochemical industry, for other power generation it is
used there. And the second wave of production is going to be
used to export U.S. oil and gas several nations around the
world and this will have a major impact on the established oil
and gas market order around the world. And I believe this
impact will be not limited to energy only, it will go beyond
energy.
A few other thoughts, Committee members, on renewables. I
think the achievements of the United States in terms of
renewables may be a bit behind the shadow of shale oil and
shale gas. In the United States, the renewables are also
growing very strongly. In the year 2010, the share of
renewables in the U.S. electricity generation was 10 percent
and as of today it is about 18 percent. There's very strong
growth there mainly driven by wind and solar and this is very
good news, but there is a lot of potential to increase even
further.
We are also seeing that in the United States the
electricity networks are also getting some attention from the
policymakers as the transmission system in the United States is
a bit segmented now and it results in some bottlenecks. And we
hope that these bottlenecks will be treated appropriately by
using the right technologies and there is more connection
between the different parts of the United States.
Now, coal. It is, it will be very wrong not to see what is
happening in the coal markets around the world. Coal is still
the second largest energy carrier after oil in the world. And
in terms of the power sector, it is number one source of
electricity generation, especially big load is coming from
Asia.
And more importantly, in United States or in Europe the
coal plants, the power plants, are very old. They are about 40-
42 years old. They are aged, so they are coming to the end of
their lifetime, many of them.
But in Asia, there is a huge coal fleet and it is very
young. It is 11 years old. So it means investments were made
there and the utilities, the countries, would not change their
plans before those investments are paid back. And it is across
Asia, very young fleet. And of course, the question is how do
we, how do we find the solution while they provide much needed
electricity for the poor segments of the population there and
providing input to the economic growth, how do we address their
environmental impacts?
Now for me, the magic word here is carbon capture,
utilization and storage (CCUS). If you ask me, Madam Chair, if
I have to pick out one technology, advanced technology, which
is vital for our planet, it is difficult to choose. They are
all very important, but for me, CCUS is extremely important, as
in all of our expectations in the future, we see fossil fuels
still have a large share and we can make use of CCUS.
The problem is not with, we don't have any problem with
energy. We have a problem with emissions. And that is a very
good thing. It brings us better lives, growth to our economies,
but emissions is the problem and CCUS can definitely address
this problem.
And here I would like to thank the U.S. Administration and
your Committee and legislators for the 45Q business model that
you came up with which provides a very nice business model in
United States and also around the world.
I am traveling to many, many countries around the world.
The critical importance of CCUS is more and more recognized and
your leadership here would be extremely important pushing the
45Q that it may need some fine tuning here and there, but it's
an extremely important model.
Now, to finish I wanted to talk another important
technology for me, for the International Energy Agency, I
believe and for the world which is nuclear power.
I believe nuclear power should be seen as a key asset in
the United States. United States has been the leader of nuclear
energy for almost 60 years together with Japan, France and
other countries. However, I think we are at a very critical
juncture of the nuclear industry in the United States now. If
you do not change the policies as far as nuclear energy is
concerned, our numbers show that in less than ten years of
time, China will overtake the United States as the number one
nuclear power in the world. This is very important for the
electricity sector, but I think it may have well other
implications beyond electricity sector as well.
Today, nuclear power generates about 20 percent, one-fifth,
of the U.S. electricity, but if we do not change our policies
in the United States this share will go down to seven percent
only. And this will have implications for the electricity
security as the nuclear power provides baseload electricity
generation and very flexible, but also the carbon footprint of
the U.S. electricity generation and therefore the change of the
policies is very important.
And there, I'm sure, there are many measures that you and
the Administration are thinking about. But for me, the very
first priority would be extending the lifetimes of the existing
nuclear power plants and to have them with us as long as the
safety considerations allow.
And of course, in the longer-term looking at advanced
nuclear technologies such as the SMRs, small modular reactors,
will be of crucial importance to help the U.S. leadership
continuing in the nuclear domain.
So, Madam Chair, these are some thoughts about the global
energy picture, the U.S. success stories in oil and gas, also
renewables, but some challenges in terms of the coal markets
and at the same time, nuclear energy.
Thank you very much, Madam, for your kind consideration.
[The prepared statement of Mr. Birol follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
The Chairman. Thank you, Dr. Birol.
Again, very, very, very interesting. There is so much to
ask about. So many good conversations here. So let me begin.
Your observations here as they relate to oil where the
United States is in terms of meeting that growing global demand
there. Your comment that the U.S. will be providing 70 percent
of the oil production growth between now and 2025. I guess the
question to you is, in anticipating that, are we seeing the
level of investment that we need to have here in the United
States in order to be able to meet that?
From a policy perspective, obviously what we did several
years ago in lifting the oil export ban, that has had a
significant impact on what we have seen with increased
production and our participant on that world market. So,
specific to the adequacy of the investment and then from a
policy perspective, is there more that we should be doing here?
Obviously from Alaska's perspective we are trying to do as
much as we can in meeting the demand with increased
opportunities within the federal lands, within the National
Petroleum Reserve. And then just last year, in moving forward
on the 1002 area in the coastal plain. That is still a long way
out from production. We won't have that online by 2025. So can
you speak to those aspects, please?
Dr. Birol. Thank you very much, Madam Chair.
The U.S. oil production is becoming more and more cost-
effective as a result of improvements in the technology. It is
now cheaper and easier to produce compared to, for example,
five, seven years ago. So therefore, with the current prices,
we don't see any major problem that the U.S. oil production
will be profitable in most of the provinces in the United
States.
Where is the challenge? In my view, the challenge will be
how do we bring the oil to the international markets, namely
the pipeline capacity? This is extremely important. We are
aware that there is a lot of efforts now to improve, to
enhance, the pipeline capacity to bring the oil to the
international markets. And if those efforts are successful, it
will increase the U.S. oil industry's ability to respond to the
changes in the international oil markets because to produce oil
is important but it is one thing.
The second thing is to send for the other nations that they
need that oil and for that you need the pipeline capacity to
increase. There's a lot of effort there but these efforts need
to be, in our view, enhanced and the bureaucratic hurdles, in
our view, need to be softened, eased in order to give licenses
for those efforts.
Other than that, we don't see any major risk to observe
substantial increase of U.S. oil coming to the markets.
When it comes to Alaska, Madam Chair, 2025 is too short to
see substantial amount of oil coming from Alaska to the
markets, but we know that there are huge resources there and
with the improving of technology one may well expect beyond
those dates the Alaskan oil goes to the customers as well.
I'm a believer of the economic facts. The economic facts
are stubborn. The oil resources are there. Oil demand is going
worldwide. I am sure, sooner or later, that oil will go to the
customers around the world from Alaska.
The Chairman. Well, we are working on it as quickly as we
can. I appreciate that.
I've got many, many more questions, but I am going to
respect colleagues here and move to Senator Manchin.
Senator Manchin. Thank you, Madam Chairman. Very quickly,
thank you so much again and your enlightening statement, the
opening statement. So many things are going on.
We are trying to decarbonize, if you will, by using
everything in a pragmatic way. You are telling me that no
matter what we do in the United States of America, Asia has a
younger coal fleet. They are going to basically run that coal
fleet out for a minimum of 20 to 30 years. Is that the
timeframe?
