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Summary of Hearings on Energy (11-22-06)
Witnesses Panel I Panel II The Senate Committee on Commerce, Science and Transportation convened on November 16, 2006 to examine S.3961, the Pipeline Inspection, Protection, Enforcement and Safety Act of 2006, which would amend and reauthorize The Pipeline Safety Act of 2002. Work on this legislation has been ongoing in the 109th Congress, however, oil leaks in low-pressure pipelines in Prudhoe Bay, Alaska and the shut-down of about half of the pipeline system in the Bay by BP because of serious corrosion have brought the issue of pipeline maintenance and safety to the forefront. Indeed, because of the pipeline problems in Alaska, policymakers have offered additional amendments to the bill to try to prevent the problem from recurring. Chairman Ted Stevens (R-AK) reported that the Pipeline and Hazardous Materials Safety Administration (PHMSA) is responsible for "160,000 miles of hazardous liquid interstate transmission pipelines, 305,000 miles of natural gas transmission pipelines, and 1.9 million miles of natural gas distribution pipelines." The states are responsible for much longer sections of pipelines that run through their states, where state pipeline safety offices are given authority from the Administration to monitor the safety of intrastate pipelines and certain interstate pipeline programs. He reported that for the most part pipelines are very safe and records have been slightly improved. However, recent events in Alaska illustrate that "much could be done" to improve the original Pipeline Safety Act. Chairman Stevens indicated that he and Senators Daniel Inouye (D-HI), Trent Lott (R-MS) and Frank Lautenberg (D-NJ) have introduced legislation known as the Pipes Act to reauthorize and strengthen the federal pipeline safety programs through the fiscal year 2007-2010. He expressed hope to pass S.3961 during the first week of December and combine S.3961 with House bills, H.R.5782 and H.R.5678, which he stated have very similar goals. Ranking Member Inouye pushed for progress in a bipartisan fashion and echoed Steven's wish to pass this bill before recess. "Time is of the essence," he said. On the first witness panel, Vice Admiral Thomas Barrett of the Department of Transit's PHMSA, outlined two issues of importance - ensuring the safety of citizens through risk-based assessment and damage prevention programs and raising the cap on grants provided to state pipeline agencies to carry-out these programs and others over the next six years. Barrett stated his support for swift reauthorization of the pipeline legislation. He reported that PHMSA favored a system-based approach to assessing and managing safety-related risk because large infrastructure systems change over time. Therefore, the provision in the proposed legislation requiring mandated tests every seven years should be adjusted to test instead on the basis of risk factors, according to Barrett. In this way, attention and resources can be deployed "against the greatest risks, worst first." Furthermore, Barrett challenged the provision which would impose stricter standards on low-stress lines. He stated, "We have not determined yet whether covering more pipeline mileage and imposing more requirements can be justified by cost/benefit analysis. We have this matter under consideration and would appreciate having flexibility for the Secretary to make an appropriate decision to maximize protection of public safety, the environment and the reliability of energy supply." The second witness panel featured representatives from the gas and oil pipeline industries and Carl Weimer, executive director of Pipeline Safety Trust, a non-profit organization that provides a voice for those affected by pipelines. Weimer outlined provisions that his organization supports and those that it opposes. Weimer noted his support of provisions in S. 3691 that would place all low-stress lines under the same minimum federal standards as high-stress lines, necessitate senior executive signatures on integrity management reports, call for a one-year timeframe to develop distribution integrity management standards, including the obligatory installation of excess flow valves, demand electronically posted monthly summaries of pipeline enforcement achievements and reauthorize technical assistance grants to states. However, Weimer noted the need for more transparency in the pipeline management process. He urged the committee to publicize national pipeline mapping systems, make inspection findings accessible and report on over-pressurization events. Lastly, he asked that the current language which called for the development of criteria requiring emergency safety valves be strengthened to employ the inexpensive safety precaution immediately. Tim Felt, president and CEO of Explorer Pipeline Company, noted the success of the Pipeline Safety Improvement Act of 2002, which has resulted in pipeline safety improvements. He urged committee members to reauthorize the bill now so work that has gone into the current legislation will not be lost and result in months if not years of procrastination. Felt noted provisions within S. 3961 that he felt could be improved, but stressed repeatedly that the passage of this bill was far more important than its amendment. He stated his support for regulating low-stress pipelines on the North Slope of Alaska with the same rules as high-stress lines and urged that Section 13 of the bill adopt the same language as House bill, H.R. 5782 to enforce this. Within Section 6 of S. 2961, which would give DOT jurisdiction to issue mandatory orders to pipeline operators, he suggested modifications be made to allow operators the opportunity to confer informally with DOT before calling a hearing in order to save time and legal costs and improve safety sooner. Finally, he suggested that Section 9 of the bill, requiring monthly informational updates on pipeline enforcement actions, be treated under normal due process and confidentiality procedures. He concluded, "Passage of compromise legislation is more important than any concerns we have with individual provisions." Terry Boss, senior vice president of Environment, Safety and Operations Interstate Natural Gas Association of America, testified in support of S. 3961 and noted that his association has made this legislation a top priority, encouraging the committee to move the bill forward as soon as possible. He did, however, note that the current seven-year requirement for regulatory tests in the bill lacked any basis in engineering and management and repeated Barrett's suggestion for more risk-based assessment so that pipelines with higher need could be tested more frequently and those that were sound and safe could be tested less frequently. E. Frank Bender, vice president of Gas Distribution and New Business Division at Baltimore Gas and Electric Company, testified on behalf of the American Gas Association and the American Public Gas Association. He commended the committee for "putting together a solid bill" and committed to working to provide feedback for Congress so that it can secure passage of a final bill this year. Full text of the witness testimony is available here. -RB
Witness Prompted by North Korean missile launches on July 5, 2006 and a nuclear test on October 9, 2006, the House Full Committee on International Relations convened on November 15, 2006, after recess and midterm elections, to discuss the future of foreign policy with North Korea. Chairman Henry Hyde (R-IL) warned against assigning too much weight to the Chinese position in the disarmament of its neighbor. While he noted that Beijing has been surprisingly cooperative following the tests, even cutting off oil flow to North Korea from the Yalu River, he stated, "If Beijing becomes the key player in resolving the North Korean nuclear issue while we are engaged elsewhere, I fear potential long-term, dire consequences." Hyde did, however, caution against the execution of naval inspections that China, Russia and South Korea did not fully support. Tom Lantos (D-CA) called for a "new and bold approach," because in his opinion, it is "abundantly clear" that efforts thus far have failed. He suggested "forceful action and high-level diplomacy" could provide a chance, though very slim, for a solution to the problem. He echoed Hyde's stress on the importance of cooperation with China and Russia and said a Security Council Resolution was meaningless without it. Lantos also noted the need to address the extensive human rights violations occurring in North Korea today. Partisanship flared up during opening statements. Brad Sherman (D-CA), stated that President Bush's assertion that "nuclear weapons [were] out of enemy hands" was completely false given that North Korea has many more than they did six years ago and suggested that until the U.S. was willing to offer a non-aggression pact and secure a firm linkage with China, the country could never be successful. Even more pointedly, Gary Ackerman (D-NJ) stated that Bush's "internal bickering and external dithering" had led directly to a North Korean nuclear