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EIA’S REPORT ON SHORT-TERM ENERGY

OUTLOOK AND WINTER FUELS OUTLOOK

HEARING

BEFORE THE

SUBCOMMITTEE ON ENERGY AND AIR QUALITY

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

OCTOBER 19, 2005

Serial No. 109–80

Printed for the use of the Committee on Energy and Commerce

(

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

COMMITTEE ON ENERGY AND COMMERCE

JOE BARTON, Texas, Chairman 

RALPH M. HALL, Texas 

MICHAEL BILIRAKIS, Florida 

Vice Chairman 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

PAUL E. GILLMOR, Ohio 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

CHARLIE NORWOOD, Georgia 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

CHARLES W. ‘‘CHIP’’ PICKERING, 

Mississippi, Vice Chairman 

VITO FOSSELLA, New York 

ROY BLUNT, Missouri 

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

CHARLES F. BASS, New Hampshire 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

C.L. ‘‘BUTCH’’ OTTER, Idaho 

SUE MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

JOHN D. DINGELL, Michigan 

Ranking Member 

HENRY A. WAXMAN, California 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, Jr., New Jersey 

SHERROD BROWN, Ohio 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

ALBERT R. WYNN, Maryland 

GENE GREEN, Texas 

TED STRICKLAND, Ohio 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MIKE DOYLE, Pennsylvania 

TOM ALLEN, Maine 

JIM DAVIS, Florida 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

BUD ALBRIGHT, Staff Director 

DAVID CAVICKE, Deputy Staff Director and General Counsel 

REID P.F. STUNTZ, Minority Staff Director and Chief Counsel 

SUBCOMMITTEE ON ENERGY AND AIR QUALITY

RALPH M. HALL, Texas, Chairman 

MICHAEL BILIRAKIS, Florida 

ED WHITFIELD, Kentucky 

CHARLIE NORWOOD, Georgia 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

CHARLES W. ‘‘CHIP’’ PICKERING, 

Mississippi 

VITO FOSSELLA, New York 

GEORGE RADANOVICH, California 

MARY BONO, California 

GREG WALDEN, Oregon 

MIKE ROGERS, Michigan 

C.L. ‘‘BUTCH’’ OTTER, Idaho 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

JOE BARTON, Texas, 

(Ex Officio) 

RICK BOUCHER, Virginia 

(Ranking Member) 

MIKE ROSS, Arkansas 

HENRY A. WAXMAN, California 

EDWARD J. MARKEY, Massachusetts 

ELIOT L. ENGEL, New York 

ALBERT R. WYNN, Maryland 

GENE GREEN, Texas 

TED STRICKLAND, Ohio 

LOIS CAPPS, California 

MIKE DOYLE, Pennsylvania 

TOM ALLEN, Maine 

JIM DAVIS, Florida 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JOHN D. DINGELL, Michigan, 

(Ex Officio) 

(II) 

C O N T E N T S 

Page

Testimony of: 

Caruso, Guy F., Administrator, Energy Information Administration ................. 16

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Caruso, Guy F.: 

Written response to questions from Hon. Ralph M. Hall .............................. 41

(III) 

(1)

EIA’S REPORT ON SHORT-TERM ENERGY 

OUTLOOK AND WINTER FUELS OUTLOOK 

WEDNESDAY, OCTOBER 19, 2005

HOUSE OF REPRESENTATIVES, COMMITTEE ON ENERGY AND COMMERCE, SUBCOMMITTEE ON ENERGY AND AIR QUALITY, Washington, D.C. 

The subcommittee met, pursuant to call, at 10:00 a.m., in Room 

2123 of the Rayburn House Office Building, Hon. Ralph M. Hall 

(chairman) presiding. 

Members present: Representatives Hall, Norwood, Shimkus, 

Shadegg, Radanovich, Walden, Otter, Murphy, Burgess, Barton (ex 

officio), Boucher, Ross, Markey, Wynn, Green, Allen, and Solis. 

Staff present: Mark Menezes, Chief Counsel for Energy and Environment; Maryam Sabbaghian, Counsel; Peter Kielty, Clerk; 

Bruce Harris, Professional Staff; and Sue Sheridan, Senior Counsel. 

Mr. HALL. Okay. Thank you. The subcommittee will come to 

order. Without objection, the subcommittee will proceed pursuant 

to Committee Rule 4(e), which—hearing no objection. 

Prior to the recognition of the first witness for testimony, any 

member, when recognized for an opening statement, may defer his 

or her three minute opening statement, and instead, have three additional minutes during the initial round of witness questioning. 

And I recognize myself for an opening statement. I first want to 

welcome our witness today, Mr. Guy Caruso, Administrator of the 

Energy Information Administration, and thank him for sharing 

this time, the time it took for him to get over here today, the time 

it took for him to gain the knowledge that he has, and I look forward to his testimony. I have had a brief discussion with him and 

enjoyed it, and learned a lot in five minutes. And I know we are 

going to get a lot of—B.S. in business administration, an M.S. in 

economics from the University of Connecticut, and earned a master’s of public administration from Harvard University. And he has 

worked here, domestically, he worked at the Paris-based International Energy Agency, IEA, first as a head of the Oil Industry 

Division, and later, as Director of the Office of Nonmembers Countries, so we have, we are really blessed with good testimony, and 

we have a witness that will give us testimony. 

Just to give him some comparison of how we value his input, it 

took, I think, 15 the last time we had a hearing, to provide us the 

information we needed. So, Caruso, we are looking forward to hearing from you, and so you are, of course, you are welcome. And it 

is trite to say that the United States is facing an energy crisis. 

2

Even before the hurricanes, the prices for oil and natural gas were 

on the rise, and in response to that, and after years of trying, Congress passed a comprehensive energy bill, H.R. 6, and our chairman, in conjunction with both Democrats and Republicans, worked 

through some hard times during the hearing of H.R. 6, and for the 

first time in 10 years, we did get a bill to the President’s desk, and 

he signed it. 

After the hurricanes, Congress responded, again, with the GAS 

Act, which built on the first bill and focused more on increasing our 

supply of refined oil. Now, we are faced with the winter heating 

season, that is forecasted to cost people an average of, I think, the 

testimony is going to show 40 percent more than last year, and if 

the weather is colder than expected, the number could reach 70 

percent for those that heat their homes with natural gas. 

It has been said by many of us, and we have made speeches and 

written articles, the papers have reviewed it, how unfortunate it is 

that such a tragedy as Katrina had to happen, but actually, it 

served us the purpose of opening our eyes to the country’s energy 

vulnerability, and pushed the discussion of our current energy infrastructure and future energy needs to the forefront, where it 

needs to be. We can no longer put off to tomorrow what needs to 

be addressed today, or actually, should be addressed yesterday. 

We are holding this hearing to discuss EIA’s short-term energy 

outlook and winter fuels outlook, which tells us that it is going to 

cost more to heat our homes this winter, and that prices for petroleum products and natural gas will remain high, and that the price 

for crude oil is going to remain high. So, I hope as a result of this 

hearing we can all get a good understanding of what to expect this 

winter, what our constituents can expect as well. I hope that all of 

my colleagues will then join me in trying to find a way to ease the 

burden on them, because I for one feel that they have had enough 

of the high energy costs, and deserve a break. I want my constituents to be able to spend their disposable incomes however they 

want, not on having gas for their cars and heat for their homes. 

Mr. HALL. With that, I yield back the balance of my time, and 

I recognize Mr. Allen for the time he chooses to take under the 

rules, and I thank you for your opening statement. 

Mr. ALLEN. Thank you, Mr. Chairman, and thank you, Mr. Caruso, for being here today. 

The numbers that you are presenting to us are shocking. Gas 

prices continue to be at near record highs, and you estimate that 

the average price of gasoline nationwide will be $2.68 per gallon, 

and will not drop significantly in the near future. EIA also estimates natural gas costs to increase, on average, by 48 percent nationwide, with areas in the Midwest to increase nearly 61 percent. 

New England, where I am front, doesn’t fare any better. Home 

heating oil costs are expected to rise more than 32 percent nationwide, and prices in the Northeast are expected to average more 

than $2.55 per gallon. My constituents are very, very worried about 

that price. I will come back to that in a moment. 

Now, what was not in your report, but was reported yesterday 

by the Bureau of Labor Statistics, is that the Producer Price Index 

increased by 1.9 percent in September, mostly because of soaring 

energy prices. It was the single largest jump in 15 years. Last 

3

week, BLS reported that consumer prices rose 1.2 percent last 

month, and 4.7 percent in the 12 months that ended in September. 

That was the largest monthly advance since March of 1980, and 

the steepest annual rise since May 1991. Clearly, energy prices are 

affecting our economic competitiveness. 

How do we get here? What has this committee and this Congress 

been doing? I do have a different view than my friend, Chairman 

Hall. We passed an energy bill this summer that would do nothing 

to help consumers cope with higher energy prices. In fact, your 

agency, Mr. Caruso, estimated that legislation similar to the Energy Policy Act would actually increase gasoline prices. In the last 

month, this committee rushed to the floor a bill, the GAS Act, that 

would also do next to nothing to help consumers. Like the Energy 

Policy Act, it provided huge subsidies to already incredibly profitable industries. It also gutted environmental laws for no apparent 

reason, other than that the oil industry wanted it done. 

We have done next to nothing for development of renewable fuel 

technology, at least on the scale that this crisis calls for. We have 

stubbornly refused to consider raising fuel economy standards, and 

we have balked at even the most modest conservation measures, 

such as labeling and rating replacement tires for efficiency. And 

now, we have a report from EIA which should surprise nobody. 

Fuel is going to be very expensive this winter. Small businesses 

will suffer. Consumers will suffer. The poor and the elderly will 

suffer. 

This is just one example. The average LIHEAP benefit in Maine 

is about $440, if the program’s funding levels remain constant. The 

average oil tank in Maine is 200 to 250 gallons. You estimate the 

price of oil to be at $2.55 per gallon. That means the LIHEAP benefit won’t even buy one tank of oil for my constituents who qualify. 

During an average Maine winter, most households use four tanks, 

and many use considerably more than that. So, increasing the 

amount of money that is appropriated for LIHEAP is one shortterm fix that Congress must consider. Another is, through the Tax 

Code, to find some way to help small businesses. I have introduced 

legislation, H.R. 3944, the Small Business Fuel Cost Relief Act, to 

give small businesses a tax credit for fuel costs above the Labor 

Day 2004 price. Now, I know that tax legislation is not under the 

jurisdiction of this committee, but the committee’s bill, the Energy 

Policy Act, contained robust tax credits for the oil, gas, and nuclear 

industries. I believe, simply, small businesses and family farmers 

and fishermen deserve the same attention. 

Mr. Chairman, we need to find innovative solutions to the immediate energy crisis while developing a long-term energy plan to 

wean us away from foreign oil, to promote cleaner alternative energy sources, and reduce costs to consumers and control pollution 

in the air. If we do not act soon, our economic competitiveness and 

our children’s future will suffer. 

Mr. Caruso, thank you again for being here. Mr. Chairman, I 

yield back. 

Mr. HALL. I thank the gentleman. I would like for the record to 

reflect that you used the word next to nothing several times, and 

that it is the opinion of the chair that next to nothing is better 

4

than nothing, and that is what we have had, and that it is what 

this hearing is about. 

