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30–359 PDF 2006

THE EFFECTS OF THE HIGH COST OF NATURAL

GAS ON SMALL BUSINESSES AND FUTURE ENERGY TECHNOLOGIES

HEARING

BEFORE THE

SUBCOMMITTEE ON TAX, FINANCE AND EXPORTS

OF THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

WASHINGTON, DC, JUNE 28, 2006

Serial No. 109–59

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

COMMITTEE ON SMALL BUSINESS 

DONALD A. MANZULLO, Illinois, Chairman 

ROSCOE BARTLETT, Maryland, Vice 

Chairman 

SUE KELLY, New York 

STEVE CHABOT, Ohio 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

JEB BRADLEY, New Hampshire 

STEVE KING, Iowa 

THADDEUS MCCOTTER, Michigan 

RIC KELLER, Florida 

TED POE, Texas 

MICHAEL SODREL, Indiana 

JEFF FORTENBERRY, Nebraska 

MICHAEL FITZPATRICK, Pennsylvania 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

NYDIA VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

TOM UDALL, New Mexico 

DANIEL LIPINSKI, Illinois 

ENI FALEOMAVAEGA, American Samoa 

DONNA CHRISTENSEN, Virgin Islands 

DANNY DAVIS, Illinois 

ED CASE, Hawaii 

MADELEINE BORDALLO, Guam 

RAU ́ L GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

LINDA SA ́ NCHEZ, California 

JOHN BARROW, Georgia 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

J. MATTHEW SZYMANSKI, Chief of Staff 

PHIL ESKELAND, Deputy Chief of Staff/Policy Director 

MICHAEL DAY, Minority Staff Director

SUBCOMMITTEE ON TAX, FINANCE AND EXPORTS 

JEB BRADLEY, New Hampshire Chairman 

SUE KELLY, New York 

STEVE CHABOT, Ohio 

THADDEUS MCCOTTER, MICHIGAN

RIC KELLER, Florida 

TED POE, Texas 

JEFF FORTENBERRY, Nebraska 

MICHAEL FITZPATRICK, Pennsylvania 

JUANITA MILLENDER-MCDONALD, 

CALIFORNIA

DANIEL LIPINSKI, Illinois 

ENI F. H. FALEOMAVAEGA, American 

Samoa 

DANNY DAVIS, Illinois 

ED CASE, Hawaii 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois

ADAM NOAH, Counsel

(II) 

C O N T E N T S 

WITNESSES

Page 

Kendell, Mr. James, Director, Natural Gas Division, Energy Information Administration, U.S. Department of Energy .......................................................... 3

Cruickshank, Mr. Walter, Deputy Director, Minerals Management Service, 

U.S. Department of the Interior ......................................................................... 5

Lonnie, Mr. Tom, Assistant Director, Bureau of Land Management, Minerals, 

Realty and Resource Protection Directorate, U.S. Department of the Interior ......................................................................................................................... 7

Goodstein, Mr. Richard, Washington Representative, Air Products and Chemicals, Inc. ................................................................................................................ 17

Uhlenburg, Mr. Jeff, President, Donovan Heat Treating Company .................... 19

Wilkinson, Mr. Paul, Vice President of Policy Analysis, American Gas Association .................................................................................................................... 23

Ungar, Mr. Lowell, Senior Analyst, Alliance to Save Energy .............................. 24

APPENDIX

Opening statements: 

Bradley, Hon. Jeb ............................................................................................. 30

Prepared statements: 

Kendell, Mr. James, Director, Natural Gas Division, Energy Information 

Administration, U.S. Department of Energy .............................................. 31

Cruickshank, Mr. Walter, Deputy Director, Minerals Management Service, U.S. Department of the Interior ........................................................... 44

Goodstein, Mr. Richard, Washington Representative, Air Products and 

Chemicals, Inc. .............................................................................................. 56

Uhlenburg, Mr. Jeff, President, Donovan Heat Treating Company ............. 66

Wilkinson, Mr. Paul, Vice President of Policy Analysis, American Gas 

Association ..................................................................................................... 70

Ungar, Mr. Lowell, Senior Analyst, Alliance to Save Energy ....................... 78

(III) 

(1)

THE EFFECTS OF THE HIGH COST OF NATURAL GAS ON SMALL BUSINESSES 

ANDFUTURE ENERGY TECHNOLOGIES 

Wednesday, June 28, 2006

HOUSE OF REPRESENTATIVES

SUBCOMMITTEE ON TAX, FINANCE, AND EXPORTS

COMMITTEE ON SMALL BUSINESS

Washington, DC 

The Subcommittee met, pursuant to call, at 2:00 p.m., in Room 

2360 Rayburn House Office Building, Hon. Jeb Bradley [Chairman 

of the Subcommittee] presiding. 

Present: Representatives Bradley, Kelly, Chabot and MillenderMcDonald. 

Chairman BRADLEY. Good Afternoon. Welcome to the hearing we 

are going to have this afternoon. I welcome you to the Tax, Finance, and Export Subcommittee of the House Committee on Small 

Business. I am pleased to be working closely with my colleagues as 

we review the effects of the high cost of natural gas on small businesses and future energy technologies. 

I look forward to hearing about the insight that all of you on 

both of our panels can provide both an industry and a policy viewpoint. With that said, I would like to thank our distinguished witnesses for taking the time to come to Washington and be with us 

today. 

At the very core of a strong economy in our country is the availability of reasonably priced sources of energy. It is our responsibility as Members of Congress to ensure that government is not 

interfering with the development and deployment of these energy 

sources and ensure that these resources are being extracted in an 

environmentally responsible manner. Our strategies must enable 

the development and expansion of ideas and the success of entrepreneurs, both domestically and internationally. 

Currently, our small businesses are suffering from the high cost 

of natural gas which over the last year has risen to prices as high 

as $15 per million BTUs. To date, the average customer is paying 

more than twice as much as they did in 1999, and with demand 

predicted to increase by roughly 37 percent over the next 15 years, 

there is little relief in sight. 

These high prices are not only affecting businesses and consumers, but they are also hampering the technological advancements of our alternative fuel goals; specifically hydrogen. Natural 

gas and electricity are the primary energy sources for obtaining hyVerDate 0ct 09 2002 01:48 Nov 21, 2006 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 G:\HEARINGS\30359.TXT MIKE
2

drogen. How can we realistically expect to advance the objectives 

of our alternative fuels strategies when we are providing one of the 

greatest obstacles ourselves through our energy policies? 

In my view, we need to increase our nation’s natural gas supplies 

either through increased domestic production or greater importation of international supplies, and above all develop more energy 

efficient technologies. 

I am looking forward to hearing the testimony from our witnesses here today and I look forward to their thoughts on this very 

important topic. However, before we do so, let me take the opportunity to recognize the ranking member of this Committee for her 

opening statement, Mrs. Millender-McDonald.Thank you. 

[Chairman Bradley’s opening statement may be found in the appendix.] 

Ms. MILLENDER-MCDONALD. Thank you so much, Mr. Chairman, 

and thank you for convening this hearing. I would like to also 

thank all of our witnesses who are here today, one of whom is a 

business person in my district, Mr. Richard Goodstein so it is good 

to see all of you here. 

There is no question that energy costs have been climbing at 

steady and often shocking rates lately. Natural gas resources have 

the highest amount of volatility in price to date. Small businesses 

are heavy users of energy resources and it is no surprise to all of 

you here that the rising energy costs are having a profound and 

dramatic impact on our nation’s entrepreneurs. Today’s hearing 

will give us a chance to look at how small businesses are impacted 

by the current energy trends. 

Increasing demand, limited supplies, government deregulation 

and weather conditions have all contributed to the hike in energy 

prices. In fact, over the last 5 years, the cost of natural gas has 

jumped by 90 percent. The rising cost of energy is currently one of 

the top concerns among small business entrepreneurs. 

Small businesses often rely on energy resources for transportation and operational needs on a daily basis. The tight budget that 

many entrepreneurs work with leaves little flexibility to absorb energy price hikes. Farmers alone paid an extra $6 billion in energy 

related expenses in both the 2003 and 2004 growing seasons with 

no relief projected in the future. 

It is clear then that the impact of the rising energy prices is having a great effect on small businesses. Energy related costs have 

resulted in the loss of 3 million manufacturing jobs since 1999 and 

the plastics industry has lost over $14.5 billion in business between 

2000 and 2005 due to the high cost of natural gas. These trends 

have completely deflated small business owner’s expectations for 

expansion and two-thirds of business owners are anticipating even 

lower profits in the future. 

Unfortunately, there is no easy way for small businesses to deal 

with these rising costs. Entrepreneurs seem to have very few 

choices; they can either increase the price of their goods or reduce 

services and restrict investments. My hope is that today’s hearing 

will provide us the opportunity to discuss some of these challenges. 

Small businesses, as we all know, are the engine of our economy 

and deserve support and a fair chance to succeed. Natural gas price 

surges have created a severe disruption in the operation of small 

3

businesses and are impeding their ability to be viable and competitive in today’s market place. With small firms being the nation’s 

single largest employer, we need to do everything we can to make 

sure that they are able to thrive and be successful. 

I have the rest of this and I am not going to read it all. I have 

a long-winded staff and so they have provided me with a dissipation he wants me to complete. But I thank you all for being here. 

Mr. Chairman, we know that it is unacceptable for our nation’s entrepreneurs to be in these types of challenging times and they deserve every effort to provide and we deserve to hear from them so 

that we can provide every effort to provide them with the tools that 

they need and I look forward to the witnesses’ testimony. Thank 

you so much, Mr. Chairman. 

Chairman BRADLEY. Great. Thank you very much. Let me welcome the three panelists. First, Mr. James Kendell. He joins us 

from the U.S. Energy Information Administration where he serves 

as Director of the Natural Gas Division of the Office of Oil and 

Gas. He currently manages weekly, monthly, and annual natural 

gas data collections for the U.S. Government as well as short-term 

natural gas analysis and contributions to EIA Short-Term Energy 

outlook. Mr. Kendell, welcome. 

