- July 23, 2002: House Resources Subcommittee on Energy and Mineral Resources: Hearing on the availability of bonds to meet federal requirements for mining, oil and gas projects
- July 16, 2002: House Resources Subcommittee on Energy and Mineral Resources: Hearing on natural gas resources; the role of federal lands and the future natural gas supply and demand imbalance
- June 20, 2002: House Committee on International Relations Hearing on Oil Diplomacy: Facts and Myths Behind Foreign Oil Dependence
- Summary of Energy Hearings: March 2002
- Summary of Energy Hearings: October/November 2001
- Summary of Energy Hearings: July 2001
- Summary of Energy Hearings: June 2001
- Summary of Energy Hearings: April/May 2001
- Summary of Energy Hearings: March 2001
- Summary of Energy Hearings: January/February 2001
The Bottom Line
On July 23rd, the House Resources Subcommittee on Energy and Mineral Resources held a hearing on the availability of bonds to meet federal requirements for mining, oil and gas projects. The federal government requires adequate financial guarantees, often in the form of bonds, from mining and oil companies operating on federal lands. The bonds, issued by the surety bond industry, ensure that the obligations of mining and oil companies for post-production site cleanup and reclamation of federal lands are met. Witnesses testified that the surety bond industry has recently deteriorated due to increasing financial risk caused by long-term operation site uncertainty. The resulting paucity of surety bonds has led to the sinking of mining industry cash into the financial guarantee requirements, resulting in inefficient use of capital and mining industry decline. Chairwoman Barbara Cubin (R-WY) warned that the consequences of this inefficiency on domestic energy production are severe. An official from the Land and Minerals Management office at the Department of the Interior (DOI) noted that the agency has convened a Bonding Task Force to address the problem.
|Barbara Cubin (R-WY) - Chairwoman||Ron Kind (D-WI) - Ranking Member|
|Jay Inslee (D-WA)|
|Ed Markey (D-MA)|
Chairwoman Barbara Cubin (R-WY) opened the hearing with a summary of the reclamation guarantee process that mining and oil companies must complete before operating on federal land leases. The companies, she said, must provide financial guarantees that ensure that money will be available for the reclamation and cleanup of abandoned sites. The most common guarantees come in the form of surety bonds in which surety companies guarantee the fulfillment of a specified obligation (reclamation, cleanup) by the mining and oil companies. In the early 1990's, the surety industry was flourishing, but recent instability in the industry has resulted in a lack of available bonds for the mining and oil industries. To meet the guarantee requirements, the companies have been forced to provide money from their own money caches. This inefficient use of capital is available only to the largest companies, Cubin noted, and will eventually result in diminishing domestic energy supplies.
Rep. Ron Kind (D-WI) followed Cubin by noting that site cleanup and reclamation should be a "cost of business." He then turned to the Bonding Task Force convened by Secretary of the Interior Gale Norton, scolding it for meeting with only the mining and oil industry sectors. He warned that other stakeholders, like state and local governments, must be included in the discussions.
Rep. Ed Markey (D-MA) concurred with Kind by saying that site cleanup and reclamation should be a cost of business. He noted the unfortunate timing of this hearing in light of the Enron and WorldCom scandals. He warned that corporations are not always responsible and should not be let off the hook on reclamation duties.
The lone witness on the first panel was Tom Fulton, Deputy Assistant Secretary of Land and Minerals Management at the Department of the Interior (DOI). He testified that DOI requires guarantee bonds before it gives licenses or permits. He acknowledged the recent surety industry downfall and noted that the Bonding Task Force was designed to address the issue. As chairman of the task force, he assured the committee that all stakeholders will be consulted.
In the question and answer period following Fulton's testimony, Cubin questioned him on the severity and extensiveness of the bonding problem. Fulton responded by noting that most federal laws require reclamation guarantees, and the problem is large. He stated that bonding details, however, are hard to generalize as they vary with the situation and government agency that has jurisdiction.
