[Senate Hearing 110-496] [From the U.S. Government Publishing Office] S. Hrg. 110-496 EXPLORING THE SKYROCKETING PRICE OF OIL ======================================================================= HEARING before the COMMITTEE ON THE JUDICIARY UNITED STATES SENATE ONE HUNDRED TENTH CONGRESS SECOND SESSION __________ MAY 21, 2008 __________ Serial No. J-110-94 __________ Printed for the use of the Committee on the Judiciary ---------- U.S. GOVERNMENT PRINTING OFFICE 43-354 PDF WASHINGTON : 2008 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 COMMITTEE ON THE JUDICIARY PATRICK J. LEAHY, Vermont, Chairman EDWARD M. KENNEDY, Massachusetts ARLEN SPECTER, Pennsylvania JOSEPH R. BIDEN, Jr., Delaware ORRIN G. HATCH, Utah HERB KOHL, Wisconsin CHARLES E. GRASSLEY, Iowa DIANNE FEINSTEIN, California JON KYL, Arizona RUSSELL D. FEINGOLD, Wisconsin JEFF SESSIONS, Alabama CHARLES E. SCHUMER, New York LINDSEY O. GRAHAM, South Carolina RICHARD J. DURBIN, Illinois JOHN CORNYN, Texas BENJAMIN L. CARDIN, Maryland SAM BROWNBACK, Kansas SHELDON WHITEHOUSE, Rhode Island TOM COBURN, Oklahoma Bruce A. Cohen, Chief Counsel and Staff Director Stephanie A. Middleton, Republican Staff Director Nicholas A. Rossi, Republican Chief Counsel C O N T E N T S ---------- STATEMENTS OF COMMITTEE MEMBERS Page Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin...... 3 Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 1 prepared statement and closing statement..................... 249 Specter, Hon. Arlen, a U.S. Senator from the State of Pennsylvania................................................... 7 WITNESSES Hofmeister, John, President, Shell Oil Company, Houston, Texas... 8 Lowe, John E., Executive Vice President, ConocoPhillips Company, Houston, Texas................................................. 12 Malone, Robert A., Chairman and President, BP America, Houston, Texas.......................................................... 5 Robertson, Peter J., Vice Chairman of the Board, Chevron Corporation, San Ramon, California............................. 10 Simon, J. Stephen, Senior Vice President, Exxon Mobil Corporation, Irving, Texas..................................... 14 QUESTIONS AND ANSWERS Responses of John Hofmeister to questions submitted by Senators Whitehouse, Durbin, Kohl, Leahy and Feinstein.................. 57 Responses of John E. Lowe to qustions submitted by Senators Leahy, Kohl, Durbin, Whitehouse and Feinstein.................. 97 Responses of Robert A. Malone to questions submitted by Senators Leahy, Feinstein, Durbin, Whitehouse and Kohl.................. 150 Responses of Peter J. Robertson to questions submitted by Senators Durbin, Kohl, Leahy, Whitehouse and Feinstein......... 176 Responses of J. Stephen Simon to questions submitted by Senators Whitehouse, Durbin, Kohl, Leahy and Feinstein.................. 205 SUBMISSIONS FOR THE RECORD Hofmeister, John, President, Shell Oil Company, Houston, Texas, statement...................................................... 236 Lowe, John E., Executive Vice President, ConocoPhillips Company, Houston, Texas, statement...................................... 252 Malone, Robert A., Chairman and President, BP America, Houston, Texas, statement............................................... 304 Robertson, Peter J., Vice Chairman of the Board, Chevron Corporation, San Ramon, California, statement.................. 327 Simon, J. Stephen, Senior Vice President, Exxon Mobil Corporation, Irving, Texas, statement and attachment........... 340 EXPLORING THE SKYROCKETING PRICE OF OIL ---------- WEDNESDAY, MAY 21, 2008 U.S. Senate, Committee on the Judiciary, Washington, D.C. The Committee met, Pursuant to notice, at 10:02 a.m., in room SD-106, Dirksen Senate Office Building, Hon. Patrick J. Leahy, Chairman of the Committee, presiding. Present: Senators Leahy, Kohl, Feinstein, Feingold, Schumer, Durbin, Cardin, Whitehouse, Specter, Hatch, Grassley, Sessions, and Cornyn. OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE STATE OF VERMONT Chairman Leahy. As I have said before at hearings, we will not have disruptions in the Committee, whether for or against any position I may take or anybody else may. Everybody is welcome to be at the Committee. I would ask that nobody disrupt or stand or in any way block the views of others who are here as guests of the Senate. This weekend, when I was home in Vermont, I heard more than anything else about the price of a gallon of gas. And the price of a gallon of gas at the pump today in Vermont reached a record $3.77. And that is less than in a lot of other States. Nationwide, the average price has more than doubled since the President took office. The President once boasted that with his pals in the oil industry, he would be able to keep prices low and consumers would benefit. Instead, it appears to be his friends in the oil industry who have benefited. American consumers and the American economy have suffered immensely. Today's witnesses represent the major, vertically integrated oil companies that, collectively, made more than $36 billion in profits in just the first quarter of this year--$36 billion in the 3 months, certainly more than the gross domestic product of some countries. I want these witnesses to hear about Warren Hill, whose family settled in Greensboro, Vermont, more than 200 years ago. Warren runs a logging and trucking company that he dreams of passing on to his son. But the increase in fuel prices has led him to question whether his business, which has been very successful for over 30 years, can survive. I think Mr. Hill wants to know how all of you can justify such exorbitant profits on the backs of the middle class and hard-working families. And I think he deserves answers. Every member of this Committee, every Member of this Congress, whatever part of the country they are from, they have constituents with similar stories and similar questions. We hear from the oil industry that the price of gas at the pump is directly related to the price of crude oil. One of the witnesses we have here today has said that normal supply and demand indicates that the price should be somewhere around $50 to $55 a barrel. As he said, ``There is a disconnect.'' There is. Well, as I was driving to work early this morning, they were saying that oil had reached $133 and some odd cents a barrel. I would like to know, and I am sure American families and American small businesses would like to know, why prices are so disconnected from what normal supply and demand would indicate. Why has the price of oil increased 400 percent since President Bush took office? Why has it nearly doubled in the last year alone? We have seen it go up 6 years in a row, the first time that has ever happened. The prices should not skyrocket like this in a properly functioning, competitive market. Certainly the cost of oil to these companies has not doubled or quadrupled. Certainly our witnesses today would not contend that it is service station operators who are gouging consumers for windfall profits. I expect that none of our witnesses would dispute that a protracted war in Iraq has caused the price of oil to rise. I expect that none of our witnesses would dispute that the Administration's economic policies, which have crippled the value of the dollar, have contributed to the rising price of oil. But I want to hear directly from these oil companies about causes of the rising price of oil, causes on which Congress can act. This Committee unanimously approved Senator Kohl's NOPEC legislation, which would put an end to artificial limits on supply by ensuring that the U.S. Government has the authority to prosecute OPEC members for collusive behavior. Seventy members, Republicans and Democrats alike, have voted for this legislation, as have 345 Members of the House, Republicans and Democrats alike. But the President threatened to veto it. I would like to know what these oil executives think about applying principles of competition from our antitrust laws to the commercial activity of the oil-producing states. The members of OPEC meet regularly to agree on limits on the amount of oil they will produce. I think that is wrong, and I think it hurts Americans. If such a meeting took place in almost any other context, the participants would likely be charged and arrested for an illegal conspiracy in the restraint of trade. So do our witnesses agree that we need to crack down on speculation and manipulation in the oil commodities market? Numerous experts have testified before this Committee and others that oil prices are moving higher as a result of speculators. Investors are betting up the price of oil, and consumers are paying the bill. Increasingly, this speculation takes place in over-the-counter trading, which avoids the oversight of the Commodity Futures Trading Commission. That is because of the Enron loophole. That is an unjustified loophole. Senator Feinstein and I, among others, have been actively trying to close it. To keep the CFTC blind to speculation and manipulation in the oil futures market, we can only say that is inexcusable. Last week, Congress passed the farm bill that would close the Enron loophole. And now the President has threatened to veto the legislation to close the Enron loophole. I would like to know what these oil executives think about that. Finally, last week we were able to pass legislation calling for the Government to stop artificially inflating demand by diverting fuel to the Strategic Petroleum Reserve. The President opposed that. Filling the Strategic Reserve may have made sense when oil was $25 a barrel. At $125 a barrel, it is simply hurting consumers. So we need some answers so Congress can act in a way the administration apparently will not--for the benefit of consumers, for American families, for small businesses. We need to get prices under control and back to competitive levels, and we need to do it now. Warren Hill and his family in Vermont, and all Americans, deserve a Government that will stand up for them. Small businesses should not be forced to close their doors because oil prices are skyrocketing out of control. [The prepared statements of Senator Leahy appear as submissions for the record.] Normally we would not have other opening statements, but the Chairman and the Ranking Member of the Antitrust Subcommittee, Senator Kohl and Senator Sessions, are here, and so I will recognize each of them for an opening statement. Senator Kohl? STATEMENT OF HON. HERB KOHL, A U.S. SENATOR FROM THE STATE OF WISCONSIN Senator Kohl. Thank you, Mr. Chairman. As gas prices approach the previously unthinkable level of $4 per gallon, and crude oil passes $130 per barrel, we can only conclude that the oil market has failed. Driving to the doctor or to the grocery story have become unaffordable burdens on the family budget. Consumers are angry and they have every right to be, and the American economy is buckling under the weight of gas prices. And while consumers and businesses suffer from these price increases, the oil industry seems only to get richer and richer. Last year, for example, Exxon Mobil reported all-time record profits for a U.S. corporation--an astounding $40.6 billion for all of 2007, an amount that has nearly doubled in the past 5 years. We are forced to worry that we are witnessing profiteering caused by market manipulation, price gouging, and collusion. The oil companies defend high energy prices by claiming that there have been sharp increases in demand, and yet the record shows that demand for petroleum in the United States has hardly changed in the past 27 years. According to Government statistics, in January 1981, 571 million barrels of petroleum products were supplied to the U.S. market, and in February of 2008, 27 years later, from 571 million it got to 573 million barrels that were supplied. Hardly any change at all. So while demand has remained flat, prices and profits are breaking records. The question remains what is going on here. Do market forces alone explain the skyrocketing price of oil and gas? Each of the executives testifying today should not leave here without telling us something meaningful about what is causing this miserable situation and how to correct it. Problems of failed oil markets are compounded by the effects of speculation. Unlike equities, speculators can buy oil futures with a very low margin requirement, as little as 8 cents on the dollar. These low margins drive speculation, which in turn causes sharp increases in the price of crude oil. So it is vitally important to increase margin requirements on the oil commodity markets so that millions of ordinary consumers do not pay the price at the pump for the billions made by hedge funds. I also believe that it is long past due for us to take action on the NOPEC bill. The NOPEC bill would make nations that participate in the OPEC oil cartel accountable under U.S. antitrust law when that cartel limits supply in order to fix the price of oil. There is simply no reason that nations participating in a cartel designed to control the price of oil should be treated any differently than a private international price-fixing conspiracy harming U.S. consumers. This legislation would, for the first time, give our Government a real tool to combat OPEC. The need for this tool was demonstrated once again just last week by Saudi Arabia's rejection of President Bush's appeal for increased oil production. Just yesterday, NOPEC passed the House with 324 votes in favor. It did pass the Senate last year by a similarly overwhelming margin, but it was stripped from last year's energy bill in conference. When I first introduced this legislation in the year 2000, the price of crude oil on the world market was $29 a barrel--a price that has now more than quadrupled. We need to bring this measure to the Senate floor now so it can be enacted into law. Mr. Chairman, I appreciate your calling this hearing, and I look forward to the testimony. Chairman Leahy. Thank you. And I was incorrect. It is Senator Hatch who serves as Ranking, and Senator Sessions has been either Chairman or Ranking on virtually every Subcommittee in this place, and I will ask him, just before I swear in the witnesses, Senator Sessions, did you want to say anything? Senator Sessions. Thank you, Mr. Chairman. We know that the world market for oil is not a free market. We have got nation states who are deliberately and systematically taking steps to keep prices high. Our guests here today do not exist to produce the lowest possible price of fuel for our constituents. They exist to maximize their profits for their shareholders. I know that is what you exist for, and you are going to charge what the traffic will bear, and shortages of supplies have allowed, I think, extraordinary profits to occur. And those of us in the public sector need to think about what we can do to create a climate where such is not so--these prices are not so high. That is the No. 1 thing I hear from my constituents. It is savaging the family budget, $50, $75, $100 more a month for the same number of gallons were buying just a few years ago, reducing their ability to purchase in the marketplace, and I do not think anyone can argue that it has not affected our economy. I am particularly concerned about diesel. Mr. Chairman, on average, 50 percent of the cars in Europe are now diesel. They get at least 35 to 40 percent better gas mileage. Had we had 50 percent of our vehicles diesel, we would be utilizing substantially fewer gallons from our witnesses today in overall liquid fuel. So I think there are a number of things we need to think about. Thank you for your leadership, and I do believe that we need to utilize what forces, Senator Kohl, we can to deal with the sovereign state problem and that is exacerbating the world price of fuel. Thank you. Chairman Leahy. Thank you. Gentlemen, would you please stand and raise your right hand? Do you solemnly swear that the testimony you will give in this matter will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. Malone. I do. Mr. Hofmeister. I do. Mr. Robertson. I do. Mr. Lowe. I do. Mr. Simon. I do. Chairman Leahy. Let the record show that all five of the witnesses have been sworn in and have taken the oath. We will go through each witness before we open it to questions. The first witness, Mr. Robert Malone, is the Chairman and President of BP America. Mr. Malone became Chairman and President of BP America on July 1, 2006. He is based on Houston, Texas. He holds a Bachelor of Science degree from the University of Texas at El Paso. He received a Master's of Science in management from the Massachusetts Institute of Technology. He has been selected for the board of trustees of the National Urban League, the Foreign Policy Association, and the National Petroleum Council. He is also currently on the executive committee of the American Petroleum Institute. I would say to Mr. Malone and all the others, your full statements, of course, will be made part of the record. You will certainly be given a chance to look at the transcript after you have answered questions. After you have looked at your answers, if there are things you want to add to it or change, if you feel you got a number wrong or something like that and you want to change it, obviously you will be given the opportunity to do that. Mr. Malone, go ahead. STATEMENT OF ROBERT A. MALONE, CHAIRMAN AND PRESIDENT, BP AMERICA, HOUSTON, TEXAS Mr. Malone. Thank you, Mr. Chairman, Senator Sessions, members of the Committee. Good morning. We know that high energy prices are having an adverse impact on the economy here in the United States and on workers and families across this Nation. Every week I receive letters from consumers about the impact that high energy prices are having on their everyday lives. Unfortunately, I cannot and we cannot change the world market on which this Nation now relies for 60 percent--60 percent--of the oil it consumes every day. What we can do is work with this Congress, with the administration, with governments and consumers to move toward greater energy security and a lower carbon energy future. Today's high prices are linked to the failure, both here and abroad, to increase the supply of oil, gas, and renewables, and to reduce demand through conservation and energy efficiency. The oil market is tight. Geopolitical risk and concern about future supply are having a big impact on price today. We are working very hard to expand and diversify U.S. energy supply. We are the Nation's largest producer of domestic oil and gas and one of the Nation's largest energy investors. Over the last 5 years, we have invested $31.5 billion in development of U.S. energy supply, almost dollar for dollar of our U.S. profits. We expect to spend $30 billion over the next 5 years to maintain production of natural gas in the Rocky Mountain West, to renew critical infrastructure in Alaska, and continue development of the Deepwater Gulf of Mexico, and increase gasoline production from Midwest refineries. We are nearly doubling the capacity of our Frederick, Maryland, solar plant, and by the end of this year, we would expect to have a thousand megawatts of U.S. wind power capacity online. That should increase to 2,400 megawatts by the end of 2010. We are already one of the largest blenders of ethanol in this Nation. However, over the next decade, we will invest more than $500 million in the search for a new generation of biofuels that contains more energy, has less impact on the environment, and which is not made from a food crop. And together with ConocoPhillips, we have recently announced the largest private sector investment ever in the U.S.