U.S. GOVERNMENT PUBLISHING OFFICE

30–173PDF WASHINGTON : 2018

GEOPOLITICS OF U.S. OIL AND GAS

COMPETITIVENESS

HEARING

BEFORE THE

SUBCOMMITTEE ON TERRORISM, 

NONPROLIFERATION, AND TRADE

OF THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTEENTH CONGRESS

SECOND SESSION

MAY 22, 2018

Serial No. 115–132

Printed for the use of the Committee on Foreign Affairs

(

Available: http://www.foreignaffairs.house.gov/, http://docs.house.gov,

or http://www.gpo.gov/fdsys/

(II)

COMMITTEE ON FOREIGN AFFAIRS 

EDWARD R. ROYCE, California, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

ILEANA ROS-LEHTINEN, Florida 

DANA ROHRABACHER, California 

STEVE CHABOT, Ohio 

JOE WILSON, South Carolina 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

DARRELL E. ISSA, California 

TOM MARINO, Pennsylvania 

MO BROOKS, Alabama 

PAUL COOK, California 

SCOTT PERRY, Pennsylvania 

RON DESANTIS, Florida 

MARK MEADOWS, North Carolina 

TED S. YOHO, Florida 

ADAM KINZINGER, Illinois 

LEE M. ZELDIN, New York 

DANIEL M. DONOVAN, JR., New York 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

ANN WAGNER, Missouri 

BRIAN J. MAST, Florida 

FRANCIS ROONEY, Florida 

BRIAN K. FITZPATRICK, Pennsylvania 

THOMAS A. GARRETT, JR., Virginia 

JOHN R. CURTIS, Utah 

ELIOT L. ENGEL, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

THEODORE E. DEUTCH, Florida 

KAREN BASS, California 

WILLIAM R. KEATING, Massachusetts 

DAVID N. CICILLINE, Rhode Island 

AMI BERA, California 

LOIS FRANKEL, Florida 

TULSI GABBARD, Hawaii 

JOAQUIN CASTRO, Texas 

ROBIN L. KELLY, Illinois 

BRENDAN F. BOYLE, Pennsylvania 

DINA TITUS, Nevada 

NORMA J. TORRES, California 

BRADLEY SCOTT SCHNEIDER, Illinois 

THOMAS R. SUOZZI, New York 

ADRIANO ESPAILLAT, New York 

TED LIEU, California

AMY PORTER, Chief of Staff THOMAS SHEEHY, Staff Director

JASON STEINBAUM, Democratic Staff Director 

SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION, AND TRADE

TED POE, Texas, Chairman 

JOE WILSON, South Carolina 

DARRELL E. ISSA, California 

PAUL COOK, California 

SCOTT PERRY, Pennsylvania 

LEE M. ZELDIN, New York 

BRIAN J. MAST, Florida 

THOMAS A. GARRETT, JR., Virginia 

WILLIAM R. KEATING, Massachusetts 

LOIS FRANKEL, Florida 

BRENDAN F. BOYLE, Pennsylvania 

DINA TITUS, Nevada 

NORMA J. TORRES, California 

BRADLEY SCOTT SCHNEIDER, Illinois 

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C O N T E N T S 

Page

WITNESSES 

Kenneth B. Medlock III, Ph.D., senior director, Center for Energy Studies, 

Baker Institute for Public Policy, Rice University ............................................ 5

Mr. David Carroll, president and chief executive officer, Gas Technology Institute ........................................................................................................................ 19

Ms. Sarah Ladislaw, director and senior fellow, Energy and National Security 

Program, Center for Strategic and International Studies ................................ 29

Ms. Samantha Gross, fellow, Cross-Brookings Initiative on Energy and Climate, The Brookings Institution ......................................................................... 38

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Kenneth B. Medlock III, Ph.D.: Prepared statement ............................................ 8

Mr. David Carroll: Prepared statement ................................................................. 21

Ms. Sarah Ladislaw: Prepared statement ............................................................. 32

Ms. Samantha Gross: Prepared statement ............................................................ 40

APPENDIX 

Hearing notice .......................................................................................................... 54

Hearing minutes ...................................................................................................... 55

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GEOPOLITICS OF U.S. OIL AND GAS 

COMPETITIVENESS 

TUESDAY, MAY 22, 2018

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON TERRORISM, NONPROLIFERATION, AND TRADE,

COMMITTEE ON FOREIGN AFFAIRS,

Washington, DC. 

The subcommittee met, pursuant to notice, at 2 o’clock p.m., in 

room 2200 Rayburn House Office Building, Hon. Ted Poe (chairman of the subcommittee) presiding. 

Mr. POE. This is a rectangular gavel but it ought to work. 

The subcommittee will come to order. Without objection, all 

members will have 3 days—5 days, rather—to submit statements, 

questions, and extraneous materials for the record, subject to the 

length limitation in the rules. 

The U.S. oil and gas industry is a force multiplier for American 

influence around the world. For decades, many of the planet’s great 

energy producers were regimes ruled by tyrants who leveraged 

their oil wealth to oppress their own people and pursue evil foreign 

policy. 

However, thanks to American know-how, the United States has 

unleashed its own energy potential, now becoming a major player 

in the global market—I should say, the major player. 

In large part, America’s revival as an energy superpower is a result of the shale revolution. Through the process of hydraulic fracturing—or fracking, as it is called, which was invented in the ’40s 

and expanded recently to be more efficient—we are now able to 

reach oil and gas deep within the earth, where they were previously unreachable. 

With this new technology, the U.S. has gone from the world’s 

largest oil importer to one of the world’s largest energy exporters. 

The United States primarily imports heavy crude oil and exports 

light crude—Texas sweet crude, as we call it. 

Just a decade ago, the U.S. was importing 12.5 million barrels 

per day of crude oil and fuel, and now it’s just 4 billion. 

Between 2010 and 2017, oil production rose from 5 million barrels per day to 10 million barrels a day, approaching a record last 

set in 1970. 

This has allowed for a dramatic reduction of our dependence on 

foreign oil, which ultimately strengthens our national security. The 

United States has been talking about being energy independent 

since I was born. I am glad to see that we are finally getting to 

that point. 

2

In the nearly 3 years since Congress ended restrictions on exporting crude oil, the U.S. has beat market expectations and surged 

its exports to a record 2.5 million barrels, and by 2022 we will export more oil than we import. 

Some people wonder why we export and import both oils. The 

United States uses heavy crude in its refineries, and it’s too expensive to switch from heavy crude to light crude. 

So we import our heavy crude and then we export the light crude 

that other nations use that we develop quite rapidly. 

Also, we have natural gas production that has been setting new 

records in every year since 2000 thanks to the innovations of liquefied natural gas——LNG, as we call it. We ship this growing resource anywhere in the world. 

Last year, we became a net exporter of natural gas for the first 

time in 60 years. In the coming years, it will only improve as the 

market of natural gas consumers grows and more exporting facilities come online. 

America’s comeback as an energy superpower has wide-ranging 

geopolitical implications besides the economic benefits to the 

United States and other countries. 

Its obvious benefit for Americans and the U.S. economy is that 

it reduces our trade balance and creates new well-paying jobs and 

it also generates more revenue, making us a stronger nation. 

But it also means less money that is going into repressive regimes all over the world who were previously dependent—we were 

dependent on for oil, and since energy is more abundant, the price 

of oil is decreasing. 

Overall, the result is less money for Putin’s Russia, the Ayatollah’s Iran, and Maduro’s Venezuela—all totalitarian regimes 

that oppress their people and make their living by selling oil and 

gas. 

With the low price of oil, international sanctions, and their own 

economic mismanagement, these regimes, who could rely on their 

oil wealth to fund their activities—their nefarious activities—are 

instead seeking their economic—or sinking in their economic tank. 

Now the people are on the streets demanding accountability, and 

Saudi Arabia and the Gulf States have long been important partners of the U.S. because we needed their oil and their leverage in 

stabilizing oil prices. 

Now we can redefine our relationship with those countries as 

well. This does not mean we should become isolationists or abandon our traditional partners. It just means we should work better. 

We have oil, we have natural gas, and we need to give the Europeans an alternative to the blackmail from Russia and Russia’s 

natural gas, especially Eastern Europe. 

Several years ago, I was in Ukraine in the winter, and the Russians turned off the gas. It was dark, it was cold, and people died, 

and they did it for political reasons—to try to put their muscle on 

Ukraine, which they are still trying to do. 

But that’s just one example of the way the Russians use natural 

gas as a way to force other countries to deal with them politically. 

U.S. oil and gas exports also reinforce the importance of free 

trade. I am a free trader. I think we should—that includes NAFTA 

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but we need to make NAFTA fair and free trade as well, which 

talks are going on now. 

About 60 percent of U.S. gas exports go to Mexico, which provide 

a major boost to our trade balance, and Canada has also become 

a major importer of America-refined fuels. 

I have long thought that the United States—the four countries 

of Canada, United States, Texas, and Mexico—should work together to have a North American alliance on energy. 

We could become the energy major player in the world on all 

types of energy if we just worked a little bit more together to make 

sure that we can use that as an economic advantage but also as 

a geopolitical tool against these totalitarian regimes. 

So I am looking forward to hearing what our witnesses have to 

say on these issues, give us some insight, and also if there are 

things that Congress needs to do or not do to make sure that the 

United States continues its energy exploration. 

I will now turn to my friend from Massachusetts, Mr. Keating, 

for his opening statement and comments. 

Mr. KEATING. Thank you, Mr. Chairman, and thank you for letting us all know your true beliefs that Texas is a sovereign country. 

It’s something we suspected. 

Mr. POE. You didn’t know that? [Laughter.] 

Mr. KEATING. Well, I do now. I know it now. So I’ll bring that 

message back to Massachusetts. 

I would like to thank the chairman for convening today’s hearing. 

This is an important topic because there are a lot of factors that 

make development efforts more effective and enhance our national 

and global security. 

However, there are fewer things that, without them, there simply 

cannot be development or economic growth and adequate levels of 

security would be really impossible to achieve and energy is one of 

those things. 

U.S. oil and gas exports—the topic of our hearing today—are an 

interesting piece of the global energy puzzle and shouldn’t be considered lightly—both in terms of the possible impact on our own 

energy policy and national security and also on those of many other 

countries as well. 

With the decision to export oil and natural gas, we also have the 

opportunity to be highly strategic in thinking about our energy export policies and the geopolitical context they create. 

For example, some European countries have considered importing U.S. LNG to reduce their reliance on Russia to meet their energy needs. 

While we are facing Russia’s destabilizing interventions around 

the world, including our own democratic elections here in the 

United States, we have to pay attention to shifts like this that open 

up new opportunities to promote our own strategic interests 

abroad. 

In fact, energy was one sector proposed for inclusion in the nowstalled Transatlantic Trade and Investment Partnership with the 

E.U.—with the idea of bringing lower barriers to exporting U.S. oil 

and gas to our friends and allies in Europe. 

Additionally, two of our largest LNG customers are Canada and 

Mexico. If the President does in fact withdraw from NAFTA, that 

4

will have a big effect on the sector and on thousands of jobs that 

support this industry here in the United States. 

Even my own sovereign country, Massachusetts, which is not an 

oil or natural gas-producing state, supports—we support these industries with manufacturing and service sectors and contribute a 

significant percentage of labor income to the crude oil supply chain 

here in the United States. 

Our oil and gas export policy has the potential to shape the lives 

of countless Americans not only in daily economic terms here but 

also in how we are ultimately impacted—how we are impacted by 

the effects of our export policies abroad. 

Just as we cannot be blind to the countless economic and geopolitical implications of our U.S. oil and gas export policy, we must 

also be vigilant about putting this policy in context. 

In a post-Paris Climate Agreement world, there is a nearly universal commitment to addressing the impacts of climate change. 

Investments in clean energy and renewables will be a big part 

of that, not just for the U.S. and other countries but for developing 

economies as well. 

The effects of global markets for oil and gas should also be part 

of our conversation about the makeup of U.S. energy exports. 

What will be the breakdown of our energy exports? How much 

will oil and gas be a part of that? How much will renewable energy 

be part of that? 

We are already seeing the reverse of this here in the United 

States. In my district in New Bedford, Massachusetts, Danish companies are involved in the development of wind energy in what will 

be one of the biggest offshore wind energy projects in the country. 

Energy is a global issue. This could be a boon for American workers and American households and companies looking to have a consistent and affordable energy year round to heat and cool their 

homes and, importantly, to grow their businesses, or it could be a 

series of missed opportunities. 

Our conversation today highlights oil and gas. However, it would 

be a mistake to ignore how these different sources of energy fit together to provide security and reliable economic growth and to ignore the inevitable long-term trajectories of our energy policies. 

In choosing to export oil and gas, we have opened up a world of 

opportunities for interacting with other countries, global markets, 

conflicts, and even foreign policy considerations that go along with 

it. 

However, that still means we must evaluate this policy in the 

context of our own energy and economic priorities, our long-term 

security interests and the realities of the foreign policy challenges 

that we face. 

With that, Mr. Chairman, I will yield back. 

Mr. POE. I thank the gentleman from Massachusetts. 

The chair recognizes the gentleman from California, Mr. Rohrabacher, for an opening comment. 

Mr. ROHRABACHER. Thank you very much, Mr. Chairman, and 

we note that energy and our ability to be self-sufficient at energy 

or how much energy we will have to feed our economy has been a 

major factor for decades, and we didn’t quite realize that until 

5

America became a net importer of oil and gas a decade or several 

decades ago. 

Before that, I mean, we didn’t give it much thought, and let’s 

just note that once it was clear that America was headed toward 

a shortage of oil and gas, we still had people in our country who 

opposed the Alaskan Pipeline. 

Had they—had they been successful, Mr. Chairman, in preventing the Alaskan Pipeline because, I understand, caribou 

were—it was going to hurt the caribou and, of course, those predictions have proven exactly the opposite and we have more caribou. 

But that fanaticism that had them opposing the Alaskan Pipeline 

would have had a huge negative impact on our economy and also 

would have made us even more vulnerable during this time period 

when we have been importing oil. 

But we face the same kind of thing with fracking, where fanatics 

have opposed fracking but yet it has given us now a new self-sufficiency. 

All of these things have incredible foreign policy implications as 

well as economic implications for our country, and we need to understand them. Thank you for holding this hearing so we will have 

a better understanding. 

Mr. POE. I thank the gentleman from California. 

I will introduce our witnesses and, without objection, all witnesses’ prepared statements will be made part of the record. 

Please keep your comments and your presentation to no more 

than 5 minutes and I will—we will—have your presentation filed 

in the minutes of the hearing. 

Dr. Kenneth Medlock is the senior director of the Center of Energy Studies at Rice University’s Baker Institute for Public Policy. 