The chair recognizes the chairman, Mr. Barton. 

Chairman BARTON. Thank you. 

Mr. HALL. For whatever time he takes. 

Chairman BARTON. And I will yield to Mr. Allen time to answer 

me whenever he wants to. 

Mr. ALLEN. Thank you, Mr. Chairman. 

Chairman BARTON. I, too, want to thank Mr. Caruso for being 

here. I wish that this hearing room was full. You know, it is odd 

to me that we are going to face some of the highest energy prices 

we have ever faced as a nation this winter, especially in the Midwest and the Northeast, and as those Congressman and Congresswomen go to their districts, they are going to be besieged by constituents, rightly so, asking what we are doing or not doing about 

it, yet one of the most important hearings we are going to do in 

the next two months. As far as I know, there is no television coverage of this, and there is no great media coverage. This is very 

important, what we are going to talk about. I have reviewed the 

EIA outlook, and I have taken a glance at your testimony, and I 

am sure that you are going to tell us that winter fuel prices are 

going to be higher this year because of supply constraints. And that 

is a true statement. 

Two weeks ago, we passed on the House floor the GAS Act, 

which is intended, and I think would increase the supply of gasoline. It passed 210 to 212. Not one Democrat voted for it. Not one. 

It is a disappointment to me. That act would give the Federal Government the authority for the first time to investigate price 

gouging. That act, for the first time, would make it easier for governors of states that were willing to build new refineries to get an 

expedited permitting process without changing one environmental 

law that is currently on the books. And that is only if that governor 

and the constituents of his or her state were willing. If they don’t 

want to do it, they don’t have to ask for the expedited procedure. 

Would reduce the number of boutique fuels, make it easier and 

more fungible for fuel gasoline to go around the country. Most people think that is a good idea, not a bad idea. Yet we didn’t get any 

of our friends on the minority side to vote for that bill. 

Today’s hearing, we are going to look at winter fuels like natural 

gas and home heating oil. It is expected that households that heat 

with those fuels are going to pay about $350 more a year this winter for fuel, depending on the fuel source that they are using. That 

is a real price increase, approximately $100 a month, that is real 

money. They are going to hit real Americans. These price increases 

carry a message. We need less politics and we need more energy 

policy, which results in more fuel. Today, and this winter’s high energy prices are driven by the need for supply. Do we really want 

to tell the American people that the way to solve the energy problem is to freeze to death by lowering your thermostat? I don’t think 

so. 

And it is with great concern that I review the list of energy 

projects, and these are real projects, folks. These aren’t make believe. These are real projects that have been delayed, killed, postponed, in the very areas of the country where the prices for winter 

5

fuels are expected to be the highest. And let us go through some 

examples. In the West, 62 percent of all the households rely on natural gas. California, the largest state by population in the Union, 

is the second largest natural gas consuming state in the country. 

There are at least two liquefied natural gas projects that would 

have brought significant LNG supply to California, but they have 

been delayed. One is in Long Beach. It is delayed by the California 

Public Utilities Commission. The other is at Cabrillo Port, and 

again, it has been held up by the state of California regulatory hurdles. In the Northeast, where the winters are somewhat colder 

than they are in California, 51 percent of the households rely on 

natural gas. That is over half. Again, projects that would have provided more natural gas to heat Northeastern homes have been 

stopped cold. To name a few, the Islander East Gas Transmission 

Pipeline Project, from southern Connecticut across Long Island 

Sound to western Long Island, and to New York City. Initially, 

Connecticut denied the CZMA approval. After the project sponsors 

overcame that hurdle, Connecticut denied the project its Clean 

Water Act permit, and that dispute is dragging through the state 

court. The Broadwater Energy Offshore LNG Terminal Project, located nine miles north of Long Island in New York state waters, 

both New York and Connecticut Congressional delegations have 

come out in opposition to this project. These projects don’t help 

Texas. They don’t help Oklahoma. They help New York. They help 

Connecticut. They help New England. And yet, their own areas are 

opposing them. The Weaver’s Cove LNG project in Fall River, Massachusetts. This project showcases the lengths opponents will go to 

stop a project. After the Federal FERC approved the application, 

the opponents slipped a provision in the highway bill to prevent the 

demolition of the Brightman Street Bridge in order to block LNG 

tankers from using the river to get to the project. 

Now, we know who is going to complain about high gas prices 

this winter. And they should. I am not saying we should support 

higher natural gas prices. The real conspirators seem to be the 

very people we are trying to help, the people of New England and 

places like Fall River, Massachusetts. I give a direct quote from the 

mayor of Fall River, Massachusetts. I have never met the person. 

I am going to state that he or she is probably a very decent human 

being, so I have got absolutely no animosity towards this individual. But here is what the mayor of Fall River said about a 

project to bring more fuel to that, to his or her own town: ‘‘I will 

make it bleed with a thousand paper cuts until its investors lose 

interest and go away.’’ 

Increasingly, energy policy of some states and localities in the 

Northeast seems to be let us freeze in the dark. For the most part, 

Northeastern homes that don’t use natural gas use home heating 

oil instead. In the Northeast, 30 percent of the households use 

heating oil as their primary heating fuel. However, 50 percent of 

the Northeast distillate consumption, which is where home heating 

oil comes from, must be brought in from other areas or overseas. 

When Northeast constituents raise concerns about the prices, and 

again, rightfully so, that they will be forced to pay for home heating oil, the need for increased domestic refining capacity should be 

clear. 

6

And yet, even as we face dramatic price increases at the beginning of what is likely to be a cold winter, no refinery seems likely 

to ever be built in the Northeast, ever. Why is that? In my Congressional district of Texas, it will produce, this year, over a trillion 

cubic feet of natural gas. My district doesn’t use a trillion cubic feet 

of natural gas. I have natural gas drilling rigs within 10 miles of 

my backyard, about a half a dozen of them, and I wish I had a 

dozen. My Congressional district, at one time, was the eighth largest oil producing country in the world, if it were a country instead 

of a Congressional district. My district is going to do its part on the 

supply side. And a lot of the natural gas, and a lot of the oil that 

we still produce is going to go all over this great Nation, as it 

should, so it really, really upsets me when I look around the country, and we see these high prices, and we have a clamor to do 

something about it, but when we try to do something about it, the 

very people we are trying to help say no. 

So, Mr. Chairman, I am looking forward to this hearing. I hope 

we can put on the record the facts about what the price situation 

is going to be, and the supply situation is going to be, and then I 

hope we can work together on a bipartisan, bicameral basis to really try to do something about it. I don’t want to do this kind of a 

hearing every year. 

Thank you, Mr. Chairman. 

Mr. HALL. Thank the chairman. The chair recognizes Ms. Solis 

for three minutes. 

Ms. SOLIS. Thank you, Mr. Chairman, for holding this important 

hearing this morning, and I want to thank Mr. Caruso for also 

being here and appearing before us to testify on the Energy Information Agency’s winter fuel report. 

And I have to tell you, just briefly reading, I concur with much 

of what your statement, that you will be presenting to us, in terms 

of rising costs. And I, too, am very concerned, because I realize that 

in the state that I represent, California, one of the most populous 

in the country, the gasoline prices have been way, way high, for the 

last, almost I would say year. So, we have seen prices of gasoline, 

in my district alone, $3 and above for I would say a steady six 

month, at least. And we know that folks out there are looking for 

relief, and the last two energy bills that came through this committee, in my opinion, have not provided any sort of immediate relief. California also has some very high standards, in terms of environmental regulations that protect our environment, and those 

have been put in place many years before I got here to Congress, 

and I can see that there is a slow erosion that is occurring here 

in terms of support for those regulations. 

When our own attorney generals are stripped of the ability to 

protect our communities and our local governments, who are helping to enforce protections. It is not to say stop all these processes 

and projects that need to be developed, but I think communities of 

interest have to have a say-so in where these projects are placed. 

And as the chairman of our committee stated, Long Beach, California, yes, there is a proposed plan to put a liquefied natural gas 

facility there, but the community residents in the area do not want 

it. They still do not believe that that is the most efficient way of 

providing support in that local area, and their input has been very 

7

loud and clear to many of the elected officeholders there in that region. 

So, I for one am for having a discussion, but let us be very clear 

about who that discussion includes. In many cases, those witnesses 

that are opposing those kinds of efforts are not allowed to come and 

testify before this committee. So, I think that we have to call it for 

what it is. And I am very concerned that, again, this last energy 

bill did not do enough to provide relief to consumers, working families, that right now, as a last resort, are still trying to pay their 

bills from last year, their winter bills. In California, we are having 

very unseasonable weather. Right now, I mean, we are having 

some tremendous rainstorms and flooding that is occurring. We 

have had some brownouts in Los Angeles with the DWP there, and 

so we know we have to do something, and we are not about saying 

no. We are saying about let us have a discussion that is inclusive, 

and that includes all of the diversity of our communities. 

So, I want to thank you, Mr. Caruso, for being here, and I do intend to be a part of the discussion, so that my community has representation at the table. Thank you very much. 

Mr. HALL. Thank you very much. The chair recognizes Dr. Norwood, the gentleman from Georgia, for three minutes. 

Mr. NORWOOD. Thank you very much, Mr. Chairman, and I want 

to say to my friend, Mr. Allen, I think that the chairman laid it 

out pretty clear. I would like to just add a little bit to it, maybe 

be a little more blunt. 

You have made a case that you have considerable concerns for 

your constituents this winter, and we are all in sympathy with 

that, but you know, we had an energy bill three or four years ago. 

It got stopped by the Democrats in the Senate. You voted against 

the LIHEAP provision, where the Southern states were trying to 

have just a little share of that LIHEAP money, because more people are killed from heat than cold. You voted against the energy 

bill. You voted against the GAS bill. 

Now, I want to tell you, Mr. Allen, with all respect, it makes me 

a lot less concerned about your concerns when you do things like 

that. I yield back. 

Mr. HALL. The gentleman yields back. The chair recognizes Mr. 

Green, the gentleman from Texas. 

Mr. GREEN. Thank you, Mr. Chairman. I ask unanimous consent 

for my full statement to be placed into the record. 

Mr. HALL. Without objection. 

Mr. GREEN. I want to welcome Mr. Caruso, and having read your 

statement, I think, you know, those of us who lived through the energy bill and the GAS bill two weeks ago understand that that was 

happening. Let me follow up on what my colleague from Georgia 

said. Our committee had a chance to reform LIHEAP during the 

energy bill, and we voted down an amendment that would have 

made it based on need, for people who need energy assistance. I 

find it amazing, the last two weeks, I see the New York Times, the 

Boston Globe, Chicago Trib, the New Jersey Leader, they have 

headlines talking about how high fuel heating costs and natural 

gas costs. 

Well, in my home state of Texas, from May to September, and 

we have 90 degree temperatures this week, we could get no symVerDate 0ct 09 2002 16:11 Jun 16, 2006 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 F:\DOCS\26999.TXT HCOM1 PsN: JOEP
8

pathy from the folks because of the formulas weighted for the 

Northern states. And so, I follow up on my colleague from Georgia, 

that you know, I guess it is location, location, location, that those 

newspapers are only in the North, but we were trying to reform 

LIHEAP to make it fair, based on need. We could not get the votes 

in this committee. We did get a study on the energy bill, but again, 

I have more people die and suffer from heatstroke and heat-related 

than they do from cold, and this Congress, because of something 

that happened years and years ago, will not change it. 