test "with more fizzle than bang" and stated that it was "well past time for the president to cut to the chase." Dana Rohrabacher (R-CA) retaliated, blaming the Clinton Administration for originally putting the current foreign policies in place. He reported that North Korea had received billions of dollars from the U.S. and was one of the biggest recipients of foreign aid. He also pointed to a report* from a bipartisan commission to review US-China economic relations, which he said will be made public on November 16, which states that China has helped North Korea in their nuclear proliferation. The U.S., therefore, cannot rely on China at all, said Rohrabacher. Witness Nicholas Burns, Under Secretary of State for Political Affairs, testified on the U.S. response to North Korea's "objectionable behavior." According to Burns, in order to succeed in its goals, the U.S. must employ a two part strategy. First, Burns said, the UN sanctions must be fully implemented in order to isolate the region and second, multilateral negotiations must be pursued to return to the Six Party Talks. Burns reported that the U.S. has responded with force and diplomacy, passing Resolution 1718 on October 14, 2006, which imposes harsh sanctions on the North Korean government, while also pushing North Korea to sign the September 19, 2005 Joint Statement which would lead to the dismantlement of its nuclear weapons and programs. He has also traveled to Japan, South Korea and China where he met representatives from these nations and Russia in order to develop a common position on sanctions and future diplomatic actions taken towards North Korea. President Bush and Secretary of State Condoleezza Rice are currently in China and will continue negotiations to "firm up" an alliance. His written testimony reports that Japan, South Korea and China are committed to implementing sanctions and all partners support Resolution 1718. The next crucial step, according to Burns, is a clear and unified implementation of the Resolution. While, Burns supports multilateral negotiations, he stated that there "can't be talks for talk's sake." North Korea must realize the seriousness of purpose and the talks cannot be solely the responsibility of the U.S. James Leach (R-IA), Ranking Member and Acting Chairman of the latter half of the hearing, challenged Burns' rejection of bilateral negotiations explaining that while solely bilateral talks would be fruitless, they should "complement" the Six Party Talks. Dealing directly with North Korea could lead to a change in North Korean psychology. Burns acknowledged the value of this suggestion and noted that direct face-to-face talks between Assistant Secretary of State, Chris Hill, and North Korean officials took place in July 2005. -RB
Part I: Subcommittee on Energy and Resources, House Committee on
Government Reform Part II: House Committee on Government Reform A lack of price thresholds in leases between oil companies and the Minerals Management Service (MMS) of the Department of the Interior (DOI) will result in a loss of $10 billion in royalty revenue over the life of the leases. In 1995, Congress enacted the Deep Water Royalty Relief Act in order to encourage oil companies to undertake costly deep water projects at a time when oil prices were low. Those with eligible leases would be allowed to operate royalty-free until they produced a certain volume of oil or until the market price for oil reached a specified ceiling. However, leases from 1998 and 1999 lack this addendum. Two of these flawed leases include the Outer Continental Shelf (OCS) Gulf of Mexico region, where recent discoveries suggest 3 to 15 billion barrels of oil may exist. The House Committee on Government Reform called a two-part hearing on September 13 and 14 in order to examine the DOI and its irresponsibility and lack of accountability on this issue. On September 13, Chairman of the House Committee on Government Reform, Tom Davis (R-VA) stated, "The Inspector General's Office found in 2004 that forty-six percent of employees within the Department believed that 'discipline was administered fairly only 'sometimes,' if ever.'" He referenced his late grandfather's work on the Interior and said, "I know [he] would also be disillusioned by the culture of waste, fraud, and abuse at the Department and would echo my call for immediate reforms." Davis hopes that the appointment of a new Secretary of the Interior, Dirk Kempthorne, may provide a "bright side at the Department of the Interior." Chairman of the Subcommittee on Energy and Resources Darrel Issa (R-CA) echoed Davis' concerns. "It is to define a job so narrowly and limited in scope over time - no matter how senior the position - that the person claims neither responsibility nor accountability for fulfilling their basic duties," he said at Part I of the hearing. "The only thing claimed is a paycheck." At Part II of the hearing on September 14, Ranking Member of the Full Committee Henry Waxman (D-CA) expressed concern "not only that MMS is failing to act. MMS may be collaborating with oil companies." Witness Earl E. Devaney, Inspector General of the DOI, testified the previous day that no evidence exists yet supporting this statement, though his investigation has yet to be completed. Rep. Carolyn B. Mahoney (D-NY) conveyed frustration that since the 1998 and 1999 leases went into effect, the US has recovered just about $50 million each year when previously royalties paid topped $176 million annually. Mahoney called ethical breaches in the DOI "inexcusable." On September 13, Inspector General Earl E. Devaney testified before the Subcommittee on Energy and Resources stating that the DOI operates under a code of "D's" - "Deny it happened, defend the indefensible and if all else fails, delay." "Simply stated, short of a crime, anything goes at the highest levels of the Department of the Interior. Ethics failures on the part of senior Department officials - taking the form of appearances of impropriety, favoritism, and bias - have been routinely dismissed," Devaney stated. He reported that the preparer of the leases was instructed to take provisions on price thresholds out of the leases by the Economics and Leasing Divisions of MMS. This individual passed a polygraph on the issue. The Economics and Leasing Divisions denied doing so. One of three employees provided a sworn statement, submitted to a polygraph and passed. The second declined to provide any sworn statement, therefore was not asked to take a polygraph. The third provided a statement, but would not submit to a polygraph. Commendably, Chevron testified previously as to mentioning the lack of price thresholds in leases during a series of meetings in 1998 and 1999. The DOI still took no action. Devaney called this incident "a classic example of bureaucratic bungling." During Part II of the hearing on September 14, Interior Deputy Secretary Lynn Scarlett and MMS Director Johnnie Burton disagreed with the Inspector Genteral's "broad-brush characterization." Scarlett testified on behalf of both officials stating that the Department is actively working to resolve the situation. She said that the Department's 70,000 workers are dedicated to "strong work ethic… and a commitment to accountability, efficiency, and effectiveness." Negotiations with 10 companies involved in the leases are underway. However, Scarlett said the complexity of the leases called for patience. When questioned, Burton asserted that two of the companies involved,
BP and Chevron, are very close to an agreement with the DOI. Burton
discouraged the administration from violating the "sanctity"
of contracts by tampering with contracts that it is duty-bound to
uphold. Yet House and Senate Committees on Appropriations inserted
provisions into the FY 2007 Interior-Environment spending bill (H.R.
5386) which will prevent companies from acquiring other leases
in the future if they do not renegotiate their older leases. Furthermore,
the House passed an offshore energy bill H.R.
4761 written with language intended to collect lost revenue. -RB
Witnesses Panel II On September 13, the House Committee on Transportation and Infrastructure
convened in response to BP's pipeline shutdown on Alaska's North Slope.
Motivated by the industry's negligent maintenance practices that resulted
in over 5,000 barrels of oil spilled this year, Congress scheduled
a series of hearings to discuss the problem. Chairman Don Young (R-AK)
called this particular hearing to focus on newly proposed legislation
written for the prevention of future pipeline corrosion problems,
specifically the Pipeline Improvement Act of 2006 (H.R.
5782). Currently the Code of Federal Regulations on pipeline integrity management
[Title 49 on Transportation and section 195 on Pipelines (49
CFR Part 195.452)] regulates the transportation of hazardous liquids.
However, only low-pressure pipelines in populated areas and under
navigable waterways are covered by the regulations. The Pipeline and
Hazardous Materials Safety Administration (PHMSA) proposed that low-pressure
pipelines in "unusually sensitive areas" be regulated as
well. This recommendation is included in H.R.