Kind returned to the task force issue. He repeated his assertion that all stakeholders must be included, and then asked with whom the task force has met and when it was formed. Fulton could not recall the inception date for the task force, but indicated that it has met with only the mining and surety industries so far. Kind followed by asking if the bonding requirements will be lowered as a solution to the problem. Fulton was unclear about the possibility of lowering requirements, but did indicate that DOI did not want to use taxpayers' money for cleanup and reclamation.
The second panel witnesses included Lynn Schubert, President of the Surety Association of America; Steve Borell, Executive Director for the Alaska Miners Association; and Gerald Schlief, Vice President of ATP Oil and Gas Corporation. Schubert testified that the surety industry conducts risk analysis in its bonding practices, and that the current risk levels have overcome the incentive to extend bonds to companies. He expanded by noting that current federal land regulations and environmental practices have forced companies into long-term situations in which risk assessment is difficult. He stated that bonds would become available again if the risks were lessened. He suggested that bond obligation periods be reduced and bond obligations become more limited in scope. Borell, in his testimony, stated that the miners he represents have been unable to secure surety bonds for their federal land operations and do not expect to have bonds available in the near future. He outlined some recent attempts by the miners to acquire bonds that, because of bond unavailability, have resulted in the inefficient tying up of cash in financial guarantees. The only alternative, which is restricted to mines that do not use chemicals in processing ore (i.e. placer and alluvial mines), is state bond pools. He noted that this option is currently available only in Alaska and Nevada. Schlief, testifying on behalf of the National Ocean Industries Association, touched on issues that were already discussed. He acknowledged the oil industry's dependence on the surety bond industry and lamented the practice of putting up cash as a guarantee.
In the question and answer period, Cubin asked Schief what impacts a tight bonding market had on the oil industry. Schief replied that the companies stay onsite longer to avoid beginning reclamation activities. He also restated the damaging effects caused by companies having to use free cash in fulfillment of guarantee requirements. Rep. Jay Inslee (D-WA) echoed Markey's comments by saying the timing of this issue is "stunning." He expressed concern that cleanup and reclamation responsibility may be shifted from the companies to the taxpayers. He asked the panel if they sought the elimination of bonding requirements for some developments. The panel unanimously asserted that the elimination of bonding requirements was not their goal.
The third panel consisted of Chuck Jeannes, VP of Glamis Gold Ltd.; Ken Done, Director of Treasury Services for Rio Tinto Services Inc.; and Jim Kuipers from J. Kuipers Engineering. Jeannes testified that his company has been unable to acquire surety bonds for its operations despite its good environmental record and unlikeliness to default on reclamation obligations. He stated that the scarcity of surety bonds, aside from hurting existing companies, will discourage new companies from forming and ultimately cause industry growth to wane. Dore's testimony, which was on behalf of the National Mining Association, complemented Jeannes. He said that operations by Rio Tinto Services have been hindered by the lack of bonds. He stated that the situation is counterproductive to Bush's National Energy Policy, which calls for more development on federal lands. He assured the committee that the mining industry is not trying to shirk its responsibility but rather is trying to reclaim the security of the pre-surety industry collapse. The third witness on the panel was Kuipers, who testified on behalf of the Mineral Policy Center. He argued that companies must not be allowed to lower standards or conduct mining operations without a financial guarantee. He noted that some companies are asking for taxpayer assistance and called for the Bush Administration to keep the current regulations intact. Disagreeing with the other witnesses, he downplayed the effects of the lack of surety bonding availability, saying that the companies had time to prepare for this situation.
In the question and answer period for the third panel, Cubin asked the panel if reclamation cost estimates have contributed to the bond scarcity issue. Jeannes replied that the cost estimates are pretty reliable and stable and do not exacerbate the problem. Other questions asked by the committee prompted the panel to elaborate on their own particular bond procurement stories.
