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tv   Today in Washington  CSPAN  February 4, 2011 2:00am-6:00am EST

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act of prayer in itself is a source of strength. to reminder that our time on earth is not just about us. that when we open ourselves to the possibility that god might have a larger purpose for our lives there's a chance that somehow, in ways we may never fully know the personal god will use as well. may the lord bless you and keep you and may he blessed this country that we love.
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fine dispien that the quorum call be vitiated. the presiding officer: without objection. mrs. feinstein: thank you very much, madam president.
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as a native californian, i come to the floor now to honor the 100th birthday of president ronald reagan. former first lady nancy reagan ask that i serve on the ronald reagan centennial commission and i was very honored to accept. today i join senator jim webb, also a member, and orrin hatch to continue president reagan's spirit of bipartisanship, and we have invited senators on both sides of the aisle to join us here on the floor. from seemy valley in california to our nation's capital, americans this month are honoring president ronald reagan. these centennial events are intended to reach all americans, including many born after president reagan left office. those to remember ronald reagan as governor or as president know how he impacted history. but there are some who may not
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realize that the society we live in today is, in part, due to the policies of president reagan. young adults today grow up without the fear of nuclear war in the back of their mind, and students of tomorrow will work to achieve president reagan's dream of a world without nuclear weapons. it can be said that every great president can be remembered in just one sentence. some sentences, "he freed the slaves." oh, "he made the louisiana purchase." yet 22 years after he left office and seven years after his death, the name "ronald wilson reagan" can still provoke a complex debate. there is no one phrase that can describe his legacy. some come to mind: "the great communicator" or "mr. gorbachev, tear down that wall." that's the one that does it for me.
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there's much debate over president reagan because we all think of him differently. and over time history sweetens our memories. but no matter what matter disagreements you may have had with him, you have to admire his style of politics. he was a conservative republican, but he understood that in order to get anything done, he had to work across the aisle, which he did. in his 1983 state of the union address, president reagan said -- and i quote -- "let us, in these next two years, men and women of both parties, every political shade, concentrate on the long-range bipartisan responsibilities of government, not the short-range or short-term temptations of partisan politics." end quote. also ronald reagan had commonsense convictions that helped his achievements. he was a true gentle person, a
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gentleman in american politics. you would not have seen him giving a speech like some do today calling his opponents names or giving out generalized insults. dignity and wit were his weapons of choice. also, president reagan served during times of divided government, when one party had the white house and the other controlled at least one chamber of congress, giving each side some governing responsibility to find solutions. it was a time when a financial and fiscal crisis brought the two parties together to compromise on tough choices about taxes and spending. in 1983, president reagan and speaker tip o'neill came together to compromise on social security based on proposals from a commission led by alan greenspan. and president reagan is credited with creating the conditions
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that led to the end of the cold war, providing the economy -- reviving the economy and returning a sense of optimism to our country. one of the things i most admired was his work to reduce the number of nuclear weapons in the world and his dream of a world one day free of these awful weapons. president reagan expressed this vision during his second inaugural address on january 21, 1985. he declared -- quote -- "we seek the total elimination one day of nuclear weapons from the face of the earth." end quote. it was a remarkable statement from a president who had deployed tactical nuclear missiles in europe to counterthe soviet union's fearsome ss-20 missile fleet. but president reagan understood the grave threat that nuclear
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weapons pose to humanity, and he boldly set himself to achieve their eventual elimination. my good friend, george shultz, secretary of state under president reagan, remembers that many at that time thought the president's initial negotiations to reduce strategic arms were not serious, even quite ridiculous. a classified report released recently showed that president reagan asked the joint chiefs of staff about the cost of an all-out soviet attack and plans for retaliation. he asked secretary shultz -- and i quote -- "what's so good about keeping the peace after wiping each other out?" end quote. mr. shultz believes if he were around today, president reagan would have been in favor of the new start treaty. at the famous reykjavik summit with soviet president mikhail
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gorbachev in october 1980, president reagan went far beyond gorbachev's proposal to slash strategic arms by 50%. he truly believed we should go to zero. the reykjavik talks may not have worked out, but the idea that we should create a world free of nuclear weapons still endures to this day. secretary shultz thinks president reagan would want to be remembered for his complete faith in freedom and his conviction that you have to be strong to defend that freedom. and that is certainly true. ronald reagan came into office with character and charisma, traits that take other elected officials years to develop. it was that charisma which impressed california's republicans and led to his nomination as governor of my
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great state. ronald reagan was elected governor of california in 1966 by nearly a million-vote margin. he was elected to a second term in 1970. he did not seem to mind that people underappreciated him at the time. and decades later, as volumes of his handwritten essays were released to the public, americans saw just what a thoughtful and visionary man he was. if we remember ronald reagan with one sentence, let us remember him as one who took big ideas and a crafting of words and a conviction of freedom to change the entire world. on the 100th anniversary of the birth of the great communicator, i hope we can embody his spirit of bipartisanship to keep our country strong and united today. thank you, madam chair. i yield the floor.
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mrs. hutchison: madam president? the presiding officer: the senator from texas. mrs. hutchison: madam president, i rise to speak also on the 100th anniversary of the birth of ronald reagan. i am so pleased to follow my colleague from california who has been under the weather for a little while, and we're very glad that she's back. madam president, i think all of us will have an opportunity to talk about one of the great presidents of the last century and to mark the 30 years since ronald reagan's inauguration. when ron weighing was elected president in 1980, america faced an anemic economy, high unemployment and a sense of malaise emanated from washington. president reagan never doubted america's potential was unlimited. during his second inaugural address, he said america can
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outproduce, outcompete and outsell anybody anywhere in the world. the reagan revolution was fueled by the understanding that given the opportunity, americans would dream, create, and build. he also knew that the road to greatness was through an individual's effort, not through expanded government. so president reagan said about reinvigorating the stagnant economy. he cut government spending. he reduced government regulation. he ended the practice of wage and price controls. he passed tax cuts for all americans. he famously noted that government's first duty is to protect the people, not run their lives. the american economy responded with sustained growth, ao new era of economic prosperity had been ushered in. reagan's vision of the greater good also extended beyond our shores.
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he was a fierce advocate for freedom. with our cold war adversary, the soviet union, imposing the type grip of communism on much of the world, president reagan launched a resurgence of american military might through the strategic defense initiative. as he said, "of the four wars in my lifetime, none came about because the united states was too strong." it was his firm resolve to negotiate from a position of strength that led to successful arms talks with the soviets and ultimately to the downfall of the soviet empire. during his first inaugural address, he clearly stated where america stood. as for the enemies of freedom, he said, those who are potential adversaries they will be reminded that these is the highest aspiration of the american people. we will negotiate for it, sacrifice for it, we will not
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surrender for it now or ever. president reagan understood that all people, regardless of where they lived, long for liberty and freedom. he believed that america was a beacon of hope to all the oppressed people of the world, a shining city on the hill as he described it. as jeffrey bell wrote in "the weekly standard," ronald reagan believed that people all over the world craved self government just as much as americans did. even today he is still being proven right." he said, "concentrated power has always been the enemy of liberty. these words still echo in today's tumultuous times. we witnessed the poignant photographs of women in iraq voting and joyously holding up their purple-stained thumbs. we have seen marches in egypt of people who yearn to be able to
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vote for the first time in a real election in 30 years. he also understood the importance of information in promoting freedom calling it the oxygen of the age. it seeps through the walls, he said. it's topped by barbed wire. it wafts across the electrified border. his words are as true today as when he uttered them. freedom and individual liberty are america's greatest assets. they are the core of our national identity. they are the foundation of our economic prosperity. and these precious assess have been protected by the patriots from every generation from the beginning of america's history to today. ronald reagan understood and appreciated the duty we all have to preserve these american ideals. as he said, democracy is worth dying for because it is the most
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deeply honorable form of government devised by man. when president reagan died in 2004, there was a spontaneous worldwide outpouring of grief and tributes that caught some seasoned political pundits by surprise. throughout his political career, ronald reagan was underestimated by establishment political intellectuals of the day. he was dismissed sometimes by the media. but when he spoke, the american people listened, they understood, and they agreed with this down-to-earth but very profound man. and so did the world. we all remember him fondly and
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>> why don't we go ahead and get started. senator murkowski is on her way but stuck in traffic and ask that we proceed without her. let me first say that -- welcome to the committee. we have eight new members of the committee in the s. con. res. committed one or two of them have come to the earlier hearings we had, but i hope several will come to this hearing and let me just mention who they are it welcome them all. senator franken, senator coon, senator mansion, senator portman, senator lee, welcome to the committee. senator coats, interpol and
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senator hoben. let me go through a short statement and then we will begin our testimony. this is an oversight hearing on the energy and oil market outlook for the 111th -- 112, chris. as you know, we usually try to start each new congress by having a sort of scene setting hearing of this kind which will look at the broad energy trends that we expect to influence our thoughts on energy policy also more specifically on the agenda items that come before the committee during this two-year congress. today we will start the discussion by hearing from dr. richard newell, the administrator of the department of energy's information -- energy information administration. he's going to give us highlights
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eia's short- and longer-term forecast and we appreciate him being here. he just returned from a trip to the middle east, to stand, and perhaps he can give some insight from that trip to the committee is a heavy consumer eia information and product, so we always appreciate having eia share it's the dhaka and its analysis with us. we also will hear from ambassador jones who's the deputy director of the international energy agency in paris. we look forward to discussing iea total fallujah of supply and demand through 2025 to be i also note that iea was founded as a forum for responding to eia supply disruptions and a still
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has an important role to play in that capacity. executive director tonaka found the situation in the middle east required him to me that the headquarters in paris, but we were in good hands with investor jones who's impressive resume includes the u.s. ambassador in many of the countries in the middle east, and given the current situation we are seeing internationally we are especially grateful to him for giving the international energy agency perspective. we are also pleased for wooful to have two other witnesses on energy, both of whom are for earlier to the committee. they testified in 2008 as we attempted to understand that your's historic price spike.
