[Congressional Record Volume 154, Number 77 (Monday, May 12, 2008)]
[Senate]
[Pages S3993-S3996]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FUEL PRICES
Mr. BINGAMAN. Mr. President, the pending business that will be before
the Senate is S. 2284. That is a bill to reauthorize the Federal law
governing flood insurance. Our next scheduled vote, as my colleague
from Alabama just pointed out, does not relate to that bill. Our next
scheduled vote does, in fact, not relate to the subject of flood
insurance at all. The next vote will be on an amendment which the
Republican leader has filed, allegedly to deal with the high price of
oil and the high price of gasoline at the pump. I will oppose that
amendment tomorrow when the vote is cast, and I urge my colleagues to
do the same.
The high price of oil and gasoline and diesel that are refined from
that oil is creating a very substantial economic burden on the American
consumer and on the U.S. economy. At the close of business Friday, the
price of oil stood at about $126 per barrel on world markets. The
average price of gasoline in this country was around $4 per gallon.
This reflects a dramatic increase over prices a year ago. The increased
cost is difficult for many Americans to avoid because many Americans
commute to work or they otherwise need to travel substantial distances
where there is no ready alternative to the use of their private
vehicles. To the extent Congress and the administration can take action
to reduce the burden of this increased cost, we should do so.
Unfortunately, the amendment of the Republican leader is not a
credible proposal for reducing that burden. We should be honest with
the American people about this so-called debate on high gas prices.
This is an election-year effort. This is election-year politics in its
classic form. It is Washington finger-pointing. Unfortunately, it is
very little else.
Let's be clear. The President set the tone for the debate. On April
29, 2 weeks ago, the President went to the Rose Garden to express his
concern about the price of gas and to blame the Congress for it. While
he was there in the Rose Garden, he also took the occasion to blame the
Congress for the rise in food prices. Unfortunately, as far as I know,
there has been no effort by the President to sit down with the leaders
of Congress and to work out a consensus on constructive actions that
might actually help, either with the high price of gas or with the high
price
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of food. The amendment of the Republican leader, which will come up for
a vote tomorrow, continues with this same old ``blame the other guy''
approach.
Let's talk about the facts of why oil and gas prices are so high. In
my view, there are supply and demand factors in world oil markets that
explain some of what we have seen, and some of those factors are
outside our control--at least in the short term. The simple fact is
that the market for oil is a global market. The price of oil is
reflected on that market.
The United States is the largest purchaser of oil in that market.
China is rapidly gaining on us in that regard. We are not even close to
being the largest producer of oil for that market. In fact, we import
about 60 percent of the oil we consume. If we want to affect the price
of oil either by reducing world demand or increasing our supply, our
ability to do so is limited.
By far the most significant step we can take to reduce demand in the
short and medium term is to improve vehicle fuel efficiency in our cars
and our trucks. Last fall, we did just that. Many of us believed the
increase in required miles per gallon was too modest, but it was a
substantial improvement over what had prevailed for the three previous
decades. We need to look at other ways to reduce demand for oil in the
short and the medium and the long term.
On the supply side, our ability to affect world prices is even more
limited. That is simply because of our limited reserves. We have about
3 percent of the world's oil reserves. Also because most experts
believe that U.S. production in the coming years will do well to
maintain its current level. We can affect that production somewhat by
adopting enlightened policies, but its impact on world markets and
consequently on the world price of oil will be limited.
When we look at issues that we in the U.S. Government can most
directly and immediately affect, I would cite two. We can reduce the
incentives for speculation in the oil market--that is No. 1--and
second, we can strengthen the dollar by showing some commitment to
getting our own fiscal house in order. Let me comment briefly on each
of these issues.
The Committee on Energy and Natural Resources, which I am privileged
to chair, has held several hearings on oil and gasoline prices and
markets this year. Other committees in the House of Representatives had
similar hearings. Current high prices are a result of several factors.
One of them is certainly the tight global supply-demand balance. One
thing stands out from all the testimony both the Senate and House has
heard: A key factor pushing oil prices into the triple digits in recent
months is a dysfunctional energy market.
Here is what a senior vice president of a major oil company said at
one of these hearings on the House side:
When you look at the fundamentals of our business,
Congressman, the supply/demand fundamentals, our assessment
would be the price should be somewhere around [$]50 [or $]55
a barrel. There is a disconnect. To me, there are three
factors that contribute to that. One is the monetary issue,
the weaker dollars we've already talked about. The other is
geopolitical political risk. And the third, we believe, is
speculation.