The Bottom Line
On July 16th, the House Resources Subcommittee on Energy and Mineral Resources held a hearing on the status of natural gas resources in the US, focusing on the role of natural gas-rich federal lands and the Outer Continental Shelf (OCS). At issue was the growing natural gas supply and demand imbalance, and the resulting negative effects on energy markets, such as energy price fluctuations and energy resource uncertainty. As Chairwoman Barbara Cubin (R-WY) pointed out, the demand for natural gas is expected to grow 60% by 2020, with over 90% of the proposed new power-generation plants featuring natural gas. Supply, however, is not expected to keep pace with demand under present conditions of natural gas availability. Witnesses at the hearing, which included a high-ranking Department of the Interior (DOI) official, consumer advocacy group spokesmen, energy industry representatives, and oil and gas industry representatives, principally called for the opening of the gas-rich federal lands in the Rocky Mountains, Alaska, and the OCS to exploration and production. DOI noted that it has adopted long-term plans to open these lands and short-term plans involving production in the coalbed methane reserves on federal lands in the Rocky Mountains to boost natural gas supply. Rep. Billy Tauzin (R-LA) brought up several issues, including reducing the US dependence on foreign gas imports, reassessing royalty payments for OCS states, and furthering research into possible gas energy sources like methane hydrates.
|Barbara Cubin (R-WY)||Ron Kind (D-WI)|
|Thomas Tancredo (R-CO)|
|Billy Tauzin (R-LA)|
Chairwoman Barbara Cubin (R-WY) opened the hearing by focusing on the expanding natural gas supply and demand imbalance. She noted the growing need for natural gas by citing an expected 60% increase in demand by 2020. She also stated that over 90% of new electricity generation plants as currently proposed will use natural gas. Supply, however, is not and will not keep pace with demand unless changes are made to existing land policies, she said. She pointed to the gas-rich Rocky Mountains, Alaska, and OCS as areas where "land withdrawals, development moratoria and regulatory restrictions" have prohibited access to potential new reserves. The country is headed for economic disaster, she warned, if the natural gas supply and demand imbalance is not corrected by easing restrictions to these areas.
Rep. Ron Kind (D-WI) followed Cubin by recognizing the natural gas supply vs. demand concerns, but asked that caution be taken when dealing with environmentally sensitive areas like the North Slope of Alaska. Noting the US oil and gas dependence on foreign, often "hostile" nations like Iraq, Rep. Billy Tauzin (R-LA) argued for lessening foreign oil dependence by easing access restrictions to gas-rich areas in the US. He cautioned, however, that domestic production must include environmental protection. As an example he cited Louisiana, which supplies 19% of the nation's natural gas but pays heavily for it in wetland loss. A balance must by struck between reducing dependence on foreign oil and protecting environmentally valuable lands, he concluded.
The only witness on the first panel was Rebecca Watson, Assistant Secretary for Land and Minerals Management at the Department of the Interior (DOI). Watson echoed the statements of Cubin in her testimony by pointing to the growing imbalance between US energy consumption and domestic energy production. She stated that having a diverse number of energy sources, from traditional fossil fuels and nuclear power to alternative sources and renewables, is the best approach. President Bush's National Energy Policy endorses this approach, she noted, but total renewable energy production will remain too low to be of any considerable help in the near future. Thus, she argued, the US must rely on fossil fuels, such as natural gas, to carry the energy burden. To achieve a natural gas supply and demand balance, DOI proposes long- and short-term gas solutions focusing on the gas-rich Rocky Mountains and OCS. Long-term plans include opening Bureau of Land Management (BLM) lands to exploration and production and developing production in deep-water of the Gulf of Mexico. These long-term plans are capital intensive, she stated, and require time. Immediate needs can be met using DOI's short-term plans that encourage production in the shallow-water Gulf of Mexico and development of coalbed methane reserves on federal lands in the Rocky Mountains.
In the question and answer session for the first panel, Cubin asked Watson if DOI is working to improve the image of fossil fuel production. Watson stated that being a fossil fuel industry "cheerleader" is not DOI's job, but it helps to supply facts when it can. Watson pointed to the USGS coalbed methane factsheet as an example. Kind then asked Watson why renewable energy programs account for only 5% of BLM's budget. She replied that DOI has an active committee looking in to the status of the renewable energy program, and is awaiting the results of the committee. Tauzin asked Watson a series of basic questions to demonstrate the huge gap between land and OCS royalty payments (50% vs. zero). He stated that OCS states, like Texas and Louisiana, suffer environmental damage from resource production, but don't receive any payment in return, unlike states with terrestrial resources. He then asked Watson if DOI could supply information to him on methane (gas) hydrates. He suggested that methane hydrates are a possible energy source which should be considered.
