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82–191 2013

U.S. ENERGY ABUNDANCE: EXPORTS AND THE 

CHANGING GLOBAL ENERGY LANDSCAPE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ENERGY AND POWER 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

MAY 7, 2013 

Serial No. 113–38 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

(II) 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

RALPH M. HALL, Texas 

JOE BARTON, Texas 

Chairman Emeritus 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

Vice Chairman 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

BILL JOHNSON, Missouri 

BILLY LONG, Missouri 

RENEE L. ELLMERS, North Carolina 

HENRY A. WAXMAN, California 

Ranking Member 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

JERRY MCNERNEY, California 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

BEN RAY LUJAN, New Mexico 

PAUL TONKO, New York 

(III) 

SUBCOMMITTEE ON ENERGY AND POWER

ED WHITFIELD, Kentucky 

Chairman 

STEVE SCALISE, Louisiana 

Vice Chairman 

RALPH M. HALL, Texas 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

LEE TERRY, Nebraska 

MICHAEL C. BURGESS, Texas 

ROBERT E. LATTA, Ohio 

BILL CASSIDY, Louisiana 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

JOE BARTON, Texas 

FRED UPTON, Michigan (ex officio) 

BOBBY L. RUSH, Illinois 

Ranking Member 

JERRY MCNERNEY, California 

PAUL TONKO, New York 

EDWARD J. MARKEY, Massachusetts 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN D. DINGELL, Michigan 

HENRY A. WAXMAN, California (ex officio) 

(V) 

C O N T E N T S 

Page 

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

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

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

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

California, opening statement ............................................................................. 4 

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

opening statement ................................................................................................ 5 

Prepared statement .......................................................................................... 6 

Hon. Joe Barton, a Representative in Congress from the State of Texas, 

opening statement ................................................................................................ 7 

Prepared statement .......................................................................................... 8 

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

opening statement ................................................................................................ 8 

WITNESSES

J. Bennett Johnston, Chairman, Johnston & Associates ..................................... 10 

Prepared statement .......................................................................................... 13 

Byron Dorgan, Co-chair, Bipartisan Policy Center ............................................... 17 

Prepared statement .......................................................................................... 19 

James Bradbury, Senior Associate, Climate and Energy Program, World Resources Institute ................................................................................................... 26 

Prepared statement .......................................................................................... 28 

Answers to submitted questions ...................................................................... 128 

Michael Breen, Executive Director, Truman National Security Project ............. 54 

Prepared statement .......................................................................................... 56 

Mike Halleck, President, Columbiana County Board of Commissioners ............ 61 

Prepared statement .......................................................................................... 63 

Amy Jaffe, Executive Director, Energy & Sustainability, UC Davis Graduate 

School of Management ......................................................................................... 66 

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

Answers to submitted questions ...................................................................... 130 

SUBMITTED MATERIAL

Statement of U.S. Representative Michael R. Turner .......................................... 117 

Letter of May 3, 2013, from Charles P. Sammarone, Mayor of Youngstown, 

Ohio, to the Subcommittee .................................................................................. 120 

Letter of May 6, 2013, from Scott Lincicome of the Cato Institute, to the 

Subcommittee ....................................................................................................... 121 

(1) 

U.S. ENERGY ABUNDANCE: EXPORTS AND THE 

CHANGING GLOBAL ENERGY LANDSCAPE 

TUESDAY, MAY 7, 2013 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON ENERGY AND POWER, 

COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

The subcommittee met, pursuant to call, at 10:05 a.m., in room 

2123, Rayburn House Office Building, Hon. Ed Whitfield (chairman 

of the subcommittee) presiding. 

Present: Representatives Whitfield, Scalise, Hall, Shimkus, Pitts, 

Terry, Burgess, Latta, Cassidy, Olson, McKinley, Gardner, Pompeo, 

Kinzinger, Griffith, Barton, Johnson, Upton (ex officio), Rush, 

McNerney, Tonko, Engel, Green, Capps, Doyle, Barrow, Matsui, 

Castor, and Waxman (ex officio). 

Staff Present: Nick Abraham, Legislative Clerk; Charlotte Baker, 

Press Secretary; Matt Bravo, Professional Staff Member; Allison 

Busbee, Policy Coordinator, Energy & Power; Tom Hassenboehler, 

Chief Counsel, Energy & Power; Jason Knox, Counsel, Energy & 

Power; Ben Lieberman, Counsel, Energy & Power; Nick 

Magallanes, Policy Coordinator, CMT; Brandon Mooney, Professional Staff Member; Mary Neumayr, Senior Energy Counsel; Chris 

Sarley, Policy Coordinator, Environment & Economy; Jeff Baran, 

Minority Senior Counsel; Alison Cassady, Minority Senior Professional Staff Member; and Caitlin Haberman, Minority Policy Analyst. 

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

Mr. WHITFIELD. I would like to call this hearing to order this 

morning. Today we are going to have a hearing on the U.S. energy 

abundance, exports and changing global energy landscape. And at 

this time I would like to recognize myself for 5 minutes for an 

opening statement. And I will be introducing members of the panel, 

but I will probably yield a few seconds to my friend from Ohio, Mr. 

Johnson, to introduce one member of the panel from his district. 

But this is an exciting day, a very important hearing. And we do 

thank the witnesses for being here with us today. We look forward 

to your testimony. All of you have had unique experiences in this 

area, and we know that your testimony will be quite valuable. 

America’s growing energy production is a game changer, and today’s hearing, entitled ‘‘U.S. Energy Abundance: Exports and 

2 

Changing Energy Landscape,’’ explores the geopolitical benefits of 

the U.S. becoming a world leader in energy production and exports. 

As we have discussed in previous hearings, America’s energy 

abundance is creating employment opportunities and growth at a 

time when little else in the economy is going as well, and that 

alone is enough reason to support domestic energy production. But 

while this energy abundance is a source of jobs at home, it can also 

be a force for good and competition around the world, and it is this 

potential that we hope to address today. 

Until a few years ago most of us assumed that the U.S. was well 

past its peak in terms of domestic energy production and that we 

would become increasingly dependent on imports, particularly oil 

imports from OPEC nations. Many feared the same thing was happening with natural gas, and some even worried about an emerging 

OPEC-like natural gas cartel dominated by Russia and Iran. This 

committee held many hearings discussing the grave geopolitical 

consequences of global energy markets dominated by nations that 

do not necessarily share our values and who are not shy about 

using energy exports to exert leverage over other countries. 

But now the tables are turning, thanks to American innovations 

in hydraulic fracking and directional drilling that is expanding the 

supply of domestic oil and natural gas. Instead of being beholden 

to energy exporting nations, we are fast becoming one ourselves. 

Perhaps nowhere is the reversal more stark than with natural 

gas. Debates about natural gas used to center around whether to 

permit facilities to import supplies of liquid natural gas from 

abroad to help make up for dwindling domestic production. But 

now these would be import terminals are being reproposed as export terminals. The reason for this reversal is that domestic natural gas production is now rising so fast that there is more than 

enough to meet domestic demand affordably and export the surplus 

to nations that need it, such as Japan and Great Britain. By taking 

advantage of these expert opportunities we can help our own economy and at the same time strengthen our ties with key allies. 

I might add that the benefits of energy exports also apply to coal, 

and I would like to draw your attention to a May 1st Wall Street 

Journal article that chronicles how U.S. coal exports to Eastern Europe are helping to displace Russian natural gas and neutralize 

Russian influence. And even Bulgaria was able to get a 20 percent 

reduction in price for natural gas its buying from Russia because 

of additional coal that they are using. 

Not only should we be focused of course on natural gas and oil 

and coal, but we need also to focus on pipelines, port facilities, and 

other infrastructure investments necessary to make full use of our 

energy abundance. 

So this is a vitally important hearing, and as I said, we are going 

to look forward to your testimony because we are at a threshold of 

a great opportunity in this Nation to be energy independent. 

[The prepared statement of Mr. Whitfield follows:] 

PREPARED STATEMENT OF HON. ED WHITFIELD

America’s growing energy production is a real game changer, and today’s hearing, 

entitled ‘‘U.S. Energy Abundance: Exports and the Changing Energy Landscape,’’ 

3 

explores the geopolitical benefits of the U.S. becoming a world leader in energy production and exports. 

As we have discussed in previous hearings, America’s energy abundance is creating employment opportunities and growth at a time when little else in the economy is going as well—and that alone is enough reason to support domestic energy 

production. But while this energy abundance is a source of jobs at home, it can also 

be a force for good around the world—and it is this potential that we will address 

today. 

Until a few years ago, most of us assumed that the U.S. was well past its peak 

in terms of domestic energy production and that we would become increasingly dependent on imports, particularly oil imports from OPEC nations. Many feared the 

same thing was happening with natural gas, and some even worried about an 

emerging OPEC-like natural gas cartel dominated by Russia and Iran. This committee held many hearings discussing the grave geopolitical consequences of global 

energy markets dominated by nations that do not share our values and who are not 

shy about using energy exports to exert leverage over others. 

But now the tables are turning, thanks to American innovations in hydraulic fracturing and directional drilling that is expanding the supply of domestic oil and natural gas. Instead of being beholden to energy exporting nations, we are fast becoming one ourselves. Perhaps nowhere is the reversal more stark than with natural 

gas. Debates about natural gas used to center around whether to permit facilities 

to import supplies of liquefied natural gas from abroad to help make up for dwindling domestic production. But now, those would-be import terminals are being reproposed as export terminals. The reason for this reversal is that domestic natural 

gas production is now rising so fast there is more than enough to meet domestic 

demand affordably and export the surplus to nations that need it such as Japan and 

Great Britain. By taking advantage of these export opportunities, we can help our 

own economy and at the same time strengthen our ties with key allies. 

I might add that the benefits of energy exports also apply to coal, and I would 

like to draw your attention to a May 1st Wall Street Journal article that chronicles 

how U.S. coal exports to Eastern Europe are helping to displace Russian natural 

gas and neutralize Russian influence. Countries like Bulgaria and Poland that used 

to be under Russia’s thumb are now gaining a measure of autonomy thanks in part 

to American coal. This kind of BTU diplomacy can be repeated throughout the globe, 

allowing us to strengthen our working relationship with many countries while reducing the influence of troublesome regimes. 

Of course, none of this can happen if we shut the door on domestic energy production. For this reason, we need to address the fact that the Obama administration 

continues to keep most federal lands off-limits to energy leasing and that regulatory 

efforts may be underway to crack down on hydraulic fracturing. The president likes 

to say he is for all-of-the-above, but Congress needs to hold him to that. 

In addition, we need to allow the pipelines, port facilities, and other infrastructure 

investments necessary to make full use of our energy abundance. The Obama administration’s four-year delay in making a decision on the Keystone XL pipeline 

project is a warning sign that the infrastructure approval process is badly broken 

and needs to be fixed. 

The benefits of being an energy-exporting nation could also be derailed if we place 

unnecessary restrictions on these exports. For example, some argue that exports of 

natural gas will create domestic shortages and serious price spikes in the U.S. But, 

with resource assessments continuing to be revised upward and studies from the 

Department of Energy and the Small Business & Entrepreneurship Council touting 

the net economic benefits that are strongly positive, these fears are becoming more 

and more unfounded. The real risk is if the U.S. does not take advantage of energy 

export opportunities. Failure to do so would be a lost opportunity, both economically 

and geopolitically. 

Increased production and trade in American energy benefits both our economy at 

home and our standing around the world. I look forward to our discussion on how 

to move forward. 

# # # 

Mr. WHITFIELD. At this time, I recognize the gentleman from 

Ohio, Mr. Johnson, for the purpose of an introduction. 

Mr. JOHNSON. Thank you, Mr. Chairman. I do consider it a distinct honor. You talk about energy abundance and job creation 

through domestic energy production, nowhere in the Nation is that 

4 

happening any more prevalently than in eastern and southeastern 

Ohio. We sit on top of the Marcellus and the Utica shale, and so 

many, many opportunities are coming our way. 

No one knows that better than one of our own county commissioners, Mr. Michael Halleck from Columbiana County. Commissioner Halleck is a stalwart believer in accountable, responsible 

government. He has got a track record that proves that. Every time 

that I go into Columbiana County to talk about energy production, 

to meet with oil and gas companies, to talk with business owners 

who are working hard to create jobs and make ends meet for the 

residents of our district, you can find Michael Halleck close by. He 

is engaged. I am very honored to have him with us today. I think 

you are going to enjoy his testimony. 

Mr. Chairman, I yield back. Thank you. 

Mr. WHITFIELD. My time has expired. Thank you very much. 

At this time, I recognize the gentleman from California for a 5- 

minute opening statement, Mr. Waxman. 

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

Mr. WAXMAN. Thank you, Mr. Chairman. 

Today’s hearing is the subcommittee’s first opportunity to focus 

on liquefied natural gas or LNG exports. I think it is an important 

topic and I am glad we are having this hearing. 

There is no question that a significant energy transition is underway here in the United States. State and Federal renewable energy policies are paying off. We have doubled our capacity to generate renewable electricity from wind and solar just in 4 years. 

Cheap natural gas is also helping to transform our electricity sector. This market reality is driving a shift away from the use of polluting coal to generate electricity. 

These changes are positive developments, and we will hear a lot 

today about the geopolitical implications of America’s energy abundance. We will also talk about the impacts on America’s economy, 

American jobs, and America’s balance of trade. 

But I want to address a different issue: the relationship between 

U.S. energy markets and climate change. Climate change is the 

biggest energy challenge we face as a country. We can’t have a conversation about the global consequences of America’s energy policy 

without also having a conversation about climate change. 

In November, the International Energy Agency concluded that if 

the world does not take action to reduce carbon pollution before 

2017, then it will be impossible to prevent the worst effects of climate change because of the carbon dioxide emissions that would be 

locked in by energy infrastructure existing at that time. That 

means that the energy policy decisions that we make today will 

have a real and direct impact on whether we can prevent the worst 

impacts of global climate change in the future. 

It is through this lens that we need to examine whether we 

should export LNG to other countries. LNG export terminals are 

huge multibillion-dollar infrastructure investments that will last 

for decades. We should understand the climate impacts before 

these facilities are built, not after. 

5 

I have an open mind about LNG exports. There is a case to be 

made that exports of LNG may allow other nations to move from 

coal to natural gas. That could lead to reduced carbon emissions. 

In addition, a number of studies predict that LNG exports would 

have generally positive economic effects. There is also a case to be 

made that free trade in natural gas may help our allies in Europe 

and Asia who are currently dependent on higher-priced natural gas 

imports from Russia and the Middle East. 

But we also need to consider the impact LNG exports could have 

on domestic greenhouse gas emissions. Liquefying and transporting 

natural gas is an energy-intensive process that would generate significant carbon pollution. LNG exports would increase the domestic 

price of natural gas, which could increase U.S. carbon emissions as 

a result of a shift back to coal for electricity generation. And methane itself is a potent greenhouse gas. It is 25 times more potent 

than carbon dioxide in warming the planet. Exports would stimulate more domestic natural gas production, which can emit substantial amounts of methane if not controlled. 

As the Department of Energy considers the pending applications 

to export LNG, I hope they will develop concrete answers so that 

we can understand the climate impacts of moving in this direction. 

I thank the witnesses for being here, and I look forward to there 

testimony. And I would be pleased to yield a minute that I have 

left to any member on the Democratic side who wishes to use it. 

Mr. Green, I yield back the balance of my time. 

Mr. GREEN. I thank my ranking member, and I want to welcome 

our panel. I appreciate particularly our two former Senators working with you as a House Member years ago. 

I come from a district in Houston that actually is a large petrochemical complex, so we are concerned about exporting because we 

have seen expansion of our chemical industry substantially over 

the last 2 or 3 years. But I still think there is a possibility we can 

share with the world some of not only our expertise in drilling, but 

also our natural gas. In fact, we were on a committee trip, or at 

least a trip a few weeks ago, and some members on the Republican 

side were there. The German Chancellor asked if we would be able 

to export natural gas to Germany, and I know one of my Pennsylvania colleagues said they would like to send Pennsylvania and 

Ohio gas. I told her we would be glad to send Texas gas, too, but 

it needs to be done in a reasonable manner. 

And, my ranking member, thank you again for yielding to me. 

Mr. WHITFIELD. The gentlemen’s time has expired. At this time 

I recognize the chairman of the full committee, Mr. Upton of Michigan, for 5 minutes. 

OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. UPTON. Well, thank you, Mr. Chairman. 

Today’s hearing continues the subcommittee’s look into what is 

becoming a welcome theme: how American energy abundance is rewriting the playbooks for all levels of energy policy. This new strategy is a reality, resulting from advancements in innovation and 

technology, has game-changing potential for America’s energy fuVerDate Nov 24 2008 15:52 Oct 23, 2013 Jkt 037690 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-38 CHRIS
6 

ture with more jobs, lower prices, and, yes, less volatility, as we 

will hear today, has far-reaching implications abroad as well. 

As we learned at our February hearing, U.S. energy resources 

are vastly abundant and growing, with technology continuing to 

evolve and new areas of the country becoming centers for exploration and production. It is not just Texas, Alaska, and Louisiana 

anymore, but places like Illinois, Ohio, Michigan, even California 

who are in the process of developing or considering developing new 

oil and gas resources from domestic shale. 

This diverse geographic abundance is helping to ease the volatility of the recent past, where prices were becoming increasingly 

vulnerable to hurricanes and geopolitical turmoil, to create a new 

North American gas market that is becoming the envy of the world. 

America’s natural gas movement is creating competitive opportunities domestically for manufacturing and technology, as well as 

international opportunities to help our allies reduce their reliance 

on geopolitically unstable regions of the world. And I believe that 

our abundance means that we can have both new jobs from a renaissance in the energy and manufacturing sectors, along with new 

diplomatic strength from using these resources to reinforce our ties 

to important allies and trading partners. Our changing energy 

landscape will in fact produce both economic growth and real gains. 

To think that America in just a short period of time would be at 

such a strategic advantage to use our natural resources to not only 

help our country domestically with new jobs in energy and security, 

but to also influence Russia’s ability to wield an energy weapon 

over its European customers, is truly remarkable. Yet as today’s 

witnesses will tell us, that is exactly what is beginning to happen. 

This hearing should also remind us that we must remain steadfast in our support for efforts to maximize use of our energy resources. As American shale production expands from natural gas to 

oil, we have to embrace our newfound capability to lift and shift 

the power structure with Venezuela, Russia, and the Middle East 

back to our favor and strive to avoid needless litigation or bureaucratic delays that threaten this realignment. 

We are in the midst of a budding success story about American 

prosperity, jobs, and national power. We are continuing to produce 

valuable energy resources safely and responsibly around the country. But the benefits do not stop there, as emissions also continue 

to decline. 

I look forward to the testimony today, including Senators Johnson and Dorgan. You have been good friends and we respect your 

valuable expertise, and I look forward to that, and would yield to 

our Republicans on our side. 

Mr. Barton. 

[The prepared statement of Mr. Upton follows:] 

PREPARED STATEMENT OF HON. FRED UPTON

Today’s hearing continues this subcommittee’s look into what is becoming a welcome theme: how American energy abundance is rewriting the playbooks for all levels of energy policy. This new energy reality, resulting from advancements in innovation and technology, has gamechanging potential for America’s energy future with 

more jobs, lower prices, and less volatility—and as we will hear today—has farreaching implications abroad as well. 

7 

As we learned at our February 5th hearing, U.S. energy resources are vastly 

abundant and growing, with technology continuing to evolve and new areas of the 

country becoming centers for exploration and production. It’s not just Texas, Alaska, 

and Louisiana anymore—but places like Illinois, Ohio, Michigan, and even California—who are in the process of developing or considering developing new oil and 

gas resources from domestic shale. This diverse geographic abundance is helping to 

erase the volatility of the recent past where prices were becoming increasingly vulnerable to hurricanes and geopolitical turmoil to create a new North American gas 

market that is becoming the envy of the world. America’s natural gas boom is creating competitive opportunities domestically for manufacturing and technology as 

well as international opportunities to help our allies reduce their reliance on geopolitically unstable regions of the world. 

And I believe our abundance means we can have both: new jobs from a renaissance in the energy and manufacturing sectors, along with new diplomatic strength 

from using these resources to reinforce our ties to important allies and trading partners. Our changing energy landscape will produce both economic growth and geopolitical gains. 

To think that America, in just a short period of time, would be at such a strategic 

advantage to use our resources to not only help our country domestically with new 

jobs and energy security, but to also influence Russia’s ability to wield an energy 

weapon over its European customers is truly remarkable. Yet, as today’s witnesses 

will tell us, that is exactly what is beginning to happen. 

This hearing should also remind us that we must remain steadfast in our support 

for efforts to maximize use of our energy resources. As American shale production 

expands from natural gas to oil, we must embrace our newfound capability to shift 

the power structure with Venezuela, Russia, and the Middle East back to our favor 

and strive to avoid needless litigation or bureaucratic delays that threaten this realignment. We are in the midst of a budding success story about American prosperity, jobs, and national power. We are continuing to produce valuable energy resources, safely and responsibly around the country, but the benefits don’t stop there 

as emissions also continue to decline. 

I welcome our entire esteemed panel to this hearing, including Senators Johnston 

and Dorgan. Your extensive backgrounds and contributions to this discussion are incredibly valuable. Increased production and trade in American energy benefits both 

our economy at home and our standing around the world. The energy landscape is 

changing, and we will all be better for it. I look forward to our discussion on how 

to move forward. 

# # # 

OPENING STATEMENT OF HON. JOE BARTON, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BARTON. Thank you, Mr. Chairman. And thanks to Chairman Whitfield for holding this hearing. It is good to see Senator 

Johnson and Senator Dorgan. I worked with them in the past, and 

it is good to see you here at the witness table. 

This is an important hearing. I don’t think it is a secret that I 

am a supporter of free markets and a robust American energy policy. Currently our oil and gas sector is creating about 9 million jobs 

a year and sending in taxes more than $30 billion to the Federal 

Treasury every year. 

