[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
GASOLINE: WHAT'S CAUSING RECORD PRICES AT THE PUMP?
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HEARING
before the
SUBCOMMITTEE ON ENERGY AND RESOURCES
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
MAY 9, 2005
__________
Serial No. 109-44
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
U.S. GOVERNMENT PRINTING OFFICE
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut HENRY A. WAXMAN, California
DAN BURTON, Indiana TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee DIANE E. WATSON, California
CANDICE S. MILLER, Michigan STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California LINDA T. SANCHEZ, California
GINNY BROWN-WAITE, Florida C.A. DUTCH RUPPERSBERGER, Maryland
JON C. PORTER, Nevada BRIAN HIGGINS, New York
KENNY MARCHANT, Texas ELEANOR HOLMES NORTON, District of
LYNN A. WESTMORELAND, Georgia Columbia
PATRICK T. McHENRY, North Carolina ------
CHARLES W. DENT, Pennsylvania BERNARD SANDERS, Vermont
VIRGINIA FOXX, North Carolina (Independent)
------ ------
Melissa Wojciak, Staff Director
David Marin, Deputy Staff Director/Communications Director
Rob Borden, Parliamentarian
Teresa Austin, Chief Clerk
Phil Barnett, Minority Chief of Staff/Chief Counsel
Subcommittee on Energy and Resources
DARRELL E. ISSA, California, Chairman
LYNN A. WESTMORELAND, Georgia DIANE E. WATSON, California
ILEANA ROS-LEHTINEN, Florida BRIAN HIGGINS, New York
JOHN M. McHUGH, New York TOM LANTOS, California
PATRICK T. McHENRY, North Carolina DENNIS J. KUCINICH, Ohio
KENNY MARCHANT, Texas
Ex Officio
TOM DAVIS, Virginia HENRY A. WAXMAN, California
Lawrence J. Brady, Staff Director
Steve Cima, Professional Staff Member
Lori Gavaghan, Clerk
C O N T E N T S
----------
Page
Hearing held on May 9, 2005...................................... 1
Statement of:
Cook, John, Director of Petroleum Division, Office of Oil and
Gas, Energy Information Administration, U.S. Department of
Energy; Jim Wells, Director, National Resources and
Environment, U.S. Government Accountability Office; Pat
Perez, transportation energy division, California Energy
Commission; and Rayola Dougher, manager, energy market
issues, American Petroleum Institute....................... 4
Cook, John............................................... 4
Dougher, Rayola.......................................... 85
Perez, Pat............................................... 62
Wells, Jim............................................... 29
Letters, statements, etc., submitted for the record by:
Cook, John, Director of Petroleum Division, Office of Oil and
Gas, Energy Information Administration, U.S. Department of
Energy, prepared statement of.............................. 8
Dougher, Rayola, manager, energy market issues, American
Petroleum Institute, prepared statement of................. 88
Perez, Pat, transportation energy division, California Energy
Commission, prepared statement of.......................... 67
Watson, Hon. Diane E., a Representative in Congress from the
State of California, minority report....................... 124
Wells, Jim, Director, National Resources and Environment,
U.S. Government Accountability Office, prepared statement
of......................................................... 33
GASOLINE: WHAT'S CAUSING RECORD PRICES AT THE PUMP?
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MONDAY, MAY 9, 2005
House of Representatives,
Subcommittee on Energy and Resources,
Committee on Government Reform,
Long Beach, CA.
The subcommittee met, pursuant to notice, at 1:30 p.m., in
City Council Chambers City Hall, 333 West Ocean Boulevard, Long
Beach, CA, Hon. Darrell E. Issa (chairman of the subcommittee)
presiding.
Present: Representatives Issa and Watson.
Staff present: Larry Brady, staff director; Steve Cima,
Dave Solan, and Chase Huntley, professional staff members.
Mr. Issa. Good afternoon. A quorum being present, the
Government Reform Subcommittee on Energy and Resources will now
come to order.
Today our high energy prices are affecting everyone's cost
of living, America's economy, from consumers and businesses to
public and private agencies. For Californians filling up the
gas tank is not a luxury; it's a necessity. They have to fill
up to get to work, take the kids to school, and go to the
grocery store.
In recent weeks President Bush has shown leadership by
calling for action on his energy development and conservation
programs. He pledged to address the root causes that are
driving up gasoline prices and encourage oil-producing nations
to maximize their production, as well as vowing that consumers
will not be gouged at the pumps.
Since coming to Washington the President has stressed the
need for a comprehensive energy policy. Last month the House
passed an Energy Policy Act of 2005, and now it is time for the
Senate to enact this or similar legislation so that we could
work out differences and more toward a national energy strategy
to reduce consumer cost.
The President has also stressed the need to promote greater
energy independence by harnessing the power of technology to
create new sources of energy and make more efficient use of
existing sources.
Since 2001 I have driven a Toyota Prius and it is here with
me today. New technologies like hybrid vehicles have played and
will play an absolutely essential role in lowering overall
energy costs for consumers, and it is important that Congress
continue to reward the development and use of these energy
savings innovations and others to come.
I understand that people are frustrated and outraged with
the soaring gasoline prices. As consumers struggle with
increased prices, we hear about oil companies with enormous
profits increasing global oil demand and of limited plans for
investing in refineries and petroleum infrastructure.
I believe it is important that this subcommittee hear from
consumers and address your questions regarding gasoline prices.
For the past week I have allowed the public to submit
questions, some of which we will be asking the panel this
afternoon in addition to--if time allows--questions from the
audience.
The issues we will address today are serious and go to the
core of our economic well-being and standard of living.
Hopefully the witnesses today can enlighten us on these
issues and possibly point out some solutions. I look forward to
the testimony of the witnesses today. The witnesses include:
Mr. John Cook, Director of Petroleum Division, Office of Oil
and Gas, Energy Information Administration, U.S. Department of
Energy; Mr. Jim Wells, Director, National Resources and
Environment, U.S. Government Accountability Office; Mr. Pat
Perez, Transportation Energy Division, California Energy
Commission; Ms. Rayola--how do I pronounce it properly?
Ms. Dougher. Rayola Dougher.
Mr. Issa. Rayola Dougher. Thank you. I'll strive to get it
right.
Ms. Dougher. Thanks.
Mr. Issa. Ms. Dougher is manager, Energy Market Issues,
American Petroleum Institute.
I want to thank the audience for attending this hearing. I
will now yield to the ranking member, the gentlewoman from
California, Ms. Diane Watson, for her opening statement.
Ms. Watson. Thank you so much, Mr. Chairman. I appreciate
you having this hearing in Long Beach, and I want to thank the
city council here in Long Beach for hosting this field hearing.
It's close to my home and we came down through the rain in
almost 20 minutes, so I appreciate that.
As you know, commuting is a necessity here in southern
California and record gasoline prices are taking their toll on
my constituents. My district starts, I would say, roughly at
the 405 and goes over to the University of Southern California,
up to that Hollywood sign, and down to South Los Angeles. It's
really in the heart of the freeway area. It is from about 3
a.m., Monday to 3 o'clock Tuesday the congestion starts and
continues. It is in the congested area of the city.
So gas prices on the average throughout the United States
rose above $2.20 a gallon in April of this year, creating
record highs. And unbelievably on March 5th of the year the
average price of a gallon of regular gas in California was
$2.61.
Darrell, I've even seen signs around greater Los Angeles of
$2.93.
Mr. Issa. It was $2.79 at the closest gas station here
today.
Ms. Watson. So the cost of gas is rising at an astronomical
rate and the gasoline market's uneven for different sections of
the country. And, you know, they like to look at us out here on
the West Coast and say, ``You've got those high gasoline prices
and you've got all those cars, what are you going to do?'' But
I see the signs back in the Washington, DC, area, Virginia area
also showing the record rise in cost.
Mr. Chairman, the global thirst for oil has placed both
foreign and domestic oil companies in a very powerful position.
American consumers are caught in the squeeze of unregulated gas
pricing.
The American dream is to create successful businesses and
contribute to the free market system of this great nation, but
there is some concern that the recent mergers in the United
States oil industry has made it easier for companies to control
gas pricing. Indeed the gas and oil industry is recording the
largest revenues in history. ExxonMobil has disclosed the
largest annual revenue in the history of the business.
It is important for American Government to understand the
dynamics of an industry in which the top 10 companies control
80 percent of the domestic oil refinery capacity. It's
important for us in Congress to listen to the studies done by
oversight agencies.
The U.S. General Accounting Office released a report in May
2004 on the effects of mergers and market concentration on the
petroleum industry. And GAO found that the oil company mergers
and an increase in market concentration led to higher wholesale
gas prices. It is critical to note that the GAO reached their
findings in mergers that occurred between 1991 and 2000. Since
2001 the largest five oil companies operating in the United
States, ExxonMobil, Chevron/Texaco, ConocoPhillips, BP, and
Shell, have enjoyed after-tax profits of $230 billion. Yes,
even through an economic downturn and an unreasonably high
jobless rate five companies have cleared an astronomical sum of
money, $230 billion.
The Federal Trade Commission is the agency responsible for
preserving competition in the market place in order to protect
consumers. A number of experts have concluded that the increase
in market concentration allows individual companies to engage
in strategic decisions such as withholding supplies to increase
prices and thereby increase the bottom line, their profits.
In March 2001, FTC reports found that oil companies were
making decisions to withhold formulated gas blends supply in
order to maximize profits.