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mr. diwan is a partner and head of the advisory pfc energy in washington, and mr. burkhard is the managing director of cambridge energy research associates in cambridge massachusetts, so we very much appreciate you being here. since the hearing was announced early last makai think it is safe to say members and witnesses alike but follow the developments in the middle east with much interest. fortunately it appears unlikely that the political turmoil will result in a major disruptions or transportation at least at this time. that's my impression. however, i know about what ever, whenever the geopolitical events of this kind ochre it reminds us of orval portability to the disruptions and it is a spur to
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consider policies that help to reduce that four of devotee -- vulnerability. that's why i am glad to see that eia is forecasting a decline in u.s. consumption of imported oil between now and 235. until recently we have seen the increasing oil all but impossible. we now see that 2005 might well have been the high water mark in u.s. oil import dependence increased vehicle efficiency and transitions to increase reliance on the biofuel together with u.s. oil production all of those are creating national and economic security benefits. i'm optimistic further technology and the enzus, both of the vehicles and fuel could
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make us even less reminded of the imported oil from the current forecast predicts. i hope the congress will have the good sense to remain on this path towards increased energy independence. with that let me refer to senator murkowski for any comments she would like to make before we hear from the witnesses. >> good morning mr. chairman. i was eager to hold this hearing even before the unrest we are seeing in egypt and how this is grown into the international crisis we are now witnessing tebeau we see this a lot of this committee that today's hearing is particularly timely. while we see no interruption in the supply oil the unrest in north africa is affecting us and that should of understand the consequences associated with the current energy policy. carol harp. i think there's agreement the nation is too dependent on foreign oil and i've always
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thought it unfortunate that agreement ends there. i've never been one to divide the critical need for greater energy efficiency for greater investments and alternatives and a responsible path forward for clean energy future. this is a major undertaking and reflect the decisions of biofuels and other technologies we will need adequate accommodation in the coming decades and we will build on in this committee but i'm also interested in what we can achieve today not just to mauro despite the unfortunate state of our economy to oil prices on the near $100 per barrel and hardly anyone expects the correction back to 50 or $80. instead it's more likely to stand as current range or trim with imports for more than 50% of the supply. we are on the verge once again of seeing the huge cost of high prices hold for our economy. worst of all, this is a problem that is at least partially of
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our own making. over the years orleans have been locked up and promising opportunities put out of reach. the u.s. sit on huge unexplored oil reserves in the offshore and in my state of alaska and the rocky mountain west. we have shale formations that are now even acceptable for research and development and at times our energy policy goes beyond first reading -- frustrating it becomes impossible. the people expect their government to keep energy affordable right now it's failing on that front. we own the oil and the natural gas on the federal land. the government is not a landlord but a management outfit that we allow through representatives to contract for the development of these resources for our benefit. with the value of these resources is sustained such high levels and we were overly dependent on foreign sources for the supply this is not much tolerance for keeping them locked up.
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we easily have money. before onerous leal but instead choose to hemorrhage nearly a billion dollars a day of our economy. it's not that i expect the nation to supply 100% of its own oil. we will, and it's not that i expect increased domestic production to see all the deadly bringdown the price of oil back down to the preferred price range. it won't do that, but i do expect honesty in this discussion about what increased domestic production can do to protect against supply disruptions, increased security, restore our trade balance, generate government revenues and most of all create jobs to the defense of north africa should be a wake-up call to those who work on the energy policies. civil unrest is a fact of life in the nations that provide the imports. iran now holds a presidency and is perfectly comfortable with $100 oil. the supply disruption as opposed to the mere specter of one would likely spark the prices to
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levels that would stifle or economic recovery and result in genuine hardship for american working families. as the community street background quoted from the bipartisan policy center they said a buy quote, a $1.1 the increase in the beryl oil cheeks $12 million out of the u.s. economy. if tensions in the middle east caused oil prices to rise by $5 for even just three months, over $5 billion would leave the u.s. economy. obviously this is not a strategy for creating jobs. that is the end of the quote. that is a tremendous amount of money, and clearly we are talking about exponentially more when it comes to the dependence on foreign oil. i am leaving my call for a realistic and truly aggressive approach to the energy we face for the sake of the national security for our economy and the sake of the world's environment. america should produce as much of the oil it uses as possible. it's this guy went in concert
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with the result of revenue and the ease of manufacturing that will allow us to take control of our energy future. i am anxious to work with senators on both sides of this to achieve a more appropriate balance in our energy policy, a balance for most all forms of energy. i thank dewitt this is the the testimony that you have presented this morning and i look forward to the discussion that we will have. thank you, mr. chairman. >> thank you. whittled mr. que, dr. newell. if you could take eight bandits or so and give us the main points we need to understand and i would ask the scene of the other witnesses that we would include in the record your complete written statements of each case. dr. newell, go right ahead. >> thank you, mr. chairman and members of the committee i appreciate the opportunity to appear before you today. the energy information administration of the statistical analytical agency within the u.s. department of
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agency doesn't promote or take positions on policy issues and we of independence with respect to the information and analysis we provide. therefore we our views shouldn't be construed of those representing that part of the energy or other federal agencies to be focusing first on the short-term outlook for oil. the eia expects a continued tightening of the oil markets over the next two years. world oil consumption grows by an average of 1.5 million barrels per day in 2011 and in 2012 and our outlook, while supply growth from the non-opec countries averages less than .1 million barrels per day. consequently, we expect the market to rely on increased member production of crude oil and other liquids and a drawdown in the inventory to meet the world oil demand growth. with the tight world markets the eia expects the price of west texas intermediate crude oil the key u.s. benchmark to average
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about $93 per barrel in 2011 this year, $14 per barrel higher than last year's average. and we expect the price to rise to an average of $99 per merrill by the fourth quarter of 2012. however, the forecasts are subject to a great deal of uncertainty. for example, the market value of the futures and options contract which we tracked closely is telling us that there is about the one in three chance the price of oil could be above $110 per barrel of the end of this year to the eia expects the price of regular gasoline to average about $3.70 per gallon this year about 40 cents per gallon higher than last year and $3.21 per gallon in 2012. prices will be how your during the summer driving season and certain regions of the country particularly the west coast. there is also said it contains the prices could diverged substantially from the scholars
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due to uncertainty in the oil prices. i will now turn to longer-term and energy production from the eia outlook which we update while once each year. the reference case we release in december represents an energy future through 2035 over the next 25 years that assumes continuance of current market and technological trends, consumer behavior and current law and regulation. it doesn't include the effect of the potential policy that have not yet become wall. the reference case represents the baseline that is useful of jumping off points for assessing alternatives than the full weld look which we will release this spring it and put a large number of sensitivity cases but examine the impact of different technological market assumptions and policy assumptions. renewable growing source in the outlook albeit from a relatively small base. total use of renewable fuel growth 3% per year on average
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compared to overall consumption which grows only less than 1% per year on an annual average basis. growth in renewables results from the implementation of renewable fuel standards which is a federal standard and also state level mandates for renewable electricity generation turning to natural gas, the prospect for the domestic natural gas production have dramatically improved over the last several years with the emergence of the shale gas production. u.s. shale gas production has increased 15 fold over the last decade and proved reserves have tripled over the last few years. this has led the eia and other analysts to reassess the u.s. shale gas resource base and in a new reference case just released technically recoverable shale gas or nearly doubled the and we assumed in last year's outlook. as a result, u.s. natural gas production increases 25% of the next 25 years and the projections for natural gas
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prices are in turn significantly lower than we had previously assumed. lower projected natural gas prices underpinned the increased natural gas consumption which rises 17% of the next 25 years for nearly for use of industry and electric power. coal is another source for electricity generation and consumption grows gradually for what the reference production as existing plants are used more intensively and the few new plants already under construction are completed and entered into service. the increase by the ten gigawatts 101 gigawatts and 2009 to about 111 gigawatts but to 35. this is the this six gigawatts of the balance coming from existing plants. jeneane beck to oil, the prices continue to rise in the long-term outlook is the economy
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underpins the demand growth that is faster, more rapid and supply growth from the non-opec producers. but to 35 the reference case price is $125 per barrel in real terms in our outlook. recognizing the possibility of unpredictable changes of energy markets and policies with full outlooks issued this spring will then play wide range of oil price scenarios the verge significantly from the reference case assumption. total u.s. consumption of oil and other liquid fuels grows from about 90 million their loss per day and 2009 to 22 million per day in 2035 in the referenced case. this modest growth reflects the increase in fuel prices and the implementation of the finalized standards of statutory mandates that drive the fuel economy of the vehicles to 35 miles per gallon to 2020, by 2020.
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however pending standards proposed for heavy-duty vehicles and in light duty standards beyond 2017 are not reflected in the referenced case. virtually all of the increased liquids come from the biofuels driven by the federal renewable fuel standards along with increased natural gas liquids and natural gas production as we expect domestic oil production to increase to come from onshore enhanced oil and recovery products and shale oil. attila the this offshore production in this year's reference case is lower than last year's outlook due to the delays and though project, changes and expected sales it will work natural gas prices said to be coupled with oil production. as a result of the increased domestic production in the modest consumption growth, we expect u.s. dependence on imported fuel to continue to decline. after reaching the high of 60% in 2005, the imported petroleum
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share of total liquid fuel fell to 52% in 2 billion continues to decline in the projections to 42% by 2035. eia data projections are meant to assist policy makers in the deliberations in the private sector in making informed decisions. in addition to preparing baseline projections that i have reviewed this morning eia often has responded to requests from this committee and others for analysis on energy and economic impact of energy proposals. we look forward to providing the assistance you need in that regard. mr. chairman, members of the committee, this concludes my testimony and i look forward to any questions you might have. thank you. >> thank you very much. ambassador jones, why don't you go right ahead. >> will thank you, mr. chairman. for those who came in late -
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jones, director of the international energy agency six september of 2008. prior to joining the eia i served as a u.s. diplomat mostly in middle east producers. i was also ambassador to kazakhstan. i am going to speak to this one above the international energy trends today and over the next 25 years focusing on four key topics. first, recent international price increases in their impact. second, the iea role in the emergency response to the oil disruptions. recent developments in gas and coal markets and finally come a long term ends in the world energy. the price of oil has risen more than 25% since last september. this week in it is the price of $100 per barrel for the first time since 2008. some blame this increase on speculation recent data for the final quarter of 2010 suggested was a gold supply and demand with year over political unrest
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in the past few weeks. will these prices last? the iea is skeptical. the situation today differs from 2008 and several key respects. opec has three times as much capacity now as has already shown a willingness to use the production is up by to under 50,000 barrels or maybe more since september. the stocks are also higher. government stocks of unequal 60 days, refining capacities improve worldwide. however the each option crisis remains a wild card. if international prices to stay at today's levels for the rest of 2011 it would bring us close to the burden equal to 5% of world gnp. today's tensions in the middle east make inappropriate to review the role in preparing for in coordinating international response to the oil supply disruptions. to belong to the iea each member contributes to the vehicle must meet in stocks of at least 90 days of the net imports. these can be government stocks
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or commercial stocks of the government must have the legal authority to order the release and emergency. most countries have a mix of public and private stocks including the united states. stocks can either be in the form of cruel or refined products. in many countries have both. however the strategic petroleum reserve only holds crude oil and mr. scheck and i recall the iea welcome your bill in the previous congress that would have changed that. in a crisis, the iea clich the consults with the member countries analyzes the likely impact it recommends of course of action to the group such as the release of specific amounts of oil in the market. if the action is approved leave and work with the members to insure they all do their part. this includes regular reporting and consultation until there is a disruption that is over to the outreach to the important energy consumers outside of the iea is also vital to managing the supply disruption. given the increasing weight of a
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play in the world markets. in the crisis we would also consult with important producers including members of opec to retain nonmembers took part in the training exercise including china, india and russia. all the serious crises has been fortunately rare over the past 35 years, in my short tenure at the iea i have seen occasions when public reminders that iea could resolve the emergency stocks held column markets. besides oil, natural gas is now ordering intense interests. american companies success in producing gas from the shale deposits is encouraging other countries to look for unconventional gas. activities growing in australia, india and china but also in poland and elsewhere. now this is probably going to take several years to the individual results. however, it is already clear that the calls and they supply, the shifting patterns of trade
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having a major impact on the gas prices around the world. to come to the united states is now going to your ability to shut instead. in some markets prices have been as low as a quarter to a third of the oil on an energy basis. this is losing the competition for the pipeline gas giving it to consumers in europe. they are not very happy about that. more gas also needs more natural gas liquids which are becoming an important factor in the production at the margin. this is one reason why we see the market as being relatively well supplied for 2011. abundant gas should help keep the price is down. eventually more gas could even help the prices. but right now, the prices are climbing to to the strong demand china and india for power generation. for all these reasons, the iea is excited about gas and will lease a report of the golden age of gas here in washington in june. 2011 is also the time of uncertainty for the analysts. what course will the incipient
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economic revival take? how will the government respond to the market's? in most recent addition of the world energy outlook we looked out what would likely happen to the world energy current policies continue for the next 25 years. though results were disquieting. world energy demand for increased by about 50%. fossil fuels will continue to dominate although it would only increase by a quarter gas use would increase more than half and the coal use closer to 60%. growth in all forms of energy is expected to be driven by economic expansion in the emerging economies notable to china and india but also the middle east becomes an important consumption center. in fact, of which only recently passed america as the world's largest energy consumer is expected to double consumption by 2035. another feature of this scenario is growing market power for opec countries. the production is said to increase from 40% today to one-half over the next 25 years.
