[Senate Hearing 117-427]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 117-427

                         ENSURING TRANSPARENCY 
                          IN PETROLEUM MARKETS

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

                                HEARING

                               BEFORE THE

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION
                               __________

                             APRIL 5, 2022
                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation
                             
                             
                  [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                             


                Available online: http://www.govinfo.gov

                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
55-409 PDF                WASHINGTON : 2024   


       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                   MARIA CANTWELL, Washington, Chair
AMY KLOBUCHAR, Minnesota             ROGER WICKER, Mississippi, Ranking
RICHARD BLUMENTHAL, Connecticut      JOHN THUNE, South Dakota
BRIAN SCHATZ, Hawaii                 ROY BLUNT, Missouri
EDWARD MARKEY, Massachusetts         TED CRUZ, Texas
GARY PETERS, Michigan                DEB FISCHER, Nebraska
TAMMY BALDWIN, Wisconsin             JERRY MORAN, Kansas
TAMMY DUCKWORTH, Illinois            DAN SULLIVAN, Alaska
JON TESTER, Montana                  MARSHA BLACKBURN, Tennessee
KYRSTEN SINEMA, Arizona              TODD YOUNG, Indiana
JACKY ROSEN, Nevada                  MIKE LEE, Utah
BEN RAY LUJAN, New Mexico            RON JOHNSON, Wisconsin
JOHN HICKENLOOPER, Colorado          SHELLEY MOORE CAPITO, West 
RAPHAEL WARNOCK, Georgia                 Virginia
                                     RICK SCOTT, Florida
                                     CYNTHIA LUMMIS, Wyoming
                       Lila Helms, Staff Director
                 Melissa Porter, Deputy Staff Director
       George Greenwell, Policy Coordinator and Security Manager
                 John Keast, Republican Staff Director
            Crystal Tully, Republican Deputy Staff Director
                      Steven Wall, General Counsel
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 5, 2022....................................     1
Statement of Senator Cantwell....................................     1
Statement of Senator Cruz........................................     3
    Memo dated January 20, 2021 re: ``Temporary Suspension of 
      Delegated Authority'' from Scott de la Vega, Acting 
      Secretary of the Interior, U.S. Department of the Interior.    59
    Memo dated March 19, 2021 re: ``Confirmation of Matters for 
      ASLM Review from Laura Daniels-Davis, Principal Deputy 
      Assistant Secretary, Land and Minerals Management, U.S. 
      Department of the Interior.................................    61
    Link to the U.S. Energy Information Administration re: oil 
      production.................................................    63
    Letter dated March 17, 2022 to Linda Khan, Chair, Federal 
      Trade Commission from Senator Roger F. Wicker..............    64
    Letter dated March 29, 2022 from Linda M. Khan, Chair, 
      Federal Trade Commission to Hon. Roger Wicker..............    65
    Letter dated April 4, 2022 to Hon. Maria Cantwell and Hon. 
      Roger Wicker from NACS, NATSO and SIGMA....................    66
    Article from Reuters dated January 28, 2022 entitled, ``Biden 
      gets climate win with court loss on Gulf of Mexico oil 
      leases'' by Nicola Groom and Valerie Volcovici.............    70
    Article from csis.org dated January 28, 2021 entitled, 
      ``Biden Makes Sweeping to Oil and Gas Policy'' by Ben 
      Cahill.....................................................    72
Statement of Senator Klobuchar...................................    28
Statement of Senator Fischer.....................................    29
Statement of Senator Blumenthal..................................    31
Statement of Senator Markey......................................    32
Statement of Senator Lee.........................................    34
Statement of Senator Tester......................................    36
Statement of Senator Scott.......................................    38
Statement of Senator Rosen.......................................    39
Statement of Senator Baldwin.....................................    42
Statement of Senator Capito......................................    44
Statement of Senator Peters......................................    45
Statement of Senator Warnock.....................................    47
Statement of Senator Hickenlooper................................    48
Statement of Senator Thune.......................................    50
Statement of Senator Sullivan....................................    52
Statement of Senator Blackburn...................................    54
Statement of Senator Lummis......................................    56

                               Witnesses

Robert F. McCullough, Jr., Principal, McCullough Research........     5
    Prepared statement...........................................     6
Kathleen Sgamma, President, Western Energy Alliance..............    21
    Prepared statement...........................................    22

                                Appendix

Response to written questions submitted to Robert F. McCullough 
  Jr. by:
    Hon. Kyrsten Sinema..........................................    79
Response to written questions submitted to Kathleen Sgamma by:
    Hon. Kyrsten Sinema..........................................    82
    Hon. Dan Sullivan............................................    83

 
                         ENSURING TRANSPARENCY 
                          IN PETROLEUM MARKETS

                              ----------                              


                         TUESDAY, APRIL 5, 2022

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10 a.m., in room 
SR-253, Russell Senate Office Building, Hon. Maria Cantwell, 
Chair of the Committee, presiding.
    Present: Senators Cantwell [presiding], Blumenthal, Markey, 
Peters, Baldwin, Tester, Rosen, Hickenlooper, Warnock, Cruz, 
Thune, Fischer, Moran, Sullivan, Blackburn, Lee, Capito, Scott, 
Klobuchar, and Lummis.

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

    The Chair. The Commerce Committee will come to order. The 
Senate Committee on Commerce, Science, and Transportation today 
is having a full committee hearing on ensuring transparency in 
the petroleum markets. We will hear from Mr. Robert McCullough, 
Principal of McCullough Research from Portland, Oregon, and Ms. 
Kathleen Sgamma--is that right, Sgamma? President of Western 
Energy Alliance from Denver, Colorado. Welcome to you both.
    The committee--I want to welcome our witnesses because I 
think this issue of ensuring transparency in petroleum markets 
is of the utmost importance. Surging petroleum prices are 
wreaking havoc with American households' budgets and 
threatening our Nation's post pandemic recovery and global 
competitiveness.
    In the State of Washington, many of my constituents are 
still paying close to $5 a gallon at the pump and even though 
prices have fallen 11 percent last month. For some mysterious 
reasons, the sticker shock of California is even worse. Many 
drivers in the Golden State--can you just--thank you so much. I 
guess we have chart issues here. For some reason, the sticker 
shock in California is even worse. Many drivers in the Golden 
State are shelling out $6 or more a gallon to fill up their 
cars and trucks.
    Diesel fuel, the bedrock of our Nation's supply chain, is 
also having great impacts. A few weeks ago, we saw the highest 
diesel prices ever. Prices dropped a bit recently, but 
nationwide, they are still recovering from an overall five 
gallon, where we are today. This means it can cost a trucker 
over $1,000 to fill up their rig. As Senator Cruz knows from 
the Aviation subcommittee, jet fuels have also climbed to 
record levels, hitting air carriers and travelers with steep 
increases just as the industry is starting to recover from the 
pandemic shut down.
    I would like to acknowledge up front that the world oil 
prices are at record levels. There are a lot of compounding 
reasons for that--Russia's despicable attack on Ukraine, a post 
pandemic demand surge, and an atrophied supply chain, and 
OPEC's cartel refusal to help boost production. Speaking of 
OPEC, I hope everyone on this dais knows that it has monopolies 
and that it will be able to dictate how much we continue to pay 
for oil. That is as long as we remain addicted to that oil.
    As President George W. Bush concluded back in 2006, cartel 
members like Saudi Arabia, Russia and Iran will continue to 
have America by the throat, no matter how much more we produce 
at home, even if we drill in every last inch of our country.
    But this hearing today is not about world oil prices. It is 
about how much oil or how much oil we could have been 
producing, or canards about supposed impact of transcontinental 
pipelines never built, or red herrings about bypassing 
environmental laws. None of those are the issues of the 
hearing, or even really in our jurisdiction. And that is why we 
are trying to focus on our Committee's jurisdiction.
    What this hearing is about is the mysterious middle of the 
gas market. This is what is shown on the chart behind me. So, 
we are not--we are not talking about the world oil price, or we 
are not talking about what happens at the individual retailers. 
This is not about the crude oil, or what--that does account for 
about half of the cost of a gallon of gas. That is set at world 
markets. Nor are we talking about local gas stations, because 
many of them are small businesses who are owners who take a lot 
of heat from the angry drivers. Because the reality is the gas 
stations are price takers and operate on thin margins, no 
matter what the retail price of petroleum is.
    This hearing is about this mysterious middle of the supply 
chain, how we can shine a light on the black box to expose any 
anti-competitive dark trading, making sure there are not a 
bunch of smart guys in the room hurting consumers because they 
think we cannot figure out what is happening when there is a 
lack of transparency.
    We have seen this show before. Americans have the right to 
know why one of our most important commodities does not have 
the right amount of proper transparency and oversight. It does 
not seem right to me that we should have more transparency on a 
product like wheat or corn than we would on oil. There is, of 
course, nothing new about bad actors artificially impacting 
shortages or supplies. The Grain Futures prohibited 
manipulation of grain prices as early as 1922. And there are 
many schemes about this throughout our history. One of our 
witnesses, Robert McCullough, played a key role in blowing the 
whistle on Enron's trading energy schemes during the West Coast 
energy crisis.
    Congress took action after that crisis. In 2005, we 
empowered the Federal Energy Regulatory Commission, FERC, with 
the same--with the authority to make electricity and natural 
gas markets more transparent. And we continued to push that. We 
see today that there are still bad actors doing these 
activities--a billion dollars in fines and disgorgements from 
return of these ill-gotten gains to help consumers. My opinion 
is we now need to do the same thing on opaque petroleum 
markets.
    Congress nearly--Congress, in 2007, gave this identical 
authority to the FTC. So today, I hope to ask our witnesses 
about this. This is something that we would like to see the 
FTT--FTC be the watchdog on this issue and be more aggressive 
in protecting consumers.
    I want to thank Ranking Member Wicker for pushing the FTC 
to try to find out what they have been doing on this issue. 
That is why today we are also sending a letter from my West 
Coast colleagues urging the commission to investigate 
abnormally high West Coast prices. And we are working on 
legislation to give the FTC more authority and access to data 
so that we can properly police these markets.
    The bottom line is fair markets are not mysterious. Fair 
markets are transparent. And I hope that we can have these 
issues discussed today, as members of the Committee know how 
important these prices are to their consumers.
    I will now turn to my colleague, Senator Cruz, for his 
opening statement.

                  STATEMENT OF HON. TED CRUZ, 
                    U.S. SENATOR FROM TEXAS

    Senator Cruz. Thank you, Madam Chair. Over the past 15 
months, we have seen inflation grow higher than at any time in 
the last 40 years. Perhaps the most painful driver of inflation 
has been the skyrocketing cost of gasoline at the pipe--pump. 
When Joe Biden took the oath of office, the average retail 
price of gasoline was $2.38 a gallon. Today, it is $4.23 a 
gallon. In some parts of the country, the price has crossed 
$6.90 a gallon.
    This was not an accident. It was not an unintended side 
effect. Nor was it principally the result of the war in 
Ukraine. This was the result of the Green New Deal zealots in 
the Biden Administration. They told the American people they 
would do this, and they kept their promise. And now, the 
Democrats have discovered they have a problem.
    That is why we are having this hearing. It is not to 
discuss how President Biden launched a war on American energy 
and would rather buy gas from the Maduro regime or from 
Vladimir Putin than from Americans making money here in 
America. Rather, it is that people do not like paying $4 and $5 
and $6 and $7 a gallon to fill up their tank. This is a 
political problem. And for them, political problems require a 
political solution.
    Just like with inflation for this Administration, where 
they have had five separate explanations in 15 months--at first 
it did not exist. The White House told us there is no 
inflation. Then, we were told it was transitory. Yes, it exists 
but just for a brief moment. The third explanation was it is a 
high-class problem. This came from the White House Chief of 
Staff. This one, in particular, I have no idea what it means.
    The fourth explanation was, yes, inflation exists. No, it 
is no transitory. High class is not working. But it is a good 
thing. That was the White House's pitch. Inflation is a sign of 
just how fantastic the economy is doing. And cannot you wait 
until it does better, and inflation goes even higher.
    And then, there is explanation number five that the White 
House has grasped onto, and I am going to predict that every 
Democrat on this committee is going to echo, which is Putin, 
Putin, Putin. The inflation you are seeing, the gas prices, it 
is all Vladimir Putin, don't you know? Does not have anything 
to do with the domestic policies here. Now, the war in Ukraine 
was caused by mistakes from this Administration, notably 
President Biden waiving sanctions on the Nord Stream 2 national 
pipeline, which enabled Putin to complete that pipeline. And 
President Zelensky told us that is the reason why Putin invaded 
Ukraine. But virtually every Democrat--44 Democrats voted with 
the Biden White House, against Ukraine and against sanctions on 
Putin and Russia and Nord Stream 2, because it seems the only 
pipeline in the world that our Democratic colleagues like, is a 
Russian pipeline that benefits Putin. And the war in Ukraine, 
before the war started--before Putin invaded Ukraine, gasoline 
prices had already risen 48 percent, before the first tank 
rolled in.
    Second, the political solution is to blame the oil 
companies. Apparently, these big, bad oil companies, they do 
not want to sell you oil. They are secretly sitting there 
saying, ``We do not want any oil. We do not want to sell any. 
That whole profit stuff, we are not for it.'' It could not be 
that those nice fellows in the White House enacted policies to 
cause this to happen.
    This is world class gaslighting. Only a political operative 
would try to sell you something so absurd. Even President 
Obama's White House Economic Advisor, Steve Rattner, recently 
stated, ``This is Biden's inflation, and he needs to own it''. 
That is exactly right.
    The Biden Administration's assault on oil and gas 
production began during his campaign, when he pledged, during 
the debate--and I want you--I want you to look at what he said. 
He said, ``No more drilling on Federal lands. No more drilling, 
including offshore. No ability for the oil industry to continue 
to drill, period, ends.'' That is what he promised the American 
people. And you know what? He delivered on that promise. His 
first day in office he canceled the Keystone pipeline. The next 
week he halted all Federal oil and gas lease sales, stopping 
development on the part of the economy that produces 24 percent 
of America's energy.
    On May 7, Biden's Interior Department announced plans 
prohibiting oil and gas production on 30 percent of U.S. 
Federal land. On June 1, Biden revoked leases on the north 
slopes of Alaska, totally 16 billion barrels of oil in stranded 
production. On October 7, Biden eliminated Trump's permit 
streamlining regulations. On October 29, Biden's Interior began 
using the ``social cost of carbon'' in permitting, which is a 
new kind of analysis, never enacted by Congress, designed to 
get to know and deny permits. And then, on March 21, just a few 
weeks ago, Biden's Security and Exchange Commission announced a 
new regulation aimed at reducing investment in oil and gas, 
cutting off capital for drilling.
    Supply and demand has been how prices have been set from 
the dawn of time. Supply and demand still operates. The Biden 
Administration has waged a war on supply and prices have 
skyrocketed. This is not an accident. This is not Putin. This 
is Joe Biden and the Democrats and the Green New Deal, and 
they're desperately looking for a political excuse to blame 
somebody else for the consequences of what they promised they 
would do to the American people.
    The Chair. Thank you, Senator Cruz. Now, we will turn to 
our witnesses. I guarantee you we are here to find out about 
transparency in oil markets and protecting our consumers from 
dark markets. We would like to welcome Mr. Robert McCullough, 
who is a principal of McCullough Research. And Kathleen Sgamma, 
who is with the Western Energy Alliance, from Denver, Colorado.
    Welcome, Mr. McCullough. You are welcome to make your 
opening remarks. You need to hit a button there, sir.

 STATEMENT OF ROBERT F. McCULLOUGH, JR., PRINCIPAL, McCULLOUGH 
                            RESEARCH

    Mr. McCullough. Sorry. Thank you very much, Chairman, and 
thank you very much to the Committee members for the 
invitation.
    The Chair. Maybe pull the microphone a little bit closer, 
too. Thank you.
    Mr. McCullough. I am going to talk more narrowly on 
transparency, but I am also going to talk a little bit about 
drilling and windfall taxes.
    Let us start with transparency. Our commodity markets 
started with the Chicago Board of Trade in 1848. It has always 
been an area of challenges and price manipulation, a variety of 
other games, have been prevalent. This does not mean that those 
markets are not valuable. They are exceedingly valuable. It 
does mean that the best way to avoid mugging is to erect 
streetlights. I grew up in a rough neighborhood in Chicago. I 
can tell you streetlights work very well.
    We have three major energy commodities fueling the U.S. 
economy--electricity, natural gas, and oil. Nothing fancy about 
that. Electricity and natural gas are growing rapidly. Oil is 
gradually shrinking in importance, but it is still a major 
component of the U.S. economy.
    After Enron's fiasco, we enabled very good transparency 
rules for electricity and natural gas. I was part of that. The 
2003 final study by the FERC identified 100 different schemes 
and set out rules and regulations to keep those in check. Those 
have largely worked. The CFTC has authority and has adopted 
similar regulations. Those work reasonably well for futures 
markets.
    There is, however, one gaping hole. That gaping hole is 
spot oil, spot gasoline. Those do not have a clear assignment. 
The FTC has been, to a degree, assigned that, but it has never 
been enabled. It has never been really driven to the same level 
of authority that we see at the FERC and the CFTC.
    Now, I am not here to explain why I think the rapid rise of 
oil this spring was due to Putin's war. Nor do I think there is 
anything we can do about that in the short run. They are the 
world's largest oil exporter. Uncertainties in the market show 
up in the world's foreign markets. That is simply a fact.
    We also know that, for most U.S. states, the correlation 
between the Brent and WTI oil prices and retail gasoline prices 
is close to absolute. That is not true everywhere. And I have 
spoken before Congress before, and I have certainly written 
often on the problem we have in California. Now, why is 
California a problem? We really do not have pipelines across 
the Rockies. So, it is an island. It has special conditions and 
taxes, understood. But even when those are corrected for, in a 
statistical sense, we see the California prices diverge from 
the fundamentals we count on. Case in point, last month, when 
the price of gasoline began to fall, as the price of oil began 
to fall, in the other U.S. states, the price of gasoline 
continued to increase in California.
    Why is that? Well, in part because we do not have much 
understanding, in the public eye, of where those prices come 
from. Central role in all of the contracts are prices set by a 
price reporting agency called OPIS. I am not saying that 
anything they do is wrong. But I am saying that it is--as far 
as I understand, no Federal agency has a subscription to that 
newsletter. So, until you know what is happening with that 
index, you do not know what is happening with gasoline prices. 
And when we went through and looked at this, in detail, it 
indicated to us that consumers in California paid $500 million 
extra last month than what they would have paid if they had 
been in any other state.
    Now, to drilling. It is critical for the U.S. to expand its 
output, not because I want to see more people buy gas-fuels 
cars, but because we need to reduce Russia's exports. Our 
drilling rates are down. That is because our foreign market is 
not active. We need to actually enable small drillers to 
actually drill. That means they have to either sell their 
product forward or be able to borrow money. That is a Commerce 
Commission issue.
    And finally, windfall taxes. A lot of enthusiasm for that. 
But when you are considering that, please also consider that 
any windfall tax has to have an incentive to drill more. The 
last thing we want to do is discourage people from producing 
oil and gasoline.
    Thank you very much.
    [The prepared statement of Mr. McCullough follows:]

      Prepared Statement of Robert F. McCullough, Jr., Principal, 
                          McCullough Research


I have never known much good done    Trust, but verify
 by those who affected to trade for
 the public good. It is an
 affectation, indeed, not very
 common among merchants, and very
 few words need be employed in
 dissuading them from it.
 
The Wealth of Nations, Adam Smith,   Remarks on Signing the Intermediate-
 1776, Book IV., Chapter 11.          Range Nuclear Forces Treaty,
                                      Ronald Reagan, 1987.
 

    The economic impacts of the Russian Federation's war on Ukraine 
have surprised many. The rapid increase in oil prices reflect a 
legitimate concern that the world's largest oil exporter--Russia--may 
restrict exports or be subject to international boycotts or embargoes. 
However, in many cases, public perceptions of the United States and its 
energy balance have lagged behind market developments. This has led to 
unfounded fears of a 1970s style energy crisis.
    In reality, the United States is now roughly able to supply its own 
requirements and is not in any risk of reliving the painful days of the 
1972 oil boycott. As the world's largest oil producer, the U.S. buys 
and sells petroleum and natural gas products on an ongoing basis. 
Mexican cars and trucks run on U.S. refineries that, in turn, rely on 
Canadian crude. This means that potential shortages in Europe and China 
can affect prices in Akron, Ohio and Spokane, Washington.
    To a lesser extent, the expansion of liquified natural gas exports 
from the U.S. to international markets has also begun to link prices in 
U.S. and foreign natural gas markets.
    The war is having massive impacts on the U.S. economy. National 
gasoline prices have increased 38 percent since last March. Combined 
with the recovery from the pandemic, spending on gasoline has increased 
44 percent:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    The most effective policy to curb Russian aggression in Ukraine is 
to displace Putin's oil exports with enhanced U.S. production while 
protecting U.S. consumers from unnecessary price increases at the pump.
    I have conclusions and recommendations in three areas: 
transparency, drilling, and windfall taxes:

        Transparency:

    1.  Transparency is the least expensive and most effective tool in 
            guaranteeing efficient markets. U.S. Oil and gasoline 
            markets are less transparent than almost any other 
            commodities--and vastly less transparent than competing 
            fuels like electricity and natural gas. A database of 
            wholesale transactions for oil and gasoline similar to 
            FERC's database for electricity is critical to discourage 
            anomalous trading.

    2.  Pivotal price reporting agencies need to provide pricing 
            information to at least one of the relevant Federal 
            agencies--the FTC, FERC, or the CFTC. Assigning this 
            critical function to the Federal Trade Commission is 
            appropriate.

    3.  The well-known ``up like a rocket, down like a feather'' 
            phenomenon needs to be explored. This form of pricing is 
            neither equitable nor efficient. In volatile times--like 
            today--it penalizes consumers and benefits suppliers.

    4.  Certain markets, like California, are prone to mysterious price 
            excursions. In the second week of March, as oil and 
            gasoline prices fell across the U.S., California's gasoline 
            prices continued to increase. There is some evidence that 
            trades which caused this increase may have been doubtful.

        Drilling:

    1.  The duration of the war between Russia and Ukraine is 
            impossible to forecast and the unpredictability of its 
            scale and duration appears to be making it difficult for 
            smaller oil producers to expand capacity as rapidly as in 
            earlier years.

    2.  The Federal government's existing oil inventory could be 
            ``loaned'' to the market and replaced by forward purchases 
            in 2023. This would allow drillers with financing 
            constraints to guarantee revenues for wells drilled today. 
            President Biden took first steps down this path just a few 
            days ago.