I would ask first of all: Most of the coal fleet we have
left in the United States has used scrubbers, low
NOX boilers, and baghouses for mercury. We have
taken most of the particulates and the harmful effects of the
particulates out. CO2 is what we have not been able
to perfect through CCUS.
The coal fleets that are young and new over in Asia, do
they have at least what we have been striving for with sulfur,
NOX and MATS? Have they--so all the China and India
fleet coming on. So, they are building new, young, new fleets.
Are they using this technology?
Mr. Birol. Thank you very much, sir.
First of all, yes, efforts are, of course, very, very
important to get efforts coming from, hopefully, from the rest
of the world. But you're completely right, we have in the
world, about 2,000 gigawatts of coal fleet and the bulk of it
is in Asia today.
Senator Manchin. Right.
Dr. Birol. And it is being--every day.
And to be honest with you, not all the countries building
coal plants have their scrubbers, the so-called, the filters
and on top of that, perhaps more subtle but maybe more
importantly, some of them, even though they don't have the
scrubbers, they don't use them during the generation of the
electricity. For some reasons which is not well known to us to
build it to equip the power plant to something to use it during
the electricity generation something, yes. So this is what we
are seeing.
Senator Manchin. But they are not using the scrubbers or--
--
Dr. Birol. Not all the time.
Senator Manchin. Because of the cost, right?
Dr. Birol. Exactly. Cost issues is----
Senator Manchin. So this is what I have a hard time with.
We have a global climate concern. We should have an
alarming concern, but unless we get the rest of the globe to
participate, how do we incentivize them? How, as the IEA, are
you able to raise the flag that they should be participating?
All these new coal-fired plants should use the latest in
technology. For us to use carbon capture and sequestration, we
have to do something because the cost is prohibitive right now
if you don't have any enhanced revenue coming out of the ground
when you sequester.
Dr. Birol. Yes.
So we are talking with all these governments from Indonesia
to China, China to India and for them the first thing, very
important, is the cost of electricity. Then they think and they
make a point that because they are developing nations, but the
obligations of our planet is definitely nothing to compromise
there.
Senator Manchin. Right.
Dr. Birol. So the scrubbers are very important for the aid
of pollution in those cities and many of the major problems in
those countries----
Senator Manchin. Well, the air that we see in China. And
the other thing I would say is that storage is important as far
as our renewables.
Is our wind and solar more efficient than China's and other
places around the world? Do we have a more efficient renewable
energy than others? And how close are we to the storage? As we
know, it is intermittent.
Dr. Birol. Yes.
Senator Manchin. And when the wind blows, we have
electricity. When the sun shines, we have electricity. When it
doesn't, we don't.
If we are overproducing in net periods of time, do you see
storage coming on to where we will be able to be more efficient
in those arenas?
Dr. Birol. Yes.
First of all, you are right, the U.S. wind generation is
much more efficient than the global averages, you're completely
right there. But in terms of storage being commercially viable
and used in a large scale, we are not yet there but there's a
lot of R&D, research and development, coming around the world
to make it commercially viable and use it in large scale.
Because without the storage the benefits of solar and wind are
not fully utilized. As you rightly mention, they are
intermittent and they have a major challenge.
Senator Manchin. Finally, my last question.
If the United States wants to be a leader in reducing its
carbon footprint, should it not use its trade policies, or so-
called tariffs that we use in different types of opportunities
that come to our markets, as an incentive to use the technology
that we develop?
Dr. Birol. The United States, today, is the leader of the
global energy technology research and development. You have
wonderful national laboratories around this country, and I
believe there may be different ways of incentivizing them. It
can move from putting tariffs or the value like you did, like
the 45Q which is recent----
Senator Manchin. Right.
Dr. Birol. ----to some regulations that can change from
technology to technology.
But wherever I go, Mr. Senator, I give the 45Q as a gold
star example to the rest of the world how the fossil fuel--of a
country can marry with the environmental objectives in a market
friendly way. So there are some examples.
Senator Manchin. Thank you.
Thank you, Madam Chairman.
The Chairman. Thank you.
Senator Cassidy.
Senator Cassidy. Dr. Birol, I always enjoy your
conversations.
What do you foresee for deepwater oil production? I am from
Louisiana, so the Outer Continental Shelf is very important.
Dr. Birol. It is definitely very important. I talk about
the shale today as it is the big news around the world but
also, of course, the offshore with the decreasing cost of
deepwater, offshore technologies it will be growing world both
for the United States and beyond, including Louisiana.
Senator Cassidy. Have we reached that price point now where
it is profitable to resume or to et cetera?
Dr. Birol. I think we need to see that either the cost
needs to go down, maybe tomorrow, or the process remain a
little bit higher levels in order have a very decent profits
there. But we are almost there. We are close to the break-even
points.
Senator Cassidy. Now you hear about energy but you spoke a
lot about carbon. One thing that seems to empirically have
occurred when the EU began their cap and trade system and we
began to regulate greenhouse gas emissions, there appears to be
a lot of carbon leakage to China and India.
You are nodding your head, yes.
Dr. Birol. Yes.
Senator Cassidy. And when you speak about their energy
growth, it suggests to me that there will continue to be some
carbon leakage, i.e., energy intensive manufacturing moving to
China. Any thoughts on that?
Dr. Birol. Yes, definitely.
The EU is putting climate change as a top priority in their
energy and maybe economic policies and they are making a lot of
efforts to reduce their CO2 emissions, but the
CO2 emissions coming from, I don't know, from Paris
or from Jakarta or from Ipswich or from Ottawa it is the same
impact on everybody----
Senator Cassidy. Now if they are not using--according to
Mr. Manchin's question--if the coal-fired plants in China and
India are not using scrubbers, whereas in Germany they are, it
suggests to me that if we have carbon leakage from the EU, the
United States to China, we actually end up with more global
greenhouse gas emissions than we would if the industry stayed
resident in the country of origin. Is that a fair statement?
Dr. Birol. Yeah, I think it is going in the right
direction. But what I mean is the following, we should do
whatever we can do. But whatever we can do in Germany or the
United States is not enough to reduce the CO2
emissions at the appropriate level.
Senator Cassidy. No, I realize that. But my question is if
we put in a policy that merely causes a company to move energy
intensive enterprises to China, it sounds from your statements,
that we will end up net worse, globally, because China does not
use the same environmental standards/techniques as do we.
Dr. Birol. It may well be the case but I should tell you
that India, China, Indonesia, they are also trying to reduce
emissions but the main driver there comes from, not from their
concern about the climate change. They're concerned about the
local pollution in the cities which at the end of the day may
have to reduce the CO2 emissions as well.
But in any case, we have seen, for example last year,
global CO2 emissions once again increased and the
main driver of that increase came from Asia.
Senator Cassidy. And again, carbon leakage would contribute
somewhat to that. Just the point I----
Dr. Birol. Definitely.
Senator Cassidy. Definitely.
Dr. Birol. Oh, yeah.
Senator Cassidy. Let's see if I have any more time. I sure
do.
Next, you mentioned as well the CC, the carbon capture and
sequestration. Do you see any use of captured CO2
being economic, any use of it being economically viable in the
short- or medium-term?
Dr. Birol. Yeah. First of all, I believe carbon capture,
utilization and storage is perhaps the most critical technology
we have now if we want to find a peaceful marriage between the
global fossil fuel resources and our environmental objectives.
And here we can both do two things, to capture the carbon and
store it or use the carbon.
