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66–203 PDF 2011

THE EFFECTS OF MIDDLE 

EAST EVENTS ON U.S. 

ENERGY MARKETS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ENERGY AND POWER 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

FEBRUARY 10, 2011 

Serial No. 112–4 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

JOE BARTON, Texas 

Chairman Emeritus 

CLIFF STEARNS, Florida 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

Vice Chair 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

BRIAN P. BILBRAY, California 

CHARLES F. BASS, New Hampshire 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

HENRY A. WAXMAN, California 

Ranking Member 

JOHN D. DINGELL, Michigan 

EDWARD J. MARKEY, Massachusetts 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

JANE HARMAN, California 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

(II) 

(III) 

SUBCOMMITTEE ON ENERGY AND POWER

ED WHITFIELD, Kentucky 

Chairman 

JOHN SULLIVAN, Oklahoma 

Vice Chair 

JOHN SHIMKUS, Illinois 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MICHAEL C. BURGESS, Texas 

BRIAN P. BILBRAY, California 

STEVE SCALISE, Louisiana 

CATHY MCMORRIS RODGERS, Washington 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

H. MORGAN GRIFFITH, Virginia 

JOE BARTON, Texas 

FRED UPTON, Michigan (ex officio) 

BOBBY L. RUSH, Illinois 

Ranking Member 

JAY INSLEE, Washington 

JIM MATHESON, Utah 

JOHN D. DINGELL, Michigan 

EDWARD J. MARKEY, Massachusetts 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

HENRY A. WAXMAN, California (ex officio) 

(V) 

C O N T E N T S 

Page 

Hon. Ed Whitfield, a Representative in Congress from the Commonwealth 

of Kentucky, opening statement ......................................................................... 1 

Prepared statement .......................................................................................... 2 

Hon. Bobby Rush, a Representative in Congress from the State of Illinois, 

opening statement ................................................................................................ 3 

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, opening statement ............................................................................. 5 

Hon. Fred Upton, a Representative in Congress from the State of Michigan, 

prepared statement .............................................................................................. 110 

Hon. John Sullivan, a Representative in Congress from the State of Oklahoma, prepared statement ................................................................................... 111 

Hon. Cory Gardner, a Representative in Congress from the State of Colorado, 

prepared statement .............................................................................................. 111 

WITNESSES

Richard G. Newell, Ph.D., Administrator, Energy Information Administration 7 

Prepared statement .......................................................................................... 10 

Answers to submitted questions ...................................................................... 221 

Gary Mar, Minister-Counselor, Province of Alberta ............................................. 19 

Prepared statement .......................................................................................... 21 

Adam Sieminski, Chief Energy Economist, Deutsche Bank AG .......................... 32 

Prepared statement .......................................................................................... 34 

John Hofmeister, Founder and CEO, Citizens for Affordable Energy ................ 44 

Prepared statement .......................................................................................... 46 

Christopher Busch, Ph.D., Director of Policy and Program, Appollo Alliance ... 66 

Prepared statement .......................................................................................... 68 

Answers to submitted questions ...................................................................... 223 

Chris John, President, Louisiana Mid-Continent Oil and Gas Association ........ 72 

Prepared statement .......................................................................................... 74 

SUBMITTED MATERIAL

Report entitled, ‘‘The Future of Global Oil Supply: Understanding the Building Blocks,’’ 2009, by Cambridge Energy Research Association, submitted 

by Mr. Shimkus .................................................................................................... 113 

Article entitled, ‘‘New drilling method opens vast oil fields in U.S.,’’ 2011, 

by Associated Press, submitted by Mr. Shimkus .............................................. 129 

Report entitled, ‘‘Increased Safety Measures for Energy Development on the 

Outer Continental Shelf,’’ May 27, 2010, by Department of the Interior, 

submitted by Mr. Scalise ..................................................................................... 132 

Statement from Kenneth Arnold regarding moratorium on offshore oil drilling, submitted by Mr. Scalise .............................................................................. 176 

List of offshore oil rigs, submitted by Mr. Scalise ................................................ 182 

Article entitled, ‘‘The silence on drilling is troubling,’’ dated February 7, 

2011, Houston Chronicle, submitted by Mr. Olson ........................................... 183 

Report entitled, ‘‘Tar Sands Invasion: How Dirty and Expensive Oil from 

Canada Threatens America’s New Energy Economy,’’ dated May 2010, submitted by Mr. Rush .............................................................................................. 185 

(1) 

THE EFFECTS OF MIDDLE EAST EVENTS ON 

U.S. ENERGY MARKETS 

THURSDAY, FEBRUARY 10, 2011 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON ENERGY AND POWER, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC. 

The subcommittee met, pursuant to call, at 9:38 a.m., in room 

2123 of the Rayburn House Office Building, Hon. Ed Whitfield 

(chairman of the subcommittee) presiding. 

Members present: Representatives Whitfield, Sullivan, Shimkus, 

Walden, Terry, Burgess, Scalise, McMorris Rodgers, Olson, McKinley, Gardner, Pompeo, Griffith, Barton, Upton (ex officio), Rush, 

Inslee, Markey, Green, Capps, and Waxman (ex officio). 

Staff present: Garrett Golding, Professional Staff; Maryam 

Brown, Chief Counsel, Energy and Power; Carly McWilliams, Legislative Clerk; Elizabeth Lowell, Research Analyst; Cory Hicks, Policy Coordinator, Energy and Power; Aaron Cutler, Deputy Policy 

Director; Phil Barnett, Democratic Staff Director; Greg Dotson, 

Democratic Chief Counsel, Subcommittee on Energy and Power; 

Jeff Baran, Democratic Counsel; Alison Cassady, Democratic Professional Staff Member; and Caitlin Haberman, Democratic Policy 

Analyst. 

OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF KENTUCKY 

Mr. WHITFIELD. Good morning and welcome, and I am very sorry 

we are 8 minutes late but we do appreciate this panel being with 

us this morning. We look forward to your testimony as we have 

this hearing on the effects of Middle East events on U.S. energy 

markets. 

We convene today’s hearing to have a discussion on recent developments in the Middle East and North Africa and their effect on 

world energy markets. Violent protests and political uncertainty in 

Egypt 2 weeks ago caused a sudden spike in oil prices that, over 

the past few days, has gradually subsided. The price increase was 

driven by investor fears over the possible shutdown of the Suez 

Canal and Su-Med Pipeline, which transport up to 3 million barrels 

of oil per day. 

These events provide a catalyst for deeper examination of the 

economic and geopolitical factors that contribute to the pricing of 

oil and its impact on the United States. Events in the Middle East 

also demonstrate a number of facts. One, oil is a globally traded 

2 

commodity, the price of which is influenced by basic laws of supply 

and demand; two, political events can play a major role in influencing the price of oil; and three, half the world’s oil is produced 

in OPEC member states and Russia. Some of these nations are politically and economically unstable, and in a tightening market, unreliable sources of oil will prove increasingly detrimental to price 

stability and international security. It also certainly reinforces the 

issue of the importance of Canada and our relationship with Canada as it relates to energy. 

With these facts in mind, we should turn our attention to the 

current state of international energy markets. We have a booming 

demand in China, which greatly outpaces that of the OECD countries. We have seen in 2008 how OPEC spare capacity can reach 

dangerously low levels during periods of high global demand. We 

have new frontiers of oil production ranging from the Arctic to enhanced recovery technologies here in the United States. Additionally, we have restricted vast supplies here in North America by 

government action, or, in many cases, government inaction. 

Now, how do all of these factors relate to domestic energy policy? 

For starters, there are numerous steps we can take to protect ourselves from price and supply shocks. The National Petroleum Council estimates we have upwards of 40 billion barrels of oil locked 

away in the eastern Gulf of Mexico, Atlantic and Pacific Coasts, onand offshore Alaska, that are currently off-limits for production. 

These 40 billion barrels are double the proven reserves in the 

United States today. These resources could easily double our domestic production capacity and replace our imports from the Middle East. This is the quickest and most efficient way of reducing 

dependence on foreign sources and ensuring environmental safety. 

Any barrel we do not produce here in the United States or Canada 

will have to be produced in a remarkably less safe, less regulated, 

and more environmentally damaging manner in Nigeria, Venezuela, Angola and other states where environmental quality is a 

depressingly low priority. Essentially, failing to produce domestic 

energy guarantees environmental harm elsewhere in the world. 

Events in Tunisia, Egypt, Jordan, Algeria and Yemen show how 

uncertain and dangerous this world is. Furthermore, these developments show how the price of oil can bend to the will of protesters 

thousands of miles away from our shores. How we react and adapt 

to this inconvenient reality is a test of political leadership that will 

play a major role in the economic and national security of America, 

and that is why we are so appreciative of all of you being here and 

we look forward to your testimony. 

[The prepared statement of Mr. Whitfield follows:] 

PREPARED STATEMENT OF HON. ED WHITFIELD

• We convene today’s hearing to have a discussion on recent developments in the 

Middle East and North Africa and their effect on world energy markets. Violent protests and political uncertainty in Egypt two weeks ago caused a sudden spike in oil 

prices that, over the past few days, has gradually subsided. The price increase was 

driven by investor fears over the possible shutdown of the Suez Canal and Su-Med 

Pipeline, which transport up to 3 million barrels of oil per day. 

•These events provide a catalyst for deeper examination of the economic and geopolitical factors that contribute to the pricing of oil. Events in the Middle East also 

demonstrate a number of facts:o One: Oil is a globally-traded commodity, the price 

3 

of which is influenced by basic laws of supply and demand. o Two: Political events 

can play a major role in influencing the price of oil. o Three: Half the world’s oil 

is produced in OPEC member states and Russia. Some of these nations are politically and economically unstable. In a tightening market, unreliable sources of oil 

will prove increasingly detrimental to price stability and international security. 

• With these facts in mind, we should turn our attention to the current state of 

international energy markets. o We have booming demand in China which greatly 

outpaces that of OECD countries. o We have seen, in 2008, how OPEC spare capacity can reach dangerously low levels during periods of high global demand. We have 

new frontiers of oil production ranging from the Arctic to enhanced recovery technologies here in the U.S. Additionally, we have restricted vast supplies here in 

North America by government action, or, in many cases, government inaction.o Now 

how do all of these factors relate to domestic energy policy? For starters, there are 

numerous steps we can take to protect ourselves from price and supply shocks.o The 

National Petroleum Council estimates we have upwards of 40 billion barrels of oil 

locked away in the Eastern Gulf of Mexico, Atlantic and Pacific Coasts, on- and offshore Alaska, that are currently off-limits for production. These 40 billion barrels 

are double the proven reserves of the U.S. today. o These resources could easily double our domestic production capacity and replace our imports from the Middle East. 

This is the quickest and most efficient way of reducing dependence on foreign 

sources and ensuring environmental safety.o Any barrel we do not produce here in 

the U.S. or Canada will have to be produced in a remarkably less safe, less regulated, and more environmentally damaging manner in Nigeria, Venezuela, Angola, 

and other states where environmental quality is a depressingly low priority. Essentially, failing to produce domestic energy guarantees environmental harm elsewhere 

in the world.o Events in Tunisia, Egypt, Jordan, Algeria, and Yemen show how uncertain and dangerous this world is. Furthermore, these developments show how the 

price of oil can bend to the will of protesters thousands of miles away from our 

shores. How we react and adapt to this inconvenient reality is a test of political 

leadership that will play a major role in the economic and national security of this 

nation. 

Mr. WHITFIELD. With that I will recognize the gentleman from Illinois for his opening statement. 

OPENING STATEMENT OF HON. BOBBY RUSH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS 

Mr. RUSH. I want to thank you, Mr. Chairman, and I want to 

thank all the witnesses for their presence here today, and I want 

to thank you for holding today’s hearing to highlight our Nation’s 

growing need to address our energy security and to improve our energy independence. 

Energy supply and demand are key components to the American 

economy. They all affect all dimensions of our lives from driving to 

work, feeding our families to heating and cooling our homes. Notwithstanding energy’s fundamental important, the markets and exchanges on which are energy sources are traded remains extremely 

volatile and unpredictable. I think I can safely say that a consistent theme we will be hearing throughout this morning is that 

it is in America’s best strategic and economic interests to become 

less and less dependent on foreign oil, gas and other fossil fuels in 

as short a time frame as possible. 

The Obama Administration understands this perfectly well, 

which is why it has set the ambitious goals of, one, putting 1 million electric automobiles on America’s streets and highways and 

into America’s families’ garages and parking lots by 2012; two, 

unleashing a clean energy revolution to double the supply of renewable energy by the end of 2012; three, doubling America’s exports 

by the end of 2015; and four, dramatically decreasing American dependence on traditional fossil fuels so that by 2035 approximately 

4 

80 percent of America’s electricity is sourced by renewables. That 

is also why the Obama Administration is putting our country on 

a prudent course to disrupt our existing paradigms and business 

models which yield insufficient energy reliability and efficiency, 

disastrous environmental consequences and lackluster competitiveness in international trade. Rather, the new paradigm focuses on 

making substantial public investments and designing incentives to 

encourage major private investments as well as leveraging speedier 

deployments of advanced electric and smart grid technologies and 

networks. 

In past sessions of Congress, we have set policies aimed at 

achieving this. We have lowered dependency on volatile world oil 

markets by reducing our appetite for oil and gas. Under Congress’s 

direction and the stewardship of the Department of Energy and the 

Environmental Protection Agency, the EPA, we have made sufficient and significant progress towards improving our Nation’s energy efficiency. But our dependency as individuals, families and 

businesses on imported energy sources is still far too great. 

Allow me to commend you, Mr. Chairman, for calling this timely 

hearing, especially as we are in the midst of winter with recordbreaking low temperatures and snowfalls in many parts of the 

country, including my own city and State, while at the same time 

our lagging economy imposes added pressures on America’s budgets, especially those of the unemployed and the working poor. 

I must say that regardless of the policy choices that have been 

made by this Administration or this Congress, our low-income families must always be offered and given needed assistance to cook 

and heat their homes in winter. I have been a staunch supporter 

and advocate for the crusade and led by the effort in Congress to 

fully fund LIHEAP at $5.1 million in fiscal year 2010 and to increase access and eligibility for low-income families, the elderly and 

seniors all over the country. However, I am very disappointed and 

disturbed that the Administration in proposing its fiscal year 2012 

budget plans to reduce LIHEAP by roughly $3.1 million. This 

would amount to a steep cut in funding from $5.1 million at which 

the program had been funded for the past 2 years. That is just unacceptable to me and to others. 

Today’s hearing should not be used, Mr. Chairman, to criticize 

EPA’s permitting process to build refineries or to sanction more domestic drilling. In case you have forgotten, let me remind you that 

EPA’s mission, as it name indicates, is to protect the American environment and the country that we inherit. 

Mr. Chairman, I want to thank you so much. My time is concluded and I yield back whatever balance of time that I have. 

Mr. WHITFIELD. Thank you, Mr. Rush. And at this time I recognize our chairman emeritus, Mr. Barton of Texas, for 5 minutes. 

Mr. BARTON. I am only going to use 1 minute, Mr. Chairman. 

Yesterday we had a hearing on a domestic issue, the Environmental Protection Agency and its effort to regulate the U.S. economy through regulating greenhouse gases. It is a very important 

issue domestically. Today we are focusing internationally, the situation in the Middle East, specifically in Egypt, its impact on energy 

markets. I think it is safe to say that in a global economy, unrest 

in the Middle East with the Suez Canal and the political situation 

5 

not just in Egypt but in a number of the Islamic countries, should 

give the United States pause. I think it points out the fact quite 

plainly that we need to develop our domestic energy resources. 

I was heartened to hear President Obama in his State of the 

Union talk about natural gas and clean energy. We don’t have a 

lack of energy resources in this country, Mr. Chairman. We do have 

a lot of political consensus on how and infrastructure to develop 

this. Hopefully, this hearing will build the case that it is time to 

move forward domestically. I notice we have a former member, Mr. 

John. I am sure he is going to talk about the situation in the Gulf 

of Mexico and the de facto moratorium on new exploration there. 

So with that, I appreciate the hearing and I would like to yield 

to the gentleman from Illinois, Mr. Shimkus. 

Mr. SHIMKUS. Thank you, Mr. Chairman. 

Mr. Chairman, I am an Obama skeptic when it comes to energy 

security. We have the resources available in North American energy supplies to be energy independent when we talk about North 

American. 

It is great to see my friend Chris John here. He will talk about 

the ‘‘permatorium,’’ and when the economy starts recovering and 

gas prices reach $4, $4.50, $5 a gallon, we are going to ask why 

does this Administration continue to delay, obstruct oil and gas exploration in the Gulf. And then—and I am very pleased to see Mr. 

Mar here on the Canadian oil stand. This Administration pending 

with the State Department permission to obviously bring the oil 

down to continental United States. In his testimony in appendix A, 

it talks about jobs. Yesterday was about jobs. There is no bigger 

job creator in the State of Illinois right now than this pipeline and 

the direction straight to the Wood River Refinery, which is right 

outside my district, a $2 billion pipeline, $2 billion expansion of refinery, the jobs. Of course, another great Illinois company, Caterpillar, is being used extensively up there. We are talking again the 

increase in jobs between 2009 to 2025 of 26,000 jobs. 

Folks, that has been my message consistently over the past 5 

years about high-paying, good jobs in the fossil fuel industry that 

the past Congresses and this Administration continue to want to 

destroy. And so as we look and have this testimony, we are talking 

about the threat of constrained crude oil based upon the geopolitical world. This would not be as much of a dangerous situation 

if we accessed our resources in the Gulf, if we accessed our resources with our Canadian friends, allies, and if we don’t do this 

pipeline, that pipeline could go west and guess where? To China. 

Which is part of our debate yesterday, whether we want to create 

jobs in China or whether we want to create jobs in the United 

States. 

I am very excited about this hearing. I appreciate all the panelists in attendance and I yield back my time. 

Mr. WHITFIELD. Thank you. At this time I recognize Mr. Waxman of California, the ranking member. 

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

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

6 

The recent events in Egypt have once again exposed our dependence on foreign oil. Although Egypt isn’t a major producer of oil, 

the Suez Canal and the Suez-Mediterranean pipeline are crucial 

shipping links for global oil and gas markets. Instability there has 

increased oil prices around the world. 