    3.  Replacement of draws from the strategic reserve should be 
            undertaken by purchases of crude in West Texas Intermediate 
            forward markets. This will ex-pand liquidity and provide 
            broad incentives for additional production in the Anadarko, 
            Appalchia, Bakken, Eagle Ford, Haynesville, and Permian 
            basins.

        Windfall Profits:

    1.  It is logical to believe that first quarter 2022 earnings are 
            going to be enormous. However, impacts on consumers and 
            other businesses from higher cost fuels may also be 
            enormous.

    2.  This is a case where a ``windfall'' tax, with proceeds 
            specifically targeted to benefit at risk individuals and 
            businesses, may be beneficial for society as a whole.

    3.  Adding an incentive to increase oil production to the windfall 
            tax--perhaps by adding a credit against the windfall tax 
            based on additional investments in oil production--would be 
            helpful in speeding recovery of U.S. production.
Overview:
    Transparency is the simplest and cheapest way to lower energy 
prices. Since the Chicago Board of Trade commenced operations in 1848, 
commodity traders have created hundreds of variants on commodity 
pricing schemes. As the traders evolved new versions, the law and 
regulatory agencies have evolved with them. The collapse of the Insull 
empire in the 1930s brought into existence FERC, the SEC, and the CFTC. 
The collapse of the Enron empire twenty years ago also increased 
awareness of just how fragile commodity marks can be.
    In 2003, FERC released a virtual encyclopedia of market 
manipulation schemes in electricity and natural gas.\1\ This described 
many, many different energy commodity ``games'' that had created 
rolling blackouts, bankruptcies, and massive overcharges in California.
---------------------------------------------------------------------------
    \1\ Final Report on Price Manipulation in Western Markets, Docket 
No. PA02-02-000, Donald J. Gelinas Associate Director--OMTR, Federal 
Energy Regulatory Commission, March 26, 2003.
---------------------------------------------------------------------------
    Many of these ``games'' are still in place today--although less so 
in electricity and natural gas. The ability to manipulate price 
reporting agencies--exchanges and industry newsletters--by wash trades 
did not go away since they are now prohibited at FERC and the CFTC.
    Some years ago in Texas, my staff identified a disgraced Enron 
trader from Portland, Oregon who had simply moved to Dallas, Texas to 
take up his old manipulations. Below, I will identify a possible 
manipulation of a price reporting agency in California who may well be 
a victim of exactly the same techniques--at a cost of $500 million to 
California gasoline customers last month.
    These are easily discouraged when the indexes that drive markets 
are calculated transparently. When the calculations are opaque, this is 
a continuing temptation to take advantage of consumers and make our 
economy less efficient.
    The last peak in oil prices took place in 2008. At that time, the 
U.S. imported a significant portion of its needs. Since then, crude 
prices and U.S. imports have declined, although they continue to 
reflect shifts in global supply and demand. In the recent years, the 
U.S. exported more petroleum products than it imported.\2\
---------------------------------------------------------------------------
    \2\ Supply and Disposition Total Crude Oil and Petroleum Products 
at https://www.eia.gov/dnav/pet/PET_SUM_SND_A_EP00_MBBL_M_CUR.htm

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    In real and nominal terms, crude prices have remained below the 
July 2008 peak, but the increase in prices over the past three months 
have nonetheless been significant:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Below, I address three basic issues in the current crisis: 
transparency, drilling, and windfall profits.
Transparency:
    While competing fuels like natural gas and electricity are reviewed 
for market manipulation at the Federal Energy Regulatory Commission and 
futures are reviewed by the Commodity Futures Trading Commission, no 
specific agency has jurisdiction over spot oil and gasoline 
transactions. This is surprising since firms that are active in oil and 
gasoline trading have often faced investigations and penalties at both 
FERC and the CFTC.
    To a degree, some state attorney generals have attempted the 
daunting task of deconstructing petroleum industry pricing, but have 
always been hampered by a lack of resources and data.
    The one exception to this unfortunate state of affairs was with the 
Interagency Task Force on Commodity Markets Interim Report on Crude Oil 
in 2008.\3\ The task force issued a useful interim report in June 2008, 
soon after oil prices peaked. However, following this, the final report 
and the entire interagency task force was never heard from again.
---------------------------------------------------------------------------
    \3\ Interagency Task Force on Commodity Markets Interim Report on 
Crude Oil, CFTC, July 2008.
---------------------------------------------------------------------------
    Data transparency is the least expensive and most effective method 
of regulating market manipulation. Unfortunately, oil and gasoline has 
only a fraction of available information compared to competing fuels. A 
case in point is the public release of electric transaction data by the 
Federal Energy Regulatory Commission. The Electric Quarterly Report 
provides the vast majority of wholesale electric transactions including 
buyer, seller, price, location, and many other details.\4\
---------------------------------------------------------------------------
    \4\ https://www.ferc.gov/power-sales-and-markets/electric-
quarterly-reports-eqr
---------------------------------------------------------------------------
    Adam Smith's famous study on the wealth of nations addresses the 
benefits of such trans-parency measures:

        The landlord and tenant, for example, might jointly be obliged 
        to record their lease in a public register. Proper penalties 
        might be enacted against concealing or misrepresenting any of 
        the conditions; and if part of those penalties were to be paid 
        to either of the two parties who informed against and convicted 
        the other of such concealment or misrepresentation, it would 
        effectually deter them from combining together in order to 
        defraud the public revenue.\5\
---------------------------------------------------------------------------
    \5\ The Wealth of Nations, Adam Smith, 1776, Ch. II, Pt. II.

    Wash trades (FERC's term) or prearranged trades (CFTC's term) are 
trades without an underlying economic purpose. Such trades are often 
used to create a false impression of quantities or prices.
    A similar database for wholesale oil and gasoline transactions 
meeting reporting definitions would be considerably smaller than the 
current electric database maintained by FERC. The advantage of such a 
database is that prohibited transactions like wash trades can easily be 
reviewed.
    Anomalies in oil and gasoline markets are not unusual. One 
continuing mystery concerns the inconsistent response of gasoline 
markets to changes in the price of feedstocks. For example, the phrase 
``up like a rocket, down like a feather'' has often been used to 
describe the rapid increase in retail gasoline prices when oil prices 
rise, but the very slow decrease in gasoline prices when oil prices 
fall.
    The rocket/feather effect occurred recently when the price of oil 
increased markedly in the first week of March and then fell even more 
dramatically in the second week of March:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    There is nothing mysterious in the rapid response of gasoline 
prices to oil price increases. The contracts between refineries and 
downstream customers often specify specific wholesale market prices. 
Such contracts should also reduce the price of gasoline when oil prices 
fall--unless transactions are affecting the indices used in the 
contract.
    The mystery lies in the ``feather'' pricing--what transactions are 
affecting market indices and why these transactions are at odds with 
economic theory.
    In a volatile oil market, as is present today, the rocket/feather 
pricing is an undue burden on consumers. It also misprices oil and 
gasoline throughout the entire economy with significant negative 
impacts on inflation and employment. Put more simply, a sudden increase 
and following decrease in oil prices should not be creating a prolonged 
rise in downstream prices.
    North America is largely separated into two market areas: the West 
Coast and the states and provinces east of the Rockies. While oil and 
gasoline are produced in both areas, the West Coast tends to rely more 
on world markets--priced at the Brent market price--than the area east 
of the Rockies which receives much of its supplies at the slightly 
lower Cushing or WTI market price.
    As with other major commodities, wholesale oil and gasoline can be 
purchased in the bilateral market and on one of the commodity 
exchanges. For the West Coast, there are fewer options and, 
significantly, a single industry newsletter dominates pricing.
    For example, many transactions specify indices published by the Oil 
Price Information Service (OPIS) newsletter. OPIS staff collect 
transactional data from industry participants and calculate indices for 
a variety of products and services from California to Washington.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    The center of this diagram is the ``EFP Basis''. This is an 
industry term for Exchange of Futures for Physical where oil or 
gasoline is exchanged for a futures contract. In the case of 
California, the forward market of gasoline at the NY Harbor is a common 
choice for the futures contract. OPIS staff assemble the index from 
transactions submitted to them by traders.
    These transactions are not easily understood. Moreover, there is 
very little transparency concerning the identity of the traders making 
these transactions, the quantities transacted, and whether the 
transactions are consistent with rules normally enforced in commodity 
markets which are nearly impossible to monitor. This is a continuing 
problem in California and needs to be addressed by a formal 
investigation.
    There has been considerable interest in explaining why Los Angeles 
prices continued increasing after oil prices began declining on March 
8, 2022.\6\ National prices decreased during the same period. There 
were no major events on the 8th of March that would explain the 
different directions in California and elsewhere in the United States.
---------------------------------------------------------------------------
    \6\ U.S. Gas Prices Are Coming Back Down, but Not in California, 
Soumya Karlamangla, New York Times, March 24, 2022.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    California is a very complex market with high taxes and expensive 
carbon programs borne primarily by the consumer.\7\ Unfortunately, the 
market is both highly concentrated and even more opaque. As Enron's 
chief West Coast trader remarked twenty years ago: ``California Market 
Structure ISO and PX have a complex set of rules that are prone to 
gaming''.\8\ This is still true today for petroleum products in 
California.
---------------------------------------------------------------------------
    \7\ See Fuel Tax Incidence and Supply Conditions, Justin Marion and 
Erich Muehlegger, M-RCBG Faculty Working Paper Series | 2010-02, for 
example.
    \8\ Western Power Markets, Tim Belden, May 3, 2000, Slide 12.
---------------------------------------------------------------------------
    It is not unusual for trades used in the index to be very few in 
number. This has created the potential for market manipulation in the 
past and a similar situation exists today.
    In the case of California's gasoline prices in March, the prices in 
the transactions reported to OPIS apparently increased markedly after 
oil prices started to fall.
    A second factor in the opaque California market is an unexplained 
increase in gasoline prices that occurred in 2015.
    Severin Borenstein, a respected professor at UC Berkeley, has 
identified an unexplained surcharge on California prices that began in 
February 2015.\9\ This curious situation is currently under 
investigation by state authorities.\10\
---------------------------------------------------------------------------
    \9\ Calculation of California's Mystery Gasoline Surcharge, Severin 
Borenstein, May 20, 2019.
    \10\ Why California gas prices are so high and vary so widely: 
`Mystery surcharge' and more, Connor Sheets, L.A. Times, March 14, 
2022.
---------------------------------------------------------------------------
    We have used a simple scoping model over the past decade to look 
for periods when California gasoline prices are anomalous. The week of 
March 6, 2022, for example, had high prices while our scoping model 
would have indicated a substantial reduction:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    What happened in mid-March to increase prices in California even 
after oil prices fell? While inventive minds may hypothesize a sudden 
increase in driving just before the spring school break or the 
anticipation of a strike that took place a week afterwards, the reality 
is even simpler. The basic index of transactions in California--used in 
contracts between refiners, middlemen, and retailers--took a sudden 
leap to almost one dollar per gallon.
    The appendix to this report provides the statistical evidence from 
the simple scoping model.
    If gasoline sales in California are comparable in March 2022 to 
those that took place in March 2021, the impact on consumers was on the 
order of $500,000,000 last month.
    In passing, it also indicates that the mystery surcharge identified 
by Professor Borenstein added an additional $0.4471/gallon.
    We used a similar scoping model to look for anomalies in 
neighboring states--Washington and Oregon--and major market states like 
Illinois, New York, and Texas. The situation in California in March 
stands out compared to the prices elsewhere in the United States.
Drilling:
    Declines in consumption during the pandemic triggered a decline in 
prices and a corresponding decline in oil discovery.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Seeking more oil production and a reduction of sanctions against 
Venezuela and Iran has been suggested. Unfortunately, neither of these 
countries is likely to act against the interest of the Russian 
Federation.
    Other possible sources include increased production by OPEC and/or 
a reduction in the disruption of the Libyan oil fields. There are a 
variety of reasons why this might be problematic as well.
    The most straightforward solution is to increase production from 
existing fields in the U.S. and Canada. This has two major benefits:

  1.  U.S. shale production is easily expanded

  2.  Additional North American exports can be directed to allies in 
        need--especially in Europe.

    Successful oil sanctions against Russia will cause less harm to the 
world economy if U.S. oil production ramps up. Unfortunately, the U.S. 
response to high oil prices has been slow and cautious. To meet needs 
in Europe, the U.S. may need to consider financing support for 
independent wildcatters in mid-continental oil fields to accelerate 
U.S. oil production.
    The still unexplained spike in oil prices on July 3, 2008 had 
momentous impacts on U.S. oil production. The high prices spurred 
innovation in three areas--discovery, access, and extraction. Put more 
colloquially, supercomputers have allowed a high degree of precision in 
finding oil, while horizontal drilling allows a broader access per 
well, and fracturing (aka fracking) has accelerated oil recovery. The 
resulting oil production for the United States was striking:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    U.S. oil production is roughly based on the number of drilling rigs 
in operation--particularly over the past decade:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    The shift in technology also changed the business considerably. 
Using older technologies, a virtual forest of wells could occupy an oil 
field. Today, a single well exploits a much larger area. This is 
reflected in the continuing downward slope of the number of drilling 
rigs even as U.S. oil production has increased.
    Mathematicians describe the point on a curve when it changes 
direction as an inflection point. For drilling rigs, the inflection 
point is approximately $60/barrel. Below $60/barrel, the number of 
active drilling rigs falls. When the prices are above $60/barrel the 
number of active rigs increases.
    We are currently in a period of increase. Since the price of oil 
passed $60/barrel one year ago, the number of active rigs has increased 
by 17 per month. During the previous period in which drilling 
increased, as can be seen in the chart above, the number of active rigs 
increased by 31 active rigs per month, nearly twice as many.
    A more scientific approach is to construct a simple mathematical 
model as a function of the real oil price and the date. The oil price 
represents the incentive to increase or decrease drilling. The date 
variable is a rough representation of the greater efficiency of modern 
drillings--finding more oil while drilling fewer wells:
  Active Drilling Rigs = Constant + 13.0 Rigs/$1 increase in the WTI 
                                 price
                           -0.03 Rigs per day
    This simple model is statistically significant at the 99.9 percent 
level and explains 84.2 percent of the explanatory variable.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    The area highlighted in red reflects a much slower pace of added 
drilling rigs than in previous high oil price periods.
    Given current incentives, we would expect approximately 300 more 
rigs to be active as we see today. Based on the relationship between 
active oil rigs and oil production, this would increase U.S. production 
by 2 percent--a sizable increment in world oil production.
    While market structure in some areas--such as California--have 
raised market power concerns over the years, oil drilling in U.S. mid-
continental basins are highly competitive. The map below illustrates a 
variety of basins where the constraint may well be financing for 
smaller companies:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Short term financing guarantees may provide needed relief for oil 
price increases while displacing Russian oil exports.
    An important part of the problem may be explained by the forward 
curve for WTI crude. The NYMEX curve shows a surge of prices in the 
short run, but a gradual decline to long term historical levels:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Thin trading in later months may prove a challenge to smaller 
drillers. In a perfect world they could depend on forward markets to 
finance their projects. In the current environment there is relatively 
little volume past September and a steady decline to long-term break-
even prices in the $60 to $70/barrel range.
    There is an industry model for solving this problem that might be 
useful. When a commodity is needed earlier in the market than can 
easily be produced, the product can be ``borrowed'' from existing 
inventories and ``returned'' later. The U.S. government maintains a 
large inventory of oil which made more sense when the U.S. was a net 
importer. One approach to make financing current product easier would 
be for the U.S. government to contract for forward supplies of oil from 
U.S. producers. This would free up existing stocks for needy European 
allies.
    It should be noted that nothing in this proposal will increase 
global emissions. Increased oil production will simply reduce Russian 
oil sales--and Russian oil revenues--as U.S. production provides 
supplies to European allies.
Windfall Profits:
    An unjust foreign war raises many complex ethical questions. Most 
of these go far beyond the scope of this testimony. However, the sheer 
scale of dollars involved make this an important policy question--what 
is the appropriate response to massive windfall profits? This is also 
important when, as the United States is the largest consumer of 
petroleum products, much of the windfall profits come from transactions 
that affect U.S. consumers businesses.
    Exxon-Mobil, for example, has the potential to earn over $10 
billion in the first quarter of 2022. This estimate is based on changes 
in market prices and has--very conservatively--assumed that costs will 
increase by the same margin.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    The following table shows comparable estimates for eight other 
major participants in the industry:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    These are remarkable levels of earnings.
---------------------------------------------------------------------------
    \11\ The rate of increase for Occidental and Phillips are not 
reported since the growth rate from loss to profit does not yield a 
meaningful percentage.
---------------------------------------------------------------------------
    The previous oil price peak--on July 3, 2008--lasted for a very 
short period. Given the current news from Ukraine, it is conceivable 
that the high level of profits may extend beyond just one quarter.
    This unprecedented situation will soon be showing up throughout the 
supply chain--potentially reducing production and employment for 
commercial and industrial customers. This is even more important. In 
addition, there will be significant inflationary impacts.
    As noted in the previous section, the most important issue is to 
increase oil production. This will alleviate supply issues in Europe as 
well as lower prices.
    A windfall tax might also be a useful tool. A windfall tax can be 
constructed to provide incentives for expansion of output as well as to 
recapture windfall profits. If the windfall tax was calculated on the 
basis of earnings/barrel, rather than just earnings, it would create a 
major incentive to resume drilling and producing.
    Here is one possible formulation:
    The windfall tax would only be paid on profit levels--as a 
percentage of oil and natural gas producing assets--higher than the 
2021 level. Additions to oil and gas producing assets will lower the 
taxable percentage.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Our primary objective is to increase oil producing investments. 
This would be poorly served if we did not add incentives to increase 
production while, at the same time, raising revenues to offset the 
impact of inflationary pressures on U.S. consumers.
Conclusions:
    Our conclusions reflect the three primary areas addressed in this 
report.
    Transparency:

    Transparency is the least expensive and most effective tool in 
guaranteeing efficient markets. Oil and gasoline are less transparent 
than almost all other commodities--and vastly less transparent than 
competing energy products, like electricity and natural gas. The 
easiest and least complicated solution to anomalous market outcomes in 
oil and gasoline would be to implement a database similar to that of 
FERC's Electric Quarterly Reports, for transactions recorded by price 
reporting agencies.
    Critical price reporting agencies need to provide pricing 
information to at least one of the relevant Federal agencies--FTC, 
FERC, or CFTC--on transactions used to implement market indices.
    The well-known ``up like a rocket, down like a feather'' phenomena 
needs to be explored. This form of pricing is neither equitable nor 
efficient. To the degree that the ``feather'' reflects anomalous 
trading behavior, a formal investigation is appropriate.
    Certain markets, like California, are prone to mysterious price 
excursions. In the second week of March as oil and gasoline prices fell 
across the U.S., California's gasoline prices continued to increase. 
Our scoping model indicates that prices in California reflected very 
different trading patterns in gasoline than elsewhere in the United 
States.
    It also appears that Professor Borenstein's gasoline surcharge 
concerns are supported by the data.
    Drilling:

    The duration of the war between Russia and Ukraine is impossible to 
forecast and the unpredictability of its scale and duration appears to 
be making it difficult for smaller oil producers to expand capacity as 
rapidly as in earlier years.
    To the degree oil production is subject to financing constraints, 
this needs to be addressed directly and solved in the short run.
    The Federal government's existing oil inventory could be ``loaned'' 
to the market and replace by forward purchases in 2023. This would 
allow drillers with financing constraints to guarantee revenues for 
wells drilled today.
    Windfall Profits:

    It is logical to believe that first quarter 2022 earnings are going 
to be enormous. How-ever, negative impacts on consumers and businesses 
from higher fuel costs may also be enormous.
    This is a case where a ``windfall'' tax specifically targeted to 
at-risk individuals and businesses may be beneficial for society as a 
whole. A windfall tax need not be restricted to a tax on earnings. It 
is possible to structure a tax that both recaptures some of the profits 
and provides an incentive to increase production. A good choice would 
be a tax on earnings above previous levels--based on the ratio between 
earnings and producing assets.
    I would close with one more quote from Adam Smith:

        People of the same trade seldom meet together, even for 
        merriment and diversion, but the conversation ends in a 
        conspiracy against the public, or in some contrivance to raise 
        prices. It is impossible indeed to prevent such meetings, by 
        any law which either could be executed, or would be consistent 
        with liberty and justice. But though the law cannot hinder 
        people of the same trade from sometimes assembling together, it 
        ought to do nothing to facilitate such assemblies; much less to 
        render them necessary.\12\
---------------------------------------------------------------------------
    \12\ The Wealth of Nations, Adam Smith, 1776, Chapter X, Part I
---------------------------------------------------------------------------
Statistical Appendix:
    For the past decade, we have used a simple scoping model to see if 
specific states and cities have departed from fundamentals. The basic 
theory is straightforward--in an efficient market, gasoline prices 
should track closely to feedstocks. The primary feedstock, of course, 
is crude oil.
    California is a special case in the United States because of the 
size and complexity of gasoline taxes. The standard analysis of 
gasoline tax incidence was formulated in a study by Justin Marion and 
Erich Muehlegger.\13\ They found, not surprisingly, that such taxes are 
primarily paid by consumers.
---------------------------------------------------------------------------
    \13\ Fuel Tax Incidence and Supply Conditions, Justin Marion and 
Erich Muehlegger, M-RCBG Faculty Working Paper Series | 2010-02.
---------------------------------------------------------------------------
    In California, real taxes over the past decade have increased 
dramatically:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Professor Borenstein's observation that gasoline prices increased 
sharply in February of 2015 is now being investigated by state 
authorities.\14\
---------------------------------------------------------------------------
    \14\ Why California gas prices are so high and vary so widely: 
`Mystery surcharge' and more, Connor Sheets, L.A. Times, March 14, 
2022.
---------------------------------------------------------------------------
    Given the scale of this unexplained gas price increase, we have 
added a ``dummy variable'' for February 2015 to the present.
    The analysis uses the standard tool of the economic analyst, linear 
regression. This method identifies the quality of the regression (also 
known as its significance) and the impact of its explanatory variables.
    The dependent variable is the real retail price of California 
CARBOB reduced by the level of gasoline taxes. The independent 
variables are Brent and WTI crude plus a dummy variable for Professor 
Borenstein's unexplained retail price increase post February 2015.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    As with all time series regressions including prices, there is a 
substantial degree of auto-correlation. This does not affect the 
estimated coefficients, but it does overstate the statistical 
significance of the results.
    A standard solution to the problem of autocorrelation is to re-
estimate the model using the Cochrane-Orcutt procedure:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    The model is highly significant after correction for 
autocorrelation, although the WTI and Borenstein variables are not 
significant. This is not unexpected. WTI crude--priced at Cushing, 
Oklahoma--is not a primary feedstock for West Coast refineries. The 
dummy variable for the Borenstein variable is hardly exact and is 
likely to vary over time.