Many countries are working to get money using carbon.
There's a lot of research and development going there to put
money on carbon, to make money out of carbon.
Senator Cassidy. Do you see anything that is close to
bearing fruit?
Dr. Birol. It is not yet there to be very frank, but
there's a lot of work going on.
But I should also highlight that the scrubbers are mainly
used to reduce the local pollution and the CCUS is used to
reduce the carbon, the so-called CO2 emissions. So
there are two important technologies addressing two important
and long-term problems.
Senator Cassidy. Real quickly.
So I am also gathering the degree to which the United
States increases LNG exports to China allowing them to use
cleaner burning LNG is the degree to which we can have a
positive impact upon their global greenhouse gas emissions.
Again, is that a fair statement?
Dr. Birol. Exactly.
So what we have seen in the United States, for example, a
big chunk of the major achievement of the United States in
terms of historical drop-off CO2 emissions was due
to using a lot of----
Senator Cassidy. And that is despite methane leakage
because you mention methane leakage.
Dr. Birol. Yes. It can happen also in China as well if the
U.S. LNG replaces China's coal which is very, very likely. But
the pure condition here is, as I mentioned, is the methane
issue.
So it is very important that we produce natural gas in a
responsible way to minimize, if not nullify, the methane
venting and flaring, and the United States and other countries
are taking measures in order to minimize the methane emissions
there.
Senator Cassidy. I am a minute over. I thank you, Madam
Chair.
The Chairman. Thank you, Senator Cassidy.
Senator King.
Senator King. My first question will surprise you, Madam
Chairman.
The Chairman. Go ahead.
Senator King. Thank you very much. I apologize for being
late. I was in an Armed Services Committee meeting.
Are we headed for a place where natural gas, because of
exports and the technology of LNG, is a worldwide commodity
like oil? And if so, what does that imply for the domestic
prices of natural gas here in this country where it is produced
in great quantities?
Dr. Birol. So, Mr. Senator, we are seeing natural gas is
entering a golden age in the United States and globally because
not only from the United States, but also from Australia, from
Qatar, substantial amount from Canada, I just came from Canada,
substantial amount of natural gas is coming to the markets.
And this is having two types of impacts. Number one, it is
providing flexibility to the customers around the world. They
can choose whatever the exporters they have, which conditions
and this brings the prices down. Second, increasing natural gas
production in the United States and elsewhere also puts
downward pressure on the natural gas prices which is also very
good news which is good for the heating bills of the families
for electricity cost. So therefore, natural gas is good news
overall, except for the countries who are pipeline exporters
today.
Senator King. My concern is--and maybe you just said that
in your last phrase, I am not sure.
My concern is if we get to a place where we are exporting
natural gas in much larger quantities than we are today, and it
becomes a worldwide commodity. China increases its utilization,
which could be almost infinite. Doesn't that inevitably put
pressure, upward pressure, on prices which would reflect
themselves in domestic prices?
What I am getting at is I am afraid of exports affecting
the low price in the U.S., which is one of our few advantages
in terms of things like manufacturing.
Dr. Birol. I don't expect this to happen in a big manner,
Mr. Senator. That may be different, some fluctuations, but the
U.S. gas resources are so huge that even the prices we are
talking about now it is enough to increase the production.
There's a lot of resources now.
Senator King. So it is supply and demand. You believe that
the supply is so large that----
Dr. Birol. I can give you one example, sir.
When the shale gas revolution started, we hit a lot of
shale gas resources. And in the last ten years we used a lot
from those resources, normally should go down because we use
from those resources, but we have discovered in the United
States also, a lot of resources. And now, as of today, the
shale gas resources in the United States are seven times higher
than 2010. So even though we also use because we have
discovered with the new technologies, more resources.
So we have huge resources and I wouldn't worry of the shale
or natural gas price spikes in the United States. That may be
volatility, but the increase of the price is because of the
exports.
Please do not forget that the exports, the revenues coming
from exports will also inject U.S. dollars to the country's
economy as well.
Senator King. Well, I hope you are right. And I think what
I hear you saying is that in the short- and medium-term, you do
not see a risk to domestic prices.
But didn't that happen in Australia? I thought I had seen
data that Australia's domestic prices went way up when they
significantly increased their exports.
Dr. Birol. The main reason there is some of the shale gas
resource states in Australia put a ban on the shale gas
production because of, as they said, environmental----
Senator King. So they restricted the supply?
Dr. Birol. Exactly, exactly.
And the ban because of environmental reasons, they say,
didn't allow them to produce gas there.
Senator King. Quick question.
We tend to think of ourselves as being the repository of
all the research and work that is going on. I believe in your
previous discussion you talked about the importance of storage.
Dr. Birol. Yes.
Senator King. In terms of developing solar and wind and
other renewables, is significant research going on in other
parts of the world on storage? It seems to me that is the
greatest energy question we face right now.
Dr. Birol. Everywhere, sir.
It is ranging from the United States to China, China to
Europe, Europe to Japan. Everybody is after to find the
economic solution to storage that can be used at the large
scale so that we can address the limitations of wind and solar.
But if you ask me whether or not we are there today that it is
economically viable at the large scale, we are not yet there.
Senator King. Give me a timeframe. Five years?
Dr. Birol. Five years, it would be reasonable, but I would
say between five and ten years.
Senator King. So we are looking at technological
breakthroughs.
Dr. Birol. Exactly, technology breakthroughs, especially to
bring the cost down because the cost issue today because we
have also a lot of alternative technologies, established
technologies such as the gas, such as the coal, such as others
in order to make them competitive needing to bring the cost
down and address the other challenges.
Senator King. Thank you.
Thank you, Madam Chair.
The Chairman. Thank you, Senator King. Always good
questions, we appreciate it.
Senator McSally.
Senator McSally. Thank you, Madam Chair.
Dr. Birol, I served in the military, deployed to the Middle
East five times. For many reasons I have long been an advocate
for our energy security and energy independence to also be a
part of our national security, because it is not just about
energy prices and energy security is so much part of the
geopolitical environment and where our reliance comes from
related to these issues. So I think these last years have been
so significant for us in America and in North America in the
larger context of the geopolitical dynamics in the world.
You mentioned in your testimony on page three that there
are energy security and sustainability challenges we still have
to overcome. In particular, the Northeastern United States
needs a more robust gas pipeline infrastructure to maintain
supply security. I want to talk about this a little bit.
In 2016, it is my understanding that Massachusetts and New
Hampshire blocked funding for the Access Northeast Pipeline.
And in the cold snap of last year, it was reported that they,
in fact, because of the challenges there, had an import from
Novatek, a Russian oil company that was actually sanctioned by
the Obama Administration and there was increased reliance on
coal during the cold snap last year in the Northeast because of
their ability to be resilient and provide and fill those gaps.
It just seems like there is potentially some activism or
ideological views that are causing policymaking decisions in
the Northeast that maybe do not have good outcomes related to
our energy security, national security or other elements.
Could you just comment on that and what else needs to be
done in order to better secure our energy security and issues
related to this?
Dr. Birol. Thank you very much for your question.
Before answering your question, if I may, since you worked
in the Middle East and you follow, I guess, the Middle East
issues, I would like to make the following point. I mentioned
that the U.S. is set to become the number one oil producers of
the world but this is different than the very fact that, for
example, Saudi Arabia is still the number one oil exporter of
the world.