The LIHEAP formula is ancient, and now, I hear that my colleagues from the North are asking for additional emergency funding. Well, we tried to get additional funding in the authorization 

for LIHEAP, simply because that would then put us on par with 

the certain level, but if emergency funding is approved, that doesn’t 

benefit those of us, the half of the country that lived south and 

have heat problems. So again, I know we need to do better on conservation, but I couldn’t tell my constituents this summer that I 

am sorry you are paying high gas prices because you want to cool 

your home, or you want to turn on your attic fan, but you better 

check the air in your tires to make sure you are efficient. I don’t 

think that is the way to work, and I think this Congress needs to 

look at exploring for more domestic sources for natural gas. And it 

is interesting. It is not Congress that is keeping some of that off 

the table. It is a Presidential moratorium in the eastern Gulf of 

Mexico, in Section 181, that we might have more natural gas that 

would lower the prices, because you bring in more supply, but we 

are not doing it. So, there is blame enough going around both for 

Congress and the President that we need to have more domestic 

production of natural gas. So, maybe we can lower the heating 

costs in the Northeast. At the same time, maybe lower our cooling 

costs in the South from May to September. 

And again, I yield back my time. 

Mr. HALL. I thank the gentleman. The chair recognizes Mr. 

Shimkus, the gentleman from Illinois, for three minutes. 

Mr. SHIMKUS. Thank you, Mr. Chairman, and Mr. Caruso, welcome. And you can hear the frustration. We are going to hear sobering numbers from you, and we are struggling, obviously, with 

this. I believe an ideology, and I believe how you view government, 

and my frustration is those who would try to control the free market, to prohibit it from providing the goods and services at the 

lower cost, then claim and cry for government subsidies to either 

the individual consumer, who now is hurt because of high costs, or 

the individual small businesses. 

It is really counterintuitive, unless you get a competitive market, 

and that is what an energy bill does. Part of our natural gas problems is because we had no energy plan. We have shifted electricity 

to natural gas. I mean, what a terrible use of natural gas. We could 

no longer put it in caverns and save it over the summer. We are 

using it to generate electricity. So, as the demand goes up, the importance of the energy bill, these are all interwoven. The problem 

with natural gas is also a problem with our electricity generation 

issues, and that is why it is important to diversify. 

So, you are getting all of the frustrations of our public, as we are 

trying to shift out how to do this. The natural gas is of a major 

9

concern for much of the home heating and also manufacturing. 

When Russia is paying $0.95 per million BTUs, and we are paying 

$14 for BTUs, we are competitively disadvantaged. You want to 

talk about the damaging to the manufacturing, base, that is the 

damage to the manufacturing base. China is paying $4.85 per million BTUs, $10 less than we are for natural gas. 

Now, here is a map of the United States. We are the only developed nation in the world without access to our outer continental 

shelf. All the OCS on the West, all the OCS on the East. As Mr. 

Green said, all the eastern Gulf, off-limits. Look at my friend John 

Shadegg’s area. Off-limits. I think the public, if they would understand that here we are complaining about subsidizing people because they can’t afford heating, and we can’t allow people to have 

access to these natural gas reserves. It is criminal negligence, and 

it has to stop, and that is why it is important. 

We need to hear these sobering numbers, because we are going 

to hear it from our constituents. And what I am going to say is, 

we do not have access to our OCS reserves. We do not have access 

to our facilities, and we are continuing to work on this issue. 

Thank you for being here, and I look forward to asking a few questions with respect to that. And I yield back, Mr. Chairman. 

Mr. HALL. I Thank the gentleman. The chair now recognizes Mr. 

Ross, the gentleman from Arkansas, one of my favorite BRAC 

fighters, for three minutes. Mr. Ross. 

Mr. ROSS. Thank you, Mr. Chairman, members of the committee, 

for holding this hearing in an effort to address natural gas and 

home heating oil prices that are, and have been, and will continue 

to adversely impact Americans, especially as we enter into the fall 

and winter seasons. 

Our country was experiencing record fuel costs before the hurricane season, and in their aftermath, our Nation’s domestic energy 

production and distribution infrastructure encountered significant 

damages, causing fuel prices to increase even more. I am hopeful 

the efforts to reestablish energy operations in the Gulf of Mexico 

will move swiftly, as both demand and price continue to increase. 

I am extremely concerned that energy and winter fuel prices will 

be unbearable for many Americans during the 2005-2006 heating 

season. In fact, in Arkansas’ Fourth Congressional District, the average household income is about $29,000 a year. One of the 29 

counties I represent has an average household income below $9,000 

a year, one of the poorest counties in America. The people I represent cannot afford $3 gasoline, and they certainly cannot afford 

$12 or $15 per thousand cubic feet for natural gas. Natural gas is 

the primary heating fuel for most of the households in my district, 

and 55 percent of them in America. This means families who heat 

their homes with natural gas are expected to spend about $350 

more, which is about a 48 percent increase this winter on their gas 

bills, 48 percent increase on their gas bill, and yet, the minimum 

wage in this country has not been raised in a very long time, and 

has the buying power that it had back in 1980. And for those of 

you that want to believe that minimum wage is something paid to 

high school and college students, I have got constituents, I have got 

working families in my district trying to get by on $5.15 an hour. 

10

This significant price increase will cause considerable negative 

impact on all Americans, especially the working poor, the elderly, 

the disabled, and also, industries that rely on natural gas. My Congressional district in Arkansas ranks fourth among all Congressional districts in America in poultry production. Poultry producers 

depend on natural gas to heat poultry houses during the winter 

months, and these outrageous natural gas prices will make it impossible for many of our farm families. The electric power sector’s 

reliance on costly natural gas to produce electricity will translate 

into increased electric costs, and nearly 30 percent of all households in this Nation rely on electricity as their primary heating 

fuel. 

I am hopeful this committee will continue to increase funding authorizations for programs such as LIHEAP, Low Income Home Energy Assistance Program, and rethink and address the discrepancies and the funding formula that surrounds LIHEAP, a program 

that truly helps those families in need. These are serious issues 

that will seriously impact the citizens of our Nation, and I hope my 

colleagues on both sides of the aisle will join me in researching all 

options, and taking the necessary actions to provide relief to our 

constituents in the coming months. 

Mr. Chairman, thank you for allowing me to use up all of my 

time, plus 35 seconds of somebody else’s. 

Mr. HALL. I thank the gentleman. The chair now recognizes Mr. 

Murphy from Pennsylvania, three minutes. 

Mr. MURPHY. And thank you, Mr. Chairman. 

I just want to follow up on a couple elements here that we know 

are part of this, as we look at and lament the high cost of natural 

gas. I hope that our discussion just doesn’t go in terms of there is 

a high cost, and we need to look at other ways of subsidizing this. 

We have made several efforts in this committee, which as the 

chairman pointed out, ended up being not bipartisan, and that is 

tragic, because we could have benefited greatly from bipartisan 

input and influence on this. In the coming weeks, I hope we can 

deal with some of the aspects that are driving up natural gas costs. 

These include the issue of our energy plants, which could be 

using clean coal technology, which we included in the energy bill, 

continue to move more towards natural gas use. That increases demand and increases price. If we are able to sincerely look at new 

source review, and how that punishes plants who are wanting to 

combine maintenance with some cleaning up, and instead, telling 

them that they have to do everything, and so, the plants choose to 

do nothing. We would be able to use our abundant coal energy instead of continuing to deplete our natural gas resources. We also 

note that that would increase jobs. That would increase jobs for 

boilermakers and teamsters and carpenters and laborers and sheet 

metal workers, and all the folks who could be rebuilding our infrastructure of our energy power plants, which are so inefficiently continuing to use a system now. 

If we are going to use this, and really look at this carefully, 

about natural gas costs, we also have to look at the costs on jobs. 

We are losing our petrochemical industry. We have lost 90,000 jobs 

in the chemical industry alone. It drives up fertilizer costs. That affects our agricultural costs, our farmers, and ultimately, the meals 

11

that we put on our tables. These are the kind of things we all need 

to put in perspective, and working together on comprehensive energy bills means doing all the parts for this. This also means that 

when we are looking at such things as the GAS bill we passed a 

week ago without any votes from the other side of the aisle, it is 

unfortunate that the only option offered was to have the Federal 

Government design, construct, and mothball until we need it, oil 

refineries. That is not the way we have a comprehensive energy 

policy, and we are much better off all coming together and say how 

do we have further exploration, diversification, and conservation of 

our resources together. That has to be part of the package. 

And so, I hope that what comes out of this hearing is not just 

more political talk, but real policy that allows us to come up with 

some plans for the American people, who are going to be paying a 

lot more, and it will be sad if all we can tell them is that more bills 

were blocked, more progress was stopped, we are still not using 

coal, we are not using nuclear, instead using more and more natural gas in less effective ways. And that is what we need to be 

working on, Mr. Chairman, and that is what I hope comes out of 

this with some sound legislation as well. 

I yield back. 

Mr. HALL. The gentleman yields back. The chair now recognizes 

the gentleman from Massachusetts, Mr. Markey. 

Mr. MARKEY. Thank you, Mr. Chairman, very much. 

Last Thursday, for the first time since its creation, the Northeast 

experienced sustained levels of home heating oil prices high enough 

to trigger the exercise of your discretion to protect heating oil consumers by releasing product from the Northeast Home Heating Oil 

Reserve. 

This is, without question, an opportunity for us to begin to discuss when the Bush Administration is, in fact, going to exercise 

that authority. The report right now, from the Department of Energy, is that home heating oil prices are likely to rise 31.5 percent 

this winter, for the average consumer. That will be an increase of 

$378 per consumer across the whole Northeast for this winter, and 

that is if it is a normal winter. If it is an above normal winter, it 

would be $774 per family for this coming winter. 

So, what we are seeing is a dramatic spike. It is occurring on a 

sustained basis, and we need a plan. The plan that we have heard 

thus far from the Republican side is that we will build new refineries in the years ahead. Unfortunately, we have already heard 

from the President of Shell Oil, who says that his company has no 

plans of building new refineries, even if the bill became law, and 

we also have a word from the Senate that they don’t intend on 

passing legislation to that effect. 

So, what are we left with? Well, we are left with the existing 

Home Heating Oil Reserve in the Northeast. Now, I must point out 

that the chairman of this committee, Mr. Barton, was good enough 

when he was chairman of the Energy Subcommittee, to make that 

possible, and it sits there, its existence, largely because of his support for it, in partnership with me. The question now is, when will 

the Administration use it? Because that, ultimately, is the only 

time and place in which the facility will make any sense. 

12

Conversely, the Bush Administration, the Republicans in general, are opposing increases in the funding for LIHEAP, the program which is used in order to help people with higher home heating oil bills. So, if we release the Home Heating Oil Reserve, prices 

will go down. If we don’t release it, then prices go up, and we need 

more LIHEAP money for the people who will suffer from these 

higher prices. But we can’t have a black hole here, where neither 

one of those avenues is, in fact, used. And that is where we are 

right now, and that is why I believe that this hearing is so important, and I yield back the balance of my time. 

Mr. HALL. I thank the gentleman. The chair recognizes Mr. 

