[Congressional Record Volume 154, Number 110 (Monday, July 7, 2008)]
[Senate]
[Pages S6351-S6353]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                                 ENERGY

  Mr. DORGAN. Mr. President, I wish to speak about the issue of energy. 
I understand the urgency of the need to get our energy policies right. 
We have a very serious problem, I think, in a range of areas. Energy 
policy is something that affects everybody. They pull up to the gas 
pump to fill their tanks and wonder how they are going to be able to 
afford it. If you try to run an airline, you try to stop the 
hemorrhaging of red ink because of the enormous cost of jet fuel. If 
you have a trucking company, you are trying to avoid going bankrupt 
because of the cost of diesel fuel. If you have a family farm, you are 
trying to get the money together to fill your fuel tanks for the summer 
and fall harvests.
  There is so much that is damaging our economy, as the price of 
gasoline has gone to $4-plus a gallon and the price of oil is bouncing 
around $140 a barrel. I wish to talk about that. I understand, as a 
Member of this body, that old saying is that ``when all is said and 
done, more is said than done.'' I understand how people feel about 
that. Democracy is painfully slow and, yet, in this case, we face 
something that is urgent and needs, I think, some haste and speed. I 
know there are others who look at the legislative bodies, or politics 
generally, and see windbags in blue suits, and they think there is a 
lot of discussion and precious little action. I will talk a bit about 
this issue of the need for action.
  We get up in the morning and we, generally speaking, reach for a 
switch and turn it on and there is light. We might--those of us who 
need to--plug in an electric razor and shave in the morning. We might 
decide to have breakfast and turn on a stove and fry some eggs. We 
could go out to the car and put a key into the ignition and start the 
engine. There are so many different things we do every single moment of 
the day that we don't think about, but it represents the consumption of 
energy--an unbelievable amount of energy, in the form of oil, natural 
gas, electricity, and coal.
  Now, let me describe for a moment where we find ourselves. This great 
country of ours--and there is nothing like it on the face of the 
Earth--has an unbelievable appetite for oil. Sixty to seventy percent 
of our oil comes from outside our country. We stick straws in the Earth 
and suck out oil from the planet every day. We suck 85 million barrels 
a day out of the planet Earth, and 21 million, or one-fourth, is 
destined to be used in the United States of America. That describes to 
you how much of an appetite we have for oil.
  We use a substantial amount of the Earth's oil. Seventy percent of 
the oil that we use is used in vehicles. So that consumes a substantial 
amount of our oil.
  The runup in price has had such a dramatic impact on this economy and 
on American families. I want to describe a bit about that today.
  Some would say the price of oil has increased because it is supply 
and demand. Right? Greater demand, less supply; therefore, a higher 
price. But that is not true. I would like someone to name for me one 
thing that has happened in the past year with respect to supply and 
demand that justifies a doubling of the price of oil. You can't do it. 
I will stand here for 3 days. You can't do it. Nothing has happened in 
the last year with respect to supply and demand that justifies doubling 
the price of oil. If anything, exactly the opposite should have been 
the case. We are using less fuel in the United States right now than we 
did in the equivalent period a year ago. We drove about 5 billion fewer 
miles. That means demand is down. Supply is up.
  The closing month inventory of crude oil for the first 5 months of 
this year has supplies increasing. If supplies are increasing and 
demand is down, what should happen to price? It should go down. But the 
fact is, the price has gone up like a Roman candle, just up, up, 
straight up.
  As I have indicated, the OPEC countries are blissfully happy going to 
the bank to deposit our money in their bank accounts. The big oil 
companies have a permanent grin. They love depositing our money into 
their bank accounts. Everybody loves it except the consumer who is 
paying through the nose for gasoline--$4, $4.50 a gallon for regular 
gasoline.
  There are a lot of things that need to be done in energy. We need to 
produce more, yes. We need to conserve more, certainly. We need more 
efficiency in all the appliances we use. We certainly do that. And we 
ought to have a national commitment toward renewable energy sources. We 
ought to do that, all of that.
  I support drilling offshore. I am one of four Senators who helped 
open what is now lease 181 in the Gulf of Mexico. That is now open, and 
that is good. Hurricane Katrina came through the gulf--we are never 
going to have a bigger wind than that through the gulf--and those 
offshore platforms withstood. There was no oil leakage in the gulf as a 
result of that hurricane.
  We can get those resources, in my judgment. Some say the hood 
ornament is ANWR. We have to drill in ANWR in Alaska. It is one of the 
few pristine areas put away for future generations in legislation 
signed by Dwight Eisenhower.