Previously, he served as vice president for conferences, United 

States Association for Energy Economics. 

Dr. Medlock, thank you for being here and thank you for what 

you do at Rice University. Very good reputation. 

Mr. David Carroll is the president and CEO of Gas Technology 

Institute. Since 2015, Mr. Carroll has also been president of the 

International Gas Union, which is made up of 150 member associations and corporations representing 97 percent of the global gas 

market. 

Ms. Sarah Ladislaw is director of the Energy National Security 

Program at the Center for Strategic and International Studies. Previously, she worked in the Office of the Americas in the Department of Energy. 

And Samantha Gross is a fellow in foreign policy at the Brookings Institute and a fellow at the Cross-Brookings Initiative on Energy and Climate. 

Previously, she served as director of international climate and 

clean energy at the Department of Energy. 

Mr. Medlock, we will start with you. Thank you. 

STATEMENT OF KENNETH B. MEDLOCK III, PH.D., SENIOR DIRECTOR, CENTER FOR ENERGY STUDIES, BAKER INSTITUTE 

FOR PUBLIC POLICY, RICE UNIVERSITY 

Mr. MEDLOCK. Thank you, Mr. Chairman, Mr. Keating. 

6

I also want to thank the committee for accommodating me during 

the past week. 

I’ll take a moment just to—my grandfather passed away. He was 

a World War II veteran of the Navy, a member of the Mighty Midgets. For those of you who don’t know history, you can look it up. 

It’s a pretty decorated group. 

He was very proud of his accomplishments but also very understated, which I think is a quality that I hope many others will 

emulate. 

Regarding this particular testimony, shale has been utterly 

transformative, and that’s where I want to start, because if we are 

going to have a conversation about U.S. soft power and U.S. foreign 

policy prerogative related to oil and gas, we have to acknowledge 

what’s happened domestically on the shale front. 

It has been transformative in more than just how most of us talk 

about it. Most of us talk about it as if there is a new source of supply that has emerged into the global market scene that’s actually 

resulted in a reduction in import dependence in the United States. 

We have seen our crude oil imports drop dramatically. We are 

now net exporters of natural gas as well as petroleum products or 

refined products. 

But an important, I think, lesson in all of this, and this is really 

what plays into the broader discussion of what geopolitical ramifications are, if you go back to 2003, 2004, 2005, 2006, the world 

was really looking at the U.S. as a declining oil and gas province—

a province that ultimately would continue to see declines in production, growth in demand, and increasing import dependence. 

There were a lot of very significant investments made in a 

vertically integrated way to develop natural gas in remote parts of 

the world, move it through liquefaction facilities onto ships, and 

bring it to our shores. 

Back in 2003, there were 47 different terminals that had received 

certification to import liquefied natural gas. Now, all of those, of 

course, didn’t get built, but it was certainly a signal. 

What drove that? Well, oftentimes we forget, and it’s not that far 

long ago, but between 2003 and 2006, the price of natural gas in 

the United States was higher than anywhere else in the world. 

And, of course, when you start talking about trade, you start 

talking about impetus for investment. At the end of the day, it 

really is about moving product from a low price to a high price, and 

that’s exactly what was happening. 

Of course, when you have high prices, it also stimulates other 

margins of response, and that’s exactly what happened in the domestic upstream. 

It wasn’t the vertically integrated measures. It was a lot of relatively small, sometimes referred to as mom and pops, but independents that really took entrepreneurial spirit to task in the upstream. 

In the Barnett Shale, for example, Mitchell Energy went in and 

actually started to try new things in the Fort Worth Basin, as it 

was previously known. 

You know, drilling some vertical wells, making contact with what 

was known to exist for a long time—geologists had been talking 

about shales for decades. This is not new to a geologist. 

7

But figuring out ways to make the resource both technically and 

commercially recoverable was really the big challenge. It was a 

challenge that was put on the table by policymakers in the late 

1970s with the Eastern Gas Shales Project. It was taken onboard 

by various institutions including the Gas Technology Institute. 

But, ultimately, what happened is you saw these high prices that 

matriculated into the United States, as relative demand growth 

and declining production resulted in significant innovation. 

The key thing about the United States that I think is sometimes 

lost in the context of understanding what’s happening domestically 

and what it means globally is that we enjoy a very unique set of 

regulatory and legal institutions in this country that have afforded 

us the ability to see our production grow. 

It actually fosters innovation. It fosters entrepreneurial activity, 

and when you have that kind of environment, the sky is the limit, 

quite frankly. 

What I just said is not unique to oil and gas, though. It’s actually 

true across the energy value chain. So it is actually imperative that 

if the United States is going to continue to project its influence 

globally, one of the things that the U.S. Government continue to 

foster policies and environments that are conducive to entrepreneurial activity. 

A couple of final statements along those lines—gas—what’s happened here, the Marcellus is to gas what the Permian is to oil. A 

lot of people, I don’t think, have fully internalized that. 

But when we start talking about what’s going to happen over the 

next decade in the oil space, there is—we have just begun to 

scratch the surface. The big issue right now is water and infrastructure. 

The same thing could have been said about the Marcellus, particularly with regard to infrastructure, not too long ago. So when 

we look at what the Marcellus has meant for the North American 

natural gas scene, it’s important to recognize that the Permian is 

likely to unveil the same sort of dramatic transformation in not 

only the U.S. oil market but the global oil market. 

On the gas front, the U.S. now presents what we call a credible 

threat to Russian hegemonic intent in Europe. You’ve seen this in 

Lithuania with the construction of its natural gas import facility. 

Prices were instantly negotiated once that happened because now 

Russia realizes there is something out there that can actually take 

market, and that is something that is incredibly important when 

you start talking about foreign policy objectives and geopolitical influence. 

And the U.S. is on the cusp of actually having significant, significant impacts globally for the next several decades as a result of 

what’s happened domestically. 

I’ll stop there. 

[The prepared statement of Mr. Medlock follows:]

8


30173a-1.eps

Testimony of 

Kenneth B. Medlock lll 

James A. Baker. III. and Susan G. Baker Fellow in Energy and Resource Economics. and 

Senior Director, Center for Energy Studies 

James A. Baker III Institute for Public Policy 

Rice University 

To the 

House Committee on Foreign A±Iairs 

Subcommittee on Terrorism, Nonproliferation. and Trade 

Washington. 0. C. 

Hearing on 

Geopolitics of U.S. Oil and Gas Competitiveness 

May 22.2018 

During the past 15 years, innovative new techniques involving horizontal drilling and hydraulic 

fracturing have unlocked a vast resource potential and resulted in the rapid growth in production 

of natural gas from shale. The same techniques have also matriculated into the oil sector resulting 

in a dramatic increase in light tight oil production. ln what follows, we will address the unique set 

of circumstances that exist in the US that have facilitated the "era of abundance" for US oil and 

gas. Then, we will address the implication for energy security and how that connects to a new 

geopolitical reality afforded to the US, with attention given to recent changes in global oil and gas 

markets as evidence. 

What made the successes witnessed in the US during the past 15 years possible? To begin, geology 

matters. The scale of the technically and economically recoverable oil and gas resources locked 
9


30173a-2.eps

up in shale is tremendous and geographically diverse (see Figure 1), and as time passes the 

understanding of the resource expands. But, while the right geolot\Y is a necessary condition, it is 

not sufficient. Shale resources assessed in locations outside the US are significant, yet shale oil and 

gas production on a global scale is still largely limited to the US. This follows because S1.!{ficiency 

requires a host of above-ground factors to be appropriately aligned. These include market 

institutions and regulatory frameworks spanning the energy value chain, such as .. 

• a regulatory and legal apparatus in which upstream firms can negotiate directly with 

landowners for access to mineral rights on privately-owned lands. 

• a market in which liquid pricing locations, or hubs, are easily accessed due to liberalized 

transportation services that dictate pipeline capacity is unbundled from pipeline mmership. 

• a well-developed pipeline network that can facilitate new production volumes as they are 

brought online and connect producers to end-users. 

a market in which interstate pipeline development is relatively seamless due to a wellestablished governing body (i.e. - the Federal Energy Regulatory Commission) and a 

comparatively straightfor\vard ret,>ulatory approval process. 

• a market in which demand pull is sufficient, and can materialize with minimal regulatory 

impediment, to provide the opportunity for new supplies to compete for market share in the 

energy complex. 

• a market where a well-developed service sector already exists that can facilitate fast-paced 

drilling activity and provide rapid response to demands in the field. 

• a service sector that must compete by reducing costs and improving technologies in order to 

gain a competitive advantage. 

a sizeable rig fleet that is capable of responding to upstream demands without constraint 

a deep set of upstream actors that includes independent producers that can behave as the 

''entrepreneur" in the upstream thereby facilitating a flow of capital into the tield toward 

smaller scale, riskier ventures than those typically engaged by vertically integrated majors. 

Every one of the above bullets has some relevance to infrastructure- from permitting to access to 

market function to price formation to investment, etc. If any of these features is absent, an effective 

barrier to market development is presented, usually manifesting in the form of higher costs. 

Moreover, some of the above sufficient conditions can be co-dependent on the others, which 

highlights to the notion that well-designed market institutions and regulatory frameworks can be 

self-reinforcing. For example, a well-developed service sector relies on a deep set of 

entrepreneurial, independent upstream players to create large demands for its products and 

1 For more. see "The Land of Opportunity? Policy. Constraints and Eneib'Y Security in North America" by Ke1meth 

B Medlock Ill. hllps://www .bakcrinstitutc.org/rcscarch/bnd-opportunity -policy -constraints-and-energy -securitynorth-america/. 

2 
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30173a-3.eps

services, just as the population of independent producers in the US upstream might not be so deep 

absent a well-developed service sector. 

Figure 1 -Shale Resources in North America 

Source: http://alfin2300.blogspot.com/2012!03/c:aUerv-of-,vorld-hvdrocarbon-cnduwmcnthtml 

The coexistence of these factors makes the US a unique environment for upstream shale-directed 

investments. The result is self-evident, as US oil and gas production have each increased 

significantly in last decade, driven entirely by shale-directed developments (see Figure 2). 

Figure 2- US Oil and Gas Production, 2000-2017 

Source: US Energy Information Administmtion 

Concomitant with the growth in US oil and gas production, we have seen significant shifts in the 

US balance of trade in crude oil, natural gas and petroleum products, with the US now a net 

3 
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30173a-4.eps

exporter of the latter two (see Figure 3). While the US is still a net importer of crude oil, US exports 

of light crudes have increased substantially since the lifting of the oil export ban, eclipsing 2.5 

million barrels per day during the second week of May. This has, in turn, afl'orded a more efficient, 

increasingly export-oriented use of US refining infrastructure, which is better suited to handle 

heavier imported crudes. Weekly data from the US Energy Information Administration indicate 

that the combined total exports of crude oil and refined products eclipsed 8.3 million barrels per 

day in late April, up from just under 1.0 million barrels per day in early 2006. This translates into 

a significant shift in the net balance of trade for US crude oil and petroleum products. Natural gas 

exports (pipeline and LNG) have also ramped up as new export licenses have been granted with 

expanding opportunities for profitable export, and the US is now a net exporter of natural gas. 

Altogether, the expansion of US exports of crude oil, refined products and natural gas have 

transfonned the US from a signiflcant consuming nation that was beholden to policies aimed at 

securing supplies from foreign countries. Today, the US is a producing nation that can use its 

energy abundance to wield influence through foreign policy 2 

Figure 3- Net Exports of Natural Gas, Oil and Petroleum Products, Jan 2000-Feb 2018 

Source: US Energy Information Adntinistration 

'"Geopolitical dimensions of US oil security." Jim Krane and Kenneth B Medlock TIT, F:nergv Policy (Mar 2018) 

4 
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30173a-5.eps

Despite this, it is important to recognize that growth in US oil production does not render the US 

"independent" from other actors in the global oil market In fact, any disruption of supply from a 

significant oil exporting nation would trigger an increase in global prices that could be 

economically and politically destabilizing for importing countries. Oil is an openly traded 

commodity in a globally fungible market As such, prices are fanned by supply and demand 

fundamentals, with short-run price movements in±luenced by factors such as OPEC spare 

production capacity, rates of global demand growth, inventory levels, geopolitical events, natural 

disasters and financial markets. Given the global interconnectedness of oil consumers and 

producers, there is no such thing as independence tram international oil market perturbations. Even 

if the United States were to become a net oil exporter, US oil and petroleum product prices would 

remain exposed to international in±luences. 

Nevertheless, the growth in US oil and gas production is transforming the status quo and shifting 

the geopolitical balance. This highlights the importance of the so-called '·shale revolution" in 

achieving US geopolitical and foreign policy aims. The legacy of US regulatory and market 

institutions engenders significant global in±luence, and today there is much discussion about the 

US being an "energy superpower." In fact, this terminology has permeated the US State 

Department and been a recognized facet of diplomacy carried forth by the Bureau of Energy 

Resources for the past several years, spanning Administrations. Currently, we can see this directly 

tram the Bureau of Enere\Y Resources website. 

ENR promotes U.S. interests globally on critical issues such as: ensuring economic and energy security 

for the U.S. and onr a11ies and partners: removing barriers to energy development and trade: and 

promoting U.S. best practices regarding tmnsparency and good governance. In addition, \Ve revie'\v 

applications for the construction, conncctiOil operation. or maintenance of facilities for the exportation 

or importation of petroleum, petroleum products, coal, and other fuels (except for natural gas) at the 

borders of the United Sl1tes. 

The Bureau serves as the principal advisor to the Secretary of State on energy security. policy, 

operations, and programs. Through diplomacy and a "ide range of programs. ENR "arks to ensure 

worldwide energy security by fostering diverse global energy supplies from all sources of energy. 

ENR operates at the critical intersection bet\veen energy and U.S. Ik1tiotk11 security. and ensures U.S. 

leadership on global energy issues. U.S. national security is threatened when: 

Our allies lack reliable access to affordable enerb':y or a diversity of choices~ 

Foreign energy ll1.1Ikcts shut out U.S. companies: 

Poor governance prevents market-based energy solutions; 

Competition for energy leads to conflict: or 

Terrorists and rogue regimes seek to exploit energy resources to fund violence and 

destabilizing activities. 

To address these challenges. ENR works with leaders at the highest levels or govennnent, business. 

and civil society, playing a crucial role in achieving U.S. foreign policy objectives in the energy arena. 

ENR foreign assistance programs are integral to the Bureau's diplomatic engagement overseas :md 

provide critical support for the Department's objectives and the Administration's global diplomacy 

priorities. 

Sec: https:/hv\V\v,stalc,gov/c/cnr/. accessed Feb 5, 2018 

5 
13


30173a-6.eps

Increasing US oil and gas exports have facilitated the goals set forth by the US State Department. 