Our next witness is Mr. Walter Cruickshank. He is the Deputy 

Director of Minerals Management Service of the U.S. Department 

of the Interior. In his present capacity Mr. Cruickshank assists the 

MMS Director in the administration of programs to ensure the effective management of mineral resources located on the nation’s 

Outer Continental Shelf including the environmentally safe exploration, development, and production of oil and natural gas and the 

collection and distribution of revenues from minerals developed on 

federal and Indian lands. Mr. Cruickshank, thank you also for 

being here. 

Lastly, on the first panel joining us is Mr. Tom Lonnie. He is 

from the U.S. Department of Interior. Mr. Lonnie serves the Bureau of Land Management’s Assistant Director for Minerals, Realty 

and Resource Protection. In that position which he has held since 

July of 2003 Mr. Lonnie oversees the BLM’s management of numerous key activities on public lands including the development of 

fluid minerals such as oil and gas and solid minerals such as gold, 

silver, copper, and coal. Mr. Lonnie, thank you for being here. 

We will start with you, Mr. Kendell. I would just remind all of 

you to try to keep your prepared remarks to five minutes and there 

will be more opportunity for questions. Thank you. 

STATEMENT OF JAMES KENDELL, NATURAL GAS DIVISION, 

ENERGY INFORMATION ADMINISTRATION, U.S. DEPARTMENT OF ENERGY 

Mr. KENDELL. Mr. Chairman and Members of the Committee, I 

appreciate the opportunity to appear before you today. The Energy 

Information Administration is an independent, analytical, and statistical agency within the U.S. Department of Energy. We are 

charged with providing objective, timely, and relevant data, analyses, and projections for the use of Congress, the Administration, 

and the public. 

4

Although we do not take positions on policy issues, our work 

often assists policy makers in their deliberations. Because we have 

an element of statutory independence, our views are strictly those 

of the EIA and should not be represented as those of the Department or the Administration. 

Much of my testimony today is based on our weekly, monthly, 

and annual statistics, as well as the June 2006 Short-Term Energy 

Outlook. Before turning to the outlook through 2007 I will briefly 

review the major forces affecting current natural prices. 

High prices continue to dominate natural gas markets, although 

current wellhead prices are below the 2005 record levels. Factors 

contributing to these historically high price levels include record 

high crude prices, increased demand for natural-gas-fired electric 

power plants, depletion of natural gas resources, and major supply 

disruptions as a result of Hurricanes Katrina and Rita last summer. 

Despite the high prices, residential and commercial gas consumers used about the same amount of natural gas in 2005 as in 

2004. Industrial consumption declined by about 8 percent but that 

was nearly offset by a 6 percent increase in natural gas use by electric power generators. 

Looking at the four factors affecting natural gas prices, first the 

most recent increase in crude oil prices began in 2004 when they 

almost doubled from 2003 levels. Crude prices averaged more than 

$56 a barrel in 2005 and roughly $66 a barrel for the first 5 

months of 2006. So far in June we have seen prices hover around 

$70 a barrel. 

Second, natural-gas-fired electric power generation increased 

more than 70 percent between 1993 and 2004. This new gas-fired 

generating capacity reflects attractive environmental performance, 

siting ease, high efficiencies, relatively low capital costs, and relatively low natural gas prices of the 1990s when many of these 

plants were planned. 

Third, despite record drilling for natural gas, production has 

failed to increase proportionately. A key question facing producers 

is whether natural gas resources in the mature on-shore lower-48 

States have been exploited to a point at which more rapid depletion 

rates eliminate the possibility of increasing, or even maintaining, 

current production levels at a reasonable cost. 

Fourth, the hurricane related shut-ins contributed to declining 

production as the paths of five major hurricanes passed through 

the Gulf of Mexico significantly disrupting natural gas production, 

some of which continues today. 

According to EIA’s Short-Term Energy Outlook released on June 

6, natural gas prices are projected to be lower through the rest of 

the year relative to the corresponding 2005 levels. The expected average for 2006 for Henry Hub spot prices of $7.74 per mcf is down 

by $1.12 from last year’s average. 

Commercial natural gas prices, however, are expected to be higher than the average commercial price of $11.58 in 2005. Recovery 

in natural-gas-fired intensive industrial output following the 2005 

hurricanes is likely to contribute to the growth in natural gas consumption this year and next. Domestic dry natural gas production 

is projected to increase slightly in 2006 and 2007. 

5

Total net liquified natural gas imports are expected to increase 

more from the 2005 level of 631 bcf to 710 in 2006 and 950 bcf in 

2007. 

Mr. Chairman, Members of the Committee, this completes my 

testimony. I would be happy to answer any questions that you 

might have. 

[Mr. Kendell’s testimony may be found in the appendix.] 

STATEMENT OF WALTER CRUICKSHANK, MINERALS 

MANAGEMENT SERVICE, U.S. DEPARTMENT OF THE INTERIOR 

Mr. CRUICKSHANK. Thank you, Mr. Chairman and Members of 

the Subcommittee. I appreciate the opportunity to appear here 

today to discuss the role of the Department of the Interior in meeting America’s demand for natural gas. 

As you noted in your opening statements, high natural gas prices 

caused by tight domestic supplies not only hurt consumers but also 

mean losses for agricultural, manufacturing, and many other businesses both large and small. 

The Department of the Interior manages the resources that provide a third of our nation’s energy from traditional sources such as 

oil, natural gas and coal, to renewable sources such as geothermal 

and wind. Within the Department several agencies play a significant role in helping America meet its natural gas needs: The Minerals Management Service, the Bureau of Land Management, the 

U.S. Geological Survey, and the Assistant Secretary for Indian Affairs. 

I will address the roles of MMS and the Geological Survey and 

Mr. Lonnie will then discuss his programs. 

Minerals Management Service is responsible for managing the 

energy and mineral resources on the Outer Continental Shelf, or 

OCS, which refers to the offshore areas beyond state waters. We 

have a focused and well-established mandate to balance the benefits derived from the exploration and development of energy and 

mineral resources with environmental protection and safety. 

The OCS is a major supplier of oil and natural gas for domestic 

markets and contributes more natural gas than any state other 

than Texas. Natural gas production from the OCS exceeds 10 billion cubic feet a day, or about 21 percent of our domestic natural 

gas production. These production levels were effected by hurricanes 

Katrina and Rita last year. Since the onset of Katrina through last 

week over 800 billion cubic feet of natural gas production was shut 

in, or about 22 percent of the annual production from the Gulf of 

Mexico. As of last week about 9 percent of daily natural gas production remained shut in in the Gulf of Mexico. 

Nevertheless, within the next five years we expect offshore production of natural gas will continue to grow to more than 23 percent of domestic production. A vast majority of this new production 

will come from deep water areas of the Gulf of Mexico and from 

deep wells drilled beneath the shallow waters of the Gulf. 

In recent years the strongest trend on the OCS has been the 

growth in deep water production. By deep water we are talking 

about water depths of 1,000 feet or more, almost twice the height 

of the Washington Monument. In fact, industry is now drilling in 

water depths of over 10,000 feet, or about two miles. 

6

Deep water activity in the Gulf has been a major success story 

with over 90 projects having come online. Natural gas production 

from deep water has grown to about 3.7 billion cubic feet per day, 

an increase of well over 600 percent over the last 10 years. We expect it will be several more years before deep water areas have 

reached their full potential. 

Another 10 percent of gas production in the Gulf comes from 

deep wells drilled more than 15,000 feet below the sea bed in shallow waters of the Gulf. We began encouraging exploration of these 

deep horizons in 2001 and there were about 15 new deep gas discoveries announced over the last two years. 

We expect OCS natural gas production will continue to grow in 

the future because of the amount of estimated undiscovered resources remaining there. Earlier this year we released our estimates of undiscovered recoverable natural gas resources underlying 

the OCS. The estimate is for 420 trillion cubic feet of gas. To put 

that in perspective, compare it to domestic production from all 

sources last year of less than 20 trillion cubic feet. 

Access to these resources is achieved through the five-year OCS 

oil and gas leasing program. 

The OCS Lands Act requires the Secretary of the Interior to prepare and maintain a schedule of proposed oil and gas lease sales 

for the nation. Our goal is to develop a program that is responsive 

to the nation’s energy needs, protects the human, marine, and 

coastal environments, and addresses public concerns. 

We are currently in the middle of a two-year process of developing the program for 2007 to 2012. Our next step will be to release a proposed program and draft EIS this summer with a proposed final program and final EIS being delivered to Congress in 

the first quarter of 2007. 

I would briefly like to address the vital role of the United States 

Geological Survey in assessing and evaluating the nation’s energy 

resources. The Geological Survey provides impartial scientific information regarding our geologically based energy resources such as 

oil, gas, coal, and geothermal. 

In its recent national assessment of undiscovered oil and gas resources onshore and beneath state waters, the survey estimated 

over 600 trillion cubic feet of technically recoverable natural gas. 

This gas is not the only potential resource out there; for the longer 

term, the Survey is looking at something called methane hydrates 

which are ice-like solids in which water molecules have trapped 

natural gas molecules. 

The Survey estimates that the in-place resources domestically of 

these hydrates amount to 200,000 to 300,000 trillion cubic feet, a 

number that is obviously substantially larger than the 1,000 trillion cubic feet of conventional natural gas resources believed to 

exist in this country. 

Hydrates are a major resource priority for the Geological Survey. 

They are a member of a multi-agency task force that is working 

with states and industry to conduct state-of-the-art research to increase our understanding of these resources, their potential, their 

recoverability, and production characteristics, and various other 

issues associated with bringing them to market. 

7

Mr. Chairman, this concludes my remarks and I would be happy 

to answer any questions you may have. 

Chairman BRADLEY. Thank you. 

Mr. Lonnie. 

[Mr. Cruickshank’s testimony may be found in the appendix.] 

