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81–700 2013

THE NEW DOMESTIC ENERGY PARADIGM: POTENTIAL FOR SMALL BUSINESSES AND THE ECONOMY 

HEARING 

BEFORE THE

SUBCOMMITTEE ON AGRICULTURE, ENERGY AND 

TRADE 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

JUNE 20, 2013 

Small Business Committee Document Number 113–025 

Available via the GPO Website: www.fdsys.gov 

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Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

BLAINE LUETKEMER, Missouri 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

JAIME HERRERA BEUTLER, Washington 

RICHARD HANNA, New York 

TIM HUELSKAMP, Kansas 

DAVID SCHWEIKERT, Arizona 

KERRY BENTIVOLIO, Michigan 

CHRIS COLLINS, New York 

TOM RICE, South Carolina 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

YVETTE CLARKE, New York 

JUDY CHU, California 

JANICE HAHN, California 

DONALD PAYNE, JR., New Jersey 

GRACE MENG, New York 

BRAD SCHNEIDER, Illinois 

RON BARBER, Arizona 

ANN McLANE KUSTER, New Hampshire 

PATRICK MURPHY, Florida 

LORI SALLEY, Staff Director 

PAUL SASS, Deputy Staff Director 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Scott Tipton ..................................................................................................... 1 

Hon. Patrick Murphy ............................................................................................... 2 

WITNESSES 

John W. Larson, Vice President, Economics & Country Risk, IHS Global 

Insight, Washington, DC ..................................................................................... 3 

Simon Ormerod, CEO, Ajax Rolled Ring & Machine, York, SC, testifying 

on behalf of the Forging Industry Association ................................................... 5 

Chuck Grobe, Commissioner, Moffat County, Craig, CO ..................................... 7 

Sean Meyn, Director of the Florida Institute for Sustainable Energy, University of Florida, Gainesville, FL ........................................................................... 8 

APPENDIX 

Prepared Statements: 

John W. Larson, Vice President, Economics & Country Risk, IHS Global 

Insight, Washington, DC .............................................................................. 20 

Simon Ormerod, CEO, Ajax Rolled Ring & Machine, York, SC, testifying 

on behalf of the Forging Industry Association ........................................... 25 

Chuck Grobe, Commissioner, Moffat County, Craig, CO .............................. 30 

Sean Meyn, Director of the Florida Institute for Sustainable Energy, 

University of Florida, Gainesville, FL ......................................................... 36 

Questions for the Record: 

None. 

Ansers for the Record: 

None. 

Additional Material for the Record: 

The Benefits of Natural Gas Production and Exports for U.S. Small 

Businesses - Raymond J. Keating, Chief Economist, Small Business 

& Entrepreneurship Council ........................................................................ 43 

University of Florida - Sean P. Meyn ............................................................. 92 

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THE NEW DOMESTIC ENERGY PARADIGM: POTENTIAL FOR SMALL BUSINESSES AND THE 

ECONOMY 

THURSDAY, JUNE 20, 2013 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

SUBCOMMITTEE ON AGRICULTURE, ENERGY AND TRADE, 

Washington, DC. 

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

2360, Rayburn House Office Building. Hon. Scott Tipton [chairman 

of the subcommittee] presiding. 

Present: Representatives Tipton, Mulvaney, Luetkemeyer, and 

Murphy. 

Chairman TIPTON. The hearing is now called to order and I 

would certainly like to thank our witnesses for being here on time. 

Sorry we were not. We did have votes going on, but I certainly appreciate your patience. I am joined here by Ranking Member Murphy, and we also have Representative Mulvaney here as well. And 

I certainly thank you for your time. 

I would like to thank all of our witnesses for appearing at today’s 

hearing to be able to discuss job creation potential of the domestic 

oil and natural gas development. 

Until very recently, many geologists, energy market participants, 

and policymakers assumed that the overall rate of domestic oil and 

natural gas production had peaked and had entered into a permanent period of decline—a scenario that could result in higher energy prices, an increase in oil and gas imports, and the imposition 

of measures intended to reduce demand for petroleum as a fuel 

source. 

However, the advent of new technologies and changes to market 

fundamentals has led to a paradigm shift in the energy outlook of 

the United States. Where there was once energy scarcity, there is 

now a potential for an energy bounty. 

According to a number of recent studies of the United States’ oil 

and natural gas resources, America now has the potential to supplant a significant portion of foreign oil imports with domestically 

produced oil, and it has the ability to be able to produce enough 

natural gas to satisfy domestic demand and offer natural gas export opportunities. 

As impressive as these gains are, this Committee is most interested in the potential economic and job creation benefits of domestic oil and natural gas production as they may accrue to small businesses and developing those resources responsibly. Overall, 88 perSBREP-219 with DISTILLER

2 

cent of domestic oil and natural gas producers are classified by the 

United States Small Business Administration as small businesses. 

If America’s oil and gas potential is fully realized, oil and gas producers could create up to 600,000 new jobs by the year 2020. 

In addition to jobs created directly by producers, more than 

900,000 indirect jobs could be created at supplier firms supporting 

oil and gas development. This number would be in addition to more 

than 1.4 million induced jobs created as the economic effects of oil 

and gas development flow throughout the broader economy. These 

potential benefits to the United States, small businesses, and rural 

communities are truly extraordinary. 

At the same time, while domestic oil and natural gas production 

has many benefits, it is not the silver bullet solution to all of our 

nation’s energy economic and environmental needs. Rather, it is an 

element of an ‘‘all of the above’’ strategy that must be used to promote long-term energy independence for our country. 

I look forward to hearing from today’s witnesses and hearing 

their views on these issues, and I would now like to yield to Ranking Member Murphy for his opening statement. 

Mr. MURPHY. Thank you, Mr. Chairman. And I would like to 

thank the witnesses for their time with us here today. 

During the last decade, energy prices have risen dramatically. In fact, 10 years ago today oil was trading around $30 a barrel and 

a gallon of gas was $1.45. Since then, we have seen it reach highs 

of nearly $150 a barrel and then drop back down to around $100 

a barrel where it is today. In the last year, it has become not uncommon for a gallon of gas to be around $4 a gallon depending on 

where you live. With these prices, innovative energy technologies 

and alternative energy sources are critical, and in many cases, 

small businesses are leading the way, whether they are working to 

develop new sources of energy, rethinking how we use existing fossil fuels, or making improvement to the electrical grid, these entrepreneurs have become agents of change in the energy industry, engineering new ideas and jobs that come from them. The reality is 

the more domestic options we have for energy, the better it is for 

everyone. With all these alternatives on the table, the U.S. is better positioned to reduce its dependence on foreign oil over the long 

term, and small business leaders are the ones who allow us to 

reach this goal. 

In my home state of Florida, we are seeing this change firsthand, 

particularly in the area of solar energy. This is not surprising in 

a state with an abundant source of fuel for that—sunshine. Florida 

is quickly becoming a leader in this sector and is one of the nation’s 

largest suppliers of utility-based solar power. Small businesses in 

Florida are not just installing solar systems in homes and businesses; they are developing in manufacturing the cutting-edge technologies upon which these systems are built. With more than 430 

companies and nearly 16,000 workers, my home state has one of 

the largest concentrations of suppliers of silicon and other solar 

module components in the U.S. 

Another area that shows great promise is biofuels where Florida 

is also a top producer. Small businesses making biofuels can draw 

on our state’s huge volume of biomass feed stock, including sugar 

cane, citrus residues, and urban wood waste. This production acSBREP-219 with DISTILLER

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counts for about seven percent of total U.S. biomass output. Further, some of the most advanced biomass energy research is conducted at Florida universities, leading to the development and production of new, cutting edge biofuels. 

Small businesses also play a key role in traditional energy innovation. This clearly is evident with regard to natural gas exploration. Shale gas in particular has created new jobs for specialty 

manufacturers, drilling service companies, and regional heavy 

equipment companies across the United States. As they grow, so do 

the local economies where demand is created for restaurants, hotels, and many other service companies. 

I look forward to hearing how we can continue to support energyfocused small business. We must find sensible ways to invest in the 

energy sources of tomorrow while ensuring that traditional fossil 

fuels can be used in an efficient and clean manner today. Determining the proper mix of these policies is often challenging but 

that is why this hearing today is so important. 

I also look forward to understanding what barriers these innovative companies face, as well as hearing whether government should 

play a greater or lesser role. The challenges of small businesses are 

the challenges of this Committee, and we are committed to ensuring that small firms continue to benefit from the recent developments in the energy industry. Thank you. 

Chairman TIPTON. Thank you. 

If the Committee members have opening statements prepared I 

ask that they be submitted for the record. 

I would like to take a moment to be able to explain the timing 

lights that are in front of you. The light will start out as green. You 

have five minutes for your testimony. Once we get down to one 

minute, the light will turn yellow, and finally, it will turn red. And 

at that time, if you could wrap up we would appreciate it. 

We would now like to be able to go ahead and start with our 

panel. First, I would like to be able to introduce our first witness, 

Mr. John Larson. He is vice president of Economics and Country 

Risk at IHS Global Insight, an economics forecasting firm. His 

most recent work is focused on measuring the potential employment contributions of unconventional oil and gas development in 

the United States economy, the subject of today’s hearing. 

Mr. Larson, I appreciate your willingness to be testifying before 

our Committee, and we look forward to your testimony. 

STATEMENTS OF JOHN LARSON, VICE PRESIDENT, ECONOMICS AND COUNTRY RISK, IHS GLOBAL INSIGHT; SIMON 

ORMEROD, CEO, AJAX ROLLED RING AND MACHINE; CHUCK 

GROBE, COMMISSIONER, MOFFAT COUNTY; SEAN MEYN, DIRECTOR, FLORIDA INSTITUTE FOR SUSTAINABLE ENERGY, 

UNIVERSITY OF FLORIDA 

STATEMENT OF JOHN LARSON 

Mr. LARSON. Great. Thank you, Chairman Tipton, Ranking 

Member Murphy, and distinguished members of the Committee. It 

is an honor to speak with you today. 

As you have rightly pointed out, the United States is in the 

midst of an unconventional oil and gas revolution that is funSBREP-219 with DISTILLER

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damentally changing the energy position that we enjoy in the world 

today. It is also improving our global competitiveness and helping 

to stimulate a manufacturing renaissance. 

Since 2009, our company has been engaged in several studies to 

better understand the economic contributions associated with this 

revolution, and we will be releasing a study in July that will focus 

specifically on the manufacturing benefits and implications. 