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moreover, were of the world's production will come from difficulty of the most pleases which means it will cost more in real terms. in short, the scenario points to a less secure more costly and more environmentally harmful method of energy than we have today. to avoid the energy future, we in 2010 contained proposals for an alternative path based on three elements. first, the strong push to improve energy efficiency, second, steps to d carbonize the production using renewals, nuclear power and carbon capture in storage and finally accelerating the development of advanced vehicle technology. in our view the steps would help improve lives all over the world by enhancing all countries of energy security insulated economies from the price volatility inherent in the markets and reduce the pollution of the land, water and air from the increased production transport and use of fossil fuel that would otherwise occur.
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i want to stress however that our scenario doesn't foresee a rapid decline in the fossil fuel alone end to it. rather we advocate shifting the supply to a more varied and more secure affordable and clean source. mr. chairman, i would like to close with a brief personal comment to be having worked in the least in the former soviet and seeing the security economic and environmental impact for the current world energy system at first hand on the convinced we can do better. thank you very much for your attention to. >> thank you very much for your testimony. mr. diwan, go right ahead. >> mr. chairman, members, i ungrateful for the opportunity to come before you today to discuss the energy and my company's view of the oil market. i hope that my comments today will help you to understand better the present situation in
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the oil markets and i can focus my remarks on four points in particular on the short stroketo medium term markets. first when we look at the fundamentals of supply and demand situation and we look at the oil market right now, the way that would describe them is they are a wealth supply. the demand is rising almost exclusively in the next two years with the deaths not very strong because we are counting on to areas which are china and the middle east and little of the rest of asia. the countries are not showing a strong demand growth. so in this on a balanced demand if you want it makes a global demand not particularly strong and i agree with dr. newell is around 1.5 in the next two years
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the liquid production, and i would like to include crude gas liquids and biofuels all liquid have shown strong growth in 2010. it is a record year in the question is it is a one-year wonder or telling us something more. i don't think that we will have such a strong role in 2011 and 2012. i think 2011 will actually show good numbers probably close to a million barrels per day before 1.5 per day. the question is why do we believe that and the beginning of an answer seems to be showing that actually hi oil prices are having an impact on supply for the first time in a long time. we have had high prices now for almost eight years. we still have to see it reacting both in a crude but also natural gas and liquid and biofuels to compete with crude oil. and i will speak more about
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that. finally worldwide stocks are at the respectable levels norms and did a certain area clearly oversupply. if you look at the oil market today you don't see visible pension and the oil markets like we do two or three years ago. the second point is that not only oil markets are well supplied but we have a very large cushion in terms of spare capacity, probably all of 5 million per day. in historical terms this is a high number and in the percentage of demand is also a high number. and we don't believe that that number will shrink dramatically in the next two years. maybe a million per day, maybe less, maybe more. so what we are describing as the supply the oil market isn't changing dramatically unless we have a factor crisis of moving supply. moreover, when we look at the numbers we are not factory iraq and the potential increase in
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the production and capacity in iraq in these numbers. so outside an exogenous crisis, the markets are well supplied. obviously we have a crisis right now, but we don't have any supply disruption and what we see in egypt shows the good and bad in the market which we have very quickly even if there is no supply. but the individual reaction is short-lived and not very dramatic and move by $5 already we are starting to lose that as the disruption has occurred in the guess you would believe there is a strong sense of any disruption. finally it probably the most difficult part is to understand the price formation. i've been looking to the oil prices now for almost 20 years and they remained a mystery.
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because when you look at the oil market in terms of supply-demand stocks, spare capacity etc., the prices are at 19. years ago the numbers would have been at $15.5 years ago would have been at $40.100 years ago at $100. so they don't predict the level, the more predict the price of half if you want. so how do we account for having the prices let's say between 70 to $90 this year with this type of fundamental committee and i think we need to give broader issues to understand that and the one i would like to talk to you one is very important it is the price marginal supply. what price to bring in new beryl of oil into the production. so how high the price has to go
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to push for new investments and more marginal area obviously you're going to invest first in the most field and the more marginal ones come as the prices rise. in being in canada and brazil requires probably not $70 to be break-even prices. oil prices have risen to bring more supply to markets and its $70 to $80, $90, i don't know. it is attracting new supply. the second important determinant of the prices for me is really the internal the of producing countries. it's with the gulf countries and particularly of the opec producer require internally to balance the budget. it's pretty much the only
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resources. when you look to the countries in general and you look at the balance of payment they all have budgets around 70, $80 so in the way they believe that is the way the markets are going to be there constraining the supply to stay close to these prices. the prices increase, those prices increase rather and push prices higher as the market pushed prices. the third element which is very important, and i came here a couple of years ago to discuss the oil. it's become an asset, like equity, fixed income, gold dollar or other commodities coming and the flow of money is quite important in determining how in the short term price moves in determining the price and that is quite important. we see some important changes the last few months i think and
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we can talk more about that in the q&a, and i feel that there is a lesser ability to increase very quickly, so just through the money flow. i will stop here and come back to more during the q&a. the queue for giving me the opportunity to come and talk about that with you. >> thank you for your testimony. mr. burkhard, go ahead. >> thank you, mr. chairman, members of the committee. i appreciate the opportunity to share some thoughts with you about energy and oil in particular, the oil prices and gasoline prices are as we all know very visible. millions of people see them every day when they filled up the pub and was just two and a half years ago we saw oil of 140, that was just two years ago when the oil prices were close to $30 a barrel. these swings have had a great impact on americans into the
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economy and the prices on the rise again and it's raising questions. yet again about the impact in the economy and why we are seeing these kind of prices in the turmoil in egypt raises the question about the geopolitical stability of the world oil supply. what's happening in egypt sprawled of -- part of a broad story that we would refer to as a global redesigned into the global redesign is what we describe as a period with change, the change as an informal mechanism that shape and manage international relations. there is no blueprint for the global design but it's clear the pace, the distribution of economic growth is affecting the global balance of economic political and military power all the time when the world faces a court of requesters about macroeconomics, management,
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security and energy. oil demand supply and price are key variables that will shape this designed and energy overall will play a significant element. the political people in egypt has promoted the anxiety in the oil markets. the market is always fearful when there is a threat to the biggest oil exporters in north africa and even bigger ones clustered in the persian gulf. egypt is not a major exporter it is a slight in porter, but about two to 4% of the global supply does the transit in egypt and what happens in egypt obviously has an impact beyond its borders in the least. the prices are considerably higher, but looking back what has happened over the last decade goes beyond concerns about the stability in the middle east. there's many reasons that
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explain what happened, but perhaps the most important accord of what happened this by starting increase in come gdp and other e merging markets. we all know this but looking at some of the statistics shows how stunning vistas. in the last decade gdp per capita in china is of 235%. 245%. and india is up 176%. that's from 2010. a stunning. rarely if ever have we seen living standards for so many rise so quickly and this is due to some extent to the breathtaking as bread and success of market based decision making and nearly every corner of the world. some of the growth in the past decade was based on misplaced exuberance, yet we are still grappling with that painful
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aftermath, but the broad trend of the rise in global prosperity or in tact just look how successful the economy of india and china have been since 2008. over the last decade the demand in the market has increased about 12.2 million barrels per day. that is roughly equivalent to the entire production the past. that's what's happened in the emerging markets at the core of this, the higher-income aspirations for how you're living standards. there are other factors as well that play into this. i will amplify a few of those. one of the supply side. they can take anywhere from a couple of years to more than a decade to bring on a new oilfield to bergenfield overnight because the price went up. also, how the industry costs. this was perhaps arguably the second most important trend in
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the markets over the past decade. from 2005 to 2008, according to the iowa chess of string capital cost index which aziz rebuffed consumer price index for the oil industry, and the short time period 05 to 08 the cost of developing field doubled on average around the world, so in other words accompany had to pay double in 2008 in order to develop the same barrel of oil compared to 2005. other factors as well has become the new gold. it is a financial asset in which the investors take positions based on their expectations of the value of the dollar, inflation and global oil demand supply. the role of the financial players has gotten a lot of interest over the years especially in 2008 and they can exchange with a given price
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trend but the primary reasons the price trends are rooted in the fundamental supply side demand industry cost and geopolitics so what does this mean for today and in the future? one is a reminder that the oil market is a reflection of the world that means prices go up and down in response to what is happening around the world, but perhaps more importantly what does this mean for the future? in 2010 there is about 1 billion members of what could call the global middle class. that is people who live in countries with per capita gdp of $10,000 or more. but 2030 pub cicilline 20 years that will have grown to about 2.5 to 3.5 million people in the global middle class. so over the next 20 years to .5
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to 3.5 billion people in countries with per-capita income of $10,000 or more. that means more oil. more oil demand. and there is a strong case for the oil prices to be above levels we have seen for most of the past 22, 30 years. this will reflect continued prosperity of the world. it will foster innovation and efficiency. does it mean prices are inevitably going to continue to rise? no. there are some factors that will offset that. one is the view that already is the peak demand europe and north america, australia. we do believe the demand peaked in 2005 petroleum based and it will not exceed that level again. fuel economy, biofuel mandates, demographics, the global health boom is turned into a global aging boom that tends to lower the consumption. but all of this figures into the
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changing balance of power in the global redesigned and there is no blueprint for how this is going to unfold, and there will be of course times of turmoil which you see today on folding in egypt. to conclude, energy prices and especially oil continue to reflect the global economy and the geopolitics. thank you. >> thank you very much, all of you come for your excellent testimony. let me start with a couple of questions and, dr. speed naim kuhl can you just elaborate a little bit more of your testimony about what's going to happen with the percentage of oil we've to import over the next 25 years as you see a? i do think that your testimony
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seems to be very different from what we have to start we heard in this committee which is imports have gone a bit will continue going up. you are saying now this is consistent with what mr. burkhard just said that the level of imports peaked in 2005, is that your position? maybe you could elaborate. >> yes, 2005 and 2006 was about the same at 60% of the overall liquid fuel consumption. it has come down since then and a good part of that has to do with the economic downturn and when you have a decline in domestic oil consumption that seems to come first serve that is one of the things that has led to that significant downward shift over the last several years but we see that the point to 42% by the end of the projection. if you actually look at the
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overall petroleum supply which includes both imports as well as domestic production that is about flat over the projection but there is an increase in overall consumption of liquid fuel that is being met by the natural gas plant liquids which are domestically produced when you produce natural gas you can get liquids out of that as well which ads to conventional oil it also biofuels which increases, and so there has been a number of different factors that have led to this change. one is more moderate growth which i could attribute to two factors. one is the increase in the fuel economy standards we have seen over the last several years but for light trucks first and light duty vehicles. we also have higher fuel prices which leads to the market incentive for the folks to choose a more fuel economic car the next time they go to buy one and the same for the trucks. also, we have the of the