For years, decades, really, the Energy Information Administration projected that U.S. oil consumption would grow year after 

year, and it did. By 2005, nearly 60 percent of U.S. fuels were imported. Sixty percent is imported. And the future looked bleak: 

higher oil consumption and more imports far into the future. 

The solution offered by the Bush Administration was to drill out 

way out of the problem, and I know we are going to hear this proposed solution again today. We will hear that increased domestic 

production is the answer. But more U.S. production is never going 

to be enough to appreciably reduce global oil prices or U.S. imports 

of foreign oil. We use 25 percent of the world’s oil but we only have 

2 percent of the world’s oil reserves. So we can double it and we 

could even triple it, and it is simply not going to affect global oil 

prices much. The key to making progress is to focus on how much 

oil we use. Reducing our share of global oil consumption from 25 

percent can have a real impact both on global oil prices and on imports. 

The new motor vehicle standards promulgated by the Obama Administration are exhibit A for benefits of greater efficiency. In 

2009, the Administration brokered an agreement to provide the 

auto industry with coordinated fuel economy and greenhouse gas 

emissions standards for model years 2012 through 2016. This effort 

was supported by the auto industry, the States and environmental 

advocacy groups. 

The carbon pollution tailpipe standards have had a remarkable 

impact. This national program is projected to save 1.8 billion barrels of oil. The Administration estimates that the standard yields 

net savings to consumers of roughly $130 to $180 per year and 

$3,000 over the life of the vehicle. 

Most remarkable is the impact of these standards on U.S. oil imports and consumption. As this chart shows on the screen, the Energy Information Administration now projects that we will be importing less oil in the future than we did in 2007, reversing decades of increasing reliance on foreign oil. And in a fundamental 

and historic shift, overall U.S. consumption of oil is predicted to 

stop growing. 

As the second chart shows, by requiring improvements in how efficiently we use oil, the Administration has reversed a dangerous 

trend. The Administration wants to build on this success with 

stronger standards after model year 2016. And it is also working 

on standards for trucks and other commercial vehicles. These 

standards could save even more money at the pump while further 

reducing our dependence on foreign oil. 

Incredibly, the new Republican majority in Congress is opposed 

to these efforts. Chairman Upton and Senator Inhofe have proposed legislation to block EPA from setting new motor vehicle 

standards. This subcommittee held a hearing on this bill yesterday. 

We need more energy independence, not less. We need more savings for consumers at the pump, not fewer. 

7 

We need to use oil more efficiently so that we can import less of 

it, but the Upton-Inhofe bill would take us in exactly the wrong direction. It would block one policy that has proven that it works. 

The Upton-Inhofe bill is great for oil companies like Koch Industries, which spent millions of dollars electing Republicans. But it 

is a public health, economic and national security disaster for all 

the rest of us. 

As we learn more today about the challenges of being dependent 

on oil from the Middle East, I hope all members will consider what 

is at stake. We are finally heading in the right direction. It would 

be a costly mistake to halt our progress. Yield back. 

Mr. WHITFIELD. Thank you. 

At this time we are going to ask our panel to give their opening 

statements, and we have with us this morning Mr. Richard Newell, 

who is Administrator of the Energy Information Administration. 

We have Mr. Gary Mar, Minister-Counselor from the province of 

Alberta. We have Mr. Adam Sieminski, Chief Energy Economist, 

Deutsche Bank. We have Mr. Hofmeister, who is President of Citizens for Affordable Energy. We have Mr. Chris Busch, Director of 

Policy and Program, Apollo Alliance. And our former colleague, Mr. 

Chris John, President of Louisiana Mid-Continent Oil and Gas Association. 

So Dr. Newell, I will call upon you to begin with the opening 

statements. You are recognized for 5 minutes. 

STATEMENTS OF RICHARD G. NEWELL, PH.D., ADMINISTRATOR, ENERGY INFORMATION ADMINISTRATION; GARY 

MAR, MINISTER-COUNSELOR, PROVINCE OF ALBERTA; ADAM 

SIEMINSKI, CHIEF ENERGY ECONOMIST, DEUTSCHE BANK 

AG; JOHN HOFMEISTER, FOUNDER AND CEO, CITIZENS FOR 

AFFORDABLE ENERGY; CHRISTOPHER BUSCH, PH.D., DIRECTOR OF POLICY AND PROGRAM, APOLLO ALLIANCE; AND 

CHRIS JOHN, PRESIDENT, LOUISIANA MID-CONTINENT OIL 

AND GAS ASSOCIATION 

STATEMENT OF RICHARD NEWELL 

Mr. NEWELL. Mr. Chairman, I appreciate the opportunity to appear before you today. 

The Energy Information Administration is the statistical and analytical agency within the Department of Energy. EIA does not promote or take positions on policy issues and has independence with 

respect to the information and analysis we provide. Therefore, our 

views should not be construed as representing those of the Department of Energy or other federal agencies. 

Given Egypt’s small role in the global supply-demand balance for 

both oil and natural gas, the primary issue for global energy markets is driven by two other concerns. First, there is the concern 

that unrest could spread to countries with a larger role in supplying world oil markets. There is no doubt that the Middle East 

and North Africa are a major source of oil supply and other petroleum liquids, supplying about 28 percent of global liquids consumption. At the same time, there is about 5 percent spare crude oil production capacity and roughly 10 percent spare international oil 

shipping capacity available to the market, and the amount of spare 

8 

refining capacity is about 5 percent higher now than it was in 

2007. There is therefore more flexibility in the global oil system 

than a few years ago. 

Second, EIA has looked at a concern more directly related to 

Egypt involving the possibility of disruption of the Suez Canal or 

Sumed pipeline, which together carry about 3 million barrels a day 

of oil. The canal and pipeline continue to operate normally, and for 

reasons outlined in my written testimony, we would expect the direct effect of any closures to be manageable, although there would 

be undoubtedly an adjustment period. 

Focusing next on the short-term outlook for oil, EIA expects a 

continued tightening of world oil markets over the next 2 years. 

World oil consumption grows by an annual average of 1.5 million 

barrels per day in 2011 and again in 2012 in our outlook while supply growth from non-OPEC countries averages about .3 million barrels per day this year and remains flat in 2012. Consequently, we 

expect the market to rely on increased OPEC members’ production 

of crude oil and other liquids and some drawdown in inventories 

to meet world oil demand growth. 

With tighter world oil market, EIA expects the price of West 

Texas intermediate crude oil, the key U.S. pricing benchmark, to 

average about $93 per barrel in 2011 and $98 per barrel in 2012. 

EIA expects the retail price of regular gasoline will average $3.15 

per gallon this year and $3.30 per gallon in 2012. However, oil and 

in turn gasoline price forecasts are subject to a great deal of uncertainty. For example, the market value of futures and options contracts is telling us that there is close to a one in three chance that 

the price of oil could be above $110 per barrel at the end of the 

year. 

I will now turn to the longer-term projections for oil and other 

liquids from EIA’s annual energy outlook. The reference case, 

which we released in December, represents an energy future 

through 2035 that assumes continuance of current market and 

technology trends, consumer behavior and current laws and regulations. It does not include the effects of potential future policies that 

have not yet become law but the reference case represents a baseline that is a useful jumping-off point for assessing alternatives. 

Reference case crude oil prices continue to rise in our long-term 

outlook as a growing global economy underpins oil demand growth 

that is more rapid than supply growth from non-OPEC producers. 

By 2035, the average real price of crude oil in the reference case 

is $125 per barrel in 2009 dollars, although we examine a wide 

range of oil price scenarios. 

Total U.S. consumption of oil and other liquid fuels grows from 

about 19 million barrels per day in 2009 to 22 million barrels per 

day by 2025. This modest growth in the reference case reflects increasing fuel prices and implementation of finalized standards and 

statutory mandates that drive the fuel economy of light-duty vehicles up to 35 miles per gallon by 2020. Virtually all of the increase 

in U.S. liquids consumption is met by biofuels use driven by the 

federal renewable fuel standard along with increases in natural gas 

liquids. We expect domestic oil production increases to come from 

onshore enhanced oil recovery projects and shale oil plays. 

9 

As a result of this increased domestic production and modest consumption growth, we expect U.S. dependence on imported liquid 

fuels to continue to decline. After reaching a high of 60 percent in 

2005, the imported petroleum share of total liquid fuel use fell to 

52 percent in 2009 and continues to decline in our projections to 

42 percent by 2035. 

In addition to preparing the baseline projections I have reviewed 

this morning, our full annual energy outlook to be released this 

spring will include a large number of sensitivity cases that examine 

the impact of different market technology and policy assumptions. 

Mr. Chairman and members of the committee, this concludes my 

testimony. I look forward to any questions you may have. 

[The prepared statement of Mr. Newell follows:] 

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Mr. WHITFIELD. Thank you, Dr. Newell. 

At this time I will call on Mr. Mar for his 5-minute opening 

statement. 

STATEMENT OF GARY MAR 

Mr. MAR. Thank you, Mr. Chairman. 

For the record, Mr. Chairman, my name is Gary Mar, MinisterCounselor here in Washington, D.C., and I represent the government of Alberta, a province of Canada. I thank you very much for 

the opportunity to be here today. As a former elected official in the 

province of Alberta, I have had ministerial responsibilities in areas 

including health and environment, and I, like you, have had the 

privilege of debating difficult issues and making tough decisions on 

behalf of the people who elected me over a period of 14 years. 

The issue before you here today is that of energy and where and 

how you will obtain that energy, particularly oil, and I believe that 

my home province, Alberta, has and will continue to have a very 

important role in providing the United States with an alternative 

to foreign oil supplies, and I hope that nobody here takes offense 

with Alberta not really considering itself to be a foreign supplier. 

Now, if I can leave you with three things to take away from my 

presentation on Alberta oil, they are: number one, security of supply; number two, economic benefits; and number three responsible 

development. This is a combination of attributes that is not readily 

associated with many of the other countries in the world that the 

United States gets is oil from. 

For the past 5 years, Canada has and continues to be the largest 

supplier of imported oil to the United States. In 2009, Canada supplied 23 percent of America’s oil imports, more than double the imports that come from Saudi Arabia and more than four times the 

imported oil that comes from Iraq. The lion’s share of Canada’s exports comes from Alberta’s oil sands. If you look at Alberta in isolation, we provide 17 percent of your total crude oil imports, and that 

is in volume 1.5 million barrels of oil per day that comes to you 

from Alberta in a transportation system that doesn’t move called 

a pipeline. This number will grow, and the question perhaps for 

you is, how much will it grow by. 

The province of Alberta has the distinction of being the largest 

OECD jurisdiction capable of substantially increasing oil production to meet future demand. In fact, it is forecast that by the year 

2019 Alberta will be producing 3.3 million barrels of oil per day 

compared to current production of 2 million barrels. That represents security of supply. Moreover, our oil comes from a politically stable and democratic neighbor and is sent to the United 

States via pipeline so it is not affected by political unrest or other 

disruptions, a point that was supported very recently by a released 

report of the United States Department of Energy. 

Alberta oil also far exceeds any other foreign source of oil and 

economic return that it brings to the United States, and Hon. 

Shimkus’s example of Caterpillar is but one example. I was at Caterpillar’s offices in East Peoria yesterday. The largest collection 

and concentration of Caterpillar trucks in the world is around the 

area of Fort McMurray, is what I was advised by the people from 

Caterpillar. 

20 

For every dollar that the United States spends on Canadian 

products, you get 91 cents in return from the products that we turn 

around and buy from you. The United States is our largest trading 

partner by far. There are currently estimated, and this is a very 

conservative estimate, at the very least more than 900 U.S.-based 

businesses that are suppliers for Canadian oil sands and related 

pipeline projects. Mr. Chairman, your State is home to three of 

those companies. The vice chairman’s home state is home to 36 of 

them. In addition, over the next 4 years America will gain 343,000 

new jobs as a result of oil sands development. 

Major U.S. companies like ConocoPhillips, Exxon, Devon and 

Marathon have oil sands operations in the province of Alberta. 

These companies all have firsthand understanding of the stringent 

rules in place to ensure that energy is developed responsibly in our 

province and with the highest degree of care and concern for the 

environment. In 2007, the province of Alberta was the first jurisdiction in North America to regulate large industrial greenhouse gas 

emitters. Alberta has a price on carbon. To date, we have collected 

$187 million as a result of this carbon tax. This money is set apart 

from our general operating fund as a government. It is wholly dedicated to developing clean energy projects. Thus far, $71 million has 

been invested into 16 different clean energy projects. 

In addition to this, the government of Alberta has also committed 

$2 billion to commercial-scale carbon capture and storage projects 

to help reduce greenhouse gas emissions. This is $2 billion from a 

province whose population is only 31⁄2 million people. It is a significant contribution on a per capita basis. 

At the start of my remarks, I talked about being a former elected 

official in Alberta, and now I have the pleasure of working here in 

Washington and I spent much of my time talking to our American 

friends about how Alberta can help meet your energy demands. I 

want you to feel confident that when the people who elect you go 

to a gas station to fill up on their way to soccer practice or a baseball game that they are using a product that came from a friend, 

a friend with similar goals, with similar values. As the President 

said last week, our countries are woven together perhaps like no 

other two countries in the world. We match up more than probably 

any country on earth, and I agree with that statement emphatically. 

So Mr. Chairman, Alberta oil can provide America with security 

of supply. It does help create jobs and grows our economies, and 

most importantly, it does both of these responsibly, ensuring that 

the environment is a top priority, and I look forward to working 

with the United States to develop sustainable solutions as we continue to advance our clean energy technologies. I thank you for the 

invitation to be here. 

[The prepared statement of Mr. Mar follows:] 

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Mr. WHITFIELD. Thank you. 

Mr. Sieminski, you are recognized for 5 minutes. 

STATEMENT OF ADAM SIEMINSKI 

Mr. SIEMINSKI. Thank you, Mr. Chairman and other members of 

the committee. I thought that what I might do to most valuably use 

your time today is to just try to give you an overview of what is 

going on in the global oil markets and how I see things developing 

over the next few years. Let me just go through a few major points 

here. 

Oil prices started rising in early 2009. It has raised a lot of con- cerns that we have moved from $40 to nearly $100 a barrel. You 

just heard Dr. Newell talk about gasoline prices up 15 percent this 

year. We might hit $3.30 a gallon next year. That certainly has 

issues for consumers. The OPEC Secretariat interestingly makes 

an awful lot of statements about fundamentals not being responsible for the increase in oil prices, and I would like to talk about 

that a little bit. 

In my view, oil demand is driven mainly by economic activity. 

Last year most of the economic forecasters were saying the global 

economy grew by 5 percent, probably up another 4 percent again 

this year. Those are pretty big numbers. The average over the last 

30 years for global GDP growth is about 3.3 percent, so 5 percent 

and 4 percent GDP growth is pretty stunning. 

Speaking of stunning, the International Energy Agency just this 

morning said that oil demand grew 2.8 million barrels a day last 

year. That is a fundamental. That 2.8 million barrels a day far exceeds the million and a half barrels a day that the EIA is forecasting for this year, and it is a huge factor, I think, in the marketplace. A lot of this growth is coming in the emerging market countries. It is not the United States and Europe and Japan as it was 

traditionally. That is an important issue. 

Now, the good news for consumers around the world is that nonOPEC supplies are growing pretty strongly. It is 600,000 barrels a 

day of growth this year. Last year, the number was probably close 

to a million barrels a day. It is not just places like Canada that 

you just heard about. China, Brazil, the former Soviet Union and 

Colombia. Interestingly, the State of North Dakota is seeing a huge 

increase in oil production coming from the Bakken formation, and 

if we could do more of that, more of the Gulf of Mexico that you 

talked about and so on, I think that would really help. 

The demand is growing faster than non-OPEC supplies, so what 

that means is, OPEC’s market share is rising and without further 

investments in capacity in OPEC countries, OPEC’s spare capacity 

is going to decline. Now, we also know that inventories have been 

coming down on a global basis. We can measure them best in the 

OECD countries. They were as high as 63 days of forward demand 

cover. We are now down to about 59 days. My forecasts say that 

by the end of next year, we will probably be down to 54 days, which 

is still in the middle of the normal range, not low but the trend 

is down. Now, this is really important. Most of the oil price forecasting models use OPEC’s spare capacity and inventories as the 

main drivers, so now what I have just said is that OPEC’s spare 

capacity is likely to shrink and inventories are also coming down. 

33 

That implies strength in global oil prices and it is something that 

I think we need to be cognizant of. 

Over the last 4 years, financial factors have been very important 

in driving oil prices. First it was the dollar exchange range against 

the euro and other currencies that seemed to be important. Since 

March of 2009 when oil prices have gone up, there has been almost 

a lockstep move with the S&P 500 equity index. So what is going 

on is, is that everybody is so happy we are not having a depression 

that stock markets are going up and lifting commodities in general 

including crude oil. I think we are now moving into the area where 

it is going to be fundamentals more than financial factors. Just like 

the ad that by my calculations oil prices aren’t too far in the 

United States from what equilibrium levels would be if you looked 

at it against things like incomes and share of income. 

OK. Now, problems in the oil markets, low elasticity of supply 

and demand. It is an economic phrase. Let me translate that. It 

takes a long time to plan supply projects and efficiency projects. 

Mr. Waxman’s comments about auto fuel efficiency—it takes a long 

time to turn the fleet over. It takes a long time to do a development 

project in the Gulf of Mexico or in the oil sands in Canada. That 

means that the chances are good that you are going to have sharp 

movements in oil prices if something else happens in the markets. 

Let me just sum up this by saying that as you introduced the 

hearing today, you said that what we are really trying to get at 

was events in the Middle East and North Africa and what it meant 

for the oil markets. The EIA has really good numbers on that, and 

Dr. Newell talked about them. Clearly the Middle East falls into 

this geo political category. One of the things that I think you have 

to be very, very aware of that it is not just things that are happening today that matter is setting oil prices and influencing the 

oil markets, it is expectations about the future, and if we expect 

that demand is going to continue to grow strongly, if we expect that 

supply might be constrained, if we expect that there are going to 

be tensions in the Middle East, that is going to tend to push prices 

up. That is a fundamental. It is not a speculative kind of activity. 