So far, the unconventional activity is supporting 1.7 million jobs 

in this country. Looking towards the future, the industry will support three million jobs by the end of the decade. At a time of great 

concerns about federal budgets, it is also important to note the revenue implications associated with this revolution. Total government 

revenue from unconventional activity accounted for $62 billion last 

year and will rise to 111 billion by 2020. By 2035, unconventional 

activity is expected to generate 2.5 trillion in cumulative revenues 

to the federal and state governments. 

These impacts are also meaningful at a state level. In Colorado, 

for example, unconventional activities supported 78,000 jobs in 

2012 and generated 1.5 billion in state and local taxes. 

But there is also a very important impact beyond those states 

that actually enjoy geographic activity around this unconventional 

revolution, and that is, in fact, 30 percent of all jobs are found in 

states that do not actually have a geographic play in this activity. 

If you look at Florida, for example, the state currently has about 36,000 jobs and $181 million in revenue generated through the 

supply chains across the country that help enable this unconventional activity to take place. A key reason, obviously, for this profound economic impact, both at the national level and the state 

level, is that this industry combines a capital-intensive industry 

with a broad domestic supply chain. As many of you know, this industry is really a homegrown result of our technology, innovation, 

and know-how. And so what that means is that dollars spent here, 

stay here in domestic suppliers. 

Equally impressive are the larger macroeconomic effects attributed to the savings brought about by lower natural gas prices and 

the corresponding electricity prices. In our study of the economic 

and employment contributions of shale gas in the United States, 

we identified how lower natural gas prices will increase industrial 

production 2.7 percent by 2015, and 4.7 percent by 2035. And for 

households we identified, these lower prices cascade through the 

economy resulting in savings to consumers. It increases annual disposable income by nearly $1,000 by 2015. 

What does all this mean for manufacturing specifically? Several 

factors are shifting the economics in favor of onshoring and refueling a resurgence of manufacturing in the United States. First, global labor wage rates for many offshoring locations have significantly 

outpaced the U.S. wage increase narrowing the wage gap. Second, 

in an increasingly advanced manufacturing world, technology is 

shifting the balance away from the importance of low cost labor 

and toward high skilled work forces. And third, in a rapidly evolving energy landscape, the fundamentals around supply chains and 

offshoring are shifting. Higher oil prices, as you pointed out Ranking Member Murphy, which have tripled in the last decade, have 

significantly increased transportation costs, making the offshoring 

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5 

less attractive. Also, in the United States, the unconventional revolution is creating significant competitive advantage for both energy 

intensive industries and energy industries that rely on natural gas 

and their derivatives with feedstocks. As a result, companies are 

now talking about planned investment that will appear in the hundreds of billions of dollars in this country. 

All together, this unconventional revolution has already had a 

major impact. It is fundamentally transforming U.S. energy supply 

and contributing to the growth in government revenues, manufacturing, and economy-wide employment. Its significance will continue to grow as it unfolds, and these hearings I think provide a 

timely opportunity for assessing that impact and the significance 

that it will have in many dimensions. 

And I am pleased to answer Committee questions. Thank you. 

Chairman TIPTON. Thank you, Mr. Larson. We appreciate your 

testimony. 

I would now like to be able to introduce our next witness, Mr. 

Simon Ormerod. Am I getting that correctly? 

Mr. ORMEROD. That is right. 

Chairman TIPTON. Okay, great. Thanks. 

He is CEO of Ajax Rolled Ring, a material forging manufacturer 

located in York, South Carolina. Mr. Ormerod is currently serving 

as president of the Forging Industry Association, and is testifying 

today on behalf of FIA. 

Mr. Ormerod, thank you for appearing today, and we look forward to your testimony. 

STATEMENT OF SIMON ORMEROD 

Mr. ORMEROD. Thank you. Chairman Tipton, Ranking Member 

Murphy, and members of the Subcommittee, thank you for the opportunity to testify before you today on the economic benefits of increased domestic supplies of natural gas and oil. And specifically, 

how those benefits might impact a small business like mine. 

My name is Simon Ormerod, and I am the CEO of Ajax Rolled 

Ring and Machine based on York South Carolina. I am currently 

the president of the Forging Industry Association. The FIA is the 

primary trade association representing the bulk of forging capacity 

in North America. 

Forging is the oldest known metalworking process, where metal 

is heated and formed under high pressure into a wide variety of 

high-strength parts using anything that rolls, floats, or flies. 

My company has approximately 100 employees and has been in 

York, South Carolina since 1980. We are a custom manufacturer of 

seamless rolled rings used in such critical industrial components as 

bearings, gears, flanges, and valve seat rings applied in end-use 

markets such as power generation, mining, and construction equipment, oil and gas, petrochemical, defense, rail transportation, and 

a wide variety of general industrial applications. The rings we 

make range from 7.5 to 100 inches in diameter and weigh from 15 

to 3,500 pounds. 

The modern forging process is both capital-intensive and energyintensive. Adding a new production line for our company would 

cost in excess of $15 million, and we have significant expenditure 

on equipment every year due to the intense wear on the equipSBREP-219 with DISTILLER

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ment. We are also a major user of natural gas and electricity in our 

region. Given those requirements, it may surprise you to know that 

most forging plants are small and medium-size businesses. Specifically, 95 of FIA’s approximately 200 members qualify as small businesses. Forged parts are strong and reliable and therefore, vital in 

performance of critical applications. It would take fully my allotted 

five minutes to name all of the components that contain forgings, 

but they are found in virtually all industries, and applications include automotive, aerospace, defense, power generation, mining, 

rail, hand tools, and even golf clubs. 

Forgers, like Ajax, are in a unique position to comment on the 

overall benefits to the economy created by the increased supplies 

of domestic natural gas and oil we are now enjoying in the U.S. Increased exploration for oil and gas is not only beneficial to our cost 

structure through lower priced energy, but also leads to increased 

amount for our forgings. My company makes forged rings that are 

used in gears and bearings and flanges that are subsequently sold 

to valve, pipe, and flange manufacturers in the oil and gas fields. 

Our products are also sold to manufacturers of drills, pumps, and 

many other oil and gas related equipment applications. Other forgers make critical parts such as the forged drill bits without which 

the hydraulic fracturing or fracking activity in our country would 

not be possible. Our industry is, in fact, integral to the increased 

supply of domestic natural gas we are seeing today. 

Demand for forged rings that we supply for valves used in oil 

and gas pipelines has risen by 20 to 30 percent in the past two 

years. We have added at least 10 new positions in that time for 

both forging and precision machining activities. The exacting requirements of those valves, many of which are for subsea applications, are such that only stainless steel forgings of the very highest 

standards and machine-to-tolerances of thousandths of an inch are 

acceptable. 

But for forgers, the benefits of this energy boom are not limited 

to increased demand for our products. Natural gas is a key import 

and a cost-driver in our manufacturing process, so we also benefit 

from stable pricing of that energy source. Most forgings are processed at temperatures up to 2,300 degrees Fahrenheit, with subsequent heat treating done up to 1,900 degrees Fahrenheit—so using 

natural gas or electric furnaces. Therefore, forgers require adequate, stable, and affordable supplies of natural gas and electricity 

to make the critical parts we make for nearly every industry sector 

imaginable. As recently as 2008, we were challenged with significant natural gas price volatility. Prices ranged from $5.80 for a million BTU to $12.70. When natural gas is a key import and a key 

cost driver, that market volatility makes it extremely difficult to 

plan for some of the investments I mentioned earlier. 

Forgers’ other key raw material is, of course, steel. The metal 

producers also require natural gas as a key import and a low and 

stable gas price helps them to keep metal prices low for our customers. So today, with the abundant natural supplies of natural 

gas being extracted and sold in the U.S., we have confidence in the 

stability and competitive price of the market. 

So in conclusion, it would be remiss if I did not point out the FIA 

believes strongly that the U.S. must avoid enacting unnecessary 

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regulatory barriers to increase domestic supplies of oil and gas. Polices that artificially increase prices or restrict supplies will certainly have a direct negative impact on the entire oil and gas supply chain regardless of company size, but they would also negatively affect hundreds of small manufacturers like Ajax and other 

forging industry supply chains. Policies that encourage safe exploration and development of domestic energy sources are critical to 

the continued revival of manufacturing, including the forging industry. 

Thank you for the opportunity to appear before you today, and 

I look forward to your questions. 

Chairman TIPTON. Thank you, Mr. Ormerod. And I apologize to 

my colleague, Mr. Mulvaney. I did not see the note that he was 

going to introduce. So if you would like to make a comment to welcome him, certainly feel free. 

Mr. MULVANEY. You did a fine job. 

Chairman TIPTON. Okay. Thanks. 

Mr. Ormerod, I thank you for your testimony. 

Our next witness is a member out of my home district in Colorado, Mr. Chuck Grobe. He is currently serving as county commissioner for Moffat County in Colorado. Prior to his recent election 

as commissioner, Mr. Grobe served two terms as mayor of Hayden, 

Colorado, and prior to that he served for six years on the Hayden 

Town Council. In addition to his service in elected office, Mr. Grobe 

has been active in the Associated Governments of Northwest Colorado. 

Mr. Grobe, I would like to thank you for making the trip here, 

and we look forward to your testimony. 

STATEMENT OF CHUCK GROBE 

Mr. GROBE. Thank you, Chairman Tipton, Ranking Member Mr. 

Murphy, and the other members of the Committee for inviting me 

for this important hearing. 

Moffat County is the second largest county in Colorado, with over 

three million acres of land, 60 percent of which is managed by federal government. The top 10 taxpayers in Moffat County are all energy related, 20 coming from oil and gas. 

Our citizens have had a history of working in the energy field, 

agriculture, and recreation, and through this we have worked on 

a very cooperative working relationship with organizations and 

people in the community to work through our controversial use of 

public lands. One of these was Vermillion Basin, which a decade 

ago was in negotiation working on an agreement to be able to get 

gas reserves out of there. It is a 77,000 acre parcel of land with 

200 billion cubic feet of natural gas. We worked up a collaboration 

and had an agreement where we would only have a one percent 

disturbance to the land at any one given time. But entirely due to 

political reasons, the agreement was overturned by Washington 

politics, and because of that, the economic loss to the area and to 

the state were $700 million worth of revenue from that source— 

$25.6 million would have been taxes coming to Moffat County. Of 

that, 53 percent would have been to the school districts; $7.7 million in bonus payments; $87 million in federal royalties partially 

returned to cities and counties; $43.75 million was the State of 

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Colorado’s share of the royalty; and $77 million of ad valorem and 

severance tax payments. And that is just from 77,000 acres of the 

1.8 million under federal control. 

