[Congressional Record (Bound Edition), Volume 152 (2006), Part 5]
[Senate]
[Pages 6605-6606]
[From the U.S. Government Publishing Office, www.gpo.gov]




                                 ENERGY

  Mr. KYL. Mr. President, I wish to address the same subject and begin 
where the distinguished Senator from Illinois left off when he talked 
about new leadership.
  I wonder if he would join Republicans to see if we can eliminate the 
tariff on Brazilian ethanol, something which the Senator from Illinois 
suggests we need more of, one of the three solutions he says we need--
more leadership, more ethanol and fuel economy standards. I think we 
are going to provide some leadership and we are going to provide some 
more ethanol. One way to do that is to reduce the extraordinary expense 
of bringing it in from Brazil. We haven't gotten a lot of cooperation 
from the other side on that. That will be my first question to him: 
Will he step up and exercise leadership with us to eliminate that 
tariff on ethanol?
  There is a 10-percent mandate in the Energy bill on ethanol. The 
Senator suggested we should have a higher mandate on ethanol, or a 
higher subsidy for that. The reality is one of the reasons gas prices 
have been where they are is we haven't been able to meet that 10-
percent mandate. There isn't enough ethanol being produced and, 
therefore, because there is a lack of supply in comparison to the 
demand, the price has gone up, obviously. What we need to do here, 
instead of pointing fingers and demagoguing the issue, is to understand 
economics and appreciate where the real problem is. Then we can begin 
to solve it.
  There is an old saying: For every complex problem, there is a simple 
and wrong solution. That is what we have mostly heard on the other 
side. The reality is, if you want to know the truth, the single most 
important component in the retail price of gasoline is the cost of 
crude oil--the single most important factor. Indeed, the cost of crude 
oil accounts for 95 percent of the price of a gallon of gasoline. 
Changes in the price of retail gasoline are almost entirely explained 
by changes in crude oil prices.
  I have a chart I wish to show you which demonstrates that over the 
last 15 years, changes in the world price of crude oil have accounted 
for more than 95 percent of the changes in gasoline prices. It shows 
that as crude oil prices have gone up, the price of gasoline has 
tracked it almost exactly.
  If you are looking for a culprit and why crude oil prices have gone 
up, it is because the demand has exceeded the supply. Countries such as 
China and India are demanding more and more of the product. And because 
of constraints imposed significantly by the Congress, we have not been 
adding to the supply.
  There are also other problems that have created this spike recently. 
The largest reason, according to the folks on Wall Street, is the 
nuclear saber rattling from Iran, which produces about 4 million 
barrels of oil a day--or about 5 percent of world's supply--and it 
controls the Strait of Hormuz through which about 17 million barrels of 
Middle East oil passes every day. Some experts believe that concern 
about the Iranian nuclear crisis has added $10 per barrel to the price 
of crude oil since the start of the year. If you add to that supply 
disruption in Norway and Nigeria, as well as the machinations of 
Venezuela's strongman Hugo Chavez, you can see there has been a spike 
in the world prices which have been reflected at the pump.
  We have also had some domestic problems that have added to the spike 
in prices. The U.S. Minerals Management Service has reported that over 
334,000 barrels per day of crude oil production in the gulf coast are 
still shut in as a result of Hurricane Katrina. More importantly, some 
of the heavily damaged gulf coast refineries representing nearly 5 
percent of U.S. refining capacity are still undergoing repair. But the 
good news is they are likely to resume production at the end of this 
month.
  Another problem is because there was so much refining capacity that 
went down, the Government urged the refiners to continue refining and 
forego their regularly scheduled annual fall maintenance in order to 
keep the supply of gasoline from dropping even further. They did that. 
I am glad they did.
  The problem now is the crisis is over and they are having to engage 
in that deferred maintenance. And after months of heavier than normal 
usage, they are finding this long overdue maintenance is reducing 
production out of the refineries as well. As it comes on line, we are 
going to see some relief.
  Finally, as occurs every spring, refiners, in compliance with Federal 
mandated fuel regulations, have to switch from the wintertime fuel 
blend to the summertime fuel blend which entails completely drawing 
down supplies of wintertime fuel blend and replacing it with the 
summertime fuel blend. This obviously also causes a short-term supply 
disruption adding to the spike.
  There are some other factors as well, having to do with the 
elimination of MTBE as a motor fuel additive and the mandate for 
ethanol production or addition to the fuel which was not initially able 
to comply with the 10-percent standard which has had some impact on 
prices, especially in much of the East Coast and Texas.
  But the bottom line here is there is a variety of reasons why fuel 
costs and, therefore, gasoline prices have spiked. It does not do a lot 
of good to point the finger at somebody and say, We know the answer; we 
will punish them and that will solve the problem. The reality is that 
profits from the oil industry are now being put to use in expanding 
production. The industry invested nearly $109 billion in 2004. While 
the numbers aren't in for 2005 yet, for first three quarters it showed 
investment spending was 28 percent higher than in the first three 
quarters of the previous year. It is projected this year to grow by 
double digits again.
  This investment will lead to a 2.2 million barrel per day increase in 
production this year, outpacing demand that is expected to rise by just 
1.8 million barrels per day. That, more than any of these other 
factors, is going to add actual fuel to the pipeline which will, 
therefore, enable us to bring the fuel costs down.
  The bottom line here is when you are talking about solutions, you 
talk about that which will either reduce the demand or increase the 
productivity. Unfortunately, consumer demand has not been reduced that 
much even with the higher prices, which means you have to look for more 
production. There are several ways you can do this.
  The Senator from Illinois scoffed at ANWR, saying it is only 3 
percent of the world's supply. Do you realize how much that it is? That 
is huge. That is as much oil as Iraq produced.
  Had President Clinton not vetoed the exploration in ANWR 10 years 
ago, that