And with that I will close. Thank you very much. 

[The prepared statement of Mr. Sieminski follows:] 

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Mr. WHITFIELD. Thank you, Mr. Sieminski. 

Mr. Hofmeister, you are recognized for 5 minutes. 

STATEMENT OF JOHN HOFMEISTER 

Mr. HOFMEISTER. Thank you, Mr. Chairman, Ranking Member 

Rush. I am John Hofmeister, the founder and CEO of Citizens for 

Affordable Energy. When I retired as the president of Shell Oil 

Company in 2008, I started a foundation to focus on grassroots energy education. In addition, I am privileged to serve as the chairman of the National Urban League, where we have 104 affiliates 

across U.S. cities where the affordability of energy is a major issue 

to the people who live in vulnerable circumstances where unemployment in major urban areas exceeds national averages. So I 

speak with a view that affordability of energy is a critical issue for 

the United States of America. 

Affordability goes directly to the price of crude oil, no question 

about it. Every consumer in this country uses crude oil in one way 

or another, and we do face the political uncertainties as evidenced 

most recently by Egypt and the threat to the Suez Canal and the 

Sumed pipeline. I am reminded that while this Administration has 

strangled oil production in the Gulf of Mexico for an unpredictable 

period, China, according to Professor Wenren Jang at the University of Alberta, is going in exactly the opposite direction. China is 

planning to build 1.5 million kilometers of highways over the coming decade, and in order to assure a steady crude oil supply to 

China has loaned the following countries the following amounts of 

money: Brazil, $10 billion; Kazakhstan, $10 billion; Venezuela, $20 

billion; Ghana, $16 billion; the Democratic Republican of Congo, $7 

billion; Nigeria, $23 billion; and Russia, $25 billion. China expects 

crude oil demand of 18 million barrels a day by the end of the decade. They are currently at about nine. Meanwhile, in the United 

States, today, tomorrow, Saturday, Sunday, Monday, we will consume about 20 million barrels a day, producing only seven domestically. 

As long as the United States produces so limited amount of its 

own supply, we are vulnerable to whatever happens anywhere in 

the world. The United States forfeited its energy security over a 

sustained period of decades by prohibiting drilling on 85 percent of 

the Outer Continental Shelf, by prohibiting drilling on 97 percent 

of federal land, by standing the way of many infrastructure developments that would otherwise enable enhanced oil production in 

many parts of old oil fields. It is my view that while people focus 

on transportation and the use of oil, we should not forget that within that 20-million-barrel-per-day demand, there is an entire petrochemical industry that needs crude oil as feedstock. That petrochemical industry produces the fiber which we use for clothing and 

other industrial purposes. It produces the pharmaceuticals, the lubricants, the food that we use to eat in this country. We have many 

more needs for oil than simply transportation purposes. While it is 

great to have a million new vehicles hybrids and battery cars on 

the roads by 2015, the 250 million automobiles and tens of millions 

of trucks, tractors, planes, boats, buses and other transportation 

vehicles depend upon a daily supply of crude oil. 

45 

I would like to use my remaining time to speak about what I 

think are the concrete actions that could be taken with a plan from 

this Congress or the Administration or preferably both which 

would take this country forward to create jobs in an unprecedented 

number. Example: we know we have the natural resources in the 

ground to produce far more oil than we do today. I am suggesting 

that with the billions and billions of barrels that is enough to sustain an increase in domestic production for all of the generations 

currently alive in this country. We could move daily production 

from 7 barrels a day to 10 million barrels a day using not a dime 

of public money, using private investment. The 10-million-barrelper-day production would create 3 million new jobs, 3 million new 

jobs over the course of the next decade, which would be a tide to 

raise all ships because it is not just the drilling workers that would 

be benefiting from this but it would be the steelmakers, the automakers, the valve makers, the pipe makers, the people who build 

the homes, the people who set up the retail networks in order to 

supply these 3 million people with good-paying jobs with good benefits. We currently employ 9.2 million in America in the gas and oil 

business to produce 7 million barrels a day. Three more million 

barrels a day and 3 million more jobs is an unprecedented number 

that no one has talked about since the beginning of the recession 

in this country, and if we are looking for ideas to improve the economy, I can’t think of a better one that is right here at home, jobs 

which will not be exported. 

In addition, we have failed to deal with the need for electricity 

going forward in material ways, and it is my belief that we could 

build new power plants, coal as well as nuclear, clean coal, which 

will in fact create additional jobs on top of that. 

Mr. Chairman, I will stop. Thank you. 

[The prepared statement of Mr. Hofmeister follows:] 

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Mr. WHITFIELD. Thank you very much. 

Dr. Busch, you are recognized for 5 minutes. 

STATEMENT OF CHRISTOPHER BUSCH 

Mr. BUSCH. Thank you, Chairman and Ranking Member Rush. 

Thank you for the invitation to testify today. My name is Chris 

Busch and I am the Policy and Program Director for the Apollo Alliance. We are a national alliance of labor, business, environmental, 

and community groups working towards clean energy solutions 

that also grow the economy and improve American competitiveness. 

Every president since Nixon has sought to lessen our dependency 

on imported oil. Though we have started to turn the corner thanks 

to policies like the 2010 clean car standards, America still faces 

this challenge. Nearly 60 percent of U.S. demand is now met by imported oil. The United States accounts for 22 percent of the world’s 

oil consumption but we only possess 1.4 percent of the world’s proven reserves. Those numbers are slightly different than Mr. Waxman’s but those are according to the EIA’s 2009 data. These numbers tell a simple truth. No matter how deep we will, domestic oil 

supplies cannot solve this problem. We must put in place policies 

to address the demand side of the problem, and fortunately for 

America, there are promising transportation policy options that 

work hand in glove with market incentives to encourage energy 

savings and innovation. These policies can help consumers save 

money. They also position American industry to succeed in a fastgrowing global market for clean technologies. 

Consider the example of the new federal car and light truck fuel 

economy standards finalized last year. The EPA estimates that the 

standards will reduce oil demand by 1.8 billion barrels for vehicles 

sold through 2016, and as Mr. Waxman mentioned, when the 

standard is fully phased in, the average consumer will save about 

$3,000 over the life of their vehicle. That is about $150 per vehicle 

each year. 

I would like to talk about some research I did in California with 

James Fine of the Environmental Defense Fund and Remy 

Garderet of Energy Independence Now. We calculated the benefits 

of reduced oil dependency due to AB 32, California’s capstone clean 

energy law. AB 32 reduces California’s dependency on imported oil 

through clean car and clean fuel standards and by providing alternatives to driving. We found that in the year 2020, California will 

avoid demand equal to 75 million barrels of oil, about an 18 percent decrease, due to AB 32 policies. At the 2009 Department of 

Energy’s midrange price forecast, which was $114.50 per barrel, 

those were the numbers we were working with when we were doing 

this research, that reduces California’s imported oil bill by about 

$11 billion. 

While shaving $11 billion off the State’s import bill is a significant avoided cost, we also estimated the benefits following an oil 

price shock. We have experienced six significant price shocks in the 

past 40 years. We all remember oil nearing $150 per barrel in 

2008. Oil price shocks have been a reality of world oil markets, and 

surging demand from China and other countries suggests they will 

become more common, not less. Our analysis looked at two oil price 

shocks that cause the price of gasoline and diesel to jump by roughVerDate Nov 24 2008 13:01 Aug 22, 2011 Jkt 037690 PO 00000 Frm 00072 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 112\112-4 021011\112-4 CHRIS
67 

ly a dollar or two above a starting point of $3.42 per gallon in the 

case of gasoline. The diesel jump is more like $2.50, and these were 

linked to the oil shocks we were looking at. The result of these oil 

shocks is that AB 32 saves consumers an additional $3 to $7 billion, or about $200 to $500 per household when the savings are distributed over the households projected to exist in 2020 in California. 

One of our objectives was to help policymakers understand what 

is and is not included in the economic analyses they receive and 

depend upon. Though oil price shocks are a reality, economic studies are not capturing these painful economic effects. Typically energy policy analyses assume smooth prices. National security implications as well as pollution reductions and related public health 

benefits are also almost never integrated in economic analyses of 

energy policy. Attacking the demand side of our imported oil dependency is where real progress will be made. 

The Apollo Alliance has recently advanced a Clean Transportation Manufacturing Action Plan that I would like to ask be entered into the record. I have it here. The plan calls for increased 

investment in public transit and railway as well as stronger Buy 

America provisions and loan assistance to help grow domestic manufacturing jobs. The plan is projected to create 3.7 million jobs over 

6 years. These are new jobs in every region of the country and include more than 600,000 manufacturing jobs. 

This is part of the Sputnik challenge described by the President. 

We have the technologies needed to get started, and while the 

world needs American leadership in advancing the innovation frontier further, the big winner will be the American worker. 

Thank you for considering my testimony. 

[The prepared statement of Mr. Busch follows:] 

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Mr. WHITFIELD. Thank you. 

Mr. John, you are recognized for 5 minutes. 

STATEMENT OF CHRIS JOHN 

Mr. JOHN. Mr. Chairman, Chairman Whitfield, Ranking Member 

Rush, thank you very much for inviting me to come and testify in 

front of this very distinguished body that I was privileged to serve 

in for 4 years. It seems like an eternity ago. But it is a very important subject matter. I was asked to specifically talk about world 

and international events and how it affects what goes on domestically in our oil production all over America. 

As Chairman of Louisiana Mid-Continent Oil and Gas Association, I represent all of the companies that explore, produce, market, 

transfer from the ground to the tank is what I like to say, and the 

fact of the matter is, when we look at energy policy in this country, 

it cannot be an either/or. The fact of the matter is, we need all 

drops and all kinds of energy to make America more energy secure. 

But I think the real factor, the factor that we must keep in focus 

like a rifle shot as we debate some of these is the energy reality 

that we have in this country. I think it is very important not to 

deviate from it because we can talk about assumptions and we can 

talk about politics and we can look at it from a geographical standpoint. The fact of the matter is that you must be grounded in our 

conversations about the energy reality in this country, and that is 

what I would like to spend a little bit of my time on. 

The fact of the matter is that 78 percent—the energy reality 

today, not tomorrow, not yesterday, but today is that 78 percent of 

our fuel needs, our energy needs is going to come from fossil fuels, 

78 percent from fossil fuels. You will have 12 percent from nuclear, 

you will have 3 percent from hybrid, 1 percent from wind, a half 

a percent from solar and then it goes down from there. I think that 

is an important point as we discuss the future of energy policy in 

this country because even DOE says that 60 percent of our energy 

needs over the next 25 years is going to come from fossil fuels. 

There have been experts that obviously have said higher than that, 

and I believe it is closer to 80 percent for the next 50 years that 

fossil fuels are going to play a very important part in providing energy security for America. 

And why should we care what goes on in different parts of the 

country? Obviously the incidents in Egypt whether perceived or reality has had an impact on the domestic oil production and the 

price, and getting a little less attention is what has happened off 

the coast of Oman where Somali pirates have commandeered a 

Greek vessel with almost 2 million barrels of crude that is destined 

to the Gulf of Mexico for refinery and use in our markets today. 

So it really is important to understand the energy reality and 

where it comes from, and that is my next point. 

Mr. Hofmeister talked about the 20 million barrels. I have used 

this several times, Mr. Hofmeister, where I said, we used 20 million yesterday, we are using it today, we need it tomorrow, and 

that is just a fact. That is another energy reality check fact that 

needs to be looked at. But when you break down the 20 million 

barrels that we need, 7 million are produced right here domestically and we import 13 billion. Let me peel back the banana just 

73 

a little bit more. Where does that 7 million come from? Well, the 

7 million comes from basically 53 percent of our oil that we use domestically or that is produced domestically in the United States, 30 

percent comes from the Gulf of Mexico, 20 percent comes from 

Texas and 4 percent comes from Louisiana onshore. So you are 

looking at 54 percent of our domestic production coming from the 

Gulf region, the Gulf of Mexico and the region. 

But I think more important is to look at where we get the 13 million barrels that we use every day. It comes from countries that obviously do not share a lot of our values. We spend billions of dollars 

in buying crude oil that could be used right here in America to create jobs. When you look at 23 percent, thank you very much, comes 

from Canada, our neighbor to the north, 12 percent from Mexico, 

which are our two largest importers, but then you have 26 percent 

from OPEC countries, 15 percent from the Persian Gulf area of 

which 10 percent comes from Saudi Arabia. So I think that is very 

important to not only understand how much we use domestically 

but where it comes from domestically and also how much we use 

and how much we have to import and where that comes from. That 

in itself provides the answer to the question that this committee 

is looking for, why should we care about international events. 

When we are vulnerable to 13 million barrels a day coming from 

regions all over the world, then you are going to be very vulnerable 

to price fluctuations like we have seen here of late. 

And obviously the future of the Gulf of Mexico was very bright. 

I could spend another 5 or 50 minutes talking about the Gulf of 

Mexico and the moratorium and the pursuing ‘‘permatorium’’ that 

we are dealing with today but the jobs that are created in this industry, I think Mr. Hofmeister is absolutely correct. Only in Louisiana—I can speak parochial a second here because I love Louisiana and I certainly live and work there today—320,000 jobs in 

Louisiana alone are created by oil and gas, 9.2 million in America, 

$70 billion in economic driver in the State of Louisiana. This moratorium obviously has been an issue that we have worked on and 

we are going to continue to work through that. I have gotten a 

written statement that I submitted that goes on to talk a little bit 

more about different things but I believe there is more to a barrel 

of oil than the BTUs, and you have got to look at the economic impact that the oil and gas industry has both on jobs in America and 

providing our energy security that we must have. 

With that, thank you very much. 

[The prepared statement of Mr. John follows:] 

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Mr. WHITFIELD. Thank you, Mr. John, and thank all of you for 

your testimony. 

Mr. Hofmeister, in your opening statement you talked about the 

possibility of increasing demand from 7 to 10 million barrels a day, 

and I think you indicated without any public funds. Would you 

elaborate on that a little bit about what regions of the country do 

you think that is possible to do? Where would that happen and tell 

us a little bit about that. 

Mr. HOFMEISTER. If you break down where the oil sits, and while 

I agree that the narrow definition of reserves as required by the 

Securities and Exchange Commission suggests the United States 

has only 2, maybe 3 percent of proven reserves, there are probable 

reserves and there are resources in ground not counted in that 

number. So we are looking at more than a trillion barrels of oil in 

the United States available that could be addressed from an exploration and production. But specifically, East Coast offshore, eastern 

Gulf of Mexico, western Gulf of Mexico, especially deep water. Off 

the West Coast there are billions of barrels. Off of the Alaska coast, 

Bristol Bay, Chukchi Sea, Beaufort Sea, the Bakken formation, enhanced oil recovery from former or existing oil fields and, and most 

importantly, oil shale in the Piceance Basin of Colorado, which includes Wyoming and Utah. The combination of all of those over the 

period of a decade or more could take us way beyond 10 million 

barrels but I realize some people are concerned about the sensitivities so I have only suggested a target of 10 million at this stage. 

When we get to 10, we could consider more. 

Mr. WHITFIELD. But if the proper government policies were in 

place, do you think that 10 million could be reached relatively 

quickly? 

Mr. HOFMEISTER. If you could consider the capital investment 

plans of not just the major oil companies but also the major independents and the small oil companies, we are in the hundreds of 

billions of dollars per year, much of that targeted for outside the 

United States because that is where they are welcomed. That is 

where they are wanted. That is where they are creating jobs. 

Mr. WHITFIELD. Right. 

Mr. HOFMEISTER. Redirecting those billions to the United States 

because we would in turn welcome them to create American jobs 

in America would be a reversal of where we have been over a number of decades. 

Mr. WHITFIELD. Right. Well, as you well know, this Administration has been totally focused on green energy projects, which are 

fine and I know billions of dollars or millions of dollar sin the stimulus fund went to green energy projects, but I think most of us 

agree that this is a long, long, long, long-term solution to our problem. 

Mr. John, I know that the moratorium was put in place sometime last spring and then court ruled it was illegal and then a new 

moratorium was put into place, lawsuits were filed and then Mr. 

Salazar I think removed that moratorium, but in effect there is a 

moratorium because no permits have been issued in the Gulf, have 

they, or has there? 

Mr. JOHN. No, that is correct. To my knowledge, as of yesterday, 

there were no new drilling permits issued in the Gulf of Mexico. 

80 

The moratorium was set in place May 27th, and then of course 

there was a subsequent court battle, which obviously throughout 

the moratorium and then I think just several, a week or 2 weeks 

later, the Administration came up with another moratorium, and 

that in itself, I think, Mr. Chairman, is very troubling. I like to believe, now, maybe this is a little subject, that the process at which 

this came down has been more harmful than the actual moratorium. 

Mr. WHITFIELD. Let me ask you, hasn’t the federal judge that is 

holding that case, hasn’t he actually held the Obama Administration in contempt of court? 

Mr. JOHN. I am not sure. 

Mr. WHITFIELD. I read that yesterday or a couple days ago in the 

paper that the judge is now holding this Administration in contempt for violating his orders. 

Mr. JOHN. Well, it has certainly been in and out of the courts 

and decisions and all of this time we have 30,000 people at the 

minimum waiting to go back to work in the Gulf of Mexico. 

Mr. WHITFIELD. Well, Mr. Hofmeister’s suggestion, which I certainly agree with, he said would create about 3 million more jobs, 

certainly help make us dependent, create all these jobs as you said. 

Now, Dr. Busch, you talked about your Apollo Alliance, and you 

mention in here public transit rail projects. Are you talking about 

private expenditures there or are you talking about government expenditures? 

Mr. BUSCH. Well, government expenditures but I think there is 

a role for public-private partnerships and loan guarantees can help 

leverage. 

Mr. WHITFIELD. Well, I think the problem that we have today 

about any more government expenditures is just the fact of the financial situation we are in, and the great thing about what Mr. 

Hofmeister is talking about is that we are talking about private 

dollars here, and that in my view the way we need to go right now. 

But my time has expired so I will recognize Mr. Rush for 5 minutes. 

Mr. RUSH. I certainly want to thank you, Mr. Chairman. 

