[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
THE FUTURE OF OIL
=======================================================================
HEARING
before the
SELECT COMMITTEE ON
ENERGY INDEPENDENCE
AND GLOBAL WARMING
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
JUNE 11, 2008
__________
Serial No. 110-39
Printed for the use of the Select Committee on
Energy Independence and Global Warming
globalwarming.house.gov
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SELECT COMMITTEE ON ENERGY INDEPENDENCE
AND GLOBAL WARMING
EDWARD J. MARKEY, Massachusetts, Chairman
EARL BLUMENAUER, Oregon F. JAMES SENSENBRENNER, Jr.,
JAY INSLEE, Washington Wisconsin, Ranking Member
JOHN B. LARSON, Connecticut JOHN B. SHADEGG, Arizona
HILDA L. SOLIS, California GREG WALDEN, Oregon
STEPHANIE HERSETH SANDLIN, CANDICE S. MILLER, Michigan
South Dakota JOHN SULLIVAN, Oklahoma
EMANUEL CLEAVER, Missouri MARSHA BLACKBURN, Tennessee
JOHN J. HALL, New York
JERRY McNERNEY, California
------
Professional Staff
David Moulton, Staff Director
Aliya Brodsky, Chief Clerk
Thomas Weimer, Minority Staff Director
C O N T E N T S
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Page
Hon. Edward J. Markey, a Representative in Congress from the
Commonwealth of Massachusetts, opening statement............... 1
Prepared statement........................................... 3
Hon. F. James Sensenbrenner, Jr., a Representative in Congress
from the State of Wisconsin, opening statement................. 5
Hon. John B. Larson, a Representative in Congress from the State
of Connecticut, opening statement.............................. 6
Hon. John Shadegg, a Representative in Congress from the State of
Arizona, opening statement..................................... 6
Hon. Hilda Solis, a Representative in Congress from the State of
California, opening statement.................................. 7
Hon. Marsha Blackburn, a Representative in Congress from the
State of Tennessee, opening statement.......................... 8
Hon. John Hall, a Representative in Congress from the State of
New York, opening statement.................................... 8
Hon. Candice Miller, a Representative in Congress from the State
of Michigan, opening statement................................. 9
Hon. Jerry McNerney, a Representative in Congress from the State
of California, opening statement............................... 9
Hon. Jay R. Inslee, a Representative in Congress from the State
of Washington, opening statement............................... 10
Hon. Emanuel Cleaver II, a Representative in Congress from the
State of Missouri, prepared statement.......................... 12
Witnesses
Mr. Guy Caruso, Administrator, Energy Information Administration. 13
Prepared statement........................................... 15
Answers to submitted questions............................... 147
Mr. Adam Sieminski, Chief Energy Economist, Deutsche Bank........ 25
Prepared statement........................................... 27
Answers to submitted questions............................... 163
Ms. Amy Myers Jaffe, Energy Studies Fellow, James Baker Institute
for Public Policy.............................................. 34
Prepared statement........................................... 36
Mr. Athan Manuel, Director of Land Protection Programs, Sierra
Club........................................................... 47
Prepared statement........................................... 50
Answers to submitted questions............................... 166
Ms. Karen A. Harbert, Managing Director and Executive Vice
President, Institute for 1st Century Energy.................... 62
Prepared statement........................................... 65
Answers to submitted questions............................... 169
Submitted Materials
Testimony of Carl Michael Smith, Executive Director, Interstate
Oil and Gas Compact Commission................................. 101
Deutsche Bank Commodities Research ``Crude Oil: Downside Risk
from Demand'' of September 29, 2008............................ 182
Report to the Alaska Wilderness League by Richard Fineberg
entitled ``Existing Conservation and Alternative Technology
Gains Far Outweigh Arctic National Wildlife Refuge Potential:
Oil Imports Have Declined Significantly Since 2005,'' June 4,
2008........................................................... 189
THE FUTURE OF OIL
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WEDNESDAY, JUNE 11, 2008
House of Representatives,
Select Committee on Energy Independence
and Global Warming,
Washington, DC.
The committee met, pursuant to call, at 10:05 a.m. in Room
1300, Longworth House Office Building, Hon. Edward J. Markey
[chairman of the committee] presiding.
Present: Representatives Markey, Inslee, Larson, Solis,
Herseth Sandlin, Cleaver, Hall, McNerney, Sensenbrenner,
Shadegg, Walden, Sullivan, Blackburn, and Miller.
Staff present: Jonathan Phillips.
The Chairman. This hearing is called to order, and we
welcome everyone to the Select Committee on Energy Independence
and Global Warming for this very important and timely hearing
dealing with the energy crisis that is affecting our country.
And that raises a question, and the question is when does a
daily supply of higher oil prices become a third energy crisis?
That is the question we are reviewing at today's hearing.
I think it is obvious to all Americans, at least those
outside the presidential bubble, that America faces a huge
energy problem and it is not going away soon. Since President
Bush took office, oil has embarked on one of the greatest price
run-ups in history. This energy spike is different. It was not
brought on by an oil embargo, nor by a surprise revolution in
the Middle East. That is what we saw in the 1970s. This time it
is different. This long, painful run-up is the direct result of
an oil President and a Republican Congress executing an oil-
centered energy policy.
Today we will hear that without fundamental changes oil
demand will rise 30 percent worldwide over the next 2 decades.
Where will all that additional supply come from? Our Republican
friends say go drill in pristine areas like the Arctic Refuge
and deep waters off the Outer Continental Shelf. It sounds like
a simple answer. But like so many other simple answers, it is
misleading and it is wrong.
The United States sits on less than 2 percent of the
world's oil reserves. And we consume one-quarter, 25 percent,
of the world's oil. Our own proven oil supply without foreign
imports would last just 3 years. We simply cannot drill our way
out of this crisis because we don't have the reserves.
Who does have the oil to meet this rising demand? The
answer is easy: As always, follow the money. Follow the tanker
ships of American dollars that we have been shipping month
after month to the Middle East. According to the International
Energy Agency, OPEC countries would need to ratchet up
production by 57 percent over the next 2 decades to meet
projected demands.
Does our President have a problem with this scenario? His
visit to Saudi Arabia last month indicates not. In exchange for
nothing more than a gentlemen's agreement that Saudi spigots
will stay open, the President agreed to provide assistance to
Saudi Arabia in developing their nuclear power capacity. While
American consumers gives Saudi Arabia $135 for each barrel of
oil, President Bush is giving the Saudis the priceless and
dangerous gift of nuclear technology.
Even if we are able to drill every last drop of domestic
reserves and are able to prod OPEC into further feeding our
addiction by increasing capacity, we are left with a much
greater problem. Our planet will choke on all of that
CO2.
If a frog is placed in boiling water, it will jump out. If
it is placed in cold water that is slowly heated, it will never
jump out. The heat has slowly been turned up on the American
consumer. Now they are being boiled alive. The same thing could
be said for our planet.
A fundamental change is needed in the way America uses
energy. Plug-in hybrid cars that get 100 miles to the gallon,
advanced cellulosic biofuels that power the fleet on grasses
and crop waste, public transportation and more livable cities
that reduce the necessity for people to drive everywhere.
Today we will hear that the consensus view is that oil
above $100 a barrel is going to be with us for some time. So we
have two choices. One, continue exporting our wealth overseas,
which drives down the value of the dollar, and hope that
American consumers can outbid the Chinese and Indians in the
world oil market.
Or two, we can commit to blazing a new path, one that frees
our country from the shackles of oil and unleashes the
renewable energy revolution that will save the planet and drive
our economy in the 21st century. The choice is simple. This
hearing is very important.
Let me turn now and recognize the ranking member of the
committee, the gentleman from Wisconsin, Mr. Sensenbrenner.
[The prepared statement of Mr. Markey follows:]
[GRAPHIC] [TIFF OMITTED] T1729A.001
[GRAPHIC] [TIFF OMITTED] T1729A.002
Mr. Sensenbrenner. When a Member of Congress starts out by
calling his colleague distinguished, that means he disagrees
with everything he said. So I thank the distinguished chairman
for giving me this time.
Today's hearing gives the select committee a chance to
explore what could be the biggest energy issue facing the
planet over the coming decades, oil powers, our allies, and the
economy making it a vital part of our future. It is not hard to
imagine how some of the reckless policies of the Democratic
majority will create a future where energy is scarce and
expensive in our country. And by expensive I mean far more
expensive than the Pelosi premium driven $4 a gallon gas that
is already causing great problems across the country and
stretching everybody's budget.
While we are hearing calls for energy independence from my
friends, we are seeing little action particularly in the area
of gas prices. While prices are skyrocketing, foreign countries
like Saudi Arabia and Venezuela are raking in the profits,
thanks to the aching pocketbooks of millions of Americans.
The United States has many energy resources, so many that I
think most Americans would be surprised to know exactly how
much energy is available right here in our own country. I am
sure they would also be surprised to learn how diligently my
distinguished colleagues are fighting any expansion of
America's capacity to explore for and produce oil and gas.
On Monday Investor's Business Daily laid out exactly how
much energy there is out there. In the western U.S. it is
estimated that there is the equivalent of 1 trillion barrels of
oil and shale rock. The Democratic majorities in both the House
and Senate voted within the last year to keep shale rock off
limits to exploration despite the fact that these reserves
could be as much as three times as large as Saudi Arabia's.
While China and India are drilling 60 miles off Florida's
shores, Investor's Business Daily noticed that Congress
continues to keep 85 percent of America's offshore oil and gas
off limits. I don't think that Congress should be picking
winners and losers. I believe that all energy options should be
open for consideration. That includes renewable resources, like
wind and solar. That also includes nuclear power and improve
energy efficiency. Certainly expanding our oil and natural gas
exploration in production should be a top priority because we
know it is there.
While technology will help produce demand for gasoline, the
only other thing that can reasonably bring down gasoline prices
is an increase in domestic supplies. America needs relief now
from high gas prices, and increased production is the best way
to get there.
After taking control of Congress, the Democrats created
this select committee partly to address the issue of energy
independence. Yet it seems that the Democrats are throwing up
roadblocks to any reasonable proposal that would help free the
United States from its reliance on foreign oil. With so much
potential oil available, the U.S. should have a bright energy
future. However, unless my distinguished friends over here
begin to drop some of the roadblocks, I can see a future where
gas prices rise higher and higher while Americans suffer more
and more.
That is not the kind of future I want to imagine, and I
hope that my distinguished friends in Congress will work with
Republicans in coming months to help create a brighter future
for all of us. I thank the Chair and yield back the balance of
my time.
The Chairman. I thank the gentleman. We now turn and
recognize the gentleman from Connecticut, Mr. Larson.
Mr. Larson. Thank you, Mr. Chairman.
The Chairman. Your microphone.
Mr. Larson. Thank you very much, Mr. Chairman, and all the
distinguished members of this panel. I am glad that our
esteemed colleague was discussing, I think you said, the Pelosi
premium. Does that come from the Bush barrelhead of oil? I
think it is pretty clear especially in recent testimony when we
see that on our own continent where this administration has
already granted in excess of 10,000 permits on millions of
acres that companies could be drilling on, that 67 million
acres already permitted aren't being drilled on today. One has
to wonder why that is the case.
Secondly, the policy of this administration, best described
by Thomas Friedman, leave no moolah behind, where we see the
United States going hat in hand to Saudi Arabia to try to get
from the Saudis some help and esteem and receive basically a
slap in the face.
Clearly when we have the opportunity to invest in
alternative energy and we see the Senate time after time block
the funding, block the funding necessary to make sure there is
an appropriate investment in fuel cell technology, in solar,
wind, these are important aspects that need to be followed
through as part of any integrated policy. And I hope to be able
to ask the distinguished panelists also how they feel about
speculators and whether or not speculators are artificially
driving the price up. Are the laws of supply and demand
suspended during this time because of speculation?
And I will wait to hear and yield back my time.
The Chairman. The gentleman's time has expired. The Chair
recognizes the gentleman from Arizona, Mr. Shadegg.
Mr. Shadegg. I thank the gentleman for yielding and
appreciate him holding this hearing. I think everyone
recognizes it is time to do what we can and to be as aggressive
as humanly possible at moving off of a fossil fuel-based
economy. But no expert has come before this testimony and no
expert has come before this committee and no expert has come
before the Subcommittee on Energy of the Commerce Committee on
which I serve and said that we can move off of these oil-based
fuels overnight, certainly not for a period of years, some as
long as beyond 2030.
In the meantime the question is what do we do as Americans
face gas prices? They say the average in the country today is
$4.04 a gallon. In my State of Arizona it is over $4.15 a
gallon for regular. And I would suggest for the sake of this
Nation this Congress needs to act and it needs to act now.
America is the third largest producer of oil in the world
and could be doing far better. We have enacted policies that
lock up billions of barrels of oil and natural gas, and we are
choosing not to pursue those. Those policies may have made
sense when we could buy oil or buy gasoline at 2.50 or $3.00 a
gallon. But when we are forcing on the economy gas prices of
over $4.00 a gallon, quickly moving to $5 a gallon and perhaps
moving to $6 a gallon, those policies simply makes no sense.
I would echo the comments of the ranking member on issue
after issue. Whether it is Outer Continental Shelf, whether it
is the Intermountain West, whether it is oil shale where the
U.S. House recently imposed a moratorium, or whether it is
ANWR, we have made a decision as a nation to lock up our
current supply, and virtually 90 percent of the Democrats in
this Congress have voted against supply vote after vote after
vote for the last 15 years, and virtually 90 percent of
Republicans have voted to increase supply on vote after vote
after vote over the last 15 years.
I don't think you can look backward at those votes and
criticize them now. It is important to look forward because we
have to do something about this problem for the sake of the
working men and women of America and for the sake of our
Nation's economy.
And with that, I yield back.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentlelady from California, Ms.
Solis.
Ms. Solis. Thank you, Mr, Chairman. And I want to again
thank you and our witnesses for being here to hold this very
important hearing on the future of oil.
The price of oil hit a record high of 138 per barrel in
June of this year, an increase of over 600 percent since 2002.
In the district that I represent in East Los Angeles in
California, the price of gasoline is over 4.60 and that is not
even premium. Our economy and our national security, as you
know, is very vulnerable as a result of our Nation's dependence
on oil.
Government owned and operated companies such as the
National Iranian Oil Company in Iran represent the top 10
holders of oil reserves internationally. While domestic demand
is expected to grow from 21 million barrels per day to about 25
million barrels per day in 2030, our domestic supply of oil as
we know is limited. This includes reserves which are already
accessible to oil companies for production yet are not being
developed. Why?