5782. Furthermore, Rep. Peter A. DeFazio (D-OR) doubted the bill's three-part piecemeal legislation would be effective. Instead of having three separate clauses for pipelines in populated, sensitive, and rural areas, DeFazio called for an "understandable, comprehensive regime." He also challenged the stipulation that only low stress lines within a quarter of a mile from "unusually sensitive areas" be regulated. His reasoning was that damage often extends much further. Vice Admiral Thomas J. Barrett, administrator of PHMSA, testified on the newly proposed plan which he called a "solid, risk-based approach." He assured members that the prescribed regulations would have prevented the BP spill from ever taking place. "While corrosion is a threat to any line, a well maintained line can operate indefinitely," he said. He addressed DeFazio's concerns indicating that risk-based management was the most efficient since it targets the areas with the greatest risks, for example those that threaten water supply or endangered species. He also noted that the Department of Transportation (DOT) personnel are in Alaska's North Slope supervising BP's mitigation efforts, spot checking inspectors and comparing data. The second witness, Lois Epstein, engineer for Cook Inletkeeper, an environmental non-profit group emphasized the dire need for federal oversight of pipelines based on the recent BP incident and a 1992 US DOT surveillance of unregulated low-pressure pipelines which found that 84% of the lines were not operated in compliance with 49 CFR Part 195.452. She called the proposed bill "an incremental sliver of the unregulated low-pressure transmission pipeline universe," faulting the plan for reducing 49 CFR 195.452 currently six pages long to one page in which smart pigs, inspection devices that thoroughly check for pipeline corrosion, "may" be used, but are no longer required. She recommended a citizen's oversight group and strategies to harness new energy options and reduce U.S. oil dependency. H.R. 5782 plans to cover 680 miles of rural low-stress lines, however, as few as 5% of these lines would be regulated under the rule. While Barrett said that around 4000 miles would be left out of federal jurisdiction, Epstein stated that some surveys put the number at 15,000. The final witness at the hearing, Steve Marshall, president of BP Exploration Alaska, Inc., continued to assert, "No one pointed to these lines as having problems. If they had we would have acted on it." He called for routine use of pigs and DOT's Pipeline Integrity Management Program on all lines. Marshall promised to determine the exact cause of the spill and spend $150 million to replace 16 miles of pipelines. For the full text of the witness testimony click here. -RB
Witnesses: Panel II On September 7, 2006, the House Subcommittee on Oversight and Investigations met to discuss the causes and impacts of BP's pipeline spills at Prudhoe Bay. Over 200,000 gallons of oil spilled from a 34-inch pipeline in Alaska, the nation's largest source of oil in March, followed by a smaller leak, causing BP to shut down the entire Prudhoe Bay field on August 6. This hearing met in bipartisan agreement to determine what went wrong. Acting Chairman Greg Walden (R-OR) said that while BP stands for "beyond petroleum," these days it "could also stand for broken pipeline." Walden credited BP for acknowledging the mistakes it had made, but blamed BP for ignoring red flags along the way. Rep. Jay Inslee (D-WA) said a number of investigations pointed to the need for maintenance, including a 2001 consultant report which was edited by BP to omit suggestions on corrosion precautions. Chairman of the full Committee on Energy and Commerce Joe Barton (R-TX) said, "If a company, one of the world's most successful oil companies, can't do the basic maintenance needed to keep Prudhoe Bay's oil field operating safely and without interruption, maybe it shouldn't be operating the pipeline." A simple, inexpensive, and effective process called pigging checks an entire pipeline for corrosion. Although operating lines in Prudhoe Bay are equipped with this maintenance equipment, BP had not pigged its eastern and western pipelines since 1992 and 1998, respectively. Rep. Diana DeGette (D-CO) chided BP on "environmentally-friendly and socially conscious advertising" when in reality the company cannot even follow basic "rudimentary pipe maintenance." BP's chief pipeline inspection expert, Richard Woollam, pleaded the
Fifth Amendment, refusing to testify before the House subcommittee.
A 2004 investigation found that Woollam used intimidation tactics
in order to discourage workers from voicing safety concerns. He has
since been moved from Alaska and is on paid leave. Steve Marshall, president of BP Alaska, Inc. said that both spills
have been "fully cleaned up." There is also believed to
be "no lasting damage" from either spill. He assured House
members that BP's pipeline safety plan is comprehensive, covering
over 1500 miles of pipeline. Sixteen miles of pipeline are scheduled
to be replaced by the end of the year. Marshall told the subcommittee
that ten of these sixteen miles are in "good condition"
and production would begin as soon as safely possible. In response
to questions on BP's infrequent pigging practice, he claimed that
2004 and 2005 showed a corrosion increase in ultrasound testing and
that the company had commissioned a pig to run in 2006. "It is
my regret that it was too late," said Marshall. Kevin Hostler, president and CEO of Alyeska Pipeline Service Company,
noted that the Trans-Alaska Pipeline System runs maintenance pigs
every 7-14 days and smart pigs every three years to ensure clean pipelines
free of sand, shale, and water, materials that lead to corrosion.
These "high stress" pipelines are required by federal regulations
to perform basic maintenance operations. However, "low stress"
pipelines, like those in BP's Prudhoe Bay field do not fall under
these requirements. Last week the Department of Transportation announced that it would
begin creating regulations on low stress pipelines in delicate rural
areas. This summer the House Energy and Commerce Committee also considered
a discussion draft requiring the addition of regulations on low stress
lines. "We are going to, if necessary, change federal law to
do everything possible to minimize this happening again," said
Barton. However, legislation has yet to be introduced detailing what
these changes would look like. -RB
Witnesses: The Energy Subcommittee of the Senate Energy and Natural Resources Committee held a hearing on July 17 to assess the progress of hydrogen fuel cell development. Witnesses described how the hydrogen fuel cell research process takes time and money, but will yield high rewards for the U.S. economy when it becomes cost competitive. Throughout the hearing, senators demonstrated general support and encouraged financial support to move the research process along as quickly as possible. Chairing the hearing, Senator Lamar Alexander (R-TN) opened the hearing by saying, "This hearing should be interesting because we're talking about the transformation from gasoline combustion engines to hydrogen fuel cells." Senator Pete Domenici (R-NM) agreed. "It is terribly exciting to hold a hearing about an initiative that is so earthshaking in terms of where it can go," he said. David Garman, Undersecretary of Energy at the Department of Energy (DOE), described how DOE is fostering continued research and development of hydrogen technology. The research is making significant progress. The cost of producing hydrogen has been cut nearly in half, from $5 per gasoline gallon equivalent energy to under $3. The lifetime of an automobile hydrogen storage cell has also been doubled, however, the lifetime is not competitive with the lifetime of an automobile. The most recently developed fuel cells have a lifetime of 2,000 hours, significantly shorter than the 5,000 hours of life expected out of a new automobile. "We have indeed made significant progress, which we credit with the private sector, our colleges and universities, and the congress…we must continue to move forward," said Garman, praising research and development partnerships which are currently researching hydrogen fuel cell technology. Members asked a number of questions relating to the progress of hydrogen and other alternative automotive fuels. Alexander inquired if the research was classified as high risk. Garman responded that it is high risk, as well as high reward. "Federal high risk research and development is the sort of research one would not expect the private sector to do alone, as there is no [immediate], short term payoff…hydrogen is a high risk, high reward program," responded Garman. Senator Jeff Bingaman (D-NM) was interested in creating a market suitable to enable the mass production of plug-in hybrids. Mass production should lower the cost of these cars. Bingaman suggested a program to encourage federal agencies to purchase plug-in hybrids to help stimulate mass production in the industry. Garman responded positively to the idea, but added that the lithium-ion batteries did not yet have the storage capacity most agencies would expect, and are still quite expensive. The batteries are down to $1000 from $3000, but they have to be around $500 each to be cost competitive. "I think plug-in hybrids offer a tremendous opportunity, and the President does too…ultimately, [these technologies] have to be adopted on a mass basis," said Garman. Witnesses from the automobile industry explained their progress on developing hydrogen fuel cell cars. Byron McCormick, on behalf of General Motors, stated their progress was significant in hydrogen and other alternative fuel cars. They