Mr. Hofmeister, I agree with you that the level of investment 

that China is doing overseas, especially in emerging markets, is 

alarming. The United States is not doing well in these markets and 

it seems to me that it is almost akin to us killing our mothers and 

our fathers and then we complain about being an orphan. And I am 

a strong believer that the U.S. should invest in emerging markets 

and not leave all the strategic resources to our competitors’ control. 

And that leads me, I looked at the world transit choke points 

through which almost half the world’s oil productions are moving 

through. I looked at the map where each of these seven choke 

points are located, compared it to U.S. imports for major players, 

especially in the Middle East and from offshore and west African 

coast, That west African is where China is aggressively investing 

already, and I realize that none of these imports are going through 

these choke points. You were with Shell Oil with global operations. 

Can you tell me which other maritime routes would be used to supply the North American market and how you would characterize 

those routes? That is the first question. 

81 

The second question is, in regards to overseas supply, putting 

aside our NAFTA partners, Mexico and Canada, how would you 

characterize the cost efficiencies of those two imports taking into 

account the quality of the crude transportation costs, the current 

and projected volume and security of supply? 

And my last question, if you answer all these, which of the major 

overseas exporting countries have favorable and positive policies 

and attitudes towards the United States, and I just want to make 

sure, I think the chairman in his opening remarks made note of 

the fact that he thought that there was some countries, Angola and 

Nigeria, I think he mentioned specifically, they have a hostile relationship with the United States and I just wanted to correct that. 

I think they have a very friendly relationship with the United 

States. So would you speak of choke points and those issues? 

Mr. HOFMEISTER. Thank you, Ranking Member. I think with respect to the choke points, the three most serious are the Suez 

Canal, the Hormuz Straits, which is separating Iran from Yemen— 

I am sorry—Oman and Iran, and the Straits of Malacca, which is 

between Malaysia and Indonesia. These choke points carry enormous amounts of crude oil. In fact, a former colleague, Matt Simmons, who passed away this past summer, used to speak of the 

Straits of Hormuz as, we live one day away from an oil Pearl Harbor. In other words, those Straits of Hormuz transport between 20 

and 25 percent of daily consumption of global oil, and were they to 

be shut in, the world would be in a panic overnight if it were not 

possible to pass oil. 

With respect to your second question, I think the countries such 

as Venezuela, Nigeria, Angola, in the future, Brazil, also Russia, 

these are countries which are looking at the U.S. markets quite favorably. They want to be a supplier, but there are issues in each 

of those countries. The socialistic regime in Venezuela makes a 

very unpredictable supplier not only to the United States but elsewhere. While Nigeria has an officially favorable outlook on the 

United States market, as we know, Nigeria is infected by criminal 

gangs that not only deal with onshore but also now offshore oil. 

Russia has proven to Europe that it is an unpredictable supplier 

and we could find ourselves in the same boat. 

Mr. WHITFIELD. I recognize the gentleman from Michigan, the 

chairman of the committee, for 5 minutes, Mr. Upton. 

Mr. UPTON. Thank you, Mr. Chairman. 

Mr. Mar, not long ago, as I recall, Canada was producing about 

a million per day from the tar sands, oil sands. Your testimony 

talks about getting that production up to maybe as much as from 

1 million to 3.3 million barrels by 2019. What type of incentives, 

I mean, how are you getting from 1 to 3.3? What have been the 

inducements to get there? Quickly. 

Mr. MAR. Thank you, sir. First of all, I should talk about the 

overall size of the resource of the oil that is in place in Alberta in 

the oil sands. It is roughly 1.7 trillion barrels of oil of which with 

current technology and prices about 10 percent of it is accessible, 

so roughly 170 billion barrels. So there is certainly ample room to 

move up our production to the 3.3 million barrels a day. It is a very 

realistic target. 

82 

In terms of the policies of Alberta, there are policies in place to 

recognize that the upfront costs of developing oil sands are very, 

very high. There are no exploratory costs to speak of really because 

we know exactly where it is, but there are enormous costs upfront 

in terms of capital investment that is required by private sector investment to do that. The government policy permits those who will 

invest to pay royalties only after payout from their original investment and so that is really the only incentive that is the strongest 

incentive that the government puts in place to ensure that there 

is purchases of land leases to develop oil sands. 

Mr. UPTON. What is likely to happen if the United States doesn’t 

permit the Keystone Pipeline to be built? 

Mr. MAR. Well, we continue to using existing pipelines—— 

Mr. UPTON. But what will happen to the bulk of that new production? 

Mr. MAR. Well, there has been investment by many companies 

from around the world, not just American companies who are invested in the oil sands. State-owned enterprises from China have 

invested themselves in the oil sands. StatoilHydro of Norway 

has—— 

Mr. UPTON. So is China proposing to build a pipeline to the west? 

Mr. MAR. Well, there currently is a pipeline that goes from Alberta to the West Coast. Small amounts of that oil on the spot market end up going to China on tankers but there is a proposal currently by a private sector company, Endbridge Pipelines, to build 

a project called the Gateway Pipeline to—— 

Mr. UPTON. And just quickly, double, triple the capacity? How 

much capacity ultimately to the west, particularly if Keystone is 

not built? 

Mr. MAR. I actually don’t know. 

Mr. UPTON. If you could get that for record? 

Mr. MAR. I would be happy to. 

Mr. UPTON. Mr. Hofmeister, some very troubling numbers in recent months really. As we look at our domestic production from the 

Gulf, which is basically about a third of our domestic production 

comes from the Gulf, we have gone from in 2009 1.56 million barrels per day to 2010 1.64, so a little bit of an increase. In this year, 

we are expecting that to decline to about 1.39 and in 2012 further 

decline to 1.14 million barrels per day, in essence 420,000 barrels 

fewer than we got over 2-year span. As I understand it from some 

discussions in recent weeks, we are actually this year they are predicting that the 1.39 is 250,000 barrels less than they projected 

even a year ago. Alaska is the same. We have seen these numbers 

tail off as well, in essence going from .65 million barrels in 2009 

to what will be .52 in 2012. Very troubling is this Wall Street Journal piece from last Friday, Shell postpones plan for offshore Alaska 

drilling. I want to say they had received 34 permits, and the last 

one, the Environmental Appeals Board pulled the air quality permit. 

From your days at Shell before, Shell I think has spent about 

$3.5 billion on this particular site where they think there is as 

much as 25 billion barrels down below, tell us a little bit about 

what would happen if we follow through on what the President indicated in his State of the Union address that we are going to take 

83 

away some of the incentives from domestic drilling, particular as 

you try to get from 7 to 10 million barrels a day. 

Mr. HOFMEISTER. Chairman Upton, I have been on the record in 

many public forums suggesting that by the end of 2012, this country will face $5 gasoline, precisely because of the path that we are 

on which you describe, and I believe your numbers cited are optimistic. I believe that the decline—— 

Mr. UPTON. I am a Cubs fan. That is probably why. 

Mr. HOFMEISTER. The decline in the Gulf of Mexico I believe will 

be sharper and deeper than what anyone is currently projecting because the decline rate from existing wells, particularly deep water, 

fall off naturally very quickly, and the reason we had 34 rigs drilling in the Gulf of Mexico was not so much to increase the rate of 

production but to sustain the rate of production in the Gulf of Mexico. While there may have been some increase, absent drilling—I 

mean, we have made a horrible error as a country. The rest of the 

world did not discontinue offshore drilling. 

With respect to the Alaska project you mentioned, I no longer 

speak officially for my former company, but beginning in 2005 that 

company began the process of obtaining the permits through 2006, 

2007, 2008, 2009. I retired in 2008. The company continues and it 

has now moved, according to the newspaper report, potentially 

2012. Seven years to simply drill two exploratory wells but to see 

what is there. That is the degree of frustration that American companies experience, and if you notice, no other companies are mentioned in the Alaska, while they have leases, they are not going to 

spend money when the regulatory regime is so difficult to achieve 

a single permit which was granted at one time and then rescinded 

on appeal, so in terms of losing that particular air quality permit. 

So we have a real strangulation by regulation taking place for domestic production at the current time in this country. 

Mr. UPTON. Thank you. 

Mr. WHITFIELD. Mr. Inslee, you are recognized for 5 minutes. 

Mr. INSLEE. Thank you. I wanted to explore with Dr. Newell 

whether or not substantially increased opening of federal lands 

would have an impact on the price of fuel at the pump, and I want 

to read your agency’s evaluation of this issue. It is a study called 

Impact of Limitations on Access to Oil and Natural Gas Resources 

in the Federal Outer Continental Shelf. It is a study in 2009. Now, 

a lot of folks would think if we just open up the spigot off the Outer 

Continental Shelf and other places, problem solved on prices. I 

want to read what your agency concluded after looking at it. You 

concluded: ‘‘The average price of imported low-sulfur crude oil in 

2030 in 2007 dollars is $1.34 per barrel higher and the average 

U.S. price of motor gasoline price is 3 cents per gallon higher than 

in the reference case.’’ Now, as I understand what you are saying, 

when you looked at this issue and really looked at the economics 

of this issue, your agency concluded that if we essentially removed 

all federal restrictions on Outer Continental Shelf drilling. In 2030, 

after everything had been exploited to the extent the human mind 

can consider, the price would be 3 cents different in 2030. 

Now, that is pretty stunning because a lot of people, particularly 

on the other side of the aisle, figure we will just solve this cost 

problem by just opening up the spigot everywhere in the United 

84 

States including Yellowstone National Park and the Mall. But your 

conclusion seems to suggest that there is a negligible, almost infinitesimal difference of we do that in price. Now, my understanding 

would be the reason for your conclusion is essentially it is a world 

market for oil, and since we have such a small amount of the world 

market at 3 percent top of the world market, we are not to affect 

the cost very much no matter where we drill in the United States, 

Outer Continental Shelf, Arctic, you name it. 

Secondly, there is a phenomenon that every time we increase our 

drilling OPEC can decrease theirs to maintain the price that they 

desire because that is where the oil is in the world. Now, are those 

the primary reasons that you concluded there would be a negligible, if almost infinitesimal, difference of price or are there others that I have not alluded to? 

Mr. NEWELL. I think you have captured some of the main factors 

that would come into play in analyzing that kind of question. In 

terms of the effect of increased access and production of domestic 

oil on global oil prices, in addition to the access issue, there is a 

question about whether or not those fields would be produced, 

which would depend on the cost of producing, it would depend upon 

the price of oil that would get in the marketplace. And so access 

is one piece of it. It would depend on the magnitude of areas that 

are open to access and the amount of production that would come 

from that, and then you would have to take that amount of production in the global context in terms of the overall oil supply and demand. In the previous analyses that EIA has done, the magnitude 

of increased production that tends to be associated with some of 

these actions is measured in the hundreds of thousands of barrels 

per day, which is a significant magnitude, but in the global scheme 

of things, it tends to be significantly less than 1 percent of global 

oil supply and so therefore in terms of global impacts on price, it 

tends to be small. 

Mr. INSLEE. Quite negligible. 

Second question, we look for bipartisanship. We haven’t been 

able to find it on climate change. My Republican colleagues still insist on ignoring the clear scientific consensus about this. But there 

is a bipartisan consensus about concern for oil supplies, price that 

our people pay at the pump and national security issues, and I 

think there is room for bipartisanship by adopting a scenario where 

we try to maintain a climate that doesn’t increase more than 2 degrees, and your colleagues at the International Energy Agency 

have concluded that if we embrace an effort to limit the amount of 

carbon dioxide in the atmosphere that would result in a 2-degree 

increase in world temperature, so if we try to limit it to that increase, we would have a significant reduction in decreasing the cost 

of oil. They have concluded that if we took action to limit it to 2 

degrees, we would essentially drop U.S. imports by 45 percent from 

10.4 million barrels in 2009 to 5.7 million barrels in 2035, last seen 

in the 1980s. They found under the 2-degree scenario, we have a 

significantly weaker demand with that demand falling briskly 

thereafter. Oil prices were much lower as a result. If we really do 

something about climate change by reducing CO2 emissions and reduced demand for oil, can that help us restrain the price increases 

of oil? 

85 

Mr. NEWELL. We have not specifically evaluated a global scenario 

like the International Energy Agency has. I mean, we have on different occasions evaluated U.S. energy and climate policies. If there 

was a significant reduction in global oil demand as a result of some 

set of policies, that would tend to bring price down, other things 

equal in the world oil price. There might be a difference, though, 

between the world oil price and the retail price paid that one would 

need to take into account, though. 

Mr. INSLEE. Just for the record, though—— 

Mr. WHITFIELD. Mr. Inslee, I let you go over. 

One comment I would just make, we have been advocating additional exploration. Certainly one part of that figure is the price but 

just as important is having the supply to meet the demands of our 

economy. 

I recognize the gentleman from Texas, Mr. Barton, for 5 minutes. 

Mr. BARTON. Thank you. I would be happy to yield to my friend 

from Washington for that question if it is a short one, and if the 

answer could be relatively short. I don’t want to cut him off in midsentence. 

Mr. INSLEE. Mr. Barton, I appreciate your continued courtesy. I 

just want to point out, the study that I referred to suggested that 

the world oil price would be $90 per barrel in 2035 if we adopted 

measures to restrain demand consistent with reducing climate 

change to limit it to 2 degrees. And thank you for your courtesy, 

Mr. Barton. 

Mr. BARTON. Thank you. Of course, I think everyone knows that 

Mr. Inslee and I don’t share the exact same view on climate 

change, but we do share that we need to discuss views in this committee. That is what it is all about. 

Mr. Newell, I know the Energy Information Administration is 

more of a data collection and reporting agency within the Department of Energy. Do you in your position have any authority to 

speak on behalf of the Obama Administration or Secretary Chu on 

policy issues? 

Mr. NEWELL. No. 

Mr. BARTON. So you are more of a reporting and data collection. 

And that is fine. That is not pejorative. I was going to ask some 

policy questions of you, but if you are not authorized to answer, I 

won’t do that. 

I will ask you this, though. Do you have any projections within 

your agency that show a significant reduction in oil demand worldwide? 

Mr. NEWELL. The scenario that I discussed earlier, our reference 

case scenario for domestic liquids consumption, we expect an increase, a modest increase in domestic liquids production. Petroleum 

consumption in the United States we expect to be—— 

Mr. BARTON. No, I am talking about worldwide, not just the 

United States. 

Mr. NEWELL. Worldwide, we are projecting under current laws 

and policies internationally a significant increase in global liquids 

consumption. 

Mr. BARTON. Significant increase? 

Mr. NEWELL. Yes. 

86 

Mr. BARTON. Is there anybody on the panel that has an alternative view that we can somehow bend the demand curve and send 

it significantly lower? 

Mr. SIEMINSKI. Mr. Barton? 

Mr. BARTON. Yes, sir. 

Mr. SIEMINSKI. Let me just jump in here. In my forecasts, about 

the year 2020 overall global demand begins to level off, and I think 

that that is mainly going to be a function of a better consumption 

per unit of economic output numbers in the emerging market countries. So we are already seeing the OECD countries’ overall demand numbers flattening, probably coming down, and in another 

10 years we should begin to see that happening in the emerging 

market countries. 

Mr. BARTON. Well, I would postulate that based on the economy 

worldwide, if we are able to restart the U.S. economy and the European and the Asian economies and the Chinese economy grow that 

there is going to be a substantial increase in demand for oil, even 

with the best efforts on energy conservation and things like that. 

So that would tell me that for U.S. energy security, we should try 

to increase U.S. energy production of all sorts—natural gas, oil, 

clean coal, wind, solar. We should support research into clean coal, 

CO2 sequestration if we can see a light at the end of the tunnel 

on the technology. But we definitely need to, in my opinion, increase our domestic energy resources. 

Mr. John, do you have any information if we could really restart 

exploration in the Gulf, what kind of an increase we could get in 

production from that, say in the next 2 to 3 years? 

Mr. JOHN. Well, in my statement that I submitted, it talks about 

kind of the production curve of what is in the Gulf and what can 

be produced in the Gulf, and it shows really somewhat of a decline. 

However, it is important to understand that you just don’t turn the 

switch on and off. In a deep water project where you have a billiondollar piece of equipment in a floating drill ship from start to finish, by the time you actually lease the property until you explore, 

then produce, pipeline and it gets into the market is somewhere in 

the 2- to 5-year range just depending on a lot of elements. In fact, 

the deep water Macondo well, the lease sale of that piece of property was in 2008, so that was a 2-year span and they weren’t in 

production. So the lag time is what is very critical because there 

is going to be a bubble any time you take 30 percent of our domestic production offline, and it has been offline since the 27th of May, 

there is a bubble. It won’t happen tomorrow or the next day but 

it is coming and it is going to have some sort of impact, a negative 

impact on the supply. 

Mr. BARTON. My time is expired, Mr. Chairman. Thank you very 

much. 

Mr. WHITFIELD. Yes, sir. Mr. Green was next, but I see he is not 

here. Mr. Markey, you are recognized for 5 minutes. 

Mr. MARKEY. I thank the chairman very much. 

Yesterday, this subcommittee held a hearing on Republican legislation that will bar EPA from doing anything further to reduce oil 

use from cars, trucks, planes, boats or any other source. The legislation might even nullify the progress that has already been made 

at the EPA in reducing demand for oil from cars and trucks and 

87 

through the development of homegrown renewable fuels. The Republican bill could result in an increase in our oil dependence of 

more than 5 million barrels a day by the year 2030, more than we 

currently import from OPEC. We have heard disturbing rumors 

that this legislation could be marked or even added to the Continuing Resolution on the House Floor next week, but today, here 

we are holding a hearing on the effect of Middle East unrest on the 

oil market as though the Republican legislation that will dramatically increase our dependence on Middle Eastern oil didn’t even 

exist. It reminds me a lot of when Monsignor O’Malley used to go 

up into the pulpit on Sunday and lecture to the congregation that 

on Wednesday in the church hall, Father Ganney will lecture on 

the evils of gambling; on Thursday night in the church hall, bingo. 

Well, yesterday we are lectured on the evils of the EPA. Today, 

bingo, Egypt, bingo, Iraq, Iran, Tunisia, bingo, bingo, bingo, bingo. 