Otter, the gentleman from Idaho, for three minutes. 

Mr. OTTER. Thank you, Mr. Chairman. 

Mr. Chairman, some wise man once said that insanity is doing 

the same thing over and over again, and expecting different results. And as I have served on this Energy Committee, I am reminded of that often, that one side of the aisle says no, let us let 

the marketplace work. Let us incentivize the system to build new 

plants and drill new holes and lay new pipelines, and create more, 

rather than get the government in the business, as the other side 

of the aisle continues to suggest. No, let us get the government in 

the business of passing out and distributing the scarcity, and that 

is basically where we find ourselves today. 

As I look back over the energy history of this committee and of 

this Congress, I find very little effort on the side of those who wish 

the government to be in the business of distribution and drilling 

and separation, and then, of course, passing out favors, and passing out heating oil, in order to keep the folks happy. I see they actually have created an environment in which the big boys can exist, 

the big boys they now decry as making way too much profit, and 

actually taking advantage of the market. Yet, it has been their 

handiwork at regulations, whether it is the EPA or the ESA or the 

lack of an energy bill that has, quite frankly, created an environment for the big boys to exist, and the little folks to pass out of 

existence. They are thereby restricting competition. 

I was in the oil business in the early ’80s. I had a company called 

Kyn-Ten Drilling Company, and we drilled over 500 oil wells in 

Kentucky, Tennessee, and Ohio. And when I was running that little company, I was pretty excited when we went into the business, 

because oil was about $30 a barrel, and all I needed to turn out 

was about four or five barrels a day, in order to actually amortize 

the system, and amortize my costs of getting into the business. 

But then, I found out I couldn’t sell the oil, and I found out one 

of the reasons I couldn’t sell the oil is because there wasn’t a distribution, there wasn’t a way, there wasn’t a pipeline. There wasn’t 

a way to get it there, and so we said, well, that is easy, let us build 

a pipeline. And then, we ran into the restrictions of having to go 

across government land, and nobody wanted to build a pipeline 

across government land. And nobody wanted to build a grid system 

across government land. 

And so, I find it just a little ironic, in fact, economic, perhaps, 

economic ignorance, for those who would spend $700 million a year, 

a year, on the West Coast, for environmental purposes, and $2 billion, and then ask for another $2 billion a year for LIHEAP. I find 

13

it a little disingenuous, in fact, because they, in fact, have created 

the environment in which we have restricted supply. It put me out 

of business. It put all the little companies out of business. There 

is no question why there is only four left, and that is because of 

the handiwork of restriction and government regulation has put 

these folks out of business, and caused that restriction. 

And so, I am interested in hearing what we are going to do to 

create more supply, not more government, and I invite you to 

speak to those when you get the opportunity, Mr. Caruso. Thank 

you. 

Mr. HALL. I thank the gentleman. The chair now recognizes Mr. 

Wynn. 

Mr. WYNN. Thank you, Mr. Chairman, for calling this hearing. 

It is indeed an important issue. 

The outlook is not good for our citizens. Sixty million households 

that use natural gas in the United States could see their home 

heating bills increase by an average of 50 percent. This translates 

to an increase of about $350 more than last winter’s costs. In my 

district in Maryland, 60 percent of my residents use natural gas for 

their homes. This means that from about $750 last year, they could 

see an increase to about $1,100 this year, almost 100 percent increase. 

In terms of home heating oil, we have 8.5 million homes that use 

home heating oil across the country. Residents can expect an increase in their heating bills of about 32 percent, which translates 

into an increase of $378 more in home heating expenses this winter. For the almost 7 percent of my district residents that use home 

heating oil, including myself, this means that last year’s average 

expenditure of about $1,200 could be as high as $1,600 this year. 

The point that I would like to bring home in the context of this 

hearing is that while we need to do a lot of things in terms of alternative energy development, increasing supply, people are going to 

be cold this winter. We need to prepare to do something for this 

winter. Increasing home energy costs will disproportionately impact 

low income and elderly citizens. All of a sudden, we in America 

have discovered the poor. Well, they are going to be not only poor. 

They are going to be cold, unless we do something. 

Consider the following. Low income households spend a whopping 14 percent of their annual income on energy expenditures, 

while non low income households only spend about 3.5 percent. 

That is the face of poverty in America. In fact, two thirds of the 

families that utilize LIHEAP for assistance have annual incomes of 

about $8,000. This makes low income Americans have to choose between heating their homes and putting food on the table. Thus, I 

think it is essential, since our task is to create a better quality of 

life in America, that the Administration fully fund the Low Income 

Home Energy Assistance Program, LIHEAP, and to authorize $5.1 

billion a year level, and that we consider appropriate increases to 

correspond to the increase in energy costs that we are experiencing. 

There are a lot of perspectives on this issue, and I am not going 

to belabor the point further, except to say that there are a lot of 

people who are poor who are going to see significant increases in 

their energy costs, and it is our responsibility to do something to 

help them. We cannot just stand by and watch, as they shiver in 

14

their homes, and take comfort that we are not in their unfortunate 

circumstances. I hope this hearing will lead to concrete action on 

the part of Congress to both preserve the existing levels, and hopefully to expand to new levels the LIHEAP program. 

Thank you. 

Mr. HALL. Thank Mr. Wynn. The chair at this time recognizes 

Mr. Shadegg from Arizona for three minutes. 

Mr. SHADEGG. Thank you, Mr. Chairman, and thank you for 

holding this hearing. I want to associate myself with the comments 

of both Mr. Murphy and my colleague, Mr. Otter. Mr. Murphy is 

correct. We cannot continue to rely solely on oil and other fuels of 

that character to go into the future. We need a diversified portfolio, 

but my colleague Mr. Otter is also right. It is the height of hypocrisy for a Member of Congress, particularly one who has been here 

for years, to sit in this room and complain about the high cost of 

fuel. It is, indeed, the exact parallel to the child that murders both 

parents and then complains of being an orphan. 

Year after year, decade after decade, this Congress has imposed 

higher burdens on the construction, exploration, development, and 

refining of fuel. My colleague Mr. Shimkus just held up this map. 

All of the East Coast is off-limits. You can’t go get the oil there. 

You can’t go get the gas there, not because it is not there, but because the government, the people in this room, the people in this 

Congress who have been here for decades, voted to put it off-limits. 

All of the oil and gas on the West Coast is off-limits. All of the oil 

and gas under all of the Federal land in the western part of the 

United States where I live is off-limits. So, we put all this oil and 

all of this gas totally off-limits, and then we are shocked, stunned, 

mystified, and outraged that prices are higher. Well, you know, it 

seems to me some Members of Congress ought to go back and take 

Economics 101. We tried to pass a bill last week. Thankfully, we 

did pass it by a bare two votes, that simply eases the siting and 

permitting restrictions, by letting the President designate areas 

where you could build a refinery, including closed military bases, 

to get around the NIMBY syndrome. Many Members of Congress 

voted against that. Indeed, every single one of my colleagues on the 

other side. You talk about the cost of $3 a gallon gasoline, and how 

expensive it is. In part, it is that expensive because we have 17 different boutique fuels. That bill tried to solve the problem by saying 

no, we don’t need the 17 to have clean air. We can indeed get by 

with six. Nonetheless, people voted against that. Well, where has 

that brought us? 

Natural gas, the subject of this hearing, is $13 per million BTUs 

in the United States. In China, it is less than $5, and in Australia, 

it is less than $4. We have a problem, ladies and gentlemen, that 

is bigger than home heating bills. You bet. We need, as my colleague from Maryland just said, to help the people who will be cold 

this summer who can’t afford to pay their bills. But by God, we better look beyond that. We better look at the long-term problem. We 

better take a rational look at the restrictions we have put on this 

map to say you can’t explore anywhere in the United States. You 

can’t buy or build anywhere in the United States. My colleague 

from Massachusetts says well, Shell says they are not going to 

build a refinery even though we passed a bill letting them build a 

15

refinery under easier restrictions. Guess what? Shell doesn’t want 

more refineries, because Shell is getting rich off of the shortage of 

refineries. But thank God, in a free market economy, other investors will figure that out, and small investors will put together capital to build that refinery. How do I know that? Because it is happening in Yuma, Arizona, in my state, right now. Small investors 

are putting together the capital to build the first refinery in this 

country since Elvis was impersonating Elvis. So, we need to look 

at supply in this country. We need to look at a rational balance in 

this country, and we need to move forward with this hearing, and 

I commend you, Mr. Chairman, for holding it. 

Mr. HALL. I thank the gentleman. The chair recognizes the good 

doctor from Texas, Dr. Burgess, for three minutes. 

Mr. BURGESS. Thank you, Mr. Chairman. I appreciate, also, you 

holding this hearing. 

I was just going to submit my statement for the record, but that 

map that Mr. Shimkus brought, if you look at that map, about the 

only place left to drill for natural gas in the United States is my 

district in North Texas, so Cooke, Denton, and Terry counties are 

enjoying a boom, and we thank the restrictions on the other parts 

of the country, but maybe it is time to relax those somewhat. And 

I will yield back. 

Mr. HALL. I thank you, and Mr. Ross and I are going to try to 

have your refinery over at Texarkana, to bring you something. The 

chair now recognizes Mr. Walden, the gentleman from Oregon. 

Mr. WALDEN. Thank you very much, Mr. Chairman. 

I appreciate your holding this hearing, and look forward to reading the text of our witness. I had a meeting this morning with a 

gentleman who represents and works with some 2,500 wheat farmers out in northwest, especially the east part of Oregon and Washington, and let me just tell you what $14 natural gas is doing to 

farmers, who have to use nitrogen fertilizer. It is driving them out 

of business, and I sit here, as I have for a number of years, and 

I listen to all the information that comes out about the lack of supply, the lack of access to product, and I was a journalism major, 

not an economics major. But if you constrict supply, and you don’t 

go replace it, and demand continues either at pace or increases, 

price is going to go up. And you get a natural catastrophe like 

Katrina and Rita, and you get a new spike, and you see that in 

these charts that this gentleman gave me, that show just what has 

happened to the U.S. nitrogen producer costs of ammonia, the price 

per ton. The dark blue on here is the component of natural gas. 

And I listen to some of my colleagues time and again talk about 

well, we can’t drill there. We can’t import here. We don’t want to 

produce that kind of power. We don’t like windmills off the coast, 

because we can see them. But we all want to turn on the lights, 

and we want $1.50 gasoline, and we want natural gas back to $2. 

You can’t get there if you don’t go find it, produce it, and get it to 

where it is being consumed, the effect of which is we are having 

an incredibly corrosive effect on the economy, on the men and 

women whose pocketbooks we all care about, we all care about. 