The second panel was comprised of Glenn R. Schleede, member of advisory council for Consumer Alert; Lee Gooch, Chairman of PCS Nitrogen, Process Gas Consumers Group; and Eugene F. Peters, VP of Government Affairs, Electric Power Supply Association. Schleede and Gooch, both representatives from consumer groups, testified on the ramifications of the natural gas supply and demand imbalance on consumers. They noted that energy prices have been too volatile, causing economic harm to the public when prices are high and both harm and disincentive to the natural gas industry when prices are low. Both urged that the natural gas supply be increased, and argued for the easing of restrictions to federal lands and OCS as a way of boosting supply. Schleede further argued for the construction of more gas pipelines. Gooch felt it ironic that natural gas has been labeled a relatively "clean" fuel source while access to it has been simultaneously restricted by environmental laws.
Peters, like the other speakers, began by reminding the committee of the growing imbalance between natural gas supply and demand. As a representative from the electric power industry, he noted that over 90% of new power generation plans call for natural gas. The natural gas industry, because of both its good infrastructure and development of advanced technology, is technically well equipped to supply enough gas, he said. Adequate supply, however, is contingent upon having enough resources, and he consequently pushed for the opening up of federal lands to gas production.
In an attempt to focus the discussion, Cubin asked the witnesses in the second panel what exactly the government should do to alleviate the natural gas supply and demand imbalance. Schleede answered that the government should open public lands for exploration and production. Gooch added that a balance must be struck between fossil fuel, nuclear and renewable energies to create a stable energy economy. Peters concurred that supply must be increased and that the government should help to provide stability for industry long-term economic plans. Cubin followed by asking what the consequences are for not increasing supply. Peters said that energy companies are flexible, but too little supply or too much price fluctuation will cause the industry to eventually abandon gas in favor of coal and nuclear energy.
The third panel included Mary Hutzler, Administrator for Energy Information Administration; Matthew Simmons, President of Simmons & Co. International; and Diemer True, Chairman of True Oil Company, representing the Independent Petroleum Association of America. The testimonies of Hutzler and Simmons complimented each other. They both reiterated the previously voiced warning that supply falls short of demand, creating harmful price volatility. Hutzler indicated that the demand for natural gas is expected to rise 2% a year for the next 20 years. She urged the importation of more gas by opening mothballed Liquefied Natural Gas (LNG) port facilities created during the oil scare of the 1970's. Simmons suggested that the long-term solutions of opening federal lands and OCS to production, building more gas pipelines, and putting more money into natural gas research and development should be implemented.
True painted a bleaker picture of the supply and demand problem by noting that, because rates of natural gas depletion from proven reserves are increasing, supply will actually decrease from current levels under the present conditions, creating further imbalance. He said that federal lands must be opened, and that moratoria on OCS leasing, like in California, must be lifted. He also suggested adjusting the royalty payment system to encourage OCS development. The uncertainty in royalty payments hurts the oil and gas industry by fostering indecision, he noted.
In the question and answer session for the third panel, Cubin asked Simmons what effects a 10% drop in natural gas supply would have on the US economy. Simmons replied that the consequences would be serious economic damage.
Cubin then closed the hearing by asking the panel if a national energy monitoring and warning system that included natural gas would be useful. The panel responded in the affirmative, but added that a comprehensive system will take a lot of effort and resources to set up. They agreed that advance knowledge of supply and demand fluctuations would help stabilize the energy industry.