    The Chair. Thank you, Mr. McCullough. Ms. Sgamma, thank you 
for being here.

           STATEMENT OF KATHLEEN SGAMMA, PRESIDENT, 
                    WESTERN ENERGY ALLIANCE

    Ms. Sgamma. Thank you, Chairwoman and--Chairwoman Cantwell 
and Ranking Member Cruz, and members of the Committee. 
Appreciate being here today.
    And that was a great segue for me because I agree we should 
be producing more here in the United States. Western Energy 
Alliance represents about 200 companies engaged in all aspects 
of environmentally responsible oil and natural gas development 
in the Rocky Mountain West.
    And I would agree with the Ranking Member that the policies 
that have been put in place since day one, were definitely 
designed to suppress American production and those policies 
continue today. Those policies, in the name of climate change, 
are ignoring the fact that the oil and natural gas industry is 
a partner in addressing both climate change and high energy 
prices.
    We can do both. We can produce more here in the United 
States, where we do it under very strict environmental 
regulations. We produce fewer greenhouse gas emissions. We--
natural gas is the number one reason the United States has 
reduced more greenhouse gas emissions than any other country. 
That is through the replacement of coal with natural gas in the 
electricity sector. And so, we are a partner in climate change. 
So, these climate change policies that are meant to suppress 
oil and natural gas production are counterproductive to those 
climate change goals, as well as contributing to higher energy 
prices.
    So, we indeed want to be part of the solution in increasing 
production in the United States. I have outlined several 
policies, in my testimony, that should be reversed, in order to 
enable us to produce more here, in the United States, rather 
than advantaging Iranian and Russian producers.
    And so, some of those would be, we would love to develop on 
these 9,000 leases/permits. We are very glad that the White 
House has changed its tune and does want us to develop on 
Federal lands, because the messaging, from day one, was no 
Federal oil. So, we are glad that that has been reversed.
    That messaging is important, but it needs to--that rhetoric 
needs to be backed by policy changes. Some of those policy 
changes would be to actually enable us to move forward on those 
leases and permits, to reverse policies like the SEC 
regulations that are meant to defund, decapitalize the oil and 
natural gas industry. I had the pleasure, on my plane trip over 
here, reading through the 500 pages of the SEC rule and the 
scope is truly--is truly staggering. So, if we want to produce 
more in the United States, I would say that trying to 
decapitalize my industry is not a good way to do that.
    So, I have outlined several different policies. The 
Interior Department is sitting on leases and permits, redoing 
analysis. The National Environmental Policy Act process, which 
should be a good process, whereby we can get to information 
that will enable us to operate in a more environmentally 
responsible manner, is simply used as a weapon now. It is used 
to delay projects. And so, I think, moving forward with 
policies--to continue the Trump policies to modernize that and 
not overturn those would be very helpful, because we know that 
roads, bridges, pipelines are being held up through NEPA 
analysis.
    And then, simply, we cannot develop wells if we do not have 
pipelines to put that product into. So, the Administration 
backing off on policies meant to decertify, or get to an answer 
of ``no'' on natural gas pipelines would be extremely helpful, 
reversing that type of policy. So, we would--we in American oil 
and natural gas industry definitely want to produce more. We 
would ask that the Administration work with us and reverse some 
of those policies that are designed to get in the way of 
American production.
    Thank you.
    [The prepared statement of Ms. Sgamma follows:]

           Prepared Statement of Kathleen Sgamma, President, 
                        Western Energy Alliance
    Since before taking office, President Biden has been clear that his 
climate change agenda is a zero-sum relationship with the American oil 
and natural gas industry; action on climate change meant a diminishment 
of American oil and natural gas. From day one with the cancelation of 
the Keystone pipeline followed a week later by the leasing ban, this 
administration was intent on restricting American oil and natural gas. 
On Federal lands and waters where the Federal government has the most 
control, he has pledged eliminating it altogether.
    But a funny thing happened. Climate change policies meant to make 
energy prices ``necessarily skyrocket'' actually achieved their 
intentions. Energy prices started to rise last summer and the 
administration started to feel the heat. The first reaction was to ask 
Russia and OPEC to increase their production. The policies meant to 
overregulate American oil and natural gas production continued.
    When Russia and OPEC failed to heed that request, we in the 
American oil and natural gas industry made the case that we'd be happy 
to increase production, but for policies specifically designed to 
prevent us from doing so. Still the policies continued.
    Fast forward to February of this year when Russian tanks rolled 
across the border of Ukraine and prices jumped even higher. The reality 
of how Europe and the United States rely on the stable sources of 
reliable, 24/7 energy that oil and natural gas provide became crystal 
clear. The fallacy of an agenda meant to constrain American energy was 
exposed. Rather than backing down on policies purposefully meant to 
hinder American oil and natural gas, the White House pivoted to blaming 
my industry for high energy prices.
    One of those lines of attack involves 9,000 outstanding leases/
permits. Frankly, I'm going to take it as a positive. After spending 
the last two years talking about ``no Federal oil'', the president now 
wanting us to develop on these Federal leases and permits is a positive 
sign. But it's not just a question of rhetoric. Even while blaming us 
for not moving forward on these leases and permits, his own Interior 
Department was taking actions which specifically block us from 
developing on them. Last week as he requested that Congress fine us for 
unused leases--as if increasing the costs to develop on them would lead 
to increased development--the Interior Department informed us that it 
would not be moving forward with the approvals necessary to do so. 
Please allow me to elaborate.
    First the 9,000 leases. There are about 37,496 leases in effect and 
actually just 12,068 nonproducing leases, which amounts to a 66 percent 
utilization rate. That is quite high historically, well above the 
normal 50 percent rate. My industry continues to produce more on less 
Federal land. Why aren't we developing on all those ``9,000 leases''?

   Many leases are held up in litigation by environmental 
        groups. Western Energy Alliance has been in court for over five 
        years now defending about 5,900 leases representing over 7.3 
        million acres, or basically every lease sold since 2016 with 
        few exceptions. One case alone in Idaho involves over 2,200 
        leases. Many of these leases cannot be developed while the 
        cases wind their way through the courts.

     Because of Western Energy Alliance's intervention in 
            these cases, we have enabled some development to move 
            forward. We were victorious in one case in New Mexico, 
            where we helped defend the record $972 million lease sale 
            in the Permian Basin. Yet despite that victory and the lack 
            of a court order requiring it to do so, the Bureau of Land 
            Management (BLM) has colluded with environmental groups to 
            do yet more greenhouse gas (GHG) analysis on the leases. At 
            least 150 permits for wells that companies wish to drill in 
            the near future are being held up as BLM conducts that 
            extraneous analysis.

     Likewise, BLM is doing additional climate change 
            analysis on 64 lease sales covered by litigation and does 
            not intend to approve drilling permits while that analysis 
            takes place. BLM is projecting 90 days to complete it, but 
            rarely meets such deadlines and could take much longer. The 
            analysis involves 3,800 leases.

   Companies must put together a complete leasehold before 
        moving forward, particularly with the long laterals we drill 
        that can cut across multiple leases. Sometimes a new lease is 
        needed to combine with existing leases to make a full unit. 
        Since the Biden leasing ban remains in effect with no onshore 
        lease sales held since 2020, some wells and leases are held up 
        waiting for new leases or for the government to combine them 
        into a formal unit.

   Before allowing development on leases, the government 
        conducts environmental analysis under NEPA (the National 
        Environmental Policy Act), which often takes years to complete. 
        Many leases can be hung up by NEPA for years or awaiting other 
        government approvals.

   Finally, not all leases will be developed because, after 
        conducting exploratory work, companies may determine there are 
        not sufficient quantities of oil and natural gas on them. The 
        country still benefits from the leasing revenue paid on the 
        leases. We do not develop leases for the sake of the numbers; 
        drilling locations are chosen only after complex geological, 
        engineering, financial, environmental, and other analyses that 
        indicate it is prudent to do so.

    Turning to the 9,000 permits: there are currently 4,766 permits to 
drill awaiting approval. The government could approve these permits 
now, enabling companies to move forward with development they are more 
likely to do in the near term than permits that were approved years 
ago. There are 8,825 outstanding approved permits to drill, but there 
are factors that cause companies to wait to drill those wells, if at 
all.

   Because of the uncertainty of operating on Federal lands, 
        companies must build up a sufficient inventory of permits 
        before rigs can be contracted to ensure the permits stay ahead 
        of the rigs. We drill wells in a matter of days and rigs are 
        very expensive, so it's a delicate balancing act. The Federal 
        government's permitting system is much less efficient than 
        state permitting, taking months to years to complete whereas 
        states take generally weeks to a few months. Since the Federal 
        process is more bureaucratic and has many more obstacles, there 
        is no certainty that Federal permits are forthcoming. For that 
        reason, a large inventory must be acquired on federal lands 
        before proceeding. Were the system more efficient, companies 
        would not have to build such a large inventory with the greater 
        likelihood that many of those permits will not ultimately be 
        drilled.

     Market conditions can change months to years later. 
            Obviously, if the price of oil and natural gas goes down, 
            many wells on Federal lands may become uneconomic.

     Even with today's high commodity prices, the economics 
            of a Federal well can change. Since the cost of operating 
            on Federal lands is generally higher than on nonfederal 
            lands, companies with Federal permits may decide to invest 
            their capital in nonfederal areas that enable them to 
            increase their production more efficiently in today's 
            marketplace.

     Each well drilled provides valuable information on 
            where to drill next. With an efficient permitting system, 
            the next permit can be acquired on an as-needed basis. On 
            Federal lands where permitting is uncertain and 
            inefficient, drilling a few wells may render many other 
            permits superfluous. Again, it's not about raw numbers; 
            it's about what makes sense to drill given complex 
            engineering, spacing, and geological factors.

   A BLM drilling permit is not the only government approval 
        required. Rights of way (ROW) can take years to acquire before 
        companies can access their leases and put in natural gas 
        gathering systems. With the pressure not to flare from 
        regulators and investors, most companies cannot drill before 
        gathering lines are in place. Timely approvals of ROWs would 
        enable companies to develop sooner.

    Fortunately, the country can be very thankful that just under a 
quarter of oil production is on Federal lands and waters where the 
president has the most control. Most of our production comes on private 
and state lands. But even here the administration can cause mischief.

   The administration has worked with anti-oil-and-gas 
        activists to slow pipeline infrastructure. Without pipelines to 
        move the oil and natural gas produced, wells cannot be 
        developed.

   Capital must be acquired. Activist investors, encouraged by 
        an administration intent on expanding its financial regulatory 
        powers, have worked to de-bank and de-capitalize the industry. 
        Many companies, particularly the small independents who drill 
        the majority of Federal wells, are having difficulty acquiring 
        the credit and capital necessary to develop. By calling off 
        bureaucratic efforts to deny financing to the industry, the 
        president could send a strong signal to the market that 
        investments in oil and natural gas are safe and new production 
        could move forward.

   The Biden Administration has embarked on an agenda of 
        regulatory overreach with extensive new regulations in the 
        works. The uncertainty of all the new red tape puts a damper on 
        new investment and development today, especially on Federal 
        lands where the burden is highest.

    Western Energy Alliance encourages the administration to work 
together with our industry to reverse many of these policies. Climate 
change is not a zero-sum game. We can be partners in both reducing GHG 
emissions and high energy prices. After all, American oil and natural 
gas provide a net benefit to the environment. Countries like the United 
States with greater access to reliable, affordable energy not only have 
higher standards of living, but also cleaner environments and healthier 
populations.
    Increased use of natural gas electricity generation leads to lower 
levels of air pollution and decreased GHG emissions. We have enabled 
the United States to reduce GHG emissions 10.2 percent below 2005 
levels through a market-driven increase in natural gas electricity 
generation.\1\ Intermittent wind and solar energy are not possible 
without backup, with natural gas being the best backup source. Fuel 
switching to natural gas in the electricity sector has reduced more GHG 
emissions than have wind and solar energy combined.\2\
---------------------------------------------------------------------------
    \1\ Inventory of U.S. Greenhouse Gas Emissions and Sinks, 
Environmental Protection Agency (EPA), April 2020, p. ES-4.
    \2\ U.S. Energy-Related Carbon Dioxide Emissions, 2018, U.S. Energy 
Information Administration (EIA), November 2019, p. 13.
---------------------------------------------------------------------------
    More exports of Liquefied Natural Gas (LNG) to Europe and Asia will 
likewise export the GHG reductions of natural gas. We applaud the Biden 
Administration for approving two LNG export licenses recently and 
backing off Federal Energy Regulatory Commission (FERC) policies on 
natural gas infrastructure intended to get to an answer of ``no.'' The 
administration should quickly approve all outstanding LNG export 
licenses and ensure the FERC policy is not resurrected through 
rulemaking.
    But in order to export LNG, we need pipelines to supply those 
export terminals. There are numerous natural gas pipelines being held 
up or already canceled, particularly on the East Coast. Unrealistic 
energy policies that block pipelines in the name of climate change only 
block real, tangible GHG reductions made possible by natural gas. Lack 
of pipelines has led to the absurd result of New England at times 
importing LNG from Russia. Not only does that increase energy costs for 
consumers, but it increases GHG emissions from the transport. Likewise, 
the State of Oregon denied a pipeline permit for the proposed Jordan 
Cove LNG export facility that would have supplied gas from Colorado, 
Utah, and Wyoming to Asia. The administration should use its emergency 
powers to expedite pipelines, thereby helping our allies in Europe and 
Asia to likewise reduce GHG emissions from their electricity sectors.
    The administration should halt the Securities and Exchange 
Commission proposed rule on climate change disclosure. Like other 
misguided policies intended to address climate change, it will have the 
opposite effect. It is designed to elevate climate change measures 
above material financial factors in investment decisions as a means of 
denying capital to oil and natural gas projects. Denying access to 
capital to an industry that provides reliable, affordable energy while 
being a partner on climate change is simply unrealistic.
    Of course, I would urge the administration to move forward with 
leases sales and back off on policies intended to make it harder for us 
to develop on those ``9,000 leases/permits.'' Besides ignoring the 
president's call to fine producers for not developing on their leases, 
Congress should pass legislation such as Senator Cruz's Energy Freedom 
Act, which mandates lease sales and pipeline and export approvals; the 
House Natural Resource minority's six bills introduced last week to 
move forward with permitting and leasing on Federal lands and waters; 
and Senators Sullivan, Cramer, and Lummis' American Energy, Jobs and 
Climate Plan.

    The Chair. Thank you very much. We will now go to 
questioning of the witnesses. And Mr. McCullough, I want to 
drill down on what you are saying about this gaping hole. 
Because, you know, we in the West, obviously, have always 
looked at this issue--Washington, Oregon, and California, just 
because we are, as people have said, always an isolated West 
Coast market. So, we have tracked these issues for a long time 
and during the Enron crisis, a lot of people have blamed it, 
for a long time, on environmental issues. They kept saying it 
is all about environmental issues when in reality, it did not 
turn out to be about environmental issues. It turned out to be 
about a lack of transparency and energy traders who took 
advantage of schemes to manipulate supply.
    So, we just, in very tight markets, obviously, this is when 
you have to be concerned about these issues. You are saying you 
see something now in West Coast prices that are not about 
supply and demand. And you are saying that this benchmark price 
index is a very important tool to settling the price. Could you 
explain that and why there is not a lack of transparency?
    Mr. McCullough. Well, first of all, the West Coast's 
gasoline prices relate to the Brent price, not to the U.S. WTI 
price. WTI, for people who are new to this, simply means our 
heartland. And that is--Cushing, where it is in the Anadarko 
Basin. And we are now talking about wildcatter companies, 
generally smaller and, at the moment, difficult to finance 
further drilling. But the reality in the West Coast is that we 
buy our oil on the world markets. It is processed by refineries 
in Washington State and California.
    Now, I gave a lecture on this at the university last year, 
on where do prices come from. And unfortunately, prices are not 
issued magically the way they appear in a textbook. They have 
to be reported. And we report our commodity prices in world 
markets in two different ways. We either have them in very 
well-regulated exchanges, like the Chicago Board of Trade, 
NYMEX, ICE, etc. A lot of surveillance there, the rules are 
well understood. Everything is generally properly reported and 
works efficiently for the U.S. economy. That is not true 
everywhere.
    We also rely on newsletters. Now, these are actually quite 
often very well run. It is not as if the newsletters are a den 
of evildoers. They are not. But this is a voluntary process. 
The algorithms are often not public. The newsletters collect 
transactions, generally by voluntary submissions, and then 
generate an index. Now, that index then wanders through an 
entire economic process. So, the refinery price to the 
middleman, the racks, depends on the index. Quite often the 
price to the gas station, especially if it belongs to a major 
producer, depends on that index. It is literally written into 
the contract.
    On the West Coast, we have one major price reporting 
agency. They are called the Oil Price Information Service. Been 
there for many years, very effective, very interesting, central 
to the operation of the industry. In 2012, Ms. Cantwell, 
certainly Ron Wyden, Ms. Feinstein, looked into that. We wrote 
reports at that period. I appeared in hearings during that 
period. And we identified that there were sudden shifts in that 
that did not seem to match fundamentals at all. October 1, 
2012, we had a 50-cent increase in that index. No one ever 
could understand why that index changed. We had similar results 
in 2015 and then we had some last month.
    Now, in a perfect world, the FTC would subscribe to that 
newsletter. My information is they do not. In a perfect world, 
the FTC would have experts that would understand the algorithm 
that OPIS chooses to go from transactions to prices. And bear 
in mind, this is not an economics textbook. This is the real 
world where that algorithm drives real dollars from real 
consumers' pockets to traders' profits. And that is a serious 
issue we discovered with Enron and their counterparties in 2003 
with a FERC final report.
    The Chair. Your time is about up, but I just--so you see 
anomalies? You think, there is, in the information you are 
looking at in those indexes now, you see anomalies that you do 
not think are supply and demand?
    Mr. McCullough. Absolutely. There is a wide differential at 
the moment.
    The Chair. Thank you. Senator Cruz.
    Senator Cruz. Thank you, Madam Chair. Mr. McCullough, I was 
very interested at the end of your opening testimony when you 
said that we absolutely should not be reducing oil and gas 
production in the United States and, in fact, we should be 
producing more and taking customers away from Putin and Russia. 
I agree with you, and I was encouraged by that. Does that 
mean--do you agree with President Biden's promise, on the 
campaign trail, no more drilling on Federal lands, no more 
drilling including offshore, no ability for the oil industry to 
continue to drill, period, ends? Do agree with that sentiment?
    Mr. McCullough. Actually, I do. But I need to warn you, I 
come from a wildcatter family.
    Senator Cruz. So, you want no more drilling, but you want 
production to increase? How does that work?
    Mr. McCullough. I actually like those small guys----
    [Crosstalk.]
    Senator Cruz. But no, hold on. He said no more drilling, 
period. How do you have production increase with no more 
drilling?
    Mr. McCullough. I would actually drive to North Dakota and 
make sure they had financing to start drilling tomorrow. But 
those are little guys.
    Senator Cruz. OK. So, you disagree with President Biden 
when he says no more drilling. If you want financing for 
drilling, then those two are incompatible.
    Ms. Sgamma, March 8, 2022, White House Press Secretary Jen 
Psaki said about gas prices, ``There have been some who have 
claimed this is an issue of having access or funds. The oil and 
gas industry has a lot of permits, onshore alone more than 
9,000 unused approved permits to drill.'' So, according to the 
Biden White House, the oil industry has all these permits. They 
are sitting around. They could drill anywhere they want, 
anytime they want, 9,000 permits and they just do not want to 
drill for oil. I have to admit, I do not understand that 
argument. Does that make any sense to you?
    Ms. Sgamma. Well, I have been, kind of, taking it as a 
positive, in that I am glad they do want us to drill on those 
permits because, as you have pointed out, we have the rhetoric 
on no more drilling on Federal lands. So, there is a number of 
reasons that we do not drill permits immediately.
    Senator Cruz. So, there--are there barriers to those 9,000 
permits to drilling it? Are there reasons why they are not able 
to be drilled right now?
    Ms. Sgamma. Well, so, there are about 4,700 permits that 
have been submitted that have not been approved yet. There is 
an inventory of 8,800 permits--it is down a little bit from 
9,000--8,800 permits that are outstanding, that have not been 
developed. But there are many reasons a developer--a company 
might not develop on that permit right away. One reason is--
well, one of the big, primary reasons is, the Federal system is 
very inefficient. So, we have to ask for permits many months to 
years in advance of when we may use them. Because we want to 
stay ahead of that drilling rig, because it is very expensive. 
If you do not have permits to stay ahead of that drilling rig, 
you might have to lay it down.
    Senator Cruz. So, let me ask you a different question. The 
Biden Administration, in addition to launching an assault on 
domestic oil and gas production, has also launched an assault 
on funding for domestic oil and gas production. The SEC put out 
a new rule designed to dry up equity capital for oil and gas. 
Biden's banking regulators and Federal Reserve nominees have 
promised to dry up debt funding for oil and gas. Can you drill 
for oil and gas if there is no capital and no funding, and the 
Biden Administration has cutoff all the cash?
    Ms. Sgamma. That is one of the reasons that is holding up, 
especially the smaller producers that we were talking about is, 
it is very hard to get capital right now. And every well is a 
multi-million dollar well.
    Senator Cruz. And that is not accidental.
    Ms. Sgamma. No.
    Senator Cruz. That is not an unintended side effect. That 
is what Biden promised. That is what the Democrats promised. 
And they are doing what they promised, which is cutting off the 
cash for drilling and if you do not have drilling you cannot 
have more production.
    You know, I have to say, an interesting thing a minute ago, 
Ms. Sgamma, I want to ask you about. Mr. McCullough had 
testimony saying California is prone to mysterious price 
excursions. And this is a particularly curious theory, which is 
the evil oil companies are sitting there manipulating prices 
and it is not connected to anything in the market.
    Now, this is a chart of California production and--or 
California prices and U.S. prices. And what is striking about 
it is, for the last 12 years, it is almost identically 
correlated--you can see the identical factors going up, down, 
up, down, up, down, up, down, all the way through, except for 
one thing. On every front, California is way, way higher. And 
we are listening to Democrats saying, ``We cannot figure out 
why. There is a mysterious black box in the middle.'' Well, I 
am going to suggest that mysterious black box is called 
Democrats. And Californians have elected Democrats who put 
policies in place--environmental policies that drive up costs. 
State of California--Californians pay 73 cents per gallon in 
taxes, compared to the 20 cents per gallon we pay in the State 
of Texas.
    Ms. Sgamma, do you think the environmental regulations and 
the taxes in California play a part in driving these prices up 
for millions of California consumers?
    The Chair. A quick answer, please, because we have to go.
    Ms. Sgamma. Yes, California manipulates its own energy 
markets through government intervention--through government 
interference.
    The Chair. Thank you. A vote has started and so, I am going 
to turn to Senator Klobuchar, to her questions. But I do want 
to just point out, only 8 percent of drilling occurs on public 
lands. So, maybe we can get into another round here, about 
this.
    Go ahead, Senator Klobuchar.