Domestically companies have stockpiled nearly 10,000
drilling permits, as was stated earlier, which they are not
developing. Again, why? One-quarter of the public lands and
water available for energy development are actually in
production. Why? Why can't we drill--well, in my opinion we
can't drill our way out of this problem.
If the United States was to rely on domestic resources to
meet all of our current consumption, all proven reserves would
be exhausted in 3 years. The only long-term, sustainable,
secure solution is to reduce our demand on oil. And I do
believe that the Pelosi solution is and was the Energy
Independence and Security Act which became law last December,
which increased the fuel economy standards to 35 miles per
gallon at a 40 percent increase over current levels. Those are
the kinds of activities that this Congress is undertaking. I am
proud to be a part of that plan that Speaker Pelosi has put
forward. We need more revitalization, renewable energies and
other sources of fuel to get our security independence in
order.
I yield back the balance of my time.
The Chairman. The gentlelady's time has expired.
The Chair recognizes the gentlelady from Tennessee, Mrs.
Blackburn.
Mrs. Blackburn. Thank you, Mr. Chairman. Thank you for the
hearing and to our witnesses we appreciate very much that you
are here.
I don't think there is anyone that denies that the current
global market is enduring a period of record prices and tight
supplies and increasing demand. That is where I think we need
to focus, is on that supply and demand issue. As we hear the
platitudes and the prognostication we know that what we have
done in this country is we have kept our ability to get to our
supply.
Quite frankly, I am one of those Members that I think the
smartest thing that we could do would be to repeal the
provisions from last year's Energy Independence and Security
Act because we are making it impossible to explore for American
oil on American soil. And the American people are really quite
offended that the most creative thing that has come out of this
110th Congress to address energy issues is to repeal the light
bulb. That does not help them when they are paying over $4 a
gallon at the pump. We know that there are worldwide reserves
that would take care of the next 30 years. At the current rate
of consumption we know that there are American reserves that
are off limits and it would handle, it would give us a
sufficient supply for 100 years. So yes, we need to be looking
at what we are going to do as Americans to find an American
solution to this problem, short-term, mid-range and long-term
answers that will address the needs of our Nation.
And I am looking forward to hearing from each of you how
you think we should best address it, in the short term, right
now, mid range with the next 20 years, and in the long term.
Where is thoughtful innovation heading?
Thank you, Mr. Chairman. Yield back the balance of my time.
The Chairman. The gentlelady's time has expired.
The Chair recognizes the gentleman from New York, Mr. Hall.
Mr. Hall. Thank you, Mr. Chairman. The reality is as we sit
here today discussing our future and oil's future, we are
really taking a look at whether our country's future will be
prosperous or painful. We are at a clear fork in the road and
must choose which path to take.
In one direction there is the path that leads in the
direction of business as usual, based on oil as the prime mover
of our vehicles and our economy. With gas prices at record
highs, all we hear from the oil companies, their allies in
Congress is we need to drill, drill, drill, drill for more oil
here at home. I would ask you with all deference to my
distinguished colleagues on the other side of the aisle, who is
stopping you? About 75 percent of the oil in the United States
is on land that is already open for production, but less than
one-third of that land is actually being used by the oil
companies. They are literally sitting on 10,000 permits and
millions of acres of leased land that they have already paid
for that would let them start pulling more oil out of the
ground.
Our President George W. Bush said when oil was only $50 a
barrel there should be no need for more incentive for oil
companies to drill for oil. Now at 135, I can't imagine that
there is more incentive. So I am wondering why are they sitting
on millions of acres of already leased land here in the United
States? It is ready to drill. Drill away.
But at the same time if we are going to move further toward
the drilling and burning of oil, we must be also ready for more
extreme weather events, more tornadoes, more floods, more 11
inches of rain one day in Indiana or Kansas, three record 50-
year floods in my district in the space of 5 years, more
drought in the Southeast, et cetera. These are the computer
projections of climate change that the consumption of oil and
other carbon-based fuels lead to.
So I just say we can and we may wind up drilling for and
using a lot more oil, but we should be moving for the economy
and for the environment's sake toward a renewable future. I
yield back.
The Chairman. The gentleman's time has expired.
The Chair recognize the gentlelady from Michigan, Mrs.
Miller.
Mrs. Miller. Thank you very much, Mr. Chairman. And I
appreciate you calling this very important hearing. I think the
American citizenry is looking toward this Congress to work in a
bipartisan fashion to effect some change and some hope for what
is happening with these gasoline prices, with the oil prices.
I think the cost of gas has got the ability actually to
cripple our economy probably more than any other single factor,
and it is manifesting itself in so many various ways. I mean,
we see the airlines merging, with Northwest and Delta merging
for a number of reasons but probably foremost because of the
price of fuel.
From Michigan, coming from Michigan I see what is happening
with our auto industry. Certainly just in the last couple of
weeks we have had General Motors announcing they are closing a
number of plants that are producing SUVs and trucks and various
things. And you hear the folks at GM saying that almost
overnight the buying patterns of the American public is
changing and they think it will be a permanent thing.
We see it impacting the rail, every mode of transportation,
and because of the way we structured our society with so many
people commuting long distances, et cetera. As I say, it has
the ability to impact more than anything. As we go into a
tourism season it is impacting in Michigan and every State I
think in the agricultural industry in every way. I think there
are a number of proposals that are out there and I am very
interested to hearing the panel today. And again, I think the
American public is looking to this Congress to effect some
meaningful, comprehensive energy policy that will have an
impact on their ability to fill up their gasoline tanks. And I
look forward to hearing the witnesses' testimony.
The Chairman. The gentlelady's time has expired.
The Chair recognizes the gentleman from California, Mr.
McNerney.
Mr. McNerney. Thank you, Mr. Chairman, for calling this
timely hearing. The high price of gas is hurting businesses in
communities throughout our country. In fact, the most recent
Lundberg survey which compares average fuel prices nationwide
was Stockton, California in my district as having the highest
average gas prices anywhere. At more than $4.50 a gallon,
people are struggling. And with these high prices people are
inevitably asking why are the prices of gas so high and what
are we doing about it?
Thankfully, we can tell them that the Congress has taken
some badly needed steps, both in the near term and the long
term.
It is essential that we pursue policies that will lower
prices now and we double our efforts to increase efficiency,
investing in new technology, and ultimately work to wean our
country from foreign oil.
Today's hearing should answer some of the questions of why
oil prices and gas prices are so high. Clearly the world demand
is up while production has stagnated, rampant speculation
drives the price of oil higher. We remain at the mercy of
government controls, oil companies, and international cartels.
We have taken action by stopping Strategic Petroleum Reserve
deposits, by mandating new efficiency standards, and by
providing explicit authority to the administration to
investigate gas gouging.
While oil companies are demanding additional drilling
rights which they claim will lower the price of gas, they are
only using 26 percent of the area they already have for
drilling. If we encourage innovation to increase efficiency and
find new forms of energy, we can keep ahead of the oil price
increases and maintain our high standard of living.
This is America's great historic challenge and our
opportunity. I yield back.
The Chairman. I thank the gentleman.
And now we will recognize the gentleman from Washington
State, Mr. Inslee, for an opening statement.
Mr. Inslee. I thank you. We know one thing for sure, as
long as we remain dependent on dead dinosaurs for our
transportation, we are doomed to price hikes, global warming
and the security concerns associated with the fact that the
dinosaurs went to die under the Mideast sands. We don't know
how it happened, but it did. We have got to replace an old
resource of oil with a new resource of intellectual capital.
That is happening across America today.
Our fundamental challenge is to get on with the business of
hastening this giant clean energy revolution that is now
happening across the country. It is happening at the Sapphire
Energy Company. California is developing a gasoline made from
algae. It is happening at the A-123 Battery Company in Boston
that is making the lithium powered batteries that are going to
power the GM Volt, a plug-in hybrid car. It is happening at the
Phoenix Motor Car Company, a company I am meeting with this
afternoon. They are going to have an electric car that runs 100
miles just on a charge. It is happening at the Bright Source
Solar Thermal Company that is developing solar thermal energy
with zero CO2 input.
What do all of those companies have in common? They are not
based on dead dinosaurs, they are based on living geniuses, and
those are living American geniuses.
One of the things Mr. Shadegg, my friend, said that this
revolution is not going to take place overnight, none of us can
promise the American people the congressional snap of the
finger to create the new technologies over night. They are
going to take years, if not decades. That is a reason to start
today, not to wait another 3 years. The fact that this may take
a year or two means it is more important to start today rather
than less important. And that is why the debates we are having,
the debates between the optimists on this side of the aisle who
believe in the power of this intellectual capital and some
pessimists who want to remain addicted to dead dinosaurs, that
is what the debate is. Let's move forward on clean energy
revolution.
The Chairman. The gentleman's time has expired. All time
for opening statements for the members of the select committee
has been completed.
[The prepared statement of Mr. Cleaver follows:]
[GRAPHIC] [TIFF OMITTED] T1729A.003
Now we will turn to our very distinguished panel. And our
first witness, who is Mr. Paul Caruso, he has been the
Administrator of the Energy Information Administration for the
past 6 years. And obviously there can't be a more important job
in the United States Government today than Mr. Caruso and the
recommendations which he makes to Congress and to the American
people.
So we welcome you, sir. Whenever you are ready, please
begin.
STATEMENTS OF GUY CARUSO, ADMINISTRATOR, ENERGY INFORMATION
ADMINISTRATION; ADAM SIEMINSKI, CHIEF ENERGY ECONOMIST,
DEUTSCHE BANK; AMY MYERS JAFFE, ENERGY STUDIES FELLOW AT THE
JAMES BAKER INSTITUTE FOR PUBLIC POLICY; ATHAN MANUEL, DIRECTOR
OF LAND PROTECTION PROGRAMS, SIERRA CLUB; AND KAREN A. HARBERT,
MANAGING DIRECTOR AND EXECUTIVE VICE PRESIDENT, INSTITUTE FOR
1ST CENTURY ENERGY
STATEMENT OF GUY CARUSO
Mr. Caruso. Thank you very much, Mr. Chairman. I appreciate
the opportunity to appear today to discuss the long-term
outlook for oil in the United States and globally.
The Energy Information Administration, EIA, is the
independent statistical and analytical agency within the
Department of Energy. As such we do not promote, formulate or
take positions on policy matters, and our views should not be
construed as representing those of the Department of Energy or
the administration.
In your invitation letter you asked about our current
forecast for gasoline prices. Our June short-term energy
outlook yesterday projects that regular grade motor gasoline
retail prices will average $3.78 per gallon this year. That is
97 cents per gallon above the 2007 average, with the monthly
average prices projected to peak at 4.15 in August nationwide.
Crude oil prices for low sulfur light grade are projected to
average $122 per barrel in '08 and $126 per barrel in 2009
compared with $72 last year.
I think it is important when you are discussing the long-
term outlook for oil and liquid fuels to start with a clear set
of definitions. First table in my written testimony shows the
estimated global quantities for six categories of liquid fuels.
We use the term ``oil'' to refer to the first four, which are
conventional crude oil, lease condensate, natural gas liquids,
refinery gain, and unconventional crude oil, including Canadian
oil sands, shale oil and very heavy crude oil. We use the term
``liquids'' to refer to oil plus biofuels and liquid fuels
manufactured using coal and natural gas.
These distinctions are important because the conventional
crude oil share of total liquid fuel supply, which was 84
percent in 2006, is projected to decline to between 62 and 72
percent of total global liquid supply in 2030 in the reference
and high price cases as discussed in the written testimony.
Last December, as several members have noted, the Energy
Independence and Security Act was passed and signed by Congress
and signed by the President. The specific provisions that have
the most significant implications for future oil markets are
the updates to the corporate average fuel economy, CAFE,
standards, for new light duty vehicles and the renewable fuel
standard. Taken together the updates to these two standards in
EISA produce a substantial reduction in oil use and oil imports
in our long-term outlook. EIA estimates that the combined
affects of the CAFE and RFS update are to reduce U.S. oil use
by about 2 million barrels per day by 2030.
EIA's annual energy outlook illustrates the importance, the
impacts of high oil prices by developing and reporting
projected projections for several alternative oil price paths.
Higher oil prices can be expected to reduce U.S. liquids
consumption, increase domestic production and reduce the
Nation's reliance on imported oil.
Generally the responsiveness of both supply and demand to
higher prices grows over time. Reflecting consumers' response
to high prices, oil use in the transportation sector in 2030 is
nearly 6 percent lower in the high price case than in the
reference case. Higher prices also result in fuel switching
between liquids and other energy in the industrial sector.
Turning to supply, projected domestic crude oil production
in the high oil price case, as shown in figure 4 of the written
testimony, is 6.4 million barrels per day compared to the 2006
level of 5.1. By dampening the demand for liquid fuels and
increasing the domestic production of crude oil and biofuels,
higher oil prices together with the CAFE and RFS provisions in
EISA substantially reduce projected U.S. oil imports.
In 2006, U.S. oil imports were 12.4 million barrels per day
accounting for 60 percent of our total liquid fuel use, and in
the AEO 2008 high price case, oil imports are expected to
provide 44 percent of our total projected liquid fuel use in
2030.
Higher oil prices will also effect global liquid fuels in
oil markets. In the AEO 2008 high price case global liquid
consumption grows from 85 million barrels a day in 2006 to 98
million barrels per day in 2030, significantly below the
reference case consumption level of 113 million barrels per day
in 2030.
Higher oil prices also affect the projected mix of global
liquids production. Liquids production from sources other than
conventional oil in the AEO high price case is 19 million
barrels per day higher in 2030 than in 2006, compared to an
increase of only 11 million a day in the reference case.
In conclusion, Mr. Chairman, both the reference and high
price case in the AEO 2008 suggests that liquid will continue
as a primary global fuel through 2030, although they are
expected to represent a declining share of the total energy
mix. The share of oil and especially conventional oil in the
overall liquids mix is also expected to decline. In the high
oil price case overall liquids to 2030 use grows by about 15
percent while conventional crude oil production declines by
more than 15 percent.
Policy decisions taken by this body and others will make is
expected to be a key driver in changing this business as usual
outlook. And we certainly look forward to working with you Mr.
Chairman, members of committee and other committees in this
Congress to provide the best data and analysis to help you make
your choices.
[The statement of Mr. Caruso follows:]
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The Chairman. Thank you, Mr. Caruso, very much.
Our next witness is Adam Sieminski, who is the Chief Energy
Economist for Deutsche Bank. He has spent his life analyzing
energy markets and climate change, commodity prices and energy
economics, and we welcome you, sir. Whenever you are ready,
please begin.