STATEMENT OF TOM LONNIE, BUREAU OF LAND MANAGEMENT, MINERALS, REALTY AND RESOURCE PROTECTION DIRECTORATE, U.S. DEPARTMENT OF THE INTERIOR 

Mr. LONNIE. Thank you for the opportunity to speak to you today 

about the BLM’s oil and gas management program. I would like to 

highlight some of the important points about the BLM’s energy and 

minerals programs. 

Demand for energy in this country has outstripped domestic energy production and we must find ways to reduce our energy consumption and increase our energy efficiency and domestic energy 

production. Under the Mineral Leasing Act the BLM is responsible 

for managing oil and gas leasing on approximately 700 million 

acres of BLM and other federal lands, as well as private lands 

where the mineral rights have been retained by the Federal Government. 

The BLM works to ensure the development of mineral resources 

is in the best interest of the nation. The BLM’s oil and gas management program is one of the major mineral leasing programs in the 

Federal Government. The BLM administers over 45,000 oil and gas 

leases of which 23,000 are currently producing. Domestic production from the 74,000 federal and Indian on-shore oil and gas wells 

accounts for 18 percent of the nation’s natural gas and five percent 

of the nation’s oil with sales values exceeding 19.6 billion in fiscal 

year 2005. 

The BLM manages the federal lands that are available for leasing and administers the leases. In 2003 we released the Energy 

Policy and Conservation Act Report, also known as EPCA. This 

study by the BLM, USGS, Department of Energy, and the U.S. 

Forest Service was done at the request of Congress. EPCA identified five basins in Montana, Wyoming, Utah, Colorado, and New 

Mexico as containing the largest on-shore resource of natural gas 

in the country and the second largest resource after the outer continental shelf. 

These on-shore basins contain an estimated 140 trillion cubic 

feet, enough to heat 55 million homes for almost 30 years. More 

than half of these lands are under federal management. EPCA 

shows us that approximately 36 percent of the federal land is not 

available for leasing and 64 percent is available for leasing with 

some restrictions associated with oil and gas operations. 

Domestic production of natural gas on-shore has been increasing 

over the last three years. In Fiscal Year 2003 2.4 trillion cubic feet 

of natural gas were produced from Federal lands. In Fiscal Years 

2004 and 2005 2.8 trillion cubic feet and 2.9 trillion cubic feet respectively were produced. 

In addition to the Federal on-shore leases, the BLM supervises 

the operational responsibilities for 3,700 producing Indian oil and 

gas leases. In FY 2005 322 million cubic feet of natural gas were 

produced from American Indian lands. The demand for on-shore oil 

8

and gas is reflected in the dramatic increase in the number of applications for permits to drill, also called APDs. The number of 

APDs received by the BLM has increased every year since 2002 

and we anticipate this trend to continue through 2007 and beyond. 

The BLM received 8,351 APDs in 2005, up from 4,585 APDs in 

2002. Our current projection is that we will receive over 9,700 in 

2006 and over 10,500 in 2007. We are proud of our progress that 

we have made in response to this increasing demand. In 2005 we 

processed 7,736 APDs, a record number. 

The Energy Policy Act of 2005 is a comprehensive piece of energy 

legislation addressing conservation, energy supply from oil, gas, 

coal, oil shale, and renewal sources, distribution of energy, and research into future forms of energy. The BLM is playing a role in 

each of these areas. The Energy Policy Act of 2005 contains several 

provisions through which the BLM is working to improve the APD 

permit processing, expedite oil and gas leasing, and ensure national gas production on public lands in an environmentally-responsible manner. 

BLM is working with other regulating agencies to develop a onestop permitting process for oil and gas activities. The objective of 

grouping the appropriate agency personnel is to create a more efficient and effective process for issuing permits for oil and gas. 

In closing, as our nation’s energy needs continue to increase, the 

BLM is positioned to do its part in helping to meet this need. That 

concludes my comments. Thank you for the opportunity to speak 

and I would be happy to respond to any questions. 

[Mr. Lonnie’s testimony may be found in the appendix.] 

Chairman BRADLEY. Thank you all very much. We are joined by 

Sue Kelly from New York. 

Sue, do you have an opening statement? Sorry to hit you up before you even sit down but wanted to give you an opportunity. 

Great. 

Let me start out with questions first of Mr. Kendell. NOAA is 

predicting a fairly active hurricane season again this year. Perhaps 

not quite as catastrophic as last year. We will find out. You indicated about nine percent of the natural gas is still shut in in the 

Gulf. What kind of projections do you have for what might happen 

in a relatively active hurricane year as to what might be shut in? 

And then how would you think that would affect prices? 

Mr. KENDELL. Of course, predicting the location and intensity of 

hurricanes is always difficult but in our latest Short-Term Energy 

outlook, we looked at the latest national Oceanic and Atmospheric 

Administration forecast which came out May 22nd. We looked at 

all the major hurricanes since 1960 and how much oil and gas was 

actually shut in. Then given the level of their prediction, our estimate is that somewhere between zero and 203 bcf would be shut 

in or lost to production this hurricane season. That is, of course, 

less than a quarter of what we lost for Rita and Katrina. 

We have not directly estimated the price impact of that outer 

level of loss of 203 bcf. There is one major consulting firm that has 

taken our number and they estimate that the loss of 203 bcf would 

mean a price increase at the wellhead of about $3.70 but that is 

not EIA work. That is just derived from our work. 

9

Chairman BRADLEY. Again, to Mr. Kendell, with the relatively 

high levels of gas in storage now, can you hazard as to why prices 

haven’t dropped off more? 

Mr. KENDELL. I think the first point is that we have seen prices 

drop off quite a bit. You in your opening statement mentioned that 

we were at $15 at the wellhead in December and now we are down 

to about $6. I think if you look at our long-term energy outlook, 

which I used to work on, we do expect prices to come down to, say, 

$4.40 or $4.50 over the next 10 years or so but we don’t expect 

prices to ever reach the historic 1990 levels of $2 or $3. I covered 

in my testimony some of the factors. 

In the short-term people are worried about weather. They are 

worried about what if we have some hurricanes, what if we have 

some hot weather, are we going to have enough gas. In the longer 

term people are worried about the difficulty of supply. I talked 

about depletion effects. People are worried about a surge in demand and the competition between oil and gas. What if commercial 

and industrial consumers start demanding more and will there be 

more gas in the long-term? 

Chairman BRADLEY. Sort of an open question for any of you if 

you would like to comment on it. Given the rise of combined cycle 

electricity, which I think all of you touched on as impacting demand significantly, in particular my area of the country in the 

northeast there hasn’t been a single generating facility built in the 

last 10 years that I am aware of, at least that is a significant base 

load plan that isn’t natural-gas-fired. How do you see that going 

into the future affecting the longer-term trends? 

Mr. KENDELL. It certainly is going to put some pressure and continue to put pressure on natural gas prices. The good thing about 

combined- cycle plants is that they are much more efficient than 

the natural gas boilers that we used to have in place 30 years ago. 

Because of the two cycles they are more efficient than turbines. I 

think the electric industry is trying to use the natural gas in the 

most prudent way possible. It does mean that they are really tied 

to natural gas. Many of the plants that used to be dual fueled are 

no longer, as I mentioned. That could create some difficulties. 

Mr. CRUICKSHANK. Mr. Chairman, I would just add with respect 

to your part of the country in particular, one of the things we are 

doing at the Department of Interior is trying to encourage the 

growth of renewable energy. Last year MMS received authority to 

develop a program for offshore renewable energy, wind and wave 

and other sorts of energy.While that is unlikely to make a big difference in supply in the near-term, over time if those facilities are 

built, they can reduce the pressure on demand for natural gas to 

generate electricity. 

Chairman BRADLEY. See my time is up, I would just indicate 

what a controversial item the offshore wind facility has been in the 

Nantucket area. I’m glad to see that the Coast Guard reauthorization did not automatically nix that. It has large potential and, at 

least in my view, it ought to be permitted based on scientific data 

and the impact on navigation and really not political and not aesthetics. 

With that, I am happy to recognize Ms. Millender-McDonald. 

10

Ms. MILLENDER-MCDONALD. Thank you so much, Mr. Chairman. 

This is a very interesting topic. In fact, we have been speaking on 

this for quite sometime and in the statement that Mr. Kendell has 

presented to us today, he speaks about the world oil prices and we 

know that the crude oil is really up and down, up and down. The 

most recent increase in crude oil prices began in 2004, as you have 

indicated, Mr. Kendell. 

In my opening statement I did mention that natural gas resources have the highest amount of volatility in price to date. With 

all of this going and according to the Energy Information Administration, natural gas prices are projected to rise by over 6 percent 

between 2006 and 2007. Do you expect this trend, if you can give 

this type of projection, to continue in the future and will prices remain stable or become more volatile? 

Mr. KENDELL. In addition to having a Short-Term Energy outlook, which I testified about today, we also do an Annual Energy 

Outlook. What this shows is that we expect that actually prices will 

decline a little bit through the year 2016 and then to hit about 

$4.50 in 2016, and then gradually go up to around $5.40 by 2030. 

Of course, this is kind of a steady-state forecast and it doesn’t include a lot of these volatility events that people are so concerned 

about. 

Ms. MILLENDER-MCDONALD. So 2016 we will see kind of like a 

steady stable flow. Is that what I’m hearing here? About 2016 it 

will kind of stabilize itself? 

Mr. KENDELL. In constant dollars. I was just reminded that this 

forecast is in 2004 dollars. 

Ms. MILLENDER-MCDONALD. Okay. All right. 

Mr. KENDELL. We expect actually over the long-term and that’s 

because the current high prices are bringing on a substantial 

amount of drilling. We are getting new LNG terminals built. We 

expect LNG to be coming in. In this forecast we expect the Alaskan 

natural gas pipeline to start moving gas in 2015. All those things 

put downward pressure on natural gas prices in the long-term. 

Ms. MILLENDER-MCDONALD. Of course, Long Beach is one that 

has been tapped for LNG but it is quite a volatile circumstance, I 

suppose, at this time. In fact, the city council is really very uncertain about that at this point. I want to go back to Mr. Cruickshank. 

