U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Publishing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

98–911 2016

S. HRG. 114–309 

THE POTENTIAL MODERNIZATION OF THE STRATEGIC PETROLEUM RESERVE AND RELATED 

ENERGY SECURITY ISSUES 

HEARING 

BEFORE THE 

COMMITTEE ON 

ENERGY AND NATURAL RESOURCES 

UNITED STATES SENATE 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

ON 

THE POTENTIAL MODERNIZATION OF THE 

STRATEGIC PETROLEUM RESERVE AND RELATED ENERGY SECURITY ISSUES 

TUESDAY, OCTOBER 6, 2015 

( 

Printed for the use of the 

Committee on Energy and Natural Resources 

(II) 

COMMITTEE ON ENERGY AND NATURAL RESOURCES 

LISA MURKOWSKI, Alaska, Chairman 

JOHN BARRASSO, Wyoming 

JAMES E. RISCH, Idaho 

MIKE LEE, Utah 

JEFF FLAKE, Arizona 

STEVE DAINES, Montana 

BILL CASSIDY, Louisiana 

CORY GARDNER, Colorado 

ROB PORTMAN, Ohio 

JOHN HOEVEN, North Dakota 

LAMAR ALEXANDER, Tennessee 

SHELLEY MOORE CAPITO, West Virginia 

MARIA CANTWELL, Washington 

RON WYDEN, Oregon 

BERNARD SANDERS, Vermont 

DEBBIE STABENOW, Michigan 

AL FRANKEN, Minnesota 

JOE MANCHIN III, West Virginia 

MARTIN HEINRICH, New Mexico 

MAZIE K. HIRONO, Hawaii 

ANGUS S. KING, JR., Maine 

ELIZABETH WARREN, Massachusetts 

KAREN K. BILLUPS, Staff Director 

PATRICK J. MCCORMICK III, Chief Counsel 

TRISTAN ABBEY, Senior Professional Staff Member 

ANGELA BECKER-DIPPMANN, Democratic Staff Director 

SAM E. FOWLER, Democratic Chief Counsel 

SCOTT MCKEE, Democratic Professional Staff Member 

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Murkowski, Hon. Lisa, Chairman, and a U.S. Senator from Alaska .................. 1 

Cantwell, Hon. Maria, Ranking Member, and a U.S. Senator from Washington .................................................................................................................... 21 

WITNESSES 

Moniz, Hon. Ernest, Secretary, U.S. Department of Energy ............................... 23 

Blair, Adm. Dennis C., USN (Ret.), Former Director of National Intelligence 

and Commander-in-Chief, U.S. Pacific Command and Co-Chair, Commission on Energy and Geopolitics, Securing America’s Future Energy .............. 64 

Book, Kevin, Managing Director, ClearView Energy Partners, LLC .................. 75 

Bordoff, Jason, Founding Director, Center on Global Energy Policy, and Professor of Professional Practice in International and Public Affairs, Columbia 

University ............................................................................................................. 88 

Ladislaw, Sarah, Director and Senior Fellow, Energy and National Security 

Program, Center for Strategic and International Studies ................................ 99 

ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED 

Blair, Adm. Dennis C.: 

Opening Statement ........................................................................................... 64 

Written Testimony ............................................................................................ 67 

Responses to Questions for the Record ........................................................... 125 

Book, Kevin: 

Opening Statement ........................................................................................... 75 

Written Testimony ............................................................................................ 78 

Responses to Questions for the Record ........................................................... 127 

Bordoff, Jason: 

Opening Statement ........................................................................................... 88 

Written Testimony ............................................................................................ 90 

Cantwell, Hon. Maria: 

Opening Statement ........................................................................................... 21 

Ladislaw, Sarah: 

Opening Statement ........................................................................................... 99 

Written Testimony ............................................................................................ 102 

Moniz, Hon. Ernest: 

Opening Statement ........................................................................................... 23 

Written Testimony ............................................................................................ 25 

Responses to Questions for the Record ........................................................... 117 

Murkowski, Hon. Lisa: 

Opening Statement ........................................................................................... 1 

A Turbulent World: In Defense of the Strategic Petroleum Reserve dated 

July 27, 2015 ................................................................................................. 2 

Wyden, Hon. Ron: 

Statement for the Record ................................................................................. 130 

(1) 

THE POTENTIAL MODERNIZATION OF THE 

STRATEGIC PETROLEUM RESERVE AND RELATED ENERGY SECURITY ISSUES 

TUESDAY, OCTOBER 6, 2015 

U.S. SENATE

COMMITTEE ON ENERGY AND NATURAL RESOURCES

Washington, DC. 

The Committee met, pursuant to notice, at 10:37 a.m. in Room 

SD–366, Dirksen Senate Office Building, Hon. Lisa Murkowski, 

Chairman of the Committee, presiding. 

OPENING STATEMENT OF HON. LISA MURKOWSKI, 

U.S. SENATOR FROM ALASKA 

The CHAIRMAN. Good morning. I call this hearing of the Committee to order. 

We have a lot of ground to cover this morning. We have a couple 

excellent panels of witnesses, so let us begin. 

We are honored and pleased to once again have before the Committee the Secretary of Energy, Dr. Ernest Moniz. Welcome back. 

It is always good to see you. 

We have an opportunity this morning to talk about the Strategic 

Petroleum Reserve (SPR) and other energy security related issues. 

Back in July, I prepared for the Committee a report on the Strategic Petroleum Reserve, A Turbulent World: In Defense of the 

Strategic Petroleum Reserve. If I must say so myself, it is pretty 

darn good. [Laughter.] 

[The information referred to follows:] 

2 


Insert offset folio 1 here 98911.001
3 


Insert offset folio 2 here 98911.002
4 


Insert offset folio 3 here 98911.003
5 


Insert offset folio 4 here 98911.004
6 


Insert offset folio 5 here 98911.005
7 


Insert offset folio 6 here 98911.006
8 


Insert offset folio 7 here 98911.007
9 


Insert offset folio 8 here 98911.008
10 


Insert offset folio 9 here 98911.009
11 


Insert offset folio 10 here 98911.010
12 


Insert offset folio 11 here 98911.011
13 


Insert offset folio 12 here 98911.012
14 


Insert offset folio 13 here 98911.013
15 


Insert offset folio 14 here 98911.014
16 


Insert offset folio 15 here 98911.015
17 


Insert offset folio 16 here 98911.016
18 


Insert offset folio 17 here 98911.017
19 


Insert offset folio 18 here 98911.018
20 

The CHAIRMAN. I would recommend it to you all if you have not 

had an opportunity to read it. 

We have some pretty unparalleled opportunities here in the 

United States with regards to our oil and our oil production. While 

it is good and strong, I think it is important that we be ever vigilant in this area. OPEC’s spare capacity has fallen, unplanned production outages persist in Iraq, in Libya and elsewhere and further 

trouble always seems to lurk just over the horizon. 

The Strategic Petroleum Reserve remains critical to our nation’s 

energy security, and it is an asset. You will hear me repeat, as 

often as I possibly can, that this is about a national security asset. 

I think it is important that we focus on the energy security aspect of it. It is an insurance policy, absolutely. It is a source of leverage and stability for us from a geopolitical perspective, absolutely. 

While I believe it should be modernized, I think the question that 

many of us have asked is, what exactly does modernization really 

mean? I am going to make four brief points this morning in that 

direction. 

The Administration proposes some $2 billion in new funding for 

SPR life extension projects and to improve marine distribution capability. I think that these proposals merit careful consideration by 

the Committee. I look forward to hearing from Secretary Moniz as 

he makes the case on these. 

I had an opportunity back in July to tour one of our Strategic 

Petroleum Reserves, and I think that ensuring operational effectiveness of the Reserve should be a first priority for us. We cannot 

let these lapse into disrepair so that they cannot fulfill the purpose 

which is intended and again, taking us back to energy security. 

Second, the Administration is also studying the creation of petroleum product reserves on the West Coast. This is PADD 5 and on 

the East Coast, PADD 1. I am not opposed, in principle, to building 

additional product reserves, but I do have some reservations about 

them. Petroleum products have a much shorter shelf life than 

crude and a much more direct impact on the American consumer. 

Guarding against the use of the SPR for political purposes, I think, 

should be an enduring concern for all of us. 

Third, I am also not opposed, in principle, to revising the emergency release authorities as the Administration and some of my 

colleagues have proposed, but generally, I am wary of proposals 

that expand the power and the ability of the Federal Government 

to intervene in the free market. Any sort of ‘‘preemptive release’’ 

clause must be very carefully examined. While the Quadrennial 

Energy Review briefly discusses this proposal, I do not think that 

the Administration has, as of this point in time, made a convincing 

case for new authority. I look forward to the discussion on that as 

well. 

The final point, and I raised this in the white paper that we released in July, the Strategic Petroleum Reserve does not necessarily exist in a vacuum. Up in Alaska the Trans-Alaska Pipeline 

(TAPS) is another vital piece of energy infrastructure and it too is 

vital to our national security, yet we are seeing its throughput decline at a deeply troubling pace. TAPS must operate for decades to 

come. We have got the resources in our state to ensure that it does. 

21 

I think when we are talking about energy security our focus 

should be broad in evaluating our energy security, pursuing all of 

our options, including further increases in domestic production. 

I am going to close my comments again by reiterating that we 

call it the ‘‘Strategic Petroleum Reserve’’ for a reason. As the name 

suggests, we hope never to use it. We hope to use it as that strategic reserve, but we keep it around for good reason. In the event 

that something happens, if there is an event, whether it is in the 

Straits of Hormuz or wherever it may be, in case the world slips 

and we find ourselves in need, we need to know the strategic asset, 

this national energy security asset, is there. 

I have said before that it would be a mistake to treat the reserve 

as anything but a reserve. It is not an ATM for new spending or 

a vestige of our national energy policy. If we begin to treat it as 

that, I think, we risk selling at the wrong time, at the wrong price 

and losing its substantial benefits. 

So again, I am looking forward to having a good discussion about 

energy security in this context with not only the comments from 

the Secretary, but our second panel as well. 

With that I will turn to Ranking Member Cantwell. 

STATEMENT OF HON. MARIA CANTWELL, U.S. SENATOR FROM 

WASHINGTON 

Senator CANTWELL. Thank you Madam Chairman, and thank you 

for holding this hearing on modernization of the Strategic Petroleum Reserve and related energy security issues. I thank Secretary 

Moniz and the other witnesses for joining us for this very important discussion. I especially want to thank the Secretary for his 

leadership on the Quadrennial Energy Review, which is an important document that helps frame the discussion of our nation’s energy policy priorities and infrastructure needs. 

In July, this committee successfully reported out the Energy Policy Modernization Act on a bipartisan basis. Senator Murkowski 

and I had many discussions about the pieces of that legislation but 

there was one thing that we could easily agree on. And that was 

the critical importance of the Strategic Petroleum Reserve. 

Forty years ago, we created the Strategic Petroleum Reserve to 

prevent economic and security impacts of crude oil supply disruptions. That’s exactly what had happened with the Arab oil embargo 

in 1973. The 1975 law that created the SPR specifically authorizes 

the president to draw down the SPR, if he or she determines there 

is a severe energy supply interruption. The core policy reason for 

the reserve hasn’t changed since then-nor should it. 

The Strategic Petroleum Reserve is our most important, Federal, 

energy security asset. We need it just as much today as we did 

then. Perhaps even more so, given the energy market volatility we 

have seen over the past decade. The global oil markets may have 

changed—but so have the nature of the threats to the infrastructure, which is so key to our economic and national security. 

We make commitments to the International Energy Program, 

and supply interruptions could happen at any time. Whether it’s 

response to volatility somewhere else in the world or a natural disaster like hurricanes, we are seeing with increasing frequency devVerDate Nov 24 2008 12:22 Aug 03, 2016 Jkt 098911 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 C:\TARSHA\HEARINGS\98911\98911.TXT 98911
22 

astation to our critical energy infrastructure. So you just never 

know when you may need to use the oil in the SPR. 

Even with more U.S. oil being produced today, we need to have 

emergency crude oil contingency plans. 

There are several immediate and medium-term geopolitical risks 

capable of rendering severe or even catastrophic oil supply losses, 

such as possible attacks on major Middle East supply nodes or 

routes, major weather events, or severe disruptions originating in 

places like Nigeria or Venezuela. Any of these situations could result in major disruptions and trigger an SPR drawdown. 

Our colleagues on this committee are quite familiar with the 

findings of the Quadrennial Energy Review (QER). 

The report notes that, ‘‘Challenges remain in maximizing the energy security benefits of our resources in ways that enhance our 

competitiveness and minimize the environmental impacts of their 

use....the network of the oil distribution has changed significantly.’’ 

The QER explains that the Strategic Petroleum Reserve’s ability 

to protect the U.S. economy from severe economic impacts in the 

event of a supply emergency or associated price spike has been diminished by infrastructure congestion—literally, the congestion of 

too much product not being able to get the product to where we 

want and when we want. 

In fact, the Department of Energy did a test sale in 2014 and 

identified a series of challenges within the SPR distribution system. Investments are needed to modernize the SPR to make sure 

the infrastructure has the ability to respond. 

The SPR is in need of $2 billion worth of repairs and upgrades. 

However, it is estimated that the $2 billion investment to modernize the SPR can help save the U.S. economy approximately $200 

billion in the event of a sustained and large oil supply disruption. 

So we’ll hear from Secretary Moniz about some of these issues— 

about the fact that some of the salt caverns were built in the 1930’s 

and that some of them raise issues of their integrity. At least two 

caverns have been taken offline. Some of the wells are more than 

60 years old. We need to invest in above-ground infrastructure like 

water, brine disposal, power distribution systems and physical security—all the things that will help us respond to an emergency. 

And because pipelines have essentially reversed direction of flow 

since the SPR was built 40 years ago, that’s where this issue of 

congestion comes in and a strategy of how are we going to deal 

with that congestion to make sure that we are going to get product 

to the market, so it would have the intended impact that we would 

like it to have. 

So once again, I thank the Secretary Moniz for his work on the 

QER—a long process but a good roadmap for telling us what we 

need to do to improve our infrastructure—not just on the SPR, but 

on other issues as well. And I thank the chair for holding this important hearing.’’ 

The CHAIRMAN. Thank you, Senator Cantwell. 

At this time we will turn to the Secretary of Energy, Dr. Ernest 

Moniz. 

Welcome to the Committee. We look forward to hearing from you 

about this very important national energy security asset. 

23 

STATEMENT OF HON. ERNEST MONIZ, SECRETARY, U.S. 

DEPARTMENT OF ENERGY 

Secretary MONIZ. Thank you, Chairman Murkowski, Ranking 

Member Cantwell, and distinguished members of the Committee. I 

have submitted a fairly detailed testimony, so I will just make a 

few summary comments here to open up the discussion. 

Clearly we need an energy security policy based on 21st century 

energy market changes, challenges, vulnerabilities and needs. Its 

key components are a modernized SPR configured to enable appropriate draw down and distribution capacity, energy infrastructure, 

the resilience and reliability including emergency response and a 

broader concept of energy security to include our international engagements, our allies and our partners. 

I’ll touch on the latter two points very briefly and make a few 

more comments on the petroleum reserve. 

As you have both said, it’s our nation’s most central Federal energy security asset, and it should be treated as such. Some have 

concluded that selling large volumes of oil from the SPR for purposes not related to energy security will have no or little impacts 

on its energy security benefits, and I do not subscribe to those 

views. In fact, I believe the SPR remains an extremely powerful 

and valuable energy security tool. 

As we evaluate the energy security value of the SPR we must 

take into account several factors including, this is particularly relevant—relative to 1975, the change nature of oil markets since the 

SPR was established. We are linked to the global market, we are 

exposed to global prices and including disruption driven global 

price spikes, and these historically have had significant economic 

impact even if there is little direct impact on our imports today. 

Second, our international commitments not only our obligation of 

90 days of import protection but also another international obligation which is based upon oil use, not oil imports, and that is our 

obligation based upon the last data to provide 43 and a half percent of the amount of a total coordinated OECD response to a disruption. So again, I think it’s important to emphasize that we have 

an import obligation and an oil use dependent obligation. 