We have the blessing of the Lord on our side in the United 

States that the latest estimates, although it is difficult to estimate, 

we think over 2,000 trillion feet of natural gas resides beneath our 

lands in the United States, 2,000 trillion feet. Because of past laws, 

we give the Department of Energy the right to make a decision on 

exports and natural gas, if it is not to a country where we already 

have a free trade agreement. There are currently 19 of those applications pending, one has been approved. It would be my hope that 

several more are approved in the near future. 

8 

If you believe in free markets this is a win-win. You only make 

an agreement if it benefits the seller and it benefits the buyer. In 

this case the seller is the American economy and the jobs that are 

created in America. And the winner overseas is the increased economic prosperity because they get natural gas from the United 

States that is orders of magnitude less expensive than it is from 

any other supplier. 

So, Mr. Chairman, this is a good hearing, and I look forward to 

the witnesses and then asking them questions. And with that I 

would yield back to the chairman. 

[The prepared statement of Mr. Barton follows:] 

PREPARED STATEMENT OF HON. JOE BARTON

Thank you, Chairman Whitfield, for holding this hearing to examine the national 

security and foreign policy implications of our abundant energy resources. America’s 

energy revolution—the massive increase in oil and gas production from shale formations—has shifted the geopolitical framework governing foreign diplomacy. The positive effects are being felt both in the U.S. and abroad, and this is just the beginning. 

The increase in oil and gas development is strengthening our economy here at 

home by supporting nearly 9 million jobs and sending more than 30 billion dollars 

to the Federal Treasury every year. It is the bright spot in an otherwise gloomy 

economy. 

The growth in domestic production also means we are importing less, freeing up 

supplies of natural gas and oil around the world, weakening the grip of state-owned 

energy companies like Russia’s Gazprom, which once held sway over European natural gas markets.Allowing exports of American natural gas, and possibly even oil, 

would further enhance our power and influence—strengthening our relationships 

with allies and weakening the control of adversaries such as Iran. 

I support American energy exports because I support free markets and free trade. 

The fundamental principle of free markets is that both sides to transactions benefit. 

We keep jobs here at home—our businesses can continue to innovate and grow. Our 

allies around the world benefit because they can diversify their supply and decrease 

their reliance on OPEC nations. Together, we benefit knowing the safety and security of our energy supply will not be subject to the whims of adversaries seeking 

to use energy as a political weapon. 

I want to thank the witnesses for appearing before us today to allow us to better 

understand what may be possible in this new era of energy. 

Thank you, I yield back. 

Mr. WHITFIELD. The gentleman’s time has expired. At this time 

I recognize the gentleman from Illinois, Mr. Rush, for a 5-minute 

opening statement. 

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

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

join with my colleagues in welcoming our expert witnesses, particularly our former Senators, Senator Johnston and Senator Dorgan. 

Mr. Chairman, with the technological advances in the area of energy production and the prevalence of shale oil and gas due to hydraulic fracturing, or fracking, today’s hearing is both timely and 

very necessary. Not long ago experts predicted that the U.S. would 

be forced to rely on increased natural gas imports in order to meet 

our energy demands. However, today we are seeing a boom in domestic production of oil and natural gas due to fracking and horizontal drilling. And now we must consider whether the U.S. should 

become a net exporter of natural gas, and, if so, over what period 

of time. 

9 

Between 1990 and 2012, Mr. Chairman, natural gas production 

in the U.S. increased by 34 percent, and the EIA projects that 

under existing policies natural gas production will rise by an additional 39 percent by the year 2040. In fact, in a National Journal 

article dated April 30th, 2013, entitled ‘‘The U.S. Has Much, Much 

More Gas and Oil Than We Thought,’’ it was noted that the U.S. 

has double the amount of oil and 3 times the amount of natural 

gas than previously thought stored deep under the States of North 

Dakota, South Dakota, and Montana. And this was according to 

new data that was released by the Obama administration. 

The article went on to note that in just the Bakken and Three 

Forks plays alone the U.S. Geological Survey estimated that there 

are 7.4 billion barrels of recoverable oil and 6.7 trillion cubic feet 

of natural gas waiting to be tapped. While the EIA predicts that 

under existing policies U.S. Total natural gas consumption will increase from 24.4 trillion cubic feet in 2011 to 29.5 trillion cubic feet 

in 2040, the agency also notes that as domestic production outpaces 

consumption the U.S. could become a net exporter of natural gas 

by the year 2020. In fact, Mr. Chairman, President Obama reiterated this fact personally this past weekend during the development 

forum in Costa Rica where he indicated that he may be close to 

making a decision on whether or not the U.S. should become a net 

exporter of natural gas. 

In an E&E article published yesterday, on May 6th, entitled, 

quote, ‘‘Obama Says U.S. Likely to Be a Gas Exporter By 2020,’’ 

end of quote, President Obama is quoted discussing this very same 

issue. He said, and I quote, ‘‘Because of the extraordinary advances 

in technology that we have made in the U.S., we are likely to be 

a net natural gas exporter as soon as 2020. I have got to make a 

decision,’’ he says, ‘‘an executive decision broadly about whether or 

not we export liquefied natural gas at all,’’ end of quote. 

So, Mr. Chairman, as this discussion of potentially exporting 

LNG heats up, I join with my colleagues in commending you for 

convening today’s hearing where we will both be able to learn more 

from our distinguished panel on both the benefits and potential 

negative impacts of this pertinent issue as it relates to the economy, to jobs, to manufacturing, and to the U.S. trade balance, as 

well as the impact on climate change. More importantly, Mr. Chairman, I look forward to hearing how LNG exports would impact the 

pocketbooks of ordinary consumers so that American families are 

not subjected to adverse consequences, those that are intended and 

those that are unintended. Mr. Chairman, I look forward to this 

hearing, and I yield back the balance of my time. 

Mr. WHITFIELD. Thank you very much Mr. Rush. 

And that concludes the opening statements today. So now we get 

to listen to the opening statements of our distinguished panel. And 

at this time I would like to introduce the panel members. First, on 

my left, Senator Bennett Johnston, who is from the great State of 

Louisiana and had a distinguished career in the U.S. Senate. And 

one of the many areas that he was certainly involved in was in energy. He is now the chairman of Johnston & Associates. 

And, Senator, we are glad to have you here with us today and 

we look forward to your testimony. 

10 

We have Senator Byron Dorgan from the great State of North 

Dakota. He also had a distinguished career in the U.S. Senate and 

certainly is a well-versed public policy person on energy issues. 

And we look forward to his testimony as well. And he is, by the 

way, also the co-chair of the Bipartisan Policy Center, that recently 

came out with a document about the energy needs of America and 

directions that we should be moving. 

We have Mr. James Bradbury, who is a senior associate, Climate 

and Energy Program, at the World Resources Institute. 

And we appreciate your being with us. 

We have Mr. Michael Breen, who is the executive director for the 

Truman National Security Project. We have Mr. Mike Halleck, who 

has already been introduced by Bill Johnson, but Mr. Halleck’s the 

President of the Columbiana County Board of Commissioners and 

certainly has worked a lot on energy issues. And we have Ms. Amy 

Jaffe, who is the executive director for energy and sustainability, 

UC Davis Graduate School of Management. 

So thank you very much for joining us today. 

And at this time I am going to recognize each one of you for 5 

minutes, and there is a little box on the table and the red light will 

come on when your time is up. So you can just be aware of that. 

And at this time I recognize Senator Johnston for 5 minutes for his 

opening statement. 

STATEMENTS OF HONORABLE J. BENNETT JOHNSTON, CHAIRMAN, JOHNSTON & ASSOCIATES; HONORABLE BYRON DORGAN, CO-CHAIR, BIPARTISAN POLICY CENTER; JAMES 

BRADBURY, SENIOR ASSOCIATE, CLIMATE AND ENERGY 

PROGRAM, WORLD RESOURCES INSTITUTE; MICHAEL 

BREEN, EXECUTIVE DIRECTOR, TRUMAN NATIONAL SECURITY PROJECT; MIKE HALLECK, PRESIDENT, COLUMBIANA 

COUNTY BOARD OF COMMISSIONERS; AND AMY JAFFE, EXECUTIVE DIRECTOR, ENERGY & SUSTAINABILITY, UC DAVIS 

GRADUATE SCHOOL OF MANAGEMENT 

STATEMENT OF J. BENNETT JOHNSTON 

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

Rush, ladies and gentlemen of the committee. The Department of 

Energy says we have 100 years of natural gas. They say that by 

2020 supply will go up by 40 percent, while demand will go up only 

20 percent. The amount of natural gas seems to be growing every 

week. Just last week The Washington Post reported that Williston 

Basin has 3 times as much natural gas as they thought. They also 

said, by the way, that China has 50 percent more natural gas than 

the United States has. 

Now, DOE commissioned to study by the Cambridge Energy Research Associates, a definitive study, which indicates that we can 

safely export natural gas without any untoward effect on the 

price—no price spikes, no difficulty in terms of supply. 

Now, that question is traversed, is argued against by some of the 

chemical companies, principally Dow Chemical, who says, if you 

have unfettered exports, then that is going to lead to supply disruptions, price spikes, and other difficulties. So the issue I would 

like to speak about today is the question of how to allocate this 

11 

huge beneficence of natural gas in the United States. Is it by regulation or is it by the free market? 

Now, people in the market will point out that it takes 5 to 7 years and $10 billion to $20 billion to have an export terminal, 

with the trains and the ships and the D gas facilities on the other 

end. And don’t ever think that all of those who put up a few hundred dollars to apply for their permit are going to be able to make 

it to the finish line. 

In my judgment, and my experience has been that the market is 

the best way to do that allocation. Let me give you my experience 

with markets because it is pretty extensive. My first subcommittee 

was Production and Stabilization of the Banking Committee. We 

had jurisdiction of President Nixon’s wage and price controls. We 

had hearings that indicated that it was a disaster—shortages, dislocations, supply disruptions—and I think our hearings had a lot 

to do with making the case to suspend those wage and price controls. 

Then the Federal Power Commission—some of you remember the 

Federal Power Commission—was regulating the price of natural 

gas in order to protect consumers. The problem was they set the 

price so low that they dried up the supply. In the cold winter of 

1976–1977 hundreds of thousands of employees in the Midwest 

were out of work because there was no natural gas, the regulators 

didn’t know how to regulate. So in that cold winter we passed in 

5 days the emergency natural gas bill—5 days we passed that bill. 

And we came along the next year with the Natural Gas Policy 

Act. I think one or two of you were here in this room for that yearand-a-half conference committee. What we did is deregulate the 

price of natural gas by degrees between 1978 and January the 1st, 

1985. It was the most controversial bill you can imagine. All three 

networks— we only had three networks at that time—they were 

here, and, oh, my gosh, you know, the regulator said it is going to 

ruin things, the price is going to shoot through the roof, the supply 

is going to dry up. Guess what? Come January the 1st, 1985, the 

supply was adequate, the price actually went down, and we proved, 

absolutely proved that the free market works in commodities and 

particularly in natural gas. 

Then we had the Fuel Use Act of 1978 where they prevented natural gas from being burned under boilers, and that turned out to 

be a disaster, the Congress didn’t know how to allocate the highest 

and best use of natural gas. And just in case you think that since 

I left the Senate that the regulators are doing any better job, just 

look at electric cars. The President says we are going to have a million electric cars in a couple of years. We have got less than 

100,000 now. 

And how about ethanol? We are supposed to have 36 billion gallons of ethanol, over half of that cellulosic ethanol. Right now, according to their estimates, we should be having 500 million gallons 

of cellulosic ethanol. You know how many we have got? Less than 

a million gallons, less than 1/500, and the prospects are not any 

better. 

So the question is, does anyone really believe that the Department of Energy years in advance, 5 to 7 years in advance, can really accurately predict supply and demand and predict who is going 

12 

to be able to come up with billions of dollars and make decadeslong supply and demand offtake agreements? They can’t do it. 

You know, markets are dynamic. There are many factors which 

are working which change by the month, some change daily, labor 

rates, interest rates, diesel cost, steel, pipeline capacity, NIMBY 

risk, regulatory risk, capital availability, technology changes. All of 

those things are working rapidly. And the way to allocate those, 

that great beneficence of natural gas, is to let the market do it because it can react faster than the regulators can react. 

Thank you, Mr. Chairman. 

Mr. WHITFIELD. Thank you, Senator Johnston. 

[The prepared statement of Mr. Johnston follows:] 

13 


82191.001

Testimony of The Honorable J. Bennett Johnston 

before the Subcommittee on Energy and Power 

of the U. S. House Committee on Energy and Commerce 

"U.S. Energy Abundance: 

Exports and the Changing Global Energy Landscape" 

May 7, 2013 

Chairman Whitfield, Ranking Member Rush, and Members of the Subcommittee, 

Thank you for the opportunity to present my views on natural gas exports and the 

role of the government in regulating natural gas and natural gas exports. 

The Department of Energy in its latest annual report projected a 100-year supply 

of natural gas with, by 2040, a growth in natural gas production of 40% and a growth in 

consumption of only 20%. And the current trend in supplies is up! Just last 

Wednesday (May 1), The Washington Post reported that the Williston Basin contains 

three times as much gas as previously reported and China has 50% more shale gas 

than the United States. A study commissioned by DOE concluded that exports of 

natural gas would not appreciably increase the price. 

Leading the opposition to LNG exports are prominent members of the chemical 

industry. They argue that unfettered exports can cause demand shock and price 

volatility, which can smother America's chemical industry rebirth. 

The petroleum industry counters that LNG facilities require $10-$40 billion to 

complete and 5-7 years to finance, build and permit. On top of that, the exporter must 

have secured a multi-decade supply of natural gas and a firm contract on the receiving 

end to purchase the LNG. These factors along with very healthy competition from 

foreign exporters will prevent an export-driven price spike. Moreover, DOE sponsored 
14 


82191.002

studies support the conclusion that exports provide the demand incentive to increase 

production of natural gas. Much of America's best dry gas supply, such as the 

Haynesville Shale in my state of Louisiana, lies undeveloped for lack of demand. 

Thus the issue is the one Adam Smith identified more than two centuries ago in 

"The Wealth of Nations": How best to procure that balance between supply and 

demand that produces prosperity. Is it through government regulation or by the free 

market? 

My years in the U.S. Senate (1972-97) spanned a period rich with 

experimentation in the efforts of government to regulate price and supply. My first 

chairmanship was of the Production and Stabilization Subcommittee of the Banking 

Committee, which had jurisdiction over President Nixon's 1971 wage-and-price controls. 

Our hearings exposed the shortages, dislocations and distortions that the scheme 

produced. This disastrous experiment in central planning was soon abandoned and 

should stand as a reminder of the dangers of regulatory overreach. 

My 24 years on the Senate Energy Committee also involved dealing with the 

government's efforts to regulate price and supply. In the early 1970s, the Federal Power 

Commission sought to protect consumers by regulating the price of natural gas. Instead 

of hitting a price "sweet spot," the effort produced massive shortages. 

In the record cold winter of 1976-77, hundreds of thousands of workers in the 

Midwest were laid off for lack of natural gas to power manufacturing plants and other 

companies. The crisis was such that it took just five days for Congress to introduce and 

pass the Emergency Natural Gas Act of 1977 authorizing President Jimmy Carter to 

suspend antitrust laws in the industry to address a shortage in supply. Five days! 
15 


82191.003

The epic fight for the deregulation of natural gas was the most controversial issue 

of the day. A round-the-clock filibuster with senators sleeping on cots in the cloakroom 

was finally overcome. The resulting Natural Gas Policy Act of 1978 increased the price 

of gas in stages until full deregulation on Jan. 1, 1985. The regulatory community 

predicted a terrible price explosion on this date with a calamity for consumers. Instead, 

the nation experienced lower prices and an adequate supply. 

During this time, Congress also sought to prevent this valuable commodity from 

being wasted, and it passed the Fuel Use Act of 1978 preventing natural gas from being 

burned for electricity generation. The law did not cause an emergency but it became 

clear that electric generation was frequently the best use of the gas. The folly of this 

attempt at resource allocation was soon evident and repeal ensued. 

And if you believe that the government's ability to estimate supply and demand 

has improved since I left office, I refer you to two recent instances indicating that you'd 

be mistaken. In 2007, Congress predicted there would be 500 million gallons of 

cellulosic ethanol for commercial use in the United States. In fact, there was less than 

one million gallons. The fuel is simply not commercially available in the United States. 

And in 2011, the President set a goal of one million electric cars on the road by 

2015. To date, only 87,000 electric and hybrid cars have been sold. This number 

would have to increase 10-fold to reach the Administration's goal. It's a cinch that 

Fisker Motors won't supply the deficit. An April report from the Congressional Research 

Service acknowledges, "Electric vehicles are still in their infancy, and there is a gap 

between the Administration's goal of having 1 million electric vehicles on the road by 

2015 and consumer demand for such vehicles." 
16 


82191.004

That brings us back to today's calls for top-down control of the LNG market. Does 

anyone really think that Congress or the Department of Energy, years in advance, can 

predict supply and demand or determine which of the 20 applicants can procure the 

billions of dollars and decades-long contracts necessary to build an LNG export facility? 

The free market might not always lead to everyone's definition of the sweet spot, 

but experience has shown that it is a better allocator and regulator than bureaucrats and 

politicians. We should heed the admonition of Adam Smith that demand begets supply: 

Allow the free market to allocate the nation's newfound energy bounty. 

Again, thank you for the opportunity to testify before you today. I WOUld, of 

course, be happy to answer any of your questions. 
17 

Mr. WHITFIELD. And, Senator Dorgan, you are recognized for 5 

minutes. 

STATEMENT OF BYRON DORGAN 

Mr. DORGAN. Mr. Chairman, thank you very much. 

I am here on behalf of the Bipartisan Policy Center. Senator 

Trent Lott and I co-chaired, along with two others, a major study 

on energy and have produced this document. This is the executive 

summary. I would encourage all of you to get it. It is an unbelievably important source book. And we are hoping that the House and 

the Senate will hold a hearing on this because we have tried to create what we think could represent bipartisan opportunities for policy changes in the area of energy. 

I left the House, by the way, in 1992, went to the Senate, spent 

my next 18 years there. The last time I was in this room in 2007 

as an energy conferee, and at that point FERC had said we were 

running out of natural gas, 2007. So times changes a bit. That is 

only 6 years ago, 5 1⁄2 years ago. We were running out of natural 

gas. An old Indian chief once said that the success of a rain dance 

depends a lot on timing. Well, timing is everything, and timing 

here with respect to where we were in 2007 versus now is unbelievably interesting. So let me talk about four major ways that the energy circumstances have changed on the planet. 

First of all, U.S. supply. We are producing more, a lot more oil 

and gas, but also producing more renewable energy. And the oil 

and gas that comes from innovation in combining horizontal drilling with hydraulic fracturing. So that is all good news. We are producing more, that is good news for our country, and not just more 

fossil, we are producing more renewable, which is good news for 

our country. 

Efficiency, which is the fifth fuel. A lot of people don’t understand how much efficiency has contributed to where we are as a 

country. And so that is very important, and there are major U.S. 

benefits as a result of this. 

Second significant issue, we add 200,000 people to the planet 

every single day. We added Dallas, Texas, net to the planet every 

week. We are headed towards 9 billion people. They are going to 

want to have refrigerators, washing machines, and air conditioners. 

They are going to want to drive cars as well that are going to need 

to stop at a fuel station once or twice a week—or let’s hope once 

every 2 weeks. My point is the growing demand as a result of increased population will continue. 

So number one, we are producing more, that is good for our country. Number two, there is going to be substantial growth in demand on the planet. 

Number three, you can’t come to the intersection of discussing 

energy without understanding that you have to be concerned about 

the climate and climate change issues. It is clear to me that the 

wide consensus will be, is and will be in the future that we need 

a lower carbon future. That is going to play a role. Deny, as some 

will, energy policy is linked to environmental issues. 

And number four, you can’t discuss all this without understanding there remains an oil cartel on this planet that sets interVerDate Nov 24 2008 15:52 Oct 23, 2013 Jkt 037690 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-38 CHRIS
18 

national pricing. We need to understand that because that plays a 

role in our lives as well. 

Now, let me talk about the Bipartisan Policy Center’s report. The 

major issues there are diverse sources. We say, yes, this is great 

news on oil and gas, it is transformative for our country in lots of 

ways, good for us. We believe we should continue producing. I offered the amendment in the 2009 bill that didn’t get to the floor 

of the Senate to open up the eastern Gulf. I mean, we should continue producing. But diverse sources means also continue to push 

renewables as well. 

And we also talk about improving productivity. That means 

transmission, CAFE, transportation fuels, all of those areas. We 

talk about innovation. Innovation is critically important for our 

country. We must innovate to succeed. 

And then finally governance. We have 20 Federal agencies that 

have some part of the energy policy. I mean, how do you have an 

orchestra without a band director? And yet we have 20 different 

agencies that play a role in energy policy. 

So we have put together a set of 50 recommendations. And, 

again, I hope very much both the House and the Senate will hold 

hearings on these sets of recommendations on energy policy. It describes how on a bipartisan basis we can make progress in a Congress that seems unbelievably gridlocked. We had an advisor group 

of 20 people, CEOs from every part of the political spectrum, public 

policy groups and corporations and so on, as we created this document. 

Now let me talk at the end of this with respect to the issue of 

exports. The export of natural gas, it seems to me, will be continuing to play a significant role. What we decided is we believe the 

market should make the decision about the exports of natural gas. 

And I know some are worried, well, if we export natural gas we are 

going to see increases in domestic prices. Look, we have already 

doubled our exports of natural gas to both Canada and Mexico. A 

lot of people don’t know that. We are piping natural gas to both of 

our neighbors and have doubled that since 2007. 

I think it is far more likely that domestic prices will affect exports than it is that exports will affect domestic prices. And so we 

decided in this report that the market should make the judgment 

about the exports of natural gas. 

So, Mr. Chairman, again, I am going to ask the Bipartisan Policy 

Center if we might provide—I think I just gave the last copy I had 

to Bennett Johnston, this is the full copy—but I would love to have 

all of you have a copy of this. It is an unbelievably good source 

book for virtually all areas of energy with 50 recommendations that 

I think could advance the bipartisan interest of this country and 

this Congress. 

Mr. WHITFIELD. Thank you Senator Dorgan. 