So a lot of exports are still going from the Middle East to
the rest of the world, especially to Asia where the economic
growth comes from. Therefore, the oil security is still an
issue because a price spike----
Senator McSally. Right.
Dr. Birol. If it happens, it will affect, including United
States, all of us.
Senator McSally. Right.
Dr. Birol. Therefore, once again, I want to underline the
critical importance of the strategic stocks we have in this
country, also, of course, in Japan, Korea and Europe.
Coming back to your question. I, of course, I don't want to
intervene in the internal discussions of this very nation, but
not to have given permission to the pipelines to bring the gas
from Point A to Point B is, in my view, economically, it
doesn't make any sense. It doesn't make any sense because
natural gas is one of the cleanest fuels we ever have and it is
good for the United States, good for the United States'
neighbors, U.S. partners around the world. But once again, I
believe the economic facts are stubborn and at the end of the
day those problems will be solved.
As I said, I came from Canada here. It was a problem in
Canada, but now Canadians are pushing the Canadian LNG and the
Canadian LNG is now meeting the Asian customers and they solved
these pipeline problems. I believe it to be the same case
across the United States because this is where the
international is and it is every fuel has its own disadvantages
or challenges. We have to see that. But we do need energy for
our daily lives, for our economies.
Senator McSally. Right, thank you.
I agree with you. I just think to summarize, it is
important for us to have the pipelines to access the energy
that we have here.
Dr. Birol. Exactly.
Senator McSally. And choosing not to do that, having states
like Massachusetts rely on Russian imports, does not make any
sense geopolitically.
And then also the reliance on coal which is an important,
resilient factor----
Dr. Birol. Exactly.
Senator McSally. ----for our energy is also the result of
that.
So, let's not--let's do the right thing for our country,
for our energy security and for the economic opportunities for
people. Let's have that drive our decisions and not other
factors.
Dr. Birol. I completely agree, madam.
Senator McSally. Great. Thank you.
Thank you, Madam Chair.
The Chairman. Thank you, Senator McSally.
Senator Cortez Masto.
Senator Cortez Masto. Thank you, welcome, thank you so
much.
I apologize I was not here earlier; I was in a Banking
Committee hearing going on at the same time. We seem to do that
here.
Let me talk a little bit about electrification of
industries. We know that electrification can bring countless
benefits, notably by reducing local pollution, but it requires
additional measures to decarbonize the power supply in order to
unlock its full potential. And furthermore, the World Energy
Outlook for 2018 mentions that some significant parts of the
energy system, such as long distance road freight shipping and
aviation, are not electric ready with today's technology.
Doctor, you have previously stated that in order to
decarbonize the whole energy system, we are going to have to
start getting large amounts of wind and other renewables into
heating, transport, and industrial processes. From your
perspective, what research needs to be done to ensure that
these three sectors catch up to the future of electrification?
Dr. Birol. So thank you very much for this question as
well.
I mentioned it to renewable energies, solar and wind, are
penetrating the energy markets. This is true. But they are
almost exclusively concentrating on the electricity systems,
power systems. But we use energy also in the industry sector to
produce, to manufacture, a lot of goods or we use energy also
for the heating at home. We use energy for the transportation
sector. The renewables are very little, if any use here.
So what are we going to do? So we can do at least two
things. One, the bulk of the energy use in the industry sector
are coal or gas and we have to, Mr. Manchin also highlighted,
the CCUS, carbon capture, utilization and storage is a critical
technology here and more research and development in this
country is already being made, but outside as well would be
very helpful. This is number one.
Number two. Another way of that, in addition to using the
fossil fuels in a long-term way to CCUS, we can also see that
the storage is another thing also highlighted, storage,
development of storage, making research and development there
to bring the cost down and making renewables also used in the
industry sector would be of crucial importance. Therefore, if I
have to pick up two technologies that I would be very happy to
see more research and development efforts go to, CCUS and the
storage will be two candidates from my side.
Senator Cortez Masto. So what potential do hydrogen fuel
cells have for the industry?
Dr. Birol. Hydrogen will also play a very important role,
especially in the context of, we call that hard to abate
sectors. Hard to abate meaning mainly the industrial, the iron
steel sector, the petrochemical sector and others and, in fact,
this year Japan is chairing the G20 meetings and the Prime
Minister Abe asked the International Energy Agency to prepare a
report on hydrogen, how it can help to decarbonize our energy
system. And we are working very hard on that.
Hydro energy is also a very promising option. It was done
many years ago, but it is coming back as a result of the lower
cost of solar and wind and also diversification of our energy
mix.
Senator Cortez Masto. Thank you.
Recycling of critical minerals has not been economically
viable to date. It is less expensive to mine raw minerals than
to recycle with current technology, but mining these materials
is highly complex and hazardous to both workers and the
environment. With the demand of these materials growing
throughout the world, what is your outlook on the potential for
recycling these critical minerals to meet our manufacturing
needs?
Dr. Birol. With the current energy path we don't see a
major problem with the current level of rare earths we have
now. The problem is it is concentrated on a few countries
around the world and it may well be again a secular energy
supply question.
But in terms of availabilities, economic availability, we
don't see a major challenge at the moment.
Senator Cortez Masto. Thank you.
Thank you, Madam Chair.
The Chairman. Thank you, Senator Cortez Masto.
I am going to defer to my colleague here for a question. I
think he is going to have to leave the Committee.
Senator Manchin. Really quick, I have to go to another
committee, but Dr. Birol, thank you so much for being here. We
look forward to staying in touch with you.
To follow up on Senator Cortez Masto's question on spent
fuel--nuclear, right now--and you have showed that nuclear, the
utilization of nuclear power in the United States, is reducing.
Dr. Birol. Yeah.
Senator Manchin. And you think that is harming us as far as
decarbonizing.
Dr. Birol. Yes, sir.
Senator Manchin. You said that in your opening statements.
Is the reason for that because of our inability to dispose
safely of the waste? Is that what is holding us back or is it
basically that we are just not promoting it because of cost
ineffectiveness of new nuclear reactors, if you will?
Dr. Birol. I would say the second one, Mr. Senator.
You have lots of very tough regulations in this country.
It's very good to have safety concerns. It's very good to have
prepared measures.
But it is mainly the cost issue today and gas is very
cheap, natural gas. The renewables are becoming also cheaper
and cheaper and we have difficulties under the very heavy
pressure of those existing regulations for the nuclear to be
profitable. So, therefore, my plea is that we need to find ways
to appreciate the contribution nuclear has for our electricity
security and also for the environmental challenges and find
some ways to----
Senator Manchin. Your opening statement was very
enlightening in saying that basically, on a global basis,
fossil is going to be used and depended upon and not always in
the cleanest fashion to decarbonize.
Dr. Birol. Exactly.
Senator Manchin. So no matter what the United States does,
we are not making a dent in the atmosphere.
Dr. Birol. Yeah.
Senator Manchin. It is basically coming from Asia right
now. We can't get them up to speed.
But for us, basically not having our nuclear facilities
online or coming up, you said, the number one thing if you want
to decarbonize is carbon capture and utilization. And if the
world would adapt technology that we could develop and
basically perfect, that would be the number one source of
decarbonizing.
Dr. Birol. Exactly.
Senator Manchin. And then nuclear would be the number two
source to rapidly decarbonize?
Dr. Birol. Yeah.
