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THE HIGH PRICE OF NATURAL GAS AND ITS

IMPACT ON SMALL BUSINESSES: ISSUES AND

SHORT TERM SOLUTIONS

HEARING

BEFORE THE

SUBCOMMITTEE ON RURAL ENTERPRISES, 

AGRICULTURE & TECHNOLOGY

OF THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

WASHINGTON, DC, MARCH 17, 2005

Serial No. 109–6

Printed for the use of the Committee on Small Business

(

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

COMMITTEE ON SMALL BUSINESS 

DONALD A. MANZULLO, Illinois, Chairman 

ROSCOE BARTLETT, Maryland, Vice 

Chairman 

SUE KELLY, New York 

STEVE CHABOT, Ohio 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

JEB BRADLEY, New Hampshire 

STEVE KING, Iowa 

THADDEUS MCCOTTER, Michigan 

RIC KELLER, Florida 

TED POE, Texas 

MICHAEL SODREL, Indiana 

JEFF FORTENBERRY, Nebraska 

MICHAEL FITZPATRICK, Pennsylvania 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

NYDIA VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

TOM UDALL, New Mexico 

DANIEL LIPINSKI, Illinois 

ENI FALEOMAVAEGA, American Samoa 

DONNA CHRISTENSEN, Virgin Islands 

DANNY DAVIS, Illinois 

ED CASE, Hawaii 

MADELEINE BORDALLO, Guam 

RAU ́ L GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

LINDA SA ́ NCHEZ, California 

JOHN BARROW, Georgia 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

J. MATTHEW SZYMANSKI, Chief of Staff 

PHIL ESKELAND, Deputy Chief of Staff/Policy Director 

MICHAEL DAY, Minority Staff Director

SUBCOMMITTEE ON RURAL ENTERPRISES, AGRICULTURE AND 

TECHNOLOGY 

SAM GRAVES, Missouri, Chairman 

STEVE KING, Iowa 

ROSCOE BARTLETT, Maryland 

MICHAEL SODREL, Indiana 

JEFF FORTENBERRY, Nebraska 

MARILYN MUSGRAVE, Colorado 

JOHN BARROW, Georia 

TOM UDALL, New Mexico 

MICHAEL MICHAUD, Maine 

ED CASE, Hawaii 

RAU ́ L GRIJALVA, Arizona

PIPER LARGENT, Professional Staff

(II) 

C O N T E N T S 

WITNESSES

Page 

Terry, Hon. Lee (NE-02), Congressman, U.S. House of Representatives ........... 4

Kruse, Mr. Charlie, President, Missouri Farm Bureau, Jefferson City, MO ...... 6

Hilgedick, Mr. Terry, Chairman, Missouri Corn Merchandising Council, 

Hartsburg, MO ..................................................................................................... 8

Pirkle, Mr. J. Billy, Managing Director, Environment Health and Safety, 

Agricultural Retailers Association/The Fertilizer Institute, Collinsville, IL ... 11

Duesterberg, Mr. Thomas J., Ph.D., President and CEO, Manufacturers Alliance/MAPI ............................................................................................................ 13

Cicio, Mr. Paul, Executive Director, Industrial Energy Consumers of America 14

Jones, Mr. Peter, President, Wexco Corporation, Lynchburg, VA ....................... 16

Boyd, Mr. Ben, Farmer, Sylvania, GA ................................................................... 18

APPENDIX

Opening statements: 

Graves, Hon. Sam ............................................................................................. 26

Prepared statements: 

Terry, Hon. Lee (NE-02), Congressman, U.S. House of Representatives .... 27

Kruse, Mr. Charlie, President, Missouri Farm Bureau, Jefferson City, 

MO .................................................................................................................. 32

Hilgedick, Mr. Terry, Chairman, Missouri Corn Merchandising Council, 

Hartsburg, MO .............................................................................................. 35

Pirkle, Mr. J. Billy, Managing Director, Environment Health and Safety, 

Agricultural Retailers Association/The Fertilizer Institute, Collinsville, 

IL .................................................................................................................... 39

Duesterberg, Mr. Thomas J., Ph.D., President and CEO, Manufacturers 

Alliance/MAPI ............................................................................................... 43

Cicio, Mr. Paul, Executive Director, Industrial Energy Consumers of 

America .......................................................................................................... 50

Jones, Mr. Peter, President, Wexco Corporation, Lynchburg, VA ................ 55

Boyd, Mr. Ben, Farmer, Sylvania, GA ............................................................ 73

Additional Material: 

Frisby, Mr. Bradford, Associate General Counsel, National Mining Association ............................................................................................................ 75

American Chemistry Council ........................................................................... 81

(III) 

(1)

THE HIGH PRICE OF NATURAL GAS AND ITS 

IMPACT ON SMALL BUSINESSES: ISSUES 

AND SHORT TERM SOLUTIONS 

THURSDAY, MARCH 17, 2005

HOUSE OF REPRESENTATIVES

SUBCOMMITTEE ON RURAL ENTERPRISES, AGRICULTURE

AND TECHNOLOGY

COMMITTEE ON SMALL BUSINESS

Washington, DC 

The Subcommittee met, pursuant to call, at 10:07 a.m. in Room 

2360, Rayburn House Office Building, Hon. Sam Graves [Chairman 

of the Subcommittee] presiding. 

Present: Representatives Graves, Barrow.

Chairman GRAVES. We will call this hearing to order. I want to 

thank everybody for coming today and say good morning. 

Welcome to the Small Business Subcommittee on Rural Enterprise, Agriculture and Technology. I am glad to see that not everybody attended the steroid hearing downstairs. The good news is 

maybe we can study steroid use and natural gas somewhere along 

the process. It is quite a show down there. 

Today we are going to focus on something a little bit more serious in my opinion, and that is the high cost of natural gas. The 

outrageously high cost of natural gas and the impact that it is having on manufacturers, on small businesses and on farmers. We are 

going to look at maybe some of the short-term solutions that are 

out there too. 

Natural gas is a very important issue because of its diverse applications. Natural gas is used to create electricity, produce fertilizer, feed our crops and drive our vehicles, among many other 

things. In fact, natural gas is the preferred fuel to heat and cool 

our homes today totaling over 50 percent of the residential energy 

consumption, and it is still growing. 

Natural gas has been increasing at a dramatic pace in an industrial capacity. In 2000, 95 percent of all new electricity generated 

was generated from natural gas, and this growth is expected to 

continue well into the future. 

Natural gas is the primary feedstock used in producing nitrogen 

fertilizer, which is used on farms throughout this country. Lastly, 

natural gas is being used more in the transportation sector all the 

time. 

2

My point is that natural gas is popular, and its use is going to 

continue to grow. Demand is expected to increase 30 to 40 percent 

by the year 2025. Recent studies show that our recoverable natural 

gas reserves are sufficient to meet the demand for years to come, 

but we are facing obstacles in securing these resources and reserves. 

On top of that, prices are now more than double what they were 

during the 1990s, and consumers, manufacturers and farmers are 

the ones that are paying that price. To be clear, I am supportive 

of domestic exploration of production, but current proposals will 

yield results 10 years from now. We need to discuss short term solutions that can address the high cost of natural gas in the present. 

One idea is to examine natural gas trading. Natural gas, the 

pricing is obviously volatile by nature, but that does not explain to 

me the drastic increase in price over the last five years. Since 2000 

and the passage of the Commodities Futures Modernization Act, 

natural gas has been trading at prices more than double what it 

was throughout the 1990s. This price increase hits the consumer 

hard. 

Consumers are seeing record high energy bills through the cold 

winter months and hot summer days. Farmers and manufacturers 

are experiencing increased expenses of operation. These folks need 

some relief. We are going to be looking to legislation that will prevent market manipulation, increase transparency in the market 

and provide for accurate disclosure of storage data so consumers of 

natural gas will not be at the whim of a volatile market caused by 

manipulation and fraudulent action. 

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

I am going to now turn it over to our new Minority Member, Representative Barrow for an opening statement. I want to welcome 

you to the Committee, and I look forward to working with you in 

the future.

Mr. BARROW. Thank you, Mr. Chairman. It is good to be here. 

As the new congressman from Georgia’s 12th District, I have the 

honor of representing a large number of family farmers across a 

large rural portion of our state. I have been up here in Washington 

for just three months now, but I am starting to realize something. 