So, the enert\Y renaissance has had direct bearing on US diplomacy. However, the US government 

is neither the owner nor the producer of mineral wealth in the US, as is the case with government 

ownership of mineral wealth in many other nations. Thus, the soft power afl'orded to the US 

government is facilitated by the unique regulatory and market institutions established in the US 

that allows the private sector's commercial development of oil and gas. 

In general, legal institutions that place mineral rights in the hands of landowners and allow 

intellectual and physical property to be monetized have led to a regulatory framework in the US 

that is highly conducive to innovation and entrepreneurial activity across the energy sector. In the 

oil and gas space, incentives for domestic development derive from transparent, market-driven 

prices and a low cost to lift and move supplies. Hence, domestic production is very sensitive to the 

availability of capital and infrastructure. If anything disrupts the availability of either capital or 

infrastructure, production can grind to a halt in the affected region. This complicates the calculus 

around policy formation at the federal level, particularly when compared to the local level3 In 

short, domestic policy must continue to support domestic production if foreign policy goals that 

are facilitated by domestic oil and gas production are to be realized. 

As the US increases its exports of crude oil, petroleum products and natural gas, its influence 

expands into those nations that increasingly rely on imports to satisfy their energy appetites 

associated with economic growth. In general, expanded US production renders global supply to be 

more price responsive, and, as a result, carries an energy security bene tit to consumers at home 

and abroad. As argued in previous Baker Institute research, this also benefits US foreign policy 

endeavors in dealing with potentially hostile oil-producing nations, and provides a stabilizing 

effect on the global oil market. 4 

Geopolitics, F:nergy Security, and Oil and Gas Trade 

There are multiple definitions of the tenn "geopolitics", but it generally refers to the impact of 

geography on the balance of power in international atl'airs. Such geographical elements include 

things such as access to open seas, topography of countries/regions, and local climate because they 

each convey information about potential for force projection, national defense capability, and 

economic prowess. Hence, for the last roughly 100 years, the tenn has been used to discuss how 

things such as the industrial revolution as well as technological innovations in transportation and 

communications would reshape the international political landscape. Over the last few decades, 

the term has become increasingly used when referring to discussions centered on access to 

adequate energy supplies and how various international actors could shape international energy 

3 See ··The Market Impact of New Natural Gas-Directed Policies in the United SMes·· (Feb 2015) by Kenneth 

Medlock and Peter Hartley, available online at https://w\nv.bakerinstitnte.org/rescarch/nmth-american-cncq,"'"/. 4 Sec ··To Lift or Not to Lift? The US Cmde Oil Export Ban: Implications for Price and Energy Security'' (March 

20 15) by Kenneth Medlock, available online at lm.Qs://w}£Yr.bakerinsW:ute.orgf.r?.f'earch/north-mnerjg)_n-el~ 

6 
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30173a-7.eps

trade for political gain. Hence, the concept of energy security has been embroiled in broader 

discourse concerning geopolitics. 

The concept of energy security gained prominence in public policy discourse following the oil 

price shocks of the 1970s as a negative correlation between oil price and macroeconomic 

performance in oil-importing countries became increasingly recognized. In this context, "energy 

security" generally refers to the concept of ensuring an adequate supply of energy at a stable and 

reasonable price to avoid economic malaise. So, energy security can be captured by three basic 

concepts (1) adequacy of supply, (2) stability of price, and (3) relatively low price. First, adequacy 

of supply follows from the fact that energy is required for virtually all modern economic activity. 

Second, price stability is important because irregular price volatility can be a source of uncertainty, 

which (if it negatively impacts investment) carries a negative macroeconomic impact. Third, price 

level matters because it has a direct impact on household disposable income and 

industrial/commercial operating budgets; quite simply, if more financial resources are diverted to 

energy purchases, less is available for other activities. Hence, the concepts of energy security and 

economic security are intimately linked, as the former, if achieved, facilitates elements of the latter. 

Each of these has relevance to the role of the US in the broader geopolitical context, and, of course, 

domestic energy security and economic well-being. Diversification of the overall energy supply 

portfolio is one means of ensuring stability in supply at a reasonable price. The ability to access a 

variety of supply sources is a crucial component in most energy security arguments. For example, 

the negative impacts of any temporary disruption in supply can be more easily overcome if there 

is an easily accessible alternative source of supply for the same fuel. It follows, therefore, that 

diversification of supply is generally viewed to be beneficial for energy security. Europe, for 

example, has become all too familiar with this over the past decade, as tensions revolving around 

natural gas payments from Ukraine to Russia have resulted in multiple temporary pressure 

reductions on pipelines providing supply to Europe from Russia traversing Ukraine5 ln fact, these 

disruptions have sparked significant effort to diversify sources of supply across the European 

Union away from Russia. 

This is where the US has an important and growing role to play. In particular, as domestic oil and 

gas production increases, the US will have a greater impact on global market balance, both by 

direct export and by displacement. This, in turn, raises an important point about market fungibility. 

Energy security is facilitated by increasing both spatial and intertemporal trading opportunity in 

energy commodity markets. In this regard, the US has a distinct economic and geopolitical 

advantage. As expounded in previous testimony given before the Senate Energy and Natural 

Resources (SENR) Committee, the existence of infrastructure that allows trade to occur enhances 

market function thereby providing elements of reliability and security of supply for consumers, 

5 "Could trade help ochieve energv security?"" by Kenneth B Medlock TIT, World Economic Fonun (Mor 3, 2016). 

7 
15


30173a-8.eps

and the regulatory and legal frameworks in the US have historically been conducive to 

infrastructure investment, especially when compared to other regions around the world6 

Physical infrastructure enhances market fungibility by connecting markets spatially (via regional 

trade) and through time (via storage). As a case in point, constraints on the ability to meet the 

unexpected demand shock in the wake of the disaster at Fukushima in early 2011 resulted in the 

spot price of Asian LNG rising to unprecedented levels. lf LNG export capacity had existed in the 

US at that time, price increases in Asia would not have been so extreme. This point was not lost 

on LNG developers as they rushed to acquire permits to export US natural gas as LNG in the years 

that followed, and the enduring increase in natural gas produced from shale continues to provide 

ample commercial opportunity to profitably export LNG from the US. 

As US LNG exports rise, the global market will become physically linked to North America, the 

most liquid natural gas market on the world. This should, in turn, facilitate more trade and alter 

the liquidity paradigm that has characterized the global LNG market heretofore. This emerging 

reality has triggered enormous interest by consumers in Asia, Europe and Latin America as USsourced LNG exports are understood to be market-driven and, thus, relatively secure. On the 

geopolitical front, this means US LNG serves as a "credible threat" to the status quo enjoyed by 

incumbent regional suppliers -for instance, Russia into Europe or Bolivia into Brazil. Moreover, 

as the introduction of US LNG enhances market liquidity, it will fundamentally alter the nature of 

natural gas pricing everywhere. 

We have already seen evidence of US LNG as a paradigm altering credible threat in the Baltic 

region. Upon the opening of the LNG import facility in Lithuania, Russia renegotiated the price 

on its gas sales to the region in order to maintain its market position. This, of course, means the 

region still imports Russian natural gas. But, the cost of doing so is now lower and there exists 

capability to at least partially switch suppliers should Russia use natural gas to exercise any 

hegemonic intent. Hence, the credible threat of US LNG supply has fundamentally altered the 

status quo in the Baltic region7 

Oil markets are also being fundamentally altered by significant growth in US oil production. As 

indicated in Figure 4, global oil production has increased by over 18.7 million barrels per day since 

1998, and OPEC's market share has held relatively steady over that same period at around 42%. 

Since 2007, despite OPEC's ability to hold market share, the global oil market has undergone a 

significant shift as strong growth in US oil production- rising by over 5.4 million barrels per day 

-has seen the US share of global output rise from 8.3% to 13.4%, representing growth in volume 

0 See testimony at SENR full committee hearing on enert,':Y infmstmcture (Feb 8, 2018). Oral and \Vritten testimony 

as well as questions for the record arc avail1blc at https://www.cncrgy .scnatc.gov/public/indcx.cfm/2018/2/fullcommittee-hearing-on-energy-infrastmcture . 

., See, '·A 'Credible Threat' Approach to Long Run Deterrence of Russian-European Hegemony" by Ke1meth B 

Medlock Ill av aibblc at http :1/www .forbcs.com/sitcs/thcbakcrsinstitutc/20 14/03/1 0/a-crcdiblc-Urrcat-approach-tolong-mn-deterrence-of-mssian-european-hegemony/. 

8 
16


30173a-9.eps

and market share not seen since Saudi Arabian oil production increased by 6.4 million barrels per 

day over the decade of the 1970s. Notably, the growih in US production has largely otTset declines 

witnessed in other non-OPEC regions, except Russia where output share has also remained stable 

since 2007. 

Figure 4- Shares of Global Oil Production by Select Region, Select Years 

1998 

/d.4rwU,m·,Nd 

2007 

82.3 mHfon bid 

2016 

_to.L.2'1,<l.'Kilblil 

Source: BP Statistical Review 

Figure 5- Change in Global Oil Production by Country/Region, 2007-2016 

Source: BP Statistical Review 

Digging a little deeper in the trends witnessed since 2007 highlights how important US oil 

production has been for global market balance. As seen in Figure 5, production increased in several 

countries - such as Saudi Arabia, Iraq, Russia, Brazil, Canada and the US, to name a few- while 

it decreased in others- such as Mexico, Venezuela, the United Kingdom, and Libya, among others. 

Among the countries depicted in Figure 4 where production decreased from 2007 through 2016, 

9 
17


30173a-10.eps

Mexico, Venezuela, Syria, Yemen, Algeria, Libya, Nigeria and Sudan all were negatively 

impacted by various above-ground issues, such as sector mismanagement and domestic civil strife. 

In sum, this amounted to a decrease of about 5 million barrels per day of supply. The production 

increase tram the US during this same period was about 5.5 million barrels per day, meaning US 

light tight oil production (shale) accounted for an important source of supply to otl'set production 

declines driven by above-ground factors. Moreover, given the declines in the UK and N orvvay 

(about 1.2 million barrels per day) and the rapid demand growth seen in developing, non-OECD 

countries (see Fit,>ure 6), US production has provided an incredibly important incremental source 

of supply. 

Figure 6- Change in Global Oil Consumption by Country/Region, 2007-2016 

5.000 

-·'""' '""' '·""" 

-2,1!11!1 

Source: BP Statistical Review 

Given the dramatic net growth in demand of almost 10 million barrels per day since 2007, driven 

entirely by the developing world, additional sources of oil supply have been paramount for market 

balance and broader enert\Y security. Given that US oil production is commercially motivated 

(rather than dictated by government or national oil company policy), the incremental supplies of 

US oil to the global market are arguably more secure than supply from virtually anywhere else in 

the world. As argued in previous research, distinct energy security benefits accrue as more stable 

and secure sources of crude oil enter the growing global market. Greater stability, in turn, lessens 

international market oil price volatility, which matriculates through to petroleum product prices. 

As noted above, it is well-documented that higher prices and greater price volatility are associated 

with macroeconomic malaise. So, the US has a distinct opportunity to lead an oil industry 

transformation that could see lines of global oil trade redrawn as North American production 

captures a larger portion of the growing international market. This will, if fully realized, have 

tremendous implications for US foreign policy endeavors in its dealings with countries such as 

Iran, Venezuela and Russia. For example, to the extent that US oil production is price responsive, 

the US government can act with greater impunity in using targeted sanctions to dissuade 

10 
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30173a-11.eps

hegemonic behavior. In addition, US oil supply will lend greater stability to the global crude oil 

market thereby conveying benetits to the US and its allies. 

Concluding remarks 

Energy is critical to modem economic activity. This is, in fact, why energy security concerns -

either discussed in the context of domestic reliability or international access - are such an 

important component of enert\Y policy discourse. Just 15 years ago, the consensus view was that 

US oil and gas production would be in inexorable decline, and the US would be a growing importer 

of both fuels. However, upstream innovations have shifted the competitive landscape in global oil 

and natural gas markets, to the point where now the US is a growing supplier of oil and gas to 

global markets. This has been propelled by a robust, technically and commercially recoverable 

resource endowment in the US and the unique set of regulatory and market institutions that have 

promoted commercial development of infrastructure; each has conveyed significant benefit in the 

energy security domain and will carry a significant 21" century competitive advantage to US 

interests. This becomes even more salient when one considers the anticipated growth of emerging 

markets in developing Asia over the next 20 to 30 years. The sheer collective size of these markets 

-over 3 billion people in economies projected to grow in excess of 5% per year- will put steady 

pressure on supply lines for all fuels, meaning the US with its relative abundance of oil and gas is 

well-positioned to play an important role in shaping energy geopolitics for the next few decades. 

11 
19

Mr. POE. Thank you, Mr. Medlock. 

Mr. Carroll. 

STATEMENT OF MR. DAVID CARROLL, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, GAS TECHNOLOGY INSTITUTE 

Mr. CARROLL. Thank you. 

Chairman Poe, Ranking Member, Keating, members of the subcommittee, thanks for the opportunity to provide some testimony 

today. 

David Carroll, president of the Gas Technology Institute—a Chicago-based independent not-for-profit research organization that 

turns raw technology into meaningful high-impact energy solutions 

that benefit both the economy and the environment. 

And I have the current additional honor of serving as the president of the International Gas Union. My term wraps up next 

month as the U.S. prepares to host the World Gas Conference right 

here in Washington. 

As my colleague, Dr. Medlock, just indicated, while shale gas 

might seem like an overnight success to many, decades of research 

by GTI, the U.S. Department of Energy, and industry really provided the technical understanding needed to produce this abundant 

resource. 

And when GTI and Mitchell Energy back in 1991 completed the 

first horizontal well in the Barnett, the U.S. energy transformation 

had begun. 

So you fast forward to today, and oil and gas production from 

U.S. shale has become the world’s swing supply, arguably the biggest energy breakthrough in the last 50 years. 

The oil and gas sector generates $1.2 trillion in GDP and over 

9 million U.S. jobs. But a powerful impact of shale gas is the reduced prices to everyday consumers and families. 

Increased use of gas in electricity generation has reduced CO2 

emissions from the power sector by 27 percent. U.S. net energy imports have decreased from 30 percent of our total energy needs in 

2005 to about 7 percent last year. 

And with the expansion of domestic energy production from multiple sources including renewables in steady strides in energy efficiency, we are approaching energy independence. 

Shale gas has also enabled greater participation in the global gas 

market. Let me give you a few stats from IGU’s 2018 world LNG 

report, which is issuing next month. 

Global trade in LNG last year grew by 10 percent, or 35 million 

tons, as projects in Australia and the United States came online. 

China alone represented one-half of the global growth in LNG 

last year, as it shifts its energy mix toward natural gas and away 

from coal in its effort to fight air pollution. 