--the Denali, Alaska, gas pipeline. Our investments across the entire energy spectrum are huge, but the hard truth is that even with major improvements in energy efficiency and the rapid growth of solar, wind, and biofuels, the United States is going to need more oil, more coal, more natural gas, and more nuclear in 2030 than it does today. The United States, with 5 percent of the world's population, consumes 25 percent of daily world oil production. The U.S. has got to produce more energy, and it needs to conserve and use this energy wisely. On the supply side, we support incentives for alternatives. But taking one form of energy to encourage production of another will reduce the ability to keep up with growing U.S. energy demand. The result is going to be less investment, less production, higher energy markets, and potentially even higher prices at the pump. This Nation should be encouraging production of all forms of energy, especially oil and gas. But adopting measures that limit access to U.S. resources, dampen investment in infrastructure, and discourage trade with our Canadian neighbors will make our economy increasingly vulnerable to market influences outside of our borders. BP is serious about bringing new sources of oil and gas to the U.S. market. We are also serious about building a sustainable, profitable alternative energy business that is capable of delivering the clean, affordable power that consumers need. My company is ready to work with you and others to address the energy and environmental needs of this Nation through a bipartisan and comprehensive energy policy. Thank you. [The prepared statement of Mr. Malone appears as a submission for the record.] Chairman Leahy. Thank you very much. We have been joined by the Ranking Member of the Committee, Senator Specter, and, Senator Specter, did you want to say anything before we go to the next witness? STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM THE STATE OF PENNSYLVANIA Senator Specter. Well, thank you, Mr. Chairman. Just a word or two. First, I commend you for holding this very important hearing. We are obviously in a crisis, national, international, with the escalating cost of oil and the intolerable prices of gasoline at the pump, and it is important that we bear all of our resources to try to figure out what to do about it. It seems to be an intractable problem, but we have to keep trying. And you have assembled a very distinguished group of witnesses here today. For some time, this Committee has been trying to push legislation on eliminating the antitrust exemption for OPEC. They have, for some curious reason under our case law, an exemption for our antitrust laws. They get into a small room and decide what the supply will be, and that has the inevitable potential, at least, for raising prices. Senator Kohl and I reported out of Committee, as you know, Mr. Chairman, and have on the floor ready for action--i would hope that we would get some action on that bill. It certainly could not do any harm. I understand the complexities of the issue on the OPEC and the pricing, but at least they ought to be subject to the antitrust laws to have an impact if that would be successful. Then we have to search further. We have talked about it a lot, and, regrettably, too little action since the historic gas lines of 1973 and 1974. In a conversation I had earlier today with Mr. Hofmeister talking about a good many of the issues, and it is extraordinarily complex. We have to work on it. One item which caught my attention especially, which is worth mentioning, is the credit card cost. At least as Mr. Hofmeister outlined it to me, it is a few cents for companies like Shell, it is, I think, 8 cents for the dealer, and 14 cents for the credit card. Am I quoting you right, Mr. Hofmeister? Mr. Hofmeister. That is an average number, yes. Thank you. Senator Specter. Well, we have been studying this interchange cost for a long time as to the issue of the credit card companies and what they do, and that sounds like a pretty big bite to me. But we are all consumed with the problem, and I thank you again, Senator Leahy, for moving ahead on this. Chairman Leahy. Thank you very much. You mentioned Mr. Hofmeister, and he is the President of Shell Oil Company. He was named President of Shell Oil Company in March of 2005. He has a Bachelor's and Master's degree in political science from Kansas State University, serves as Chairman of the National Urban League, serves on the boards of the Foreign Policy Association, U.S. Energy Association, National Association of Manufacturers. He is a member of the American Petroleum Institute's executive policy committee. I understand that Shell is announcing you will retire at the end of this month. I hope that is not because you had to appear before this Committee, Mr. Hofmeister, but I assume that was something long in the works, and we appreciate your being here with us today. STATEMENT OF JOHN HOFMEISTER, PRESIDENT, SHELL OIL COMPANY, HOUSTON, TEXAS Mr. Hofmeister. Thank you, Chairman Leahy and Ranking Member Specter, members of the Committee. I am John Hofmeister, the retiring President of Shell Oil Company, and thank you for this opportunity to testify on these very important subjects. Let me offer my best wishes to your friend Senator Kennedy. We wish him and his family well in this time of uncertainty. Chairman Leahy. If I may interrupt on my time, Mr. Hofmeister, I have just received word that Senator Kennedy will leave the hospital and will go back to the Kennedy compound in Hyannis where, being on the water, I know how much he will enjoy that. And I was pleased to see the strong, bipartisan expressions in the Senate. He is in our prayers, all of us, Republicans and Democrats alike, and I thank you for your comments. Mr. Hofmeister. Thank you. In addition to my formal written statement, I welcome this opportunity to offer several additional thoughts. Much has and will be said about the rising energy demand and the actions being taken to supply this energy by major oil companies. My written testimony speaks to Shell's unique efforts in this regard. This is an era of remarkable capital expenditures for major new projects and infrastructure, strong investments in technology, and the aggressive pursuit of energy alternatives. We are setting records in one of the most expansionary periods the industry has ever known. Yet in the face of this sustained record spending, the relentless increase in the price of the crude oil continues. As repetitive and uninteresting as it may sound, the fundamental laws of supply and demand are at work. Oil- exporting nations, as has been said, are managing their natural resource development and production to supply their local and global markets in their own self-interest. While all oil- importing nations buy oil at global prices, some--notably, India and China--subsidize the cost of oil products to their nations' consumers, feeding the demand for more oil despite record prices. They do this to speed economic growth and to ensure competitive advantage relative to other nations. Meanwhile, in the United States, access to our own oil and gas resources has been limited for the last 30 years, prohibiting companies such as Shell from exploring and developing resources for the benefit of the American people. Senator Sessions, I agree it is not a free market. According to the Department of the Interior, 62 percent of all onshore Federal lands are off limits to oil and gas developments, with restrictions applying to 92 percent of all Federal lands. We have an outer continental shelf moratorium on the Atlantic Ocean, an outer continental shelf moratorium on the Pacific Ocean, an outer continental shelf moratorium on the eastern Gulf of Mexico, congressional bans on onshore oil and gas activities in specific areas of the Rockies and Alaska, and even a congressional ban on doing an analysis of the resource potential for oil and gas in the Atlantic, Pacific, and eastern Gulf of Mexico. The Argonne National Laboratory did a report in 2004 that identified 40 specific Federal policy areas that halt, limit, delay, or restrict natural gas projects. I urge you to review it. It is a long list. If I may, I offer it today, if you would like to include it in the record. When many of these policies were implemented, oil was selling in the single digits, not the triple digits we see now. The cumulative effect of these policies has been to discourage U.S. investment and send U.S. companies outside the United States to produce new supplies. As a result, U.S. production has declined so much that nearly 60 percent of daily consumption comes from foreign sources. U.S. reliance on foreign oil may drop this year for the first time since 1977, according to the EIA. But it is not clear yet whether that drop in foreign imports is sustainable given the restricted access to U.S. resources. Alternative and renewable energy sources play a role and are growing substantially. Energy efficiencies will improve as new technologies are developed and implemented. But leading experts forecast that oil and natural gas will continue to meet more than half of the world's energy needs in the year 2030. EIA says that by 2030 we are still expected to import more than half of our own oil in this country. The problem of access can be solved in this country by the same government that has prohibited it. Congress could, if it chose, lift some or all of the current restrictions on exploration and production of oil and gas. Congress could provide national policy to reverse the persistent decline of domestically secured natural resource development. If the Nation set a goal of increasing domestic production by 2 to 3 million barrels a day by opening up new sources for exploration and production, in addition to recent laws you have passed to increase the production of renewable fuels, and to increase miles per gallon in the vehicles that we drive, we could demonstrate to the world that we are in control of our own destiny. If we did this, it would be unnecessary for our national leaders to ask the rulers of other sovereign nations to produce more oil for U.S. consumers and risk the discomfort of a nonresponsive reply. Let's establish a national policy on domestic resource development and get on with the business of helping our Nation compete by producing more affordable energy. In addition to more access, we need additional refining capacity. As you know from my written testimony, Shell is a 50- percent participant in the $7 billion expansion of the Motiva refinery Port Arthur, Texas. This project will expand production of finished products by more than 300,000 barrels per day and, when finished, will be one of the largest refineries in the United States and in the world. Refining capacity is particularly critical when it comes to the demand for diesel, aviation fuel, and heating oil--all products that we in the industry refer to as ``the middle of the barrel.'' At home and around the world, demand for these middle distillates is growing faster than the demand for gasoline. Due to the sustained demand for diesel mobility and air travel, prices for these products are rising as fast or faster than for other products. There is simply no way to keep up, let alone get ahead of demand, except by producing more oil and building more refining capacity. That is because of the make-up of a barrel of crude. Only a third to a half of a barrel of crude oil can be used to make these products. we cannot use more than half of a barrel of oil to make diesel and aviation fuel. To meet this demand, we need more capacity. So we need policies that enable both more crude supply and more refining. Higher taxes would only serve to diminish the expansion capacity of this critical capital investment. I urge you on behalf of American consumers to resist such punitive policies. In conclusion, Mr. Chairman, when it comes to energy security and affordability in this country, there is no challenge that cannot be turned into opportunity. The United States has the natural resources, the technology, the financial capital, the human resources, and the desire to be energy self- sufficient. By addressing our challenges in the short term, the medium term, and the long term, Shell believes the U.S. can become more energy secure, and I look forward to your questions. [The prepared statement of Mr. Hofmeister appears as a submission for the record.] Chairman Leahy. Thank you. Peter Robertson is the Vice Chairman of Chevron Corporation. He has been in this position since 2002. Mr. Robertson is a native of Scotland, and he earned his Bachelor's degree in mechanical engineering from Edinburgh University, a Master's degree in business administration from the Wharton School. He is the Chairman of the U.S.-Saudi Arabian Business Council and a director of the American Petroleum Institute. He is the past Chairman of the U.S. Energy Association. Incidentally, if I get the facts wrong on any one of you, feel free to correct it. Mr. Robertson, go ahead. STATEMENT OF PETER J. ROBERTSON, VICE CHAIRMAN OF THE BOARD, CHEVRON CORPORATION, SAN RAMON, CALIFORNIA Mr. Robertson. Good morning. Mr. Chairman, Ranking Member Specter, and members of the Committee, my name is Peter Robertson, and I am Vice Chairman of Chevron Corporation. I am here today proudly representing 59,000 Chevron employees around the world. I appreciate the opportunity to discuss the energy issues that are on the minds of all Americans, and I will address three issues: rising oil prices, increasing energy supplies and improving efficiency, and urgent policy actions to achieve energy security. Americans feel the brunt of record oil prices, and not just at the pump. Everything is more expensive. People are concerned about rising costs, and rightly so. Global issues affecting the supply and demand of oil are driving prices up. The world is consuming oil at an ever increasing rate, and it is projected to continue. There are more than a billion people who enjoy our standard of living. There are billions more striving for the same. The current system is straining to meet all our needs. There is dramatically reduced spare supply and no room for error. Any disruption or perceived threat of disruption sends oil prices up. And the declining value of the dollar, along with investors buying more commodities, has only worsened the situation. In the past year, oil prices have doubled. We need to take steps to protect our economy, our consumers, and our future. Massive investment is needed around the world, some $22 trillion by 2030, and all stakeholders must do their part. So what are we doing? Chevron produces 1.7 million barrels of oil a day. As large as that number sounds, it is less than 2 percent of world oil demand. We are aggressively spending to develop additional oil and natural gas supplies. Our capital budget this year is $23 billion for new energy projects, a record amount for our company and triple what we spent in 2004. In the previous 6 years, we invested nearly $73 billion, an amount greater than what we earned. As the Nation's sixth largest refiner, we are spending $2.3 billion this year on our U.S. refining and marketing business, and we are developing renewables and improving energy efficiency. We are the leading producer of geothermal energy and provider of energy efficiency services. But Congress also has an important role to play. For starters, we strongly urge you to implement the recommendations of last year's National Petroleum Council study. Its first recommendation is to reduce demand. We need to treat energy as a precious resource and become a Nation of energy savers. The study also urges us to increase energy supplies in all forms. When it comes to energy security, we need smart policies that support our competitiveness and help us decrease our dependence on foreign oil. American energy companies operate at the frontiers of geography, geology, and technology. We are large compared with most American companies, but relatively small when you stack us up against the national oil companies against which we compete. These companies have control over most of the world's known reserves, and many enjoy the unqualified support of their national governments. Given these realities, Americans need companies that can effectively compete for access to new resources and responsibly develop new energy frontiers. Our size and strength allows us to develop many complex and expensive projects that can take more than a decade to complete. At Chevron alone, we have more than 40 projects in development right now, each costing, our share, over a billion dollars. Americans also need your leadership. Punitive measures that weaken us in the face of this international competition are the wrong solution at this critical point in our history. Such measures will only increase our dependence upon foreign supplies of energy while resources at home are untapped. The stunning changes during this decade taught us that easy access to cheap oil is over. Consumers know this and are making hard choices to budget for their household needs. We are making hard choices to mobilize more people and more money to increasingly remote locations in the world for more supplies. Chevron employees understand the enormous responsibility they have to deliver energy reliably, and I can personally attest to that strong commitment. Congress has recently made some hard policy choices on renewables and energy efficiency. We hope you can also make the equally hard choices to open up more Federal lands and allow us to responsible produce more American oil and natural gas which can supply us for decades to come. We cannot expect other countries to expand their resource development to meet our increasing needs when we limit our development without good reason. Our collective actions can demonstrate leadership on issues that are within our control and can help us weather the powerful forces that we cannot control. You can count on us to work with you on this extraordinary challenge. Thank you very much. [The prepared statement of Mr. Robertson appears as a submission for the record.] Chairman Leahy. Thank you very much, Mr. Robertson. Our next witness is John Lowe. He is the Executive Vice President for Exploration and Production at ConocoPhillips. He has been Vice President since 1999. In 2002, he was made Executive Vice President for Planning, Strategy, and Corporate Affairs, named to his current position in charge of exploration and production in 2007. He received a Bachelor of Science degree from Pittsburg State University in Pittsburg, Kansas. Go ahead, sir. STATEMENT OF JOHN E. LOWE, EXECUTIVE VICE PRESIDENT, CONOCOPHILLIPS COMPANY, HOUSTON, TEXAS Mr. Lowe. Good morning, Chairman Leahy and members of the Committee. We share the public's concern about rising energy prices and appreciate the opportunity to present our views on what is driving the increase, what our company is doing to respond, and what we believe Congress can do. Crude oil represents over 70 percent of the current cost of gasoline, so higher crude prices are driving higher gasoline prices. So why have crude oil prices increased so dramatically? There are numerous factors, the biggest contributor being a long period of strong global economic growth, particularly in developing Asia. Limited access to resources both here and abroad also constrains the growth in supply. In addition, higher taxes, service cost inflation, little excess production capacity, and high geopolitical risk also contribute. Adding to this are the investor funds flowing into oil futures as a hedge against credit risk, inflation, and dollar devaluation. I cannot overemphasize the access issue. Access to resources is severely restricted in the United States and abroad, and the American oil industry must compete with national oil companies who are often much larger and have the support of their governments. We can only compete directly for 7 percent of the world's available reserves, while about 75 percent is completely controlled by national oil companies and are not accessible. ConocoPhillips is working to bring more energy to the market. Over the past 6 years, we have reinvested, on average, 106 percent of our income. In 2007, we earned $12 billion; but we reinvested $13 billion. And we have over $15 billion in investments planned this year. This investment includes finding added supplies of oil and gas, expanding refining capacity, and continuing to research and bring renewable and alternative fuels to the market. Here in North America, we are drilling exploratory wells, developing the Canadian oil sands, and building infrastructure. But we want to do more, such as explore the vast areas of the U.S. that are off limits due to drilling moratoriums. These areas could more than double the Nation's oil and gas reserves. Downstream, we are increasing our refining capacity and our ability to process lower-quality crudes. Unfortunately, our efforts here in the U.S. have been met with continuing opposition. At our Wood River, Illinois, refinery, the tenth largest in the United States, we are experiencing long permitting delays via the appeals process that are blocking our expansion plans. In California, a project to make ultra-low-sulfur diesel fuel has been threatened by permit challenge for 4 years. We are working hard to bring renewable fuels into the market by looking at ways to process them at traditional refineries and researching new technologies. Fifty-five percent of our U.S. gasoline volumes contain ethanol. E-85 and biodiesel are being marketed at our branded facilities. We are producing renewable diesel fuel and researching next-generation biofuels like cellulosic ethanol, and we are developing better materials for the lithium ion batteries in electric vehicles. So what can Congress do to help address energy concerns? Congress can enact a balanced national energy policy that encourages development of the conventional fuels that power our economy, clears the permitting logjam, encourages alternative sources, including all forms of biofuels, and removes the current tariff on imported ethanol, encourage higher energy efficiency, and accelerates technological innovation. Meanwhile, we urge you not to pass measures that have public appeal but would be counterproductive, such as tax increases that diminish our investment capabilities, reduce the attractiveness of high-cost domestic production, or disadvantage U.S. oil and gas companies. This has been tried before with extremely negative results, reducing supplies, eliminating jobs, and resulting in higher prices. The Nation cannot afford to make that mistake again. The U.S. is in a global race for energy. We are competing against national oil companies that are far larger and that enjoy preferred access and governmental cooperation. We must move beyond today's adversarial relationship and start working together to find real solutions. U.S. oil companies should be viewed as the key to the energy solution, not as scapegoats but as assets in this global energy race. We must be allowed to compete on level ground for the benefit of our country. Mr. Chairman, that concludes my statement. Thank you. [The prepared statement of Mr. Lowe appears as a submission for the record.] Chairman Leahy. Thank you very much. Our last witness is J. Stephen Simon, Senior Vice President of the Exxon Mobil Corporation. He is a member of its Board of Directors. He has served Exxon around the country and around the world--in Baton Rouge, Houston, New York, London, Italy. He received his Bachelor of Science degree in civil engineering from Duke University, his MBA from Northwestern. He is a member of the Board of Directors of the U.S.