Folks up here often times do not realize that family farms are 

small businesses too. They are one and the same, and they should 

be viewed that way. To protect our farmers, we have to protect the 

business of farming. 

I have lived in Georgia virtually all my life, and I have grown 

up with farmers. Georgia farmers are some of the most committed 

and hardworking folks you will find anywhere. The hard work of 

family farmers in Georgia’s 12th is seen in the strength of our 

state’s economy. My district has over 3,000 family farms and produces more than $206 million in agricultural products. 

What is true is true across the country. Family farmers are a 

powerful force in the U.S. economy. With family farmers playing 

such a strong role in our communities and our economy, we cannot 

ignore the challenges they are facing today. While production is 

great, the costs are going through the roof. 

3

Natural gas supplies one of the main energy sources for family 

farmers to run their farms and operate their equipment. It is also 

the key ingredient and major cost component in the production of 

pesticides and fertilizers, up to 95 percent of the total cost for most 

fertilizers. Farmers need fertilizer, plain and simple. 

Nationwide, farmers use nearly 11 million metric tons of nitrogen fertilizer each year. High natural gas prices mean high fertilizer prices, and that means a whole lot of farmers spending a 

whole lot more than they should have to in order to grow crops the 

rest of the country depends on. 

At the same time the rest of the country’s demand for natural 

gas is going way up for a variety of reasons. It is used much more 

in residential housing nowadays, and more and more electric plants 

have switched to natural gas. As demand increases in these other 

industries, the prices of natural gas jumps higher and higher, and 

this hurts farmers. When farmers suffer, that affects the rest of us. 

As the United States supply of natural gas is slowly tapped out, 

there are other areas of the world that have ample reserves available. That explains why we are importing more and more of our 

fertilizer from foreign sources. A 2004 Congressional Research 

Services report shows that over 50 percent of U.S. nitrogen fertilizer comes from imports since 1998. 

According to officials in the fertilizer industry, higher natural gas 

prices and a glut of imports are having a negative impact on the 

U.S. fertilizer industry. Right now, 45 percent of the domestic fertilizer industry is in shutdown mode due to high natural gas prices. 

To help our family farmers in Georgia and across the nation, we 

need to hear what is really going on out there. That is why I have 

asked Georgia farmer Ben Boyd to come up and testify this morning. Mr. Boyd is from the town of Poor Robin, Georgia, which is located near the Georgia/South Carolina state line in Screven County. 

Along with his father and his brother, Mr. Boyd farms 3,500 

acres of cotton, peanuts, soybeans, corn, watermelon, small grain, 

and he also raises cattle, so he has seen firsthand how the rising 

cost of fertilizer affects family farmers. 

Farming has been in Mr. Boyd’s family for many generations. As 

the chairman of the American Farm Bureau’s Young Farmer Committee, he is committed to providing the next generation of family 

farmers with the skills they will need to succeed as both farmers 

and businessmen. 

I am proud to have Mr. Boyd and the rest of the witnesses up 

here today, and I hope we will listen carefully to what they have 

to say. What is happening to Mr. Boyd is what is happening to the 

rest of the country, and by listening to him I trust we will agree 

that Congress has to start coming together to find some common 

sense solutions to the problems. 

Thank you, Mr. Chairman.

Chairman GRAVES. Thank you, Mr. Barrow. 

We are going to start. We have two panels today. The first panel 

we are going to have Congressman Lee Terry speak to us. Congressman Terry represents Omaha, Nebraska, obviously a state 

that is heavily dependent on natural gas. 

4

Congressman Terry, I appreciate you being here today, and 

thanks for your testimony. 

STATEMENT OF THE HONORABLE LEE TERRY (NE-02), 

CONGRESSMAN, US HOUSE OF REPRESENTATIVES

Mr. TERRY. Thank you, Mr. Chairman, Mr. Barrow. I appreciate 

you holding a hearing on this specific topic. 

Natural gas accounts for nearly a quarter of America’s energy 

supply and is used in more than half of the U.S. households and 

businesses. In fact, in my metropolitan area just about 62 percent 

of the homes are heated with natural gas. Unfortunately, the 

United States faces a natural gas challenge that threatens the profitability of almost every sector of our economy, as well as our citizens’ quality of life. Nationwide, natural gas prices are up from $1.50 per 1,000 cubic feet just 10 years ago to $7.19 at the close of the market yesterday. 

This is compared to about right now 70 cents in Venezuela, 40 

cents in North Africa, 80 cents in Russia and $3.70 in Eastern Europe. 

Farm states, including mine of Nebraska, yours of Georgia and, 

Mr. Chairman, yours of Missouri, have been hit especially hard by 

higher natural gas prices since natural gas is the primary material 

in nitrogen fertilizer, as well as a key fuel for irrigation and drying 

of grains. 

In Nebraska, anhydrous ammonia fertilizer has increased from about $175 per ton in 2000 to as much as $375 per ton last planting season. About half of America’s nitrogen fertilizer is now imported today due mostly to the high cost of the key ingredient of 

natural gas. 

Since 2001, at least 15 U.S. fertilizer production facilities have 

closed primarily due to the high price of natural gas. This could 

serve as a severe impact on the U.S. economy and our farmers. 

The reasons for concern are magnified when one considers that 

U.S. natural gas consumption is expected to increase 40 percent 

over the next 20 years. Simultaneously, domestic natural production will drop one percent per year. Keep in mind the global expansion and need for natural gas, particularly from China. 

Until substantial new gas supplies are brought to market, the 

nation’s businesses, manufacturers and farmers may not have an 

adequate supply of affordable natural gas to meet their needs. In 

fact, a recent study by the American Gas Foundation found that if 

current natural gas constraints are continued through 2020, the 

price of natural gas is likely to rise above $13 per 1,000 cubic feet. 

There are steps Congress can take to address the natural gas crisis. Now, it has to be a multifaceted approach. Last year we passed 

a pipeline. We think that is going to be an immediate help. Well, 

I will tell you what. The politics of the pipeline in Alaska may take 

10 years to settle before the 10 years to build, but that is one of 

the key components, increasing continental production. 

Then we have to say and realize we cannot meet the needs and 

that we will have to import, and that is where liquid natural gas 

comes in. Chairman Alan Greenspan in several speeches has mentioned the importance of LNG to our economy. 

5

I have introduced a bill, H.R. 359, that would encourage this additional component of additional supply of natural gas to our domestic supply—that is H.R. 359—that ameliorates the morass of 

permitting. It streamlines the permitting process for an LNG facility. 

Right now we have four facilities. There are some offshore facilities that may come on line in the next couple years, but when we 

talk to those who have asked for a permit for an LNG facility they 

come back with the same story, and that is the morass for the myriad of permits is intolerable. It delays and even kills good projects. 

What we have done in H.R. 359 is basically two simple approaches. There has to be a lead authority, and that should be 

FERC. We need to have the states and localities involved in the 

process, but not with veto powers. Also what we have found out is 

there are folks in the process that have permitting powers that intentionally delay action on their permit, in fact de facto vetoing the 

permit. 

What this bill, H.R. 359, also does then is for localities, states, 

state agencies, other federal agencies, once the permit request has 

been filed the clock starts ticking. They have one full year then to 

present the evidence or begin the process of working with FERC to 

state what hazards may occur or may not occur. We then have a 

301 year timeline. 

It is a simple process. We should encourage more LNG because 

we are not going to be able to meet our own needs with domestic 

production in the pipeline. It has to be a multifaceted approach, 

and this is just one of the prongs. 

I appreciate, Mr. Chairman, you giving me the opportunity to 

come here and talk about liquid natural gas because, frankly, as 

we have talked about energy bills, until just in the last couple 

months, no one has talked about liquid natural gas and the impact 

that it is having on our farmers and our small businesses, so thank 

you for holding this hearing. 

[Congressman Terry’s statement may be found in the appendix.]

Chairman GRAVES. Thanks for being here, Mr. Terry. 

You mentioned some offshore facilities. Where are they located?

Mr. TERRY. That is a good question. Mostly in the Texas and 

Louisiana facilities right now. There is one in the northeast. There 

is one in New York, one in Boston, so that is where they are right 

now. 

There are permits that have been applied for in California, along 

the Gulf coast and the northeast, and those are the ones that are 

caught up in the regulatory morass.

Chairman GRAVES. I appreciate you being here. Thank you very 

much for testifying on your bill.