Californians have suffered outrageous petroleum pricing
through no fault of their own, with dishonest market
manipulation such as the Enron scandal.
Mr. Chairman, I want to commend you, again, on this timely
field hearing. It's important. And it's critical that we
investigate the reasons for higher prices at the gas pumps and
report back to not only our constituents but those across this
country.
Moreover, the President has indicated that the recently
passed majority energy bill will not provide any short-term
relief on gas prices. So Americans need to know whether they
fill their tank or whether they use the money to buy food and
other things that they need on a day-to-day basis.
So I look forward to this informational session with the
GAO, the EIA, and the California Energy Commission. And I
understand that we have a representative of the petroleum
industry and I look forward to listening. Thank you.
Mr. Issa. Yes and, I apologize if I'm giving you my froggy
throat. Thank you.
According to the rules of the Government Reform Committee I
would request that each witness raise their right hand to take
the oath.
[Witnesses sworn.]
Mr. Issa. And let the record show that each answered in the
affirmative.
Thank you all for being here today--both the audience and
our distinguished panel. As Congresswoman Watson said and made
very clear, although we may differ in party, we don't differ in
a belief that gas prices have gotten too high and that they
need to be brought down. I think on a bipartisan basis we also
agree that the energy bill, if passed and signed into law, will
not be an overnight panacea for all of our problems. And
certainly that's one of the questions we're going to have for
this panel today is long-term/short-term.
The normal custom for any hearing is a 10-minute opening
statement by each of the panelists. We have your written
testimonies in their entirety. They will be available both to
this committee and to the people here in the audience, and as
well as on our Web site. So if you'd like to abbreviate, add in
material that's not available there, or summarize in any way,
feel free to. We'll not keep you to an exactly 10-minute
schedule, but Mr. Cima will be banging on me to bang on you at
some point.
And with that I would like to introduce--here we go--Mr.
Cook, Director of Petroleum Division, Energy Information
Administration, the U.S. Department of Energy. And I'm looking
for the gentleman's biography. Well, I apologize, your title is
more than enough, and I will have the biography by the next
introduction. But, Mr. Cook, I appreciate your being here
today. I would ask, again, that your entire testimony be put in
the record and to summarize it in about 10 minutes.
STATEMENTS OF JOHN COOK, DIRECTOR OF PETROLEUM DIVISION, OFFICE
OF OIL AND GAS, ENERGY INFORMATION ADMINISTRATION, U.S.
DEPARTMENT OF ENERGY; JIM WELLS, DIRECTOR, NATIONAL RESOURCES
AND ENVIRONMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; PAT
PEREZ, TRANSPORTATION ENERGY DIVISION, CALIFORNIA ENERGY
COMMISSION; AND RAYOLA DOUGHER, MANAGER, ENERGY MARKET ISSUES,
AMERICAN PETROLEUM INSTITUTE
STATEMENT OF JOHN COOK
Mr. Cook. Thank you, Mr. Chairman and subcommittee members.
On behalf of EIA I'd like to thank you for the opportunity to
testify today on the factors behind recent gasoline price
movements. As the first speaker indicated and all U.S. drivers
are all too aware, gasoline prices have risen sharply since the
beginning of the year. As of last Monday the national average
retail price stood at $2.24, up 42 cents from a year ago and
nearly 46 cents from January. While relatively high in
historical terms, retail prices have been dropping recently.
And barring unforeseen developments, we look for them to drop
much further by Memorial Day. In addition, adjusting for
inflation, gasoline prices were much higher in the early 1980's
at a little over $3 a gallon. Nonetheless, gasoline like oil
prices in general are currently high throughout the United
States, and especially in southern California.
California prices typically run higher than the U.S.
average and often exhibit more volatility. This year's no
exception with the retail price running up about 58 cents since
the beginning of year, some 33 cents higher than the national
average.
My statement today summarizes major changes seen in oil
markets since 2000 impacting gasoline.
High prices, at least in our view, are primarily the result
of an unusual tightening and global crude markets. This
tightness was brought about primarily by an unexpected
acceleration in demand growth, stretching global crude
production capacity nearly to its limits. As a result crude
prices almost doubled last year, and that lack of spare
capacity is expected to keep crude markets tight and prices
high for the foreseeable future. Other factors adding to this
pressure, of course, include tight refining capacity and
tightening product specifications worldwide.
To look more closely at the causes underlying recent
gasoline price pressure it may be helpful to take a look at the
components underlying retail costs. This figure shows that
typically crude oil accounts for the largest amount of retail
cost and usually the lion's share of any increase.
Here we see that April-over-April comparison show about 32
cents of the overall 44-cent run-up accruing to the crude
sector. Refining costs added about 7 cents and marketing costs
about 5. Since taxes vary little in the short-term, sufficient
insight into the drivers here behind high retail prices may be
obtained if we simply focus on the crude and refining sector.
Figure 3 shows the crude prices have shifted upwards a
couple of times in the last several years. After averaging
around $20 for most of the 1990's, crude slumped almost to $10
as a result of the Asian financial crisis and extra supply from
Iraq re-entering the market. OPEC responded to this by sharply
cutting production, driving prices not only back to the $20
level, but to what seemed a new level of about $30 in the face
of declining global inventories.
Then last year the crude oil prices shifted to a second
higher level, well over $40, almost doubling and rising from
$30 early in the year to a peak of over $56 by late October.
Though prices fell back toward $40 by the end of the year, they
recently rebounded over $57, and once again have fallen to
about $50. We expect prices for the remainder of this year to
range between the low $50's and the mid-$50's.
There are a number of factors that underlie this tightening
in the global crude balance pushing prices to $50. And probably
the biggest one is the huge increase in global demand. Probably
the biggest surprise was China with a demand increase of over a
million barrels a day last year compared to growth rates of
less than half that amount in prior years. China and the United
States alone accounted for almost 60 percent of the increase
last year, and we expect that growth to remain strong this
year.
On the supply side, growth in non-OPEC production fell well
short of meeting increasing world needs, and we expect that to
remain short of those requirements.
We will continue to see growth in Russian and the Caspian
regions, but there are no large new areas adding potentially a
million to $2 million per day as needed such as that seen from
the North Sea and the Alaskan North Slope regions in the 1970's
and 1980's. Therefore, if demand continues to grow strongly,
OPEC must increase its capacity significantly.
The next figure shows that inventories in the developed
nations of the OECD moved to more comfortable levels at the mid
point of last year. On the other hand, if we take into account
strong global demand growth, if we put inventories in today's
supply terms or in terms of expected consumption covered, the
blue line at the top shows that they were low most of last year
and fell to 2000-like lows of about 50 days by the end of the
year. We expect supply to remain low this year and again fall
toward 50 days by the end of the year, but perhaps the most
important change last year was the drop in the world's ability
to search crude production to offset unanticipated supply
losses.
The next figure shows that global spare capacity which
primarily resides in OPEC, in fact, primarily in just one
country, Saudi Arabia, has ranged--is currently ranging between
a million to a million and a half barrels per day and stands at
the lowest point since the first Gulf war. As global oil demand
rises seasonally to its peak in the fourth quarter, we expect
that spare capacity to drop even further.
In our view it is this lack of supply cushions, low
inventories on a day supply basis, and very little, if any,
usable spare capacity that is responsible for the price
pressure that we see in today's markets. The difference between
what we see in today's markets and that from the last 20 years
is that these drivers, low spare capacity and low day supply,
are not short-term in their nature.
Turning to gasoline. We saw in figure 2 that crude oil
explained most, but not all of the rise in retail prices. While
crude oil accounted for about 32 cents, relatively tight
conditions in wholesale markets added another 7. This chart if
you look at it closely indicates that while crude oil and
gasoline generally move together, at times spot gasoline
increases at a much faster pace than crude oil widening the
spread between them. The spread or the difference between spot
gasoline and spot crude oil depends upon the gasoline supply/
demand, balanced relative to that of crude oil. These spreads
tend to rise when gasoline market conditions tighten; that is,
factors in the gasoline market tighten the balance over and
above any tightness originating from crude markets. The figure
shows that tight crude oil and gasoline market conditions last
year lifted spreads throughout the Nation to very high levels.
By the beginning of this year, though, some regions began to
experience some softening, especially in the Gulf Coast where
spreads in February dropped almost to zero. Unfortunately in
April they bounced back to relatively high levels.
Turning to California. For the most part spreads this year
have run to--have been in at the relatively high end of
California's range. Spreads in California generally are higher
than other regions and more volatile. Hence, the retail prices
are higher and more volatile. In fact, it's not unusual for
California spreads to run 20 to 30 cents on average higher than
the Gulf Coast, and at times they can even range up to 50 or 60
cents higher.
The primary reasons for this are that the California system
supplies most of the region's needs, but the system runs near
its capacity limits, meaning there's little spare capacity to
meet shortfalls. California's also isolated, primarily from the
Gulf Coast, which prevents any rapid resolution to imbalances.
The region uses a unique gasoline that's difficult and
expensive to make, which limits the number of suppliers that
can provide extra amounts. And finally, as California turned to
ethanol banning MTBE, it lost production capability, which in
the face of growing gasoline demand further tightened its
balance, heightening its already high spreads.
The last figure shows that following the ban California
retail prices rose relative to U.S. prices by another 10 cents
or so. In short, California's unique fuel situation is likely
to keep markets tight on the West Coast for some time, meaning
their prices are to remain higher and more volatile.