The National Energy Policy the President has indicated includes 

directives to versify and increase energy supplies. He encourages 

conservation, of course, and ensure adequate energy distribution. 

When he speaks about directives to versify and increase energy 

supplies, I am reminded of the Interior Department manages the 

resources that provide a third of our nation’s energy. Given that, 

these resources include fossil fuel such as coal, oil, and natural gas, 

as well as renewable resources and geothermal steam and wind. 

I put an amendment in to the Energy Bill to talk about geothermal because that is one source of energy that California can 

resurrect quickly to help us to become more independent than dependent. I wanted to get your thoughts on given that the President 

is suggesting that we diversify because of natural gas and where 

it is volatile at this point, what are your thoughts on these other 

resources that I have just outlined? 

11

Mr. CRUICKSHANK. I will speak a bit but a lot of those resources 

are on-shore and under BLM’s jurisdiction. 

Ms. MILLENDER-MCDONALD. That is correct. 

Mr. CRUICKSHANK. The Department of the Interior as a whole is 

very supportive of increasing renewable energy production from 

federal lands and is taking steps both onshore and offshore to create the conditions where renewable energy can be developed. That 

said, even if they grow rapidly it will be quite some time before 

they make a substantial contribution to the nation’s energy supply. 

We are going to remain dependent on fossil fuels for quite a long 

time to come, even as we develop renewable energy. 

Ms. MILLENDER-MCDONALD. Far beyond what natural gas can 

bring in, the stability of that about 2016? 

Mr. CRUICKSHANK. Most of what I have heard is for at least the 

next 20 years we will still be dependent on traditional sources of 

fuel. 

Ms. MILLENDER-MCDONALD. Is that right? 

Mr. CRUICKSHANK. Even though renewable energy will account 

for a growing share of our production. 

Ms. MILLENDER-MCDONALD. Right. Geothermal. What are your 

thoughts on that? Or if Mr. Lonnie wants to answer that. 

Mr. LONNIE. I think I mentioned as part of the Energy Policy Act 

that was passed last August we, the BLM, and the Minerals Management Service, are currently rewriting our regulations to somewhat simplify the leasing process and the accounting process associated with geothermal. 

We have numerous leases pending on-shore in Nevada, California, and also in Oregon and Washington. We view that as an important energy source in terms of diversity. In addition, there were 

several other provisions of the Act that we had already started embarking upon such as oil shale. Oil shale in the west, and this is 

primarily in Utah, Wyoming, and Colorado, estimated that there 

are about 800 million barrels of oil technically recoverable. We 

have started the research and development program on that and 

we currently are in the process of reviewing six or seven nominations for RD&D projects. 

Shell Oil believes based on testimony that I have heard they 

think they can have a commercial production by the next decade. 

Other projects we have got, we have got numerous wind projects 

on-shore in Idaho, Wyoming, and also in Montana that we are currently processing which would amount to small size coal power 

plants upon approval. We also have existing wind projects that are 

producing energy in California and others. 

We developed a solar energy policy that is in existence if companies want to come in and place solar panels beyond land in certain 

areas. We have developed through contracting what the best areas 

for wind energy as well as solar energy are in the western United 

States. In addition, the BLM leases coal and the coal leased by the 

BLM accounts for probably 50 percent of the electricity generated 

in the west. 

Ms. MILLENDER-MCDONALD. Mr. Chairman, may I just ask one 

quick question here? Gentlemen, you have all outlined where we 

are going with renewable energy or resources or sources along with 

all of the other fossil fuel, natural gas. You can see how this imVerDate 0ct 09 2002 01:48 Nov 21, 2006 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 G:\HEARINGS\30359.TXT MIKE
12

pacts your small business entrepreneurs. How soon can we expect 

any relief for them to continue to do their due diligence given all 

the volatility of where we are and where we plan to go and the 

years it seems that it will take before we come to come to some 

type of level of stability? Good question? Confused questions? 

Mr. KENDELL. Good question. This year we expect prices to be 

less than the comparable time last year, assuming we don’t have 

a hurricane, and assuming we don’t have a terrible hot spell. I 

don’t know that we are ever going to get to a position from now 

on where natural gas prices are stable the way they were in 1920 

or the way they even were in the ’90s. 

Ms. MILLENDER-MCDONALD. Not until about 2016 and then that 

is also something that is not predictable. 

Mr. KENDELL. Sure. What I said was that our long-term forecast 

shows them just falling off very slightly by 2016 and then start rising to about almost $6.00 in constant dollars by 2030. We don’t expect the prices to necessarily be stable from month to month or 

even year to year. I mean, these long-term forecasts take out a lot 

of that volatility. Natural gas has become a commodity and it is no 

longer as heavily regulated as it was in the ’40s and ’50s so we are 

going to see volatility. 

Ms. MILLENDER-MCDONALD. Unfortunately. Anymore comments? 

No? Thank you so much, Mr. Chairman. 

Chairman BRADLEY. Congresswoman Kelly. 

Ms. KELLY. Thank you, Mr. Chairman. 

Mr. Kendell, I represent New York’s Hudson Valley. There are 

a lot of small businesses there and they are in the agriculture industry. They produce fresh fruits, vegetables, dairy commodities, as 

well as nurseries. Michael Sweeten is a small business owner in 

my district and he is also the town supervisor in the town of Warwick, New York. He has heard frequently from other business owners that he is not the only one feeling the pinch. 

Mr. Sweeten has operated a green house and nursery operation 

for more than 30 years and this is the worst time he has had in 

his whole career because of the rising energy cost. He wrote me in 

December of 2005 explaining the problem with energy cost for 

small businesses. In 2004 he paid about 73.5 cents per 100 cubic 

feet. That jumped to 105 per ccf for a few months. Then it settled 

down to 85 percent per ccf through August of 2005. 

In August of 2005 it jumped to $1.11 per ccf. In September it 

rose to $1.57 per ccf. In October it hit $1.78 per ccf. That is an increase of 60 percent in two months. Compared to the fall of 2004 

his cost of gas has risen 109 percent. It took your agency three 

months until March 2006 to reply to my inquiries regarding this 

spike in prices. 

Once the Department of Energy did reply, the agency blamed it 

on the infrastructure lost in last summer’s hurricanes and said 

there was an increase in demand. I understand that but before the 

two worst hurricanes, the price had already jumped more than 25 

cents. For a constituent in a small business that paid $7,000 more 

in the spring of 2006 than the same period for the spring in 2005 

and he is using less natural gas, the simple supply and demand argument really doesn’t cut it. 

13

The Assistant Secretary said in a response finally that we got 

that there had been no change in demand, but that is not what the 

small businesses of this constituent have been telling me. They are 

saying that they are doing everything possible to use less simply 

because the cost is so high. Even if the costs tend to go down as 

you stated in your testimony, and in your testimony here you state 

on page 7, ‘‘Natural gas prices trended downward between mid-December 2005 and early March 2006.‘‘ 

Then you also further state, ‘‘This past winter was relatively 

mild resulting in unusually high storage inventories.‘‘ Why is my 

constituent paying $7,000 more in the spring of 2006 then he was 

paying in 2005? Can you explain what you are trying to do here 

and can you explain at least to help me explain to the small businesses I represent about these enormous spikes in prices? 

Mr. KENDELL. I’m sorry that DOE didn’t get back to you in a 

more timely fashion. Next time send it to EIA and we will get back 

to you more quickly. Greenhouses in particular are significantly affected by the natural gas prices and it is very difficult for companies that rely on one fuel such as natural gas to respond to events 

like the hurricanes. I mean, the hurricane aftermath was really at 

the root of these enormous price increases that he saw. 

Ms. KELLY. But this had already gone up 25 cents before the 

hurricanes. 

Mr. KENDELL. Right. 

Ms. KELLY. It was rising before the hurricanes. Why? 

Mr. KENDELL. That is one of the reasons why prices continue to 

be high now. People are anticipating that there might be hurricanes. They are anticipating that there might be warm weather. If 

you look at the prices that are being paid in the future’s market 

for next winter, the prices are about $4.00 in excess of what they 

are now. What that does is give people an incentive to put natural 

gas in storage. There is an incentive to buy gas, to put it in storage, and it puts demand pressure on the price and keeps it up. 

Ms. KELLY. So you are saying to me, if I understand you correctly, that in your testimony you are talking about a downward 

trend in prices for early 2006. Small business owners are not seeing this. Then you are saying that your data are showing that people are storehousing this. If they are storehousing gas, are you saying that they are prepared to put in high reserve inventories and 

they are holding those inventories in case we might have a hurricane? In case they can then drive up the price? How is that allowable? 

You talk about market forces. If these people are increasing their 

inventories, how about all these small businesses out there and the 

people are trying to heat their homes who need that gas at a lower 

price now? What you are saying to me is you have a distorted market force that is at work here. 

Mr. KENDELL. As I said to the Chairman, the prices have come 

down significantly. We had prices of about 15 dollars in December 

and now they are down to six. 

Ms. KELLY. That is wonderful but how about my guy who is paying $7,000 more this year than he did last year for the same era 

that you are saying the prices are down? 

14

Mr. KENDELL. Right. Well, it is sort of like being on the scale. 

I get on the scale and it says 200 pounds and then the next month 

is says 180, I think it is great. 

Ms. KELLY. What does that have to do with oil prices? 

Mr. KENDELL. We have had a change in expectations. People in 

the past were used to seeing prices of $3.00 per 1,000 cubic feet. 

Now we have had a whole series of changes in the market. In my 

testimony I talked about depletion. I talked about the effects of the 

hurricanes. 

Ms. KELLY. Wait a minute. You have just contradicted yourself, 

sir. You just told me that people were adding to their inventories 

and holding it and now you are talking about depletion. 

Mr. KENDELL. I am talking about depletion in production. I am 

not talking about inventory. I am talking about production. 

Ms. KELLY. Depletion of production. 

Mr. KENDELL. Depletion of gas resources. 

Ms. KELLY. But people are stockpiling gas reserves in their inventories now. 

Mr. KENDELL. That is further downstream. Once the gas is produced, it is put into pipelines and it is put into storage facilities. 