Other key analysts in the Government and the private sector have made
similar statements, although their assumptions about what exact price
level was supported by supply and demand fundamentals have differed.
But it would be fair to say that key energy analysts are in general
agreement that around $30 of the current price of a barrel of oil is a
result of market pressures unrelated to supply and demand for physical
barrels of oil.
This general assessment of a significant cause of high oil and gas
prices is broadly shared. One noted energy economist put it this way
recently in the Wall Street Journal:
Crude futures prices have decoupled from the forces
controlling the underlying physical flows of the commodity.
In plain English, that means crude oil prices are not connected to
supplies. If oil prices are not being driven by supply and demand, then
by what are they being driven? We heard some strong testimony on this
in our committee from Cambridge Energy Research Associates, the firm
headed by Daniel Yergin, who is a leading oil expert, well known to all
in this field. Here is what their analyst had to say in early April:
Crude oil futures trading activity on the New York
Mercantile Exchange--the largest in the world--is currently
about 350 percent higher than in 2002. Noncommercial
investors have contributed to this increase. . . .
New fundamentals--new cost structures and global financial
dynamics--are behind the momentum that pushed oil prices to
record highs, around $110 a barrel.
That was $110 a barrel in early April.
If we want to get at the real question why oil today is around $125 a
barrel and why gasoline is closing in on $4 a gallon across the
country, we will not find the answer in the Republican leader's
amendment. We are witnessing a substantial influx in speculative money
into energy markets. It is bidding up the price of oil beyond any
reasonable level that could be explained by supply and demand. Every
consumer can see it at the pump. But do we have any serious effort to
regulate that speculation or even to notice it?
A Commodity Futures Trading Commission witness told our committee
they did not see any evidence that speculation was a factor in oil
prices. I thought they were alone in that view because the amendment of
the Republican leader seems to agree in that it fails to acknowledge or
deal with this significant part of the problem.
If we are going to protect consumers, we need to have a Federal
Government as an effective overseer to start policing these markets.
There is a proposal Senator Reid has introduced that will begin to
address the issue. That bill requires the Commodity Futures Trading
Commission to start doing the job Congress intends for it to do; that
is, to make sure oil trading is done with adequate transparency and to
make sure limits on speculation apply across the board. Right now, it
is entirely possible for hedge funds or traders to evade the
protections put in place for trading oil in the United States. They
simply trade U.S. crude oil in foreign markets that the Commodity
Futures Trading Commission has decided it will not regulate. The
Commodity Futures Trading Commission could regulate these so-called
dark markets, but it has decided not to. Instead of turning a blind eye
to this offshore oil trading, Senator Reid's bill will ensure that the
Commodity Futures Trading Commission makes a priority of protecting
American energy consumers. The majority leader's approach is aimed at
bringing down the price of oil in the near term by having effective
regulation of speculation. Some big hedge funds will not like that, but
it will help the average consumer.
Let me talk for a minute about the second issue which both the
Congress and the administration ought to be addressing. If we are going
to get commodity markets of all kinds to act in a more rational way, we
also need to do something serious about our overall fiscal policy in
this country.
The United States is borrowing money on world financial markets
because we cannot summon the political will to actually pay for the
things we want our Government to do. We are fighting a war in Iraq on
borrowed money, to the tune of over a half trillion dollars since 2002.
A number of us have proposed to strengthen and to extend tax incentives
to spur energy production from renewable sources, but those are being
opposed by others here in the Senate for the simple reason that we are
proposing to pay for those, the extension of those tax provisions,
instead of borrowing even more money from overseas to cover their cost.
Because of the mismanagement of the economy and our high borrowing
overseas, the value of the dollar has fallen dramatically. The price we
are paying for international commodities such as oil is rising. That is
another major factor driving up the price of oil. We need to face up to
it here in the Senate. If Senators want to lower high oil prices,
getting our budget house in order will do much more to strengthen the
dollar and to lower gasoline prices--and sooner than any of the new
drilling called for in the amendment of the Republican leader.
I have covered two of the most important things we can do to address
high oil and gas prices; that is, curbing oil market speculation and,
secondly, getting our budget and fiscal policy in order.