The Bottom Line
The House Committee on International Relations held a hearing on oil diplomacy on June 20, 2002. The first panel presented the current goals of energy policy in the US; the second group offered their concerns and suggestions for improvement of US energy policy. There was widespread agreement that dependency on OPEC oil must be reduced. While some felt diversifying non-OPEC oil sources could easily fill US oil demands, others felt it was essential that energy conservation play a role in future energy policy as well. Increasing Corporate Average Fuel Economy (CAFE) standards and encouraging technical innovations were two popular solutions for conserving energy. Diversification of energy sources was also a solution voiced -- specifically the increased use of nuclear, solar, and wind power. There was a positive sentiment at this hearing that, if given the opportunity and incentive, there was great hope that Americans would come up with new technologies and methods of conserving energy that would be a win-win on many fronts, including foreign policy, the US economy, competitiveness of US products in the global market, the environment, employment, and quality of life.
|Henry J. Hyde (R-IL), Chairman||Tom Lantos (D-CA), Ranking Member|
|Benjamin A. Gilman (R-NY)||Brad Sherman (D-CA)|
|Dana Rohrabacher (R-CA)||William Delahunt (D-MA)|
|Ed Royce (R-CA)||Earl Blumenauer (D-OR)|
|Steve Chabot (R-OH)||Shelley Berkley (D-NV)|
|Ron E. Paul (R-TX)||Adam Schiff (D-CA)|
|Nick Smith (R-MI)|
|Darrell Issa (R-CA)|
Committee Chairman Henry Hyde (R-IL) opened the hearing by remarking on the many ways in which the people of the US are dependent on energy -- for our protection, cars, homes, transportation of goods, etc. He discussed the current dependence on OPEC and the need to find alternative sources of oil in order to decrease this dependence. Decreasing dependence on foreign oil is attractive for several reasons: our oil supply is linked with the political and economic security of the suppliers, in the event of interruption of the world oil supply we need to have alternatives, and our current dependence is viewed as competing with our national security. Hyde expressed uncertainty that energy independence is possible or even advisable but suggest that greater energy security is achievable. Ranking Democrat Tom Lantos (D-CA) echoed much of what Hyde stated, adding that "until today we haven't examined how our reliance on Middle Eastern oil hinders our fight against terrorism." He noted that this area, which supplies much of our oil, contains people very hostile to the US. He continued that it is distressed that US foreign policy in the Middle East is complicated by our oil needs. Lantos also added an additional dimention to the opening statements by bringing up the issue of the need to scale back the US addiction for oil as opposed to continuing down a road where lifestyles require us to be increasingly dependent on it. He concluded that it is a "myth that we can drill our way out of oil dependency."
Spencer Abraham (Secretary of Energy) and Alan Larson (Under Secretary of State for Economic, Business, and Agricultural Affairs) were the two witnesses on panel one. Both men discussed the basic fact that two-thirds of proven world oil reserves are in the Middle East, while the US has only 2%. This situation leads to the undeniable fact that the US must increasingly rely on oil imports as the source of a significant portion of its oil. Because of the necessary dependence on foreign oil, it is imperative that the US constructs an energy security policy that ensures US access to oil without having its foreign policy "held hostage by foreign oil suppliers." Abraham and Larson also both suggested expanding our international supply of energy to decrease dependence on the Middle East. Canada, Mexico, Venezuela, Africa, Russia, and the Caspian Basin are all promising areas of expansion, most of which are considered to be more reliable and secure than current Middle Eastern sources. While calling for increased priority on energy efficiency and conservation, their thoughts on our future oil needs were best expressed by Larson: "Under current circumstances, significant reduction of oil imports could not be achieved without severe effects on our industries and a significant reduction in the buying power of American families."
After the witnesses testified, the representatives asked a multitude of questions covering all aspects of energy policy. Lantos asked Abraham why the administration was opposed to raising CAFE standards and after some banter Abraham answered that the administration has called for Congress to end the moratorium placed on this topic by both the House and Senate so that CAFE standards can be reexamined. Lantos also brought up the rolling blackouts and brownouts in California which are now speculated to be due to Enron creating artificial shortages. He asked if Abraham agreed that this was what had happened and Abraham responded that yes, Enron could have contributed to the energy shortage in California.