What the gas industry does over the summer is stores natural gas 

so that people have it during the winter when most people in the 

north need it. 

Ms. KELLY. I understand that. You still haven’t answered—I 

have asked you several questions and I really don’t feel you have 

answered them. I want to go back to the fact that it sounds to me 

when you say that the reserve inventories are high right now so 

I don’t understand when you say that they are high now. We had 

production, didn’t we, to produce that? 

Mr. KENDELL. Yes, we did. 

Ms. KELLY. Where was that production a few months ago when 

he was still paying very high prices, 109 percent more than he paid 

the year before? Where was that production? Did production increase in the last two months? The last three months? 

Mr. KENDELL. We had a significant amount of production shut in 

because of the hurricanes and we are still down about 9 percent 

from what the Gulf normally produces. Prices are set at the margin. If the gas is not available, people will bid for the last cubic foot 

of gas and bid prices up. If we have any kind of disruption in the 

system, we are going to see increased prices. 

Ms. KELLY. The increased prices started before the hurricanes so 

you haven’t answered that question. The thing that I really find 

confusing is the fact that the Department of Energy doesn’t seem 

to be doing anything to try to keep a close contact to control prices 

here for these people because if we have a heavy winter in the 

northeast, there will be people who in my district will make a 

choice between whether they stay warm or whether they eat. 

It is not just a greenhouse question. It is a question of survival 

for some people and I believe it is incumbent upon the Department 

of Energy to try to help right now before we get into that kind of 

a situation. If people are stockpiling natural gas right now, are you 

helping them in such a way that they will be able to meter that 

gas out at a lower price? What can you do to help us? What are 

15

you doing to help us? Those are two questions I really would like 

to hear your answers to. 

Mr. KENDELL. Unfortunately EIA is not a policy making organization. We don’t really control the flow of natural gas. The flow of 

gas is controlled— 

Ms. KELLY. Are you making recommendations to the DOE? 

Chairman BRADLEY. Congresswoman Kelly, let me interrupt for 

a moment. EIA is the Energy Information Agency and they do projections on the long-term and short-term trends of the price of everything from renewable fuels to oil and gasoline. 

Ms. KELLY. Those projections— 

Chairman BRADLEY. Some of your questions, I think, would better be addressed to the Department of Energy as opposed to EIA 

which is an adjunct of that. 

Ms. KELLY. But the Department of Energy is going to make their 

decisions based on exactly what this man’s perceptions are of the 

reality of the market. That is my point. 

Chairman BRADLEY. I understand your point. Since you are six 

minutes over your allotted time— 

Ms. KELLY. Sorry. 

Chairman BRADLEY. —I would like to recognize Congressman 

Chabot. 

Mr. CHABOT. It gets pronounced all kinds of ways. 

Chairman BRADLEY. Yes, I know. 

Mr. CHABOT. I always tell people I don’t care how they pronounce 

it as long as they vote for. That is especially important this year. 

I appreciate the testimony, gentlemen. I want to apologize. This 

is the third hearing I have had in the last half hour. I am trying 

to get around to all of them so I will make it a point to review all 

your testimony but I don’t want to start cross examining anybody 

here without having had an opportunity to read it so I want to 

thank you for any effort that you can make to keep prices down 

so small businesses can be productive and hire people. We are all 

for that. I want to thank the Committee for doing that and I yield 

back the balance of my time. 

Chairman BRADLEY. All right. I will allow one more question for 

each of the panelists before we move on to the next panel. I would 

like to ask and any of you can answer this as you chose. 

Ms. McDonald has to leave for another hearing. 

Ms. MILLENDER-MCDONALD. Thank you, Mr. Chairman. I, like 

Mr. Chabot and others, are moving from one Committee to the 

other. I just happened to be leaving this Subcommittee ranking 

membership to go to a Full Committee ranking membership with 

the Senate. I must leave but I would like to thank all of you for 

being here. This is an important hearing, Mr. Chairman, and I 

would like to see if we can follow up on this again sometime soon. 

I would like to introduce Mr. Richard Goodstein who will be the 

second panelist who is from my district, although he is Washington’s representative of the Air Products and Chemicals, Inc., in my 

district. We welcome you here. I am sorry that I cannot listen to 

the hydrogen part of your natural gas and hydrogen but we will be 

in communication with you as we have always. Thank you so much 

for being here and thank all of the witnesses, those who are with 

us and those who are to come. Thank you all so much. 

16

Chairman BRADLEY. Thank you. Let me just put this last question out then for myself. Would any of you talk about the role of 

LNG, how increasing it is going to be in importance, the lack of terminals for processing LNG, how that plays into it. 

Mr. KENDELL. We are anticipating that liquified natural gas is 

going to be very important in the long-term, not so much in the 

short-term. As I testified, we expect LNG imports to increase from 

651 bcf in 2005 to 710 this year and 950 in 2007. The important 

part of LNG is that it makes more supply available to us. When 

we have more supply, that tends to put downward pressure on 

prices and I think that it is important for consumers to recognize 

that relationship. 

Chairman BRADLEY. Any further questions for this panel? Yes, 

Congresswoman Kelly. 

Ms. KELLY. There are other aspects of energy that I have not 

heard you discuss. Interesting aspects of things like lowhead hydropower and other things that no one seems to be talking about when 

we are talking about alternative sources of energy. People talk 

about wind and water. Well, water also includes things like 

lowhead hydropower and for years there have been lowhead hydropower dams all over the nation and we could certainly increase 

that. Has anybody in the DOE done any studies on that? 

Mr. KENDELL. Again, EIA has not looked at that. Among the renewables we expect that wind and geothermal are going to provide 

the major contributions to energy supply. There have been studies 

of lowhead hydro in DOE over the years but it is limited by the 

sites. You need a good site before you can undertake a project. 

Ms. KELLY. That indicates what you said earlier that you didn’t 

look at biomass to energy either. 

Mr. KENDELL. Of course, we do look at biomass in our long-term 

forecast. You are welcome to pick up a copy of our Annual Energy 

Outlook or look at it on the web. We do try to cover all the different 

sources of energy and look at the prices, look at the cost involved 

in each of the production sources. 

Ms. KELLY. Is there any hope on anything other than wind and— 

Mr. KENDELL. Actually, there is. Looking at wood and biomass 

we have capacity going up three percent a year through 2030. We 

have co-firing with wood at power plants going up an enormous 

amount, as well as solar thermal and solar photovoltaic. Municipal 

solid waste goes up 1.3 percent. So there are a whole variety of renewable sources that are going up. I think one of the points we 

made in the panel earlier is that we are locked into fossil fuels for 

the foreseeable future because the fossil fuels continue to be less 

expensive, less costly than these renewable alternatives. 

Ms. KELLY. Thank you. That is very helpful. 

Chairman BRADLEY. And I would just add when we are talking 

about renewables, nonhydro renewable electricity generation represents about what, 2 percent of our overall generation so we could 

increase it several fold and it would still be a very small percentage 

of our overall energy mix. 

Let me thank this panel very much for being here this afternoon. 

You have triggered significant discussion and we appreciate your 

participation. Thank you again. 

17

We will take a couple of minutes to get the second panel seated 

and then I will welcome those folks, too. 

Chairman BRADLEY. The second panel consist of Mr. Richard 

Goodstein who joins us from the Air Products and Chemicals, Inc. 

where he serves as a Washington representative. Air Products is 

the world’s largest generator of hydrogen as a fuel and a key player 

on the path to a hydrogen economy. Mr. Goodstein has been deeply 

involved in Federal Government policy on hydrogen working closely 

with relevant Congressional committees and key federal agencies. 

Thank you very much for being here and we appreciate your testimony. 

Next we have Mr. Jeff Uhlenburg. I hope I got that correct. 

Thank you. Jeff is from Donovan Heat Treating Company, a commercial heat treater out of Philadelphia. Mr. Uhlenburg is the 

President of this small manufacturing company and serves as the 

trustee on the Board of Metal Treating Institute. Thank you for 

joining us here this afternoon. 

The third panelist is Mr. Paul Wilkinson from the American Gas 

Association. Mr. Wilkinson has served as Vice-President of Policy 

Analysis for 23 years. Mr. Wilkinson in his role at AGA is responsible for the development and implementation of AGA’s analysis 

program including AGA’s activities in the gas supply, gas demand 

statistics, economics, and environmental areas. Thank you for 

being here. 

Lastly, Mr. Lowell Ungar. He is here today from the Alliance to 

Save Energy where he has served as the Senior Policy Analyst 

since 2003. In his capacity Mr. Ungar is active in appropriations 

issues for federal energy efficiency programs, utility, DSM policies, 

and appliance and fuel economy standards. Prior to joining the alliance Mr. Ungar has worked on Capitol Hill in both the House and 

Senate. Thank you for being here this afternoon. So, please. 

STATEMENT OF RICHARD GOODSTEIN, AIR PRODUCTS AND 

CHEMICALS, INC. 

Mr. GOODSTEIN. Thank you Chairman Bradley, Congresswoman 

Kelly, and I hope actually to get a chance, even though I didn’t 

have it in my prepared comments, to address the question that was 

so vexing in terms of you getting your answer but I hope to get to 

that later, and Congressman Chabot. 

Thanks to all of you for joining us today for the opportunity to, 

in my case, speak about the promise of hydrogen as a fuel of the 

future, the importance of natural gas in pursuit of a hydrogen 

economy, the challenges posed by high and volatile prices for natural gas, and what Congress can do about all this both short and 

long-term. 

I am, as the Chairman said, the Washington representative for 

Air Products, the world’s largest generator of hydrogen and this 

was pursuant to an invitation to the National Hydrogen Association of which we are members and thank you very much. 

Air Products has 60 hydrogen generating and processing facilities throughout the world. More miles of hydrogen pipeline than 

anyone else, an unparalleled safety record, and a 50 percent market share in hydrogen globally. It is also the largest manufacturer 

18

of equipment essential to making liquid natural gas which we have 

been talking about. 