Regulatory uncertainty, unnecessary federal regulations, frivolous lawsuits, and a lack of political courage by the current administration to allow development of these new oil and gas resources 

puts jobs in our area in jeopardy. Congress must struggle with national rules, such as hydraulic fracking with BLM. Trends of increased regulation in the oil and gas industry have manifested locally through creative avoidance of federal lands where now most 

of our leases and everything are on private land which costs 8-1/ 

2 times more for the leases than if we were on federal land. 

Colorado is filled with beautiful scenery and abundant wildlife. 

Current technology allows us to work harmoniously with the two 

areas and still produce energy. Being home of the largest concentration of greater sage grouse in Colorado, we have been working for decades to protect and improve the habitat and improve the 

population of the sage grouse, because without the natural resources we would not be what we are either. 

Finding balance where both wildlife and oil and gas can thrive 

seems to employ as many biologists and rig hands. The past week 

and a half since I got the invitation, I have been talking to a lot 

of our small businesses in Craig and in Moffat County, and the volatility and the uncertainty of natural gas production has been on 

everybody’s comments. From starting a welding business that was 

shut down in 2008 where they had to retool and move in a different 

direction and now all of their work in the oil industry is outside 

Colorado, to another business that refused to be involved with oil 

and gas development because it comes in fast but his quote was ‘‘it 

leaves even faster.’’ So with the federal regulations where we are 

it is hard to keep and draw small businesses into being profitable. 

Thank you. 

Chairman TIPTON. Thank you, Mr. Grobe. 

I would now like to be able to yield to Ranking Member Murphy 

so he may introduce our final witness. 

Mr. MURPHY. Thank you. 

Mr. Meyn is a professor of Electrical and Computer Engineering 

at the University of Florida, where he also holds the Robert C. Pittman Eminent Scholar Chair and serves as the director of the Florida Institute for Sustainable Energy. The Institute brings together 

research capabilities with a goal of creating a sustainable energy 

future. It encompasses more than 150 faculty members and 22 energy research centers at the University of Florida. In the last few 

years alone, the University of Florida has received more than $70 

million in federal and state research funds to conduct energy research. Thank you. 

STATEMENT OF SEAN MEYN 

Mr. MEYN. Thank you very much, Ranking Member Murphy, 

and Chairman Tipton, and the members of the Committee. Yes, it 

is a great pleasure to be here to speak today. 

I have been working in the area of complex systems and controlled them for half of my life. The energy grid is a beautiful example. And it is an exciting time to be working in this area beSBREP-219 with DISTILLER

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cause I can remember the revolution in the telecommunications 

area of the 1990s where in the 1980s it seemed like an impossible 

problem. It seemed like there was no science to support management of this incredibly complex grid for communications, and within five years these impossible problems were solved by people who 

understood how to think about complex systems like the network. 

We pick up our phone today and we think, oh, it is so easy, but 

if you knew the mathematics and science that went into this phone 

it would blow your mind. It looks like abstract nonsense, the information theory, computer science that came into that. And so today 

this is a very similar situation where people feel that it is too complex to deal with and I think it is no harder than the telecommunications problem. 

There has been incredible innovation lately for two reasons that 

I have seen. The Department of Energy has helped some very risky 

but innovative small businesses and some have failed and some 

have been incredibly successful. There are some examples in Florida that have been fantastic. And the Federal Energy Regulatory 

Commission has made some changes to the market structure which 

has completely changed incentives in the power area. So the impact 

has been incredible how just slight changes of rules—it is like 

SimCity. Change the rules a little bit, the whole world changes. 

In their point there are, I guess, four themes. I concur that cheap 

natural gas is absolutely going to change the economy in many, 

many positive ways, and I am very pleased to hear the comments 

that we do have to think about—well, first of all, I am very happy 

to hear the comments from Mr. Larson about the entire supply 

chain. The macro effects are absolutely critical, and that is what 

really concerns me about too much talk about exporting our natural resources considering how much value added they can be here. 

I strongly want to say that it is unwise to put all of our energy 

in one natural gas basket. The forecast on natural gas prices, you 

can get anyone to give you a different forecast, and the Black and 

Veatch forecast shows the prices going up very steadily while coal 

prices are being flat. And that uncertainty is dangerous. So we 

want a diverse energy portfolio for national security. And again, 

the macro effect is incredible—the number of small businesses that 

will be involved. 

So back to my first comments. The telecommunications evolution 

has resulted in innovations in hardware but some of the biggest 

challenges were scientific, dealing with congestion and the grid 

level issues. And they took an incredibly, impossibly complex problem and with cooperation between R&D labs and mathematicians 

in my field they are able to crack these problems. So it seems completely transparent today. Cell phones seem trivial. And I think we 

can do the same thing with the grid. 

And particularly, the state of Florida. I do not see why we do not 

have 30 percent solar today. I just do not know why we do not have 

that. We know how to deal with the volatility. I think that the 

science is there, and we have to just get started. We will need 

power engineers and we will need the same breed of scientists who 

helped to build the telecommunications grid. 

So in terms of needs, the energy was defunded for 20 years at 

the university, so there are practically no professors in power sysSBREP-219 with DISTILLER

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tems anymore, so that is clearly going to need to change. And universities need support. I hope the Federal Energy Regulatory Commission continues the good work they are doing. In the last year 

or so they finally realized they are not incentivizing a responsive 

generation, the sort of regulation needs of the grid. And they have 

only just realized this. 

And I hope the Department of Energy—even though there have 

been failures, there have been incredible success stories of the 

risky businesses that they have supported. And so I hope that they 

continue. I know it has to be watched, but I hope they continue to 

help out crazy ideas. It does not take that much money to help a 

small business succeed. 

Thank you for giving me this opportunity. 

Chairman TIPTON. Thank you for your testimony. 

We will now begin our series of questioning, and I would like to 

start with Mr. Mulvaney. 

Mr. MULVANEY. Thank you, Mr. Chairman. Thank you to all 

four gentlemen for coming. 

A couple questions for Mr. Ormerod first and then some questions for the broader panel. 

Mr. Ormerod, in your written testimony—you did not get a 

chance to talk about it much in your verbal testimony—but in your 

written testimony you specifically mention the Keystone XL Pipeline and the impact that would have in your industry. Would you 

mind taking a few minutes and tell us specifically what that 

project means not only six months on but a year on, two years out? 

Tell me what that project means to the forging industry. 

Mr. ORMEROD. That project would be very significant for the 

forging industry. It is, as you can imagine, on a pipeline of that 

scale and that size, there is a lot of critical components that have 

to be put in place to make sure that the oil transported is going 

to be transported in a very safe way. The forgings are—that is 

what they are absolutely made for. They are made for those critical 

applications. So there will be rings for flanges. There will be a lot 

of forging connections put in place to make that pipeline, to support the pipeline, to make sure it is a safe pipeline. So I think it 

will be very significant for the forging industry. 

Mr. MULVANEY. As you know, one of the things I like to do 

when I am back home is tour manufacturing facilities, and I was 

touring one last week and asked what I thought was a fairly 

straightforward question and I got a very straightforward answer. 

I asked one of the manufacturers. I said, ‘‘What can Congress do?’’ 

Give me three things that Congress can do to help create manufacturing jobs, create an environment where we can grow manufacturing jobs. And the answer I got was very insightful because the 

person did not hesitate for a second. They said, number one, keep 

energy prices down. Number two was regulation. Number three 

was the tax code. 

I would be curious to know, Mr. Ormerod, if you would put those 

in the same order, and if so, why? 

Mr. ORMEROD. Certainly, energy is a critical cost driver for our 

business, so for us, as I talked about in my testimony, we have to 

heat up the steel in order to be able to forge it, so we heat it up 

either by using electricity or using gas. Mostly gas. And then we 

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have to also use gas to treat the forgings after we have processed 

them. Energy, I would say, has been very volatile over the years, 

over the past few years for us, and it has created a lot of difficulty 

for us with the energy prices going up and down. So yes, to put energy at the top of the list, I would absolutely concur with that. 

Mr. MULVANEY. Mr. Larson, you mentioned the natural gas 

and its impact—lower natural gas prices have a tremendous impact 

on economic activity. I have heard that before. I have heard it not 

only from the folks who are using natural gas to heat metal to 

forge it but also from the chemical industry. It is actually a growth 

industry now in the United States because of the low cost of natural gas. 

Could you walk through for the record, please, why you think low 

natural gas prices would have such a dramatic economic impact? 

Mr. LARSON. Yeah, you are correct. There is a profound impact, 

and it stems from, first, all industry needs low costs of input to 

allow them to thrive in a competitive environment. You have to remember we are in a global-linked economy. 

Mr. MULVANEY. And I do not want to cut you off but this is 

someplace we have a tremendous competitive advantage over manufacturers overseas. 

Mr. LARSON. That is correct. Our prices are right around a 

third of what they are in, for example, Asia; a little more than a 

half of what they are in Europe. So there is a tremendous competitive advantage that all companies that rely on energy, either as an 

input or feedstock, enjoy relative to their global competitors. That 

is the first thing. 

The second thing is you talked about volatility. It was mentioned 

earlier today. The ability to have stable, as well as low prices is 

very important, too. And if you look at where we were in the volatility prior to this unconventional revolution to where we are today, 

that volatility has been significantly contracted, so there is more 

certainty in the environment overall. 

And then there is the knock-on effect. So it is not just the chemical industries who are going to be hugely competitive; we are already seeing large increases in production and output from those, 

and I think you are going to see the chemical industries be very, 

very successful going forward. There is a whole knock-on effect 

from that supply chain. You think about all the chemicals that go 

into manufacturing an automobile. We have talked about the steel 

that goes into it. You talk about the chemicals from the floor mats 

to the plastic that goes into all these. All those are knock-on effects 

and those costs are passed on. And at the end of the day what it 

means is, as I mentioned in my testimony, consumers are actually 

benefitting as well. So now you have the households having about 

$1,000 more in their pocket by 2015 as a result of all these passedon savings to consumers. That flows right back into the economy 

as the consumer can now step back out and spend that $1,000 in 

other ways. 

Mr. MULVANEY. Thank you, Mr. Larson. 