Rep. Ron Paul (R-TX) asked why the US doesn't move toward a "freer [oil] market", as we have for TVs, VCRs, cars, etc., as opposed to national planning. He felt that that the way it is now, with energy policy and foreign policy so closely linked, a mistake in one arena is compacted in the other, therefore why not let the marketplace take care of our energy needs? Abraham replied that critics of the current energy plan feel that the plan is too free market oriented, and stressed that in the absence of transparency and market systems it will be very hard to make progress in energy policy.
Rep. Brad Sherman (D-CA) brought up the issue that while there will always be enough "safe" oil, the real issue is how to pay for it. He hopes that Canada and Mexico will agree with and set appropriate oil prices. He stressed the importance of expanding our petroleum reserves. He also expressed his feeling that the US took a "pitiful approach toward Europe on the Iran oil issue."
Rep. Nick Smith (R-MI) asked what needs to be done in terms of developing and moving ahead with more nuclear power plants. Abraham responded that there are three issues that need to be addressed: what to do with the nuclear waste, limiting the liability of the plants, and additional research on siting and safety issues of nuclear power plants.
Rep. Earl Blumenauer (D-OR) discussed miles per gallon (MPG) standards in Europe and the fact that even US cars exported to Europe will meet the increasingly stringent MPG standards, proving that US car companies are capable of producing more efficient cars. He heatedly asked Abraham, "why can't we get a little urgency in leadership for improved fuel efficiency?" Abraham responded that the administration is not sitting still. He offered their support of the freedom car and hydrogen fuel cell research, as well as their call to lift the moratorium on discussion of Corporate Average Fuel Economy (CAFE) standards, as evidence of their taking the initiative to "transcend the motor vehicle as we know it today."
Rep. Dana Rohrabacher (R-CA) voiced his concern that "radical environmentalism" was aiming to restrict the standard of living of American people. He proposed that the US increase its domestic supply and diversify its sources so that the US is not so dependent on receiving oil from places in which the people living there disagree with our way of life.
Rep. Shelley Berkley (D-NV) began by stating that all members and witnesses seemed to be in agreement that the US needs to get away from its dependence on foreign oil sources but some "part company with the administration on its solution". She then used Yucca Mountain, the current hot topic for her state of Nevada, as an example. While the administration looks to Yucca Mountain as an adequate place to store nuclear waste, Berkley suggests that it will create a target-rich environment that Al-Qaida is looking for. How much, she asked, does the administration plan on expanding nuclear production, and what do they plan to do with all of the waste it creates? She urged Abraham to look to renewable energy. "Harness the sun! Harness the wind!" Put the billions of dollars that are going to build the "hole in the ground" at Yucca towards research and implementation of renewable energy. Her questions were, for the most part, unanswered.
Rep. Darrell Issa (R-CA) then asked if it is the administration's position to increase energy production, alternatives, and conservation, and whether legislators have made international relations tougher? Does Congress "tie your hands in diplomacy?" Larson responded that there is "no silver bullet for energy security...[it is a] bipartisan national security issue."
Rep. Adam Schiff (D-CA) was the last congressman to speak during this question and answer period. He stated his confidence in the technical ability of the people of the US and his belief that they are missing an opportunity to increase energy efficiency. Implementation of incentives for energy efficiency, alternative energy, and new technologies would be a win-win situtation in his eyes and the best thing for our nation's future. He feels the US is at a point where this is technically doable, and it is a perfect time for the new industries that would be created. He asked what role Congress could play in cultivating alternative energy technologies and how much money could be put towards doing that. Larson responded that the administration budget this year contained the largest request for renewable energy funding yet.
Panel two consisted of three witnesses: Dr. Daniel Yergin, Chairman of Cambridge Energy Research Associates; Frank Gaffney, Jr., Former Assistant Secretary of Defense for International Security Policy and President and CEO of the Center for Security Policy; and Stuart Eizenstat, Former Deputy Secretary of the Treasury and Partner of Covington and Burling.