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supply-side we of the increase in the natural gas liquids associated with our increased expectations for natural gas production and increase in biofuel due to the renewable fuel standards so all of these together have led to the decline in need for imports of oil. >> ambassador, let me ask you, i see that you made the statement that the growth in gas production or gas supply a downward pressure on the price of oil? i thought i heard you say that. could you explain that a little more? are you talking about the fact that the production of gas goes result in some gas liquids being produced and that is a factor or are there other things going on that we need to understand? >> the was the thrust of my remarks. a lot of it is the shale gas in the united states produced the
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unconventional gas are fairly whet and producing more natural gas liquids a was a natural gas liquids production in the u.s. has increased which is one of the reasons why u.s. oil production hasn't gone down as rapidly as some people fought with and that's true worldwide as well particularly in the opec countries producing large amounts of natural gas, a lot of that is fairly went which means it has large amounts of in gl mixed with it in a separated and they are included in the crude oil production or they are sold like crude oil. in fact, the increase in the opec production is interesting because ngl is not subject to the opec production restraints. as a country like katar that is producing a lot of natural gas liquids can sell those and it doesn't appear as a part of its quota, but yet it has a real impact on the market and that is what i was referring to what i said it could help keep prices
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down. .. >> that's correct. one the implications of our, you know, reassessment of the shell gas resource base has been for significantly lower prices that we're projecting. so the -- the average wellhead
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price of natural guess doesn't get above $5 per million btu until after 2020. when is significantly lower. towards the end of the period, it gets up to $7. you may recall it was at least a couple of dollars per million btu higher than that. the implications are in the electric power sector relative to other technologies. natural gas has had several other advantaging in terms of low capital, quick construction, lower conventional pollutant emissions, as well as lower co2 emissions which aren't subject to regulations but decision making. those advantaging that natural gas has does tend towards natural gas. in terms of the capacity editions that we see, the majority of those new capacity editions are also for natural gas. the second biggest source could
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be renewables. so another factor that is useful to keep in mind is we reassessed our power plant costs this year. several of those went up, some came down. natural gas was roughly the same as what we had been previously assuming. the overnight capital for nuclear and coal, which are capital intensive large, projects went up significantly, 20 to 30%. renewable wind went up a little bit, but not as much as coal and nuclear. so there's been a number of things that have changed over the last several years that tend to point in natural gas in the electric power sector. we are projecting more natural gas consumption and electric power over the next decade than the last year. >> thank you very much. senator genachowski. >> mr. chairman yesterday the
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renewal energy -- excuse me, released a finding stating oil pipeline out of canada into the united states would reduce our dependence on middle eastern oil. would you agree with the department of energy's findings there? >> i've briefly reviewed the study that you are referring to which was conducted in the context of xl pipeline. the main kind of issues or changing that might take place, whether or not the oil will be produced and that study seemed to suggest that would be produced regardless of whether it was a pipeline and it would likely be exported to the best to asia as opposed to south of the united states. the implication in terms of u.s. imports, you know, that study conclusions would most likely
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rather than coming from canada could come from the middle east. we've had declines and are expecting further decline from mexico and venezuela crudes which would have been historically sources of that crude oil because we have complex refineries that can use the heavy oil in the united states. you know, we can refine canadian -- this canadian oil and the most likely substitute would be the middle eastern oil. >> let me ask you in the reverse, our concern up north in alaska is the continued viability of the transalaska pipeline task. as you know that put is declining to what we believe is dangerously low levels. and if we don't take some very serious steps in the very short term to add more oil into that line, within the next few years, there's a real chance that it could be in operaable shortly
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after that. the question to you and anybody else that might choose to jump in is the impact. the economic impact, the national security and trade related would result if we take taps offline and our nation is in a situation where we are no longer receiving that 10% of domestic crude supply that we have been receiving for approximately the past 30 years. so if we lose a large diameter pipeline like we have up north that brings crude in to the lower 48, what's the economic impact to us? >> i'll just make a brief comment. which is in our projections, the oil flowing through taps does continue to decline as it has over, you know, the last several years. towards the end of our projections, it starts to get to a level where, you know, my understanding is the pipeline would stop 200,000 barrels per
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day is roughly my understanding. it does get that towards the end of the projections. so at least through the year 2035, we don't anticipate that it would close. but after that, clearly, that looks like it's on the, you know, longer term horizon. >> let me ask about capacity. because several of you have discussed this, and mr. diwan, i think you stated that it's your understanding that there's a relatively large cushion was the term that you used of about five million barrels per day. i'm told that it maybe five, it maybe six. the question is, and as we look to what's going on in egypt and the uncertainty and the instability there, i think we look at what is available in terms of spare capacity and suggest, okay, well, that can be what can help insulate us from
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supply shocks from the price shocks, because we have that spare capacity. how accurate do we really believe our numbers are when we're talking about this spare capacity? do we really know how verifiable is it? >> we have a good idea. we don't have an exact number. this is why i think we all hedge a little bit. it's probably closer to six, i'd like to say it's north of five. a large part of it is in saudi arabia. this capacity is new. it's been added in the last three years. so for once i would say that we know actually that there is a large amount of spare capacity available in saudi arabia. they have a production capacity probably closer to 12.5 million, they are producing 8.5. most the spare capacity is in one country. it's in the middle eastern concept.
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>> doesn't it give us less assurance? we're talking about the concerns in the middle east. to know you are most of your spare capacity inup country. what kind of assurance does it give us? >> the problem of concept is an oxymoron. only certain countries are willing to invest and create capacity and not produce it. these countries are probably five. okay. and they are all in the persia gulf. this is the original is to be able to provide that spare capacity if something happened. i don't know a single oil company, exxon, chevron, which is willing to have capacity not producing. the concept of spare capacity is focused on the middle east at the end of the day. i have more assurance than two years ago. we know that saudi arabia did invest tremendously to increase capacity. they have shown they can produce
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more than what they are producing now. in a way it's spare capacity as a number, i'm more confident about it than three years ago. because we've seen higher production numbers, a large amount of investment. as five, four, six, i don't know. but it's a large number. >> senator white. thank you to the chairman and thank you to to the panel. i want to look at the issue that financial markets are playing with regard to oil prices. i was instruct tuesday the wall street journal man a column in what's called heard on the street. it was entitled "unrest pits, old oil bulls versus the gold bugs." in effect they, talking about which area made more sense to put your bets on. should you put your bets on oil or gold? and mr. burkhard, you said something that i'm not really heard witnesses talk about here in the senate energy in the past, that's acknowledging the
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role that the financial markets, you know, are playing on oil prices with your statement where you say oil has become the new gold. my question beginning with you, mr. diwan, you say the big oil producers are not going to be effected by what happened in egypt and tunisia, i assume we are talking about the sawdies. my question would be do you believe the recent price increases like the $5 a barrel increase in oil in a matter of days, do you think that is due to supply and demand? >> well, no, because we haven't seen the supply disruption. but markets do anticipate; correct? this is what they do. and they want to price risk. the way i look a little bit at oil market, i came here in the house to talk about it financial position of oil in the last three years. it's -- money slow is like the
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steroid in the system. it comes in, rushes in, it has a very big impact. sometimes it's lasting, sometimes it's not. clearly when you have situation like you had no egypt, people do try to cover, or speculate or invest. but the broader question that you ask is how important are these financial player in oil markets? they are very important. oil has become more than a commodity, it has become an active class. and the -- the last three years have shown that. we've seen the money flow being the key determinant of short term oil price range. does it determine the price of $90 or $70 in the long term? it doesn't. the fundamentals will. the price movement which are very jerky have, i mean i looked very closely at oil prices. most of the time the only correlation has to do with dollar value, gold, exchange
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rates, equity rather than short term proving the fundamentals. the short term moves are very much financialized. >> over the years serving on the committee, i've walked away with the judgment that you usually don't see a single factor dictating oil prices. i don't think you see just one. but clearly in past debates, i think short shrift has been given to the question of financial markets. you just said that recent short term increase was not due to supply and demand. and that suggests to me that looking at the markets and the role of speculation is going to be increasingly important. and i think that you touched on that and you touch on that as well with respect to your views, mr. burkhard. that takes us back to you, mr. jones, you don't think the marks are really what this is about. you make it clear that you think this is about supply and demand
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that price increases in oil recently have been driven by the situation in egypt. let me get you so you can put it in your words what you think of what mr. diwan and to some extent what mr. burkhard has said. >> the short answer, i think i agree with a lot of what they said. i think what i'm -- what my testimony was focused on was the actual runup in prices since last september. and we saw a lot of tightness in the market. there was more demand. the big news of 2010 was a more rapid resurgence in oecd country demand that was expected. particularly in the last quarter. that's what got the prices moving up. now in the current situation where there's a crisis in the middle east, as mr. diwan said, markets don't only look at what's happening today, they look at what they think might
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happen tomorrow. that's where you get the expectations in. so i don't think there's necessarily a disagreement between us. >> if you look at your prepared testimony, and you look at mr. diwan's prepared testimony, there's a sharp difference. you played down the question of anything other than supply and demand. you are saying that markets are driving this. and the price of oil is driven essentially by the supply and demand question. mr. diwan is saying, look, we're not seeing any changes in supply and demand. that's why i got into the question with financial markets. this is complicated stuff. we understand it. i'm just concerned your approach gives short shrift to the possibility of speculation, and the financial markets, mr. diwan, i think, puts it in the appropriate context there are a variety of factors. when the wall street journal is running articles, talking about
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what you ought to put your bet on in the future, that ought to be a wakeup call that the congress ought to start putting some attention on those issues. my time is up, mr. chairman, i thank you. >> senator koets. welcome to the committee. >> i appreciate that. because this is my first committee meeting, i don't begin to have the experience and background of the predecessors. i'm not sure who to address my questions to. i'll let you decide who wants to respond. just two areas i'd like to pursue. one is the energy security area. the gist of what was said here, there seems to be a fairly high level of confidence relative to the flexibility of the supply lines and the ability to and the capacity production and so forth. so in unrest or interruption of supply, transmission of supply in one part of the world where
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from one source could easily be compensated for by increasing production or supplying through another area. my question is not going to the specific, but to the general. do you like the military -- does anybody red team these things? do you have books on the shelf that say, you know, if the pipeline is shut down, this is what we ought to do, or this is where we should go? are there -- is there a body of study and analysis that we turn to when pipelines, political unrest somewhere in the world, what is the level of analysis that's been undertaken, and what's the level of confidence that we can adjust to these kind of things? there's always this uncertainty out there, it's not factored in with conventional wisdom as to supply and demand and availability and price and so forth. i'm not sure what needs to
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advance that. >> i'll start. and i'll turn it over to dick jones. within the u.s. government, the answer is, yes, there's a very good coordination between and within the department of energy. so the energy administration which i had, we work with the office of policy and international affairs which interfaces with the international, and our office of delivery and energy reliability, which in the event of things like hurricanes or pipelines tracks it, right now they are focused on the winter storm issue in the midwest. it has electricity ramifications. in the current context like the situation in the middle east, we are in close contact with other agencies. whatever analysis or background information that's necessary to help people understand the level of spare cwe are talking about .