[[Page S6352]]

  In any event, that is not where the major oil deposits are. The major 
deposits are in the Gulf of Mexico, and we ought to drill more there. I 
support that. We ought to conserve more, much more. That includes more 
fuel-efficient vehicles. In fact, we did that, the first time in 27 
years we required a 10-miles-per-gallon increase in the efficiency of 
vehicles in 10 years.
  There is so much we can and should do to solve this problem. But what 
has happened in the last year with respect to energy prices is, in my 
judgment, largely unconnected to what I just described. Let me tell you 
what I think is happening.
  There is an unbelievable amount of speculation in the oil futures 
market. Let me describe it. This is the growth of speculation in the 
oil futures market. In the year 2000, 37 percent of the trades in the 
oil futures market was by speculators. Today it is 71 percent. That 
market has largely been taken over by speculators or, as Will Rogers 
described 80 years ago, people buying things they will never get from 
people who never had it and, by the way, buying it with money they 
never had. This is an unbelievable amount of excess speculation driving 
up prices.
  This morning in the Washington Post there was a well-written story by 
a journalist named David Cho. The story was: ``Pension Funds Boosted By 
Oil: While Stocks Fall, Commodity Bets Are Paying Off.''
  This was a story about CalPERS and other pension funds moving 
billions and billions of dollars into the futures market. In fact, 
investors, including pension funds and Wall Street speculators, have 
increased their investments in the futures market from $13 billion in 
2003 to $260 billion today. Think of that. From 2003 to 2008, you go 
from $13 billion to $260 billion moving into this marketplace, which is 
not a particularly large marketplace. We produce 85 million barrels a 
day coming out of the Earth, and we trade 22 times that amount every 
single day. We have these dramatic amounts of additional speculation, 
especially by pension funds coming into this marketplace. Then we have 
brain-dead people walking around saying: What speculation? We don't 
think there is any excess speculation. This is simply the market 
working. Nonsense. That is unbelievable nonsense.
  The article says:

       For decades, trading commodity contracts was considered 
     taboo by most pension funds because the market is so volatile 
     and risky.

  All of the sudden risk doesn't matter so much, I guess. Just jump in 
with both feet right smack into the oil futures market, grab a bunch of 
it, and see what happens. I don't understand that. Where do we find all 
the cards with which to build this house of cards?

       Walter Lukken, acting chairman of the Commodity Futures 
     Trading Commission--

  By the way, they are the regulators. They are the referees, the ones 
wearing the striped shirts carrying the whistles and supposed to call 
the fouls--

       Walter Lukken, acting chairman of the Commodity Futures 
     Trading Commission, said the price of oil and other goods is 
     going up simply because demand is outstripping supply. 
     ``It's our proposition that strong fundamentals are at 
     play, driving higher commodity prices across the board.''

  That is our regulator saying: What, we worry? I don't see anything 
happening.
  Let me remind everyone again of the amount of speculation that has 
gone up in 5 years. This market was 37 percent speculators. It is now 
71 percent speculators. That is a study that was done by the House 
Subcommittee on Oversight and Investigations. So the head of the 
regulatory authority says: You know what. I don't think anything is 
going on. I am blissfully happy here, going to work in the mornings, 
and I am perfectly willing not to see what exists.
  Let me describe a chart I think is one of the most interesting charts 
with respect to oil prices. I put this chart together to show the 
Energy Information Agency--we spend $100 million on this agency. They 
are an agency that is not about policy. They are to give us information 
on energy and give us their best judgments on energy prices, among 
other things. Here is what they have said.
  The yellow line shows the following: In May of last year, they said: 
Here is where we think the price of oil is going to go. And in July, 
they said: It is going to be higher than that. Here is where we think 
it is going to go, up to 2009. Then in September, they made another 
estimate a little higher: Here is where we think it is going to go. 
Last November: Here is where we think the price of oil is going to go 
in the next year. January: Here is where we think it is going to go.
  Can you imagine that? This is the best agency we have, the Energy 
Information Administration, with which to make judgments, and how did 
they make judgments that were so unbelievably wrong? I had the head of 
this agency before my subcommittee the week before we left for the 
recess. He couldn't answer the question. This must be an embarrassing 
chart for the smartest guys in the room.
  I said: Let me answer it for you. If you can't answer it, let me 
answer it for you. I taught economics in college ever so briefly but 
enough so I think I can answer this chart.
  The reason our agency has been wrong, so consistently wrong all the 
time every time they made an estimate--here is where the price of oil 
is going to go, instead it went like this, straight up--is because this 
market has been taken over not by supply-and-demand relationships but 
by speculators. They are up to their necks deep in speculation. So this 
line, the red line, could not possibly be determined by an agency that 
is looking at supply-and-demand fundamentals because this does not 
relate to anything except an orgy of speculation by people who want to 
get into the market and make big bucks so we deposit our money into 
their bank accounts.
  The senior vice president of ExxonMobil in April said the price of 
oil should be about $50 or $55 a barrel. I suppose he is looking at 
things such as supply and demand.
  Fadel Gheit came to the Congress--this guy worked for 30, 35 years 
for Oppenheimer Company. He was their resident expert on energy. Here 
is what he said:

       There is no shortage of oil on the world market today. I'm 
     convinced that oil prices shouldn't be a dime above $55 a 
     barrel. I call it the world's largest gambling hall, open 24/
     7. Unfortunately, it's totally unregulated. This is like a 
     highway with no cops, no speed limit, and everybody going 120 
     miles an hour.

  Then the Energy Secretary, a man I like, a good guy, said:

       There is no evidence that we can find that speculators are 
     driving the futures prices for oil.

  This apparently is the new master narrative. Just say nothing is 
happening and then hope nobody can discover something that is 
happening.
  The problem is, every hour of every day the American people drive up 
to the gas pumps and discover what politicians--at least some of them--
are insisting doesn't exist. It is unbelievable to me.
  In every circumstance where there has been dramatic excess 
speculation in the market and the market becomes broken, it is the 
responsibility of the Congress to set it right.
  I have introduced legislation, and there are half a dozen pieces of 
legislation around here to try to address this issue.
  I understand we will have discussions all of July about this 
situation, and I understand the inclination, perhaps, by some will be 
to decide we ought to do something without teeth. If we can just do 
something and say we did something and it has no grip or bite, we can 
all go home, thumb our suspenders, and even puff on a cigar for those 
who smoke, and say: We did it, the United States Senate, good for us. 
It is not good for us unless it is something that has an impact on a 
market that is broken. Let me describe the legislation I introduced. It 
is called the End Oil Speculation Act of 2008. That describes exactly 
what it would do. It requires the regulator, the Commodity Futures 
Trading Commission, to separate trades in the futures market for oil. 
One set of trades would be trades between consumers and producers of a 
physical product for the purpose of hedging risk. That is precisely 
what the market was established to do. That is exactly what the market 
is about. It is why we have a futures market. A futures market is 
necessary and is there because it is needed to hedge risks of a 
physical commodity.
  We would require the Commodity Futures Trading Commission to separate

[[Page S6353]]

those trades. Other trades then are defined as speculative trades, and 
a 25-percent margin requirement would be applied to those non-
legitimate hedge trades. Why that? The fact is, if you are going to 
speculate in stocks on margin, you have to put up 50 percent of the 
money. If you want to control oil on margin, put up 5 percent or 7 
percent maximum. Let's quintuple that to 25 percent and see if we can 
wring the speculators out of this market. If you are engaged to 
speculate on one side or another of a legitimate hedge for the trading 
of a physical commodity, as far as I am concerned, that is what the 
market is about. You should not be subject to this new requirement. But 
if you are just out there trying to figure out how to play bingo with 
this oil market, despite the fact you do not even know what oil looks 
like, you couldn't lift a 5-gallon can if your life depended on it, 
don't want to see oil, don't want to store it, you have no interest in 
oil--what you are interested in is making money, then this increased 
margin requirement should apply to you.
  We have hedge funds and investment banks that are up to their necks 
in these markets. They have no interest in oil. We have hedge funds for 
the first time in history buying oil storage in order to buy it, take 
it off the market, store it, so that it becomes more valuable later, 
and they sell it and make a profit. The problem with all of this is the 
country's economy is being damaged, and we have a responsibility, I 
believe, to try to fix these kinds of problems when they exist.
  I know that we will have a discussion this week and this month about 
four or five different approaches. And I know they will all have great 
labels. When I grew up, my neighbor, Herman, an old man--he had 
rheumatism, he wore suspenders and never traveled much off his front 
porch. And he had a dog. His dog was a three-legged, one-eyed dog with 
fleas. He called him Lucky. I thought: That name doesn't fit a three-
legged dog with one eye with fleas. But Lucky actually answered to the 
call of ``Lucky.''
  We do that with legislation around here, some of us. I shouldn't say 
``us'' because I try not to do it. They package legislation and label 
it as if it is going to do something.
  The only issue at the end of the day in the Senate in terms of 
dealing with this energy urgency--and I believe it is urgent--the only 
issue is have we done something that has some bite and grip and starts 
to fix a market that is broken? Have we decided to wring some of this 
speculation out of this market and put energy prices back where they 
ought to be?