Mr. TERRY. Thank you very much.

Chairman GRAVES. We are going to now seat the second panel. 

I want to remind everyone that all the statements made by the witVerDate 0ct 09 2002 13:19 Nov 02, 2005 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 G:\HEARINGS\21283.TXT MIKE
6

nesses and the Members of the Committee will be placed in the 

record in their entirety. We will go ahead and bring everybody up. 

Again I want to thank all the witnesses for being here today. To 

kind of explain the way the light bar in front of you works, everybody has five minutes to give your testimony. When you have one 

minute left it turns to yellow and then turns to red. 

Now, do I follow that? Not necessarily. If you have something to 

say I want to hear it. I do not like shutting people off, but we do 

use the time lights just so everybody has some idea of what is 

going on. 

I want to thank everybody for being here today. What we are 

going to do is we will introduce each of you individually, let you 

give your opening statement, and then we are going to have questions for you. 

First on the panel is Charlie Kruse who is president of the Missouri Farm Bureau in Jefferson City, a friend of mine and also a 

farmer. He and his family farm down in Dexter, Missouri, and have 

been farming for a long, long time. Charlie is very in touch with 

the issue of natural gas and what it is doing to farmers and the 

squeeze that it is placing on them. 

Charlie, thank you for being here, for coming all the way out. I 

appreciate and look forward to hearing your testimony. 

STATEMENT OF CHARLIE KRUSE, MISSOURI FARM BUREAU 

Mr. KRUSE. Thank you, Mr. Chairman. We appreciate, Mr. 

Chairman, you and the Members of the Committee having this 

hearing. I am joined in the hearing room this morning by a number 

of Missouri Farm Bureau folks who happen to be out here this 

week, and I will just say we are all very proud of our own Congressman, Sam Graves. We appreciate you having this hearing. 

My name is Charlie Kruse. I am a fourth generation farmer from 

Dexter, Missouri, in southeast Missouri. My wife, Pam, and I own 

a row crop farm and operate it in the boot heel of Missouri. I am 

the president of Missouri Farm Bureau, and I also serve on the 

American Farm Bureau Board of Directors. 

I appreciate the opportunity to share the Farm Bureau’s perspective on the impacts of high natural gas prices. Whether it is gasoline, diesel, electricity or natural gas, farmers and ranchers must 

have access to reliable and affordable energy inputs. Unfortunately, 

our country’s failed energy policy makes it increasingly difficult for 

us to produce food and fiber for the United States and the world 

while at the same time providing for our own families. 

Using USDA statistics as a basis, the Farm Bureau has estimated that increased energy input prices during the 2003 and 2004 

growing seasons have cost U.S. agriculture over $6 billion in added 

expenses. Natural gas is especially important to agriculture, as we 

all know, because it is used to produce nitrogen fertilizers and farm 

chemicals, as well as electricity for lighting, heating, irrigation and 

grain drying. 

Natural gas can account for nearly 95 percent of the cost of nitrogen fertilizer. During the last four years, the price of natural gas 

has been extremely volatile, causing retail nitrogen fertilizer prices 

to dramatically increase. 

7

For example, between 2000 and 2003, the average retail cost of nitrogen fertilizer skyrocketed from around $100 per ton to $350 or 

more a ton. On my own farming operation, the cost of nitrogen fertilizer is 70 percent higher today than it was two years ago. The 

same is true for other energy inputs, whether it is diesel fuel, LP 

gas or whatever. 

While I am paying more to plant and harvest my crops, that does 

not necessarily mean I am receiving or will receive more for what 

I sell. Currently the price of corn is about 30 to 35 percent lower 

than a year ago. Soybean prices have fallen 35 to 40 percent. I 

think it is clear farmers are caught in a real squeeze at this point 

in time. 

Manufacturers and retail suppliers are also reeling from the effects of increased natural gas prices. According to The Fertilizer Institute, 15 nitrogen fertilizer plants have permanently stopped production since 2000, representing 22 percent of domestic capacity. 

Another 20 percent of the industry is temporarily shut down due 

to high natural gas prices. 

All the while, the agriculture industry is becoming more reliant 

on foreign imports to meet farmers’ demands. An article featured 

last year in Amber Waves, a publication of USDA’s Economic Research Service, states that over half of the nitrogen used in the 

United States today is imported. In the 1980s, our nation was the 

largest exporter of nitrogen fertilizer. Now we are the largest importer. 

We should be very concerned about increasing our dependence on 

foreign sources for the nitrogen fertilizer needed to raise the food 

and fiber on which our country relies. 

There are a lot of reasons why the price of natural gas has skyrocketed. First, our national energy policy has discouraged domestic exploration and recovery of oil and natural gas, which has made 

us more dependent on foreign energy sources. 

Second, many power plants have been forced to use natural gas 

to generate electricity in order to comply with environmental regulations, even though we have huge reserves of coal and the technology to use coal safely and efficiently. The Energy Information 

Administration estimates demand for natural gas will increase 54 

percent by 2025 with electric power generation accounting for 33 

percent of consumption. 

We recognize there is no silver bullet for solving our nation’s energy woes. However, prompt, decisive action must be taken now if 

we are going to avert a major energy crisis. Farm Bureau supports 

domestic exploration and recovery of energy resources using sensible, environmentally sound methods. We are encouraged by yesterday’s vote in the Senate to explore for energy in Anwar. 

We support the use of renewable energy, such as ethanol and 

biodiesel. We support incentives for the use of clean coal technology 

and electric power generation, and we support the use of nuclear 

energy. 

In closing, the perfect storm—the combination of significantly 

higher energy and fertilizer costs coupled with falling grain prices 

and cotton and rice prices—spells serious trouble for rural America. 

For this reason it is our hope that Congress will act soon to address these problems. 

8

Mr. Chairman, Congressman Barrow, we appreciate you taking 

time to hold this hearing today and look forward to answering any 

questions. 

[Mr. Kruse’s statement may be found in the appendix.]

Chairman GRAVES. Thank you, Mr. Kruse. 

Next on the panel is Terry Hilgedick from Hartsburg, Missouri. 

Terry is chairman of the Missouri Corn Merchandising Council. 

Terry, thanks for coming out to Washington to testify. 

STATEMENT OF TERRY HILGEDICK, MISSOURI CORN 

MERCHANDISING COUNCIL

Mr. HILGEDICK. Thank you and good morning, Chairman Graves 

and Mr. Barrow. Thank you for the opportunity to testify on the 

impact of high natural gas prices to farmers. 

My name is Terry Hilgedick, as Congressman Graves mentioned, 

and I am Chairman of the Missouri Corn Merchandising Council 

and a member of the National Corn Growers Association’s Public 

Policy Action Team. I am from Hartsburg, Missouri, where my 

wife, Kristie, and I grow corn, soybeans, wheat and watermelons. 

NCGA was founded in 1957 and represents more than 33,000 

dues paying members from 48 states. NCGA also represents the interest of more than 300,000 farmers who contribute to corn check 

off programs in 19 different states. NCGA’s mission is to create and 

increase opportunities for corn growers and to enhance corn’s profitability and use. 

My purpose today is to provide insight to the Subcommittee on 

how high natural gas prices affect the cost of producing important 

fertilizers that farmers rely on for their crops. Increased natural 

gas prices have already had an adverse effect on farmers due to 

higher production cost and will continue to do so in the future. 

Growers rely on affordable natural gas as a feedstock for fertilizer, but also for energy for irrigation, drying grain and producing ethanol. Whether used directly as a feedstock or for heat 

and power generation, reasonably priced natural gas is essential to 

grower profitability. 

Fertilizers account for more than 40 percent of the total energy 

input per acre of corn harvested. Most of that energy is consumed 

in the production of nitrogen fertilizer. Retail prices for fertilizer, 

the prices paid by farmers, rise sharply when natural gas increases. According to the USDA, farm gate prices for fertilizer have 

jumped to record high levels. The largest component of making all 

basic fertilizer products is natural gas, accounting for more than 90 

percent of the cost of production. 

Nitrogen fertilizer is a key input for the bountiful yields achieved 

by U.S. corn farmers. Rising natural gas prices in the U.S. have 

caused domestic nitrogen fertilizer producers to severely curtail 

production. Of the 16.5 million tons of nitrogen capacity that existed in the U.S. prior to 2000, almost 20 percent has been closed 

permanently. Another 25 percent is at risk of closing within the 

next couple years. Farmers face higher nitrogen fertilizer prices 

and the prospect that there might not be an adequate supply of nitrogen fertilizer to satisfy our needs at any price. 