Now, I was just suggesting to the chairman, I have tried to figure out why the Northeast has their own Home Heating Oil Reserve. We don’t have one in the Northwest, and it gets kind of 

16

chilly out there from time to time. I have supported your efforts on 

the Northeast Home—I have supported increasing funding for 

LIHEAP, and I understand those are patchworks. Those are the 

safety net. That is the safety net, when what we fail to do to provide adequate supply to meet market demand, causes a problem, 

along with perhaps a natural occurrence, or unnatural, like 

Katrina and Rita. And when you look at the price of natural gas 

around the world, and you understand we have failed to go get the 

natural gas we need here, even though we have enormous deposits, 

then don’t come and complain to me about jobs being outsourced 

and off-shored in plastics and fertilizers. Don’t come and complain 

to me about those sorts of trade issues, when one of the fundamental ingredients in our economy is energy, and we are not doing 

our part to go find it in an environmentally safe and sound way, 

and I fully believe we have those capabilities. We can do this, folks, 

if we quit throwing rocks at each other, come together as a committee and as a country, and say there are resources. We understand we got a real problem. We need to go tap them, and get them 

to the people, so that we don’t have to reach into these what should 

be one time emergency reserves. And now, we are looking at them 

as just a sort of everyday experience. That is not what we ought 

to be about. 

So, I hope we can move forward on some of these initiatives, and 

resolve this energy problem that we know is there, and we have 

the tools and the capability, the science, the research, to do it right. 

Thank you, Mr. Chairman. 

Mr. HALL. All right. I thank the gentleman. I believe that is all 

the opening statements we have, and I am sure, Mr. Caruso, that 

you have supplemented your degrees from Connecticut and Harvard. This last hour, you have patiently listened to all of us, and 

if one thing you have gleaned, it is probably that we all agree on 

one thing, that is, that we have a problem, and we are going to listen to you for your suggestions, and recognize you at this time for 

whatever time it takes. I hope it doesn’t take over about five minutes, but we will yield to you, and thank you very much for being 

here, and being so patient. 

STATEMENT OF GUY F. CARUSO, ADMINISTRATOR, ENERGY 

INFORMATION ADMINISTRATION 

Mr. CARUSO. Thank you very much, Chairman Hall, and Chairman Barton, members of the committee. I appreciate your invitation to present the Energy Information Administration’s winter 

fuels outlook. 

As you know, the EIA is the analytical and statistical arm of the 

Department of Energy, and we do not formulate or take policy positions. If we were holding this hearing on August 28, I would have 

been telling you that the world oil market is tight. Crude oil prices 

were high. Gasoline prices are high, as we find the reserve being 

heavily utilized, and natural gas prices were very high, due to a 

very warm summer, in particularly, those areas that require air 

conditioning. And on August 29, 54 days ago, Katrina, Hurricane 

Katrina made landfall, and since that time, we have had more than 

60 million barrels a day of our domestic oil production shut in, 

more than 300 billion cubic feet of natural gas shut in, and that 

17

is continuing. About 10 percent of our refinery capacity is still offline, due to both Katrina and Rita. 

[Chart.] 

So, this is the situation as we prepare our winter fuels outlook, 

and the first chart I want to call your attention to, which you have 

in your handout, shows the summary of the different costs to our 

consumers in the various regions of the country, and by fuel type. 

On average, the average U.S. household will pay about $260 more 

for heating oil this winter, but that varies considerably. Natural 

gas bills will be averaging about $350 more, a 48 percent increase. 

Heating oil, about $380 more, a 32 percent increase. Propane, $325, 

30 percent. Electricity gets off a bit better, with only $38, or a 5 

percent increase, and that is largely because 70 percent of our electricity in this country is generated by coal and nuclear. However, 

the expenditures for individual households, as a number of the 

members have pointed out, can vary significantly from those national averages, and even regional averages, based on the size and 

efficiency of the home, and their equipment that is using their 

fuels. 

[Chart.] 

The next chart shows the impact of the shut in production of 

crude oil on oil prices, and where we see that going over the coming 

months, and we do see the shut in capacity gradually coming back 

online, and we do anticipate that crude oil and natural gas production will be fully back online by the end of the winter. But nevertheless, there will be a continued shut in production of both oil and 

natural gas in the Gulf of Mexico, and the price of crude oil, in our 

view, will stay relatively high, at about $64 to $65 per barrel this 

winter. 

[Chart.] 

For the refineries that have been shut in, you see in the next 

chart, that they are coming back online. At one point, more than 

20 percent of our refinery capacity was offline. Now, it is about 10 

percent. And we see all of the refineries being fully back online by 

the end of the year. Nevertheless, gasoline prices, as has been mentioned, and diesel fuel, heating oil, and jet fuel prices remain very 

high, and particularly, middle distillates will stay high, because of 

the particular problems in producing, and the demand for those 

fuels. We see the prices coming down, but still remaining $2.55 for 

gasoline in December, and $2.73 for diesel. 

For natural gas, as was mentioned, we are now looking at about 

$14 for the spot price of natural gas on the New York Mercantile 

Exchange, and on the Henry Hub Spot Markets. This will come 

down, but slowly, because so much natural gas production is still 

shut in, and the processing facilities onshore remain offline and affect the processing of that natural gas. 

[Chart.] 

If there is an element of good news, the next chart shows where 

we are with respect to working gas in storage. Every year, our local 

distribution companies and gas companies—oh, sorry. The next 

chart, please. It does show that natural gas storage, as we approach the winter season, is approaching the 3 trillion cubic feet 

level, which industry considers about normal for going into the 

wintertime, so that we feel that even with a colder than normal 

18

winter, there will be sufficient gas in storage to meet this increased 

demand. Just for your information, during the peak months of January and February, about one third of our gas consumption comes 

out of this storage, so it is critically important that we go into the 

winter with high levels of natural gas storage, and indeed, one of 

the reasons gas prices, natural gas prices, have been under such 

pressure is that the local distribution companies have been bidding 

up the price in order to make sure there is enough gas in storage, 

in order to serve their customers. So, this is part of the picture. 

[Chart.] 

On the individual regions of the country, the next chart shows 

natural gas heating bills by region, and as some members have already mentioned, it does vary considerably, and indeed, for natural 

gas, the Midwest, which uses, about 75 percent of the homes use 

natural gas for heating, will experience about a 61 percent increase 

in expenditures. But other regions will also see from 32 percent up 

to that 61 percent increase. Electricity expenditures are going to be 

more, increases will be more modest, as shown in this next chart, 

although that also varies by region, with the South being the area 

where the largest percentage of households use electricity as their 

primary source of heating. 

[Chart.] 

Heating oil, in the next chart, is very much concentrated in the 

Northeast, as Mr. Allen and others have pointed out, with 30 percent of the homes there using heating oil for heating their homes, 

and we expect about a 30 percent increase in that price for the 

Northeast. Finally, the Chairman, the last fuel we examine in our 

winter fuels outlook is propane, and the expenditures there are 

going to be up, on average, about 30 percent, and that affects about 

4 percent of the homes in the United States. 

Mr. Chairman, once again, I would like to thank you for the confidence in letting me present the Energy Information Administration’s outlook for this winter, and I would be pleased to answer any 

questions that you may have. 

[The prepared statement of Guy F. Caruso follows:]

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26999.002
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26999.003
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26999.004
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26999.005
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Mr. HALL. Thank you, and I will start with the first question. 

Your outlook base case projects a colder winter, as I understood 

you, than last winter, and I think, as you know, there are other 

projections. A lot of other people are projecting, some even, for 

some reason, projecting a warmer winter. Well, that is something 

we can hope for and pray for, but what are your winter weather 

projections based on, and can you explain why others have been 

projecting a warmer winter, and why you differ with them? 

Mr. CARUSO. Thank you, Mr. Chairman. Our weather forecast is 

based on the latest outlook of the National Oceanic and Atmospheric Administration’s Climate Prediction Center, NOAA. They 

have released this in late September, and their indication, as we 

convert their temperature projections into heating degree days, into 

our model, indicates a slightly colder than normal winter, when 

weighted by population, which is what we do for our modeling exercise. But it will be several percentage points colder than last winter. So, both of those factors go into the numbers I have just presented with respect to consumption estimates by region. 

There are others who look at the same NOAA forecast, and come 

up with slightly different conclusions, but mainly, it is the methodology that we use to convert the temperature estimates into heating degree days, and weight that by population for our model. That 

gives you a slightly different, but nevertheless, we are looking at 

slightly colder than normal winter, but about 3 to 4 percent colder 

than last winter. 

Mr. HALL. And as you know, there are primarily three distillate 

fuels, diesel, home heating oil, and jet fuel. I guess my question is, 

what percentage of distillates are used for home heating, as opposed to transportation, if you have an estimate of that? 

Mr. CARUSO. Yes. We do. Approximately one million barrels a 

day of heating oil is used during the winter heating season, but I 

can give you a much more precise breakdown for the record, but 

of the total barrels, about 33 percent is middle distillate. Of that 

33 percent, jet fuel, which is part of that, is 7 percent, and then, 

the remainder is diesel fuel mainly used for transportation, and 

heating oil. That breaks down to 25 percent for those two fuels, and 

during the winter, it is about 50/50 between home heating and diesel fuel in trucks. But I will give you more precise figures for the 

record, sir. 

Mr. HALL. And if you will, for the record, just tell us to what extent will the increase in diesel consumption affect home heating oil 

supply. 

Mr. CARUSO. That is an excellent question. One of the problems 

in this country we face is not only the lack of total refining capacity, which has been mentioned by several members, but the conversion capacity of turning crude oil into specialty products, most notably gasoline, but in recent years, the demand for the middle distillates, diesel fuel, heating oil, and jet fuel, has been rising in this 

country, in Europe, and in Asia, all of which has put extremely 

heavy pressure on our refineries, on European refineries, and in 

Asian refineries to meet that demand. 

The middle distillate part of the barrel has actually increased 

more than gasoline, and as you can see from the chart I showed 

on the refinery outlook, distillate prices are now higher than gasoVerDate 0ct 09 2002 16:11 Jun 16, 2006 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 F:\DOCS\26999.TXT HCOM1 PsN: JOEP
25

line, which is rather unusual, and the reason is the competing uses 

for that middle part of the barrel are putting upward pressure on 

price. Therefore, we expect higher heating oil prices this winter, 

not only because of the increase in crude oil, but because the heating oil component of barrel competes with jet fuel and diesel fuel, 

and as you also are aware, the airline industry is suffering in this 

picture as well. 

Mr. HALL. Yes. And if you can, without answering it now, my 

time is about up, how interchangeable are these two products, and 

what are the typical, we talked about profit and profit margin. We 

have had a hearing on that and what caused the escalation at the 

gas pumps. What are the typical profit margin differences between 

diesel and home heating oil? If you can do that, I will appreciate 

it, and I think my time is up. 

I now recognize the ranking member, Mr. Boucher of Virginia. 

Mr. BOUCHER. Well, thank you very much, Mr. Chairman, and 

Mr. Caruso, thank you for taking your time with us this morning, 

and preparing your always very thorough presentation for us. 

One of the pressures on natural gas prices is the tremendous demand for natural gas on the part of electric utilities. And I wonder 

if you could give us some indication of whether you see any kind 

of changing in the long-term plans that utilities are making with 

respect to the fuels for their new generating units. Do you, for example, based upon natural gas prices today, at I think you said $14 

per million BTUs, see utilities beginning to look more toward coal? 

In their early planning, does coal play a larger role? You might also 

make reference to the new coal technologies that are now reaching 

commercialization, and in particular, integrated gasification combined cycle. American Electric Power and Synergy have now both 

announced plans to build commercial units for IGCC. And I am 

wondering if you are seeing a broader look at that technology by 

other electric utilities in the wake of those decisions by those two, 

and the fact that this new technology, which is far more environmentally friendly than the current pulverized coal technology, is 

now at the commercial stage, and is being utilized by two major 

utilities. 