I know many of us have copies of it but we would be happy for 

you all to supply it to the committee so we can make sure everyone 

has it. 

[The prepared statement of Mr. Dorgan follows:] 

19 


82191.005

Testimony of Byron Dorgan 011 

U.S. Energy Abundance: Exports and the Global Energy Landscape 

Hearing 

Good morning. My 

of North 

members ofthe Subcommittee for 

rapidly changing energy lam 

speaking to you today Bipartisan Policy 

Center aa·voc:atJ.nrr bipartisan 

solutions to some our co-chaired an 

i8-month long project-called the iti'lh1!p--tlh~taimed assess 

our nation's current energy 

recommendations. The leading 

energy experts from the testimony 

today draws from the report Energy 

Resurgence: Sustaining 

be aC(:eSI,ea 
20 


82191.006

The central "good news" finding from BPe's Strategic Energy Policy Initiative is that 

the United States enters the 21st century in a position of energy strength. Domestic oil, 

natural gas, and renewable energy production are up, while energy imports are down; new 

energy development is driving a jobs boom in many parts of the country; and lower energy 

costs are helping the U.s. manufacturing sector recover. Many of these recent positive 

developments are linked to the advent of improved drilling technologies that have made it 

economical to access vast new reserves of hydrocarbons. 

Just as important, our nation has made enormous gains in energy efficiency over the 

last 50 years. In fact, adjusting for economic growth and inflation, the United States has cut 

its energy needs by more than 50 percent since 1973, and this trend shows no signs of 

slowing. Put simply, the energy we've saved by becoming more efficient over the last 40 

years exceeds all the new resources we've added to our portfolio of energy supplies. 

Thanks to this combination of positive supply and demand trends, our nation is arguably 

more energy secure than it has been in more than a generation. 

Of course, that doesn't mean our nation no longer faces any energy challenges. 

Many households and businesses still have difficulty meeting their energy needs 

affordably; the current oil and gas boom comes with environmental challenges; the electric 

grid faces hurdles in upgrading infrastructure and integrating new renewable sources; 

public research and development (R&D) in energy is insufficient to maintain an 

international competitive edge; we still haven't reached consensus as a nation on how to 

2 
21 


82191.007

address the problem of climate change; and our economy remains exposed to instability 

and volatility in global energy markets. 

Given these challenges, we believe the central task of federal energy policy is to 

build on America's enormous energy strengths to ensure that we can continue to deliver 

affordable, secure, and reliable energy in an environmentally responsible manner for 

decades to come. Specifically, my colleagues and I on BPC's Energy Board identified four 

core objectives for U.S. energy policy: 

(1) pursue a diverse portfolio of energy resources; 

(2) improve the energy productivity of the U.S. economy; 

(3) accelerate innovation and technology improvements across the energy sector; 

and 

(4) improve energy policy governance and accountability. 

The specific policy actions we recommend to advance these objectives are detailed 

in our February report; in brief, they include further efforts to promote the 

environmentally responsible development of domestic resources including oil, natural gas, 

and renewables along with continued investment to further improve the energy 

productivity of the U.S. economy, advance new technologies to preserve a wide menu of 

energy options for the future (including clean coal and nuclear technologies), diversify fuel 

3 
22 


82191.008

options for the transportation sector, meet future energy-related workforce needs, and 

strengthen key infrastructure, particularly the U.S. electric grid. 

Taken together, we are confident these actions will further improve our nation's 

energy security, strengthen the U.S. economy, and help us achieve our environmental goals. 

The recent boom in domestic energy production, much of it linked to the advent of 

more sophisticated drilling technologies-such as hydraulic fracturing-that have made it 

economic to develop unconventional resources such as shale gas, is already spurring new 

investments and growth opportunities, particularly in industries that can take advantage of 

lower cost natural gas. It is also generating interest in new export opportunities-which 

are the focus oftoday's hearing. 

In the last two years, in fact, expectations of liquefied natural gas (LNG) imports 

have given way to discussions of LNG exports. However, the prospect of greatly expanded 

LNG exports has also raised serious concerns among a number of analysts and policy 

makers who remember well the high natural gas prices of the 2000s and who worry that 

increased exports will drive up domestic natural gas prices. After reviewing several recent 

studies on the impacts of LNG exports, the BPe Energy Board concluded that domestic gas 

prices are more likely to drive export levels than exports are likely to determine domestic 

prices. Indeed, we concluded that LNG exports are likely to have at most a modest impact 

on domestic natural gas prices-LNG exports will adjust as U.S. prices rise or fall. 

4 
23 


82191.009

Moreover, abundant low-cost supplies abroad (particularly from Qatar) and the significant 

costs of liquefaction and transport from the United States will constrain U.S. export 

volumes. As long as state and federal regulators-along with both industry and 

stakeholders-continue to make strides to mitigate the environmental impacts of shale gas 

production, we believe the federal government should allow LNG exports. 

This recommendation is consistent with a broader observation concerning U.S. 

export policy more generally: Even where controversy has surrounded a particular type of 

export, especially those with potential national security implications, the policy solution 

rarely has been to completely abandon the nation's traditional commitment to free trade. 

In sum, we conclude that restricting international trade in fossil fuels is not an 

effective policy to reduce global greenhouse gas emissions or to advance domestic 

economic interests, and we recommend against any such restrictions. 

This overarching recommendation also addresses the controversy that has arisen in 

connection with several proposals to build new bulk commodity export terminals that plan 

to export coal. Opposition to these proposals has been motivated by a combination of local 

concerns, including the potential for adverse impacts in terms of traffic, air quality, coal 

dust, and marine pollution.i However, the current rigorous permitting process can provide 

ample opportunity to identify and address local environmental concerns linked to the 

construction and operation of new export facilities in the United States. 

5 
24 


82191.010

Some of the opposition to expanded u.s. coal exports, however, is also motivated by 

a broader set of concerns, notably the concern that it would promote increased coal use in 

China and other growing markets and in turn lead to an increase in net global emissions of 

carbon dioxide. (Another concern is global emissions of mercury, which can be transported 

long distances in the atmosphere.) Recent analyses have come to different conclusions 

about the net effect of u.S. coal exports on international coal prices and global greenhouse 

gas emissions.ii Given the magnitude of global coal reserves relative to international 

demand, it is our view that U.S. coal exports would have only a minor influence on the 

global coal market, and that other countries will fill the gap if U.S. exports are limited. More 

importantly, as I have already stated, we do not believe that impeding the global trade of 

fossil fuels is an effective or efficient means of reducing global greenhouse gas emissions. 

In sum, we believe that the opportunity to increase U.s. energy exports reflects one 

of the important economic upsides of our nation's newfound energy abundance. Provided 

appropriate regulatory protections and policy frameworks are in place to govern domestic 

energy production, expanded exports will improve the U.S. balance of trade, support local 

and regional economies, and increase the U.S. presence in global energy markets - and do 

so without harm to the environment or to U.s. consumers and businesses. 

6 
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82191.011

In closing, let me again thank the members of the Subcommittee for the opportunity 

to testify. 

Kitzhaber to Secretary of the Army, Secretary of the Interior, U.s. ArnlY Corps of 

25.2012. 

7 
26 

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

STATEMENT OF JAMES BRADBURY 

Mr. BRADBURY. Thank you and good morning. Thank you for the 

opportunity to contribute to the deliberations of this subcommittee. 

My name is James Bradbury. I am a senior associate in the Climate and Energy Program at the World Resources Institute. WRI 

is a nonprofit, nonpartisan think tank that focuses on the intersection of the environment and socio-economic development. 

I am pleased to be here today to offer WRI’s perspective on the 

climate implications of U.S. Liquefied natural gas exports. I encourage this committee to consider not just the economic and geopolitical opportunities of LNG, but also the environmental, and 

particularly climate-related implications. In my testimony today I 

want to emphasize a number of points that are often overlooked in 

this discussion, in particular fugitive methane emissions and the 

cost-effective solutions available for reducing them today. 

LNG exports will lead to an increase in domestic production of 

shale gas, which will have important environmental implications, 

including an increase in U.S. greenhouse gas emissions. One major 

emission source is leaks from natural gas infrastructure. Methane 

is the primary component of natural gas and a potent greenhouse 

gas, with a warming effect that is at least 25 times greater than 

carbon dioxide. These fugitive emissions represent lost product and 

reduced revenue for companies and governments, with negative 

consequences for air quality, local environment, and the climate. 

In 2011 methane leaks from domestic natural gas infrastructure 

resulted in more greenhouse gas emissions than all of the direct 

and indirect emissions from U.S. iron and steel, cement and aluminum manufacturing combined. These upstream emissions, along 

with emissions associated with the liquefaction, transport, and regasification of LNG, significantly reduce the relevant advantage 

that exported natural gas would have over coal or oil from a climate perspective. The bottom line is that the projected expansion 

of domestic oil and gas production increases the risk of higher 

greenhouse gas emissions if proper protections are not in place. 

The impact of LNG exports on global carbon dioxide emissions is 

expected to be fairly minor. The International Energy Agency estimates that an expanded global market for natural gas would reduce global carbon dioxide emissions by a mere 0.5 of 1 percent by 

2035. But these scenarios do not consider associated upstream 

methane emissions. The U.S. EPA estimated that the scale of 

leaked methane from global natural gas and oil systems is projected to be 10 times greater than IEA’s estimated CO2 reductions 

resulting from a future with more abundant natural gas. 

Ultimately U.S. policies are needed to reduce these fugitive 

methane emissions if natural gas and LNG are to be part of the 

solution to climate change. WRI research has found that such policies are among the most important steps that the U.S. can take 

today to help meet our greenhouse gas emissions reduction goals. 

The good news is that most strategies for cutting leakage are 

highly cost effective and the EPA’s recently finalized rules are already having emissions benefit. But there is more work to be done. 

By stepping up to address these emissions the United States has 

27 

an important opportunity to improve our economic and geopolitical 

standing by showing leadership in addressing global climate 

change. We can do this through commonsense policies that promote 

the development, deployment, and export of low-emissions technologies and practices that will allow for the cleaner production 

and more efficient end use of natural gas here in the U.S. and 

internationally. 

While there are some benefits to increased natural gas production, there are also risks and associated costs. Further expanding 

our reliance on fossil energy resources exposes us and our allies to 

the destabilizing effects of climate change. In its 2010 Quadrennial 

Defense Review the Department of Defense found that climate 

change could have significant geopolitical impacts around the 

world, including weakening fragile governments, food scarcity, 

spread of disease, and mass migration. 

For energy markets to serve the public interest the price of energy must reflect its true cost. Society pays when our health care 

premiums rise due to the harmful health effects caused by high 

ozone levels and other air pollution. Taxpayers pick up the tab for 

climate change when more frequent extreme weather events cause 

increasing damage to our communities and critical infrastructure. 

Yet every day that we take no policy action on climate change 

we make the policy choice to let climate change run its course. The 

present course ignores the overwhelming consensus of climate scientists who have been warning for decades that rising greenhouse 

gas emissions will cause the planet to warm, sea levels to rise, and 

the weather to become more extreme. It is indisputable that these 

climate changes are already happening today, in many cases much 

more quickly than expected. Urgent action is needed. 

I would be glad to take questions. Thank you. 

Mr. WHITFIELD. Thank you, Mr. Bradbury. 

[The prepared statement of Mr. Bradbury follows:] 

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TESTIMONY OF JAMES BRADBURY 

SENIOR ASSOCIATE, CLIMATE AND ENERGY PROGRAM 

WORLD RESOURCES INSTITUTE 

HEARING BEFORE THE U.S. HOUSE OF REPRESENT A TIVES ENERGY AND 

COMMERCE SUBCOMMITTEE ON ENERGY AND POWER: 

"U.S. ENERGY ABUNDANCE: 

EXPORTS AND THE CHANGING GLOBAL ENERGY LANDSCAPE" 

May 7,2013 

Summary of Key Points: 

Liquefied natural gas (LNG) exports present both opportunities and risks. Producing and 

delivering natural gas to customers is highly energy- and emissions-intensive, particularly when 

LNG is involved. Research by the World Resources Institute has found that cuts in upstream 

methane leakage from natural gas systems are among the most important steps the U.S. can take 

toward meeting our greenhouse gas (GHG) emissions reduction goals by 2020 and beyond. 

This testimony focuses on fugitive methane emissions and the many cost-effective solutions 

available for reducing them. It appears very likely that LNG exports from U.S. terminals would 

result in increased domestic GHG emissions from both upstream and downstream sources. 

Policymakers should more actively work to help achieve reductions in GHG emissions from 

throughout the natural gas value chain. if this valuable fuel and LNG are to be part of the 

solution to the climate change problem. Taking these actions offer economic, environmental. and 

geopolitical benefits. both in the U.S. and internationally. To this end. I offer the following 

policy recommendations: 

• Expand applied technology research programs at the U.S. Department of Energy to help 

reduce the cost of leak-detection and emissions measurement technologies, and to 

develop new and lower-cost emission reduction strategies. 

• Update emissions factors for natural gas systems using robust measurement protocols, 

public reporting by industry. and independent verification. 

• Authorize and appropriate funding for the organization STRONGER (State Review of 

Oil and Natural Gas Environmental Regulations) to help states with timely development 

and evaluation of their environmental regulations. 

• Support voluntary programs at the U.S. Environmental Protection Agency (EPA), 

including Natural Gas STAR and other programs which recognize companies that 

demonstrate a commitment to best practices. 

• Support EPA's efforts to providc tcchnical and regulatory assistance to states with 

expanding oil and natural gas development, including through the Ozone Advance 

Program. 

• Enact policies to support clean energy and address climate change. A clean energy 

standard or putting a price on carbon would provide clear signals to energy markets that 

energy providers and users need to recognize the environmental and social costs as well 

as the direct economic costs of energy resources. 

1 
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TESTIMONY OF JAMES BRADBURY 

SENIOR ASSOCIA TE, CLIMATE AND ENERGY PROGRAM 

WORLD RESOURCES INSTITUTE 

HEARING BEFORE THE U.S. HOUSE OF REPRESENTATIVES ENERGY AND 

COMMERCE SUBCOMMITTEE ON ENERGY AND POWER: 

"U.S. ENERGY ABUNDANCE: 

EXPORTS AND THE CHANGING GLOBAL ENERGY LANDSCAPE" 

May 7, 2013 

Good morning, and thank you for the opportunity to contribute to the deliberations of this 

Subcommittee. My name is James Bradbury, and I am a senior associate in the Climate and 

Energy Program at the World Resources Institute (WRI). WRI is a non-profit, non-partisan think 

tank that focuses on the intersection of the environment and socio-economic development. We 

go beyond research to put ideas into action, working globally with governments, business, and 

civil society to build transformative solutions that protect the earth and improve people's lives. 

We operate globally because today's problems know no boundaries. We provide innovative 

paths to a sustainable planet through work that is accurate, fair, and independent. 

Summary 

I am pleased to be here today to offer WRI's perspective on the climate implications of U.S. 

liquefied natural gas (LNG) exports. I encourage this committee to weigh a complete 

consideration of the associated economic and geopolitical opportunities next to the potential 

risks, neither of which have been fully considered in the public debate. In particular, it appears 

very likely that LNG exports from U.S. terminals would result in increased domestic greenhouse 

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gas (GHG) emissions. For example, analysis by the Energy Information Administration (EIA)1 

concluded that any scenario of LNG exports would trigger an increase in domestic carbon 

dioxide (C02) emissions, due to an increase in coal-fired electricity and use of natural gas for the 

energy-intensive liquefaction process at LNG terminals. The EIA also projected an increase in 

natural gas production from shale wells. Though not considered in the E1A study, an inevitable 

consequence would be greater upstream air em issions from natural gas infrastructure - that is, 

emissions that occur prior to fuel combustion - including fugitive methane, which is a potent 

global warming pollutant. While LNG exports from the U.S. are widely expected to marginally 

reduce global C02 emissions, modeling to date suggests that the scale of these reductions is less 

than tcn percent of the total levels of global fugitive methane emissions from natural gas and oil 

systcms. 

These facts should raise the bar for policymakers and advocates for LNG exports to more 

actively work to achieve continuous improvement in GHG emissions from all life cycle stages 

(from extraction to use), if natural gas and LNG are to be part of the solution to our climate 

change problem. Furthermore, to the extcnt that substantial LNG exports from the U.S. move 

forward, our national policy objectives should be broader than simply improving our balance of 

trade vis-a-vis fossil fuel exports to increase our economic and geopolitical standing. We also 

have an important - indeed urgent opportunity to improve our economic and geopolitical 

standing by showing leadership in addressing global climate change. We can do through policies 

1 See: http://www.fossil.energy.gov!programs!gasregulation!reports/fe eia Ing.pdf 

2 
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that promote the development, deployment, and export of low-carbon products and services" to 

help enable global GHG emissions reductions from all sectors, including through technologies 

and practices that allow the cleaner production and more efficient end-use of natural gas. 

Today I will focus in particular on fugitive methane emissions3 and the cost-effective solutions 

available for reducing them. 4 The case for policy action is particularly strong considering that 

recent research shows that climate change is happening faster than expected. In addition, the 

projected expansion in domestic oil and natural gas production increases the risk of higher GHG 

emissions if proper protections are not in place. 

• Methane is the primary component of natural gas and also a potent greenhouse gas. 

Methane leaked from natural gas systems (i.e., fugitive methane) represent lost product 

and reduced revenue for companies and governments, with negative consequences for air 

quality and the environment. 

• Fugitive methane emissions from natural gas systems represent roughly 3 percent of 

global warming pollution in the U.S. Reductions in methane emissions are urgently 

needed as part of the broader effort to slow the rate of global temperature rise. 

• Although natural gas burns much cleaner than coal or oil, fugitive methane emissions 

significantly reduce this relative advantage, from a climate standpoint; therefore, cutting 

2 For more information on low-carbon market opportunities, see Jennifer Morgan's testimony, here: 

http://www,wri,org!publication/testimony-american-energy-securlty-and-innovation-assessment-of-energyresources 

3 While this testimony focuses on greenhouse gas emissions - and methane emissions from natural gas systems, in 

particular - WRI is committed to minimizing the full scope of impacts cause by energy production and use. It is 

critical for U.S. energy policies to be developed with consideration to a broad range of risks and benefits. 

4 For more detailed analysis and discussion of this topic, see WRI's recent working paper, "Clearing the Air: 

Reducing Upstream Greenhouse Gas Emissions from U.S. Natural Gas Systems." Available at: 

http://www.wri.org/publication/clearing-the-air 

3 
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fugitive emissions from natural gas systems would ensure that the climate impacts of 

natural gas are much lower than coal or diesel fuel over any time horizon. 

• Recent emissions standards from the U.S. Environmental Protection Agency (EPA) will 

substantially reduce leakage from natural gas systems, but to help slow the rate of global 

warming pollution and improve air quality, further action by states and federal agencies 

should directly address fugitive methane from new and existing wells and equipment. 

• Fortunately, most strategies for reducing fugitive methane emissions are cost-effective, 

with payback periods of three years or less. A recent WRI report found that cuts in 

methane leakage from natural gas systems are among the most important steps the U.S. 

can take toward meeting our GHG emissions reduction goals.s 

• The process ofliquefaction, transport, and regasification of LNG is highly emissionsintensive, increasing by 15 percent the total life cycle GHG emissions associated with 

exported U.S. natural gas, compared to natural gas that is produced and consumed 

domestically. These added upstream emissions also significantly reduce the relative 

advantage that natural gas would have over higher-emitting fuels, like coal and oil. 

• The following policy actions by Congress would help reduce methane emissions as costeffectively and quickly as possible: 

o Expand applied technology research programs at the U.S. Department of Energy 

(DOE) to help reduce the cost of leak-detection and emissions measurement 

technologies, and to develop new and lower-cost emission reduction strategies. 

5 See: "Can the U.S. Get There from Here? Using Existing Federal Laws and State Actions to Reduce Greenhouse 

Gas Emissions," available at: http://www.wrLorg/publication!can-us-get-there-from-here. 

4 
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o Update emissions factors for natural gas systems using robust measurement 

protocols, public reporting by industry, and independent verification. 

o Authorize and appropriate funding for the organization STRONGER (State 

Review of Oil and Natural Gas Environmental Regulations) to help states with 

timely development and evaluation of their environmental regulations. 

o Support voluntary programs at EPA. including Natural Gas STAR and other 

programs which recognize companies that demonstrate a commitment to best 

practices. 

o Support EPA's efforts to provide technical and regulatory assistance to states with 

expanding oil and natural gas development, including through the Ozone Advance 

Program. 

• Broader action on policies supporting clean energy and addressing climate change should 

also be on the table. A clean energy standard or putting a price on carbon would provide 

clear signals to energy markets that energy providers and users need to recognize the 

environmental and social costs as well as the direct economic costs of energy resources. 

Finally, every day that we take no policy action on climate change, we make the policy choice to 

let climate change run its course. This ignores the overwhelming consensus of climate scientists 

who have been warning for decades that rising GHG emissions will cause the planet to warm, 

sea levels to rise, and weather to become more extreme. It is indisputable that these climate 

changes are happening today, in many cases much morc quickly than expccted. Action is 

urgently needed. 

5 
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LNG Exports, the Public Interest, and Climate Change 

When reviewing grant applications for LNG export authorizations, DOE is required to deternline 

if proposed exports "will not be consistent with the public interest." In making this finding, DOE 

is considering a range of factors, including economic. energy security, and environmental 

impacts.6 The climate change implications of LNG exports touches on each of these factors and 

therefore deserves more careful consideration by Congress and DOE. 

The January 2012 study by EIA included a useful but limited assessment ofthe climate change 

implications of LNG exports, while the N ERA Economic Consulting report (December 2012) 

was more narrowly focused on macroeconomic considerations.7 This testimony focuses 

particular attention to how LNG exports - and increased production of natural gas more broadly 

- could affcct domestic and international GHG emissions, which is clearly a question of 

relevance to the public interest. 