Mr. Chairman, I think it bears noting that these are the types 

of jobs that both parties say, and rightly so, that we want to grow 

in this country. These are heavy manufacturing jobs. We are talking about forging metals. We are talking about chemicals. This is 

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the type of opportunity that we have in large part now because of 

your relatively low injury prices. We should be doing what we can 

to maintain that competitive advantage. 

Thank you for the opportunity. 

Chairman TIPTON. Thank you, Mr. Mulvaney. 

I would now like to yield to the ranking member for his questions. 

Mr. MURPHY. Thank you, Mr. Chairman. 

Mr. Meyn, you spoke briefly about the grid and some o the opportunities there. What are the biggest impediments to putting these 

strategies into practice right now? 

Mr. MEYN. Well, there is an issue in the fact that reliability is 

very reliable until you get it. And so basically right now in the Pacific Northwest, the people who regulate the grid would pay anything to get regulating resources, and it is very, very valuable. But 

nobody will come there to do it because as soon as they go there 

the value drops to zero. And so it is very difficult to design markets 

around this, and basically reliability is like a public good problem. 

Everyone wants a clean park but nobody is willing to pay for it. 

And I think we are almost forced to have some help from the government on just the reliability end. Of course, we can have energy 

markets, but reliability is something that is very difficult to have 

markets for. 

Mr. MURPHY. Have there been pilot programs or other countries 

that are doing this better that we should be looking toward? 

Mr. MEYN. Everyone has made the same mistakes. Germany installed all this wind without thinking at all about how much they 

needed to deal with the volatility issue. Switzerland has been much 

more thoughtful about this and they have actually, you know, they 

have generalized storage in all their large buildings, things like 

this to absorb volatility from renewable. But it is all so new. It is 

only the last few years and mistakes have been made all over the 

world. But they are learning quickly and so, for example, I have 

given the reports as examples. For example, ALCOA now has deals 

with utility companies to ramp up and down their consumption of 

electricity as a way of regulating the grid. The wind starts blowing; 

they ramp up production. That sort of thing. And that is going on 

all over the country. And the U.S. is a leader in those ideas, actually. And that is something that is going to grow quite a bit. 

Mr. MURPHY. Thank you. 

You also mentioned the increase in natural gas. We have all seen 

it. What do you feel the effect of that will be on some of the alternative energy sources—the cleaner the biofuels? 

Mr. MEYN. The beautiful thing about natural gas is it is incredibly responsive. So it is a way to have a lot of renewable energy. 

You can have 50 percent renewable energy easily in the Pacific 

Northwest if you have got gas turbine generators next door that 

can ramp up and down and regulate the system. Coal cannot do 

that. Nuclear cannot do that. So natural gas is a regulation. Just 

like an airplane, it is like the flaps on the wings of an airplane. 

It stabilizes the grid. It is incredibly valuable in that sense. 

Mr. MURPHY. Thank you. 

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13 

Mr. Ormerod, we have seen the wind industry has grown dramatically. I think last year I read that more than 13,000 

megawatts were installed. How does this affect your industry? 

Mr. ORMEROD. Well, the wind industry is a great—there is a 

lot of demand for forgings that go into a wind turbine, whether 

they be bearings, gears, the main shaft. All those things, they are 

all critical applications, of course, so that is a good source or good 

need for forged products which are supplied to these critical applications. 

So yeah, for the wind market, if the wind market would have 

grown to be a steady demand in the wind market, that is certainly 

very good for our industry. 

Mr. MURPHY. Okay. 

Mr. Grobe, you noted in your testimony about the lack of our 

government looking into natural gas on federal lands. I am curious, 

is there some potential, is there maybe—I am just thinking out 

loud here—something we should be looking into? We all know what 

a public-private partnership is, but expanding that model and looking at a partnership where you have the federal government, the 

state, the local, and private businesses involved, all coming up with 

an agreement where there is some sort of cost sharing where 

maybe a percentage of profits go back to renewables and alternative energies and resources. I think most people would agree 

that we should be taking advantage of our domestic energy fuels 

but maybe in 50 years that is not necessarily the answer. As technology progresses, as wind gets better and solar and thermal and 

everything else, that that is eventually the future but right now we 

need this bridge, and natural gas is a great opportunity. But if we 

got all the players invovled—the state, the local, federal—that we 

might be able to make a little more ground. Any thoughts on that? 

Mr. GROBE. I think so. That would bring some sort of stability 

to the regulations because our problem that we are seeing is every 

election it seems to change where we have businesses depending on 

this kind of direction to go in and then all of a sudden a new person ends up in power, whether it is a governor or the president or 

whatever and the pendulum swings another way stopping business 

or halting it all together, you know, where if we have that stability, 

which I agree would be great, then we could move forward in a constant direction because right now, like I said, we have collaboratively worked with agencies to come up with an agreement but 

then it depends on what Washington says is whether we can follow 

through with it. 

Mr. MURPHY. Okay. Thank you. 

I always get a different answer on this one so I am hesitant to 

ask. But fracking. Every time we have different panels you always 

hear different answers on this. So what are your thoughts on 

fracking? On its effects on the environment? Perhaps how far we 

have come in the last 40 years of fracking that we should be aware 

of? And what do folks in your area think? 

Mr. GROBE. People in Moffat County are supportive of fracking 

as long as it is done in the proper fashion with encasing the wells 

and making sure that we are not influencing other aquifers and 

stuff like that, where the technologies have moved in that direction. But that is a whole can of worms, and it is an interesting deSBREP-219 with DISTILLER

14 

bate in Moffat County, but if you go across the border into Routt 

County, they are trying to rewrite regulations themselves. So it is 

interesting as you move between counties within Colorado or you 

move within states, everybody is looking at it differently and that 

is where I like your idea of everybody getting together, come up 

with one plan, and let us move forward. 

Mr. MURPHY. Thank you. 

Last question, Mr. Chairman. 

Mr. Larson, I do not know if you heard Mr. Meyn’s testimony. 

He spoke briefly about some of the concerns of the United States 

shipping liquefied natural gas and what that could do to prices. 

Just interested in your thoughts, how you think it would affect 

businesses and prices in the long run. 

Mr. LARSON. Yeah. I think it is an important thing. The risk 

I actually think around the price domestically from LNG exports 

comes more from the ramp up in demand domestically inconsistent 

with the underlying infrastructure to get the resources to the market if you will, to where that demand is. The supply is not the 

issue. It is sort of a peak demand situation. If you look at what is 

happening in the global market, global market LNG exports or imports are about 33 BCF a day. We have on the books applications 

to the DOE for about 28 BCF a day. And so there is no way that 

all these facilities will be market viable. The market will self contain the number of facilities that will be built out of the states. It 

is probably going to cap out somewhere around 5 BCF a day because of the global market. And so I think the bigger risk is how 

you manage it and how you think about the internal infrastructure 

ensuring that we are able to connect supply to demand. 

You can point to an example. For example, in the Northeast 

where even with all this abundance we ended up actually importing LNG this year simply because we do not have the pipeline to 

move the resources from where they reside to where the demand 

is. 

Mr. MURPHY. Great. Thank you. 

Chairman TIPTON. Thank you, Ranking Member. 

Mr. Luetkemeyer, would you like to proceed with your questions? 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

Mr. Larson, I would like to follow up on your last comment with 

regards to we do not have enough pipeline constructed right now 

to haul all the natural gas demand. How much more do we need? 

Is it not located correctly, dispersed correctly around the country? 

Can you give me some information on it? 

Mr. LARSON. Yes. I cannot give you actual miles. I think what 

I will say is that the really exciting part about this unconventional 

revolution is there is sort of a democratization of energy. If you 

think about the old energy map of the United States, it is sort of 

gravitated towards the traditional energy states. That is being 

flipped on its head with this unconventional revolution. States have 

really fundamentally shifted, and so now we have got this geographic diversity of where our resource base is and where the indemand markets are. And a lot of our pipelines are set up right 

now to move in the wrong direction. And so we do need to significantly change our pipeline infrastructure, add a lot more miles to 

connect, in particular from the inlands. I will give an example. On 

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the oil side, in the Bakkan, we are railing out between 500,000 and 

600,000 barrels a day of oil. The ability to connect that through 

something like a Keystone XL would be significant to take that capacity off of the rail and allow it to move to market faster. So there 

is, I think, a strategic evaluation that needs to be made in this 

country about where our pipelines are situated relative to where 

demand is, and where our resource supply resides. 

Mr. LUETKEMEYER. Thank you. 

Mr. Grobe, first, thank you for your public service. I know sometimes it is a rather thankless situation, so—— 

Mr. GROBE. Thank you. 

Mr. LUETKEMEYER. I appreciate your willingness to step up 

and serve. Obviously, from the situation with the oil leases and the 

activities in your area there, there is a lot of leadership that needs 

to take place and I am sure you are in the middle of that. 

Can you give us just a little bit of an insight into—the oil recently has been up in the Dakotas, you know, that is mostly on private land. And in your testimony here you have got some very significant figures of oil, gas, and coal in Colorado. Can you give us 

a little insight? I assume most of that is on federal land; is that 

correct? 

Mr. GROBE. No, actually, the older drillings and stuff, a lot of 

it has been on BLM, but here the past 10 years or so it has been 

primarily private land. 

Mr. LUETKEMEYER. Oh, really? 

Mr. GROBE. Because the regulations are so stringent on federal 

land. That is where I stated in my testimony, the written testimony is their private land cost 8-1/2 times more leasing than federal land but they are moving to private land because of the regulations federally. 

Mr. LUETKEMEYER. Okay. And so the lease that you talked 

about losing here, that was on federal land; is that right? 

Mr. GROBE. Yes. 

Mr. LUETKEMEYER. Okay. And the reason for that was? You 

were rather general in your testimony. 

Mr. GROBE. The secretary of the interior flew over and said, 

‘‘No, we are not going to allow that to happen.’’ So that is why. 

Mr. LUETKEMEYER. Okay. 

Mr. GROBE. And that was a collaborative effort between all the 

agencies in our area. 

Mr. LUETKEMEYER. Okay. 

Mr. Meyn, you, in your testimony, said that you got $70 million 

worth of research last year for your school. 

Mr. MEYN. Last year? Oh, no. No. Seventy million? 

Oh, excuse me. 

Mr. LUETKEMEYER. Did I misunderstand you? 

Mr. MEYN. Oh, yes. Absolutely. I gave—— 

Mr. LUETKEMEYER. Where does 70 million—— 

Mr. MEYN.—a total. I am not sure, actually. I do not remember. 

The disclosure? 