have put two million E85-ready cars on the road, and increased the efficiency of hydrogen fuel cell cars by a factor of fourteen. "This is a critical time in the history of the automobile industry," he said. "Hydrogen fuel cell technology has the greatest potential." McCormick also stressed implementing more federal incentives to reduce the cost of mass-produced hydrogen fuel cell cars. Donald Paul, the Vice President and Chief Technology Officer of Chevron Corporation, explained the company's commitment to alternative fuels. "Chevron is committed to diversifying the nation's energy supplies…although there is no silver bullet, we are actively searching for new fuel sources. We are going to need every form of energy, and need to research [alternative fuels]," he said. He also voiced strong support for hydrogen fuel cell technology. "Hydrogen can provide, in the near term, viable transportation fuels, however, this is dependent on solving key technological challenges," he said. Those challenges include hydrogen fuel transportation and storage infrastructure, as well as reducing costs to ensure hydrogen is a cost-competitive fuel. The remaining witnesses described the development of hydrogen technology in manufacturing. Byron McCormick, Vice President and Chief Technology Officer of General Motors, described how GM sees hydrogen emerging in the automobile market. "This is a critical time in the history of the automobile industry," he said. He described how technology is improving, but is not yet market competitive, and promoted the use the hydrogen as the next primary automobile fuel. Tim Leuliette, President and Chief Executive Officer of Metaldyne, also promoted the change to a hydrogen economy. "A hydrogen economy is better for manufacturing…[it] can boost our economy and our environmental quality," he said. Jim Balcom, President and Chief Executive Officer of, PolyFuel, also concurred with the previous witnesses about the current status of hydrogen technology development. -TJD
Witnesses: Panel II Panel III Members of the Senate Committee on Energy and Natural Resources met on June 21, 2006 to discuss the "Enhanced Energy Security Act of 2006" (S.2747). The bill, sponsored by Senators Jeff Bingaman (D-NM), Evan Bayh (D-IN.), Norm Coleman (R-MN), Lincoln Chafee (R-RI) and Joseph Lieberman (D-CN), sets forth enhanced energy efficiency and conservation measures, including a plan for saving 2.5 million barrels of oil per day in 10 years - roughly the amount of oil the U.S. currently imports from the Middle East. Senator Coleman explained in his testimony that the bill includes "initiatives that will promote E85 fueling infrastructure and speed the development of cellulosic ethanol, while investing in the development of efficient vehicle technologies and assisting auto manufacturers' transition to fuel-efficient vehicle production." Coleman advocates total independence from foreign oil, something that Brazil has just accomplished this year through government-mandated investment in the production of ethanol and flex fuel vehicles. Kateri Callahan, President of the Alliance to Save Energy, urged the committee to include a "feebate" program as part of the S.2747 legislation. "The idea is simple," she said. "Provide an incentive (rebate) to make and buy fuel-efficient vehicles, and charge a premium (fee) on gas guzzlers." Callahan explained that the total fees would pay for the rebates so that there would be no net revenue or cost to the government. Steve Nadel, the Executive Director of the American Council for an Energy-Efficient Economy, also recommended that future legislative efforts focus more on promoting energy efficiency. Nadel encouraged the establishment of a national energy efficiency resource standard that would set "electric and gas energy savings targets for utilities, with flexibility to achieve the target through a market-based trading system." Daniel Lashof, the Science Director of the Climate Center at the Natural Resources Defense Council, supported the bill's national renewable portfolio standard provision. Lashof argued against the state-specific renewable portfolio standards that the Administration favors. He explained that this policy is inequitable because it allows states that do not have renewable portfolio standards to unfairly benefit from lower gas and oil prices that result from the states that do have these standards. Only one witness, Alexander Karsner, the Assistant Secretary for Energy Efficiency and Renewable Energy, was not overly supportive of the proposed legislation. Karsner testified that the Administration had not had enough time to review S.2747, and as of yet does not have a formal position on the legislation. He noted that parts of the bill appear to overlap with the Energy Policy Act of 2005 and he suggested that these issues be resolved in order to avoid duplicative legislation. Senator Bingaman criticized the Administration and the Department of Energy for not taking the time to review the bill, and complained that it was likely a sign that the proposed bill was not being taken very seriously. For the full text of witness testimony click here.
-JCR
Witnesses: The Senate Energy and Natural Resources Committee discussed the reliability of shipping coal on U.S. railroads during a hearing on May 25, 2006. Witnesses talked about shipping delays, low reserves at power plants, as well as the railroad industry's efforts to maintain reliable service. Members of the committee emphasized the importance of coal as an energy resource and expressed their concern about the smooth operation of coal-based energy generation. Chairman Pete Domenici gave a brief opening remark and noted the importance of coal in generating electricity. He mentioned that 50% of the nation's electricity comes from coal, so barriers preventing the operation of coal-based energy generation should be addressed. He hoped to identify the cause of coal transportation delays and find a way for the Committee to address them. Robert McLennan, representing the Tri-State Generation and Transmission Association, was the first witness to address coal transportation problems. The high quality, low-sulfur coal required to meet emission standards in the U.S. is largely mined from the Powder River Basin in Wyoming, McLennan explained, and this coal must be transported to coal-fired power plants throughout the country. For the past year, traffic bottlenecks on the railways have slowed the rate of delivery of coal from the source to the power plants. He acknowledged that more coal was shipped last year than ever before, however, the railroads still could not keep up with demand. When reserves cannot keep up with demand, foreign coal is sometimes used to supplement domestic supplies. When asked about how much coal the U.S. imports, McLennon noted imports were barely 4% of total consumption and replied, "I don't think we are headed to a situation with coal like we have with oil," David Wilks, the President of Energy Supply for Xcel Energy Services, elaborated on the challenges energy companies were having with coal delivery. Most of the plants operated by Excel had run less than their recommended thirty-day reserve of coal and many had less than ten days of reserves. Interruptions in coal supplies necessitate a switch to natural gas, which is more costly to the energy supplier and the consumer. He estimates that in 2006, 340 billion cubic feet of natural gas will be needed to supplement coal power supplies, costing about $2 billion. Later in the hearing, Robert Sahr, Chairman of the South Dakota Public Utilities Commission made similar comments about low reserves and shipping delays. Steven Jackson, the Director of Power Supply for the Municipal Electric Authority of Georgia, added that energy producers in Georgia have imported coal from Indonesia to supplement reserve shortages. Domenici expressed surprise at this, asking for clarification. "Let me get this straight: even though we have a 250 year supply, we are importing coal from Indonesia?" asked Domenici, interrupting Jackson's testimony. Senators Conrad Burns and Craig Thomas also commented on that statement, reflecting Domenici's surprise and expressing concern. Edward Hamberger, President and CEO of the Association of American Railroads responded to the allegations of the previous witnesses about railroads becoming an unreliable way to ship coal. He began by saying the railways have worked alongside the power industry for years to meet their shipping needs and hoped further collaboration would solve the issues at hand. He noted a spike in demand for coal shipments in 2005 that the railroads did not have the capacity to handle; the increased demand was from both the coal industry as well as other industries utilizing rail travel. Coal shipments had declined from 2000-2004, so the rail industry had reduced capacity. Furthermore, forces outside of the industry's control contributed to delays in rail shipments. He mentioned the two Gulf hurricanes, as well as flooding in Wyoming and Kansas as examples of natural disasters that caused significant transit delays; there were also delays at mine loading stops and power plant offloading stops. Hamberger mentioned that sometimes rail cars have been delayed because they were waiting to be filled with coal at the mines. Hamberger noted the more than $8 billion that railroads were putting into their infrastructure to increase shipping capacity. Unfortunately building this capacity takes time and Hamberger concluded "We can't do it overnight". The Senators pressed Hamberger with questions about the delays in
rail shipments. Several mentioned the irony of having 25% of the world's
supply of coal, yet still having to import small amounts of coal.