There is no doubt that our climate is already changing in ways that are increasingly risky, 

difficult to manage, and harmful to public health and the environment. 8 Recent science 

assessments - including by the U.S. National Academy of Sciences and the U.S. Global Change 

Research Program9 - agree that GHG emissions are very likely causing higher global 

temperatures, rising sea levels, and more frequent extreme weather events. National science 

6 See: http://www.fossil.energy.gov!programs!gasregulation!LNGStudy.html 

7 Both reports are available here: http://www.fossil.energy.eov!programs!gasregulation!LNGStudy.html 

8 National Academies, Committee on Climate Choices, Final Report, 2011. http://dels.nas.edu(Report(America· 

Cli mate· Choices· 20 11( 12 781 

9 http:l(ncadac.globalchange.gov(download(NCAJanl1.2013.p u blicreviewd raft· fu Iidraft.pdf 

6 
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academies from over a dozen countries, including the U.S., have expressly urged governments to 

take urgent action to curb these hannful emissions. lo 

The current U.S. commitment to the international community is to reduce GHG emissions below 

2005 levels by 17 percent in 2020 and 83 percent in 2050. 11 While a shift in electric generation 

to natural gas from coal has played a significant role in recent reductions in U.S. carbon dioxide 

emissions, this market-driven trend in thc power sector has reversed somewhat in recent months, 

as natural gas prices have been increasing. 12 Furthermore, GHG emissions from all major 

sources will need to be addressed for the U.S. to help achieve climate stabilization at 2° Celsius, 

which the international community has agreed to be an appropriate and relatively safe target. A 

recent report by the World Bank 13 found that the world is on track for at least a 4° Celsius 

increase in global temperatures, which would be extremely damaging to global development 

goals and be "marked by extreme heat-waves, declining global food stocks, loss of ecosystems 

and biodiversity. and life-threatening sea level rise." However. the World Bank also concluded 

that there is still time to enact policies that would help avoid this outcome. 

10 G8+S Academies' joint statement: Climate change and the transformation of energy technologies for a low 

carbon future. http://www.nationalacademies.orglincludes/G8+Senergy-ciimate09.pdf 

11 See: 

http://unfccc.int/files/meetings/cop is/copenhagen accord/application/pdf/unitedstatescphaccord app.1.pdf 

12 See: http://insights.wri.org/news/2013/03/new-data-reveals-rising-coal-use 

13 See: http://climatechange.worldbank.org/content/climate-change-reporl-warns-dramatically-warmer-worldcentury 

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Concerns about the environmental impacts of shale gas development 

Natural gas production in the United States has increased rapidly in recent years, growing by 23 

percent from 2007 to 2012. 14 This development has significantly changed projections of the 

future energy mix in the U.s. The shale gas phenomenon has also helped reduce energy prices, 

directly and indirectly supporting growth for many sectors of the U.S. economy, including 

manufacturing. The EIA projccts that the United States will begin exporting LNG within 5 years 

and that the country will be a net natural gas exporter by the year 2020. 15 

Shale gas development has also triggered divisive debates over the near- and long-tenn 

environmental implications of developing and using these resources, including concerns about 

water resources, air quality, and land and community impacts. 16 Like all forms of energy, 

including conventional natural gas. there are public health and environmental risks associated 

with shale gas development. Chief among public concerns are drinking water contamination 

resulting from improper wastewater management, chemical spills, and underground methane 

migration into groundwater. There are also concerns regarding air emissions, and land-related 

impacts including habitat fragmentation and soil erosion. Other common concerns involve 

community impacts related to industrial development and extensive truck traffic. In 2011, the 

Secretary of Energy Advisory Board's Natural Gas Subcommittee warned l7 that "disciplined 

attention must be devoted to reducing the environmental impact" of shale gas development in the 

14 See: http://www.eia.gov/forecasts/aeo/index.cfm 

15 ibid 

16 For more detailed discussions of the broader environmental impacts of natural gas development, see: 

http://www .gao.gov /prod u cts/GAO-12 -732; and http://www.rff.org/Documen!s/RFF-RP!-

PathwaystoDialogue FullReport.pdf 

17 http://www.shalegas.energy.gov/resources/ll1811 final reporLpdf 

8 
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face of its expected continued rapid growth, with as many as 100,000 more wells expected over 

the next few decades. 

Of particular concern are the air emissions and climate change implications of shale gas 

development, including fugitive methane emissions, which reduce the net climate benefits of 

using lower-carbon natural gas as a substitute for coal and oil for electricity generation and 

transportation, respectively. Other air emissions from the natural gas sector include CO2, volatile 

organic compounds (VOCs, which are chemicals that contribute to ground-level ozone and 

smog), and hazardous air pollutants (HAPs). In 2012, EPA finalized air pollution standards for 

VOCs and HAPs from the oil and natural gas sector. These rules will improve air quality and 

have the co-benefit of reducing methane emissions. As discussed below (see p. 18. "Progress is 

Being Made but There is More Work to Be Done"), these standards should be complemented by 

additional actions to further reduce methane emissions, which will help slow the rate of global 

temperature rise in the coming decades. 

From the standpoint of CO2 emissions. shale gas development and lower natural gas prices have 

contributed to recent emissions reductions in the U.S. However, GHG emissions are projected to 

rise, and market forces and voluntary actions alone will not enable an effective response to 

climate change. Thus broad policy action will be needed. For example, analysis by the 

International Energy Agency (IEA)18 found that a significant global increase in use of natural gas 

over the coming decades could have some net climate benefits compared to scenarios in which 

oil and coal play more prominent roles. However, the lEA's "Golden Rules Case" scenario 

18 International Energy Agency, "Golden Rules for a Golden Age of Gas." Available at: 

http://www . world energyoutlook. org/ med ia/weoweb site/2 0 12/ golden rul es/weo2012 _golden ru lesreport. pdf 

9 
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would result in C02 concentrations in the atmosphere of650 parts per million (ppm) and a global 

temperature rise of3 .5° Celsius. almost twice the internationally accepted 2° Celsius target. 

Economic modeling conducted by researchers at MITI9 and Resources for the Future20 have also 

found that while greater use of natural gas may offer some climate benefits. climate and energy 

policies will be needed to reduce C02 emissions by anywhere near our 83 percent target by midcentury. While natural gas will likely play an essential bridging role in this transition, this will 

require both reducing the upstream GHGs produced during the extraction process, and - if gasfired power plants are to be a part of a longer-term energy future - using carbon capture and 

storage (CCS) technology. 

Why Focus on Methane Emissions? 

Though methane accounted for only 10 percent of the U.S. greenhouse gas emissions inventory 

in 2010 (Figure 1 ),21 it represents one of the most important opportunities for reducing GHG 

emissions in the U.S.22 In addition to the scale and cost-effectiveness of the reduction 

opportunities, climate research scientists have concluded that cutting methane emissions in the 

near tenn could slow the rate of global temperature rise over the next several decades.23 

19 See: http://g!obalchange .. mit.edu/re~'p':ublicatlons(2229 

20 See: http://www .rif.org/RFF /Documents/RFF-I B-09-11.pdf 

21 Note: all GHG inventory numbers referred to in this testimony were adjusted to reflect a more current global 

warming potential (GWP) for methane of 25 (IPCC 2007). This is necessary because when EPA converts methane to 

carbon dioxide equivalents they use an out-of-date GWP for methane of 21 (IPCC 1995), for the sake of 

consistency with UNFCCC reporting guidelines. 

22 See: "Can the U.S. Get There from Here? Using Existing Federal Laws and State Actions to Reduce Greenhouse 

Gas Emissions," available at: http://www.wri.org/publication/can-us-get-there-from-here. 

23 National Research Council, 2011. "Climate Stabilization Targets: Emissions, Concentrations, and Impacts over 

Decades to Millennia," ISBN: 0-309-15177-5, 298 pages. http://www.nap.edu/catalog/12877.html 

10 
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Rising methane concentrations in the atmosphere have a potent, near-term warming effect 

because this greenhouse gas has a relatively high global warming potential and short atmospheric 

lifetime (IPCC 2007). Global warming potential (GWP) is a measure or the total energy that a 

gas absorbs over a particular period of time (usually 100 years), compared to carbon dioxide. 

Key factors affecting the GWP of any given gas include its average atmospheric lifetime and the 

ability of that molecule to trap heat. By mass. the same amount of methane emissions is 25 times 

more potent than carbon dioxide emissions over a I OO-year time horizon (IPCC 2007). In the 20-

year time frame, studies estimate that methane's GWP is at least 72 times greater than that of 

carbon dioxide. 

Scientists at the National Research Council of the U.S. National Academy of Sciences have 

concluded that global C02 emissions need to be reduced in the coming decades by at least 80 

percent to stabilize atmospheric CO2 concentrations and thereby avoid the worst impacts of 

global climate change."4 However. given the slow pace of progress in the U.S. in this regard. it is 

valuable and important for policymakers to consider cost-effective mitigation strategies - such as 

cutting methane emissions - that would have a disproportionate short-tenn impact. 

How Emissions-Intensive is U.S. Natural Gas? 

EPA estimates that total emissions from the development, transmission, and use of natural gas in 

the U.S. made up roughly a quarter ofthe total U.S. GHG inventory in 2011."5 While natural gas 

emits about half as much carbon dioxide as coal at the point of combustion, the picture is more 

"Ibid. 

" Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2011 (April 2013). 

http://www.epa.gov/climatechange/ghgemissions/usinventoryreport.html 

11 
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complicated from a life cycle perspective. Three percent of the U.S. inventory is the result of 

fugitive methane emissions from natural gas systems,6 - i.e., natural gas lost to the atmosphere 

through venting and systemic leaks. prior to the point of combustion. To put this in perspective, 

in 201 I, these methane leaks resulted in more GHG emissions,7 than all of the direct and indirect 

GHG emissions from U.S. iron and steel. cement, and aluminum manufacturing combined.18 

EPA's 2013 GHG inventory implies a methane leakage rate ofless than 2 percent oftotal natural 

gas production. Meanwhile. recent research19 has shown that at less than a 3 percent leakage rate, 

natural gas produces fewer GHG emissions than coal over any time horizon. Additionally, 

reducing the methane leakage rate to below I percent would ensure that heavy-duty vehicles 

fueled by natural gas, like buses and long-haul trucks. would provide an immediate climate 

benefit over similar vehicles fueled by diesel. Thus, reducing total methane leakage to less than I 

percent of natural gas production is a sensible performance standard for the sector; an achievable 

benchmark that has not yet been reached. 

Accurate estimates of the total leakage rate from the natural gas sector require reliable data for a 

broad range of industry activities and emissions factors associated with those activities. While 

EPA has recently updated industry activity data. most of the emissions factors rely on assumed 

emissions factors - as opposed to direct measurements, which are generally rare and often 

26 The GHG inventory estimates 6.9 million metric tons of fugitive methane from natural gas systems in 2011. 

27 This estimate is based on an assumed global warming potential for methane of 25, which is the convention when 

considering the climate implications of methane compared to carbon dioxide, integrated over a 100-year time 

frame (iPCC, 2007). 

28 See: 

http://www.energetics.com/resourcecenter/products/roadmaps/Pages/USManufacturingEnergyUseandGreenhou 

seGasEmissionsAnalysis,aspx 

29 See: http://www.pnas.org/content/l09/17 /6435 

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outdated. Some recently published research suggests that emissions levels may be higher than 

EPA estimates; this, coupled with high ground-level ozone levels in Colorado and Texas and 

rural parts of Utah and Wyoming (i.e., smog that is attributed to shale gas production activities), 

suggests that the emissions problem may be worse than we think. and certainly subject to 

regional variations?O 

With hundreds of thousands of wells and thousands of natural gas producers operating in the 

U.S .. the data quality issue will likely remain an active debate. even as forthcoming data from 

EPA and other sources in the coming months aims to clarify these questions. 31 In its November 

2011 final report. the Secretary of Energy Advisory Board recommended that natural gas 

companies measure and disclose air emissions from shale wells.31 Indeed, what remains lacking 

is a valid system for direct measuremcnt and independcnt verification of emissions data reported 

by this sector.33 

Nevertheless, while uncertainties remain regarding exact methane leakage rates, the weight of 

evidencc suggests that significant leakage occurs during every life cycle stage of U.S. natural gas 

systems and much more can be done to reduce these emissions cost-effectively. A recent expert 

30 Recent research based on field measurements of'ambicnt air ncar natural gas well R 1ie1ds in Colorado and Utah 

suggest that more than 4 percent of\\ell production may be !caking into the atmosphere at some production-stage 

operations. I 'or more discussion 0 r questions regarding the qual it) and a\'uiJabi I it)' of methane emi ssions data. see 

3 of"('1eBl'ing Lh~ Air," here: http://\\w\\.\\Ti.ofe/publication/clearin£Hhe-air. 

For example, independent researchers at the t Inh ersit) of Tc:\as at Au~tin arc teaming up \\ ith the [l1\'ironmenta! 

Defense Fund and sevcral industry partners to direct!) mcasure methane ('missions from se\ eral key sources. \\:hen 

results are published in 2013 and 2014. these data wi!! prO\ ide \ aluable points of reference to help inform this 

important disclission, 

32 See: http://www.shalegas.energy.gov/ 

33 Such systems and protocols have been developed for tracking emissions from other sources. For example, see: 

http://www.epa.gov(etv(vt·ams.html 

13 
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survey by Resources for the Future34 identified methane emissions as a "consensus environmental risk" that should be addressed through government and industry actions. 

How Will LNG Exports Affect Greenhonse Gas Emissions? 

To the extent that it is displacing higher-carbon fuels such as coal and oil, natural gas has the 

potential to help reduce total greenhouse gas emissions. This is particularly true as long as 

upstream emissions associated with natural gas arc minimized and ideally methane leakage is 

kept below I percent of total production. as discussed above. 

That said, the potential for LNG exports raises three primary concerns from a climate 

perspective. 

\) The first area of concern involves upstream GHG emissions associated with increased 

onshore natural gas production. EIA projects that LNG exports would result in increased 

domestic production of natural gas, with roughly three quarters of this from shale 

sources. As shown in Figure \, there are significant upstream GHG emissions (both CO2 

and methane) associated with shale gas production in the U.S. Given continued 

uncertainty around the actual level of methane emissions over the lifetime of both 

conventional and unconventional gas wells,35 this projected market response could result 

in substantially higher levels ofGHG emissions from throughout U.S. natural gas 

systems. The good news is that there are many ways to cost-effectively reduce upstream 

methane emissions; we encourage government and industry to do more to realize this 

34 See: http://www.rfforg/f)ocu111cntslRFF -Rnt~Path\\'m stoDialo(!llC Ful !Report.pdf 

35 Most studies estimate that upstream GHG emissions from conventional and unconventional gas sources are 

roughly comparable, within the margin of error. 

14 
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82191.027

opportunity to 

Emissions"'). 

Figure t: Estimated Ufe Cycle from 

o 

The second 

regasificatiol1 

by the National Energy 

processes would add 

U.S. onshore 

added upstream 

Methane 

Expor!s, ami Coal 

and 

emissions as;;oc:ial:cd 

"LNG upstream"). These 

that natural gas 

grams of CO2 equivalent 

ernissions associated with 

typical of final 
44 


82191.028

would have 

contributions 

the most 

worth noting 

tClminals. adding to 

figure 2: Life Cycle GHG Emissions 

3) Thc third area 

implications ofU,S, 

would 

competitive compared 

Note that the data presented in 

natural gas coal, with upstream LNG 

in louisiana, Ideally, this figure 

gas production and export versus 

available at this time, 

the 

is 

transport, It is also 

and Infrastructure 

market 

use of coal 
45 


82191.029

and higher levels ofGHG emissions under all LNG export scenarios?9 The global GHG 

implications of LNG exports from the U.S. is harder to assess. but the basic picture is that 

more gas would be sold into international markets. which would help reduce carbon 

dioxide emissions as long as it displaced higher-carbon fuel sources. Given the extensive 

scale of planned coal-fired power plants around the world4o and accounting for the 

prevalence of energy-efficient technologies available for natural gas combustion.41 this is 

a reasonable assumption. On the other hand. a greater abundance of lower-priced natural 

gas in global energy markets (supported by U.S. LNG exports) is also expected to 

increase total energy use and displace some lower-carbon renewable and nuclear energy 

sources. which will increase GI-IG emissions in markets where lower-carbon technologies 

have become relatively cost-effective. Taking all of these factors into consideration. lEA 

projections42,43 tlnd that greater supplies of natural gas would lead (0 net annual 

reductions in global C02 emissions of 0.5 percent by 2035. 44 The report concludes that 

"while a greater role for natural gas in the global energy mix does bring environmental 

benefits where it substitutes for other fossil fuels. natural gas cannot on its own provide 

the answer to the challenge of climate change." 

39 The EIA estimates increases in U.s. CO, emissions between 9 and 75 MMt per year, from 2015 to 2035. 

40 See: http://www.wri.org/publication/global-coal·risk-assessment 

41 See: http://www.c2es.org/technology/factsheet/natural-gas 

42 See: http://www.worldenergyoutlook.org(goldenageofgas( 

43 See: http://www.woridenergyoutlook.org(media(weowebsite!2011!WE02011 GoldenAgeofGasReport.pdf 

44 In their 2011 special report on natural gas, the lEA estimated that the GAS Scenario would lead to 35.3 

gigatonnes (Gt) energy·related CO, emissions in 2035, with annual reduction of 160 million metric tons (MMt), in 

that year (compared to their "New Policies Scenario"). In their 2012 special report, the lEA reached a similar 

conclusion, estimating 184 MMt of annual reductions in global energy-related CO, emissions in 2035 with their 

"Golden Rules Case" (compared to a baseline), with global emissions rising to 36.8 gigatonnes (Gt) in the same 

year. 

17 
46 


82191.030

In summary, available evidence suggests that LNG exports from the U.S. would marginally 

reduce global COl emissions, although the scale of these estimated GHG emissions savings is an 

order of magnitude lower than the total projected levels of global methane emissions from 

natural gas and oil systems.45 Meanwhile, it appears very likely that LNG exports from U.S. 

terminals would result in increased domestic GHG emissions from both upstream and 

downstream sources. 

These expected outcomes should raise the bar for policymakers and industry to more actively 

work to achieve continuous improvement in GHG emissions from all life cycle stages of natural 

gas development and use. Our research shows that reducing fugitive methane can be highly costeffective - beneficial to customers and companies alike - and it is necessary if natural gas and 

LNG exports are to be part of the solution to our climate change problem, both in the U.S. and 

internationally. 

Progress is Being Made but There is More Work to Be Done 

Now for the good news. Increased attention to the air emissions issue has resulted in significant 

recent progress toward reducing air pollution from natural gas systems. 

In April 2012 EPA finalized regulations for New Source Performance Standards (NSPS) and 

National Emissions Standards for Hazardous Air Pollutants (NESHAP) that primarily target 

45 By way of comparison, the EPA estimates that global annual fugitive methane emissions from natural gas and oil 

systems in 2030 will exceed 2,500 MMT carbon dioxide equivalent (CO,e), assuming a GWP of 25, over a 100 year 

time frame (see: http://www.epa.gov/climatechange/EPAactivities/economics/nonco2projections.html). The U.S. 

GHG inventory estimates that fugitive methane emissions from U.S. natural gas systems in 2011 were just over 170 

MMTC02e. 

18 
47 


82191.031

VOCs and air toxies emissions but will have the co-benefit of reducing methane emissions. The 

new EPA rules require "green completions," whieh reduce emissions during the flow-back stage 

of all hydraulic fracturing operations at new and re-stimulated natural gas wells. The rules will 

also reduce leakage rates for compressors, controllers, and storage tanks. 

EPA should be applauded for establishing these public health protections. Minimum federal standards for environmental periormance are a necessary and appropriate framework for addressing 

cross-boundary pollution issues like air emissions. Federal Clean Air Act regulations are 

generally developed in close consultation with industry and state regulators and are often 

implemented by states. This framework allows adequate flexibility to enable state policy 

leadership and continuous improvement in environmental protection over time. 

In our recent working paper, WRI estimated that these new rules will reduce methane emissions 

enough to cut all upstream GHG emissions from natural gas systcms (including shale gas) by 13 

percent in 2015 and 25 perccnt by 2035. As can be seen in Figure 3 below, the NSPSINESHAP 

rules will make a big difference by helping to avoid a rise in upstream GIIG emissions that 

would otherwise be likely given the projected growth in domestic natural gas production. The 

figure also shows that upstream carbon dioxide and methane emissions will remain a signiticant 

problem without further action. 

19 
48 


82191.032

Figure 3: Upstream GHG from Natural 2006 

Source: BradbUl)ret a!,,. 2013 {WR!} 

Further Potential to Reduce :Fugitive Methane Emissiolls 

WR! estimates that 

methane emissions, upstream 

effectively cut by up to an 

(a) fugitive methane 

and com pressor 

equivalents throughout 

existing wells during liquids 

Note: new data from the most 

widely used than previously 

avoid tllgitive 

could 

and 

these technologies are much more 
49 


82191.033

bring down the 

oftotal ~",v",,'h'nn 

smaller emissions 

achieved. All eight oflhese 

periods of three 

Figure 4: l1pstream GHG Emissions from 

Policy Recommendatiolls 

Nevv public to 

equipment throughout U.S. 

alone are not sufficient compel to «Y~'1"'""~'J 

Additiollal Abatement S('cllarios 

both new and 
50 


82191.034

practices. To the members of this committee, I recommend the following actions to help EPA 

and states cost-effectively reduce air emissions from natural gas systems. 

Expand applied technology research. Efforts to reduce upstream GHG emissions from natural 

gas systems could be aided by applied technology research at DOE. Such research should be 

expanded, with a focus on advancement oftechnologies to reduce the cost of leak detection. 

improve emissions measurements, and develop new and lower-cost methane emission reduction 

strategies. 

Update emissions/actors/or key processes. To help resolve questions regarding the scale of 

methane emissions from U.S. natural gas infrastructure and operations - and to inform critical 

domestic and international climate and energy policy decisions - the oil and gas sector should be 

required to directly measure and report their emissions, with results subject to independent 

verification and public disclosure. 

Assist with environmental regulations. With more funding, the organization STRONGER (State 

Review of Oil and Natural Gas Environmental Regulations) could provide more states with 

timely assistance in developing and evaluating environmental regulations, including (but not 

limited to) those designed to reduce air pollution. 