STATEMENT OF ADAM SIEMINSKI
Mr. Sieminski. Mr. Chairman, thank you very much for
inviting me. And in the spirit of the discussions I had when I
was asked to come today, I was talking with both the majority
and the minority staff and listening to some of the discussions
going back and forth here this morning, what I would like to
offer as a suggestion is that the ideas that have been proposed
on both sides of the aisle are not mutually exclusive. In fact,
the National Petroleum Council did a report about a year ago,
came to the same conclusion, saying that we are having supply
problems but we are not running out of resources. And to
mitigate the risks on the supply side we need to expand just
about everything that we can do. All economic energy sources
are going to be required to solve the problems that we are
having, coal, nuclear, renewable, unconventional, oil and gas.
Getting acreage opened up or worrying about the low
proportion of acreage that is being drilled on doesn't seem to
me to be the heart of the issue. The heart of the issue is what
is the resource that is on those acres? And where are the
resources? And can you get at those resources? If the oil is in
Alaska or offshore, then those are the acres that need to be
opened up, not the other ones.
The other thing was that the Natural Petroleum Council said
was that we really do need to look at demand management on the
energy side. Policies designed to moderate a growing demand for
energy and increasing efficiency in transportation or
residential and commercial and industrial uses should really be
encouraged.
So I applaud the ideas and I think we should move on all of
these, not some of them. There is no silver bullet to solving
the problems that we have in the energy area. We have got to do
it all, and we needed to do it yesterday. So the sooner we get
on with it, the happier I believe the American consumers and
voters are going to be.
I tried to answer the questions that were submitted to me
by the staff and they are in my testimony and they will be in
the record, but rather than to go into all that, what I would
like to offer is another suggestion about what has changed.
Everybody is looking at the price of oil and saying, well,
nothing has changed in the last year. Why is the price of oil
up so much? There must be some underlying conspiracy or
problem. Let me offer two things that have changed very
dramatically in the last year and that I think have given us
the situation that we are in.
First, the U.S. economy has slowed down, but it has not
spilled over into the rest of the world where energy demand and
especially oil demand are still growing very strongly. And in
fact if you look at the projections, we may be on an overall
global basis be at 110 million barrels a day of demand by the
year 2030, some 95, 96, or 97 million barrels a day by 2015.
The second thing that has changed is that there is an
accumulating amount of evidence suggesting that we may actually
run into a problem of being able to deliver more than 95 or 100
million barrels a day of oil, not because of a resource issue
but because of access issues, getting access to the places that
have the oil.
If we can't do that, then there is going to be a problem,
because demand is going to be a lot higher than supply. That
situation or potential situation I think is what is informing
the markets that are lifting prices to try to find some way to
rebalance in everybody's models for where the future of the oil
market lies, to rebalance those models and it is probably going
to require a higher price.
Well, since we are looking for what are these reasons, let
me just mention some of them. Underlying drivers for prices in
my view are very diverse and involve a lot of fundamental
supply and demand issues: One, OPEC production and capacity
issues; two, demand in China, the Middle East, where
consumption is subsidized and economic growth has been fast;
three, the normal lags in capital spending in the oil industry
and the erosion of that spending by cost inflation; four,
central bank policies, very low interest rates fostering high
economic growth, cheap money, and a very weak dollar; five,
geopolitical issues in places like Russia, Venezuela, Iran,
Iraq, Nigeria and elsewhere that are keeping supplies off the
market.
Mr. Chairman, we haven't had a huge energy crisis appear,
but a series of mini crises. It is sort of we are having the
after quakes without having the big one ahead of time.
Sixth, political decisions themselves. Corn ethanol is a
good example of unintended consequences, and the ability to get
other legislation passed on both conservation efficiency and
supply is an issue.
And finally, Mr. Chairman, since I think I am probably
going to be asked about this, I have excluded speculation in
the sense of rising funds flow into the futures markets from
index funds and hedge funds as a reason for the price increase.
Volumes in futures really don't matter as much as sentiment.
The sentiment is that supply isn't growing fast enough to meet
demand, and that is causing prices to rise.
If we can do things in the United States with the help of
our elected representatives to get demand to slow down and to
get the supply of all of our energy sources to begin to rise, I
am not allowed to give guarantees as a financial analyst but as
close as I can come to giving a guarantee, I believe that you
will see oil prices going back down if we can get supplies
growing and demand slowing down.
Thank you, Mr. Chairman.
[The statement of Mr. Sieminski follows:]
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The Chairman. Thank you, Mr. Sieminski, very much.
Our next witness is Amy Myers Jaffe. She is the Wallace
Wilson Fellow for Energy Studies at the Baker Institute for
Public Policy at Rice University. We welcome you to the select
committee. Whenever you feel comfortable, please begin. Could
you turn on your microphone, please?
STATEMENT OF AMY MYERS JAFFE
Ms. Jaffe. I really appreciate the opportunity to be here
today and am honored to be able to address this committee that
has done excellent work over the past year. I want to give you
the visual image of two things. If you remember the cartoon
Road Runner, so imagine that America is Wile E. Coyote and he
is running off the cliff and he is still spinning his legs. The
gravity hasn't hit. That is where we are on the energy crisis
right now. We are still on the level land and we don't
understand how deep the problem is.
If you will excuse me for saying this, in thinking about
the Congress you are like deer with your eyes in the
headlights, right? People understand the magnitude of the
problem, but they haven't understood how large the magnitude is
in terms of the need to get beyond partisan ideas, right? So I
second Adam in his suggestion that the body needs to get beyond
its current thinking, because we are in a serious problem that
over time could become a catastrophic problem, but it could
become a manageable problem if we would have smart and sound
public policy.
Let me just say that ethanol was not a sound and smart
public policy. And so therefore, in thinking about what we need
to do, we need to think comprehensively, because we are
importing between 12 and 13 million barrels a day of oil. Our
imports last month were 13.5 million barrels a day of oil. And
ultimately that volume is so large and it is going to grow so
much more that coming up with these little solutions that help
somebody's district is not going to solve the problem.
So we need to move away from false choices, right? We need
to come up with concrete policies. We need to both curb demand
growth, we need to increase what I call the substitutability.
One of the reasons why you are having a hearing on oil and
gasoline and not on electricity is because we have many
different fuels we use to generate electricity in this country
and none of them are oil, right? That was something that was a
positive future of the 1970s. Most Americans no longer heat
their homes with heating oil, right? So there is a whole range
of problems that have been sort of eased since the seventies
because we have enhanced our substitutability in certain areas.
We need to do that in transportation. Transportation is now
100 percent or 99 percent oil based. We now see the emerging
technology where we could diversify that, right? And if we look
at the wonderful projections that the DOE and others have done,
we know that something like 75 percent of the increase in world
demand for oil is going to come from the transportation sector.
Now getting at this issue between drilling versus demand,
the reality is and Rice University spent 2 years going into the
SEC filings of all the American oil companies, and I welcome
you to have your staffers to come to the Web and look at that
study. The reality is that between 2006 and 2007 the five
largest oil companies only increased their exploration spending
by 10 percent. I mean that is pretty shocking. I could
understand that in 2000 or 2002 when we all said, geez, they
should be spending more, they felt cautious about how much of
their cash flow to spend. Over the last year it seems kind of
amazing. I think all of you are important people in your own
right, in your own areas.
If you were the chairman of a company and saw the commodity
price for your entity rising the way it has, I would think that
you would have increased spending a little bit more, right?
The second thing that has happened in the last year is not
only did the majors not increase their exploration spending
dramatically, though in fairness to them they did make some big
boosts in 2006, but remember costs have gone up 100 percent, so
even if they are increasing under 50 or 100 percent, they are
not increasing at all, right? That we also see in 2007 that
OPEC has announced virtually no new projects for expanding oil
fields. And in fact Saudi Arabia announced within the last few
months that they are freezing their expansion plans and that
they are happy with their plans to go to 12.5 million barrels a
day by 2009. But their previous plans to add new fields to go
to 15 million barrels a day seem unnecessary so they are not
going to continue with those plans.
In addition, if you look at the research and development
spending of our five largest oil companies that are collecting
$160 billion in operating cash flow in 2007, they spent
together, all five companies, $3.3 billion on R&D. That is half
the annual R&D budget for General Motors or Microsoft.
So again in an age where we need new technologies and a new
investment, we are not getting the momentum.
Now, just a couple of quick facts. We have done
simulations. If the offshore continental shelf was open to
drilling without restrictions, we could expect a 7 or 8 percent
rise in natural gas production. So that is about 1.5 trillion
cubic feet higher. And then after about by 2015 and then after
that we could expect a 10 percent increase each year.
The Chairman. If you could please summarize.
Ms. Jaffe. Sure. And then in oil we could expect another
million to 2 million barrels a day. If we could get our cars in
America to average 50 miles to the gallon that would mean we
could shave 6 to 7 million barrels a day off demand by 2025.
The Chairman. If you could summarize, please.
Ms. Jaffe. Okay. So in summary we have seen other countries
have more effective energy policy. Japan is a leader now in
automotive technology. Instead of closing factories, they
regulated their industry and also gave them R&D tax breaks to
make sure that the cars that they would be selling now would
get 30 to 50 miles to the gallon.
Thank you very much.
[The statement of Ms. Jaffe follows:]
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The Chairman. We appreciate it very much, Ms. Jaffe, and
you'll have plenty of opportunity in the question and answer
period to expound upon your points.
Let's turn to our next witness, who is Athan Manuel. He is
the Director of the Lands Protection Programs for the Sierra
Club. We welcome you, sir. Whenever you are ready, please
begin.
STATEMENT OF ATHAN MANUEL
Mr. Manuel. Thank you, Mr. Chairman and ranking minority
member and members of the committee. Good morning, my name is
Athan Manuel, and I direct the Lands Program for the Sierra
Club. And I am here representing over 750,000 Sierra Club
members who belong to more than 65 chapters and 45 groups
around the country. That makes us the largest grassroots
environmental organization in the country.
Before I start, I am a little confused as to how I should
begin. I have come to some of these hearings before, and I know
a lot of times witnesses open by hailing the Red Sox, but now
with the Celtics in the finals I am not sure what is the
correct way to pander to the chairman on that.
The Chairman. You are doing a good job.
Mr. Manuel. Turning to the future of oil, I want to mainly
discuss two issues. One is gas prices and the second one is
access to resources here in the United States. A lot of the
members have mentioned this and some of the panelists have
mentioned it, too, that we all know Americans are paying a
record amount of prices for a gallon of gas, over $4.00 a
gallon. It is disappointing when you consider that we were
first put on notice about gas prices almost 40 years ago in the
first Arab oil shock. And it is disappointing from our
perspective to see that 35, 40 years later we are still
dependent on fossil fuels, oil, natural gas and coal.
And in addition to pandering about the Red Sox, I have got
to talk about myself a little bit more. I am a Greek American
and my parents love quoting the ancient Greeks, like Homer, but
in this case I have to quote Homer Simpson. So I am not making
the first cartoon reference, but Homer Simpson said, stupidity
got us into this mess and stupidity will get us out. And that
is the disappointing part about some of the energy policies
being promoted, that it calls for more drilling when drilling
is really the problem. All we have got to show for a pretty
aggressive drilling for the last 35 years is again $4 for a
gallon of gas.
If we are truly addicted to oil and gas, as President Bush
said in a recent State of the Union Address, we clearly think
the answer is not to seek a bigger fix by drilling in special
places like the Arctic Refuge or off of our coasts and off of
our beaches.
In looking at the Arctic Refuge, in particular the Energy
Information Administration admitted or released a report last
week that mentioned that peak production, which wouldn't be
until 2027, the effect on prices at the pump, if any, would be
a few pennies from drilling in the Arctic Refuge. So we don't
think drilling there is the solution or would reduce prices. By
contrast, the EIA research indicates that clean energy and
energy efficiency technologies could do ten times more to help
reduce our dangerous dependence on foreign oil and fossil
fuels.
The same example holds true for the Outer Continental
Shelf. If you look at the eastern Gulf of Mexico in particular,
which is kind of an area of highest industry interest, only
about 930 million barrels of oil are thought to be in that
area. Again against current rates of consumption that is just
not much oil, certainly not enough oil to again reduce the
price of gas that consumers pay at the pump.
Again looking at the OCS, a vast majority, 80 percent of
the Nation's undiscovered, technically recoverable oil and gas
is located in areas that are already open for drilling,
according to the Department of the Interior.
Ms. Solis mentioned that in her opening statement, that
even if we drilled everywhere in the United States we wouldn't
have enough supply to impact prices or to help consumers at the
pump.
Finally on access, again many of the opening statements
mentioned how the oil companies have access to quite a few
areas, both on and offshore. A new report by the Natural
Resources Committee here in the House mentioned that the
permitting of drilling permits has exploded in recent years
going from 3,800 5 years ago to more than 7,500 in 2007. The
same is true with onshore and offshore, whether we are looking
at our public lands, BLM lands, or offshore.
Clearly we think that more drilling and leasing in the
United States will not lower gas prices. We simply don't have
that much oil and gas left in the United States. Other
panelists have said this morning the price of oil is influenced
in the world market largely by OPEC. It is also influenced by
speculation, increases in demand in Asia, and China, and India
and by a weak dollar. And again, we don't think leasing and
drilling is going to solve that problem.
This year there have been two huge leases held in the
Chukchi Sea and in the Gulf of Mexico, and obviously prices
have still gone up. Again these large leases indicate,
underscore the issue that there is no lack of access to areas
here in the United States. And if you look back 30 years since
the first era of oil shock in the early 70s, the U.S. has
produced almost 90 billion barrels of oil since then. So we
have tried drilling our way out of the problem, and it just
hasn't worked.
We think now this new Congress is going to take steps to
solve the problem. Last year under the leadership of Mr. Markey
and other Members, Congress did pass increases in fuel economy
standards for the first time. There are many innovative
programs being offered this year by Members of Congress to get
us off fossil fuel and use more renewables, and we think that
is clearly the best way to go when looking at the energy
policies.
So when we look at the future of oil we hope that we really
see a future of clean renewable energy and energy efficiency
programs. We really are optimistic that America can innovate
our way out of this problem and instead of doing the failed
policy of the past, which is again more and more drilling
everywhere here in the United States, we should look forward to
energy efficiency solutions, clean energy programs and
renewables that would get us off of fossil fuels, reduce global
warming pollution, greenhouse emissions, and put Americans to
work on a clean energy future, not a future of oil.
Thank you for the time, Mr. Chairman, and for the
invitation.