Yergin began his testimony by stating "energy security has recurrently been an issue since the rise of industrial society more than a century ago" and quoted Churchill's statement "safety and certainty in oil lie in variety and variety alone," expressing that the same is still true today, decades later. He pointed out that the US has had an "exaggerated confidence about security...[including] energy security" until recently. However, energy security has come to the forefront in policy making once again, and Yergin attributes this to four factors: the rise in US oil imports, turmoil in the Middle East, market pressures causing price increases, and the recent reminder of US vulnerability. Energy is at the base of the US economy and he stated that the practical question regarding energy is not how to make substantial reductions in imports but how to stabilize them and ensure that they will be available when needed. He offered several ideas as to how this could be accomplished:
Eizenstat echoed much of what had already been discussed. "No matter how you look at it, the United States lacks the oil reserves to sustain its own growing rate of oil consumption...An energy poicy that focuses only on supply and does not account for ever-increasing consumption levels will doom us to increased dependence on foreign oil, no matter what measures we may take to increase domestic sources of energy." He feels that while the Bush administration energy plan recognizes many of the energy problems the US faces, it fails to recognize that any future change in energy policy must be accompanied by a decrease in consumption. Our dependency on foreign oil has caused energy shocks that have negative effects on our economy and unemployment rates. The presence of US troops in Saudi Arabia and the Persian Gulf are meant to protect the governments in those areas but has lead to "resentment in the region ... we remain dependent on a region where ... the tide of anti-Americanism continues to rise." Reducing oil consumption would enable us to decrease our dependence on "volatile foreign markets." Eizenstat offered several solutions:
Following the testimony of the second panel, Hyde began the question and answer period by complimenting the panel on the fact that all three men had not only described the problem but also prescribed answers, something that he has found rare and greatly appreciates. Rep. Benjamin Gilman (R-NY) began by addressing two questions to the panel. First, he wanted their thoughts on Canadians who claim to have more oil than the US needs. Yergin said that Canada is, in fact, one of the largest US suppliers of oil, and Canadian oil prices have been declining. Gaffney added, however, that marginal costs of gettting oil from some Canadian areas are still higher than getting it from other sources. The second question was what can be done to break up the OPEC cartel. Gaffney suggested the use of SPR and added that it is in the strategic interests of the US to decrease the power of OPEC, especially considering where some of the money is going (terrorists). Eizenstat agreed, emphasizing that this, once again, makes the case for diversifying our oil sources as well as reducing our oil demand. He added that part of the reason the Saudis have generally been very fair with oil pricing is because they know if they become unreasonable in their prices they will be tempting the US to diversify. Yergin and Eizenstat also brought up the importance of research and development of renewable and alternative fuels as another energy source.
Rep. William Delahunt (D-MA) said that in this world market in which we are all a part, we speak of our "Canada friends" and "OPEC friends" but in reality, who is OPEC? He suggests that in many respects it might as well be called OPEC 'R US as it is really corporations that have the control and are resistant to diversifying. He then asked what the witnesses thought the future was for a new MPG standard, reminding them that the MPG standard is lower now than it was in the mid-80s due to actions during the Reagan administration followed by the CAFE moratorium. One witness reponded that it was hard to say, he believed that it was an "honest political process" but the power of the "big three" and the auto industry were quite efficient at blunting it. Eizenstat then pointed out that in the long run, raising the bar for MPG standards would help US auto companies. The requirement to produce more fuel efficient cars would make US automakers more competitive with German and Japanese cars. Increasing fuel efficiency is "not some far out concept" but the direction that the world is going in.
Lantos asked if any of the witnesses had estimated the percent savings of oil imports that could be gained by the implementation of higher CAFE standards. Eizenstat responded that increasing CAFE standards to 40 MPG would save 125 billion gallons of gasoline by 2012, more than the total amount of oil we import from Saudi Arabia. He added that Congress can't be serious about decreasing oil dependence if they don't revamp these standards.
Please send any comments or requests for information to the AGI Government Affairs Program.
Contributed by Summer 2002 AIPG/AGI Interns Sarah Riggen and David Viator.
Posted November 12, 2001, Last Updated August 5, 2002
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