Senator Manchin. As we develop technology for storage and
using our renewables or hydrogen coming on, that is something
in the future, but you are talking right now to stop the global
warming that is going on. Is that accurate?
Dr. Birol. Exactly. This is, we have so big challenges in
terms of emissions because every time there comes a report or a
government statement, government target, that we need to reduce
emissions immediately, but when we look at the numbers, we see
that the emissions are increasing.
There is a growing disconnect between those targets and
what is happening in the real life. And this disconnect is
very, very worrying and to be honest with you, we are not in a
position to pick up our favorite technology today. We need all
these technologies, renewables, CCUS, nuclear power, energy
efficiency, if we are serious to address those challenges.
But the renewables are only making good inroads, but I
believe it is CCUS and nuclear in the United States that need
special attention if you want nuclear as a part of the U.S.
power generation mix, which I believe, very important for the
electricity security of the United States and also for the
leadership of the United States globally.
Senator Manchin. Thank you.
The Chairman. I appreciate that, agree.
Senator Hoeven.
Senator Hoeven. Thank you, Madam Chairman.
Greetings, Dr. Birol.
One of the things that I would like to get your input on is
how we get natural gas to markets. In North Dakota we drill for
oil, in the Bakken and other shale plays and so forth.
Today, we produce 1.4 million barrels a day of oil, 1.4
million barrels a day, and that is going up. And so, we don't
drill for natural gas. We are not actively trying to produce
natural gas, but every time we drill another oil well, we
produce more natural gas.
So our challenge is capturing it and, you know, either
processing it locally or shipping it off to markets, but our
problem is getting it to markets. For example, whether it is
Asia or the European market, we are constrained because of the
difficulty of building LNG facilities on the West Coast--
California, Oregon, Washington State, British Columbia--or
getting a pipeline to the West Coast to move it most
efficiently.
We are in a situation where we are producing more and more
natural gas, but our challenge is to get it to market. So it
is, you know, it would be very low cost. It would be a
tremendous opportunity for us to export and get value. It is
not only a very good economic proposition for the United States
and for states like mine, but it is also a national security,
geopolitical security issue, right? In other words, us selling
energy to our allies rather than our adversaries, be that
Russia or somebody else, right?
What can we do to convince people that we need to have
access for pipelines and other means to export our natural gas?
It is in the national interest of our country, the national
economic interest and the national security interests of our
country.
Dr. Birol. Yes.
Senator Hoeven. How do we do that?
Dr. Birol. Thank you very much, Mr. Senator.
I think your problem is many countries around the world
would consider as a ``sweet problem'' because many countries
are dying to have natural gas for their energy mix. You have
natural gas, but you are not able to export it.
Senator Hoeven. Correct.
Dr. Birol. So this is really such a pity because, as I said
in the beginning, Asia is gas hungry. Asia is gas hungry and
the amount of gas they need is huge, large amounts. There's a
huge market out there and that market will be desperate to look
for the U.S. natural gas in terms of LNG.
I think the missing link between you and Asian gas markets
is the pipeline capacity. So this is what needs to be done is
the, to have the right investment framework there and to tell
the investors how lucrative those returns would be and to tell
them that there's a huge amount of demand for your natural gas
waiting in Asia.
Senator Hoeven. It is not an investor issue. I think the
investors--I know the investors would step up right now and
build the infrastructure. The challenge is the approval
process. How do we win the argument so we can get approval to
build? The capital is there. I mean, the price of natural gas
in our state, it is not zero, it is probably negative because
what do they do with it?
Dr. Birol. It comes anyway.
Senator Hoeven. They can't flare it off. They have to
capture it. There is a cost to it. And if they can't market it,
what do they do with it?
There is, I think, any number of investors that would
build, put the investment forward right now to build the
pipelines. The problem is getting the approvals.
Dr. Birol. Yeah.
When I said the investment framework was essential I also
meant the, all these administrative processes which are
sometimes too slow and it makes the investors losing their
appetite for the steps they are going to make. And it is the
case in many countries around the world, but maybe a bit too
much in some other parts of the world which would lead to a
loss of money, loss of economic value in the exporting
countries.
And when you think about what is being lost, it's not only
the money, but U.S. providing the security, energy security,
around the world.
Senator Hoeven. Right.
Dr. Birol. In terms of providing flexibility in the gas
markets, it is not only losing money, but losing from the
energy security in the world.
Senator Hoeven. Right.
How do we convince people that this is a winning
proposition? It is a winning proposition as we are talking
about economically, it is a winning proposition in terms of
national security and our global security interests, and it is
a winning issue from an environmental standpoint, you know,
with natural gas.
Dr. Birol. Exactly.
Senator Hoeven. And the infrastructure to move it most
efficiently, cost-effectively, is also the most environmentally
sound.
Dr. Birol. Yeah.
And definitely, we're talking about the CO2
emissions in the world and when I said Asia is waiting for the
U.S. natural gas, it is in most cases, it will end up with
reducing the global CO2 emissions which is a net
benefit for the world.
But of course, what needs to be done is to find ways to
ease up those administrative steps and bureaucratic hurdles
through administrative measures.
Senator Hoeven. Well, absolutely.
I mean, if you are going to commit to billions in capital
it takes to build that kind of pipeline, you probably want to
know that you are going to be able to build it, don't you?
Dr. Birol. Exactly. Definitely, definitely.
The Chairman. Thank you, Senator Hoeven.
We are talking about, when you say that the missing link
here in addressing the Asian market is pipeline capacity----
Dr. Birol. Yes.
The Chairman. ----there are some who are not bothering with
that, and I want to talk about Russia here for a moment. I am
glad that my colleague and co-chair of the Arctic Caucus is
with me today, because it is an issue that I think we are just
closing our eyes to here in the United States and that is what
is going on with Russia and how Russia is working to meet the
Asian demand for natural gas.
There is a lot of discussion. I think everybody over here,
Senator Manchin just mentioned his opposition to the Nord
Stream 2 pipeline, we focus a lot on the sanctions against
Russia in these, you know, asking our European friends and
allies to join us with this. Again, a lot of discussion there.
Well, up in the top, up in the Yamal Peninsula right now,
Russia is going ``hucklety-buckle'' and they are producing in a
way, bringing on these resources that I think has really been
quite remarkable. And they are not building a pipeline across
Siberia. What they are doing is they are putting that natural
gas into LNG tankers. These are tankers that are being built by
South Korea. They are ice strengthened, so they can go through
the Northern Sea. They are going down--they are coming right
through the Bering Strait, you know, 20, 30, 40 miles from
Alaska--going down and meeting the demand in Korea. They are
working with Japan to supply Japan with natural gas. Nobody is
raising the hue and cry about well, wait a minute, where are
the Russian sanctions when it comes to oil over here?
In Alaska, we are still quite a few years away. We have
been struggling to get an agreement for a pipeline through
Alaska that could take our natural gas to Tidewater and supply
that Asian market. Our market has never been in the Lower 48.
It has always been Asia. Well, we are working to gain these
partnerships. We have made good headway, not only with Korea,
Japan, Vietnam, Russia, certainly with Russia with the past
Administration.
But if you can, give me some of your observations here. You
mentioned a little bit about Russia's role, but how has the
stepped-up activity in Russia, particularly coming off the
Yamal Peninsula, how has the increased LNG production in the
Arctic impacted the global energy markets as well as the
Russian sanctions here? Because I am trying to get some
attention to the Arctic issues.