9

Nitrogen fertilizer producers have no way of curtailing or reducing their demand for natural gas other than shutting down the 

process itself. This not only destroys their businesses, but it drives 

up fertilizer prices to the American farmer and food prices to the 

American consumer. These production curtailments and higher nitrogen prices are largely the cause of the current surge in nitrogen 

imports. 

Imports currently account for about 40 percent of the U.S. nitrogen fertilizer supply. Lower natural gas prices in the Middle East, 

Asia and South America make it difficult for U.S. nitrogen fertilizer 

producers to compete with these countries with much lower gas 

prices. 

These countries take their excess natural gas, turn it into fertilizer and undersell U.S. producers. This practice will only become 

more common in the future. Supplies of nitrogen fertilizer have 

been adequate during periods of high natural gas prices in the past 

primarily because of increased imports. 

Natural gas accounts for 70 to 90 percent of the cost of producing 

anhydrous ammonia, a key source of nitrogen fertilizer. In the midwest, at the beginning of the year 2000 anhydrous ammonia was 

selling for about $170 a ton. Last spring, anhydrous ammonia was 

selling for $360 a ton. The price of anhydrous at my local dealer 

last Friday was $435. 

For my family farm, the price increase in one year amounts to $13,000 for ammonia alone, and we will have to absorb an additional $7,000 cost increase when other forms of plant food are 

added in. All costs we cannot pass on to our buyers of production. 

Unfortunately, these high and volatile prices are expected to continue into the foreseeable future. 

Higher natural gas prices will also negatively impact the country’s growing ethanol industry. The second biggest cost in ethanol 

production, second only to feedstock, is the cost of energy, generally 

natural gas. Energy costs typically make up about 15 percent of a 

dry mill plant’s total cost. 

According to USDA’s latest crop production report, this year’s 

corn crop will be the largest ever, and yields will increase by nearly 

seven bushels per acre compared to last year. When harvested, 

more than 10 percent of that crop will be turned into ethanol. The 

corn industry becomes more energy efficient every year, but we still 

must have the adequate, reliable and affordable natural gas to fuel 

the industry. 

Government policy is creating a supply squeeze for natural gas. 

Electric utilities and other industries are moving away from using 

nuclear energy and our plentiful supplies of coal and moving towards use of natural gas. Natural gas has been the fuel of choice 

for more than 90 percent of new electric generation to come on line 

in the last decade. In addition, as that happens our access to natural gas is limited due to environmental policy. Clearly we cannot 

have it both ways. 

Our ability to be efficient and environmentally friendly corn producers will face huge obstacles if our nation cannot come to grips 

with its desire to have limitless resources like natural gas for production and not realize that these resources have to come from 

somewhere. 

10

I am sure that the Members of the Subcommittee as individuals 

know this well. However, Congress seems to be unaware of this 

fact. We can produce corn, but we need you to produce the kind of 

policy that enables us to use the needed resources to do our jobs. 

Our nation’s current natural gas crisis has three solutions, increase supply, conserve what we have and reduce demand. The 

109th Congress is facing a daunting task of finding ways to balance 

our nation’s dwindling supply of and rising demand for natural gas. 

Additional supply is available from three primary sources, onshore production, offshore production and liquified natural gas. 

While there is considerable activity underway in each of these 

areas, Congress can do more to facilitate the timely development 

of these critical supply sources. Congress must also adopt measures 

to ensure new coal and new nuclear facilities are constructed. 

Congress should provide federal loan guarantees and other incentives for the retrofitting of existing natural gas fired facilities with 

the new integrated gasification combined cycle and next generation 

nuclear technologies. It is vitally important that these forms of 

power generation be developed and deployed. Without them, the 

demand for gas fired plants will continue to grow and place an ever 

increasing burden on the nation’s supply base. 

Support through long-term extension of tax credits and other incentives for other emerging technologies, including wind and biomass, is also an important element to diversifying our nation’s energy resource portfolio. We urge Congress to act expeditiously to 

promote the development of domestic energy resources to help secure future economic growth for our nation. 

Congress needs to enact a comprehensive energy bill now that 

provides, one, an enhanced role for renewable energy sources; two, 

further development of all energy resources for a more diverse portfolio; and, three, environmentally responsible production of adequate domestic supplies of natural gas. 

There are many indications that our nation’s economy and energy security will be seriously impacted should we not take action 

to expand all sources of domestic energy to feed our country’s growing demand. The days of cheap energy are behind us. A renewable 

fuel standard as part of a comprehensive energy policy would result 

in expansion of ethanol production, directly contributing to the domestic fuel supply, thus reducing our dependence on imported oil. 

Our ability to produce food and fuel for our nation and the world 

depends on sound energy policy. I encourage this Subcommittee to 

continue to address energy and natural gas issues. Your decisions 

impact family farmers’ ability to compete internationally. 

Simply put, farmers need access to reliable sources of energy and 

raw materials so they can use the fertilizers necessary to produce 

an abundant, affordable and healthy food supply. 

Thank you, Mr. Chairman. 

[Mr. Hilgedick’s statement may be found in the appendix.]

Chairman GRAVES. Thank you, Mr. Hilgedick. 

We will next hear from Bill Pirkle, who is the Managing Director 

of Environment Health and Safety, and correct me if I get this 

wrong, but you are with the Agricultural Retailers Association and 

The Fertilizer Institute. Is that correct?

11

Mr. PIRKLE. That is correct.

Chairman GRAVES. Thank you for being here. I appreciate you 

coming all the way from Collinsville, Illinois, to be with us today, 

and I look forward to your testimony. 

STATEMENT OF J. BILLY PIRKLE, AGRICULTURAL RETAILERS 

ASSOCIATION/THE FERTILIZER INSTITUTE

Mr. PIRKLE. Thank you. I appreciate the opportunity to come and 

speak to you, Mr. Chairman, and to the Committee and to the 

guests of the Committee on behalf of the Ag Retail Group and The 

Fertilizer Institute and Royster-Clark, which has 250 ag retailer facilities. We serve about 40,000 farmers in 22 states, and we supply 

crop inputs to another 30 states. 

Royster-Clark traces its roots back to 1872 and a sleepy town in 

North Carolina, Tarboro, North Carolina. Our headquarters are in 

Norfolk, Virginia, and we employ around 2,500 employees. 

ARA is a non-profit trade organization that represents the industry’s ag retailers across the United States. Not only does it represent its members; it also educates members on the political process and important issues that affect our industry. 

TFI is also a leading voice in the nation’s fertilizer industry, and 

you have heard comments from some of the data that they have 

furnished on this issue. 

One of the things that I would like to speak to you on this morning is that the United States needs a reliable and plentiful supply 

of natural gas for nitrogen fertilizer. As was mentioned before, 70 

to 90 percent of the cost of anhydrous ammonia is from the cost 

of natural gas. Currently, the nitrogen fertilizer industry accounts 

for about three percent of the nation’s consumption of natural gas 

as well. 

The current natural gas crisis is exacting a heavy toll on our industry. In fact, as has been mentioned in former testimonies, 15 facilities have been shut down permanently. There is another five 

that have been idled, and that capacity has reduced the domestic 

production 35 percent. It has also been mentioned this morning, 

and I would agree, that the imports have increased by 50 percent. 

One of the effects upon the supply to the growers is that these 

domestic facilities stored and had infrastructure within the domestic United States to store product. With the closing of those facilities, 30 percent of the storage capacity of the domestic farmers and 

their access to those raw materials and crop inputs have been 

closed. 

This increases the cost for the farmer to find suppliers of these 

raw materials through rail and truck infrastructure. As you know, 

our country is facing logistical issues as well, which increases the 

cost of the supply to the farmer and also to the ag retailer. 

Royster-Clark is also pleased and concerned about at the same 

time the issue of natural gas as we have entered into a study with 

Rentech, who is a technology company, and we are looking at what 

we call a coal to corn project. This coal to corn project will actually 

take Illinois coal, and we will ship it to our East Dubuque, Illinois, 

12

nitrogen facility. This technology is not new. It is called FisherTrops. 