Hamberger also defended the need for coal imports, saying it is a
very small amount of coal, and that like all other products, as prices
climb, the consumer will look for new sources. Senator Thomas accused
the railways of purposefully removing competition, which allows them
to raise rates and reduce service. Hamberger quickly responded that
the railways reduced rates 30% from 1991 to 2004. He added that the
railways do have to compete with other modes of transportation as
well, even if the railroads do not have competition against each other.
Senator Mary Landrieu (D-LA) asked whether using barges on America's
waterways would be a way to stem a possible overburden of the rail
roads. Hamberger commented that waterway shipments may help, but inconsistent
funding of the locks and dams makes reliable shipping tough. Barge
shipping is also very limited to areas near major waterways and the
largest coal mine in the U.S., which is in the Powder River Basin,
is not near any major waterways. -TJD
Witnesses: The full Senate Commerce, Science and Transportation Committee met on May 23rd to review allegations of gasoline price gouging across the nation. Senator Inouye (D-HI) opened the hearing by expressing his concern over alleged price manipulation by oil companies. He noted how several gas stations in Atlanta sold gasoline for nearly $6 a gallon after Hurricane Katrina struck the Gulf Coast, and how actions such as this were not "legally or morally defensible." Deborah Majoras, Chairman of the Federal Trade Commission (FTC), introduced a report written by the commission regarding price gouging. While she understands the concerns of consumers, Majoras stated there was no evidence that any of the allegations were true, and that the market influences of supply and demand had the greatest influence on gasoline price. She added that the gasoline prices reflected the FTC's predictions after Hurricane Katrina. She referred the committee to the FTC report for more information to support her statements. Dr. Nariman Behravesh gave a similar testimony, saying that demand growing faster than supply was a natural cause for a price hike in gasoline. Bob Slaughter echoed these comments and noted that there is no way for additional regulation to reduce the price of oil because factors out of the control of American regulation, such as OPEC and the hurricanes of last year, have a bigger impact. Slaughter also noted the need for new refineries and the easing of environmental regulations to reduce the cost to consumers. Mark Cooper, the Director of Research at the Consumer Federation of America, presented a different point of view. In an energetic testimony, he told the committee that the industry is deliberately keeping capacity and inventory low to maintain a high price for oil products. Cooper explained that the FTC report failed to undercover inept management of the industry, which was unable to adequately respond to market forces to keep prices low. Senators on the committee asked tough questions of the witnesses.
They criticized the FTC report during their allotted comment time.
Senator Byron Dorgan (D-ND) described the report as toothless
and condescending to anyone who reads it because of the FTC's
failure to venture outside of the petroleum industry for information
during their investigation. The committee was primarily disappointed
with the FTC's opinion that the market was the sole source of
price hikes. Senator Byron Dorgan said, "The market didn't
work well for the American people" in this case, and stated
"[The market] needs a referee." Senator Trent Lott (R-MS)
commented on how his constituents have been giving him tough questions
and demanding a solution: "The American people are agitated,"
he said. Senators Maria Cantwell (D-WA) and Barbara Boxer (D-CA)
commented on how the west coast has faced the highest gasoline
prices in the nation, despite what they describe as heavy concentrations
of refineries in the area. They both made comments on how the
proximity to refineries should result in lower prices for gas. -TJD Witnesses: Panel II On April 6, 2006, the House Resources Subcommittee on Energy and Mineral Resources heard testimony on developments in renewable and alternative energy resources on federal lands. Officials from the Navy, the Department of Energy (DOE), the Forest Service, and the Department of the Interior (DOI) presented lawmakers with details of their agencies' efforts to increase alternative energy use and development. "The Department of Navy is committed to implementing a balanced energy program that meets the goals of the Energy Policy Act of 2005," said Wayne Arny, deputy assistant secretary for Navy installations and facilities. He detailed Navy investments in wind, ocean, solar, and geothermal power, emphasizing the Navy's unique geothermal plant at China Lake, California. Capable of producing 270 megawatt capacity of electricity, the plant is the only geothermal plant on Department of Defense (DOD) lands. Lawmakers were surprised to learn that although the plant is located on federal lands, it is owned by an independent private contractor, who gives the Navy a share of the revenue generated from the electricity sales. Representative Jim Gibbons (R-NV) questioned the logic behind the Navy's decision to not use electricity generated on-site. Arny explained that although laws have since changed, when the plant was built in the 1980s, the Navy could not legally own the electricity generated. He also noted that the Navy's share of the revenue generated from the electricity sales is used for energy development, education, and management. Geothermal energy is an important resource on non-defense federal lands as well, Roy Mink, a program manager for geothermal technologies at DOE, told the subcommittee. "Geothermal energy is a developing and sometimes overlooked domestic energy source," he said. He noted a common misconception that geothermal energy is a resource found only in California and Nevada. "It is feasible to capture geothermal energy anywhere within the U.S." DOI renewable energy efforts are being concentrated in wind energy, concentrated solar power, geothermal power, and biomass management. Brenda Aird, DOI Ombudsman for Renewable Energy, told representatives that the Bureau of Land Management (BLM) currently manages 45 leases for active geothermal plants, generates 185 Megawatt-hours of electricity from photovoltaic cells, and authorizes rights-of-way for 22 wind energy production sites on public lands. 78 additional rights-of-way authorizations are pending. Responding to questions from Representative Steve Pearce (R-NM), Aird specified that each pending wind energy plant can produce between 200 and 500 Megawatts of electricity. DOI is also investing in the development of alternative sources of fossil energy, including gas hydrates, oil shale and tar sands. BLM is currently developing regulations for commercial leasing of oil shale and tar sands, and the Minerals Management Service is reassessing the potential quantities and environmental impacts of gas hydrates on the Outer Continental Shelf. Dr. Marcia Patton-Mallory, the biomass and bio-energy coordinator for the Forest Service, noted two focal points for renewable energy at the Forest Service: hydropower and energy from biomass. Fifteen percent of all U.S. hydropower is generated on Forest Service Lands. That number is unlikely to grow much, Patton-Mallory said, because "most of the best locations for hydropower generation have already been developed." The energy generated from biomass, on the other hand, is a growing
resource. Patton-Mallory noted that a recent Forest Service-DOE
report estimates that the U.S. contains over 1.3 billion dry tons
per year of biomass potential, 400 million of which come from
forest lands. But Pearce accused the Forest Service of making
it difficult for private companies to develop that potential.
He cited two examples of the Forest Service refusing to give long-term
supply contracts to potential developers of biomass energy plants.