You will recall that President Bush embraced the promise of hydrogen in his State of the Union Address in 2003. A hydrogen economy truly would transform the nation freeing the U.S. from the dependence on foreign oil, helping Americans breathe clean air, ending our unsustainable trade imbalance, and allowing for reduced 

defense posture that is currently predicated on massive oil imports. 

To achieve all of these remarkable objectives, the country will 

need the building block for hydrogen today which is a dependable 

supply of natural gas. Most of the hydrogen supplied by air products is generated through a process of reforming natural gas, natural gas from the local gas company coming in, pure hydrogen 

going out. I have a picture attached to my testimony. Air Products 

has a number of these what are called steam methane reformers 

mainly in the Gulf Coast and we actually have a couple in Congresswoman Millender-McDonald’s district. 

Because hydrogen fuel cells are much more efficient than car engines today, hydrogen made from natural gas is a good source of 

fuel for vehicles and can move the U.S. out of the grip of OPEC. 

Emissions from a hydrogen fuel vehicle are water vapor, nothing 

more. In a hydrogen economy air emissions and the need to regulate them would largely be a relic of an older age. Think about 

that. 

In policy circles hydrogen is often discussed as if it were an option merely for the future but, in fact, hydrogen is generated in 

enormous quantities for industrial purposes today. You will see attached to my testimony a map showing hydrogen facilities throughout the country. 

All these little circles and triangles and so forth depict in one 

fashion or another the fact that there is hydrogen available. Not 

necessarily in dispensable form but it exist in virtually every state 

in the union. In some cases, especially in Southern California, hydrogen is available as a vehicle fuel at prices competitive with gasoline today. 

Air Products has developed over 40 hydrogen fueling stations 

throughout the world, mainly in the U.S. This is my last show and 

tell. I have attached a picture of what they look like. Not unlike 

a standard pump at a fueling station. In fact, the Secret Service 

let President Bush dispense hydrogen from one of them on Benning 

Road about two miles from here not long ago so it is safe. 

The point is that between the existence of technology to dispense 

hydrogen and the existing network of hydrogen facilities around 

the country, the development of a hydrogen fueling infrastructure 

is quite feasible. The Holy Grail in the hydrogen world is totally 

renewable hydrogen where renewable energy such as hydropower, 

biomass, solar, wind, and others are used to generate the electricity 

to separate the oxygen from the hydrogen molecules and water. 

Until the price of renewable hydrogen is substantially reduced, hydrogen will largely be derived from natural gas. 

It will be years before the demand for hydrogen is high enough 

to effect overall demand for natural gas so, again, hydrogen’s development is not really going to put a crimp in the overall demand 

in the U.S. for natural gas. Nonetheless, count Air Products among 

19

the many who believe that increased access to domestic natural gas 

supplies is an important objective for many reasons. 

First, as we have heard, generating hydrogen and other gasses, 

what we do for a living, requires considerable amounts of electricity 

and high natural gas prices are driving up electricity costs for your 

farmers, for businesses, and obviously for people in their households. 

Second, Air Products is a large chemical manufacturer. We have 

been suffering along with other chemical companies from the high 

prices of natural gas over the past several years. As one example, 

Air Products terminated methanol production at a chemical plant 

in Pensacola and began importing from Trinidad. We weren’t 

happy about it. We didn’t like moving those jobs offshore but in a 

global competitive market we really had no choice. 

What can Congress do about all this? For starters, we ask Congress to realize that hydrogen is delivering and will deliver on its 

promise relatively soon. There are many members of Congress who 

have no qualms about supporting drilling for oil in Alaska even 

though everybody believes that first drop of oil won’t be available 

to American consumers for 10 years. 

Yet, the Department of Energy predicts that hydrogen will be in 

a commercial phase about 10 years from now. Cars, buses, cell 

phone towers, lap tops, small generators will increasingly be powered by hydrogen so we submit that anyone willing to wait on oil 

from Alaska should see hydrogen’s potential in the same time 

frame. 

Because hydrogen’s benefits such as clean air and energy and dependence are largely common to all of us, free market forces alone 

won’t do the job. The Federal Government needs to be arm-in-arm 

with the private sector to do what the Federal Government only 

can do tax preferences, loan guarantees, R&D spending, and developing codes and standards, and to be sure drilling for natural gas 

in an environmentally sensitive manner and in states that want it 

is important to maintain as a source of hydrogen for many years 

to come. 

With appropriate Government support the U.S. can develop and 

maintain an edge over foreign competition in this very new field of 

hydrogen and fuel cell technologies. These technologies will not 

only clean up our own country but what a great export for the U.S. 

to have. Hydrogen has great promise and is more here now than 

many think. Thank you for spending the Subcommittee’s time on 

this important subject and I look forward to any questions. Thank 

you. 

[Mr. Goodstein’s testimony may be found in the appendix.] 

STATEMENT OF JEFF UHLENBURG, DONOVAN HEAT 

TREATING COMPANY 

Mr. UHLENBURG. Thank you for allowing me to come here today 

to speak and testify. My name is Jeff Uhlenburg and I am the 

President of Donovan Heat Treating in Philadelphia. We are commercial heat treaters and we have 15 employees located in Philadelphia, Pennsylvania. I am a member of the National Association 

of Manufacturers. NAM is the largest broad-based industrial trade 

association in the country. Our members are in every industrial 

20

sector and every state. I am also, as Congressman Bradley mentioned, a trustee on the board for the Metal Treating Institute for 

which I have been involved for over 25 years. 

I have also been very involved in the energy issues in my company and natural gas purchasing for over 25 years. Heat treating 

basically requires only three things, metal, furnaces, and heat. I’m 

here today to talk to you today about the heat part. The process 

generally takes one to three days in a modern plant. Natural gas 

is by far the most common fuel used in heat treating today with 

95 percent of all furnaces using new gas. 

At Donovan’s we fire five furnaces with gas. One burns as much 

as 16 million BTUs per hour. Gas is the easiest, most consistent, 

most reliable fuel to use. That is why it is used so much in heat 

treating and many other industrial processes. Natural gas is normally our second largest expense and has been since 2003, the 

largest being labor. 

Prices for gas has risen more than 600 percent since the ’90s from $2.00 per BTU to around $6.00 per BTU today and they were 

as high as $15 in the fall of ’05. Even before last year’s hurricanes 

the price of gas has nearly doubled in 2005 alone. Our plant in 

Pennsylvania was cut off from natural gas three times in the last 

five years. 

We slowed down, we ran as best we could with propane as an 

alternate fuel, and the propane cost converted to natural gas was 

almost $20 in mcf. The gases started flowing again but the disruption and the supply and speculative bidding has caused the price 

to nearly double to $14. Recently, our gas bill hit an all time record 

in October and November of 2005. How are we handling it? We are 

continuing to run now because we are obligated to finish jobs that 

we have started for our customers. 

We announced a substantial price increase in January so the 

price of heat treating is going up. We also expected sales to slow 

down soon and we had tentatively planned to shut down some of 

our production. We thought that the gas would be its most expensive. We did have a fairly mild January and that didn’t exactly 

happen but the price is nowhere where it should be presently. 

We alternated our work crews, though, so that we actually had 

to lay off almost each one of our workers for a short period of time. 

This is our story and it is not much different from a lot of other 

manufacturers that I know, especially other heat treaters. Our energy bills may be higher than theirs but their cost pressures are 

just as real. 

Cost of manufacturing are already very high here in the United 

States and this kind of increase will push some businesses over the 

edge. You have already heard, or will soon here, about other manufacturers moving offshore because of energy costs. I know you are 

hearing a lot from constituents about the high cost of gasoline since 

the current cost of natural gas is the equivalent of $7 a gallon for 

gasoline. Just wait until the heating bills come in again this coming winter. 

What happened to cause this pricing problem? It is easy to blame 

it on the hurricanes and all but the problem goes much deeper. In 

my opinion the natural gas shortage began five years ago or more 

when electric utilities around the country quit building new genVerDate 0ct 09 2002 01:48 Nov 21, 2006 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 G:\HEARINGS\30359.TXT MIKE
21

eration except those units fired with natural gas. They did so for 

a good reason. 

It was the easiest way to satisfy the clean air regulations and environmental pressure from neighborhood activists. Why not take 

the easy road? But a gas-fired generator uses a tremendous 

amount of gas. At the same time that usage was going up the oil 

and gas industry was constrained from drilling in the most promising areas of our country to find the needed supply to supply the 

increases. 

Without that extra supply it was inevitable that we would see 

prices going up. What the hurricanes did was take a dismal pricing 

situation and basically multiply it by two. The storms have also 

pointed out the national folly of forcing most of our gas infrastructure through one area of our country. What do we need to do as 

a country? We didn’t get into this hole overnight and we are not 

going to get out of it that quickly either. At a recent NAM board 

meeting the consensus was that we really needed to develop our 

entire energy portfolio to take the pressure off of natural gas. 

Long-term, say 20 to 25 years, we need to diversify our baseload 

of electricity which would include increased construction of clean 

coal and nuclear power plants. This will help relieve the pressure 

on natural gas for manufacturing, home heating, and peak power 

generations of electricity. 

Our goal reserves are the world’s largest. I know that as a native 

of Pennsylvania. We sit on top of one of the largest coal reserves 

in the world. Being equal to about Saudi Arabia’s oil reserves on 

a BTU equivalent we have about a 250-year supply with greater 

opportunities for coal use and transportation and industry production on the horizon. 

There are also new applications for coal and transportation fuel 

as well called a liquid technology pioneered by Germany almost a 

century ago and perfected more recently in South Africa. This offers the prospect of a new chapter in U.S. energy use. 

Because of clean coal technology, emissions from coal fire utilities 

are 40 percent below the level of the 1980s. Carbon sequestration 

technology and gasification technologies are being used to create 

hydrogen energy also as Mr. Goodstein pointed out. 

Additionally, we need more clean nuclear energy. Nuclear energy 

is a secure source that the nation can depend upon. Unlike some 

other energy sources it is not subject to unreliable weather or climate conditions, unpredictable cost fluctuations, or dependence on 

foreign suppliers. It produces no controlled air pollutants such as 

sulphur and particulates or greenhouse gases. 