Rentech is actually working with the Coal Coalition in Illinois, 

along with the governor of Illinois and the local coal industry to try 

to convert our facility to this ultra clean technology. The clean distillate fuel that would also be produced from that facility could be 

used in municipalities to help with ambient air quality standards. 

The Department of Defense has shown some interest in this technology as part of their Clean Fuel Initiative. 

The company’s conversion to clean coal will ultimately replace 

the natural gas with this coal gasification as its source of energy 

for fertilizer production. This shift will pay huge dividends for 

Royster-Clark, greatly reducing the company’s cost of doing business and eventually creating more jobs, 100 new jobs at the facility, 

an estimated 200 coal mining jobs in Illinois and 1,500 construction 

jobs during the construction of the facility. 

This important coal to corn project will pave the way for expansion that will keep the nitrogen fertilizer production facility in Illinois intact. This also will allow us to supply the midwest farmers 

and growers in our area. 

As excited as we are at Royster-Clark about the promise this 

project represents for our company, we would like to add that this 

is not a realistic option for many other domestic nitrogen producers 

due to the hundreds of millions dollars necessary to complete the 

coal to gasification feedstock conversion. 

Also, there are problems with availability to coal logistically close 

to the domestic production facilities, and in some states there is an 

absence of political and financial assistance that has been offered 

to us by the State of Illinois. 

Mr. Chairman, allow me to relay my recommendations which we 

believe should be included in the federal energy legislation and policy. The first recommendation that we recommend is opening additional federal lands and offshore areas to oil and gas exploration 

and production. We also believe that you should assure that there 

is an infrastructure for a pipeline to bring that supply to market. 

We also support the bill to build new liquid natural gas terminals by placing the exclusive jurisdiction over these regulatory matters of liquid natural gas under the Federal Energy Regulatory 

Commission. 

We believe that these policies and these initiatives are critically 

important to the energy security, food security and our nation’s security, and we strongly urge the Members of this Committee to 

support their inclusion in the industry legislation to be considered 

by the United States House of Representatives. 

Let me conclude by saying thank you for the opportunity this 

morning to share my testimony. 

[Mr. Pirkle’s statement may be found in the appendix.]

Chairman GRAVES. Thank you, Mr. Pirkle. I appreciate you being 

here. 

Next we are going to hear from Dr. Thomas Duesterberg, who is 

President and CEO of the Manufacturers Alliance here in Washington, D.C. I appreciate you being here. 

13

I do want to point out too we received notice that we have a series of votes, three votes, at approximately 11:00, which will be 

sometime in there, but just so everybody is aware that we may 

have to recess for a very short period of time to run over and vote. 

Mr. Duesterberg, I appreciate you being here. 

STATEMENT OF THOMAS J. DUESTERBERG, Ph.D., 

MANUFACTURERS ALLIANCE/MAPI

Mr. DUESTERBERG. Mr. Chairman, I appreciate the opportunity 

to be here. 

Manufacturers Alliance represents about 450 manufacturing 

companies ranging from the auto sector to the chemicals industry 

to the electronics industry. Our membership represents over $3 

trillion in final sales, and the products of our industries are closely 

related to the concerns of rural America, in addition to being in 

many cases located in rural America. 

I have chosen today to focus on the role of Liquified Natural Gas 

and the crisis, but I wanted to call your attention to the cost 

squeeze that is affecting manufacturing today, and this points out 

why it is important to focus on natural gas costs. 

This is an era of global competition which just continues to increase. Not only China, but now India, Malaysia, Indonesia, Mexico 

are all competing with U.S. manufacturers. In this environment we 

have seen a cost squeeze that is produced by a variety of circumstances. 

We have a strong dollar, which continues to be an issue for manufacturers as especially Asian producers/producing countries keep 

the value of their currencies low. Benefit costs are rising rapidly, 

up 32 percent since 2001. Metals of all sorts, including steel, copper 

and other inputs to manufacturing, have almost doubled in the last 

few years. 

We have done a study on a variety of factors affecting manufacturing, the price of manufacturing compared to our nine leading 

trading partners, and a combination of higher taxes here than elsewhere, higher benefit costs, higher energy costs, regulatory costs 

and tort costs add about 22 percent to the cost of labor in this 

country, which is already high so it produces a considerable cost 

squeeze. 

Natural gas is important to manufacturing. The sector uses 

about a third of all natural gas used in this country. It is especially 

important, as has already been pointed out, to the chemicals industry, but also to the glass industry and to the metal forming industry, which have few options for this heat source. 

The impact of this cost squeeze and the higher price of natural 

gas has been especially devastating on the chemicals industry, 

which has lost 90,000 jobs in the last few years. We went from a 

trade surplus of $16 billion in 1997 to a trade deficit of $11 billion 

in 2003 largely because of this. 

Now, one thing that we have looked at as a near term solution. 

We endorse increases in supply of all sorts, including what has 

been mentioned for electricity, diversifying electricity, but there are 

stupendous amounts of natural gas available in the world, including in politically stable places like Norway, Australia, the NetherVerDate 0ct 09 2002 13:19 Nov 02, 2005 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 G:\HEARINGS\21283.TXT MIKE
14

lands, the Caribbean, which could provide a solution to the price 

of natural gas. 

We have calculated that without increased supply of LNG, the price of natural gas could rise to about $12.62 per 1,000 cubic feet 

over the next 15 years. If, however, we take advantage of momentum to increase the supply of LNG, there have been three new facilities that have been licensed in the last year. There are 19 facilities in the United States that have licenses in various stages of the 

process. 

If we can approve only six new facilities from those 19, we could 

have up to 25 percent of the domestic supply from LNG by the year 

2010. We think that this can reduce the price of natural gas by 

about 20 to 25 percent over current levels. 

Mr. Chairman, let me conclude by saying that manufacturing is 

at a crossroads because of a cost squeeze and because of global 

competition. The doubling or even tripling of natural gas prices has 

exacerbated this crisis, so we need immediate attention. 

In addition to increasing domestic supply, we think increasing 

the ability to import LNG could be a near term solution. The economics are good right now for LNG imports, and we encourage the 

Committee to investigate means to accomplish this such as Congressman Terry’s bill to promote expedited licensing. 

[Mr. Duesterberg’s statement may be found in the appendix.]

Chairman GRAVES. Thank you, Mr. Duesterberg. 

Next we are going to hear from Paul Cicio, who is the Executive 

Director of the Industrial Energy Consumers of America here in 

Washington, D.C. 

Thank you, Paul, for being here. 

STATEMENT OF PAUL N. CICIO, INDUSTRIAL ENERGY 

CONSUMERS OF AMERICA

Mr. CICIO. Good morning, Chairman Graves, Ranking Member 

Barrow and Members of the Committee. I am the Executive Director of the Industrial Energy Consumers of America. 

Among other things, I would like to bring to the Committee’s attention the important issues relating to the regulation of natural 

gas futures contracts markets. This June will be the five year anniversary of the beginning of the natural gas crisis. Cost of the crisis 

is nearing $200 billion. 

It was in June of 2000 that natural gas prices averaged above 

$4 per million BTU, a price level that immediately began to impact 

competitiveness of U.S. manufacturing and small business. One by 

one, manufacturing plants were permanently shut down, idled, reduction was shifted overseas and resulted in a loss of some three 

million relatively high paying jobs. Today, with a brisk economic 

recovery, manufacturing is still down some 2.5 million jobs. 

Natural gas prices have continued to rise. Prices on the New 

York Mercantile natural gas contract closed at $7.14 per million 

BTU this Monday. In November of 2004, prices reached levels of 

just under $10 per million BTU. 

Had it not been for industrial demand destruction as a result of 

high natural gas prices and the resulting decline of consumption by 

15

the manufacturing sector, together with a cool summer and a mild 

winter, we would potentially be facing rationing of natural gas. 

The point is the U.S. has a serious natural gas crisis that has 

the potential to get much worse before it gets better, and sound energy policy is not praying for a cool summer and a warm winter. 

In the meantime, we will continue to witness the dismantling of 

U.S. manufacturers who built facilities here in the United States 

based on globally competitive natural gas prices for fuel and feedstock. 

Mr. Chairman, I would like to turn our attention to the natural 

gas market issues. Energy markets have changed dramatically, and 

regulatory oversight, transparency and limits to rampant speculation by traders, particularly unregulated hedge funds, is needed to 

meet this challenge. 