Support best practices. With more funding, EPA could do more through Natural Gas STAR and 

other programs to recognize companies that demonstrate a commitment to best practices. This 

program could further encourage voluntary industry actions by maintaining a clearinghouse for 

22 
51 


82191.035

technologies and practices that reduce all types of air emissions from the oil and natural gas 

sector.47 

Provide technical and regulatory assistance. Recognizing the central role of state governments 

in achieving federal National Ambient Air Quality Standards. with more funding EPA could 

provide targeted technical and regulatory assistance to states with expanding oil and natural gas 

development. One example ofa successful model that could be expanded is EPA's Ozone 

Advance Program. States concerned about smog and other air quality problems associated with 

oil and gas development voluntarily engage " ... ith this program. resulting in the co-benefit of 

reduced methane emissions. 

Reduce carbon dioxide emissions. Broader action is also needed on policies supporting clean 

energy and addressing climate change. A clean energy standard or putting a price on carbon 

would provide clear signals to energy markets that energy providers and users need to recognize 

the environmental and social costs as well as the direct economic costs of energy resources. 

Conclusions 

Some advocate for a free-market approach to managing energy production, transmission. and 

use. While I agree with the general virtues of free markets, I would also caution that there is no 

free lunch. The National Research Council has identified very significant costs associatcd with 

47 An example of one existing clearinghouse can be found here: h!m;LLcfpub.epa.gov/RBLC/ 

23 
52 


82191.036

fossil energy use that are hidden to most U.S. consumers.48 Society pays when our health-care 

premiums rise due to harmful health effects caused by high ozone levels and other air pollution; 

taxpayers pick up the tab for climate change when the frequency and intensity of extreme 

weather events causes increasing damage to our communities and critical infrastructure. 

Others highlight the energy and national security benefits of natural gas exports, which may 

reduce the political and economic influence of countries that do not share common interests with 

the U.S. and our allies. While such geopolitical benefits may be realized, LNG exports will do 

little to help avoid dangerous levels of climate change. We could also improve our geopolitical 

standing by demonstrating leadership in achieving greenhouse gas emissions reductions, much of 

which can be accomplished cost-effectively and with net benefits to the economy - starting with 

the policy actions recommended above. Meanwhile, the more we invest in fossil energy 

resources and infrastructure while delaying policy actions to significantly reduce GHG pollution, 

the more we expose ourselves and our allies to the destabilizing effects of climate change. In its 

2010 Quadrennial Defense Review, the Department of Defense found that "climate change could 

have significant geopolitical impacts around the world," The same report concludes that climate 

change could further weaken fragile governments and contribute to food scarcity, spread of 

disease, and mass migration. Meanwhile, 30 military installations already face elevated risk from 

sea-level rise. 

48 NRC (National Research Council), 201O."Hidden Costs of Energy: Unpriced Consequences of Energy Production 

and Use," Washington, DC: The National Academies Press, Available at: 

http://www,nap.edu/catalog,php?record id=12794. 

24 
53 


82191.037

Every day that we take no policy action on climate change, we make the policy choice to let 

climate change run its course. This ignores the overwhelming consensus of climate scientists 

who have been warning for deeades that rising GHG emissions will eause the planet to warm, 

sea levels to rise, and weather to become more extreme. It is indisputable that these elimate 

ehanges are happening today, and in many eases much more quickly than expeeted. Action is 

urgently needed. 

25 
54 

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

STATEMENT OF MICHAEL BREEN 

Mr. BREEN. Thank you, Mr. Chairman, Ranking Member Rush, 

members of the Committee. Thank you for inviting me here today 

to appear before the committee to discuss the geopolitical and strategic implications of rising U.S. energy production, oil in particular. 

I serve as the executive director of the Truman National Security 

Project and Center for National Policy, two organizations dedicated 

to forging strong, smart, and principled national security policy for 

America. 

As a former Army captain and an Iraq and Afghanistan combat 

veteran, I am also proud to be one of the leaders of Operation Free. 

That is a nonpartisan nationwide coalition of more than 5,000 veterans who belive that our dependence on oil poses a clear national 

security threat to the United States. 

To be clear, oil is immensely important to our economy and will 

remain so for the foreseeable future. Its value goes far beyond its 

utility as a liquid fuel. Petroleum is a key input in advanced manufacturing, pharmaceuticals, agricultural products, and a host of 

other applications. Unfortunately, however, a near total dependence on oil as a fuel has eclipsed petroleum’s other contributions, 

which threatens our prosperity and our security. 

Our dependence on oil as a single source of transportation fuel 

poses a clear national security threat. As things now stand, our 

modern military cannot operate without vast access to vast quantities of it. Our economy is equally dependent. More than 93 percent of our transportation sector is reliant on oil. 

Today oil is a vital strategic commodity, a substance without 

which our national security and prosperity cannot be sustained. 

Until and unless we develop alternatives, the United States has no 

choice but to do whatever it takes in order to obtain a sufficient 

supply of oil. Oil is a fungible product, traded globally, with prices 

set on a world market. In other words, global supply and global demand set the market and drive the price, not American supply and 

American demand alone. When it comes to the price at the pump 

there is no such thing as foreign oil. 

Recent technological advancements, such as horizontal drilling 

and advanced hydraulic fracturing, are promising. They offer the 

chance to increase domestic production, allowing us to reach supplies of oil that were until recently too expensive or impossible to 

obtain. These advances have led some to claim that the United 

States is suddenly capable of producing enough oil domestically to 

meet our needs. They believe that this will solve our oil-related economic and national security problems. 

Yet, even if U.S. oil imports dropped dramatically, geostrategic 

problems would persist. And though we do not always share the 

same oil sources as our international partners, our security is put 

at risk by their volatility. For instance, in December 2011, Iran 

threatened to close the Strait of Hormuz, a waterway that ships 

one-fifth of the world’s supply of oil. This resulted in global oil 

prices jumping 2 percent, exceeding $100 a barrel. Words alone 

were able to drive up the cost of oil in markets from the Gulf to 

Asia. 

55 

Meanwhile, global demand for oil is rising at a breathtaking 

pace, with no sign of slowing down in the foreseeable future. While 

American demand has been very high but relatively static for some 

time, demand in China, India, and the developing world is skyrocketing. According to the Energy Information Administration, 

America’s oil consumption is expected to grow by 11 percent over 

the next 2 decades. Meanwhile, in that same timespan, China’s oil 

consumption is expected to grow by 80 percent and India’s by 96 

percent. And by the end of the decade, China alone is expected to 

sell more than 30 million cars a year. To put that in perspective, 

last year about 76 million cars were sold worldwide. 

It is unrealistic at best to imagine that increasing production can 

somehow keep up with such dramatically rising demand. Further, 

because the price of oil is set on a global market, it is subject to 

events outside of our control or influence. All of us agree, I am 

sure, that the United States should not be subjected to the whim 

of hostile or unstable regimes with nationalized oil assets. 

The U.S. Currently controls and secures the world’s most critical 

shipping routes. Some contend that, producing more at home, we 

could relinquish many of those responsibilities. Indeed, a recent 

RAND study estimated that if the military were to stop defending 

oil supplies and sea routes from the Persian Gulf to the United 

States, it would save between 12 and 15 percent of the entire defense budget, more than $90 billion annually. 

But imagine if we did disengage from this duty. A number of our 

adversaries would recognize this is an opportunity and our allies 

would be faced with serious challenges. Look, for instance, at the 

Asia-Pacific market. Eighty-five percent of the oil shipped through 

the Straits of Hormuz today, which supplies one-fifth of all oil traded worldwide, goes toward Asia, not the United States. The oil then 

transits the Indian Ocean and enters the North Pacific through the 

Straits of Malacca, a razor-thin chokepoint constantly under threat. 

According to EIA, if the strait was blocked, nearly half of the 

world’s shipping fleet would be required to reroute. Hostile actors 

have taken notice. According to documents seized during the raid 

that killed Osama Bin Laden, Al Qaeda was planning to hijack and 

destroy oil tankers in the straits. 

But more than the security of oil flows is at stake. We have to 

consider the effect that would occur if the United States pulled out 

of the Pacific and pulled out of the Indian Ocean and who might 

step in. China would certainly be willing; few others would be capable of doing so. 

So it should be no surprise that our military is leading the world 

in developing next generation energy technologies. Our singlesource dependence on oil threatens our national security. Even dramatic increases in domestic oil production will not free us from the 

global dynamics of the market or relieve us of our global responsibilities. 

Fortunately, more advanced energy technologies are available 

and increasingly viable. We must support their development and 

continue to lead the world through innovation. Thank you. 

Mr. WHITFIELD. Thank you. 

[The prepared statement of Mr. Breen follows:] 

56 


82191.038

Testimony of Mike Breen 

Executive Director 

Truman National Security Project & 

Center for National Policy 

House Energy & Commerce Committee 

Subcommittee on Energy & Power 

May 7, 2013 
57 


82191.039

Mr. Chairman, Ranking Member Rush, members of the Committee, ladies and gentlemen: thank 

you for inviting me to appear before this Committee today to discuss the geopolitical and strategic 

implications of rising U.S. energy production. 

I serve as the Executive Director of the Truman National Security Project and Center for National 

Policy, two organizations dedicated to forging strong, smart and principled national security policy for 

America. As a former Army Captain and an Iraq & Afghanistan combat veteran, I am also proud to be 

one of the leaders of Operation Free. It is a non-partisan, nationwide coalition of more than five thousand 

vetcrans who believe that our dependence on oil poses a clear national security threat to the United States. 

To be clear, oil is immensely important to our economy and will remain so for the foreseeable 

future. Its value goes far beyond its utility as a liquid fuel. Petroleum is a key input in advanced 

manufacturing, pharmaceuticals, agricultural products, and a host of other applications, Unfortunately, 

however, our near-total dependence on oil as a fuel has eclipsed petroleum'S other contributions, 

threatening our prosperity and security. 

Our dependence on oil as a single source of transportation fuel poses a clear national security 

threat. As things now stand, our modern military cannot operate without access to vast quantities of it. 

Our economy is equally dependent, with more than 93% of our transportation sector reliant on oi I.' 

Today, oil is a vital strategic commodity, a substance without which our national security and prosperity 

cannot be sustained. Until and unless we develop alternatives, the United States has no choice but to do 

whatever it takes in order to obtain a sufficient supply of oil. 

Oil is a fungible product, traded globally, with prices set on a world market In other words, 

global supply and global demand set the market and drive the price - not American supply and American 

demand alone.' When it comes to the price at the pump, there's no such thing as foreign oil. 

Recent technological advancements, such as horizontal drilling and advanced hydraulic 

fracturing, are promising. They offer the chance to increase domestic production, allowing us to reach 

supplies of oil that were, until recently, too expensive or impossible to obtain. These advances have led 

some to claim that the United States is suddenly capable of producing enough oil domestically to meet 

our needs. They believe that this will solve our oil-related economic and national security problems. 

Yet. even if U.S. oil imports dropped dramatically, geostrategic problems would persist. And 

though we do not always share the same oi I sources as our international partners. our security is put at risk 

by their volatility. For instance, in December 2011, Iran threatened to close the Strait ofHormuz. a 

waterway that ships one-fifth of the world's supply of oil. This resulted in global oil prices jumping two 
58 


82191.040

percent, exceeding one hundred dollars a barre!.' Words alone were able to drive up the cost of oil in 

markets from the Gulf to Asia. 

Meanwhile, global demand for oil is rising at a breathtaking pace, with no sign of slowing down 

in the foreseeable future. While American demand has been very high but relatively static for some time, 

demand in China. India and the developing world is skyrocketing. According to the Energy Information 

Administration, America's oil consumption is expected to grow by I I % over the next two decades' 

Meanwhile, in that same timespan, China's oil consumption is expected to grow by 80~ •. and India's by 

96%.' And by the end of the decade, China alone is expected to sell more than 30 million cars per year.6 

To put that in perspective, last year about 76 million cars were sold worldwide.' It is unrealistic at best to 

imagine that increasing production can somehow keep up with such dramatically rising demand. 

Further, because the priee of oil is set on a global market, it is subject to events outside of our 

control or influence. All of us agree, I'm sure, that the United States should not be subjected to the whim 

of hostile or unstable regimes with nationalized oil assets. 

The U.S. currently patrols and secures the world's most critical shipping routes. Some contend 

that, by producing more at home, we could relinquish many of those responsibilities. Indeed. a recent 

RAND study estimated that if the military were to stop defending oil supplies and sea routes from the 

Persian Gulf to the US, it would save between 12 and 15 percent of the entire defense budget - more than 

$90 billion dollars annually8 

But imagine if we did disengage from this duty. A number of our adversaries would recognize 

this as an opportunity, and our allies would be faced with serious challenges. Look, for instance. at the 

Asia-Pacific market. 85% of the oil shipped through the Strait of Hormuz today-which supplies onefifth of all oil traded worldwide-goes toward Asia, not the United States.9 The oil then transits the Indian 

Ocean and enters the North Pacific through the Strait of Malacca, a razor-thin chokepoint constantly 

under threat of piracy, terrorist activity and hijacking. According to the EIA, if the Strait of Malacca was 

blocked, nearly half ofthe world's shipping fleet would be required to reroute. 10 Hostile actors have taken 

notice. According to documents seized during the raid that killed Osama bin Laden, al Qaeda was 

planning to highjack and destroy oil tankers in the Straits. 11 The documents called for AI Qaeda 

operatives to practice running tankers aground in shipping chokepoints, severely disrupting global 

commerce. 

But more than the security of oil flows is at stake. The Strait. together with the surrounding South 

China Sea, is at the center of a complex dispute between China·and a number of smaller Asian nations. 
59 


82191.041

Appropriately, the U.S. has taken a strong interest in this dispute, working to prevent China from bullying 

its smaller neighbors and putting freedom of navigation at risk. Indeed, in 20 I I, China and Vietnam came 

dangerously close to open conflict in the South China Sea. If the U.S. pulls out of the Pacific and Indian 

Ocean, who will step in to fill the void? China, of course, would likely be more than willing. Few others 

would be capable. India could develop into a true naval power given time, but has so far shown great 

reluctance to step forward as a provider of regional security. Our partners in Asia. including Japan and 

South Korea, would risk inflaming tensions with China if they chose to step forward to secure vital sea 

lanes themselves. In short, an American pull-back would tempt our rivals into even greater military 

activity while placing our allies at risk. 

No matter how much domestic production picks up, the negative consequences of our singlesource oil dependence are likely to persist. Today, the Syrian resistance movement is being gunned down 

with bullets supplied by Putin's oil-rich Russia. American Soldiers and Marines arc confronting terrorists 

in Afghanistan armed with Iranian weapons, purchased with oil money. Our forward operating bases are 

put in danger every time a fuel convoy is attacked. In every case just mentioned, American national 

security is signiJicantly threatened. 

It should be no surprise that our military is leading the world in developing next generation 

energy technologies. The Air Force is deploying the world's largest demonstration of vehicle-to-grid 

technology, using a fleet of electric vehicles to lower the electricity bills of military installations. The 

Marines are deploying renewable energy platforms on the battlefield. And just this past Friday, at the 

Truman Project's annual conference, Secretary of the Navy Ray Mabus detailed the Navy's investments 

in new ways to power ships and aircraft. The Navy has developed advanced biofuels made from sources 

like algae and camelina, a seed that already grows in 49 states. Like the internet and GPS-two military 

developed technologies-these advancements are benefitting the American economy today. 

Our single-source dependence on oil threatens our national security. Even dramatic increases in 

domestic oil production will not free us from the global dynamics of this market, or relieve us of our 

global responsibilities. Fortunately, more advanced energy technologies are available and increasingly 

viable. We must support their development, and continue to lead the world through innovation. 

1 ((Energy Perspectives: Industria! and transportation sectors lead energy use by sector'l U.S. Energy Information 

Ad ministration. http://www . e ia .gov !tad ayi nenergy! dela i I. cfm?i d 09250 
60 


82191.042

2 "What If We Never Run Out of Oil?" The Atlantic. http:(/www.theatlantic.com/magazinei2..r:.chive/2013/05/what: 

if-we-never-run-out-of-oiI/309294/?single page=t[ue 

3 "Oil jumps over 2% as Iran threatens supplies" CNN. 

http://money.cnn.com/2011/12/27/markets/oil_iran/index.htm 

4 Energy Information Administration, Office of Energy Markets and End Use, "World Petroleum Consumption, 

Annual Estimates, 1980-2008" 

5 Ibid. 

'''New Survey Predicts China Will Add 30 Million New Cars Each Year" CNBC. http://www.cnbc.com/id/46748270 

'Ibid. 

S RAND Corporation. "Imported Oil and U.s. National Security." P. 74 (2009) 

9 "World oil transit chokepoints" Energy Information Administration. http://www.eia.gov/countries/regionstopics.cfm?fips=wotc&trk=p3 

10 "World oil transit chokepoints" Energy Information Administration. hltp:llwww.eia.gov/countries/regions-

"AI Qaeda eyed oil tankers as terror targets" CBS News. http://www.cbsnews.comI2100-202 162-

20064651.html 
61 

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

STATEMENT OF MIKE HALLECK 

Mr. HALLECK. Mr. Chairman, Ranking Member Rush, distinguished members of this committee, thank you for the privilege of 

appearing before you today. Congressman Johnson, thank you go 

for your kind introduction. My name is Mike Halleck. I am president of the Columbiana County Board of Commissioners. 

Columbiana County is located in eastern Ohio, bordering Pennsylvania and West Virginia. We are part of the Appalachian region. 

Our county is comprised of 540 square miles, with a population of 

about 110,000. 

In the past 2 years our county in particular and surrounding 

counties in general has transcended into an energy-based economy 

from a manufacturing one. A little more than 2 years ago our county had an unemployment rate of about 16 percent; today it is about 

half that. Permit me to address our manufacturing base for a moment. Ohio, and especially northeast Ohio, has been a manufacturing power since the industrial revolution. While in recent decades automobiles and steel were major employers, the advancement of technology and to some extent imports have challenged 

their future. 

However the good news is that eastern Ohio is quickly becoming 

an energy economy, which has enhanced our manufacturing base 

even more. A few examples would be V&M Steel, a French company that invested $750 million in our region to manufacture pipe 

for the oil fields and their pipelines. Another would be a billion-dollar cryogenics plant that separates the different gases for shipments. Just in the past week another announcement was made regarding a $300 million pipeline and gas processing plant by 

NiSource, a division of Columbia Gas. 

To put all of this in perspective I will share with you a few of 

the more compelling statistics associated with this. In a few short 

years there have been over $7 billion invested in our area. That is 

about 2.5 times the total value of the real estate as if valued in our 

county. Over 39,000 jobs created, with projections of 143,000 by 

2020; 266,000 by 2035. During 2012 the average wage for manufacturing in Ohio was $55,000, while the wages for the oil and gas industry average was $81,000. The oil and gas industry accounted for 

$1.5 billion in new tax revenue to the State of Ohio. 

To bring a single well online takes about 410 people across 150 different professions. The average well should generate about $1 

billion in revenue. A recent study by Penn State that this 

Marcellus Utica, quote, ‘‘play,’’ unquote, was protected to be the 

largest natural gas find on Earth, second only to the border region 

of Qatar and Iran, not necessarily a place that we would want to 

stake our energy future. 

Finally, yes, there are billions and soon to be trillions of cubic 

feet being harvested as we speak, and, yes, there could and already 

has been a suppression of gas prices. What do we do next? While 

lower prices are welcome domestically, we should not in my view 

make the prices so cheap through too much supply that we force 

the producers to lower production. Better yet, why not pursue exportation to countries that we have open trade with? It would seem 

62 

to me that not only would this stabilize price, but give the United 

States a different standing in the world and make a statement of 

energy independence. 

A recent report by Secretary Chu and the Energy Department 

seemed to suggest something along this same line of thinking. Several Members of Congress seemed to share the same school of 

thought in a recent letter to Secretary Chu. And it was refreshing 

to see the nonpartisan signatures on this letter. After all, energy 

independence is not and should not be a partisan issue. 

While I am certainly not an expert in this field, much less an 

economist, common sense would tell me that if we are exporting 

more product abroad there will be a need for more production. 

Thus more workers would be needed for this production. 

Again I thank you for this privilege, and in particular Congressman Johnson for inviting me here today. I would be happy to answer any questions. Thank you. 

Mr. WHITFIELD. Thank you, Mr. Halleck. 

[The prepared statement of Mr. Halleck follows:] 

63 


82191.043

Testimony: House Energy and Commerce Committee 

Tuesday May 7, 2013 (a) \0:00 a.m. 2123Rayburn House Office Building 

Mr. Chainnan and distinguished members of this committee, thank you for the privilege 

of appearing before you today. My name is Mike Halleck. I am President of the Columbiana 

County Board of Commissioners. Columbiana County is located in Eastern Ohio bordering 

Pennsylvania and West Virginia. We are part of the Appalachian region. Our county is 

comprised of540 square miles with a population of about 110,000. 

In the past two years our county in particular and surrounding counties in general has 

transcended into an energy-based economy ITom a manufacturing one. A little more than 

two years ago our county had an unemployment rate of almost 16%. Today it is about 

half that. 

Penn it me to address our manufacturing base for a moment. Ohio and especially 

Northeast Ohio has been a manufacturing power since the industrial revolution. While in 

recent decades automobile and steel were our major employees, the advancement of 

technology and to some extent imports have challenged their future. 

However the good news is that Eastern Ohio is quickly becoming an energy economy and 

has enhanced our manufacturing base even more. 

A few examples would be V&M Steel, a French company that invested 750 million 

dollars in our region to manufacturer pipe for the oil fields and their pipelines. Another 

would be a billion dollar cryogenics plant that separates the different gases for shipment. 

Just in the past week another announcement was made regarding a 300 million dollar 

pipeline and gas processing plant by NiSource a division of Columbia Gas. 

To put all of this in perspective, I will share with you a few of the more compelling 
64 


82191.044

statistics associated with this. In a few short years, there have been over 7 billion dollars 

invested in our area. Over 39,000 jobs created with projections of 143k by 2020 and 266k 

by 2035. During 2012 the average wage in Ohio was 55k, while the wages for the oil and 

gas industry average was 81K. The Oil and gas industry accounted tor 1.5 billion dollars 

in new tax revenue to the state of Ohio. 