And then third, the actual distribution capacity of the SPR. The 

2014 test sale did identify a significant gap between the SPR’s 

drawdown and distribution capacities. Much of that is driven by 

what’s happened in the last several years in terms of the changed 

scale and geography of our oil production. 

To address disruption scenarios a key need would be our ability 

to get SPR oil onto the water to supply coastal refineries. 

Changing markets and international commitments are not the 

only concern with the SPR. Like much of our publicly supported infrastructure the SPR needs additional investment to maximize its 

value. In this case funding in three distinct areas. 

One is deferred maintenance. The President’s budget for Fiscal 

Year 2016 proposes a major down payment on the backlog of SPR 

deferred maintenance, cutting it in half. Unfortunately the House 

and Senate Appropriation bills marks, if enacted, would not support that. Indeed we might be going in the wrong direction in 

terms of increased deferred maintenance. 

24 

Second, life extension. Almost 40 years old and some caverns are 

much older than that. The SPR needs a significant life extension 

program to ensure its effectiveness for decades to come in such 

areas as crude oil transfer and security. 

And third, modernization. We also need to modernize the SPR to 

accommodate, again, the dramatically different locations and volumes of domestic oil production and changes in global oil markets. 

The Quadrennial Energy Review, a QER, that’s been alluded to, 

released in April, examined what the SPR would need to protect 

the U.S. economy in an energy supply emergency. As already stated, roughly $2 billion are needed, about $800 million for life extension and about $1.2 billion for modernization such as dedicated marine terminals to respond quickly in emergencies. 

The return on these could be huge. A study out of Oak Ridge 

suggests that, for example, adding about two million barrels per 

day distribution capacity could save our economy in a major disruption tens of billions of dollars, up to $200 billion depending upon 

the nature of the disruption. 

So we need a robust SPR to guard against the economic harm 

of such a major disruption, and this is not theoretical. If we look 

at many events in the Middle East, including just last week the 

Russian military intervention in Syria, adding another element of 

geopolitical uncertainty in that entire region. 

Just to finish with a couple of words on energy infrastructure, resiliency and reliability. This was discussed extensively in the QER. 

This is challenging. 

Our existing infrastructure is not always well matched to our 

supplies. We have aging facilities prone to failure. We have climate 

change impacts that we must guard against which put many facilities at risk. And of course, we have enhanced concerns about cyber 

and physical attacks that could take a heavy toll. The QER had 

over 60 recommendations for addressing infrastructure needs. 

Finally, just to end by saying that a collective approach to energy 

security in the international sphere is what we need today. This 

situation in Ukraine and growing European dependence on a dominant supplier of energy is what stimulated a lot of discussion within the G7 plus EU in terms of this collective responsibility. I’ve just 

returned from the G20 Energy Ministers Meeting in Istanbul 

where this dialog continues, and the reality is that this is an important and sensitive time in this arena. It’s a time when we are, 

in fact, encouraging other major countries to buildup their petroleum reserves to work collectively with ours. And so, I think, we 

need to be very careful about the signals we send today in terms 

of collective energy security. 

I appreciate the opportunity to come here and look forward to the 

discussion and to working further with the Committee. 

[The prepared statement of Secretary Moniz follows:] 

25 


Insert offset folio 21 here 98911.021
26 


Insert offset folio 22 here 98911.022
27 


Insert offset folio 23 here 98911.023
28 


Insert offset folio 24 here 98911.024
29 


Insert offset folio 25 here 98911.025
30 


Insert offset folio 26 here 98911.026
31 


Insert offset folio 27 here 98911.027
32 


Insert offset folio 28 here 98911.028
33 


Insert offset folio 29 here 98911.029
34 


Insert offset folio 30 here 98911.030
35 


Insert offset folio 31 here 98911.031
36 


Insert offset folio 32 here 98911.032
37 


Insert offset folio 33 here 98911.033
38 

The CHAIRMAN. Thank you, Mr. Secretary. 

Your concluding words are the ones that I find most intriguing. 

You are over in Europe, you are in Istanbul at the G20, you are 

working in this collective approach that you have been talking 

about with our G7 or EU allies and the focus is on improving energy security from a broader perspective. You come home from that 

meeting and the discussion here is the Congress is looking to sell 

off parts of that strategic reserve that we are encouraging other nations to participate in, to again, build out and enhance this collective energy security. 

Tell me how this works when the United States is trying to persuade China, trying to persuade India, to participate in these international energy security conversations? Isn’t it a little bit hypocritical for us, as a country, to be saying come on in and yet we 

are basically treating our energy security asset as the cash machine here? 

Secretary MONIZ. Well of course we are, as you know, and as 

called for in a product of your Committee, we are carrying out a 

strategic study which we expect to finish next May basically, in 

terms of what we need to do in terms of the size and the authorities of the petroleum reserve. 

Now without those I am not going to talk about a specific size. 

But the fact is that, as I said, that the markets are totally different 

today than they were in the 70’s. The real issue is a major disruption that leads to a substantial price excursion which affects all of 

us. And that’s why we are working with China and by the way, the 

collaboration is excellent. They have come and visited our SPR. We 

have a visit to their developing SPR in November. They are building up toward a 500 million barrel petroleum reserve in China. 

India is building up reserves as well. 

So again, as I said earlier, I think this is a time of considerable 

geopolitical uncertainty and what we need is a more unified international collective response to the economic risks we would all face. 

The CHAIRMAN. I would certainly hope that we would agree that 

we need a consistent response too. We cannot ask them to move 

forward in this collective approach while at the same time we are 

weakening our own energy security cushion, if you will. 

I appreciate you saying you cannot comment on the right sizing 

of the SPR at this point in time. You are going through the studies. 

I was walked through all of the varied layers of analysis that will 

be part of that review, but wouldn’t it be premature for us to be 

selling off portions of the reserve before we have that considered 

analysis, before we really know what the right size is, before we 

really understand how aspects of this modernization need to proceed? 

Secretary MONIZ. Well I would certainly assume that that’s why 

Congress has asked us to do the study. 

The CHAIRMAN. Well. 

Secretary MONIZ. Was to be able to have a detailed and significant analysis. And this analysis is being performed with many, 

both analytical companies and universities to bring together, I 

think, the first really integrated strategic look in a very, very long 

time. 

The CHAIRMAN. And a very necessary... 

39 

Secretary MONIZ. And we certainly would like to have that answer. 

The CHAIRMAN. A very necessary review. I think it is something 

that we asked for a reason, and I would certainly hope that we 

would take advantage of this considered review before we weaken 

our ability to utilize the recommendations that come with this. 

Right now we have a mindset here in this Congress, and I, unfortunately, even with your guidance here, even within the Administration, that says we need this money now because we need to 

spend it on a transportation bill, and if we do not spend it on a 

transportation bill somebody is looking for another bill on the 

House side. They have already identified it for research in the 

healthcare world. 

We are looking at this as nothing more than a cash machine at 

a time when we are looking for more money, and I think that this 

is wrong and irresponsible. 

I believe very, very strongly that what we need to do is make 

sure that as we move to modernize, as we move to make sure that 

we have that strong energy asset, we do not erode our ability to 

utilize it in the time of an emergency when we do not know what 

is going on. We do not know what may come next, but we know 

that if we drained it out and we do not have the flexibility to move 

when we need it then there is going to be a lot of fingers pointing 

saying where did it go? I think part of what we are trying to ascertain here is what is it that we need and how can we be smart with 

this as our energy asset? 

Senator Cantwell? 

Senator CANTWELL. Thank you, Madam Chair, and thank you, 

Mr. Secretary, again, for your work on the document that helped 

produce the focus here. 

Explain why the 90-day requirement should not be the only consideration that we should be looking at when we are talking about 

modernization? 

Secretary MONIZ. Well, Senator Cantwell, again, the 90 days is 

certainly an international obligation based upon imports. But as I 

said, we also have an international obligation based upon the use 

and that is the 43 and a half percent of draw down capacity for 

a coordinated response. 

But second, beyond the international obligations I just believe it’s 

in our best interest to have a very strong petroleum reserve. That 

is what gives us the flexibility to respond if there is a very major 

disruption. And we have had brainstorming sessions, workshops, 

with external experts looking at what are the risks of major disruptions and they certainly are there, major disruptions, perhaps more 

than three million barrels a day, for example, suddenly disrupted. 

And by the way, the risk also of multiple disruptions because 

things could be linked. 

So, as I said, that has the expected impact of a major price spike 

in those cases. We are in a situation with a diminished global reserve capacity, and so it’s being able to use government stocks in 

a rapid way that could ameliorate the economic harm that we 

might face. 

Senator CANTWELL. Do you think the President should have new 

authority in this area? 

40 

Secretary MONIZ. Well we have said that in the QER it raised 

the issue of a variety of authorities. Some of them are very specific 

such as with the two product reserves they have very, very different authorities for use. And we think that should be harmonized 

within the petroleum reserve. 

But then there are more, bigger policy issues, such as how one 

defines what a major disruption is in the sense of having the ability to respond when there is likely to be a major price spike as opposed to after there’s been a major price spike. So those are the 

kinds of policy issues that I think we need to discuss in terms of 

looking at authorities appropriate to what is now a genuine global 

market in contrast to the market of the 1970’s. 

Senator CANTWELL. In the Quadrennial Energy Review you also 

talked about and we had a couple of votes here in Committee about 

commodity congestion—the inability for utilities to even get products, based on the competing commodity needs. So I think the 

Quadrennial Review does a pretty good job of outlining the fact 

that we need to improve there as well. I wish people here would 

swim in their own lanes when it comes to these things, but usually 

that is not how the legislative process works. Clearly we have to 

do both. Is that correct? We have to improve infrastructure commodity passage or as my colleague from Minnesota who is not here 

at the moment talked about the fact that utilities in Minnesota 

who have requirements to serve their consumers could not get their 

coal supply actually to them because of commodity congestion. That 

is the same problem, the underlying issue here is about the oil 

market. So it is getting the oil and getting other commodities to 

market takes both an infrastructure improvement and a modernization of the SPR. Is that correct? 

Secretary MONIZ. Yes, it does. And there, in terms of the SPR 

modernization, yes, there is a congestion issue in terms of the Gulf 

of Mexico. But that issue, as you say, is much, much broader than 

that in terms of our energy infrastructure. I believe there has been 

some progress, for example, with regard to the train congestion. I 

met with the CEO of one of the major railroads, BNSF, and understood the steps that they are taking to try to not have a repeat of 

those kinds of issues. 

So I think there’s a lot of work going on in the private sector, 

but the fact is we haven’t yet caught up to the incredible increase 

in our gas and oil production from new geographies. We also have 

things like large crops, etcetera, all coming together to lead to some 

congestion. 

So in the QER in addition to specific energy infrastructure, we 

also had recommendations because it was an Administration-wide 

document. We also had shared infrastructures that all commodities 

use as part of the focus as well. 

Senator CANTWELL. Thank you. 

Thank you, Madam Chair. 

The CHAIRMAN. Senator Barrasso? 

Senator BARRASSO. Thank you very much, Madam Chair. 

Welcome back. 

As you talk about the role that energy plays in our national security, global security, in your testimony you advocate for an expanded view of energy security that broadly encompasses the needs 

41 

of the United States, our allies and trading partners. You go on to 

say the crisis in Ukraine highlighted the vulnerability of our European allies to increasing reliance on a single dominant supplier for 

much of its energy supplies. You explained, it is not only true in 

regard to natural gas, but also crude oil. Your words. You cite the 

European Commission’s finding that some European refineries are 

optimized for using Russian crude, and the EU refining capacity is 

increasingly in the hands of a shrinking number of Russian owners. 

So I am encouraged the Administration continues to approve 

U.S. liquefied natural gas exports, but I question about the Administration, why it seems to be dithering when it comes to crude oil 

exports. Do you agree the U.S. crude oil exports would benefit the 

energy security of our allies and trading partners and if not, why 

not? 

Secretary MONIZ. Well, sir, again, first I think, it’s important 

that we do distinguish, you had this discussion before, I think, in 

terms of the natural gas and oil situations in the United States 

being quite different. In natural gas we are, of course, I mean, we, 

with some Canadian imports, although those have gone down too. 

We are essentially self sufficient and our export will very shortly 

start the exports with LNG out of the lower 48. 

On oil it’s still very different where we are a seven million barrel 

a day importer of crude oil, a much greater exporter now of oil 

products, of course. 

So the specific issue raised, as you well know, it’s in the responsibility of the Department of Commerce to make that policy judgment. But it is also true that recent studies including the last summary study of the EIA on the congressionally requested studies on 

exports show that the impacts for the next 10 years or so are likely 

to be pretty modest, to put it mildly, in terms of exports. 

Senator BARRASSO. Because I guess I would ask if that is your 

litmus test if crude oil imports have to get to zero or near zero before the Administration would support crude oil exports because we 

all know that much of our nation’s refining capacity really was 

built to handle heavy crudes that are imported from outside the 

United States, not what is being produced in the United States 

right now as a result of technological advances and with fracking 

and how we get to this oil. It is very different in terms of what our 

refining capacity is. But is that your litmus test? We have to get 

to zero of imports before we can export what is essentially a different product. 

Secretary MONIZ. No, sir, I did not say that. Of course, we should 

emphasize again, we are exporting. I think it’s now four million 

barrels, maybe a bit more, of product. That goes to South America 

and Europe, so they are getting the benefit of our increased production. That’s the first point. I’ve forgotten my second point now. 

[Laughter.] 

Secretary MONIZ. The product, okay, maybe that was—— 

Senator BARRASSO. Last month the White House Press Secretary 

said we will not support legislation like the one that has been put 

forward by Republicans, but last week the Senate Banking Committee advanced legislation introduced by Senator Heitkamp, a 

Democrat, to repeal the crude oil export ban. 

42 

It does not seem the Administration supports efforts to move this 

bill according to the White House spokesperson. Does the Obama 

Administration oppose all legislative efforts to repeal this crude oil 

ban? 

Secretary MONIZ. Well the, by the way, I thought of my other 

point. 

Senator BARRASSO. Oh, good. 

Secretary MONIZ. Which was on the additional production of light 

oil. The fact is that when you look at spreads, Brents, WTI, Louisiana Light, it’s hard to argue that there’s been a lot of production 

being hemmed in by current rules. 

Secondly, I would note again, of course, commerce, again, is responsible. They have taken two steps. One was the ruling on lightly processed, high API oil to be exported as a product. Secondly, 

more recently, the approval of the swap with Mexico of light for 

heavy. 

So I think the Commerce has taken steps to address this and it’s 

on their desk in terms of any further steps. 

Senator BARRASSO. When you talk about production being 

hemmed in, of course that means jobs lost in the United States in 

the oil industry from people that are actually out there working, 

trying to just make a living and put food on the table. So it is a 

consideration for our economy. 

Secretary MONIZ. But Senator, again, the evidence today is that 

this is not occurring. The EIA’s analysis would say that if there 

were substantially greater production in the United States somewhere up north of 12, then there might become an impact there. 

But right now the evidence does not suggest a major impact. 

Senator BARRASSO. Final question. The Nord Stream pipeline 

running from Russia to Germany under the Baltic Sea circumvents 

Eastern Europe. I understand a number of Eastern European leaders have expressed opposition to expanding Nord Stream. I do not 

know if that came up at your recent meeting. But what, if any, 

steps is this Administration taking to stop the expansion of Nord 

Stream? 

Secretary MONIZ. Well, of course, we are working with our European colleagues both at the national level and at the European 

Commission level. The European Commission has made it very 

clear in their energy security plan that they are looking for diversification of supply which the Nord Stream would not do. 

We have been advocates and frankly, to answer your question, 

yes, these were discussed a few days ago in with the G20. We remain, for example, very strong advocates of getting Caspian gas 

into Europe, through the Southern corridor that needs additional 

interconnections. Greece to Bulgaria, etcetera. 

In addition we’re very interested in, don’t have a direct role, but 

we maintain the discussions in terms of the production and monetization of Eastern Mediterranean gas, Israeli, Cypriot and of 

course, Egypt now, potentially with a major find. 