So let me ask each of you. Let us go down the list and I would 

like a yes or no on whether or not you feel it is important for us 

to stop $162 billion a year going to OPEC, going to Middle Eastern 

countries that are paid for by American consumers at $90 a barrel 

so that we are not subsidizing religious fanaticism in Saudi Arabia, 

we are not subsidizing rockets being constructed in Iran that are 

then used by Hezbollah and Hamas against Israel and against our 

country. So let me just ask each of you if you believe, number one, 

that reducing our dependence upon imported oil from the Middle 

East is important. Dr. Newell, yes or no? 

Mr. NEWELL. That would tend to involve a policy position which 

I am not in a position to answer. 

Mr. MARKEY. OK. Mr. Mar, is that important? 

Mr. MAR. Sir, as a representative of another government, I am 

not—— 

Mr. MARKEY. Mr. Sieminski, is that important? We are talking 

about Egypt here. It is a hearing on Egypt and its impact on oil 

prices, and we are talking about the Middle East here, not Canada. 

We are not talking about Norway. Mr. Sieminski? 

Mr. SIEMINSKI. Mr. Markey, I am going to try to answer your 

question actually but I can’t do it in one word. I will try to be brief. 

Mr. MARKEY. No, thank you. 

Mr. Hofmeister, yes or no, is it important for us to reduce our 

oil dependence on the Middle East? 

Mr. SIEMINSKI. Mr. Markey, my answer to that would be no then 

if I can only say one word. 

Mr. MARKEY. It is not important. OK. Thank you. 

Mr. Hofmeister? 

Mr. HOFMEISTER. Absolutely critical to reduce dependence on the 

Middle East. 

Mr. MARKEY. Thank you. 

Dr. Busch? 

Mr. BUSCH. Yes. 

Mr. MARKEY. Yes? 

Mr. JOHN. I think it is important to increase our domestic production, and if that means reduced from the Middle East, then my 

answer is yes. 

Mr. MARKEY. But should our goal be to reduce dependence upon 

Middle Eastern oil? 

88 

Mr. JOHN. Yes. 

Mr. MARKEY. OK. Thank you. 

Now, so given that, should we be unilaterally disarming ourselves of any of the weapons, any of the weapons that we have in 

our arsenal to reduce demand for Middle Eastern oil? Mr. John? 

Mr. JOHN. Mr. Markey, you are still on the top of your game. 

Mr. MARKEY. And under the 5-minute rule. 

Mr. JOHN. Yes. So four corners doesn’t work here then. Obviously 

you bring a very good point. The point is that America and the 

world consumption of oil is going to increase. 

Mr. JOHN. Bottom line—can I say this? I am going to run out of 

time. Bottom line here is, we can’t afford to not improve the fuel 

economy standards of the vehicles which we drive. That is our 

number one weapon against the Middle East. That is where we are 

teaching them a lesson. That is President Kennedy telling Khrushchev we are putting a man on the moon in 10 years and bringing 

him back, you are not controlling outer space, we are using our 

technology to dominate you. That is our message to the Middle 

East. They have 70 percent of the oil reserves in the world, the 

Middle East. We cannot beat them at that game with only 3 percent of the oil reserves. It is irresponsible to talk about basically 

tying the hands of the EPA to improve our ability to make ourselves efficient to back out this oil from the Middle East, and next 

week’s vote if we have it will be a historical one. 

Mr. WHITFIELD. Mr. Sullivan, you are recognized for 5 minutes. 

Mr. SULLIVAN. Thank you, Mr. Chairman, and thank you for having me follow Mr. Markey. It is not something I enjoy very much, 

and he is very good, by the way, at what he does. 

I just want to touch on this again for a little bit. According to 

the National Petroleum Council, technically recoverable resources 

in North America currently restricted by law or regulation amount 

to over 40 billion barrels of oil. The answer to our energy security 

question is staring us right in the face, but the simple fact is that 

the Obama Administration is hostile to developing oil and gas, and 

they have taken a decisive regulatory position against increased domestic oil production, and let us just take a look at this again. On 

December 1, 2010, the Obama Administration announced a new 

offshore drilling ban that will keep the eastern Gulf of Mexico and 

the Atlantic and Pacific coasts off limits to new offshore exploration 

until 2017, and the Administration just announced that new drilling permits in the Gulf may not happen until June 2011. These actions send terrible signals to the world oil markets and it makes 

our Nation more vulnerable to oil price swings due to rising demand and political upheaval. 

I guess my question would be to Congressman John and Mr. 

Hofmeister. Congressman John, you referenced that 38,000 jobs are 

at risk because of the moratorium or ‘‘permatorium’’ in the deep 

water Gulf. That doesn’t mean every job has been lost. Companies 

are doing what they can to keep workers on the payroll while drilling projects remain in a standstill, and that means companies in 

many cases are spending millions of dollars a day to keep mass layoffs from occurring, and I have a company in my district that in 

the Gulf right now, and I met with them not long ago, and they 

are sitting idle paying like a million dollars a day to service compaVerDate Nov 24 2008 13:01 Aug 22, 2011 Jkt 037690 PO 00000 Frm 00094 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 112\112-4 021011\112-4 CHRIS
89 

nies and the rig operators, and they asked me when am I going to 

get a permit. They said, believe it or not, that the regulators and 

the bureaucrats don’t even return their phone calls. Are you hearing that? And how much longer do you think these companies can 

last without opening for new drilling, and do you have any indication how much money has been lost by exploration companies since 

the initial drilling moratorium, and if you could help me, what 

should I say to these companies? When will they get their permit? 

Mr. JOHN. Well, Congressman Sullivan, that is a question that 

I get every day because I live amongst the people that actually 

make a living day to day, and it is not just in a pipe company or 

a wild line company. It is the caterer in the poor boy shop, the caterers and the ice companies and the hardware stores, so I get that 

question every day. The math is very easy to do. There were 33 

drill ships. There are 240 people per drill ship that work, full-time 

equivalent. If you multiply that out, that is about 38,000 people 

whose job is at risk today. 

Now, let us back that back. Six drilling ships are gone, and those 

drill ships, as I mentioned earlier, a billion-dollar piece of equipment, you don’t just move them one day in an area of the world 

and move them back 6 months later. They are gone for 3 years to 

5 years because that is the contractual obligations that they are insisting on having. Those drill ships are $400,000 a day, a day rate. 

That is how much they were getting. Some of the companies now 

negotiated a day rate below 100. How long can they stay? I think 

we are getting towards the end of that. I think that you see that 

we have got 27 drill ships that are idled right now kind of waiting 

to see, but at some point in time, two of which are already in the 

middle of negotiations, that are going to leave, and when they 

leave, it is 5 years, and it is about 2,000 jobs per drill ship when 

you multiply the factor of 4.1 to each job that is created. 

Mr. SULLIVAN. Mr. Hofmeister? 

Mr. HOFMEISTER. I would suggest that the effects of the shutdown in the Gulf of Mexico will be felt for the next 3 to 5 years 

from where we are today, even if we started permits in the next 

6 months. If you followed the fourth-quarter reports of most of the 

major oil companies from Chevron and others, they are reporting 

hundreds of millions of dollars of expenses in maintaining capability for the Gulf of Mexico for which there is no return, so these 

are absolute out-of-pocket costs. How long they can continue is unknown. 

Fortunately, most of the companies have alternative projects 

where they can reassign people, avoiding layoffs, but the overall reduction in domestic production in the United States will be felt for 

years into the future. 

Mr. SULLIVAN. Thank you, and I yield back the balance of my 

time. Thank you, Mr. Chairman. 

Mr. WHITFIELD. Thank you, Mr. Sullivan. 

I recognize the gentleman from Texas, Mr. Green, for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman, and I thank all of the 

panel. I want to talk about our susceptibility to any little minor 

thing that happens because of our dependence on oil. And coming 

from Texas, I can see it, in fact, all the testimony we have, whether 

it be from our former colleague or John Hofmeister or anyone else 

90 

on the panel, we are susceptible simply because we import so 

much. And when we have what happened in the Gulf of Mexico for 

almost the last 10 months, there are very few permits. We fought 

over shallow water permits as compared to deep water permits, 

and it is really frustrating with some of our companies actually 

saying OK, we applied for it, we will try and work it through, and 

we are hitting the same stone wall that most folks are having. 

Maybe our energy subcommittee, maybe the oversight committee 

should invite someone from the Department of Interior. We have 

some jurisdiction over that, and I know we did last year and we 

might do that again. 

The frustrating thing is, I have a district in Texas and I have 

five refineries. We need the crude oil even if we don’t get it from 

the Gulf. Even with all the fracking we can do, we get very little 

oil from the fracking although there is some great things going on 

in south Texas in the Ford shale but still not enough, so that is 

why the Canadian pipeline is important because we need that 

crude oil. I would rather have it from domestic sources but the next 

place is Canada because we know Venezuela and Mexico’s production is decreasing. We can buy everything from Mexico if we want 

but obviously President Chavez is not our best friend. So that is 

the issue that I am concerned about, and particularly to my constituents in East Harris County and North Harris County. 

Mr. Hofmeister, I have to say, we have known each other for a 

long time obviously as CEO of Shell and one of my refineries is a 

Shell facility. We also have a chemical plant. But in your testimony, you said we live in a both-and world and not an either-or. 

I have supported alternative research for everything on alternatives but it still won’t get us where we need to get. We still need 

oil to fuel our economy. 

My questions are really for Administrator Newell, and I think 

the concern I have, how can—we determine the production from 

2010 to 2011. We saw an increase in production actually from 2009 

projected but now we are seeing a decrease in production, particularly because of what is happening in the Gulf of Mexico. How 

would our annual energy outlook differ if the offshore moratorium 

had not been put in place and if we were not now facing endless 

permitting delays? Have you been able to quantify that at the EIA? 

Mr. NEWELL. We have not specifically looked at what if the moratorium had never happened. There have been implications of that 

in our short-term and long-term outlook, though. We are forecasting that for this year, 2011, about 250,000 barrels per day 

lower production offshore and another decline of similar magnitude 

in 2012, which is in part due to the moratorium, in part due to natural decline at existing fields, so there is an impact there. It is very 

difficult to isolate one particular factor but that would be a significant piece of that. 

Mr. GREEN. Well, it is interesting, because some of the deep 

water projects actually have the potential for 250,000 barrels a 

day. Now, we don’t see that in shallow water, so that might even 

be a very conservative estimate on the loss. And remember, every 

barrel that we don’t bring out of the Gulf of Mexico we either bring 

it in through the Suez Canal or somewhere else and so that is why 

this hearing is important. 

91 

If you haven’t quantified about the moratorium and permitting, 

can you do that or do you need the direction from the Department 

of Energy or can you do it on your own request? 

Mr. NEWELL. No, I mean, we can do that in part. Again, it is difficult to ask the ‘‘what if’’ question because one is looking back and 

you need to look at particular drilling, and it is something about 

what would have occurred and what did occur and provide a comparison. As I mentioned, we do in our short-term outlook have 

about a 250,000-barrel-per-day decline in 2011 and another one in 

2012, and a significant part of that would be due to the moratorium but then also the delay in permitting after that. To get it 

more fine-tuned than that would be a challenge. 

Mr. GREEN. Well, I know we have about a 10-month experience 

now, and again, like the testimony showed, we are not just talking 

about oil tomorrow or next month, we are talking about 2 to 3 to 

5 years from now if those permits continue. 

Mr. Chairman, I appreciate your patience. Obviously I have a lot 

of other questions and I would just like to submit them if we are 

not going to have a second round. 

Mr. WHITFIELD. Thank you. 

The gentleman from Illinois, 5 minutes. 

Mr. SHIMKUS. Yes. Thank you, Mr. Chairman. Great hearing. I 

appreciate you all showing. 

A couple things, and first directed to Mr. Hofmeister and Mr. 

Newell, and I don’t know, Mr. Newell, if you have been asked, 

many of us believe we could be energy independent. We all know 

that we are independent on electricity generation in this country. 

I talk about energy and the different types of issues, electricity 

versus transportation fuel issues. Can we—based upon North 

American energy supplies, North American energy supplies, if we 

adequately access those, could we be energy independent? Mr. 

Hofmeister? 

Mr. HOFMEISTER. I think it would be very, very difficult to 

achieve full independence on the path that we are on. We would 

need to address the transportation industry somehow to—— 

Mr. SHIMKUS. Well, and that makes a good point, and Mr. Markey left the room, but he keeps saying that in the hearing yesterday that we are going to turn back the clock on fuel economy 

standards where the legislation drafted yesterday particularly protects those standards. It still allows NHTSA to perform the role in 

the 2012-2016 car rule. So we also believe that efficiency standards 

is part of all-of-the-above energy strategy, and if we did that, continued to move on energy security, could we be? 

Mr. HOFMEISTER. Well, I think if you look over a 20- to 25-year 

road map and you substituted the internal combustion engine with 

other technology—— 

Mr. SHIMKUS. Well, in the all-of-the-above energy strategy, we 

also talk about expanding the nuclear portfolio, so then you can 

have electricity—so I believe they have—Dr. Newell, have you all 

done an analysis on North America energy and energy independence by accessing available resources? 

Mr. NEWELL. We do track North American energy both statistically in terms of what is currently going on in our projections. We 

have not specifically addressed the question about what actions 

92 

could one undertake in order to achieve energy independence. We 

have not looked at that. 

Mr. SHIMKUS. Great. Thank you. 

Let me follow up. I want to again highlight that in the legislation 

yesterday, and my colleague is coming back, I want to make sure 

he understands up, the big political banner from last year was, 

read the bill, and I will ask my colleague from Massachusetts, 

make sure he read the bill because we do not affect the 2012–2016 

car rule and truck. We don’t do it. 

So I need to move to a couple other issues. Mr. Chairman, I 

would like to ask for unanimous consent that the Cambridge Energy Research Associates article in growth in the Canadian oil 

sands be placed into the record. 

Mr. WHITFIELD. Without objection. 

[The information appears at the conclusion of the hearing.] 

Mr. SHIMKUS. And also I have an article from AP Energy on 

North Dakota, and I am going to use these in my comments. 

Mr. WHITFIELD. Without objection. 

[The information appears at the conclusion of the hearing.] 

Mr. SHIMKUS. Mr. Busch, with all due respect, I will invite you 

to come to my congressional district. Organized labor, where it 

thrives, thrives in the fossil fuel industry. We are expanding a big 

refinery. We have several thousand members of organized labor, laborers, iron workers, operating engineers, carpenters, painters, 

been on site during this economy working in the fossil fuel industry. I would then point to Prairie State generating facility, which 

is a 1,600-megawatt plant where we have also had thousands, several thousand members of organized labor, the same construction 

workers expanding and building this new state-of-the-art power 

plant. I mentioned that in my opening statement with the oil sands 

and what is in the testimony, I think 23,000 jobs that would then 

come—23,000 would come on this one project alone for the State 

of Illinois. 

Energy security and jobs, we are focusing on jobs for people to 

move to destroy and attack the fossil fuel industry when it is a 

major job creating, low-cost energy. That is what fires up a lot of 

us. 

I want to end with this story which also talks about energy security, and really what we haven’t addressed is the vast resources of 

natural gas in this country. That is a paradigm shift. And look 

what it has done to North Dakota and jobs. I know Speaker Pelosi 

once said natural gas is not a fossil fuel but it is, OK? Unemployment in North Dakota has fallen to the lowest level in the Nation 

at 3.8 percent, less than half of the national rate of 9 percent. The 

influx of mostly male workers to the region has left local men lamenting the lack of women. Convenience stores are struggling to 

keep shelves stocked with food. Why? They are accessing this new 

great resource, natural gas oil shales. I yield back my time. 

Mr. WHITFIELD. Thank you. 

Ms. Capps, you are recognized for 5 minutes. 

Mrs. CAPPS. I am glad that my colleague is still here so that I 

can say that California, where do have a strong labor movement, 

rejected the Koch Brothers’ attempt to remove all the clean air regVerDate Nov 24 2008 13:01 Aug 22, 2011 Jkt 037690 PO 00000 Frm 00098 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 112\112-4 021011\112-4 CHRIS
93 

ulations that we have in California by voting down Proposition 23 

in the last election. 

And I just want to address a few questions to you, Dr. Busch, 

because we also really support the Apollo Alliance as a jobs alliance 

in California, and I believe that we can look at renewable energy 

without being disparaging on any other form of energy and say this 

is a job opportunity for the future. We hear from the majority today 

that the way to reduce our dependence on foreign oil is to drill our 

way out of the problem. We know in California but I think we 

know in our country that that is not true by a long shot. We use 

so much oil in this country. I think it is actually too precious to 

waste on energy because of the other products that oil can offer us, 

lifesaving products. There is no way we could either produce 

enough to meet our needs domestically. If we had adopted what 

many of us on this side on the dais and some on the other side as 

well had called for in the 1990s like efficiency standards for our vehicles, homes and appliances, we may not have found ourselves in 

the situation we are in today. 

Dr. Busch, the Republican Majority also claims that taking action to reduce carbon pollution would be too expensive, but that is 

not what you found when you looked at the demand side, and that 

is what I want to ask you about today. You and your colleagues examined the effects of California’s clean energy law, which will lead 

to the adoption of more-efficient vehicles and lower carbon fuels. 

California’s standards will reduce the amount of oil used by cars. 

Dr. Busch, what impact on oil demand in imports did California’s 

measures have? 

Mr. BUSCH. Well, we actually built on the analysis of the California Air Resources Board, and so using their numbers, we found 

that AB 32 policies would lead to a reduction of 75 million barrels 

per year. About an 18 percent reduction is the forecasted reduction. 

Mrs. CAPPS. And that is going to save California a little money? 

About how much? 

Mr. BUSCH. At $114.50 per barrel, that is about $11 billion reduction in the import bill. 

Mrs. CAPPS. I hope that is being listened to by everyone here 

today. I think that is not pocket change. 

In your study, you examined an additional benefit of the clean 

cars standards, the protection they offer from oil price shocks. 

Please tell us about that benefit. 

Mr. BUSCH. Right. Well, we didn’t actually separate the car 

standards but the overall sort of protection under the price shock 

scenarios, and these were increases in gas or diesel of about 25 percent in the lower scenario and 50 percent in the higher scenario, 

so about a dollar or a little more than $2 increase in the price of 

gasoline saves consumers about $3 billion to $7 billion more or 

roughly $200 to $500 if you would spread that over across households. 