To bring a single well on line takes about 410 people across 150 professions. The average 

well should generate about I billion dollars in revenue. 

A reeent study by Penn State University stated that this Marcellus Utica "play" was 

projected to be the largest natural gas find on earth, second only to the border region of 

Qatar and Iran. Not necessarily a place we would want to stake our energy future. 

Finally, yes there are billions and soon to be trillions of cubic feet being harvested as we 

speak. And yes there could and already has been a suppression of gas prices. What do we 

do next? While the lower prices are welcome domestically, we should not in my view 

make the prices so cheap through too much supply that we force the producers to lower 

production. Bctter yet, why not pursue exportation to countries that we have open trade 

with. It would seem to me that not only would this stabilize prices, but give the United 

States a different standing in the world and make a statement of energy independence. 

A recent report by Secretary Chu and the energy department seemed to suggest 

something along this same line of thinking. Several members of Congress seem to share 

this same school of thought in a recent letter to Secretary Chu. It was refreshing to see the 

non-partisan signatures on this letter. After all, energy independence is not and should not 

be a partisan issue. 

While I am certainly not an expert in this field, much less an economist, common sense 
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would tell me that if we are exporting more product abroad, there will be a need for more 

production, thus more workers needed for this production. 

Again, thank you for this privilege and in particular Congressman Johnson for inviting 

me here today. I will try and answer any questions that you may have. 

Respcctfully Submitted 

Mike Halleck. President Columbiana County Board of Commissioners 

Lisbon. Ohio 44432 
66 

Mr. WHITFIELD. Ms. Jaffe, you are recognized for 5 minutes. 

STATEMENT OF AMY JAFFE 

Ms. JAFFE. I want to thank you for this opportunity, and also 

thank the committee for bringing to the fore the subject of the 

international implications and U.S. foreign policy implications of 

U.S. energy exports. I would submit that our discussion on energy 

exports, in particular on LNG exports, has been too focused, 100 

percent on the domestic market consequences, whether that is a job 

consequence or a price consequence. And I believe that we need to 

not take these decisions in a vacuum, that the context of U.S. foreign policy needs to be taken into account in the discussion of our 

export policy for both natural gas and other products. 

The context is that for the last 3 decades the United States has 

had an active foreign policy to promote free trade, open trade, and 

energy exports in investment. That is important not only to the 

United States, but to the global economy. Why do we want free 

trade in energy? As has been mentioned by many of your committee members and by my fellow panelists, we have operating in 

the global market an effective oil cartel that keeps the price of oil 

much higher than it would be without those artificial restrictions. 

And those restrictions are developed through energy trade, so countries like the Middle East and so forth organize to restrict exports 

of oil or natural gas in a manner to raise the price internationally 

and they also restrict open investment in oil and gas exploration. 

We send our diplomats to countries like Russia, China, and the 

Middle East to discuss with them having better and more open-access rules for the investment in oil and gas. It is this lack of investment in oil and gas abroad in recent years that has caused us to 

have the kinds of financial crises that have revolved around sharp 

increases in energy prices that we saw not only in the 1970s, but 

also in 1990 when Iraq invaded Kuwait, also more recently in 2007 

and 2008 when we saw energy prices for all businesses in our country hurt American consumers, hurt average Americans. 

So it is important to have the United States have an open and 

assertive policy in trade policy globally, that we do not favor, that 

we promote free trade, that we do not—that we object to restrictions in investments and trade in oil and gas. Because that is our 

standing foreign policy and an important foreign policy because we 

don’t want other countries that produce a lot of oil in the Middle 

East and other places to hold and restrict their exports, we cannot 

ourselves then have a policy where we choose to restrict our exports, because therefore we would move into a world where energy 

becomes possibly a political weapon or an economic weapon, and 

that is not in the vital interests of the United States. 

The best way to prevent the kind of global imbalances in energy 

supply that affects our jobs and hurts every American is to have 

a policy, a foreign policy that promotes trade and open markets. If 

the United States doesn’t have an open-market policy then we cannot advocate it for other countries. 

When we consider LNG exports we need to put that export debate in the context of our own free trade agreements. Our free 

trade agreements have to be meaningful because otherwise why 

would anybody want to have economic agreements with the United 

67 

States and important trade relations. We export natural gas to 

Mexico. Last year we exported 1.69 bcfd of natural gas to Mexico 

under the NAFTA agreement. That is an advantage of trade. 

We hold a free trade agreement with South Korea. South Korea 

would desire to buy liquid natural gas from the United States from 

the new proposed export terminal. We cannot supply natural gas 

under a free trade agreement with Mexico and turn to South Korea 

and tell them that we are not going to honor our agreement with 

them. Once we honor our agreement with South Korea, how are we 

going to turn to Japan, a country that would like to buy our LNG 

exports, and tell them even though they have been a staunch ally 

of the United States for decades, we are going to export our LNG 

to South Korea under a free trade agreement but we are not going 

to provide these resources to Japan. 

So the best way to protect consumers from the kinds of seasonal 

problems that could erupt from having exports is to have a mandate for minimum inventories in the United States as they have in 

Europe and Japan. 

Thank you. 

Mr. WHITFIELD. Thank you, Ms. Jaffe. 

[The prepared statement of Ms. Jaffe follows:] 

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Foreign 

gas export policy. 

First and foremost. 

vital interests. Barriers to 

and consuming countries 

energy blackmail, and 

particular can enhance American 

allies and trading partners 

the same time weakening 

Additionally. by improving 

upper hand with China. 

wilL hut also allow the 

global institutions. 

Finally. energy 

States already exports 

should to 

and 

natural 

important to U.S. 

subject to 

and Russia 

than we 

to 

and has commitments 
69 


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to free trade with those important neighbors under the North America Free Trade Agreement 

(NAFT A). The United States has a free trade agreement with South Korea under the Republic of 

Korea Free Trade Agreement and with Central American states under the Central American Free 

Trade Agreement (CAFTA). 

Testimony 

The rapid growth of oil and natural gas production from unconventional shale resources 

in the United States has reopened the debate on U.S. oil and natural gas export policy. Foreign 

policy considerations should be central to the discussion of this issue. To date, the debate in the 

United States regarding U.S. liquefied natural gas (LNG) exports has focused mainly on 

domestic economic aspects. Today, I will discuss the national security and foreign policy 

benefits of the United States promoting an open energy trade policy that permits exports of 

natural gas, condensate, refined petroleum products and possibly under specified conditions, 

crude oil. 

The United States has for many decades been the leading nation in championing open 

markets and free trade in energy. Open trade and investment in energy is important to U.S. vital 

interests for many reasons. First and foremost, artificial restrictions on energy flows can be a 

source of international conflict and, in fact. has been a major factor contributing to armed 

conflict in modern history. Moreover, the United States, by virtue of both its superpower role 

and its position as the largest oil consuming country, has a direct interest in preventing energy 

supply from being used as a strategic weapon. Finally, barriers to foreign investment in energy 

resources in key countries generally contribute to supply constraints, leading to rises in global 

prices and potentially harming economic growth in major oil consuming countries such as the 
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United States and its key industrialized trading partners. For these three reasons, the United 

States should continue to actively support open markets and free trade in energy and to do so, it 

cannot restrict its own energy exports. 

Energy trade can also be used to strengthen our ties to important allies and trading 

partners and thereby enhance American power and influence. For example, U.S. LNG exports 

from the Gulf coast could be an important strategic back-up role to shaky Russian or Middle East 

gas supplies, for example, much the way the U.S. served as an oil swing producer back in the 

1960s, rendering an Arab oil boycott during the 1967 Arab-Israeli war infeasible. U.S. Asian 

allies Japan and South Korea are seeking flexible U.S. Gulf coast LNG contracts for reasons of 

economic and geopolitical leverage. Our ability to serve as a source for critical swing energy 

supplies enhances our importance to our energy trading partners in other geopolitical and 

economic spheres and allows us to help our allies in times o/market instability. I It would, for 

example, constrain Russia's ability to use its energy supplier role as a wedge between the United 

States and its European allies. 

As American shale production expands from natural gas to oil, the geopolitical benefits 

will mushroom both by improving u.s. financial strength and by eliminating u.s. vulnerability 

to economic blackmail. The upshot of shale oil will be to reverse the course of history and roll 

back the clock to pre-1973. Oil producing states will no longer be able to use the lever of a 

possible energy supply cut-off to America to pressure Washington to adjust its foreign policy. If 

domestic shale oil abundance someday more closely matches shale gas abundance and the U.S. 

has no imports to replace, then we will have more discretion on when and how to use the 

\ It 1S easy to imagine the expansion of American pO\vcr jf its natural gas companies could gear up to supply LNG to a European 

country cut offby Russia such as happened in the winter of 2006. If the U.S. can become an energy supplier ofla5t resort. its 

geopolitical importance will rise significantly along with its diplomatic freedom ofmovel11ent. 
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Strategic Petroleum Reserve. In such circumstances, a President could consider using the SPR to 

either loan oil to other countrics for geopolitical aims (for example, to counter the economic 

blackmail of the "oil weapon" against an allied country) or to provide extra oil into the market to 

influence global prices, should they be negatively affecting the wellbeing of the global economy. 

In this regard, U.S. energy exports will weaken some ()f our adversaries such as Iran and Russia. 

U.S. shale gas has already played a key role in weakening Russia's ability to wield an energy 

weapon over its European customers by displacement. By significantly reducing U.S. 

requirements for imported liquefied natural gas (LNG), rising U.S. shale gas production has 

increased alternative LNG supplies to Europe in the form of LNG displaced from the U.S. 

market, limiting some of Russia's power. It has also already curbed Iran's ability to tap energy 

diplomacy as a means to strengthen its regional power or to buttress its nuclear aspirations by 

eliminating the need for Iranian natural gas to potential importing customers by creating 

surpluses of alternative supplies. 

Energy exports also improve our balance of trade. The health of the U.S. economy and 

fate of the U.S. dollar come under pressure when rising oil prices raise our massive oil import 

bill, worsening the U.S. trade deficit." Such economic pressures are multiplied when we are 

forced by oil dependence to deepen our military commitments in the Middle East, thereby 

similarly adding to the U.S. deficit. All this weakens the United States relative to China, which 

holds a large chunk of U.S. indebtedness and free rides off expensive U.S. naval activities to 

guarantee the free flow of oil from the Persian Gulf. Over time, shale development will reverse 

this strategic and economic disadvantage. As the years pass, it may well be the Chinese economy 

that is more exposed than the United States to Middle East developments. Citibank estimates that 

2 For a detailed discussion of the link between the U.S. dollar and oil prices, see Amy Myers Jaffe and Mahmoud EIGamal, Oil. Dollars, Debt and Crises: The Global Curse of Black Gold, Cambridge, UK: Cambridge University 

Press, 2010 
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rising domestic shale oil and gas production, by reducing oil imports and keeping "petro-dollars" 

inside the U.S. economy, will reduce the U.S. current account deficit by 1.2 to 2.4 percent of 

gross domestic product (GDP) from the current value of3 percent ofGDP. Such a development 

would have implications for the U.S. dollar, potentially helping it appreciate over time. Energy 

exports would enhance this trend by adding gains to the balance of trade. To the extent that 

energy exports improve our global financial footing, it will not only give us an upper hand with 

China, which will still be highly dependent on foreign oil imports, but also allow the United 

States the luxury to regain its strong influence as a donor to global institutions such as the World 

Bank and United Nations, again enhancing our national power and influence. 

Finally, energy exports are an important part of ourfree trade obligations to important 

neighbors such as Mexico and Canada as well as more distant long-standing allies such as South 

Korea. U.S. law requires the U.S. Department of Energy (DOE) to review and approve any 

natural gas exports to countries with which the United States docs not have a free trade 

agreement. Current rule making requires that exports to our free trade partner countries be 

approved expeditiously. For nations not covered by applicable free trade agreements, the review 

is supposed to lead to approval unless the project is determined to "not be consistent with the 

public interest." As a practical matter, the United States is already an exporter of domestic 

natural gas. The U.S. natural gas exports to Mexico reached 1.69 bctld in 2012. Canada has also 

been a major buyer of U.S. condensates. U.S. pipeline gas exports to Mexico are important to 

Mexico's economic health and to border relations and therefore it is unlikely the United States 

would ever consider cutting off Mexico's gas trade with us. South Korea now holds a Free Trade 

Agreement (FTA) with the United States. South Korea has indicated its desire to import U.S. 

Gulf coast LNG. Under normal economic conditions, it would not be in the U.S. economic and 

foreign policy interest to fail to honor our free trade obligations to South Korea while continuing 
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to honor our obligations to Mexico. By extension, the United States, as an established exporter of 

natural gas, should not be turning away as close an ally as Japan, which also has expressed an 

ardent interest in importing U.S. natural gas and currently faces a fuel crisis in the aftermath of 

the Fukushima nuclear disaster. Several Asian energy importers have made it clear that they 

would prefer the security and pricing of our multi-producer, competitive liquid market as a 

source of LNG supply to other alternative exporters. Since U.s. trade with Asia is important to 

our economic health, on balance it would not be in the U.S. interest to turn down Asian trading 

partners wanting to expand already massive trade to include natural gas, especially given that a 

preponderance of analysts have concluded that U.S. shale resources are large enough to 

minimize the pricing impact of LNG exports from the United States. This logic could also apply 

to refined petroleum products and condensates, which are already an important part of our 

current foreign trade.3 

Thus, I would argue that these many foreign policy considerations must be taken into 

account in any review on the question of the advisability of U.S. energy exports. We must 

consider all aspects of the implications oflhe energy export question on our national security and 

foreign policy interests. To focus only on the uncertain impact that exports might have on the 

U.S. manufacturing sector or even on the global energy pricing is foolhardy, given the 

complexity of interactive forces that will influence prices in the long run. Had the industry now 

testifying about long-term natural gas prices been able to forecast correctly, they wouldn't have 

) To protect u.s. consumers against volatility in fuel pricing due to shifting levels of global demand for refined 

petroleum product and/or natural gas exports, the United States should require producers and refiners to hold 

reasonable minimum inventories to guard against temporary domestic shortfalls of supply or seasonal volatility. 

Such minimum product inventory standards are already used successfully in Europe and Japan to cnhance energy 

security and protect domestic markets in the event of an unusual event such as the Fukushima nuclear accident. In 

fact, the United States was able to weather Hurricane Rita and Katrina partly by borrowing gasoline from required 

European minimum inventory stockpiles. Shale derived natural gas liquids (NGLS) production are projccted to 

outpace the ability of the U.S. market to absorb incremental output at least until 2018. Thus, exports will be needed 

to alleviate storage containment problems that could be associated with U.S. shale oil production. Already, natmal 

gas is being flared in certain locations. For more details, see Alan Troner, "Natural Gas Liquids in the Shale 

Revolution" available at http://bakerinstitute.org/programs/energy-forum 
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off shored plants earlier in the 2000s when natural gas prices rose temporarily. Rather than 

second guessing price impacts which remain highly uncertain, we should widen the export 

debate to consider U.S. global priorities as well as domestic economic concerns. 

A Backgrounder on Implications of Energy Exports for U.S. Global Priorities 

Exceedingly high oil prices in the 2000s have invited massive investment by private 

capital in both oil exploration outside of OPEC countries, particularly in unconventional 

resources in North America, and in alternative sources of energy. At the same time, the financial 

pressure of oil import bills on mqior economies has similarly triggered consuming countries to 

re-regulate energy markets to include targets or incentives for energy efficiency, which are about 

to take a giant bite out of oil demand gains. In the case of the United States, the combination of 

both trends has been nothing short of stunning. 

The so-called "shale revolution" has unleashed an enormous amount of oil and gas 

activity in the United States. Shale gas production in the United States has increased from 

virtually nothing in 2000 to more than 10 billion cubic feet per day (bcfd) in 2010. Gross natural 

gas output in the U.S. hit 2.5 trillion cubic feet (tcf) this past summer, a record high. Shale gas 

production could morc than quadruple by 2040, accounting for well over 50 percent of total U.S. 

natural gas production over the next two decades.4 Tight oil. that is unconventional oil from 

shale structures, is developing at an extraordinarily rapid rate in the United States as well, 

reaching more than 1.5 million barrels a day (bid) and end 2012, or 1.6% of global production. 

4 See Kenneth B. Medlock III, Amy Myers Jaffe, and Peter R. Hartley, "Shale Gas and U.S. National Security" 

(working paper. James A. Baker I11lnsti!u!e for Public Policy. Rice University. Houston. TX. July 2011). 
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U.S. analysts are now projecting that U.S. oil production could rise significantly over the 

next decade as increased drilling in shale formations and deep water Gulf of Mexico translates 

into higher domestic output. Estimates range from an increase on of3 million to 10 million bid 

of oil and natural gas liquids production from shale by 2020, with some analysts projecting that 

the United States could become an exporter of natural gas liquids over time. 5 Citibank estimates 

that U.S. deep water production could hit 3.8 million bid by 2020, up from 1.3 million bid in 

2011. The United Statcs has also mandatcd a doubling ofbiofuels production over the same 

period. While it is unclear whether the rate of drilling in the United States will be sufficient to 

eliminate completely the need for foreign imports of oil, a combined approach that includes both 

continued drilling for shale and accelerated time lines for higher U.S. average corporate 

efficiency standards for vehicles to 54.5 miles per gallons by 2025 could truly leverage the 

potential to eliminate the roughly 8.5 million bid of crude oil imported into the U.S. at present. 

The new car efficiency standard should shed between 4 to 6 million bid of oil requirements in the 

next decade or two. Canadian oil sands, which could continue to grow in the years ahead at a 

steady pace of some 200,000 bid per year for at least a decade ifnot two decades should export 

infrastructure bottlenecks be relieved (an increase of2-mm bid in this decade), would add 

additional flexibility. Thus, continued U.S. dependence on oil imports from Middle East or 

OPEC looks highly doubtful at this time. 

Already, prolific U.S. shale gas resources, which are estimated to be as high as 862 tcf, 

are dramatically changing the U.S. economic and import outlook, with geopolitical 

consequences. 6 Shale gas production in the United States has increased from virtually nothing in 

2000 to more than 10 billion bcfd in 2010. Gross natural gas output in the U.S. hit 2.5 tcfthis 

5 Michael Levi, 'Think Again: The American Energy Boom Foreign" Policy lfaga:ine, July/August 2012 

http://www.ourenergypolicy.orglwp-content/uploads/20 12/08/0_ New _14413 .pdf 

6 Energy Information Administration Annual Energy Outlook, 20 II, 

http://www.eia.gov/analysis/studies/worldshalegas/ 
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past summer, a record high. Shale gas production could more than quadruple by 2040, 

accounting for well over 50 percent ortotal U.S. natural gas production over the next two 

decades. 7 As Citibank noted in a recent study, the "shale gas revolution drives paradigmatic 

shifts across sectors" and together with other unconventional resources will transform North 

America into a "growing hydrocarbon net exporting center, with the lowest natural gas feedstock 

costs in the world, supporting thriving exports of energy-intensive goods from petrochemicals to 

steel."g 

The prospects of rapidly expanding domestic natural gas supplies have led to forecasts of 

inexpensive natural gas prices for the foreseeable future. In North America, breakeven prices for 

wells drilled in some of the more prolific shales are currently estimated to be as low as $2 to 3 

per thousand cubic feet (Mct). with a largc majority of the resource accessible at below $6. Ten 

years ago, costs were significantly higher. As firms continue to make cost-reducing innovations, 

greater quantities of the shale resource will likely become both technically and economically 

viable. In March 2012, the price of natural gas fell below $2 per Mcf for the first time since 

1999. 

All this cheap natural gas looks poised to strengthen the U.S. economic and diplomatic 

position vis a vis China and Russia. U.S. shale gas has already played a key role in weakening 

Russia's ability to wield an energy weapon over its European customers by displacement. By 

significantly reducing U.S. requirements for imported liquefied natural gas (LNG). rising U.S. 

shale gas production has increased alternative LNG supplies to Europe in the form of LNG 

displaced from the U.S. market. The geopolitical role of U.S. natural gas surpluses in 

7 See Kenneth B. Medlock III, Amy Myers Jaffe, and Peter R. Hartley, "Shale Gas and U.S. National Security" 

(working paper. James A. Baker 111 Institute for Public Policy, Rice University, Houston, TX, July 201 I). 

8 Energy 2020: North America, the New Middle East? Citi GPS: Global Perspectives & Solutions, March 20 2012 
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constraining Russia's ability to use its energy supplier role as a wedge between the U.S. and its 

European allies9 could further weaken over time, to the extent that the current Administration 

stays the course with approvals of U.S. LNG export terminals. U.S. LNG exports from the Gulf 

coastlO could be an important strategic back-up role to shaky Russian gas supplies with their 

potentially political strings attached, much the way the U.S. served as an oil swing producer back 

in the 1960s, rendering an Arab oil boycott during the 1967 Arab-Israeli war infeasible. I I U.S. 

Asian allies Japan and South Korea also are seeking flexible U.S. Gulf coast LNG contracts for 

reasons of economic and geopolitical leverage. 

As American shale production expands from natural gas to oil, the geopolitical fall out 

will also mushroom both by improving U.S. financial strength and by eliminating U.S. 

vulnerability to economic blackmail. The upshot of shale oil will be to reverse the course of 

history and roll back the clock to pre-I 973. Oil producing states wiII no longer be able to use the 

lever ofa possible energy supply cut-off to America to pressure Washington to adjust its foreign 

policy. There has even been talk that the U.S. could become an oil exporter. The idea of crude 

exports "should not automatically be taken off the table," U.S. Energy Information 

Administration director Adam Sieminski told a Washington DC-based conference last summer.ll 

Even if U.S. crude oil exports never come to fruition, a self-sufficient United States will 

have more flexibility in how it manages the roughly 700 million barrels in the Strategic 

9 Edward L. Morse and Adam J. Robinson argue in their article, "Growing Pains: Russia's New Muscle" Aspenia 

32-4, February 2007, p. 110-119, that Moscow has used energy as a means to pull European states away from close 

alliance with the United States by brief demonstrations that reliability of supply could be subject to geopolitical 

considerations. Russian energy "diplomacy" is mentioned in EU discussions as a factor in slowing the eastward 

expansion ofN A TO to Ukraine and elsewhere. 