I think those are the issues that really add to diversity of supply 

and would increase European energy security. 

Senator BARRASSO. Thank you. 

Thank you, Madam Chairman. 

The CHAIRMAN. Thank you. 

43 

Senator Manchin? 

Senator MANCHIN. Thank you, Madam Chairman, and thank 

you, Mr. Secretary, for being here and I appreciate your input. 

Sir, you just mentioned that we have about seven million barrels 

a day of imports that we depend on, and that is going to stay, I 

think EIA even forecasts are about four million even way up into 

the future. 

Secretary MONIZ. Of crude oil? 

Senator MANCHIN. Of crude oil, coming into the United States of 

America, right? 

Your predecessor, Secretary Chu was here, and I asked him a 

question. I said, about coal to liquids since we have 250 million 

known reserved tons of coal and what I think, two barrels of oil can 

be produced from one ton of coal. Now that is about 500 million 

barrels of reserves and I think Saudi Arabia only has about 260 

billion barrels of reserves. Sooner or later we are going to have to 

use the resources we have not to be dependent on foreign oil. If you 

use the coal to liquids incorporated with biomass feed stock he believed it would have a neutral, if any, a reduction of carbon footprint. Do you feel the same about that? I mean if we would advance that type of technology? The only thing we are considering 

is asking for a pilot project to show that we can do it. 

Secretary MONIZ. So, Senator Manchin, first of all I think the interesting technology prospect it would be coal with carbon capture 

and potentially biomass feed stock together. 

Senator MANCHIN. Yes, CBD. 

Secretary MONIZ. Theoretically possibly even become completely 

carbon neutral or negative. 

Senator MANCHIN. Negative. 

Secretary MONIZ. Potentially. 

Senator MANCHIN. Right. 

Secretary MONIZ. In terms of the biomass part. So these are, 

these kinds of conversion technologies are being researched right 

now. As with a number of technologies there’s a ways to go on 

terms of cost. 

Senator MANCHIN. You are claiming from the investment from a 

pilot project? 

Secretary MONIZ. Yes, no, so I think on the research side, I 

think, this is the kind of potential, you know, home run that—— 

Senator MANCHIN. The State of West Virginia, as you know, 

would be very much interested in using and developing this pilot 

project. 

Secretary MONIZ. Right, right. 

Senator MANCHIN. With the DOE because we think down the 

road you are going to, with the Bakken and all that kind of leveling 

out, we are going to have to have an energy policy here that does 

not make us more dependent on foreign oil. 

Secretary MONIZ. Yes, I might also add that, our military has 

also been interested in exploring this technology. 

Senator MANCHIN. Yes and I think they have used it in B52s and 

found that it performed extremely well, if not better, than the conventional fuel. 

Secretary MONIZ. Yes, I think making the fuel to, as a perfectly 

replaceable fuel. 

44 

Senator MANCHIN. Yes. 

Secretary MONIZ. Is certainly possible. 

Senator MANCHIN. Well, sir, I would hope. 

Secretary MONIZ. So we can talk about that. 

Senator MANCHIN. Yes, I hope that you would consider that because the whole State of West Virginia will continue to do the 

heavy lifting if you help us, work with us. 

With that being said, on the export of crude I know my concern 

was this with the export of crude. It is hard to go home and explain 

why we would be exporting when, basically, the prices here can be 

so volatile. 

But the more you look into it, I thought if we did it from a strategic standpoint, I think in the legislation that the Chairman has 

been moving, it makes a lot of sense to me. I support it wholeheartedly. It moves it strategically and also gives the President a 

chance to use a trigger and basically stop the export if the oil 

prices spike here and the pump price goes up. 

Would it not be advantageous for us to use our strategic oil, 

using it basically to help our allies not be dependent on the oils 

around the world that do not benefit us and revenues that are used 

against us, strategically? If you looked at export strategically? 

Secretary MONIZ. Well, again, the again, to repeat. We, again, we 

are significant net, significant net importers of crude oil or we are 

importers. 

Senator MANCHIN. Right. 

Secretary MONIZ. Of crude oil, and we are major exporters of oil 

products. 

So the issue is, for example, okay, if I take the Mexico situation. 

There, as I said earlier, Commerce approved a swap of light for 

heavy. So it was a question of grade, in this case, because the 

Mexican refineries are quite short of light oil. So that’s a case 

where there was a good match between a swap. Okay? 

But also as I said earlier the reality is, in terms of the big picture, the current oil market analysis does not suggest that there 

is an inability, for example, of the American refining system to 

handle the light oil at least at today’s production levels. So again, 

the EIA analysis really requires a seasoned impact only when the 

production gets significantly larger, and you see that in terms of 

the spreads of the various prices. 

As far as price goes, by the way, it’s again worth repeating. Another EIA result of, I forget, maybe six months ago, part of the series of five that the Congress requested. And that it showed, pretty 

clearly, that our domestic product prices, like gasoline, are linked 

to the global price and not to the domestic price of say, WTI. 

Senator MANCHIN. Yes, well, I thank you, sir. My time is running 

out. 

I would just say that the State of West Virginia would be very 

interested in partnering up with the Department of Energy for a 

coal biomass to liquid with carbon capture. We think we can show 

it can be done. It can be a tremendous advantage for our country 

and put us, strategically, in a position, I think, that would make 

us independent, very much independent of foreign oil. 

Secretary MONIZ. I’m happy to follow that up with you, Senator 

Manchin. 

45 

Senator MANCHIN. Thank you, sir. 

Secretary MONIZ. Yup. 

The CHAIRMAN. Let us go to Senator Cassidy. 

Senator CASSIDY. Mr. Secretary, I want to point out that we 

could do a lot for train congestion moving crops to market by building the Keystone XL pipeline as the State Department reports said 

would save workers lives and lower carbon footprint. I do not know 

why we don’t, but nonetheless, it is a political decision. 

You, in your testimony, repeatedly referred to the relative sea 

level rise in the Central part of the Gulf Coast which is Louisiana. 

I emphasize ‘‘the relative’’ because it is subsidence, as you point out 

in your testimony, much more so than it is rising sea levels. 

So just to put it on record, will you agree that we should take 

whatever steps we can to make Louisiana’s coast line more resilient so that as these LNG export facilities are being built they are 

not going to get wiped out, as you mention on page 13, or the refinery capacity, you spoke of going down after Hurricanes Rita and 

Katrina, were preserved even in the setting of another storm? Is 

that a fair statement? 

Secretary MONIZ. Absolutely. The Gulf is, obviously, as you well 

know, absolutely a critical energy hub for the whole country. And 

the coastline issues, the storm surge issues, are very, very important for the Gulf and therefore, I think, for the country’s energy 

system. 

Senator CASSIDY. Thank you for saying that. 

I will point out that both Senator Cantwell’s energy statement as 

well as the Department of Interior’s would take the money that 

Louisiana is slated to receive under the GOMESA program which 

by our state’s constitution has to be used for coastal restoration 

and redirects it elsewhere. If you will, it removes the very resources needed to increase that resilience that you, several times 

in your testimony, point the national importance thereof. 

So thank you. I did not mean to set you up on that, but it just 

so flows. [Laughter.] 

Secretary MONIZ. I—— 

Senator CASSIDY. It just so flows that it is just like I cannot understand why people concerned about sea level rise are taking resources away from Louisiana which are so critical to our nation’s 

infrastructure. 

Next, one of the things, oh, by the way, this is also in the EIA 

report. It also points out that there have been spreads as much as 

$20 in the relatively recent past between Brent and WTI. Now, as 

we know, Louisiana Light Sweet typically sells at a premium relative to Brent and so the report, just to point out, when you say 

significantly it is not astronomic. It goes up to 13.5 million barrels 

per day by 2025 which would actually be a reasonable increase. We 

certainly have the capability to do that, and it does point out that 

if we did so and we exported oil, gasoline prices would fall for the 

American consumer. So we have to point out that if we lift the export ban, gasoline prices fall. I am not sure, but that might have 

been a little bit lost. You did not intend to obfuscate that, but it 

may have been a little lost in what you were saying. So—— 

46 

Secretary MONIZ. If I may comment, Senator Cassidy? I do want 

to emphasize again, the 13 and a half million barrels a day production was in the high resource case, not in the reference case. 

Senator CASSIDY. Correct. 

Secretary MONIZ. So and the high resource case without a low 

price is the one where one got a significant, about a 400,000 barrel 

a day impact, as I recall. 

Senator CASSIDY. Yes, but also it pointed out that—— 

Secretary MONIZ. In that high case. 

Senator CASSIDY. I think it is the Aspen Institute, but it was 

echoed by Larry Summers who said that if we allow oil exports we 

could increase the American GDP by as much as 1 percent by 2020 

resulting in hundreds of thousands of jobs. Those are the blue collar workers who are independent of the decreased price of gasoline. 

I will point that out again, the Aspen Institute, Larry Summers, 

both touting that we could increase GDP by 1 percent and that 

would be really good for the average American family right now. 

Granted it might not happen just because of market conditions, 

but if it does occur we increase GDP, we lower gasoline prices, and 

we create more American jobs. Again, it just seems like something 

we should be doing. 

Let me ask one more thing, and this is purely out of curiosity. 

Chris Smith, I think it was, testified to Energy and Commerce last 

April. He made a statement which I do not quite follow. He says, 

‘‘the impacts of overall supply disruption of global oil markets 

would have the same effect on domestic petroleum product prices 

regardless of U.S. import levels or whether or not U.S. refineries 

import crude oil from disrupted countries.’’ 

Now I am all for the SPR but I have to admit I read that in preparation for this hearing and I was thinking what is the purpose of 

the SPR if there is no lessening of the impact upon us? Do you follow what I am saying? I can show you the quote. It is from Chris 

Smith’s testimony and, for everybody else’s reference, he is the Assistant Secretary. 

Secretary MONIZ. Yes. 

Senator CASSIDY. I know you know. [Laughter.] 

Secretary MONIZ. I would have to discuss his quote with Chris 

Smith. But let me just say that, again, the issue of a SPR use in 

the current market could be very important even in some scenarios 

of major disruptions where the disruption is not to our direct imports. It’s actually—— 

Senator CASSIDY. I get that. It is global. 

Secretary MONIZ. That actually we’d have to have incremental 

barrels from the SPR get in there to back out some of those imports so that the global market can be rebalanced. 

Senator CASSIDY. Well, I told—— 

Secretary MONIZ. So I’m not sure if that’s what he was discussing or not. 

Senator CASSIDY. It just seemed like kind of counter to the whole 

thing, but looking at this quote and if you can get back to us. 

Secretary MONIZ. Okay. 

Senator CASSIDY. Thank you all. 

Secretary MONIZ. Certainly. 

Senator CASSIDY. I yield back. 

47 

The CHAIRMAN. Senator Stabenow? 

Senator STABENOW. Well thank you, Madam Chair. 

First, thank you for holding this hearing. I could not agree with 

you more in your comments, as well as our Ranking Member, about 

the fact that the SPR should be kept for energy security and infrastructure investments and the idea of doing one offs for some other 

bill makes absolutely no sense. So thank you very much for holding 

the hearing. 

Let me also say that I think this really is a long game. I think 

we would all agree with the fact that when we look at energy security it is about the long game. Whether it is the Strategic Petroleum Reserve or frankly if it is how we expedite LNG exports or 

ending restrictions on U.S. exports of crude oil, these really are all 

the long game for us in terms of our country and where we go. 

I just have one comment and I do not know, Mr. Secretary, if you 

would want to respond to this. But it seems interesting to me that 

we are talking about selling off reserves right now when prices are 

so low. It seems like, from a purely financial standpoint, a taxpayer 

dollars standpoint, that we would want to be selling off reserves 

when prices are high not when they are low. It seems like even 

from a financial standpoint this does not make any sense. I do not 

know if you have analyzed it from that standpoint but—— 

Secretary MONIZ. Well I would just observe that with the 2014 

test sale, I would say we sold high and we bought low. [Laughter.] 

Senator STABENOW. Yes, my point, Okay. 

Let me ask something slightly different on energy security, but 

a very, very important piece of this as we look at all of our infrastructure, and that is something that has impacted Michigan very 

directly. The safety of our pipelines and particularly in the area of 

oil pipelines we have had, as you know, a devastating pipeline 

break back in 2010, the largest domestic cleanup, $1.2 billion to 

clean up the Kalamazoo River. It was just a disaster. 

Now we have a situation where we are very, very concerned, people all over Michigan, the state is concerned, about a 62-year old 

pipeline that runs under the Mackinac Straits that connects Lake 

Michigan and Lake Huron that if, in fact there was a break, would 

devastate the Great Lakes, 20 percent of the world’s fresh water. 

There have been a number of different models that have been done 

of what this would mean, but it is devastating. 

Senator Peters and I introduced legislation to address the safety 

concerns around the pipelines that run throughout the Great Lakes 

both under the water as well as along the water line, and I understand that accelerating natural gas pipeline replacements is one of 

the 60 actions of the Quadrennial Energy Review recommendations 

as it relates to enhancing energy infrastructure. I know that 

PHMSA has direct safety oversight as it relates to oil pipelines, but 

is there an opportunity for the Department of Energy to help modernize as well as improve the safety of oil pipelines because it is 

going to serve no one if we have these pipelines breaking whether 

it is from a safety standpoint, environmental standpoint or from an 

energy security standpoint? 

Secretary MONIZ. Well Senator Stabenow, I think you’ve obviously raised a critical question in terms of the aging of a lot of our 

energy infrastructure, gas pipes, oil pipes in this case, etcetera. So 

48 

I personally think that we need a national commitment to really 

upgrade our infrastructure and while doing it also make it much 

more resilient to the kinds of risks that we are seeing. 

Now as far as DOE and the specific area, as you said, PHMSA 

has the responsibility and Secretary Fox is certainly very concerned about this. We do work with PHMSA in providing, essentially, technical assistance. So our laboratories, for example, work 

with them on that. We don’t have the regulatory authority but we 

do provide technical assistance. 

Senator STABENOW. I would just say, Madam Chair, that as we 

look at infrastructure, I would hope, as we are talking about upgrading pipelines and so on, that we include safety, even though 

it has a broader jurisdiction across other agencies. The whole question of what is happening in terms of the lines, obviously, has very 

broad implications and again is something that we are deeply concerned about given what happened back in 2010. In 2010 in Michigan we saw the devastation, and we want to make sure our pipelines are working and that they are safe. 

Thank you. 

The CHAIRMAN. Thank you, Senator Stabenow. 

Senator Portman? 

Senator PORTMAN. Thank you, Madam Chair. Thanks for holding 

the hearing today on SPR. Dr. Moniz, thanks for appearing before 

us and for our conversation last night. 

We have talked a lot today about SPR in relation to energy security and national security. I want to talk to you about another energy and national security issue, and that is having a domestic 

source of enriched uranium. 

You have said consistently when you dab a domestic source for 

our nuclear navy, for our nuclear arsenal, particularly the production of tritium which comes from lowly enriched uranium, also for 

our commercial power plants and of course, for our efforts at nonproliferation around the world to be able to offer a source. I am 

very concerned, as you know, about the fact that we seem to be 

pulling the plug on our ability to have that enrichment capability. 

I am also concerned about the cleanup at the Piketonsite. I was 

very concerned when warn notices were given to about 500 employees at the Piketon plant. We also have about 236 employees who 

are with the new technology, the American Centrifuge project, who 

were affected by those warn notices. They could have been laid off 

by the end of this month. 

When I was at Piketon about 10 days ago I got a chance to speak 

to employees there. They are frustrated. They are angry, understandably, and so am I, particularly by the total surprise on the 

American Centrifuge announcement with regard to the new technology. 

For 3 years now we have been requesting two things from the 

Administration, two very simple things. One, tell us how much you 

need to complete the funding consistent with the commitments that 

you all have made. Second, give us a plan, a long term plan, for 

the funding of the cleanup. Unfortunately the Department of Energy has done neither. 