Changes made by the Commodity Futures Modernization Act of 

2000 were very well intended, but did not anticipate the rapid market changes or the problems it would cause by relaxing CFTC regulatory oversight. The changes that a self-regulated NYMEX has 

made to the natural gas futures contract contributes to the significantly increased volatility. 

The natural gas market is no longer being set by consumer demands for the physical supply of gas. Instead of the market serving 

the greater public good, it serves the investment interests of an 

ever growing number of speculators and unrelated billion dollar 

hedge funds that are completely disconnected from the consumer 

and the manufacturing market. None of them appear concerned 

that there are negative impacts on your constituents. 

The NYMEX natural gas futures contract has the distinction of 

being the most volatile commodity in the world, far more volatile 

than crude oil. The trading limits, commonly referred to as circuit 

breakers, are about twice that of other energy commodities and 

about four times that of agricultural commodities in general. 

We encourage the Congress to look at the agricultural market. 

There is no question that the government understands that we 

must provide affordable food and stable prices. As a result, agricultural commodities set futures trading limits that are substantially 

below that of the NYMEX natural gas contract and as a result 

have lower volatility. We believe that natural gas should be treated 

with the same priority. 

The Industrial Energy Consumers of America encourages the 

Committee on Agriculture to make the following necessary legislative changes to support consumers within the reauthorization of 

the CFTC: 

1] NYMEX should be required to seek prior CFTC approval of 

proposed changes to the terms and conditions of contracts as it did 

before CFMA was implemented. CFTC should be required to evaluate the economic impacts of proposed changes and seek public 

input, a similar approach to the Federal Energy Regulatory Commission; 

2] Give CFTC authority to establish trading limits similar to agriculture commodity markets that are far less volatile; 

3] Give CFTC and the SEC greater regulatory oversight that increases the transparency of market players and transactions in 

16

both NYMEX and the OTC sufficient to prevent market manipulation; 

4] CFTC should evaluate after hours overnight trading and determine if its operations are in the best interests of energy markets 

and can operate without manipulation. If not, it should be eliminated; 

5] Congress should prohibit senior CFTC enforcement officials 

from taking jobs with organizations that their agency oversees for 

one year. This would eliminate serious integrity and ethic issues; 

6] Restore and reinforce the anti-fraud anti-manipulation gap to 

CFTC that it once had over energy swap transactions prior to year 

2000. 

Thank you very much. 

[Mr. Cicio’s statement may be found in the appendix.]

Chairman GRAVES. Thank you, Mr. Cicio. We appreciate your 

testimony. 

Next we are going to hear from Peter Jones, who is President of 

Wexco Corporation. He is with the Consumers Alliance for Affordable Natural Gas in Lynchburg, Virginia. 

Peter, thank you for being here. 

STATEMENT OF PETER JONES, WEXCO CORPORATION

Mr. JONES. Good morning, Chairman Graves, Congressman Barrow and Members of the Committee. I am Peter Jones, President 

of Wexco Corporation of Lynchburg, Virginia. 

Established in 1975, Wexco has grown into a highly respected 

and capable supplier of machinery components for the plastics industry both in the U.S. and internationally. Thank you for the opportunity to testify before you regarding the critical issue of natural gas markets and pricing. 

Today I am appearing on behalf of the Consumers Alliance for 

Affordable Natural Gas, which was formed to call attention to the 

natural gas crisis and develop rational policy responses to the natural gas supply/demand imbalance. 

CAANG represents a broad collection of industrials, farming interests and other consumers of natural gas. Since the 1990s, government policies have encouraged the use of natural gas as a clean 

fuel with the largest growth in demand coming from the electric 

utility sector. Yet supply has not kept pace because of government 

policies that have restricted the access to abundant domestic reserves. 

The resulting supply/demand imbalance has driven U.S. natural 

gas prices to unprecedented heights. In fact, they are two to three 

times historical levels, and they are the highest in the industrial 

world. 

Domestic prices are projected to stay at these globally uncompetitive levels for the foreseeable future. As we have heard, April natural gas futures are already over $7, which for a month is the first 

time in history. This is troubling considering that natural gas is 

the key feedstock in fuel used in our plastic industry, as well as 

chemical, fertilizer, paper and other manufacturing companies and 

17

heating homes and producing electricity. Natural gas impacts all 

facets of the economy. 

Because of high natural gas prices, manufacturing plants have 

closed and jobs have moved to other countries with lower energy 

costs. Communities across the nation are suffering. Some three million manufacturing jobs have been lost, but we need to understand 

that each of these jobs supports four to five other jobs in surrounding communities, so it ripples through the economy. 

Okay. What has happened to Wexco Corporation that I represent? Our two primary operating costs are natural gas and steel. 

Our natural gas prices have tripled since I started in Wexco in 

1999, and our steel prices at least in part driven by natural gas 

have also dramatically raised, so our operating costs are skyrocketing. At the same time these high prices are forcing my customers to move offshore where they can achieve competitiveness. 

We cannot follow them. We have to stay here in Virginia. My 

business and our 68 employees are being squeezed. When I started 

we had 135 employees, and we have downsized to 68. Our benefits 

are pressured, and our company of 30 years history is definitely 

under siege. 

The nation did not find itself in this mess overnight, so solutions 

to help alleviate the natural gas supply/demand imbalance will not 

come overnight. We must address structural supply/demand imbalance, which is the fundamental cause of the high, volatile natural 

gas prices. 

Only with a balanced and comprehensive portfolio of policies that 

address both sides of the equation will the problem be resolved. 

There is no silver bullet. 

We believe in four pillars to accomplish this. First, we believe in 

the short term aggressive energy efficiency and conservation measures must be taken, which offer the best near term opportunities 

for reducing price pressures of natural gas. 

Second, significant diversification of industrial and power generation fuels, including renewables, clean coals, syn gas from coal, biomass or other materials and nuclear energy to reduce the demand 

or offset natural gas use and as a matter of energy security. 

Thirdly, expanded supply including LNG and new environmentally sound U.S. production, and finally an infrastructure upgrade that includes LNG terminals, an Alaska pipeline and improved storage and transmission facilities. 

The natural gas problem is complex. It will take a multifaceted 

effort to resolve it, and it must be resolved for U.S. manufacturers 

to remain globally competitive and to give our small businesses and 

farmers a fighting chance to compete. 

Thank you for this opportunity to present our views. I look forward to answering any of your questions. 

[Mr. Jones’ statement may be found in the appendix.]

Chairman GRAVES. Thank you, Mr. Jones. 

Mr. Barrow?

Mr. BARROW. Thank you, Mr. Chairman. It is my pleasure to introduce my guest at these proceedings, Mr. Ben Boyd from Screven 

County, Georgia. 

18

As I stated before, Ben is the chairman of the American Farm 

Bureau’s Young Farmer Committee. Not the Georgia Farm Bureau, 

but the American Farm Bureau Young Farmer Committee, and I 

am very proud to represent him. 

He has a lot of friends from the Georgia Farm Bureau who are 

here with him today. I want to thank them for being here. 

Ben, thank you for testifying today.

Chairman GRAVES. Thank you too, Ben. I want to congratulate 

you on being chairman of the American Farm Bureau Young Farmer Committee. 

I was Chairman of the Missouri Young Farmer Committee and 

served on that committee for two years. I did not have the pleasure 

of being able to be on the American Young Farmer Committee, but 

I am very impressed. 

Thank you for being here. 

STATEMENT OF BEN BOYD, FARMER

Mr. BOYD. Thank you. I appreciate you all letting me be here 

today. As I said, I am Ben Boyd, and I farm with my father and 

my brother close to a little town called Sylvania, Georgia. We are 

a diversified farm. We grow cotton, peanuts, corn, soybeans, small 

grains and cattle. 

I am a member of the Screven County Farm Bureau, and as we 

have said I have the pleasure to serve on the American Farm Bureau Young Farmer Committee, which lets me talk to a lot of people from all over the country, but today I am here speaking on behalf of myself, a farmer from Georgia. 

I just want to thank my congressman, Mr. Barrow, for letting me 

come here today. I appreciate you letting somebody like me come 

and talk to you all. 

As we have all affirmed now, natural gas is a critical resource 

for nearly every farmer in this country from fertilizer, crop protection, chemicals, energy used to dry and store all our commodities. 

My farm and just about everyone else relies heavily on natural gas. 