Mrs. CAPPS. And that is not a partisan estimate, that is a study 

that is across the board, right? 

Mr. BUSCH. Yes. 

Mrs. CAPPS. Now, you weren’t here yesterday but we had a hearing in our same subcommittee, received, I think, quite compelling 

testimony from the EPA Administrator and from the American 

94 

Public Health Association witness that greenhouse gas emissions 

do threaten the public’s health. Are there additional benefits to the 

public’s health from oil reduction policy? And by that, I want to extrapolate that it is important to save people’s health not only for 

their well-being because healthy people make better working people and can actually help us to grow our economy. Can you please 

tell us some of the policies that will get us the most bang for the 

buck in terms of public health being an economic driver? 

Mr. BUSCH. Well, I guess broadly speaking in terms of economic 

drivers, I would point out in California clean jobs have been going 

about three times faster than jobs overall. In 2008 while overall 

jobs were shrinking, green jobs grew in California by 5 percent. In 

2009, they grew 3 percent while overall jobs grew 1 percent, so 

again about three times faster. And green manufacturing grew at 

a 10 percent rate in 2009. And 24 percent of green jobs are manufacturing jobs in California versus 11 percent of the overall employment. 

But on the health cost issue, I would say, the broader macroeconomic analyses haven’t factored in the benefits to public health 

in addition to the price spikes in insurance and the national security implications. So, in California the number I have seen, a Cal 

State Fullerton study, was $28 billion per year in health costs from 

the burning of fossil fuels in California. We don’t burn much coal 

so most of that would be on the transport side, so the big winners 

would be cleaning up transportation. 

Mrs. CAPPS. Thank you very much. 

Mr. WHITFIELD. Yes, ma’am. 

Dr. Burgess, you are recognized for 5 minutes. 

Dr. BURGESS. And I thank the chairman. 

Mr. Hofmeister, I appreciated your thoughtful and well-prepared 

statement that you provided for us. You mention in there very 

briefly—and in this committee we had a lengthy hearing in the 

summer of 2008 when gasoline prices were so high. We had a 

lengthy hearing on the effects of speculation on driving the cost, 

and you mentioned that tangentially in your remarks, and while I 

realize that is not the principal source or the reason for this hearing today, can you expound upon that a little further and do you 

have any information that you would like for this committee to consider going forward? Because it was an issue in the summer of 

2008, I felt, though we never really came to a conclusion as an investigative body in the Oversight Subcommittee on Energy and 

Commerce, and yet clearly before the worldwide economic downturn occurred, we were on a trajectory where the average person 

was going to be priced out of the retail gasoline market. 

Mr. HOFMEISTER. In my own investigation of the role of speculation, I conclude that it is a minor impact on overall crude oil price 

for the 2007–2008 period. The real issue that took place—and I testified to this in June of 2008 in my previous role—was the demand 

for middle distillates, that is, diesel, aviation fuel, heating oil, 

where there was not enough crude oil barrels in the market to satisfy the demand for those middle distillates drove the price to $147. 

In any commodity training, there will always be some degree of 

speculation from orange juice to pork bellies to coffee beans, true 

also in oil, but based on my own analysis, to get more than, say, 

95 

5 percent as speculated price to me is a real stretch and it just is 

the reality of supply-demand. The supply-demand equation works 

extremely well across the world and also in this country, and the 

real issue is the availability of crude oil or the insecurity about obtaining future contracts of crude oil, and that shortage of crude oil 

is what really drives price. 

Dr. BURGESS. And of course, as you correctly point out, the time 

horizon for new development bears a 7- to 10-year lag between 

starting a project and actually having a deliverable in the marketplace. So I don’t think there is any question, even though supply 

and demand during that hearing was discounted as a source of the 

problem. If there is a problem coming 7 years down the road and 

we don’t deal with it today, if the problem today is speculation but 

there still is going to be a supply-demand inequity in 7 years, it 

is obviously the producers who need to be making the preparation 

and doing the investments necessary. 

And yet still it was hard to separate out—I know that the head 

of Southwest Airlines makes money on the fact that he is able to 

hedge the fuel prices and did that more effectively than any other 

airline in the country, and in 2008 profited handsomely from that, 

yet there were other people who were buying large quantities who 

never intended to take delivery of that product, in fact, had no ability to take delivery, and it did seem that that affected the overall 

price for the end user. Is there still work to be done on that? I 

know we are at a time now where I think even it was mentioned 

by the gentleman next to you that the price of crude does seem to 

track the stock market. It is a safe place for money to go right now 

while other things seem not so safe. So is there still a role to play? 

Does Congress need to pay attention to this as a regulatory body? 

Mr. HOFMEISTER. Well, I think in the interest of consumers overall, the answer to your question is yes, I think there is an oversight 

role that needs to be played because there can be manipulation. I 

didn’t find it in the 2007–2008 period, and many of those who 

hedged in the summer of 2008 were burned badly later in the year 

when the price collapsed. 

Dr. BURGESS. Yes, we bailed them out, if you will recall. 

Mr. HOFMEISTER. But I think from an oversight—— 

Dr. BURGESS. I voted against that, just for the record, so everyone understands. 

Mr. HOFMEISTER. From an oversight standpoint there is always 

a role in any market for the potential abuse that could exist, and 

those who don’t own the product I think are the most likely to need 

to be watched over. 

Dr. BURGESS. Let me just ask you quickly, because you also referenced some of the shale formation productions going on, and you 

are the only person on the panel who actually has any experience 

with production. I agree with you about that. In my area of north 

Texas in the Barnett shale, it is a big deal, but there is also concern and the general public in the area is not convinced that they 

are being protected from air quality issues, water quality issues. 

There is a big fight going on between federal regulators and state 

regulators back where I live. It seems like there is a lot of responsibility that has to fall on the producers, and I would think that the 

producers would be more proactive about ensuring that things are 

96 

done properly so that they don’t lose this very precious resource because of pushback by the general public. 

Mr. HOFMEISTER. There is a very serious effort underway by a 

number of producers to try to arrive at appropriate standards because you are absolutely right. When people operate below standard or do not operate the best practice, best in class, then abuses 

can take place and people do suffer. So between a number of associations and a number of major companies, there is an effort to 

agree on what should those standards be and then find a way to 

get people to comply with such standards. 

Mr. WHITFIELD. Mr. Scalise, you are recognized for 5 minutes. 

Mr. SCALISE. Thank you, Mr. Chairman. I appreciate you hosting 

this hearing dealing with the Middle Eastern crisis and especially 

how it relates to U.S. energy markets. 

I want to walk back a little bit and first go through some of the 

things that got us to the situation we are in in the Gulf of Mexico, 

which Congressman John did a really good job of outlining. Right 

after the explosion of the Deepwater Horizon, the President commissioned a team of scientists and commissioned them to go out 

and come back with a safety report, a report on not only what went 

wrong as much as how we can improve safety in the Gulf operations, and there was a 30-day safety report that was put together 

that the Department of Interior issued that was peer reviewed by 

scientists, and there were some good recommendations on how to 

improve safety, many things that most of the companies, unlike 

BP, were already doing. The problem that came out of this was, 

this was the document that was referenced to create the moratorium, and I want to submit this for the record. I ask unanimous 

consent that we can submit this report. 

Mr. WHITFIELD. Without objection. 

[The information appears at the conclusion of the hearing.] 

Mr. SCALISE. We later found out that this document was fraudulently doctored by the Obama Administration to suggest that the 

scientists themselves recommended the moratorium, and I think it 

is really important for everybody to understand that the moratorium that came out that two courts now have said the Administration doesn’t even have the legal authority to administer, that moratorium was based on fraudulent doctoring of this document, and in 

fact the scientists, a majority of those scientists that were peer reviewing the document that the President himself appointed, that 

were appointed by the White House, a majority of those scientists 

said they not only disagreed with the moratorium but they point 

out how the moratorium reduces safety of drilling operations in the 

Gulf of Mexico, and they have some very sound reasons why that 

moratorium reduces safety in the Gulf and why they disagreed 

with it, even though their name was attached to it. Of course, the 

Obama Administration later had to apologize to these scientists for 

that fraudulent doctoring, and that has never really been covered 

thoroughly enough and I think it is something we do need to pursue, but I want to ask unanimous consent to also include this in 

the record because I think it is important—— 

Mr. WHITFIELD. Without objection. 

[The information appears at the conclusion of the hearing.] 

97 

Mr. SCALISE [continuing]. To establish that the moratorium itself 

came from fraudulent activities by the Obama Administration, 

which now has brought us to the point of the ‘‘permatorium’’ as 

was described where they are not issuing permits in the Gulf today 

for any drilling activities in the deep water, which dramatically is 

reducing America’s energy security and I think is one of the contributing factors to why we are over 90 approaching $100 a barrel 

on the price of oil on the spot market. 

So I want to ask Congressman John, because you work directly 

with these companies and you talked a little bit about it in your 

opening statement, the things that you are seeing on the ground— 

I know I hear from people every day not just the people who are 

exploring for energy but all of the service industry people, all of the 

ancillary. We have gotten reports from the White House alone that 

12,000 jobs have already been lost in south Louisiana, not even getting into the rest of the country. In south Louisiana, we lost 12,000 

jobs because of the moratorium, now the ‘‘permatorium’’ that is 

going on, so if you can tell me if you have got any more numbers 

on how much wider that is approaching because there are so many 

companies that are just literally holding on by a vine, companies 

that are small businesses, local American businesses that are about 

to go under, about to go bankrupt because of the Administration’s 

fraudulent activity. 

Mr. JOHN. As far as the direct jobs, and again, there are a lot 

of number out there, Congressman Scalise, and we try to put our 

arms around the realistic of what is happening out there, and the 

math is pretty easy to do. When you look at the jobs that are lost 

today, there are these six drill ships that are gone. They are gone. 

And if you multiply those number out, it is right in the 5,000 to 

6,000 direct jobs, and then you have to multiply that times four because according to a study that was commissioned by Louisiana 

Mid-Continent Oil and Gas by Dr. Lawrence Scott, it is a multiplier of four. So, yes, is there some debatableness about the numbers. 

Mr. SCALISE. But it is well in the thousands, maybe approaching 

the tens of thousand? 

Mr. JOHN. It is well over 10,000 jobs that have been lost as of 

today, and G&O Inc. predicted that Woods McKinsey study said 

that a permanent moratorium or a moratorium that lasts for longer 

than a year or so and with a total shutdown of the Gulf, it is 

175,000 jobs that are—— 

Mr. SCALISE. I appreciate that. I know we have got a list here 

of the rigs, as you talked about the 33, and these are very valuable 

assets, a billion-dollar asset each in many cases, that have already 

left. I will tell you some of the countries that some of these assets 

have gone to: Libya, Nigeria, Congo. Two of them have actually 

gone to Egypt, and it is a sad state of affairs in this country when 

a major employer thinks that it is better to do business in Egypt 

than it is in the United States because of the Obama Administration’s policies that are leading us to a higher dependence on Middle 

Eastern oil. Egypt, two of these assets have gone to, and I would 

like to ask unanimous consent to submit this into the record as 

well, and I thank you for being here and for what all of you are 

doing, and I yield back the balance of my time. 

98 

Mr. WHITFIELD. Without objection. 

[The information was unavailable at the time of printing.] 

Mr. WHITFIELD. I might also say that toward the end of the year, 

we sent a letter to Michael Bromwich asking for some response to 

questions regarding the moratorium. We never heard anything 

from him. We are getting ready to recontact him a little more forcefully this time and hopefully we can get some additional answers. 

The gentleman from Texas, Mr. Olson, is recognized for 5 minutes. 

Mr. OLSON. Thank you, Mr. Chairman. Thank you to the witnesses for coming today to give us your expertise on this critically 

important matter. 

I would like to ask my first question to Mr. Hofmeister. First of 

all, thank you, sir for your service to the town of Houston, greatly, 

greatly, greatly appreciate that, and I want to talk about national 

security and the Middle East. I think you believe as I do that we 

have to develop all the oil and gas resources that God has given 

our country. That means the East Coast, the Gulf Coast, the West 

Coast, Alaska, the public lands, wherever it is, we need to develop 

that oil. We are very vulnerable geographically particularly, I 

mean, with these Straits of Hormuz and with the Suez Canal 

where most of the oil that our country depends upon flows through, 

and I was in the Navy for 10 years, flew P-3s and did many, many 

patrols through the Straits of Hormuz, and it is a very, very, very 

narrow choke point, about 10, 15 miles wide at its widest, and 

when we flew through there, we had devices on our aircraft that 

we were being tracked by fire control radar from the Iranians, and 

I can guarantee you that they are doing that with the tankers that 

are coming through. I mean, if they want to cause big, big trouble 

for the world, take out a tanker right there in the middle of the 

straits and cut off the whole Persian Gulf to traffic. 

And so, my point here, we are depending right now—we have got 

two very unstable nations, Egypt with what is going on there internally and Iran with a leadership who doesn’t live on this planet, 

and I know you predicted $5-a-gallon gasoline by the end of this 

year. If some of these things happen in the Middle East that I am 

concerned about, if Iran does something to the Straits of Hormuz 

or Egypt shuts down the Suez Canal, how would that impact your 

prediction of $5 per gallon of gasoline? 

Mr. HOFMEISTER. The Straits of Hormuz watch about 20 to 25 

percent of the world’s daily crude oil production move through it, 

and if the world were to lose that amount of oil because of a shutdown in the Straits, I think that the immediate impact on crude 

oil prices would be to not just double but even triple the current 

crude oil price of the panic that would set in in terms of future contracting. There might be a slight delay to see how long it make 

take to clean up the mess that might be created there but it is such 

a critical pinch point and there is so much of that oil that goes both 

east and west that it is not only energy security for the United 

States, it is energy security for the world’s second largest economy, 

China. And so the consequence would be dramatic. Five dollars 

would look cheap in terms of a gasoline price in the event of the 

Straits of Hormuz being shut in. 

Mr. OLSON. Thank you for that rather sobering answer. 

99 

One question for you, Congressman John. Thank you also for 

your service. And as you know, we have been talking about it, we 

have a moratorium, now a ‘‘permatorium’’ in the deep water in the 

Gulf since April of last year, and I have known of at least five rigs 

that have gone overseas that my colleague, Mr. Scalise, had mentioned. Amazingly, most of the rigs that I have talked to are taking 

it on the chin at about $500,000 a day just sitting idle but most 

of them are still staying here in our country in these waters because they believe we have the best sort of regulatory system, judicial system, and they believe it is less risk to them long term than 

some of them going overseas. I think the President missed an opportunity during his State of the Union when he could have at 

least mentioned the oil spill and what he has done to lift the moratorium and make a commitment to get the rigs, the permitting 

going and get those rigs back out there working, and unfortunately 

2 days after the President’s speech, we had one more rig announce 

that they are going to go overseas, and it was one of the Noble 

Corp’s rigs, the Clyde Boudreaux, and they announced that they 

are going to take their rig—I hope I pronounced that right. I am 

not from Louisiana. But they were going to take their rig to Brazil, 

and this is a quote that just sticks out with me about the impact 

of this moratorium, this ‘‘permatorium’’ on our oil supply. One of 

the Noble employees was quoted as saying ‘‘There is life after the 

Gulf of Mexico, and that would be Brazil.’’ 

Is there a tipping point, Congressman, where somewhere we are 

going to be hearing not just that there is life after the Gulf of Mexico, life is in Brazil, life is in Sudan, life is in Nigeria, life is in Norway, wherever, life is somewhere else, not American waters, and 

we are going to lose those American jobs permanently and more depend upon foreign oil? 

Mr. JOHN. Well, I guess I can only answer your question as, picture yourself in a boardroom where you may have 4 or 5 or 6 billion dollars in your cap budget for the next 3 or 4 or 5 years, where 

would you as a board member want to decide to put those kinds 

of dollars. Is it in the Gulf where today there is an enormous 

amount of uncertainty today, or is it somewhere else? And that is 

only way really I can answer that question. I think the fact that 

seven rigs, six have gone and a brand-new one is leaving, I think 

is the initial signal of what to come because there is a tipping 

point, and I think we are very, very close to that point because of 

the fact that industry and the Bureau of Energy Management have 

worked together to come up with safety regulations, task force that 

the industries have put together. The Marine Well Containment 

Company, a billion-dollar commitment by four companies and more 

adding today to put a billion dollars into a company for containment. So we have done, I think the industry has done an enormous 

amount, a good job of all the regulations in doing what is required 

of them to get back and the goalpost keeps moving, and I think 

that that is very troubling in a lot of ways, and you only have to 

look at the amount of money that is being invested out there to 

give you an idea of where else could it go, and there are a lot of 

other places that it could go. 

Mr. OLSON. Thank you, Congressman. 

100 

Mr. Chairman, I ask unanimous consent that the article from the 

Houston Chronicle about the ship going over to Brazil be placed in 

the record. 

Mr. WHITFIELD. Without objection. 

Mr. OLSON. Thank you. 

[The information appears at the conclusion of the hearing.] 

Mr. WHITFIELD. Mr. McKinley, you are recognized for 5 minutes. 

Mr. MCKINLEY. Thank you, Mr. Chairman. I left the private sector, an architectural practice to get back into the political arena, 

because I had a fundamental belief that our national security and 

the welfare of our country has been at risk with us not having an 

energy policy and being independent from foreign oil. I think it is 

something we have talked about, what this hearing was supposed 

to be about is the concept of what is happening over in the Middle 

East. I don’t think it is going to end with Egypt. It is going to continue. And I am here, have come to Congress because I want to 

deal with energy independence. But yet I have come here, now I 

have come to the realization when I look across the aisle and I hear 

their remarks and some of the people and the policy. 