So I received research funding from the AFOSR and from NSF 

for the past—since 2006. It might add up to that much money for 

graduate students and supporting lab. 

SBREP-219 with DISTILLER

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Mr. LUETKEMEYER. Okay. So my question was what do you do 

with the money? What kind of research do you do? 

Mr. MEYN. I work on understanding large network systems. 

How do you understand a power grid, for example. How do you control it? Resource allocation problems. Once you have wind that is 

4 gigawatts and zero, how do you control the resources to stabilize 

the whole system? 

Mr. LUETKEMEYER. Do you submit reports to anybody on 

that? 

Mr. MEYN. Yeah. Annual reports to the NSF and AFOSR. 

Mr. LUETKEMEYER. Does anybody use the data? 

Mr. MEYN. Well, does anyone use the data? 

Mr. LUETKEMEYER. That is a pretty important question. 

Mr. MEYN. Absolutely. I am just trying to think about how to 

answer it because I have been working in the markets area for 10 

years and I think that FERC has listened to me. I think the new 

market structures are in part from my discussions with, for example, Dick O’Neill there for the last years. 

In terms of the control issues, I think Pacific Northwest National 

Labs, for example, is using these ideas in a lot of their pilot programs. All this is very new, you know, it has only been the last— 

there was almost no wind in the Pacific Northwest several years 

ago and now there is 4 gigawatts. Things are changing so fast it 

is hard to answer. 

Mr. LUETKEMEYER. Your response leaves me speechless. 

Thank you, Mr. Chairman. 

Mr. MEYN. No, but there has to be a follow up then because why 

is that? My graduate students are now working at Houston trading 

companies and on Wall Street and they are professors in various 

places. This is long-term research. I do not do research—I am not 

a consultant. I am looking at what the world will look like in 10, 

20 years. 

Chairman TIPTON. Thank you. 

I appreciate the questions that we have had from our panel 

members. I would now like to start out with Mr. Larson. One of 

your comments when we were talking about affordable, reliable energy, you took it down to the base important thing I think for our 

communities, for our nation, when you started talking about families, about moms being able to get kids to the soccer match, and 

to be able to buy groceries, and to be able to fill up that gas tank, 

and to be able to turn on heat in the winter. Just to be able to protect our families. 

So I guess my first question, Mr. Larson, is many of the members 

of this Committee, we do, indeed, represent rural areas, and my 

own district, as Mr. Grobe will testify, is not only largely rural but 

many of these counties and communities are located on or near federal lands. Has your first every studied the potential implications 

of expanded energy development in more of a micro sense in regards to the rural areas? Because we certainly see pockets of prosperity in metro areas in Colorado and I think elsewhere. 

Mr. LARSON. Yeah. I appreciate the question. 

So as we looked at this, we did not draw down into sub-state levels, if you will. I mean, we looked at it by state by state, but I 

think you are absolutely accurate in saying I think one of the interSBREP-219 with DISTILLER

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esting things about this opportunity is how impactful it has been 

in the rural communities. It really is changing the face of some of 

these rural communities, and that is a double-edged sword. My 

family comes from North Dakota and they have been living in the 

Bakkan area, and so they have enjoyed the upside of the evolution 

of this unconventional revolution in Dickenson and Williston and 

everything, but there is also the sort of change that it has brought 

about to these communities from this influx of activity and a 

change of your sort of way of life. That said, I think it is important 

to think about those pocketbook issues. The average community, 

the average household, $1,000, that is a lot of purchasing power 

that is brought back home so that individuals can enjoy a higher 

standard of living. And that is what this is. Lower energy prices 

ensure higher standards of living for everyone in the country. 

Chairman TIPTON. Simply by creating American energy security 

right here at home with American resources. 

Mr. Grobe, maybe you would like to be able to speak to that. 

When the secretary flew over Moffat County and said ‘‘not here, 

not now,’’ how did that impact communities? People that you and 

I know in our district? 

Mr. GROBE. That was pretty devastating because we were looking at the potential and these are good facts that we presented to 

the group that came together and agreed on this one percent disturbance. So when something like that happens, it just kind of 

takes the wind out of your sail because we are trying to move in 

a positive direction, work with small businesses, get them established, and that is where I was talking about earlier where the 

whims of the federal government kind of blow and we need to get 

some stability there. 

Chairman TIPTON. So just for clarity on this, in Moffat County, 

and I believe this has been replicated on the west slope of Colorado, brought together environmental groups, brought together industry, brought together community leaders such as yourself, other 

interested parties were able to come to an agreement, and what 

some in Washington considers flyover country, and I guess we are 

there, they are able to swoop over the top and just say not here 

and completely upend all of the efforts at the local level; is that 

correct? 

Mr. GROBE. That is correct. Because those collaborative efforts 

have been going on for eight or 10 years, and to have that just 

swept away without even stopping and talking to the locals, that 

was pretty disappointing. 

Chairman TIPTON. Right. 

Just as an aside, how important is coal in your district? 

Mr. GROBE. Very important because we have a Craig generating 

station there and two coal mines in our county that 80 percent of 

our top 10 taxing entities are from coal. 

Chairman TIPTON. Right. We were just talking about fracking 

just a moment ago. You and I know a lot of the people that live 

and work there. These are family people. They love their families. 

Is it your sense that they are making a committed effort to make 

sure that we are doing this responsibly? 

SBREP-219 with DISTILLER

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Mr. GROBE. Oh, yes. Every turn we are looking at better ways 

to perform and work with the avenues and work with the government to make sure that it is clean and energy efficient. 

Chairman TIPTON. Mr. Larson, does this new petroleum resource potential in our country mean that we can solely rely on oil 

and gas for energy needs or are they just part of that broader strategy that we need to be able to embrace of that ‘‘all of the above,’’ 

including coal, nuclear power, hydropower? 

Mr. LARSON. Yes. I think it is all part of an ‘‘all of the above’’ 

strategy. I think those who talk about energy independence do not 

recognize the international linkages that exist. We are always 

going to have a relationship with Canada, for example, and Mexico 

around energy. And so there are important strategic relationships. 

I think it is also important to point out that most of our refining 

capacity is set up for some of the heavy sour crude from, for example, Venezuela or the oil sands from Canada. So we are always 

going to be in a position we are going to want to import some of 

that oil. The beauty is that we can refine that oil and export it and 

change some of our trade dynamics. In fact, in 2011, for the first 

time in a quarter century, the United States was a world leader 

in refined petroleum products. So I think there are some really exciting opportunities but as was alluded earlier, all these other energy sources creating diversity in, for example, our power generation, if you will, is important. There is value in diversity. We 

learned that from grade school on. You do not put all your eggs in 

one basket. You want diversified energy portfolios. 

Chairman TIPTON. As you can hear, they are preparing to call 

votes but I do have one final question for Mr. Ormerod. 

When we are looking at the game changers that you had talked 

about in terms of being able to provide energy needs and revitalize 

the manufacturing in this country, would it be a correct assessment 

that maybe the secret weapon that the United States has had to 

not only be able to create jobs and good paying jobs and still be 

competitive against people that can afford to pay far less in foreign 

countries on a production level has been affordable energy in this 

country? Is that a fair statement? 

Mr. ORMEROD. Well, it certainly helps a lot. The energy costs 

that go into producing the steel that we use and also the processing 

of that steel is very significant to us. So if we can get cheap steel 

and we have got cheap energy to actually process the steel at our 

place it makes a very big difference to us. 

Chairman TIPTON. Great. 

Thank you all so much. We certainly appreciate your patience at 

the beginning of this hearing, and we are doing the other portion 

of our job in terms of the voting. 

I would like to be able to submit with unanimous consent to the 

record a report on the Benefits of Natural Gas Production and Exports for U.S. Small Businesses because the big guys may be able 

to play and to be able to generate, but small businesses is the number one job creator in this country and the domino effect that we 

see from responsible development of these resources down to the 

local restaurant, I do not believe that we can overstate. 

So with that, so ordered. 

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Once again, I thank all the witnesses for appearing at today’s 

hearing and for your valuable insights that you provided to this 

Committee. As I mentioned in my opening statement, the potential 

benefit for these energy resources to our nation are truly extraordinary. At the same time, Congress should avoid the temptation of 

putting all of our eggs in one basket, entrusting the economic security of this country to just two energy sources. In addition to oil 

and natural gas, the United States also possesses significant coal 

and hydropower resources. Advances in technology are increasing 

the capacity and reducing the cost of renewable energy as well. 

There is some potential for nuclear energy that we can use in this 

country, as well as wind and solar. In short, what I believe we 

truly need is that ‘‘all of the above’’ energy strategy. 

I would like to be able to ask unanimous consent that members 

have five legislative days to be able to submit statements and supporting materials for the record. 

Without objection, so ordered. 

This hearing is now adjourned. And again, thank you for being 

here. 

[Whereupon, at 12:33 p.m., the Subcommittee was adjourned.] 

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1 John Larson is the Vice President and global leader for customized analytic and economic 

solutions within IHS Economics & Country Risk Group. 2 IHS, America’s New Energy Future: the Unconventional Oil and Gas Revolution and the 

United States Economy, vol. 1 National Economic Contributions (October 2012) and vol. 2, State 

Economic Contributions (December 2012). 

A P P E N D I X 

COMMITTEE ON SMALL BUSINESS 

Washington, DC • June 20, 2013 

PREPARED TESTIMONY: 

By John W. Larson 1

Chairman Graves, Ranking Member Velazquez and distinguished 

members of the Committee on Small Business, it is an honor to 

speak with you today about the economic growth and employment 

opportunities being fueled by our country’s unconventional energy 

revolution. 

The United States is in the midst of an unconventional revolution in oil and gas that, it becomes increasingly apparent, goes beyond energy itself. Since 2009, our company has engaged in numerous studies to better understand and accurately quantify the dramatic economic contributions associated with this unconventional 

revolution. Today, the exploration and production industry driving 

this unconventional revolution supports 1.7 million jobs across a 

vast supply chain—a considerable accomplishment given the relative newness of the technology. That number could rise to 3 million by 2020. In 2012, this revolution added $62 billion to federal 

and state government revenues, a number that we project could 

rise to about $111 billion by 2020.2 What is now becoming clear is 

that the exploration and production industry contributions to the 

economy and the lower costs of energy brought about by this abundant growth in supply is helping to stimulate a manufacturing renaissance and improve the competitive position of the United States 

in the global economy—further stimulating job creation in the 

United States. 

Where did the unconventional revolution come from? 