-China Business Council and the American Petroleum Institute. When he finishes, we will go into questions. We will begin in the normal order first by myself and Senator Specter, and we will alternate between Senator Kohl, Senator Grassley, Senator Feinstein, Senator Sessions, Senator Durbin, Senator Cornyn, Senator Feingold, and Senator Hatch, and others as they come in. Go ahead, Mr. Simon. STATEMENT OF J. STEPHEN SIMON, SENIOR VICE PRESIDENT, EXXON MOBIL CORPORATION, IRVING, TEXAS Mr. Simon. Thank you, Chairman Leahy, Ranking Member Specter, and members of the Committee. Energy is essential to the U.S. economy and is a topic on many Americans' minds. They are raising important questions about how our industry is helping meet their vital energy needs at competitive prices. I welcome the opportunity to respond to these questions and to clear up some misconceptions regarding our industry. And to this end, I would like to make two points during my allotted time. First, the prices Americans pay at the pump reflect the dynamics of an enormous, international market for energy, which means that in order for American energy companies like Exxon Mobil to successfully compete, it is vital that we have sufficient financial strength and scale. To meet the world's growing demand for energy of all types, an estimated total investment of $22 trillion is needed between 2006 and 2030, or roughly 8 times the size of the estimated 2007 Federal budget. Within this vital global marketplace, competition is fierce. Exxon Mobil is the largest U.S. oil and gas company, but we account for only 2 percent of global energy production, only 3 percent of global oil production, only 6 percent of global refining capacity, and only 1 percent of global petroleum reserves. With respect to petroleum reserves, we rank 14th. Government-owned national oil companies dominate the top spots. For an American company to succeed in this competitive landscape and go head to head with huge, government-backed national oil companies, it needs financial strength and scale to execute massive, complex energy projects requiring enormous, long-term investments. To simply maintain our current operations and make needed capital investments, Exxon Mobil spends nearly $1 billion each day. Over the past 25 years, we have invested $355 billion in new energy projects, which is more than we earned during this same period. Over the next 5 years, we plan to invest at least $125 billion more. Our profitability in absolute terms is large, but it must be viewed in the context of the massive scale of our industry and our dependence on high earnings in the current up cycle to sustain the huge investments required over the longer term. The second point I would like to make is to address the concerns your constituents and our customers have about where their gas dollars are going. Last year, the average price in the United States of a gallon of regular unleaded gasoline was around $2.80. On average, in 2007 approximately 58 percent of the price reflected the amount paid for crude oil. Consumers pay for that crude oil, and so do we. Of the 2 million barrels per day Exxon Mobil refined in 2007 here in the United States, 90 percent were purchased from others. Last year we spent over $40 billion ourselves buying crude oil and feedstocks on the open market to fill our U.S. refineries. Fifteen percent of the average price Americans paid at the pump last year reflected the amount collected in Federal, State, and local taxes. The remaining 27 percent reflected refining, marketing, and transportation. For our refining and markets business, that 27 percent would be more than 23 percent costs and less than 4 percent earnings, which translates to earnings of only 10 cents per gallon of product sold. That is about one- quarter of the amount collected by taxes. Since last year, the increase in gasoline prices--and more--can be attributed to the rise in the cost of crude oil. Product prices have not risen as much as crude oil, so industry margins have been reduced. In fact, our U.S. refining and marketing earnings have actually been cut by more than half compared to last year, to approximately 4 cents a gallon sold. Our margins are tight because our industry is very competitive. The Federal Trade Commission and other Government agencies have repeatedly confirmed this fact. When energy prices are high, the urge to point fingers at oil companies is strong. But undercutting the ability of American companies like Exxon Mobil to compete in a huge global marketplace only makes it harder for Americans to secure the energy they need at competitive prices. We should instead work together to strengthen U.S. competitiveness and meet the needs of the American people we all serve. Thank you. [The prepared statement of Mr. Simon appears as a submission for the record.] Chairman Leahy. Thank you. Well, Mr. Simon, I listened with interest to what you and the others had to say, and if I listen to your testimony, we should almost be embarrassed to even ask questions of you. The way you put it, you speak of this current up cycle. What a nice term. And I suppose we can tell our constituents, when they find that they cannot afford to go to work because of the price of gas, ``Don't worry. You are in a current up cycle.'' I think it is a little bit more serious than that. Let's look at the--this hearing is on the upstream parts of the oil market. There is no question that with oil over $125 a barrel, the price of oil is currently the biggest factor in the price at the pump. Now, look at this chart. This is part of a multimillion- dollar advertising campaign from your industry. It goes along with what you were testifying. To show where the money is that we spend at the pump, 72 percent for crude oil, 16 percent for refined distribution service stations, 12 percent for taxes. That adds up to 100 percent. You would think that you were a charitable organization because there is nothing on that chart about profits. Ah, way down here, the asterisk. It says the industry in 2007 earned 8.3 cents per dollar. I assume that is after-tax profit. Is there any reason why that is not up here in this chart, or does that kind of cut into the testimony? Mr. Simon. Mr. Chairman, let me address that from Exxon Mobil's perspective. When you look at our profitability in the first quarter of this year, only 4 percent of that profitability was associated with producing products for the American consumer here in the United States, our refining and marketing business. To bring that back into terms I think people better understand, for every dollar paid at the pump, only 1.4 cents of that was attributable to our profitability. Chairman Leahy. Let me go into that a little bit. I understand the number is after tax, but we are still talking about tens of billions of dollars a year in profits, and I assume that among your expenses, your compensation, and all the other executives. Is that correct? Mr. Simon. That is correct, and I think-- Chairman Leahy. And I know it is a matter of public record, but last year, what was your compensation, counting all the amounts that you have to list in salary, deferred compensation, and so forth. Mr. Simon. In total, about $12.5 million. Chairman Leahy. Thank you. Mr. Lowe, what was yours? Mr. Lowe. My compensation-- Chairman Leahy. Press the button. Mr. Lowe. I am sorry. I know it is a matter of public record. I do not know the exact amount. Chairman Leahy. Well, Mr. Lowe, I wish I made enough money that I did not even have to know how much I make. [Laughter.] Chairman Leahy. Is it over, say, $100,000 a year? Mr. Lowe. Yes, sir. Chairman Leahy. Is it considerably over $100,000 a year? Mr. Lowe. Yes, sir. It would be-- Chairman Leahy. Is it over $1 million a year? Mr. Lowe. Yes, sir. Chairman Leahy. Do you suppose you might be able to find out how much you make and let us know? Mr. Lowe. Yes, sir. Chairman Leahy. Thank you. Mr. Robertson? Mr. Robertson. I am in the same boat. It is certainly well over $1 million. It is public record. I would be happy to-- Chairman Leahy. Is it over $2 million? Mr. Robertson. Yes, it is, sir. Chairman Leahy. Is it over $3 million? Mr. Robertson. Yes, sir. Chairman Leahy. Is it over $4 million? Mr. Robertson. I don't remember. I don't know--it depends. There's a whole bunch of ways of-- Chairman Leahy. You know, if I may-- Mr. Robertson. But I will tell you that it is several million-- Chairman Leahy. If I made over $4 million a year, I probably would not remember either, but-- Mr. Robertson. It is several million dollars, and I would be happy to provide it. It is in our proxy statement and is a matter of public record. Chairman Leahy. We have had witnesses here before who don't remember. I hope you will recall and send it in to us. Mr. Hofmeister, you can probably see where this is going. Mr. Hofmeister. My income is not publicly reported because it is not within the top five executives of my company, but for the record, it was about $2.2 million. Chairman Leahy. Thank you, and thank you for your honesty. Mr. Malone? Mr. Malone. Chairman, mine is not a matter of public record either, but it is in excess of $2 million. Chairman Leahy. Thank you very much. We understand that the price of crude oil is set on the world market. Given its influence by speculation in the commodities market, it affects the price at the pump. We all agree on that. But the efficiencies associated with the vertical integration of your companies--and they are vertically integrated companies--should include the ability to refine the oil that you do produce in a manner that costs less then to purchase, and some of these costs are reflecting oil not based on suddenly a new discovery, but discoveries in the past. You have already expensed those costs. I am not sure how this vertical integration is working for the customers. For example, if you refine this oil and gas from oil you produced, what price could you charge for a gallon of gas and still be profitable? Mr. Malone? And I realize that would be an approximation. Mr. Malone. Senator, if I understand the question, if I might, in the case of my company we produce about 600,000 barrels a day. I refine 1.2 million, and I have 1.6 million barrels a day that go into the consumer. So I am a net purchaser on the external markets. So we bring in millions of barrels-- Chairman Leahy. But would the price be different if you were--and I am not asking if you should do this, but would the--I am just trying to understand your industry. You work in it all the time. You understand it better. But if you refine only the oil you produce, would the price still be the same at the pump? Mr. Malone. It would be because the oil is priced as a global commodity, so-- Chairman Leahy. Mr. Hofmeister? Mr. Hofmeister. Well, the market sets the price for the pump--the product that you buy at the pump. And what we do in terms of our production of crude, turning it into finished product and putting it then into the marketplace for sale, is a function of a whole range of activity. Chairman Leahy. But if the market sets the price, the market sure moves in awfully lockstep on this. I mean, to go from--a doubling almost in the last few months, are those truly market forces? For example, Senator Kohl and Senator Specter and 67 Members of the Senate, 345 Members of the House, want the Justice Department to look into anticompetitive measures. What about the NOPEC bill? You have all been briefed on that. What about the ability to bring our antitrust laws to bear? Would that make a difference in the price? Mr. Hofmeister. Well, I think in my testimony I talked about the restrictions of access in this country. It seems to me that the place to start the free market is in our own country where we have practiced free market enterprise for a very long time. And the restriction of our own supplies to our producers in this country I believe is really setting the stage for OPEC to essentially do what is being done in this country, and that is, withdraw production from the free market. Chairman Leahy. Where do you think the price of oil should be? Mr. Hofmeister. I personally believe that the price of oil is extraordinary because of the limits on production. Chairman Leahy. But what do you think the market should be? Mr. Hofmeister. I think in a range of somewhere between $35 and $65 a barrel is what has been consistent in our ability to run a successful company. Chairman Leahy. Mr. Robertson? Mr. Robertson. I have got no idea what the market price of oil should be, but I do know that the prices are being driven by the--there are a lot of fundamentals in the prices today-- Chairman Leahy. At $35 to $60, would you be able to be profitable? Mr. Robertson. I don't believe that you can produce the marginal barrels today, the kinds of complex resources that we are having to produce today, in that price range. So I-- Chairman Leahy. Mr. Lowe? Mr. Lowe, where do you think it should be? Mr. Lowe. Well, I believe that the incremental cost of supplies, as Mr. Robertson was just alluding to, is something above $90 a barrel in this environment. Chairman Leahy. Mr. Simon? Mr. Simon. I have no idea what the price should be today. I think the market determines that, Senator. Chairman Leahy. At what price could you be profitable as a company? Mr. Simon. Again, when you look at the marginal costs of production to meet demand today, it is significantly above the range that you gave. Chairman Leahy. Up to $130 a barrel? Below $130? Mr. Simon. I can't answer that, Senator. Chairman Leahy. Mr. Malone, do you want to take a stab at that? Mr. Malone. You know, right now on some of our projects-- and, of course, the sensitivity is that this is commercially sensitive. But an oil price in the range of $60, I think in the range that you have heard today. But, that does not include the geopolitics, which are doing a lot to drive the price higher. And right now some of these heavy oil projects in Deepwater Gulf require a very high price to bring these fields online. Chairman Leahy. Mr. Malone and Mr. Hofmeister, I appreciate your candor. Senator Specter? Senator Specter. Thank you, Mr. Chairman. Mr. Simon, there has been substantial publicity about the profits of Exxon Mobil. I have taken a look at the trend, and in 2002, Exxon Mobil made $11 billion; in 2003, $21 billion; in 2004, $25 billion; in 2005, $36 billion; in 2006, $39 billion; in 2007, $40.6 billion. Very, very steep escalation in profits. And that raises a question in the minds of many people, including Arlen Specter, about the scope of those profits, and a lot of talk about taxing excess profits, a lot of talk about oil's benefits. We are mindful at the same time about the costs of exploration and very mindful about the problems of tampering with the free market. We want to be very careful we do not cause damage with what looks like a good idea. But when you take a look from $11.5 billion in 2002 to $40.6 billion in 2007, with the consumers suffering so drastically not only at the pump but big issues on heating oil for the elderly, especially in a State like mine-- Pennsylvania--don't you think that gives some cause for wonderment and questioning as to why profits have gone up so high when the consumer is suffering so much? Mr. Simon. Absolutely, Senator, and I understand people's concerns about that. When you look at our profitability, however, I do think it helps, as you point out, to break that down on what makes that up. When you look at our profitability last year and you look again at the profitability associated with manufacturing the products that we are talking about here, 10 percent of that profitability was associated with our refining and marketing business here in the United States. To put that into perspective, that is 4 cents on the dollar. To put that 4 cents into perspective, that compares to 7.8 cents from the Dow Jones Industrials, or about half. The point is it is not our profitability in this business that is driving the higher price that consumers pay. It is the raw materials that we have to purchase on the open market to produce those products for our customers. That is what is driving the higher price. Senator Specter. Mr. Simon, that is a good logical agreement, but is there any merit to those who contend that given that explanation, that when Exxon Mobil's profits are so high, that there might be some give which would have an impact on the cost of heating oil and the cost of gasoline at the pump, looking at it on an overall picture? Mr. Simon. Well, again, when you think about that, Senator--which I understand people saying--again, when the profitability that we have is 4 cents on the dollar, the market is working today. The market is working. I understand consumers are feeling the pain, but we are seeing a reduction in demand in this country as a result, and we are bringing on more supplies. When you look at what the industry has projected to bring onstream--and this is the DOE that has made this projection-- five additional refineries will come onstream between now and the year 2012 by incrementally expanding existing capacity. To put that into perspective, that is three more refineries than is needed to meet the projected demand growth. The point is that the market is working. If we leave the market alone, if we do not additionally tax the industry, if we do not put in place additional mandates, the market will work to the benefit of the American consumer. Senator Specter. Let me shift gears to the issue of OPEC, Mr. Robertson, and direct this question to you. The 13 OPEC countries produce 40 percent of the world's oil supply. Saudi Arabia made an announcement that they were going to increase production by 300,000 barrels by June. At the same time, the other OPEC countries announced that they were going to decrease production by about 390,000 barrels. A lot of analysis here about the supply, talk about other exploration. Why shouldn't the OPEC countries be under our antitrust laws so that a group of companies cannot sit down in a room, 13 companies, decide to lower production, less supply? At least under the traditional laws of supply and demand, that raises prices. Why should we give them preferential status in our economy? Mr. Robertson. Well, Senator, I don't support the NOPEC proposal. I don't think that suing foreign governments in our courts will do anything to raise the supply in the world. I think that engagement in partnerships and talking to these people and spending time with them I think is the most important thing-- Senator Specter. Well, the talk has not done a whole lot of good-- Mr. Robertson. I think the issue-- Senator Specter. Vice President Cheney is practically on a commuter line. Mr. Robertson. I think the issue-- Senator Specter. And the President was just there-- Mr. Robertson. I know that. Senator Specter.--tank was empty. Mr. Robertson. Yes, sir, I know that. But I think that the real issue here is more investment in the world. There are many countries that are not making investments. There are many countries that are. There are many-- Senator Specter. But we-- Mr. Robertson. We are one of the ones that should be making more investment. Senator Specter. I have got less than a minute left, but we cannot control--we cannot control-- Mr. Robertson. I don't think we can control OPEC. I don't think it is our place to control OPEC. But I do think that there are significant investments needed in many of the OPEC countries, significant additional investments, because this is all about investment. There is not much spare capacity in the world. OPEC does not have much spare capacity to change the world's supply right now. So many of the OPEC countries are making investments, many are not. But we need across this business, across the world, more investment to increase the supply, and it is not just the OPEC countries. Senator Specter. Well, I am not sure we can't--OK, we can't control OPEC, but we might have some impact. But I think right now OPEC may be doing a pretty good job of controlling us. Mr. Robertson. Senator, I think-- Senator Specter. My red light-- Mr. Robertson.