[The statement of Mr. Manuel follows:]
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The Chairman. Thank you, Mr. Manuel, very much.
And our final witness is Karen Harbert, the President and
Managing Director of the Institute for 21st Century Energy. She
has been an Assistant Secretary for Policy and International
Affairs at the U.S. Department of Energy. We welcome you, Ms.
Harbert. Whenever you are ready, please begin.
STATEMENT OF KAREN HARBERT
Ms. Harbert. Thank you, Mr. Chairman and the Ranking Member
and members of the committee.
At the Institute for 21st Century Energy, we believe an
affordable, diverse and secure energy supply is fundamental to
our future national security and the expansion of American
economic opportunity and prosperity. America needs a
comprehensive, common-sense energy policy with a long-term view
and durable policy and fiscal commitments. It is no surprise to
tell you all that we do not have that now.
It will take unprecedented political commitment from the
Congress and the executive branch, better partnerships with
local and State governments and much-improved relationships
with the private sector. We need to be honest about what it is
going to take. We need to stop penalizing, demonizing,
regulating, and picking winners. We need to instead stimulate
investment, incentivize and innovate solutions to address the
greatest threat to the 21st century.
I am not going to talk about demand growth, because that
has been covered. I am going to talk a little bit of what is
happening in the oil market and then what we need to do about
it.
Resources are located in places that are geologically
difficult to get to, geographically very difficult. They are in
places that are politically unstable, and they are unfriendly
to new investment. National oil companies own 50 to 80 percent
of the world's proven oil reserves. Energy-sector exploration
and development costs have risen, and yet the share devoted to
exploration has fallen. We are seeing growing resource
nationalism around the world. We don't have enough energy
professionals. We don't have enough equipment. And NIMBY is a
thing of the past; we are now on to BANANA, build absolutely
nothing anywhere near anything, and even NOPE, not on planet
earth, not on planet earth. That is an unsustainable path to
sustain our economic competitiveness, if we want to do that.
We are not running out of resources. That is simply untrue.
We are running out of access to the resources. The
International Energy Agency estimates we have 6 trillion to 7
trillion barrels of conventional oil in place around the world.
Our U.S. Geological Survey estimates that we have 3.345
trillion recoverable barrels around the world. And if you take
out what has already been produced, that leaves anywhere
between 1.5 trillion to 3.5 trillion barrels of oil still
available.
But we have to be able to open markets. We have to be able
to have transparent trade. And we have to have fair market
pricing of energy. And we need to capitalize on our resources
here at home.
The U.S. is still the largest producer of energy, but we
still have significant resources that the Congress and the
executive branch have put off limits for exploration. Our
Minerals Management Service estimates we have 139 billion
barrels of undiscovered oil here in the United States. Eighty
percent of the Outer Continental Shelf is off limits. That part
alone, if we would just use that part of the oil, we would have
actually a 35-year supply of gasoline for our cars. We would
have heating oil for the millions of homes in the next hundred
of years. We are depriving the American consumer of choice and
opportunity.
May, there was a Gallup poll that demonstrated huge change
in public opinion. 41 percent used to believe that drilling off
our coast and in wilderness areas should be off limits. 57
percent now support it.
We need to listen to the American people and their
pocketbooks. We need to develop a comprehensive plan, and we
need the comprehensive plan to embrace the following concepts:
We need to increase and diversify supply. We need to increase
our suppliers. We need to improve energy efficiency. That is
the next best source of energy, is the one we currently waste.
We have to accelerate technology, development and deployment
and invest in it with regularity and predictability. We have to
increase the use of alternatives and renewable sources of
energy. Yes, we need to improve our environmental stewardship.
We have to modernize our infrastructure. It is not enough to
get the hydrocarbons if we can't get them to where they need to
be. And we have to exert international leadership.
We need it all. We must allow for increased domestic oil
and gas supplies. We have to recognize the role of nuclear
power, an emissions-free source of power. We need clean coal.
We need to use the 250 years of coal we have here. We have to
emphasize energy efficiency and renewables. We have to update
our aging energy infrastructure. We have to be better
environmental stewards. And we have to develop and deploy those
clean technologies that will improve our trade imbalances and
accelerate American competitiveness.
If we unleash that entrepreneurial power that has helped us
in many crises in the past, we can make widespread use of
technology to use our coal. We can create a second generation
of biofuels that will not conflict with fuel demands. We can
build safe, emissions-free nuclear power plants. And we can
drill responsibly on and off of our shores.
But we have to inform the public and policymakers with due
respect about the huge challenge we are in, the choices we have
and the urgency of this matter. We have to consider the
tradeoffs, the costs and the feasibility and viability of what
we are proposing. We need less rhetoric. We need more facts.
There is no single solution, no single fuel. We must embrace
all sources.
I would like to leave you with the thought that the
decisions we make, this Congress makes, the next Congress and
the next President, those decisions we make in the next few
years, we will be with those decisions for generations to come.
We need to take it responsibly, seriously. The stakes are
enormous for our competitiveness and for our national security.
And we at the Institute for 21st Century Energy look forward to
being a constructive and integral part of the deliberation this
country desperately needs.
Thank you.
[The statement of Ms. Harbert follows:]
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The Chairman. Thank you, Ms. Harbert, very much.
And now we will turn to questions from the select committee
members. And the Chair recognizes himself.
Mr. Caruso, I am wondering why it is that your agency is
predicting that the price of oil is going to go below $57 a
barrel in 2016 and then, even further out, you are predicting
that the price of a barrel of oil is going down to $70 a barrel
by 2030. So, on the one hand, America believes that we are in
an energy crisis, and I think that all of us really feel that,
but your projections are, in your agency, is that by 2016 the
price will be pretty much cut in half and by 2030 it really
gets even better, because these are constant dollars.
How can you explain that? It doesn't make any sense to
people that the price of oil is going to be going down.
Mr. Caruso. Well, just to start off with a point of
clarification, those prices you quoted are the assumptions for
the world oil price in our annual energy outlook that was
released several months ago. And they are only one of a number
of scenarios that we look at.
The Chairman. But the problem with that is that NHTSA, the
Department of Transportation uses those projections to then
determine what the cost-benefit analysis is for increasing the
fuel-economy standards for the vehicles that we have to drive
in 2016 and 2020 and 2030. So if you give them that number,
then the cost benefit of course is much lower in terms of the
benefit to America. The higher the prices--if you were
projecting $4 a gallon or $5 a gallon, well, then NHTSA is free
to increase by five or six or seven miles per gallon the
efficiency of the vehicles by 2030.
So your number is very relevant, because it goes right to
the question of the pressure which is going to be applied to
the wilderness areas in the United States. The more efficient
the vehicles--we put 70 percent of all oil we consume in
vehicles--the less pressure there is to drill in pristine
wilderness areas.
So your projection is, I think, way off. I don't think it
is even remotely close to where the price of oil is going to
be. And it has a profound impact then on all the other
decisions which are made.
Mr. Caruso. Well, the point is well taken that NHTSA does
use the reference case. We do give them the high price case,
which in nominal dollars goes to $180 in 2030.
The Chairman. Would you recommend, Mr. Caruso, that the
Department of Transportation used the high case scenario in
planning for what the efficiency of the vehicles that Americans
drive in 2020 and 2030 should be? Or do you think that they
should use $2.26 a gallon in 2016 and $2.51 in 2030 as the
basis for their planning as to what the efficiency of the
vehicles that we drive should be?
Mr. Caruso. Well, of course, that is obviously the
prerogative of NHTSA. But we are on the higher price path right
now. If you would ask me today what I would use, I would use
the higher price.
The Chairman. You would use the higher price, but NHTSA
doesn't. NHTSA has to use your lower price. So I would
recommend to the Bush administration that they change this
formula and that they not use this low cost per gallon of
gasoline as the basis for the fuel-economy incentive for the
vehicles which we drive.
Let me just go down, yes or no. Mr. Sieminski, should they
use the high cost? Do you think $2.26 per gallon in 2016 is a
good way for America to plan the efficiency of our vehicles?
Mr. Sieminski. Mr. Chairman, my experience with forecasting
is that it hasn't worked out all that well. So I would
suggest----
The Chairman. As a Nation, what would you plan for?
Mr. Sieminski. I would think looking at a range would make
a lot of sense.
The Chairman. No, what would you plan for if you were the
Government? Would you plan for $2.26 a gallon in current
dollars in 2016 and $2.51 in 2030, or would you plan for $4 a
gallon in terms of what our automotive fleet should average?
Mr. Sieminski. If I were making this as a policy decision,
I would plan for the worst, which is higher.
The Chairman. Okay, thank you.
Ms. Jaffe, what would you plan for?
Ms. Jaffe. I think that we should plan for the worst and
that we shouldn't have a fixed price for planning. We should
just have a standard that ought to be optimal technology
ability.
The Chairman. I appreciate it.
Mr. Manuel, what would you plan for?
Mr. Manuel. Well, like everyone, you plan for the worst and
hope for the best.
The Chairman. Thank you.
And, Ms. Harbert, what would you plan for, if you were the
Bush administration right now, using what the projected price
for gasoline for consumers would be in 2016 and 2030?
Ms. Harbert. As you know, it is a little more complicated
than that because you have to affix the mandates that you are
going to impose with technology availability. You have to
introduce, when is the technology going to be available----
The Chairman. I understand that. What would you plan for?
You are the Chamber of Commerce. You are planning, the Chamber
of Commerce is planning for what the price for all of its
members are going to be in 2016 and 2030, Ms. Harbert. Would
you plan for $2.26 a gallon for all of your members by 2016,
$2.51 in 2030? Or would you recommend that the Government plan
that there be a much higher price and therefore adjust what the
expectations are from the transportation sector?
Ms. Harbert. I will note that the BP statistical outlook,
which just came out, noted that they thought $105 was a fair
price. That was according to BP.
The Chairman. $105 a barrel. So, in other words, you don't
think that planning for $2.26 makes any sense at all?
Ms. Harbert. I think we have to be realistic about the
prices going forward. And I don't know exactly how everybody
does the different forecasting, but clearly the trend is up.
The Chairman. Well, your original testimony was very
frightening. And now I am asking you, do you think it makes
sense for them to be projecting $2.26 a gallon?
Ms. Harbert. I don't think we need to make our policy
decisions based purely on forecasts. We need to make common-
sense, comprehensive solutions available that are not just
based on forecasts.
The Chairman. I agree with you. I am asking you a specific
question. We put 70 percent of the oil into gasoline tanks.
That is 70 percent of all oil. Do you think that this is
realistic?
Ms. Harbert. No forecast can adequately predict why last
Friday the price of oil went up $11. So forecasts are useful
guideposts, but you cannot make concrete policy decisions based
solely on forecasts.
The Chairman. Well, if we are not going to be basically
learning from what is going on right now in our economy with
these high prices, the testimony about India, about China,
about all the other pressures, and turn to the transportation
sector and solve the problem, then I am afraid that the Chamber
of Commerce in 2016 and 2030 is going to be ravaged by prices
that will be $6 and $7 and $8 a gallon. Because it is surely
not going back down to $2.26 a gallon in 2016 in current
dollars, okay? That is just not going to happen.
Ms. Harbert. I think we are all in violent agreement that--
--
The Chairman. I know, but I wish that we could get some
agreement in terms of how high then the fuel-economy standard
should go in order to get that result.
And, by the way, your price projection per barrel of oil is
higher than EIA is projecting, $105 a barrel. They have it
lower than that in the out-years, okay?
So, again, this is a big problem that we have in terms of
what the Bush administration continues to propose in the long
run for what we have to do as a society in order to protect
ourselves.
My time has expired. Let me turn and recognize the
gentleman from Arizona. And I will be generous to him in his
time.
Mr. Shadegg. Thank you, Mr. Chairman.
Mr. Sieminski, I want to begin with you. I have listened
carefully to your testimony, and you stated that we are not
running out of oil. You said that we need to look at what is
out there and where the resource is on the acres that are
available. And then you talked about the importance of being
able to get to those resources. And you said that if the
resources are on lands that are essentially locked up, those
are the lands that need to be released.
I take it, then, that you believe that there are lands
where we have locked up the supply and cannot get to them at
the current time, is that correct?
Mr. Sieminski. That's correct.
Mr. Shadegg. You also said, and I thought it was important,
that we may be reaching a point where we have a problem getting
to the acres where the supplies are. Are there some that you
can identify?
Mr. Sieminski. Yes, sir. We know that there is natural gas
off of the coast of Florida. It has already been discovered.
And it is not being produced because of environmental concerns
that seem to me to be overreacting.
Mr. Shadegg. The last legislation that failed in that
issue, if I am correct, proposed that we would not allow a
natural gas well to be closer than 50 miles from the shore. And
that was found to be objectionable because of sight pollution.
Do you happen to believe that you can see 50 miles out into
the ocean and see an oil rig?
Mr. Sieminski. It actually gets worse than that. The Cuban
Government will be drilling closer to the shore of Florida than
the United States will be drilling.
Mr. Shadegg. So that is not an urban myth, that is a fact?
Mr. Sieminski. That is a fact.
Mr. Shadegg. There is concern about environmental concerns,
and I think every witness acknowledged those; I would certainly
acknowledge those.
Do you know what happens at a natural gas rig where there
is a leak? And have there been any leaks at natural gas rigs
recently?
Mr. Sieminski. Well, this is one of the factors that pains
me when I think about this, is, in talking with a county
representative, elected county representative that I have been
friends with for years in the Tallahassee area, I said, ``Can
you convince your constituents to think about looking at this
gas field? You are going to need it in Florida.'' We have a
power problem, as Amy mentioned. We could very easily have
electricity shortages 3, 4, 5 years from now. Natural gas is
going to be the only way to do that. Natural gas is clean. If
you do have a spill, it is not going to foul the beaches in
Florida. The pipelines could come in underground, so nobody
would see them. And yet the reaction of his constituents seems
to be that they are afraid that it is going to hurt the tourism
industry. And I am, frankly, more concerned that the tourism
industry will be hurt by brownouts in Florida than it is going
to be hurt by drilling the gas that we know is already there.
Mr. Shadegg. Absolutely.
Ms. Harbert said that she thought that if we explored the
Outer Continental Shelf, went after the oil and natural gas
there, we would have a supply of 35 additional years, I
believe, just in natural gas. I will ask her in just a moment.
Do you agree that the supplies are in that neighborhood?
Mr. Sieminski. That we need to get from----
Mr. Shadegg. That we could get from the Outer Continental
Shelf.