  Let me point out once more that, according to the House Subcommittee 
on Oversight and Investigations, who did an evaluation of this, 71 
percent of the trades in the oil futures market is now speculative--
pure speculation--as opposed to the non-speculators who are using that 
market for the purposes which it was intended. I say to all those who 
say: You know, speculation--what speculation? I see nothing, hear 
nothing, know nothing. Well, I say: Look at this EIA chart again and 
try to figure out what this line means. Most Americans understand 
exactly what this line means. It is what they have to pay at the pump 
every time they take the gas cap off their tank. And they know where it 
is going. A fair amount of that is going to OPEC.
  By the way, enough of that spills from the barrel to fund some 
terrorism. In addition to all that, a substantial amount is going to 
the major integrated oil companies. I might observe here that some say: 
Well, that is important, because they need to invest in additional 
exploration. The largest oil company in this country spent twice as 
much last year buying back its stock as it did drilling for oil. That 
is all you need to know about that.
  The American people need this Congress to address this issue now, in 
the month of July. This country's economy is in substantial difficulty 
for a lot of reasons. We have a lot of speculation, a lot of risk 
created in a whole range of areas.
  Take a look at the subprime loan scandal. Evaluate what has happened 
as a result of the collapse of home values and the subprime loan 
scandal--all these issues together--and what it has done to our 
economy. And put on top of that this dramatic runup in energy prices, 
and on top of that look at the President's budget where he says: Oh, by 
the way, I want you to pass a budget that has a $420 billion deficit.
  Except that is not what the deficit is. The deficit is not what the 
President says it is. It is how much the President says we have to 
borrow to keep the Government going this year, which is over $700 
billion. We have a fiscal policy off the trail, with $700 billion a 
year, and we will borrow $800 billion because of our trade policy this 
year, due to trade deficits. So $700 billion, $800 billion, and that is 
$1.5 trillion in 1 year of red ink, with a $14 trillion economy. That 
is slightly more than 10 percent of this entire economy's value 
represented by red ink. That is unsustainable. It doesn't work.
  Look, I am an optimist. I believe we can fix all this. I believe we 
can put this country back on track, with a sound fiscal policy that 
says let's pay for that which we use. If we are going to spend money, 
let's pay for it. We can say if we are going to send soldiers to war, 
we can at least ask the American people to pay for the cost of the war. 
We can decide to crack down on oil speculators, and mortgage sharks who 
are peddling bad mortgages around the country. In all cases, whether it 
is the oil futures market or whether it is the financial area, it 
requires regulators who are not brain dead and who are willing to come 
to town to have effective regulation and make sure that markets work.
  I believe we can fix all of these things, but we don't have a lot of 
time. This economy, I think, is a fragile economy. It is strong and 
resilient. But you lay these four things on top of it, and it becomes a 
fragile situation that requires action by us. I know that because I was 
in North Dakota all of this past week.
  I saw a letter to the editor today saying: Well, the problem with all 
of this is the Democrats. The Democrats are causing all this. That is 
such sheer nonsense. Going back to 2001--talking about oil, the 
subprime mortgage scandal, and others--we had regulators coming to town 
who said: You know, we don't even like Government, and we would love to 
be a regulator to say we are not very interested in regulating. In 
fact, we don't need to put on a striped shirt. We don't have a whistle. 
We want to come here and say things are going to be better. We won't 
look.
  I chaired the hearings in the Commerce Committee on the Enron 
scandal. I had Ken Lay come in front of my committee, raise his hand 
and take the oath, and then take the fifth amendment. He is now dead, 
but there are a number of those he worked with who are now in prison, 
because part of that was a criminal enterprise and the regulators 
weren't willing to look. Now, I am not alleging that is the case with 
the futures market, but I am alleging this market is broken and causing 
dramatic injury to every American family. This country's economy and 
the American people can and should expect us to take action.
  My hope is that in the coming week or two we can pass some 
legislation. I hope that legislation will closely resemble the End Oil 
Speculation Act, in which we require the regulatory body to use its 
existing authority to do two things: Separate the legitimate hedging 
that occurs, and should occur in this marketplace, from excess 
speculation, and then wring out the excess speculation in order to 
begin to put some downward pressure on prices.
  The American people deserve the right to expect that from their 
Government. I hope my colleagues and I can overcome what has been for 
too long in this Chamber a dramatic amount of stalling and obfuscation 
by those who dig their heels in and don't want to make any progress on 
anything. So my hope is that perhaps in the coming month we will be 
able to make some progress.
  Mr. President, I yield the floor, and I suggest the absence of a 
quorum.
  The ACTING PRESIDENT pro tempore. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. REID. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER (Mr. Cardin). Without objection, it is so 
ordered.




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