As we look ahead, we don't see much relief. Crude oil is
likely to remain 50 day supply and keeps pressure on OPEC spare
capacity. Tight refining capacity is also likely to add to this
pressure. At this point little is certain. If crude oil remains
around $50 and gasoline markets remain relatively soft, we may
see some further decreases in the weeks ahead as we move toward
Memorial Day. If crude oil rises, which is possible as we move
to the fourth quarter, we have a strong surge and demand during
the peak summer, or if there is a rash of refinery outages,
then of course that would put gasoline prices back up.
That concludes my testimony. I would be happy to answer any
questions.
[The prepared statement of Mr. Cook follows:]
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Mr. Issa. Thank you. We'll hold our questions till the end.
Mr. Jim Wells is Director of the National Resources and
Environment Team at the Government Accountability Office. Mr.
Wells joined the GAO in 1969, that is a long and distinguished
career, and has worked extensively in both energy and
environmental issues.
Again, Mr. Wells, thank you for being here. Your entire
statement will be put in the record.
STATEMENT OF JIM WELLS
Mr. Wells. I truly am pleased to participate in the
subcommittee's hearing today to discuss today's gasoline
prices.
Holding this hearing today in Long Beach, CA, is clearly
very appropriate because just last week you set a record. You
for the first time had the highest gasoline prices in the
Nation surpassing Hawaii. I don't know whether that's a good
thing or a bad thing, but there is a lot of pain.
Mr. Issa. It's a good thing if we pass them in tourism.
It's a bad thing if we pass them in gas prices.
Mr. Wells. Fair enough. There truly is a lot of pain as
retail gasoline prices are soaring. Each additional 10 cents
per gallon of gasoline adds about $14 billion to the American's
annual gasoline bill. Consumers have a lot of questions as they
fill up their tanks with 380 million gallons a day, or they
read in the newspapers, as Congresswoman Watson talked about,
high oil company profits. Will prices get higher? Any chance
they'll go down? What can the Federal Government do?
Mr. Chairman, you asked us to be here today based on our
work to talk about three questions. So let me just quickly
summarize the first question.
How are gasoline prices determined? First, you start with
crude oil prices. If gasoline were the meal that you went into
a restaurant to buy, clearly the main entree would be crude
oil, which represents about 50 percent of the cost of that
meal. If crude oil goes up, gasoline prices will follow.
Another general fact is the price of crude is not a U.S.
determined commodity price. Crude oil is a worldwide commodity
and its price at any single point in time has little to do with
the cost that it takes to get it out of the ground. The price
is what the market will bear, and how much is demanded, and it
depends on how much oil is brought to the market.
When OPEC cuts back on production, prices rise. When demand
increases faster than supply, prices rise. That's what we have
today. In a sense, the last tanker of oil that's out there in
the ocean at the end of the day as its steering toward, it will
steer and turn toward that country, whether that might be the
United States or whether it might be China, that's willing to
pay the highest price for that last barrel of oil. That's how
world crude oil price is determined.
In the last 15 months crude oil is up 60 percent to over
$50 a barrel. We're going to hear a lot of explanations today
about this large increase, and clearly it is being attributed
to surging world demand, and particularly as it relates to
China and the rest of Asia, instability in the Persian Gulf
region, and actions by OPEC to restrict the production of oil
and thereby increasing the price on the world market.
I want to look a moment to--John Cook had a chart on the
board that talked about what is involved in the cost of a
gallon of gasoline. On page 8 of my statement we have a chart
there that talks about the components, the crude oil, the
taxes, the refining, and the marketing and distribution.
These are the main prices and pieces of a gallon of
gasoline. You're paying for these ingredients, the cost to make
it, and then you have to move it to your local filling
stations, but clearly this also includes the amount of the
profit, and in the marketplace and perhaps API will talk about
that today--that will allow the industry to earn on delivering
that gallon of gasoline as well as the Federal and State and
local taxes that are imposed on a gallon of gasoline.
As John mentioned, a number of other factors also play a
role. Refining capacity, you'll hear that today, in the United
States is very tight. Meaning that we're already producing
about as much as our existing 149 refineries can. Our refinery
numbers are down over 300 refineries that were in existence in
the 1980's, and we've now dropped to 149 refineries. We're
importing about 42 million gallons of gasoline per day to help
meet this demand.
The volume of inventories is another issue. What's
maintained by refineries in today's environment is typically
low, 23 days' worth of supply as compared to 40 days of supply
in the 1980's.
The regulatory factors that are imposed on the industry are
also playing a fairly significant role. For example, in order
to meet the National Air Quality Standards under the Clean Air
Act, many States have adopted the use of special gasoline
blends, so-called ``Boutique Fuels,'' which cost more to make,
and they are clearly putting stress on the gasoline supply
system in existence today.
Finally, the structure of the gasoline market that we have
in this country has changed. It's different than it used to be.
For example, a wave of mergers of the oil companies. We had a
report last year that Congressman Watson talked about, 2600
mergers occurred in a 10-year period. We have a lot of loss of
mom-and-pop dealers that have changed the gasoline market. And
many of this could possibly lead to higher gasoline prices at
the pump.
If I can, turning to question 2, why are prices so high in
California? For example, at the end of April when the national
average price was $2.20, California's price was $2.57.
Explanation for why California prices have been high include
California's unique gasoline blend, which I might add is the
cleanest burning in the Nation, and it is also the most
expensive. Some studies have estimated it as much as 5 to 15
cents more to contribute to that clean gasoline.
There's a tight balance between supply and demand here on
the West Coast. There's a long distance to replace any gasoline
in the event of supply disruptions. The term used many times is
that California is an island of itself in terms of the ability
to bring in supply.
California also has a high level of gasoline taxes.
California currently taxes gasoline at--a gallon of gasoline at
57 cents, 30 cents per gallon more than the State with the
lowest, which is Alaska.
I don't want to imply that anything is wrong with these
factors. They just represent choices, choices that are made and
agreed to.
Internationally, taxes, the United Kingdom, Germany have
imposed $4 taxes on gasoline. Canada's a dollar. Throughout the
world the U.S.' taxing structure is the lowest for gasoline
products.
The third question was: What does the future look like? In
one way it's simple. Future gasoline prices will reflect the
world's supply and demand. Demand is expected to rise. For
example, instead of using 20 million barrels per day, EIA has
estimated that we'll need approximately 28 million barrels in
the future.
Demand in the rest of the world is also rising even faster
than what it is in the United States. A big question is: Do we
have the world capacity to expand to keep up? GAO really
doesn't know. A lot of studies and a lot of people need to look
at that. Are we, in fact, running out of oil? We have been
asked by the House to do another investigation to look at where
the status is on world oil reserves, and we will begin that
shortly.
However, I don't want to leave the impression that it's all
gloom and doom for the future. In the past oil companies have
always managed to find enough oil to meet demand, and we
clearly have technology improvements. We're getting smarter. We
have better equipment, and this may continue to be the case in
the future.
Further, consumers can choose to be more energy efficient
and use different kinds of products, and otherwise they can
make a choice to conserve more energy. For example, in 1980
many consumers, when prices rose, chose to switch to smaller
and more fuel-efficient vehicles. That was in the 1980's.
Mr. Chairman, if I could refer to a picture that appeared
in the USA Today newspaper today, you have a picture of the
President of the United States and the President of Russia,
President Putin, carpooling. They're in their car carpooling.
This is an example of walking the talk, perhaps, in terms of
things that can be done immediately in fixes.
Mr. Issa. I wouldn't do it with a 1950 Volvo. That was not
a sterling example of a fuel efficient automobile, nor
environmentally sensitive.
Mr. Wells. Would you agree with me it's an example of
carpooling, perhaps?
Mr. Issa. I just wonder how many SUVs are following those
two heads of state.
Mr. Wells. Today, Mr. Chairman, we have 200 million
vehicles in some mix of SUVs and newer hybrids. Maybe that mix
will change. I notice you're driving a hybrid. Ford, Honda,
Toyota sold 16,000 hybrids in March 2005, this year. 83,000 new
hybrids were registered in the year 2004. That is small, but it
is making a dent.
Although not in the short-term, clearly there are some
other things that will impact the future--where will the price
of gasoline be in the future? The pace of the developing
alternative energy supplies such as the hydrogen fuel cell
technology clearly does hold promise.
There are additional unpredictable factors on the downside
that may include geopolitical issues such as the stability in
the Middle East, Venezuela, and the valuation of the U.S.
dollar in world currencies. Because of the price paid for oil
that we buy is denominated in U.S. dollars, the U.S. buying
power can be a major factor for the future. If the dollar
falls, the oil-producing countries that are collecting these
dollars will demand more dollars in return for their oil, which
will have some impact, potentially major impact, on the price
in the future.
Mr. Chairman, in closing, it is possible that low energy
prices may be gone forever. Some think that the $50 barrel of
oil may be here to stay, which you heard from the EIA today
that at least through 2005. While there's even some predictions
in the financial community that have predicted a $100 barrel of
oil, but this is far from a sure thing. Holding this hearing is
a great first step in getting a better understanding of what
paths may be available to help steer the energy policy that
you, Mr. Chairman, have talked about in the Congress. Clearly
striking that balance between efforts to boost supplies on the
one hand, to improve efficiencies and to conserve energy on the
other hand are going to present challenges as well as
opportunities to make a difference on what prices we pay for
gasoline in the future. How we choose to meet those challenges
is an opportunity that perhaps we need to seize and to help
determine the quality of life and the economic prosperity of
the United States in the future.