Mr. Sieminski. You know, those numbers, Guy Caruso will
have those, or the people at EIA. But it is substantial.
And let me just make one quick comment on that. The idea
that it is only a small proportion of our energy needs when you
look at it over an annual basis or over a period of time I
think is really missing the whole point.
I get paid every 2 weeks. And, frankly, I don't--and one of
my paychecks is a small proportion of my annual income, but I
don't want to give up one of those paychecks, and I don't think
other people do.
Mr. Shadegg. I am running out of time. I want to get to Ms.
Harbert.
Ms. Harbert, give me the statistic again, because I would
like to know it.
Ms. Harbert. And I will ask your other question. The human
eye can see 16 miles. So that is how far you can see.
Mr. Shadegg. Less than a third of what we are talking
about.
Ms. Harbert. Right.
According to the Minerals Management Service, we have 139
billion barrels of undiscovered oil reserves in this country.
Of that 139, 86 are in the Outer Continental Shelf, which means
that 62 percent of the Nation's resources for oil are in the
Outer Continental Shelf.
Mr. Shadegg. And they are currently prohibited from----
Ms. Harbert. Eighty percent of that is off-limits for
exploration and production. And I am just talking about oil.
The other ones that you were talking about were gas, but that
is just oil.
Mr. Shadegg. That is just oil. That does not include
natural gas. Do you have figures on natural gas?
Ms. Harbert. I can get those for the record.
Mr. Shadegg. Okay.
So, obviously, we have a huge supply in the Outer
Continental Shelf, which we could be going after and increase
our supply for a substantial period of time, but we have
politically decided not to do that. Is that correct?
Ms. Harbert. That is correct. And our friendly neighbors to
the north and the south also have significant supplies to
increase our North American energy security.
Mr. Shadegg. And we are just talking about oil. There is
natural gas on top of that?
Ms. Harbert. Yes.
Mr. Shadegg. The numbers I have on natural gas show 287.82
trillion cubic feet of natural gas. That is just in the lower
48 in the Outer Continental Shelf.
I want to switch to oil shale. The United States Congress,
the House, just less than a year ago, put a moratorium on oil
shale. The chairman mentioned that he thought the predicted
supply of oil shale was in the neighborhood of 1 trillion
barrels of oil shale in place. I have heard a figure as high as
1.8 trillion.
Can you tell us about the available oil we could get from
oil shale?
Ms. Harbert. There is a tremendous potential in the
Midwest, but unless we actually have an incentive out there for
the companies that are out there to develop the technology to
actually be able to produce this even more cleanly and better,
without an opportunity to explore, there is no opportunity to
develop the technology.
There are several companies, including Shell, that are out
there that have developed the technology to extract three times
the size of Saudi Arabia's resources out of that area. But if
you can't open it up, who is going to develop the technology,
which is hugely expensive to do this in an environmentally
sustainable way? We have got to incentivize our way out of this
crisis, not penalize and put things off-limits.
Mr. Shadegg. And currently that is a political decision
again. We put a political moratorium on the production of oil
shale?
Ms. Harbert. Correct.
Mr. Shadegg. Thank you.
Thank you, Mr. Chairman.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentleman from Connecticut, Mr.
Larson.
Mr. Larson. Thank you, Mr. Chairman.
Mr. Caruso, would you advise the next administration then,
as they set out to put together their energy policy, whether it
be Senator McCain or Senator Obama, would you recommend that
they do that behind closed doors, in secret, or do you think it
should be a transparent, open policy?
Mr. Caruso. Well, I am head of a statistical agency, and we
believe in transparency and openness, so I certainly think that
works best.
Mr. Larson. Do you think that that in part and parcel is a
problem with the American public, when they, as everyone is
working toward solutions, that when you do things behind closed
doors in the dark of night, that it seems to the American
people, especially when you come from a background of oil
yourself, that somehow--not you personally, but the Vice
President--that somehow these things aren't transparent?
Mr. Caruso. I am obviously not familiar with----
Mr. Larson. Is there anyone on the panel who doesn't
believe that we shouldn't have a more open and transparent
policy with respect to our energy policy?
Ms. Jaffe. I would just like to add to that, that there is
a tremendous amount of disinformation that goes out to the
public on the factual, indisputable technicalities of oil and
gas. And to the extent that people feel the need to fulfill
what they think their constituencies want to hear and they go
on CNN and tell the public something that is factually
incorrect, that makes the work of everybody on this panel 10
times harder, because we have to spend a tremendous amount of
time publishing documents that put out factual things about
what car technology is available, about how many lands are
available for drilling. And it makes it very uphill.
Mr. Larson. Well, we just received some very good
testimony. I thank the panelists, et cetera.
And one of them, in talking about this, was going through
the notion that you can't explain why oil went up $11 a barrel;
I think it was Harbert who said that.
Are the laws of supply and demand suspended? And isn't it
the fact that the dark markets have taken over, in terms of
speculation? Is speculation part and parcel of what is driving
the cost of oil up artificially so that we can't, from a policy
perspective, get our arms around this?
Mr. Sieminski. If I could try a quick answer to that, the
$11 move that we had last week, two of the factors that played
into that were, one, an outage on a significant natural gas
pipeline in Australia that has raised the demand for distillate
fuels in that country to keep their mines open, so the metals
mine----
Mr. Larson. The funny thing is my constituents, when I go
back home and talk to them, they say, how is it that something
happens and then immediately the next day the prices go up in
gasoline, or in any kind, and yet when things happen where they
say demand is less, the prices stay the same, they don't come
down?
Are the laws of supply and demand suspended, and is the
industry at the whim of speculators, especially those that are
unregulated and unseen with the capability of driving the
marketplace up artificially? Yes or no, do you think that that
is the case? Is that a problem or not?
Ms. Jaffe. Yes, I think it is a problem. We are in a
bubble----
Mr. Larson. Good. Yes.
So what about you, Mr. Manuel?
Mr. Manuel. Well, I don't think it is one thing. I think
speculation is part of the problem, increased demand is part of
the problem, the weak dollar.
Mr. Larson. Ms. Harbert, does speculation have any role in
this?
Ms. Harbert. We have a very, very tight market between
supply and demand. And to the extent that our economy, the
receding dollar, et cetera, are exacerbating that----
Mr. Larson. Should we regulate the dark market?
Ms. Harbert. If you look at speculation, it is adding
volatility into the market, but it would do nothing to turn
around and reduce and reverse the price increase.
Mr. Larson. We want the transparency that everybody----
Ms. Jaffe. We want the markets to clear and to function,
because otherwise it will be even less orderly. And we had that
in the 1970s.
Mr. Larson. Should we look at the dark markets?
Ms. Jaffe. Well, what we need to do----
Mr. Larson. Should they be regulated?
Ms. Jaffe. No. Well, they are regulated.
Mr. Larson. Who? Who regulates the over-the-counter market?
Ms. Jaffe. The Commodities Futures Exchange.
Mr. Larson. No, it doesn't.
Ms. Jaffe. What we really need to do is think about how
much speculation and what kind of speculation it is and what
are the solutions.
Mr. Larson. How can you determine that if they are
unregulated?
What do you think about that, Mr. Caruso?
Ms. Jaffe. One solution might be----
Mr. Larson. Excuse me, Ms. Jaffe. Thank you.
Mr. Caruso, what do you think about that? Should we be
regulating these unregulated dark markets?
Mr. Caruso. I think we need more information from those
markets to be able to understand what is going on.
Mr. Larson. How do you get it if they are not regulated?
Mr. Caruso. Well, they may need to be. And the CFTC, FTC
and Department of Justice are meeting tomorrow in their first
task force meeting to look at that issue.
Mr. Larson. After more than 2\1/2\ years of our pleading
that they do so. But it still doesn't answer the question of
the dark markets and their ability to be unregulated and to
speculate on what is happening and drive these costs up. People
in my district call that economic terrorism. That is something
we ought to be making sure that the Justice Department is
involved in.
Mr. Manuel. Mr. Larson, if I may, all of this stuff is just
another reminder that we need to get off of oil. I mean, this
stuff is--you know, it is not sustainable, the way the markets
are working and where it is located. We just need to wean
ourselves off of fossil fuels.
Mr. Larson. I agree wholeheartedly. But in the meantime, as
my grandfather would say, trust everyone but cut the cards. We
not only need to cut the cards, we need a new deal here.
Ms. Jaffe. We also need to think more flexibly about how
and when we use these strategic petroleum reserves and the IEA
stockpiling system. This administration, unlike previous
administrations, has said that the SPR is off the books except
for national war emergencies. And we are not using a tool that
we have that was used successfully by the Clinton
administration to cap speculators out of the market. So we
haven't looked at that, we haven't debated it.
I would guess from my long experience in watching the way,
as Adam put it, market sentiment has determined that if the
markets felt that some player with strategic stocks was going
to come in and possibly make a release, they would be a little
less confident about buying the market long.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentleman from Oregon.
Mr. Walden. Thank you, Mr. Chairman. I appreciate the
hearing, and I think there has been some good information come
out of it.
Ms. Harbert, I especially appreciated your testimony. And I
keep hearing from Mr. Manuel that we need to stop using oil,
natural gas and coal, I think he said, or sort of the evil
energy sources of the United States, and that we need to wean
ourselves off of those sources.
My question for you and for Mr. Caruso is, what is the
practicality of that? What do you replace them with? And how
soon could you do that?
Ms. Harbert. For the benefit of our economy and our
national security, we want to reduce our dependence on any
single fuel. In this case, it happens to be oil. We do need a
diverse supply.
However, it is unrealistic to think that we will not have
hydrocarbons as a very large part of our future for the
foreseeable future. And we need to figure out how to make that
a stable, secure supply. We need to find new places where that
exists. We want to have control over those so they exist right
here at home. And so we have to be able to use our oil, our
gas, our coal responsibly. We have the technology to do that.
Mr. Walden. All right.
Mr. Sieminski, we have heard a lot about the dark markets
and the effect of speculators on price. About 3 years ago or
so, I actually led an effort asking the Government
Accountability Office to investigate those markets, and they
produced a rather lengthy report and recommended some changes
in those markets. And I think there is a certain element of
speculation that drives up price.
But I thought you made a pretty good point about why the
speculators are in those markets. Is what you were saying is
that has a lot to do with the fact that we lock up most of our
new resource or available resource in this country, not just
the global market with increasing demand?
Mr. Sieminski. Well, I think it is a concern that supplies
are looking more and more limited, and demand, at least outside
the United States, so far hasn't been reacting all that much to
prices. So I think that we are involved in a very painful
economic experiment to try to find out what price is required
to get supplies to rise and demand to go down.
As far as the dark markets are concerned, let me make three
comments. Guy attended a meeting at the Commodities Futures
Trading Commission yesterday. I listened very carefully to the
testimony there.
The CFTC is very concerned about three major areas: the
over-the-counter trading, which doesn't have the same reporting
requirements; swaps dealers, where who is defined as
speculators versus nonspeculators are at issue; and foreign
exchanges, where some of the contracts traded on the NYMEX here
in America are also traded overseas.
The staff at the CFTC has actually looked into a number of
these things. And so far, from the data that they have, they
don't think that there are big issues there.
I am all in favor of switching the light on the dark
markets.
Mr. Walden. You bet.
Mr. Sieminski. The people I work with on the trading desk
are all in favor of transparency. I don't think there will be a
monster in the room when the light goes on.
Mr. Walden. All right. Then, if that is the case, then it
really does get back to a supply and demand curve.
Now, I don't know about anybody else. I drive a hybrid
here, and I drive a hybrid back in Oregon. I have increased my
mileage by 60 percent in Oregon and doubled it here. Not
everybody has the luxury of investing in a hybrid.
I don't know how many of you shop at Wal-Mart. I get in
there about once a week back in my hometown. There are a lot of
Wal-Mart moms and a lot of diesel-truck-driving dads that are
having a hell of a time making ends meet. And that is the case.
And, Mr. Manuel, I have heard from the Sierra Club on this
issue of no new drilling anywhere, it won't help us anyhow. And
I have to tell you, I am coming down more on the side that says
access to proven reserves in America creates American jobs,
American energy, and it will have an effect on price over time.
So I am going to have to respectfully disagree with you, but it
wouldn't be the first time, because I know your group doesn't
want us to cut any trees in the national forest either, so we
let them burn. But that is another subject for another day.
But I want to get back to this issue. Mr. Sieminski, if
Congress were to act to open up the OCS or ANWR or shales or
tar sands, if we were just to pass a law, knowing that we
wouldn't actually extract those resources for 10 or 20 years,
do you think the simple act of Congress saying we changed
America's energy policy would have an effect on markets and
speculators?
Mr. Sieminski. Yes, sir, I do. I think that, as I said
during the course of my first remarks, it is the sentiment that
matters. Right now, everybody in the oil markets is making this
assumption that demand isn't going to go down and supply is
going to be fixed. If we can change that thinking--and changing
that thinking would be, look, we are going to open up the Outer
Continental Shelf, we are going to start building nuclear power
plants 5 years for the next 20 years, and we are going to pass
even stricter fuel--efficiency standards on automobiles than we
did before, and even do things like the light bulbs--I mean,
that is not the wrong thing to do. That is, like, one of the
small steps you have to take. We have to take all of these
small steps, and we have to do it all at the same time.
Mr. Walden. Yeah, it seems to me that the data show that
Americans need to conserve, but even when we conserve at a rate
greater than any time since World War II, reducing our
consumption of oil in our driving, according to the statistics,
I believe that is correct, it is not having the effect it used
to have.
Mr. Sieminski. Well, it is beginning to work here. I mean--
--
Mr. Walden. Oh, it is killing us here.
Mr. Sieminski. The statistics are that demand is down 4
percent on a year-over-year basis. Americans are buying smaller
cars; they are driving fewer miles.
Mr. Walden. They are not going to their kids' away games
anymore because they can't afford the gas. They are showing up
at work 2 hours early so they can carpool with their spouse.
You know, they are making tough decisions in their lives. You
know, I want people to conserve, but I don't--Mr. Chairman,
everybody has gone at least a minute and a half over, so----
The Chairman. You are at a minute and 6 right now.
Mr. Walden. You were 2:23.
The Chairman. I did not say a word. I just tapped lightly
to give you a notice that you are way over time.
Mr. Walden. I am worried about that other hand of yours,
though, with that club thing on it.
The Chairman. Well, I would give my right arm to be able to
say what I really want to say right now. But you are over, and
I am just tapping lightly.
Mr. Walden. I will give up.
Well, I was just--I don't know where I was going with it. I
will quit at that.