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different transit moments. there's suemed pipeline along with suez canal. that's about 3 million barrels per day. about 45 million barrels of oil moves around the world through marine transit. as a fraction of that, it's quite small. these kinds of -- there's about 10% spare capacity currently available in marine shipping for oil. these are the kind of issues, yes, we track closely. in the event of some kind of disruption, then the u.s. has strategic petroleum reserve which could be called upon, as well as other reserves. that's the -- that's the context in which we then start to coordinate with the international energy agency. i'll turn that over. >> thank you very much, richard. yeah, just the iea looks at the world. we work with the world. we have 28 member countries. obviously the united states is
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one of the most important member countries that we have. it's not the only one. when we are looking at the world situation, particularly if we see a potential crisis brewing or potential disruption, we begin consulting with the countries that would be the most likely to be effected. and that would include the united states. but it wouldn't be limited to the united states. we do much of the same work that richard was describing. we do internationally. and then we then provide information to the member countries to keep them abreast of developments in the situation. also i mention we have emergency response training exercises. those training exercises are based on case studies, scenarios, and we look at real -- we don't make them up. we look at the real world. we say, for example, if there's a disruption there. then we let teams come from the member countries and from the nonmember. we have several teams working on the same problem. then we see what they come up
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with. we then debate whether or not this person's response, or team's response was the best one or if there was one that was better. that way we all learn at the same time. we learn at the specifics of the issues. but we also learn about different points of view and how to work with one another. that comes into vary -- quite a bit of good use when we have a real crisis. >> one good example in the past that's instructed in 2005, and we had hurricane's katrina and rita, they look out a large amount of u.s. refining capacity. gasoline prices went up in the united states. that sent a market signal to the rest of the world to send gasoline to the united states. the flexibility of the oil market was important there. but also the iea members at that time, particularly in europe, were offering their strategic gasoline reserves to the market which also helped to calm it. so i think that very real,
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fairly recent example of market signals combined with the insurance so to speak of what the iea members provide is a good example of crisis management. >> if i could just add one thing. our focus have been on oil. because we were founded in the wake of the '73, '74 oil crisis. but in the recent years, we were focusing more on other forms of energy as well. so, for example, we now also are doing work on natural gas security, particularly pipeline security, which is very important to the european members. we are also looking at electricity grids. we are branching out beyond oil and natural gas and electricity. and the response that jim just mentioned was coordinated by the iea. >> mr. diwan, did you have any comment? >> no, i want to build on what jim said. the market responds quickly. price signals changed.
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when you have disruption, price goes. the problem it takes time to transport oil. the system takes time to get back in shape. we've seen it crisis after crisis anywhere in the world. that you have enough spare refining, shipping, crude, right now you have the spare. just take times. it's slow to adapt. oil is bulky to transport and refine. >> thank you. i want to get it out to good start with the chairman. i noticed my time has expired and gone overtime. i won't ask my second question. >> you set a good example for this committee. we appreciate it. senator franken. >> thank you, mr. chairman. i'd like to welcome the -- my new member member -- my new mem, the new members to the committee of which i'm one. senator hogan was governor of new north dakota, they discovered
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and developed tremendous oil resources, and some in north dakota say he created them. i'd like you to come over to minnesota and do the same. i want to turn to renewables. because that's something that we do really well in minnesota. dr. newell, we need to be open to a diverse array of options as we think about energy policy. but as you say in your testimony, renewals seem to be where the largest growth is in the next 25 years; is that right? >> yes, that's correct. they have the -- by far the fastest rate of growth. >> well, as i said in minnesota, we're a national leader in renewables, especially wind and biofuels. we're transitioning into renewables fast, largely due to policy like renewable energy standard, 25% renewables by 2025.
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and i'm proud to say that minnesota utility met the 2010 targets under the res. in the eia reference case scenario, we see a bleak pictures for renewables in 2035. only between -- only about 10% of our energy mix by 2035. now i recognize this scenario assumes no change in our national energy policies moving forward. dr. newell, what factors in your review, both policy and other factors would most help grow the u.s. renewables sector to a much higher percentage than those projections from 2035? >> well, the key issues that have affected the growth in renewables over the last several years and that i would anticipate would affect it over the next several years are severalfold. one is on the purely economic
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side. the cost of renewable technologies. so were those two come down from where we were forecasting, either due to what we are expecting and that could bring the cost down. they would be more competitive for power and natural gas coal and nuclear. the other key policies that tend to support renewables are policy such as the production tax credit for wind which just expire in our reference case. because that's what current law does. you see a kink in the curve. that's sending the signal were it not to impact. we have run policy case that is demonstrate that. the renewable standard has a big impact. it's in our reference and growing because it's under doesn't statute and ongoing regular -- regulations in law.
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there's solar credits that expire. were those to -- >> sorry to interrupt. we have countries like china aggressively pursuing solar and wind? >> that's correct. there's a number of european and also particularly china have been investing heavily in all sources of electricity production. they have phenomenal growth. they are investing, you know, in solar and wind. they are also investing a lot in coal and nuclear. they are all out on all fronds. -- fronts. >> let me go to ambassador jones. i noticed that you talk about three areas that you'd like to go. strong push in efficiency, to decarbonize electricity and advanced vehicles. let's talk about those. how do you decarbonize
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electricity? >> well, i mean -- promotion of renewable is one way to do that. because they obviously don't burn fuel. but you can also -- >> you don't burn carbon? they don't add carbon. >> no, they don't. but there are many other ways. for example, have a coal fire power plant running on biomass instead of coal. you have a coal fired power with carbon mass and storage. you are taking co2 out of the air. there are a lot of technologies. what's economic and what's appropriate to the political and the physical characteristics of the country? for example, a lot of countries are pushing head with nuclear power. other countries have decided not to do any nuclear power for political reasons, because of concerns on nuclear proliferation and things like that.
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there's a whole mix of approaches to take. we advocate a broad spectrum of technologies on endowment of country. some countries would be wasting their money if they invested in wind power. they don't have the wind resources. similar with solar power. we think that where makes sense. the countries should invest in renews. where the renewals are and not options, they should invest in carbon capture storage if they want to get the full lifetime out of the of the power plants or use bioplants. it depends on the country. >> even in the same country, different regions will be different. >> i know i'm over my time. i want to stay in summaries that the projections of 2035, that's a fairly long way out. >> 25 years. >> and we can definitely you say at your end, you added a personal note, which is we can do better.
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i'd like to add the same personal note. and just say that those three -- those three efforts strong push for efficiency, decarbonizing electricity and advanced vehicles. assuming electric cars, maybe l & g cars. >> well, hybrids. all electrics. c & g, long transput buses and so on. >> thank you all for your testimony. mr. diwan, can i ask one last little thing? did you at one point say oil prices are a mystery to me? did i miss that in your testimony? >> no, the more you know, the less you know after a while. >> okay. i'd -- that really made me feel good. thank you, mr. chairman. >> thank you, senator hogan. welcome to the committee. >> thank you, mr. chairman.
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good to be with you. i'd like to thank both you and ranking member murkowski and saying i look forward to working with you on the energy committee and with our fellow members. not only the senator from our neighbor state, senator franken, but senator manchin, i go six years working as fellow governors. i worked on energy issues and national governor's association. i look forward to working with you on the important issues. the energy challenges that face your country. i see it as an incredible opportunity. senator franken was kind enough to refer to the progress. and we do produce a lot more oil and gas. we're over 100 million barrels a year now. ten years ago, though, we were not producing much oil. we were clining in the oil
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production. and frankly, oil companies if they hadn't left, they were leaving. we worked very hard and, of course, a lot of the talk at that time was that, you know, that companies weren't going to do exploration in the continental united states. they were still doing great work up in alaska. but really we're going to other places around the globe for their -- not only their exploration, but also production and refining as well. we worked hard to create the right kind of business climate that would estimate late not only oil, but other types. clean coal technologies, renewables, wind, biofuels. we're making a lot of progress. and it's not just about produces more energy that we ship to great states like minnesota and other places, electrons as well as oil and gas and biofuels. >> but it's very important for our economic growth and for job
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creation. so i see that same opportunity for our country. and my question to you is: what should we do? what should the congress do to stimulate energy development? what's the most effective things we can do to stimulate energy development, without picking winners and losers, oil and gas, electricity from coal, hydro, other sources, biofuels, winds, nigh -- nuclear. you name it. what are the things we can do to be most effective to stimulate energy production in this country. i'd particularly like you to focus on nonrevenue. because we kind ourselves with a bit of a budget challenge. particularly the measures that don't cost money. so i'm not talking about, you
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know, direct subsidy and so forth. but the kind of legal to action regulatory measures we can put in place to stimulate energy development most effectively. i'd like each you to respond to that if you would. >> and i'll steal a phrase from the book of our chairman, when churchill 100 years switched the royal navy to oil from coal, diversity alone. in terms of pursuing different strategies, the singular approach probably isn't the most appropriate fit. but multidimensional policies that focus on supply and demand and some of the trends in places you eluded to senator. they continue, they will help both on the demand and the supply side.
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north dakota is one of the -- as you well know, one the key reasons why in 2009, the united states had the greatest increase in oil and gas production anywhere in the world. the united states did in 2009. in 2010 that growth trend continued. and that due to what's happening in north dakota, but also pennsylvania, other relatively new players on the oil and gas side. in terms of continental energy security, let's not forget about canada. when we think of foreign oil, we think of something distance, far away. i don't canada, i don't think of canada that way. 21% of our oil now comes from canada. it's by far the biggest oil supplier. so thinking about continental energy security, the same trends in oil and gas continue. that will play an important role. and on efficiency, the fuel economy standards that were renewed, strengthened in 2007
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and then again in 2009, i believe. they are going to play a very large role in keeping u.s. oil demand below the 2005 peak. so i think consistency in the long term approach and multidimensional approach on demand and supplies is something to consider. >> what percent of our petroleum consumption is provided by the u.s. and canada together? do you know? >> well, canada is about 2.5 million barrels per day u.s. oil. it's roughly probably half maybe a little bit more. the u.s. and canada. >> our total consumption, what percentage do we cover between the u.s. and canada. it's higher than people realize; right? >> it's probably half. >> 50%? >> maybe a little bit more. 50 to 60%. >> if you include mexico, it's even higher. if you look at north america,
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cleaning mexico, canada, the u.s., you are looking at 75%. something around there. anybody else have a quick answer? >> i wanted to point the slight contradiction. 1, 2, or 3 things that would make a difference? >> the oil. and the car. this is how you produce your command. it's cheaper than producing a new barrel of oil. i wanted to point the slight contradiction. we have seen it's production increase and it's a great thing. it's because we have high oil prices. it's economics. we always knew about the we reserve in the balkan. they were never economical.