The unconventional revolution has unfolded rapidly. As recently 

as just a half-decade ago, during the period preceding the Great 

Recession, it was widely assumed that a permanent era of energy 

shortage was at hand. American’s demand for oil and natural gas 

SBREP-219 with DISTILLER

21 

3 Energy Information Administration, Monthly Energy Review (May 2013). 

was increasingly focused on non-dramatic sources. The country, it 

seemed, was on a path to spending several hundreds of billion of 

dollars more every year on imports to meet oil and natural gas demand. How different things look today. 

US crude oil output, after a nearly 40 year decline, has increased 

dramatically—by 46% since 2008.3 Net petroleum imports have 

fallen from 60% of total consumption in 2005 to 36% in the first 

four months of 2013. The decline is due, in part, to moderating energy demand during the slow recovery in the wake of the Great Recession, however, greater fuel efficiency in autos and a slowing of 

the growth in total vehicle miles will continue to constrain the 

growth of demand. But, the decline in imports has also been 

achieved through significant supply side changes resulting from 

that dramatic increase in U.S. oil production. The largest element 

of this increase in production comes from what has become the 

newest major advance in energy development: tight oil. In fact, oil 

imports in 2012 would have cost the United States around $70 billion more and increased our trade deficit a little over 10%—were 

it not for the increase in production capacity brought about by tight 

oil since 2008. 

With respect to natural gas, in just seven years, US natural gas 

production has risen from 51 billion cubic feet (bcf) per day to 66 

bcf per day—a 27% increase. This rapid rise was driven primarily 

by shale gas production. In 2000, shale gas accounted for just 2% 

of total natural gas production. Today, shale gas accounts for nearly 44% of total natural gas production. This rapid rise in unconventional production has also enhanced US energy security. Five years 

ago, due to constrained production, the United States seemed 

locked into importing increasing amounts of liquefied natural gas 

(LNG) and was heading towards spending as much as $100 billion 

dollars on future imports to meet domestic demand. Now, these 

newly unlocked resources ensure that the United States will need, 

at most, minimal LNG imports to balance supply with demand. Instead of debates over US imports, there is the prospect of exporting 

some of the domestic surplus, as well as the potential for using natural gas in some classes of vehicles. 

What is the economic impact of the unconventional oil and gas 

revolution? 

While various states had begun to home in on the economic development aspects of shale gas and tight oil, it was only in last several years that its significance for the national economy started to 

come into focus. We have undertaken a series of studies to assess 

the economic impact of the unconventional revolution. The first 

two—released late last year—examined the national and state-bySBREP-219 with DISTILLER

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4 IHS, America’s New Energy Future: the Unconventional Oil and Gas Revolution and the 

United States Economy, vol. 1 National Economic Contributions (October 2012) and vol. 2, State 

Economic Contributions (December 2012). 5 IHS, America’s New Energy Future: the Unconventional Oil and Gas Revolution and the 

Manufacturing Renaissance, vol. 3 (July 2013) 6Producing states are defined as those that are part of the 20 largest unconventional oil and 

natural gas producing plays in the US Lower 48, such as the Bakken and Marcellus Shale plays. 

Non-Producing states are not part of the 20 largest unconventional oil and natural gas producing plays in the US Lower 48 and are not part of an emerging oil or natural gas play in 

the 2012 to 2035 forecast horizon. These states may be part of plays that are currently producing oil and/or natural gas, but nevertheless are classified as non-producing states, because 

current production is relatively small and the prospect for future unconventional production is 

unknown. 

state impacts.4 We are now extending that study to assess the impact on manufacturing—which will be released in July 2013.5

So far, this unconventional revolution is supporting 1.7 million 

jobs—direct, indirect, and induced. Looking towards the future, the 

industry will continue to contribute to strong job growth bringing 

the total to 3 million workers by the end of this decade. At a time 

of great concern about the federal budget, it is also important to 

note the important revenue implications associated with this energy revolution. Total revenues flowing to governments from unconventional activity amounted to $62 billion last year and will rise 

to $111 billion by 2020. This does not include revenue from traditional oil and gas activity. By 2035, unconventional activity is expected to have generated nearly $2.5 trillion in cumulative government revenues since 2012. 

It is also notable that, owing to the long supply chains, the job 

impacts are being felt across the United States, including in states 

without significant shale gas or tight oil activity.6 That is to say, 

when it comes to unconventional activity, a state does not need to 

have a major unconventional play within its geographic boundaries 

to benefit economically from the activity. In fact, nearly 30 percent 

of all jobs associated with the unconventional energy revolution are 

found in states with no appreciable unconventional activity. For example: 

• In Missouri, economic activity associated withy supplychains that supported unconventional activity in 2012 contributed nearly 38,000 jobs to the state and generated almost $290 

million in state and local taxes. 

• In New York, a state that currently bans unconventional 

activity, 44,000 jobs along with $1 billion in state and local 

taxes can be attributed to activities supporting the supplychain associated with shale gas and tight oil in other states 

across the country in 2012. 

A key reason for the profound economic impact of the unconventional activity is the fact that it combines a capital-intensive industry with a broad domestic supply chain. The United States is a 

leader in all aspects of the unconventional industry, which means 

that most of its suppliers are domestically-based, and that means 

a larger portion of the dollars spent are supporting domestic jobs 

in trucking, steel fabrication, aggregates, heavy equipment manufacturing, hotels, housing, and restaurants, among others. 

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7 American Chemistry Council, Shale Gas, Competitiveness, and New U.S. Chemical Industry 

Investment—An Analysis of Announced Projects (May 2013) 

But there is now an even bigger positive impact for our economy 

that is beginning to be recognized. In addition to these specific contributions to the economy, there are larger macroeconomic effects 

attributed to the savings brought about by lower natural gas prices 

and corresponding electricity prices. In our study, The Economic 

and Employment Contributions of Shale Gas in the United States, 

we identified the following two important macro-economic implications stemming from lower natural gas prices: 

• For U.S. based industries, the abundance of affordable natural gas means lower input and feedstock prices. As a result, 

industrial production—the measure of output from manufacturing, mining, and utility industries—will increase 2.7 percent 

by 2015 and 4.7 percent by 2035. 

• For households, these lower prices cascade through the 

economy, resulting in a $926 increase in annual average disposable income in 2015. By 2035, annual average disposable 

income per household will have increased by more than $2,000. 

Manufacturing Renaissance? 

The impact on manufacturing is notable. Several factors are 

shifting the economics in favor of on-shoring and fueling the resurgence of manufacturing in the US. First, global labor wage rates 

for many off-shoring locations have significantly outpaced US wage 

increase, narrowing the wage gap. Second, in an increasingly advanced manufacturing world, technology is shifting the balance 

away from the importance of low cost labor toward higher skilled 

workforces. Third, rapidly evolving energy landscape is fundamentally shifting the traditional economics around supply chain as: 

(1) higher oil prices, which have tripled in the last decade have 

significantly increased the transportation costs making off-shoring 

less attractive; 

(2) the unconventional revolution in the US, which has ushered 

in a new era of affordable and abundant domestic natural gas, is 

creating significant competitive advantages for both energy intensive industries and industries that rely upon natural gas derivatives as critical feedstock to production. 

As a result, companies are now committing or planning investments that in total appear to range into hundreds of billions of dollars.7 The US chemical industry is particularly well positioned to 

capitalize on the benefits of this unconventional revolution. This industry is highly energy intensive using energy inputs, mainly natural gas and natural gas liquids, as both the major fuel source and 

feedstock. The US chemical industry’s feedstock prices are now 

among the lowest in the world. As a result, the US is gaining a decisive competitive advantage in the cost of producing basic petrochemicals like ethylene, ammonia, methanol, and their downstream 

derivative products. 

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8 IHS, Energy and the New Global Industrial Landscape: a Tectonic Shift? (January 2013), p. 

2. 

A large number of chemical companies, for instance, have announced plans to build or expand facilities in North America with 

capital expenditures totaling close to $100 billion.8 Will all be 

built? Time will tell. But what is striking is that, just five years 

ago, these companies would have scoffed if they had been told that 

they would be investing back into the United States. The investments are coming both from US based companies, which are ‘‘onshoring’’ in response to lower energy costs, and from foreign companies. 

Conclusion 

Altogether, the unconventional oil and gas revolution has already 

had major impact in multiple dimensions—beginning with U.S. energy supply and costs and now extending to government revenues, 

manufacturing, and the wider economy. Its significance will continue to grow as it continues to unfold. These hearings provide a 

very timely opportunity for assessing that impact and significance 

in its many dimensions, and I am pleased to respond to the committee’s questions. 

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TESTIMONY OF SIMON ORMEROD, 

CEO of AJAX ROLLED RING & MACHINE 

PRESIDENT, FORGING INDUSTRY ASSOCIATION 

BEFORE THE 

U.S. HOUSE of REPRESENTATIVES COMMITTEE ON 

SMALL BUSINESS 

SUBCOMMITTEE ON AGRICULTURE, ENERGY & TRADE 

June 20, 2013 

Chairman Tipton, Ranking Member Murphy, and Members of 

the Subcommittee, thank you for the opportunity to testify before 

you today on the economic benefits of increased domestic supplies 

of natural gas and oil on manufacturing in general, and the forging 

industry in particular. 

My name is Simon Ormerod, and I am the CEO of Ajax Rolled 

Ring & Machine in York, South Carolina. I am also the current 

President of the Forging Industry Association (FIA) and am honored to testify on FIA’s behalf. Headquartered in Cleveland, Ohio, 

FIA is the primary trade association representing the bulk of forging capacity in North America. 

Forging is the oldest known metalworking process, where metal 

is heated and then formed under high pressure into a wide variety 

of high-strength parts used in anything that rolls, floats or flies. 

Virtually any metal can be forged, from aluminum to zirconium. 

The process is usually performed by preheating the metal to a desired temperature before it is worked. 

Ajax Rolled Ring & Machine was established in 1980 and has approximately 100 employees. We are a custom manufacturer of 

seamless rolled rings that are used in a variety of critical industrial 

components including bearings, gears, flanges, and valve seat rings 

for end-use markets such as power-generation including steam and 

gas-turbine, wind energy, mining and construction equipment, oil 

& gas, petrochemical, defense, rail transportation, and a wide variety of general industrial applications. We make rolled rings that 

range from 7.5 to 100 inches in diameter and weighing from 15 to 

3,500 pounds, using carbon, alloy, and stainless grades of steel as 

well as certain non-ferrous grades such as copper. 