Ms. Jaffe. If everyone in the country telecommuted one day
a week starting tomorrow, we would save 20 percent of our oil
use.
Mr. Walden. And that is great, except I represent a
district that is 70,000 square miles where you don't pull a
horse trailer with a Prius. I own a Prius. You can't drive a
horse----
Ms. Jaffe. You telecommute. In other words, you work from
home 1 day.
Mr. Walden. Ma'am, have you ever been on a cattle ranch? A
lot of them work from home. You still got to haul the hay out
to the field; you got to bring it back. If you are on a wheat
ranch, you still got to run the tractor. Fertilizer costs a
buck----
Ms. Jaffe. I am just talking about commuters. I am just
talking about commuters.
Mr. Walden. We are all representing the people we
represent. And I don't disagree, and I have supported
telecommuting efforts and funding in my district. I think it is
wonderful. But I am saying there are a lot of other folks out
there in real America that can't do that, that can't do that.
Their costs of commuting now are higher than their mortgage
costs. And they lived in a different town because the housing
costs were cheaper. These are real people going upside-down in
this country, and we don't want to do anything about it here,
and that is wrong.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentleman from New York, Mr. Hall.
Mr. Hall. Thank you.
And my friend, Mr. Walden, I think we do want to do
something about it. I certainly do, and I think all of us do
here. And there are certainly areas, as the witnesses have
reminded us, of agreement and areas of overlap, and I think we
should work as fast and as hard as we can on those.
So the EIA has run a lot of assessments about oil prices
based on projected supply and demand on a base case. And I
would just like to ask Mr. Caruso, has EIA run any estimates
incorporating an assumption that America's auto fleet will be
significantly more efficient than 2030?
Mr. Caruso. We have in the latest outlook incorporated the
new law, so we have about a 40 percent increase in miles per
gallon in this 2008 outlook.
And we haven't specifically run a scenario where we took a
much larger increase, but we have done improved technology
cases which try to simulate that. So there are about 30
different cases in our long-term outlook that try to simulate
different policy changes and economic conditions.
Mr. Hall. Thank you very much. That is good. And I have
noticed that every State that has had, for instance, a
renewable energy standard, including Texas where our President
signed one for 10 percent RES, when as President of the United
States--as Governor, I should say, Governor of Texas, he signed
one; as President, he has been unwilling to sign one for the
whole country. But the State of Texas exceeded their 10 percent
and has eclipsed California now as the largest installed wind
capacity State in the country.
So there is some evidence that when you put a goal out
there, Americans exceed it, be it with electricity or with
transportation fuels or vehicles.
Indeed, the Chevy Volt, I was just reading, which will be
coming out next year or the year after that, will basically
have a--it is an electric car that will have an internal
combustion engine for the purpose only of charging the
batteries, the lithium ion battery bank, which will drive the
vehicle. And they say on long-distance travel it is a commuter
vehicle which will run on electric for commuter distances of
100 miles or less. On intercity or long-distance travel, it
will average 150 miles per gallon based on technology they have
that they are bringing to market in the next couple of years.
Toyota just announced, I think yesterday or the day before,
a car that they are planning to release that will get 500 miles
to the gallon.
So I think we are going to see an exponential growth in
efficiency, as well as in substitute power for transportation,
which is a good thing, because we need the liquid fuels for air
travel for a considerably longer time, I think, as we figure
out how else we might be able to fly.
If the overall market was made up, say, 50 percent hybrids,
can you theorize what that might do to consumption?
[Insert for the record by Mr. Caruso follows:]
[GRAPHIC] [TIFF OMITTED] T1729A.049
[GRAPHIC] [TIFF OMITTED] T1729A.050
Mr. Caruso. Not off the top of my head. I know our base
case has 45 percent new car sales of alternatively fueled
vehicles in 2030. But that is a ramp-up, so it takes a long
time, as you alluded to.
Mr. Hall. People wear out their cars, and it takes a while
before they buy a new car.
Mr. Caruso. But certainly that calculation could be made. I
could supply that for the record.
Ms. Jaffe. We have done the calculation that if, starting
in 2015, all new cars got 50 miles to the gallon, it would save
6.7 million barrels a day at the current rate of car turnover.
Mr. Hall. Did you see the article, I think it was in the
New York Times, about the impact on different areas of the
country of fuel prices, for instance, the southern and more
rural districts where trucks are in heavier use and they tend
to be old and very inefficient? It had a map with different
colors. It was really interesting.
And it made me think that perhaps we should be trying to
help those States and those districts where people have
historically driven trucks for work and for transportation and
are driving ones that get less than 10 miles per gallon and
older models and can't afford to upgrade to a new hybrid truck
that shuts down half of the eight cylinders when it is on a
straight-away at constant speed, which are being made currently
by GM and Ford in this country.
Anyway, I just want to make a comment about
substitutability, which I think you mentioned, Ms. Jaffe. When
I was in Israel, I was pleased to learn about a company there
that is making electric vehicles and interchangeable batteries.
And their concept is you pull into a service station, and
rather than charging your battery, they just take one out and
put another newly charged one in, hook up the wires, and you
drive away in a few seconds, as opposed to taking a few minutes
to fill your tank with fuel.
And I am wondering if anybody has considered this sort of
thing, at least in commuter areas of the United States?
Ms. Jaffe. One of the things I think the Israeli Government
said when they announced that program was that they really feel
that they are, sort of, meeting global needs, that they have a
small country and it is easy for Israeli commuters to do that
because they don't drive more than 2 hours, you know, from one
end of the country to the other, 3 hours.
But that would have applications in large cities. It would
have a great application in Manhattan, a great application in a
place like Singapore, or even in some other larger U.S. cities
where you have a very dense population that has a limited
geographic area that they drive.
We actually did the calculation, back when gasoline prices
were $3, that if today I could plug in my car--because in
Houston I live what we call inside the loop, and I really never
go more than 10 or 15 miles a day--I could have spent 2 cents a
mile if I could have plugged my car into my house and not
bought gasoline versus, say, 17 cents a mile at that time.
So there really is an advantage. And there is this
advantage for us in terms of national security, if you can
imagine, our either getting cut off by the Middle East or
having a major hurricane in the Gulf Coast that knocked out
refining and we suddenly had a temporary hiatus in the ability
to have enough gasoline. If some Americans could plug in, I
mean, then some people would be able to drive without recourse
to gasoline, then the need for rationing or the kinds of things
we saw in 1973 would be greatly eased.
Mr. Hall. Thank you very much.
Thank you, Mr. Chairman. I yield back.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentleman from Oklahoma, Mr.
Sullivan.
Mr. Sullivan. Thank you, Mr. Chairman.
I appreciate the panelists for being here today.
And when I look at the energy issues, I talked to people on
this panel, other Members of Congress on both sides, I think we
all agree that when we look at some way, some comprehensive
energy plan to reduce prices, to lessen the emissions in the
world, we have to look at it from a multi-pronged approach,
many different approaches. It is not just one thing.
And, you know, one of the things, we need to lessen our
dependence on foreign oil, we need to maybe use less oil and
gas, that is true. We need to look at alternative energy
sources--wind, solar, nuclear. All those things are very, very
important. I think a lot of people--Ms. Harbert even talked
about that. Others have talked about that on this panel.
But right now we are getting a lot of our--and the
technological advances aren't in place right now where we can
just shoot the horse on gas and oil right now and jump on
another horse right now.
And so I guess I will ask Mr. Manuel, you know, one of the
things you said that really disturbed me that I think was less
than truthful is that we don't have any gas and oil here to
explore here in the United States. You said that. And I can
tell you right now, I got a thing here and I will give it to
you, but we have, just in the offshore, in the Pacific
offshore, we have 10 billion barrels of oil we could get here
in our own backyard. We also have 18 trillion cubic feet of
gas. That is in the Pacific. Offshore Alaska, we have 27
billion barrels of oil that we could get, and we have 132
trillion cubic feet of gas. On the Atlantic offshore, we have 4
billion barrels of oil and 37 trillion cubic feet of gas.
Offshore Gulf, we have, deep water, 45 barrels of oil, 233
trillion cubic feet of gas. In the lower 48 inaccessible--and
these are inaccessible; the Government says it is against the
law to do--we have 20 billion barrels of oil in the lower 48
onshore and 162 trillion cubic feet of gas.
And what I am saying is, until we develop the technologies
that we can do other things, why do you think it is so wrong to
get some in our own backyard? Do you prefer that we go to the
Mideast to get it or outside this country? Why is it so wrong
to get it here while we are developing those technologies so we
can get prices down?
Mr. Manuel. Well, just to point out, I said that the U.S.
has about 2 to 3 percent of the world's proven oil reserves. I
didn't say we had none. On the contrary, I pointed out that we
have opened up thousands and thousands, millions of acres to
new oil and gas drilling in the last 30, 35 years.
And if you look at just this past year, the Minerals
Management Service has had two very large lease sales, one in
the Chukchi Sea, one in the central Gulf of Mexico. So it is
not a question of access. We have all these leases that have
been sold to oil and gas companies that aren't being used,
but----
Mr. Sullivan. These are off-limits, what I just said, they
are off-limits.
Mr. Manuel. I know, but the point is the stuff that is open
now is not being utilized. And, again, if you look at the MMS
figures, we think that 80 percent of the resources that are
available offshore are in areas that already opened. Most of
the oil and gas found in the United States is in the central
and western Gulf of Mexico. That is where the companies want to
go. That area has been open for 20, 30 years.
Mr. Sullivan. Do you see anything wrong with going in these
areas that I mentioned?
Mr. Manuel. Well, I do. I don't think we should open up any
new areas for new offshore drilling.
Mr. Sullivan. So you don't think it is a good idea to get
more at home, in our own backyard? You think we should get it
elsewhere?
Mr. Manuel. We don't think it will make any difference on
the price of a gallon of gas. Because, again, we have tried
that. The lease sale that happened in the Chukchi, that didn't
drop the price of a gallon of gas. When we opened the trans-
Alaska pipeline system in 1975, 3 years later the Shah of Iran
fell and Iranian oil became off the market. Our prices went
sky-high, even though we had opened up the largest oil field in
the United States.
There is no historical data to show that opening up
individual fields in the United States has had any impact on
the price of gas in the United States.
Mr. Sullivan. You wouldn't agree that this is part of the
puzzle, though? When we look at multiple issues that we have to
look at to address our energy issue, you don't think this is
part of the puzzle to address that? As we develop the
technologies where we can move to other types of energy, you
don't think that we should do that?
Mr. Manuel. Well, we acknowledge that it is going to take
us a while to wean ourselves off of fossil fuels, but there is
plenty of areas that are opened right now that will allow us to
do that.
Mr. Sullivan. That is not adequate.
Mr. Manuel. Well, we think that is the way to go for a
variety of reasons: environmental damage to these areas, but
also global warming, greenhouse gas emissions. We think the
better path for our country is a future of clean energy
sources, renewables, energy efficiency, fuel economy. That
would save more oil and gas than are thought to be off of these
areas that are currently off-limits.
Mr. Sullivan. Is that the mission of the Sierra Club, to
lessen our dependence on oil and then also to reduce greenhouse
gas emissions? Is that your primary purpose?
Mr. Manuel. Our goal is to reduce greenhouse gas emissions
and wean ourselves off of fossil fuels.
Mr. Sullivan. Okay. Do you support nuclear power?
Mr. Manuel. No, we don't right now because of the----
Mr. Sullivan. That has no emissions, do you know that?
Mr. Manuel. Well, it has a lot of nuclear waste, which I am
sure you are familiar with.
Mr. Sullivan. So you don't support nuclear power at all?
Mr. Manuel. No, we don't.
Mr. Sullivan. Does a former member of your group, I read,
now supports the use of nuclear power?
Mr. Manuel. Pardon me?
Mr. Sullivan. Did someone in your organization that was in
your organization that is not in your organization now support
nuclear power?
Mr. Manuel. Well, I can't comment for former members of the
Sierra Club.
Mr. Sullivan. Well, he does.
Ms. Harbert, could you tell us again just very quickly,
what do you think we should do--I mean, we need to look at this
from multiple approaches. We are going to try to wean ourselves
off gas and oil. We probably will move toward that direction as
technology develops. But what do you think we should do in the
meantime?
Ms. Harbert. We need to responsibly exploit the resources
we have here at home, you know, play the home team, play to our
advantages. We are investing now, right now, less in research
and development than we did after the Arab oil embargo. We have
to get serious and invest in advanced technologies.
We have to streamline permitting for energy infrastructure,
and that includes new nuclear plants so that it is emissions-
free, and we have got secure, available, local supplies of
nuclear energy.
Mr. Sullivan. Do you believe what Mr. Manuel said about we
already have enough going on and we don't need even need to go
into this because we have plenty already here in the United
States to address this and that while we are in this gap
looking for----
Ms. Harbert. Well, energy demand is forecasted to go up by
30 percent in this country. We don't have the same amount of
growth in production planned for this country. So there is a
growing gap between supply and demand that has to be met
somehow.
Mr. Sullivan. Okay. Also, on the markets, you mentioned the
speculation and all of that. There may or may not be some in
the price of crude oil, but probably is a little bit. If you
did regulate here, and we do to a certain extent some of the
markets, what would keep them from, you know, traders just
trading in another country?
The Chairman. The gentleman can answer the question.
Mr. Sieminski. I think that we need to do what we can do in
our own markets and then with the foreign agencies that we can
work with, like in London and in Dubai, where there are
actually initiatives under way to cast some light on the dark
market question.
Mr. Sullivan. Okay.
Well, thank you, Mr. Chairman.
The Chairman. The gentleman's time has expired.
The Chair recognizes the gentleman from California, Mr.
McNerney.
Mr. McNerney. Thank you, Mr. Chairman.
I want to thank the panelists. There has been some very
interesting testimony today, some of it very specific, some of
it very general. And I think it illuminates the issue quite a
bit.
One of the things that I hear--or there are two real
salient points. First of all, we need to work on a bipartisan
basis to find reasonable solutions that will make our energy
future stable. And I think everybody agrees with that. The
other one is that we need to encourage innovation to develop a
stable and reliable energy future.
Personally, I believe that energy efficiency is our best
resource. And there was some very impressive testimony. For
example, Mr. Caruso said that our current CAFE standard of 35
miles per gallon would save 2 million barrels a day. And Ms.
Jaffe said that 50 miles per gallon will save 6.7 million
barrels a day.
What I would like to ask Mr. Caruso, how much do you think
that would affect our price of gas at the pump if we saved 2
million barrels a day?