In 2008 candidate Obama made specific commitments to support 

the plant and cleanup the site quickly. He talked about the fact 

49 

when it goes long you increase the costs. It has undue environmental risk, as he said. I totally agree with him. 

In 2009 DOE made a Secretarial commitment to the community 

to accelerate the cleanup and complete the work by 2024. That was 

a Secretarial commitment made to us. The DOE press release at 

the time said the agency was accelerating the cleanup, among 

other things, in an effort to jump start the local economy and create jobs. The community is now being told that the cleanup will not 

be completed until 2044 at the earliest. They are saying between 

2044 and 2050. 

The Federal Government has a responsibility, obviously, and a 

commitment to clean up this site. It has got to be cleaned up so 

that the site can be redeveloped, and it has to be cleaned up for 

the safety of the community. As the President said in his comments 

and, of course, it has to do so to be sure we would make and keep 

the commitment to the work force and the local economy which is 

already troubled. 

Last week Congress passed a spending bill, as you know, which 

funded the government until December 11th, 2015. A number of us 

worked on this, and we got language in that bill that includes additional funding authority for the cleanup and for the American Centrifuge plant for the layoff, to keep the layoffs from happening 

while the CR continues in operation. 

If you could give me a yes or no answer on these questions I 

would appreciate it. First, does DOE intend to use the funding authority we have in the CR to spend at the FY’15 levels for the D 

and D work done at the gaseous diffusion plant to prevent the involuntary layoffs from happening on the cleanup side? 

Secretary MONIZ. As we discussed we are getting close to finalizing a plan where we think we can accomplish the avoidance of 

involuntary layoffs on the D and D work, hopefully for the entire 

fiscal year, but it does depend upon our receiving the House mark. 

Senator PORTMAN. I am talking about the CR. Are you saying 

that between now and December 11th there will not be layoffs? 

Secretary MONIZ. Well, so the plan that we’re finalizing is to, yes, 

avoid involuntary layoffs during the CR. It entails risk for the rest 

of the year to—— 

Senator PORTMAN. I am going to get to the rest of the year. 

Secretary MONIZ. Oh, okay. 

Senator PORTMAN. I need a commitment to just yes or no on 

using the authority we have given you in the CR. 

Secretary MONIZ. Again, we’re finalizing the plan. We’re getting 

very close. That is what I am—— 

Senator PORTMAN. Dr. Moniz, you cannot even give us a commitment that there will not be layoffs between now and December 

11th? 

Secretary MONIZ. I feel very confident that we will get there. I 

need a little more time to finish the plan and notify the contractor, 

but that’s what we are working toward, no involuntary layoffs during the CR for the D and D work. 

Senator PORTMAN. Well that is a surprise, because I thought we 

had a commitment from you all during the CR at least not to have 

any layoffs. We have been given the authority. We worked hard to 

get this language in there. 

50 

Secretary MONIZ. The issue, again, the issue is one of risk. And 

that’s why we want to be very open with you, as I was last night, 

that if we make—— 

Senator PORTMAN. Last night you were talking about next steps 

which is after December 11th. You were not talking about the CR. 

Secretary MONIZ. No, they are linked. 

Senator PORTMAN. I am concerned about this. 

Secretary MONIZ. They are linked and—— 

Senator PORTMAN. Well, obviously we would like to see—— 

Secretary MONIZ. We are—— 

Senator PORTMAN. I was going to ask you about the commitment 

after that, and I appreciate your interest in suggesting last night 

that you would, indeed, be willing to put an anomaly. 

Secretary MONIZ. Yes, we are—— 

Senator PORTMAN. For the—— 

Secretary MONIZ. All I am going to say, Senator, again, we are 

finalizing the plan that will not have involuntary layoffs in D and 

D through the CR with the idea that that will continue for the rest 

of the year if we get the House mark. That’s the situation. 

Senator PORTMAN. Well, that is of course what we all hope for. 

Secretary MONIZ. Right. 

Senator PORTMAN. And beyond that we need to have that commitment that in your budget for next year which you are already 

preparing which is going to be here in the House and Senate right 

after the first of the year that you will have adequate funding in 

there. Last year you underfunded it by about $80 million. 

Can you give us a commitment that you will have in the President’s budget for the next fiscal year, Fiscal Year 1917, adequate 

funding for cleanup? 

Secretary MONIZ. Well I cannot discuss the FY’17 budget at this 

stage. That is clear. 

We are trying to get adequate funding for all of our cleanup activities, and right now it’s hard to fit everything into the budget 

box. 

Senator PORTMAN. Your cleanup request in this last Fiscal Year was $80 million less than what was appropriated by Congress in 

FY’15. Again, we are talking about extending the cleanup even further, more and more layoffs, if you all do not put in your budget 

the funding that you have committed to over time, not just the 

President, but the Secretarial commitment. We are talking about 

just keeping the funding at least level so there is some certainty 

and predictability at the site. I do not think that is too much to 

ask. 

Secretary MONIZ. I have every intention, hope, to do exactly that 

but I cannot discuss the FY’17 budget until we’ve gone through all 

the tradeoffs and working with, as you know very well, with OMB 

on this. 

Senator PORTMAN. So with regard to the cleanup itself we cannot 

even get a commitment on the CR. That concerns me a lot. But a 

commitment for you to try to work with us on both the CR and beyond the CR with regard to having an anomaly in the longer term 

budget whether it is an omnibus or a CR or some combination. 

With regard to the new technology, the American Centrifuge 

project, again, I was surprised, as were the workers at the site, to 

51 

learn that you were planning to pull the plug on the new technology. This is the only domestic source. You have testified before 

this Committee in the past that we need to have a domestic source 

of enriched uranium to support our nuclear weapons program and 

our nuclear naval reactor program. Have you changed your mind 

on that? 

Secretary MONIZ. Absolutely not. And we are not pulling the plug 

on this technology. The program continues. The issue is that for 

the last two years operating the pilot facility without spinning the 

pilot machines we have learned things of an operational nature. 

We were able to resolve a technical issue with the machines. 

But two things led to that and I have to say, unfortunately, I 

completely agree for the site a decision namely No. 1 is that scrubbing really hard on the need for enriched uranium using American 

origin technology we were able to extend the timeframe for that 

very, very dramatically. Something I’m happy to come and discuss 

with you in the days ahead. Secondly, the technical judgment made 

is that continuing to spin the machines will not give us any more 

technical knowledge on the technology that we will preserve. We 

are not pulling the plug, but right now it’s hard to justify to taxpayer’s $50 million for something that we think will have little to 

no technical return. 

Senator PORTMAN. Mr. Secretary, my time is up. 

Just quickly let me make this point very clearly. There are 120 

centrifuges spinning. This is a test site, as you say. Its application, 

it can go to commercial grade because of that. You are pulling the plug on that entirely and $6 billion of taxpayer funding into that. To have to reconstruct that it is going to 

be enormously costly. You said you would only do it after issuing 

a report that was due to Congress in April. You never gave us the 

report. 

I received the report last night, last night, after you had already 

made your decision two weeks ago without informing us. We had 

to hear about it from the press. I think those 326 workers deserve 

to know what is going on, but also our country deserves what is 

going on. 

We are not going to have the ability to say that we can enrich 

uranium in this country with a domestic source. I think that is 

frightening. I think it is bad for our national and economic security 

and energy security and certainly consistent with what we talked 

about in the SPR today. 

Thank you, Madam Chair. 

The CHAIRMAN. Let’s go to Senator Franken. 

These are important questions to the Secretary, and I appreciate 

that but I will remind colleagues we do have a second panel as 

well. 

Senator Franken? 

Senator FRANKEN. Thank you, Madam Chair. 

Thank you, Mr. Secretary for all your service. 

As you note in your testimony a continued need for the Strategic 

Petroleum Reserve partially stems from continued reliance on oil 

for transportation. This suggests that energy security can also 

come from diversifying our transportation fuels portfolio and improving vehicle efficiency. I believe that the best way to protect our 

52 

economy from oil supply shocks may be to reduce the need for that 

oil in the first place. 

Can you talk more about the advantages of alternative fuel 

sources as they relate to energy security? Wouldn’t an abundant 

source of alternative fuels lower the likelihood that we would have 

to draw down from the Strategic Petroleum Reserve? 

Secretary MONIZ. Senator Franken, yes, in fact the G7 plus EU 

energy security principles that were updated in 2014 reflected exactly the point that you made that efficiency and alternatives are 

part of energy security. 

So what we are doing to continue to focus on reducing oil dependence is three fold. One, both regulation and substantial technology 

development for much more efficient vehicles, automobiles all the 

way up to Class A trucks. Secondly, the development of advanced 

alternative fuels and particularly liquid fuels, biofuels. Third, electrification of transportation as three thrusts that can lower our oil 

dependence. 

Senator FRANKEN. Well, speaking of biofuels, one of the key motivations for the RFS, the renewable fuel standards, is to diversify 

our transportation fuel supply so we are not dependent on imported 

oil. 

There is a bill that has been proposed in the Senate that really 

targets ethanol. Ethanol is something that increases the octane of 

gasoline in the mix that helps us replace lead and it is something 

that is required. 

Do you think that maintaining the RFS target line with the Energy Independence and Security Act of 2007 helps reduce U.S. reliance on international oil? 

Secretary MONIZ. Well I’m not going to get into the issue of those 

kinds of standards which, of course, the EPA has responsibility. 

But what we will—— 

Senator FRANKEN. Oh, come on. [Laughter.] 

Secretary MONIZ. What we will continue to do, however, is to develop the technologies for advanced biofuels. 

Senator FRANKEN. And look at—— 

Secretary MONIZ. And clearly ethanol today is 10 percent of our 

gasoline. 

Senator FRANKEN. I am conscious of time so I want to make sure 

I get in under the five. 

What I took from your testimony was basically not so fast on the 

SPR. Basically that oil is low now, but what you are saying is these 

markets change and there is a reason to have this there to prevent 

shocks and that part of that might be, we do not export oil now, 

but we export oil products. That if there is a spike around the 

world, we cannot let it hurt the global economy. That we fall victim 

to shocks, even though we are now because of the oil and gas revolution here, fracking etcetera, we are in pretty good shape but that 

we need this in order to make sure that we are able to respond to 

global shocks and that we are able to help our global partners so 

that their economies are strong. That is why we need to keep the 

infrastructure and respond to the different—I am summarizing 

your testimony. 

Secretary MONIZ. Mm-hmm. 

53 

Senator FRANKEN. I want to thank you for that, and I want to 

urge my colleagues to read that very thoroughly. 

Thank you. 

Secretary MONIZ. If I may, just to add a little color to it. In fact, 

if you go back—— 

Senator FRANKEN. I am sorry about my colorless description. 

[Laughter.] 

Secretary MONIZ. Sorry? 

Oh, no, no. [Laughter.] 

Secretary MONIZ. Well that is because you were reading my testimony. [Laughter.] 

Secretary MONIZ. But actually there’s an interesting event if you 

look back to 2000, the Fall of 2000, August/September time period. 

That’s when Britain was having the trucker’s strikes and slow 

downs. They were exporting a million barrels a day of net exporters. It did not protect them from global price spike which led to all 

those problems. And then it turned out somewhat, well, not by accident, that perhaps simultaneously we used the SPR, not for a sale, 

but for a swap, a time swap. And that, let’s just say it took a lot 

of froth out of the market. 

Senator FRANKEN. Could you add that color next time to your 

written testimony? [Laughter.] 

Secretary MONIZ. Okay, or I could send you and make like, do 

notes. 

Senator FRANKEN. No, I am not that particular color. 

Secretary MONIZ. Oh. 

Senator FRANKEN. I am just saying that—— 

Secretary MONIZ. Oh. 

Senator FRANKEN. In your written testimony that it be more interesting. 

Secretary MONIZ. Okay, alright. I will. [Laughter.] 

Senator FRANKEN. I mean it is interesting but in a—— 

Secretary MONIZ. I’m not sure my colleagues would appreciate 

that. [Laughter.] 

The CHAIRMAN. Senator Daines? 

Senator DAINES. Thank you, Madam Chair. 

Speaking of color, going back to, and this is for Senator Franken 

as well, 1973 with the oil embargo and then the 1975 ban on oil 

exports. Senator Franken in 1975 was a new writer for a brand 

new show called Saturday Night Live—in 1975 when the oil export 

ban was put in place. I was looking at the stats. Senator Murphy 

would have been two years old. Senator Gardner was a year old, 

and Tom Cotton was not yet born. [Laughter.] 

In 1975, 40 years ago and to think about that, I mean, it was 

ABBA, it was Captain and Tennille, it was the Eagles, and I was 

in seventh grade. But it was a response to an acute crisis that we 

had, certainly. I remember it with what happened there with the 

oil embargo. 

Secretary MONIZ. Gas lines. 

Senator DAINES. Now as we go back we fast forward here, and 

I think, Secretary Moniz, you are a brilliant man. You are a forward thinker. 

I am still somewhat surprised that we have a policy in place that 

is 40 years old that served a purpose 40 years ago but argue is irVerDate Nov 24 2008 12:22 Aug 03, 2016 Jkt 098911 PO 00000 Frm 00057 Fmt 6633 Sfmt 6633 C:\TARSHA\HEARINGS\98911\98911.TXT 98911
54 

relevant today as we move from a scarcity environment to one of 

abundance. Now the United States is the largest producer of oil 

and liquids in the world, surpassing both Russia and Saudi Arabia. 

My question is now that it looks as if the ban on Iranian oil exports will be lifted, what countries in the world have a ban on oil 

exports? 

Secretary MONIZ. I don’t know the full answer to that question. 

Obviously in the United States, we have partial, a partial ban. 

Senator DAINES. I want to make sure I have my facts right, but 

I do not know of another country that has a ban on oil exports now 

that we are going to be lifting the ban on Iranian exports with—— 

Secretary MONIZ. I just don’t know that. 

Senator DAINES. Right. So why? Why should we have this ban 

in place? Why should the United States be the only country in the 

world with a ban on most oil exports when we export coal, natural 

gas, gasoline? Why not export oil? 

Secretary MONIZ. Well again, we are, as you just inferred, we are 

major exporters of oil products. So we refine the product—— 

Senator DAINES. But why have the ban on oil? 

Secretary MONIZ. So again, the, look, again, as I said earlier, 

that’s obviously a policy decision in the Department of Commerce. 

But I go back to the fact that the EIA analysis certainly shows, certainly in anything like today’s and projected markets, rather small 

impact of whether that’s in place or not. 

Senator DAINES. But does it make sense? You think about all the 

countries in the world and now the United States is the leading 

producer of oil and liquids, No. 1 in the world, and we have a ban 

on exports because of a law passed by Congress 40 years ago. Why 

does that make sense? 

Secretary MONIZ. Well, I mean, of course, again, just to repeat. 

We are also a seven million barrel a day importer of oil. So we are 

a huge importer of oil. That’s just a fact. So I think what it 

still—— 

Senator DAINES. But Senator Barrasso got back to you though, 

you know, the forces driving that certainly is the way of refining 

capacity is laid out in terms of the heavy verses light. 

But I am looking forward to continuing to work with the Chair 

here as well as having a good, vigorous debate on lifting this ban, 

allowing the forces here. The jobs that will be created, the tax revenues created and importantly the topic of this hearing is back on 

energy security and the importance thereof, that I hope we move 

forward and remove that ban. 

Secretary MONIZ. Well, it’s the law. 

Senator DAINES. It is and this is the body that makes the laws 

and can change the law. I hope we can get the White House to 

work with us to remove that ban. I think it will be tremendous for 

our national security, global security as well as for economy. 

We have one drilling rig right now operating in Montana. The 

Bakken carries over from North Dakota into Montana. We have 

one drilling rig currently operating in Montana. I recognize you 

have the ups and downs in prices, but I think we have a tremendous possibility. 

55 

Secretary MONIZ. But again, Senator, I think the current global 

market is one that does not look, it does not seem to be, in a reality, looking for that oil. That’s just a fact. In fact if you—— 

Senator DAINES. But why not allow the forces of the free market? 

Why would we, unilaterally, be the only country in the world to 

ban oil exports? Now that Iran’s ban is lifted why would we be the 

only country to have an oil export ban? 