Dr. Birol. Yes.
The Chairman. And I think we just, kind of, have a tendency
to either stick our head in the sand or stick our head in the
snow on this one. And Russia is not sitting around waiting, and
neither are some of our other Arctic neighbors. In fact, our
non-Arctic neighbors--China, Japan, Korea--are having
discussions about this as we speak. They are more involved in
the Arctic right now than we are.
Dr. Birol. This is an excellent, excellent question. Thank
you very much, Madam Chair.
Let me put it this way, there are two important current and
possible customers of Russia--Europe and Asia. In Europe, many
countries since long time came to the conclusion that they need
to reduce the Russian gas imports because of the energy
security. But what is happening is just opposite. At the end of
2018 the share of Russian gas in the European gas consumption
reached a record high, about close to 40 percent mainly in
addition to pipelines, as you mentioned LNG coming from Russia
to you. It is a very important trend. Forty percent of the
European gas, close to 40 percent, comes from Russian pipelines
and now with LNG.
This is--Russia or in other countries political intentions
for any business to rely on one single partner is, in my view,
a risky way to go.
Plus, European domestic gas production is in a decline now.
There are a couple of fields which are in a decline. Therefore,
European gas imports will increase very rapidly.
Now the question is, new imports will come from, again,
from Russia or from other countries. This is a historical
moment. It is the reason why I tried to say in the beginning of
my remarks, in my view, if the U.S. Government, U.S.
Administration, uses in a wise way, we may well see the full
impact of shale starting now. And how we see it, we see that
the U.S. shale comes to the markets in a big time and also
competes with the Russian and other gas exporters.
Some people say that the U.S. gas, U.S. LNG, is more
expensive than the Russian pipe, but I say the following. We
have calculated, Madam Chair, let's assume one major European
economy who has no LNG facility. If this country decides to
build an LNG facility, it will give this country a very
important negotiation power with the contracts they have with
the partner exporter, such as Russia. And because they will
say, if you don't bring the prices down, I have LNG for sale, I
will import LNG. And we have calculated that if they improve
their LNG contracts only one percent of the gas prices as a
result of having another option in their hand, it would be
enough to finance a major LNG facility for 30 years. So
therefore, to have the LNG facility there would be very
important to negotiate with Russia and others to bring the
prices down. This is number one.
Number two. Many countries, some OPEC members and Russia
wants to bring the oil prices up higher levels. If the oil
prices go up, most of those contracts to Europe are indexed oil
prices. Those gas prices will go up and in the United States,
as one of the Senators mentioned here, most of the gas in the
United States is associated gas. Since the oil prices go up,
oil production will go up. Therefore, the shale production,
shale gas production, will go up and the prices of gas will go
down. So the difference between the contracted oil/gas to oil
index gas prices will go up, U.S. shale prices will go down,
and economically it will be much more visible.
Coming back to Asia. I have a completely different picture.
I see a huge opportunity U.S. LNG making major, major, having a
major market share in Asia, especially replacing inefficient
coal plants because the biggest headache today in China, India,
Thailand in those countries is the air pollution in the cities,
local pollution in the cities. And natural gas may well be the
key solution to all of those countries, and they are building
LNG terminals. China built, only in the last five years, 13 new
LNG terminals. And United States together with Australia is a
very good candidate to bring LNG there, also to India, also to
Japan, of course, to Korea, the other countries in the
southeast Asia region of the world.
So there will be a very harsh competition between the
established exporters such as Russia and the U.S. LNG. And I
see many great opportunities for the U.S. LNG to have good
competition, bringing more flexibility to the markets because
U.S. LNG is much more flexible and much more optional and I see
that it will be bringing more, make the gas markets much more
fluid than it is today. And it is the reason many countries are
now building LNG terminals.
When we look at the next ten years, we see that the LNG
trade is at least three times faster developing competitive
pipeline gas trade. There's a big growth there. And U.S. is the
number one candidate to fill that gap, Madam.
The Chairman. I am going to come back to the Arctic,
because I am still curious about how you see Russia's LNG in
Asian countries and impacting them. But I didn't stop you,
because I think what you have outlined is so key to all of
these discussions.
I want to have a little more follow-on there, but let me
turn to Senator King.
Senator King. First, Madam Chair, I just want to compliment
you on the passage of the Lands package. I often think we don't
celebrate enough around here. We always focus on the next
problem. This Committee and you, as the Chair, had one of the
most significant legislative achievements in decades in the
last two weeks, and I just think we ought to take a minute and
say this is something that was well done and will be important
for the country for generations.
The Chairman. And if we were 16, we would all go like this.
[Snapping fingers.]
[Laughter.]
But thank you, I appreciate that.
Senator King. So I do want to thank you.
And thank you for your testimony, Doctor. It has been very,
very illuminating.
I will just share one little thought which you could put in
your rhetorical tool box. We are always looking for a silver
bullet, something that will solve the problem with one
solution. I have a good friend in Maine who says there is
rarely a silver bullet; there is often silver buckshot.
Dr. Birol. Yes.
Senator King. A lot of solutions.
And I think one of the things we take from your testimony
today is that the world energy situation is not subject to a
silver bullet, although natural gas has an important role to
play, as you say. But there are all kinds of other pieces of
this puzzle, and I think that is one of the things that we have
learned today. And we have to work on all of them.
Dr. Birol. Exactly.
Senator King. And I think that is important.
An example is the Senator from Arizona. It was heartening,
by the way, to have a Senator from Arizona expressing sympathy
with the weather plight of New England.
[Laughter.]
But the interesting part about that issue which I have been
very involved with for some years, is that it is a short-term
problem. And the economic and energy issue is, do you develop a
billion dollars' worth of pipeline for a two-week problem or is
that a storage issue, and what other kinds of options are
there? LNG may be one of the options, storage in the region in
order to meet the demand that comes in a few week period,
usually in January.
It is a very serious problem. It is very serious, because
it gets priced into our electric rates and we are now 50
percent dependent upon natural gas.
So, I don't expect an answer to that, but I think this is
another kind of storage. It is not day-to-day storage, but it
is a longer period storage to meet a shortfall.
Maybe the pipeline capacity is the answer, but it is at
least worth discussing what is the exact nature of the risk and
what is the most cost-effective way to solve it?
If you have any thoughts, I----
Dr. Birol. Thank you very much, Mr. Senator.
First of all, if I can wholeheartedly agree with you that
in the world of energy, unfortunately, we don't have this
silver bullet. We work on all the fuels, all the technologies
since 45 years but we have not yet discovered the back door to
paradise, if I may say so. It's definitely a big challenge.
But we are, we need to improve the technologies which are
promising and which needs more help such as CCUS, such as the
electricity storage you mentioned a few minutes ago. I think it
will be a combination of all these technologies working
together to have a more sustainable and secure energy system.
But it can change from one country to another. Some
countries, for some reason, don't want to have nuclear. It is
their choice. Some countries don't want to use renewables. It
is their choice. But we believe at the IEA we have to make use
of all of them because there is not even one perfect solution.
Even natural gas, you say, in fact natural gas is an excellent,
excellent fuel in terms of addressing the, reducing the local
pollution, be plant available pressure not so high but natural
gas, if not produced sustainably, it has some impact on the
environment as that so both methane leakage going into the
atmosphere----
Senator King. And there is a concern. We have the concern,
and I have the concern in New England. We are now 50 percent
dependent upon natural gas for our electricity supply. That was
maybe five percent 20 years ago.