When the price of natural gas increases as much as it did since 

2002, the price for products I use on my farm which are based on 

natural gas increase as well. Since 2002, nitrogen fertilizer prices 

have increased 113 percent for me. On my farm, that means an increase of about $54,880 just in nitrogen based fertilizer prices for 

me to try to work this year on the same crops that I have been 

growing the whole time. 

For my corn acres I went from about $36 per acre in nitrogen 

prices in 2002 to $64 per acre in 2004, and it is going to be even 

higher this year I am afraid. Our cotton acres are the same way. 

Cotton takes nitrogen too. The same fate. As nitrogen goes up, so 

do my prices for raising this cotton. We use mostly anhydrous ammonia because it is the most economical of all nitrogen based fertilizers. 

I do not come here to ask for a break to facilitate inefficiencies. 

I want to do the best job I can, but I feel like I have cut costs about 

as much as we can without seeing a dramatic decrease in crop production. 

19

Our farm also uses natural and LP gas to dry commodities. Just on our peanut drying bill alone, the increase has been about $4 per 

ton this year, so that has been close to $4,000 this past year in increased drying costs. 

Farmers all across Georgia and all across the nation deal with 

higher energy input costs over the last few growing seasons, but in 

general in this time higher commodity prices have been in place 

and so we have kind of been able to offset differences, but this year 

is not the same. As inputs are going up the prices are going down. 

Many Georgia farmers just like me are going to find it more and 

more difficult to sustain profitability. 

We are eventually going to reach a point where energy costs and 

energy related inputs force me and my neighbors and people from 

all over the country to not only change our crops, but maybe to 

change our livelihoods. When gross income on the farm falls, our 

rural communities suffer. 

When farmers stop farming by choice or by circumstance we lose 

infrastructure, and this is critical. When we lose this infrastructure 

in these rural communities, it cannot be replaced without huge capital expenditures in the future. 

This is something that really matters to me in the little place I 

live called Poor Robin, Georgia. Please do not underestimate the 

difficulty it is going to put on young farmers all over the country. 

I will argue that nitrogen is the most important fertilizer element 

to most crops. If something is not done with this problem, I do not 

know how we are going to be able to keep going. 

I believe American agriculture is just as much a national security 

issue as anything else we do. If you have plenty to eat, you have 

1,000 problems. If you are hungry, you only have one. 

We have been blessed in America. We have more abundance than 

we know what to do with, and I think it is imperative that we 

maintain a broadbased agriculture industry so we grow food all 

over the country to provide safe, affordable and abundant supply 

of food and fiber for our citizens. We should also be able to rest assured that our food, we have plenty of it and it is safe. 

In closing, what I want everybody to get from this is that this 

is important to me. We talk about endangered species. You are 

looking at one. I am a 27-year-old farmer. There are not many of 

us left, and if for some reason we skip a generation in farmers for 

one reason or another I am afraid it is going to be because it is 

not profitable. 

It is hard to get into. Right now if you cannot make a living for 

it—you can ask my banker. It is looking rough, but I think we can 

do some things that will help. If we can cut our costs as much as 

we can—I want to do my part. I will cut everything out I can, but 

I am at the point right now if I cut anything else productivity is 

going to go down. 

If we could do something to decrease the energy related input 

cost, be it fertilizer, chemicals, all of these things, transportation 

both ways, I think it would let us be able to produce the food that 

our citizens need while maintaining these rural economies that according to me are extremely important in this part of the world. 

I just thank you all for letting me talk today. 

[Mr. Boyd’s statement may be found in the appendix.]

20

Chairman GRAVES. We are going to take a quick recess. We have 

three votes, twenty minutes maybe, twenty-five minutes, I hope to 

be back. 

I do have several questions. I am interested in coal gasification. 

I am also interested in what some of your opinions are, particularly 

Mr. Cicio, in market manipulation, and then I want to hear from 

our three farmers about what is happening to their operations personally. 

You know, agriculture, farming, is the only business out there 

that I know of that buys everything retail and sells everything 

wholesale. It is completely backwards to the way it is supposed to 

be. We are price takers on both ends. 

I am particularly interested in what this has done to your operation personally and the impact. You kind of addressed it a little 

bit and nibbled around the edges, but I want to hear it direct so 

you might think about those questions. 

We should be right back just as quickly as possible. I thank everyone for their patience. 

[Recess.]

Chairman GRAVES. I want to thank everybody for your patience 

in our vote. It obviously took longer than we had thought, but 

again thank you all for being here, and I hope your schedules have 

not been messed up too much. 

Charlie Kruse is not going to be with us. He did have some commitments, which is fine. 

I do want to start with Mr. Cicio. I would be curious as to what 

your take is on market manipulation and just how much you think 

is there. It is frustrating the way limits are set or where they are 

set for natural gas as opposed to other farm commodities, but I am 

curious about what your take is on market manipulation and just 

how widespread it is.

Mr. CICIO. Congressman, we have a very interesting situation 

where there is enormous speculation and enormous increased volatility that has occurred. It is only directionally up, but it is all 

legal. There is nothing that is illegal about what is going on. The 

sad thing is that they are permitted by law to do these things. 

We could not understand why things were as volatile as they 

were, and we looked at the construct of the NYMEX natural gas 

contract, and we found some very revealing things. 

Since the passage of the Commodity Futures Modernization Act, 

it deregulated essentially NYMEX and allowed them to do whatever they want with the terms and conditions of the NYMEX contract. Since 2000, year 2000, they changed the terms of this contract four times, and they have changed the terms, such as the limits, to make it more volatile. 

Today, as I mentioned in my testimony, the limits are twice that 

of other energy commodities and four times the limits of agricultural commodities, so what you have then is a contract that if you 

were a speculator, a trader, a hedge fund, that is a perfect environment for volatility. 

If you are the New York Mercantile or you are a trader, speculator, volatility is good. You want an environment, a contract that 

21

you can push the price around at will. If you are a consumer, you 

want stability. That is why we like the agricultural commodity situation. 

Our number one priority is turning back the clock a bit on the 

Commodity Futures Modernization Act. Many of the things that 

were in place, the law of the land, prior to the year 2000 is what 

we would like to see. Prior to 2000, if the NYMEX wanted to 

change the contract they had to make that request to the CFTC. 

The CFTC would evaluate it and either approve it or disapprove 

it. 

We would like to go a step further and encourage the CFTC to 

do an evaluation of the impact of the proposed changes by NYMEX 

and allow for public input, and that is pretty much the way FERC 

manages their issues. 

In terms of manipulation, to our knowledge it is not illegal. They 

have been given the legal right to do this through the design of 

that contract. We need to fix the contract.

Chairman GRAVES. Mr. Pirkle, you mentioned coal gasification. 

Could you explain that a little bit more for my clarification and explain that? If you just do a little bit more in-depth on that, I would 

appreciate it.

Mr. PIRKLE. Sure. Rentech is a technology holding company that 

has a patented process that is an enhanced Fisher-Trops technology, and Fisher-Trops technology is probably 60 years old. It 

was developed in Germany during World War II for a way to convert to fuel their armed forces. 

It is presently being used in South Africa. There are some production facilities that are there that are actually using the FisherTrop technology. 

Rentech has actually taken that Fisher-Trop technology and developed and refined it, and the part that they patented is actually 

when you burn—they can actually consume high sulfur coal which 

has higher BTU values, so they can actually do that, and with their 

patented process they capture the sulfur and condense the sulfur 

emissions down to elemental sulfur, and they can sell that elemental sulfur, so for air emissions it is a clean fuel. 

However, it is capital intensive. To construct a facility, the estimates right now are somewhere around $400 million to erect and 

construct the facility, and that is the stage that we are at right 

now. 

A product that I mentioned, the clean distillate fuel, is a product 

that will come out of the process. The clean distillate fuel is a low 

sulfur diesel fuel substitute or equivalent. It has one part per million sulfur. 

I mentioned in my testimony that municipalities are very interested in that if they are in a non-attainment area for their municipal transportation needs. The Department of Defense, with their 

clean fuel initiative, is interested in this clean distillate fuel equivalent as well. 

The State of Illinois has given a $5 million grant to complete the 

engineering studies. Those engineering studies are near compleVerDate 0ct 09 2002 13:19 Nov 02, 2005 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 G:\HEARINGS\21283.TXT MIKE
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tion. The next step after that would be the raising of the funds to 

start construction and to move forward with the conversion process. 