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. OK. Thank you. Mr. McCullough, if you 
could just answer, like, 1 minute each I can have a little----
    Mr. McCullough. Yes, ma'am.
    Senator Klobuchar.--bit of ground here. In your testimony, 
you note how oil and gasoline is less transparent than almost 
any other industry. Why is there less transparency in oil and 
gas? And how does that hurt American businesses and consumers?
    Mr. McCullough. Well, number one, we have explicit 
assignments of electricity and natural gas to FERC. Number two, 
CFTC only does futures markets. So, there is a hole. There are 
no boots on the ground for gasoline and oil.
    Senator Klobuchar. OK, very good. And how does that hurt 
businesses and consumers?
    Mr. McCullough. So, when we do have excursions, which means 
that the price of gasoline is much higher than it should be--
and that is, by the way, responding to Senator Cruz, including 
the impact of taxes and other factors, then that comes, 
immediately, out of the pocketbooks of businesses and retail 
consumers. This has immediate employment impacts, because we 
close energy intensive industries and, obviously, impact blue 
collar folks who have to drive to work.
    Senator Klobuchar. Exactly. And no agency--you talked about 
in your testimony how FERC reviews the natural gas, electricity 
industries for market manipulation, CFTC reviews futures, but 
no agency reviews oil and gas transactions. Do you think there 
needs to be Federal review of oil and gas transactions to 
protect consumers against price gouging? Again, quick answer, 
then I have a few more----
    Mr. McCullough. Absolutely.
    Senator Klobuchar. Yep.
    Mr. McCullough. It is streetlights and muggers. If it is 
public, the manipulations disappear rapidly.
    Senator Klobuchar. Mm-hmm. OK, that is a good answer here. 
I actually did a bunch on oil speculation, way back in 2008--
the Stop Excessive Energy Speculation Act. I worked on CFTC 
legislation in 2012, but some of it has been discussed. What 
role has speculation in the oil market played in the recent 
price increases and what can be done to keep speculators in big 
oil companies from exploiting the Russia oil ban to increase 
profit?
    Mr. McCullough. Well, again, it is transparency. We know 
that there is some shadowy players in the world markets. And 
everyone always points to VETAL (phonetic), but we do not have 
any data, so we do not know whether VETAL is good or bad. But 
we do know they have a major impact. They have been 
investigated by both the CFTC and FERC, I believe. And the 
bottom line is, we need to have more data to find it out.
    Senator Klobuchar. OK. Another question, different subject. 
I see Senator Fischer here, and she and I have worked together 
on biofuels. Senator Ernst and I introduced the Homefront 
Energy Independence Act that many people co-sponsored in the 
Senate. And that would codify into law, full restrictions on 
U.S. purchases of Russian oil. But it will also make E15, which 
has been available for a long time--long story about a court 
case, which was ridiculous and now we no longer have year-round 
E15. What impact would biofuels have on helping us out here?
    Mr. McCullough. Well, traditionally, the states with 
biofuels have the lowest gasoline prices. And certainly, the 
idea of using our own resources as well, is very attractive.
    Senator Klobuchar. OK, very good, thanks. My last question, 
robust competition brings out the best in companies. And we 
have seen some--a recent wave of consolidation in this 
industry, in U.S. oil fracking. Can you speak to how 
consolidation could impact competition, innovation, and 
consumers? I do--I am chairing the Anti-Trust subcommittee do a 
lot in this area.
    Mr. McCullough. We like little guys. The little guys are 
faster. They are smarter. They have more risk on the edge. They 
do more. Our enormous growth in resources in this industry is 
largely due to little guys, over the last decade.
    Senator Klobuchar. All right, very good, thank you. I will 
turn it over to Senator Fischer.

                STATEMENT OF HON. DEB FISCHER, 
                   U.S. SENATOR FROM NEBRASKA

    Senator Fischer. Thank you, Senator Klobuchar and thank you 
to the witnesses for being here today. But I am disappointed 
that we are taking valuable committee time to consider a matter 
that is not on solid jurisdictional footing. We certainly have 
jurisdiction of the Federal Trade Commission which, in turn, 
has critical responsibilities to protect Americans from 
corporate practices that are unfair or deceptive. This includes 
fighting pandemic related fraud, protecting children online, 
creating Federal privacy protections to keep our personal data 
safe. These are just some of the key consumer harms that this 
committee can be overseeing, discussing, and advancing 
legislation for.
    Instead, today I guess we can discuss the harms that 
President Biden's failed energy policies are having on 
consumers. The list of these failures are long. The President 
made his anti-American energy agenda clear on the day one of 
his presidency. He revoked the Keystone XL pipeline's permit 
and updated the social cost of carbon. Estimates used to 
justify burdensome regulations, while rejecting infrastructure 
projects.
    During his second week in office, President Biden issued an 
Executive Order to ban new oil and gas leases on Federal lands 
and waters. Meanwhile, the Department of Interior has yet to 
hold the lease sale following that executive order, despite 
being required to under current law.
    The Administration has doubled down on blame shifting, 
claiming that, ``The reason why the price of gas is going up is 
not because of the steps the President has taken. They are 
because President Putin is invading Ukraine.'' His Press 
Secretary said that. But Americans know that inflation was 
happening long before Putin invaded Ukraine.
    We are here today, not because of some plot by the energy 
companies. We are here because the President continues to shift 
the blame on high gas prices to anyone and everyone but 
himself. It has been disappointing to see this administration 
look to other countries to increase oil production, instead of 
turning to domestic, American-made sources. We should be taking 
an all-of-the-above approach, domestically, to drive down the 
cost of gas for our families.
    Ms. Sgamma, would you please elaborate on the need for 
domestic production to be the focus of American energy security 
instead of relying on imports?
    Ms. Sgamma. Appreciate the question. You know, in 2019, we 
were a net exporter of oil. We are down about 1.1 million 
barrels a day of American production. We would love to increase 
production and fill that void. That is certainly a better 
option than just dispensing from the Strategic Petroleum 
Reserve.
    So, we are ready and able. I represent small producers in 
the Rocky Mountain West, but all across the country American 
producers are ready and able to increase production. But we 
need policies that encourage that production and we are not 
seeing that from this administration.
    Senator Fischer. And what is--what is your biggest 
hindrance to increasing that production?
    Ms. Sgamma. Right now, it is access to capital. There is a 
specific movement afoot, and it started several years ago with 
activist investors. But it has been encouraged by this 
administration and would be codified if the SEC rule is 
finalized.
    Senator Fischer. You mentioned the Strategic Petroleum 
Reserve. We have seen President Biden announce, at the end of 
March, the release of one million barrels of oil from that 
reserve, per day, for the next 6 months. And this move comes 
only two weeks after the petroleum reserves hit the lowest 
level in decades. And it was not that long ago that Democrats 
celebrated blocking attempts to replenish the Strategic 
Reserve, when oil prices were at those near record lows.
    The continued use of the reserves to combat high gas 
prices, I believe, is a weak, short-term solution that does not 
adequately address the issues that we face. So, can you tell 
us, or can you discuss, what potential impacts could occur if 
the U.S. continues to empty those reserves?
    Ms. Sgamma. Well, we--under--under the ground we have got 
reserves about 1,000-fold bigger than the SPR. So, it would be 
better for us to encourage that production of a million barrels 
a day, than to drink down our petroleum reserve, which we then 
have to, at taxpayer expense, fill back up again. Why not just 
encourage production from the American industry, which we 
finance that--you know, that is private sector financing. That 
is not government spend.
    Senator Fischer. Thank you very much.
    Ms. Sgamma. Thank you.
    Senator Fischer. Thank you.

             STATEMENT OF HON. RICHARD BLUMENTHAL, 
                 U.S. SENATOR FROM CONNECTICUT

    Senator Blumenthal. Thank you very much, Senator Fischer. 
Thank you both for being here. I will be chairing the Committee 
until the Senator from Washington State returns. We are in the 
middle of a vote.
    Let me just say, there are some success stories here. My 
state of Connecticut has suspended its state tax, much as I 
have recommended that the Federal Government suspend the 18.4 
cent per gallon Federal tax. It works. The legislation that I 
am helping to lead at the Federal level, could have the same 
effect as the gas tax holiday that Connecticut has implemented 
at the state level.
    A study by the Hearst Media Group found that the day after 
the state tax was suspended--and it is 25 cent per gallon tax--
prices dropped by 24 cents at all but four of 100 gas stations 
surveyed. Twenty-four cents, real money, back in people's 
pockets.
    There are steps we can take--they are within reach. And 
suspending the Federal gas tax is only one of them. The 
Windfall Profits Tax, that we have proposed in legislation, 
would address the fact that oil companies are making record 
profits--the big ones. In fact, while hard working families are 
making sacrifices, 25 top oil and gas companies have announced 
an astonishing $237 billion in profits in 2021 alone. Fourteen 
oil companies gave away $35 billion to shareholders, dividends 
that bump up their income but take away from consumers, 
including stock buybacks which enrich only the investors. The 
oil companies clearly want to continue efforts to exploit and 
profiteer at the expense of consumers.
    Releasing from the Strategic Petroleum Reserve, a short-
term solution, yes, but worth doing if it reduces the prices of 
gasoline in the short term. Absolutely, in the long term, we 
need to rely more on renewables, cut our dependence on the 
tyrants and the autocrats like Putin, or others around the 
world in Saudi Arabia and Venezuela that, right now, in effect, 
hold us hostage. And reducing dependence on oil and fossil 
fuels will liberate our economy from them, but also from 
dependence on those big oil companies that, right now, are 
profiteering from this crisis.
    And I agree with you, Mr. McCullough, the little guys 
should be spared that Windfall Profits tax. It is the big oil 
companies that should be hit, and our legislation will hit them 
with that Windfall Profits tax and only them, not the smaller 
producers.
    I find enormously revealing, Ms. Sgamma, your remark that 
access to capital is the biggest barrier. And that is the 
consensus. Access to capital, not government regulation, not 
the Biden administration--the markets have determined that 
capital investment will not be profitable in many of these 
wells, because of the long-term trends toward renewables and 
the short-term problems with additional drilling and supply.
    So, we have a clear agenda here and, Mr. McCullough, I 
would like you to comment. These kinds of short-term steps make 
sense, do they not, in order to reduce the excessive burdens on 
consumers at the pump. They are feeling this pain every day. It 
adds insult to injury, and it is real injury because these 
companies are profiteering at their expense. The Federal 
Government has imposed an unnecessary burden through the 
Federal tax that can be suspended without any immediate impact 
on the Highway Trust Fund. We have just passed an 
infrastructure program that invests hundreds of billions in our 
highways and roads and bridges. Connecticut alone will be 
receiving $4 billion. Can we not do those kinds of short-term 
steps and offer some relief to consumers at this critical time, 
when Putin's war is imposing Putin's burden, Putin's tax on 
consumers?
    Mr. McCullough. Senator Blumenthal, I agree very deeply. 
Number one, tax incidence goes entirely to consumers. There is 
a lot of academic research on that. So, 100 percent of your tax 
gas cut goes right to consumers.
    Number two, if we are going to get the best benefit out of 
the Strategic Reserve, the best thing we could do is to replace 
the Strategic Reserves by purchasing forward. That gives direct 
financing to little guys. Because little guys do not 
necessarily get to go to the Chase Manhattan Bank. They can 
sell their future production on the forward curve, in order to 
drill now.
    And number three, the fact of the matter is, that we need 
to have a windfall tax that does not injure production. I put a 
formula in my testimony here. I am not sure it is the best. But 
there are ways to structure the windfall tax to give an 
incentive to start drilling now.
    The Chair. Thank you. Senator, I do not know if we--I saw a 
couple of Republicans online. I do not know if anybody is on 
online to ask questions. If not, we will go to Senator Markey.

               STATEMENT OF HON. EDWARD MARKEY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Markey. Thank you, Madam Chairman. The American 
Petroleum Institute has put out so many red herrings that we 
would need an aquarium to hold them all. And we have heard many 
of them today coming from the Republican Party.
    I just want to clarify a few things for the record. Before 
COVID, under Trump, the United States peaked at 10.8 million 
barrels of oil per day, produced in the United States--10.8. 
That is under Trump. In 2021, under Joe Biden, it went up to 
11.2 million barrels per day. Just for the record, it went up 
under Joe Biden. So, I just do not want to hear that anymore. I 
mean, I know I am. It is just not true. And I am no big fan of 
big oil, obviously, but the facts show the administration's 
policies are not preventing production.
    And on top of that, the oil industry has 9,000 unused 
leases on Federal lands right now. They have 2,000 additional 
leases offshore in the United States, that they are not using 
right now. That is hundreds of millions of barrels of oil they 
are not drilling for, right now. Even as we see their crocodile 
tears being shed about how they need even more leases. They 
have not finished what is on their plate, yet. They have not 
even begun to use what is on their plate right now. And they 
also have 4,200 drilled but uncompleted wells that Big Oil is 
sitting on right now. They are not drilling.
    Now, Ms. Sgamma says the big issue is access to capital. 
That is separate from access to land, access to the oil that 
they could drill for. They already have that. If they cannot 
find the funding out in the capital markets, well, let us look 
at that issue. What is going on? And I think one of the issues 
very well might be that Big Oil has chosen to secure profits 
for their shareholders over securing protection for American 
consumers. As gas prices went up 50 percent in 2021, the 25 
largest oil and gas companies raked in record profits. And they 
are squatting on all of these leases, which they are not 
drilling on and have not been drilling on. Big Oil has been too 
busy drilling for $237 billion in oil wealth and not on these 
uncompleted oil wells.
    And just for the record, these crocodile tears about the 
Keystone pipeline, how that would contribute to energy 
independence in the United States, well, I just took the 
precaution, back in January 2015, when we had the vote on the 
Keystone pipeline, that none of that oil could be exported out 
of the United States. And every Republican voted to export that 
oil out of the United States, as we brought down that oil from 
Canada, through a straw, a pipe, down to pour it out to Texas 
to export it. They could have voted right then, but they did 
not, to keep the oil here.
    So, I hear about energy independence, but when they had a 
chance to do so, they did not. And when we had, in the House of 
Representatives, where I served previously, votes on drilling 
off the coastline of the United States, I would always make 
them vote, the Republicans, on whether or not that oil could be 
exported out of the United States and they always voted, oh, 
no, we should be able to export that oil, as well. Saying to 
the coastline states, with their fishing industries, with their 
tourism industries, ``Do not worry. Do not worry. The 
environmental risks are not nearly as big for you as the loss 
of profits would be for us if we could not find the highest 
price for American oil on the world market, not in the United 
States of America''.
    So, from my perspective, we have tried this over and over 
again and right now, China is getting 600,000 barrels of oil a 
day from the United States. Which it turns out, is equal to the 
600,000 barrels of oil a day that we were importing from 
Russia. That is all part of Big Oil's plan. They have their own 
international plan, separate from the well-being of energy 
independence in the United States, this American Petroleum 
Institute, this American Prevarication Institute.
    The Chair. Senator Markey, do----
    Senator Markey. All the lobbying in the world is not going 
to change that reality. So, Big Oil has had their chance for 
the last 50 years. They refuse to drill. They refuse to produce 
the oil. They refuse to protect the American people. They have 
lost any moral authority to stand here and say they need more 
Federal lands of the American people.
    The Chair. Senator----
    Senator Markey. It is just plain wrong. It is a lie.
    The Chair. Senator Markey----
    Senator Markey. They do not drill when they get that 
Federal land, and it is time----
    The Chair. Senator Markey.
    Senator Markey.--for us to just say to the oil and gas 
industry----
    The Chair. Senator Markey.
    Senator Markey.--business as usual is over.
    The Chair. Senator Lee.
    Senator Cruz. Madam Chair, briefly, I need to correct the 
record on something Senator Markey said. He just said, a second 
ago, that gas--oil production under Biden is higher than it is 
under Trump. That is objectively false. According to the EIA, 
the Energy Information Industry, oil production under Trump in 
2019 was 13 million barrels a day. Today it is 11.2 million. It 
is 2 million lower.
    The Chair. OK----
    Senator Cruz. And so, the facts he cited are objectively 
false and I would like to enter into the record the actual data 
because, you are entitled to your own opinions, but you are not 
entitled to your own facts.
    The Chair. I--Senator, I--I think----
    Senator Markey. And I--if I am going to be questioned here, 
I will just say----
    Senator Cruz. Great.
    Senator Markey. That I will submit the accurate record 
for--for this committee to put in there, because I have the 
accurate records from oil companies.
    The Chair. OK----
    Senator Cruz. So, you are saying that oil production was 
not 13 million barrels a day in 2019? Is that what you are 
saying, Senator Markey?
    The Chair. Gentlemen--no. Gentlemen, let us move on. We can 
both look at the facts. We will enter them into the record. 
Senator Lee.

                  STATEMENT OF HON. MIKE LEE, 
                     U.S. SENATOR FROM UTAH

    Senator Lee. Thank you, Madam Chair. The American people 
are feeling the sting of inflation everywhere they go. They are 
certainly feeling the weight at the pump of our rising gasoline 
prices. These prices are more heavily borne, not by the 
wealthy, but by poor and middle-class families who are 
struggling to cope with these difficult prices. And this, on 
top of an economy that is already causing them to struggle, in 
many ways.
    And in response to these high gasoline prices, the Biden 
administration has pointed fingers at everyone else but his own 
policies. But the reality remains, Democrats' crusade against 
these reliable, clean-burning, domestic energy sources has 
largely resulted in our current state of affairs with high 
energy prices disproportionately hurting poor and middle-class 
families.
    Ms. Sgamma, I know you are aware of this, but let us just 
quickly review some of the signals that the administration has 
sent. During his campaign, President Biden--then Presidential 
Candidate Biden, guaranteed ``the end of fossil fuels''. Then, 
in January 2021, President Biden issued an Executive Order, the 
same day he was sworn into office, halting putting a moratorium 
on oil and gas leasing on Federal land.
    The EPA under the Biden administration has denied 
exemptions from the renewable fuel standard, which are 
estimated to contribute about 30 cents added to the cost of 
every gallon of gasoline.
    President Biden's SEC has proposed new regulations to 
weaponize publicly traded companies against traditional sources 
of energy, that we have in great abundance in this country.
    President Biden accused oil and gas companies of price 
gouging. And he did this without evidence, despite the fact 
that energy prices have, in fact, as was his plan, skyrocketed 
during his administration.
    Even after all this, the White House has actively lobbied 
OPEC, rather than looking to the United States to increase oil 
production. So, can you briefly explain how financial 
investments in oil and gas companies work? And has this 
administration's declared war on oil and gas impacted the flow 
of capital into the oil and gas industry? Tell us--tell us a 
little bit about that.
    Ms. Sgamma. Yes, I think the political risk injected into 
the marketplace means that many investors are unwilling to 
invest in oil and natural gas. And I would take issue with Mr. 
Blumenthal's characterization of that as a good thing.
    You know, the Department of Energy, under President Biden, 
shows oil consumption rising through the year 2050 and beyond. 
They just go to 2050, though. So, we are going to need oil. 
Just denying us access to capital and trying to second guess 
that kind of investment is having a chilling effect on our 
ability to produce here in the United States, and so, we have 
to go elsewhere for it.
    Senator Lee. Elsewhere often to countries with poor 
environmental records and abysmal, horrific human rights 
records.
    Now, the Senate may soon consider whether to conference 
with the House over differences between the House's version of 
the America COMPETES Act and the Senate's bill, USICA. While I 
have grave concerns with the policies contained in both of 
these bills, the House of Representatives' bill, the America 
Competes Act, contains a staggering $28 billion over 10 years 
to fight climate change and, largely, eliminate the use of 
fossil fuels.
    Ms. Sgamma, how does Congress' picking of winners and loser 
in energy markets influence the market decision--the decisions 
within the marketplace of oil and gas companies?
    Ms. Sgamma. Well, I am not sure I can really explain that 
but, you know, we have seen Germany, for example, invest $800 
billion in renewables and they are now more dependent than ever 
on Russian oil and natural gas. We are proud that we supplied 
more natural gas to Europe then Russia did in January, but 
these unrealistic policies are--you know, they are not 
supporting the energy that we actually use every day.
    Senator Lee. Then, finally, with the CAFE standards that 
this administration has recently announced, they are setting in 
place the regulatory framework to require an industry-wide 
fleet average of about 49 miles per gallon by 2026, not very 
far away. I am skeptical that this can be put in place without 
making the cost of a vehicle completely unaffordable for the 
average American family. This will disproportionately impact 
those with children, making life more unaffordable than it 
always is. So, this not-so-subtle push by the administration to 
push more electric vehicles and stifle gas consumption, I fear 
that could have a strange shift. Do you share that concern?
    Ms. Sgamma. I do share that concern. But we are--we are 
proud, in the natural gas and oil industry, that we have 
delivered the equivalent reduction in greenhouse gas emissions 
of 190 million electric vehicles already, over the last decade. 
And right now, there are only 11 million EVs globally.
    Senator Lee. And you did that without----
    The Chair. Thank you.
    Senator Lee.--government forcing you to.
    The Chair. Thank you.
    Ms. Sgamma. That is right.
    The Chair. Senator Tester.