Dr. Birol. Yes.
Senator King. There is a danger, as you pointed out, when
you have one customer.
Dr. Birol. Yeah.
Senator King. When you have one energy source, particularly
if it is a fossil fuel that we have no control whatsoever about
the price, it is a commodity. There is a risk there where,
again, diversity of sources seems to me is the best policy.
Dr. Birol. Exactly.
And if, I agree with you that there is no silver bullet but
if there's a magic word in the energy world for me it is the
diversification. Diversification is always good for the energy
sources, for your customers, your importers, your exporters.
Coming back to your question on natural gas. Of course, the
gas storage is very important to have enough amount of gas
storage and the adequate level of pipeline capacity answers to
the problem. But of course, I didn't study your case very
carefully, but 50 percent reliance on natural gas may be on the
high side.
Senator King. Thank you.
Thank you, Madam Chair.
The Chairman. Senator Cortez Masto.
Senator Cortez Masto. Thank you.
Let me shift gears for a little bit. I am curious. I am
from a Western state and in the West, water is a very precious
commodity. So much so I think there is a famous quote that
says, ``Whiskey is for drinking, water is for fighting.'' And I
understand, for the first time, the World Energy Outlook
incorporates a water dimension in the sustainable development
scenario----
Dr. Birol. Yes.
Senator Cortez Masto. ----illustrating how water
constraints can affect future fuel and technology choices. I
also understand a sustainable development scenario details the
energy required to provide universal access to clean water and
sanitation for countries around the world.
I am curious, how is the IEA compensating for changes in
water availability and the potential declining supply of water
as you conduct your reports and analysis?
Dr. Birol. Now, first of all, water is extremely important
for the energy sector. We need water, for example, we talk
about the shale gas and we need water for shale gas for LNG. We
need water for biofuels. We need water also when we're talking
about the power plants, coal plants, nuclear plants. You need
water to cool down the towers of those power plants. It is a
very important element for the energy system.
But we see that the availability of water is becoming a
question in many places around the world, including the United
States. Therefore, now water this time comes to energy because
now energy is used and will be used more and more to desalinate
the water, desalination of water and use it as tap water,
useable water. So not only the energy sector needs water but to
get, to make water, drinkable water and also to be useable
water, we need energy to desalinate the seawater and make use
of it.
But if I look at the trends, the availability of water will
be a question, at least for the energy sector, for many years
to come. Not a big problem in the United States, but a growing
problem, especially in Middle East and Africa.
Senator Cortez Masto. Well, in the Western states we know
this, and I appreciate your comments because I think we have
looked at desalination, and it just does not pencil out right
now. I think Israel does an incredible job with desalination.
Dr. Birol. Yes.
Senator Cortez Masto. But in the Western states,
particularly those along the border of the Colorado, we are in
a drought mode. Water is precious. And utilization of that
water, how we manage that water amongst the states, is
important moving forward.
And so, I appreciate the thought now that as we incorporate
and move forward and look at, not only future fuel in our
energy portfolio and those technologies, but also water and how
it is incorporated into this is going to be important whether
we can move forward or not, particularly whether you are a
Western state or an Eastern state.
Dr. Birol. Exactly.
Senator Cortez Masto. So, thank you, I appreciate that.
Dr. Birol. Thank you very much.
The Chairman. Thank you, Senator. I always appreciate when
we are able to bring back the issue of water.
In our Energy 2020 that we laid down some years ago, we had
a little chapter there on the energy water nexus. It was really
the first time we had had conversation about this and the key,
as you have mentioned, Dr. Birol, you can't produce energy
without water and you can't have water without energy. And so,
understanding that and how it all fits in is so, so key. So the
fact that you have included it as well.
I want to ask about a couple different policy initiatives
that are coming our way in the very short-term.
The first one is this IMO 2020. The International Maritime
Organization (IMO) regulation that is going to go into effect,
literally overnight, capping the amount of sulfur in the marine
fuel.
What is your best estimate in terms of the impact that this
regulation is going to have on the middle distillate market?
What are we going to see with regards to diesel fuel, jet fuel
prices? Are we going to see a jump up with that?
There has not been a lot of discussion about it, and it is
one of these things where I am afraid we are going to wake up
on January 1st and people are going to be saying, what just
happened there? Yet, theoretically, we have been planning for
it for years now. But your observations, please.
Dr. Birol. Thank you very much.
I would be happy to mention this, but also one point on the
Arctic, I will comment on that, if you don't mind.
For that, you are right, these regulations from the IMO are
very serious and there was, in the beginning, a bit of a type
of panic in the oil industry. But what we are seeing now with
all of the oil industry around the world, the refineries are
adjusting themselves to these regulations.
There may be some temporary price spikes for diesel, jet
fuel prices, but we think that the market will adjust and we
don't expect those price spikes will be long lasting and big.
There will be some adjustment period but refineries are now,
today, being configurated according to the IMO rules around the
world and the U.S. is one of the leaders.
The Chairman. So, you don't think that it would potentially
be necessary to have, kind of, a phase in period just to avoid
any potential for price spikes? It sounds like you think that
we are preparing for this and will be ready.
Dr. Birol. Definitely. We are preparing around the world.
There may be some price spikes, but it will be temporary and it
will not be big.
In terms of Arctic, I think you are completely right from
your perspective. Russia is making substantial efforts in terms
of the LNG from Yamal, but the volumes are not yet that big,
but they are working on that.
But in my view, this is a signal for the United States that
if the U.S. wants to get the market share, to put the market
share in its pocket, it should move very fast in order to get
that market share because the volumes might not be very big
today, but tomorrow it may be bigger and they will be a much
tougher competitor.
The Chairman. So you see that as an area of growth for
Russia. Do you factor that in as you are looking then to where
the demand for natural gas is coming from? Do you see the
production in this very remote part of Russia as coming on in a
significant way?
Dr. Birol. Yes.
The Chairman. Or what does your analysis show you at this
point?
Dr. Birol. Currently, Madam Chair, not big volumes but I
can't exclude that it will grow in the future. My advice would
be to take this challenge seriously and the U.S. LNG should, I
think, be ready to compete with the possible growth coming from
Yamal LNG which is small today but may be bigger tomorrow.
The issues that some of the Senators mentioned today, not
having enough licenses for building the pipeline capacity, I
think those decision-makers should see those facts and perhaps
make their decisions accordingly.
The Chairman. I appreciate that.
I thank you for your focus on nuclear and a recognition
that when it comes to nuclear and leadership, the United States
had a very, very, very key role and we are standing, almost
standing, down on that. And I do not, I hesitate to use that
terminology because it makes it sound pretty dismal, but to
know that right now 20 percent here in the United States comes
from nuclear but we are headed down to 7 percent.
Dr. Birol. Yes.
The Chairman. Again, when we want to talk about ways that
we can be meaningfully reducing our emissions in this country
and around the world, in my view, nuclear energy is that source
that we should be looking to and making those investments in an
aggressive way toward the advanced technologies in dealing with
our waste issues but really being aggressive rather than, kind
of, pulling back on that now. I am more than a little bit
concerned that we are placing less value on nuclear here.