--a negative impact. Senator Specter. Excuse me. Excuse me. Mr. Robertson. Excuse me. Senator Specter. My red light is not yet on, Mr. Hofmeister, so I want to come back to an issue we talked about privately in the little time I have remaining about the cost of gasoline at the pump. As you described it to me, how much is attributable to the credit card costs? Mr. Hofmeister. Well, I think the credit card rates are set through a particular process by the credit card companies, and they are set at a percentage of the retail price. And so if you just take that percentage times the retail price, it comes out somewhere in the range of 12 to 15 cents a gallon. Senator Specter. And how much is the profit of the gasoline operator at the pump? Mr. Hofmeister. Well, for the retail operator, it depends on their cost structure, obviously, and that various from State to State, from station to station. But, you know, I think our retailers generally are somewhere in the range of, at the low side, 2 to 3 cents a gallon; at the high side, depending upon the wholesale margins that they are having to pay for, could be in the range of 8 to 10 cents a gallon, averaging somewhere around 6 to 8 cents. Senator Specter. And how about Shell? What is Shell's profit margin? Mr. Hofmeister. The wholesale margins are much thinner than that. In some cases, they are just barely profitable margins, sometimes as low as a cent a gallon. Senator Specter. Well, we have been looking at the issue of exchange rates with Visa and MasterCard. It is a pretty bleak picture if you say the credit cards are 12 to 15 cents and the dealer at the pump is about 6 cents and the oil companies are about 1 cent. That is a very significant factor that we will have to look at further. Thank you, gentlemen, for coming in. We really appreciate your being here, and we know it is not easy, but we really want to try to find some answer to this, if we can. Thank you, Mr. Chairman. Chairman Leahy. Thank you very much, Senator Specter. Senator Kohl? Senator Kohl. Thank you, Mr. Chairman. Just proceeding to try and get some clarity here, as I said in my opening statement, back in 1981 the total petroleum product supplied to our market here in the United States was 571 million barrels in January 1981; and 27 years later, in February of 2008, the total number of barrels in petroleum products supplied was 573 million barrels. So it was the same. Twenty-seven years later, we were supplying our market with the same amount by way of raw material. And you might say, well, the worldwide situation needs to be considered because that is--and certainly you have your point, and it is true. But worldwide petroleum consumption increased from 2004 to 2006 just 2.8 percent. So that does not explain why prices are up 40 percent, 60 percent over last year. You cannot say it is because demand has gone through the roof. So what is the answer? Yes, sir? Mr. Robertson. I think there are several things that have happened. First of all, the market did work in the 1980's, and as a result of very severe price increases in oil, people changed their behaviors, and people did buy smaller cars and people did get a lot more efficient because prices were high, and that in the United States dropped demand dramatically over a period of time. And, in fact, it took pretty close to 15 to 20 years to recover from that, so--to recover, I mean for the demand to grow and for the economy to grow so that we are back to where we were in terms of the use of oil. So we did get much more efficient in the United States, and that was a good thing. And some of us believe that with higher prices here this time, we will again become more efficient, and we will again use our technology, and we will again use our, you know, behavior patterns in the United States to reduce demand. So the market, higher prices did have an impact in the past and will have an impact this time. Senator Kohl. Well, that is true but-- Mr. Robertson. The other thing--can I make another point? Senator Kohl. Go ahead. Mr. Robertson. The other thing I would say is that the other thing that we haven't talked about yet is underlying decline rates. Oil production declines, and we have in the world about a 4-percent decline on all the existing fields, or something like that. So there are massive investments needed every year just to stay even. So when we talk about the world growing at 2 or 3 percent, or whatever it is, it is really 2 or 3 percent plus the decline of 5 or 6 percent, which is an enormous investment that is required. So, I mean, the growth is bigger, I think, in the world in terms of the investment that is needed than perhaps the relatively small growth rates would suggest. Senator Kohl. People listening just do not get it. When demand is not going crazy, why are prices going crazy? They do not get it. You say, well, we need more investment and so on. But demand is not going crazy. Why are prices at the pump going crazy when demand is not going crazy? Mr. Robertson. Well, I think the combination of supply and demand are going crazy. There is a significant demand increase in the world, and there is a significant continuing reduction in supply unless we continue to invest. So it is the combination of those two things. I think as you say, it is not going crazy, but this is an enormous gap that exists. Senator Kohl. But they are not going crazy like prices are going crazy. Now I want to talk about OPEC because you said given that OPEC is really not something we should be tampering with, you know, we need to get more supply here in the United States. But it is true that as long as the OPEC cartel decides on supply, therefore, prices are going to follow--we know that. Unless we deal with OPEC in the foreseeable future, we are not going to be able to deal with the price at the pump. If they are allowed to get together and decide what supply is going to be, and then decide what the prices are going to be, we are helpless. There is nothing we can do. And if you say, well, we need to invest more, we need to drill more, that might take 5 or 10 years to come onstream. So you are saying that we should not tamper with the OPEC cartel. You are, therefore, saying that we are helpless to do anything about what we are paying at the pump for the foreseeable future. You are saying that. Mr. Robertson. No, I am not saying that. Senator Kohl. But if we do not deal with the OPEC cartel, how are we in the foreseeable future going to deal with the price at the pump? Mr. Robertson. I just maintain that the surplus that exists, even in the OPEC countries or in other countries, is minimal at this point. So what is going to be required, whether it is within OPEC or whether it is within Russia or whether it is within the United States, what is going to be required is not--OPEC is not the issue here. The issue is we have to as a world invest more. OPEC is certainly some of the places where there is some investment to be made, but it is not just OPEC. So I don't believe-- Senator Kohl. But that comes back, again, to demand. Demand is not going crazy, but prices are going crazy. Mr. Robertson. Well, in this kind of world, a several- percent increase is a huge amount, particularly with the underlying decline rate going-- Senator Kohl. And then I just want to hit on this next point and listen to all of you, if you would. Generally, when raw materials go up in a company and the raw materials just skyrocket in price, it is pretty hard to continue making even the margin of profit that you were making. And yet as you have said, your raw material cost is just beyond your ability almost to deal with it. And, nevertheless, your profits are going up hugely. Again, that is something we--we find it hard to understand that. Mr. Simon, you were talking about that--just in almost every industry that I know of, including some of the businesses I have been in, when raw materials jump like crazy, we cannot make the profit that we used to. With you, it is just the opposite. You are making more money than ever. In effect, your industry has no problem in doubling your profits, tripling your profits. Even when prices at the pump go crazy, you have no problem in keeping up with your increasing profit. It does not seem fair, guys. It just does not seem fair. Mr. Simon. Senator? Senator Kohl. Yes, sir. Mr. Simon. Again, when you look at our profit, again, on the manufacture of products here in the United States, it has not kept the same. The price of crude oil, our raw material, has gone up 78 percent, May of this year compared to May of last year. The price of diesel fuel has gone up 52 percent. The price of motor gasoline has gone up 16 percent. Profit margins have been squeezed. As I said before, our profitability last year was 10 cents a gallon. That is now down around 4 cents a gallon. We are seeing the impact because 90 percent of the raw materials that we use to make our products, we buy on the open market. It is not our own production. We buy it on the open market, and we are not able to pass that through. Senator Kohl. Well, you are retiring, Mr. Hofmeister, so you can really be candid with us today. [Laughter.] Senator Kohl. How about it? Mr. Hofmeister. I think, Senator, from my point of view on all of this, the profitability that we are reporting is very large in absolute numbers. But we are--you have to look at the different segments of our business to understand where the profit comes from. In the upstream of our business, at $125 a barrel, when we are producing oil that we have been producing from oil fields that are much lower cost oil fields because of their historic age and the write-down of the costs, the profits coming from those oil fields where the marginal cost of producing the oil might be, you know, low double digits given the history and the sales price is $125 in the global trading market, there is a lot of profit coming from that. But it is earned profit. It is earned because the market sets the price, our costs are very low. But as we look at new fields, new fields that are costing--and I would indicate that my 35 to 65 range that I said earlier was on a ``should be'' basis, which includes the value of the dollar restoring itself to some measure as it used to be. The costs of new fields are extraordinarily much higher. And I agree with colleagues here who have said that the marginal costs of production are in the $70-plus range for many of these new fields. So we are not making as much money on new oil as we are making on old oil. When it comes to refining, we are making considerably less this year on refining than we were last year because there is much less demand. So when you add all of that together--the old oil profit, the new oil much lower profit, the much lower refining margins--Shell's result in the first quarter was 6.9 percent return on sales. They sound like big numbers at $7.8 billion profit on $114 billion in revenue. But if I was reporting $7.8 million on $114 million in revenue, we would not be here today. Just change the word ``million'' to ``billion.'' It is the same percentage, 6.9 percent, which I think is a rather average number. In fact, we spent more money on capital investment in the first quarter than we did on--than we returned in profit. Senator Kohl. Thank you, Mr. Hofmeister. Thank you, Mr. Chairman. Chairman Leahy. Thank you. We have been joined by Senator Grassley. Senator Grassley, you are next. Senator Grassley. Most of my questions will be to any one or all of you on the panel, and I don't necessarily demand that you all answer them from the standpoint of being repetitive. There is no point in doing that. According to the Center for Agricultural and Rural Development at Iowa State University, ethanol use has lowered retail gasoline prices by 30 to 40 cents per gallon. A Merrill Lynch strategist estimates that oil and gas prices would be about 15 percent higher if biofuels were unavailable. Some have estimated that gas today would be $1.40 more if you removed the 4.5 billion gallons that would be removed by a bill introduced by Senator Hutchison from the alternative fuels market. What would happen to retail prices if that 3 to 7 percent that is biofuel were removed from the fuel supply? Any one of you? But hurry, because we have only got 7 minutes. Mr. Simon. Senator, I would make just one comment, and that is, when you look at producing motor gasoline out of crude versus ethanol out of corn, at today's prices, even with the extraordinary high price of crude, it is still more costly to produce an equivalent gallon of gasoline out of corn or ethanol than it is out of crude. Senator Grassley. OK. But my question is we have got x percentage of supply coming from biofuels. If that were taken off the market, would that increase the price at the pump for the consumer? Mr. Robertson. Well, there is no doubt in my mind that it would. Senator Grassley. OK. Mr. Robertson. Because I think it is an important component of the supply today. Senator Grassley. Is there anybody that disagrees with him? OK. Let's move on. Currently, refineries are blending ethanol and 60 percent of the Nation's gasoline. Many of your companies, including BP, Shell, and Chevron, are pursuing biofuel projects. From your opening statements, I assume each of you support the use of ethanol. If you don't, say so. And I also assume that if there is more supply of ethanol, you are going to continue to increase that, use of ethanol. If that is not so, I would like to have you clear that up because I do not want to ask a series of questions if the assumption is going to be that you like ethanol, you are going to continue to use ethanol, et cetera, et cetera. Mr. Simon. I think mandating use of ethanol is not the right approach. I think ethanol ought to stand on its own. We ought not to mandate and subsidize it. Let's let the free market work, and we will make that determination. Senator Grassley. OK. But in the meantime, you are going to continue--beyond, you know, right now, the mandate is 7.5 billion gallons, going up to 15 billion. We have just about reached that 7.5, 9 billion next I guess it is. Probably if there is--are you saying that if there is ethanol available above the mandate, you might not use above the mandate? Mr. Simon. We wouldn't even be using as much as we are today were it not for the mandate. Senator Grassley. So then if gasoline with ethanol in it is 13 cents a gallon cheaper in Iowa, then otherwise you want the consumer to pay more? Mr. Simon. No. We would be using where it was economic to be using it, but there are areas where it is not. Senator Grassley. OK. We have your general support for ethanol with or without mandates, I think. You have also agreed that without renewable fuel, gas prices would be higher. I think you have said that. Yet we have Charles Drevna, President of the National Petrochemical and Refiners Association, recently stating that biofuel policies ``have significant detrimental effect to our country and its consumers,'' and that biofuels ``fail the economy, fail the environment, fail energy security, and fail the American consumers.'' Now, I assume your companies are prominent members of the National Petrochemical and Refiners Association. If it is not, correct me. But if I am correct, does Mr. Drevna speak for you when he makes these statements? For those of you doing active research on biofuels, do you agree with Mr. Drevna's outrageous comments that denigrate our efforts to promote renewable fuels? OK, go ahead. Mr. Hofmeister. Well, I think from the Shell standpoint, we see biofuel as a new and growing industry, not only in this country but elsewhere around the world. The research and development that we are pursuing happens to be non-food based ethanol, which is second-generation or cellulosic ethanol, where in the last year we have announced a number of major projects, a number of future fuel streams which we think will be necessary as a way of delivering energy security to this country, the reason for that being the convenient, easy oil that we--when I talked about earlier sort of the old oil, it is scarcer and scarcer. And we cannot predicate our future business on the probability of access being more free in this country. And, therefore, we think it is necessary to have an alternative. We think cellulosic ethanol is the way to go. Senator Grassley. I take what you are saying then is when Mr. Drevna says it ``fails the economy, fails the environment, fails energy security, and fails the American consumers,'' he does not speak for you? Mr. Hofmeister. I don't approve what he says. Senator Grassley. OK--you don't approve of it, or you don't-- Mr. Hofmeister. I don't get to approve it before it is said. Senator Grassley. OK. And so you obviously disagree with it. Mr. Hofmeister. That is correct. Senator Grassley. In remarks before the House Committee, Mr. Drevna made accusations that increased biofuel production is driving up the cost of food. However, numerous economists, including Iowa State University, including Texas A&M, U.S. Department of Energy, U.S. Department of Agriculture, and the White House Council of Economic Advisers, have all concluded that biofuel policies have had a very minor, if any, impact on food prices. Unless Mr. Drevna is an expert in agricultural policy or food economics, do any of you know why we should believe the claims of the head of this trade association over the Chief Economist of the U.S. Department of Agriculture and the Chairman of the President's Council of Economic Advisers? Mr. Robertson. No. All I can say is that we need all forms of energy today, and I think biofuels are an important part of that energy mix. I do think that there are some implications for food that I do not personally understand well, but I think there are tradeoffs in everything we do. So I think there is a limit to how much corn-based ethanol we should be using, and the mandate calls for about 10 percent of our U.S. gasoline capacity. I agree with Mr. Hofmeister that moving to some other form of ethanol--cellulose-based ethanol or something else--is the right track, and Chevron and many of the other companies are on that. But I do think that it is an important part of the fuel supply today, not only in the United States but in the world. Senator Grassley. Well, you know-- Mr. Robertson. And if we did not have that, we would be feeling more pressure on the other system of oil and gas. Senator Grassley. Yes. Well, you know, it is our policy right now in law that not more than 15 billion gallons of ethanol is going to be made from grain. Thank you, Mr. Chairman. Chairman Leahy. I thank you, Senator Grassley. Senator Feinstein? Senator Feinstein. Thank you very much, Mr. Chairman. Gentlemen, it is good to see you. Mr. Robertson, good to see you again. I must tell you up front, as I listened to your opening comments, to me it was just a litany of complaints, that you are all just hapless victims of a system. You blame one thing or another, which most people would say is just simply the cost of doing business. And yet you rack up record profits--record profits for any corporation in the United States of America-- quarter after quarter after quarter, and apparently have no ethical compass about the price of gasoline. You are just victims. I do not think you are, really, and I want to read something to you. The Chief Economist of Commodity Futures Trading Commission and the Director of Market Surveillance of that Commission said before Congress--and it is in a written paper--a few days ago, ``Our studies consistently find that when new information comes to the market and prices respond, it is the commercial traders, such as oil companies, utilities, airlines, who react first by adjusting their futures positions. When these commercial traders adjust their futures positions, it is speculators who are most often on the other side of the trade. Price changes that prompt hedgers to alter their futures positions attract speculators, who change their positions in response. Simply stated, there is no evidence that position changes by speculators precede price changes for crude oil futures contracts.'' In other words, the CFTC is saying oil companies are driving up the price of oil in this way, and other market participants are simply responding to your constant increases. I would like to know your response to that. Mr. Simon? Mr. Simon. Senator, we do no speculation. Senator Feinstein. I did not say you did. Mr. Simon. Well, you are saying that what we are doing in terms of taking positions influences the market, and we do not do that as a corporation. Senator Feinstein. That is exactly what the CFTC's experts are saying. I am not saying that. That is what they are-- Mr. Simon. Well, I am just saying that we as a corporation do not take positions. We do not speculate. Senator Feinstein. OK--well, all right. Any other comments on that? Mr. Robertson? Mr. Robertson. Well, I would just like to say, first of all, I am sorry for sounding like a victim because I do not feel like a victim at all. Senator Feinstein. I don't think you are. Mr. Robertson. I feel very proud of what we do. We have changed our future by increasing our investment patterns dramatically. I feel very proud of the fact that, you know, we are investing all of our earnings. That is why we earn money, is to invest. We are an investing machine, and we invest in future supplies for the people of the world. So I am very proud of that. With regard to the speculation, we sell about 2 million barrels a day of oil into the market which we produce, and we buy about 2 million barrels a day, round numbers, for our refineries. We trade in the market to basically--on a physical basis and to sort of optimize our position. We are not a speculating company at all. We support all transparency and support the bill that you have put forward. So that is not an issue for us, and I don't feel threatened by it at all. And I don't feel like a victim. Senator Feinstein. I don't think you are a victim. It is just when I heard it is one complaint after the other, it is American policy, it is permitting, you can go on and on and on. But let me go back. Mr. Simon, last month you testified before the House Select Committee on Energy, and you agreed that speculation is part of the problem. You said, ``When you look at the fundamentals, the price should be $50 to $55 a barrel of oil.'' Today, in response to the question, you said you did not know. Why is that? Mr. Simon. Yes, thank you very much, Senator, for giving me the opportunity to clarify that. What I did comment was that when you looked at historical fundamentals, it would predict a crude price about $50 to $55 a barrel. And then I outlined three factors that have caused a disconnect since 2005, the first of 2005: one is the weaker dollar; the other is geopolitical uncertainty in combination with a very low level of spare capacity in the world; and the third is speculation. But what I did not say was that if you eliminated or reduced that, that that would necessarily change the price today, because those are true factors in today's market, and the price that you see in the market today is reflective of what is required to balance supply and demand. Senator Feinstein. Well, let me ask you this question. When you said that last month, did you mean that the marginal cost to produce an additional barrel of oil is $55? Mr. Simon. No, that is not what I indicated at all. Senator Feinstein. What exactly did you mean by fundamentals? Mr. Simon. If you look at the historical relationship between usable commercial days of inventory around the world in terms of crude oil inventories, there has been a reasonable correlation between that and crude price. That correlation broke down beginning 2005, and the three factors that have been identified as contributing to that disconnect are the three that I just indicated. Senator Feinstein. I guess I am really not understanding. I think it is--based on what everybody said, it is probably correct that the price should be somewhere between $40 and $60. I remember when royalty relief was anything over $35 a barrel of oil, and we are now at $130 a barrel of oil today. And it seems to me that those same basic fundamentals that enabled somebody to produce oil much more inexpensively are still there. And all these extra features that you are adding in, I am having a very hard time understanding. Mr. Simon. But I think they are reflective of the world's perception of the supply demand balance. When you have got such a very low level of spare capacity, it does not take much of a disruption in supplies to cause that. And what you are seeing today is the market's perception of the price that is required to balance supply and demand given that very low level of spare capacity. Senator Feinstein. So what you are talking about is the futures trading of the market-- Mr. Simon. I think it is-- Senator Feinstein.