So, generally, what is the outlook? Is there going to be relief on 

gas because of a shift to coal? 

Mr. CARUSO. Thank you, Mr. Boucher. The broad answer to your 

question is, we definitely see utilities taking another look at their 

fuel mix, and we anticipate, in our long-term outlook, that partly 

because of new technologies such as IGCC, and other cleaner coalburning technology, that utilities will add new coal-fired power 

plants in the future. Most of the projects we are looking at are 

looking at about a 10 year lead time, so we are expecting much 

new before 2015. And of course, the energy bill, which you are very 

familiar with, did also provide some incentives for technologies 

such as IGCC, that will further enhance that. 

The other area where we see a new look is nuclear, and when 

we come out with our new long-term outlook in the coming months, 

probably late November, early December, we will include new nuclear plants for the first time in our outlook, for the first time in 

many years. We have not had any prospects for new nukes for a 

number of years. We do think beyond the 2015, particularly toVerDate 0ct 09 2002 16:11 Jun 16, 2006 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 F:\DOCS\26999.TXT HCOM1 PsN: JOEP
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wards 2020, because of the longer lead time, we will have new nuclear power. So, in general, we do see, because of high natural gas 

prices, and because of the incentives from the Energy Policy Act, 

a shift slightly, not a dramatic shift, but a shift towards fuels other 

than natural gas. As you know, natural gas has comprised more 

than 95 percent of new generation capacity in the last seven or 

eight years, and we see that surplus of gas-fired, particularly combined cycle, turbine gas-fired plants, working its way through the 

system over the next 10 years, and when new investment decisions 

are made by utilities, they will be looking much harder at coal, nuclear, and in some cases, renewables also as a result of the EPACT 

’05. 

Mr. BOUCHER. The report that you will put forward in December 

is going to analyze the longer term picture, in terms of the fuel mix 

for electricity generation. Did I understand that correctly? 

Mr. CARUSO. That is correct. 

Mr. BOUCHER. And as a part of that, you are going to analyze 

the potential for new nuclear plants to be a part of that mix. Are 

you also analyzing the potential for coal-fired facilities? 

Mr. CARUSO. And coal. Yes. 

Mr. BOUCHER. And— 

Mr. CARUSO. All fuel sources, and alternative sources, as well. 

Mr. BOUCHER. Right. 

Mr. CARUSO. And we are going to incorporate, for the first time, 

the effects of EPAct ’05, which is the one of the reasons, and the 

other reason is the higher natural gas price assumptions, which 

will clearly make a difference in investment decisions, not only in 

the electric power sector, but as someone mentioned, ammonium 

nitrate fertilizers for example, so heavily dependent on natural gas, 

there will be a huge shift outsourcing out of the country. 

Mr. BOUCHER. All right. That is good, Mr. Caruso, and I look forward to seeing that report. Let me shift now to gasoline. I note 

from your presentation today that in 2006, we can expect prices at 

the pump for gasoline to be on the order of about $2.34 per gallon. 

That is a pretty substantial improvement from where we are now, 

but it is still a significant increase from what were the previous 

norms, the pre-hurricane norms. And my question focuses on the 

increase from the pre-hurricane norms to $2.34 per gallon, which 

is what we expect next year. To what extent is that increase attributable, in your opinion, to a shortage of refinery capacity? 

Mr. CARUSO. It is a combination of the continued expectation of 

a very tight world crude market. Therefore, our expectations are 

for, in this case, west Texas intermediate benchmark crude to stay 

in that $63 to $65 per barrel range that it is selling at today. That 

is the number one factor. The second one is this increased pressure 

on the refineries, and the difference between the crude price and 

the gasoline price, the so-called crack spread, has widened, and we 

expect that to stay wide, because of the inability of our refiners to 

meet the demand for not only gasoline, but probably even more 

critically, diesel fuel and other middle distillates. 

Mr. BOUCHER. And aviation fuel. 

Mr. CARUSO. And aviation fuel, exacerbated by— 

Mr. BOUCHER. And so— 

27

Mr. CARUSO. —the new requirement that refiners now must 

produce ultra-low sulfur diesel fuel, beginning in the middle of ’06. 

We have some concerns about their ability to do that, and if they 

do it, it certainly will be done at a higher cost and price. 

Mr. BOUCHER. Have you done an analysis, or do you intend to 

do one, of whether or not the refinery companies, the petroleum 

companies and others, that build and operate refineries, intend to 

add capacity, in light of that increased demand? 

Mr. CARUSO. Yes, we follow very closely, and indeed, we put out 

a report annually on what companies— 

Mr. BOUCHER. Well, what— 

Mr. CARUSO. —additions to refinery capacity— 

Mr. BOUCHER. What conclusion can you make about that today? 

Mr. CARUSO. Well, I would think, first of all, what we have been 

saying is that the typical refiner will add capacity over time at existing facilities, by adding these conversion units, and indeed, in 

some cases, overall primary distillation capacity. But we were not 

expecting any new, grassroots refineries to be built in this country. 

That is what we said last year. 

Mr. BOUCHER. Well, it really matters less about whether it is a 

Greenfield build, or an extension of an existing facility, as long as 

the capacity that is necessary gets added. Let me just say that 

there is a fair amount of skepticism about whether the refineries 

really intend to add that capacity, in light of the fact that it has 

been fairly widely reported that over the period from September ’04 

to September ’05, that one year period, the profits of refineries in 

the U.S. increased by 255 percent. I would be very interested to see 

any projections you are making as to the amount of capacity that 

actually is going to be added when there are a lot of people who 

are arguing that refiners are making more money by refining less 

gasoline, and if you add capacity, that means your profit per gallon 

decreases, so the financial incentives would appear to be, at least 

arguably, keep the current capacity, and just let the price continue 

to rise. Do you have any response to that? 

Mr. CARUSO. Sure. Our long-term outlook was we expected, first 

of all, starting with history, we have added about 3 million barrels 

a day of capacity in this country in the last 20 years. There is a 

lot of focus on the fact that 300 refineries in 1980 is now down to 

149 refineries. What is not focused is those 300 refineries had the 

capacity to produce about 18 million barrels a day of oil, and those 

150 refineries that have been closed, of course, have reduced that, 

but the existing 149 have all, many of them have been expanded, 

so that we are now back to about 17, so it has been like a U shape. 

We have added capacity at the existing facilities, even though 

many small refineries have closed. 

The second thing is we expected that the profit incentive will be 

increased by the recent margins, not just the one year, but we have 

now had about three of the last four years have been very good 

years for the downstream, and the profit incentive is there, and— 

Mr. BOUCHER. Is there to build new capacity? 

Mr. CARUSO. —is there to build additional capacity, and we think 

it will happen, because although you presented one side of it, which 

is if we hold back on capacity, prices will go up. The other side of 

it is, if we would make the investment, we will increase our market 

28

share, and I think that incentive, in the history of the oil industry, 

has outweighed the other one. 

Mr. BOUCHER. Okay. Thank you, Mr. Caruso. My time has expired. Thank you, Mr. Chairman. 

Mr. HALL. Thank you, Mr. Boucher. The chair recognizes the 

chairman of the Energy and Commerce Committee, the gentleman 

from Texas, Mr. Barton. 

Chairman BARTON. Thank you. Mr. Caruso, back in 1981, when 

our refinery capacity was at its peak, which is, I think, 18.1 million 

barrels a day, what was our demand for refined products then? 

Mr. CARUSO. 1981. 

Chairman BARTON. Wasn’t it less than 18 million barrels a day? 

It was about— 

Mr. CARUSO. I would have to check, but it was probably was less. 

Chairman BARTON. I think it was about 16. 

Mr. CARUSO. Yeah. Probably was about— 

Chairman BARTON. I think we had about a 2 million barrel a day 

surplus capacity. So, you know, we closed all these refineries, and 

now, you say 17 million. My number is about 16 million. But what 

is our demand for refined products today? 

Mr. CARUSO. 20.5. 

Chairman BARTON. 21. 

Mr. CARUSO. Yeah. 

Chairman BARTON. 21 a bigger number than 16 or 17? 

Mr. CARUSO. Even the head of a statistical agency has to agree 

with that. 

Chairman BARTON. So, when we had the most refinery capacity 

in this country, we had less demand than capacity, and so margins 

were not good, but it was good for the American consumer, because 

we got a lot of competition, for a lot of different reasons. A lot of 

those refineries that were closed were really old refineries. They 

were in Pennsylvania in Texas, from the late 1890s, and small, 

50,000 barrel, 25,000, so it is a good thing that a lot of those refineries have closed, from an environmental position, and an efficiency 

position, but since we have not built a refinery in this country in 

30 years, we are now in a situation where we have a demand that 

is over 20, and a capacity that is 16 or 17, so we have this capacity 

gap, and Mr. Boucher is 100 percent right that demand has continued to go up, and the profitability of the existing refineries has 

gone up. So, we need to, and I think Mr. Boucher thinks, his alternative, he had a strategic refinery alternative in the Democratic 

substitute, so we both agree that we need more refineries. 

I want to ask you a question. It costs about $1 billion per hundred thousand barrels of new refinery capacity, whether it is brand 

new or expanded. So, that is basically $10 million, 1,000 barrels. 

If you had $1 billion that you wanted to invest, and you looked at 

the refinery situation in this country, and said you know, there is 

some money to be made. Now, if I start the process, it is going to 

take me nine or ten years to get the permits. So my billion dollars 

is just going to sit around. Or, if the poor little old bill that passed 

the House a week and a half ago by two votes were to become law, 

and we get an expedited permitting procedure that a governor can 

opt into, that you get all those 40 some odd permits, you still have 

to get them, but we consolidate with the Department of Energy and 

29

the EPA, so that you get concurrent review and timelines, and current law is actually met, if it says the permit decision has got to 

be made 90 days or 180 days, you got to do it. That is current law. 

That is not new law. That is current law. That you could get a permitting decision within a year, six months to a year, what makes 

you more likely to want to invest your billion dollars to build a new 

100,000 barrels, a permitting process that takes ten years, or a permitting process that takes a year? 

Mr. CARUSO. Regulatory uncertainty has clearly been one of the 

impediments, in addition to the very low rate of return on capital 

invested in the— 

Chairman BARTON. But wouldn’t you be more likely— 

Mr. CARUSO. Definitely. 

Chairman BARTON. —to make the decision, if you would get a decision within a year, as opposed to within nine or ten years? 

Mr. CARUSO. Definitely. 

Chairman BARTON. That is just common sense. 

Mr. CARUSO. Yes, sir. 

Chairman BARTON. Well, I just wanted to make that point, because we, as you pointed out, you know, what you call it, the crack 

gap, is going up. You know, crude oil prices are going up, but retail 

prices are going up more rapidly. It is because we have got a refinery constraint in this country. And if we are going to import our 

way out of it, you have got to pay the people from overseas. You 

have got to pay them all their transportation costs, plus the profit 

on top of that. So, we are not going to lower refined product prices 

by imports. If we are going to get that gap back down, we are going 

to do it by building more refineries in this country. 

And I want to ask you some questions about natural gas. What, 

if anything, has been done in this country to expand underground 

natural gas storage capacity in the Midwest and the Northeast? 