The modern forging process is both capital-intensive and energyintensive. Adding a new production line for our company would 

cost in excess of $15 million, and we have significant expenditure 

on our equipment every year due to the intense wear on the equipment. We also are a major user of natural gas and electricity in our 

region. Given those requirements, it may surprise you to know that 

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most forging plants are small and medium-sized businesses. Specifically, 95 of FIA’s approximately 200 members are small businesses. Focusing just on our forging producer members, 50 out of 

110 are small businesses. Approximately half of our supplier members are small businesses. 55% of FIA members have sales below 

$30 million. Only 12% have sales over $120 million. These plants 

provide over 35,000 well-paid jobs and benefits. In 2012, the average hourly rate for a forge employee was $19.28 with an additional 

$9.48 of benefits paid by the employer. 

In 2012, custom forging accounted for nearly $10.6 billion of 

sales in North America. An additional $3–$5 billion in catalog and 

captive sales would bring the industry total for 2012 to the $13.6– 

15.6 billion range. Comprised of less than 500 forging operations in 

38 states, Canada and Mexico, the largest U.S. presence of forging 

operations is in Ohio (77, Pennsylvania (63), Illinois (54), Michigan 

(54), California (38), Texas (41), New York (16), Indiana (18), Wisconsin (17), Kentucky (13), Massachusetts (10) and South Carolina 

(9). 

In spite of the fact that the industry is populated by mostly small 

and medium-sized businesses, the forging industry is critical to the 

U.S. economy. We are, in fact, one of the corner stones of U.S. manufacturing. 

Forged parts are strong and reliable and therefore, vital in performance-critical applications. Forgings are rarely seen or identified by consumers, because they are normally component parts inside assemblies. For example, forgings are necessary components in 

the following applications: 

• Automotive - A single car or truck may contain 250 forgings, predominantly in the engine and transmission; 40% of all 

truck axle assemblies are comprised of forged components; 

• Aerospace - structural, engine and landing gear parts of 

commercial and military aircraft are forged; 

• Defense - a heavy tank contains over 550 separate forgings; the 120mm gun tube on the M1A2 battle tank is forged; 

the US Navy’s Aegis Class guided missile destroyers are 

steered by 2 forged rudder stocks approximately 20 feet in 

length and weighing 35,000 pounds each; Cruise missile warheads and all penetrator bomb cases are forged; a standard artillery shell usually contains at least 2 forged components; 

• Power Generation - pressure vessels, generator rotors, 

pump shafts, valve manifolds, valve bodies, turbine blades and 

shafts, pipes and fittings are forged for nuclear (commercial 

and naval), land and marine power generation equipment; 

• Wind Energy - about 20 metric tons of forgings are used 

in a typical large wind turbine; 

• Oil and Gas Exploration - hundreds of forgings are used 

in both an oil rig tension leg platform and a land-based drilling 

rig; in addition forgings are used in the transportation of oil 

and gas under high pressure; 

• Mining - forgings up to 70,000 pounds are used in surface 

and underground mining equipment; 

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• Rail - The Association of American Railroads requires all 

axles to be forged for locomotives. The traction gears and the 

engine crankshaft and camshaft in locomotives are also all 

forged; 

• Medical - Quality surgical tools and joint replacements require strong, lightweight forgings; 

• Tools - Hammers and wrenches are forged; and 

• Sports - Forged golf clubs allow more efficient transfer of 

energy from club to ball than traditional clubs—that equals 

more distance without swinging harder. 

Forging is Both Energy-Intensive and Critical to the Energy Production Sector 

Because we produce parts for the energy supply chain and are 

heavily dependent on adequate supplies of competitively priced natural gas and electricity, forgers like Ajax are in a unique position 

to comment on the overall benefits to the economy created by the 

increased supplies of domestic natural gas and oil we are now enjoying in the U.S. Increased exploration for oil and gas is not only 

beneficial to our cost structure, through lower priced energy, but 

also leads to increased demand for our forgings. 

Direct Suppliers to the Oil & Gas Industry 

As noted above, hundreds of forgings are used in both oil rig tension leg platforms, land-based drilling rigs and pipelines. My company makes gears, bearings and flanges that are sold to valve, pipe 

and flange manufacturers in the oil & gas field. Our products are 

also sold to the manufacturers of drills, pumps and many other related equipment applications. Other forgers make critical parts 

such as the forged drill bits, without which the hydraulic fracturing 

(‘fracking’) activity in our country would not be possible. This industry is responsible for much of the increased supply of domestic 

natural gas we are seeing today. 

Demand for forged rings that we supply for valves used in oil 

and gas pipelines has risen by 20–30 percent in the past 2 years. 

We have added at least 10 new positions in this timeframe for both 

forging and precision machining activities. The exacting requirements of these valves, many of which are for sub-sea applications, 

are such that only stainless steel forgings of the very highest 

standards and machined to tolerances of thousandths of an inch 

are acceptable. 

As many have noted, opportunities such as shale gas extraction 

and the potential Keystone Pipeline extension in the U.S. occur 

once in a generation. Shale gas extraction is already providing significant benefits to our economy, and the Keystone Pipeline extension promises to create a significant number of jobs during construction as well as provide cost-effective supplies of crude oil from 

a stable and friendly source. The FIA strongly believes that safe, 

responsible development of these energy sources will continue to 

fuel a U.S. manufacturing renaissance, and U.S. policies should not 

erect artificial regulatory barriers to their success. 

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Abundant Domestic Supplies of a Key Input to the Forging Process 

In the case of natural gas, we benefit directly from the increased 

exploration, extraction and transportation of gas because we supply 

to the industry itself. Also, as natural gas is a key input and a key 

cost driver in our manufacturing process, we also benefit from stable pricing of that energy source. 

Most forging work is done at temperatures up to 2300°F, with 

subsequent heat treating done at up to 1900°F, using natural gas 

or electric furnaces. Therefore, forgers require adequate, stable, affordable supplies of natural gas and electricity to make the critical 

parts we make for nearly every industry sector imaginable. 

In 2008, natural gas prices were extremely volatile and supply 

was inadequate. Prices ranged from $5.8 per MBTU to $12.7 per 

MBTU. When natural gas is both a key input and a key cost driver, 

that market volatility makes is extremely difficult to plan and to 

remain globally competitive. In addition, the competitive nature of 

our industry means that such cost increases can rarely be passed 

on to the customer. 

Forgers’ other key raw material is metal, and for most forgers 

this means steel. The metal producers also require natural gas as 

a key input and a low and stable gas price helps them to keep 

metal prices lower for their customers. While the majority of the 

metal producers might not qualify as small businesses, their customers often are. These customers could be forging companies, such 

as Ajax, or else distributors, many of whom are also small businesses. 

Today, with the abundant supplies of natural gas being extracted 

and sold in the U.S., we have confidence in the stability and competitive price of the market. Since the beginning of 2011, the price 

range has been between $1.95 MBTU and $4.50 MBTU. That 

means I can have confidence in my ability to be competitive, because I can predict the cost of one of my key inputs. I can also feel 

more confident in making investment decisions, which involve a 

longer time horizon, because I have more confidence that energy 

costs and supplies will be more stable. A further factor is our competitive position versus overseas forging companies. The fact that 

we have stable and low priced energy helps us to compete with 

these companies both in the U.S. and in overseas markets. 

Conclusion 

It is easy to see the immediate effect on job creation in the towns 

and states where shale gas extraction is actively being conducted. 

It is a logical next step to consider the increased jobs that suppliers 

to the oil & gas industry, like Ajax, have been enjoying as a result 

of this increased gas exploration and extraction activity. Your subcommittee has already heard from small businesses that will be directly impacted by the building of the Keystone Pipeline extension. 

For those of us that supply directly to the oil and gas industry, demand for forgings has slowed somewhat now that the extraction is 

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actually taking place. Approval of the Keystone Pipeline extension 

would obviously generate significant new demand. 

However, because natural gas is also an input and key cost driver in my manufacturing process, the stable, adequate supplies of 

less expensive domestic natural gas means that there is more activity in many sectors, whether for defense applications, rail applications or general industry and the long term benefits will be significant. 

The U.S. must be very cautious in enacting regulatory barriers 

to increased domestic supplies of oil & gas. Policies that artificially 

increase prices or restrict supplies would certainly have a direct 

negative effect on the entire oil & gas supply chain regardless of 

company size. But they would also negatively affect hundreds of 

small manufacturers like Ajax and others in the forging industry 

supply chain that provide critical components to almost every industry you can imagine—and that means everything from airplanes to hand tools to hip joints. That is why we believe that policies that continue to encourage safe exploration and development 

of domestic energy sources are vital to the continued revival of U.S. 

manufacturing, including the forging industry. 

Thank you for the opportunity to appear before you today. I look 

forward to your questions. 

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Testimony of Moffat County Commissioner Charles G. Grobe 

In front of 

Small Business Subcommittee on Ag, Energy and Trade 

June 20, 2013 

Thank you Chairman Tipton, Ranking Member Murphy, and 

other members of the subcommittee for holding this important 

hearing. My name is Chuck Grobe, and I am a county commissioner from Moffat County, Colorado. When combined, the coal, 

uranium, vanadium, oil shale, shale-oil and natural gas in our region has the potential to power our nation for generations as technologies continue to unlock and enhance their energy potential. I 

will be sharing with you the benefits of oil and natural gas production related to job creation in Northwest Colorado. 

Moffat County is the second largest county in Colorado with just 

over 3 million acres of land, 60% of which is federally managed. 

Our public and private lands host a variety of uses that sustain our 

economy and culture. The top ten taxpayers of Moffat County are 

all energy related, and 20% of our tax base is supplied from the oil 

and gas sector. The Yampa River runs through the middle of our 

county and hosts endangered fish along with sport fish. The Sagebrush Steppe in our county hosts some of our state’s largest cattle 

ranches, various oil and gas operations, coal mines, a power plant, 

and Colorado’s largest Greater Sage Grouse populations. In the 

past and future, coal has and will play an important role in the 

economic well-being of Moffat County. The Mancos and Niobrara 

formations exist throughout Colorado (and other states) and hold 

the promise of great prosperity for Western Colorado. In fact, recently, the most prolific Niobrara well in Colorado was drilled in 

neighboring Garfield County and is the highest producing shale 

well in Colorado to date. Our citizens have a history of generations 

being employed by the agriculture, energy, and recreation sectors 

all receiving various nationally recognized awards for land animal 

conservation. Most importantly, our community has decades of onthe-ground examples of collaborative efforts that bring varous interest groups to the tables to reach agreement on the most controversial public lands issues. 