--increasing the cost of oil. Mr. Simon. That is one factor because, again, when they look at that amount of spare capacity, there is a risk premium in the market today. Senator Feinstein. How much per barrel do you believe is speculation of this type? Mr. Simon. What I indicated before is, roughly speaking, maybe a third, a third, a third. But I will frankly admit, Senator, I have no way of really knowing that because there is such a lot of interrelationship between those three factors that I just indicated. Senator Feinstein. Well, let me ask others. I am absolutely convinced that futures speculation is a big part of it. I am also convinced that the falling dollar is part of it when you can buy much better with the euro than you can with the dollar, clearly. But does anybody else have a view on futures speculation and its influence on the price of gasoline? How much would that be? Mr. Robertson. Senator, I want to raise-- Senator Feinstein. Mr. Robertson? Mr. Robertson. It is a slightly different point, but the cost of everything has gone up. Oil as a commodity clearly has gone up. But the cost of all other commodities has gone up, too, and so the cost--you were talking about the incremental or the marginal cost of producing a barrel of oil. The marginal cost of producing a barrel of oil has been impacted by the cost of steel, by the cost of cement, by the cost of all of these other commodities in the world that you see. So actually, as the price of oil has gone up, the cost of producing those barrels of oil has gone up because all commodities have gone up and because the complexity of the projects that we are having to go to today has gone up dramatically, and I would give you one example. We are just completing a project in Kazakhstan, a $6 billion project. It is 250,000 barrels a day, which is less than 1 percent--less than half of 1 percent of global oil demand, and the amount of man-hours that went into producing that, creating that project, is more than building the Panama Canal. So these are enormously complex projects, getting more complex by the day, the kinds of resources that we are getting access to, as opposed to the places where we can't get access to, are getting more and more difficult. So not only prices have gone up, costs have gone up dramatically, too, and that has been a big part of the run-up, and it has changed the fundamentals from the time that you are talking about, I believe. Senator Feinstein. Thank you. My time is up. Chairman Leahy. Thank you. Senator Sessions? Senator Sessions. Thank you, Mr. Chairman. The oil man Boone Pickens recently said that our $500- billion-a-year transfer of wealth to buy foreign oil is the greatest wealth transfer in the history of the world. I guess, Mr. Simon, would you agree that 50 percent of our balance-of- payments deficit is one reason the dollar is declining in the world market? Mr. Simon. I think that is one factor, but, Senator, I would be the first to admit I am not expert in that area. Senator Sessions. Well, that is what they tell me, too, that trade deficits tend to weaken the dollar, and this huge-- and that is--what?--15 percent of the price of oil now in the last 3 or 4 years is a decline--15 percent of the increase is related to the decline in the dollar? Is that 10, 15 percent? Is that what-- Mr. Simon. The U.S. dollar has weakened about 20 percent since 2004 relative to the euro. Senator Sessions. Well, I don't know how much it is, but it is a factor, and it strikes me that, therefore, our fundamental policy needs to be more conservation and more clean American production. Those two things will help make us less dependent, help reduce our balance-of-trade deficit, and keep wealth at home, hiring Americans, paying them decent wages with decent retirement benefits. Mr. Hofmeister, let me just clear one thing up. When I say sometimes we need to produce more oil in the United States, in Alaska, offshore--which I have been a strong advocate of and believe it is unthinkable that we have not done that, and it is absolutely a factor in increasing the price of oil, and it is a factor in our wealth transfer, which we could have kept at home no matter what the price of oil was. Senator Sessions. But explain--and people say, well, you are just talking--you are shilling for the oil companies. That is what the oil companies say. Explain to us briefly how it is in America's interest and that you would have to compete for those resources and have to produce them and sell them at a competitive price on the marketplace. But to me, it is America's interest in producing more oil and gas at home, not to benefit you in any way. Mr. Hofmeister. I think the first benefit is to the American consumer. If, in fact, futures speculation is based on scarcity, if there is a sense in the market that there will be an abundance of oil because of the extra exploration and production which the United States is now committing itself to, the futures market is turned upside down, because we look at a future of surplus because of new American oil heretofore off limits, now being brought into the marketplace. The immediate beneficiary would be the American consumer because futures speculation would take that into account. Second, the job creation content of new oil exploration and production would be enormous. I just point to the example of Motiva's Port Arthur, Texas, refinery of which Shell has a 50- percent share. We are going to have 6,000 construction workers at the peak of construction in adding on to that refinery. Now, much of the crude oil is going to come from foreign oil sources, but if, in fact, over some longer period of time there was more production coming from the Gulf of Mexico, more production from the east or the west coast or the eastern Gulf of Mexico, this would have a dramatic impact not just on that refinery but other refineries in the United States getting oil that is now coming from oil produced by American workers. Senator Sessions. And I am exceedingly disappointed that the Democrat leadership slipped in the two bills, changed the law in the last year to, in effect, stop oil shale production. Mr. Hofmeister, I believe your company is investing in oil shale. Do you believe that if you are allowed to produce that that you can produce huge amounts of oil in the United States, American oil, at less than this $130 world price of oil? Mr. Hofmeister. Well, I think it would depend upon what all the other costs are at the time that our research and development project is completed. We do see that, you know, as we have talked earlier, the marginal cost of a barrel is increasing. That is because steel is more expensive, labor is more expensive, the house pumps, everything is more expensive. So we do not know what the future cost structure might look like of oil shale, but let's be clear. When there is a natural deposit of more than a trillion potentially recoverable barrels of oil in a particular geography within the continental United States, not to develop that is really, in my opinion, a disservice to the American consumer. Senator Sessions. Well, and a trillion barrels, we spend about 5 billion--we utilize about 5 billion a year, so that is a couple of hundred years' worth of oil right there. We would not have to--your engineer in the Energy Committee either this week or last week testified that you could bring it out for less, far less than the world price. And then the coal to liquid also can be brought forth at less than this world price right now. And with good technology, we may even get better. But both of those were blocked, I would note. So a majority in the Congress, I just have to say, have blocked Alaska, they have blocked the Pacific Coast, they have blocked the Atlantic Coast, they have blocked off Florida and made it far more difficult to produce on certain Federal lands, leaving us more dependent on foreign oil. Now, I am not pleased with some things that I think are occurring. I cannot fathom why the United States is producing so little diesel, and Europe has half of its automobiles diesel automobiles. Diesel is cheaper in Europe than in the United States, cheaper relative to gasoline. It gets, I have always understood, about 38 percent better gas mileage than a gasoline engine. We have recently seen a Popular Mechanics article that compared them and said it gets 38 percent better than a hybrid vehicle that we have been committing so much to and I have supported. Why aren't we doing more diesel? What is the policy that has us at 3 percent diesel automobiles whereas Europe has 50 percent diesel automobiles? And if we were using diesel, we would be utilizing about 35 percent fewer gallons of that fuel we put in our cars and it would hurt your business? I am asking Mr. Robertson. Mr. Robertson. Mr. Sessions, you are exactly right. Diesel is fundamentally a better product, so there is fundamentally more energy in a barrel of diesel than there is in a barrel of gasoline. And so you would expect that the price, if everything else were equal--which it is not--the price would be higher. Europe has traditionally tax-advantaged diesel through policy, and so the European system is fundamentally--the European refining system is fundamentally built to produce diesel. The American refining system is fundamentally built to produce gasoline, so the-- Senator Sessions. Why? Why? Mr. Robertson.--facilities are different. It used to be that diesel was a product that people did not like, they did not like the kind of cars, they did not like the noise, they did not like the smell. And, of course, technology has changed all that. But our refining system is fundamentally focused on gasoline as a primary product. Senator Sessions. Well, I am going to be pursuing that in more depth, but I would note that new diesel engines are cleaner, emit fewer CO2, and our diesel--low-sulfur diesel fuel is the cleanest fuel in the world. The whole ideas about dirty diesel are not correct. It actually is environmentally friendly. Mr. Robertson. I was agreeing with you. But the problem is that we have built our system for something else, so there is-- Senator Sessions. I know. I want to find out how we made that mistake. Chairman Leahy. Maybe this could wait for another round. Senator Durbin? Senator Durbin. Thank you, Mr. Chairman. Thank you to the witnesses who are here today. The Chairman's earlier questions about CEO compensation left me a little puzzled when I heard your responses. I asked the Congressional Research Service to give me updated information on the CEO salaries of the oil industry, and these salaries relate to 2005. That is the only information they had readily available. They are dramatically larger than the amounts which we have been told--for instance, Mr. Tillerson, CEO of Exxon Mobil in 2005, $21.7 million in salary, $69.7 million in stock options. It turned out the average salaries, bonuses, deferred compensation, stock options of the 15 United States oil CEOs in 2005 averaged $32.7 million. In comparison, the average compensation for the largest corporation CEOs in America was $11.6 million, about a third. So I would like to ask, Mr. Chairman, as a followup to your question, for the record if you all will be kind enough to update these figures for each of your companies, the amount that is being paid to CEOs in salary, bonus, deferred compensation, and other stock options so that the record is complete. I thank you for asking that question. Mr. Chairman, I am glad we had this hearing, and I am sure it is not the first or last time that these gentlemen or people like them will be called before Congress, as they should be. But the honest answer is it takes us a long time to respond to a national crisis like the one we face. And it is tough. The idea of a windfall profits tax, which I support--and I assume the entire panel opposes--is not likely to pass in this Congress because these gentlemen and their companies have very powerful people in Washington that make it difficult to bring those measures before us. I understand that. It strikes me that this is the right situation for a President to step in, for a President of the United States to step in. I can understand when the President of the United States goes to Saudi Arabia and begs the sheikhs, please, release more oil, you are killing the American economy, they told him to take a hike. They sent him home empty-handed. I think the President should be calling you all before his little meeting place in the White House and talking about what you are doing to the American economy. You have to sense what you are doing to us. We are on the precipice here and about to fall into a recession. Working families across this country have been falling behind for 7 straight years in the cost of living. And if I ask any family in Illinois--which, incidentally, has the dubious distinction of having the Nation's top gas prices as of Tuesday of this week. If I asked any family in Illinois, ``What is the biggest pain you face?'' they are going to point at you and what it costs to fill a tank of gas. It cost me 61 bucks to fill up my Ford pick-up truck at the Shell station in Springfield, Illinois, Friday. That is the most I have ever paid in my life. I am afraid it is going to go higher. I come down to this basic question. You do not all work for American companies, but you all, I think understandably feel a certain pride in this country and an obligation to this country. Does it trouble any of you when you see what you are doing to us, the profits that you are taking, the costs that you are imposing on working families, small businesses, truckers, farmers? Does it trouble you when you say, you know, if we take that extra billion dollars here, it is right out of America, it is right out of our economy? Is there anybody here that has any concerns about what you are doing to this country with the prices that you are charging and the profits you are taking? Mr. Simon. Senator, we have--and I can certainly speak for our corporation. We have a lot of concern about that, and we are doing all that we can to produce as much product as we can to put downward pressure on prices. When you look at what we have done, for example, in refining, we have expanded our refining capacity at a rate 40 percent higher than the rest of industry. Senator Durbin. If I could just interrupt you for a second, do you know what the current utilization of refining capacity is for the oil companies in America? Do you know what the percentage is? Mr. Simon. I know what ours is, and it is about 93 percent. Senator Durbin. OK. Nationwide, industry-wide, it is 85 percent. They are begging us for more refineries. They are begging us for more exploration. And they are utilizing current refining capacity at 85 percent, which is the lowest since 1992. You are shorting the market a product when we desperately need more of it. I do not understand that. Why is that the case? Mr. Simon. Let me address that, at least from our corporation, and I think others can do the same. We are using every bit of available capacity that we have, Senator. We have a number of units that we have to take down on overhaul. Those have been running for 5 to 7 years between overhauls. We do not plan those; we started planning those 20 to 30 months ago. We have to take them down. We take them down during the slack period, right after the heating oil season but before the mogas season. Now, again, when you look at our utilization as a corporation, it has been higher than the industry average. I understand-- Senator Durbin. Well, let's listen to some of the others. I would like some of the others to have a chance to respond to this, about this 85-percent refinery capacity. Why are you not operating at higher levels of capacity? Is it all what Mr. Simon has said, the situation where you have to take some offline at a given period of time for transition? Mr. Robertson. Well, everybody has that situation, but I would just like to start by saying that, I am a regular person, I have got lots of friends who are regular people, and we do not like this situation. We have to explain to our families and friends what is going on with-- Senator Durbin. How do you explain your profits? Mr. Robertson. Well, I explain my profits by saying we reinvest it all. So what we are doing-- Senator Durbin. Oh, really? Mr. Robertson. Yes. We reinvest all our-- Senator Durbin. Do you know how much cash on hand your companies have? Mr. Robertson. I know how much cash in-- Senator Durbin. Compared to capital investment? In the past several years, there has been almost a 300-percent increase in your cash on hand while your industry has been an 81-percent increase in capital investment. Mr. Robertson. We are investing at the capability of our company to invest, and that has been equal to our earnings over the last 5 to 6 years. Senator Durbin. But for you to take-- Mr. Robertson. So we are-- Senator Durbin.