                 STATEMENT OF HON. JON TESTER, 
                   U.S. SENATOR FROM MONTANA

    Senator Tester. Yes, thank you, Madam Chair. And I want to 
thank you for holding this hearing. I want to thank both of our 
witnesses for being here today. I appreciate your perspective. 
It is--we have all been impacted by the spike in gasoline 
prices caused by, quite frankly, Russia's illegal and immoral 
war on Ukraine. And I have definitely seen and felt the effects 
on my farm in Montana. Last weekend, it was not a lot of fun 
filling the tractor full of diesel fuel. Let us just put it 
that way.
    And we have got two problems right now. How we secure a 
stable energy production long-term and what we do now to bring 
the prices of fuel down, to reduce the pain that who have no 
choice but to buy it, to be able to drive to work or to be able 
to farm the soil.
    The long-term solution has got to include not only ramp up 
U.S. production and cooperation with our allies, but also 
building out a renewable capacity and energy storage and 
researching the next generation of battery technology so that I 
have options on my farm and so that people have options in 
their daily lives.
    As for the short-term, that is what I am hoping to get 
perspective on today. I have got constituents who are wondering 
what is standing in the way of ramping up our domestic 
production, back to pre-pandemic levels. And I have got folks 
who are reading quotes from the press, from major corporations, 
celebrating their record profits. And I am hoping we can find 
sensible solutions today.
    But I will tell you, this hearing, as with most hearings, 
when we are talking about energy production, even though folks 
say we are not pointing fingers, that is exactly what people 
are doing. I think it is much more simpler than that. I am in a 
situation where every day, when I get on my tractor, as I did 
this weekend, I throw a couple hundred gallons of fuel in that 
tractor. You can price it out. That is nearly $1,000, OK? But I 
have got to have it if I am going to farm. On the other side, 
last year I had the worst crop I have ever cut due to extreme 
weather conditions, OK? And it is not just North Central 
Montana. Everything West of the Mississippi was in a drought 
last year.
    So, I think, until we come together and understand that we 
need to pass policies that work for our energy future, making 
energy more affordable while we address issues that surround 
around climate change, we are going to continue to do nothing. 
And the upshot of this is, people are not going to be able to 
afford to buy fuel. And the long-term upshot is, people are not 
going to be able to afford to buy food, and that is even a 
bigger problem.
    So, my first question is for you, Mr. McCullogh. I 
appreciated hearing your perspective on a need for greater 
transparency in oil and gasoline markets. You talk about the 
concept of gasoline prices going up like a rocket and coming 
down like a feather. And we have seen that exactly last--that 
exactly, over the last month and it has not helped consumers. 
And it is understandable if folks get angry at what looks like 
somebody taking advantage of others.
    So, can you explain what is going on here as, when the 
price of crude goes up, it immediately goes up at the pump. 
When the price of crude goes down, we do not see that drop 
nearly as quickly. In fact, sometimes it takes weeks, if not 
months, to see that drop. Can you tell me what is going on?
    Mr. McCullough. Well, the first thing is that the price you 
see in the oil market does not reflect the transactions 
occurring, both the bilateral and the exchanges in the U.S. So, 
to get the prices at the pump, we are talking about 
transactions between players in the U.S. markets. If there is 
not enough competition in a specific market then, in fact, it 
is very tempting for people to take advantage of it.
    The story in the Enron situation, where we have the 
advantage of having all the records is, that was not lost on 
them for 1 second. We do not have those records for oil and 
gasoline.
    I focused on California because we know a lot about 
California, because we have had a continuing problem. The 
critical index that drives the California price, did not fall 
with the price of oil. Now, that is a surprise. The indications 
are that there were very few transactions filed with the Price 
Reporting Agency. Now, how could that be? Did they stop trading 
oil? Did they stop trading gasoline? The answer is no, of 
course not. But if there was to be manipulation, that is the 
way it would happen.
    Now, we have seen this strange inversion that the prices go 
up immediately, but they do not go down for quite a while. And 
that is the sort of thing where we would like to see the 
reporting of the data, line for line, in your hands and the 
FTC's hands, and the CFTC's hands. We do not have it. Until we 
do have it, you will not know the answer. But I will guarantee 
that once you have that data, the temptation to take advantage 
of the consumer goes away very rapidly.
    Senator Tester. Thank you. Thank you, Madam Chair.
    The Chair. Senator Scott, are you ready?

                 STATEMENT OF HON. RICK SCOTT, 
                   U.S. SENATOR FROM FLORIDA

    Senator Scott. Yes.
    The Chair. Go ahead.
    Senator Scott. Thank you, Chair Cantwell. I want to thank 
you for hosting this important meeting. Putin's invasion of 
Ukraine has highlighted the urgent need for American energy 
independence. From day one, the Biden administration has waged 
war on American energy by canceling the Keystone XL pipeline 
and freezing new oil and gas permits on Federal lands. These 
policies only hurt American families with high energy and gas 
prices, making it harder to put food on the table.
    In response to these high prices, the Biden administration 
had the audacity to seek oil and gas from our adversaries, 
Venezuela and Iran. And on top of that, Biden has falsely 
blamed--placed blame on the oil industry for high gas prices by 
saying they have not used their 9,000 drilling permits.
    Last month, President Biden said, ``They have 9,000 permits 
to drill now. They could be drilling right now, yesterday, last 
week, last year. They have 9,000 to drill onshore that are 
already approved.'' Additionally, White House Press Secretary 
Jen Psaki said, ``There are 9,000 unused, approved drilling 
permits. So, I would suggest you ask the oil companies.''
    Ms. Sgamma, are these claims by the Biden administration 
false or misleading?
    Ms. Sgamma. Well, I think it is more complicated than 
just--there are actually 8,800 lease--permits that are 
outstanding, that have not been developed. There are also 4,700 
permits that we have requested that have not gone forward.
    So, it is--Federal onshore development is a complex system. 
Because of the inefficiencies in the Federal Government, we 
have to have an inventory in hand, before we can really start 
developing. So, even though there--one company may have a 
permit, another company may be waiting for a permit because 
they want to develop today.
    So, it is--it is true that there are 8,800 permits out 
there that could be developed on. Companies are moving forward 
with development on many of them. Many of them will not be 
developed in the near future, or if at all, because after--
sometimes after exploratory work, we determine that that permit 
is not in an area that has sufficient quantities of oil and 
natural gas, maybe the spacing was incorrect. And so, some of 
those permits just will not get developed.
    If the government had a more efficient system, we would not 
have to build up such an inventory of permits. We could do more 
just in time permitting like we do in the states.
    Senator Scott. How many permits are being held up at the 
Department of Interior, right now?
    Ms. Sgamma. Forty-seven hundred permits have been requested 
and, you know, they take time to get through the process. But 
there are about 3,800 leases that the Department of Interior is 
holding up any permitting on while they do more greenhouse gas 
analysis. Western Energy Alliance has been in court defending 
about 5,900 leases. And on many of those leases, we cannot move 
forward with the permitting process because they are hung up in 
court, or they are hung up doing this additional greenhouse gas 
analysis.
    So, the Federal system is really complex. It is not just a 
simple one in, one out, and production goes.
    Senator Scott. So, last week I introduced the Free American 
Energy Act that would cut the unnecessary government red tape 
and allow American energy companies to provide for U.S. demand 
by requiring the Biden administration to act on outstanding 
permit applications.
    Last week, I was talking to a pipe manufacturer in Florida 
who was building components of the Keystone XL pipeline, who 
had to lay off about half of his workforce as a result of 
President Biden's cancellation of that project. So, these 
were--there is a significant number of really good paying jobs 
that were lost as a result of the hostility toward the domestic 
energy industry.
    He also told me that there is a lot less investment in the 
energy industry because the Biden administration's anti-energy 
polices and rhetoric. So, Ms. Sgamma, how is the Biden 
administration's rhetoric, such as his plan to end energy from 
oil and gas by, I think, 2035 impacted investment in domestic 
energy production?
    Ms. Sgamma. Well, I think rhetoric on climate change 
policies that is meant to imply that we are not going to need 
oil and natural gas in the near future is suppressing 
investment. Biden's own Department of Energy shows that oil and 
natural gas will continue to rise through--consumption will 
continue to rise through 2050. So, these polices of de-
investing the American industry only serves to shift that 
production overseas.
    Senator Scott. So, are their hurdles that the 
administration has placed that is impacting our ability to get 
more oil and gas energy production and get gas prices down and 
oil prices--gas prices down, primarily at the pump?
    Ms. Sgamma. Well, I think the regulatory efforts to 
decapitalize the industry are having their intended effect now. 
It is hard for my small producers to get capital right now. And 
you cannot--if you cannot get capital, you cannot develop a 
well.
    Senator Scott. Right. Thank you, Chair Cantwell.
    The Chair. Thank you. Senator Rosen, then followed by 
Senator Baldwin.

                STATEMENT OF HON. JACKY ROSEN, 
                    U.S. SENATOR FROM NEVADA

    Senator Rosen. Thank you. I--thank you, Chair Cantwell for 
holding the hearing. And this is really an important topic that 
matters to everybody right at their kitchen table, every single 
week.
    But I want to build upon what Senator Scott said but in a 
little bit of different way, about oil and gas drilling on 
public lands because I want to tell you Nevada is home to over 
56,000 acres of public lands. Over 80 percent of our state is 
publicly managed by the Federal Government in some form or 
fashion. And so, while Nevadans were paying $5.19 a gallon, the 
second highest price for gas in the country--this is what we 
are talking about. Big Oil CEOs are hoarding roughly 9,000 
unused drilling permits. They are posting record profits. They 
are pushing for more drilling on public lands.
    In addition to the unused permits, oil companies have 
already stockpiled 12,000 unused leases, across more than 12 
million acres of public lands, even as they increase prices on 
the American people. So, as a result of the Federal 
Government's broken and outdated oil and gas program, even as 
rural Americans in Nevada and other states lose out on their 
fair share of revenue from public lands' drilling, oil 
companies, we know, just are not passing savings on to 
consumers, or even using existing permits or leases. And as we 
have seen, prices just continue to rise to record levels. 
Outdated royalty rates also allow Big Oil to drill on public 
lands for just pennies--pennies on the dollar, while still, 
again, raising prices for consumers at the pump.
    I am going to reiterate this one more time. Over 56,000 
acres in Nevada of public lands. And it is really important to 
us. And that is why I have introduced the bipartisan Fair 
Returns for Public Lands Act, which would reform these royalty 
rates to provide taxpayers with a fair share of the revenue 
from public lands drilling and prevent cheap speculation.
    So, Mr. McCullough, appreciate all your testimony. We know 
members of the oil industry have been pushing a false narrative 
that increasing the oil and gas leases on public lands is what 
is going to reduce gas prices that Big Oil has increased. 
However, data shows that lease sales do not do anything. Lease 
sales do not do anything to drive down consumer prices. And in 
fact, domestic energy production on public lands is higher than 
it has ever been.
    So, given this, can you explain why oil producers are 
currently restraining production right now, instead of doing 
everything they can to lower gas prices? And how do you think 
reforming those royalty and rental rates would change the 
equation?
    Mr. McCullough. Well, number one, I am not an expert on the 
Federal leasing, but I can tell you it would be very nice if 
the leasing conditions were the same for farmers in North 
Dakota as they were on Federal lands.
    But number two, we are talking about trying to push more 
water through a pipe in order to make the flowers grow faster. 
I am not sure that changing those will do something for us 
today. What I would like to see today is that we ensure 
financing for the independent producers, in our core states, 
that have been the source of so much growth in our production 
over the last decade.
    Quite frankly, the little guys need access to finance. And 
if that requires new legislation, so be it. As I have said 
before, we are emptying the Strategic Reserve, but we are not 
replacing the Strategic Reserve from foreign markets, which 
would enable a lot of people access to capital. And so, there 
are some steps we can take very quickly to help and that is not 
so far down the path. There is a lot of land ready to be 
drilled in the United States, and a lot of wells it could be 
producing within the year.
    Senator Rosen. Well, I would really like to see folks in my 
state be able to--and other states that have this vast amount 
of public lands, be able to get their fair share when these 
leases are taken up.
    Mr. McCullough, how do you think Congress can hold Big Oil 
accountable for continuing to increase the gas prices while 
they are sitting on these permits?
    Mr. McCullough. Well, the windfall tax situation comes up 
every spike. And winners and losers are a problem with 
worldwide economies like ours. Americans are making money from 
oil and their stock and blue-collar guys are having trouble 
getting to work. So, that is something a windfall tax can help 
with. But I do want to reiterate, if we do put in a windfall 
tax, we have to do more than simply letting the winners help 
the losers. We have to critically maintain that there is an 
incentive for additional drilling there.
    Senator Rosen. Well, I think that you about summed it up. 
The big guys are profiting while the working folks--working 
families are the ones paying the brunt.
    Thank you, Madam Chair.
    The Chair. Senator Baldwin.
    Senator Cruz. Madam Chair?
    The Chair. Let us wait on this one, if you are talking 
about the previous debate.
    Senator Cruz. Well, Madam Chair, I would like to enter 
something in the record, please. You are recognizing Democrats. 
I would like to enter in a government document in the record 
which Senator Markey incorrectly stated----
    The Chair. OK, well----
    Senator Cruz.--that production--oil production under Biden 
is higher than under Trump----
    The Chair. Senator Baldwin. We are not----
    Senator Cruz. This is a printout from the U.S. Energy 
Information Administration. It is an official government 
document. I just want to tell you what the numbers are because 
this committee should not be hiding the facts from the American 
people.
    The Chair. We are not.
    Senator Cruz. I am going to read you the government 
documents which is----
    The Chair. Senator----
    Senator Cruz.--in December 2019, in the U.S., the 
production was 12.966 million barrels a day. That was in 2019. 
And in 2021--in December 2021, it was 11.587----
    The Chair. Senator Cruz----
    Senator Cruz.--million barrels a day----
    The Chair. Senator Cruz----
    Senator Cruz. That is 1.5----
    The Chair.--a filibuster is not----
    Senator Cruz.--million fewer.
    The Chair.--going to help consumers.
    Senator Cruz. This is not a filibuster. I ask unanimous 
consent----
    The Chair. And you and I----
    Senator Cruz. To enter this----
    The Chair.--can look at this----
    Voice. Without objection.
    Senator Cruz.--Government document in the record. I ask 
unanimous consent to----
    The Chair. Senator Baldwin.
    Senator Cruz. I ask--Madam Chairman, are you going to allow 
me to enter this in the record, or do you not want this in the 
record?
    The Chair. Let us recognize her. Senator Baldwin.
    Senator Cruz. Madam Chairman, I am asking unanimous consent 
to enter this in the record.
    The Chair. You know, gas prices effecting consumers are too 
dramatic to play politics with. Let us hear----
    Senator Cruz. Madam Chairman, are you not going to allow 
government----
    The Chair. I am not.
    Senator Cruz.--official government numbers to be in the 
record?
    The Chair. OK.
    Senator Cruz. Is that the position of the Chairman?
    The Chair. Nope.
    Senator Cruz. Is you will not allow the facts in this 
record?
    The Chair. No. I am trying to save another debate from you 
and Senator Markey.
    Senator Cruz. OK. I am asking again for unanimous consent 
to enter these government----
    The Chair. I am asking, Senator Cruz----
    Senator Cruz.--documents in the record?
    The Chair.--for you to pause while we listen to this.
    Senator Cruz. So, you are refusing to enter this in the 
record?
    The Chair. No, I am not. I am just----
    Senator Cruz. You are refusing.
    The Chair. There are other people who have not asked a 
question.
    Senator Cruz. Are these entered into the record?
    The Chair. Senator Baldwin.
    Senator Cruz. So, Madam Chairwoman does not want these 
documents in the record. The good thing is, you can go look at 
a government document and read them----
    The Chair. Senator Baldwin.
    Senator Cruz.--because the--what the Democrats are telling 
you is false, and they know it is false.
    The Chair. Senator Baldwin. Senator Baldwin.

               STATEMENT OF HON. TAMMY BALDWIN, 
                  U.S. SENATOR FROM WISCONSIN

    Senator Baldwin. Thank you, Madam Chair. I want to pursue 
just a little bit longer this issue that Senator Tester was 
discussing with you, Mr. McCullough. In your testimony you talk 
about the spikes like a rocket and comes down like a feather. 
And you gave a little color to that with Senator Tester. This 
week I am going to be introducing legislation with Senator 
Warren to just outright prohibit price gouging. And according 
to recent polling, 60 percent of Americans believe that price 
gouging by oil companies is a major cause of the rising prices. 
Mr. McCullough, your testimony provides evidence that could 
explain why Americans feel this way.
    Our legislation defines price gouging as an unconscionable 
price increase during an exceptional market shock. So, in your 
view, Mr. McCullough, are oil and gas companies using a market 
shock, like we have experienced, to justify keeping these 
prices high or only seeing them go down like a feather?
    Mr. McCullough. I cannot comment on all companies or all 
locations. We did a scoping study of the entire country and we 
saw one striking example, California. We have seen this very 
gradual decline in prices in numerous states. We do not have 
the data to explain why that happens. It is very odd knowing 
that the contracts define oil prices as a component, that it is 
not symmetric. It should go up and down at the same price. But 
until somebody has boots on the ground to actually check the 
data, we do not know.
    Senator Baldwin. Yes.
    Mr. McCullough. And for someone who is paying their gas 
price in Lincoln, Nebraska, I certainly understand why they are 
suspicious. They might ask, why is it that we know more about 
corn than oil? That is a pretty good question.
    Senator Baldwin. Mm-hmm. I appreciate that. Your testimony 
described the lack of transparency in the Oil Price Information 
Service, which collects and publishes data on oil and gas 
transactions that, in turn, influence the retail prices that we 
see.
    I have also introduced legislation seeking to increase 
transparency of benchmark prices in another market, the 
aluminum market. Does the oil and gasoline market and the 
reference prices that it relies on need more explicit oversight 
to ensure that manipulation is not occurring, sort of, as we 
are looking at in a very different market, but the aluminum 
market?
    Mr. McCullough. Well, the aluminum market has been the 
subject of enormous----
    Senator Baldwin. Yes.
    Mr. McCullough.--manipulations over the years. In fact, 
Mark Rich is famous for this. And that is one of the areas 
where people have investigated and certainly, Mr. Rich is not, 
as I remember, welcome in the United States anymore for that 
reason. But that simply underscores. There is nothing new in 
commodity exchanges for people thinking up clever ways to take 
advantage of the public.
    In my testimony, I quoted Adam Smith. We only think of him 
as the author of ``The Invisible Hand'', but he was a canny 
Scotsman. And he said--and I'll misquote, the first thing 
merchants do when they have lunch is think of ways to take 
advantage of the consumer. He said it better, being a genius, 
than I just did. But he also said, in another portion, just 
getting everything written down is the right approach. So, we 
know what the facts are.
    That has been the history of our almost 200 years of the 
Chicago Board of Trade, getting that written down leads to 
lower prices. And most of all, it leads to confidence in our 
own economy, which is critical.
    Senator Baldwin. Thank you.
    The Chair. Senator Capito.

            STATEMENT OF HON. SHELLEY MOORE CAPITO, 
                U.S. SENATOR FROM WEST VIRGINIA

    Senator Capito. Thank you, Madam Chair, and thank the 
witnesses for being here today. And it is a busy day on Capitol 
Hill so, you know, we have, kind of, been in and out. And so, 
as we know, and I know has been the topic of much discussion, 
is the rising price in gasoline. I represent West Virginia. It 
is a hardship on a lot of folks, particularly in rural America, 
where you have to drive sometimes 10, 20 miles to get to a 
grocery store or to the store or to your job or to school. So, 
I realize that this is something that everybody has a stake in 
and that we need to make sure that we are developing policies 
and that the President is acting forcefully here.
    So, Ms. Sgamma, it is nice to see you again. I saw you over 
at Environment and Public Works Committee last week. And you 
have thoroughly explained the administration's accusation that 
the oil and gas industry is sitting on 9,000 outstanding leases 
and permits. In your testimony, you specifically note the 
series of aggravating circumstances. You mentioned litigation 
as one of the issues. What role does the lack of pipeline 
infrastructure play in limiting the production of oil and gas, 
since an increase in production means that we would need to get 
more oil and gas to the market? If you could talk about the 
pipeline situation.
    Ms. Sgamma. Certainly. There have been many pipelines 
blocked, either from litigation or via environmental activism. 
There is the thought that blocking pipelines will stop oil and 
natural gas development, and all it--it does in this country, 
but it certainly shifts it overseas. So, we cannot develop on 
many of our permits if we cannot get a pipeline in place to 
capture that natural gas.
    Senator Capito. Well, as you know, in West Virginia we are 
fighting this. We have the Mountain Valley pipeline that is 95 
percent complete. It would get a lot of our natural gas to L&G 
terminals and also into the southern part of the country, where 
it is very much needed. And additionally, and probably more 
importantly even to me, is the economic growth that comes with 
the expansion of the development of the Marcellus and Utica 
shales in the plentiful area of West Virginia and the region of 
Pennsylvania as well.
    So, there does not seem to be any change in terms of the 
regulatory policies, in terms of the ability to try to work 
these things out. And as you know, investors will leave. People 
will abandon projects, as we saw in the other pipeline--
Atlantic Coast pipeline that we had. Eventually, it just goes 
away. So, I guess--I do not know if you see any roadway 
forward, in terms of the regulatory environment for pipelines--
what you might suggest there, in order to get this--get these 
moving and these permits--and these permitted pipelines on the 
schedules.
    Ms. Sgamma. Well, I was very pleased that the Biden 
administration announced, and the President encouraged more LNG 
exports.
    Senator Capito. Right.
    Ms. Sgamma. But if we do not have the pipelines to get the 
gas to the LNG export terminals, then you cannot export it.
    Senator Capito. Right.
    Ms. Sgamma. So, I think the next step is to recognize that 
permits need to be approved. And I think, if the administration 
wants us to be able to provide on that LNG export capacity, 
that it should take steps to approve those pipelines.
    Senator Capito. Right. And let me go back to the leases, 
because this is something I have wondered about myself. The 
administration has called to impose fines on companies who have 
leases but have idle wells on those property. What kind of 
impacts does that have and why is that--why does that happen, 
if it is actually happening? Idle leases on properties and----
    Ms. Sgamma. Well----
    Senator Capito. If you impose fines because you are not 
drilling?
    Ms. Sgamma. Yes, the non-producing fines are not going to 
incentivize more development, certainly, by making something 
more expensive. There is a variety of reasons that we are not 
operating on all leases. There are about 37,000 leases and 
about 12,000 that are non-operating now, or non-producing now. 
And that could be various things. It could be that exploratory 
work has determined there is not sufficient quantities of oil 
and gas on those, some of those leases. We are in court 
defending about 5,900 leases and it is very difficult to 
develop on those leases when it is held up in court.
    Senator Capito. Right.
    Ms. Sgamma. So, various issues like that can hold up 
leasing. Plus, the Environmental Analysis under NEPA often 
takes years and years. And so, those leases will be considered 
non-producing while it goes through that environmental 
analysis.
    Senator Capito. So, by saying some of the reasons, and I am 
sure there are others where this might be occurring, are you--
are you discounting the administration's projection to the 
American people that everybody sitting on these leases, and 
they will not produce, and it would be so easy if you just 
turned a switch on?
    Ms. Sgamma. Well, the blame game is not particularly 
helpful. And trying to say that the reason is because of 9,000 
leases is--I mean, it is a red herring.
    Senator Capito. Right, right.
    The Chair. Thank you.
    Senator Capito. Thank you, Madam Chair.
    The Chair. Senator Peters. Thanks.