Qatar remains the world’s largest LNG exporter with about 30 

percent of the global market. Australia was second. The U.S. was 

sixth. 

There were over 90 million tons of liquefaction capacity that are 

under construction right now, but a third of that comes onstream 

this year in six countries, including Australia, the U.S., and Russia. 

20

So U.S. LNG now competes in a dynamic market with an increasing number of producers and consumers, and yes, we are now 

a major exporter. 

But our success is not assured. Our competitors are not standing 

still. They’re investing. They’re expanding. So we must make efforts to enhance productivity in upstream production and expand 

transportation networks and liquefaction processes to keep pace. 

A few comments about demand—about 70 percent of global demand in liquefied natural gas will occur in non-OECD countries. 

Let’s take India, for example, which has an ambitious goal of increasing gas in its energy mix from 6 percent today to 15 percent 

over the next 15 years. 

LNG imports are going to play a role, as will more domestic production, nationwide pipeline construction, and new city gas distribution networks. Helping India enhance its energy security, promoting its economic development, and improving the environment 

is in our interests as a country. 

Last June, President Trump and Prime Minister Modi announced 

the U.S.-India Strategic Energy Partnership, affirming the importance of our bilateral relationship. 

Secretary Perry recently travelled to New Delhi where he and 

Energy Minister Pradhan co-chaired the inaugural meeting of this 

partnership. 

As GTI’s CEO, I’ve been in India over three times in the last 18 

months and have executed MOUs with two institutions to train India’s expanding energy workforce. 

So these are, indeed, exciting times for natural gas in India, to 

use them as an example, now the world’s fourth largest importer 

of LNG. 

So, in conclusion, innovation in the natural gas sector affords opportunities to enhance our economy, create jobs, save consumers 

money, and engage in global trade. It’s bolstered by—it has bolstered our energy security and really given us the flexibility in 

dealing with strategic partners around the world. 

It’s important to remember that this success didn’t happen overnight, and it didn’t happen by accident. So sustaining our progress 

will require continued investments in research and infrastructure. 

Thank you for the opportunity to testify, and I look forward to 

your questions. 

[The prepared statement of Mr. Carroll follows:]

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gti. 

Testimony of 

David C. Carroll 

President and Chief Executive Officer 

Gas Technology Institute 

Before the 

Committee on Foreign Affairs 

Subcommittee on Terrorism, Nonproliferation and Trade 

U.S. House of Representatives 

May 22,2018 

"Geopolitics ofU.S. Oil and Gas Competitiveness" 
22


30173b-2.eps

Preface. Gas Ta::hno/ogy lnstitute(GTI) is an independent 501(c)(3) research organization, 

establishro as an Illinois not-for-profit corporation. GTI has a 75-year history that stems from 

two prroe::ess:Jr organizations--the Institute of Gas T a::hno/ ogy (I GT) establ i shoo in 1941 as an 

roucati on and research perfomi ng organization, and Gas Research Institute (GRJ ), creatro in 

1976 to manage a cooperative research and developrrent (R& 0) program on natural gas Basa:i 

on a !Htlerrent bfiwren FERC andthegasindustryin 1998, the traditional GRI RD&D 

program-and the mandatory funding to support i t-endro in 2004 Today GTI is a val untari I y 

funded organization de.ie/opi ng ta::hno/ogy-basa:i ro/ uti ons for consumers, industry, and 

gover nrrent. 

Chairman Poe, Ranking Member Keating, and Members of the Subcommittee, on behalf the 

employees of the Gas Technology Institute (GTT), T thank you for this opportunity to testify 

before you today regarding U.S. Oil and Gas Competitiveness and the Geopolitical Implications. 

My name is David Carroll, President and Chief Executive Officer at GTI. I oversee GTI's entire 

staff and operations, which focus on enhancing unconventional gas supply, energy conversion, 

natural gas delivery, and improved efficiency in end use markets. Prior to joining GTI in 2001, I 

held various technical and commercial positions in the global chemical industry with Air 

Products and Chemicals, Inc. and Praxair, Inc. 

GTI is a leading non-profit research, development, and training organization, and our mission is 

to tum raw technology into practical energy solutions that have meaningful impacts on the 

economy and the environment. We celebrated our 75th anniversary as an institute in 2016 and 

have spent the last seven decades creating innovative solutions to critical challenges along the 

entire gas value chain, improving the ways of producing, transporting, converting and using 

energy to benefit the general public. 

We cover a robust spectrum of initiatives. In addition to reducing the environmental footprint of 

shale gas production, which you'll hear more about, GTT's focus includes: 

Expanding the supply of natural gas and renewable energy 

Developing cleaner and renewable alternatives to petroleum-based transportation fuels 

and chemicals 

Enhancing the integrity of our nation's vast pipeline infrastructure 

Reducing methane emissions across the value chain 

Promoting energy efficiency by developing and demonstrating high-efficiency 

technologies 

Advancing clean, low-cost power production from all of our energy resources 

With more than 360 employees across the nation, Gil engineers and scientists are developing 

innovative new tools, technologies, and methodologies, and delivering science-based factual data 

that helps guide informed decision-making and enlightened policy development. 

Gil and its predecessor organizations, the Institute of Gas Technology (IGT) and the Gas 

Research Institute (GRI) have a storied history rich in meaningful Public-Private Partnerships on 
23


30173b-3.eps

various energy related topics, especially in the development of our country's unconventional oil 

and gas resources. 

1 currently have the additional honor of serving as President of the International Gas Union or 

IGU. This global association spans 91 countries, representing 97% of the world's production and 

use of natural gas. lGU is a non-profit based in Barcelona, Spain, and its member associations 

and companies are dedicated to enhancing the operational, technical and economic performance 

of the global gas industry and improving the quality of life for our fellow citizens through natural 

gas. The American Gas Association is the U.S. charter member of the IGU as are its global 

counterparts. 

IGU is the owner of the World Gas Conference, a massive triennial event that takes place next 

month at the Walter E. Washington Convention Center right here in Washington. This 

conference and exhibition has not been held in the U.S. since 1988, sol hope that you will have 

the opportunity to join thousands of energy professionals, government leaders and policy makers 

from around the world. 

U.S. Shale Development: Revolution or Evolution? 

While shale development seems like an overnight occurrence to most, decades of research 

underpin the technical understanding and complexities of producing this almost seemingly 

impermeable resource. GRI and DOE conducted a focused research program addressing 

fracturing and production of shale formations during the 1980s and 1990s, investing more than 

$100 million. 

Much of what now is considered seminal research was conducted in a series of field experiments 

that took place in eastern U.S. shales. Researchers from industry, national labs, and universities 

studied the data sets from empirical field tests of these wells and successfully built important 

fracture models and other innovations that have accelerated shale production over time. It is of 

interest to note that this research was criticized by much of industry at the time, with some large 

exploration and production companies describing the research as a "waste of money" Two men, 

former GRI President Dr. Henry Linden and George Mitchell, CEO of Mitchell Energy who 

served on the GRI Board of Directors at that time, fortunately did not share this sentiment. 

Mitchell expressed support for shale research, but recommended moving the research program to 

new geologic basins. In 1991 GRI worked with Mitchell Energy to drill the Stella Young well in 

the Barnett Shale in Texas- a horizontal well stimulated with new technology that produced 

three times more gas than any other well up to that time. This was a pivotal point in the U.S. 

shale gas evolution that transformed the energy industry. 

Impact of Upstream Development- Shale by the Numbers: 

In addition to the research and technology underpinning that occurred over decades, the U.S. has 

a unique alignment offactors that no other country in the world enjoys that has made shale 

development such an astounding success: 

Incredible, vast resource of brittle shale 

Mineral rights ownership by landowners 
24


30173b-4.eps

Great access to capital 

Tremendous pipeline infrastructure 

Robust service sector 

Entrepreneurial spirit of the independent producer 

Public policy that provides incentives for development 

Fast forward to today, oil and gas production from U.S. shale formations has become what most 

consider the world's "swing supply", a truly amazing success and likely the biggest energy 

breakthrough of the last 50 years. While the oil and gas sector is responsible for an estimated 

$1.2 trillion in GOP and 9.3 million U.S. jobs, one of the most meaningful and visible impacts of 

shale gas is lower utility bills for consumers, putting $1,372 back into the pockets of the average 

American family, according to a Perryman Group study. Since shale gas is used to heat homes 

and produce electricity, consumers are seeing the impacts in both natural gas and electricity bills. 

The increased use of natural gas in electricity generation has also produced significant reductions 

in C02 from the power sector- 27.8% from 2005 to 2017, according to ETA. 

Net energy imports have decreased from 30 Quadrillion Btus (Quads) in 2005- over 30% of our 

total energy needs in that year- to only 7.4 Quads in 2017 and just 7.6% of our domestic energy 

needs. With continued expansion of domestic energy production from multiple sources- natural 

gas, oil, biomass, wind, and solar- and steady strides in energy efficiency, we are heading closer 

to full net energy independence. 

Liquefied Natural Gas - Imports to Exports 

In addition to the myriad benefits to the U.S. economy, shale gas has given our country the 

opportunity to participate more broadly in the global gas trade, both through pipeline gas to 

Mexico and through exports of liquefied natural gas, or LNG, to more distant markets. 

At next month's World Gas Conference, lGU will release the latest edition of its much 

anticipated World LNG Report, which highlights recent trends and statistics in the global LNG 

market. I've provided below some excerpts from this report to give you a sense of the vibrancy 

of this global market in which the U.S. now vigorously competes. 

"International trade in liquefied natural gas (LNG) continues to be one of the most vibrant 

segments of the world's natural gas value chain, growing in 2017 by 35.2 million tonnes (MT), 

or 45.8 billion cubic meters, of natural gas, to 293.1 MT in global trade. That represents growth 

of over 10% and comes as projects in Australia and the U.S. bring new capacity on line and 

Asian markets continue to grow. China and South Korea led Asian growth with additional 

demand of 12.7 MT and 4.9 MT, respectively. China has focused on aggregate energy demand 

toward natural gas and away from coal in its fight against air pollution. 

In 2017, more traditional European trade patterns returned, including a move away from LNG reloading due to overall supply increases and stable demand. Spain, Italy, Portugal and France 

returned to more traditional LNG uptake. ln North America, Mexican imports of LNG were up, 

as additional low-cost U.S. shale gas imports were unavailable due to pipeline delays. Unlike 
25


30173b-5.eps

2016, the increases in world trade occurred without new major entrants to the world LNG 

market. 

Qatar continued to be the world's leading exporter of LNG, with 2017liquefaction reaching 81.0 

million tonnes per annum (MTPA), followed by Australia, Malaysia, Nigeria, Indonesia, and the 

U.S. Australia and the U.S. led in growth of exports by increases over 2016 of 11.9 MTPA and 

10.2 MTPA, respectively. There are 92 MTPA of liquefaction capacity under construction 

world-wide, and we expect about one-third to come online this year in far-reaching locations of 

Australia, Cameroon, Indonesia, Malaysia, Russia, and the United States. 

Thus far, the global market is absorbing new supply with minimal distortion, as new buyers and 

existing markets alike demonstrate a high need for natural gas to meet growing energy demand. 

The need for cleaner fuels that are available on-demand is a key part of this trend. Non-long-terrn 

trade (which includes "spot market" activity) increased yet again, reaching over 88 MT in 2017. 

U.S. shale gas continues to moderate North American natural gas prices through technology and 

efficiency improvements, which translates into lower U.S. feedstock costs. Global LNG prices 

have seen a rebound as dictated by the international supply/demand balance. Average Northeast 

Asian spot prices have increased $1.33/MMBtu from 2016 to 2017, and averaged $9.88/MMBtu 

in January 2018, which is the highest price point in three years. Incremental supply during 2018 

will impact the balance and may moderate prices." 

As you can see from the above, U.S LNG is participating in a fast growing, dynamic 

marketplace with an increasing number of producers and consumers. The U.S. is emerging as a 

major exporter and will solidify that position as additional liquefaction facilities come on line 

over the next couple of years. 

But our success as an exporter is not assured. It's a competitive market, and the competitors are 

not standing still, so continued efforts to enhance productivity and reduce costs in our upstream 

production, transportation network and liquefaction processes will be necessary to keep pace. 

U.S. LNG has its advantages, from relatively low cost supply, to flexible contracting and 

business models, to transparent pricing, to competent reliable producers with access to gas 

resources and capital. But we have some disadvantages also, not the least of which are higher 

transportation costs to the growth markets of Asia and Africa Again, diligent efforts to bring 

innovation to the LNG value chain will help the U.S. emerge as a leader in this attractive global 

market. 

India- A Strategic Partner Building a Gas Based Economy 

Now a few words about the global demand for gas. The International Energy Agency (lEA) 

expects roughly 70% of demand growth over the next twenty years to take place in non OECD 

countries. We're seeing this today, as developing countries in Asia, Africa and the Middle East 

look to fuel growing economies, sustain ever growing, urbanizing populations and address the 

acute problem of poor urban air quality. Natural gas is helping these economies meet these 

challenges effectively and in a way that doesn't break the bank 
26


30173b-6.eps

While the examples are many, let me focus on India to illustrate the important role of natural gas. 

Prime Minister Modi, Energy Minister Pradhan and other authorities have established a goal of 

increasing the share of gas in their direct energy mix from 6% to 15% over the next 15 years, a 

massive challenge in a growing economy. LNG will play a role in India's gas supply, as will 

enhanced domestic production, pipeline infrastructure development and city gas distribution 

network buildout. Helping India succeed in this initiative, enhancing their energy security, 

fueling their economic development all the while improving their environment is in the U.S. 

interests in many ways. 

Our government sees this clearly and has responded accordingly. In June of2017, President 

Trump and Prime Minister Modi announced the U.S.-India Strategic Energy Partnership (SEP), 

affirming the strategic importance of our bilateral relationship against the backdrop of one of the 

most critical and fundamental sectors: energy. Last month, Secretary Perry traveled to New 

Delhi where he and Petroleum Minister Pradhan co-chaired the inaugural meeting of the USIndia Strategic Energy Partnership. SEP has four primary pillars, including one on oil and natural 

gas, and the goals are simple, yet aspirational: universal energy access, strengthened energy 

security and increased energy efficiency. The Partnership will create opportunities for advancing 

favorable policies and commercial sector investment in their emerging gas market. While India's 

goals and ambitions are bold, they lack much of the necessary infrastructure to bring gas into the 

country, and to distribute it throughout India. The Partnership should help. 