Finally, I think most of us here today would agree, and
clearly in the audience behind me that what is true for the
Nation as a whole is even more dramatically so here in
California. California needs a lot of gasoline to grow.
Mr. Chairman, this completes my prepared statement and I
look forward to responding to questions.
[The prepared statement of Mr. Wells follows:]
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Mr. Issa. Thank you, Mr. Wells.
And next we go to Mr. Pat Perez, manager, Transportation
Fuel Office, California Energy Commission. Pat's been involved
in energy technology and transportation fuel issues for more
than 24 years. As a technical and policy expert Pat has managed
and directed numerous technical reports, helped developed
policies for addressing fuel issues, and provided expertise to
the Governor's office on California's most pertinent and
obviously difficult subjects as they face us here today. We
look forward to your testimony.
STATEMENT OF PAT PEREZ
Mr. Perez. Thank you, Congressman Issa and Congresswoman
Watson, for the invitation to be here this afternoon.
What I'd like to do is just briefly summarize what has
taken place in the California petroleum markets this past year,
what factors have contributed to our fuel price increases, and
what measures the California Energy Commission believes would
help mitigate those impacts certainly over the long run.
First, talking a little bit about the fuel price trends and
causes. The price of crude oil, of course, on world markets to
a very large degree determines the price of transportation of
fuels, even though California receives 42 percent of its crude
oil supply from in-state oil fields. The price of the Kern
River crude oil, a benchmark California heavy oil, has risen 49
percent since the beginning of the year. And Alaskan North
Slope which you see up on this screen, a very important
feedstock for making products in California, has also increased
roughly 36 percent since the beginning of the year.
Among the world oil market factors affecting crude oil
prices are the following: Certainly cautious investment
strategies in petroleum exploration and production by oil
companies and OPEC are contributing to the higher prices.
Second, the slow return of Iraqi oil production to pre-war
levels is also hindering oil output. And high demand that we've
heard from the two previous speakers relative to our world oil
production capacity is leading to a very tight market.
And I might also add that 20 to 30 percent reduction, or
the devaluation of the dollar relative to other foreign
currencies is also adding upward pressure to oil because that's
when OPEC trades barrels in.
The operations of California refineries and related
infrastructure also impact State fuel prices. In early 2005
California refineries underwent intensive planned maintenance
as described in the graphic behind you. In anticipation of this
downtime, inventories of gasoline were built up to very high
levels early in the year. However, unplanned outages at two
refineries in California and at facilities elsewhere on the
Pacific Coast caused the depletion of those inventories as
reflected on the figure behind you.
As companies sought to cover their obligations and
purchases on-the-spot market, wholesale prices increased and,
as you can see, retail prices soon followed. The cost
components of a gallon of gasoline at this price include $1.22
for crude oil, 52 cents for taxes; refining costs and profits
add another 71 cents, and then finally 12 cents for
distribution, marketing costs, and profits.
As seen in this figure the cost of crude oil and refining
costs as well as profits have increased significantly since the
beginning of the year while distribution, marketing cost, and
profits have actually declined since January.
California drivers consume about 43 million gallons of
gasoline per day. With prices increasing almost 60 cents per
gallon since the beginning of the year, the State's consumers
are paying over $25 million per day more for just gasoline. Or
expressed in another way, motorists are paying over $9 a day
more each time they fill their tanks at the service station.
California petroleum markets and neighboring States are
very much interconnected and interrelated. Although
California's considered to be somewhat of an island as far as
its gasoline and diesel markets, it's still affected by
conditions in other regions. In addition to imports of crude
oil and other refinery feedstocks, California also routinely
imports finished fuels and essential blendstocks for making our
fuels. Since only a limited number of supply sources can
provide fuels meeting California's clean burning fuel
specifications, we must compete with other areas for these
products. Our distance from many of these supply sources
further constrains our ability to attract cargoes during
unexpected refinery outages.
California's petroleum trade relations with other States
however are much more complex than just simple import
dependents. As described in figure 5 behind you, Nevada is an
integral part of our fuel markets since it relies almost
entirely on California refineries and pipelines for fuels.
Arizona receives most of its fuels from California with the
rest coming from Texas. And in Oregon, they also receive
significant amounts of fuel from California. As a consequence,
situations that affect one Pacific region State typically
affect neighboring States as well.
Now, I'd like to just turn my attention a little bit to
ethanol and the California gasoline production cost that we
heard just a few minutes ago.
Certainly the shift away from methyl tertiary butyl ether
or MTBE in gasoline has necessitated the use of ethanol here in
California because the U.S. Environmental Protection Agency has
not granted California a waiver from the minimum oxygen
requirement. Ethanol is the only type of oxygenate that can be
used in California; the Nation's largest consumer of ethanol.
In fact in 2004 California refiners blended about 900 million
gallons of ethanol.
The cost of ethanol relative to other gasoline blendstocks
has not been a direct cause, however, of the higher gasoline
prices seen in the State. There have been--blending economics
of higher ethanol concentrations are much more favorable than
they were last year as seen in the figure. There have been no
shortages of ethanol or significant difficulties of blending
the new gasoline.
The oxygenate requirement has, however, reduced refinery
flexibility to produce and blend gasoline that meets
California's Air Quality rules. This is particularly true
during the low-volatility summer gasoline season that we're now
in because the use of ethanol requires backing out some of the
cheaper or less expensive gasoline components such as butanes
and pentanes while replacing those with higher cost blendstocks
such as alkylate that you can see on the figure behind you.
Turning our attention a little bit, price gouging and anti-
trust issues, that certainly commands a lot of attention, not
only in California, but throughout the country is that
investigating price gouging or anti-trust issues in California
is really the responsibility of the Federal Trade Commission
and the California Attorney General's Office.
Two types of investigations have been initiated by the
Attorney General's Office. Those looking at gasoline prices and
at oil company mergers, in the case of gasoline pricing, the
Attorney General's Office concluded that a lack of competition
in gasoline markets in the State has played a significant role
in past price spikes. However, the ability of Government to
quickly remedy high fuel prices is somewhat limited.
Several measures are proposed about Attorney General's
Office have been studied by the California Energy Commission,
including the creation of a State fuel reserve. And also a
pipeline connecting refineries in the U.S. Gulf Coast to
California, that would increase and provide us opportunities
for getting more supplies, but we've also undertaken very
comprehensive studies on expanding the use of alternative fuels
and conservation.
What we found in those studies was one that the State fuel
reserve was not found to be a viable measure because it could
potentially displace private inventories of fuel, offer
profitmaking opportunities that might reduce its effectiveness,
and could actually reduce the total supply of gasoline in our
State.
A pipeline to the Gulf Coast also does not look feasible at
this time because we do not believe there is sufficient product
to move in that pipeline to California to make it economically
feasible.
Several oil company mergers have also been investigated by
the Attorney General's Office since 1999. And in several cases
these investigations have led to refinery asset divestments or
other concessions aimed at preserving competition by reducing
the concentration of important segments of California's
refining and marketing industry in too few hands.
Now, I'd like to talk a little bit about the impact of the
well-publicized Chevron/Texaco/Unocal merger. We see no impacts
on refined product supplies for California from ChevronTexaco's
acquisition of Unocal, since Unocal does not possess any
refineries or service stations in California, but there could
be a major change to an important gasoline blending constraint,
which is the patenting by Unocal of the phase 3 gasoline
formulations that were negotiated by both the oil industry and
the California Air Resources Board.
If ChevronTexaco's acquisition includes all five sets of
these patents and ChevronTexaco decides to discontinue the
enforcement of said patents, this would remove a significant
cost to producing gasoline in this State. Non-major refiners
would benefit because their license agreements could be
eliminated, thus reducing a cost component for their own
overall operations. Major refiners who are currently blending
around some of the patents could eliminate this practice, also
reducing operating expenses.
The final benefit would be the removal of a constraint for
importers, some of whom are unwilling to send cargos to
California for fear of infringing on Unocal's patent rights.
All of those benefits would probably amount to between 1 and 3
cents per gallon for the cost of making California-compliant
gasoline.
Now, talking a little bit about refinery expansions. Big
West is considering an expansion project at their Bakersfield
refinery that could increase gasoline and diesel production by
another 10,000 to 12,000 barrels per day over the next 2 to 4
years. Likewise, here in the South Basin, Paramount Petroleum
should begin production of California-compliant gasoline for
the first time within the next several days. And this will
certainly add to the much-needed capacity to satisfy our
growing appetite for not only gasoline but diesel.
No new refineries are planned for California; however, one
150,000-barrel-per-day refinery is planned for Arizona, which
if they obtain all their permits and secure some tenure supply
contracts for crude oil, could be up and operating by 2010.
Some of the responses to high and rising fuel prices. The long-
term demand for gasoline in California is expected to continue
growing. Refinery capacity is only expected in California to
average less than a half a percent per year growth creating a
growing gap between supply and demand in our State. I think
this figure here kind of shows the dilemma that we are faced
here in California with slight expansion of refinery capacity
and growing demand. And as you can see from that figure, the
gap is widening, not narrowing over time.
Two other general approaches can be applied to address this
growing shortfall between what we consume and what we produce.