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when they reached a certain trigger, they were able to change that supply function. having $3 gas and high production goes together. >> question, but the new technologies were vital and will continue to be vital in order to produce it economically. >> absolutely. >> down to maybe $50 a barrel. >> absolutely. officially, technology, i would say regulatory framework which is look at long term and allow the diversification across the energy sources. >> we have two senators here who haven't yet asked their first round. and then we'll come back around and we can get more response to that in the second round perhaps. senator udall? >> thank you, mr. chairman. good morning, gentleman, thanks for being here today. let me start by speaking to the profits of the oil companies.
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it is -- it has come to my attention that exxon just announced it's profits for the last part of 2010 were over $9 billion. it's a 50% increase from earlier. exxon is not alone. most if not all of the major oil and gas are going to report huge profits for 2010. mr. diwan and mr. burkhard, what will the major u.s. oil companies like exxon do with these record-setting profits? for example, how much of those net profits would you estimate that the major u.s. oil companies are investing or will invest in domestically produced clean and renewable fuels, the price of which are not set by opec. >> i think that some context for that one oil companies are price takers, not price makers. the revenues reflect the global oil markets.
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in terms of their spending, you know, oil companies a very large oil companies are capital expenditures can range from roughly 15 to $25 billion. so it's a constant -- it's a treadmill that they are on to reinvest. you have fields at plateau, or declining. so it's a massive capital intensive business where you have you know, 15, $25 billion. you know, what we are seeing right now. and a lot of these companies are part of this, what we call the shale gyle. it's lower carbon content. >> you see them moving some of the profits into the development of gas reserves? >> yes. >> mr. diwan? >> well, we -- they are all gas
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companies. they invest in oil and gas. if you look at the broad trend in term of capital flow, the united states has seen a lot of investment. the global industries coming back to the united states. that's a big development of the last two or three years. it has to do everything with the shale gas. but also the onshore oil potential. so the united states because of technological change and higher oil prices have been able to track a lot of capital. a lot of the companies who have been looking abroad for years to be able to add are coming back to the united states. they are not the most nimble. they are very large. they tend to be second and third movers rather than first movers, small companies and the muscles here have already created the resources now the oil companies develop them. in term of their investment in other technologies, it's really research and development. they are not biofuel companies. they are not solar companies. they will not become solar companies. so they are what they are.
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most of their investment go back into massive project where the treadmill that jim is talking about is very important. the decline rates are very steep in the oil field. they are probably 10 to 15 percent. sometimes north of that. in the way the companies are constantly seeing their -- the resources are disappearing. they need to invest. the treadmill is only getting faster. >> you see them playing an important role in continuing to produce secondary, tertiary, and energy and oil and clean will come from other sectors and other entrepreneurs, other businesses, other business models? >> i think so. i mean the model. these companies are not the most nimble. >> uh-huh. the demand for oil is driven mostly by the transportation sector. 70% of domestic oil demand.
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do you have the panel -- directing this to the panel. do you have ascents of what percentage our transportation sector has to be fueled by electricity, natural gas, or some other alternative fuel in order for us to achieve energy independence in the transportation sector? in other words, at what point of the domestic supply of oil fill our domestic demand? if you want to take that question for the record too, i would be more than happy to work with you. >> i don't think it's something that we've actually sat down and three of -- down and tried to calculation. you could do the back way in terms of important and how much of a share. richard, you might have done something. i don't know. >> we have not analyzed that particular question. but, you know, under existing laws and market trends, while there is a decline in net petroleum imports, it's sizable.
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if one imagined what would be the kinds of actions that could change that, one would be declining consumption because declining consumption tends to come first out of imports. and then also substitution of the remaining consumption towards something that's not imported. which if it's electricity, electricity tends not to be imported. so any source of electricity would do that if it was domestically produced biofuels. one would have to analyze the particular proposal in order to -- most anything that you look at is, you know, potentially achievable. it depends what kind of actions one is willing to take to achieve it. >> thanks to the panel. >> senator manchin. >> thank you. and thank all of you for being here. i'm sorry some of us had to go back and forth to committee meetings. if i repeat and missed something i'm sorry. the state of new jersey is energy producer.
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we just have a hard time, understanding, you know, without energy policy in this country in which you just told us about, the dependence on foreign oil, the security of the nation being at risk because of our dependency on foreign oil, the uncertainty in the middle east, and growing uncertainties that could make us more vulnerable, and our economy how it's tied so tight. you are telling our dependency will grow, not become more independent. and in our little state, we have an energy portfolio. we try to use everything that we have. shell gas, natural gas as you know. we have a tremendous abundance of coal, biomass, and a tremendous wind operation which very few people know. we've done everything that we could with hydro. what i don't understand is, you know, of all of the energies that you are talking about, the subsidies, and i think that's what the senator from colorado was talking about. the subsidies of energy, whether it be to oil, gas, wind, solar, biofuels, ethanol. the only energy source which is
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the greatest source that we have as far as we're dependent on right now is coal. it doesn't get a penny of subsidies. but it's been villainized by this administration and so many people. and it's the one that we dependent on the most that gives back more than what it takes. i can't figure it out. we're trying to use it in so many different forms and super critical heating and things of this sort. we are running into roadblocks from epa from every turn that we go. we're trying to use it in conjunction with natural gas productions and trying to look at the changing and the fleet. especially our commercial fleet, compress natural gas. i think that's very doable. do y'all have a comment on why that one source of energy which is the most dependent upon in this nation has no types of subsidies, but other demand so much subsidies? does anybody want to answer
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that? >> i would -- >> i guess i would just say that congress makes these policies. and so i don't have any particular -- >> don't you think. do y'all have a comment? do you think it's offbalance that 50% of our energy comes from the coal which we have depended on for hundreds of years. no subsidies. then oil, the profits of $9 billion of profits. and subsidies from the natural gas and gallon of ethanol and everything else. does it not make a little bit of -- >> the one remark i'll make we have been requested to do an analysis of energy subsidies by the house. that's under way. we'll be issuing that report sometime in the next few month! do you compare it towards the goal? and what keep of energy it receives and depends upon without any investment, expect
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the market forces? >> yes, it's a broad study that covering audiotape manner of subsidies. >> what and -- and the dependency that we've had on foreign oil, and the uncertainty in the middle east, i don't know y'all have talked on that a little bit. i noticeded -- you talked about the price of barrel oil and urn certainty not knowing where it's gone. what do you anticipate as far as we as a nation are able to take care of the dependency and independency as far as from our own domestic production? is there any of you that believe we can become independent with the current policies? >> well, senator, just on the coal question. i'm not an expert in subsidies. what's notice in some areas, the last decade, the strongest energy source in terms of demand growth has been coal around the world. that's due to what's been happening in china and india. china, india, the u.s. are among the top. >> the rest of the world is using more, we're villainizing
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it more. >> it's a corner stone of global energy supply in this country, and certainly in china and other major players. >> do any of y'all believe we can become energy independent? >> why do we need to be energy independent? we not independent of anything. we believe in free trade. chinese shirts and computer chips. we inport -- import and export. >> you don't believe we should try to strive -- >> i don't think it's a key issue. global commodity. global price. if we can import it, import it. >> do you believe it ties to the security of the nation? >> it's an aspect. not the only one. what it costs to fuel this economy is an issue. >> i would just add energy
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security and energy independence aren't -- you know, the differences between the two. the energy security is the objective, that may lead to different outcomes, different decisions. >> basically those -- i'm sorry. i'll finish. those of us who lived through the '74 oil embargo and saw what it does. at that time, i think we try to take the position to be energy independent in a short period of time in 2000. of course, that came and gone. so you all are not tieing the security of this nation towards the independency with more domestic production with all of our resources. >> the increase in continental production in canada and the united states. it's been a source of economic growth in the places where it's taken place. it's important in job creation. it does play an important role at enhancing global energy
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security and consequently u.s. energy security. the growth in u.s. gas production and oil production even has an important component of that overall security story. >> i'll save that for a second round. thank you, sir. >> senator coons, welcome to the committee. you are the only one here now who hasn't asked the first round of questions. did you have questions that you want to ask in the first round? then another five-minute round. >> thank you, chairman bingaman, and senator murkowski. i'm great -- grateful for the opportunity to join us. as in the other cases, judiciary reported on the important patent that will contribute to the role that i view. this committee having a central place to play in sustaining america's leading role in energy innovation and working together to develop the technologies of the future. i was interested in the testimony of several of the
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members of the panel. dr. nu -- nu nu nu -- newell, iy have missed the changes in the future. what a good trajectory to achieve and i'm interested in your views on how important it might be to america's energy future? >> sure. thanks for that question. when we look out of the next 25 years, there's a substantial decline in the amount of energy consumption that we had -- we expect to have from the current situation for a number of different reasons. if one looks at structural change in the economy, there's a significant change towards more service oriented economy, which tends to moderate the road. we've done some analysis that suggested our consumptions is
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going to be 1, -- 1/3 lower. we have looked at energy efficiency. that further lowers energy consumption about 13% from where it otherwise would be. that's built into the reference that i mentioned. now the changes in efficiency come from a number of different places. one is efficiency standards that have already been prom mu -- promulgated. and standards which are built into the forecast. market prices, also play a role in reorienting consumers towards more energy efficient appliances. you also have voluntary programs like the energy star labeling which provides information to people to help them understand what the energy consumption is from there. these also tend to affect consumer behavior. in terms of disentangling the
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effect of these different pieces, it becomes quite complex. i've mentioned some of the things that we've done. the other thing is fuel economy standards for automobiles. which i mention we do have in the reference case the standards through the year 2016 which get the fuel economy up to 35 miles per hour. but in a reference case, the fuel economy continues to grow beyond that, you have to 38 miles per hour by the end purely due to market incentives. they are built into automobiles, and they introduce a new model, it's introduced into the new model. it would tend to provide an incentive. there are a number of different policy and market incentives that are directing the economy to more energy efficiency. although energy consumption still grows. it grows by a significantly lower rate than what we had seen historically. >> thank you. if i could, one other question to ambassador jones.