Vermillion Basin: 

One of these issues is that of the Vermillion Basin. The 

Vermillion Basin is a 77,000 acre cold desert shrub land that hosts 

a 200 billion cubic feet natural gas resource as well as equally valued scenery and wildlife. Over a decade ago, and very early in the 

Bureau of Land Management’s land planning process, the Moffat 

County Commissioners acknowledged the environmental values of 

Vermillion Basin as well as its natural gas potential. Moffat County proposed to protect those environmental values while encouraging the local economy through natural gas development, having 

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only the absolute highest reclamation standards known to work in 

the high desert ecosystems of the Vermillion Basin. Moffat County 

then led the consensus building process between all affected governments and agencies, known as Cooperating Agencies, to agree 

to protect 99% of Vermillion Basin while only utilizing 1% of the 

surface at any given time. For several years, the local Bureau of 

Land Management office backed this plan. Entirely due to political 

reasons, the locally supported plan of protecting 99% of Vermillion 

Basin’s surface was overturned by Washington politics, and 

Vermillion Basin is currently inaccessible to natural gas development. The economic losses of not developing Vermillion Basin 

translate to: 

• $700 million of natural gas resource that would be ex- tracted (sold at $3.50/mcf) 

• $25.6 million to Moffat County Taxing Districts (Moffat 

County School District, Colorado Northwestern Community 

College, Craig Rural Fire Protection District, City of Craig, 

Town of Dinosaur, Colorado River Water Conservancy District, 

and Moffat County) 

• $7.7 million in bonus payments split between the State 

and Federal government and partially returned to counties and 

cities within Moffat County (leased at $100/acre Moffat County 

average 2008–2010) 

• $87 million in federal royalties partially returned to cities 

and counties within Moffat County 

• $43.75 million of the State of Colorado’s share of royalty 

• $77 million of ad valorem (i.e. production) and severance 

tax payments 

With the uncertainty of conducting business where situations 

such as the Vermillion Basin example carry the day, where political will rather than facts dictate the outcome, small businesses 

across our region cannot afford to risk the finances to start or grow 

business that do not have regulatory certainty and businesses cannot provide reliable employment. 

Excessive local, state, and national regulations on the oil and gas 

industry cause volatility to our economies: 

Despite the good news of jobs and new revenues on the horizon, 

the promise of prosperity for rural Western Colorado is obstructed 

by a very dark cloud. Regulatory uncertainty, unnecessary federal 

regulations, frivolous lawsuits, and the lack of political courage by 

the current administration to allow development of these new oil 

and gas sources, puts our jobs potential in jeopardy. Quite often political will, rather than facts, dictate whether or not to develop particular energy projects. Unfortunately, this misguided approach has 

had numerous consequences for small businesses and our economics across the region. Regulatory uncertainty for the oil and gas industry has a negative impact on small businesses. Wages in the oil 

and gas industry are 51% higher than most other industries in the 

state. These are good paying jobs. Oil and gas employees stay at 

our local hotels, eat in our restaurants, and shop on main street. 

Many companies have chosen to focus their efforts in states with 

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pro-development policies. As a result, Colorado has lost important 

revenues and jobs. 

To demonstrate how companies desire to avoid regulation, in 

Northwest Colorado, the Niobrara Shale-oil project has been heavily explored for the last couple years. The Niobrara oil resource 

straddles Routt and Moffat County equally. The USGS identifies 

the Niobrara oil resource as similar acreage in each county, similar 

depth in each county, and generally regards the geophysical opportunity for extraction equal in each county. Each of these counties 

has long standing, tremendously different philosophical perspectives on drilling. Moffat County generally has a blue-collar work 

force that make a living in the energy industry and their elected 

officials have traditionally represented such. Routt County is more 

of a resort area and is regarded by the state Oil and Gas Commission as one of the most regulatory restrictive counties in the state 

on oil and gas development. Last year, 20 wells were drilled in 

Moffat County exploring the Niobrara oil resources. Given the 

equal geologic opportunity to explore the Niobrara oil resource, one 

would expect a similar number of wells in Routt County. However, 

solely due to public desire and a long history of elected officials representing that public desire in the form of regulation, only one (1) 

well was drilled last year in Routt County. 

This same trend experienced locally was translated to the state 

level in 2008 when, due to additional regulatory burdens placed on 

the state by the Colorado General Assembly, significantly more 

strigent rules were placed on oil and gas operators through a new 

rulemaking process of the Colorado Oil and Gas Commission. The 

new rules gave Colorado national recognition as one of the most 

highly regulated states in the nation for oil and gas development. 

While the State will broadly acknowledge a general increase in applications to drill and the oil and gas associations will pubically acknowledge industry continues to drill in Colorado; this is not because of the additional rules, but in-spite of the rules. 

Just as in both the county and state examples above, Congress 

must struggle with national rules, such as the Bureau of Land 

Management’s hydraulic fracturing rules. Trends of increased regulation in the oil and gas industry have manifested locally through 

creative avoidance of federal lands. For example, it is common in 

my county for Federal Exploratory Units, known as federal units, 

to now follow unusual aliquot descriptions to avoid as much federal 

surface and minimize the inclusion of federal minerals simply to 

decrease the federal regulatory footprint. In fact, the same 2010 

University of Colorado study mentioned above reveals the fact that 

oil and gas companies focus activity three fold greater on private 

land sthan they conduct activity on federal lands. This trend is 

alarming considering the cost of leasing private lands in Colorado 

is 8.5 times greater than federal lands. Despite the added costs of 

moving into private lands to avoid regulatory burdens, the trend is 

growing. The Niobrara shale oils in Moffat County are almost entirely being explored on private or State Trust Lands surface. The 

trend of oil and gas companies increasing operations on private 

lands is not only local and statewide, but national. See graphs 

below. 

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Balancing wildlife interests with energy development: 

The above mentioned December 2011 Colorado University School 

of Business study revealed statistics that provided insights about 

the importance of the oil and gas industry for our nation, Colorado 

and small businesses. ‘‘The OIL & GAS Industry in Colorado directly employs over 40,000 people and supports over 107,000 jobs 

in the state and provides $6.5 billion in total labor income and $31 

billion in economic output annually.’’ 

Some important figures from the above referenced study are: 

• $130 million to school and education funds solely from 

State Land Board leasing/royalties (oil and gas, 2012) 

• The oil and gas industry pays over 90% of our state’s severance tax. 

For Moffat County: 

• 629 producing wells owned by 41 different operators 

• 44 horizontal wells were permitted in 2012 with 16 currently producing. This is a significant increase from years past. 

If this trend continues, there will be more significant oil production on significantly less acreage, in turn, this will mean 

significantly higher property tax revenues with less surface 

disturbance. 

• Oil production in Moffat County has increased 25% from 

2011 to 2012 which will be reflected in 2013 when 2012 taxes 

are collected. 

The tax revenues provided from the industry provide critical resources for education and other important programs. Protesters 

who oppose development fail to make this connection and do not 

consider that many of the other programs they support receive revenues and royalties from the oil and gas industry. 

Colorado is filled with beautiful scenery and abundant wildlife. 

Current technology allows for a balanced approach that respects 

the environment but still allows us to make best use of our natural 

resources. Being home to the largest Greater Sage Grouse populations in Colorado, Moffat County has long led planning efforts to 

assure the thriving of grouse populations while simulateneously 

protecting a vibrant local energy economy. Known as the ‘‘Elk Capital of the World,’’ we constantly struggle between balancing timing 

stipulations recommended by the Colorado wildlife management 

agency and finding a window within the year for industry to operate. Finding the balance where both wildlife and oil and gas can 

thrive seems to employ as many wildlife biologists as rig hands! 

Summary 

In addition to my years of experience working for a local power 

generation plant and experience as a local elected official at both 

the city and county levels, I have spent several hours discussing 

these issues with local business owners around my community. The 

need for stability within local businesses is evident. I have found 

that the uncertainty of the oil and gas industry, because of additional regulations, has a ripple down effect on local businesses. A 

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local specialty industrial parts supply house has chosen to focus on 

supplying products to the local power plant and coal mines instead 

of the volatile oil and gas industry. While the entrepreneurial spirit 

still exists, a consistent theme of being beat down by state and federal regulations causes companies to look for new markets. For example, a welding and fabrication shop has diversified and begun 

servicing oil fields in other states. The higher wages cause local 

business to desire to stay in the oil and gas industry. However, additional regulation is mounting on their backs and gradually growing regulatory burdens drag them down. High paying jobs and the 

entrepreneurial spirit is still driving extracting oil and gas resources from Moffat County, yet limited access to federal lands is 

driving exploration to the private land. Wilderness Study Areas, 

wildlife stipulations, and additional state regulatory burdens provide resistance to recovery from a nation-wide recession. 

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60 

SBREP-219 with DISTILLER


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61 

SBREP-219 with DISTILLER


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62 

SBREP-219 with DISTILLER


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63 

SBREP-219 with DISTILLER


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64 

SBREP-219 with DISTILLER


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65 

SBREP-219 with DISTILLER


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66 

SBREP-219 with DISTILLER


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67 

SBREP-219 with DISTILLER


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68 

SBREP-219 with DISTILLER


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69 

SBREP-219 with DISTILLER


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70 

SBREP-219 with DISTILLER


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71 

SBREP-219 with DISTILLER


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72 

SBREP-219 with DISTILLER


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73 

SBREP-219 with DISTILLER


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74 

SBREP-219 with DISTILLER


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75 

SBREP-219 with DISTILLER


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76 

SBREP-219 with DISTILLER


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77 

SBREP-219 with DISTILLER


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78 

SBREP-219 with DISTILLER


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79 

SBREP-219 with DISTILLER


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80 

SBREP-219 with DISTILLER


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81 

SBREP-219 with DISTILLER


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82 

SBREP-219 with DISTILLER


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83 

SBREP-219 with DISTILLER


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84 

SBREP-219 with DISTILLER


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85 

SBREP-219 with DISTILLER


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86 

SBREP-219 with DISTILLER


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87 

SBREP-219 with DISTILLER


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88 

SBREP-219 with DISTILLER


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89 

SBREP-219 with DISTILLER


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90 

SBREP-219 with DISTILLER


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91 

SBREP-219 with DISTILLER


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92 

SBREP-219 with DISTILLER


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93 

Æ 

SBREP-219 with DISTILLER


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