That is, one, the increase in importation of products. And I'm
not just talking about gasoline, but also diesel and jet fuel.
And, second, strategies to reduce demand.
The Energy Commission recently sponsored a study that has
identified current and future constraints with the system of
wharves, storage tanks, and pipelines that could impair our
ability of importers to deliver cargoes of petroleum products
to this State, especially during a disruption. The potential
problems are most serious here in our backyard in southern
California, and particularly at the Port of Los Angeles and
Long Beach where most of the growing quantities of imported
crude oil and finished products would have to be received.
Long lead-times and the complexity of acquiring permits to
construct facilities were identified in our study as leading to
a shortage of storage capacity and higher storage tank lease
rates, which you as a consumer, those higher costs ultimately
get passed on to the consumer as reflected in higher product
prices.
Finally, on reducing demand for petroleum, the Energy
Commission and the California Air Resources Board in a joint
study found that improving fuel efficiency using existing and
emerging technologies would most dramatically reduce petroleum
demand. And specifically we recommend a doubling of fuel
efficiency for cars, pick-ups, sport utility vehicles to 40
miles per gallon.
The proposed energy bill Legislation that is emerging in
Washington, DC, represents a significant opportunity to alter
these vehicles fuel efficiency standards for the first time in
many years.
The Energy Commission encourages the U.S. Senate to make
revisions to their version of the energy bill that would
advance this strategy, particularly increases in Corporate
Average Fuel Economy standards.
The Energy Commission and ARB have also concluded that
California must also increase the use of alternative fuels,
including natural gas, ethanol, liquid petroleum gas, gas-to-
liquid, diesel, biodiesel, electricity, and hydrogen. We
recommend that the State increase the use of alternative fuels
to 20 percent of on-road fuel use by 2020, and 30 percent by
2030.
The Energy Commission has also recommended several near-
term options certainly that is assisted by people moving to
hybrid vehicles. And I'm very pleased to see Congressman Issa
driving one of those vehicles, but there's also other things
that consumers can do, such as greater use of public mass
transit, carpooling, telecommuting, minimizing idling, and
maintaining a vehicle property. And certainly we have a host of
other near-term means for reducing the impact of the high
prices we have on the Energy Commission's Web site.
And with that I'd like to conclude my testimony.
[The prepared statement of Mr. Perez follows:]
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Mr. Issa. Thank you very much. Very helpful.
Rayola Dougher is manager of energy market issues, American
Petroleum Institute. She has more than 20 years' experience in
economic analysis of energy-related topics. Since 1985 her work
has focused on public policy issues impacting the U.S.
petroleum industry. And we look forward to your testimony.
Thank you.
STATEMENT OF RAYOLA DOUGHER
Ms. Dougher. Thank you, Mr. Chairman, Congresswoman Watson.
API welcomes this opportunity to discuss why gasoline prices
are so high and what can be done about it. Obviously your
constituents, like Americans everywhere, are concerned about
the continuing rise in prices and the impacts on their wallets
and on the U.S. economy.
I believe America's oil and natural gas industry shares
common values and concerns with you. We share your commitment
to finding workable solutions to our Nation's energy problems.
We are committed to providing consumers with reliable energy
supplies. We work hard to support economic growth. We believe
our domestic oil and natural gas resources can be developed in
a responsible way.
Technological advances enable us to produce energy while
protecting the land and the environment. And we want to work
with you in building support in Congress for urgently needed,
comprehensive energy legislation.
Now, I'll leave the rest of my testimony, which you have,
and I just thought I'd run through a few slides. Some of them
might be redundant, so I'll be a little--I'll gloss over those
points that we've already covered; OK? So here it goes.
Why we're facing higher cost, and I'm going to discuss a
little bit about how we got here, supply and demand, and what
we can do about it.
As we heard earlier it's really the forces of supply and
demand on the international marketplace for crude oil. Those
prices are set by the world's demand and the world's supply.
And right now we have very limited spare capacity, and under
these circumstances small changes have a big impact on prices.
And what we've seen over the past year, especially if you look
at the highest bar, 2004, you'll see a big bump-up in the
world's demand. And the current high prices we're experiencing
are in large measure due to this surge in demand.
And if you look at 2005 and 2006, the forecasts by EIA are
for an additional 2 million barrels a day. This is twice as
much as what we had been growing in the 1990's and early
2000's. And under these circumstances there's a lot of factors
then that will affect the price in addition to the fact that
capacity is very limited on the world's market. We used to have
6 million barrels a day extra capacity a few years ago, and now
we're down to about 1. And this is in a world that's consuming
84\1/2\.
So under these circumstances any one or more of these
factors--and we saw all of these last year--will have an impact
on prices and continue to affect the marketplace as we move
forward.
Well, if I can move the next slide forward, we'll be OK.
OK. This you've already seen, but I've put an extra line
here with crude oil prices. And it just shows fundamentally how
the gasoline prices are mirroring what's happening in the crude
oil marketplace. And again, more volatility and higher prices
in California are for some of the reasons already discussed.
This is just a simple chart. It was a moment in time, I
think it was April 25th, and those prices do change somewhat,
but I wanted to show you between April of last year and April
of this year the price of crude oil is really what's moving the
price at the pump more than anything else.
And I wanted to turn a little bit to earnings because
there's a lot of frustration and misunderstanding about
earnings in the oil industry.
It's a big industry, maybe the biggest in the world. This
industry earns billions of dollars, but they spend hundreds of
billions, even trillions bringing their product to market. So
when you put it in the context of how much money is the
industry making on every dollar of sales, last year they made 7
cents on every dollar of sales. The rest of U.S. industry--and
this is just from a survey that Business Week does--earned 7.2
cents. Over the past 5 years the industry earned 5.6 cents on
the dollar and the rest of U.S. industry 5.4.
This quarter, we only have preliminary figures for this
quarter, but I think the oil and gas segment of what I'm
showing above is pretty good. It's about 8.4 percent right now,
8.4 cents on every dollar of sales. And these others are just
from a flash survey from Business Week and it's usually the
early reporters with the higher results will report first, so
that the U.S. oil industry average is high and ought to come
down when Business Week publishes their corporate scoreboard in
a couple of weeks. And we keep this data on our Internet and on
our Web site.
Turning to the refining sector. The rate of return in the
refining and marketing industry has been disappointing for a
long time now. The bars show what the refining and marketing
have earned in relationship to that backdrop, which is the S&P
industrials. And they've been earning about, oh, half or less
than half of what the S&P has earned. And beginning in 1990
with the Clean Air Act Amendment required massive investments
in environmental expenditures to bring cleaner burning
gasolines to market. Those investments were made, but smaller,
less efficient refineries had a tough time keeping up, and a
lot of them closed down.
You do hear a lot about no new refinery in the United
States since 1976; that's true. Back in 1980 we had over 300
refineries. Today we have 148 operating refineries. But over
this timeframe we have continued to produce even greater
amounts of gasoline. We produce about 90 percent of what we use
in the United States, and this is--we've been able to do this
because of efficiency improvements and also because we're
expanding the capacity and the utilization of that capacity.
We're at 93 to 95 percent right now.
And there's a lot of misunderstanding, too, about the
mergers that took place in the late 1990's. Part of the reason
for these mergers really was to realize efficiencies and
economies of scale. And this is just a simple figure that
shows--that's calculated by subtracting taxes and refiner's
composite price for crude oil from the retail price of
gasoline. And it shows back in 1980 a cost of 95 cents to
refine and market and distribute gasoline. By 1990 on average
it came down to 61 cents. By 2000 it was at 52 cents. And it
has varied quite a bit since then, in the 40's, up to over 50,
60 right now, but on average for a 5-year period it's been at
52 cents. These are real savings.
So in the near term the market outlook is for continued
strong world oil demand. OPEC remains near capacity. There's
spare capacity in Saudi Arabia and limited ability for non-OPEC
to bring new product to market quickly. And geopolitical
concerns remain, a lot of political instability in oil-rich
nations and that continues to affect us. However, the market
does work. It does respond to price. It does stimulate demand
and it does dampen supply.
What do we need? We need a lot. We need additional
exploration and development of production of fossil fuels. We
need to increase our energy efficiency. We need greater
penetration of hybrid vehicles, for example. We need a lot of
R&D and alternative fuels, including fuels like tar sands, and
shale and renewables, hydrogen.
And I don't need to tell you, the American Petroleum
Institute is very gratified by passage of H.R. 6, and we do
look forward to working with you to see comprehensive national
energy legislation passed this year.
Thank you very much.
[The prepared statement of Ms. Dougher follows:]
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Mr. Issa. Thank you. And now the part you've all been
waiting for. And I'll start the questioning, but because the
two of us will be the only panelists or only questioners of the
panelists today, I might ask my ranking member if we alternate
questions rather than worry about time. That will give you a
variety of questions.
Mr. Cook, I'd like to start with you. You testified that
there's been about a 12-cent per gallon increase between the
cost of crude oil and retail gasoline prices over the past
year: 7 cents due to increased refinery costs and profits, 5
cents due to increased distribution costs and/or marketing
costs and profits.
Are you saying that you can't explain this by cost alone
and that at least a portion of this increase is greater than
can be justified by cost and commensurate percentage profits?
And I'll make it simple for an old businessman, it looks
like gouging of some portion of that, doesn't it?