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you expect electricity and plug in. tell me what technology development are critical to achieving that. what policies we should be pursuing to help ensure the american leadership role and what are the different policy scenarios that you think would deliver the biggest advantages for us in terms of deploying that fairly significant percentage participation? >> i think the technology that needs the most work on is battery technology storage. increasing the energy density of batteries and to allow the vehicles to have greater range. one of the key points that people always raise with electric vehicles is their lack of range, the fact that the speed with which they can be recharged, how often they need to be recharged. on point of fact, studies have shown, for example, bmw is
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developing electric vehicles. they brought a fleet of electric bmws. they let people drive them for a year. they followed their use. they found that most people didn't really need to recharge their car more than two or three times a week. it was easy. after a few weeks they realized it and they liked the vehicles. but there's a lot of acceptance that public acceptance is the real problem. but that can be overcome with better battery technology, cheaper battery technology. that's the key thing. most of the rest of it has already been developed. >> thank you very much. thank you, mr. chairman. >> thank you very much. why don't we do our second round here. senator murkowski, did you have questions? >> very quickly, mr. newell, i want to confirm within your projections you do not include any assessments as to alaska natural gas. being part of the mix within the
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projections through 2035; is that correct? >> yes that's correct. that tends to depends heavily on the alaska natural gas pipeline who's assessment have increased and have come down through 2035. that's not the protection; correct. >> i wanted to confirm that. let me ask more generally than in terms of your assessments as they might relate to the arctic as a whole. not necessarily just to the u.s. arctic and what may not develop offshore there. as you know we've got the bp deal at play in the arctic. do you include these prospects in your assessment even the bp deal or just anything in the
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arctic? i think we recognize the potential for the reserves. do we anticipate in your forecast seeing anything coming out of the arctic? >> i'd have to go back and look at the specific results that we currently have. but areas that are open for release sale would enter into our projections at some point. there has been changing over time in terms of what areas at least around alaska have been open. and i think that's even recently changed. so i'd like to go back and see exactly. we do assess those areas, for sure. >> let me ask. this is probably a question for the whole panel here. we talk a lot about what the u.s. and worldwide consumes. the commentary is the u.s. consumes a quarter of the world's oil, but we only had 3% of the worlds reserves. i have some issues with how this
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is stated. first of all, the 3% figure, as i understand it, only speaks to proven reserves. which is to say they've been drilled. it doesn't reflect any of the unexplored areas whether we are talking arctic, offshore, atlantic, pacific coast, eastern gulf, much of the deepwater. i guess the question to you all would be first how important is it to actually know what our oil reserves amount to and then secondly if we here in the united states were to prove up our reserves not use them for production, but provide for that assessment, and we were to do so within the five to ten year horizon here, what does this do to the percentage of global
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reserves that we know in terms of our percentage of consumption here in the united states? how does that even out? and again i'm curious it know how important is to know exactly what we have in terms of reserves? and i'll start any one of you can begin? mr. burkhard, why don't we start on your end? >> reserves are important. there's no global uniform standard that countries around the world adhere to. so it's a figure that's used a lot, but it as an uncertain definition globally. one quick example, the canadian oil sands. if you include the canadian oil sands, canada has the second largest in the world after saudi arabia. if you don't include the oil sands, it falls down quite a bit.
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perhaps a more relevant example the resource bases is production. : a different price as you have more or less reserves. one under dollar oil you have more than $10 a ton because you can exploit these resources and move them. so, i think overall it's not the
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key criteria and when you look at oil companies to reserves always seem limited. the united states has ten years of research for the last 50 years. so, it's not completely meaningful number and it's also how we prove and the reserves which is another factor that is complicating. >> is there an effort within the eia that takes what you have globally and tries to come up with a commonality in looking to not necessarily redefine, but just make sure that you are doing the same comparison when it comes to understanding what the global reserves are? >> well, we have to rely on for the united states and think it is relatively well designed in the global sense, but we have been asked on other occasions by
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other members of congress to try to dissect and put on an apples to apples almost as much as possible basis and we can share that with you. it is a challenge and we rely on the sources in the u.s. geological service as important to the oil and gas and also, but as was stated, you have to address the treat different estimates from different places with different degrees of a share the. to give your question i think in terms of how i would impact ferc sable the work that eia does, over the long term the thing that matters most over 20, 30 year time horizon is even beyond reserves because as was mentioned reserves only proof up maybe a decade or so of production, so beyond that did this to the resource base becomes even more important. but reserves or important in the near term because they speak to areas that companies have demonstrated and taken the
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effort to say that they can produce economically under the current prices and technological conditions, so it's relevant for the near-term projections. i think from the grand scheme of things if one was to more carefully assess the u.s. it could change in terms of the global balance though. i think it is likely to change in terms of sheer magnitude just because so much of the both reserves and then also beyond that recoverable resources or outside of. i think the basic high level context would not change significantly based on that. >> if i may say one thing to respond back to clarify a couple of questions earlier -- >> if you add canada and the united states what fraction, and the u.s. is about 40% now what are liquid fuel consumption in canada would have about another 12%, to 60% if you add those two
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together. the other things in the record is my time is hand tailored in the united states of america. [laughter] >> you are a rare individual. we are glad to know that. >> thank you. >> senator, you have not had a chance to ask any questions. all of us have had leased one round of questions, don't you go ahead. welcome to the committee. >> thank you, mr. chairman. i appreciate you welcoming me and it's good to be here with a few of my colleagues. i apologize as a member still trying to figure out how to be at three different hearings of the same time. in this case i didn't get a chance to hear of the interesting testimony. i did read some of it. i hope this question is the one that's already been addressed but on the economy and the impact of your prediction of increased demand and therefore increased cost of oil i looked as some of your data indicating we are going to be approaching $100 a barrel next couple of
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years if your projections were correct. have you all done -- i know we are not looking at the economic analysis as much as pricing and supply, but if you look at the impact on u.s. economic growth during that period assuming your projections were correct on the increased cost of oil and although we are producing a lot domestically, you said in response to the governor hoeven egypt and other countries experience issues that affect the cost of oil what will the impact of that be in the second calculated projection of the cost of oil the next couple of years? >> i open that up to any and all of our witnesses today. >> sure, i can respond. both our short-term and our longer-term outlook really take assumptions of both u.s. domestic and global economic growth as an input into that
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analysis, but it does take account of oil price is within that. now one question is if there were to be changes in the oil prices what could be the potential ramifications for the u.s. economy and this is a complex question but let me give some thought to it. other things equal, every 10-dollar per barrel increase in the price of oil in this debate could his sad about $50 to the input bill and since the imports are subtracted from the gross domestic product, it tends to weigh on gross domestic products so every 10-dollar per real increase may lower gdp by .3% or so. that's one way to look of it. the kiwi to look of it is what is causing the the price increase, and if it is a demand side, economic growth that is causing the price increase along with that economic growth which may be coming from abroad, our
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exports may be increasing because china or other countries may demand more materials, more equipment from us and so a demand in the places can be consistent with continued global economic growth. the place that tends to be more of a concern if it is a supply-side shock to the oil what causes the price increase which is pretty and in the u.s. fleet and is to be more significant headwind for the economy. the one other point i will mention is i also depend upon the state of the economy into which the price changes entering. if you're in a situation of the weakened economy or if you are in a situation where things like and monetary response wouldn't be sufficient then you could be in the more problematic situation. our sense of the current situation is that a lot of the price increase right now husted with the demand curve in, and so that is consistent with the continued economic growth and we don't see that at least at this point providing a significant
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headwind for the u.s. economy. >> i would note with in your testimony you also said that the demand side dynamic is driven primarily by the emerging economies and you cited china, india and brazil, and so, our experience the last couple of years is those countries increased their economic growth and have continued to grow as was reflected on the change in our balance and trade in terms of the export and as you talk about or our economic growth certainly in 2,009 going into 2010 but i appreciate your answer and i just hope that these very important energy inputs are being taken into account as we look at what economic forecasts are going forward. any other responses from the panel? >> that is an excellent question but tough to answer because there is no magic price that
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elicits a response on the part of the consumers are governments. certainly our psychological point from the oil hit $100 when oil the price of gasoline in its $3 or it were to go up to $4 you will see the high year it goes the stronger the reaction will be, and that is the united states but the oe list price different order of the world and some consumers are shielded from the high prices. others exposed so the russian globally is very -- >> other responses? >> picking up all the global response to read a lot of countries are less well positioned in the united states to handle the prices and price takers and it will have an impact on their economy. i had a chart in my testimony where i talked about the oil bird and and basically $100 oil you're getting up to 5% of the world gdp when for oil imports and in the past when that has happened it has been a harbinger
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of a recession. whether or not it would occur this time nobody knows, but it's not -- if the price for sustained for all of 2011 we would have concerns in the economic impact. >> one last element is important which is the value of the dollar because a lot of countries pay for the oil and if the dollar is rising or declining it also has an impact. 64, mr. chairman. >> senator wyden? >> mr. burkhard, went to continue the line of questioning that i began with the whole question of financial markets and what is coming on in the middle east. this time turn to the question of oil that is now in storage. if you take a look at ian ta -- eia figures on inventories, with the show is there are people out there who have been holding a lot of barrels of oil in storage
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significantly above the normal inventory level, sometimes tens of millions of barrels. now through the summer as the price has climbed, petroleum and storage also claims. when the oil was sold off at the end of the year the prices dipped. now we have this whole array of challenges obviously in the middle east. mr. diwan said that that is unlikely to actually impact oil supply, but the oil and storage is rising again at levels well above normal inventory level. so my question to you is breakdown for us what all of this bonding and holding in storage is all about because it suggests to me to double the theme that you touched on earlier, oil and storage is also part of the oil as newbold which is going to the driving
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investors phasing out positions in the years ahead that brings a new element of speculation into this debate that we are going to have to concentrate on. so breakdown for me but you think the set of changes and storage is all about. >> the part of the oil storage story over the past year is investors, companies are responding to market signals because the oil market in the u.s., excuse me, has been generally in a state of contango. what the heck is come tinto? it is very depressed by a bill with oil today, let's say $90, in the futures market it means that six months from now, one year from now the price could be 95 or $100. that means fi vara with oil today at $90, on a lot in the
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price to sell it at $95.6 months down the road and can lock in their return, and so investors have been responding to that contained environment and the oil price, and what it generally is signaling is the market's expectation that supply, oil supplies will be more valuable in the future. so, by today will pay more today because the market will eventually be more valuable, and one of the drivers of that, not the only one, but the important one was and last year, 2010, we saw the second largest increase in oil demand globally in more than 30 years. so this sense that oil, the oil market will become tighter over time is one of the factors and that explains the behavior in this country -- contango infrared to the estimate we will have to get into contango
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because i will tell liquigas -- senator murkowski and don't think that you were here when i leave out the plight "the wall street journal" talked about the beginning of the week they ran their heard on the street column that had the title "unrest hits oil verses the gold dust," basically making the discussion for the future is essentially where people are going to make their best. obviously the issue with respect to how oil and gas prices get set are complicated difficult kinds of questions, but to me these questions are finally making the pages of "the wall street journal" or are ones that have gotten short drifted that is why i think mr. burkhard and mr. diwan has given us a lot of valuable information, and mr. jones, i appreciate you moving towards mr. diwan's position because when i read your prepared statement by scott a sharp difference between what you're saying and what mr. diwan was saying that to me
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undervalues how important this financial market issue is going to be as we try to get into the questions. mr. chairman, thank you for this additional round because - oil and storage represents yet another iteration of what mr. burkhard calls the new gold because this is going to be part of what drives the debate about the financial assets and where they are headed in the future. and one that i am certainly going to spend a lot of time on. thank you senator, did you have a set of additional questions? >> thank you, mr. chairman. this follows a little bit on my earlier question. you talked about looking at supply in this country as a continental with canada and mexico and talked about deficiencies and technology and of course mr. diwan said the
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price drives that. that is important in the true in many respects. it's interesting once the tick policies of their it tends to bring down the price at which you can produce oil or gas or any other energy at a lower threshold which is very important for our production going forward. with that in light of what to ask and maybe start with mr. diwan because obviously it is price driven but we need to find ways to deploy technology that helps produce more energy and environmentally sound base and work to bring the cost down. , so how do we do that, and maybe talk in terms of countries around the world but are doing some things we should be looking at doing and i'm talking from the production side. most of your projections you talk about the demand side which i a understand.