[Insert for the record by Mr. Caruso to follow:]
[GRAPHIC] [TIFF OMITTED] T1729A.051
[GRAPHIC] [TIFF OMITTED] T1729A.052
Mr. Caruso. Well, we think that, as the Chairman mentioned,
that if we can bring consumption down, in this case 2 million
barrels a day, and increase supplies, that we can see the real
price of oil go down. The prices that the Chairman was quoting
are in 2006 dollars.
Mr. McNerney. Well, how much do you think that would affect
the price at the pump today if we were saving 2 million barrels
a day?
Mr. Caruso. I don't have that number right off the top of
my head, but I would be happy to provide that. It certainly
would put downward pressure on price.
Mr. McNerney. Do you have an estimate, Ms. Jaffe, or a
guess?
Ms. Jaffe. Some of it gets to the issue that Adam brought
up, which is this, sort of, what is driving the speculative
fervor. So I will say, just factually, U.S. demand for oil is
down 4 percent this year versus last year. And part of what you
are trying to do is create an atmosphere where people see that
as a long-term trend line and they start to trade oil with that
mentality in mind.
Mr. McNerney. Do you think a 6.7-million-barrel-per-day
savings in our oil consumption would lower the price of gas
substantially?
Ms. Jaffe. Yes, I think it would make a substantial
lowering of the price.
Mr. McNerney. You know, you mentioned a couple of things
also that I think were interesting--the Strategic Petroleum
Reserve, using that to reduce the speculation in the market. Do
you have a specific proposal, and how effective do you think
that would be?
Ms. Jaffe. Well, let me give you a specific example. There
was a period of time, and I can't remember what the risk factor
was in the market, but when Secretary Richardson did a quote/
unquote ``test sale'' of the SPR and the effect it had at the
time, because prices were sort of creeping above $40 a barrel.
And it spooked people in the market briefly, and prices went
back down into the 30s.
What happened then is, every time the price would
subsequently get to $39 or something like that, people would
automatically naturally assume that the SPR might be released
again, and so they would take their profits at a certain
number.
Mr. McNerney. So this is a very effective tool that is in
the hands of the administration that is not being used. In
fact, it is being forbidden from being used. It has been taken
off the table by the administration.
Ms. Jaffe. By taking it off the table, the administration
has not only meant that you could trade up with impunity, it
has also discouraged OPEC. Because if you are OPEC and you know
that we might use strategic stocks, then it behooves you to
raise your production because you might as well get the money,
whereas if we release the SPR, the Treasury gets the money.
So it has had a negative effect, in my opinion, on both the
dynamic of having OPEC respond the way they did, say, in 1990
by increasing their output, and it has a negative dynamic on
the, sort of, way speculators feel about the upside of the
market.
Mr. Sieminski. I think you might want to be very careful
about using the Strategic Petroleum Reserve, just solely
looking at the price alone. The obvious exceptions to using the
Strategic Petroleum Reserve that the administration did not use
was the strike in Venezuela. If you actually have a shortage of
oil caused by something like a strike or an accident or weather
using the SPR at that time, and not only ours but the product
inventories in Europe, it makes a lot of sense. Doing it for
price alone I think takes you down a path that you might not
want to go.
Ms. Jaffe. I would agree with that, but I would like to add
to that something. When we had Hurricane Rita and Katrina,
another time the administration didn't really strongly use the
SPR, the point is we had to borrow gasoline from European
strategic stocks of gasoline. And if the outage had lasted
longer, they were not going to lend to us a second time.
We do not require oil companies in this country to carry a
minimum inventory. That is required in Asia, and that is
required in Europe. Had we had that requirement, then the
buildup in prices we get every spring would be less likely to
happen. Part of what causes the speculative run-up in gasoline
prices in the spring is we need to attract imports because we
can't manufacture to meet demand.
When the companies don't carry inventory, if we have an
accident like the Venezuelan strike that accidentally lowers
inventories, we never catch up, and that is reflected
immediately in the pump price.
Mr. McNerney. Now, another thing you discussed, I liked the
idea, was substitutability. You compared the electricity market
to the transportation market. But the way you envision
substitutability applying in the transportation market, what
would be the carbon footprint impact of that, as compared to
the current supply for the transportation market?
Ms. Jaffe. This is what we need to think through. We know
that there is a problem in the power-generation sector, because
we are so heavily reliant on coal. But we need to have, what I
call, an infrastructure paradigm shift. So, over time, if we
bring cars that have substitutability, so we bring some cars
that can work off electricity. Right now we have different
things. Some things in the supply stack for electricity are
clean, and some things aren't. But if then, over time, we can
move our policies so that we move to things like more
distributed energy--like, say we all had better technology for
solar rooftops, then you could plug in your car, and it would
be--in California, I would be plugging it into solar, right? So
we would have a transition where we can marry the two things
together.
Mr. McNerney. Great.
Thank you, Mr. Chairman.
The Chairman. The gentleman's time has expired. The Chair
recognizes the gentlelady from South Dakota, Ms. Herseth
Sandlin.
Ms. Herseth Sandlin. I thank the chairman, and I am
indebted to the gentleman from a Washington, Mr. Inslee, for
allowing me to take this set of questions now.
Let me begin by saying that I agree with Mr. Sullivan that
parts of the area of the map that he showed us that are
currently inaccessible are a piece of the puzzle, and I hope
that he agrees with me that biofuels production is also a piece
of the puzzle. And so I would like to explore with
Administrator Caruso the issue of biofuels production and the
testimony that we received on April 1st of this year from
executives of the big five oil companies.
Four of the five that testified acknowledged that increased
biofuels production has reduced oil and gasoline prices,
although they didn't agree with the magnitude.
The analysis that I raised with them that I want to raise
with you now comes from a March 24th article in the Wall Street
Journal reported that Francisco Blanch, an analyst at Merrill
Lynch, who has concluded that oil and gasoline prices would be
15 percent higher but for the expanded production of biofuels.
So my question, Mr. Caruso, is has the EIA calculated the
degree to which increased biofuels production has lowered oil
and gasoline prices in the United States?
Mr. Caruso. We haven't done the similar analysis as you
just referred to, but we did look at the 2008 increment of
biofuels compared with 2007 and looked at what impact that may
have had on gasoline prices. And our conclusion was somewhere,
I think, in the 10 to $0.15 per gallon reduction in the price
of gasoline that we believe can be attributed to the
incremental production of corn ethanol.
Ms. Herseth Sandlin. And so reduction where it might
otherwise be in that the 1-year period?
Mr. Caruso. Yes, yes.
Ms. Herseth Sandlin. Do you have any plans to perform a
broader analysis?
Mr. Caruso. Not at this time.
Ms. Herseth Sandlin. And why is that?
Mr. Caruso. We haven't been asked to. We try to use our
resources as best we can.
Ms. Herseth Sandlin. I would look forward to talking with
the chairman at greater length about a formal request in light
of some of the analysis that we think currently exists that the
EIA could supplement as it relates to the positive impact of
increased biofuels.
Now you did say that in your testimony--what are the key
reasons for your testimony that while, ``very uncertain,'' you
conclude that available quantities of cellulosic biofuels prior
to 2022 will be insufficient to meet the new RFS targets for
cellulosic biofuels, triggering both waivers and a modification
of applicable volumes such that the overall RFS target in 2022
will be reduced from 36 billion to 32\1/2\ billion gallons.
What are the key reasons for that testimony? And what level
of confidence does EIA have in an analysis that is explicitly
very uncertain?
Mr. Caruso. Well, I agree that we should start off by how
much uncertainty there is about that technology, and that is
one of the reasons we make that statement. And we----
Ms. Herseth Sandlin. You are referring to the technology
that exists.
Mr. Caruso. Yes, technology and the two of course are
interrelated and we have worked with the National Renewable
Energy Lab in Golden to come up with what they think the best
outcome is likely to be.
Ms. Herseth Sandlin. If they are developing----
Mr. Caruso. As of when that annual energy outlook was
produced.
Ms. Herseth Sandlin. Which was early this year. So in light
of----
Mr. Caruso. Yes, that is my best judgement.
Ms. Herseth Sandlin. The investments and the advancements
that I see in the advanced biofuels cellulosic ethanol
industry, if within the next year to 18 months it is
demonstrated that the technological advancements are much
further along than when you produced the study, that would be a
factor that would lead you to the conclusion that production
cellulosic biofuels will indeed meet the RFS.
Mr. Caruso. Oh, definitely. We reevaluate our assumptions
every year. And I think Congressman Inslee in his opening
remarks mentioned a few of these areas where very significant
changes can take place.
Ms. Herseth Sandlin. So would you be willing to provide the
committee the full analytical basis for the testimony regarding
the RFSs of today and the report that was issued earlier?
Mr. Caruso. Certainly, we publish that every year.
[Insert for the record by Mr. Caruso to follow:]
[GRAPHIC] [TIFF OMITTED] T1729A.053
[GRAPHIC] [TIFF OMITTED] T1729A.054
Ms. Herseth Sandlin. One last area to explore. Ms. Jaffe, I
agree with you on this administration's inflexibility as it
relates to using the SPR in a more strategic manner. I met with
Propane Marketing from South Dakota yesterday. The hedging
tools that they typically use simply aren't an option for them
anymore, and I know that in addition to utilizing the SPR more
strategically they actually called for higher margin
requirements. And some of the other commodity folks that I
represent farmers, ranchers, grain elevators, they actually
have proposed the idea of making the traders take delivery of a
percentage of the commodity that they are trading.
Could you comment on either of those options?
Ms. Jaffe. Yeah, I think that it is important to have
financial clearing for the futures market for oil. The whole
purpose of having a futures market for oil is to have a smooth
and transparent way that buyers and sellers can meet and have
transparent and open pricing.
In 1979, you had to know Marc Rich to be able to figure out
if you could or couldn't get oil on the spot market and what
price he was selling it at. We don't want to go back to that.
So speculators do play a constructive role. Academics have done
studies that show that having a functioning futures market
actually lowers volatility, not the other way around.
But within that spectrum we are in a very unusual market
today, where people's perceptions about the dollar, the rising
price of oil has become sort of a circular self-fulfilling
motion. We are getting to the point where the dangers of an
overinflated bubble in these facilities are a much larger
danger to the average American than a normal market.
And so under those situations it is important to have
regulatory bodies looking at it, and if it is just a mania,
right? We have had another market. It is just a mania. People
just believe it is going higher so it does go higher. We still
want to think about things we can do to slow that down, and one
option is to tighten the amount of contracts you can buy on
margin.
The Chairman. The gentlelady's time has expired.
The Chair recognizes the gentleman from Washington State,
Mr. Inslee.
Mr. Inslee. Thank you. Listening to the panel, I think
there are two truths I would like to talk about, one short term
and one long term to help our people who are taking it in the
chops with $4 a gallon gas. First, the short term. It is clear
that we have seen this movie before; it was the Enron debacle.
We lived through it with 1,000 percent price hikes in 30 days
with electricity because the market was broken. And it is clear
that the market is broken now.
And you know, you just listen to some unlikely sources. A
quote from Iyan Madani, Saudi Arabia's Info and Culture
Minister. It says, ``There is no justification for the current
rise in prices. Others calling the surge in crude unjustified.
Saudi Oil Chief Ali Naimi says, ``It is linked to tremendous
speculation in crude oil futures.''
When you get Andy Pettitte and Jose Canseco telling you you
got a steroids problem in baseball, you probably do. And when
you get the Saudis telling you have a broken market based on
speculation, you probably have a problem. And that is why we
have to get these dark markets regulated. It is very
disappointing the administration has refused to do so. And I
look forward to the passage of Bart Stupak's bill that I am
helping him on in fact bring into the regulatory destruction of
these speculative markets. We have seen this movie before. Now
that is the short term.
I want to ask Mr. Caruso about the long term. Because in
the long term it is clear to me that we have to decarbonize our
transportation sector largely, as soon as possible, or we are
going to be stuck with these prices for a long, long time. And
when I think about the predictions of the future, Mr. Caruso,
you told us about some predictions. What is the assumption we
have of the percentage of our private cars that can be either
electrified or based largely on domestically produced
substitute fuels in the next 20 years, what prediction does the
agency make?
Mr. Caruso. Our current assumption on alternatively fueled
motor, light duty vehicles is 45 percent of the new car sales
in 2030 would be what we call alternatively fueled vehicles.
That is hybrids, it also includes turbo diesels and flexible
fuel vehicles or E85. Those are the three.
Now the point you made earlier about plug-in hybrids, as of
now, as you alluded to, that technology is still not
commercial. So we have very few plug-in hybrids in that
outlook.
Mr. Inslee. I think that prediction could be hugely
expanded if Congress will act. We got to the Moon in 10 years,
in 10 years this country got to the Moon. Right now our policy
can't even get to Cleveland. We have got to have a more
aggressive policy, and I think we need to be much more
optimistic. We went from making 3,000 planes in 1939 and then
we made 300,000 airplanes in the next 4 years in World War II.
We have no have a similar ramp-up of ambition.
A paper came up by a professor at Stanford just a couple of
weeks ago, Mark Jacobson. He is the Professor of Energy
Resources at Stanford. He said that using today's technology,
today's technology, without technological advances, if we build
about 100,000 wind turbines of 126 diameter blade length, we
could power our entire transportation fleet with electricity,
using today's technology.
The reason I point this out is 100,000 wind turbines sounds
like a lot, right? But in 4 years we built 300,000 airplanes
because we had to do it. I think that all of us need to raise
the level of our ambition from that 45 percent to a much higher
number, much more quickly. I believe the technology is there to
do it.
By 2011 we are going to have plug-in hybrid cars mass
produced in the United States, something no one would have
predicted 5 years ago. The lithium ion batteries are making
huge strides forward. We have potential commercialization of
something that can be 50 times more productive than corn-based
ethanol or algae based gasoline and even biodiesel taking
place.
I just point out that I just believe that the only way to
tell Americans that their prices are going to come down long
term is that if all of us become much more ambitious on this
technology. I know we can do it, we did it in space, we did it
in World War II, we have to raise our eyes.
Do you have any comments, Mr. Caruso? Go ahead.
Mr. Caruso. Yeah, I want to say it is clear, I think that
almost everyone agrees, that the solution lies with improved
technology and innovation and dedication to it. That includes
R&D spending.
Mr. Inslee. Right, that is right. And the problem is we are
not doing it. We spend one-third as much in R&D in the entire
national Federal government as Microsoft does in research. Our
energy budget in R&D is one-third Microsoft, one company's
budget for R&D. We have no cap and trade system to create a
demand. And unfortunately, President Bush has been against it.