One thing that we are short of here is naivete ́. It is rampant in 

this community, and I am very concerned about where we are 

going. This idea of alternate travel, driving—look, West Virginia is 

a very rural mountainous area. The largest community I have in 

my district has 35,000 people on it. The idea of high-speed rail and 

other isn’t going to work. What I am looking for here is to find way 

that we can become energy independent, and that is to mine coal 

and drill into the Marcellus shale and the oil and gas that we have 

had in West Virginia. But all I have heard for the last several 

years has been to stop this dagger in the heart of West Virginia, 

the cap and trade, fly ash challenges, water discharge, greenhouse 

gas emissions, the revocation of mine permits. It is as though Congress really doesn’t want to have us independent. We know how to 

do it. I am sure there are panels like this elsewhere that are saying 

we can do that, we can be energy independent but we are just not. 

I want to hear—the discussion we had yesterday, Mr. 

Hofmeister, you stressed jobs in your opening remarks. I am so 

frustrated. We have 15 million people out of work in America, 

union, non-union Americans out of work. I want to try to do something, and mining coal and making us energy independent will get 

us that direction. My question to you, do you think denying EPA’s 

authority to regulate greenhouse gases is a responsible means to 

reduce our dependence on foreign oil? 

Mr. HOFMEISTER. In my judgment, Congressman, I believe that 

the Environmental Protection Agency is going way too far, too fast 

without the means, the mechanisms or the technology available to 

change the game the way they are trying to change the game. 

I visited Pike County, Kentucky, before Christmas just to see 

what is going on in the coal region of eastern Kentucky, and what 

I learned from operators in eastern Kentucky is, they haven’t had 

a new mine permit in years because they can’t get past EPA regulations on water quality, and the water quality that they are expected to reach has to have Evian bottled water consistency coming 

down a stream in a natural forest. It doesn’t exist in nature, Congressman, and I think there is a reach going on that is job destrucVerDate Nov 24 2008 13:01 Aug 22, 2011 Jkt 037690 PO 00000 Frm 00106 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 112\112-4 021011\112-4 CHRIS
101 

tive and that doesn’t take into account the fact that over the coming decades I believe the ingenuity and the innovation that is possible in the hydrocarbon world can dramatically clean up the use 

of hydrocarbons so that we can continue to use natural resources 

found in this country. 

Mr. MCKINLEY. Dr. Newell, can we be energy independent if we 

mine coal and let us drill? And if so, why aren’t we doing it so we 

can be energy independent? 

Mr. NEWELL. Currently, coal goes primarily, almost exclusively, 

90 something percent, for electricity generation, the vast, vast majority of which is already domestically produced, so the main issue 

with regard to fuel imports relates to petroleum. We have currently 

got about 50 percent of our liquids consumption comes from imported petroleum so there are certainly actions that would tend to 

affect that. Lower consumption and higher domestic production 

tend to squeeze out imports but we currently have about 9 million 

barrels per day. We are projecting that—— 

Mr. MCKINLEY. My question is, can we be independent if we 

mine our coal and drill for our gas in America? 

Mr. NEWELL. It would be a matter of primarily domestic liquids 

production that would change the oil import picture, and it would 

be a significant change from where we currently are. 

Mr. MCKINLEY. So the answer is yes? 

Mr. WHITFIELD. Do you want to respond to that, Mr. Newell? 

Mr. NEWELL. The answer would depend upon the actions that 

were taken. On current market trends, that is not where things are 

currently headed. 

Mr. WHITFIELD. Mr. Gardner, you are recognized for 5 minutes. 

Mr. GARDNER. Thank you, Mr. Chairman. Thank you as well for 

this timely hearing. I certainly appreciate your efforts to do this 

today. And thank you to the members of the panel for taking time 

away from work to be here. I appreciate your time. 

Dr. Newell, I will start with you to talk a little bit about some 

of the testimony. In your testimony, you talked about some of the 

cost impacts on a per-barrel basis of energy disruption out of the 

Middle East and some other issues that we face should something 

continue to disrupt energy supplies in the Middle East. What 

would the overall, in terms of economic impact, the overall economic impact be should an incident close the Suez Canal to transport, should an incident close some of the choke points that we are 

talking about here, whether it the Gulf of Aiden, the Red Sea off 

of Yemen, whether it is the Suez Canal, if those were to close, what 

would—in real dollars, what would that impact be to our economy? 

Mr. NEWELL. The impact would depend upon any price effect of 

some type of an international disruption. What would tend to happen in terms of oil price increases tends to decrease the amount of 

household disposable income that can go to other things. It tends 

to act like an additional cost on production, and if you cost more 

to have one major input into our national production, it would tend 

to lead to a decline in GDP. A rough rule of thumb is that every 

$10-per-barrel increase of the price of oil might shave roughly 0.2 

percent off of GDP over the next year. It depends upon the nature 

of any kind of a price shock that would occur. If it is a supply-side 

price shock, it would tend to have the kind of effects that I said. 

102 

It would also depend whether it is temporary or permanent. A permanent increase is obviously more damaging. If it is an increase 

that is caused from demand increases like faster global economic 

growth, it is a less negative impact because along with global economic growth goes increased demand for U.S. products and so that 

tends to offset any effect. So it depends. 

Mr. GARDNER. So is there any way to get a number in terms of 

if this were to happen, if these two cases were to happen, if there 

was a disruption, total disruption as a result in the Suez Canal 

what it would cost? I mean, what would that number be? A billion, 

2 billion? I know you said 0.2 shaving off the GDP but what would 

that number be? 

Mr. NEWELL. It really would depend on the specific scenario. So 

closing different transit points doesn’t necessarily take production 

off of the market, and so if you can reroute that production through 

other transit points, there may be a short-term impact, but once 

things adjust, it would tend to bring it back down. It would depend 

on the magnitude of any kind of a production shortfall. It would depend upon the response of remaining supply sources. So, for example, if one country had a decline in production, there significant 

spare crude oil production capacity in other countries that could 

offset it. There is also Strategic Petroleum Reserves that could offset certain impacts. So I am not trying to evade the question but 

it really depends on a very specific scenario and the responses that 

one imagines to that scenario. 

Mr. GARDNER. Well, thank you. 

Mr. Sieminski, just a broader question. Based on our energy policy in the United States today, are we becoming more or less globally competitive in the United States? 

Mr. SIEMINSKI. Well, Mr. Gardner, and I think everybody in the 

room, since I was only one that said no to Congressman Markey’s 

question, I now get a chance to explain. I wish he were here. In 

fact, when I testified before Mr. Markey a couple years ago, and 

what I said was, the most troubling thing I find about hearings like 

this is what seems to an outsider to be an unappreciation for the 

fact that these solutions are not mutually exclusive, that getting 

more oil in the Gulf of Mexico or not having a moratorium is not 

mutually exclusive to fuel efficiency standards for automobiles. I 

serve on the National Petroleum Council. Several years ago we did 

a study that was widely well received that basically said there is 

no single solution to our energy policy problem, that we need to do 

all those things that make economic sense on the supply side and 

the demand side in order to move forward, and so let us come back 

to the Middle East thing. 

I keep hearing virtually everybody in this room saying well, we 

have got to reduce our dependence on Middle Eastern oil. That 

makes sense if it is good economics and good foreign policy. I am 

not so sure that it is unless we can produce the oil here less expensively. It would reduce jobs here in this country to say well, we are 

just not going to import from the Middle East. 

Mr. GARDNER. So in 10 seconds, are we more or less competitive 

as a result of current U.S. energy policy? 

Mr. SIEMINSKI. I would say that current U.S. energy policy is 

probably not doing a whole lot either way—— 

103 

Mr. GARDNER. So the answer—— 

Mr. SIEMINSKI [continuing]. To our dependence on the Middle 

East. 

Mr. GARDNER. We are less competitive? 

Mr. SIEMINSKI. Are we less competitive? We would be more competitive if we did not exclusive development of domestic resources 

for what seems to me to be poor policy reasons. 

Mr. HOFMEISTER. In my view, we are far less competitive as a 

Nation by virtue of not producing domestic resources, which I believe are eminently affordable to produce. 

Mr. WHITFIELD. Mr. Pompeo, you are recognized for 5 minutes. 

Mr. POMPEO. Great. Thank you, Mr. Chairman. Thank you all for 

being here this morning. 

Mr. Hofmeister, you mentioned Matt Simmons early on, and it 

reminded me, Dr. Newell, in your analysis, there is his theory of 

peak oil theory. What is the assumption that you all have made? 

I don’t want to get into the complexities but what is the assumption you have made with respect to total capacity and the ability 

to get at that? 

Mr. NEWELL. We are projecting an increase in both U.S. domestic 

production of crude oil in the next 25 years as well as a significant 

increase internationally in crude oil, so we at this point in time, for 

the next 25 years, which is how far our projection goes out, we 

don’t see a peaking of world oil production capacity. 

Mr. POMPEO. I appreciate that. And did you also assume—you 

gave some pricing for the next several decades which you were 

forecasting for pricing. Did you continue to assume that oil would 

be priced in dollars, that that commodity would largely be continued to be trading in the U.S. dollar? 

Mr. NEWELL. It is not something we explicitly assume. I mean, 

that is certainly the way that we track it through our model. If 

that were to change, I don’t think that would significantly change 

the outlook if you priced it some other way. 

Mr. POMPEO. I think some of Mr. Sieminski’s folks would be very 

concerned if we decided to price oil in a different way. I know that 

I certainly would too, so would the folks in Kansas who are producing here. I sit here today. Forty days ago, I was running a company that was a member of KIOGA, the Kansas Independent Oil 

and Gas Association, and so there are national security implications and cost implications for consumers too in terms of how we 

price oil in the marketplace. 

I don’t think anybody has talked this morning either about refining capacity in America, and I think that is important. We focused 

on getting the crude here. Mr. Hofmeister or Mr. John, could you 

speak to me too about, we have a huge problem getting refineries 

built in the United States. We can talk about how long it has been 

since there has been one. I see that as a huge component when it 

comes to gasoline prices in addition to the crude oil inputs. 

Mr. JOHN. Yes, I would be glad to comment. Actually, in my written testimony, I have a whole paragraph where I did talk about refining capacity, because you really can’t talk about crude oil and 

oil production and how it all fits into the puzzle of energy policy 

without talking about refinery because a barrel of oil without a refinery is just a barrel of oil. You must be able to boil that oil to 

104 

get the value added out of it. And I guess the most alarming part 

of our refining capacity is, is we haven’t built a grassroots from the 

grass up in almost 30 years. In fact, the opening and the expansion 

of the Garyville refinery, Marathon Garyville refinery down in Louisiana, was as close as it is going to get to a new refinery in this 

country. It just hasn’t happened for a myriad of reasons. But I 

think the fact of the location of all the refining capacity in this 

country should be of some concern. Not only are we vulnerable 

from the importation of oil from countries that don’t share our values but it doesn’t take long to look at in 2008 when Hurricane Gustav and Hurricane Ike came through the Gulf of Mexico and the 

refining capacity from Corpus Christi, Texas, to Pascagoula, Mississippi, is 50 percent of this Nation, and every one of those refineries at some point in time during those 21⁄2 weeks of those two 

hurricanes were either shut down, cold or warm, and what the implications of that were that the lines up in the Northeast, because 

all of the refined products, the gasoline that is used in Chattanooga 

and Atlanta and in Alabama and Mississippi come from the Gulf 

Coast, and if you remember correctly, there were lines waiting on 

where is our gasoline. It was because of that. And that just shows 

the vulnerability that we have had. We need some more refining 

capacity. However, I think it is important that we must get the 

crude oil into the pipelines to be able to actually refine and valueadd that. 

Mr. POMPEO. Mr. Hofmeister, do you care to comment? 

Mr. HOFMEISTER. I think that has been well said. There have 

been a few additions to existing refineries but only in recent years. 

Mr. POMPEO. One last question. Mr. Busch, you said, and I think 

I got this right, you said there were green jobs created while the 

overall jobs decreased. Do you think those could be related? And 

here is my point. When you create rules and regulations that cause 

folks to go try and create these jobs where government regulation 

would not have permitted them to be before, when federal policy 

encourages these green jobs, that you do in fact destroy the economy so you see green jobs growing while overall jobs are growing? 

Do you think those are disconnected thoughts? 

Mr. BUSCH. I don’t believe they are related, no. I mean, the trend 

has been continuing for a long period so I don’t. 

Mr. POMPEO. Thank you. I yield back the balance of my time, Mr. 

Chairman. 

Mr. WHITFIELD. Mr. Griffith, you are recognized for 5 minutes. 

Mr. GRIFFITH. Thank you, Mr. Chairman. 

Dr. Newell, if you would, I noticed answering one of the earlier 

questions you were able to project or had at least some idea of 

what oil production was going to do in the United States. Can you 

tell me what coal production is going to do in the United States between now and 2025? 

Mr. NEWELL. We do have the projections for that. I don’t have 

the specific number in front of me right now. Most of—this depends 

largely on the outlook coal-based electricity generation. It also depends somewhat on what your starting point is. We have seen during the economic downturn over the last several years and also a 

significant decline in natural gas prices over the last several years 

105 

and there has been a significant decline in the demand for coal for 

electric power generation. We do—— 

Mr. GRIFFITH. If I could stop you there and ask you, do you believe that the reason for the significant downturn in demand for 

coal for electric generation is due to federal regulations on coal and 

the use of it in the electric generation? 

Mr. NEWELL. Not at this point, I actually don’t think so. The 

main factors that have led to a decline in coal over the last several 

years are the economic downturn, which has an effect on overall 

electricity generation, and a very significant decline in natural gas 

prices as well, and so I think that would be the main factor. 

Looking forward, obviously regulations would tend to have an 

impact if they would focus on coal. 

Mr. GRIFFITH. How many electric generation facilities have 

switched from coal to natural gas? 

Mr. NEWELL. There has been a—I have an answer to your question here. In 2009, coal production was 1,075 million metric tons, 

and it goes up to 1,315 million metric tons by the end of our projections, so it increases. Now, largely this is in existing electric power 

plants, which we project most of those would continue to stay online that are existing laws and regulations. I don’t know if I answered the other part of your question, though. 

Mr. GRIFFITH. Go ahead. 

Mr. NEWELL. I am—— 

Mr. GRIFFITH. Oh, you want me to rephrase? 

Mr. NEWELL. Sorry. 

Mr. GRIFFITH. I am going to switch gears on you anyway. 

Mr. NEWELL. OK. 

Mr. GRIFFITH. I note with some interest that in getting prepared 

for today, since we are supposed to be focused on Egypt but I don’t 

have much oil in my district, I got a lot of coal and got a lot of natural gas. But I did notice with some interest that apparently we 

imported 442 short tons, not a lot of coal, from Egypt during the 

last year, and I am wondering if you can tell me what was special 

about that coal? It must have been somebody needed something 

particular. Do you have any clue? 

Mr. NEWELL. I really don’t but it is something we can find out 

for you. 

Mr. GRIFFITH. If you can get me an answer later? I did not expect 

you to have that on the tip of your tongue. 

If I could shift now to Dr. Busch, you got into a discussion earlier 

about health, and we have concerns in my area. Electric rates have 

gone up significantly, and I would have to say since the previous 

questioner asked you questions about public policy and health concerns, I don’t think there is any question that if we regulate the 

way that the EPA wants to on greenhouse gases it is going to cause 

even more spikes in electricity or fuel for the people in my district, 

who already are facing difficulties with median income for the 

household of about $35,000. Would you not agree that if we have 

significant increase in the cost of the ability to heat your home 

with electricity powered by coal or from home heating fuel that we 

are going to be affecting adversely, particularly during the winter 

months, the health of the people who are having a hard time afVerDate Nov 24 2008 13:01 Aug 22, 2011 Jkt 037690 PO 00000 Frm 00111 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 112\112-4 021011\112-4 CHRIS
106 

fording it right now, affording the energy sources to provide heat 

in their homes currently? 

Mr. BUSCH. Thank you, Mr. Griffith. I would certainly agree that 

affordable energy to keep a home warm in the winter and cool in 

the summer, for places that have high heat spikes, that is important to health. I wouldn’t have an opinion on whether increases in 

energy costs would be more detrimental than reductions in pollutants that might be released from electricity generation. I don’t 

know which would be more—— 

Mr. GRIFFITH. You don’t know? 

Mr. BUSCH. I don’t know. 

Mr. GRIFFITH. But it is something that should be considered by 

agencies of the United States government as they go forward in determining our policies on greenhouse gases, would you not agree? 

Mr. BUSCH. I agree it is important to consider all the tradeoffs 

amongst the options, yes. 

Mr. GRIFFITH. I appreciate it. 

Thank you, Mr. Chairman. Yield back my 10 seconds. 

Mr. WHITFIELD. Thank you very much. 

Do any of you have one additional question you would like to 

ask? Do you have one? 

Mr. RUSH. Yes, Mr. Chairman. Thank you for being so kind. 

I want to go back to Mr. Hofmeister. Mr. Hofmeister, I am really 

kind of intrigued by your opening statement, and I am in a district 

where my constituents probably suffer from environmental ill effects, asthma, all those kinds of illnesses and diseases that might 

occur. We don’t have a lot of oil in my district but we have got high 

unemployment. That is one of the characteristics of my district. 

And you mentioned in your opening statement about job creation. 

Can you elaborate a little bit more on that in terms of what you 

really mean by job creation? Because that intrigues me. 

Mr. HOFMEISTER. Thank you, Ranking Member Rush. If we look 

at a significant commitment by this country to increasing its domestic oil production, could include gas, could include power plant 

construction, the number of jobs that would be created through the 

capital investment made necessary to produce this additional oil 

would in effect, I believe, raise jobs all over the country, not just 

in the oil patch. The reason is, the distributed manufacturing system that supplies oil companies includes companies that make 

equipment in places like Wisconsin, Illinois, Michigan. Many north 

Great Lakes States are producing the kind of skilled metalworking 

crafts that are necessary. The steel industry makes pipe. The automotive industry makes the trucks and many other components that 

go into oil rigs and offshore platforms, and so the equipment manufacturing is a big part of it. In addition, there is a whole services 

industry that comes with it and there is an education industry that 

comes with it because somebody’s skills would need to be trained 

in community college systems and in 4-year schools and it would 

encourage high school students to stay in school to go to community college to et the skills. The average wage we are talking about 

in the oil and gas industry for semi-skilled workers is in the 

$60,000 to $80,000 a year range, which is almost double the median wage in the country. And so these high-wage jobs enable peoVerDate Nov 24 2008 13:01 Aug 22, 2011 Jkt 037690 PO 00000 Frm 00112 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 112\112-4 021011\112-4 CHRIS
107 

ple to buy many more things and that is why I say it is a tide that 

lifts all ships. 