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china's incredible growing demand and so forth, but the production supply side, talk a little that to get who still refuse to produce more, who is using technology and innovative ways, this will have an impact when forward and again something we can look at. >> welcome the good news here is the bright shining a sample of how they work in the united states over the last five years gas prices increased and increasing gas prices have triggered the breakthrough. we knew about the shale gas. we had an idea of how to go about it. but what happened in the united states in terms of breaking the code if you want and be able to produce the gap and now extending that technology is phenomenal. most oil companies, the large
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national oil companies natural with very few wells every year and tend to do a lot of experimentation and in the united states is very different. you have to three large entrepreneurial sector and service company. they don't think about how we are going to drill the well. they are very small and small capital is available. risk capital is available, and basically try and try and what we have seen in the gas world is these ingredients together, capital technology, experimentation, resources and we brought the code of the shale and that obligation globally which we see since. natural gas supply increase in gas prices went down and that surplus of capital technology
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material wells etc, and shifted to oil and that is how we see now this tremendous development in the onshore oil and the united states which was a dead sector perceived as a debt sector with little future and, you know, a year and a half ago we were talking about what is happening and in the balkans what is happening in the colorado and expand very quickly. at these prices you can experiment, you can try. after all i think 80% of the oil in the world to deliver your arnold in the united states. so this is where you experimented this experimentation goes to reverse of the question right now is how much of the experimentation made in the united states can branch out and go and have an impact on other resources that we know exist but we couldn't get out because prices were too high a
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etc and how much we can replicate the a sample of the united states in terms of technology and success. that is really the big question both for gas and oil. >> i think it is interesting the way that you described it, and right. breaking the code in terms of producing the different types of energy because it also over time brings the price down. so of your thoughts on what we can do to continue that kind of entrepreneurial development? obviously the price is one of the regulatory and firemen, what else? are there other things companies are specifically looking for or that you are seeing having an impact on the production or on the world? >> i will just expand a little on what was said we are currently undertaking that the eia going beyond the domestic assessment of shale gas and broadening the internationally to assess the potential
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development of a globally. we are working on that and in that depended upon what we find would tend to enter into our outlook which we also produce each year to read some of the main prospects we already see are certainly canada close by the united states and has shale gas space which extend upward from across the border can also about china seem to be promising places. this is ury much driven by market response to high prices at what point but then encourage the application of certain technology and then there was innovation in the technology. >> any of your final comment on this? and i was going to ask the senator you only talked about oil and ask you talk about technology in general because the world of six evils of the policies for the sample being deployed in europe and elsewhere
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of renewable energy. >> i really was interested in other energy sectors as well including renewable, but i do see that i am pastore time so out of deference mr. chairman, i will relinquish back. >> did you what to make a short response? >> just shortly, there are a lot of things like tariffs or portfolio standard used in various places, but the key thing seems to be us queerer consistent policies that are as technology neutral as possible but also take into account that the development stage of the technology a lot of to kill the jews need a hand up, so to speak to get across what is called the value between the r&d of the development of the technology in the commercialization of it because you've got to get economies of scale so those are areas where some countries have demonstrated how to get across the valley by supporting the country's, the companies there are a key stage of that some of the technologies.
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>> if you have the six symbols of love to get them. any of them that have been particularly effective in stimulating production. thank you, mr. chairman. >> senator frank and deep -- franken. >> thank you. senator mansion last why there were not subsidies recalled and none of you seem to want to answer that and i don't know if it was a rhetorical question but it seems that it is doing pretty well without subsidies. it's very politically the very cheap and relatively as compared to other fuels and therefore we don't subsidize it. speaking of subsidies, president obama called for a squeeze of cuts in subsidies for the oil
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companies and what affect, dr. newell, do you think such a cut would have on domestic oil production or gasoline prices? >> we haven't specifically evaluated the administration proposals for the changes in those tax incentives. >> fair enough but to those of my statement to the senate finance committee, i have this right here. alan krueger, assistant secretary, chief economist of the treasury department, said and i quote, because we expect little or no effect on the world supply of oil removing the subsidies would have an insignificant affect on the world oil prices tooby he goes on tuesday that of the decrease in the domestic production duties cuts would be less than one-half of 1%. even in the long run. this might sound rhetorical but
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if anyone wants to pick up on it doesn't that sound like an industry that, you know, that doesn't need tax benefits and subsidies to survive? anybody? >> one thing to keep in mind as we discussed the future of the fiscal terms that governor oil and gas companies, and again i am not an expert on subsidies, but one aspect to keep in mind is american oil and gas companies are competing in a very competitive global marketplace and how they are taxed here or at home can affect how they can compete against companies from asia, europe or over places. i don't have a specific answer but i think having that -- >> the largest five oil companies in the last decade that made over a trillion dollars of profits in 2010 the
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profits were double that of 2009. we've seen the ads from these companies talking about how much the or doing to invest in alternative energy production. you see all the time. they are feel-good ads i think. i felt great about bp because the whole screen thing beyond petroleum, and i think everyone in america felt like bp, that is the future, that's great. i love those ads, and then we learn that bp has the worst safety record of any of these companies. how much are these companies really doing investing in alternative energy? i mean, mr. diwan, you said that
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oil and gas companies are in the business of oil and gas. isn't what they are doing it negligible? >> well, they are a oil and gas company. i will repeat that. these are huge companies, i mean, exxon is the huge company of the world, $200 billion capitalization, and the renewal business is very small. so even if it is -- even if they are doing a lot it wouldn't be material for the company's. it wouldn't be material for the world of renewables. >> correct, but they are companies. they have a mission and this is what they are doing. the scale issue is you wouldn't expect these companies to be the key investor etc just from the economic perspective. so, you know, we can't ask them to be what they are not. they might pretend to be something they are not but that
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is a different issue. >> so you can't ask them to be with a pretend? >> yes. >> okay. i will write that one down. gwen back, mr. burkhard, it is my question to have to compete on a world basis dealing in believably well cycle the right? and a relative term and believably. they are doing very well. they make $9 billion more. do they really need these subsidies? do they really need these tax preferences? >> i mentioned earlier the oil companies are price takers, not price makers come their the level of the revenue which is a large level of the capitol expenditures it when prices are high we see what the results
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are, so they are a reflection of what has been happening in the global oil market. last year we saw the chinese oil demand grew 10%, 10% in one year from china. >> i think that your answer to the question is no, they don't really need the subsidies. that's what it sounds like. that is my interpretation. you don't have to nod or agree that for the record he wasn't nodding. thank you, mr. chairman. >> senator coons. >> thank you. i would like to follow-up on the colloquy with both senator hoeven and senator franken. you're talking about the value of debt and other nice ways to describe the challenges of the early stage commercialization and scale of innovations to the exchanges with senator franken. mr. burkhard, there is a question in my mind about the
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appropriate role of the federal government in either subsidizing ongoing oil and gas exploration development or alternative energy technologies. the projections that are made in the world energy outlook for the makeup of the total support of global energy picture in 2035 is a reminder that this is largely a petroleum based economy and it will remain so for much of the next few decades. you mentioned a conversation with senator hoeven come he asked for some insight about how we could be more effective, what other countries are doing. i would welcome input from any member of those in front of us, the panel how we are most likely to be successful in securing capital the investment in job growth in the united states as renewable energy technologies scale up and given the numbers you gave it sounds, it seems to me as if the wind in hydropower have the largest potential solar comes next. at vividly they are small in scale with the global economy
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but there's a great deal of interest in most of our home states so the question is if you have to choose between continuing to expand federal dollars and subsidizing oil and gas development drilling distribution or providing subsidies that go into rigid accelerate the development for the renewable how can we have the best bank for the dhaka in terms of employment and deployment, the creation of jobs in the united states and the deployment of technologies that have a positive long-term opportunities. i also want to clarify something i assume from these projections about the renewables sector post of the growth will come out side of the united states but the actual use of the renewable energies will be mostly in china and less in the united states but i may have misread it in the material that i looked at before >> i appreciate your reading
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through and i would be happy if any of you want to take up any of these. >> i will just respond to the last part of your question in terms of the racket of the renewable energy department in the united states relative to the rest of the world. you are correct, but the u.s. is a small fraction of the entire world and so one would expect -- >> i tend to forget. >> -- so the other key factor is that the u.s. need for energy is growing much more slowly than other parts of the world and so how big we are currently in the growth is predominantly elsewhere in terms of consumption, so that those reorient the energy consumption as well as different types of energy, supply growth in other parts of the world. our assessment looking out the next 25 years is energy consumption by the oecd countries of which the united states is one is growing modestly roughly flat, whereas
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overall energy consumption globally perhaps 50% growth of the next 25 years and so very significant growth most of it outside of the oecd. >> and some countries don't of the existing power distribution so that the renewable may grow more rapidly in the parts of the world where there's no existing infrastructures you were literally leapfrogging the existing petroleum based infrastructure. >> that has certainly been one of the interests in the solar technology and other distributed energy generations, yes. >> i just would like to add to the comment that there is probably a lot of head room still left for expansion in the energy consumption especially in china because even with all of the growth they have seen at china's per capita is like one-third of the average. so, they can keep growing for a long, long time and that is i
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think what is going to drive the default of the energy consumption, the energy industry and everything is going to be driven because you have a huge mass of people that have basically the growth has become self sustained and they no longer depend on the imports and the disposable income has risen dramatically as we heard and they have got a lot more development to undertake and they are going to do it and it is open to change the world and they are not alone. india is the same. maybe not quite as far up the development skill less china, but they are also going through this, so that's why in the international agency we are very concerned about the growth in foot technology used. if they do school we are going to have a tremendous increase in carbon dioxide in the atmosphere for civil and it is not just carbon dioxide is of the pollutants associated, and those
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pollutants can cross the pacific ocean, so we are three concerned about how china and india different or satisfy their insatiable appetite for the energy over the next two to three decades. it matters a lot for our welfare here even though we are not consuming increasing amounts of energy if they are it's going to affect our environment and our economy. >> any other comment anyone want to answer on this? what we did see senator murkowski come to you have additional questions? senator, do you have additional questions? thank you. i think it has been a useful during and we appreciate your expertise and your time today. thank you. that concludes our hearing. thank you.
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