Finally, renewable sources of energy hold exciting promise for 

the future but much R&D is needed to take the place of that if that 

goal is to be reached. We are a fossil fuel based economy as pointed 

out here. In order to make a shift away from these fuels a significant government expenditure needs to take place to build that infrastructure. The NAM is not opposed to renewable fuels but we 

believe the Government policy should not mandate their use but 

encourage and provide incentives and allow the market place to 

work. 

In the intermediate term when you increase the supply of oil and 

gas, the extra supply will eventually bring down the consumer 

22

prices to increase the supply we need to open up the development 

of the Outer Continental Shelf, or OCS, and allow the states that 

permit offshore drilling to receive a large portion of the substantial 

revenue that comes with it. Currently 85 percent of all federally 

controlled coastal waters are off limits to energy production due to 

a federal moratoria that has blocked the state’s access to our reserves. 

The OCS, as pointed out earlier, has over 420 trillion cubic feet 

of natural gas resources, enough to heat 100 million homes for 60 

years and enough oil to drive 85 million cars for 35 years. Congress 

should list federal restrictions that prevent states from developing 

these resources and doing so would increase the much needed domestic energy supplies and reduce prices, allow states to control 

their offshore energy resources, allow coastal states to benefit from 

energy development by sharing royalties resulting in hundreds of 

millions of dollars in local revenue, encourage the building of a gas 

pipeline from Alaska. 

Short-term these are the things we can do right now. Allow companies like ours to have fast-track environmental permitting to 

switch to other kilns, boilers, whatever they use in their processes 

as long as they meet reasonable environmental standards for hazardous air pollutants. Businesses can then move quickly through 

the regulatory hurdles and things that they encounter. 

Open the additional LNG terminals as soon as possible has great 

potential. Finally, conservation and efficiency is something each 

and everyone of us can do right here and right now which should 

be part of any company’s normal course of business because it 

makes good business sense. 

The Government’s role should be to provide the mechanisms to 

encourage and educate manufacturers. We believe the EPA’s Energy Star Program and the Department of Energy’s industrial technologies programs are two such programs that provide the right 

mix of hands on education and creative problem solving. 

As I said earlier, we will not get out of this hole quickly or easily 

but I believe that Congress holds the key to long-term energy independence and lower prices for oil and gas. 

Manufacturers cannot compete with electric utilities for natural 

gas. Most utilities have an automatic pass-through of higher fuel 

bills to their customers. 

Manufacturers that compete in a global economy do not have 

that luxury. If we don’t turn this situation around, the end result 

will be continued loss of paying jobs in the United States, lower tax 

receipts, and increased imports. I urge you to think long-term and 

make good decisions for the entire country on this critical issue. 

I thank you, Mr. Chairman and members of the Committee for 

the opportunity to present the NAM’s and my company’s view 

today. 

Chairman BRADLEY. Great. Thank you very much. 

Mr. Wilkinson. 

[Mr. Uhlenburg’s testimony may be found in the appendix.] 

23

STATEMENT OF PAUL WILKINSON, AMERICAN GAS 

ASSOCIATION 

Mr. WILKINSON. Good afternoon and thank you for this opportunity to discuss this very critical issue with you today. AGA represents 197 local energy utilities that deliver gas to over 56 million 

homes, businesses, and factories throughout the country. 

I should note at the outset that local gas utilities do not profit 

at all from higher natural gas prices. We want what our customers 

want, adequate supplies at reasonable prices. Natural gas provides 

40 percent of the energy consumed by small businesses in this 

country. The percentage would be significantly higher if we excluded lighting from which gas does not compete. 

Gas is used for space and water heating, cooking, clothes drying, 

cooling, dehumidification, small scale electricity generation, and a 

variety of other applications. The price of natural gas has more 

than doubled for small business customers since 1999. Further, 

natural gas prices have been subject to great volatility for the past 

five years. High prices have placed a strain on all small businesses 

forcing some to curtail operations or shut down entirely. 

Price volatility has made planning and budgeting extremely difficult for small businesses as energy comprises a significant share 

of total operating cost. It is critical that we begin to aggressively 

address the problem that has confronted small businesses for half 

a decade now. We urge the Congress to act decisively and swiftly 

to increase the supply of natural gas. 

Gas production is not keeping pace with demand and prices have 

risen dramatically. Prices will only come down when we increase 

the supply of natural gas in the market place. The natural gas 

market was very stable in the ’80s and in the ’90s. Prices tend to 

fluctuate around an equilibrium of about $2 per million BTU. In 

fact, natural gas prices when adjusted for inflation fell during that 

period. 

Just within the past year we saw $6.00 gas prices last June jump to $9.00 in August largely as the result of hot weather that pushed 

more gas into electricity generation. Prices spiked to $14 as a result of the hurricane disruption in September. They fell to about 

$11.00 in the early winter but a cold snap in December shot them 

right back up to $15. In January they fell back to the $7.00 range 

due to the warmest weather on record for that month. Today they 

remain around $6.00 per million BTU. 

My point is that natural gas prices now respond immediately and 

dramatically to weather. There is no longer any slack in the system 

to accommodate sudden changes in supply or demand. The system 

is constantly running at full throttle and, therefore, a sudden 

change in supply or demand means a dramatic change in price. It 

is simply not good public policy to allow the whims of Mother Nature to dictate who can and you cannot heat their home or business 

or which plants will operate and which will shut down or to determine who will and who will not have a job. 

I urge the Congress to begin to rectify this situation. Ending the 

absolute moratorium on offshore drilling is an important step in 

the right direction. In my view there is no question that we must 

do this. Natural gas is produced in a safe, efficient, and environmentally responsible fashion. We are talking about activity 50 to 

24

100 miles offshore. It will not be seen, heard, nor smelled. No tankers, no barges, no spills. 

I live in a coastal state and I appreciate the need to protect our 

beaches but I know this is no threat. I also know that a continued 

failure to act will only cause higher prices, added financial strain 

to millions of small businesses and homeowners, result in more unemployment and the continued deterioration of our economic base. 

Failure to counteract these problems when we have the ability to 

do so with little or no adverse impact is, in my opinion, unconscionable. Energy efficiency must continue to play a key role in terms 

of easing the price pressure on natural gas markets. It is clear that 

natural gas customers throughout the country have been lowering 

their thermostats, tightening their homes and businesses, and installing more efficient gas appliances since the first oil embargo in 

the 1970s. 

As a result, and as proof, the average commercial establishment 

using natural gas today uses roughly 25 percent less gas than it 

did in 1980. But energy efficiency alone is not the answer. Energy 

efficiency alone will not stop small businesses and factories from 

shutting down. It will not stop the layoffs that result of these shutdowns, and it will not adequately relieve the pain suffered by 65 

million households throughout the country due to unjustifiably 

high natural gas prices. 

There are a number of steps that must be taken in order to bring 

natural gas markets back into balance. I understand that the Congress does not have full control over all of it but we must unlock 

domestic sources of natural gas both on-shore and offshore and 

allow gas producers to explore for and produce gas more expeditiously. 

We must begin construction of a natural gas pipeline from Alaska now. We can’t afford to discuss the project for another 30 years. 

We must permit and build new LNG receiving terminals and not 

just in the Gulf Coast. 

Further, given that our access to natural gas supplies is so constrained it is not wise to continue to rely on natural gas to provide 

90 percent or more of our new electricity generation capacity. The 

mix of fuels used to generate electricity must be diversified including increased use of solar and wind technologies, the use of clean 

coal technologies like IGCC, and the use of nuclear power. 

Thank you and I would be happy to respond to any questions you 

might have. 

Chairman BRADLEY. Mr. Ungar, I’m sorry. 

[Mr. Wilkinson’s testimony may be found in the appendix.] 

STATEMENT OF LOWELL UNGAR, ALLIANCE TO SAVE ENERGY 

Mr. UNGAR. Thank you, Mr. Chairman. My name is Lowell 

Ungar and I am representing the Alliance to Save Energy, a bipartisan, nonprofit coalition of more than 100 business, government, 

environmental, and consumer leaders including some organizations 

represented here today. 

We are honored to have Congressman Ralph Hall, Zach Wamp, 

and Ed Markey among our vice chairs and many small businesses 

among our supporters. 

25

I am here to tell you how energy efficiency is the quickest, cheapest, and cleanest way both to help small businesses manage natural gas prices and to help bring those prices under control. 

Mr. Chairman, you and the other witnesses here have starkly described the impacts of high gas prices and their origin in part in 

an excess of demand over supply. Yet, energy efficiency has helped 

keep direct natural gas use by homes and businesses, that is, natural gas use in the homes, not for electricity, help keep that use 

pretty flat for the past three decades even as our economy has 

more than doubled in size. 

Energy efficiency is the nation’s greatest energy resource. We 

now save more energy each year from energy efficiency than we get 

from any single energy source including natural gas. In fact, if we 

tried to run today’s economy without the energy efficiency measures taken since 1973, we would need 43 percent more energy than 

we use now and our natural gas supply shortage would be much, 

much worse. 

The potential of energy efficiency to reduce energy price volatility, energy security concerns and environmental impacts in the 

future, is even greater. The National Petroleum Council concluded 

in 2003 that supply from traditional North American natural gas 

production will not be able to meet projected demand and that 

‘‘greater energy efficiency and conservation are vital near-term and 

long-term.‘‘ 

In a recent analysis by the American Council for an Energy Efficient Economy found that just a small reduction in natural gas use 

over the next few years could reduce wholesale natural gas prices 

by as much as one quarter. Because natural gas supplies are so 

tight, the potential impact of the energy efficiency is magnified. 

I would like to highlight four energy efficiency measures that can 

reduce natural gas use and help small businesses. First, the energy 

policy act of 2005 included an important set of tax incentives for 

highly efficient buildings and equipment. These incentives can reduce U.S. natural gas use by 1.6 trillion cubic feet through 2020 

while helping small businesses make, sell, and use energy efficient 

technologies. 