Secretary MONIZ. I look forward to your answer. [Laughter.] 

Senator DAINES. I do not have a good answer. I am looking forward to your answer, those who oppose lifting the ban. 

I am out of time, Madam Chair. Thank you. 

The CHAIRMAN. Thank you, Senator Daines. 

We keep trying to get an answer here about when the Administration is going to support us in removing this outdated ban. We 

will keep working on it. 

Senator Warren? 

Senator WARREN. Thank you, Madam Chair. 

Thank you, Mr. Secretary, for being here. 

I want to ask about Strategic Petroleum Reserve. I understand 

that under certain circumstances drawing down our emergency oil 

reserves could make good financial sense, could make good strategic sense. We should have a conversation about how large the 

Strategic Petroleum Reserve needs to be on a going forward basis. 

There have been recent congressional proposals to sell off a large 

amount of this emergency supply of oil. I want to focus on just two 

features of these bills that have been proposed. They are not there 

because anyone has made the case that we need a smaller reserve 

nor is there a proposal to sell it off because anyone thinks this is 

a great time to sell. 

Nope, the reason for the proposed sales of the emergency oil supply is to fund the government. In fact, the bills would set the quantities of oil to be sold years in advance with no flexibility at all. If 

oil prices are low they could drop to $1 a barrel and under these 

provisions you would still have to sell them or if there were good 

policy reasons not to sell like we have emergency needs to hold on 

to the reserve. 

Secretary Moniz, is this approach an efficient way to manage the 

Strategic Petroleum Reserve? 

Secretary MONIZ. Well again, I think it’s key that I think we are 

doing an unprecedented, integrated, strategic study of this to be 

ready in May and that this Committee has certainly encouraged 

that. So I think, obviously, one would like to have the results of 

that analysis before moving forward. 

I might say there are even other factors that have not yet been 

discussed. For example, there are special authorities to be able to 

use 30 million barrels of the reserve only if one has a base of at 

least 500. So there are a whole variety of issues. 

As I mentioned earlier, our international obligations are not 

based only on imports, they are also based on use and so because 

of our responsibilities in the show down, in a draw down. So I 

think, clearly, I think our analysis will greatly inform, I think, this 

discussion. 

Senator WARREN. Well, thank you, Mr. Secretary. 

56 

I just want to be clear about what is happening with these current proposals mandating a massive, inefficient and inflexible sell 

off of the Strategic Petroleum Reserve years in advance is just one 

more bad idea for how to finance government. Look around. Oil 

prices are at strategic lows. This is a high cost gimmick to let some 

people avoid facing the fact that loopholes for billionaires and giant 

corporations are leaving us with too little money to keep our highways in working order and to fund essential services like medical 

research. 

It is time to act like grownups and figure out how we are going 

to pay for the critical investments that will help build a future for 

everyone. We will never get there if we do not get serious about 

making sure that everyone in this country, even billionaires, even 

big and powerful corporations, that everyone is pulling their 

weight. Selling off our Strategic Petroleum Reserve is just not a 

way to do that. 

Thank you, Madam Chair. 

The CHAIRMAN. Senator Capito? 

Senator CAPITO. Thank you, Madam Chair. 

Thank you, Mr. Secretary. 

Mr. Secretary, during the 2014 test sale a number of infrastructure concerns were brought to light. You said repeatedly today and 

then throughout your testimony the woeful situation in terms of 

our infrastructure in moving the product whether it would be pipeline capacity because of the geographic shifts in our oil markets, 

the dock availability, you talked about the rail as well. Well I share 

your concern here, and it has been estimated that $1.5 to $2 billion 

would be needed to increase distribution capacity. 

Here is my concern. All of our states, I am certain, certainly my 

state of West Virginia, have a lot of coal as we have talked about 

with Senator Manchin. We also have a lot of natural gas. Trying 

to site pipelines through residential, national forests, certainly 

throughout all of our states is getting more and more difficult. So if the need is as big as $1.5 to $2 billion, what kind of leadership can we expect from the Administration? It was already mentioned that the Keystone Pipeline was vetoed. What kind of leadership can we expect from the Administration to help meet this challenge of not just making sure existing pipelines are safe, but creating and building those new pipelines that we know we are going 

to need? 

Secretary MONIZ. Thank you, Senator. 

If I may just clarify two things. One is just the distribution requirements of the petroleum reserve, particularly the Maritime requirements are about a billion or 1.2 of that total, not—— 

Senator CAPITO. Oh. 

Secretary MONIZ. Because 800, roughly speaking 800 million, we 

think, is what we need for the life extension and then 1.2 would 

be for the Maritime distribution. 

Senator CAPITO. So when you say life extension of existing pipelines? 

Secretary MONIZ. No, no, no. So this is up in the petroleum reserve so—— 

Senator CAPITO. Okay. 

Secretary MONIZ. So it’s basically, it’s just old. [Laughter.] 

57 

Senator CAPITO. Right, I get that. 

Secretary MONIZ. And we need to extend its life for another—— 

Senator CAPITO. So this estimate does not really even include 

creation and modernizing the infrastructure? 

Secretary MONIZ. Pipeline distribution, no, it does not. So it’s—— 

Senator CAPITO. So what would your estimate on that be? I 

mean, we heard Senator Stabenow talk about safety issues. 

Secretary MONIZ. I really don’t have an answer to that. I can give 

you an answer to a slightly different question but to give you an 

idea of scale in the QER we estimate that the modernization, the 

replacement, the upgrading of natural gas distribution pipes which 

are mainly in urban areas, that’s in the hundreds of billions of dollars. So that’s the scale of that—— 

Senator CAPITO. So we have the same problem with—— 

Secretary MONIZ. So we have a huge infrastructure issue. We 

heard from Senator Stabenow about the pipe protecting the Great 

Lakes, etcetera. I don’t know how to pay for it, but I think we need 

to have an enormous infrastructure renewal program. 

Senator CAPITO. I would agree with that. I think my question 

sort of goes to another issue of this we have to have a leader here 

who is going to lead the way through this very difficult permitting 

issue that we are seeing all across the country, whether it is, kind 

of, dragging your heels and not meeting deadlines, bringing up 

road blocks when permitting is almost at the end. Well we have a 

real problem here with this, not to mention the money. 

Even if you had the money in the best of the world, we are still 

not able to move a lot of these projects forward and that is very 

frustrating, I think. 

Secretary MONIZ. I might add, just to add to what you’re saying, 

it’s not only pipelines, but it’s also high voltage transmission lines. 

Senator CAPITO. Right. 

Secretary MONIZ. Have challenges. 

Senator CAPITO. Windmills. Yes? 

Secretary MONIZ. Including to bring distant wind. 

Senator CAPITO. Right. 

Secretary MONIZ. To market, so—— 

Senator CAPITO. I am talking about just siting a windmill. 

Secretary MONIZ. So one thing that—oh, I see, but I’m in but 

then you have to do that. 

Senator CAPITO. It is different. 

Secretary MONIZ. You have to be able to move it. 

Senator CAPITO. Right. 

Secretary MONIZ. And so, well, I think one thing that we did and 

maybe I take some comfort in that I think the Quadrennial Energy 

Review that we did, I think, is in fact, helping get a discussion 

going, at least, of this. And that’s something that we want to continue. 

Senator CAPITO. Thank you. 

Secretary MONIZ. Yes. 

Senator CAPITO. Thank you, Madam Chair. 

The CHAIRMAN. Thank you, Senator Capito. 

Senator Risch? 

Senator RISCH. Mr. Secretary, thank you for coming today. 

58 

To go off topic, just slightly, I am sure you have on your calendar, October 21st which is—— 

Secretary MONIZ. I do have October 21st on my calendar 

Senator RISCH. Well, actually more than just the date itself. As 

you know I appreciate your warm affinity for the labs. Senator 

Durbin and I, as you know, are co-chairmen of the National Lab 

Caucus and we are going to host that event right here in this 

building, the historic Dirksen building on October 21st. Last year 

on our inaugural event you blessed us with your presence, and I 

hope you will do likewise again this year. 

Secretary MONIZ. Oh that is certainly my intention. 

Senator RISCH. We appreciate that. 

Secretary MONIZ. And in fact—— 

Senator RISCH. It is a great, great time to show off the labs. It 

amazes me, the lack of understanding that most members have of 

the labs, what they do, how many there are and the important role 

they play in advancement of certain things that the private sector 

cannot advance. I will be looking forward to seeing you there and 

showing off the Idaho National Laboratory again. 

Secretary MONIZ. Absolutely. 

As you know the theme will be on national security this time. 

Maybe I will note another October 21st invitation. In the morning, 

preceding lab day, we will also have an event that will celebrate 

20 years of science/space stockpile stewardship which has been an 

enormous success not only in certifying reliability of our stockpile, 

but in literally, inventing new science and technology to accomplish 

the job. So I’m always happy to advertise for the labs. 

Senator RISCH. I am looking forward to it. 

On topic could you talk for just a minute about, from a 30,000 

foot level, how our new found ability to produce petroleum through 

fracking and otherwise plays into the SPR? Obviously that is very 

old, our strategic reserve philosophy and facilities, but since then 

we have become a lot better producers, if you would, than what we 

had before. So how does that dovetail together? What does that 

speak to? 

Secretary MONIZ. Well I would say there are two distinct issues. 

One is let’s say at the operational sense. In the operational sense 

things like the Bakken, for example and more Canadian imports 

have really changed and Eagle Ford and Permian Basin going to 

the Gulf, etcetera. A lot of pipeline reversals, a lot of flow going 

North to South whereas historically it was South to North, that 

plus the sheer volume, increase in volume, leading to Gulf of Mexico Maritime congestion. Those are the issues that, in fact, have led 

us to say that we should really update the distribution capacity of 

the SPR. So that’s one effect. 

The second, very different kind of effect, is obviously the impact 

in terms of U.S. and global markets. Again, even though we are 

still major importers, we import a lot less than we were, especially 

net with products. 

So now we are part of this global market which again, is a market that did not exist in the 70’s. It is a whole different focus away 

from, kind of, national supply to the issue of the global market 

functioning and frankly, major disruptions leading to potential ecoVerDate Nov 24 2008 12:22 Aug 03, 2016 Jkt 098911 PO 00000 Frm 00062 Fmt 6633 Sfmt 6633 C:\TARSHA\HEARINGS\98911\98911.TXT 98911
59 

nomic shocks that hurt us and the global economy. It’s really those 

two different aspects, I would say. 

Senator RISCH. Okay, it is a good description. Thank you so 

much. 

Thank you, Madam Chairman. 

The CHAIRMAN. Thank you, Senator Risch. 

Senator Lee? 

Senator LEE. Thank you, Madam Chair. 

Thank you, Mr. Secretary, for being here today and for your service for our country. 

I wanted to followup on some other questions including some of 

the questions that were asked by Senator Warren with regard to 

the SPR. 

Can you tell me, first of all, do you have any idea as to when 

would be the optimal time to sell either all or part of our Strategic 

Petroleum Reserve inventory and what factors do you think Congress should consider before authorizing any effort to draw down 

the SPR? 

Secretary MONIZ. Well, for one thing I think it’s, again, this analysis, that’s a rather extensive analysis, a year long analysis, that 

we are carrying out which Congress has asked for. Again, that will 

be probably in May that we’ll have that analysis. So that’s critical. 

But then I think it’s also connected to the authorities. Again, 

we’ve recommended a reexamination of the authorities appropriate 

to current markets. That comes in because, as I mentioned earlier, 

there’s already in law a threshold for being able to use certain authorities in terms of likely impacts on prices. So I think it’s a complicated intersection, but certainly the analysis will be a major, 

major, hopefully, major stimulus to our discussion. 

Senator LEE. Yes, I certainly hope so. It could have major implications. For example, if we were to sell 200 million barrels next 

year that would generate by most estimates a little over $17 billion, $17.3 billion, I think. Whereas if we sold the same 10 years 

later, 200 billion barrels, it is estimated that would generate about 

$22 billion. So there is a $4.7 billion, almost $5 billion, delta between what that would yield next year and what it would yield 10 

years from now. So I think we have to be careful about that. 

Secretary MONIZ. May I just interject? 

Senator LEE. Sure, sure, please do. 

Secretary MONIZ. Just to say that for example, I know you just 

picked a number, 200 million barrels. But that’s an example of 

something that would impact the authorities that are currently 

available in law in terms of this threshold. So it’s a big deal. 

Second, there are issues of, you know, ultimately the question 

we’re asking is how do we configure the petroleum reserve, physically and in terms of regulations and authorities, to maximize our 

energy security? 

Well one of the things that we discussed earlier is that we have 

this analysis from Oak Ridge that investing $2 billion in life extension and modernization can give us protection at the tens of billions to potentially $200 billion in one single, major, global disruption. 

So I think those are the things we have to balance and see how 

to best use the asset. 

60 

Senator LEE. Right, we also have to balance what it is costing. Having it is not free. I think we have spent $24 billion in putting 

it together and maintaining it over the years. We—— 

Secretary MONIZ. Well, it’s about $200 million a year of annual operating costs although we should add to that about $50 million 

for maintenance, deferred maintenance. 

Senator LEE. Right, right, and if you use it only three times, relatively modest quantities, but—— 

Secretary MONIZ. When I buy my home fire insurance I hope to 

use it zero times. 

Senator LEE. Sure, sure. [Laughter.] 

Senator LEE. But I hope there are things we can do to find some 

efficiencies. 

Another question I wanted to ask you, and it just relates to the 

fact that in order to become a member of the International Energy 

Agency (IEA) and it is part of that organization’s agreement on 

international energy, the U.S. is required to hold stocks that are 

equivalent to no less than 90 days of net imports. 

Now my understanding is that that can be satisfied either 

through a government held reserve like the SPR or through reserves held by industry. My understanding is also that the U.S. 

private industry held stocks as of June 2015 that are equivalent to 

208 days of net imports. Does the industry’s large petroleum reserves obviate or in any way lessen the need for the government 

owned, government operated, Strategic Petroleum Reserve? 

Secretary MONIZ. Not in my view. Let me comment that again, 

I’ll spend most of the time on what you asked, but again, our international obligations are twofold. One is the import metric, and the 

other is the oil use metric of 43 and a half percent of coordinated 

distribution. 

Now going to the first metric, if you like, well today, if you talk 

about crude oil we have 99 days. But if you talk about the net 

crude oil end products, we have about 137 days, okay. That’s just 

a fact. Now with regard to the—and again, I’m not saying that’s 

the right metric, but that’s—those are the facts. 

Now if we go to this question of the private stocks. First of all, 

today, of course, those stocks are somewhat anomalously high because of the market conditions and the supply/demand questions. 

So those will go up and down. However, when other countries, let’s 

say European countries, obviously, in the IEA, use their private 

stocks it’s because they also have statutes requiring what the private sector does. We don’t have that. And I’m not sure that’s the 

place we want to go or you want to go. So that’s one point. 

And the second point is that, obviously, government’s motivation 

really is the public good. And you know, there can be in some circumstances mismatches between a private sector imperative which, 

after all, their imperative is actually to minimize inventories consistent with their operating requirements and you know, etcetera. 

I mean, that’s really what their job is. 

So I just think there’s a, certainly in the absence of the current 

legislative approach that I mentioned earlier, I just think that having it in the public hands to respond to a disruption that affects 

our entire economy is the place that we should be. 

Senator LEE. Thank you, Mr. Secretary. 

61 

Thank you, Madam Chair. 

The CHAIRMAN. Thank you. 

Senator Hoeven? 

Senator HOEVEN. Thank you, Madam Chairman. 

Thank you, Mr. Secretary, for being here today. 

Perhaps in a counterintuitive way isn’t it very important that we 

allow, that we lift the oil export ban in order to reduce our dependence on the SPR based on studies performed by the Energy Information Administration, part of the Department of Energy? 

Now what they indicate is that for our industry to expand and 

grow in this country, our energy industry, including oil and gas, it 

is important that we are able to compete in a global market. We 

are disadvantaged by the ban on oil exports. So if we want our industry, our domestic industry, to continue to expand and grow, we 

need to lift the ban on oil export per the studies the EIA has put 

forward from your agency; therefore, that would make us less dependent on the SPR. 