Mr. CARUSO. There has been some gradual expansion by the 

owners of storage facilities, but it has been motivated by commercial— 

Chairman BARTON. What is some? What percent of underground— 

Mr. CARUSO. I don’t have the specific number, but we have about 

4 trillion cubic feet of capacity existing in working gas in storage 

for this winter. 

Chairman BARTON. Can EIA put a number on— 

Mr. CARUSO. Yeah. We have the numbers. I can certainly provide 

that for you. 

Chairman BARTON. Isn’t it true that if my producers in Texas 

and everywhere in the country produced as much as they could, we 

would still have a price problem, because we can’t store the natural 

gas for the demand that exists in the Midwest and the Northeast? 

Mr. CARUSO. I definitely think we would still have a price problem, because the problem is, ultimately, we are not producing 

enough new gas to meet the growth and demand in the last decade 

or so. 

Chairman BARTON. I mean, if you were me and this committee, 

would you consider natural gas storage an issue we need to try to 

address in some way, underground natural gas storage, or even 

aboveground natural gas storage? Don’t we need to get more storVerDate 0ct 09 2002 16:11 Jun 16, 2006 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 F:\DOCS\26999.TXT HCOM1 PsN: JOEP
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age capacity closer to the markets, so that if we can get the production capacity up, you have to store in the summer months, in the 

fall months, so that you have it available for the peak winter 

months? Isn’t that a true statement? 

Mr. CARUSO. That is true, and I would say it is certainly worth 

studying. I think it is the whole system. It is from the wellhead 

through the burner tip. 

Chairman BARTON. Okay. Are you aware of what the prospects 

are for some of these LNG projects being permitted? Do we have 

any that are close to being approved? I know we got about 50 that 

are under consideration. 

Mr. CARUSO. Yeah, there is more than 50 under consideration, 

and I believe the last numbers I saw FERC and/or the Coast 

Guard, if it were offshore, have approved about five. 

Chairman BARTON. So, we could see—when might me see a new 

LNG facility actually in operation? 

Mr. CARUSO. You know, I believe the first— 

Chairman BARTON. Two years from now? 

Mr. CARUSO. —new regasification facility we have in our outlook 

is late ’07 or early ’08. 

Chairman BARTON. ’07, ’08. And finally, what percent of the natural gas that is consumed in this country is consumed by electrical 

power plants for electricity generation? 

Mr. CARUSO. I believe that is around 20 to 23 percent, but I 

will— 

Chairman BARTON. So, that is 20 to 23 percent, put that in trillion cubic feet. Is that about 4 trillion cubic feet, 8 trillion cubic 

feet? 

Mr. CARUSO. We are consuming about 22 trillion, about 80. Yeah. 

Chairman BARTON. 80 trillion, so to follow up on what Mr. Boucher was saying, if we were to really revitalize the coal sector for 

power generation in, as you pointed out, the nuclear sector, that 

would take a lot of pressure off of natural gas prices, if we could 

go—you know, back in the 1970s, we had a Fuel Use Act that said 

you couldn’t use natural gas to generate electricity. 

Mr. CARUSO. Yeah. 

Chairman BARTON. So, if we can do something to help Mr. Boucher’s constituents in the coal regions, and get the nuclear industry, that would help our natural gas situation. 

Mr. CARUSO. Yes, sir. 

Chairman BARTON. Okay. And one last. Why do we have the 

price disparity on natural gas prices by region, from a 61 percent 

to a 31, 34 percent of total expenditures, and from a 55 percent to 

a 29? Why such a big gap in the average price increase, when natural gas, I would think, would tend to be a fungible commodity? Is 

that a supply constraint situation? 

Mr. CARUSO. I believe it is a combination of supply constraints, 

and in this case, these are the residential consumers, and it also 

affects the pace at which the individual local utilities— 

Chairman BARTON. So different—natural gas at retail is regulated, so is this a regulatory issue? 

Mr. CARUSO. Yeah. It is partly regulatory. It is partly the earlier 

point you mentioned, in terms of regional differences. 

31

Chairman BARTON. Could your staff elaborate on that, and give 

us—I would like a little more definition as to—I don’t argue with 

the fact that prices are going up. I mean, that is a given. But it 

is somewhat puzzling that we are having that wide of a disparity 

of price increase. 

Mr. CARUSO. Yes. 

Chairman BARTON. Okay. Thank you. 

Mr. CARUSO. I will provide more detail on that for the record. 

Chairman BARTON. Thank you. 

Mr. CARUSO. Mr. Chairman. 

Chairman BARTON. Thank you. 

Mr. HALL. Gentleman yield back. I thank the chairman. The 

chair recognizes Mr. Allen. 

Mr. ALLEN. Thank you, Mr. Chairman. 

Just a couple of comments, Mr. Caruso, and then, I have a couple 

of specific questions for you. I let the chairman’s remark go by, but 

I can’t let all the remarks that were made earlier go by without 

some response, because several of my friends on the other side of 

the aisle were suggesting that the whole problem here is we have 

to do more drilling, and certainly, we need to do more drilling for 

oil. We have to increase our supplies of natural gas, but the implication that several of them made was that if only we drilled more, 

more oil and more natural gas, well then the people who are getting LIHEAP today, to take one example, wouldn’t need it, because 

the prices would be lower. And you know, from where we sit, that 

is the most bizarre thinking, to be kind, because if you are thinking 

of someone, there is, I would suggest, no evidence to suggest that 

the price of oil, or the price of natural gas, can be driven low 

enough so that people earning $11,000 per year, living on $11,000 

per year, can get by without some sort of subsidy. And that is 

where I think we get, you know, the two sides here get crossways 

with each other. 

Some day, we will have an energy bill which is as energetic on 

renewable fuels and conservation as it is on subsidies to the oil and 

coal industry, but we haven’t had that particular bill yet, and when 

we do, we ought to make some real progress. So, we do have a different approach. 

Now, what I am really concerned about is a couple things. One 

is, the suggestion was also made that if we only drilled more natural gas, then the price would come down. Well, in the past, when 

there has been more natural gas available, then we have turned to 

electric generation from natural gas. You said it is 20 to 23 percent 

of the natural gas supply. I guarantee you that keeps the price up. 

The bottom line is, with respect to oil, we have 2.5 percent of the 

world’s oil reserves, we have 4 to 5 percent of the population, and 

we consume 25 percent of the oil in the world. You can’t drill your 

way out of those numbers, no matter how much you do, though 

more supply is appropriate. 

My immediate concern, Mr. Caruso, is the effect of the narrow 

margin of natural gas supplies on the electric grid, particularly in 

the Northeast. Natural gas producers are required to provide product to their gas utility customers, but they are not under obligation 

to provide product to electric utilities. Especially in the Northeast, 

this often results in a significant reduction in wattage of gas-fired 

32

power plants. They may be taken offline in the winter months. And 

so, can you comment on the effect that tight natural gas supply 

margins could have on electric supply, particularly in the Northeast? Is there a risk of disruption in the electricity marketplace? 

Mr. CARUSO. Our outlook does not anticipate that there was, and 

we certainly look at that closely, but we do not anticipate that. 

There may be some, as you point out, interruptible customers that 

choose to shift to a different fuel, where that is possible, but that 

is rather limited in the Northeast. 

Mr. ALLEN. It is very limited in the Northeast, because I think 

virtually all of the power plants constructed in the Northeast in the 

last 10, 15 years have been natural gas. 

Mr. CARUSO. Correct. 

Mr. ALLEN. And there is a related issue, which is that if we, if 

the response of people in the Northeast, say, is to use space heaters 

and not their furnaces, then we may find an increase in demand 

for electricity in the Northeast, and I wondered if, I mean, I suspect that you may have the same response, but it is an issue. 

Mr. CARUSO. Yeah. We are worried about it. As you can appreciate, the peak demand for electricity is, on a national basis, is in 

the summertime, for air conditioning, mainly because the space 

heating is—although it is used at about 29 percent of our households, it is not the majority. So, I think in a normal winter, and 

we are not anticipating the kind of behavior you just pointed out, 

we would expect there would be sufficient generation capacity. But 

clearly, it is something that the utilities would be watching closely. 

Mr. ALLEN. I would encourage you to take a look at it, because 

this won’t be a normal winter in the Northeast, because the rapid 

increase in price for home heating oil has my constituents, businesses, and homeowners very, very worried. Our thermostat’s going 

down, I know, but you know, we don’t really know what kind of a 

winter it will be. 

And one last point. If you have data comparing the 05-06 projections to the 03-04, not 04-05 winter, but the 03-04, that would be 

very helpful, because that was a cold winter, and if we have another one like that, it could be quite serious. 

Mr. CARUSO. We have every year, and certainly, I would be 

happy to provide that for the record. 

Mr. ALLEN. Okay. I would appreciate it. I see my time has expired. I yield back, Mr. Chairman. 

Mr. HALL. The gentleman complete? Thank you. The chair recognizes Mr. Shimkus, the gentleman from Illinois. 

Mr. SHIMKUS. I hate doing that. I need to turn off the microphone before I move it over. My friend, Mr. Allen and I, continue 

to debate this over the years, and I imagine we will continue to debate it from decades to come. 

But I have to remind him and, in the first energy bill, we increased the authorization for LIHEAP to $3 billion. We did, Bobby 

Rush’s amendment. I also have to remind him that we increased, 

in the last refinery bill, we increased the Northeast Home Oil 

Heating Reserve from 2 to 5 million barrels. It is in there. 

So, we made the attempts. But it is—again, I will go back to the 

premise. I don’t mind trying to debate this issue. Natural gas, if 

you are from a region of the country that uses natural gas to genVerDate 0ct 09 2002 16:11 Jun 16, 2006 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 F:\DOCS\26999.TXT HCOM1 PsN: JOEP
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erate electricity, which is because we didn’t have them diversify the 

energy portfolio, and then you do not allow exploration for natural 

gas off your coast, I find that really challenging to accept how in 

the world do we move to a position where this whole debate of we 

want to use electricity, we want to use gasoline, but we don’t want 

to look for it. We don’t want to explore it. We don’t want to drill 

it. I mean, we just—it is tremendously frustrating. 85 percent of 

our outer continental shelf is off-limits. And in those 85 percent, 

there are natural gas reserves. And we ought to be there. And we 

ought to encourage that. We are going from, in 1981, $1 per 1,000 cubic feet. I don’t even know the terminology. It is now $15. It is totally disruptive of our 

own prices. And what is our response? Let us give tax breaks to 

the businesses so they can afford high natural gas prices. Let us 

give home heating resources, so the poor—instead of saying let us 

get more supply, or let us change our electricity generation away 

from natural gas to coal generation. Oh, no, we don’t want to do 

that. Okay. Let us move to nuclear power. Oh, no, we don’t want 

to do that. Well, what do we want to do? How do we want to use 

energy in this country, and where do we want to get it from? And 

that is our frustration, and I will take this debate anywhere in the 

country, with these principles. 

I want to ask, do we see an easing up of the demand for natural 

gas in the future? 

Mr. CARUSO. Well, I think that very much depends on the price, 

and as you pointed out— 

Mr. SHIMKUS. You mean the market might have some role in 

this? 

Mr. CARUSO. I think it would have a big role. 

Mr. SHIMKUS. In fact, it does, doesn’t it? 

Mr. CARUSO. Yeah. 