--profits and hold it in cash while the price of gasoline is breaking the back of the American economy is unconscionable. Mr. Robertson. We-- Senator Durbin. Where is the corporate conscience here? Mr. Robertson. Right now, we are investing all we can, first of all. The things that we can do is we can invest to produce more supply. We are investing all that we can, given the limitations of access around the world, given the limitations of our own human capacity, given the limitations of the contractor community and the drilling rigs and all these things that are available in the world. We are investing at our capacity. In terms of the refining situation, the markets that we supply are well supplied. Inventories of gasoline are as high as they have been in all time. So the issue is not refining capacity right now. The issue is the price of crude oil. That is the largest single-- Senator Durbin. Do you have adequate refining capacity? You are not-- Mr. Robertson. We have adequate refining capacity, and we have got the inventories at an all-time level, and our markets are all well supplied-- Senator Durbin. My time has run out, Mr. Chairman, but I would just close by saying because of the high price of a barrel of oil, many companies are looking at sources they had never considered before--Senator Sessions alluded to oil shale--and one of these is Canadian tar sands. I know BP, Conoco, and maybe all of you, you will readily concede this is one of the dirtiest sources of oil that we could be refining, and it has environmental concerns which we all should share. When you talk to us about drilling in every direction in every place and expanding refinery capacity for some of the dirtiest crude sources in the world, excuse me, but we also have an environmental and public health responsibility that we have to take into consideration. This should not come down to an equation of your money or your life. And if you are telling us we have to sacrifice the public health of America to bring gasoline prices down, I am telling you we ought to take a closer look at your industry and who is making the decisions. Thank you. Chairman Leahy. Thank you. Mr. Robertson. Well, I certainly did not say that, Senator. Chairman Leahy. Thank you. I-- Senator Durbin. And I did not suggest you did, Mr. Robertson. I am sorry if that was your conclusion. Chairman Leahy. I am going to yield just a moment to Senator Hatch, who has been waiting here patiently, as the Ranking Member of the Subcommittee. I am going to have to step out after that, and Senator Whitehouse has agreed to stay and chair. But I was struck, if I might, by something that Senator Durbin said. He talked about Saudi Arabia and their response. The President has flown twice to Saudi Arabia this year to plead with the Saudis to increase oil production in order to lower gas prices. Here we have this photograph of him. He has failed in his efforts, although he touted himself as a friend of the Saudis, could work with them and jawbone them into action. Do you agree or disagree with the Saudi Oil Minister's statement that supply and demand are in balance today and with the Bush administration's statement that Saudi Arabia does not have customers who are making requests for oil that they are not able to satisfy? Mr. Malone, do you agree with those two statements? Yes or on. Mr. Malone. No. Chairman Leahy. Mr. Hofmeister? Mr. Hofmeister. No, I don't. I think the underlying demand requires more supply. Chairman Leahy. Mr. Robertson? Mr. Robertson. I think the real issue is the shortage of supply and capacity available in the system that just is not very much. So I think the market is pretty well supplied today. Chairman Leahy. Thank you. Mr. Lowe? Mr. Lowe. As Mr. Robertson said, while the market is currently supplied, there is very little, if any, excess capacity. Chairman Leahy. Mr. Simon? Mr. Simon. The market is well supplied. We have 35 refineries around the world, and not a single one of them are having any trouble finding the crude and feedstocks to run at high utilization. Chairman Leahy. And so you agree that Saudi Arabia does not have customers making requests for oil that they are not able to satisfy? Mr. Simon. This is not a supply issue. Chairman Leahy. Thank you. Thank you and I thank Senator Hatch for, as always, his courtesy. Senator Hatch. Well, thank you, Mr. Chairman. I appreciate your courtesy. Mr. Hofmeister, just to set the record straight, as you know, the Democrat leadership in the Congress has passed legislation that would ban our Government from purchasing oil from the oil sands up in Canada. And Canada has moved to a million barrels a day, and they are moving up to 3 million barrels a day. Now, do you see this as a problem for oil supply in this country? Mr. Hofmeister. I absolutely do, Senator, and I do believe that there are environmental remediations both underway and future technology will deliver more so that the world can benefit and the U.S. in particular can benefit from not just oil sands production coming from Alberta, but also oil shale production that could come from Utah, Wyoming-- Senator Hatch. I am going to get into that. In other words, we are talking about Utah, Colorado, and Wyoming. It is fair to say that they are not considered part of America's $22 billion of proven reserves. Mr. Hofmeister. Not at all. Senator Hatch. Now, but experts agree that there is between 800 billion to almost 2 trillion barrels of oil that could be recoverable there, and that is good oil, isn't it? Mr. Hofmeister. That is correct. Senator Hatch. It could be recovered at somewhere between 30 and 40 bucks a barrel? Mr. Hofmeister. I think those costs are probably a bit dated now based upon what we have seen-- Senator Hatch. Somewhere in that area. Mr. Hofmeister. I don't know what the exact costs would be, but, you know, if there is more supply, I think inflation in the oil industry would be cracked. And we are facing severe inflation because of the limited amount of supply against the demand. Senator Hatch. I guess what I am saying, though, is that if we started to develop the oil shale in those three States, we could do it within this framework of over $100 a barrel and make a profit. Mr. Hofmeister. I believe we could. Senator Hatch. And we could help our country alleviate its oil pressures. Mr. Hofmeister. Yes. Senator Hatch. But they are stopping us from doing that right here as we sit here. We just had a hearing last week where Democrats have stopped the ability to do that in at least Colorado. Mr. Hofmeister. Well, as I said in my opening statement, I think the public policy constraints on the supply side in this country are a disservice to the American consumer. Senator Hatch. Well, if the Government gave you free access to the oil that could be recovered, would that make a difference to you in Shell? Mr. Hofmeister. Yes, it would, over time. Senator Hatch. Well, how would it make a difference? Mr. Hofmeister. We would be steering investments toward--on a global capital allocation basis, we would steer investments toward the best opportunities for the most prolific supply. We are a supply side company. That is what we do. And anytime we can move into a new source of supply and it is economic, we would proceed to invest capital to produce more product. Senator Hatch. You are already moving into that new source of supply, if you could, in Colorado especially. Mr. Hofmeister. Correct. We have been there 20 years doing a research and development project for a technology that does not require mining, that does not require opening up the surface, other than by drilling, which we have done for a hundred years. Senator Hatch. Well, who is stopping you from doing that? Mr. Hofmeister. Well, currently it is--we are still not at a point of making a commercial decision because of the research work that is necessary to know that we can do this in an environmentally safe manner and that we can use the--we can find an energy source for our heating technology which is also environmentally sound, and that we would have the water plan, the land use plans, et cetera. So we are not ready to make a commercial decision yet, but we would be unable to make a commercial decision unless the Minerals Management Service creates the necessary regulatory framework, including a royalty structure, that would enable us to know what we will be able to produce. Senator Hatch. And leasing structure. Mr. Hofmeister. And leasing structure, yes. Senator Hatch. Mr. Simon, isn't it true that we are spending about $600 billion a year for offshore oil? Mr. Simon. I am not sure what the number is, Senator. Senator Hatch. Anybody know the number? That is what I have been told. It is around $600 billion a year that we are sending overseas to Venezuela, Russia, the Middle East. Mr. Simon. I know that we are dependent upon imports for about 60 percent of our petroleum use. Senator Hatch. Let me ask you this: How much of a barrel of crude does the Government take in taxes? Mr. Simon. Well, when you look--the numbers I gave before is when you look at a gallon of gasoline, it is about 15 percent. Senator Hatch. About 15 percent. Now, your profits range between, what, 4 and 8 percent? Mr. Simon. When you look at our profitability for refining and marketing in the U.S. during the first quarter of this year, it is about 4 cents. Senator Hatch. Anybody over 8 percent down there? Anybody? You are all shaking your heads no. So the Government is taking 15 percent-- Mr. Simon. Fifteen cents on the-- Senator Hatch. Well, that is 15 percent. Mr. Simon. Well, the-- Senator Hatch. Am I missing something here? Mr. Simon. The gallon is currently about $3.80, I think. Senator Hatch. Oh, OK. So it is 15 cents on a gallon. Mr. Simon. It is 15 percent on a gallon. Our profitability this year is 4 cents. Senator Hatch. OK. Now, if all of you--you hear all these comments on Capitol Hill all the time about ``big oil.'' I think they are referring to you. If you put all the so- called big oil companies together, what percentage would they be of producers in the world oil stage? Mr. Robertson. We are about 2 percent. Senator Hatch. But total, all lumped together. Mr. Robertson. My guess would be about 10 percent, probably. Senator Hatch. I have been told 6 percent. Mr. Simon. When you look at worldwide crude reserves, Senator, you are right. It is about 6 percent versus 80 percent for the national oil companies. Senator Hatch. OK. That is what I have been--that is my understanding. Now, I am the author of the CLEAR ACT to develop alternative fuels, alternative fuel resources, alternative fuel vehicles, alternative fuel infrastructure. I also was one of the people who put the tax credits for alternative energy into the 1995--both of these are in the 1995 energy bill. So I take second place to nobody with regard to trying to develop alternative fuels and other renewable fuels. But let me just ask you, if we do everything we can in solar, wind, geothermal--I will leave nuclear off here right now--solar, thermal, which my friend Bernard Koestler is doing out there. He is going to have 200 megawatts of power by 2010. If we do everything we can, what percentage of energy would that provide for our country to run our trucks, our cars, our trains, our planes? Can anybody tell me that? Mr. Hofmeister? Mr. Hofmeister. The estimate that I have seen is that by 2030 it could be about 20 percent. Senator Hatch. Twenty percent would be the maximum? Mr. Hofmeister. Based on what I have been-- Senator Hatch. Well, where would we get the other 80 percent to keep our country going, run our cars, our trucks, our-- Mr. Hofmeister. All of the estimates say that traditional hydrocarbons must be part of our long-term energy security, meaning gas, oil, coal. Senator Hatch. But that is dirty. I mean, why would we subject ourselves to being hostage to 80 percent of this type of production? Mr. Hofmeister. I think there are some brilliant technologies that are coming down the pike that will enable us to manage CO2 and continue to use hydrocarbons. And I for one and Shell is a fan of a cap-and-trade bill for this country on a national basis, using these new technologies to both produce hydrocarbons to keep the economy strong while developing alternative forms of energy. Senator Hatch. Would it be fair to say that with that 80 percent, if we do not have that, we could not run our country? Mr. Simon. I would agree with that, Senator. Eighty percent of the outlook is fossil fuel, 60 percent for oil and gas alone. And let me correct myself, you are absolutely right with what you said before. In 2007 it was 15 percent on taxes, and our profitability was 4 percent. I apologize if I-- Senator Hatch. I am glad to have that apology. Do the rest of you agree with what he just said? Do you agree with the 80 percent? Mr. Robertson. Yes, sir. Senator Hatch. We cannot run our country. We cannot run our cars, our trucks, our trains, and our planes--at least over the next 20, 25, 30 years--if we do everything we can with regard to alternative fuels, renewable fuels. We cannot do it without oil and gas. Is that right? Mr. Robertson. That is exactly right, but we can do it-- Senator Hatch. And anybody who does not understand that just does not understand what it takes to run America. Mr. Robertson. What we can do, we can do it with more North American oil and gas. Senator Hatch. We could become somewhat independent of-- Mr. Robertson. So my take on your question was we are importing 10 million barrels a day of oil today. We can make a significant dent in that by doing more here. Senator Hatch. If you were not hampered by Congress, right, or Government? Mr. Robertson. If we weren't hampered by a lot of barriers to investment, yes. The thing I would also add is that we can do a lot more-- Senator Hatch. You are so much more diplomatic than I. Mr. Robertson. Well, I am an engineer. The one thing I would say is, don't forget Canada either. And I know you mentioned Canada. We talk about importing 10 million barrels a day of oil; 1.3 million barrels a day of that comes from Canada. And so the resource that exists in Canada--we have talked a little bit about it--is a really important resource, just like the shale oil and just like the offshore and just like the coal, and just like all of these fossil fuel resources that we have in North America. So we have the capacity in North America to significantly reduce our imports of foreign oil, and, frankly, that is a good thing not only for America, but it is a good thing for the world because it will reduce our load on the world and, frankly, free up more for other people. So I think it does drive prices down, and it is good for America, and it is possible. Senator Hatch. Thank you, Mr. Chairman. I appreciate it. Senator Whitehouse. [Presiding.] Senator-- [Audience outburst.] Senator Whitehouse. This room will come to order. We will suspend for a moment while the proceedings are brought to order. My apologies. [Pause.] Senator Whitehouse. I hope there will not be further disruptions like that, and I call on the guests who are here to conform themselves to the behavior that the Senate Committee expects. Senator Feingold? Senator Feingold. I thank the Chair and the Ranking Member for holding this hearing to investigate the skyrocketing price of oil. Americans may have a hard time believing this, as they fill up their cars, but the United States is the third top oil- producing country in the world, exceeded only by Saudi Arabia and Russia. We produce 4 times more oil than Iraq, 3 times more oil than Venezuela, and over double the production in Canada, Mexico, China, and Iran. And yet we have never been able to meet our needs domestically because the U.S. consumes more oil than any other country in the world. Our annual consumption of 20.7 million gallons of oil a day is threefold the consumption level of the next highest consuming country. In short, we have an insatiable appetite--an appetite that cannot be met even by adding an amount equivalent to all the oil in the top oil- producing country of Saudi Arabia. Even President Bush famously declared that the United States is addicted to oil. The problem is clear. Now we need solutions. We do not need economists in the room to explain the basic principles of supply and demand. Given ever increasing global demand and predictions of continued skyrocketing oil prices, we need to start the long-term transition to renewable energy and alternative fuels immediately. Mr. Hofmeister, the President of Shell Oil, stated in an NBC interview last year that he, too, agrees that we must and can get over our addiction to oil over decades and that Shell Oil will be there when it comes to renewables and alternative fuels. However, his colleague, Mr. Simon, the President of Exxon Mobil, declared at a House hearing last month that oil and gas will represent 80 percent of our energy portfolio in 2050, over four decades from now. So how many decades from now are we talking before your companies will seriously invest in alternative fuels and renewable energy? Three years ago, the same oil companies testified before the Senate's Energy and Commerce Committees and had similar discussions, and yet based on April 2008 data published in the Oil and Gas Journal and distributed by the American Petroleum Institute, over this time period your companies invested more in marketing than renewable energy. Mr. Chairman, I ask that this data be submitted for the record. Senator Whitehouse. Without objection. Senator Feingold. Thank you, Mr. Chairman. Obviously, you are private companies looking to make a profit. And succeeding--we have all read the headlines regarding your companies' record-setting profits, $123 billion for 2007. Meanwhile, my constituents are facing financially challenging times. I have never seen anything really like it in my 26 years in public life. From our farm fields to our grocery stores and gas pumps, Americans really are feeling quite an effect of record oil prices, and they are looking to us for help. There are some things we can do to provide some short- term relief, such as no longer filling the Strategic Petroleum Reserve and preventing market manipulation. We have recently made some progress in both of these areas. We also need to promote policies that encourage renewable energy, alternative fuels, as well as energy efficiency and conservation, and last year's energy bill moves in that direction. But more is needed, and I hope that oil companies will step up and be a part of the solution finally, and I would like to ask a bit about what you can still do given your own resources. Could you tell me, how many oil and gas leases on Federal lands do you currently have that are not in development? Surely some of you know. Mr. Hofmeister. Senator, frankly, I would have to go check. We have thousands of leases that are out there that we have won over a number of years, and I do not have a current inventory at my disposal. I would have to go research that number. Senator Feingold. My guess is some of you have a general sense of this issue. Currently, your companies hold leases on 42 million acres of Federal land, and yet you are only producing on 12 million acres. This means you are not producing on 30 million acres. Can you talk to me about why this is? Mr. Robertson. Well, Senator, I am in the same position. We have got thousands of leases, and I could not tell you how many, but I can tell you that we pay rent on those, and so we do not lease them unless we are going to do something with them. As we look at those and do seismic work a lot of them will, frankly, prove to have nothing to drill on, and we will relinquish those. So, I mean, all of them we are either keeping because we are doing work on them, or we are going to relinquish them. Senator Feingold. Do you have the manpower and infrastructure to put your current leases on a lot of these acres in production? Mr. Robertson. Well, a lot of them will never come on production because they do not have--at the end of the day you look at them, and they don't have the prospectivity. So we are working on-- Senator Feingold. But you have adequate manpower and infrastructure to do the work on those that you do think will be productive? Mr. Robertson. Yes, sir. Senator Feingold. All right. Well, I would appreciate some followup in writing from you on this so I can get a better sense of that question. I would like to know a little more about how your companies are going to assist in the significant transition we need to make. Ideally, of course, we do this gradually, but I am concerned it is happening too slowly. Mr. Lowe, following a 2006 Judiciary Committee hearing, James Mulva, the Chairman and Chief Executive Officer of ConocoPhillips, responded to one of my questions regarding the company's investment in alternatives by stating, ``ConocoPhillips is an oil and gas company and, as such, we are in the business of finding new sources of fossil fuels to meet consumer demands. Eventually, there will be an evolution to the next generation of fuels, but this evolution will not occur for some time,'' he said. Is this still ConocoPhillips' position that alternatives are years off? Have you increased your annual investments in renewable energy and alternative fuels? Mr. Lowe. Yes, Senator. We have significantly increased our efforts. We are combining with universities such as Iowa State to try and develop cellulosic ethanol. We are working with companies such as Tyson and ADM to try and develop alternative sources, renewable sources of fuel. And we are also working on projects such as carbon capture and storage to make a positive impact and what we think is necessary for the development of the Canadian oil sands-- Senator Feingold. So has the company's position changed? Are the alternatives more immediately available or is this something, as your previous spokesman said, that is still years off? Mr. Lowe. I think that in the short term, we are really limited to corn-based, sugar-based ethanol as far as alternative fuels, as far as ethanol. But longer term, we can have an impact through these other sources, and ConocoPhillips is advancing those. Senator Feingold. Mr. Hofmeister, I would like to give you a chance to respond to this question, since, as I mentioned in my opening remarks, you seem to be saying the right things. Is Shell backing up what you said about being part of the energy revolution and investing in alternative energy? Mr. Hofmeister. Senator, I would like to call attention to a document that I made part of my written record, which is a Shell report on all of the areas on which we are working, which includes hydrocarbon, includes new technology in hydrocarbons, for example, coal gassification, liquefied natural gas, also includes biofuel, wind, solar, and hydrogen fuel cell work that we are doing with automotive makers. In addition to that, we do put significant emphasis on efficiency. Without better use of the molecule of hydrocarbon, I think we cannot in any way keep up with the future demand for product, and there is so much opportunity for efficiency that we ought to consider that as a whole new form--in a sense, new form of energy. Senator Feingold. OK. And, Mr. Simon, could you just answer that question also, please? Mr. Simon. I appreciate, Senator, the opportunity to clarify our position on alternative fuels. I think we have been painted with a brush that we are against alternatives, and that is not the case at all. Our scientists have looked at every form of alternative fuels and current technology, current generation, and frankly, we have not found any in terms of producing an appreciable amount of energy when you look at the energy balance or that have mitigated greenhouse gas emissions in any appreciable way. So what we are doing is to try to look at the next- generation new technologies which can produce energy with scale and also dramatically reduce greenhouse gas emissions. And we are working with a number of research institutions in that area. Senator Feingold. Thank you very much, Mr. Chairman. Senator Whitehouse. Senator Schumer? Senator Schumer. Thank you, Mr. Chairman. Just to followup, Mr. Simon, give me a number. How much do you invest in research and development of alternative fuels? Mr. Simon. Senator, it would be hard for me to answer that because I do not know the answer. We have-- Senator Schumer. OK. When your Chairman was here, he told us $15 million. Has it changed appreciably from that? Mr. Simon. I think it is higher than that, but we have-- Senator Schumer. How much? Mr. Simon.