Now, let me turn more specifically to the Republican leader's
proposal. The
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amendment is a grab bag of energy-related provisions which have little
connection either to the current or future price of oil or gasoline.
Although the amendment contains various other disconnected proposals,
the main thrust of the amendment is to increase the amount of Federal
land available for leasing for oil and gas exploration and production
in the areas proposed for leasing:
First, the Outer Continental Shelf off the Atlantic and the Pacific
coasts of the country. And, second, a portion of the Arctic National
Wildlife Refuge. The underlying assumption on the proposal is that our
lack of supply is a result of our refusal to permit exploration and
drilling on Federal lands, that changing the law to permit drilling in
these two specific areas will solve the problem.
Well, what about that basic assumption? Is our ability to produce oil
and gas domestically being held back because of our unwillingness to
lease the Outer Continental Shelf off the east coast and the Outer
Continental Shelf off the west coast and the area known as the Arctic
National Wildlife Refuge? Well, let's look at the facts. What is
happening on the supply side for oil production in the United States?
Last year, we saw the amount of crude oil produced in the United
States remain constant, instead of falling. That may not sound like a
big achievement, but it is an improvement on previous trends. It is no
doubt a reaction to higher prices, but it also reflects bipartisan
support to increase production on Federal lands in places where it is
appropriate. I have three charts that illustrate the general trend of
what has been going on, and all of these relate to onshore oil and gas
drilling and production.
This is acreage of new national oil and gas leases in millions of
acres. Last year, we leased 4.6 million acres of Federal land for oil
and gas production onshore in the United States. That is the column on
the right.
That is in places such as my State of New Mexico and Wyoming and
Colorado. That is almost double the 2.6 million acres we put up for
leasing in the year 2000. So the trend is for leasing of more acres of
Federal land for oil and gas production onshore.
And, of course, these figures do not include all the leasing we did
last year in the Outer Continental Shelf. Let me show another chart.
This chart is approvals of applications for permits to drill, APDs. In
the business they are referred to as APDs. Last year, we approved 7,124
permits to drill oil and gas wells on Federal land. Again, this is all
onshore. That is the right-hand column. That is more than double the
number approved in 2000.
This is partly due to the direct funding stream we put in place for
this process as part of the Energy Policy Act of 2005. Now, let me show
you one other chart. This one relates to drilling activity initiated on
Federal lands. As a result of the increased number of drilling permits,
and that was the previous chart, we had actual drillings start last
year on 5,243 new wells, both oil and gas wells. That is approaching a
doubling of the number that were drilled in 2000, which was 2,861.
So these are three charts that make the case for what has been
happening onshore. Similar positive trends are underway in the Gulf of
Mexico, although the overall results today are more modest. According
to the latest report by the Minerals Management Service, total
production of oil in the Gulf of Mexico was up slightly in 2007 to 1.3
million barrels per day.
That is an increase of about 10,000 barrels per day of oil over 2006
levels. We have gone from drilling 134 deepwater wells in the Gulf of
Mexico in 2006 to 142 new deepwater wells last year. There were also
eight announced deepwater discoveries in the Gulf of Mexico in 2007.
We are certainly not in decline in oil production in the Gulf of
Mexico, but the increase in activity painted by these statistics is not
overwhelming either. So there is still much more we could be doing to
support domestic production of oil and gas.
The most effective strategy we could pursue, I believe, is something
that is not in the Republican leader's amendment. To understand where
our greatest opportunity for making progress on increased domestic
production lies, we need to focus on a significant problem in the
management of oil and gas on Federal lands, including in the Outer
Continental Shelf.
Simply put, all the policy emphasis has been on having more lease
sales, but not enough emphasis has been placed on encouraging diligent
development of Federal lands once they are leased.
While it is generally true that leases must be produced within
certain time parameters, Federal agencies have substantial discretion
in managing those provisions. I am concerned we may not be following
the correct policies to bring about production in the most timely
fashion. I have asked the Government Accountability Office to examine
this topic.
Let me illustrate my concern with the following charts. Here, first,
with regards to onshore production. This pie chart on the left shows
all the leased acreage on Federal land for oil and gas development
onshore in the lower 48 States.