Representative Mark Udall (D-CO) emphasized the importance of
developing long-term agreements with contractors. For companies
to make the investment in biomass energy production, he said,
they need "stable, predictable feedstock." He also called
for increased funding for the President's Healthy Forests Initiative,
designed to prevent forest fires by clearing excess wood from
forests. "I know we're all going to fight to see if we can
fully fund Healthy Forests," he said. For the full text of witness testimony, click here. -JAF
Witnesses: Panel II The Senate Committee on the Judiciary held a hearing on March 14 to discuss whether mergers in the oil and gas industry are contributing to high gas prices. Committee Chair Arlen Specter (R-PA) opened the hearing by expressing frustration that while consumers are faced with increasing gasoline prices, oil businesses are earning record profits. In 2005, Exxon Mobil's profits reached $36 billion, the largest corporate profit in U.S. history. Specter attributed high prices to anti-competitive behavior resulting from the recent spate of mergers in the oil and gas industry. Four of the five experts on the first panel of witnesses supported Specter's view that high gasoline prices are not solely the result of tight supplies and increased global demand. Tom Greene, Senior Assistant Attorney General for California, dubbed the oil industry an "oligopoly" and affirmed that concentration in the industry had allowed oil companies to come to "tacit agreements" on price and supply decisions. Joseph Alioto Jr., an antitrust lawyer, alleged that the agreements were hardly tacit. He told senators evidence exists showing that top oil executives routinely meet once a month to share information, discuss prices, and cooperate through joint venture deals and shared refineries and service stations. Witness allegations also extended to the natural gas market. David Boies, an attorney representing the Alaska Gasline Port Authority, accused BP and Exxon Mobil of conspiring to block development of a natural gas pipeline from Alaska's North Slope. Wisconsin Attorney General Peg Lautenschlager detailed a study showing that while tight supply and demand factors may explain the gradual increase in natural gas prices, they cannot account for the observed volatility in prices. Oil executives testifying on the second panel denied the claims that mergers were designed to decrease competitiveness and fix prices. Rex W. Tillerson, Chief Executive Officer (CEO) of Exxon Mobil, defended the mergers as necessary to compete in the global oil market. "We need U.S. energy companies that have the scale and financial strength to make the investments, undertake the risks and develop the new technologies necessary to provide Americans with greater energy access and greater energy security," he said. Testifying alongside Tillerson were CEOs and Presidents representing some of the largest U.S. oil companies, including Conoco Phillips, Chevron, Valero energy, Shell Oil, and BP America. All attributed rising prices to increased global demand. The sole witness to support the oil companies' claims was Severin Borenstein, a professor of business administration and public policy at the University of California at Berkeley. Borenstein noted that wholesale gasoline currently costs $1.66 per gallon, and that $1.43 of that is the cost of crude oil. At most, he said, "only a few cents" of the remaining 23-cent refining margin could be attributed to mergers. He added that the U.S. is "a very small player" in the global oil market, and that changes in antitrust legislation would likely have only minor effects on gasoline prices. Senators John Cornyn (R-TX) and Tom Coburn (R-OK), both from oil-producing states, defended the oil executives. "It isn't a crime to make a profit," Cornyn said. Nonetheless, Specter was joined by committee Democrats as well Senator Mike DeWine (R-OH) in criticizing the industry's anti-competitive behavior. Specter has drafted amendments to current antitrust legislation that would increase the difficulty of major oil and gas mergers. Despite significant bipartisan interest in the legislation, Specter is awaiting further comment before deciding whether to attempt to push the amendments through Congress this year. For the full text of witness testimony, click here. -JAF
Witnesses: The Senate Committee on Energy and Natural Resources held a hearing on March 7, 2006 to discuss the challenges of achieving of U.S. energy independence from foreign oil. In his opening remarks, Committee Chair Pete Domenici (R-NM) expressed the importance of "being realistic about what is possible in the near-term" while maintaining "energy and enthusiasm" about the long-term possibility of energy independence. He added that while he supports using science and technology to move towards energy independence, it is critical that America use its available resources, including oil resources in the Arctic National Wildlife Refuge (ANWR). Ranking Member Jeff Bingaman (D-NM) noted the need to bridge what he called "a major gap between the rhetoric of the importance of energy independence and what we're actually doing." Former CIA Director R. James Woolsey testified that achieving energy independence is "primarily an issue of oil" and in particular its use for transportation. He noted that while a number of major investments are targeting alternative forms of electricity generation, these will have little impact on oil markets due to the fact that very little of America's electricity is oil-generated. The transportation sector, on the other hand, is almost exclusively reliant on petroleum. Woolsey pointed out that this dependence makes the U.S. economy vulnerable to terrorist attacks, regime changes, and other political problems. He advised senators to focus on addressing transportation policy and to promote changes that can utilize the existing infrastructure, be made quickly, and use waste products as source material. In particular, he recommended offering incentives to increase the use of plug-in hybrid vehicles, biofuels from cellulosic ethanol, and diesel made from biological waste. Susan Cischke, Vice President of Environmental and Safety Engineering at Ford Motor Company, detailed the steps the automotive industry is taking to decrease America's reliance on gasoline. In particular, she spoke of increased production of hybrid vehicles, ethanol-powered vehicles, and flexible fuel vehicles (FFVs) that can use various combinations of ethanol and gasoline. Although she championed the use of ethanol-based fuels, Cischke noted that the lack of ethanol fueling stations limits the usefulness of ethanol technology. She urged policymakers to create incentives for expanding ethanol infrastructure and also to take an active role in educating the public about fuel efficiency. In his opening testimony, Frank Verrastro, Director of the Energy Program at the Center for Strategic and International Studies, presented a more pessimistic view of the feasibility of achieving energy independence in the near future. "Conventional sources will continue to dominate the landscape for at least the next several decades," Verrastro said. He explained that while energy demand is projected to increase 50 percent over the next 25 years, the shares of that demand being met by renewables, coal, and nuclear sources are expected to remain flat. He recommended thinking of "energy interdependence" and the role of the U.S. in the global energy market rather than energy independence, which he called a "misguided effort." The final witness to testify was Amory Lovins, Chief Executive Officer of the Rocky Mountain Institute, who labeled "the oil problem" as "unnecessary and uneconomic." He emphasized three goals that the U.S. must achieve to become energy independent: making the domestic energy infrastructure resilient, phasing out unstable facilities, and ultimately eliminating oil imports. Like the other witnesses, Lovins emphasized the need to focus on the transportation sector. "The key to wringing twice the work from our oil is tripled-efficiency cars, trucks, and planes," he said. He also noted that by producing more efficient cars domestically, the U.S. can reduce imports of cars, eliminate dependence on foreign oil, decrease costs and emissions, and create a million new jobs. Committee members raised a number of questions about the development and use of ethanol-based fuels in the transportation sector. Senator Craig Thomas (R-WY) asked about the costs of producing ethanol fuels. Cischke responded that while production costs alone are cheaper for ethanol than gasoline, ethanol fuels contain about 28 percent less energy. Senator Jim Bunning (R-KY) asked Cischke to identify the limiting factor in transitioning from traditional gasoline to E85, a fuel that contains 85 percent ethanol. Cischke explained that ethanol fuels are supplied differently than oil or diesel, and that to increase demand for E85 vehicles, the nation must first develop the infrastructure to supply ethanol at fueling stations. Thomas also asked about the potential for increasing nuclear power usage. Lovins replied, "I think it's died in the market." He elaborated that the nuclear industry is less competitive than other energy industries, and that the nuclear subsidies included in the Energy Policy Act of 2005 would do little to reinvigorate the industry. Senators Domenici and Lisa Murkowski (R-AK) raised the issue of replacing foreign oil with oil from domestic sources, namely by drilling in Alaska. Referring to a statement in Lovins' opening testimony, Murkowski challenged Lovins' view that an Alaskan oil pipeline would pose security risks. Lovins responded that a terrorist attack on an oil pipeline could significantly disturb oil supply to the continental U.S. He added that a natural gas pipeline would pose fewer risks because it would not be located aboveground. Domenici noted, "I can't imagine oil from Alaska is less secure [than foreign sources]." Domenici also asked each witness to identify the two most critical policy changes that should be implemented to improve energy use in the transportation sector. Woolsey emphasized expanding the use of biofuels and plug-in hybrids, which could be accomplished by introducing tax incentives and rebates. Cischke reiterated her opinion that the top priorities were implementing tax incentives for alternative vehicles and fuels as well as educating the public on energy efficiency issues. Verrastro cited the need for supplemental sources of fuel and improved technology that could increase fuel efficiency. Finally, Lovins restated his view that American manufacturers must triple the efficiency of cars, trucks, and planes. For the full text of witness testimony, click here. -JAF