GTI has similarly responded to help India build its capacity to embrace natural gas. As GTI's 

CEO I've been in India three times over the last 18 months, meeting with government and 

industry leaders to explore areas of potential cooperation. Earlier this month, GTI signed 

Memoranda of Understanding to formerly cooperate with two institutions, Pandit Deendayal 

Petroleum University (PDPU) and LNG importer Petrone! LNG, Ltd. Much of our early focus 

will be to train and develop India's energy workforce, from engineering students, to plant 

operators and technicians, to mid-career technical and management professionals. Under the 

Prime Minister Modi's leadership, these are exciting times for natural gas in India. 

lt' s interesting to note that while I was India three weeks ago, a shipment of LNG exited the 

Cove Point, Maryland LNG facility enroute to Petrone!' s receiving tenninal in Dahej Tenninal. 

India is now the world's fourth largest LNG importer and growing, behind only Japan, China and 

South Korea. The future is bright for LNG, and natural gas more broadly, in India. The U.S. 

should continue its efforts to support the development of energy supply, infrastructure, and 

markets of this important strategic partner. 

How Do We Expand our Competitive Position and Expand our Global Reach 

In the past decade, the U.S. has gone from high oil and gas prices, scarcity and planned import 

tenninals to sustained low prices, I 00+ year supplies and an increasing number of export 

facilities. U.S. shale development has turned the energy landscape upside down. 

As we examine the global energy landscape, the U.S. has two things that separate us from 

everyone else: abundant natural resources and a robust infrastructure. We are fortunate enough to 
27


30173b-7.eps

have 2.5 million miles of pipelines that deliver these critical assets across the country. 

However, the U.S. is not the lowest cost exporting producer of natural gas even with our 

expansive shale reserves, and only better recovery factors through continued technology 

advancement can change this paradigm. The most proven path to broadly enhance results in the 

subsurface is via Public-Private Partnerships, as demonstrated in the following example. 

The Permian Project: GTI's Hydraulic Fracturing Test Site (HFTS): 

Our goal is simple- substantially advance the hydraulic fracturing process to optimize well 

spacing so that fewer wells are needed to effectively improve resource recovery and reduce the 

environmental footprint of production. 

The problem is multifaceted- subsurface completion science has the greatest uncertainty and 

variability of the shale development process. Yet, even as hydraulic fracturing is in wide use, it 

continues to be a complex and controversial process with many variables that affect the locations at 

which the fractures propagate, their dimensions, and their ability to enhance production of 

hydrocarbons. The actual internal architectures of the fractures created along the horizontal holes 

that are drilled during each stage are not well understood. While we know that the fractures form a 

complex three-dimensional pattern, direct and reliable data is still needed about the size, shape, and 

distance of hydraulic fracturing propagation. 

Solving this complicated problem requires input from scientific, engineering, and operating subject 

matter experts from across the industry (operators and service providers), universities, national 

laboratories, and other research institutes, and the only realistic way to do this is via a PublicPrivate Partnership. So with the assistance of a cooperative agreement in the amount of $7. 4MM 

from U.S. DOE Fossil Energy, GTI was able to attract: 

A host site partner in Laredo Petroleum that provided an eleven horizontal well test bed in 

the Permian, pertinent micro-seismic and other background data with an approximate value 

of$100MM, and approximately 25 engineers and operations staff for the experiment. 

A Joint Industry Partnership (JIP) of service companies, independent producers, and 

integrated majors that sponsored the additional $16MM of research work and also provided 

subject matter experts to technically contribute to the program. (JIP participants are 

Chevron, ConocoPhillips, Core Laboratories, Devon, Discovery Natural Resources, 

Encana, Energen, ExxonMobil, Halliburton, Shell, and TOTAL.) 

A team ofleading researchers at the University of Texas (UT) Petroleum Engineering 

Department, at the UT Bureau of Economic Geology, and at the National Energy Testing 

Laboratory. 

The key differentiator of this field experiment is the 600 feet of unique core that was obtained 

by drilling a one-of-a-kind core well through created hydraulic fractures at the test site. 

Extracting core of this magnitude is an expensive and risky undertaking, but all participants agreed 

in advance that this ground truth evidence is paramount to understanding fractures, validating and 

developing models, and to consider if and how big data and predictive analytics can improve the 

process. 
28


30173b-8.eps

The analysis offracture properties as impacted by reservoir rock conditions will help researchers 

develop a cause-and-effect relationship between fracturing parameters and reservoir rock to 

measure the consequences offracturing-results that can be applied to other locations and plays. 

Important data about subsurface fracture propagation and proppant transport dynamics will lead to 

the design of optimal fracture treatments and, ultimately, ideal well spacing. Many of the findings 

will likely be transferrable to other basins, but shale is a heterogeneous resource so much more 

work needs to be done. 

Conclusion: 

In conclusion, innovation in the natural gas sector over the last couple of decades has given our 

nation tremendous opportunities to enhance the competitiveness of our economy, create jobs, 

save consumers money and engage more broadly in global trade. Developing this abundant 

domestic resource has enhanced our nation's energy security and provided more t1exibility in 

dealing with strategic partners around the world. 

It's important to remember that this success in natural gas didn't happen overnight and it didn't 

happen by accident. And sustaining our progress will require continued investments in research 

to enhance well productivity, reduce costs and minimize the overall environmental impacts of 

production, transportation and use. We also need continued investments in pipeline infrastructure 

to get this affordable, cleaner energy to market. 

There are many stakeholders in the natural gas space: employees, customers, consumers, 

investors, national and local governments, regulators, environmental groups and others. Our 

industry is working hard to constructively engage these stakeholder groups to stress the benefits 

from gas that accrue to our broader economy. Reinforcement of these benefits by our national 

leaders and policy makers to stakeholders of all demographics would help ensure that we realize 

the full economic, strategic and environmental benefits of natural gas for decades to come. 

Thank you for the opportunity to provide this testimony. 

David C. Carroll 

President and CEO, GTI 
29

Mr. POE. Thank you, Mr. Carroll. 

Ms. Ladislaw. 

STATEMENT OF MS. SARAH LADISLAW, DIRECTOR AND SENIOR FELLOW, ENERGY AND NATIONAL SECURITY PROGRAM, 

CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES 

Ms. LADISLAW. Thank you. 

Good afternoon, Chairman Poe, Ranking Member Keating, and 

members of the subcommittee. It’s my pleasure to be here and to 

talk with you today about the geopolitics of U.S. oil and gas competitiveness. 

My remarks and testimony represent my views and not my colleagues and my institution. 

As has been stated, the United States has experienced an oil and 

natural gas production renaissance that has changed the domestic 

and global energy landscape in some really important ways. 

The most direct linkage between U.S. oil and gas competitiveness 

and geopolitics is the contribution it makes to global and U.S. energy security. 

First, it provides additional supply to a previously tight market; 

second, U.S. tight oil adds a new kind of supply to the market that 

takes months rather than years to ramp up and can serve as a relief valve when markets are tight; third, the new oil and gas supply 

source has added a sense of resource optimism to the market. 

Today, producers, consumers, and investors understand that 

given the right price environment and investment conditions, new 

oil and gas supplies can be brought to market. 

The U.S. oil and natural gas supply surge is also good for the 

U.S. economy and national security, as has also been mentioned. 

Oil and gas production in the United States is an important 

source of job creation, economic growth, has provided crucial stimulus to the economy during the post-Great Recession period, and 

improves our balance of trade. 

The benefits of U.S. oil and gas competitiveness should not, however, obscure the risks that still exist to U.S. energy security. Despite the rising level of exports, the United States still imports a 

good deal of oil and natural gas. 

As we approach a new hurricane season, it’s important not to forget the oil, gas, and electricity supply disruptions that resulted 

from Hurricanes Harvey and Irma in 2017. 

Finally, even the abundant supply of domestic oil and natural 

gas is not a direct proxy for security. Delivery systems are needed 

to get resources from the point of production to the point of consumption, and in many cases, we experience bottlenecks in that 

part of the energy system. 

The U.S. oil and gas supply renaissance is also a good news story 

for the places where energy intersects with geopolitics. 

First, as I noted in my June 27 testimony to the House Foreign 

Affairs Subcommittee on the Western Hemisphere, North America 

is now one of the most energy-advantaged regions in the whole 

planet. 

The energy resources contained in Canada, Mexico, and the 

United States are second to none, and when combined with the region’s stable legal system, liberalized trading environment, crossVerDate 0ct 09 2002 14:53 Jun 19, 2018 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 F:\WORK\_TNT\052218\30173 SHIRL
30

border infrastructure, high-tech industries, and educated and competitive labor force, it’s hard to match in terms of its potential. 

It’s important to look at the U.S. relationship with Canada and 

Mexico as an opportunity to build on these natural advantages. 

Second, U.S. oil and gas can add to the diversity of supply available to other countries in helpful ways. One key example is the additional supplies made available to Europe. 

The availability of additional supply sources was part of the 

equation that led to the capture of—excuse me, the departure of oil 

index pricing and long-term gas contracts in Europe. 

As my colleague at CSIS has recently written, this does not mean 

Europe is less dependent on Russia for its gas supplies necessarily. 

In 2017, Europe actually increased gas imports from Russia, along 

with other countries. 

The additional import options and availability of global supplies 

are, of course, good for Europe’s gas supply security, but, has not 

in reality lessened the energy ties between Europe and Russia, nor 

has it fundamentally changed the geopolitical dynamics within the 

region with regard to Ukraine. 

Third, major oil-producing economies like Saudi Arabia, Russia, 

and other members of the Organization of Petroleum Exporting 

Countries, or OPEC, have had to reevaluate a number of oil market and geopolitical factors as it relates to U.S. tight oil production. 

First, the oil price drop in 2014 that resulted from a variety of 

factors, including the rapid onset of U.S. oil supply growth and subsequent period of low prices caused OPEC to reevaluate its position 

within the market, both in 2014 and again in 2016. 

In order to be effective, Saudi Arabia, as the leader of OPEC, 

struck up an alliance with Russia and several other non-OPEC 

countries to withhold oil supply from the market in order to stabilize prices until markets came to rebalance. 

It’s unclear how deep and abiding the alliance between Russia 

and Saudi Arabia is beyond their current market management arrangement. 

But the relationship has been accompanied by a deepening of 

Russian diplomatic and investment activity throughout the Middle 

East. 

The second effect on major supplying countries is the area of economic planning and diversification. The most notable example of 

this is the economic and social reform plan launched in 2016 called 

Saudi Vision 2030. 

Through this plan, Saudi Arabia intends to revamp its domestic 

economy to rely less on oil and diversify its income sources. 

Leaving the challenges of implementing this vision aside, it’s important to note that many countries that depend on oil-derived revenue to fund their governments have taken steps to insulate their 

economies from periods of sustained low prices. 

This, of course, has been done in the face of low oil prices. So the 

sustainability of those reforms may be in question when prices rise 

again, but the reforms were a direct result of the oil price drop 

brought on by U.S. supply. 

Notably, countries like Venezuela, once among the largest and 

most successful oil-producing countries in the world, have suffered 

a great deal under the pressure of low oil prices after years of neVerDate 0ct 09 2002 14:53 Jun 19, 2018 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 F:\WORK\_TNT\052218\30173 SHIRL
31

glect and mismanagement under the current and previous leadership. 

One often hears it asserted that the increased production of U.S. 

oil and gas has served to lessen U.S. reliance or entanglement in 

the Middle East. In fact, this has hardly been the case. 

The perceived U.S. withdrawal from the Middle East was 

sparked by a desire to draw down in the wartime posture of the 

Middle East and shift the strategic focus to striking a security balance in Asia. 

The U.S. is no freer from entanglements in the Middle East than 

it was before the onset of U.S. oil and gas supply revolution, 

though it is less concerned about energy security thanks to the low 

oil price environment of the last several years. 

Following the release and announcement of the U.S. intention to 

withdraw from the Joint Comprehensive Plan of Action—the Iran 

agreement—the Trump administration showed that the U.S. still 

relies on Middle East oil supplies to help guarantee price stability 

in the region. 

As I have written in other publications, energy and foreign policy 

are often inextricably intertwined. But the ability for policymakers 

to use very—to use energy resources as tools of targeted foreign 

policy leverage or even energy dominance is misguided. 

I will be happy to take any questions. 

[The prepared statement of Ms. Ladislaw follows:]

32


30173c-1.eps

SIRAitGIC & 

"'"'"""'T"'"' SilJ!lltS 

Statement Before the 

House Affairs 

Subcommittee on 

Director and Senior 

Center tor 

Nonproliferation, and Trade 

A Testimony by: 

Sarah Ladislaw 

and National Security l'rrocrrC~m 

and International Studies 

2018 

2200 Raybum House Office Building 
33


30173c-2.eps

Ladislaw: Written Testimony, HFAC TNT Subcommittee 05/22/2018 2 

Good morning Chairman Poe, Ranking Member Keating and members of the subcommittee. It is 

my pleasure to be here today to speak with you about the Geopolitics of U.S Oil and Gas 

Competitiveness. My name is Sarah Ladislaw and I direct the Energy and National Security 

Program at the Center for Strategic and International Studies (CSIS). CSIS is a bipartisan, 

nonprofit organization headquartered in Washington, D.C. The C SIS Energy and National Security 

Program provides strategic insights and policy solutions related to the dynamic and changing 

global energy landscape. My remarks and written testimony represent my views and not the views 

of my colleagues or CSIS as an institution. 

The United States has experienced an oil and natural gas production renaissance that has changed 

the domestic and global energy landscape in some important ways. Today, U.S. production of oil 

and natural gas are at or above historical levels. According to the Energy Tnfonmation 

Administration (EIA), U.S crude oil production averaged 10.5 million barrels per day in April 

2018 and U.S. natural gas production averaged 85.75 billion cubic feet per day in the same month. 1 

Taking into account oil, natural gas, and hydrocarbon gas liquids, the United States is the largest 

hydrocarbon producer in the world- larger than Russia or Saudi Arabia- and for the last several 

years the U.S. has been the premier destination for oil and gas investment, attracting billions of 

dollars in exploration, production and refining of oil, natural gas, and hydrocarbon gas liquids. 

The United States is exporting more crude oil, oil-derived products, and natural gas than ever 

before and is poised to be a net exporter of energy by 2022, under certain assumptions. Crude oil 

exports from the United States averaged over 1 million barrels per day in 2017, while finished 

product and liquid exports averaged over 5 million barrels per day, and natural gas exports were 

over 3 trillion cubic feet in 2017. 