However, the incentives are in effect for too short a time. A large 

commercial building initiated when the bill was signed last August 

will not be finished before the commercial building deduction expires in December of 2007 and, therefore, simply could not use that 

deduction. 

The Alliance strongly supports extending the incentives as soon 

as possible with certain improvements. 

Second, several effective federal programs help small businesses 

be more energy efficient and thus reduce both price pressure and 

impacts on natural gas. Energy Star was mentioned earlier. It 

works with thousands of small businesses across the country to encourage sales of energy efficient products and homes. 

In the university-based industrial assessment centers, part of the 

industrial technology program at the Department of Energy, train 

university students and use them to conduct plant-wide energy assessments for small and medium-sized businesses. The administration has proposed to cut funding for both of these and for other efficiency programs. More funding rather than less for these programs 

26

would be one of the quickest and most effective ways of addressing 

the natural gas situation. 

Third, many utilities have found that helping their customers including small businesses to save a kilowatt hour of electricity or a 

therm of natural gas is cheaper than producing and delivering that 

energy. Several states such as Texas, Connecticut, and Nevada, are 

now developing innovative policies to set performance standards for 

utility energy efficiency programs. 

As a focus for federal policy the energy efficiency resource has 

several advantages. It is available everywhere and available for 

both natural gas and electricity. It is cost effective and flexible and 

the potential energy and monetary savings are enormous. 

Fourth, appliance standards have saved more natural gas than 

any other policy. The largest current opportunity is to require efficient residential furnaces in the northern states such as yours, but 

these furnaces may not be cost effective in all of the warmer states. 

Legislation would be useful to clarify that the Department of Energy could set separate levels for heating and cooling equipment in 

two different climate regions. 

Building energy codes also are very important for saving natural 

gas. All of these codes are usually set at a state level. There are 

federal standards for manufactured housing and for homes with 

federally subsidized mortgages. These standards are very weak and 

need updating. 

Consumers and businesses in this country have been hit by the 

worse energy price shocks in many years for natural gas and also 

for gasoline and in some areas for electricity. The Alliance urges 

Congress to seize the opportunity now due to the high prices to 

enact significant energy efficiency measures that will benefit small 

businesses, the rest of the economy, the environment, and energy 

security for years to come. 

Thank you, Mr. Chairman. I would be happy to answer any questions. 

[Mr. Ungar’s testimony may be found in the appendix.] 

Chairman BRADLEY. Well, I guess I am here by myself so I have 

free reign of questioning. 

Let me start first with you, Mr. Goodstein. You indicated in your 

testimony commercial phase-in of greater use on a commercial 

basis of hydrogen as a decade away. Then you went on to say that 

in order to jump start more of a hydrogen economy and fuel cells 

and automobiles and fueling stations and things like that needed 

to be jump started, tax incentives for R&D, for facilities, building 

codes, loan guarantees. I think those were the things you mentioned. If you had your druthers what kind of federal limits on 

spending or how costly are some of these tax incentives, loan guarantees likely to be phased-in over that 10-year period? 

Mr. GOODSTEIN. Let me tell you what it’s not and then I will answer your question. People talk about the move toward a hydrogen 

economy needing to be something like an Apollo Program or a 

Manhattan Project. You hear those terms. President Bush has committed in the State of the Union address $1.2 billion in extra 

spending over five years. The Apollo Program cost $170 billion in 

today’s dollars over 11 years. 

27

We don’t have that kind of money but it seems to me again when 

you look at all the savings in environmental protection and defense 

posture and so forth, money is fungible so if we had — if we could 

bring on a hydrogen economy sooner instead of a 50/50 cost share 

which is what the R&D now with the Department of Energy entails, maybe something slightly that brings more of an incentive toward companies like mine, or smaller companies that want to develop the storage capacity or the fuel cell that will bring — I use 

the analogy think of the old Univac computer and today’s laptop. 

That is where we are. We are actually closer to the Univac computer than the laptop but the capacity of these fuel cells is coming 

down rather rapidly thanks in part to the support of the Department of Energy, thanks to a lot of money that is being poured into 

labs of individual companies. The faster we can move that down 

the faster this technology will be out on the streets and doing all 

these wonderful things. There have been bills that have been put forward $5.7 billion as opposed to $1.2 over five years in a kind of combination of incentives, guarantees, etc. We are not so pie in the sky as to say we 

are looking at an Apollo Program but we think that dollar per dollar this is a very good use of the Federal Government’s resources. 

Chairman BRADLEY. If I can move to you, Mr. Uhlenburg. Your 

company is a small manufacturing company. Are you able to hedge 

your natural gas contracting or are you totally at the will of the 

spot market pricing? 

Mr. UHLENBURG. We are subject to both. We originally bought 

local gas in Philadelphia and we were an interruptable customer. 

We are presently now on the open market and hedging our gas because it has been the only way to survive right now. When we were 

an interruptable customer we were interrupted at one point for 67 

consecutive days and I had to go to propane where my cost went 

from approximately $4 mcf up to over 15 and as high as 20. 

I was not making profit at that time. It was only a matter of 

time until I would be out of business with that kind of numbers. 

Hedging has been the way of today and it takes a lot of time. You 

have to study the market and I have people to help me with that. 

It has been the way to survive in the world today. Yes, we are able 

to do that. It is one of the tacks that we use in order to survive. 

Chairman BRADLEY. Mr. Wilkinson, I asked the earlier panel to 

comment on the lack of LNG terminals. I’m from New Hampshire 

but I followed the New Bedford proposal with great interest because even though we in New England don’t depend on for a large 

amount of our home heating fuel on natural gas, there is an increasing amount. 

As I said to the earlier panel, a huge amount of new electric generation of gas. The New Bedford proposal has been on the drawing 

board and it’s been controversial. Could you just comment on lack 

of terminals and how big a roll that plays in our ability to import 

greater supplies of natural gas? 

Mr. WILKINSON. I personally think that LNG is the best hope 

that we have in the relatively near term. That is, we have terminals under construction today that will be online in 2008 and 2009. 

I think we will have four or five terminals online out of the 40 proposed terminals in that time frame. I think that is the first opporVerDate 0ct 09 2002 01:48 Nov 21, 2006 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 G:\HEARINGS\30359.TXT MIKE
28

tunity to see any increased stability in the natural gas market 

place that Ms. Kelly was asking about. 

I am very skeptical that there will be many, if any, terminals on 

the east to west coast of the U.S. Perhaps in the southeast. I am 

very skeptical about the northeast. It is unfortunate because the 

cost of LNG is in part a function of price. One of the best things 

you could do to bring a low-cost energy to New England would be 

to have an LNG line running from, say, from Norway to the Northeast rather than shipping— 

Chairman BRADLEY. The country of Norway? 

Mr. WILKINSON. Yes—rather than shipping LNG down to the 

Gulf Coast and then paying the pipeline charge to move it up to 

New England. Unfortunately, with the opposition that we see in 

the northeast in particular, it is very difficult and I know that most 

or many of the major terminal builders are reluctant to even propose project in that part of the country. The one most successful 

terminal builder right now is Shaneer Energy. 

I spoke with the president of Shaneer Energy. He said he would 

not propose any project in the northeast no matter how much sense 

they made. He was going to Texas because they understand in 

Texas that those projects can be done in a way that was good for 

the State of Texas and good for the country and he wasn’t going 

to waste $100 million trying to change public opinion. 

Chairman BRADLEY. Mr. Ungar, would you care to comment on 

a couple of bills in Congress? I know this is a little bit out of your 

field but there have been several bills in Congress as we developed 

the energy plan last year to insist upon a nationwide renewal portfolio standard, something that several New England states, not 

New Hampshire but a number of states in the northeast, have 

adopted. Any thoughts on that? 

Mr. UNGAR. In general we don’t take a position on supply site resources except to note, as I said, that energy efficiency programs 

that utilities run in many states throughout the country are already both very effective in terms of reducing the need for generation and very cost effective. Typically there is a very large range. 

These programs can often save electricity at the rate of 3 or 4 cents 

a kilowatt hour which is much cheaper than you can generate it 

from renewable or, in fact, pretty much any other resources. 

We certainly think it makes sense to incorporate efficiency resources. If you are going to look at any program to mandate or to 

fund alternative energy sources for electricity, we think it makes 

sense to look at efficiency as a cost effective resource that is available throughout the country and included in the program or as separate programs. 

Chairman BRADLEY. I have no further questions. If any of you 

would like to give concluding remarks, I would be welcome to hear 

them, too. Thank you. 

Mr. GOODSTEIN. Let me just say, again, this was a great forum 

for an important issue that really had two heads, the whole natural 

gas impact on small business. And as you are looking towards future energy technologies, that is obviously vital. I think the point 

was made by myself and others that they are really kind of hand 

and glove efforts here and we certainly appreciate all the help that 

you can give that you can persuade your colleagues that this is efVerDate 0ct 09 2002 01:48 Nov 21, 2006 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 G:\HEARINGS\30359.TXT MIKE
29

fort that is worth making because, again, the consequences absent 

an effort like this are ones that we just don’t want to contemplate. 

Mr. UHLENBURG. I would second that. 

Mr. WILKINSON. I would just say we have outlined a number of 

things that can be done to help this market. I think there is an important vote tomorrow in the house that can help in that regard. 

We are optimistic and hopeful that things will work out on the 

House side and then go forward in the Senate as well. 

Mr. UNGAR. I would conclude that energy efficiency as a response 

to natural gas prices helps small businesses in three ways. First, 

it reduces the price by reducing the demand pressure on prices. 

Second, energy efficiency by the small businesses reduces energy 

bills regardless of price. Third, many, and most of the companies, 

that are carrying out these energy efficiency measures are small 

businesses themselves. It is an important market and potential 

area for small businesses. Thank you. 

Chairman BRADLEY. Let me conclude by thanking both this panel 

and the prior panel and the Committee looks forward to continuing 

to work with you on this, as I think you have all indicated, critically important subject. 

[Whereupon, at 3:47 p.m. the Subcommittee was adjourned.]

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