                STATEMENT OF HON. GARY PETERS, 
                   U.S. SENATOR FROM MICHIGAN

    Senator Peters. Thank you, Chair Cantwell, and thank you, 
Chair Cantwell for convening this very important hearing.
    Certainly, I routinely hear from Michiganders about the 
high gas prices. So, like everybody has been talking about here 
today--and certainly, I see it when I go home on the weekends 
in Michigan, as well, currently just over $4 a gallon for 
regular unleaded gasoline, which is an increase of 42 percent 
over just a year ago. It is even worse when looking at diesel, 
which is currently nearly $5 a gallon, which is 62 percent 
higher than it was this time last year.
    And we are seeing folks are topping off their tanks, even 
if they are 3/4 full, just so it does not cost them more to 
fill up next time. They are concerned about that. And when you 
think about that, even if someone has just a standard sedan 
with an average-size fuel tank, filling up even 1/4 of the way, 
now is costing them nearly $20.
    The financial impacts on Michiganders are significant. And 
clearly, in my mind, and I hope you would agree that no family 
should have to choose between filling up their cars or putting 
food on the table or paying other bills that come to them.
    And underneath it all, it appears that oil and gas 
companies have been enjoying a massive financial windfall as a 
result of this. For instance, the largest 25 oil and gas 
companies raked in $205 billion last year. And oil and gas 
producers increased their stock buybacks to their shareholders 
who are very excited about this, by over 2,000 percent.
    And while some turbulence in energy markets is certainly 
understandable and a fact of life, primarily now, we are seeing 
this increase primarily due to the economic recovery associated 
with COVID-19 and Russia's unprovoked and murderous invasion of 
Ukraine. And we are seeing gasoline markets respond by very 
high increases.
    But it also leads us to believe that there are some bad 
actors out there that are taking advantage of the current 
situation. For instance, gas prices skyrocketed when the price 
of crude oil rose to over $100 a barrel last month. But if you 
look back in 2008, when it was over $125 a barrel, gas prices 
at the pump barely broke $4 or, generally, below that.
    Making matters worse, the prices consumers pay to fill 
their tank remain high. Even as crude oil prices now are 
falling, they are still paying that very high price at the gas 
pump. And so, I believe it is imperative that we ensure oil 
companies do not exploit this crisis to hike prices and raise 
their profits. And clearly, transparency is the issue.
    Mr. McCullough, you noted in your transparency, and you 
have mentioned it on several occasions already, that 
transparency is the least expensive and most effective tool in 
guaranteeing efficient markets. That is what we are saying, let 
us have efficient markets here. However, oil and gas is only a 
fraction of the information that competing fields. So, could 
you speak a little bit more about the current level of 
transparency within the oil and gas markets, when compared to 
other commodities? Let us look at other commodities. What are 
we--what are we seeing? Let us compare these two, so we get a 
better sense of it.
    Mr. McCullough. Well, electricity is the best example. In 
2000, we knew nothing about electricity. Coming out of the 
Enron collapse, we ended up with a database available to any 
American on the FERC website. You can look at every 
transaction, in the United States, who from, who to, how much, 
where, what dollars, etc. This is not rocket science. This is 
not even a big data base, by database standards. We use it 
every day for our clients, both for facilitating transactions 
but also for clients like the Illinois Attorney General when 
they look at possible market manipulations.
    Can we do this for gasoline? Of course, we can do it for 
gasoline. Gasoline is actually a smaller transaction universe 
than electricity. And number two, what would we gain from this? 
Well, the first thing we would find out is who is profiting and 
why, for Michigan, and ending up still paying high prices, even 
though the price of gasoline has fallen. By the way, being from 
Wisconsin, I would also like to note that a lot of folks up 
there heat their homes with oil still. So, this is a pretty 
heavy hit for a blue-collar guy.
    So, why have we had do much trouble doing this? Well, we 
were helped because Enron was so astonishingly evil that 
everyone agreed that we had to go do this. We have never had a 
poster child like Enron, but we are getting close. And we 
really do need to actually get this stuff written down and 
available to everybody on the web. And literally, something we 
could do within the year.
    Senator Peters. Very good. Thank you. Thank you, Madam 
Chair.
    The Chair. Thank you. I do not know if we have Senator 
Thune joining us online? If not, Senator Warnock, are you ready 
to ask your question?

              STATEMENT OF HON. RAPHAEL WARNOCK, 
                   U.S. SENATOR FROM GEORGIA

    Senator Warnock. Thank you so very much, Madam Chairwoman, 
for holding this hearing.
    Whenever I am back in Georgia, I hear about rising gas 
prices, and this is something I am very concerned about. The 
pandemic supply chain disruptions and the war in Ukraine are 
all major drivers behind this rise, of course, in prices and 
market volatility.
    While the price of a barrel of oil has fallen by nearly 20 
percent from its peak last month, the price at the pump remains 
high. And this is why I am sending a letter today to President 
Biden, urging the Federal Trade Commission to increase scrutiny 
of oil and gas companies for illegal business practices that 
could be artificially inflating prices.
    Mr. McCullough, yes or no, last year did the country's 
largest oil and gas companies, such as Exxon, Shell, and 
Chevron, experience billions of dollars in profits?
    Mr. McCullough. Absolutely.
    Senator Warnock. Do you think these record setting profits 
will continue this year?
    Mr. McCullough. Equally absolutely.
    Senator Warnock. Do you expect executives at these 
companies to see their compensation increase or decrease this 
year?
    Mr. McCullough. Now, I am guessing, but I am guessing you 
are entirely correct.
    Senator Warnock. Will it increase--will their compensation 
increase or decrease, as consumers are paying record prices at 
the pump?
    Mr. McCullough. I suspect it will go through the roof.
    Senator Warnock. Their compensation?
    Mr. McCullough. Yes, sir.
    Senator Warnock. And are ordinary Americans and Georgians 
who need to fill up their cars to get to school, to get to 
church, or work, or to temple paying more so these companies 
can reap these profits?
    Mr. McCullough. Some of the increase is due, obviously, to 
Putin's war, but other increases are inexplicable at the 
moment.
    The Chair. [Off mic].
    Mr. McCullough. Oh, I am sorry. Let me repeat that. I 
apologize. Some of these increase we understand, such as 
Putin's war. But other parts of the increase are inexplicable. 
And why the gasoline price does not follow the oil price down 
in Georgia, is something we really do need to get to the bottom 
of. There is nothing fancy about it. We just need to see the 
bits and pieces that explain that. If there is a good reason, 
so be it. But at the moment, we cannot think of a single good 
reason for it.
    Senator Warnock. Right. So, we see a multiplicity of 
factors contributing to the oil--to the price--increasing 
prices in gas, but you see that corporations are clearly 
exploiting this moment and are piling on, as it were.
    Mr. McCullough. What I am seeing is a lot of suspicious 
data. And we do not have enough data to give an absolute 
answer, but it is within our power to have the FTC go get that 
data and get us that answer, and pretty quickly.
    Senator Warnock. It is clear to me that corporate greed is 
a large part of what is behind these prices at the pump, and I 
look forward to working with the FTC to hold these companies 
accountable for taking advantage of Putin's war.
    Mr. McCullough. I think that is a great idea, Senator.
    Senator Warnock. Thank you so much. Madam Chair.
    The Chair. OK, I know we are expecting Senator Hickenlooper 
shortly but, Senator Cruz, if you want to go ahead on your--do 
you want to go do a second round, then when Senator 
Hickenlooper is here we will recognize him? Oh, here he is 
right now. Senator Hickenlooper, we would like to close out, if 
possible the first round of questioning and get to a second 
round. And so, I would like to, actually, run and vote if I 
could, if that would be--so, if you could start your questions 
and then, we will do five minutes with Senator Cruz.

             STATEMENT OF HON. JOHN HICKENLOOPER, 
                   U.S. SENATOR FROM COLORADO

    Senator Hickenlooper. Perfect. Great, thank you, Madam 
Chair.
    First, thank you for your time and your willingness to come 
here and testify for us. There is certainly no question that 
families are feeling the squeeze of rising prices and nowhere 
is that more apparent than they are--in the gas--when they are 
filling up their gas tank.
    We all know that Putin's invasion of Iran has been driving 
prices higher--ever higher. And I think this committee feels 
almost united on the role that passing USICA could have on 
making supply chains resilient, bringing manufacturing home, 
and ultimately, lowering prices.
    So, I think another part of that is getting true energy 
independence upgoing. I mean, off and running. Let me ask you 
the first question here. Where is that question? I am on the 
wrong book. Sorry.
    So, I would like to highlight a recent survey by the 
Federal Reserve Bank, in Dallas. This was last month, 139 oil 
and gas firms. The question was, why are oil producers 
restraining growth? Fifty-nine percent said investor pressure, 
maintain capital discipline. In other words, they are being 
told by investors not to drill. The fact that investors would 
not make enough money was the top response, by far, not 
concerns about ESG or regulatory barriers.
    Ms. Sgamma, your testimony points to a variety of barriers 
preventing the oil and gas industry's production as a reason 
for climbing gas prices. Do you agree or disagree with the oil 
and gas firms surveyed that investor pressure to maximize their 
earnings is, indeed, a leading factor, keeping oil and gas 
companies from drilling?
    Ms. Sgamma. Well, I do not think the survey said that. It 
was about maintaining capital discipline. So, during the last 
peak in prices in 2014, there is--it is well known that the 
industry responded and there was a huge uptick in drilling and 
production. And many companies got overleveraged and many 
companies went under, as well. So, the market has been 
restraining that type of growth and capital discipline is one 
of those market correcting responses to that.
    Senator Hickenlooper. OK. And I think that we can look at--
this looks at the returns, which you can--I think, you can see 
pretty clearly have been substandard for a lot of those oil and 
gas firms, for a variety of reasons. I think it is sometimes 
harder to find prospects. In an earlier life, I worked in that 
field. And the cost of discovering additional reserves and 
actually producing additional reserves has gotten more 
expensive over time. And I think it--that and--well, there are 
a lot of points.
    Anyway, the--I think this is something that we have to 
recognize is an equal pressure on the industry. And--in other 
words, I am not criticizing the industry or the operators for 
trying to make sure that they can be profitable. That has been 
an issue.
    Mr. McCullough, let us take a deeper look at where the 
industry's lack of desire to invest might come from. And this 
chart shows--this is from the Payne Institute at the Colorado 
School of Mines--shows three quantities, the price of crude oil 
in gray, the return on capital in orange--so, that is the 
capital employed by oil and gas in orange, and the same 
quantity for the whole S&P 500 in blue.
    Each year since 2013, they really have failed to match the 
S&P, and many years lose money all together. And this is no 
different under President Trump, as it--or before President 
Trump. And I think that is--the challenge, to a certain 
extent--and I would love your comment on this--is if we give 
drillers more money, the investors invest, they sometimes wish 
they had not.
    So, if this is right, and oil and gas cannot deliver those 
returns to investors when it reinvests in its own operations, 
how does that reflect long-term growth prospects for these 
companies? And how does it reflect our country's--you know, the 
necessity to diversify our energy sources?
    Mr. McCullough. Well, Ms. Sgamma has put it correctly. 
People are overleveraged in the last cycle. And there were a 
lot of bankruptcies and that scared investors. And there is no 
question that we see that. The issue we have to deal with is 
how do we reassure those investors?
    We do not have, in our forward markets, a recognition that 
Putin's war will go on past the next few months. And we all 
know that we have no idea what is going through Putin's mind. 
At least I do not. But I can tell you, the Russians do not give 
up. They are formidable. And I think we have to expect that 
Putin's war will continue for this year.
    So, what can we do to help? Well, the first thing, as I 
have noted, is we can replace the Strategic Reserve by forward 
purchases. That would give more liquidity to the forward market 
and aide smaller players in getting possible capital.
    But there is no question in my mind that we need to address 
that investor fear in some active way. I am a price theory 
economist. I am also an environmentalist. The two do not always 
go together. But the fact of the matter is that, when we are 
talking about wildcatters, we are not talking about deep 
pockets. And so, we need to make sure that they can go on and 
drill. Wildcatters have produced most of our oil in recent 
years. And they are a powerful force for states, from West 
Virginia all the way to North Dakota and Texas.
    Senator Hickenlooper. Thank you. Can I ask one more 
question? Is that satisfactory? And then, I will get out of 
your hair. So, if we are now going to make smart investments in 
clean energy now, which I think is--we are seeing with more 
clarity, and reduce our dependence on foreign suppliers, 
increase our independence and resilience against global 
disruptions and fight climate change with new technologies, Mr. 
McCullough, do you agree that diversifying the energy sources 
long-term is ultimately going to decrease costs for consumers 
and certainly reduce our vulnerability to oil and gas price 
shocks?
    Mr. McCullough. Absolutely. The revolution in technology 
that has occurred on the electricity side has been 
unbelievable, between LED lamps, windmills, solar, etc. And the 
price effectiveness of that has gone through the roof. So, the 
news, generally, is good. But we are the world's largest 
economy. We both import and export and, until we actually 
understand all of this better, we are going to see foreign 
markets royal American markets.
    Senator Hickenlooper. Right, exactly. I yield back. Thank 
you.
    Senator Cruz. Thank you. Senator Thune.

                 STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. Thank you, Mr. Chair. Like a lot of my 
colleagues, as well as millions of Americans, I too want 
accountability for why energy and gasoline prices are so high. 
Because what the American people care about right now, I think 
more than anything else, is security--national security, 
economic security, and energy security.
    Inflation is at the highest rate in 40 years and pocketbook 
issues like high gas prices are front of mind for American 
families. Today, the national average for a gallon of gasoline 
is $4.17. That according to AAA. One year ago, it was $2.87, 
but already in a steady march up from the lows of the pandemic, 
toward the painfully high prices that we are seeing today.
    The President has tried to blame high gas prices on 
Russia's unprovoked invasion of Ukraine, calling it Putin's 
price hike. But the data is unmistakably clear that energy 
prices were skyrocketing well before Putin attacked Ukraine. 
So, now, my colleagues across the dais want to blame American 
energy producers rather than the Biden administration's overt 
hostility to domestic energy production. Of course, it began 
the very first day in office, with canceling the Keystone XL 
pipeline as one of his first official acts as President, 
followed by a freeze on new leases.
    It is unusual for the Senate Commerce Committee to be 
discussing these issues, but I am glad we are having this 
discussion and I am glad that my colleagues across the aisle 
share in Republicans' interest in bringing down energy prices.
    Last week, the President announced the administration will 
release oil from the Strategic Petroleum Reserve at the pre-
precedented rate of one million barrels per day for 6 months, 
in hopes it will significantly curb gas prices heading up to 
the midterm election. And that is certainly, I would say, a 
better option than turning to Venezuela or Iran for energy.
    But there is still one glaring omission from his plan that 
would not only lower gas prices but could do so without 
requiring any change in oil supply. I am talking about biofuel, 
specifically E15. Restoring the year-round sale of E15 for the 
upcoming summer travel season would offer consumers a lower 
cost fuel, while curbing oil demand. And if he were to announce 
that, that could, I think, have an immediate impact.
    But giving the lead times for fuel contracts and other 
supply chain considerations, the administration needs to act 
now. And I am going to hold the President to his remarks that 
he will use every tool at his disposal to lower gasoline 
prices. And what the President has said is the Americans cannot 
afford that right now, and I could not agree more.
    But basically, what this comes down to, more than anything 
else, like everything else in a free market economy, is supply 
and demand. And blaming Putin or blaming the oil companies, as 
if they do not want to produce more energy, is absolutely 
trying to scapegoat this issue in a way that distracts 
attention from the fundamental issue. And that is, this 
administration has taken a hostile approach to oil and gas 
production in this country. There is just no question about it, 
starting from the first day in office, and it continues to 
today.
    You have a lot of financial institutions that are being 
discouraged from making loans to people who are in the energy, 
oil, and gas production in this country. And the signals that 
are being sent by this administration to the investor 
community--the people who would actually increase supply, so we 
can become energy independent again, which is where we were 
prior to this administration taking office--the signals that 
are being sent are do not invest in oil and gas. And these are 
long-term investments that have long payouts. If people are 
going to make these investments they have got to have an 
administration that is not going to be hanging over them with a 
heavy hand of regulation to try and drive them out of business 
or discourage them from investing in these--this sector of our 
economy.
    So, let me just ask you, Ms. Sgamma, in your testimony you 
listed a number of impediments to quickly getting American 
energy producers back online. In your opinion, what would be 
the single most effective step the Federal Government could 
take, or stop taking, to get the greatest volume of energy back 
online the fastest?
    Ms. Sgamma. I think backing off the SEC regulation meant to 
deny capital to the industry would be the biggest signal they 
could send.
    Senator Thune. OK. Well, thank you. And what would be--let 
me ask this, if you could please speak to how this onerous ESG 
or Environmental Social Governance agenda that is being imposed 
on energy financing affects the pace at which domestic energy 
production could come back online. And do you think a heavy-
handed ESG approach from the government undercuts voluntary ESG 
targets?
    Ms. Sgamma. It definitely would undercut voluntary 
disclosures. I think, right now, it is so volatile in that 
marketplace of climate change disclosure, that to impose the 
one size fits all approach that the SEC is looking at now, is 
not going to be helpful. Because there is so much uncertainty 
in how to report what information is the best to report and I 
am struck reading through that SEC regulation--the sheer 
magnitude of what they are requesting and the dampening effect 
that that will have.
    Senator Thune. The climate Nazis would like nothing more 
than to see oil and gas completely go away. But we all know, 
realistically, that liquid fuels are going to be a part of our 
future, for the foreseeable future. And why not produce it here 
in the United States? That cannot happen if you have an 
administration that, on a daily basis, is expressing open 
hostility to that sector of our economy. And more specifically, 
by discouraging financial institution and investors from making 
the long-term strategic decisions that they need to make in 
order to bring energy independence back to this country.
    So, I just think, Madam Chair, we have a fundamental 
disagreement about what the issue here is. In my view, this is 
a basic issue of supply and demand and an administration that 
has been hostile to additional supply in this country.
    The Chair. Senator Sullivan.

                STATEMENT OF HON. DAN SULLIVAN, 
                    U.S. SENATOR FROM ALASKA

    Senator Sullivan. Thank you, Madam Chair. And I want to 
echo every single word of Senator Thune, all right? You put it 
very correctly, very factually based, right? I have been 
watching this issue from day one because it is crushing my 
state. So, let me--let me just go into build on what he just 
said.
    President Biden said, when he campaigned, we are going to 
end fossil fuels. It is the one campaign promise he is actually 
keeping. So, on day one, and it is day one, they started saying 
we are going to stop producing on American land, including 
ANWR, which we got done here. Alaskans support that; Americans 
support that. We are going to strongarm financial institutions. 
Woke guys like John Kerry, Gina McCarthy going to Wall Street 
saying, do not invest in American energy. By the way, John 
Kerry has also gone to Japan--I have heard this from Japanese 
officials, saying do not buy L&G. I mean, who--who the hell's 
side is this guy on? I think Xi Jinping loves that stuff. Kill 
an infrastructure? This is day one. And begging dictators to 
produce more energy while shutting it down in Alaska and other 
places.
    It is just--it is unbelievable. The results are very 
predictable. Higher prices--this is not Putin's gas hike. This 
is Joe Biden's gas hike. And everybody in the country knows 
it--everybody. Laying off workers in the energy sector, who are 
supposedly bad workers. These are patriotic Americans producing 
what we need. Certain segments of our conference--or not 
conference, Senators here and they do not like energy workers 
anymore. They are somehow bad. Ridiculous. They are great 
Americans. They are heroic Americans.
    And empowering dictators. I mean, this is national 
security--national security suicide that this administration--
and they are going to pay, by the way, in November.
    So, I have a couple questions for you, Ms. Sgamma. You have 
done a really good job on--first, the White House comes out 
with one talking point--one talking point. They have no clue 
what they are talking about. This 9,000 unused permits. Can you 
debunk this pathetic talking point, please, once and for all?
    Ms. Sgamma. Well, I do not know if I can because it is a 
little bit complicated. So, there are about----
    Senator Sullivan. Give us--give us a shot. Because we know 
it is a bunch of baloney.
    Ms. Sgamma. Well, I just take it as, kind of, a positive 
that suddenly the Biden administration wants us to actually 
produce on Federal lands.
    Senator Sullivan. But they do not.
    Ms. Sgamma. The 9,000 or the 8,800 onshore permits 
represent--or Federal onshore represents about 10 percent of 
our oil production. So, we are really talking about a small 
amount, but it is--it is illustrative in that, where they have 
the most control they are definitely making it more difficult 
for us to move forward.
    Senator Sullivan. Let me--let me go into a couple more 
details. And I would really like you to dig deep. The media 
will not report on this, but I have two memos here. This was 
order number 3395 from the Secretary of Interior. By the way, 
at that point, the Secretary of Interior was some guy by the 
name of Scott de la Vega--never heard of him--Acting Secretary 
of Interior. But what matters is this. This is January 20, 
2021. Day one, right here, shut it all down. The American 
people should read that memo. Shut it all down. Everything that 
we could do to produce American energy on Federal lands. This 
is it, right? Day one, some dude named Scott de la Vega, 
supposedly the Acting Secretary of the Interior said, ``Let us 
shut it all down''. Read it, America.
    Now, then, 60 days later, March 19, 2021, this is from the 
Assistant Secretary at Interior. She is Acting, by the way. She 
will never get confirmed, also. Good luck, Laura Daniel Davis. 
She put a memo out saying that, ``Every application to 
drill''--and I want you to explain what that is. But as you 
know, there is applications to drill that go with Federal 
leases that make you actually produce on the Federal lease. She 
said, every application to drill has to go through her, right? 
Now, normally, applications to drill on Federal lands, it is 
approved at, like, the regional level--Fairbanks, Alaska, BLM 
manager or the State of Alaska BLM. She said, nope, we are not 
doing that, even though we have been doing that for decades. I 
am going to approve every single application to drill in 
America. This memo is still in effect.
    This would be like going to get a loan from Bank of America 
and you are going to go to your local bank, community bank, and 
they say, ``No, you have got to go to Wall Street 
headquarters''. There is 4,600 applications to drill sitting on 
this official desk. Joe Biden should rescind this memo today if 
he wants to keep up with doing everything he says he can, which 
he is not, for bringing down energy prices.
    Can you talk to--about the problem with this Laura Daniel 
Davis memo which is still in existence right now? Unprecedented 
power grab to shut down American energy. Four thousand six 
hundred permits.
    The Chair. Can you quickly? Because we have a couple of 
other members who want to get their first-round in.
    Senator Sullivan. Sorry, Madam Chair.
    The Chair. Thank you.
    Senator Sullivan. It is an issue that I am very animated 
by.
    Ms. Sgamma. Yes, there are indeed 4,700 permits. I believe 
they are now being done at the field office level. However----
    Senator Sullivan. No, they are not. No, they are not. This 
is still in--this is--this memo has not been rescinded. I 
checked on this this morning.
    Ms. Sgamma. I believe it probably has not been rescinded. 
But they are holding up permits on about 3,800 leases, while 
they do more greenhouse gas analysis. And that is because of 
litigation that environmental groups have engaged in.
    Senator Sullivan. But is it unprecedented that the 
Assistant Secretary of Interior for Lands and Minerals and Oil 
and Gas said, I need to approve every single application to 
drill in America? Is that the way the Department of Interior 
has worked previously?
    Ms. Sgamma. No, it has not.
    The Chair. Thank you. Senator Blackburn is online, and 
then, Senator Lummis.