I have been trying to take point on this and move us out,
but when you look around the world, you mentioned that China is
moving more aggressively with nuclear. What other nations are
stepping up? I mean, there have been some very political
reasons where countries have drawn back after the horrible
incident in Fukushima, Japan, but we saw some of the European
nations really pulling back. Do you see that turning at all
where there is now renewed interest in nuclear? Speak a little
bit more to your long-term view.
Dr. Birol. Right.
Thank you very much for this opportunity.
Now we see that not only in the U.S. but also in Europe,
the share of nuclear will go down if there is no policy change.
And there are two countries going in the other direction, China
and Russia. China and Russia are building nuclear power plants
and what will happen if the policies do not change? At least
two things. One, the U.S. and Europe will lose major
technological advantage because many countries around the world
would like to import nuclear technology and China and Russia by
learning by doing, they are bringing the cost of nuclear down.
And therefore, they will have more advantage compared to U.S.
or the European countries to sell their nuclear technology.
So this is because cost is a major issue and the United
States, we have, or in Europe, we don't build any nuclear power
plants, perhaps just a few and we are even the opposite of
learning by doing, forgetting by not doing. So we are
forgetting how to do these technologies.
The Chairman. Yes.
Dr. Birol. So, therefore, it is, you know, the second one
is, in my view, you rightly mention, again, Madam Chair, the
emissions. Nuclear is a technology which reduces the emissions
in a very, very radical way.
And in the absence of nuclear, the reaching our
environmental goals will be much, much tougher. And when we
look at today, we talk about the United States being also a
successful country in terms of renewables, but in nuclear
generating electricity as much as all the other renewable
sources put together in the United States today. Losing this
would be, in my view, not a very wise policy.
So this would be another negative implication and, of
course, I am only talking about here energy and environment,
not U.S. but other countries being together on nuclear capacity
may well have other implications beyond energy and environment.
The Chairman. You had made the comment that most notably in
places like Russia, certainly India, while environmental
concerns are important that affordability, access to
electricity----
Dr. Birol. Yeah.
The Chairman. ----these are the things that are really
driving, as they are working to build out these countries here.
Do you think we get to a point with nuclear where it is
viewed as, not only the environmental choice, but from the
perspective of the cost and a stability of cost that we are
going to see greater investments? Obviously China is taking
that step, but in other countries as well.
I just see the focus, the global focus on what we are
dealing with with our emissions, recognizing that, and I noted
in my opening comments, we were on a pretty good trend here in
the United States with reducing our emissions. But you know, we
have bumped back up here. I want to think that that is just a
temporary bump, and we are going to work to keep reducing them.
But is this global dialogue about how we reduce our
emissions, will that begin to have an impact on some of the
investment and policy decisions or is it still always going to
be about, what does it cost me to stay warm, to stay cool, to
keep my lights on?
Dr. Birol. First, about the nuclear, I think the challenge
for current nuclear technologies, the first down payment is
very, very high cost but operation costs are very cheap.
Since a big chunk of this new investment needs to be done
in the emerging countries whose the financial means are a
little limited, it may not be a mushrooming technology in those
countries.
Having said that, advanced nuclear technology such as small
modular reactors (SMRs) can be a very good fit for those
countries and in the United States and other parts of the world
there's a lot of work going there. And if we see the commercial
success in the SMRs, it can be definitely one of the favorite
options.
Now, the investments today are going for renewables but at
the same time for oil, at the same time for gas and coal. It is
very difficult to say that there is a clear winner today.
But when we look at the last year, for example, more than
50 percent of the new power capacity came in the world was
solar only. Solar was 50 percent, everything else put again,
another 50 percent and the renewables are getting a lot of
attention from investment community as well.
The Chairman. One last question, and it is something that
nobody has really hit on today. In your outlook you mention
that the electricity sector, star of the show, is experiencing
its most dramatic transformation since its creation more than a
century ago, a lot of focus and attention on that as well and
acknowledgement that our electricity grid is increasingly
becoming more digitalized. This allows us to be clearly
smarter, much more efficient which, again, is important for a
more flexible grid.
But it then presents issues that make us realize how
vulnerable our grid can be to any level of cyberattack. Your
thoughts on how we balance the real benefits of this
digitization of our electric sector versus the vulnerabilities
that are then created. And are there any good examples
worldwide where some nations are really aggressively taking
this on in a way that you see is making a difference?
I know that here this is an issue that we talk about in
every single committee that I am on, but it is almost like this
is so big we don't know how to start taking a bite at this
elephant. And so, looking to others who might be able to show
some progress here would be interesting to learn from.
Dr. Birol. This is an extremely important point, Madam
Chair.
In the '70s when the IEA was founded, oil security was a
key issue and it still is. There is no change there. But
electricity security is becoming a major issue as well for two
reasons.
One, the share of solar and wind, they are increasing in
our electricity system and if we do not take the necessary
measures, in the absence of solar and wind, we may see
blackouts. For examples, we have seen one in Australia
recently. The share of renewables was more than 50 percent in
that day, there was no electricity and blackout in our country
like Australia. So this is one electricity security issue.
The second one is the cybersecurity and this is an area
which needs the utmost attention of not the energy people, but
also security people and the necessary measures and the backup
technologies and backup the security measures need to be taken
in an area, that again, we are working very hard with the
regulators, system operators and also security forces so that
we are prepared for cybersecurity attacks.
To be very frank with you, we have 30 member countries and,
if you ask me if any of those countries are fully equipped vis-
a-vis such cyberattacks, I would have hesitations to say yes to
you for any country we have. It's a major issue and we all know
that without electricity, hospitals, lifts, nothing will work
and our system will be completely paralyzed.
As such, we have as IEA, in addition to oil security we are
working now on the electricity security as a major issue for us
too.
The Chairman. Good.
Well, next year we will anxiously await your report to see
what progress you have made on that. It is certainly key.
Senator Cortez Masto, did you have any other comments or
questions that you wanted to ask?
Senator Cortez Masto. No, thank you.
The Chairman. I want to thank you, Dr. Birol. You have
been, again, very informative. It has been a very important
discussion.
I always leave these hearings taking my notes with me and
finding myself referring to them throughout the year. But you
have given us some good reminders here when you start off with
just the reminder that, you know, no country is an energy
island. We sure got that.
But a reminder, too, that the role that the United States
is playing when it comes to oil and natural gas is not only
important for us, it is important globally, it is important to
our partners, to our allies.
And we have a lot of good news that is there. We have some
policy considerations that we need to address that relate to a
limitation of our own capacity here that we can address that
and help ourselves and help others. I think that that is
significant.
You know, we always ask, are there any, whether it is
silver bullets or silver buckshot, as Senator King reminded us,
but you have given us some specifics where the United States is
leading.
You mentioned the 45Q as a business model out there. You
have clearly reminded us that if we want to truly work toward a
diversified portfolio that helps us reduce our emissions, in
addition to what we are doing with renewables, that nuclear and
particularly, advanced nuclear, has got to be so much of our
calculus here.
We have no shortage of issues to deal with before the
Committee, but I think as we move forward and lay down our
priorities here, what you have given us this morning and what
the agency has provided us with--just the background and the
factual analysis--is good, it is solid and it allows us to be
better informed as we move forward with our policies.
So, again, I thank you in so many ways for your leadership
on this. And again, thank you for coming to the Energy
Committee this morning.
With that, the Committee stands adjourned.
[Whereupon, at 11:56 a.m. the hearing was adjourned.]
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