Mr. Cook. With all due respect, I think what I was trying
to illustrate--and I think it was figure 6 that did a little
better job--as the refining industry and the distribution, the
retail segment, operates at higher and higher levels on less
and less spare capacity, that tends to raise the marginal costs
in producing those last barrels of gasoline, and that turns out
to--in fact, is reflected in higher retail prices.
So, no, I would not refer to it as gouging. It's a symptom
of an industry that is seeing supplies tighten further and
further with a need to have clean fuels, but it does come with
a price tag. It does tend to raise marginal costs.
Mr. Issa. I appreciate that, and on the same question with
Ms. Dougher. If I understand, you were showing us percentages,
and if I understood correctly, percentage return--and I'm very
appreciative that percent of return has been low for this
industry--but percent of return over the last year has been
significantly higher, about 33 percent higher than they were
running. In other words, you go from 5 percent to 8 percent.
That's a 30 to 50 percent increase in your return.
Ms. Dougher. I'd like to clarify that. I think you were
just talking about the profits themselves. And what my chart
was showing was profits divided by the revenue. So how much
money are you making on every dollar that you get? So that was
showing--for example, the most recent quarter was 8\1/2\ cents.
Last year was 7 cents on the dollar. Now that's a big
improvement over a nickel or nickel and a half. So that's a big
bump up. I think what happens often is people just look at the
profits, not as what's being spent to bring the product to
market. You're spending ever greater amounts, and it takes a
long lead time and huge investments that this industry has to
make to continue to produce more and to bring more product to
market.
Mr. Issa. I wanted to respect that back-and-forth
questioning, but in my next round I'd like us to all think in
terms of where I came from, the electronics industry. If my
costs were rising, everybody after that cost comes in generally
found themselves squeezed to try to get to the retail consumer.
If you were bringing in something to market that Circuit City
was going to sell and they've been paying $2 but your costs
went up from $1 to $1.50, you generally try to figure out how
you could still deliver it at $2, which meant you compressed
your profit margins.
What I heard here today is that at a time which the raw
product price is rising, profit margins are expanding. And no
matter how you look at that, that's the opposite of what one
would expect. If the beef in a restaurant is going up in price,
the restaurant is generally trying to find ways to hold their
top price as close as possible to what it was, which means it's
compressing somewhere. But we're having just the opposite.
We're having an expansion of those margins after the cost of
the product.
Ms. Dougher. Remember the one slide did show how the
refining and marketing and distribution costs in America have
been coming down for quite a long time now as efficiency
improvements and economies of scale were realized. But on the
other end of it the cost that we can't control that's set on
the world marketplace is the cost of the crude oil. And that is
determined upon hundreds upon--well, millions of decisions each
and every single day on that marketplace. So if you're a
producer right now in America and the price of crude has gone
from $35 a barrel to $50 or $55, than you're realizing good
rate to return and searching for new places to explore and
develop and bring ever more product to market. You have every
incentive to do that, especially at these prices. It's happened
quickly and these projects take long lead times to develop.
Mr. Issa. Sure. And I'm going to respect our back-and-
fourth agreement. So, Ms. Watson?
Ms. Watson. I want to thank you very much, Mr. Chairman.
When I look at the list of witnesses and I refer back to the
question for the hearing, what's causing record prices at the
pump, I hear from our U.S. Department of Energy and I hear from
the American Petroleum Institute, and maybe only a couple of
the witnesses that really would be more leaning toward the
consumer side.
So with that said, I had to--I requested a report, Mr.
Chairman, ``The Impact of Increased Oil Prices in the Los
Angeles Area,'' and I seek permission to include this in the
record.
Mr. Issa. Without objection.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] T2685.103
[GRAPHIC] [TIFF OMITTED] T2685.104
[GRAPHIC] [TIFF OMITTED] T2685.105
Ms. Watson. All right. So let me address my question now to
the GAO, probably the only one on this panel that might see the
problem differently from the consumer side.
Your May 2004 report found the link between the recent wave
of mergers and high gas prices. There is, I think, a
relationship there, regardless of what's been said by this
panel. But your price analysis ended in the year 2000. Was
there another one since then?
Mr. Wells. There has not been.
Ms. Watson. OK. So long before the approval at least of the
last two large mergers, which was ChevronTexaco and
ConocoPhillips, and would it be safe to say that your report
understates the price impact of mergers on gasoline?
Mr. Wells. Congresswoman, we took extensive effort in
designing a methodology that had never been used before. We
tried to consult with experts and got peer review expertise to
look at the type of design model that we were putting together.
And I would say that we erred on the side of conservative
estimates wherever possible. So I would not say underestimated.
Ms. Watson. This is 2005. Your report was done in 2000.
Mr. Wells. That's correct. It looked at mergers that
occurred over a 10-year period from 1990 to 2000.
Ms. Watson. OK. But look at the gasoline prices. And from
what I've seen on your charts the prices have gone up within
the last 5 years. And we've had mergers since then. So I would
say that your data end results are stale. Would you agree?
Mr. Wells. I'm sorry, our data was what?
Ms. Watson. Stale.
Mr. Wells. Stale?
Ms. Watson. Yes.
Mr. Wells. I would have to agree.
Ms. Watson. OK.
Mr. Issa. Time to ask for your new study.
Ms. Watson. That's where I'm going. Because I did ask my
staff to go out and do a little research. Because we get the
complaints. You're getting the complaints. And what I've heard
today does not answer the question for me.
Now, capacity has been mentioned, but it seems to me, and
this one goes to Ms. Dougher, if you are merging, then you
ought to plan for a larger capacity. Why aren't the--why aren't
there new refineries being built? Why aren't you anticipating
the capacity? California is a State where one person on the
average has six automobiles. And people love their SUVs and all
these--I mean, you can do the math, and I don't think we're
going to get Californians out of their automobiles because
we're not building the metrorail systems, and I've been trying
in my district since the early 1980's to connect up the basin.
And we've tried everything. And we can't get people out of
their cars.
We have a Governor that has six--what do you call those
things, those armored-looking things?
Mr. Issa. He's called for hybrid Humvees.
Ms. Watson. He's got six of these he owns himself.
Mr. Issa. Actually, he has a dozen.
Ms. Watson. It's more than I knew.
So we're not going to realistically get them out of those
cars. You can only drive one car at a time. So, Ms. Dougher,
what is this institute recommending that we do for the future?
Apparently, we're not having enough influence on OPEC and--
because they keep raising their prices. And, I mean, the fossil
fuel is there and we know it's there. We just came back from
Qatar a couple weeks ago, and they told us we have enough
natural gas and enough crude to service, No. 1, with natural
gas, any home for the next hundred years, and to service your
need for your automobiles ad infinitum. So it's there.
Now, why is it that we are not building for that capacity?
Ms. Dougher. We have been building for that. Capacity has
increased and the utilization of that capacity has increased,
but it's as an industry as I showed you that it's realizing
very poor rates of return for a long time now. It's producing
18 different formulations of gasoline, two different seasons,
three different octane levels. It gets complicated fast.
Ms. Watson. I know.
Ms. Dougher. So it's economic and it's also political.
There's a lot of ``not in my backyard'' that goes on. And it's
been very, very difficult to expand existing capacity. Never
mind building a refinery. The one in Arizona, I think the
permitting in there, has been going on for 10 years now, and as
we just heard it might get done in another 5.
So it has been difficult economically. It's been difficult
politically. And the remainder of what we need we've been
importing because it's just been so difficult to get anything
done here.
Ms. Watson. I understand--and then I'm going to throw it
back to Mr. Chairman--that the United States is the third
largest producer of oil in the world after Saudi Arabia No. 1,
Russian No. 2. We're No. 3.
We're producing that oil and you're merging. The oil
industry is merging and we're paying the price, these high
prices. Something is missing. Maybe we can get to it; maybe we
can't. Something is missing in this equation. OK, Mr. Chairman.
Mr. Issa. And perhaps I can get to it. Following up on my
earlier line of questioning, and this, by the way, is very
consistent with a lot of the questions that we got from our e-
mails. ConocoPhillips has increased profits this first quarter
of 2004 versus the first quarter of 2005, by 80 percent. Shell
42 percent. British Petroleum 36 percent. ExxonMobil 44
percent, and so on.
I hate to say this because it was my generation, but a
generation ago we had a sudden rise in profits of this sort and
Congress passed the Windfall Profits Tax. I looked through the
record of how that worked and there's considerable debate, but
it appears as though the tax did not go toward new production,
new capacity, new--a new direction that prevented us from
coming back right where we are again, although the price of the
oil went down, and it was phased out and eventually eliminated.
If these kinds of increases--and to be honest, I have a
hard time believing that domestically they're not even better
than this. Because if I look at $15, $16 a barrel of actual
cost to remove something from the ground and you went from
getting--and it could be lower in some cases--Bakersfield
happens to be a high-cost area. So we in California know that
we have oil wells that require steam. They're a little more
expensive to get out, but even if you're spending $17 or $18 a
barrel to get it out, when the price gets to $20, you're just
breaking even. When it gets to $40, you're printing money. And
we're well above printing money. We are now minting gold coins.
This is somewhat of a panel question, but I think it's
essential that we ask the question. How are we going to ensure
that those dollars, if allowed to be retained by the oil-
producing and refining facilities, or for that matter even by
the final distributor, that if those funds are allowed to be
retained that they're going to be invested and not simply
windfalled to the stockholders because obviously the United
States, at least in this Member's opinions, has a vested
interest in seeing that if it costs $9 to $18 a barrel to take
even old oil out of the ground, that would not pay $50 a
barrel, and $2.79 a gallon for gasoline. That does not compute.