As you see, about three-quarters of all of this in red, three-
quarters of the Federal land we have leased onshore is not currently
being produced. Of the over 45.5 million acres of land that have been
leased, oil companies are sitting on 31 million acres on which no
production is occurring. A similar story can be told in terms of the
Outer Continental Shelf. This is the chart on the right. This is
offshore.
Of a total of 41 million acres that have been leased offshore, 33
million of that 41 million are not being produced. The Republican
leader's amendment proposes to open the entire Atlantic and Pacific
coast to leasing and development. Although the amendment speaks to
petitions from Governors to lease in specific areas, the way the
amendment is written, the Secretary can open for leasing even areas
where no such request is pending, by including them in the next so-
called 5-year-plan from the Minerals Management Service.
Here is a map of all the leases in the Outer Continental Shelf in the
Gulf of Mexico. To get an idea of what we are talking about, the blue
squares represent areas that have producing leases. As we can see,
there are many of those. The much more numerous yellow squares
represent leased blocks where nothing is happening. The red blocks,
which are also scattered around, represent new areas that have been
added through recent lease sales.
For all the increases in drilling activity I have mentioned earlier
in the talk, you will see we still have a great many areas where no
exploration or production is ongoing, even though those areas have been
leased. We recently have added even more leased areas to this map.
Here is a second map of the oil-and-gas-producing regions on the
North Slope of Alaska. In the middle is the private and State land, the
tan-colored area. This small area to the right over here is area 1002,
the 1002 area of the Arctic National Wildlife Refuge which the
Republican leader's amendment would open to leasing.
The large area on the left, this yellow area, is the National
Petroleum Reserve-Alaska. This area was specifically set aside to be
exploited for oil and gas development. The National Petroleum Reserve-
Alaska totals 23.5 million acres, most of which can be developed and
drilled. The mean estimate of oil resources in the National Petroleum
Reserve-Alaska is 9.3 billion barrels of technically recoverable oil.
That is significantly more oil than is estimated to be contained in the
national portion of the Coastal Plain of the Arctic Refuge.
To date, 3.8 million acres of this NPRA have been leased. That is
twice the size of the portion of the Arctic Refuge that is being talked
about in the Republican leader's amendment. Here is a slightly more
detailed version of that chart that shows where those leased areas are.
You can see that a large portion of the leased areas--those are the
areas in red--is on the eastern side of the Petroleum Reserve, very
close to the Alpine field which is tied into the Trans-Alaska Pipeline
System. So the infrastructure to take oil from the Petroleum Reserve in
Alaska, on the North Slope of Alaska to the lower 48 is very close at
hand.
So with all those favorable factors in place, you would wonder how
many production wells do we have operating on the 3.8 million acres of
the Petroleum Reserve that we have leased? And
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the answer is zero. Zero current production from these leases should be
a substantial cause for concern. It illustrates a basic problem with
our domestic production of oil and gas. It is not that we have not
leased Federal land for exploration and production. We have leased
large tracts of Federal land. We are leasing more all the time.
Oil and gas companies certainly benefit by having these leases on
their books and claiming the potential oil as part of their reserves.
But we need to get these oil and gas resources out of the reserves
column and into the production column.
What does the Republican leader's amendment do about any of this?
Absolutely nothing. He is calling for more leases in areas that are
much more remote from oil and gas transmission infrastructure than the
acreage we have already leased.
It would take a decade or more for those resources to come into
production at the very best. Why should we expect oil and gas companies
to rush into new areas to begin production when they are sitting on
literally millions and millions of acres of existing leases without
doing any production on those?
The fact is, having a lease sale in the Arctic National Wildlife
Refuge will not do a single thing to bring down gasoline prices anytime
soon. Opening offshore areas such as off the east coast and off the
west coast, where there is no infrastructure, is also a very
ineffective response to the prices that consumers are seeing today.
These are not real solutions to what is wrong in energy markets today.
If we are serious about doing something to boost domestic production,
we need to focus on better management of Federal leases. Let me
describe two concrete suggestions in that regard.
First, we might consider imposing a production incentive fee on all
the Federal acres that are under lease, a fee that would increase over
time but which would be cancelled by royalty payments. That would
provide a disincentive for sitting on leases for purposes of inflating
a company's reserve estimates.
Second, we enacted some specific provisions in the Energy Policy Act
of 2005 that reduced pressure on the leaseholders in the National
Petroleum Reserve-Alaska, in terms of their responsibilities to develop
the oil resources there. We changed the law to allow oil companies with
a lease in the National Petroleum Reserve-Alaska to hold it for 30
years or more, without producing.