[[Page 6606]]

oil would now be flowing today. The Senator says it will take 10 years. 
Yes. Before you can complete your journey, you have to establish the 
first step. That is what we have to do here. Had we done that 10 years 
ago, that oil would be flowing today.
  By the way, to characterize it as a wilderness area is a 
misrepresentation because as we should realize, this is an area 
expressly set aside for oil exploration by the Congress. It is not 
going into a wilderness area and cutting it out and then exploring in 
an area that was set aside for wilderness.
  There are other increases in productivity in addition to ANWR. 
Increasing our deepwater production 100 miles offshore is virtually 
safe. Clearly we can eliminate restrictions on the 100-mile limit for 
deepwater drilling offshore. We could, if we wanted to, stop buying 
temporarily in this market today for the SPR, the Strategic Petroleum 
Reserve. We could suspend the boutique fuel blends and reduce the 
ethanol mandate.
  Those are short-term things that could be done. But again for the 
longer term, if you want to bring in more ethanol, eliminate or reduce 
the tariff on Brazilian ethanol; if you want to have more production, 
look at deepwater drilling and ANWR. Those are ways to actually add 
crude oil and, therefore, fuel to the equation rather than these ideas 
of not adding any oil whatsoever but simply make a political point.
  The point was made that profits of the oil companies are up. As has 
been indicated, those profits are now being plowed back into production 
and to refinery capacity which is going to help us reduce the cost.
  The Senator from Illinois said it is strange indeed that prices go up 
all over town when they go up. It is not strange at all. You don't have 
to have collusion between the oil companies for that phenomenon to be 
reflected because of the fact that the crude oil prices are the same 
for everyone. So if everybody's baseline price goes up, everybody is 
going to be raising the cost of gasoline at the fuel pump. The idea 
that there must be collusion or at least the inference there must be 
collusion, remember that the Government has been investigating this for 
years and, to my knowledge, has never found any evidence of collusion. 
As the President said, we will keep on looking for it. If we find it, 
obviously those people will not go unpunished.
  Let us not try to point a finger of blame in an area where we know we 
are coming up with a dry hole. That isn't going to add anything to the 
production of crude oil and, therefore, do anything to increase the 
supply and, therefore, reduce the cost.
  The bottom line is this: There are a of lot ideas about how to deal 
with the short-term cost of energy. Some of them are good. There are 
ways to increase the long-term supply and thus deal with the long-term 
cost. But until we are serious about the economics of the issue, rather 
than simply trying to come up with a bumper sticker solution, we are 
never going to be able to eliminate the cost to consumers. And that, 
after all, ought to be our primary responsibility.
  The PRESIDING OFFICER. The Senator from Virginia.

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