And, Ms. Dougher, I'll start with you because I want to be
very supportive of your position, but all those efficiencies
you put on the board still don't change the fact that an oil
well sitting in Bakersfield that's been producing for a very
long time suddenly has a run up and, if I remember right, Shell
announced that they wanted to close the refinery out there.
You're talking about an increased refinery, and I personally
wrote a letter and weighed in that a profitable refinery was
going to be closed in an oil-producing area of the State, and
anecdotally for Congresswoman Watson we were also the third
largest oil-producing State in the Union. Unfortunately 50
percent of what we consume, we import it.
But I'd like you to respond to that in light of these clear
profits. What should we be doing to ensure that those profits
are invested so that this long, short, medium term problem
comes to an end?
Ms. Dougher. Well, if they're not invested, then these
companies go out of business. They have to invest for the
future or they won't have a product to sell. And they're always
looking for opportunities to do just that, and this is a great
opportunity for us with these earnings over the past year or
more. And what we need now is access to some of the more
promising sites so that we can develop them here in the United
States, so to that we can keep the jobs and keep the money here
instead of flowing abroad.
But we're in a good point in terms of an opportunity and in
terms of policy to match the two together.
Mr. Issa. OK. And I appreciate your input on that and that
new site certainly is a point for, again, Congressman Watson,
and I, and perhaps certainly Pat, we're a little tainted here
in California by the history of our deregulation of
electricity.
We do know that is not always in a company's best interest
to produce more of something. It may be in their best interest
to make more money on what they produce. And to a certain
extent that's been the history, certainly, of electricity post
deregulation in California. It is also a clear sign of what
we're seeing over the last 20, 25 years. We are not producing
more in the United States and--nearly as we should. We are--
were--not a gasoline importing nation a generation ago. So we
have slipped from being gasoline self-reliant. We may not be
oil self-reliant, but we were gasoline self-reliant until
today. I think, what is it, Norway that we have to get our
gasoline from if we run short in California.
Ms. Dougher. We continue to produce about 90 percent of
what we use, but each year we use more and we are importing
about 10 percent and we are getting to a point that these
refineries really are strained to keep up with the extra
demand. And we need to simplify some of the refinery fuel
specifications which is addressed in H.R. 6, as you know, and
that could help add some flexibility to the system, repeal the
oxygenate mandate and have a national phase-out of MTBE. All
these things would help the refining segment of the industry to
move forward in a better fashion.
Mr. Issa. Excellent. Mr. Perez, you don't have to weigh in,
but it's your opportunity.
Mr. Perez. Certainly the investment in this State would be
something we would desire to see, but through all these
consolidations, acquisitions, and mergers over the last 10 to
20 years you're dealing with essentially global giants where
decisions are made on a worldwide basis. And when it comes down
to investing that money from these profits, they look at the
issue from a global perspective. If it's less expensive to
build a refinery, process crude oil, and make a variety of
products abroad, whether it be in India or another Asian
country, they're going to pursue that option, and that's why at
the Energy Commission, one of the things that we're most
concerned about right now is our import infrastructure, our
ability to import, not only more crude oil, but petroleum
products as well as the blendstocks to make finished gasoline
in this State, and that is the reason we just issued a study, I
guess it was about 10 days ago.
We'll be holding hearings next Monday in Sacramento to
highlight what some of the challenges are because as we see it,
we don't see any significant investments being made in this
State beyond what we've seen Paramount is going to do, and
certainly Big West in Bakersfield is now pursuing plans to
expand their capability, but when you look at overall demand
growth in this State, it's only a small portion of that demand
growth.
Mr. Issa. Mr. Wells.
Mr. Wells. Yes, Mr. Chairman. Clearly the Government
Accountability Office has legal access to Federal records and
data. When we deal with private sector industry, we rely on a
lot of cooperation of the industry to discuss things with us.
In the course of doing our work related to gasoline and
mergers, we did have the opportunity to talk to some of the
industry. Not all the industry would agree to talk with us. But
I can tell you sitting in those meetings there's a lot of
issues with proprietary information. When we sit in the
meetings and any discussion of profit or prices comes up, we
have legal people in the room that basically shut the
conversation down. But we hear a lot of explanation from the
industry as they explain what's going on and we listen, but for
me, a country boy, some of the things that I understood would
be some issues relating to a discussion that when times are
good, you bank the money and you use that money to help in lean
times. I sort of understood that conversation.
Anecdotally we're looking at data to look at whether or not
the industry is reinvesting right now. And we're not
necessarily seeing that, reinvestment dollars, but we are
seeing a lot of dollars being returned to the shareholders. And
that's not to say it's anything bad. The industry still has to
stay in business and earn a living and produce the product.
Mr. Issa. So what you're saying is the stockholder gets the
money so we can go buy Intel stock. I just want to make sure
that's--you know, I would imagine if you're returning dollars,
it's not going to be likely to be going into new refineries
with one of the competitors.
Mr. Wells. They're buying back their stocks. There's a lot
of rebuying of some shares.
Mr. Issa. Mr. Cook and then back to you.
Mr. Cook. I'd like to point out that the root of that
problem to me appears to be a lack of spare capacity both in
crude production and in refining. What that means is that
demand growth has accelerated in the last year or two,
surprising the industry. Capacity expansions haven't kept up
with that. So why haven't they? No. 1, they didn't anticipate
the spur in demand growth. And, No. 2, as the API person tried
to point out, returns on investment until the last year or so
have been half of the levels achieved in other industries.
So this is a situation where even today we think these
forces to high prices are permanent until that spare capacity
problem is solved, but there's no consensus. You talk to a lot
of experts, they're going to tell you it's temporary. What does
that mean to the industry investor? This is an industry that's
been through cycles of boom and bust time after time after
time. So if there are a lot of so-called experts telling these
guys, ``OK, times are good today, but they won't be 2 years
from now,'' what does that do to the investment signal? The
root of the problem is to get more investment out there. It
seems to me that if, in fact, this continues over the next few
years and the market works, there won't be any problem about
that investment flowing back into the industry.
Normal market forces are going to plow that back in. That's
what we need now, a period of sustained, reasonable returns on
investment. Certainly 8 cents on the dollar is not unreasonable
and that's what we're going to have to overcome--the various
problems the industry faces in permitting and environmental
costs to have that capacity.
Mr. Issa. Ms. Watson.
Ms. Watson. I've heard it said that the industry is saying
that the reason for rising costs is the demand in China and in
India. All of us have known and observed the growth in China.
And you can look at the population in India and, you know, I
don't understand how the industry has not projected for the
future. I mean, I'm baffled. I mean, you guys work with numbers
all the time. And OPEC does not set the price. They give you
the price for their oil, but they don't set the prices at the
pump. And we have plenty of crude oil. Wait till we go into
Africa. They've got enough natural resources to serve this
planet on into the future beyond our lifetimes.
Now, what I'm seeing and I'm listening very intently, that
it's the energy traders in New York who are using their rising
demand as an excuse to drive the prices of crude up to return
more to their investors. And we have been the victim of that
here in California. We've seen what the middle guy has done to
us. They drive the prices up and we don't get our fair share
here in California, so we're triply victimized.
Is there anyone at this table that's brave enough to really
kind of look deep and give us an answer to these rising costs
and the fact that they're going to continue to stay high? I
feel they're going to continue to stay high. And somebody said
we probably will be around $3.15 a gallon in a couple of weeks.
I feel that it is projecting for increased profits rather than
the demand. It seems to me that if more people are using crude,
that means more money. And, you know, with China and India now
having more demands, I don't know why our price is going up
when they are putting more money into the oil companies who
then can give large--and, we're going to always have that need
for oil. We're going to have that need for oil.
And so will anyone want to respond to where you think the
real problems are? And don't give me the answer that it's the
blends, it's the boutique fuels. I hope that we have greater
usage, greater development because we certainly need an
alternative, but something is missing in all of your testimony.
Mr. Cook. Again, the bulk of the increase since 2000 is in
crude oil. Prices on one of the charts that we showed you are
$20 in 1999. Now they're $50. That's $30 a barrel increase
because of the lack of spare capacity in global crude markets.
$30 a barrel is 75 cents a gallon. Right there is 75 cents off
of $1.50. The prices used to run just $2.25.
There's been some additional elevation because of the
tightness in refining capacity. I think that would ease if
these profits stayed up, but nobody believes they're going to
stay up, and that tends to dampen the investment that's
necessary.
Ms. Watson. What do you mean by the prices are not going to
stay--the profits are not going to stay up. Can you explain
that?
Mr. Cook. I'm saying that I think crude prices and retail
prices will stay up, but this lack of spare capacity, this key
driver, is going to sustain that. But there are a lot of
experts out there that refer to geopolitical risk, speculation
on the NYMEX, things that could be temporary that may ease and
bring prices back down and take away the extra profits
necessary to do the investment that's needed here.
Ms. Watson. Well, if you're saying that it's capacity, with
these mergers why aren't we going after new refineries or
increased capacity at the refineries we do have?
Mr. Cook. I think that will happen. It's just all too new.
It's only been in the last year or so, and it has been a
surprise. Yes, I think the industry forecasts----
Ms. Watson. What is a surprise?