              STATEMENT OF HON. MARSHA BLACKBURN, 
                  U.S. SENATOR FROM TENNESSEE

    Senator Blackburn. Thank you so much, Madam Chairman. I 
appreciate it. And to our witnesses, thank you so much for 
being with us today.
    Ms. Sgamma, I want to come to you. The--in March, the SEC 
announced that they were going to mandate this climate risk 
disclosure by public companies. And that is something that I 
have heard a good bit about from many of our drilling 
companies, whether they are the independents, the wildcatters, 
companies of any different size. And because they know what 
that means to them, if you have companies that the SEC is going 
to mandate, they have to disclose their risk--their climate 
risk.
    So, I--what I want to ask you about is the direct impact 
that you see on that, when it comes to exploration for oil. And 
then, also, how should the administration reverse course and 
provide an environment that is going to promote investment into 
the energy industry, so that we are not going to be dependent 
on Russia and not be dependent on some of--like, Venezuela? So, 
talk a little bit about that and that action and the impact.
    Ms. Sgamma. Well, the climate change disclosure regulation 
from the SEC is designed to eventually decapitalize oil and 
natural gas and some other industries, as well. And really, the 
result would be just to suppress it here in the United States 
and we would still have to import that from overseas.
    I think it well exceeds SEC's authority. That regulation 
well exceeds SEC authority. I think they will be very 
vulnerable legally. So, I think one of the things that the 
administration could do right now is simply back off on that 
proposed rule. It is just a proposed rule. They do not have to 
finalize it.
    I would say the other thing is, move forward with leasing 
on Federal lands. That sends a strong signal that they are not 
going to tie up Federal lands, that they are going to move 
forward and enable us to move forward on Federal lands. Even 
though we do have outstanding leases, one lease that you need 
today could hold up your project, your well, that you want to 
drill today. So, the leasing system is not just a simple, we 
develop all these leases----
    Senator Blackburn. Yes, let us----
    Ms. Sgamma. And then, we move forward.
    Senator Blackburn. Let me jump in here because we have 
talked today about the uncertainty that has been interjected 
into the entire industry because of regulatory overreach, 
because of the way permits are being handled or not handled, 
more specifically, for people that have these leases and are 
ready to drill. And when you look at the energy sector, one of 
the things that you notice is the amount of attention that is 
placed on futures--oil and gas futures, and things of that 
nature.
    So, touch on why certainty in the regulatory process is so 
vital to having access to the fuel we need to really support 
this economy.
    Ms. Sgamma. Well, that is a good topic, as well, as there 
are so many different regulations that have been proposed to 
add on to my industry that it does call into question 
investments made today, because there is so much regulation 
coming in through the pipeline that could affect the value of 
that investment into the future.
    Senator Blackburn. And one of the questions that 
Tennesseans will ask me is, how is it that everybody became so 
dependent on Russia? Was it because the U.S. started to back 
off of hydrocarbons and off of oil and gas? And is that why 
now, you have Saudi Arabia and Russia and Venezuela, all that 
are ruled by really bad actors, is it why the world is now 
dependent on them?
    Ms. Sgamma. Well, I mean, Russia and Saudi Arabia have been 
major producers. Luckily, the United States is the number one 
producer of oil. And so, we were a net exporter in 2019. I 
think we can get back there if we encourage our production in 
the United States.
    Senator Blackburn. And how quickly could we get back there?
    Ms. Sgamma. Well, I mean, it is--I do not know that I have 
got a clear answer on that. I think analysts are projecting we 
could reach that--you know, we are down about 1.1 million 
barrels of production a day and some investors are projecting--
or analysts are projecting we will close that gap by another 
hundred--800,000 this year. So, we are slowly getting back up. 
But certainly----
    Senator Blackburn. Sounds good.
    Ms. Sgamma. Thank you.
    Senator Blackburn. Thank you, Madam Chairwoman.
    The Chair. Thank you. Senator Lummis.

               STATEMENT OF HON. CYNTHIA LUMMIS, 
                   U.S. SENATOR FROM WYOMING

    Senator Lummis. Thank you, Madam Chairman. Ms. Sgamma, who 
sets gasoline prices at the gas pump? Like, across the street 
they are, like, $5.50 a gallon. Back in Wyoming they are, like, 
$4.40 a gallon. Sometimes I go visit my daughter in Texas. They 
are around $4.10, $4.20. Senator Cruz, is that not right? So, 
they are cheaper in Texas than Wyoming, way more expensive 
here. Of course, California is off the charts. Who sets those 
prices at the gas pump?
    Ms. Sgamma. Well, it is a complex market. It is not one 
person or one entity setting prices. And certainly, the price 
of gas at the pump is different in different states and 
different regions because of different refinery capacity, 
different state taxes, etc. So, I am not sure I have got a 
clear answer for you on that, as far as it is not one single 
person or entity.
    Senator Lummis. OK, so if the refinery in a region sets 
prices and only 5 percent--which is not true, of course, but if 
they set the prices and only 5 percent of the gas stations are 
owned by refiners, how can that be enforced?
    Ms. Sgamma. Well, the refiners do not set the price.
    Senator Lummis. Exactly, thank you. So, the price at the 
pump is set by the person who is selling the gasoline. The 
person who owns the gas station. Is that correct?
    Ms. Sgamma. There are hundreds of different, if not 
thousands of different factors that go into why prices are 
different at different gas stations, etc. But yes, ultimately, 
the owner of that gas station is going to set the price based 
on what he or she is paying to get the gas in and to the 
distributors. There are thousands of transactions that go into 
this.
    Senator Lummis. OK, so, who prices oil at Brent or West 
Texas Intermediate Crude? Who prices that?
    Ms. Sgamma. I mean, that is a global commodity price, so--
--
    Senator Lummis. Set by who?
    Ms. Sgamma. I mean, it is set by the market. I am not 
sure----
    Senator Lummis. OK, so what factors go into the market? 
What factors?
    Ms. Sgamma. So, as a producer, we are price takers off of 
that global commodity price. So, I do not--I mean----
    Senator Lummis. So, let me ask you this. President Biden 
took office January 2nd. He halted new oil and gas leases on 
January 27th and prices went up. Do you think there is a 
correlation between those two actions?
    Ms. Sgamma. Well, just like any market, I mean, it is hard 
to say, on any given day, why a stock went up or down or the 
price of a commodity went up or down. But signals, like, 
political signals are very important. Obviously, fundamental 
market factors are important, or are fundamental. Price shocks, 
like from the invasion of Ukraine--all these things can affect 
the price of oil.
    Senator Lummis. Is there a connection between the supply 
and the price?
    Ms. Sgamma. Absolutely.
    Senator Lummis. OK. So, we used to be energy independent. 
We produced more that we needed to consume. And were prices 
lower then?
    Ms. Sgamma. Yes.
    Senator Lummis. OK. So, now, all these policies, canceling 
the Keystone pipeline, take 30 percent of land off limits to 
oil and gas--Federal land--halting drilling in ANWR, reversing 
the Trump natural gas regulations, reversing Trump NEPA 
regulations, DOE hiring 1,000 employees to eliminate oil, 
Russia invading Ukraine--did these activities affect supply?
    Ms. Sgamma. Absolutely, because our producers are affected 
by all of those regulatory measures.
    Senator Lummis. OK, so we are not consuming less. We are 
producing less. So, it has got to come from somewhere. So, when 
we used to be energy independent and produce more than we 
needed, we could export and help other countries, so they are 
not dependent on bad actors, like Mr. Putin. But now, we are 
even the ones who are asking other countries to put more oil on 
the market, to sell us oil, when we used to produce our oil. Is 
our oil dirtier and more environmentally toxic than their oil?
    Ms. Sgamma. We probably produce the most sustainable and 
the cleanest oil in the world. I would say the United States 
and Canada.
    Senator Lummis. OK, so why do they call climate change 
global climate change? Because clearly we must have a bubble 
over North America where we can solve everybody's climate 
problems by--the whole world's climate problems by quitting 
producing oil and gas here. Is that the case?
    Ms. Sgamma. Actually, if we produced more natural gas we 
could export more and we could deliver those greenhouse gas 
reductions, that we have enjoyed in the United States, to other 
countries, as well.
    Senator Lummis. Does India have cleaner air than we do?
    Ms. Sgamma. No.
    Senator Lummis. Does it produce more greenhouse----
    Ms. Sgamma. Yes.
    Senator Lummis.--gas emissions than we do? What about 
Eastern Europe?
    Ms. Sgamma. I do not know off the top of my head.
    Senator Lummis. I can tell you they produce way more 
greenhouse gas emissions.
    Ms. Sgamma. I mean, if you are talking about----
    Senator Lummis. What about China?
    Ms. Sgamma.--their oil, yes.
    Senator Lummis. Yes.
    Ms. Sgamma. Absolutely. Russian oil is much--has much more 
emissions.
    Senator Lummis. OK. What about China?
    Ms. Sgamma. Well, their greenhouse gas emissions are off 
the charts.
    Senator Lummis. What about ours?
    Ms. Sgamma. Ours have been going down.
    Senator Lummis. Because of?
    Ms. Sgamma. Primarily because of increased natural gas use.
    Senator Lummis. OK. So, we have six L&G terminal permit 
requests sitting in this administration, ungranted, while 
Germany is having to buy Russian oil and natural gas. Why? Ours 
is cleaner.
    The Chair. Quickly, because I would like to get to second 
round, quickly. Thank you.
    Senator Lummis. Excuse me. You know what? My point is 
global climate change is global. We are producing the cleanest 
air of any developed nation on Earth. And if climate change 
really mattered to the people who say it does, we would be 
spending money to help India and Eastern Europe get their 
greenhouse gas emissions now, instead of these costly 
incremental changes that we are producing in this country, when 
we are the global leader in clear air technology for developed 
nations. Thank you. I yield back.
    The Chair. Thank you. Senator Cruz, did you want to go 
ahead on a second round?
    Senator Cruz. Thank you, Madam Chair. I would like to start 
with a series of housekeeping matters. I want to start by the 
two memos that Senator Sullivan referenced. One issued on the 
very first day of the Biden administration; the other issued in 
March of last year. Both dramatically reducing domestic energy 
production. I would like to ask unanimous consent to enter both 
memos into the record.
    The Chair. Without objection.
    [The information referred to follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    Senator Cruz. Second, I would like to return to the topic 
you and I discussed before and ask unanimous consent to enter 
in this document from the U.S. Energy Information 
Administration into the record.
    The Chair. Without objection.
    [The information referred to can be found at the following 
link:]

    https://www.eia.gov/dnav/pet/hist/
LeafHandler.ashx?n=pet&s=mcrfpus2&f=m

    Senator Cruz. I would note, on this second document, that 
Senator Markey claimed, in his questioning, that under Biden we 
are producing more oil than we produced under Trump. That is 
objectively false. Now, the reason he likely did that is there 
is a Democratic talking point that is repeated by the White 
House and many Democrats, which is, under Biden, we are 
producing more oil than we did the first year of Trump. And 
Senator Markey may have misread his briefing points and 
forgotten the first year point.
    Now, when Trump came in, we had 8 years of Obama, so 
production was way, way down. And if you look at, during the 
Trump administration, we increased and increased and increased 
and we reached a high point of 12.966 million barrels a day. 
And that high point was in November 2019.
    Now, when the pandemic hit, production went down, and it 
has gone up slightly. But we are right now, as of December 
2021--these are U.S. Government numbers--we are at 11.587 
million barrels a day, which is 1.5 million less than the high 
point under Trump.
    And facts matter, so I would like to also introduce into 
the record, on March 17, Senator Wicker sent a letter to the 
FTC calling on them to release any information they have on 
market manipulation leading to higher gas prices. On March 29, 
the FTC responded with zero evidence of market or price 
manipulation. And yesterday, a coalition representing over 90 
percent of retail motor fuel sales, and employing over 2 
million U.S. workers, submitted a letter to the Committee 
summarizing FTC and EIA studies repeatedly linking the price of 
gasoline to that of crude oil. And I would ask unanimous 
consent to enter all three letters into the record.
    The Chair. Without objection.
    [The information referred to follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
                                 ______
                                 
                                   Federal Trade Commission
                                     March 29, 2022, Washington, DC

Hon. Roger F. Wicker,
United States Senate,
Washington, DC.

Dear Senator Wicker:

    Thank you for your March 17, 2022 letter to the Federal Trade 
Commission.
    I share your concern about how American families are facing a 
dramatic increase in prices at the pump. Americans should never pay 
higher fuel prices due to unlawful activity in oil and gas markets. The 
Commission has taken a number of enforcement actions to halt unlawful 
activity in energy markets, including most recently an enforcement 
action preventing a private equity fund from eliminating a major 
competitor in Utah waxy crude oil.\1\ Notably, the Commission's 
scrutiny is not limited to the largest transactions; we recognize that 
even smaller mergers, if unchallenged, can devastate the pocketbooks of 
families and small businesses in communities of every shape and size. 
For this reason, we take an aggressive enforcement stance to prevent 
competitive harm, whether the merger involves dozens of stations or 
thousands.\2\
---------------------------------------------------------------------------
    \1\ Press Release, Fed. Trade Comm'n, FTC Requires ENCAP to Sell 
Off EP Energy Corp.'s Entire Utah Oil Business amid Concerns that Deal 
would Increase Pain at the Pump (Mar. 25, 2022), https://www.ftc.gov/
news-events/news/press-releases/2022/03/ftc-requires-encap-sell-ep-
energy-corps-entire-utah-oil-business-amid-concerns-deal-would-
increase. Additional enforcement activity includes work that led to the 
abandonment of Berkshire Hathaway Energy's proposed acquisition of the 
Questar Pipeline in central Utah and a final order requiring 7-Eleven 
to divest 292 fuel stations to preserve retail gasoline competition in 
local markets across the Nation.\1\ See Press Release, Fed. Trade 
Comm'n, Statement Regarding Berkshire Hathaway Energy's Termination of 
Acquisition of Dominion Energy, Inc.'s Questar Pipeline in Central Utah 
(July 13, 2021), https://www.ftc.gov/news-events/press-releases/2021/
07/statement-regarding-berkshire-hathaway-energys-termination; Press 
Release, Fed. Trade Comm'n, FTC Approves Final Order Requiring 
Divestitures of Hundreds of Retail Gas and Diesel Fuel Stations Owned 
by 7-Eleven, Inc. (Nov. 10, 2021), https://www ftc.gov/news-events/
press-releases/2021/11/ftc-approves-final-order-requiring-divestitures-
hundreds-retail.
    \2\ See, e.g., Press Release, Fed. Trade Comm'n., FTC Approves 
Final Order Imposing Divestitures and Protecting Retail Fuel Customers 
Following Global Partners LP's Acquisition of Wheels (Mar. 3, 2022), 
https://www.ftc.gov/news-events/press-releases/2022/03/ftc-approves-
final-order-imposing-divestitures-protecting-retail.
---------------------------------------------------------------------------
    The Commission also continues to vigilantly monitor energy markets 
for wrongful acts and practices in the wake of Russia's invasion of 
Ukraine and the ensuing disruption of global energy supply. The FTC 
will swiftly launch investigations against all manner of law 
violations, including anticompetitive, unfair, or deceptive business 
practices as well as energy industry mergers that may substantially 
lessen competition or may tend to create a monopoly. FTC staff also 
engage and collaborate with law enforcement partners that share 
oversight over these markets, including the Commodity Futures Trading 
Commission and the Federal Energy Regulatory Commission, as well as the 
Energy Information Administration and state attorneys general.
    Thank you again for raising your concerns on behalf of the American 
public about rising energy prices. If you or your staff have any 
questions, please don't hesitate to contact Jeanne Bumpus, the Director 
of the FTC's Office of Congressional Relations, at (202) 326-2195.
            Sincerely,
                                              Lina M. Khan,
                                                             Chair,
                                              Federal Trade Commission.
                                 ______
                                 
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
                                 

    Senator Cruz. Additionally, the Chairman and numerous other 
Democrats have made references that Federal lands are only 8 
percent of U.S. production. At other points, Democratic members 
have used the figure 10 percent. The problem is, both of those 
are inaccurate because those are onshore numbers. But if you 
count offshore production, then Federal lands are roughly 25 
percent of U.S. production. I would ask unanimous consent to 
enter into the record a Reuter's article that makes that point, 
that 25 percent of U.S. oil and gas production comes from 
Federal lands and waters.
    The Chair. Without objection.
    [The information referred to follows:]

  Biden gets climate win with court loss on Gulf of Mexico oil leases

                 By Nichola Groom and Valerie Volcovici

                      January 28, 2022 8:30 PM EST

    Jan 28 (Reuters)--A U.S. judge's surprise decision this week to 
annul the Biden administration's first Gulf of Mexico oil lease auction 
because of its climate change impact has raised questions about the 
future of the Nation's Federal drilling program--and played directly 
into the president's hand.
    President Joe Biden, a Democrat, made a campaign pledge to end 
Federal oil and gas drilling to fight climate change, and he quickly 
announced a suspension of all new lease sales pending a broad review of 
drilling's impact on global warming after taking office. Some 25 
percent of U.S. oil and gas production comes from Federal lands and 
waters.
    But his administration was later forced into the sale after several 
drilling states successfully sued in Federal court in Louisiana. They 
argued that U.S. law requires the Federal government to hold auctions 
on a regular basis to enhance energy independence and generate revenue.
    The November auction generated more than $190 million, the highest 
since 2019, on 1.7 million acres sold, and drew bids from Exxon Mobil 
(XOM.N), opens new tab and Chevron (CVX.N), opens new tab.
    This week's ruling, from a judge in the District of Columbia who 
was appointed by former President Barack Obama, came after a challenge 
by environmental group Earthjustice. The judge vacated the auction 
entirely, saying the Interior Department failed to properly account for 
its impact on global warming.
    Biden's Interior Department had used an environmental impact 
statement for the auction that was prepared by the administration of 
former President Donald Trump, a vocal climate skeptic. It contained an 
argument that oil production in the Gulf of Mexico would reduce, not 
increase, greenhouse gas emissions because production is dirtier 
elsewhere in the world.
    Biden's Interior Department must now do what it originally 
intended: take a fresh look at environmental and climate impacts of 
drilling. It has not yet said yet whether it will suspend other planned 
drilling auctions pending review, or how long the review will take.
``CONSIDERING OUR OPTIONS''
    The environmental group that sued hailed the court's decision and 
hopes the administration will stop leasing. A Louisiana state official, 
meanwhile, accused Biden of sabotaging the auction. The U.S. drilling 
industry and its backers are likely to appeal the case in the hopes of 
keeping sales moving.
    There are hints that Biden's Interior Department knew its Gulf of 
Mexico oil auction was on weak legal footing.
    In the Record of Decision for the sale, it noted that, months after 
the environmental review was finalized, a Federal appeals court in 2020 
ruled the government must consider foreign oil consumption in its 
analysis of how such sales impact greenhouse gas emissions.
    That ruling had already effectively blocked U.S. approval of 
Hilcorp's Liberty drilling project in Alaska.
    But the Interior Department's sale document said it did not believe 
it needed to conduct any additional analysis on how foreign consumption 
affects emissions.
    An Interior Department official declined to comment.
    Ali Zaidi, deputy White House national climate advisor, said the 
court decision shows the U.S. oil leasing program needs to be reformed 
and that the Interior Department should have the space to do that work 
WildEarth Guardians, an environmental group that has sued the Federal 
government repeatedly over climate impacts of onshore leasing and won 
several victories, said this week's ruling raises doubts about whether 
the administration can proceed with other planned sales early this 
year.
    ``We've set a bar. This latest ruling, I think sets an even 
stronger bar,'' said WildEarth Guardians attorney Jeremy Nichols. ``And 
it certainly calls into question whether the Bureau of Land Management 
is going to be able to legally justify more onshore oil and gas leasing 
at this point.''
    Last month the group sought a court order from a Federal judge in 
New Mexico to stop U.S. drilling permit approvals in parcels included 
in three Trump administration lease sales.
    The Bureau of Land Management has approved 118 drilling permits on 
the challenged parcels.
    Scott Lauermann, a spokesman for oil industry lobby group the 
American Petroleum Institute, said late Thursday the API was reviewing 
the Gulf of Mexico decision and ``considering our options.''
    Elizabeth Murrill, Solicitor General of Louisiana, which is an 
intervenor in the case, said the court and the Biden administration 
were hurting blue-collar workers.
    ``It is extremely disappointing that the Biden administration 
continues to sabotage oil and gas lease sales. These actions are 
crippling consumers, destroying jobs, and jeopardizing our national 
security,'' she said.
    Chevron CEO Michael Wirth, whose company was one of the high 
bidders in the Gulf of Mexico sale, said Chevron was reviewing the 
decision.
    ``We're disappointed because these lease sales have been conducted 
successfully in the Gulf of Mexico for decades now and have resulted in 
us being one of the largest leaseholders out there with over 240 
leases,'' he said.