We have no renewable portfolio standard. We have no feed-in
tariff. We have no building standards. Congress and the next
President of the United States has to, and I believe will, set
us on a course for a clean energy revolution, and I am looking
forward to that on January 20th, 2009.
Thank you.
The Chairman. Gentleman's time has expired.
The Chair recognizes the gentleman from Missouri, Mr.
Cleaver.
Mr. Cleaver. Thank you, Mr. Chairman. Do any of you know
where we got these new contraptions, the cell phone? What
created this? Good. I will tell you, Star Wars. And way before
most of you are too young to remember Star Trek, but the
captain would always flip out his phone. Anyway, that gave
engineers the opportunity to do this. So Star Trek. Okay, Mr.
Spock.
I am obsessed with horror movies and probably because the
monsters are rarely after black people, but I watch this stuff
and try not to become paranoid or join any cult. But what I am
wondering from all of you and I have one question, we had this
crisis occur first during my lifetime in 1973 or close. That
was generated--I think history will say it was generated by
OPEC, okay? Okay. And then we had another in 1979, the
Ayatollah Khomeini in Iran. And here we are again in 2008.
Difference may be that during the first two we really had not
hit the oil peak.
There are some who believe that the movie that I just saw
about 3 weeks ago, when the world ran out of gas and it showed
the cataclysmic impact of what happened, food crises, people
standing in line--you have seen these futuristic movies--
begging. Well, that is happening all over the world right now.
In Ethiopia in particular people are dying, not to mention what
is going on in the Sudan. But the food prices have caused a
worldwide panic. All of it is depicted in a movie. But we know
that oil is finite and there are some, including some big names
in the oil industry, who believe that we hit an oil peak and
that we are actually having a crisis that is not like the first
two, that this one won't go away. This is going to be a problem
until we deplete the supply for fossil fuel deposited in the
Earth.
Is that science fiction or have we again hit reality
through the science fiction?
Ms. Jaffe. We don't even have to go there, because we know
we have global warming and we know we have to take carbon out
of our fuel system. And because we know that it makes it
different anyway, right? The way we would handle--let's say we
have a recession and we have a global recession and demand for
oil goes down, the price will come down, right? I mean that is
one scenario that could happen, right? And I know there are a
lot of people who feel that won't happen again, but that does
not change the reality that the oil reserves are finite at some
point and it doesn't change the reality that a lot of the oil
we have left to produce is in places like Venezuela, Saudi
Arabia and Iran, right? But the bottom line is we know that we
want to decarbonize our economy over time. We know that. And
since we know that, a lot of the same solutions, energy
efficiency, right? Alternative energy, R&D. Some of those
solutions are the same. So it really doesn't matter whether
1973, it is exactly the same or not exactly the same. The
reason that it is different is we know we have to do something
for a variety of reasons, not just national security, but even
environmental reasons we know we have to do something
different. We know that the lead time on scale-up is decades,
not months. And so that is why we have to start now.
Mr. Sieminski. Mr. Cleaver, you are absolutely right, we
have seen this movie before. We saw it in 1973, 1974 and again
in 1978 or 1979 and 1980. The kinds of solutions that I think
made it work out the last time were encouraging energy
efficiency across all the sectors, encouraging fuel diversity,
encouraging trade and investment, R&D and especially what we
need to do this time I think is enhance our science and
engineering capabilities so that the technology will come out
to take care of some of these problems.
I really don't think it is speculators that are driving up
the oil price. I think it is an actual fear of shortfalls in
the coming years, and we need to take steps now to turn that
psychology around. I think we can. This is not a horror movie
with a bad ending, it has got a good ending. We just need to
move along.
Mr. Cleaver. Anyone else?
Mr. Manuel. Well, I agree generally that we need to--as my
colleagues just said, we need to innovate our way out of this.
We need to start transitioning away from fossil fuel so that it
is not a horror movie. And the technology is available now. Mr.
Inslee was talking about some of these things, wind mills, fuel
efficient cars, plug-in hybrids. All that stuff is available
now. We just have to aggressively move forward and start that
transition.
Mr. Cleaver. I know my time is running out. I apologize for
being late. I am on the Financial Services. We are holding a
hearing today on whether or not Congress should enact
legislation that would require HUD to construct energy
efficient public housing units. And we are in a battle because
some folks don't think that is the direction we ought to go.
And it is just amazing that if somebody took footage of our
hearing they could use it in a futuristic movie listening to
all the people give reasons why we shouldn't do this. And so my
concern is--my concern is actually heightened by the fact that
people are not taking it seriously and, you know, this
administration is just acting as if all we need is an oil
change.
Ms. Harbert. I will agree with your analogy.
The Chairman. The gentleman's time has expired.
The gentleman from Oklahoma seeks recognition.
Mr. Sullivan. Thank you, Mr. Chairman. And I would like to
ask that the testimony submitted by Carl Michael Smith,
Executive Director of the Interstate Oil and Gas Compact, be
entered into the record.
The Chairman. Without objection, that document will be
included in the appropriate place in the record.
Mr. Sullivan. Thank you, Mr. Chairman.
[The statement of Mr. Smith follows:]
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The Chairman. So all time for questions by the select
committee has been completed. I will turn to the panel and ask
each one of you to give us your best 1 minute to tell us what
you think we should know at this time in the history of the
United States relationship with oil and other energy sources,
and we are going to go in reverse order of our original
testimony. So we will begin with you, Ms. Harbert. Your best 1
minute if you would.
Ms. Harbert. Congratulations on this hearing, we need more
deliberate discussion on this very complex issue. It is
important to recognize there is no single solution. There is no
short-term fix. There is no panacea. So we in partnership with
the American people have to address this in a very
comprehensive way and a very urgent manner. We need a short-
term, medium-term and long-term view on this. We have to remove
restrictions on our resources here at home. We have to get
serious about investing in our research and development. We
have to invest in the next generation of leaders, scientists,
engineers, so we can continue to have the intellectual
feedstock that we need to sustain our competitiveness over the
long term.
We actually have to make available the fiscal resources so
that we actually incentivize the investments to be made in this
country rather than in other countries. We need to open up
ourselves for that investment in innovation in this country
that we are not doing. We have to make sure that we have
predictability, regulatory predictability, that we have fiscal
predictability so the business community can make long-term
capital investments in these very complex capital intensive
projects in this country.
I am an optimist. We have a lot of venture capital money
going into this. We need to sustain that so we can actually win
this very, very big challenge.
The Chairman. Thank you, Ms. Harbert.
Mr. Manuel.
Mr. Manuel. Well, I will take off on the optimism point. I
think I am optimistic as well, but we do urge this Congress to
really lead America towards a clean energy future by continuing
to push energy efficiency programs, renewable energy, clean
energy programs and fuel economy. We think ultimately that is
the way the country really needs to go and do so quickly. We
didn't learn our lesson from the past, and we continue to think
we could drill our way out of the problem. And we just
encourage Congress to lead us in the opposite direction that is
more sustainable, that is cleaner for our environment, and
reverses global warming gas emissions, and puts America to work
in the clean energy economy that is good for our environment,
and good for the country, and good for the planet.
The Chairman. Thank you, Mr. Manuel, very much.
Ms. Jaffe. So my 1-minute message is that foreign oil
producers and countries whose interests are not the same as the
United States are exploiting our lack of political will to gain
power at the expense of U.S. national security and our
flexibility in international relations.
There are many short-term things we can do. The Senate has
addressed some of those things, but when push comes to shove,
given the challenges that are facing us both in energy and
climate, we need a serious research and development program in
this country both in private industry and in government.
We need to not only think about how we tax corporations to
get them to spend more on R&D. We need to think about how we
raise public funds to spend more on R&D.
And let me end with an optimistic note. I work with 81
nanotechnologists. They are working on solar energy, they are
working on better transmission systems, they are working on
wind power. All kinds of very interesting technologies that I
agree, had we said we were going to the Moon but only put in
$100 million to spend to do that, we would never have got
there. And so we need to think about how we are going to come
up with the money to do the kind of R&D we need. We have the
people and we have the will.
The Chairman. We thank you very much. And we know you are
from Rice University in Houston, and the same way that we want
you to say Houston, we have a problem and that was the space
program, I think we can say the same thing now about our energy
program. We thank you for being here.
Mr. Sieminski.
Mr. Sieminski. Thank you. Just two points, there have been
tons of research done and investigations already underway that
have shown that the futures markets are not being manipulated.
And so what I would suggest as a first recommendation is that
we be very careful about taking steps immediately to curtail
trading activity when what we really need is to cast light on
the so-called dark market. So let's get the information first
and then act rather than the other way around.
Second point is I really feel that direct controls on
prices or profits are going to give you the wrong answers to
the crisis that we are facing now. Unfortunately and painfully,
the high prices are actually what is encouraging solar and wind
and alternatives in the automobile industry and elsewhere in
biofuels, both cellulosic and everything else. So let's bear
the pain for a bit and see if we can't let these alternatives
come out because of that.
Thank you.
The Chairman. And Mr. Caruso.
Mr. Caruso. This is a problem that has been created in some
ways by good news, and that is global economic growth has been
very strong. We need to sustain that growth by meeting these
needs through using energy more efficiently definitely, more
economic, environmentally consciously, but also to develop all
forms of energy resources. There is no single solution, as a
number of our panelists have said. So we need to facilitate
investment in all forms of energy and research and development
and innovation, as has been mentioned.
This is not a short-term solution. We need to recognize
this is a large-scale, long-term solution and it is going to
take time.
The Chairman. Thank you, Mr. Caruso, very much. And we
thank each of our witnesses.
This is a very important hearing. It is a very timely
hearing, because it really goes to the question of where are we
today and what do we have to do in order to avoid the most
catastrophic consequences of this huge amount of high priced
oil that we are importing from around the world. If we do not
have a plan, then clearly there is going to be an incredible
price that our economy is going to have to pay.
So whether we are talking about using the Strategic
Petroleum Reserve as a weapon against the speculators, against
the manipulators, we have to do that. And President Bush has
refused to do that.
Whether it is ensuring that the CFTC, the Commodities
Futures Trading Commission, looks in at these dark markets,
finds out what is going on with regard to the speculators and
with regard to the manipulators, we have to do that. But the
Bush administration thus far has kept hands off this very
critical part of the story and the impact that it is having
upon these price increases.
And going forward long term, we have to have accurate
projections, because much of what goes on inside the Federal
Government, much of what happens in the private sector is
dependent upon the long-term projections of the Bush
administration at this time and its Energy Information
Administration.
What we are seeing over the last 5 or 6 years is that there
has basically been about a $0.50 lag between what the
administration says the price of gasoline is going to be and
then what it winds up being in year after year. And that it has
a tremendous impact not only upon consumers, but upon what the
mandates that we would then impose upon especially the
automotive industry to increase their fuel economy standards.
We again put 70 percent of all the oil we consume in
America into gasoline tanks and we only have 2 percent of the
oil in the world. That is our weakness. Now our strength is
technology. And that is the weakness of the Middle East, that
is their weakness. So if we don't use our technology, based
upon what is a realistic assessment of what the long-term price
of oil is going to be, then we are ultimately going to be
subservient to the geopolitical whims of the Middle East.
By the way, when President Bush went to Saudi Arabia just 3
weeks ago and asked them to produce more oil that we could
consume in the United States, that is a pretty sad moment in
our history. But what was even sadder is that after the Saudi
Arabians said that they would not produce more oil, they then
asked us to provide them with nuclear power plants for Saudi
Arabia, and Condoleezza Rice and President Bush said yes to
that request. Now of all the countries in the world that need
nuclear power and all the nuclear equipment and the materials
that go with it, Saudi Arabia is the bottom of that list. They
have more oil, more gas, more solar, more wind in combination
than any other country in the world. And they have a very small
population. Why would the Bush administration be agreeing to a
deal that will have us sell nuclear power plants into Saudi
Arabia, where Iran, Iraq, North Korea and all those nuclear
power plants and their dual use purpose for nuclear bomb
programs continue to haunt us?
That is a sad state of affairs for us. It is a very sad
state of affairs and very dangerous. It will get us even more
deeply in trouble in the Middle East, 10 years and 20 years
from now. And so it is time for the Bush administration to get
more realistic.
The energy administration, the Department of Energy that
is, the Bush administration is projecting $2.26 gasoline by
2016, $2.51 for a gallon of gasoline by 2030. It is completely
unrealistic. It is off the mark and off the point as every
other projection that has been made in this decade, and it as a
result will diminish our ability to improve our technologies so
that we can tell the Middle East that we don't need their oil
any more than we need their sand. And right now we still cannot
deliver that message because we are operating in a delusory
environment where the Bush administration is not getting real
with what is happening.
This is no longer the OPEC people deliberately saying no
more oil. It is no longer the Shah of Iran falling. This is now
structurally the Indians and the Chinese and others who are
going to consume more oil as each year goes by, and we have to
change the technologies and our relationship to technology in
our country. And because of the Bush administration, the agency
responsible for determining how efficient our automobiles have
to be in 2015, 2020 and 2030, they are going to be able to set
standards at 5, 6, 7 miles per gallon lower than where they
should be.
By the way, the legislation which we passed in December,
the Democrats in the first year after we came back into power,
the increases from 25 to 35 miles per gallon, the fuel economy
of the vehicles which we drive by 2020, that backs out the
equivalent of all of the oil which we import on a daily basis
from the Persian Gulf. That is the difference a change in
technology can make. But you have to have realistic data
because now the Bush administration's Department of
Transportation is going to implement the standards that are put
in place pursuant to that law which we passed in December. And
so all of this is interrelated, no question about it.
When you are talking about oil, you are talking about
transportation, because that is where we put it. This is again
very central to the dilemma which we have. The Democrats came
back in after being out for 12 years, it is the first thing we
did. But the Bush administration had plenty of opportunity in
their first 6 years to put those standards on the books. The
Republican Congress had every opportunity to improve the fuel
economy standards of our vehicles. They never did it.
And so as we go forward, we have to think of this as an
opportunity to create a new generation of jobs, a new economy
in our country. Green collar jobs, yes, but they are really the
blue collar jobs of the past, the blue collar power. Building
the wind mill, the solar, the new technologies that will
slowly, but surely wean us away from this incredible mess that
the Middle East is now and is very likely to become even worse
in the years ahead.
We thank all of you for your testimony here today. It is
very helpful to us, because it is going to help us to begin to
chart a course where we help the American consumer to stop
being tipped upside down at the gas pump and having money
shaken out of their pockets every single time they refill.
Thank you so much.
[Whereupon, at 12:35 p.m., the committee was adjourned.]
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