Mr. SHIMKUS. What is happening to the natural gas generation 

of electricity in this country, because of the high natural gas 

prices? 

Mr. CARUSO. Well, we do anticipate there will be a reduction in 

natural gas demand this year. 

Mr. SHIMKUS. So, those environmentalists who like electricity 

generation by natural gas, but will not allow us to get to the outer 

continental shelf, are actually hurting their debate, because of the 

high natural gas prices, we are going to turn off the electricity generations. The market is going to turn it, because the price is going 

to be too high. 

Mr. CARUSO. In many instances, it is not as economically efficient to dispatch even new natural gas-fired combined cycle plants, 

in particular, in the South and Southwest. So, that is happening. 

Nuclear and coal are the base loads, and those will be dispatched 

first, and at a lower cost. 

Mr. SHIMKUS. In fact, we are seeing great interest in new coal 

generating facilities, and of course, those of us from coal regions, 

the natural gas prices are going to probably help renew coal generation in this country, which is great for America, and we are obviously very excited about that. 

I mean, there are so many issues in this debate. I do want to ask 

about two provisions. Have you done any analysis on the future, 

34

part of the refinery bill was defining coal to liquid technology as 

refineries, and then, if that is the case, in your analysis and the 

future analysis, it would probably be very helpful to say what are 

our coal reserves, and how would new technologies, because of the 

high prices, how do we roll that into, you know, in essence, fuel 

production for automobiles? We do know there is foreign, you know 

the Fishcer-Tropsch technology and now, because of the high 

prices, that is going to be affordable and within reach. So, that 

should be part of it. Also, the whole debate about the renewable 

fuels, and the component of renewable fuels. I come from the Midwest, and have been very, very fortunate, because of the refineries 

that have been built have been renewable refineries. The new ones, 

we have seven in Illinois, we have nineteen on the drawing board, 

and I am paying, on average, $0.30 less a gallon to fill up my Ford 

Explorer with 85 percent alcohol-based fuel, and hopefully, the 

other states will be able to take advantage of that. 

So, is there a renewable fuels component in your calculations? 

Mr. CARUSO. Yeah. We do look at all the fuels, including renewables, and in particular, with the higher price assumptions that we 

did even last year, with the high, we did four price assumptions. 

In the highest one, you do get a substantial amount of coal to liquids coming on-stream at about $40, between $40 and $45 crude 

oil costs in real terms, over the long term. And we will be looking 

at that even more carefully this year, because we will be raising 

our, as you can imagine, our price assumptions yet again in our 

long-term outlook. So, it has an impact on coal to liquids, and it 

has some impact on renewables, although most of the renewables 

in our outlook last year were as the result of renewable portfolio 

requirements on a state basis. There are about 14 states that have 

renewable portfolio requirements. 

Mr. SHIMKUS. And that is mostly in electricity generation. You 

are not talking about the fuel— 

Mr. CARUSO. Almost all of it— 

Mr. SHIMKUS. Right. 

Mr. CARUSO. —in electricity generation. 

Mr. SHIMKUS. All right. Well, I thank you. Mr. Chairman, I have 

gone over my time. I appreciate it. Thank you, and I yield back. 

Mr. HALL. I thank the gentleman. The chair recognizes the 

gentlelady from California, Ms. Solis. 

Ms. SOLIS. Thank you, Mr. Chairman. 

Mr. Caruso, I wanted to draw your attention, we have been talking a lot about refineries and capacity, and I wondered if you were 

familiar with a case in Arizona, Yuma, and I want to just start by 

saying I would like to ask unanimous consent to submit for the 

record an article by the Yuma Sun, and also, an article from the 

Arizona Clean Fuels, an article that is printed on their website. 

If I can request unanimous consent to have that submitted for 

the record. 

Mr. HALL. Without objection. 

[The information follows:]

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Ms. SOLIS. And I would like to just go into this discussion about 

the refinery. We have talked about the fact that there hasn’t been 

any refineries built in the last 30 years, and the one that was permitted actually was in Arizona, Yuma, and this was back January 

16, 1992. The Arizona Department of Environmental Quality actually issued a permit. They did not move ahead at that time. They 

said that they didn’t have enough financing. They let that go dormant, and then, they come back April 14, 2005. The Arizona Department of Environmental Quality again, then, issues another 

permit. Now, we are finally hearing that they are looking back at 

plans now to open it up, but my understanding is that they are 

looking for financing from the Mexican government, from President 

Fox, and that they have a plan to transport, I would say, maybe 

half of the capacity of that refinery, whatever they are able to provide, to Mexico. 

Do you know anything about that? 

Mr. CARUSO. I am not familiar with that specific request for financing. I can say that we export a fair amount of gasoline to Mexico currently, so it fits in with the current situation. 

Ms. SOLIS. Would you know how much, offhand? What are we 

talking about here? 

Mr. CARUSO. I have it. It is about 100,000 barrels a day. 

Ms. SOLIS. And what is that? What does that— 

Mr. CARUSO. Well, we consume 9 million barrels a day, so it is 

relatively small, compared with our total consumption, but it is our 

largest recipient of our exports of gasoline. Mexico is our largest. 

And most of that comes from the Gulf Coast refineries, some of 

which have been, have, or continue to be shut in. So, it is—the reason—I had a chance to look at that more carefully lately is looking 

at the impact of the hurricanes on those refineries, part of which 

is the exports of gasoline to Mexico. 

Ms. SOLIS. One of the concerns I have is that there has been 

statements made that the fact that we haven’t had refinery capacity is because of environmental regulations, when in fact, we are 

really looking at financing here, and the compression of these refineries, and the fact that those that are in operation, that do exist, 

are the ones that are actually reaping these profits. And I just find 

it ironic that somehow, now, we are trying to negotiate with Mexico 

to ask them for support, and in that agreement, that we will also 

provide them with, I believe, half of the capacity that would come 

out of that refinery in Yuma would go to Mexico. 

I think the public is not fully aware of these items that are coming to us, and I would love to have more detail from you, Mr. Caruso, about any other projects like that that you may be aware of, 

or not aware of. 

Mr. CARUSO. Well, financing has been a major issue with respect 

to refinery projects. I mean, most sources of finance in the last 20 

years have not seen that to be a worthwhile use of capital, because 

of the low rate of return during the ’80s and ’90s. That may be 

changing now, with the higher margins. And the Yuma case is a 

specific example I have heard from the financial community that 

the main obstacle, in addition to permitting, was financing of the 

Yuma project. 

Ms. SOLIS. That was the main obstacle? 

39

Mr. CARUSO. Yes. 

Ms. SOLIS. Thank you very much. I yield back. 

Mr. HALL. All right. I thank the lady, and Mr. Otter, we will recognize you. Apparently, you will be the last witness. 

Mr. OTTER. Thank you, Mr. Chairman. 

Mr. HALL. We are expecting a vote in the next five, ten, or fifteen 

minutes. 

Mr. OTTER. About two years ago, the Speaker of the House put 

together what he called the HEAT Team, which was the House Energy Attack Team, and the questions that we were asked to answer, there was ten of us, I think there was ten of us on the committee, and the question that we were asked to answer was how 

can we keep home heating bills lower? How can we get affordable 

natural gas was the primary question. 

So, we went about the business of trying to assess that by having 

twelve meetings throughout the United States. At nearly every 

meeting, one of the questions that continued to come up through 

the testimony was why do we have such terrible restrictions on 

drilling and exploring on Federal lands, and not only drilling and 

exploring, but also accessing right of ways through Federal lands 

for pipelines, for power grids, and that sort of thing. 

And I remember the testimony that we received in Colorado, at 

the Colorado School of Mines, which was particularly interesting to 

me, because that is where we got some good, hard facts. In other 

words, in the Great Basin, that is between the west bank of the 

Mississippi River and the toenails of the Rockies, there is estimated to be 193 trillion cubic feet of natural gas. Most of that, of 

course, lays under ground that is hard to access, because it is either BLM or Forest Service, or some kind of government ownership, and therefore, an environmental restriction, or you are in for 

a lot of environmental lawsuits. 

The testimony that was particularly interesting to me was 

whether it was in Colorado or Wyoming. It was estimated that it 

takes 15 days to get a drilling permit to drill on private ground, 

15 days, and the cost of that permitting process is about $1,000 a 

day, 15 days on private ground. If you are wanting to drill on the 

state of Idaho public lands, it took about 30 days, or Wyoming public lands, or Colorado public lands. Over 500 days to drill on U.S. 

land. Now, some of it was three or four or five or six years, because 

of the lawsuits that ensued, development and exploration. 

Would you agree with those figures, 15, 30, and over 500 days? 

Mr. CARUSO. I have heard similar numbers. I can’t subscribe to 

those specifically, but those are not out of the range of which I 

have heard from private sector. 

Mr. OTTER. If it stands to reason that we have got a reservoir, 

a known block of gas, of 193 trillion cubic feet, would you agree 

with that, in the Great Basin? 

Mr. CARUSO. I think that sounds about right. I have the actual 

specific numbers that the Department of Interior has published, 

and the USGS. 

Mr. OTTER. What I would like to do, Mr. Caruso, is have you and 

your staff put together the amount of known, identified gas blocks, 

whether it is in the Gulf, or anyplace in the U.S. intercontinental 

shelf, or if it is within the Great Basin, or whatever. 

40

Mr. CARUSO. Sure. 

Mr. OTTER. And give us, and Mr. Chairman, for the record, I 

would like to have that submitted for the record on this hearing. 

Mr. HALL. Without objection, it is submitted. 

Mr. OTTER. Give us the total amount of gas that is within the 

dominion of Federal lands, or is off-limits as a result of Federal 

regulation or rules. In many cases, we found out that Congress 

hadn’t done anything, and so, either the Environmental Protection 

Agency, through the Endangered Species Act, the Army Corps of 

Engineers, through the Wetlands Act, or some government bureaucratic office, through some rules that they had promulgated themselves, and Congress had never questioned and tested and vetted, 

that actually put these areas—but my point in bringing all this up 

is there wasn’t one industry interest group that came before the 

HEAT committee in all our hearings that said that they wouldn’t 

rather spend $15,000 on a drilling permit or $30,000 on a drilling 

permit, as opposed to a half a million. 

And so, I think, you know, perhaps I ought to make a motion, 

too, Mr. Chairman, to put in the record, in this record, Economics 

101, the entire textbook on Economics 101, so that we can get away 

from this silly debate as to whether or not—but I will not make 

that motion. 

Mr. HALL. It would probably die for— 

Mr. OTTER. But I think it is— 

Mr. HALL. It would probably die for a lack of a second. 

Mr. OTTER. Probably. I couldn’t get a second out of the chair? 

Mr. HALL. Well, you might. 

Mr. OTTER. Thank you, Mr. Chairman. Thank you very much, 

Mr. Caruso, for being here. 

Mr. HALL. And I thank you and Mr. Caruso, we thank you. You 

are one of the few witnesses that has had total respect from both 

sides. No one has doubted your conclusions, or argued with you. 

You are unusual and very resourceful, and we thank you. 

Mr. CARUSO. Thank you, Mr. Chairman. 

Mr. HALL. And thank you for your time. We are adjourned. 

[Whereupon, at 12:05 p.m., the subcommittee was adjourned.] 

[Additional material submitted for the record follows.]

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