The most direct linkage between U.S. oil and gas competitiveness and geopolitics is the 

contribution it makes to global and U.S. energy security.1n this regard, U.S. oil and gas production 

provides some significant benefits and augments global energy security in at least three important 

ways. First, it provides additional supply to a global market that had been tight for several years 

as global oil producers raced to keep up with growing Chinese oil demand. ln 2008, U.S. crude 

oil production stood at around 5 million barrels per day compared to the 10.7 million barrels per 

day average production level expected for 2018, just 10 years later 2 This is the largest increment 

of oil production growth ever and its volume is equivalent to the production of the second largest 

country in OPEC. The addition of almost 6 million barrels per day of crude oil production is a 

small but important part of the global crude market that today is about 81 million barrels per day3 

Second, US. tight oil adds a new kind of oil supply to the market that takes months, rather than 

years to ramp up from investment to production. This so-called short cycle oil has the potential to 

serve as a relief valve when markets are tight, with the ability to bring new supplies to market 

much more quicldy than in years past. 
34


30173c-3.eps

Ladislaw: Written Testimony, HFAC TNT Subcommittee 05/22/2018 

Third, the new oil and gas supply source has added a sense of resource optimism to the market. 

Broadly speaking, the advent of tight oil and shale gas development has ushered in an era of 

perceived resource abundance. Today, producers, consumers, and investors understand that given 

the right price environment and investment conditions, new oil and gas supplies can and will be 

brought to market. This is happening at the same time that altematives to oil and gas are also 

growing more cost-competitive. The net result has been an energy market that is much more 

competitive for energy producers with a great deal more variety and options for consumers. 

The U.S. oil and natural gas supply surge is also good for the U.S. economy and national security. 

First, oil and gas production in the United States is an important source of job creation. Oil and 

gas production has made important contributions to economic growth and provided crucial 

stimulus to the economy during the post-Great Recession period. As noted earlier, it has 

encouraged investment in low-cost oil and gas as both a final product and as feedstock for refining 

and petrochemical ventures. Finally, increasing exports and declining imports of oil and gas has 

served to improve the U.S. trade balance. On national security grounds, while the United States 

still faces significant energy vulnerabilities, it is arguably more energy secure today than it was a 

decade ago because of the oil and gas supply abundance within the U.S border. 

The benefits of U.S. oil and gas competitiveness should not, however, obscure the risks that still 

exist to U.S. energy security. Despite the rising level of exports, the United States still imports a 

good deal of oil and natural gas. In fact, the U.S. is more engaged in global oil trade today on a 

gross basis than ever. This means the US economy continues to experience the impact of oil price 

changes, just in increasingly complex ways. In addition to price shocks, the United States is still 

vulnerable to oil and gas supply disruptions. As we approach a new hurricane season it is 

important not to forget the oil, gas and electricity supply disruptions that resulted from Hurricanes 

Harvey and Irma in 2017 Hurricane Harvey reduced gross inputs to Gulf Coast retlners by 3.2 

million barrels per day, while Hurricane Irma cut power to nearly two thirds of Florida's electricity 

customers and led to higher gasoline prices. Nearly 22,000 people are still without power in Puerto 

Rico to this day. 

Finally, even the abundant supply of domestic oil and natural gas is not a direct proxy for security 

- delivery systems are needed to get resources from the point of production to the point of 

consumption. Logistical bottlenecks in pipeline contracting, sighting, permitting, and construction 

continues to impede rapidly growing oil and gas production in the Permian Basin in Texas from 

reaching end markets. While this bottleneck is temporary, it once again illustrates the strategic 

importance of midstream and delivery infrastructure towards realizing the full commercial and 

strategic value of these resources. 

The US oil and gas supply renaissance is also a good news story for the places where energy 

intersects with geopolitics. First, as I noted in my June 2017 testimony to the House Foreign 
35


30173c-4.eps

Ladislaw: Written Testimony, HFAC TNT Subcommittee 05/22/2018 4 

Atiairs Subcommittee on the Western Hemisphere, North America is now one of the most energyadvantaged regions on the planet" The energy resources (oil, natural gas, coal, nuclear, wind, 

solar, and biomass) contained in Canada, Mexico, and the United States are second to none, and 

when combined with the region's stable legal system, liberalized trading environment, crossborder infrastructure, high-tech industries, and educated and competitive labor force, it is hard to 

match in terms of potential. It is important to look to the U.S. relationship with Canada and Mexico 

as an opportunity to build upon these natural advantages. 

Second, US. oil and gas supply can add to the diversity of supply available to other countries in 

helptul ways. One key example is the impact of additional gas supplies available to Europe. The 

availability of additional supply sources was part of the equation that led to a departure of oilindexed pricing in long-term gas supply contracts in Europe. As my colleague Nikos Tsafos has 

recently written, this does not mean Europe is less dependent on Russia for its gas supplies5 In 

2017, Europe actually increased gas imports from Russia along with other countries. The 

additional import options and availability of global supplies are of course good for Europe's gas 

supply security but has not in reality lessened the energy ties between Europe and Russia, nor has 

it fundamentally changed the geopolitical dynamics within the region with regard to Ukraine. 

Third, major oil producing countries like Saudi Arabia, Russia, and other members of the 

Organization of Petroleum Exporting Countries (OPEC) have had to reevaluate a number of oil 

market and geopolitical factors as it relates to US. tight oil production. First, the oil price drop in 

2014 that resulted from a variety offactors including the rapid onset of U.S. oil supply groW1h and 

subsequent period of low prices, caused OPEC to reevaluate its position within the market both in 

2014 and again in 2016. In order to be effective, Saudi Arabia, as the leader of OPEC, struck up 

an alliance with Russia and several other non-OPEC countries to withhold oil supplies from the 

market in order to stabilize prices until markets came into rebalance. lt is unclear how deep and 

abiding the alliance between Russia and Saudi Arabia is beyond their current market management 

arrangement, but the relationship has been accompanied by a deepening ofRussian diplomatic and 

investment activity throughout the Middle East The second effect on major oil supplying countries 

is in the area of economic planning and diversification. The most notable example of this is the 

economic and social reform plan launched in 2016 called Saudi Vision 2030. Through this plan, 

Saudi Arabia intends to revamp its domestic economy to rely less on oil and diversify its sources 

of income. Leaving the challenges of implementing this vision aside, it is important to note that 

many countries that depend on oil-derived revenue to fund their government have taken steps to 

insulate their economies from periods of sustained low prices. This of course has been done in the 

4 Ladislaw. Sarah ... Energy Opportunities in North America.·' Statement before House Foreign Affairs 

Subcommittee on \Vest em Hemisphere.() June 2017. https://csis-prod.s3.amazona\vs.com/s3fspublic/congrcssional_ testimony its 170607 _ Ladislaw _testimony_ HF A C. pdf"/o3FVhT cpJ7pb3NmBbAmfyv03 Y acJ g4 

B6cqL 

5 Tsafos. Nikos. ""Europe Turns to Russia. and Elsewhere, to Meet Rising Gas Demand in 2017.'" 18 January 2018. 

https:/ /n'\nv .csis.org/analysis/curopc-turns-mssia-and-clsc"\vhcrc-meet -rising-gas-demand -2017 
36


30173c-5.eps

Ladislaw: Written Testimony, HFAC TNT Subcommittee 05/22/2018 

face of low oil prices so the sustainability of the reforms may be in question when prices rise again, 

but the reforms were a direct a result of the oil price drop brought on by U.S. oil supply. Notably, 

countries like Venezuela, once among the largest and most successful oil producing countries in 

the world, have suffered a great deal under the pressure of lower oil prices after years of neglect 

and mismanagement under the current and previous leadership. 

One often hears it asserted that the increased production of U.S. oil and gas has served to lessen 

US. reliance or entanglement in the Middle East Tn fact, this has hardly been the case. The 

perceived US. withdrawal from the Middle East was sparked by a desire to draw down the wartime 

posture in the Middle East and shift strategic focus to striking a security balance in Asia. The US. 

is no freer of entanglements in the Middle East than it was before the onset of the U.S. oil and gas 

supply revolution, though it is less concerned about energy security thanks to the low oil prices of 

the last several years. Following the recent announcement of the US. intention to withdraw from 

the Joint Comprehensive Plan of Action (Iran Agreement), the Trump administration showed that 

the US. still relies on Middle East oil suppliers to help guarantee global price stability in the face 

of sup pi y disruptions. 

As I have written in other publications, energy and foreign policy are often inextricably intertwined, 

but the ability for policymakers to use energy resources as a tool of targeted foreign policy leverage, 

or even dominance, is misguided. Very rarely do energy resources alone matter enough to override 

the many economic, political, security and philosophical disputes that underpin relations between 

and among countries. Energy can certainly be used as one tool among many to implement a 

strategy to influence another actor's behavior. Indeed, energy is one of the sectors targeted in our 

many sanctions regimes against North Korea, Iran, Russia and Venezuela (even when done 

through financial sanctions). But in each of those cases, the sanctioning of energy investments or 

resources as part of a broader strategy has yielded mixed and inconclusive results to the crises or 

stand-offs we face in each country. The US. has, however, likely felt freer to sanction other 

countries with significant enert,'Y resources without feeling economic harm in a period of low 

prices and oversupplied markets. 

I recently wrote about some strategies and recommendations for the U.S. to make the most of its 

energy-advantaged position and use US. oil and gas competitiveness to the betterment of the US. 

and global market. 6 First, the United States should continue to support longstanding institutions 

and arrangements that have served it well over the last several decades. Free trade in energy goods 

and services is much more in the United States' long-term interest than a purely mercantilist 

approach to energy deals. It is important to recognize that the United States has a fair number of 

energy vulnerabilities- related to oil and gas supply disruptions, physical infrastructure protection, 

and cyber threats. The United States can only be strong if we continue to invest in, and protect 

6 Portions of this testimony hmc been taken from an earlier article Ladislm'·- Sarah. '·Dissecting the Idea of U.S. 

Energy Dominance:· Oxford Energy Forum. Issue II L November 2017. Oxford Institute for Energy Studies. 

https:/ /n'\nv .oxfordcncrgy .orghvpcms/wp-contcnt/uploads/20 18/0 1/0EF -111. pdf 
37


30173c-6.eps

Ladislaw: Written Testimony, HFAC TNT Subcommittee 05/22/2018 6 

against, those disruptions. The government should think about resilience to physical disruptions 

like the hurricanes experienced earlier this year. It should contemplate the value of not only its 

Strategic Petroleum Reserve but of the global system of strategic stocks. Finally, it should devise 

a strategy for an energy sector that is becoming more and more dependent on digital controls and 

sensors in the age of cyber warfare. 

Second, a truly 'all ofthe above' approach is warranted if the United States wants to use energy to 

drive economic growth, job creation, and international competitiveness. The U.S oil and gas 

supply surge may get a lot of attention, but the growth in jobs and America's real competitive 

advantage exists in renewables and other advanced technologies as well. The United States would 

do well to avoid the promotion of only a certain set of fuels and technologies over others. 

Developing economies in particular are interested in not only fossil-based energy resources but in 

distributed solar, wind, storage, microgrids, and a suite of other technologies and services that U.S. 

companies have to offer. 

Third, it is important to understand the value of energy diplomacy. The United States undoubtedly 

has an energy advantage at its finger tips that can and should be harnessed as much as possible, 

but it would be a critical mistake to overestimate how much that advantage can be wielded over 

other countries, or to believe that bilateral trade deals in energy are more important than the 

fundamental underpinnings of existing trade policy and decades of energy diplomacy in which the 

US. negotiated with other countries using energy as a political tool rather than as a weapon. 

The U.S. oil and gas supply revolution has showed us that the more things change the more they 

stay the same. The U.S. has more economic and security benefits as a result of the increased supply 

provided by tight oil and shale gas, but it is certainly no panacea for a geopolitically turbulent 

world to which we are still very much connected. 
38

Mr. POE. Ms. Gross. 

STATEMENT OF MS. SAMANTHA GROSS, FELLOW, CROSSBROOKINGS INITIATIVE ON ENERGY AND CLIMATE, THE 

BROOKINGS INSTITUTION 

Ms. GROSS. Thank you to Chairman Poe, to Ranking Member 

Keating, for the invitation to testify today. I am Samantha Gross. 

I am a fellow at the Brookings Institution in foreign policy, and 

my work focusses on energy and environmental geopolitics. 

As everyone here has said today, the renaissance in U.S. oil and 

natural gas production over the past decade has been nothing short 

of remarkable. 

Technological advances unlocked new resources and in 2013 

made the U.S. the world’s leading producer of petroleum hydrocarbons. 

We talk now about peak oil demand, whereas not that long ago 

in my career we were all focussed on peak oil supply and whether 

we were going to run out of oil. A big part of that change in attitude has been the change in U.S. production. 

Nonetheless, we still import millions of barrels of oil each day at 

prices set on the global market based on global trends. The United 

States is not influenced by the ups and downs of global oil prices 

and how they react to world events. 

For example, today’s prices at the pump reflect the upcoming reimposition of sanctions on Iran and also Venezuela’s plummeting 

oil production. 

Even though we are still a significant net oil importer, growing 

U.S. oil production has changed the balance of power in the global 

oil market. 

For example, as others have talked about, crude oil prices took 

a nosedive in late 2014. The average oil price in 2015 and 2016 was 

less than half of what it had been for the previous 4 years. 

OPEC finally decided to act at the end of 2016 to reduce its production and try to push up prices. But in an unprecedented move, 

it teemed up with Russia to make this happen—a signal of OPEC’s 

declining power and also of the supply glut that growing U.S. production had created. 

Unlike for oil, the U.S. is a net exporter of natural gas and has 

been the world’s largest gas producer since 2009. A greater U.S. influence is really more likely to be a gas story than an oil story. 

For one reason, natural gas trade differs in important ways from 

trade in oil. Gas is more difficult to transport and to store, and so 

expensive infrastructure and long-term contracts also often tie buyers and sellers together. 

This less liquid market means that gas sometimes can be more 

political, as we see in Russian gas trade and the fact that they 

sometimes have Europe over a barrel with gas pipelines. 

Another important reason for the greater influence of gas is that 

the world is shifting toward natural gas as a preferred fuel. Natural gas has the lowest carbon emissions of any fossil fuel, creates 

much lower local air pollution than coal, and is a natural partner 

to renewables in power production since gas-fired power can start 

up and ramp up and down very quickly in response to changes in 

renewable energy production and demand. 

39

This global shift toward gas plays into the U.S. strength in natural gas production and can also help move the world toward a 

lower carbon energy system. 

Mexico is, today, the largest consumer of U.S. natural gas and 

we now, as a result of this trade, have an energy trade surplus 

with Mexico. 

Last year, the value of energy exports to Mexico were more than 

twice the value of energy imports from Mexico. 

As others have mentioned, U.S. LNG is also a supply source that 

could somewhat reduce Europe’s dependence on natural gas from 

Russia. 

Today, U.S. LNG supply is just getting warmed up, and exports 

to Europe right now are quite small. But the promise of more supply to come, not just from the United States but from others as 

well, gives Europe a bit more leverage with Russia in terms of natural gas supply. 

The U.S. is now a crucial source of global oil and gas supply. But 

in the middle of this talk about our energy influence, I want us to 

keep one important thing in mind, and that is that the U.S. energy 

industry is not structured to use its production toward geopolitical 

ends. 