    Additional reporting by Sabrina Valle in Houston; Writing by 
Richard Valdmanis; Editing by David Gregorio


------------------------------------------------------------------------
 
------------------------------------------------------------------------
Valerie Volcovici
Thomson Reuters
 
Valerie Volcovici covers U.S. climate and energy policy
 from Washington, DC. She is focused on climate and
 environmental regulations at federal agencies and in
 Congress and how the energy transition is transforming the
 United States. Other areas of coverage include her award-
 winning reporting plastic pollution and the ins and outs
 of global climate diplomacy and United Nations climate
 negotiations.
------------------------------------------------------------------------


    Senator Cruz. There is, likewise, an additional article 
from CSIS.org that makes--that illustrates the same point, that 
24 percent of U.S. oil and gas production comes from Federal 
lands, including offshore. I would ask unanimous consent to 
enter this into the record, as well.
    The Chair. Without objection.
    [The information referred to follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

    Senator Cruz. I would also note that this last document we 
just entered into the record, it outlines the states that 
benefit from oil and gas production on Federal lands and the 
money--the revenue that they receive from doing so. And it is 
really striking because these are the states that are hurt the 
most by the Biden administration's war on U.S. energy 
production. The state that is hurt the most is New Mexico--$707 
million in revenue in Fiscal Year 2020. After New Mexico, you 
have Wyoming then, Louisiana then, Texas then, North Dakota 
then, Colorado then, Utah then, Mississippi then, Alabama then, 
California then, Arkansas then, Montana. It is striking. A 
number of those states have Democratic senators who are, 
nonetheless, not concerned about, or not fighting against, the 
harm to their states, from the Biden administration's policies, 
reducing production on those lands, in those states.
    You know, I listened to Senator Hickenlooper, and he talked 
about a survey that showed that capital discipline was leading 
to less investment in new drilling. And I do not doubt that at 
all, that any responsible company has to worry about capital 
discipline. Ms. Sgamma, let me ask you, is it harder to 
maintain capital discipline when the Federal Government is 
waging a war on your ability to get equity funding or debt 
funding, and you cannot get capital? Does that make companies 
more reluctant to risk what limited capital they have, when 
they cannot get new capital?
    Ms. Sgamma. I believe there is a factor of that--there is 
definitely that factor in--it is hard to shake out how much of 
it is capital discipline and how much of it is ESG risk.
    Senator Cruz. OK. Let me ask a final question, which is, 
the theory that Democrats are postulating is that the gasoline 
prices in 2021, then in 2022, that have skyrocketed are because 
oil companies are manipulating the market and they are not 
drilling because they want to hoard. If that is true, why did 
they not do that in 2017 or 2018 or 2019? Did oil companies not 
want to make profits then? And what has changed from 2019, the 
high point, to today?
    Ms. Sgamma. I think it is the policies that are 
discouraging production. And just because I have not had a 
chance to get this in but, the FTC has looked at price gouging 
and price manipulation 50 different times in recent years and 
each time they have found no evidence that the oil and gas 
industry is manipulating or price gouging. So, thank you.
    Senator Cruz. Thank you.
    The Chair. So, Ms. Sgamma, you do not see a need for more 
transparency in these markets?
    Ms. Sgamma. Well, I think with 50 different investigations 
by the FTC, there has been lots of transparency.
    The Chair. Let us go to Mr. McCullough because I think that 
is the very issue, that there isn't transparency in this 
particular aspect of the market, at the petroleum level, and to 
Ms. Lummis' line of questioning. So, you are saying that the 
price discovery that is supposed to be in a market, as it 
relates to the refinery--post-refinery product, that there is 
an opaqueness to the market. That we do not actually understand 
what those trades are. No one is looking at those trades. Is 
that right, Mr. McCullough?
    Mr. McCullough. I do, and I think Senator----
    The Chair. Could you turn on your--can you turn on your 
button? Thank you.
    Mr. McCullough. I apologize. I do, and I think Senator 
Lummis illustrated that very well. She asked a series of 
completely reasonable questions, all of which indicated that 
this was a bit of a mystery to her as well. And I do not 
disrespect her for it. It is a mystery. She asked, where did 
WTI and Brent come from? Those are worldwide markets. They are 
dominated by bad actors. Saudi and Russia certainly are two 
actors who we worry about. So, we do not have much discovery in 
that. We probably never will. Everyone in the industry believes 
the Russians and the Saudis are never truthful about their 
activities. That is fine.
    But when we get to our shores, we are benefited by knowing 
more. And with many citizens wondering where these numbers come 
from, it is well within our abilities to be able to answer it. 
I have worked with the FTC on some of the previous 
investigations. And quite bluntly, they have started from 
scratch. And that is a terrible place to start. They did not 
have the data.
    I have been told--I cannot prove it, but I have been told 
the FTC does not get a copy of the OPUS newsletter. That is 
disgraceful. I do not know why that would be. They certainly 
need that, any analyst does. So, these are things we can fix 
very easily, and we can give citizens that answer.
    The Chair. So, many of the--I am concerned that in the 
flavor of today's hearing that people are--it reminds me so 
much of the Enron discussion. It literally took until we had 
the traders on a tape saying what they had done. People used 
all the same things that they are saying today. So, the fact 
is, the FTC does not collect or look at this data, is that 
correct?
    Mr. McCullough. Well, they have no way to do it unless they 
actually go for a full bore investigation and subpoenas. And 
the fact is that the number of documents is enormous. In other 
contexts, I have been through 3.5 million documents on some of 
these issues.
    This is not something you pick up one morning in an 
investigation. This requires ongoing transparency, so you know 
where to look. The only reason we got through the manipulations 
on electricity and natural gas, is that Enron employed some of 
the most incompetent traders known to man. And if they had not 
been singing songs about raping customers, and burning fires, 
possibly we would never have had the political will to get the 
transparency we have in those markets.
    Now, I do not believe there is a single major company in 
America that would employ traders that stupid ever again, for 
obvious reasons. But the fact is, we need that. We need it in 
all of our commodities. We have it in almost all of our 
commodities, except for this gaping hole in the center in oil 
and gasoline. Not hard to fix, certainly beneficial. If Senator 
Cruz and the other senators here are doubting that there is 
any, well, prove it. They will be right, and I will be 
satisfied. But if, as we expect, we do see anomalies, we should 
get to the bottom and reassure our citizens.
    The Chair. And you see some anomalies that concern you now 
about the West Coast market?
    Mr. McCullough. We certainly--when the price kept rising in 
California and the oil price was falling, that was a unique 
circumstance. And that did not happen just 1 day, that went on 
for much of March.
    The Chair. And so, the FERC authority that has existed, 
basically, I believe, has found something like a billion 
dollars in fines and disgorgement. Some of them are the very 
sector that also was involved in this sector of energy. Are you 
amazed that that still goes on today?
    Mr. McCullough. Not at all. You know, some of these scams 
are so tempting to a trader that he is willing to take the risk 
and the returns are enormous. And we do not disbar traders for 
having bad acts. Sometimes they will be forbidden by the CFTC 
to trade for a while. But it is interesting in Texas, when we 
were reviewing a market manipulation issue, we found an Enron 
trader playing the same games years later. So, there is nothing 
for it. We just need to have the facts out there so that we 
know what to do with it. And it is not difficult, and we do it 
everywhere else.
    The Chair. OK, so, I would like to thank the witnesses for 
being here today. I thank our colleagues. I had hoped we would 
have a little bit more discussion on transparency. But I know 
this is a very important subject to everybody and we would like 
to get answers about how to move forward. I will submit 
something on behalf of Senator Markey, in his interpretation of 
the administration's actions, without objection.
    [The information referred to was unavailable at time of 
printing.]
    The Chair. We have--let us see. The record will remain open 
for two weeks. I ask members that they submit questions for the 
record and witnesses respond no later than April 29. With that, 
we are adjourned.
    [Whereupon, at 12:27 p.m. the Committee adjourned.]

                            A P P E N D I X

   Response to Written Questions Submitted by Hon. Kyrsten Sinema to 
                        Robert F. McCullough Jr.
    Gas Prices. Like most of the country, everyday Arizonan families 
have experienced rising gas prices this year. The American Automobile 
Association (AAA) reports that the price of a gallon of regular 
unleaded gasoline in Arizona has hovered around $4.60 per gallon in 
April 2022, compared to $3.07 per gallon one year ago.

    Question. What factors go into the final retail gas price that 
motorists see at their neighborhood filling station?
    Answer. The primary drivers of gasoline prices are U.S. and world 
crude prices. Our review of Arizona statistics indicated that 84 
percent of changes in retail gasoline prices are explained by the crude 
oil prices over the past decade.
    Arizona's location in the western U.S. is unique in that it can 
purchase gasoline from either California or Texas by pipelines that 
meet at Phoenix:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Our simple scoping model indicates that both WTI Cushing and Brent 
oil prices are significant determinants of gasoline prices in Arizona. 
However, we believe that Brent oil prices--exported from California to 
Arizona are the most important.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Unfortunately, dependence on California is costly. California's 
market is highly concentrated and surprisingly opaque. The presence of 
few competitors and a complex and largely undocumented market makes 
exercise of market power very likely:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Our simple scoping model indicates that Arizona gasoline prices 
would be $.84 per gallon less if based on market fundamentals. 
Obviously, this is simply an indication--not proof. Proof will require 
a detailed investigation similar to the investigation currently 
underway in California.
    A significant portion of the unexplained departure from 
fundamentals in 2022 is due to the departure of retail gasoline prices 
from fundamentals discovered by University of California professor 
Severin Borenstein.\1\ Our estimate of the Borenstein hypothesis for 
Arizona is $.26 per gallon of gasoline. Dr. Borenstein's analysis is 
now the basis of an investigation by California authorities.
---------------------------------------------------------------------------
    \1\ https://energyathaas.wordpress.com/2019/05/20/the-mystery-
gasoline-surcharge-gets-some-respect/
---------------------------------------------------------------------------
    The bottom line is that prices are primarily cost based. 
Unfortunately, the remainder of the prices paid by consumers are caused 
by market forces that are not transparent and--frequently--as addressed 
below, highly suspicious.
    Given Arizona's connection to the California markets, the large 
discrepancy between cost factors and retail prices is not surprising.

    Federal Government Responses. In response to rising gas prices, the 
Biden Administration announced the release on March 31, 2022 of one 
million barrels of oil from the Strategic Petroleum Reserve each day 
for the next six months. Others have proposed building additional 
infrastructure to transport oil from wells to refineries, conducting 
additional oil and gas exploration and production in the United States, 
including on Federal lands, and temporarily suspending the Federal 
gasoline tax.

    Question. What actions can Congress take in the short term to 
address rising gasoline prices? Are there additional steps Congress can 
consider to address this issue in the medium to long term?
    Answer. You listed five possible solutions. I would comment on all 
five and then recommend a sixth--adding competition to isolated areas 
of the U.S.:

  1.  Strategic Petroleum Reserve releases. Such releases have a short 
        term impact, but are largely ineffective since the additional 
        supply simply displaces existing oil and adds to oil and 
        petroleum products exports. Since the primary determinant of 
        gasoline prices is the world price of oil, such steps are not 
        effective for long.

     A better approach is for the releases from the SPR to be matched 
        by forward purchases. This not only captures a net gain since 
        the forward market is less than today's prices, but also raises 
        the forward price of oil. This provides a better price signal 
        for oil exploration and development since wildcatters can 
        finance new wells by selling their output in the forward 
        market. For oil shale, approximately 70 percent of the total 
        output of the well occurs in the first year. SPR releases 
        matched by SPR forward purchases will not only provide a short 
        term benefit to consumers, but increase output when it is 
        needed.

  2.  Additional infrastructure. So long as the primary determinant of 
        gasoline prices in the United States is the world oil price, 
        there is little evidence that the problem is infrastructure. To 
        the contrary, since the primary oil price for much of the U.S. 
        is WTI Cushing which trades at a small discount from Brent 
        crude, additional infrastructure is likely to eliminate the 
        small differential and raise U.S. gasoline prices.

  3.  Additional development. The U.S. oil industry has proven 
        unresponsive to the high price of crude this spring. This is 
        obviously the correct long term answer. Explanations why the 
        industry has not increased drilling and production have been 
        incomplete and unconvincing.

  4.  Increase drilling on Federal lands. All of the evidence is that 
        the oil is present, the permits are in place, and the owners of 
        the proposed projects are accumulating huge windfall profits. 
        The industry's focus on acquiring more unused permits is 
        perplexing.

  5.  Suspend Federal gasoline taxes. The academic evidence suggests 
        that tax reductions have a direct impact on gasoline prices. 
        This is an immediate and direct benefit to consumers.

  6.  Increase competition. The U.S. gasoline market has become more 
        and more concentrated over time. For geographically isolated 
        markets like the west coast, consumers are paying a premium 
        above competitive prices. This is the best long term solution 
        to gasoline price swings not caused by world oil prices. A 
        pipeline from oil producing regions in the upper Midwest or 
        along the southern border from the oil producing basins in 
        Louisiana, Oklahoma, and Texas would have an immediate impact 
        on west coast prices.

    Unique Phenomenon of Oil Prices. In your written testimony, you 
describe the adage that oil prices have been known to go ``up like a 
rocket, down like a feather.'' This suggests that oil and gas markets 
respond immediately to market uncertainty by rapidly increasing prices, 
but lag when conditions improve so consumers do not see lower prices 
for several weeks or months.

    Question 1. What effects would you anticipate seeing if that 
information were disclosed to Federal agencies, and potentially the 
general public?
    Answer. The evidence from adding transparency to the markets for 
competing fuels such as electricity and natural gas has been extremely 
positive. After Enron's predations became known, the Federal Energy 
Regulatory Commission mandated release of a large variety of market 
data including transactions, prices, and counterparties. They also set 
standards for price reporting agencies which had been the subject of 
extensive manipulation during the California energy crisis.
    As discussed below, price reporting agencies have enormous impact 
on energy markets. The ability of market participants to ``game'' price 
reporting agencies, makes information disclosure a necessity.
    Market participants often claim that price and transaction 
transparency will put them at a competitive disadvantage. However, 
these claims are invalidated by their own release of such data to price 
reporting agencies--and each other--in the normal course of business. 
In many cases, the only parties who do not have access to this data are 
the public, the press, and regulators. Adam Smith, the founder of 
modern economics commented directly to this issue in 1776:

        The landlord and tenant, for example, might jointly be obliged 
        to record their lease in a public register. Proper penalties 
        might be enacted against concealing or misrepresenting any of 
        the conditions; and if part of those penalties were to be paid 
        to either of the two parties who informed against and convicted 
        the other of such concealment or misrepresentation, it would 
        effectually deter them from combining together in order to 
        defraud the public revenue.\2\
---------------------------------------------------------------------------
    \2\ The Wealth of Nations, Adam Smith, 1776, Ch. II, Pt. II.

    The level of transparency recommended for oil and gasoline would 
simply bring this industry into conformity with other major energy 
---------------------------------------------------------------------------
markets.

    Question 2. Do you see any indications of inappropriate activity in 
petroleum markets?
    Answer. Yes. Our allegations of inappropriate activities are 
currently the subject of an antitrust case in Federal court. While much 
of the evidence is the subject of a protective order in the case, the 
complaint in Persian Gulf v. BP West Coast et al cites our studies from 
2012 through 2015.\3\ A currently active California Attorney General's 
case referencing wash trading was filed in 2020 and identifies 
inappropriate activities by various California petroleum traders.\4\
---------------------------------------------------------------------------
    \3\ Case No. 3:15-cv-01749-L-BGS, CLASS ACTION FIRST AMENDED 
COMPLAINT FOR VIOLATIONS OF THE SHERMAN ACT, CALIFORNIA'S CARTWRIGHT 
ACT, AND UNFAIR COMPETITION LAW, September 22, 2016.
    \4\ COMPLAINT FOR VIOLATIONS OF THE CARTWRIGHT ACT AND UNFAIR 
COMPETITION LAW FOR DAMAGES, INJUNCTIVE RELIEF, CIVIL PENAL TIES, AND 
OTHER EQUITABLE RELIEF, California Attorney General, May 4, 2020.
---------------------------------------------------------------------------
    A variety of activities have been documented outside of the 
antitrust case. In March, 2022, for example, the most important of the 
California price reporting agencies posted indices that remained high 
even after the price of oil fell sharply. The index involved is a 
pivotal one for west coast markets and impacts directly on Arizona 
wholesale prices. The nature of price indices is that they normally 
reflect multiple transactions and vary significantly day to day. In 
this case, the primary index for CARBOB in L.A. (and also AZRBOB in 
Arizona) remained unchanged after oil prices fell.
    If an agency had market surveillance responsibilities, they would 
have asked:

  1.  How can a price index stay constant when the underlying 
        commodity's price has fallen dramatically?

  2.  How many counterparties filed transactions that set the index 
        over this period?

  3.  Did any of these counterparties achieve a windfall from the 
        anomalous index report?

  4.  Were the reported transactions violating wash or prearranged 
        rules as set forth by FERC or the CFTC?

    Unfortunately, no market surveillance agency follows spot prices of 
oil and gasoline in the United States. The significant surcharges borne 
by consumers in California and Arizona in this case are unlikely to be 
explored unless a Federal agency explicitly has this authority.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Kyrsten Sinema to 
                            Kathleen Sgamma
    Gas Prices. Like most of the country, everyday Arizonan families 
have experienced rising gas prices this year. The American Automobile 
Association (AAA) reports that the price of a gallon of regular 
unleaded gasoline in Arizona has hovered around $4.60 per gallon in 
April 2022 compared to $3.07 per gallon one year ago.

    Question. What factors go into the final retail gas price that 
motorists see at their neighborhood filling station?
    Answer. Western Energy Alliance represents producers, and as such, 
we are price takers. In the West where many of our well sites are far 
from refineries and pipelines and other transportation means can be 
constrained, we often receive a price lower than the global price. As I 
don't represent the retail sector, I am not an expert in all the 
refining, marketing, and distribution costs that go into the price 
charged at the pump. Of course, state and Federal taxes also figure in 
a substantial percent of the price of gasoline, although the price of a 
barrel of oil is the highest component. I defer to the experts such as 
the American Fuel and Petroleum Manufacturers on that subject.

    Federal Government Responses. In response to rising gas prices, the 
Biden Administration announced the release on March 31, 2022 of one 
million barrels of oil from the Strategic Petroleum Reserve each day 
for the next six months. Others have proposed building additional 
infrastructure to transport oil from wells to refineries, conducting 
additional oil and gas exploration and production in the United States, 
including on Federal lands, and temporarily suspending the Federal 
gasoline tax.

    Question. What actions can Congress take in the short term to 
address rising gasoline prices? Are there additional steps Congress can 
consider to address this issue in the medium to long term?
    Answer. The American producer, in the recent past, has been able to 
respond to higher prices by increasing production and bringing down 
prices. We have been doing so since global prices started to climb in 
2021, although more slowly than otherwise. We have not been able to 
react as quickly as in the past for reasons of: (1) government 
regulation, and (2) concerted efforts to starve our industry of 
capital. If companies cannot get financing for their wells, which each 
cost several millions of dollars, we cannot move forward with 
development.
    On the first point, Congress could move forward with legislation to 
limit the time and scope of National Environmental Policy Act (NEPA) 
analyses required for Federal projects. NEPA can take several years to 
complete, holding up projects in the meantime. Even when the NEPA is 
complete, it is too easy to litigate and convince a judge that the 
Federal agency must do yet more analysis. Congress could put sideboards 
around NEPA so that it is focused on the true impacts of projects and 
not hypothetical or cumulative impacts far downstream or unrelated to 
the project.
    On the second point, Congress should prevent the administration 
from moving forward with financial regulations meant to de-bank and de-
capitalize the oil and natural gas industry. The administration is 
enacting several regulations, such as from the Securities and Exchange 
Commission, the Department of Labor, and the Department of Treasury, 
meant to elevate ESG and climate change above maximizing returns and 
minimizing financial risk for pensioners, workers, and other investors. 
The ultimate goal of these regulations is to deny financing to oil and 
natural gas or at least make the cost of capital so prohibitive that 
many companies cannot survive. Since 70 percent of America's energy 
needs are met by oil and natural gas, until there is an alternative 
that does everything that oil and natural gas do, starving the industry 
of capital will only reduce American production, requiring either 
imports from unfriendly nations or higher prices for consumers.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Dan Sullivan to 
                            Kathleen Sgamma
    Question. Mrs. Sgamma, during the hearing I asked you about the 
impacts of a March 19, 2021 memo by Acting Assistant Secretary of the 
Interior for Land and Minerals Management, Laura Daniel-Davis. This 
memo extends the policy of centralizing leasing, permitting, and NEPA 
decisions with the political appointees in DC--put in place by yet 
another unconfirmed official, Scott de la Vega, Acting Secretary of the 
Interior. Though the de la Vega memo contained an expiration date, the 
Daniel-Davis memo does not. There was some confusion on that point 
during our discussion, so with that clarity added, I'd like to pose the 
question once more. How have these decisions traditionally been made 
and what is the real world impact of this power grab?
    Answer. I apologize for the confusion. I believe I was confusing 
the memos, recalling the expiration of the de la Vega memo while 
forgetting that the Laura Daniels-Davis (LDD) memo does not have an 
expiration. The 60-day halt to all approvals in the de la Vega memo has 
expired, while the LDD memo indeed remains in effect. However, the LDD 
memo applies not to Applications for Permit to Drill (APD) approvals, 
but to APD extensions, reinstatements of leases, lease sale notices, 
lease suspensions, and NEPA documents, among other peripheral 
approvals. Despite the LDD memo not applying to APD approvals, in 
actuality, Bureau of Land Management (BLM) field offices process the 
APDs but send them to headquarters for final approval. It is indeed 
concerning that headquarters continues to be a chokepoint in approving 
drilling permits.
    Further, the continued scrutiny by headquarters of lease 
suspensions and permit extensions, which in the past were routinely 
granted, is concerning. APDs are valid for two years, after which they 
can be extended for another two years. Because of the uncertainty of 
operating on Federal lands, companies must build up a sufficient 
inventory of permits to stay ahead of their rigs. The Federal 
government can take many months to years to approve drilling permits. 
For that reason, a large inventory often must be acquired before 
proceeding. BLM often asks companies to request many permits at once so 
that coordinated environmental analysis and plans of development can be 
prepared. Both situations lead to an inventory of permits that can take 
a company more than two years to drill. If Interior starts to deny 
these extensions, it will further sow uncertainty into the system and 
encourage less coordinated development.
    Likewise, headquarters is denying requests for lease suspensions. 
Leases, which carry a ten-year term, had been routinely suspended in 
the past when circumstances beyond the control of the company occur, 
such as the government taking years to complete NEPA environmental 
analysis or litigation holding up leases. If Interior does not grant 
lease extensions, the leases could expire before the issue is cleared 
up. For example, Western Energy Alliance is in court defending 5,900 
leases, nearly every one sold since 2016. Development cannot occur on 
most leases while the litigation winds its way through the district and 
circuit courts. Interior leadership seems to be pursuing a policy of 
requiring companies to continue to pay for the leases as they slowly 
let them expire without the companies being able to develop them and 
realize a return on their investments. Like the ban on new leases, the 
policy of letting existing leases expire is a bureaucratic way to 
prevent production on Federal lands and circumvent statute.

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