10 Many forecasters anticipate U.S. exports of natural gas, and some, including the EIA. anticipate oil exports in the 

coming decades. 

II For a detailed account of the U.S. historical swing producer role, see Daniel Yergin's The Prize, New York, New 

York: Simon and Schuster, 199 1, chapter 27 through 28. 

12 Margaret Ryan, "{j.S. Crude Exports Could Make Sense Says EJA Head" aolenergy.com June 28, 2012 
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Petroleum Reserve (SPR). Although many think of the SPR as a wartime stash, it was in fact 

created to be a tool of statecraft to be used to redress the bargaining imbalance to allow the 

United States as a major oil importer greater maneuver in its foreign policy and to prevent global 

economic damage from undue manipulation ofoi! markets. The size of the SPR was determined 

by the premise that the U.S. would have (0 replace some or all of its oil imports during a crisis. 

But if the U.S. has no imports to replace, then it will have more discretion on when to use the 

SPR to either loan oil to other countries for geopolitical aims or to provide extra oil into the 

market to influence global prices, should they be negatively affecting the wellbeing of the global 

economy. The United States could even decide to sell off some of the SPR to reduce its deficit, 

given that the average purchase price for the stockpile is $29.76, potentially leaving a lot of room 

for profit-taking. At a minimum, over time the U.S. will need to review its SPR policy, which 

already lacks a clear mandate for when a release is triggered. 13 

Politicians and experts alike will undoubtedly point out that if the U.S. becomes an 

exporter, such exports could put U.S. consumers and industry at risk during times of a supply 

outage or crisis. But such risks are easily remedied as a recent Citibank report notes. "Citi GPS 

Energy 2020: Independence Day" argues " ... in case of an international emergency or a supply 

disruption, exports can be curtailed and domestic prices in theory be significantly cushioned 

from international shocks. Indeed, the government could restrict or even ban exports in times of 

emergency .. ." While Citi notes that the latter is an extreme that "would likely violate 

international trade treaty obligations," it is certainly a safeguard that could be used in extreme 

circumstances such as time of war. Moreover, any U.S. policy to temporarily end exports would, 

except in times of war, likely be made in the context of U.S. participation in a global response to 

JJ For more discussion about the problems of the SPR trigger mechanism, see Amy Myers Jaffe, America's Real 

Strategic Petroleum Reserve, at 

http://www.foreignpolicy.com/articles/20 12/08!24!Saudi Arabia Strategic_Petroleum_Reserve 
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supply outages and therefore would be just one element to an organized international response to 

proteet the U.S. economy and those of our allies. 

Rising shale and the U.S.-China Rivalry 

The U.S. shale boom has other geopolitical benefits as well. Rising American shale oil 

and gas production will strengthen the U.S. hand relative to China. The health of the U.S. 

economy and fate of the U.S. dollar come under pressure when rising oil prices raise our massive 

oil import bill, worsening the U.S. trade deficit. 14 Such economic pressures are multiplied when 

we are forced by oil dependence to deepen our military commitments in the Middle East, thereby 

similarly adding to the U.S. deficit. All this weakens the United States relative to China, which 

holds a large chunk of U.S. indebtedness and free rides off expensive U.S. naval activities to 

guarantee the free flow of oil from the Persian Gulf: In fact, China may feel it benefits 

strategically if the U.S. is bogged down in Mideast conflicts, a possible explanation for its 

support ofIran and Syria. China has emerged as Iran's principal arms suppliers, with transfers 

including cruise missile and ballistic-missile capabilities. IS More recently, China seems to be 

hedging its bets with discussions of ballistic arms sales to Saudi Arabia. 16 The utility of arms 

sales to various Middle East players is sometimes described in China as "seeking stability" 

through balance of power but to the extent that such military support forces Washington to wade 

deeper into conflicts in the Middle East, China can be better assured that the U.S. will be 

constrained to intervene in China's own Asian backyard. Moreover. costly repeated U.S. military 

14 For a detailed discussion of the link between the U.S. dollar and oil prices, see Amy Myers Jaffe and Mahmoud 

EI-Gamal, Oil. Dollars. Debt and Crises: The Global Curse of Black Gold, Cambridge, UK: Cambridge University 

Press, 2010 

15 Ibid 

16 America's Real Strategic Petroleum Reserve, Amy Jaffe, 
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intervention in the region has weakened the U.S. economy considerably by substantially adding 

to the U.S. deficit and also indirectly through higher costs for oil. Notes John Garver: 

"A strong Iran resistant to U.S. dictates and at odds with the United States would also 

force Washington to keep large military forces in the region, limiting the ability of the United 

States to concentrate forces in East Asia, wherc China's core interests lie. The 9-11 attacks on 

the United States were a strategic windfall for China, diverting U.S. attention away from China 

and East Asia toward the Middle East and Islamic World. That the United States bogged itself 

down in protracted wars in Afghanistan and Iraq was a further blessing for Bejing. If Washington 

now were to wade deeper into conflict in the Middle East -this time with Iran-the chances for 

China's successful rise without having to confront the United States would increase. In this 

regard, it would not benefit China to help the United States coerce Iran into de-nuclcarization 

and corresponding docility:,17 

Over time, shale development will reverse this strategic and economic disadvantage. As 

the years pass, it may well be the Chinese economy that is more exposed than the U.S. to Middle 

East developments. Citibank estimates that rising domestic shale oil and gas production, by 

reducing oil imports and keeping "petro-dollars" inside the U.S. economy, will reduce the U.S. 

current account deficit by 1.2 to 2.4 percent of gross domestic product (GDP) from the current 

value of3 percent ofGDP. Such a development would have implications for the U.S. dollar, 

potentially helping it appreciate over time. 

us. Energy Exports and Global Energy Governance 

Open trade and investment in energy is important to U.S. vital interests. As mentioned 

above, barriers to energy trade and investment ean harm the global economy, leave the U.S. and 

its allies subject to energy blackmail, and create artificial shortages of vital energy supplies. 

From the perspective of the United States and its important trade partners in the developed 

world, global energy trade and investment policy should facilitate the development of natural 

resources to ensure that supplies can grow in line with demand at fairly stable prices. There is no 

17 John W. Garner, Is China Playing a Dual Game in Iran? Washington Quarterly, Vol. 34, No I. 2011, p. 75-88 
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doubt that at least some of the rapid increase in world oil prices during the years 2005-2008 is 

the result of insufficient investment in oil producing capacity, in large measure due to barriers to 

open trade and investment in energy resources in the Middle East, Russia and to some extent 

China. 

One of the key barriers to adequate investment in global oil reserves is the concentration 

of control of the world's largest reserves in the hands of national oil companies. The 

concentration and control of access to large national reserves by national monopolies eliminates 

the possibility that local competition of firms will enhance the efficiency of all investors and 

promote an adequate pace of investment, with private firms taking a role to supplement 

government investment. In many countries, governments have been under increasing pressure to 

reallocate revenue generated by the monopoly NOC(s) to cover social investments in education, 

health, direct food and fuel subsidies to populations, and infrastructure. Some governments have 

used an increasing portion of NOC revenues to cover federal budget outlays or to repay foreign 

national debt or to provide social welfare subsidies to the population. As a result, NOCs have 

diverted resources away from reinvestment in oil exploration and development to meet these 

more non-commercial goals. In many cases. such as Mexico and Venezuela, this policy has led 

to sharp declines in oil exports in recent years. In other cases, such as Russia and Kuwait, it has 

constrained the pace of a potential expansion in oil exports. Thus, the concentration of control in 

resource development by state monopolies instead of having such development be open to 

competitive market forces contributes to underinvestment in oil exploration and development, 

even in the face of global shortages and rising prices. 

Another consequence of the concentration of control of resource development by statecontrolled NOCs is that it strengthens the monopoly power of OPEC. From the perspective of the 

larger OPEC oil producers, one advantage of creating the trade and investment barrier ofNOC-
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control in the first place is precisely that it makes it easier for OPEC member countries to control 

the pace of investment and the expansion of oil production capacity, thereby strengthening 

OPEC's control on global oil prices. OPEC can simply reduce investments in future capacity as a 

means to artificially raise global oil prices for some period of time. OPEC's goals as an oil 

producer cartel are not in alignment with U.S. economic or strategic interests. It is clearly in the 

U.S. interest to promote opcn and free trade in energy in countermand to such OPEC practices to 

constrain needed oil supplies. 

Over the past thirty years, the policy of the United States and international organizations 

such as the International Monetary Fund and the World Bank has been to promote and encourage 

the privatization or partial-privatization of state-owned energy tirms in many developing 

countries to ensure a freer flow of energy to the local and global economy and to help countries 

better align their national balance of payments and foreign debt. The policy. where successful, 

has had the effect of transforming many of these state firms. such as Petrobras and China's 

CNOOC, into more aggressive, commercially oriented global competitors. Trade agreements that 

aim for fair competition and adequate investment in upstream energy sectors are squarely in the 

U.S. interest and in the commercial interests of U.S. energy firms which are leading globally in 

technology and investment in oil and gas exploration. As such. emphasis on free trade requires 

the United States also to keep its borders open for energy exports and investment in our domestic 

resources by foreign companies. Foreign investment in U.S. domestic resources has contributed 

to rising U.S. domestic production by injecting additional capital spending into the U.S. market. 

The U.S. Energy Information Administration (EIA) tallies that 20 percent of the $133.7 billion in 

investment in U.S. shale plays between 2008 and 1012 included joint ventures by foreign 

companies. As a large consuming nation. the United States should insist that cross investment be 
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a critical part of an overall framework that keeps all markets open to global trade and investment, 

including access to U.S. markets, in non-oil commodities, financial services and other goods. 

Energy Independence and a More Assertive US. Foreign Policy? 

Once the energy equation for the United States shifts in earnest, it is possible that 

America will return to an even more assertive foreign policy. To the extent that rising domestic 

energy helps the U.S. regain some of its financial muscle, fiscal and budgetary constraints that 

now prevent the U.s. to take on too many international endeavors will be removed. That wiII not 

only give the U.S. military more sway with the U.S. public when it feels intervention abroad is 

necessary or even just strategically advantageous. It will diminish the influence of oil-related 

geopolitical considerations, which currently loom high on the list of factors that inhibit U.S. 

freedom of movement on the world stage today. Just as Frcnch President Nicholas Sarkosy was 

the head of state able to "speak to power" to energy-rich Russia after Moscow's invasion of 

Georgia given France's cnviable reliance on its own nuclear energy to fuel its economy, the U.S. 

President and Secretary of State will be more greatly enabled to speak for the global community 

on matters that impose burdens on major oil exporting states. That could cover any number of 

topics from human rights and democracy promotion in I3ahrain or around the oil-rich Persian 

Gulf to a global climate deal. The United States will be able to communicate with more 

confidence and less constraints than when its own oil vulnerabilities need to be taken into 

account. 

But ironically, greater U.S. energy self-sufficiency will have its own built-in 

disadvantages as well with exactly the same petro-states as its current encrgy vulnerability 

serves. Until rccently, the U.S. market had been a giant and growing destination for sales of 
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petroleum and as such, oil producers had to care whether they could access U.S. consumers. 

Between 1990 and 2000, the growth in U.S. oil demand represented close to 60 percent of the 

rise in OPEC's traded oil production. The importance of the U.S. market meant that Americanled oil sanctions against a country had real and economically biting consequences. For example, 

Libya's Qadaffi, it is said, turned over his weapons of mass destruction because he considered 

access to the U.S. market and oil and gas equipment increasingly important to the possibility of 

an LNG industry. Ovcr time, oil sanctions might be a less effective tool in U.S. statecraft, as 

more and more production is sold eastward to emerging economies of Asia, which will be less 

inclined to follow U.S. leadership any way but especially where their energy supplies are 

concerned. This problem was already apparent in Washington's difficulty to get Asian buy-in to 

its bid to tighten Iranian oil sanctions this past summer. 

As producers look to markets othcr than the U.S. to sell their oil exports and refined 

products from refining and petrochemical plants, the United States will also lose some of its 

prerogative to dictate environmental standards to other countries. In the past, the importance of 

access to the large and lucrative U.S. energy market meant that environmental specifications 

dictated in the United States would have to be followed by any seller who might want to send a 

eargo to America. As the U.S. market becomes more and more self-sufficient, oil exporters may 

decide it isn't worth the extra expense to invest in equipment to meet U.S. environmental 

specifications. That could be bad news for the ambitious state of California which is trying to 

dictate that producers elean up the carbon emissions for their oil production and refining to 

market to the state. California had hoped that its low carbon fuel standard would impact 

producers not just in the state but have broader impact on the operations of the global oil industry 

generally as well. California's low carbon fuel standard will likely still influence Canadian oil 

sands producers who will want to maintain access to all U.S. markets, but sellers from Nigeria 
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and the Middle East may be less inclined to worry about U.S. standards if the vast majority of 

their sales are going to wind up in Europe and Asia. 

And while the U.S. will lessen its vulnerability to global oil shocks, it cannot eliminate 

impacts altogether, given the globalized nature of commodity markets. The U.S. will still have to 

concern itself with how international oil crises raise oil prices all around the world, including 

inside the U.S., since U.S.-based consumers will have to pay the same high oil prices as 

everyone else. Even to the extent that rising energy prices helps the economy of a wider number 

of U.S. domestic states/regions than in the past -- offsetting some of the employment and output 

effects of an oil price shock -- the overall U.S. economy will still be negatively affected by 

global impacts. ls And the U.s. will still have to worry about what an oil cutoff would mean for 

its allies and trading partners. Even if the U.S. can weather an oil supply crisis better than most 

as its own domestic production rises, its economy will still be hard hit by the negative impact on 

everyone else. Saudi Arabia has learned that lesson the hard way both in 1979 and again in 2008. 

When OPEC's Main Target Would be China 

As energy efficiency and alternative energy take hold across the industrialized world, oil 

consumption will continue to fall in the OECD, most notably in the United States, in the years 

ahead. This trend could potentially limit OPEC's inf1uence over the West over time and shift any 

burden of OPEC's price setting policies more squarely on emerging Asian countries such as 

China and India. 

18 Mine K. Yuccl, Economic Opportunities and Vulnerabilities, Presentation to the Council on Foreign Relations, 

"Understanding the American Oil and Gas Boom" October 18-19,2012 
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U.S. oil imports are already seeing substantial declines, falling over 4 million bid since 

2007. OPEC sales to the U.S. have already been among the hardest hit, with West Atrican OPEC 

members like Nigeria and Angola seeing significant drops. In the future, even Venezuela and 

Middle East producers are thus likely to find themselves challenged in maintaining their foothold 

in the United States. 

As discussed, OPEC's ability to use oil sales as leverage to adversely influence the 

United States will be greatly reduced. The U.S. National Intelligence Council in its recent four 

year survey to policy-makers noted that U.S. shale production might dent OPEC's influence over 

global oil prices. While this might be overstated, clearly OPEC's influence over the U.S. will be 

reduced. While the U.S. and global economy will still be sensitive to oil price shocks, the United 

States as a large oil and gas producer and exporter will receive a compensating offset of higher 

energy sector revenues from any OPEC cutback. The United States will also be able to target its 

own exports to allied countries in Europe or Japan, should they be threatened with a supply 

cutoff by OPEC. Instead of being able to target the U.S. and constrain its superpower 

prerogatives, the impact of OPEC policy changes will fall more squarely in Asia and in particular 

on China. 

By contrast to expectations that U.S. oil demand will continue to fall, projections are that 

Chinese oil demand will rise by close to 8 million bid to 19 million bid by 2040 as the number of 

cars on the road in China expands exponentially with the country's continued economic growth 

and development. 19 At present, China roughly 50 percent of China's oil imports come from the 

Middle East. China's dependence on Middle East oil is expected to continue to expand in the 

19 Kenneth Medlock B. III, Ronald Soli go and James Coan, 20 II. "Vehicle Stocks in China: Consequences for Oil 

Demand." Baker Institute working paper available at http://bakerinstitute.orgipublicatiol1s/EF-pubRiseOfChinaMediockSoligoCoan-120211-WEB.pdf 
87 


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coming decades, forcing it to rely on the U.S. Navy to protect the free flow of oil from the 

Middle East. As at the same timc the U.S. ceases to be a major oil importer, it will almost 

certainly lower political will in the United States to finance singlehandedly the protection of sea 

lanes from the Persian Gulf. Such a scenario would almost certainly alter the dynamic of the 

Sino-U.S. dialogue regarding the Middle East and possibly change American public attitudes 

regarding Chinese free riding off the United States' expensive commitment to guarantee the free 

flow of oil from the Persian Gulf to Asia. Moving forward the adverse effect ofa disruption in 

oil supplies and subsequent oil price increases could have a more deleterious impact on China's 

trade balance as the major user of Middle East oil than it would on the United Statcs' trade 

deficit, since the U.S. oil import bill will be greatly reduced. That should give Washington more 

leverage with Beijing to insist on a more constructive dialogue on not only Middle East conflict 

resolution specifically, but on military matters more gencrally. 

Given China's long tenn interests in Middle East oil and gas supply and its economic 

exposure to the fate of the U.S. economy, it remains to be seen if China's present path of 

providing material and diplomatic support to Iran and into other diplomatic hot spots will 

continue to make sense as time wears on. Already, Chincse strategists are beginning to worry 

about U.S. foreign policy shifts, as the U.S. becomes less dependent on imports. And China's 

"going abroad policy" of foreign direct investment in oil in places like Sudan, Libya, Iran and 

Venezuela, is increasingly putting its citizens and interests in harm's way. The shortcomings of 

China's "going abroad" strategy have demonstrated that a strong international presence requires 

a strong military. Beijing is becoming increasingly dependent on the foreign military security 

already present in the Middle East due to its growing reliance on Gulf oil. Regardless of 

nationalistic elements of its public, Chinese leaders must face the fact that the country does not 
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have the naval resources to become actively involved in defending those producers who are its 

main crude suppliers. Moreover, it is not clear whether China would want to take on that support 

role even if it had the adequate resources. Traditionally, China has devoted its military resources 

to protecting its interests in its own backyard, including the South China Sea and Taiwan Strait, 

largely relying on U.S. military presence to protect its interests abroad, and particularly in the 

Middle East.co 

The good news is that China, now finding itself mired in more energy-related foreign 

diplomacy than it bargained for, is more inclined to act in concert with other members of the 

international community. As China becomes a more engaged stakeholder in the international 

arena, the United States must prepare itselffor increased global power sharing. But China's farflung involvement in unstable regions also means that it may need troops to guard foreign oil and 

gas installations and naval craft to effect evacuations in emergencies. Evcn this modest increase 

in China's foreign military profile will require greater consultation with the United States, first, 

to avoid potentially dangerous misunderstandings and, second, to create the groundwork for 

cooperation during possible crises. Down the road. an alternativc Chincse response to this 

situation could be to increase investment in Chinese force projection. 

To manage China's oil-and-military link. the United States should fine-tune the 

messaging of its diplomacy with China to include discussion of a roadmap to elevate 

communications between the U.S. and Chinese military. The nature of conflicts in the Middle 

East and Asia calls for a more pro-active. high level strategic dialogue between the U.S. and 

Chinese militaries. At present, this dialogue is more tactical in nature. Even at the height of the 

cO "The Vital Triangle," Jon B. Alterman, Ph.D., Director, Middle East Program, Center for 

Strategic and International Studies, presented at The Woodrow Wilson Center for International 

Scholars conference on China and the Persian Gulf, July 12,2010, http://aicbackground.conflix.org/il11ages/5/57/Securedownload %281 %29.pdf 
89 


82191.067

Cold War, such consultative lines of communication between top U.S. and Russian military brass 

was critical to avoiding escalation of conflicts in the Middle East to avoid dire global 

consequences. The same utility would be beneficial in the Sino-U.S. relationship. Sharply 

different perspectives on even the vocabulary of "stability" in the Chinese and American cultural 

lexicon raises risks of unintended misunderstanding that is thwarting better cooperation in the 

Middle East even when Chinese and American strategic interests are aligned. And where 

Chinese and American interests are not aligned, the risks of misinterpretation and 

miscommunication are high with potentially serious consequences. 

For OPEC. it remains unclear what geopolitieal benefits it would get when its oil weapon 

would unleashed more pain on Beijing (and maybe someday India) than on the United States. 

The answer to that question will partly rely on how China's foreign and strategic policy develops 

over time and whether Middle East oil exporters or Russia will find elements in China's foreign 

policy that they would like to influence. One could imagine that China's extensive anns sales 

might become a target of petro-power ire in the future,just as U.S. military aid to Israel had it 

fall amuck of Arab interests in the 1970s. But China's naval force projection will likely be 

limited for at least two decades, leaving less to counterbalance through an "energy weapon." 

Conclusion 

As the United States considers the implications of an improving energy balance, it will be 

faced with important questions about its priorities for continued global leadership. Regardless of 

whether the U.S. imports any oil from the Middle East, its responsibilities to police the sea lanes 

will remain a function of its role as a global superpower. And having more oil will not relieve the 

U.S. from caring about the impact that a global oil crisis could have on its economy, not only 
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because prices to consumers will rise everywhere, including in the United States, but also 

because economic damage from a crisis will harm the U.S. economy indirectly via its substantial 

trade with other countries who will remain major oil importers. Thus, worries among U.S. allies 

that an energy independent United States might abandon the Middle East are clearly overstated. 

But an energy independent United States will indeed be freer to engage in an international 

agenda of democracy promotion and human rights, which might weaken the relationship the 

United States has with authoritarian governments in major oil producing states. The 

consequences of that could still have profound long term impacts on the global oil situation. 