Secretary MONIZ. I’m not—well, okay—— 

Senator HOEVEN. With a more robust industry—— 

Secretary MONIZ. Two issues. 

Senator HOEVEN. We are less dependent on the SPR. 

Secretary MONIZ. One is, one point I’ll just make is, okay, the 

main point I’ll make is that I don’t really see that. 

First of all, okay, the EIA reference case to 2025 did not have 

any material impact in terms of the ban. It’s only in the very high 

resource case, stretching it and without low price, that you got 

some material impact of a few hundred thousand barrels a day in 

2025 but not in the reference case, the expected case. 

Secondly, even if we are producing, okay, a few hundred thousand barrels a day more that in no way changes our linkage to the 

global oil price and the exposure to a price spike. In fact, if anything, it’s both the fact that we are connected to the crude oil global market and the fact that we are and, I believe, will continue to 

be major oil product exporters, we are exposed, just as in that anecdote I gave about Britain in 2000. We are exposed to the global oil 

price spike and that’s really the modern issue in terms of what the 

SPR does for us. 

Senator HOEVEN. The point being if we are allowed to compete 

in the global economy we will have a more robust oil and gas industry in this country than we will have if we are not allowed to 

compete. With a more robust industry we are less dependent on the 

SPR. 

Secretary MONIZ. Well, again, I’m sorry, Senator Hoeven, I 

don’t—— 

Senator HOEVEN. And it is not only the EIA. The other studies 

have shown that by lifting the oil export ban we not only expand 

our industry, we also create more jobs and economic activity in our 

country. So why wouldn’t we want to do that and in fact make ourselves less dependent on the SPR by having a more robust industry? 

Secretary MONIZ. I can’t—the reference EIA case in the recent 

report does not, does not, predict a big increase in production at all. 

It simply does not. And again, and second, we have a very robust 

62 

industry right now. And it again, just to repeat, it does not shield 

us from the global oil. 

Senator HOEVEN. So you would argue that even if we are not 

able to get the global price, the Brent crude price, and we have to 

compete in the global economy, you are saying, that that would not 

affect the size and scope of our industry? 

Secretary MONIZ. Again, if exports were allowed, you know, it 

certainly could lead to an increase in production. All I’m saying is 

the EIA reference case did not show any material impact to 2025, 

only in the high resource case did it show that. But whatever it—— 

Senator HOEVEN. But it did show an impact. 

Secretary MONIZ. In the very high resource case, only. 

Senator HOEVEN. And with what is going on now you would not 

assert that that is having a deleterious effect on our industry 

when—our ability to compete when our competitors purposely try 

to put our companies out of business? You do not think that impacts industry in this country? 

Secretary MONIZ. The global oil price obviously is affecting the 

industry in our country and everywhere else which just reinforces 

the point we are exposed to the global oil price. 

Senator HOEVEN. Which you would acknowledge is a function of 

how much OPEC and our competitors produce? 

Secretary MONIZ. It’s what everybody produces and consumes. 

Senator HOEVEN. And they may have objectives—— 

Secretary MONIZ. And in fact on—— 

Senator HOEVEN. To maintain and expand market share at our 

expense. Would you acknowledge that? 

Secretary MONIZ. That’s the market. 

Senator HOEVEN. Nature of competition. 

Secretary MONIZ. That’s the nature of the competition. 

Senator HOEVEN. Right? You would agree with that? 

Secretary MONIZ. The market, absolutely. 

Senator HOEVEN. Let me shift to one other question as I have 

limited time here. 

In your Quadrennial Energy Review you talk about the importance of having the energy infrastructure we need to truly get energy security or energy independence in our country. That is one 

of the key points in the Quadrennial Energy Review. 

So my question to you is if somebody is going to follow all the 

laws, follow all the regulations and invest millions of dollars and 

still wait seven years for a siting decision, whether somebody is 

trying to produce traditional energy or renewable energy, what is 

the message there if they cannot make the investment and rely on 

the laws and regulations and still have to wait for a decision for 

seven years—how are we going to get people, companies, to make 

the investment to build the energy infrastructure to make this 

country energy independent, energy secure? 

Secretary MONIZ. Well, again, as Senator Capito said, let’s face 

it, we do have challenges in terms of all kinds of infrastructure. 

And it’s not only energy infrastructure, infrastructure in construction in many parts of the country. And all we can do is we keep 

pushing on that to go forward. Our authorities, with regard to 

international energy, is on LNG exports, of course, and electricity—— 

63 

Senator HOEVEN. Would you invest millions of dollars in order to 

build either a traditional or a renewable project if you might have 

to wait seven years to get a decision on whether you could site the 

pipeline or the transmission line to move that energy to market? 

Secretary MONIZ. Successful companies make decisions under 

risk evaluations. 

Senator HOEVEN. So whether you had to wait seven years, or 10 

years, even when you spend millions of dollars, comply with all the 

laws and regulations that that would not deter you from making 

an investment? 

Secretary MONIZ. I didn’t, I said you—one makes decisions. 

That’s what CEOs get paid for is to make decisions under risk and 

understanding the situation and then—— 

Senator HOEVEN. But you would—— 

The CHAIRMAN. Gentlemen, we’re going to interrupt and then 

wrap it up. 

Senator HOEVEN. Wouldn’t you favor certainty in terms of trying 

to get investors in companies to make the decisions to invest in energy infrastructure? 

Secretary MONIZ. I think it’s a fair statement that in any of the 

dimensions, it’s good to have certainty for a long time horizon. I 

would especially note that for something like carbon emissions. 

Senator HOEVEN. Thanks for coming to our state. I am not going 

to have time, but I did want to bring up that subject since you have 

been to our state and you understand what we are doing in CO2. 

Secretary MONIZ. I do. 

Senator HOEVEN. Thank you, Mr. Secretary, for being here. 

Secretary MONIZ. Thank you. 

The CHAIRMAN. Mr. Secretary, thank you for being here. We got 

off on some other issues that clearly relate to our nation’s energy 

security when we talk about lifting the outdated oil export ban. 

As we think about our emergency stockpiles here around the 

country I would remind the Administration and remind colleagues 

that up in Alaska we have our Alaska North Slope crude that is 

chemically similar to the oils that we have in the Strategic Petroleum Reserve. We have stored this oil there in the past, and it is 

a great resource. We just need more of it. 

As we are thinking about these petroleum product reserves in 

certain parts of the country, maybe we should consider how, for instance, in Alaska we continue to supply our West Coast refineries 

in the event of severe supply disruptions. 

There is a lot more to talk about, and we barely even scratched 

the surface. I really wish that we had been able to have a little 

greater discussion about how we make sure that, as we are responding to a SPR release, that we are making certain that we are 

adding to the supply and that it is an incremental gain rather than 

just filling in what we have moved out. 

There is an awful lot more that, I think, we need to discuss on 

this. I think it is imperative that we get this review so we really 

understand, when we are talking about modernization of the Strategic Petroleum Reserve, really what that does entail. It is my hope 

that we will be able to defer those that would tap into the Strategic 

Petroleum Reserve before we have better understanding. We have 

got a lot of work in front of us. We have a second panel, and we 

64 

have, unfortunately, lost Committee members to other issues. We 

have a vote that is beginning at one, but as a courtesy to those who 

have scheduled their day around this, I am certainly going to be 

here to hear your comments and would welcome you to come to the 

witness table at this time. 

Mr. Secretary, we thank you for being here and we look forward 

to continued conversations. 

Secretary MONIZ. Thank you, Madam Chair. Thank you, Ranking 

Member Cantwell. 

The CHAIRMAN. At this time we will invite the second panel to 

move to the table. We have Admiral Dennis Blair, former Director 

of National Intelligence and Commander-in-Chief, U.S. Pacific 

Command, and also Co-Chair of the Commission on Energy and 

Geopolitics for Securing America’s Future Energy. We also have 

Mr. Kevin Book, who is the Managing Director for ClearView Energy Partners. We have Mr. Jason Bordoff, who is a Professor of 

Professional Practice in International and Public Affairs. He is a 

Founding Director for the Center on Global Energy Policy at Columbia University. Our final panel member will be Ms. Sarah 

Ladislaw, who is the Director and Senior Fellow for Energy and 

National Security Program at the Center for Strategic and International Studies. 

Thank you for your patience this morning. Hopefully you have 

gained good insight from the questions that were posed by the 

Committee members to the Secretary and his responses as well. 

Again, thank you for your willingness to be before the Committee. 

I would just remind you all that your full written statement will 

be incorporated as part of the records and would ask that you 

please keep your comments to no more than 5 minutes. 

Thank you and welcome, Admiral Blair. 

STATEMENT OF ADMIRAL DENNIS C. BLAIR, USN (RET.), 

FORMER DIRECTOR OF NATIONAL INTELLIGENCE AND COMMANDER-IN-CHIEF, U.S. PACIFIC COMMAND, AND CO-CHAIR, 

COMMISSION ON ENERGY AND GEOPOLITICS, SECURING 

AMERICA’S FUTURE ENERGY 

Admiral BLAIR. Thank you very much, Madam Chair, Ranking 

Member Cantwell. I have the feeling that everything may have 

been said, but it hasn’t been said by everybody, so we will try to 

fill in those. 

The CHAIRMAN. Thank you for recognizing that. [Laughter.] 

Admiral BLAIR. Those lines. 

As we approach this 40th anniversary of the creation of the Strategic Petroleum Reserve a lot of the landscape, energy landscape, 

has changed. But there are three things that are really just the 

same. The oil market remains volatile, American businesses and 

American families are vulnerable, and the SPR is really our only 

short term line of defense against supply interruptions. It would be 

foolhardy to draw down the single immediate weapon that we have 

to counteract oil supply disruptions and price spikes. 

Madam Chairman, you emphasized that your concern was national security and that’s my background. And I certainly agree. 

But economic security and national security are tightly intertwined. 

65 

If geopolitical actions are causing an interruption in the global 

supply there’s great pressure for military involvement and military 

action. When I was the Pacific Commander my counterparts in the 

Central Command knew that the free flow of oil from that swing 

region was one of their most important concerns. However when a 

crisis occurs we need time. We need time to work with allies, to 

apply political pressure, to negotiate before we send in troops. And 

the SPR is essential to a smart region of national security response. 

Today’s low oil prices make it easy to forget that a little more 

than a year ago unrest in key oil producing regions was pushing 

already high oil prices even higher. As ISIL advanced in the summer of 2014, it sent oil prices to $115 a barrels on fears that the 

three million barrels of oil per day from Iraq would be knocked offline. Had ISIL disrupted the Southern Iraqi infrastructure, prices 

would have soared and a significant SPR increase would have been 

necessary to protect the U.S. economy—and that was only a year 

ago. 

Would any responsible American leader count on continued stability and steady petroleum supplies from Venezuela, Iraq, Russia, 

Libya, Iran, even Saudi Arabia? 

Civil unrest, the impact of reduced revenues from current low 

prices, product or production manipulation, all of these are very 

real possibilities. In this turbulent, geopolitical landscape why are 

we even considering reducing our only short term means of offsetting supply interruptions? 

Yes, the dramatic increase in U.S. oil production has reduced our 

dependence on oil imports and it has contributed to a drop in global oil prices, but as the Secretary repeatedly pointed out, it’s a global market. 92 percent of our transportation sector runs on petroleum, a disruption anywhere, at fixed prices everywhere at the 

pump for American consumers, for American businesses. The SPR 

protects our economy from unpredictable violent swings in a global 

oil market dominated by outside actors who share neither our values nor our interests, nor are they particularly fond of us. 

So policymakers should take advantage of current low prices to 

upgrade and modernize the SPR, as you have recommended so that 

it will be ready to respond when disruptions inevitably occur when 

price increases, when prices will inevitably rise. Just having the 

petroleum in the salt caverns is not enough, as discussed repeatedly by Secretary Moniz. The equipment at the SPR itself needs 

maintenance and modernization. The flows of both crude oil and 

petroleum have changed over the last 40 years since the SPR was 

built, and without modernization the SPR could not do its job of 

fully and flexibly offsetting a large supply disruption. We have to 

be able to deliver the oil that it holds at the right place in this extremely complex, oil refining system that we have in the country. 

So I would make five recommendations. 

Congress should fully fund and the Department of Energy should 

accelerate the completion of deferred maintenance. 

The Department of Energy should construct dedicated docks and 

loading capacity so SPR oil can be loaded on marine vessels for delivery to the market as incremental supply without displacing privately-owned oil on the market. 

66 

Congress should update release criteria to clearly allow for release of oil from the SPR in response to a supply emergency even 

if it does not affect domestic production or imports if, and I think 

this is a criteria, if the interruption is likely to affect the price of 

oil and therefore posing a substantial risk of severe economic consequences. I share the sentiments that you described about doing 

this carefully, but I think we need that flexibility when a crisis 

hits. 

The White House and Department of Energy should complete 

that study that the Secretary mentioned about the appropriate size 

of the SPR given the changes in the energy landscape, but my 

guess is that when all is said and done an appropriate size will be 

not far from what we have today. It feels about right to me. 

After reaching a consensus on the size and the guidelines for 

using the SPR, then the Department of Energy should initiate a 

long term program to update and upgrade and update that infrastructure so that it’s reliable for decades to come. 

In today’s uncertain and dangerous political, geopolitical, environment the SPR is our most immediate defense against oil supply 

disruptions and price spikes. It needs to be preserved and modernized not reduced. However, it’s only one part of a comprehensive 

energy strategy to reduce America’s dependence on oil. As has been 

mentioned in the previous panel, we need increased efficiency. We 

need fuel diversity in the transportation sector, and a strong energy policy is imperative to improving our national security. I think 

this Committee can play a key role in forging that comprehensive 

national energy security policy. 

Thank you. 

[The prepared statement of Admiral Blair follows:] 

67 


Insert offset folio 34 here 98911.034
68 


Insert offset folio 35 here 98911.035
69 


Insert offset folio 36 here 98911.036
70 


Insert offset folio 37 here 98911.037
71 


Insert offset folio 38 here 98911.038
72 


Insert offset folio 39 here 98911.039
73 


Insert offset folio 40 here 98911.040
74 


Insert offset folio 41 here 98911.041
75 

The CHAIRMAN. Thank you, Admiral Blair. 

Mr. Book, welcome. 

STATEMENT OF KEVIN BOOK, MANAGING DIRECTOR, 

CLEARVIEW ENERGY PARTNERS, LLC 

Mr. BOOK. Thank you, Madam Chairman. 

I appreciate the work you’re doing here to look at the energy 

policies of the past in the context of today’s fundamentals including 

crude oil exports and renewable fuels and the topics that have 

come up during the first panel, but I think there’s one policy that’s 

stood the test of time and that’s the SPR. It’s been an insurance 

policy, as you described it. It’s been an asset, as you described it, 

and I want to make some comments about its attributes in that regard. 

It seems appropriate to ask if we have the right amount of insurance, whether we’re paying a fair price and whether the policy we 

have has the right features. 

So with regard to the size of the SPR we know that the IEA obligation is for 90 days of net petroleum import cover. In June ’05 the 

SPR had about 54 days, this June the united import cover exceeded 

140. I think someone else mentioned earlier today that 41 percent 

of net imports this June came from Canada and only 16 percent 

came from Canada, a reliable supplier, in June of ’05. This is good 

news, but it’s relatively recent good news and timeframe matters. 

Let me give an example from my own industry. Early last year 

analysts, many of them, thought oil prices would remain above 

$100 per barrel for years. That may seem silly now, but over the 

last 5 years, through August, real oil prices averaged about $100 

a barrel. Of course, if you go back over the whole series of oil prices 

for the last 100 years, they averaged about $35 a barrel. So which 

perspective is correct? 

It’s tempting to think that the future is going to look a lot like 

the recent past. And in fact, it probably does look more like the recent past than the whole history. But recent oil market lessons remind us it’s important to look at the longer trends. 

So I did, in my testimony, a thought experiment. I’ll summarize. 