--a number of efforts underway, and I haven't added them all-- Senator Schumer. Sir, is it over $100 million? Mr. Simon. It is over $100 million, but I don't know how-- Senator Schumer. It is over $200 million? Mr. Simon. I do not know how high it is. Senator Schumer. OK. Could you get to me an answer in writing exactly how much you invest in alternative fuels and in which ones. Mr. Simon. I could, but-- Senator Schumer. Thank you. Mr. Simon.--the other comment I would make, Senator, is that we don't measure progress based on how much we spend. We measure it based on results. Senator Schumer. Right. That is what your annual reports always say, what your progress is, not on how much money you make or what your price per shareholder is. Please. How much you spend will be a pretty good indication of how much you believe in alternative fuels. Your Chairman told us you do not believe in alternative fuels and invested about $15 million in some institute. I would like to know if that has dramatically changed. That will clarify your answer. Mr. Simon. I would be happy to provide that, Senator. Senator Schumer. Thank you. Next, also for you, Mr. Simon, new data has been released this week saying that Iraq could exceed Saudi Arabia as the largest oil producer in the world. The Iraqi Government does not have a national oil law or a revenue-sharing agreement for either its competing factions or how much the United States gets back. I know you would like to be players in Iraqi oil, but I would like to ask you, Mr. Simon, do you think it would be appropriate for your company to sign a contract with Iraq before an Iraqi national oil law or revenue-sharing agreement is in place? And do you think it is appropriate for you to sign one before that? Mr. Simon. We are looking at a technical agreement right now, and we will take into account all factors, and-- Senator Schumer. So you do think it is appropriate? I would ask you right now, would you say here that Exxon will not sign such an agreement until there is a revenue-sharing agreement or national oil law in place? Would you commit to that? Mr. Simon. I am not going to make any commitment at this time. Senator Schumer. Don't you think such a contract could exacerbate the strife in Iraq that our troops are struggling to quell every day? Mr. Simon. I think we ought to be looking at every form around the world of additional supplies, and that is one of them that we as a country should be looking at. Senator Schumer. OK. Well, let me tell you, I think it is outrageous for Exxon Mobil to go ahead and again pursue its own policies that will exacerbate the very problems that our soldiers, General Petraeus, and others are trying to undo. The next question is for, I guess--let me ask any of you. If Saudi Arabia increased its production tomorrow of a million barrels of oil a day--let's just assume they do. We know they can because it is lower by about several hundred thousand barrels a day than it was in 2005, and they have added production. How much would the price of oil go down in the next few months? Just if you can give me an approximate guess. Does anyone want to hazard a guess? Does anyone think it would not go down? Raise your hand if you think it would not go down. OK. Do you want to say something on this, Mr. Robertson? Mr. Robertson. I think it would go down. I think the real-- what really is important to the market is what is going to happen in the future. Maybe they could produce a million barrels a day for some-- Senator Schumer. Well, what if they committed for 2 years? Mr. Robertson. I think it would make a difference, and I think we all--any of us that showed that we were going to increase production by some significant amount over a significant period of time would make a difference. Senator Schumer. And the estimates I have seen, not done by me but by experts, say it could go down--if they did a million barrels of oil a day, increased from today, it would go down about--in transition to gasoline, it would be about 50 cents a gallon, maybe 62. Does anyone think that is out of line, seriously out of line? Mr. Simon. I would have no way of estimating that, Senator. Senator Schumer. Right. How about--OK. Would it go down significantly? Does anyone disagree that it would go down significantly, a million barrels a day? Mr. Simon. One point I would like to make, Senator, is when you look at the market today, it is well supplied. And so if you take a well-supplied market and then you throw another million barrels a day in it, yes, it will go down. Senator Schumer. Right. And if you all are preaching to us that you need new exploration so you can find more oil, which is something I do not always disagree with--I support it. I was in the handful of Democrats to support more drilling in the east gulf so we could do just that--then, clearly, a million barrels a day production now would have a significant effect because you cannot--it is a contradiction, isn't it, that you finding new supplies and producing them will keep the price in line, but Saudis just pumping a million barrels wouldn't keep the price in line, right? Mr. Robertson, you are shaking your head. Mr. Robertson. No. I am nodding my head. Senator Schumer. Shaking your head yes. Mr. Robertson. I think that the really critical things here are signals to the world that there is a determination to increase production for the foreseeable future. Senator Schumer. Correct. Mr. Robertson. We could do that in our country, I believe. It wouldn't-- Senator Schumer. The Saudis could do it tomorrow, couldn't they? Mr. Robertson. Well, the Saudis are making significant investments to increase capacity. They could, by-- Senator Schumer. No, but right now-- Mr. Robertson. Anybody in the world that made a--you are talking about short term. Anybody in the world that made a commitment for the long term to increase production-- Senator Schumer. Right. Mr. Robertson.--by a significant amount would have an effect on our-- Senator Schumer. But here, Senator Kohl was asking you about OPEC and how OPEC restrains supply and that keeps the price high, and you all go along with OPEC. Now, the bottom line is if there weren't an OPEC and if Saudi--or within OPEC Saudi decided to do what they could do tomorrow, from what I understand they have 2 million barrels more of capacity, the price would go down significantly. And I think there is agreement from all of you about that--not that you can force them to do it. No one is saying that. I see that everyone is nodding. Anyone disagree with that? Mr. Simon. Again, when you look at the market today, though, Senator, it is well supplied. Senator Schumer. I did not ask you that. Mr. Simon. OK. Senator Schumer. I asked you--"well supplied'' is a very flexible definition. OK? I asked you--I want to now then ask you, yes or no: If Saudi Arabia tomorrow said for the rest of their--for the next 3 years they are increasing supply by a million barrels a day and it will not stop, would the price go down significantly? Mr. Simon. It would go down today because then you would-- Senator Schumer. Yes. Mr. Simon.--be flooding the market with an extra million barrels a day to a well-supplied market. Senator Schumer. OK. Next, Burma. I would like to ask you, Mr. Robertson, about Burma, where we now have a brutal dictatorship. There are people who feel that you should leave Burma. There are people who feel you should not be dealing with such a harsh dictatorship. So my question is: What is Chevron's future plans in Burma in the wake of the massive popular opposition to the military junta and its initial refusal to accept disaster aid? Have you weighed in with the Burmese Government about accepting disaster aid? And, more generally, does your presence in Burma not bolster the military junta? Mr. Robertson. Well, thank you. We have, just in the last few days, committed $2 million to aid in Burma. The agencies that we are working with, some of them have matched it, so it is $3 million. I have some photographs in my file here of aid being delivered to people in Burma, so I know it is happening. Our people on the ground are seeing it. So we are delivering aid. Even though a lot of others cannot, we are. So that is an advantage, I think-- Senator Schumer. Do you think they could use a lot more than $2 million? Mr. Robertson. Of course, they could. But I am saying what Chevron can do we are doing, and we are doing a significant amount, and that goes a long way in Burma. Our plan is to stay in Burma. I have been there and have seen the people that live in the area where we operate along our pipeline system. I know for a fact that they are better off by us being there than by anybody else being there. So I know we are doing the right thing in Burma. Senator Schumer. Are you-- Mr. Robertson. The Burmese Government is benefiting from the fact that natural gas is being produced in Burma, but the fact is that if we were there or anybody else was there, that gas would still be being produced. It has been developed, and so the only thing we can do by leaving is enhancing the value to the Burmese Government. They would get our interest. If we sell our interest, we would pay a large capital gains tax to them. Any way of extracting us would be a benefit, a windfall benefit to the Burmese Government. And I know the people there are better by us being there. Senator Schumer. Are you trying to pressure the military government to let in more aid right now in addition to the $2 million you are giving? Mr. Robertson. No. We-- Senator Schumer. Do you think that would be helpful? Mr. Robertson. I don't think we could have much effect on that. I can tell you that I am working with the United Nations Ambassador, who is Mr. Gambari, Ambassador Gambari, who is working with the Burmese. We are working with the EU Ambassador that is working with the Burmese. So we are doing everything that we think we can, but I can assure you, I don't think that Chevron as a non-operating partner in an operation in Burma could have much personal effect on the Burmese Government. Senator Schumer. Would I have time for one more question, Mr. Chairman? Senator Whitehouse. Take your time, Senator. Senator Schumer. Thank you, Mr. Chairman. This relates to refinery capacity. Again, we all talked about the difficulty of building new refineries, and that is sort of obvious that if you--you know, that you need to build more new refineries if you are going to increase production someplace or other in the world. But right now, refinery capacity is at 81 percent compared to 90 percent last year. Eighty-one percent would strike most people at a time when the price of gasoline and other petroleum products is so high as not very good and not very adequate. This is not about building new refineries. This is the same existing refineries and the capacity they had. Could any of you comment on why refinery, present--I do not want a discussion of building new refineries. I am talking about present refinery capacity. Why is it so much lower, 10 percent lower than it was last year, even though the price is through the roof? Mr. Malone? Mr. Malone. I can't speak to the entire industry. I can speak to my company, which is our utilization rate is higher this year than it was last year. Senator Schumer. What is it? Mr. Malone. We are up--probably the average across all of them is in the area of 88, 89 percent of available capacity. Senator Schumer. OK. Mr. Malone. Remember, we have our huge Texas City refinery still going through rebuild so that knocks our numbers down. Senator Schumer. Right. Mr. Hofmeister? Mr. Hofmeister. Shell year to date has been running about 92-percent refining capacity. We had two shutdowns which were unexpected in two refineries. It would have been higher were it not for those two unplanned shutdowns. Senator Schumer. Is the amount of money you are putting in to keep maintaining the refineries higher or lower than it was last year? Mr. Hofmeister. It is on average less for existing refineries, but more overall because of a major refinery expansion in Port Arthur, Texas, which will more than double the size of that refinery. Senator Schumer. Any of your refineries' capacity lower than, say, 85 percent? Mr. Lowe is shaking his head no. Mr. Lowe. ConocoPhillips has consistently outperformed the industry in utilization rates over the last 4 years. We had some operating upsets in the first quarter, but still ran at a refinery utilization rate of about 90 percent. Senator Schumer. Mr. Robertson? Mr. Robertson. I would just make a comment. The industry has continued to expand its refinery capacity, so even though we have not built any new refineries, we continue to expand it, and refining throughputs this year in the first 19 weeks of this year are at all-time highs. Senator Schumer. But why is the-- Mr. Robertson. Gasoline-- Senator Schumer.--capacity so low, 81 percent? Mr. Robertson. Because the market, you know, basically the market has not needed it. I mean, inventories are high. Look, we are producing gasoline at an all-time-high capacity, and the market--the demand has shrunk by 2 percent. So, I mean, people are seeing higher prices, using less; we are producing more gasoline than-- Senator Schumer. Well, if demand has shrunk, isn't-- Mr. Robertson. Demand has shrunk. Senator Schumer. Isn't it logical for the price to go down as opposed to the supply to decrease? Mr. Robertson. The fundamental, though, the real thing that is happening here is the cost of oil on the world market. That is what is being paid. I mean, over time, reduced demand will drop prices, and that is what has happened in the past. But it will take a lot of time, and it will take more than just the United States gasoline market. Senator Schumer. I would just say--and I have gone way over my time, and I thank the Chairman's indulgence, and Senator Cardin has walked in. But I would say, to me at least, 81 percent refinery capacity in the industry as a whole--this is not new refineries but existing--asks a whole lot of questions at a time when the price is high. And one wonders if the pattern of oil companies here, big ones and small ones, is to decrease supply and increase price rather than increase demand and decrease price. And it may well be your shareholders do better with the first than the latter, but the American consumer does better with the second. Thank you, Mr. Chairman. Senator Whitehouse. Senator Cardin? Senator Cardin. Well, thank you, Mr. Chairman. I thank Senator Whitehouse for his courtesy in allowing me to question at this time. Let me just preface my comments by reflecting that I have followed Senator Sarbanes. I have his seat in the U.S. Senate, and I am sure all of you know Senator Sarbanes, but you also know Sarbanes-Oxley. And Sarbanes-Oxley I think was a moment in the history of America where we said, you know, there is a responsibility of corporate America that it does not go just to the private sector. There is a public responsibility. We have a national problem. We are dependent upon foreign oil, and that dependency upon foreign oil has caused us security problems in regards to our international concerns. It has caused us environmental problems with global climate change. And we are now seeing how it is causing us economic problems. The people in Maryland and around this Nation are hurting today because of the cost of gasoline at the pump. It is affecting our lives in a very dramatic way. I have small businesses that will probably go out of business because they cannot afford the cost of gasoline. So this is having a dramatic impact, and I would like to see a greater urgency from our leaders in our energy field than I have seen. Mr. Robertson, let me just--I think you were the one who said you are investing $6 billion in Kazakhstan, I believe. Pardon? Mr. Robertson. I said we had one project that-- Senator Cardin. One project, $6 billion in Kazakhstan. I guess my disappointment is--were you here seeking changes in law in the United States so that $6 billion could have been invested in America-- Mr. Robertson. Absolutely. Senator Cardin. One moment. I haven't finished my question.--in alternative and renewable energy sources so that we could become energy independent and wean ourselves off of oil? Mr. Robertson. We have supported all-- Senator Cardin. I know you have supported--but have you been here to really fight for the types of policies--the more you invest in foreign oil, you have got to get your return. It creates a dilemma for you, for your shareholders. You have got to get that $6 billion back. Now, if that money would have been invested in America, we would be more secure today. Mr. Robertson. Well, maybe I should have talked about some of the investments we are making in America, because that was one example that I used of a project, the typical project around the world. We are just finishing up a $4.7 billion project in the U.S. Gulf of Mexico, in the Deepwater, to produce 125,000 barrels a day for the United States of America, which is-- Senator Cardin. I am more interested in alternative fuels. Mr. Robertson. OK. I understand. We are making a lot of investment in the United States. Senator Cardin. Do we need-- Mr. Robertson. Over the next couple of years, we are going to invest $2.5 billion in renewable fuels and energy efficiency services for outsiders. So $2.5 billion. We are spending--with the largest geothermal energy company in the world, we are investing in that. We are investing in cellulose-based ethanol. We have got a joint venture-- Senator Cardin. Do you believe we need stronger economic incentives in this country so that we can have an energy policy that is in the best interest of our country? Mr. Robertson. I don't think that we need new incentives. The prices that exist today are pulling huge amounts of money, including Chevron money, into alternative fuels. I think $150 billion last year was being spent on renewable energy. So the problem is-- Senator Cardin. So based upon our-- Mr. Robertson.