Witness: Guy Caruso, Administrator of the Energy Information Administration (EIA), appeared before the Senate Committee on Energy and Natural Resources on February 16 to present the EIA's Annual Energy Outlook (AEO) for 2006. The outlook, which for the first time includes predictions through 2030, contains substantial changes from last year's forecast. The EIA's projections show oil prices decreasing slightly over the next decade, reaching a low of about $47 per barrel in 2014 (in 2004 dollars). Predictions for the subsequent decade, however, show an increase to $54 per barrel in 2025, $21 higher than last year's prediction of $33 per barrel. Caruso explained the change as a reflection of tighter investment opportunities, more volatile world oil markets, and a smaller increase in oil productive capacity in the Organization of Petroleum Exporting Countries (OPEC) than previously projected. He also noted similar predicted trends in natural gas prices, which will drop to roughly $4.50 in 2016, then increase to nearly $6 in 2030. Due to increasing oil and natural gas prices, the EIA projects that the use of coal, renewable fuels, and nuclear energy will grow over the next 25 years. "[Coal's] share of electricity generation … is expected to increase from about 50 percent in 2004 to 57 percent in 2030," Caruso said. This is a significant change from the 2005 AEO, which projected coal's share would remain at 50 percent through 2025. Nuclear capacity is projected to grow by 9 gigawatts over the next 13 years, reaching 109 gigawatts by 2019. The majority of the nuclear increase can be attributed to tax credits included in the Energy Policy Act of 2005. Consumption of renewable fuel is also expected to increase from 6.0 quadrillion Btu in 2004 to 10.0 quadrillion Btu in 2030. Tax credits from the Energy Policy Act of 2005 account for some of the increase in renewable use, however, the majority of the change comes from renewable mandates currently in place in 23 states. Following Caruso's presentation, Committee Chair Pete Domenici (R-NM) and Ranking Member Jeff Bingaman (D-NM) raised questions about the projected share of domestic oil. Referring to the President's State of the Union address, Bingaman questioned whether the U.S. is likely to reach the President's goal of decreasing Middle Eastern oil imports by 75 percent by 2025. Caruso responded that based on current policies, the EIA's forecast actually shows an increase in imports from the Persian Gulf over the next 20 years. According to the AEO, in 2025 the U.S. will import roughly 3.3 million barrels of oil per day from the Middle East; whereas current imports total approximately 2.5 million barrels per day. Senator Lisa Murkowski (R-AK) raised concerns about the EIA's assumption that Alaska's North Slope natural gas pipeline will be in place by 2015. Noting that a full agreement about the development of the pipeline has not yet been reached, she asked Caruso how the projections will change if the pipeline is not in place by 2015. "All things being equal, the price of gas would be higher without that project coming on stream," Caruso responded. "If the project is hypothetically delayed until 2016, that would mean one year of somewhat higher natural gas prices, and so LNG imports would be a bit higher." Murkowski also noted that the U.S. receives about 11 percent of its oil imports from Venezuela, a country that is currently experiencing political turmoil. Caruso concurred that a disruption of oil from Venezuela would be difficult to offset using other sources, and that such a disruption would almost certainly cause an immediate price spike. The magnitude of the spike would depend on the duration of the disruption. For the full text of Senator Domenici's opening remarks and Mr. Caruso's testimony, click here. -JAF
Witnesses: Panel II On December 7, 2005, the Energy and Air Pollution Subcommittee of the House Energy and Commerce Committee met to discuss the theory that oil production will peak sometime in the near future. In his opening statement Subcommittee Chairman Ralph Hall (R-TX) expressed some skepticism towards the idea of peak oil, but also said that he would keep an open mind on the subject. Similarly, Representative Gene Green (D-TX) pointed out that there have been many scares about oil supplies running out in the past, but also acknowledged that oil is not infinite, saying "the wolf does come in the end." The subcommittee first heard from two fellow members of Congress, Representatives Tom Udall (D- NM) and Roscoe Bartlett (R-MD), who are the co-chairs of the Congressional Peak Oil Caucus. Both congressmen made the case that oil production will peak in the next twenty years, and that the government must initiate a major program, similar to efforts to develop the atomic bomb or send humans to the moon, to promote oil conservation and efficiency and develop alternative fuels. Bartlett was particularly passionate about the coming end of the "age of oil", which he said was a major national security issue and threatened the United States' high standard of living. "We are like children who found the cookie jar," he said, describing Americans unending demand for oil. "We show no restraint." Most of the subcommittee members refrained from asking questions of their colleagues, but Representative John Shimkus (R-IL) took issue with Udall and Bartlett's assertion that Congress needed to take action on peak oil, saying that he thought that free markets could develop new fuel technologies without government intervention. Bartlett responded by saying, "We have deified the marketplace, but there are some things that even the deity can't do. None of the alternatives have the potential of being ramped up quickly enough." The second panel featured three experts with different perspectives on peak oil. Kjell Alklett, who represented the Association for the Study of Peak Oil and Gas, claimed that peak oil "is a reality, not a theory", and gave a series of examples that indicated global oil production would begin to decline within the next decade. Robert Hirsch, from Science Applications International Corporation (SAIC), asserted that there is a high level of uncertainty in predicting the peak of oil production, in large part because Saudi Arabia's reserve estimates are a closely guarded secret. Hirsch punctuated his testimony with the phrase "Think Risk", and he strongly urged Congress to act quickly, since by his estimates it will take about 20 years for the United States to adequately prepare for declining oil production. Robert Esser, from Cambridge Energy Research Associates (CERA), presented a less pessimistic picture than his fellow panelists, arguing that a great deal of new areas would begin producing oil in the near future. "The world is not running out of oil imminently or in the medium term," he said. Instead, Esser predicted that global oil production would head into an undulating plateau, probably beginning around 2030, before gradually declining in the second half of the century. Despite their differing prognoses, however, all three witnesses agreed that surging global demand and slowing production growth would lead to major fuel price increases over the next 25 years. "I don't take comfort in the undulating plateau," Esser said. While some subcommittee members expressed doubts as to the validity of the peak oil theory, most of the discussion during the hearing focused on potential solutions to a fuel crisis. Subcommittee ranking member Rick Boucher (D-VA) suggested that converting coal to liquid fuel might be the best solution, since the United States has over 250 years worth of coal reserves. Boucher also mentioned that a South African company had come up with a commercially viable coal to liquid conversion process. Esser said that he had not heard of any developments in this area, however, while Representative Bartlett said that Boucher's statement was misleading. The 250 years of coal reserves shrinks to 85 years if consumption increases by only 2% per year, he said, and coal will be used even more quickly if we convert it to liquid fuel. The potential of hydrogen fuel was similarly called into question by Hirsch, who said that major breakthroughs in fuel cells and on-board storage were needed before it would be economically viable. Esser was more optimistic about the potential of oil sands from Canada to relieve pressure on conventional petroleum supplies. "That is the highest intensity oil production place in the world right now," he said, pointing out that Canadian oil sand fields had the potential to produce 6 billion barrels a day. Bartlett, however, was less hopeful about oil sands, and pointed out several times during the hearing that the oil sands have a negative energy profit ratio, meaning it takes more energy to produce the fuel than it provides. Currently energy companies are using natural gas to derive petroleum from oil sands, which may be a problem as natural gas prices continue to climb. Esser, in turn, pointed out that there were major undeveloped gas fields in Iran and other parts of the Middle East, and that converting gas to liquid fuel represented another viable solution. Both Alklett and Representative Shimkus advocated the development of biofuels technology, but Bartlett urged caution on this as well, saying that both food shortages and topsoil loss would limit energy production through agriculture. Aleklett suggested that the best solution would be for the United States to reduce its per capita oil use, which is the highest in the world. Several committee members took issue with his comments, saying that Aleklett was not familiar with the long driving distances necessary in many parts of the United States. "I would guess that I have to drive a lot further to go to the supermarket or my children's' school than you do," said Representative Heather Wilson (R-NM). While the hearing did not produce a consensus on what should be done about peak oil, it seemed clear that most subcommittee members took the issue seriously and were open to taking action to reduce the United States' dependence on petroleum. "It doesn't matter when we peak," said Representative Udall. "The focus we should have is what we should be doing." For witness testimony and other information on the hearing click here. -PMD
Witnesses On November 17, 2005 the House Resources Subcommittee on Energy and Mineral Resources held a hearing to discuss the Outer Continental Shelf Natural Gas Relief Act (HR 4318), which proposes to allow natural gas drilling in areas more than 20 miles offshore. The bill, which is cosponsored by Representatives John Peterson (R-PA) and Neil Abercrombie (D-HI), is seen by some as a more heavy-handed approach to offshore energy development than a bill introduced by Resources Committee chairman Richard Pombo (R-CA) that would let states opt-out of a current offshore drilling moratorium for both oil and gas development. Both Peterson and Abercrombie were present to promote the bill.