We have some papers that were developed that give a report of 

the engineering studies and a little bit more in-depth information 

on the Fisher-Trop technology that we could submit to you if that 

would meet your needs.

Chairman GRAVES. Very much so. If you would submit that, I 

would appreciate it very much.

Mr. PIRKLE. We can do that.

Chairman GRAVES. My staff will work with you to get that. 

I do want to hear from Terry and Ben, both of you all, on just 

what this is doing to your personal operations because as farmers 

you are hit from both sides and there is not much you can do about 

it, particularly in today’s environment where we have decreasing 

profit margins in farming. It just makes it that much more tough 

when you see natural gas which is used for drying and then of 

course the fertilizer costs on top of that. 

What do you foresee in the future with your operations and what 

worries you and just how tough it is going to be? Terry?

Mr. HILGEDICK. Okay. Basically on our farm we try to look at it 

a few different ways. We can improve efficiency of the fertilizer 

that we use. Currently our farm last year, we were producing one 

bushel of corn for one unit of nitrogen, and we feel like we are 

probably hitting the wall there. 

We applied three different times throughout the growing season, 

once at planting, once at side rest time, which the corn is about a 

foot tall, and once again at about six feet tall through irrigators. 

We feel like we are probably running out of efficiency there, so as 

far as tweaking that much more I do not know what we would do 

really and still maintain the kind of yields it takes to make a little 

money farming. 

Secondly, we can try to buy seasonally. Sometimes it works. It 

worked in 2004. We were able to buy in the fall of 2003 and saved 

about $50 a ton. That opportunity has not presented itself thus far 

in our area in 2005 so we are uncovered on our costs on anhydrous 

ammonia, and, as I mentioned earlier, we are looking at $400 plus 

a ton. 

We cannot grow corn is an option. It is unacceptable for a lot of 

reasons in that our crop rotations are destroyed. Our yields on our 

other crops such as soybeans would then plummet due to lack of 

rotation, so it is a tough animal. 

Fourthly, we just pay the price and go on. That is kind of where 

we are getting to more all the time and just absorb the cost and 

try to find it somewhere else, try to find some dollars elsewhere.

Chairman GRAVES. Ben?

Mr. BOYD. Well, for us, as I talked about, we can change what 

crops we are using a little bit to help a little bit, but with us we 

can grow peanuts, which do not take as much nitrogen, but it is 

23

just like he said on rotation. We are just prolonging the inevitable 

when we do that because it is a pay it now/pay it later deal. 

From my perspective, we do not really need a bandaid like that. 

We need something that will fix us for a while. What really scares 

me is we are being able to do it right now. Obviously I am still 

farming so I tend to believe if it keeps going the way it is going 

we are going to be farming on equity and that is not good because 

that will run out, especially for me. 

The way it is increasing, if it keeps going up, like right now 

somehow we are making it, but if it keeps increasing at the rate 

it is and what they say it might, I do not know. We are going to 

pray and hope we have a good season, have a good crop, because 

it is not looking real pretty right now.

Chairman GRAVES. Mr. Barrow?

Mr. BARROW. Thank you, Mr. Chairman. 

Ben, to follow up on what you were saying, are there things you 

can turn to for fertilizer besides nitrogen based fertilizers? Is that 

an option?

Mr. BOYD. No, sir. What I just said about the crops and changing 

around, that obviously will not work but a minute or two. I mean, 

nitrogen is its own thing. It would be like saying do you want food 

or water. You have to have it.

Mr. BARROW. I want to harken back to something you said at the 

end of your testimony when we were being called away. 

You took a generational perspective on things, and I just want 

you to share with us. How do you think that young farmers today 

are facing challenges that young farmers yesterday and before your 

daddy’s generation? Tell us how things look to you today, as opposed to the way things looked back then.

Mr. BOYD. Absolutely. Farming is to capital intensive right now. 

It is hard to get into if you are not in some sort of operation. With 

that, we start losing farmers. Like with the age, like the demographics, farmers are getting older and older. There are not many 

young guys coming up. 

If we ever miss a generation of farmers in there, it is not something that you can pick up a textbook. I am not saying that farmers are smart or anything, but just smarter than anybody else so 

that you could not just have a textbook. You just cannot wake up 

one morning and decide I am going to be a farmer and read, you 

know, or read lots of books and figure things out because it is always different. 

I would just argue that if we lose it, especially if we lose it in 

regions, there are some parts of the country that are more efficient 

at growing some stuff. We need to have people producing commodities all over the country, and if we ever skip one generation I 

think it is going to be hard for us to get back into it.

Mr. BARROW. Thank you, sir. 

24

Mr. Chairman, you have asked some of the questions I wanted 

to ask, so I am through.

Chairman GRAVES. Manufacturing. Can any of you delve into 

competitiveness with some of your foreign competitors? I do not 

know if any of you have foreign competitors. You may know in general what their energy prices are or what it is doing as far as how 

that affects you. I would be curious about that.

Mr. JONES. I can speak. In the machine that we make —we 

make barrels that go into injection molding machines and so on. 

We have a high cost of energy in casting the biometallics inside the 

steel cylinders. 

There are competitors in China who could put a barrel in one of 

our customer’s plants and make a profit for less money than it 

takes for us just to produce it. I mean, it is dramatic. 

The only thing that keeps us going at this point in time is because most of the equipment in the United States, because of the 

recession we have had and the lack of a capital investment short 

term, most of that equipment is older equipment, and people run 

it until it is about ready to drop and they need a barrel now, and 

they are not going to get it from China. 

So in the short term there is a little bit of protection there, but 

in the longer term, Congressman, is that the people who make 

resin, plastic resin, are putting all their capital offshore. The largest manufacturer of injection molding machines now in the world, 

which makes as many as all the others in the United States combined, is in China. 

Plastic processing. I defy you to go into WalMart or Home Depot 

and find any consumer product made out of plastic that does not 

say Made in China on it. We are impacted both from a cost standpoint in manufacturing and from a standpoint that the pie that we 

vie for is getting smaller and smaller.

Chairman GRAVES. Go ahead.

Mr. DUESTERBERG. I might comment just in general. Natural gas 

prices in Europe, of all places, are now 25 percent or so lower on 

average than they are here. They get gas from Russia primarily, 

but also get gas from North Africa in the form of LNG. 

Gas is the primary determinant of location now for the chemicals 

industry, and you see unfortunately major chemical companies in 

the United States now locating in the Middle East because gas is—

they used to burn it. It is available for less than $1 per 1,000 cubic 

feet. 

These industries, if we do not address the problem, are going to 

continue to move offshore. We are going to continue to put large 

swaths of the manufacturing sector at a competitive disadvantage 

if we do not get the price of natural gas down to a level where it 

is more competitive even with the Europeans.

Chairman GRAVES. Do you have any more questions?

Mr. BARROW. No, Mr. Chairman.

25

Chairman GRAVES. It is obvious that we need some long-term solutions in the energy bill, if we can get that passed. 

There was a little bit of a ray of hope I guess that came out of 

the Senate the other day at least in looking at some of the things 

we can do in terms of more domestic production of some of our energy sources. 

Obviously Liquid Natural Gas has a lot of potential. We need to 

do everything we can to try to get that permitting process expedited. Mr. Terry, we are working with him a little bit on that. 

What we are going to look at is some of the short term, some 

things we can do to hopefully eliminate the volatility very quickly. 

I am going to be filing a bill as soon as we get back from Easter 

break dealing with the price stops and looking at basically we are 

going to attempt to implement some limits much like what we see 

in the farm commodities arena. 

Hopefully that will help out or at least lessen the volatility shortterm, but obviously long-term we have got to come up with some 

serious solutions to this because it is hitting everybody. It is hitting 

our farmers. It is hitting our manufacturers. It is hitting consumers. It is hitting homeowners. Everybody has seen their heating bill skyrocket. We have to do something, and I believe in that. 

I appreciate everybody coming out today and giving your testimony. I know some of you it was much tougher to get here than 

others, but I appreciate that quite a little bit. 

Please work with my staff. If you have any other suggestions let 

us know as we are working through this process of filing the bill. 

Again, thank you. 

This hearing is adjourned. 

[Whereupon, at 12:04 p.m. the Subcommittee was adjourned.]

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