--a time problem. Senator Cardin. OK. Based upon our current incentives, then, you believe that we will solve our energy problem and become energy independent? Mr. Robertson. I believe that there is a lot we can do and are doing in this country, not to mention--you know, we have talked about shale and-- Senator Cardin. And how many years will it take us to be energy independent under our current policies where we do not have to import foreign energy? Mr. Robertson. I don't think that we will be energy independent. Senator Cardin. And you don't think that is a worthy goal? Mr. Robertson. I think reducing our dependence on the rest of the world is a hugely worthy goal, yes. Senator Cardin. But you are satisfied with current policies? Mr. Robertson. No, I am not satisfied with current policies. I think there are a lot of policies that need to be made to enhance the ability to produce natural gas in this country, which is a clean fuel. I think there are a lot of policies that need to help us invest more in the oil business in this country. I think there are a lot of policies that need to be done to invest in the coal business in this country, and I think in renewable. Senator Cardin. Well, I-- Mr. Robertson. We need the removal of barriers to investment, not incentives to invest. Senator Cardin. I hear your verbal support for these types of programs. I don't see the energy by the leadership that is at the table today in helping us develop an energy policy for our country that is in the best interest of our national security, environment, and economy, and may very well adjust the way that your company does business in the future and may very well affect your company's future. But I do not see that leadership as Americans do what is right for our country. That is my take on it, and I would be more than happy to have your response. But let me ask a question. We have S. 2991 and it deals with some of the oil speculation, oil market speculation. I know you are not experts in that field because that is not what you participate in. You have had a chance to review that legislation. Do you support sensible regulation on oil market speculation? Any one of you. Mr. Robertson. I think I have already mentioned it. As I know the bills that are around, we support completely transparency and we have not seen any bill that we object to. Mr. Malone. Senator, we support the market provisions in that bill, and anything that, again, allows for transparency and liquidity, it is so important that we bring in 60 percent of oil and gas, we need markets that are properly regulated and allow for those variables. Senator Cardin. Do you believe that there is price gouging in our markets in the United States, either at the retail level or elsewhere? Is that a problem? Mr. Robertson. I don't believe so. Mr. Hofmeister. I do not either. Senator Cardin. So you have checked every gas station in the country and-- Mr. Simon. No, I haven't, but the FTC has done many investigations in that area and have not found any inappropriate, non-competitive behavior as a result of those. Mr. Robertson. And we do monitor our stations, so if any of them get way out of line, then we do go and followup with them. So we do monitor. Senator Cardin. So the variation in cost that I see in Maryland at a particular brand station is just the normal fluctuations in a region in Maryland? Mr. Simon. You know, when you look at the 166,000 individual retail outlets, in our case about a half a percent of those are those that we own, operate, and, therefore, set the price in. Most of those are set by independent men and women business people, and they look at their sphere of competition, and that is what they set their prices based upon. And, yes, it can differ from one zone to the next, depending upon competition. Senator Cardin. I understand that, so it can vary from one neighborhood to another, as I have seen in Maryland. I would just make an observation. It would be good to have some independent verification here. I appreciate the fact that you are doing that, but I can tell you that what is happening in pricing of gasoline is a crisis in this country. And we need more help from you in dealing with this. I don't think--and everybody sort of says, well, this is the market, it is going to work itself out. It has gone beyond that. I appreciate your support for the oil market speculation issues. I would like to see a greater urgency for our national energy needs and not just the bottom line of your company. I think in a way that was the message of Senator Sarbanes when he held this seat, and he was effective in bringing about a major change. Unfortunately, it happened after many people were injured. We have got to get a sensible policy for this country that deals with the current pricing of gasoline at the pump and deals with the long-term security of this country and environmental needs. Thank you, Mr. Chairman. Chairman Leahy. [Presiding.] Senator Whitehouse, thank you again for covering for me. I understand you had yielded time, so you have not asked questions yet. Senator Whitehouse. That is correct. Chairman Leahy. The floor is yours. Senator Whitehouse. Thank you very much. Gentlemen, my question is: Where does this end? I went home this weekend in Rhode Island. Regular was $3.89, medium was $4.04, super was $4.12. A gentleman from Bristol, Rhode Island, who is in the home heating oil business, came in and said that just in the last few weeks his supply costs had gone up 60 cents. Since George Bush was sworn in as President, the cost increases amount to $2,000 per family in Rhode Island, and for a lot of families who are working in Rhode Island in an economy where wage growth has been completely stagnant, flat, and families are working harder than ever to keep up with increased costs, they don't have that $2,000 lying around. And they are looking at family budgets, and they are comparing what they can afford for gas to what they can afford for food to whether they are going to be able to buy new clothes for their kids when the go to school in September. They are making very, very hard choices, and I think they are entitled to look ahead and try to get a sense of what they have got coming. What is your view on where the price of gasoline is going to be a month from now, 6 months from now, a year from now? What are American families looking at? Mr. Simon. Senator, I would like to be able to answer that question, and answer that question for our customers as well. But the practical fact of the matter is there is no way that we can make that prediction. Seventy-five percent of the costs that people are paying at the pump today is a result of the raw materials that we must buy in order to make those products-- crude oil. There are so many factors that go into establishing that price: supply and demand, weakness of the dollar, geopolitical situation, the amount of speculation coming into the market, the amount of spare capacity. It is absolutely impossible to take all of those factors and make any kind of intelligent prediction. The market will make that determination, and I am not smart enough to do so. Senator Whitehouse. Anyone else? Mr. Robertson. Mr. Robertson. Well, can I respond to a comment that was made a couple of minutes ago about leadership? There have been some recommendations made to the U.S. Government from our industry and a lot broader range than just our industry through the National Petroleum Council, and that was a very extensive document that was just put together and made some very specific recommendations for Government action and for policy in the United States. The No. 1 recommendation was reduce the demand, get more efficient. That is something that we can do in America today. The only things we can do to change prices are to either reduce demand or increase supply, or hopefully both. One thing we can do in reducing demand, we have a company that sells energy efficiency services. They go to many, many installations around the country. They put in solar panels. They put in fuel cells. They put in insulation. Their average savings has been 30 percent over 800 projects. A 30- percent reduction in energy use in big Government installations and private installations around this country would have a dramatic impact, almost more than anything else we can do. The best thing we can do as leaders for the people that are suffering under these huge price increases is to get more efficient as a Nation, to provide leadership in terms of getting more efficient as a Nation, and to make it the right thing to do, because it can really make a difference. That is the best thing we can do in the short term. Senator Whitehouse. Well, let me ask you this: You are all international--you are here representing international oil companies whose purpose is to sell oil and gas and make money by doing so. We are an America that has complex energy needs, which include, as you have mentioned, Mr. Robertson, conservation, alternative fuels, solar, wind. There are also very significant national interests at stake in our continued use of oil and gas. There are very significant economic problems that we have all alluded. There are very significant environmental risks that could be the most damaging thing ever to happen to the human species. There are very significant national security risks. We are at war in Iraq right now in large part because of our dependence on foreign oil. So the cost of this can be extremely high, and it is not really the cost of your product. It is the cost to our country of not engaging in other ways. And my question to you is: Do you see yourselves as energy companies, or do you see yourselves as oil companies? And where the international interest seems very, very strongly to be steering us away from oil and gas, and that is your primary product, what assurances can you give us that as people who are making decisions for the American people, we can trust you to be making the right decisions for this country where they seem very apparently to be diverging from the corporate interests of the companies you represent? I see those two paths as on a very, very different trajectory, and I don't know how to bring them together. Mr. Hofmeister. If I could speak for my own company, we see ourselves, Senator, really as both. I don't want to hide and say we are not doing oil and gas, because we are doing oil and gas. But in respect of the economic value creation for this country, the jobs that we create, the contracting and procurement that we do which provides thousands of more jobs in the oil and gas sector, in the last 7 months, 8 months, just in the United States Shell has committed some $10 billion to economic value creation, which translates into jobs. That is all part of what our industry does. If you visit new hydrogen stations, for example, in California and New York and Washington, this is part of a whole new economy-- Senator Whitehouse. Mr. Hofmeister, I am not suggesting that you are incapable of doing things that are beneficial to the United States. I am suggesting that when we are making policy, it may be that there is a significant conflict of interest between your corporate interests and our national security, environmental, and economic interests as a country. And what are the ways that we can do to try to reconcile those two more? Mr. Hofmeister. Well, I think across the whole range of social issues that move from the climate and the environment, the stewardship that we demonstrate, our activism, our advocacy of cap-and trade--Shell is a member of the United States Climate Action Partnership, as are several other companies here--we are trying to promote means by which we can reduce carbon emissions in the atmosphere, taking very active stands. In my 3-year tenure as President of Shell Oil Company, I average some 30 visits to Capitol Hill a year to advocate for-- or to educate, I should say, on various policy initiatives ranging from hydrocarbons to hydrogen. And I think--that is, hydrocarbon-free hydrogen. And I think that, you know, personally I believe that America can improve its competitiveness by solving our energy issues in a comprehensive, holistic way. Senator Whitehouse. My time has expired, and I am now operating under the Chairman's indulgence, so let me just ask all of you one other request. It is not so much a question for the hearing as it is a request. We are facing a potentially existential threat to the human species. We can warm the planet as much as we please with global warming and the planet will be fine. The question is: Will the species be fine? And it is a very, very significant risk. It is one we absolutely have to do something about, in my view. Also in my view, the science has become extremely clear on this. I am married to a marine biologist. I understand a little bit of the science. I have read into this a great deal. There is an astonishing level of scientific agreement about this considering that science is by its nature an area of debate and exploration and experimentation. But the degree of agreement about it is phenomenal. And yet there remain fringe views, many of them endorsed, espoused, promulgated by organizations that either are now or have been in the past funded by your companies, with, in my view, the intention of misleading the people of the country about the actual state of the science. And I would ask that each of you, when you go back from this hearing, talk to the folks in your companies and take a look to see if this is still going on. Our regulatory proceedings in this country are riddled with phony science, with propped-up, phony organizations that are fronts for industrial interests. It is a real disservice to the people of this country that that is going on, and I think when people at your level support that kind of behavior, it is a terrible mistake. And I would ask you to review it and try to put an end to that practice, if it still exists in your companies. Thank you, Mr. Chairman. Mr. Robertson. It does not exist in our company. Senator Whitehouse. I am very glad to hear that. Thank you, Mr. Robertson. Mr. Simon. And I would take exception with your comments as well, Senator. Senator Whitehouse. You take exception with them? Mr. Simon. I do. Senator Whitehouse. In what sense? Mr. Simon. In other words, that we are supporting junk science and trying to make people think that this is not an issue. I think all of us recognize it is an issue. It is how we deal with it--and I think we are dealing with it, and we are doing so in a responsible fashion. Senator Whitehouse. Well, allow me to disagree, and I am happy to continue the discussion. Thank you. Chairman Leahy. Thank you. Senator Sessions, you wanted a couple minutes more for a followup? Senator Sessions. I did. This is a free country, and if you want to invest your money in expressing a view on science, you have every right to do so. And I think you have an individual responsibility to make sure it is done with integrity, because you are major corporations and you have great responsibilities. I understand fundamentally that a responsible large corporation exists to make a profit and that--but you have a responsibility also to do so in a way that is consistent with high ethical standards. One thing I would want to disagree with you about is a sense that nothing can be done about the OPEC situation. As I understand it, it costs less than $10 a barrel to produce a barrel of oil in Saudi Arabia, and probably in some of these other countries. And so it is now selling for $130 on the world market. You are not allowed, may I ask, you are not allowed to go in and produce more of that oil any time you want to. Is that correct, Mr. Hofmeister? Mr. Hofmeister. I think Saudi Aramco is the-- Senator Sessions. They control it, they say how much can go on the world market, and by producing below their capacity, they are creating shortages that are allowing companies, you and others and other national oil companies, to maximize profits. We need policies here in our country to end that. We need to fight back, and I believe the President has certain leverage--I don't know what that is--but I believe a sophisticated, sustained effort. Now Senator Kohl, I really liked the intent behind his effort to confront OPEC and create an antitrust lawsuit. However, I think it is true that historically, and legally, we have not been able to say to a nation, a sovereign nation, they have got to sell an asset they have on the world market. That is apparently a component of sovereignty, to be able to decide how much of your resources you want to put on the world market. But there are other pressures that we need to bring forth, and I hope that you guys will see that it will be helpful to us in the future to get away from this power that is being established there. I think most of you have drilled offshore. I was very pleased that in the aftermath of the devastating Hurricane Katrina, where many rigs actually were damaged, and severely, there was almost no spills of any oil. I think if we can sustain that kind of hurricane, as massive as it is, I think that gives us confidence that the technology that you are using is good. I would point out that we expanded some areas in the gulf for drilling, 100 miles or more offshore, but Florida blocked even further offshore than that, to my great disappointment. They like the situation, I think, where a pipeline from Mobile, Alabama, to Tampa, Florida, takes our natural gas that we produce so they can burn it and have their aid conditioning and drink their mint juleps while the sun sets. You know, that is happy to them. But nobody can drill within 200 miles of their shore. We have got to get beyond that, and I would just note, as a former Department of Justice employee, States do not own the offshore outside their own waters; 50, 100 miles is controlled by the Federal Government. So I guess I want to ask you, do you believe--let's say in the Gulf of Mexico the Destin Dome, which is still not open, some of those areas contain very large amounts of oil and gas and it can be produced safely? Mr. Simon. Senator, when you look at the estimates, it has been estimated that there are 30 billion barrels of oil that have been placed off limits by the Federal Government, 125 trillion cubic feet of natural gas. To put that into perspective, that is enough oil to back out imports for a period of over 8 years, enough natural gas to heat 15 million U.S. homes for over 100 years. This is the only Government in the world that denies its citizens access to known, recoverable oil and gas. We can develop that in an environmentally responsible fashion, as we are doing everywhere else in the world in environments much more severe and much more challenging than we would confront here in this country. Senator Sessions. The North Sea is a much tougher environment, would you say, than the-- Mr. Simon. The North Sea, Sakhalin Island off Russia. Senator Sessions. But we don't mind buying it from them, but we won't buy it from our own Americans, and the money that comes to the U.S. Government, billions of dollars from that oil produced off our shores in the Gulf of Mexico and, for example, 50 percent of that goes to the general treasury, 12.5 percent goes to fully fund the Land and Water Conservation Fund, a key conservation program; 37 percent goes to the States who participate in that--my State has received millions of dollars and will receive hundreds of millions of dollars--instead of having that money go to Venezuela, Saudi Arabia, and places like that. It is just unthinkable to me that we are not examining this more carefully. Is it possible, Mr. Simon, that there could be even larger reserves than you have suggested just in the gulf? Mr. Simon. There have been a number of estimates which would be higher. We really need to get out there and do some more work to really understand what is there, and that I think we are all a strong proponent of. Senator Sessions. Well, and, of course, Alaska could be itself about 10 percent--reduce by 10 percent our imported oil if we had that online, and we know we can do that, and I am sorry it has not happened. Thank you, Mr. Chairman. This is an important hearing. The American people care about this. These companies, I think it is healthy for you to have to answer to the American people. Chairman Leahy. Thank you. I want to thank the witnesses for being here today, and some of you, to your credit, were more forthcoming than others in answering the questions from both sides of the aisle. Of course, the bottom line is very simple: People we represent are hurting. Your companies and the foreign oil interests, are profiting. And we need to get this somehow into balance. I think the price of oil has to reflect market fundamentals. If oil returns to $35 to $65 a barrel, as some of you have said, then we could bring gas prices back to competitive levels. We look at the past profits of oil companies and what they are making on previously discovered oil; oil that was very profitable for them at $55 to $65 a barrel is obviously making them windfall profits at $130 a barrel. And I think for any of the oil companies to come here, and, as your ads suggest and others in some of the testimony today, to play the victim is extraordinary. The American people are the victims. Billions of dollars are paid by Americans to oil companies every year to put gasoline in their cars, to heat their homes, to run their businesses. And skyrocketing oil prices hurt these consumers, but it is also hurting our Nation's economy and, thus, its security. And despite your opposition, the administration should support the NOPEC bill, as the majority of Republicans and Democrats in the Congress have. When OPEC countries commercially set the limit of output of oil, this Government, on behalf of all Americans, ought to be able to go after them as it could any other cartel. The President vetoed the bill to close the Enron loophole. I will ask CFTC to come in here. I hope that the veto will be overridden. The $36 billion that your companies reported in the first 3 months of this year were drawn directly from the exorbitant amounts of money Americans are paying at the pump. It is wrong. As we heard from Senators here today, it just doesn't seem fair. I thank Senator Durbin. For some of you who were not able to remember how much you make, I am glad that Senator Durbin reminded some of you. But I thank you for your testimony. You have been here on Capitol Hill a lot. It is probably not the thing you enjoy the most. I thank you for being here. We stand in recess. [Whereupon, at 1 p.m., the Committee was adjourned.] [Questions and answers and submissions for the record follow.] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]