I opposed those changes to the law but was unable to prevail on that
point. Provisions that allow for decades of additional delay in
developing oil on Federal lands that are dedicated for production of
oil make no sense when that oil is selling at $126 a barrel.
If anyone in this Chamber wants to advocate for oil production in
Alaska or anywhere on Federal land, then the threshold test is whether
they are willing to change the incentive structure that currently
rewards delay and inaction. That dysfunctional incentive structure was
put in place in the law we passed in 2005.
If we are not willing to take action to bring the 3.8 million acres
already leased in Alaska into production, then there isn't much
credibility to the argument that somehow one more lease sale up there
will greatly add to energy security.
There is another area in which the Republican leader's amendment
misses the mark on promoting domestic oil and gas production. His
amendment leaves out the one place offshore where it would be easiest
and fastest to get additional production, and that is in the Gulf of
Mexico. His amendment opens the entire Atlantic and Pacific coastlines
for new oil and gas production but leaves in place the oil and gas
moratoria in the Gulf of Mexico. That is out of touch with reality. The
Gulf of Mexico is the first place we should be looking to for expanded
production, not the one place we should leave off the list.
Let me put up this chart. When we last debated offshore oil and gas
production in this Chamber in 2006, we made what I consider to be a
very bad bargain. We put off limits--that is the yellow area on the
chart--10 times the amount of natural gas that we opened to exploration
and drilling. We made available for lease 2 trillion cubic feet of
natural gas in the Gulf of Mexico while putting off limits 22 trillion
cubic feet of natural gas. We also put new areas of the Gulf of Mexico
under moratorium for the first time, including portions of the lease
sale 181 area that were closest to the existing oil and gas
infrastructure. The area now under current law is off limits until 2022
because of that provision we passed into law in 2006. The portion of
the lease sale 181 area we put under moratorium for the first time
contains a half billion barrels of oil and 4 trillion cubic feet of
natural gas.
The available infrastructure to take it to market is already there.
The interest by industry in these resources is intense.
This weekend I was reading the current edition of Barron's, the Dow-
Jones business and financial weekly. There is a column in there by Jim
McTague where he quotes President Bush's former economic adviser, Al
Hubbard, as saying:
If the other 49 states realized what Florida is doing to
them, they'd be up in arms.
McTague goes on to lament the fact that President Bush does not
support revoking the lease sale moratoria on the outer continental
shelf that were first imposed by his father in the early 1990s.
He then states:
Bush, during the 2000 presidential contest, promised his
brother Jeb, Florida's governor at the time, that he'd
maintain the drilling ban.
So there you have it. If we are really serious about increasing
domestic production and repealing existing moratoria, the place to
start is here in the gulf. The Republican leader's amendment leaves
that out, much to its detriment.
I have additional comments that I do not have time to go through.
There is one area where I very much compliment the minority leader, and
that is including in his amendment the proposal to suspend the filling
of the Strategic Petroleum Reserve for the remainder of this year.
Senator Dorgan has been pushing this legislation for many months. I
have been glad to be a cosponsor. I know Senator Domenici recently
indicated he now supports this position. This is a proposal that is in
Majority Leader Reid's proposal. It is proposed legislation. It is also
in the Republican leader's amendment. I congratulate him for that.
Right after we vote on the Republican leader's amendment, the large
comprehensive amendment I have been talking about, the vote right after
that will be on the proposal to suspend the filling of the Strategic
Petroleum Reserve.
I hope will get a strong bipartisan vote. Clearly, it would be a step
in the right direction. It is something we should do. I hope we can at
least include that positive action before the Congress has to turn to
other business tomorrow as it plans to, when we get back to discussing
the flood insurance.
I yield the floor.
The ACTING PRESIDENT pro tempore. The Senator from Colorado.
Mr. ALLARD. Mr. President, I understand the minority leader is on his
way to make a few remarks. In the meantime, I suggest the absence of a
quorum.
The ACTING PRESIDENT pro tempore. The clerk will call the roll.
The bill clerk proceeded to call the roll.
Mr. McCONNELL. I ask unanimous consent that the order for quorum call
be rescinded.
The ACTING PRESIDENT pro tempore. Without objection, it is so
ordered.
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