Mr. RUSH. Thank you, Mr. Chairman. Mr. Chairman, on behalf 

of the ranking member, Mr. Waxman, I would ask unanimous consent to introduce into the record a report prepared by the NRDC 

on concerns with tar sands. 

Mr. WHITFIELD. Well, I reluctantly won’t object to that. 

Mr. RUSH. Thank you. 

[The information appears at the conclusion of the hearing.] 

Mr. WHITFIELD. Thank you. 

Mr. Scalise, do you have another question? 

Mr. SCALISE. Yes. Thank you, Mr. Chairman, for the opportunity. 

Just I guess I will ask the whole panel a yes or no question. With 

this Administration’s current policy of not issuing permits in the 

Gulf of Mexico for now 10 months, not allowing people to go back 

to work drilling safely in the Gulf of Mexico, is that 10-month and 

potentially longer refusal to issue any new permits on deep water 

drilling, is that going to increase or decrease our country’s dependence on foreign oil? I will start with you, Mr. Newell. 

Mr. NEWELL. I am going to have to decline to take a policy position on this. 

Mr. SCALISE. Or just a judgment. I mean, there was a policy decision made but its impact, how is that policy’s impact going to be 

on our Nation’s dependence on foreign oil? Would it increase or decrease? And if you don’t want to answer, I respect that. 

Mr. NEWELL. OK. 

Mr. SCALISE. Mr. Mar? 

Mr. MAR. Sir, as a representative of a foreign government, I cannot advise on that matter. 

Mr. SIEMINSKI. I think it is a huge mistake to not develop the 

resources in the Gulf of Mexico, and unnecessary delays in permitting are a mistake. I don’t think that carrying that to the next step 

of your question is particularly important. Whether that does anything to our use of Middle Eastern oil I don’t think is really critical. 

Just very quickly 10 seconds on this, Saudi Arabia was brought 

up in this hearing. If it weren’t for the fact that Saudi Arabia has 

3 or 4 million barrels a day of spare capacity that is available in 

the marketplace or if it weren’t for the fact that we have the Strategic Petroleum Reserve both here and elsewhere around the world, 

we would be in a lot worse shape with problems in the Suez Canal 

or anywhere else in the Middle East. 

Mr. SCALISE. But there has been no suggestion to tap the Strategic Petroleum Reserve that I have heard. I am not sure if you 

have heard anything different. 

Mr. SIEMINSKI. Well, you would do it if there was a problem. 

Mr. SCALISE. Right, but if our demand—maybe you think our demand might be decreasing but if our demand is going to remain the 

same or increase and yet our actual access to known sources of reserves is shut off by policy, you don’t think that would cause an 

increase in—— 

Mr. SIEMINSKI. I said that—— 

Mr. SCALISE [continuing]. The need for it to come from someplace 

else? 

108 

Mr. SIEMINSKI. Well, we might just get more oil from Canada, 

which—— 

Mr. SCALISE. Well, that is why I said foreign oil, and I would include Canada in that. I would sure like to completely eliminate our 

country’s dependence on Middle Eastern oil, and I think if we invoked a real smart strategy, we absolutely could eliminate our dependence on Middle Eastern oil. Canada is a good friend and a 

trading partner but clearly we are still getting, as he pointed out, 

our 20 percent of our oil from Middle Eastern countries. 

Mr. SIEMINSKI. What we want to eliminate our dependence on is 

uneconomic oil. Whether it comes from the Middle East or somewhere else is not the question. 

Mr. SCALISE. Right. But would it increase our decrease based on 

a shutting off of the supply that we currently know is there? 

Mr. SIEMINSKI. Without that domestic oil we are going to need 

more oil from somewhere, and it could be coming from the Middle 

East. 

Mr. SCALISE. Thank you. 

Mr. Hofmeister? 

Mr. HOFMEISTER. It is a very serious problem in both the short 

and the long term, and yes, it would require greater dependence on 

foreign sources. 

Mr. SCALISE. Thank you. 

Mr. BUSCH. I don’t have a great amount of expertise in this area 

but I am happy to offer my opinions if you would like. 

Mr. SCALISE. Sure. 

Mr. BUSCH. It seems—from what I know, it takes a while to get 

a new well online so I would imagine in the short run it wouldn’t 

make much of a difference but all else equal, it seems obvious to 

me if we are providing more domestically and we are not changing 

demand that there would be less dependence on imported oil. 

Mr. SCALISE. Thank you. And Mr. John? 

Mr. JOHN. I think, Congressman Scalise, from a logical economic 

standpoint, the answer to your question is absolutely it would 

make us more dependent on foreign sources. However, with the assumption of 11⁄2 million barrels that come out of the Gulf of Mexico, 

can we do without that. The question is, can we reduce our demand 

by a million and a half right now, then the answer to your question 

would be no. I think I know the answer to that question. 

Mr. SCALISE. I haven’t seen that demand reduce, and I appreciate it, and I will just end on this final thought. I know there are 

provisions in current leases that are ‘‘use it or lose it’’ provisions, 

and as this ‘‘permatorium’’ is going on, the clock is still ticking on 

those leases so there are many employers out there in the Gulf of 

Mexico who have leases who want to use it and are not even being 

allowed to use it by the federal government in a safe way and yet 

the clock is still ticking even though they are not being allowed to 

go and extricate those resources, and when you look at what is 

happening in Egypt and even in other parts, as you pointed out, 

the supertanker that was hijacked by Somali pirates in the Arabian Sea right off of Oman, there are major threats out there to 

supply chains. Notwithstanding Canada, but there are major supplies, especially in the Middle East, and increased volatility and yet 

you have got a policy that shut off those reserves in the Gulf of 

109 

Mexico, and with the ‘‘use it or lose it’’ provisions, this is a point 

that has never really been explored. If that clock keeps ticking and 

those people aren’t allowed to go and explore those resources, if 

that lease runs out, the government could take those leases back 

and not leave them out on the open market so you are now even 

closing off more known resources. There are few areas of the OCS 

that are currently available to explore. You would actually be pulling back as a policy. The country would be pulling back even more 

of the very few reserves that are already out there available for exploration, and I don’t know if you want to finish on that. 

Mr. JOHN. Just a quick comment there, Congressman Scalise. Since 2008, $8 billion has been spent by oil and gas companies 

leasing in the Gulf of Mexico. The highest and the second highest 

lease sale in the history of the Gulf of Mexico happened in 2009. 

So you have got an enormous amount of capital in leasing this 3- 

by-3 square miles of water for a 5-year period of time, so I think 

your point is well taken. 

Mr. SCALISE. Thank you, and I yield back, Mr. Chairman. I appreciate the opportunity. 

Mr. WHITFIELD. Dr. Newell, I just have one question for you. In 

your levelized cost analysis of electricity, why does the EIA add the 

equivalent of $15-per-ton carbon tax in the determination of the 

cost of the new plants? 

Mr. NEWELL. Yes. What we do is to reflect existing market behavior of investors and how they are perceiving investment in new 

coal generation capacity. What we do is, we have a roughly 3 percent additional capital to the capital cost in terms of financing, and 

this is to reflect behavior that we see in the marketplace in terms 

of interest on the part of investors in new electricity generation capacity from coal, which has been colored by any number of things 

including the possibility of future regulations that would affect coal 

generation, so that is what that is meant to do, to reflect market 

behavior with regard to coal and coal-intensive technologies. 

Mr. WHITFIELD. Thank you all so much. We really appreciate it. 

Yes, Mr. Mar? 

Mr. MAR. Mr. Chairman, may I supplement an answer in response to Congressman Upton’s earlier question about pipelines 

going to the West Coast from Alberta? 

Mr. WHITFIELD. Sure. 

Mr. MAR. The proposed Gateway pipeline would have the capacity to take 525,000 barrels a day from Alberta to the West Coast. 

A proposal for oil by rail has the capacity to take an additional 

200,000 barrels a day, and the currently existing Kinder Morgan 

transmountain pipeline has current capacity of 300,000 barrels per 

day, which would be a total of just over a million barrels a day 

total. There is currently also a proposal to expand the Kinder Morgan pipeline, so that gives you some sense of the volumes that 

could be moved to the West Coast. 

Mr. WHITFIELD. Well, thank you very much, and once again I appreciate your testimony. We look forward to continuing working 

with you. 

Members will have 10 days to submit additional material, and 

record will be open for 30 days. 

With that, we will conclude this hearing. Thank you. 

110 

[Whereupon, at 12:25 p.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

PREPARED STATEMENT OF HON. FRED UPTON

• Oil and turmoil coexist in several regions, most significantly the Middle East. 

The unfolding events in Egypt, coming on the heels of similar unrest in Tunisia and 

other Middle Eastern and North African nations, is of great importance to us for 

a number of reasons, but today’s hearing will focus on the implications for the global 

oil market. 

• Events in that part of the world can disrupt oil production, or in the case of 

Egypt, jeopardize the transport of that oil to end users. The stronger the global demand for oil, and the smaller the cushion provided by spare capacity, the more likely any actual or threatened disruption of supplies will destabilize markets and elevate prices. 

• It’s simply a reality that the Middle East will remain volatile. Today it is Egypt, 

tomorrow it may be Iran or Saudi Arabia. Every few months will bring incidents 

of minor and sometimes major concern. How to deal with this instability is an ongoing challenge. 

•Fortunately, not every oil-producing nation is an unstable or unfriendly one. In 

fact, America’s single greatest source of oil imports is our great ally Canada. Of 

course, any additional oil production helps keep prices down, but production that 

comes from a reliable source like Canada also serves as a calming influence on 

world markets. 

•The good news is that Canadian production, and in particular the production 

from oil sands in Alberta, is on the increase. But we need more pipelines to bring 

that oil into the U.S. The Keystone Pipeline project would do just that. If allowed, 

the new pipeline system would have the capacity to carry more than a million barrels of oil per day to refineries in the Midwest and Gulf Coast. It awaits approval 

by the State Department. 

• According to a recent study conducted for the Department of Energy, this project 

could ′′very substantially reduce U.S. dependency on non-Canadian foreign oil, including from the Middle East.′′ And construction of the pipeline would create jobs 

to boot. Unfortunately, a number of environmental organizations are pressuring the 

administration to say no to a project most of us consider a no-brainer. 

• And, as if we needed another reason to revisit our own policy of locking up much 

of this nation’s oil potential, the events in Egypt provided it. Two billion federallycontrolled acres, both onshore and offshore, are not open to energy leasing. From 

the Gulf of Mexico to Alaska, from the Rockies to the Atlantic and Pacific, we are 

doing to ourselves what OPEC tried to do to us in the 1970s - keep oil off line. Not 

only would producing this energy lead to greater supplies and lower prices, but it 

could create hundreds of thousands of well paying oil and gas industry jobs, and 

generate billions in federal and state revenues. 

• Some of these anti-energy policies have been in place for decades, but they have 

been kicked into high gear during the Obama administration. Within weeks of taking office, his Interior Department cancelled energy leases in the West and shelved 

a plan to expand offshore drilling and pursue Colorado oil shale. And, in response 

to the Deepwater Horizon spill last April, the administration has put a lid on 

issuing drilling permits, preventing shovel-ready exploration from commencing. 

•The situation in Alaska is particularly frustrating. It is the state with the greatest untapped potential, both onshore and offshore, as well as strong support 

amongst a clear majority of its citizens to produce more oil. But at this time, all 

new exploration activities in the state have been brought to a halt, thanks to the 

federal government. This includes Shell’s long delayed effort to commence exploration in the Beaufort Sea. The company paid $2.2 billion in 2005 for the rights to 

explore parts of the Beaufort and Chuckchi Seas off Alaska’s North slope, but red 

tape continues to hold up that effort. The company secured 33 of the necessary 34 

permits to move forward with exploratory wells, but the Environmental Protection 

Agency has stalled on that last permit. Because drilling is seasonal there, this 

means that drilling will be delayed for yet another year. 

• Estimates of the amount of oil locked up are just that, estimates. Experience 

shows that where drilling is allowed, such as in Alaska’s Prudhoe Bay, far more oil 

is produced than initially predicted. The National Petroleum Council’s estimate of 

40 billion barrels of recoverable oil currently restricted by law is significant in itself, 

and this figure may only hint at the potential for future domestic production. 

111 

• We live in a global economy with a global oil market, and events like those unfolding in Egypt will always have an impact. But with additional imports from Canada, and increased domestic production, that impact would be reduced. 

•There is a role for renewable energy and alternative vehicles, but we have to 

be realistic, and especially realistic about the timeframes involved. Developing technologically and economically viable alternatives capable of taking significant market 

share away from petroleum derived fuels and internal combustion powered vehicles 

is a long term project. Put another way, the age of petroleum is going to be with 

us for a while longer, so we need to take steps to ensure that supplies are as plentiful, reliable, and affordable as possible. How to achieve that is the focus of today’s 

hearing. 

PREPARED STATEMENT OF HON. JOHN SULLIVAN

Chairman Whitfield: 

Thank you for holding this hearing today examining the impact riots and political 

upheaval in North Africa and the Middle East are having on global oil markets and 

U.S. energy security. 

Like many Americans, I am concerned with the political unrest in North Africa 

and the Middle East. From Friday January 28th to Monday January 31st the price 

of crude oil futures suddenly jumped 6% on the security fears of the Suez Canal 

which is considered a world oil chokepoint due to the volume of oil traveling through 

such a narrow route and the Sumed pipeline in Egypt. 

These events prove once again that our nation’s dependence on OPEC oil is a national and economic security issue. We import 5 million barrels of oil per day from 

OPEC but yet we continue to restrict domestic oil resources in our country, shooting 

ourselves in the foot while our nation still suffers from a 9 percent unemployment 

rate. The U.S. oil and gas industry employs 9.2 million American and that number 

would surely grow if we committed ourselves to the responsible development of oil 

and gas on our own shores. 

According to the National Petroleum Council, technically recoverable resources in 

North American currently restricted by law or regulation amount to over 40 billion 

barrels of oil. The answer to our energy security question is staring us in the face 

but the simple fact is that the Obama Administration is hostile to developing oil 

and gas and they have taken a decisive regulatory position against increased domestic oil production Just take a look at their actions. 

On December 1, 2010, the Obama Administration announced a new offshore drilling ban that will keep the eastern Gulf of Mexico and Atlantic and Pacific coasts 

off-limits to new offshore exploration until 2017-and the administration just announced that new drilling permits in the gulf may not happen until June 2011. 

These actions send terrible signals to the world oil markets and it makes our nation 

more vulnerable to oil price swings due to rising demand and political upheaval. 

With many economists fearing that oil prices will hit 4 dollars a gallon this spring 

and summer, the time is now to implement policies to produce more oil. I strongly 

believe that drilling offshore for oil and gas is an essential part of the all of the 

above comprehensive energy strategy that our nation so badly needs. We must not 

allow last year’s oil spill - as terrible as it was - to derail our ability to continue 

with production of American made energy by keeping our resources under lock and 

key while spending hundreds of billions on imported oil every year. We must continue to drill at home! 

The simple fact is we live in a hydrocarbon economy and we will be one for long 

into the future. We have the resources to drill at home and the American people 

deserve an affordable national energy policy that takes advantage of the fact that 

we have more energy within our borders than our nation will ever need or want. 

I look forward to the testimony of our witnesses and I yield back the balance of 

my time. 

PREPARED STATEMENT OF HON. CORY GARDNER

Mr. Chairman, thank you for holding this hearing today on the effects of Middle 

East events on U.S. energy markets. I appreciate the opportunity to address our dependence on foreign oil and what steps our government is taking to decrease that 

dependence. 

Both President Obama and Secretary of Energy Steven Chu have recently made 

statements regarding the need to protect ourselves at home by decreasing our deVerDate Nov 24 2008 13:01 Aug 22, 2011 Jkt 037690 PO 00000 Frm 00117 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 112\112-4 021011\112-4 CHRIS
112 

pendency on foreign oil. I applaud this idea and always have. However, I am concerned that the rhetoric simply does not match current policy. Many of the traditional energy alternatives that I imagine each witness will address seem to be off 

the table, and our future energy dependence and national security are suffering because of it. 

My concern today is that the U.S. does not have a backup for our demand. We 

are at the mercy of unstable countries like Yemen, and now, potentially Egypt. If 

their economies fail, or worse, fail and fall into the hands of terrorists, our energy 

supply fails as well. The US imports over half of what it consumes, so if Egypt collapses and terrorist forces take hold, they may very well decide to restrict access 

to the Suez Canal, for example. We are then talking about a severe disruption in 

the oil supply. Rising prices, which we are experiencing today due to the crisis in 

Egypt, will be the least of our concerns when the wrong people control the energy 

supply. 

Demand for oil and gas is not going away. That being said, I support clean energy 

and will continue to do so. Exploring clean energy solutions is a necessity. Colorado, 

for example, has vast amounts of wind and solar energy capabilities. However, when 

developing and advancing these sources, we must do it in the right way. We simply 

cannot take expansion of traditional energy off the table, and we cannot limit our 

options and exclude viable energy sources like nuclear power. I look forward to 

working with the committee on finding ways to develop an all-of-the-above energy 

approach. 

There are options, Mr. Chairman. There are domestic considerations that must be 

put back on the table. The National Petroleum Council has stated that recoverable 

resources in North America, which we are unable to access by law, would create 

over 40 billion barrels of oil. This is twice the proven reserves we have today, which 

equal 5 million barrels per day. Opening production by using oil in North America 

would replace OPEC imports to this country, thus taking a major step in the direction of energy independence. 

Further, we must make permitting for environmentally responsible production 

easier. Developing new oil and gas fields in the Beaufort and Chukchi Seas could 

result in production of 10 billion barrels of oil and 15 trillion cubic feet of natural 

gas for the next 50 years. Despite this, the administration has taken away drilling 

permits that had already been issued on many of these sites. 

Mr. Chairman, these are just a few of the ways we can move towards energy independence. There are many more and I look forward to working with you and the 

committee on advancing them. Thank you. I yield back my time. 

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