Peterson emphasized that natural gas shortages were a "problem
caused by government" since the Clinton administration had
promoted the use of natural gas without allowing the development
of offshore supplies. Peterson said he was promoting offshore development
because it is the easiest way to deliver gas to those who need it
and because it has no onshore environmental impact. Abercrombie
pointed out that his presence alone indicated that the issue is
not a partisan one, and he said the bill's opponents were "missing
a genuine opportunity to make a difference." The prospect of jobs and factories moving overseas to countries with cheaper natural gas, in particular China, loomed over the hearing. At one point Peterson warned the committee that Hershey foods, which is based in his district, might soon be making its chocolate outside of the United States. Abercrombie asked the panel about China's policy on offshore drilling for gas. Gerard replied that while China imported most of its gas, it was looking at increasing its domestic onshore and offshore supplies. He also reminded the subcommittee of the often repeated fact that "the United States is the only country in the world that restricts access to energy resources." Subcommittee members were also interested in hearing the witnesses' ideas on how to increase public awareness of this potential crisis and overcome widespread opposition to offshore drilling. Gerard told the committee that "a lot of people who are environmentally in tune accept this issue." Abercrombie said his experience did not agree with that assessment though. "I've been put in the village stocks by the environmental groups," he said. Bradley predicted that "once the heating bills hit in January, a lot of people are going to support policies that directly impact these costs." Several witnesses suggested that media campaigns to encourage energy conservation could also be used to educate people on natural gas supplies. Overall the witnesses expressed a great deal of anxiety over the
effects of rising natural gas costs, and emphasized it was important
for Congress to act as quickly as possible. Geoffrey Hunt, who represented
lightbulb manufacturer Sylvania, said his company had gone as far
as it could with energy conservation, and he urged the subcommittee
members to help him keep Sylvania factories open. "I'm not
looking for a handout," he said. "I'm looking for free
market economics to work." Gerard told the committee there
was still some hope to reverse negative impacts on American industries,
since opening offshore areas would send a market signal that would
moderate gas prices immediately, even if new production would take
several years to come on line. -PMD
Witnesses: Panel II On November 9, 2005 the Senate Committees on Commerce Justice & Science and Energy & Natural Resources held a rare joint hearing to question major oil company executives about energy prices and record profits. The hearing room was full of protesters wearing "Exxpose Exxon" t-shirts, and the discussion among the committee members took a hostile tone from the beginning. When Chairman Ted Stevens (R-AK) announced the executives would not have to give testimony under oath, a practice used regularly by some committees in congress, Senator Maria Cantwell (D-WA) asked that the joint committee hold a vote on whether or not the witnesses would be sworn in. Stevens answered, "There will be no vote. It's the decision of the chairman, and I have made that decision." When Cantwell and Senator Barbara Boxer (D-CA) persisted in calling for the witnesses to be sworn in, Stevens said,"I intend to be respectful of the position that these gentlemen hold." The five oil company executives -- representing Exxon Mobil, Chevron, ConocoPhilips, BPAmerica, and Shell Oil USA-- all delivered similar testimony that stuck to two major themes. First, each executive maintained that the high prices and profits were a natural part of the energy sector and that government intervention would have a negative effect. "The petroleum industry's earnings are at historic highs today. But when you look at our earnings per dollar of revenue - a true apples-to-apples comparison - we are in line with the average of all U.S. industries," said Lee Raymond, the CEO of Exxon Mobil. Raymond and other executives argued that windfall taxes and other punitive measures are not the best solution for increasing the affordability of energy for consumers. Such measures imposed on the industry in the 1970's hindered reinvestment into industry infrastructure, they said. The second major theme was that oil companies are currently reinvesting profits in order to increase supply. "Today the industry can offer the prospects of profitable growth as it steps up investment in huge, complex energy projects. We feel confident that this response will lead to a moderation of prices and increased energy security," said James Mulva, the CEO of ConocoPhillips. Several of the executives argued that domestic investment was difficult, however, due to restrictions on drilling on public lands and on the continental shelf. Many of the senators on the two committees appeared to be convinced by the executives' arguments that their profits were justified. "From what I heard today, I can't say they earned it unfairly," said Energy and Natural Resources Committee Chairman Pete Domenici (R-NM). Some, however, were less willing to accept that market manipulation was not occurring. "I'm hard pressed to feel good about defending these types of increases," said Senator Gordon Smith (R-OR), who pointed out that in western states energy markets are fully integrated and prices at the pump are controlled by the major oil companies. Senator Ron Wyden (D-OR) asked the executives whether they agreed with President Bush when he said that high profits indicated that oil companies did not need the tax breaks included in the Energy Policy Act of 2005. The CEOs said they agreed with the president, and Wyden then said "Then you'll agree with me tomorrow" when he would try to repeal those tax breaks. The CEOs said they did not agree with that strategy. Senator Boxer took the executives to task for their high salaries, contrasting their compensation with pay for average workers who have to pay high prices for gasoline. Chairman Stevens told Boxer to take down a chart showing the CEOs salaries, saying it was solely for publicity. In the afternoon the joint committee heard from regulatory
authorities, including the chair of the Federal Trade Commission (FTC)
and three state attorney generals. The three attorney generals related
their experiences with price gouging law enforcement, and the New
Jersey and Arizona attorney generals called for a federal price gouging
law to aid in those efforts. South Carolina Attorney General Henry
McMaster, however, said, "I see no need for additional federal
legislation on these points." FTC chair Deborah Majoras explained
the commission's role in enforcing fair energy pricing, saying, "No
other industry's performance is more deeply felt, and no other industry
is so carefully scrutinized by the FTC." She also cautioned,
however, that gouging legislation could inhibit honest price increases.
Senator Jeff Bingaman called this a "specious" argument,
saying fair prosecution could be done at the federal level if it could
be done at the state level. An archived webcast of the hearing along with opening remarks and testimony are accessible on the Commerce, Science and |
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