Starting with January ’85, I calculated monthly results if the nation sold crude whenever inventories got above 90 days and bought 

crude whenever they fell below. Now over the last 60 calendar 

months the average result is a win, about $1 billion of profit in real 

dollar terms. Over the whole time series, it’s a loss of about $500 

million. 

So downsizing the SPR could be a losing bet and it could be for 

other reasons too. Today it’s been mentioned OPEC producers are 

running flat out, so spare capacity is falling. That’s not going to be 

there to balance the market and the demand recovery. Demand 

isn’t likely to stay weak forever. 

Spare capacity is supposed to come on within 30 days and stay 

on for 90. Shale hasn’t worked like that, at least not yet. It didn’t 

turn off quickly on the way down and it may not turn on quickly 

on the way back up because job loss, among other things, can slow 

it down. 

Meanwhile the large SPR has other uses and can be a signal to 

OPEC to add supply to a tight market. In essence we can say to 

76 

them, either you can do it and you can earn the money or we’ll do 

it and you won’t earn the money. 

And finally, insurance tends to be cheaper when the market perceives lower degrees of risk. If anything, as the Admiral mentioned, 

a period of low prices seems like it could be a better time to expand. 

Now is the insurance a good deal? Well, the premium is about $200 million a year right now, $4 billion over 20. If you think about 

that, that’s about $576 a barrel in current dollar terms. 

Now what does it get you? It sounds like Oak Ridge is doing 

some work. The DOE is too. And you can put a lot of economists 

to work on that question. But I’m in the business of back of the 

envelope answers, so I’ll give you one here today. If you take what 

the nation consumes through June this year on a trailing 12 month 

basis, 19.34 million barrels, our firm’s short run, Brent model, implies that if you put a million barrels into the market today prices 

would drop by about $11 per barrel. That’s the market today 

though and the market changes a lot. So I’m going to give it that 

kind of number a haircut, 75 percent haircut. Let’s use 275. Using 

that number every one million barrel draw could save the nation 

about $53 million. Multiply it by the size of the SPR and you get 

about $37 billion. So $4 billion in premiums for $37 billion in coverage sounds like a pretty good deal, and I’m not using any multiplier numbers. If you were to sell it down to 90 days you could 

raise $12.9 billion at $50 dollars a barrel but you’d be giving up 

$13.7 billion in coverage by those numbers. Not sure that’s a good 

deal. 

You called it an asset, Madam Chairman, and it is an asset. It 

isn’t usually a good idea to liquidate long-term assets for shortterm financing purposes. 

Another thing that doesn’t work very well is buying high and 

selling low. I calculate nominal acquisition costs at an average of 

about $32 per barrel, but in real dollar terms they average about 

$74 per barrel. The Brent forward curve which is the monthly 

prices out for future delivery to the end of 2022 doesn’t get above 

about $65 a barrel right now. So you have some questions about 

whether or not it’s a good time to sell. 

Finally in terms of the coverage we have what product should we 

pick for product reserve? It’s not so easy. If you look at the 2013 

to 2014 propane crisis, right before that crisis EIA projected that 

propane inventories would, I quote, ‘‘remain near the middle of the 

historical range during the upcoming winter.’’ By definition surprises defy prediction even by capable agencies like the EIA. 

Market forces responded, and there was no repeat of the propane 

crisis last year, but government emergency product stockpiles could 

mute price signals that inform the behaviors of market participants. 

We don’t know what will happen with the Northeast gasoline 

supply reserve. In fact, right now it has about two days of supply 

for New York State in the New York site and about one day of supply for Massachusetts, Maine, New Hampshire and Vermont. 

That’s big enough to lower prices if you draw it. It’s also potentially 

the sort of thing that if you did draw it, because drivers know it’s 

a finite resource, they might hoard. 

77 

Finally, you could tell tankers that might be coming in to go 

somewhere else where the price is still higher because the reserve 

is there, an unintended consequence. 

Looking at the New England home heating oil reserve, the inventories in PADD 1A, which is the New England part of the East 

Coast region the EIA tracks, fell and didn’t come back up after the 

reserve was created even though they rose back up toward traditional five year levels in the years that followed. That’s circumstantial and I wouldn’t, you can’t fly to the moon on that kind of statistic. 

But what I would suggest is that you may have simply replaced 

private inventories with government inventories to no net energy 

security benefit, and that doesn’t seem like a very good idea. 

Thanks for the time to comment. I look forward to any questions. 

[The prepared statement of Mr. Book follows:] 

78 


Insert offset folio 42 here 98911.042
79 


Insert offset folio 43 here 98911.043
80 


Insert offset folio 44 here 98911.044
81 


Insert offset folio 45 here 98911.045
82 


Insert offset folio 46 here 98911.046
83 


Insert offset folio 47 here 98911.047
84 


Insert offset folio 48 here 98911.048
85 


Insert offset folio 49 here 98911.049
86 


Insert offset folio 50 here 98911.050
87 


Insert offset folio 51 here 98911.051
88 

The CHAIRMAN. Thank you. 

Mr. Bordoff? 

STATEMENT OF JASON BORDOFF, FOUNDING DIRECTOR, CENTER ON GLOBAL ENERGY POLICY, AND PROFESSOR OF PROFESSIONAL PRACTICE IN INTERNATIONAL AND PUBLIC AFFAIRS, COLUMBIA UNIVERSITY 

Mr. BORDOFF. Thank you. 

Chairman Murkowski, Ranking Member Cantwell, members of 

the Committee, thanks for the invitation to be here today and for 

your attention to this important issue. As Admiral Blair said, I 

think much has already been said. 

So let me just make three brief points with my time. 

First, it’s my view that the SPR remains an important national 

security asset even though the U.S. is a much larger producer and 

a much lower importer than we’ve been in the past. U.S. oil imports have fallen from about 60 to 20 percent of our consumption 

both as a result of more supply and importantly, as a result of reduced demand. We talked about how the International Energy 

Agency requires 90 days of import cover, so some say that means 

we need less oil in the SPR. 

But in today’s oil market as supply disruption anywhere leads to 

price increases here at home whether we import or not. Such price 

spikes have harmful economic consequences for consumers and for 

the overall economy. All but one of the 11 post-war recessions, for 

example, were associated with oil price shocks. So the SPR today 

needs to cushion global supply disruptions regardless of whether 

U.S. refineries import from the specific countries where the disruption occurred. I think we should be especially cautious about selling 

the SPR as the oil market really enters unchartered territory. 

OPEC has not only allowed the price to collapse, it’s actually boosted its production leaving almost no spare capacity, extra oil that 

can be brought onto the market with little short notice. 

So with OPEC abandoning its market balance or role and with 

little spare capacity we may be in for sharper ups and downs in 

the future, and then any disruption to global supply can have an 

outsized impact on price because there’s no buffer in the market 

left to cushion it. There’s still a lot of geopolitical risk in the world 

and key oil producers, even more so when low prices threaten instability in some markets. 

A recent study from Columbia Center of Global Energy Policy 

looked carefully at the increased risk of political instability in Venezuela, for example, as a result of the price collapse. So now is not 

a time to sell off a strategic asset we’ve had for 40 years. 

Moreover the SPR, I think, gives us more policy flexibility. So 

imagine, for example, that Iran reneged on its nuclear deal and 

there was consensus to tighten sanctions on Iran without a buffer 

of either spare capacity or strategic stocks we may well impose a 

great deal of economic pain on ourselves at the same time that 

we’re trying to impose it on Iran. 

Second, given how the oil market has changed it, as we talked 

about today, absolutely makes good sense to study whether the 

size, composition, location or use of the SPR should be modernized. 

But the outcome of that analysis about whether to reduce the size 

89 

of the SPR and not an imperative to fill a budget hole, no matter 

how meritorious the intended use, it should determine whether we 

do that. I think that’s especially true when the oil price is at its 

lowest point in six years. 

Third and finally, there’s an urgent need, as we’ve talked about, 

to modernize the SPR’s existing infrastructure to ensure that it can 

remain effective in the event of an emergency. Any revenue from 

selling the SPR, I would argue, should be put toward that purpose, 

that really critical need, before any other. 

Since the purpose of the SPR in today’s market is to temper price 

shocks from global supply disruptions, barrels must add to the total 

world supply. So that means that when SPR crude is delivered to 

U.S. refineries foreign oil those refineries would have purchased is 

freed up to be used elsewhere, but changes in U.S. production and 

infrastructure have made that harder to achieve today for Midwest 

refineries which have been the historic destination for SPR crude. 

SPR crude now needs to move from the water in the Gulf Coast 

to East or West Coast refineries, yet, the oil boom here in the U.S. 

over the last several years has left very little unused capacity at 

these Gulf Coast marine facilities. That means that if these docks 

were used in an emergency to load SPR crude other commercial 

stocks would just be displaced, so investments are needed in marine capacity that would allow the SPR to add incremental barrels 

into the global market and this was confirmed by the DOE’s 2014 

test sale. 

To be clear, this is an issue not of stock, barrels in the SPR, it’s 

an issue of flow. How much oil is in the SPR is important, but 

what’s really important is can we get it out at the intended draw 

down rate of 4.4 million barrels per day. I don’t think today we’d 

come anywhere close to that, so addressing that urgent need is a 

critical priority. 

In short the SPR has served as a critical piece of our nation’s infrastructure and energy security strategy since the oil crisis of the 

1970’s. It remains so today. And while it makes sense to consider 

various measures to modernize it, including reducing its size 

among other reforms, the first priority should be to ensure that 

SPR crude can reach the market and be effective in the event of 

a supply emergency. 

Thank you again for the opportunity to testify today. 

[The prepared statement of Mr. Bordoff follows:] 

90 


Insert offset folio 52 here 98911.052
91 


Insert offset folio 53 here 98911.053
92 


Insert offset folio 54 here 98911.054
93 


Insert offset folio 55 here 98911.055
94 


Insert offset folio 56 here 98911.056
95 


Insert offset folio 57 here 98911.057
96 


Insert offset folio 58 here 98911.058
97 


Insert offset folio 59 here 98911.059
98 


Insert offset folio 60 here 98911.060
99 

The CHAIRMAN. Thank you, Mr. Bordoff, we appreciate your comments. 

Ms. Ladislaw? 

STATEMENT OF SARAH LADISLAW, DIRECTOR AND SENIOR 

FELLOW, ENERGY AND NATIONAL SECURITY PROGRAM, 

CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES 

Ms. LADISLAW. Good afternoon, Chairman Murkowski and Ranking Member Cantwell. Thank you for the opportunity to be here 

today. I too, will shorten my comments to make sure we’ve got time 

for discussion. 

Today I’ll make three points about the Strategic Petroleum Reserve as an element of U.S. and global oil supply security and offer 

some areas of consideration going forward for the ongoing deliberations about how to modernize this important reserve. 

First, the U.S. SPR is an important pillar of U.S. and global oil 

supply security. The SPR is not only the world’s largest government-owned and managed emergency stockpile of crude, it’s also 

part of a much larger, globally coordinated system of emergency petroleum supplies that have been around in the oil market since the 

mid 1970’s. These strategic stockpiles are perhaps one of the most 

invisible and enduring examples of shared energy security policies 

around the world and the world’s major energy consumers. The 

SPR in the United States is a fundamental pillar of that system 

and sends an important signal. 

Second, changes to the U.S. domestic production profile necessitate these changes to the SPR. Greater domestic production and 

new pipeline configurations potentially upend the assumptions on 

which the SPR logistical distribution system relies. Assuming that 

the SPR oil is released, increasing production of oil in Midwest and 

Gulf Coast systems and infrastructure changes to accommodate 

those production changes such as certain pipeline flow reversals, 

may have made it considerably more difficult to move this product 

to market. This in combination with ongoing maintenance needs 

above and below ground necessitate this conversation about the 

SPR modernization today. 

Third, oil markets have changed and will continue to change. A 

great deal has changed since the global strategic stock system and 

the U.S. SPR were created which further make an assessment necessary and important. 

Oil markets are different and so are the players. 

First, oil plays a different role in the global economy than it did 

in 1974. Half of oil consumed today is for transportation compared 

to 35 percent in the 1970’s. And according to the International 

Agency, this concentration of oil uses in transportation can accentuate the potential economic impact of a supply disruption because 

of low price elasticity of transportation fuel and the broad reach of 

transportation fuel costs into other sectors of the economy. 

Second, while oil trade flows are shifting, the production surge 

in North America combined with growing oil demand in Asia 

means that oil is increasingly traveling East instead of West for 

major production centers. Moreover, the trend toward refining 

crude closer to production centers means that global trade in crude 

100 

oil is likely to decline in the coming years in favor of greater product trade flows. 

Finally, OPEC now makes up a smaller share of global oil supply. OPEC produced about half the world’s oil in 1974 compared to 

about 40 percent today. Perhaps more importantly, the strategies 

and capabilities of various oil exporting economies has also shifted 

over that timeframe. 

A strategic review of the SPR should take several issues into consideration. 

First, the nature of future oil supply disruptions and 

vulnerabilities. Since the creation of the International Energy 

Agency there have been a number of major supply disruptions and 

three coordinated strategic stock releases and a number of SPR exchanges. None of these releases were for the intended purpose as 

the same supply disruption in the Middle East, but arguably each 

provided economic insulation from geopolitical and natural disaster 

related supply disruptions. The severity of a supply disruption is 

often measured in terms of oil supply loss in duration, but the economic impact of that disruption depends on other factors such as 

overall market conditions at the time, the crude qualities, seasonal 

factors, logistics and spare production capacity. This means answering a simple question about what we were guarding against 

quite complex. 

Second, optimal structure and composition of the U.S. SPR as 

part of a broader energy security strategy. The SPR is only one of 

several policy tools the United States has to provide resilience in 

the face of an oil supply disruption. Long term policies committed 

to greater vehicle efficiency, multimodal transportation, infrastructure protection and fuel site source diversification are also critically 

important. The SPR plays an important and complimentary role to 

these policies. Thus far the United States has chosen to pursue an 

almost entirely crude-based, government-managed stockpile with 

the notable exception of the heating oil reserve and gasoline reserve in the Northeast. This is not the approach taken by many 

other countries. It’s important to note that many other countries 

have a mix of public and privately held stockpiles of both crude and 

petroleum products. As the United States considers modernization 

of the SPR, a key question to be answered is what is the most effective composition, size and quality of the U.S. SPR going forward? 

And finally, the adequacy of the global strategic stock system is 

a valid question. The U.S. SPR does not exist in isolation and it 

is, in fact, used in coordination with certain members of the international community. The International Strategic Stock System 

plays an important role in protecting the global economy against 

unforeseen oil supply disruptions. When created the IEA represented the majority of oil consuming and import dependent countries. OECD economies were three quarters of the global oil demand in 1970 compared to 50 percent today. Going forward emerging markets and developing economies share of global oil demand 

is expected to grow even further. 

China has since 2001 been in the process of creating its own 

strategic oil stockpiles and domestic system for deciding upon how 

to release those supplies in the event of a disruption. India has also 

signaled its intent to create oil stockpiles but is less far along. 

101 

Whether and how these future stockpiles should be coordinated 

with OECD strategic stock system is an important area for policymaking consideration. 

In conclusion the last 40 years have proven time and again that 

we, as analysts, policymakers and market participants should be 

humble about our ability to forecast future oil market dynamics 

and take prudent measures to protect against unanticipated supply 

disruptions. If my memory serves me correctly it was about 10 

years ago that the U.S. Congress voted to increase the capacity of 

the SPR to one billion barrels of oil. 

The strategic review underway at the U.S. Department of Energy 

and recommended by this Committee are prudent and important 

courses of action. Efforts by other Committees in Congress to sell 

portions of the SPR before that important review is completed are 

shortsighted, and I recommend that you wait until the results of 

the final review before making any of those decisions. 

Thank you very much. 