Unlike the national companies, oil companies of OPEC, the U.S. 

industry is made up of dozens of companies that make individual 

investment and production decisions based on profits, not on policy. 

The U.S. supply of price-responsive nonpolitical oil and gas contributes to well-functioning global energy markets and reduces the 

influence of those who want to use their oil and gas supply toward 

political ends, and this provides a benefit to energy consumers everywhere. 

But oil and gas companies generally aren’t tools of U.S. foreign 

policy. We also must remember that the Unites States is a major 

oil and gas consumer as well as a producer, particularly for oil. 

Our energy security depends on the global market. Supply disruptions, as Sarah pointed out, don’t just happen abroad. Hurricanes and floods have brought serious disruptions in our domestic 

energy supply. 

Our interconnections with the world and our variety of suppliers 

are key to U.S. energy security, a source of strength and resilience 

rather than of weakness. 

This concludes my prepared remarks, but I look forward to your 

questions. Thank you. 

[The prepared statement of Ms. Gross follows:]

40


30173d-1.eps

Testimony of Samantha Gross1 

Fellow, Cross-Brookings Initiative on Energy and Climate, Brookings Institution 

U.S. House of Representatives Committee on Foreign Affairs 

Subcommittee on Terrorism, Nonproliferation, and Trade 

Geopolitical Implications of U.S. Oil and Gas Competitiveness in the Global Market 

May 22,2018 

Subcommittee Chair Poe, Ranking Member Keating, and members of the subcommittee, thank 

you for the invitation to testify today about how growing U.S. oil and gas production affects 

energy security and trade. 

The renaissance in U.S. oil and gas production over the past decade has been nothing short of 

remarkable. Technological advances unlocked new resources and brought about significant 

changes in global energy markets. However, we must remember that the United States is a 

major oil and gas consumer as well. Particularly for oil, our energy security depends on a global 

market with prices set based on global market conditions. Supply disruptions do not only 

happen abroad-hurricanes and floods have brought about large disruptions in domestic 

energy supply. Our interconnections with the world are key to our energy security-a source of 

strength and resilience, rather than weakness. 

The New Energy Abundance 

As recently as the mid-2000s, when you heard talk of "peak oil," that meant peak oil supplythe idea that the world was running out of oil. Today that phrase generally means peak oil 

demand, as new technology, greater efficiency, and concerns about climate change are 

beginning to move the transportation sector away from oil as a primary fuel. At the same time, 

advances in oil and gas extraction technology here in the United States have brought online 

entirely new sources of supply. The combination of long-lateral horizontal wells and hydraulic 

fracturing led to oil and gas production from resources that had never been economic before. 

Today we recognize that the oil age won't end because the world ran out of oil. 

U.S. oil and gas production has grown tremendously over the last decade. The United States 

became the world's largest producer of petroleum hydrocarbons in 2013 and has been the 

world's largest producer of natural gas since 2009. In crude oil production, the United States is 

in a dead heat with Russia and Saudi Arabia to lead the world. 

1 The views expressed in this statement are my own and do not necessarily reflect those of staff 

members1 officers, or trustees of the Brookings Institution. 

1 
41


30173d-2.eps

U.S. Crude Oil Supply and Demand U.S. Natura! Gas Supply and Demand 

Data Source: U.S. Energy Information Administration 

The boom in U.S. oil and natural gas production has brought clear economic benefits, improving 

our balance oftrade and industrial competitiveness, especially in certain industries. For 

example, the United States is now one of the world's most attractive locations for 

petrochemical investments, an unthinkable prospect a decade ago. 

Even though it is now the among the world's leading oil producers, the United States still 

imports about 10 million barrels of oil each day. Thus, the United States is not insulated from 

the ups and downs of the oil price and its reaction to global events. For example, gasoline prices 

at the pump today reflect the upcoming re-imposition of sanctions on Iran and Venezuela's 

plummeting oil production. 

Recent events demonstrate how the age of abundance and growing U.S. production are 

changing the balance of power in oil markets. Oil prices stayed above $80 per barrel for four 

years in 2010 to 2014, an exceptional run of high prices. However, expanding supply caught up 

with high oil prices and they declined rapidly in late 2014, sinking to as low as $30 per barrel by 

February of 2016. 

2 
42


30173d-3.eps

1&'1 

14ll 

~ 120 

'~ 100 

~ 80 

.§ no 

g 40 

Crude Oil Spot Price 

{WTI at Cushing, OK) 

Data Source: U.S. Energy Information Administration 

OPEC maintained steady production through the early years of the price collapse. Some argue 

that OPEC was trying to push U.S. producers out of business by keeping prices low for an 

extended time; others believe it was more focused on maintaining market share in a wellsupplied market. Either way, U.S. producers focused on efficiency and cost reduction and 

weathered the low-price storm. U.S. production dipped only slightly in 2016 when prices 

bottomed out. 

OPEC changed its strategy at the end of 2016. In an unprecedented move, OPEC teamed up 

with Russia and a few other oil producers to cut production in an attempt to raise prices and 

reduce global oil inventories. This strategy was effective and oil prices have risen over the last 

year and a half. But the need for OPEC to bring Russia into the fold to increase its leverage 

demonstrates just how much the world has changed. OPEC and Russia have extended their 

agreement through the end of 2018, but it remains to be seen how long this partnership will 

hold. 

Although growing U.S. oil production has changed the balance of power in oil markets, the U.S. 

industry is not structured to use its production toward geopolitical ends. Unlike the national oil 

companies of OPEC, the U.S. industry is made up of dozens of companies that make individual 

investment and production decisions based on their own costs, financial positions, and 

appetites for risk. The OPEC producers can work together to move oil prices, an action that 

would be illegal for U.S. producers under anti-trust laws. Saudi Arabia also holds significant oil 

production capacity in reserve to deal with oil supply disruptions, an action that would not 

make economic sense for a for-profit company. 

3 
43


30173d-4.eps

The Shift toward Natural Gas 

Unlike for oil, the United States is a net exporter of natural gas. Our largest natural gas 

customers are Canada and Mexico, receiving gas through pipelines. Liquefied natural gas, or 

LNG, is becoming a larger portion of U.S. natural gas exports, reaching 22 percent in 2017. The 

largest U.S. LNG customers in 2017 included China, South Korea, and Japan in Asia; Mexico and 

Chile in the Americas; and Spain and Portugal in Europe. 

Natural gas trade differs significantly from that for oil. Natural gas is more difficult than oil to 

transport and store, and for this reason, expensive infrastructure and long-term contracts often 

tie customers and suppliers together. There is no global natural gas market or price, although 

growing global LNG supply is beginning to globalize natural gas trade. 

In some ways, U.S. natural gas exports can have more geopolitical influence than oil exports. 

The structure of the U.S. industry is no different-producers make decisions based on profit, 

not politics-but the nature of natural gas markets, with less fungible supply and the 

predominance of long-term contracts, makes natural gas trade more inherently political. 

Natural gas exports provide clear environmental benefits to our trading partners. Natural gas 

has the lowest carbon emissions of any fossil fuel and creates much less local air pollution than 

coal. When used to generate power, natural gas also compliments renewable power sources 

like wind and solar. Natural gas-fired power can start up quickly and rapidly ramp production up 

and down in response to changes in wind and solar production, allowing the grid to meet 

demand at all times. For these reasons, natural gas is becoming a preferred fuel globally, 

playing into U.S. strength in gas production. 

Mexico has become the most important export market for U.S. natural gas, providing benefits 

on both sides of the border. More than half of 2017 U.S. natural gas exports went to Mexico. 

We now have a trade surplus with Mexico in energy products-in 2017 the value of energy 

exports to Mexico was more than twice the value of imports. U.S. natural gas is bringing lower 

priced and lower carbon electricity for Mexico, along with power system flexibility that allows 

integration of more renewable power generation. 

Additionally, U.S. LNG is one supply source that can reduce Europe's reliance on pipeline gas 

from Russia. Russian disputes with Ukraine over gas transport in the late 2000s made Russian 

gas supply to Europe a matter of great concern. Growing LNG supply from the United States 

and others gives Europeans options, helping them lessen their dependence on Russian gas 

while still enjoying the benefits of gas as they strive to reduce the carbon emissions from their 

power supply. U.S. LNG exports are still in the ramp-up phase and exports to Europe (except for 

the Iberian Peninsula) are tiny today, but the promise of more supply to come strengthens 

Europe's position. 

4 
44


30173d-5.eps

Closing Thoughts 

The United States has become an indispensable source of oil and gas supply, but the term 

"energy dominance" is somewhat misleading. To me, "dominance" implies an ability to move 

markets, whereas the U.S. energy industry, while strong and increasingly important to global 

energy security, is not structured to achieve that end or other geopolitical goals. U.S. supply of 

price-responsive, non-political oil and gas contributes to well-functioning global energy 

markets, providing benefits to energy consumers everywhere. 

5 
45

Mr. POE. I thank all members of the panel. Without objection, 

the chair will recognize the gentleman from Florida first, Mr. Mast. 

Mr. MAST. Thank you, Chairman. I appreciate it. 

And Ms. Ladislaw, I wanted to hit you on this but I was also 

glad to hear you speak about this, Ms. Gross—and I was wondering 

if you could expand a little bit on what’s going on not just with supply disruption—I think we are a little bit more familiar with what 

that can look like here in the United States of America, but when 

we branch out and we look at supply disruption in terms of what 

can happen in Qatar, in Australia, obviously, that you could be 

looping in the relationship with the proximity of Iran, when we are 

talking about Qatar but, more specifically, Australia and Russia: 

What are the natural disaster supply disruptions that we could see, 

you know, affecting the chains in those places? 

Ms. LADISLAW. I will start and then turn it to Sam. 

I mean, I think when you look at Australia, it’s not a natural disaster supply disruption, but, you know, Australia has a really important example of a story that is meaningful to the U.S. 

It built out a huge amount of natural gas export capacity and 

then experienced a position where their domestic industries were 

paying prices that were higher than the export markets to which 

they were selling natural gas, and they had to threaten to curtail 

natural gas exports from Australia as a result. 

And that was just because they weren’t able to, you know, expand supplies enough for their domestic market. It was something 

that took lots and lots of people by surprise. But it harkens back 

to that midstream infrastructure comment that I brought up before, which is if you have all the gas in the world but if it’s in the 

ground and it can’t get to the people that need it, it doesn’t do anybody any good. 

And so, there’s a lot of domestic politics in Australia right now 

that are really centered around this idea of we’ve got to make sure 

we make the domestic market whole as well as be able to, you 

know, meet our export arrangements. 

It’s not geopolitical. It’s not sexy. It’s just business, right? And 

so I think we—it was probably one of the things that took the U.S. 

Government so long when it came to exporting LNG facilities here 

in the U.S. to getting those permits right. 

There was a concern here whether their domestic resource base 

would be adequate for us to support the export of gas and also 

meet those needs here. 

So kind of a wonky logistical issue; one that we seem to have gotten beyond. But Australia thought they got beyond it, too, and then 

it kind of hit them in the face unexpectedly. 

Ms. GROSS. Just a brief comment to that, and that is that there 

was definitely concern when the Department of Energy was approving—was starting to approve LNG exports that it would push 

up domestic gas prices. 

We haven’t seen that thus far. Granted, LNG is just getting 

warmed up here. But one thing that I think points to the fact that 

we may get this right is that you see a lot of industries coming 

back to the United States based on the promise of low gas prices. 

In particular, there’s been a real renaissance in chemical industry here in the United States. And so they’re making significant fiVerDate 0ct 09 2002 14:53 Jun 19, 2018 Jkt 000000 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 F:\WORK\_TNT\052218\30173 SHIRL
46

nancial bets on the fact that gas prices in the U.S. will remain 

quite reasonable. 

And so, you know, we’ll see what happens. But there’s significant 

money betting that that will go right. 

Mr. MAST. Sticking with that same triangle of nations, could you 

point to any differences on the broad strokes in terms of what creates competitive advantages and disadvantages, based upon environmental regulation for the—for the refinement and the production of natural gas rather than mining? Thank you. 

Ms. LADISLAW. In those three countries? 

Mr. MAST. Yes. Australia, Russia——

Ms. LADISLAW. So this is a good question. I am not sure I’ve got 

the best answer for what creates competitive advantages. All three 

economies function very differently in terms of how they pursue 

both domestic gas production, export, and investment for petrochemicals. 

I think one of the interesting things is for a long time both Russia and Qatar functioned as the least cost producers of gas with a 

readily available resource base and, therefore, they had a natural 

advantage to refining in petrochemical industries in terms of what 

they were able to invest. 

The U.S. has been able to do a heck of a lot more of that business 

in recent years as a result of that. In terms of environmental permitting, I really can’t speak to that issue. 

Mr. MAST. Does anybody on the panel have anything to offer in 

terms of broad stroke differences between environmental permitting across those nations? 

I will take that. Yes, sir. 

Mr. CARROLL. Yes. I would just say that in the case of Russia in 

particular, I think the lack of available data, especially with regard 

to environmental impact, methane emissions, and the like is a little 

more suspect and a little less available. 

That said, some of the major producers are working to mitigate 

those emissions is one example. 

Mr. MAST. Thank you. 

The chair will now yield back. Thanks for the time. 

Mr. POE. I thank the gentleman from Florida. 

The chair recognizes the gentleman from the Republic of Massachusetts, Mr. Keating. 

Mr. KEATING. Thank you, Mr. Chairman. 

I am sorry for your loss, Dr. Medlock. 

The overall rosy picture—before I get into international issues, a 

quick domestic question, though. The impression was the U.S. is 

going to be in a great position, flowing with cheaper, cleaner energy. 

But there are portions of the United States that may not have 

as rosy a forecast. Now, where I am in Massachusetts, sometimes 

the access issues become difficult, and we faced some problems 

there. 

Are there other parts of the country, and how does a place like 

that cope with those problems? 

Dr. Carroll, do you want to start? 

Mr. CARROLL. The first thing you did this winter was get a ship 

of LNG in from Russia from the Amal plant, which helped deal 

47

with the—in order to keep your heat going and your power being 

generated there. 

That’s, clearly, as I look across the United States, the biggest 

constraint in pipeline capacity is in that New England-New York 

area, which constrains the flow of gas both into the northeastern 

U.S. and eastern Canada as well. 

And it’s a shame, given the huge quantities of affordable gas that 

are located in Marcellus just a couple hundred miles away. 

So as I see it, that would be a critical—a critical opportunity to 

increase the infrastructure. That said, how do you get around it 

today? You could import, as you did with LNG through the Everett 

Terminal in Massachusetts. 

You can, of course, move more toward renewables as best you 

can to minimize the demand for fossil fuels. But as, again, I look 

across the country, that pinch point up there is probably the most 

acute. 