Mr. Cook. That one chart that showed you the big jump in
demand in 2004, over doubled what had been going on the
previous year, in the last 15 years----
Ms. Watson. Why is it a surprise?
Mr. Cook. Who knows exactly when demand is going to spurt
because of Asia and China? It's going to grow, but did we see--
no one saw that it was going to double overnight.
Ms. Watson. It started in the 1980's?
Mr. Cook. Pardon.
Ms. Watson. It started in the 1980's.
Mr. Cook. They started growing, yes, but the increase
didn't double and triple until 2004.
Ms. Watson. They put those bicycles aside and now they're
all driving automobiles.
Mr. Cook. I think----
Ms. Watson. 1.2 billion people in China and 1.3 billion in
India. OK.
Mr. Issa. Thank you. I want to be consistent with the
promise to address constituent questions. I've been ticking off
a lot of the questions we got on the e-mail as they were
answered here without even being asked, but one of them that I
don't think has been fairly addressed comes from Martin Reyes
in Los Angeles.
It says, ``I have noticed that gasoline prices vary from
city to city or even block to block. It sometimes varies as
much as 10 to 20 cents a gallon at the same name brand
stations. Why?''
Ms. Dougher. Well, there's lots of different reasons and it
depends on where you are, and even myself traveling to work in
the morning I'll see different prices on my way into town. Part
of it's competition. Part of it's supply. Who's your supplier?
Part of it's the contract that you have with that supplier. So
it can vary for a whole host of reasons. That's the best I can
give you on that.
And within a State, depending on which State you're in, you
can have different taxes. For example, Florida has 60 different
counties----
Mr. Issa. No, no. We're only talking a Los Angeles person
who drives and at the off ramp it's $2.97, then you go a little
further in and it's a dime cheaper. And you go around the
corner--and it's all the same brand in some cases. I laughed at
this one because I understand somewhat how it happens, but it's
got to be the hardest thing for the consumer to believe that if
there's really competition, why is there--on four corners
they're always the same price, but they're not the same price
two blocks away.
Ms. Dougher. It's what the consumer's willing to pay, and
also the competition, the cost of doing business in the area.
It's all those things. If you have a better location, you can
probably mark down a little bit or maybe even mark up more. It
depends on who your competition is.
Mr. Issa. Are there any other answers for Mr. Reyes because
I'm sure if he reads this one in the newspaper, he's going to
say, ``And what does that mean?'' With all due respect, I don't
disagree with your point, but I hope there's another point.
Mr. Wells. Mr. Chairman, we're preparing a gasoline primer
study that we're looking at trying to help explain to that
consumer the types of things that cause gasoline to be what it
is. We too have been asking the industry this question and the
most frequently mentioned answer we get is a corporate industry
decision that allows them to do things like zone pricing. We're
still attempting to understand zone pricing, but it involves
the industry making conscious decisions about selling at the
wholesale level to retailers at different prices that will
allow certain individual stations to charge a lower price. And
that is a market competition decision that the industry makes
to remain competitive in the marketplace and what the market
will bear, but there is practices known as zone pricing.
Mr. Issa. OK. So, I guess, the short answer for Mr. Reyes
is zone pricing, and since this is the wrong panel I won't ask
why is it that I'm always paying $500 when the person next to
me on the United flight is paying $199? That also is a question
I'd like to have answered.
Mr. Perez, real quickly, there were two things that you--
quite a few things you touched on that sparked my interest. One
is you talked about ethanol as a fuel. You may be aware that 53
members out of 53 members of the California congressional
delegation signed on repeatedly to an ethanol waiver so that we
wouldn't have to put that high cost oxygen into our fuel in
hopes that it will lower our cost of gasoline, which we've been
assured that it would have an impact, and you can respond to
that.
So in that case why would we use ethanol as a fuel if it's
a more expensive fuel?
Mr. Perez. Right now it's not more expensive, but----
Mr. Issa. Without subsidies. Yeah, let's forget the fact
that's putting a lot of money into sugar.
Mr. Perez. One of the things that we feel consumers would
benefit out here in California is if we had a waiver. Certainly
right now it's very attractive to blend as much ethanol as
possible. In fact, the way the air quality requirements work is
basically we've got to use oxygenated gasoline with ethanol in
about 80 percent of our market, but right now we're using it in
roughly 97 percent of the market because ethanol prices are
significantly depressed right now. And one of the reasons for
that is there is tremendous production that has come on line
here in the past year.
There's also another major market in Atlanta that decided
not to go down that road right now, rather litigate it. So
they're not using ethanol. That frees up about 250 million
gallons of ethanol. You got 17 major ethanol production
facilities under construction right now that will be adding a
lot more capacity.
So there's a great deal of ethanol out there right now. And
as a result California refiners are blending a great deal of
it. The concern we have is that is not likely to continue
forever, that huge surplus that we have right now. Rather, we
would like to have the flexibility to let the refiners decide
what's the best blend of components to make gasoline. And if
you did that--let's say ethanol went up significantly higher
than where it is today, then they could decide to use other
blending components that might be cheaper to make gasoline.
Furthermore, if we have that flexibility, essentially, rather
than having a Federal Government mandate, refiners would be in
a better position to bargain for those 6 to 9-month ethanol
contracts down the road. So it puts them in a stronger driver's
seat to negotiate future contracts which we believe would
contribute to lower prices and not higher prices for the long-
term.
Mr. Issa. OK. And then just a followup on Unocal, and I
didn't come here to pick on any one company. As I understand it
you're talking about Unocal's patents?
Mr. Perez. Yes.
Mr. Issa. As I understand the history of the Unocal patents
were that the oil companies came together, they talked about
the next generation of gasoline, and then Unocal ran back and
patented, basically, what the discussions told them we were
going toward. Is that correct?
Mr. Perez. Pretty much the way I understand--I wasn't part
of those discussions, but they were able to reach agreement on
these unique patents for California base gasoline that would be
blended with ethanol.
Mr. Issa. And those patents, if I heard you right, are 3 to
6 cents of cost.
Mr. Perez. We believe 1 to 3 cents per gallon.
Mr. Issa. OK. And, finally, why would this acquisition
cause somebody not to keep collecting royalties from their
competitors?
Mr. Perez. That's a good question. We hope as part of these
investigations that question will be raised and discussed at
the Federal level.
Mr. Issa. OK. That's--obviously a good Federal question for
us to take home because we'd all love to see opportunistic
patents to be kind, not continue to drive up the cost.
Anyone else want to answer on that?
Mr. Dougher. No. Mr. Perez did a good job.
Mr. Issa. Thank you. Ms. Watson.
Ms. Watson. Mr. Chairman, it appears that we're winding
down, and I think this----
Mr. Issa. I thought we were just warming up.
Ms. Watson. I think this question from Stephanie Lawrence
of Laguna Hills sums up my questions and it may be a
recommendation to our subcommittee. And Stephanie says, ``What
is and what should be the Government's role in gasoline
pricing? Should it be regulated?'' You know, we do not
regulate. And should it be regulated. And that's something I
think this committee has to grapple with. ``Information only?''
She says. ``Is that our role?'' Or pressure on oil producing
countries and companies?
And these are the issues that I think we, as a
subcommittee, have to grapple with. I mean, next time we do one
of these hearings, I'd like a group on the consumer research
side that's not connected to our Government agencies to be at
the table so we don't have the pressure, our various
departments saying to those that represent them that let's not
deal with this. It's political.
I would like to have another voice from the Institute to
speak, and I'd like to have another voice from the Commission,
in addition, to speak--because Americans want to know what's
behind this. Our constituents want to know. And I'm so glad you
have these questions here because I think the public sees that
there's an issue out there and they want answers.
So with that--and I think we have asked the probing
questions already--I feel not completely satisfied that I've
gotten the answers, but I think this is just the beginning. And
with that I want to say thank you so much more for having the
subcommittee here in Long Beach.
Mr. Issa. Thank you. And the committee there take note and
plan on expanding even if it means a second panel for more
consumer-oriented. I think it's important that we look toward
our Government and quasi-government agencies. But then as you
pointed out very rightfully, we have to spread out the
witnesses we hear.
I might note that--Congresswoman, I know, remembers--that
when we had the founder of Green Peace just a couple of weeks
ago, Mr. Moore made an interesting observation. One of them was
that if we had built all the nuclear power plants that were
planned in 1978 today, we would be Kyoto compliant, but he also
noted that we would not be using natural gas at a rate that
would allow every vehicle in America to run on natural gas,
which was sort of an interesting theory of what fuel should be
used where, although he wasn't recommending that. If you
remember, he was recommending that we go to electricity.
Ms. Watson. Yes. Which, apparently, comes out to be 10
cents a gallon of gasoline equivalent if you produce the
electricity the way he proposed.
Having said that, I think the committee has opened
Pandora's Box, and I don't expect we'll be closing it any time
soon. We only touched on tar sands and other domestic
production. We only touched on ways in which we could conserve
gasoline. We did certainly belabor the point of my hybrid
vehicle and the Governor's proposal for a hybrid Humvee.
And with that I want to thank our panel and our audience
that came here to see this today. And I want to assure all of
you that the record will remain open for at least 5 days. If
you look through what you've said or have been asked here today
and you want to revise or extend, please feel free to. We can
keep the record open for up to 30 days.
And with that I thank you and this hearing is adjourned.
[Whereupon, at 3:16 p.m., the subcommittee was adjourned.]