[The prepared statement of Ms. Ladislaw follows:] 

102 


Insert offset folio 61 here 98911.061
103 


Insert offset folio 62 here 98911.062
104 


Insert offset folio 63 here 98911.063
105 


Insert offset folio 64 here 98911.064
106 


Insert offset folio 65 here 98911.065
107 


Insert offset folio 66 here 98911.066
108 


Insert offset folio 67 here 98911.067
109 


Insert offset folio 68 here 98911.068
110 

The CHAIRMAN. Thank you, Ms. Ladislaw. 

Thank you all for your comments here this morning. I listened 

to the testimony from each of you after the comments that we 

heard from the Secretary, and again, I am just beside myself as to 

why we are having this discussion in Congress right now about 

how much we are going to sell off from the Strategic Petroleum Reserve to fund, whether it is the Transportation bill or anything else 

out there. Each of you have mentioned the issue of spare capacity 

and how it is just not what it once was. Each of you has mentioned 

the issues as they relate to the volatility of the world at large right 

now, the geopolitical issues that we are facing. 

We have some inherent geographic issues that have not changed. 

The fact that you have significant oil coming out of the Middle East 

that goes through a choke point that is inherently dangerous and 

seemingly more so as the world just becomes just more tense and 

more volatile. The fact that you have all recognized that the Strategic Petroleum Reserve really is this short term defense to offset 

the supply disruption. 

This is what we have that we can use quickly, but we can only 

use this stockpile quickly if it functions as we have set it up to 

function. This is where, I think, we have a little breakdown in communication amongst, perhaps, your policymakers here, who think 

that the draw down, our ability to draw down a certain amount, 

is all that we need to know. The draw down needs to be able to 

work with our distribution ability right now. 

As you have outlined, we have all kinds of changes that have 

come about. Whether it is the flow of oil from North to South now 

moving from South to North, capacity restraints, the issues or the 

limitations within our ports from a maritime perspective as to how 

we can move it, I do not think people understand that while we 

have got this stuff sitting in the salt caverns, down primarily in the 

Gulf area, our ability to move it out to respond is not what we need 

it to be unless we work toward the modernization that you have 

discussed and that the Department of Energy has discussed. 

We have a situation here in the Congress where we need to be 

looking critically at this energy security asset, but the asset is only 

as good as its ability to function and this is where I am more than 

just a little bit worried. 

If there were to be a sale, the first thing that you should do with 

those proceeds is to work toward the modernization. Whether it is 

the $800 million that needs to go to the modernization and then 

the $1.2 or $1 billion that the Secretary had mentioned about how 

we provide for the marine transport aspect of it, we have got to 

look critically at this. I do not think that we are having sufficient 

discussion on that aspect of our Strategic Petroleum Reserve, and 

I think it is absolutely key. 

The question that I am going to ask to you, and I am going to 

ask you to be quick with your responses, if I may. The metric that 

is used here, what is happening here in Congress—I do not mean 

to make it sound like it is just basic math—but you have people 

who are looking and saying our obligation is a 90-day supply. So 

all we need to do is look to how many days’ supply we have, back 

out the 90 and that is what we have available for sale. Can you 

please explain in plain English, very quickly, why that is not the 

111 

metric that the Congress should be using when you look at the 

Strategic Petroleum Reserve? 

Admiral Blair? 

Admiral BLAIR. Well we can go in the same order, I guess. 

The CHAIRMAN. Okay. 

Admiral BLAIR. My answer would be that it’s not the physical 

supply that matters. It’s the impact on the American economy and 

the speed and increasing the amount of time we have to solve supply interruptions. 

So my prescription for the right answer is to look at a series of 

scenarios and really think through what we would actually want 

to do in each scenario and then take a step back and choose a good, 

prudent amount that would allow us to have that flexibility in most 

of the cases we can think of; therefore, when it happens we have 

the flexibility to work with it. We’re not tied to some mechanical 

number that probably is not applicable when an actual event occurs. 

The CHAIRMAN. Thank you. 

Mr. Book? 

Mr. BOOK. Madam Chairman, I think I tried to offer, sort of, a 

way of thinking about it which was the insurance payoff value relative to its premium. I think that would be the right way to think 

about it. 

The size of the reserve is really a static amount at this point. 

That oil, unlike the insurance comparison, where if you don’t pay 

your premium and you just walk away from the policy, it’s gone. 

It’s here. So we have, actually, a very small carrying cost. If you 

think about what the modernization might involve to keep it working, it’s another $2 billion on top of the $4 billion I gave you over 

20 years. So it’s $6 billion into $37 billion in yield. That $37 billion 

is a really low number. I took it to be conservative. What we’re 

talking about is the difference between having oil and not having 

oil. 

Why would you give up this carefully amassed 700 million barrel 

stockpile, just try to go out into the market and buy 700 million 

barrels in a hurry? I was meeting with oil traders in New York yesterday, and I can tell you that they would be very, very pleased if 

you were to bid for that much oil in a rush. 

The CHAIRMAN. Thank you. 

Mr. Bordoff? 

Mr. BORDOFF. I’ll just briefly make three points in response to 

your question. 

So the short answer is, in my view, days of import cover is not 

the right metric in today’s oil market to determine how much we 

keep in a strategic stockpile. The market has changed quite a bit, 

as we heard, since oil price controls and long term contracts and 

oil, globally traded oil market, like we have today didn’t exist 40 

years ago. 

The risks that we’re guarding against today are adverse impacts 

to the macro economy, to consumers, as a result of price spikes, 

and that is going to exist whether we’re a large importer or not. 

We saw during the Gulf War, for example, crude prices spike. We 

saw the price of gasoline go up, roughly, the same amount in the 

112 

United States and in the UK, even though the UK was a net exporter at the time and the U.S. was a very large net importer. 

Secondly, I think it’s important to remember we’ve only had this 

title of boom for a couple of years. While there’s good reason to 

think that as prices recover it will continue and U.S. oil production 

will continue to grow, U.S. production is declining. It’s down about 

half a million barrels per day so far, month on month, from its high 

point this year. Demand is up in response to the lower oil price, 

so there’s no guarantee that our imports will remain as low as they 

are today. I think it’s likely they, over time, will continue to decline, but you want to be careful about shedding a 40-year strategic 

asset in response to a trend that we’ve seen for a couple of years. 

So the question of how to determine the size, I don’t have a number. But I suspect the study the DOE is working on would look at 

things like assessing the impact on the macro economy of price 

spikes, trying to estimate the likelihood of supply disruptions and 

associated price spikes. And then, assessing the impact of releasing 

SPR volumes to mitigate those price spikes and on the level of 

spare capacity on the market and then you compare those benefits 

to the carrying and opportunity costs of continuing to hold the 

SPR. 

That’s the sort of analysis we should do to answer that question 

before, I think, we sell a large chunk of it. 

The CHAIRMAN. Thank you. 

Ms. Ladislaw? 

Ms. LADISLAW. Yes, I just want to make, probably, four points. 

First is, as Secretary Moniz stated, that’s not the only international obligation. If we’re actually to use the Strategic Petroleum 

Reserve, our obligation to how much we draw down and contribute 

to that collective draw down is actually a different number. So 

there you have to take that into consideration. 

The other is below a certain threshold you don’t have the ability 

or the flexibility and the authority to do the 30 million barrel a day 

draw down as well. So you want to be careful of that. 

Then there’s a, sort of, unspoken, sort of, a hard to substantiate 

element of this which is the size of your reserve kind of matters 

and it sends a signal to the global economy about what you’re willing to put in reserve and how much protection you’ve got. And so, 

I think, that given the new found energy position we have in the 

United States and what we think about the future of that, we have 

to, sort of, reassess that calculus. 

And then fourth is to the extent that you are going to sell down 

any portion of the SPR, it sort of seems like the Department of Energy has dibs. If you’re going to sell it down and the rest of it 

doesn’t work then maybe you haven’t invested that money wisely 

because you actually shrunk the size, and it still doesn’t work the 

way that you need it to. 

Lastly, the really important part is this international context. We 

don’t do this alone. In fact our effectiveness is eroded by the international strategic stock system if that’s increasingly ineffective. 

The way in which we care for, maintain and modernize our SPR 

actually does send signals to the rest of the international community about how we would like them to participate in that system. 

113 

I think it’s really important for us to realize that ours is a shrinking share of that system, not a growing one. 

So I think that all of those things should be taken into consideration. 

The CHAIRMAN. All very good points, and straight to what I 

raised with Secretary Moniz. It just seems a little crazy that we 

would be urging China and India to come into this collaborative energy security network while we are thinking about eroding our 

own. Thank you all for your comments on this. 

Senator Cantwell? This is something that we have been working 

on together, and I think we are certainly of like minds. 

Senator CANTWELL. Thank you. 

Mr. Bordoff, so you buy into the modernization of the SPR, correct? That it needs—— 

Mr. BORDOFF. Bottom line I guess it depends what we mean by 

modernization, but I think it’s important. 

Senator CANTWELL. Infrastructure improvement. 

Mr. BORDOFF. Absolutely. Yes, I think there is an important need 

to upgrade infrastructure. 

Senator CANTWELL. Okay, and would you use SPR sales to do 

that? 

Mr. BORDOFF. I guess I don’t have a strong view on that. I think 

if the money can be appropriated elsewhere that would make 

sense. If it were the only way to find it was to sell a relatively 

small amount of SPR crude, I guess would be 40, 50 million barrels, depending on the price, it is an urgent priority. I think it’s important that we do it because whether there’s 700 or 650, if we 

can’t get into the market at the volume we need it’s not going to 

be effective. 

Senator CANTWELL. Okay. In general, do you think of the SPR 

as a surplus ever or not? 

Mr. BORDOFF. Well, again, I think we need to, kind of, do the 

kind of analysis I just described to figure out, given how much the 

market has changed and the different kind of risk we’re protecting 

against today than we were 40 years ago. Do we think it can be 

much smaller and/or in fact should be much bigger? But I think we 

need to do that work first before we decide to sell a large volume 

for other purposes. 

Senator CANTWELL. So there could be, today, or someday in the 

future, someplace where you might consider that a surplus? 

Mr. BORDOFF. It’s certainly possible that given how the market 

has changed we should make a collective decision to adjust the 

size, up or down, but I think we should do that work first. 

Senator CANTWELL. Okay, thank you. 

Mr. Book, I am so glad that you mentioned these private sector 

efforts, and Ms. Ladislaw, you mentioned these international efforts. This has always been a curious subject for somebody who 

cares about an aviation industry and how much they took it on the 

chin with high fuel prices. 

Have you seen European countries or others make jet fuel reserves work successfully for them? 

Mr. Book, would you have any comment on that? 

Ms. LADISLAW. I don’t really know very much about jet fuel reserves, in particular, as how they’re managed in the European 

114 

stock system. I do think that the more you dig away at this question, the more complicated it gets. There is a lot of analysis about 

the European strategic stock system and the way in which they 

manage theirs and their own strategic positioning of their refineries over the next several decades that will be changing as well. 

And so I think if you don’t take that into consideration, as you 

think about the operations of the global strategic stock system, it’s 

really hard to assess ours relative to theirs. 

Senator CANTWELL. How do you think they are doing, juxtaposed 

to us, on this challenge in general? Is it your overall analysis that 

it is a good idea that they have had those additional reserves or 

not? 

Ms. LADISLAW. It’s really a question of how the political expediency of being able to manage it given, you know, their own circumstances. I mean, some countries in Europe actually don’t even 

manage the stocks within their own country. They actually have 

them positioned in other countries. 

So it really is, sort of, I think, it’s a mixed bag. I think there’s 

been some criticism about the ability to draw down on something 

that our private sector held stocks and the ability for those actually 

to be strategic stocks as opposed to just, sort of, the normal business of those refinery systems. 

On the other hand I feel like there’s a number of instances where 

the global economy has actually benefited from the release of their 

product reserves and the efficiency of some of those systems because they’re managed differently relative to our crude releases. So 

it really is circumstantially—— 

Senator CANTWELL. So you would not give them a positive mark 

for having them, so this is something we have not done? We have 

not, well, except for the home heating oil reserve, which we are 

going to hear about a little more. But we have not done refined 

product reserves. We have not done that. 

Is the European or the world market result of that a positive? 

Has that been a positive or has it been neutral or negative? 

Ms. LADISLAW. I think in general that the global oil market has 

benefited from the fact that some of the global strategic stocks are, 

in fact, in product stocks. 

Senator CANTWELL. Okay. 

Ms. LADISLAW. And that’s been a benefit. 

Senator CANTWELL. Okay. 

Mr. Book, now tell us about your view on this in general. 

Mr. BOOK. No, I think that there’s a reason why they have private stocks which is worth considering also which is that we have 

the best refineries in the world. Their refining system is in decline, 

and they have a lot of refinery capacity that, for them, is really 

going to pose a strategic question in the next 5 years. Are they 

going to decide to keep uneconomic facilities in place or are they 

going to rely, perhaps, on imported fuels from our refineries? 

We’re in a different position, and that enables us to make a different choice. For that reason it makes a lot more sense for them 

to do it than for us. 

Senator CANTWELL. And your point is that even though we do 

have it on home heating oil it really has not helped because the 

market has not responded quite the way—— 

115 

Mr. BOOK. Well, I don’t—— 

Senator CANTWELL. Or it has not had an impact on the market 

in a way that you would like to have seen. 

Mr. BOOK. Well, we want to be careful when we say it hasn’t 

helped. Like to the extent that sending signals that there’s a reassuring supply there can be useful in calming speculation and 

hoarding and other negative aspects when it comes to critical resources, sure. 

I think sometimes having an insurance policy in place is very reassuring to people who might decide that they needed twice as 

much heating oil just in case there wasn’t enough, but the possibility that all you have done is taken working capital that private 

companies previously put into inventories and gave them, essentially, a subsidy. Say here guys, go spend it on something that returns a higher value because the Federal Government is going to 

pick it up. 

That is a horrifically uneconomic result, because it leaves you 

with the same energy security but at greater taxpayer expense. So 

that’s something you would want to avoid. 

Senator CANTWELL. Well, I am not sure. Are all the European 

models done that way, at government expense? 

Mr. BOOK. Oh, not at all. 

Senator CANTWELL. They are done the opposite, right? 

Mr. BOOK. They actually roll into the commercial system. 

Senator CANTWELL. Yes. 

Mr. BOOK. They have a very different—so the strategic stocks 

that they have are, in many ways, commingled and reserved as 

part of the ongoing capacity in the European system. 

Senator CANTWELL. I think it just shows a different way of looking at things. 

I have always been perplexed by our dear colleagues who had to 

pay so much on home heating oil. 

There are parts of the Northwest, Seattle, North Seattle, there 

is still some home heating oil. But for the most part this is not 

something that we deal with. When you deal with certain regions, 

and we have members of our Committee and have had members 

of our Committee, it is a very, very big issue. So you wonder what 

we could do to help alleviate some of that very costly challenges the 

consumers face on heating oil. 

Madam Chair, thank you for this important hearing, and we will 

continue to work with you and others and try to figure out a path 

forward. 

I certainly believe we need to make the investment here to modernize and to keep the Strategic Petroleum Reserve. I certainly believe that we need to come up with a resource, as I mentioned a 

number today, but I think we have to get that number and make 

the investment. 

So thank you for the hearing. 

The CHAIRMAN. Senator Cantwell, thank you. 

And to each of you, thank you for being here today and for giving 

us a little extra time here this afternoon. We appreciate the consideration. Thank you. 

We stand adjourned. 

[Whereupon, at 1:05 p.m. the hearing was adjourned.] 

(116) 

APPENDIX MATERIAL SUBMITTED 

117 


Insert offset folio 69 here 98911.069
118 


Insert offset folio 70 here 98911.070
119 


Insert offset folio 71 here 98911.071
120 


Insert offset folio 72 here 98911.072
121 


Insert offset folio 73 here 98911.073
122 


Insert offset folio 74 here 98911.074
123 


Insert offset folio 75 here 98911.075
124 


Insert offset folio 76 here 98911.076
125 


Insert offset folio 77 here 98911.077
126 


Insert offset folio 78 here 98911.078
127 


Insert offset folio 79 here 98911.079
128 


Insert offset folio 80 here 98911.080
129 


Insert offset folio 81 here 98911.081
130 


Insert offset folio 82 here 98911.082