Mr. KEATING. And they’re closing—decommissioning a nuclear 

plant there, too. 

So anyone else have anything to add about the U.S. difficulties? 

Mr. MEDLOCK. Thank you for the question, and I think this actually brings up a good opportunity to draw out a parallel that Sarah 

actually just raised with regard to Australia. 

The very high natural gas prices they experienced in the state 

of South Australia in Victoria were the result of a lack of sufficient 

pipeline capacity to move gas from where it’s produced to where it 

was needed. 

That is something that will happen in perpetuity until either capacity is added or storage options are added in the region, and I’ve 

had some conversations with the foreign minister there about this. 

They’re looking at all of those issues. 

The thing that they run into constantly, though, is local opposition to anything related to fossil fuels. And so they continue to 

push back on anything until the price jumps and then they realize, 

well, this isn’t really a viable option, and it’s led to some interest 

in developing floating re-gas capability to back door—the end of 

pipe constraint that exists to access those markets. 

In a lot of ways, that’s what Everett serves currently in the New 

England market. It serves as a way to sort of back door that end 

of pipe market when you have demand rise because it gets very 

cold, for example. 

Interestingly, as was just pointed out, this past winter we saw 

a cargo of Russian LNG that was reloaded in the U.K. land in Boston and I know that got some people’s hairs on edge, right? 

Mr. KEATING. It didn’t affect me, though. [Laughter.] 

Mr. MEDLOCK. Well, no, but——

Mr. KEATING. But if I could—I am running out of time—just 

want to ask one international kind of question. We use sanctions 

a great deal in our country now with major oil and gas-producing 

countries like Iran, Russia, Venezuela. 

How is that working, and what are the effects of that? I know 

Ms. Ladislaw mentioned that, but particularly the other three panelists, or we can hear more from Ms. Ladislaw. 

48

Ms. GROSS. It depends on which sanctions and where. I will say 

that the sanctions that we are putting back in place on Iran will 

be quite effective. 

The reason why these sanctions are so effective or will be so effective is that they’re focused on the U.S. banking system, and so 

you can’t clear Iranian oil or gas through the U.S. banking system. 

Given that—given that the dollar is the reserve currency—that 

oil trade happens in dollars—that makes it extremely difficult for 

them to sell abroad. 

And so that sort of sanction is extremely difficult to get around. 

You may see it some, particularly with respect to the Chinese, who 

can do some trade without doing—without using dollars. 

But I think those sanctions will be incredibly effective in cutting 

exports from Iran. 

Ms. LADISLAW. I think financial and energy sector related sanctions have been very effective when they’re implemented multilaterally because it doesn’t just make the, you know, sort of air from 

this part of the balloon go to some other place, right, which happens with oil, quite typically. 

I think the longer-term issue is what’s the long-term consequence 

for a intensely global industry that has to deal with—I don’t know 

when Russian energy sanctions or financial sanctions will ever go 

away. 

I don’t see an end to that. And so countries around the world are 

looking for ways to work around them and so it’s creating a whole 

different sort of alternative in financing and technology and a 

whole bunch of other things for countries that would really just like 

to stay away from our ability to reach them. 

It’s a long-term problem, but I do think it’s one that we’ve got 

to keep on the horizon, particularly when we don’t know when the 

sanctions will go away. 

Mr. KEATING. My time has expired. I yield back. 

Mr. POE. I thank the gentleman. 

Once again, I thank all of you for being here. I have the philosophy I am for everything below the ground and everything above 

the ground. I am for all of the above and below. 

We haven’t talked about several of those, like renewables and 

wind power, solar energy. We’ll do that at a later hearing. 

When I was in India and talked to the foreign minister there, the 

foreign minister kept saying 1,300,000,000 people, and finally it 

dawned on me that there’s 1 billion more people in India than 

there are in the United States. 

That’s a lot of folks, and I think I saw every one of them when 

I was over there. The conversation was about getting LNG from the 

United States to India. 

We can set an—and I agree with you, the United States looks at 

energy differently because these companies are all in the business 

to make a profit—capitalism, if we can use that word—as opposed 

to nationalized energy companies. 

But it does have the geopolitical effect, as well—as—maybe not 

the primary objective, but it does have that objective. 

And so can you highlight for me selling natural gas where we are 

with India? My understanding is we can develop it, produce it, 

send it across the ocean, and sell it to them and they can buy it 

49

cheaper than they can drill it themselves, and we still make a profit. 

So where is that going? Dr. Medlock, do you want to comment 

on that? 

Mr. MEDLOCK. I would be happy to. Thanks for the question. 

I think you’re touching on something that’s actually bigger than 

just India. Currently, when we have discussions about geopolitical 

influence of the U.S. energy renaissance, we tend to want to focus 

on what’s happening in Europe with regard to Russia because 

that’s sort of the thing that’s hot button—that’s very relevant right 

now. 

But if we put a longer-term view on this, you quickly come to the 

realization that if I just put my hands on a map around China, 

India, and the ASEAN countries, that’s 3 billion people in a part 

of the world that’s growing at a clip of greater than 5 percent a 

year. 

So for the next 20, 30, years, that is the engine that’s going to 

drive the shape of the energy landscape globally. The better we 

could connect with rulers in that part of the world, with industries 

in that part of the world, with individuals in that part of the world, 

the more influence we’ll actually be able to have over the—over 

how that sort of all those geopolitical relationships ultimately 

shake out. 

That will actually convey tremendous benefit to the U.S. Government and its people, quite frankly, as we go forward over the next 

two to three decades. 

Moving beyond that, we still haven’t even touched on, if we are 

going to do the math, another 3.3 billion people that live in subSaharan Africa, Latin America, Central Asia, and the Middle East. 

You’re talking about a massive number of people outside of 

where we conventionally talk about, or traditionally talk about 

trading oil and natural gas that we have the ability to reach and 

make contact with—again, to shape and influence discussions 

around energy, around foreign policy, et cetera. 

And energy is a great way to do that because energy is the go 

of things, to steal a quote. It is the thing that drives economic engines around the world and it will always be the case, regardless 

of the form of energy. It’s always going to be important. 

Mr. POE. I recently met with the Speakers of the House of 

Ukraine and Moldova and Georgia, and they are working together 

to move more to the West, to democracy, et cetera. 

What is—what is the United States doing energy wise for those 

three specific countries? Anything? 

Or are they developing their own resources? Are we selling them 

our fuel? Does anyone want to comment on those three specific 

countries? 

Ms. LADISLAW. I don’t know each of them individually in a great 

deal of detail. My understanding is the strategy is threefold. 

One is to sort of help with the internal governance, particularly 

in Ukraine, of their domestic energy system, which has been sort 

of fraught with oh, gosh, a whole bunch of different problems. 

Two, is to make sure the interconnections in the market within 

Europe is as efficient as possible and can work those countries into 

the system, and then the third is dealing with Russia vis-a-vis enVerDate 0ct 09 2002 14:53 Jun 19, 2018 Jkt 000000 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 F:\WORK\_TNT\052218\30173 SHIRL
50

ergy supplies into Europe and making sure that they have sort of 

a level playing field for negotiating prices. I can’t speak too much 

beyond that, though. 

Mr. POE. Dr. Medlock. 

Mr. MEDLOCK. Yes, let me add one thing to that. 

I think the strategy really has been one of trying to promote a 

different type of governance around markets that allow for more 

flexibility in the delivery of different types of supply. 

So this, ultimately, allows for this credible threat hypothesis that 

I mentioned earlier to be realized in Europe. So this gets to liberalization of markets—you know, actually seeing price signals that 

are transmitted across the European continent that allow for expansion of pipeline capacity, connecting different points of entry 

into the continent, allowing back haul services to move from Western to Central to Eastern Europe, which didn’t exist really to any 

extent just a decade ago. 

All these sorts of things have actually allowed more flexibility 

and fungibility of gas molecules in the European market, and that’s 

really the best you can do absent a direct point of contact. 

The Ukraine—there’s no ability to import LNG into the Ukraine. 

So U.S. gas isn’t going to land there unless it lands in India and 

moves via back haul by pipeline. 

Same thing with Moldova, Romania—you name all those countries that are sort of blocked, right. It’s a similar sort of issue. 

So it really is about altering market structure and conveying the 

advantages that a different market structure will actually bring in 

terms of providing energy security, and this is fundamentally a 

trade question. 

Mr. POE. The—I think Mexico and United States and Canada are 

intertwined dramatically in the energy field. Dr. Medlock, there’s 

a small business guy in Houston that has all of—he’s a manufacturer. He’s an assembler. 

He has all those little parts made in Mexico that are brought in 

to his business in Houston. He assembles them, then he sends 

them out to the Houston ship channel. Of course, we get fuel from 

Canada as well. 

Let me hear just what all four of you think on this basic concept 

of—we can call it free trade—regarding energy and energy supply—this energy supply chain. 

Do you think it’s a good idea? Do you think—what do we need 

to do to make it better for our economy? 

Each one of you can comment on it. All right. Mr. Carroll, we’ll 

start with you. 

Mr. CARROLL. I will just put it in perspective from the natural 

gas side throughout North America. 

If you look at it as a—as a unit, we get about seven—look at U.S. 

demand. About 7 percent of that is actually imported from Canada. 

There’s a net on that in terms of we send them some, they send 

us some. And about 7 percent of our production goes to Mexico. 

So it’s—you can look at it as 93 percent of what we produce, we 

consume. But there is some movement between the continents and, 

it’s—the integrated North American market I can tell you is the 

envy of the world. 

51

So there’s a—there’s a lot of power and competitive advantage 

based on the way that mechanism works. 

Ms. LADISLAW. Yes, I think——

Mr. POE. Ms. Ladislaw. 

Ms. LADISLAW [continuing]. The super boring issue of sort of 

standards and policy harmonization, which has always been kind 

of boring for, you know, from a policy perspective. It’s something 

we can continue to do, particularly as we are inventing new technologies and digitalization within the electric power sector. 

All of these things we have mechanisms—trilateral mechanisms 

between all three countries to be able to do that. I just think we 

need to continue to do those things. 

I see more threats to the integrated North American economy 

from the way that we are approaching the NAFTA trade arrangement right now but also from steel tariffs and other things that 

are, broadly, discouraging for companies that really would like to 

have a North American frame of mind. 

The other big threat is actually one that Representative Keating 

brought up, which is that infrastructure is challenging in all three 

countries right now. I think what we need to do is look at particular places like the Gulf Coast area or the Northeast or even, 

you know, the West Coast where we’ve got really big advantages 

from a resource space or from a technology and innovation standpoint and try and build kind of regional innovation hubs, regional 

energy hubs, where we understand how the infrastructure and the 

educational and university environment and the business environment all sort of paddle in the same direction toward really making 

the most of those advantages. I just don’t think we’ve thought that 

way yet. 

Mr. POE. Ms. Gross. 

Ms. GROSS. I agree with everything the folks to the right—to the 

right of me have said, but I will add just an additional point. It’s 

really also a no-brainer. 

It’s a no-brainer from a trade and economic perspective. It’s also 

a no-brainer from an environmental perspective. 

Any time you’re taking these products and shipping them to 

nearby markets, that’s a real advantage. You’re also allowing Mexico to take advantage of the significant natural gas reserves that 

we had here. 

The Mexican energy sector has significantly restructured recently 

and allowed much more outside participation. It’s bringing more renewable energy, and the gas is a fantastic partner for that. 

And so not only is this good for the United States, good for—you 

know, good to have a regional energy system, it’s also good from 

an environmental perspective. I think we can give it two thumbs 

up from any number of points of view. 

Mr. POE. Dr. Medlock. 

Mr. MEDLOCK. I think Sarah’s points are fantastic, actually. The 

integrated nature of the North American market conveys massive 

amounts of opportunity both on the environmental front and the 

commercial front. 

Commercially, you connect markets, you connect consumers with 

producers, you actually make those transactions lower cost, which 

actually helps grown businesses. It does all sorts of things that are 

52

fabulous for job creation, wealth creation, et cetera, on both sides 

of the border. 

Environmentally, you have actually seen in Mexico—and Sam 

was just referring to this—you have seen in Mexico a reduction in 

fuel oil use in power generation. 

Why is that? Well, it’s because you have got a low—you have got 

low cost natural gas that’s being produced just north of the border 

and it’s moving south and it’s being put into natural gas-combined 

cycle generation facilities and it’s allowing Mexicans to actually 

reap the benefits of the North American gas boom just like we do 

in Texas, just like we do in Massachusetts, just like we do anywhere. 

So those types of benefits actually when they’re conveyed broadly 

as a result of trade that can actually occur unimpeded are tremendous on both commercial and environmental fronts. 

Mr. POE. Well, thank you all. I appreciate your being here and 

also your expertise. It’s fascinating to have all of you all here to 

enlighten us about the way things really are. So it’s very good. 

Thank you, and this subcommittee is adjourned. 

Thank you. 

[Whereupon, at 3:04 p.m., the committee was adjourned.] 

(53)

A P P E N D I X 

MATERIAL SUBMITTED FOR THE RECORD

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30173n.eps

SUBCOMMITTEE HEARING NOTICE 

COMMITTEE ON FOREIGN AFFAIRS 

U.S. HOUSE OF REPRESENTATIVES 

WASHINGTON, DC 20515-6128 

Subcommittee on Terrorism, Nonproliferation~ and Trade 

Ted Poe (R-TX), Chairman 

TO: MEMBERS OF THE COMMITTEE ON FOREIGN AFFAIRS 

You are respectfully requested to attend an OPEN hearing of the Committee on Foreign Affairs to be held 

by the Subcommittee on Terrorism, Nonproliferation, and Trade in Room 2200 of the Rayburn House Office 

Building (and available live on the Committee website at flttJ~_:U}V}VY:"~f_\~I~igJJ,_'\_ffail_s.hQH~~-gQy) 

DATE: 

TIIVU:: 

SUBJECT: 

WITNESSES: 

Tuesday, May 22, 2018 

2:00p.m 

Geopolitics of U.S. Oil and Gas Competitiveness 

Kenneth B. Medlock Til, Ph.D. 

Senior Director 

Center for Energy Studies 

Balcer Institute for Public Policy 

Rice University 

Mr David Carroll 

President and Chief Executive Officer 

Gas Technology Institute 

Ms. Sarah Ladislaw 

Director and Senior Fellow 

Energy and National Security Program 

Center for Strategic and International Studies 

Ms. Samantha Gross 

Fellow 

Cross-Brookings Initiative on Energy and Climate 

The Brookings Institution 

By Direction of the Chairman 
55

Æ


30173m.eps

COMMITTEE ON FOREIGN AFFAIRS 

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"Geopolitics of U.S. Oil and Gas Competitiveness" 

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