As the United States moves to recalibrate its own understanding of its national interests 

when its own oil importation from outside the Americas shrinks, it will have to think carefully 

about the consequences of opportunities for changes in foreign policy. The United States could 

gain striking geopolitical (and economic) benefits from having the flexibility to export of oil and 

gas to its allies both in normal times and in times of crisis. The large U.S. Strategic Petroleum 

Reserve could be part and parcel of a new means of engagement on the arena of international 

energy diplomacy. We have already opted to release the strategic petroleum reserve to take oil 

priee pressures off of a financially struggling Europe during the Libyan crisis and simultaneous 

start of oil sanctions against Syria. It has never been clear why the U.S. had not done more in the 

past to eliminate the energy security and global economic risks posed by OPEC. But the United 

States could soon be in a position to recapture the status it had in the 1960s when the U.S. was 

able to playa swing producer role to stabilize the oil market, in the face of Middle East conflicts 

and other geopolitical events. 

In addition, the United States will want to increase its diplomatic efforts to engage other 

major oil importing countries into a dialogue about burden sharing. The United States has 
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already set this path in motion by promoting joint operations with NATO in Libya and elsewhere 

in Africa. But a stop in Beijing by senior U.S. military brass might become increasingly 

necessary as the United States navigates its way to energy independence. U.S.-China relations 

regarding the Middle East and oil have been plagued by mistrust and rivalry. The challenge for 

U.S. diplomacy will be how to accommodate legitimate Chinese interests while at the same time 

countering China's willingness to leverage Middle East contlict to the U.S. disadvantage. A 

proper analysis of how the energy position of Washington and Beijing will change over time can 

help policy makers 011 both sides to map a more cooperative framework where possible and at 

least to provide a more productive dialogue where differences in interests cannot be resolved. 
92 

Mr. WHITFIELD. And thank all of you for your testimony and for 

taking time to be with us today. 

Now we will have a question period and answer, and I will recognize myself for 5 minutes for the first set of questions. 

First of all, I am happy to hear that many of you support a freetrade, open-market system on the export and in the entire energy 

sector. I read your testimony, Senator Johnston, and I was thinking back about all these Federal policies that you referred to, like 

the Fuel Use Act, the wage and price controls and others, and the 

unintended consequences that came about as a result of those government policies. And so I was—and Mr. Dorgan talked about—in 

the publication that they were involved in, he specifically said restricting international trade in fossil fuels is not an effective policy 

to reduce global greenhouse gas emissions, and I agree with that 

as well. 

Mr. Breen, one question I did want to ask you, you talked a lot 

about oil policy today, and do you have a position on the export of 

energy from America, liquid natural gas as an example? 

Mr. BREEN. Sure. My position is that there may be some advantages to that. I am 100 percent in favor of the idea of a free market, a global free market in energy. My concern focuses around oil, 

primarily because the United States is single-source-dependent on 

oil for transportation. 

So the good news on electrical energy production and industrial 

energy productions is it is diversified. Natural gas is part of it. 

There are other renewables. 

In the case of transportation, 93 percent plus is totally dependent 

on oil, and so that is why I focused on it. It is—— 

Mr. WHITFIELD. But on the natural gas, did you say you do or 

you don’t have a position on that? 

Mr. BREEN. My position is that it is probably not a bad thing. 

I think natural gas is a great bridge fuel—— 

Mr. WHITFIELD. OK. 

Mr. BREEN [continuing]. From a climate perspective. 

Mr. WHITFIELD. OK. 

Mr. BREEN. And certainly Russia’s use of it geopolitically is—— 

Mr. WHITFIELD. Thank you. 

Senator Johnston, you talked about, as I had said earlier, about 

the adverse policies of the government trying to dictate what will 

and will not be done. I was just curious, can you imagine any sensible way that we can actually try to restrict exports of natural gas 

that would be an effective government policy? 

Mr. JOHNSTON. Mr. Chairman, I have thought a lot about that, 

and if you made me come up with a policy, I don’t know what it 

would be. I mean, if you did it chronologically as to who first files 

for the permit, I think there are some 16 permits now pending, 

that would not make any sense, because, you know, it just costs a 

couple of hundred dollars, I think, to file one of these things, and 

it doesn’t tell you who has the best application, or who will be able 

to—you know, you have got to have a decades-long supply agreement, and a decades-long off-take agreement, and many billions of 

dollars, and that first application just doesn’t tell you who is going 

to be able to do that. 

93 

So I don’t think there is a way to do it. I think it would be just 

as disastrous as the Federal Power Commission trying to set the 

price of natural gas. 

Mr. WHITFIELD. Do you have an opinion on that, Senator Dorgan? 

Mr. DORGAN. Yes. I generally agree with that. You know, we currently have in law a restriction with respect to the export of oil, 

as you know. 

Mr. WHITFIELD. Right. 

Mr. DORGAN. That has been there since the 1970s. 

And let me make a point in response to what Mr. Breen said as 

well. It is the case that the additional production, for example, of 

oil and natural gas is really good news for our country, really good 

news, but it is also the case that 70 percent of the use of oil in this 

country is used in transportation, and 90 percent of transportation 

fuels are oil-based. And so is that worrisome? Should we be trying 

to diversify? The answer to that is yes, of course we should. 

Mr. WHITFIELD. All right. Thank you. 

You know, Mr. Bradbury, you talked about the climate change 

issue, which certainly is important, but I think here in America we 

do need to take credit for the steps that we have made to improve 

our environment. Our CO2 emissions are down lower than they 

have been in 20 years. And when you think about the immediate 

impact, for example, when the Russians stopped the supply of gas 

into the Ukraine, when they stopped the supply of gas into Bulgaria, and they were without gas for 4 or 5 days, when you think 

about the immediate impact on the lives of people because they 

can’t get adequate energy sources, and then you compare that to 

the long-term climate change issue that is out there, trying to balance immediate needs versus long-term needs is something that we 

all, I think, struggle with. 

But you don’t even have to comment on that. My time is actually 

expired, so I will recognize Mr. Rush for 5 minutes. 

Mr. RUSH. Thank you, Mr. Chairman. 

We have had some interesting testimony and testimony that has 

touched on LNG exports from a myriad of perspectives. And all 

these perspectives are quite important, but I would like to hear a 

little bit more about how exporting LNG impacts the U.S. consumer. 

Unlike oil, which is set on—whose prices are set on the global 

market, natural gas prices are set under a regional scale or a 

North American and Europe and also in Asia. And today we are 

paying reasonably low prices for natural gas, less than $4 for a gallon, but when you compare to Europe, they are paying $10 per gallon, and in East Asia it is $12 to $16 per gallon, and experts expect 

these prices to increase over the coming years. As a matter of fact, 

the EIA estimates that Henry Hub’s spot prices for natural gas will 

increase by 2.4 percent as producers begin drilling more oil, and especially in more difficult terrain. 

So the question that I have is how will this exporting LNG impact the cost of natural gas for America’s families and consumers 

and the manufacturers? Will this impact be significant, and will it 

be widespread in the various and different sectors of our economy? 

Will there be an overall gain or loss in manufacturing jobs and 

94 

other types of employment if we started exporting LNG? And so the 

impact on the American consumer is where I center my question. 

And anyone on the panel. Maybe, Senator Johnston, if you would 

be so kind to start it out. 

Mr. JOHNSTON. Thank you, Mr. Rush. 

That is a very key question, and it was the subject of the Cambridge Energy Research Associates’ study: What was going to be 

the effect on consumers? And they examined the question from 

many different aspects and determined that it would not have an 

adverse effect on American consumers. The reason is that demand 

begets supply. The more demand you have, the more supply you 

have. 

Now, in my home State of Louisiana, now, we have got what we 

call the Haynesville shale, some of the most prolific of the dry shale 

plays in America, but it is, for the most part, not being developed 

now because the price is a little bit too low. Now, you don’t need 

a huge price to develop a Haynesville or some of the Texas shales, 

but you need more than you have got right now. 

So what Cambridge said, and what other studies have shown, is 

that demand will produce more supply, and that the price effects 

will not be bad, that they will be good for the country. 

Mr. DORGAN. There is a Brookings study on that point. There is 

a Council of Foreign Relations study on that point. And, you know, 

it is interesting. As we are talking here, one of the most significant 

oil plays on the face of the planet is in the Bakken in North Dakota. There is a substantial amount of natural gas. Most of it is 

being flared. I mean, if you fly over that place at night, it looks like 

another giant American city, because the price of gas at this point 

is not high enough to suggest to them they want to build the pipelines to gather it. The price of sweet light crude is where they are 

going to make profit up there, not collecting low-price natural gas. 

So we are burning a lot of natural gas at this point. 

But my point was that there are studies that have been done, 

three of which I have looked at, that suggest export of natural gas 

would have rather minimal impact on the U.S. consumer. 

Now, on the positive side, of course, it will reduce our trade deficit. There are a series of positive things that will come as a result 

of it. 

Mr. RUSH. Ms. Jaffe. 

Ms. JAFFE. So my organizations have studied that issue as well. 

I would say that over time the natural gas market—we are currently studying that market together with Harvard—the natural 

gas market is going to look more like the oil market. In other 

words, the United States will probably not be that isolated a market. 

And if we do not export LNG from the United States, what will 

happen is gas from Canada will be exported through different 

projects that would be proposed of Canada. So you are going to 

have natural gas exports from North America one way or the other, 

and that will affect sort of a global effect on the price where in the 

end the price in Asia that you cited will come down over time as 

natural grass projects in Australia and other places come online. 

95 

We have a global surplus of natural gas. It will assert itself more 

and more over time, and I do believe that that would give protection to U.S. consumers. 

You know, the oil industry is a cyclical industry, and, as many 

members of the panel have mentioned, sometimes when the price 

gets too low, companies stop drilling because they don’t have profitability in a particular field, and that causes some volatility for consumers. But overall there is so much natural gas supply that it is 

hard to foresee we would go back to a condition that we saw several years ago where the price of natural gas in the United States 

was $10. It would take something very extreme to produce that 

kind of result. 

Mr. WHITFIELD. The gentleman’s time has expired. 

At this time I recognize the gentlemen from Louisiana Mr. 

Scalise for 5 minutes. 

Mr. SCALISE. Thank you, Mr. Chairman. I appreciate you having 

this hearing. 

We have had a number of hearings in this committee about the 

new technologies, what technology has done to increase the supply. 

You know, years ago people thought there were short limits on how 

much oil we had left, of natural gas, and, of course, with the advancements in technology and then the Deepwater in Louisiana, 

Senator Johnston knows we have experienced even larger finds of 

large reserves of fossil fuels with the shale plays, as you mentioned 

in the Haynesville play. And I have been up there myself and seen 

just the job creation that it has created, but also the energy independence. And I have toured the Cheniere facility in southwest 

Louisiana, the first of those 20 facilities that are either looking to 

export LNG or, as Cheniere is, in the process of doing. 

You know, there are so many opportunities for us to become energy independent within 10 years. It is a very realistic possibility 

if we get the policy right here in Washington. And unfortunately, 

as our hearings in the past have shown us, the policies have not 

always matched the goal of having energy independence. You 

know, for those of us who want an all-of-the-above strategy, which 

includes wind and solar, but being realistic about their limitations, 

and understanding the demands of a manufacturing economy, we 

are going to need to continue advancing the technologies that we 

have for fossil fuels as well. 

I want to start with you, Senator Johnston, and then first thank 

you for your 24 years of service to the great State of Louisiana and 

to our country—— 

Mr. JOHNSTON. Thank you. 

Mr. SCALISE [continuing]. For serving in the Senate, and especially for your leadership on the Senate energy committee. You 

know very well the challenges that we face. 

In your testimony you talk about some of the times where the 

Federal Government gets it wrong. And probably all the times 

where the Federal Government tries to go and predict, whether it 

is with renewable fuel standards, and, you know, you cite the 2007 

Congress projections that are now so far off that are our refineries 

are telling us they are hitting the blend wall. You know, you talk 

about the President’s own predictions of I think it was, what, a milVerDate Nov 24 2008 15:52 Oct 23, 2013 Jkt 037690 PO 00000 Frm 00101 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-38 CHRIS
96 

lion electric cars on the road by 2015, and today we have 87,000 

electric and hybrids. 

So the government hasn’t really been good at picking winners 

and losers. In fact, you know, we had the hearings here in this 

committee about Solyndra and that scandal, and where the government literally came and tried to pick winners and losers, and just 

ends up picking losers, and the taxpayers foot the bill. 

If you can just expand on some of the things you talked about 

in your testimony about what would be a good strategy, as you cite 

Adam Smith and Wealth of Nations; and, you know, is government 

regulation versus a free market approach the right way to go. And, 

of course, history has a lot of indicators for which way is the better 

path. 

Mr. JOHNSTON. Well, thank you very much, Mr. Scalise. 

There are huge opportunities for natural gas and for other fossil 

fuels around the world. Qatar is a huge producer, Indonesia, Australia. Chevron has a facility in Australia they are spending $81 

billion on, and they will be exporting all over. 

In addition to that, you know, if the price did get too high, and 

I mentioned this to Mr. Whitfield, you can use coal to make chemicals. My son and I are involved in a plant in Lake Charles now 

which will make chemical precursors out of pet coke, which is essentially the same thing as coal. So there are huge opportunities 

for energy, and the market will sort those out. It is—— 

Mr. SCALISE. Do you—— 

Mr. JOHNSTON. You know—— 

Mr. SCALISE. Do you think it is an achievable goal. When those 

of us who talk about energy independence within 10 years—again, 

if we get smart policy, if we get the policy right out of Washington, 

do you think it is achievable that we can be an energy-independent 

Nation—— 

Mr. JOHNSTON. Absolutely. 

Mr. SCALISE [continuing]. To secure that future for our country? 

Mr. JOHNSTON. Absolutely. You know, they are drilling down in 

the Gulf of Mexico now below 30,000 feet, and they think there are 

huge, huge—a huge new undiscovered basin down there. 

There are just tremendous opportunities if we just get the regulators out of the way. And, you know, we need regulation for a lot 

of things, for safety, et cetera, but when you are regulating the 

supply and demand of commodities, government just can’t do that 

very well. You know—— 

Mr. SCALISE. Unfortunately the history has shown—— 

Mr. JOHNSTON [continuing]. On ethanol, they still haven’t gotten 

it right. You know, we have known for years that they weren’t producing any cellulosic ethanol, but they are still requiring it, and 

you would think the regulators would learn at some point. 

Mr. SCALISE. We are going to keep pushing them to get there. So 

I appreciate all of your testimony, but, again, Senator Johnston for 

your leadership to our State. 

And I would be happy to yield back the balance of my time, Mr. 

Chairman. 

Mr. WHITFIELD. Thank you. 

At this time I recognize the gentleman from California Mr. 

McNerney for 5 minutes. 

97 

Mr. MCNERNEY. Thank you, Mr. Chairman. Thank you for holding this hearing. I have enjoyed all of your testimony, so it is a 

great choice of panelists this morning. 

I don’t think there is really that simple of answers on these questions. We are producing more oil and gas, and that has some real 

benefits in terms of national security, which was brought out clearly; in terms of prices, which encourages manufacturing in this 

country, which we need to do. It encourages other benefits, too, employment, and that was brought out by Mr. Halleck. 

But there are also some disadvantages: gas leakage into the environment, which is a global warming problem, perhaps more of a 

problem than the coal production that we are trying—that gas 

might displace. There is groundwater contamination. But it seems 

that the disadvantages could be mitigated with high standards for 

the wells and also with requirements for transparency for fracking 

and horizontal drilling. 

Mr. Bradbury, would you comment on that, please? 

Mr. BRADBURY. Sure. Well, thank you, Mr. Congressman, for the 

question. 

Well, absolutely. I think—well, this is one of the good-news stories of the past year with EPA finalizing their New Source Performance Standards for well completions, requiring green completions for all new natural gas wells. Those standards, it would be 

useful and I think a commonsense measure to have those applied 

also to natural gas liquids and oil wells with associated gas. To 

have—— 

Mr. MCNERNEY. Especially with regard to the leakage. 

Mr. BRADBURY. This would address leakage at the well as you 

are starting the production. You are doing the well, finishing the 

development, the well completion of the well. 

Mr. MCNERNEY. Thank you. 

Mr. BRADBURY. And so that is a commonsense standard that 

could be expanded beyond what is there. 

Mr. MCNERNEY. Thank you. 

Mr. BRADBURY. But there are also a number of other technologies 

that could be used—— 

Mr. MCNERNEY. Thank you, Mr. Bradbury. 

Mr. BRADBURY [continuing]. Not just for wells, but across the 

spectrum. 

Mr. MCNERNEY. Senator Johnston, I appreciate your comments 

about regulation of supply and demand is not necessarily a good 

place for us to go, but do you agree that we could use higher standards with regard to wells to prevent leakage and to prevent contamination of groundwater? Do think that is a good place for us to 

go here as a part of our policymaking? 

Mr. JOHNSTON. Yes, Mr. McNerney. I think no one cares more or 

has more to lose than the oil companies, oil and gas companies, 

about leakage and pollution, and so I think that they are working 

hard, I really do believe, to have the highest standards. 

One of the problems is that some of the smaller producers have 

yet to adopt the high standards. We need to adopt the highest 

standards, particularly for fracking, because public support of 

fracking is very, very important. I think it deserves public support, 

and I think that they will be able to do it safely. That was the conVerDate Nov 24 2008 15:52 Oct 23, 2013 Jkt 037690 PO 00000 Frm 00103 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-38 CHRIS
98 

clusion of a study done by John Deutch, and Ernie Moniz was part 

of that study. They said we need to have the highest safety standards, but we need to produce through fracking. 

Mr. MCNERNEY. I think you made an excellent point there, then. 

Public acceptance is absolutely critical. Based on past performance, 

there are problems. Communities are going to be reluctant to allow 

fracking in their areas without the right transparency and assurances that this is a safe process, and I don’t feel we are quite there 

yet. 

But I am going to go on to, Mr. Breen, I appreciate what the Truman National Security Project is doing with regard to the implications of our national policies in terms of national security, our national energy policies. How much work has the Truman Project 

done with regard to the implications of global warming on our national security? 

Mr. BREEN. Thank you for the question. It is good to see you. 

We have done quite a bit of it, as has, much more importantly, 

the Pentagon and the intelligence services. The consensus is that 

this poses a serious national security threat. The Natural Security 

Advisor Tom Donilon just gave a speech to that effect a couple of 

weeks back, saying that national security is threatened by climate. 

Recently the commander of our forces in the Pacific was asked 

what his top national security concern was, which I think is an interesting question, given that he is responsible for China, North 

Korea and a whole host of other issues in the Pacific, and his answer was climate. 

If you look at the accelerants of instability and the threats that 

come from this, with regard to terrorism, but also with regard to 

mass population migrations, terrorist recruiting, all kinds of issues, 

it is pretty clear that we are going to be dealing with this. And, 

as General Zinni likes to say, we can pay down now, and the cost 

will be in treasure, or we can pay down later, and the cost will be 

treasure and blood. 

Mr. MCNERNEY. OK. I was going to ask, Ms. Jaffe, for your input 

on that, but I am running out of time, so I will have to yield back 

at this point. You were shaking your head, so I couldn’t resist. 

Mr. Chairman, go ahead. 

Mr. WHITFIELD. Have you yielded back? OK. 

At this time I recognize the gentleman from Texas Mr. Barton 

for 5 minutes. 

Mr. BARTON. Thank you, Mr. Chairman. 

I have got a photo on—several photos on my wall down in my 

office, and one of them has myself and Senator Johnston standing 

behind the first President Bush at the White House when he 

signed a bill that repealed the Natural Gas Policy Act. 

Mr. JOHNSTON. I have got the same picture on my wall. 

Mr. BARTON. Yes. And I was chairman of the conference committee in 2005 that Senator Dorgan was a part of, and we did meet 

in this room. Both of those bills were bipartisan bills. Both of those 

bills—the Energy Policy Act in 2005, over half the Senate Democrats voted for it, and a third of the House Democrats voted for it. 

So for these young folks on the second row here in front of me, 

there is hope. We might actually burst out in bipartisanship on 

LNG exports. 

99 

I would ask Mr. Bradbury, I listened to your comments, and if 

I interpret them correctly, my understanding is if we handle this 

fugitive methane emissions issue, at least your environmental 

group would support an LNG export bill; is that correct? 

Mr. BRADBURY. Well, the World Resources Institute doesn’t take 

a particular position on this specific issue, but certainly by reducing these upstream methane emissions, we could ensure that natural gas is lower-carbon-emitting—or lower-greenhouse-gas-emitting than coal or oil when oil and diesel fuel is used for transportation. If you get—— 

Mr. BARTON. You know, it wouldn’t be the end of the world if the 

environmental community broke down and actually supported a 

positive energy-production bill. I mean, if we can meet the environmental standards, I know some of my friends on the Democratic 

side would be interested in being supportive. Former Chairman 

Waxman, if I heard him in his opening statement, said he has an 

open mind. And I know unless the minority leader Mrs. Pelosi has 

changed her mind, she has been a supporter of natural gas as a 

fuel. So we really do have some hope here. 

I would ask Senator Johnston, on these pending permits what 

would be wrong with setting some standards, some guidelines for 

the Department of Energy in terms of environmental protection 

and perhaps capital reserves, and then approve them all if they 

meet those standards, and then let the market determine which of 

them actually gets the contracts to do the exporting? What would 

be wrong with that approach? 

Mr. JOHNSTON. Well, as you know, for onshore facilities, FERC 

approves those, and they must meet those standards. That does not 

give them an export permit, but they must get a FERC permit or 

a NOAA permit for offshore facilities. So that takes care of the 

safety, and they must have the high standards there. 

Now, the law provides that—it is an old law, it hasn’t been updated and doesn’t have a lot of standards, but it does say that DOE 

shall approve unless the national interest is against it. In other 

words, the preference is for approving, and I think that is proper. 

In other words, I think that the permit should be granted unless 

the case can be made against it. 

Mr. BARTON. See, I don’t think we are going to build 19 LNG export facilities. I don’t think there is a world market. You are probably going to have one or two on the west coast, and one or two 

on the east coast, and one or two in the Caribbean, but if you let 

the market work, the market will sort, in my opinion, those types 

of things out. 

The gentleman that talked so much about oil as a strategic, do 

you oppose natural gas being used for a transportation fuel, Mr. 

Breen? 

Mr. BREEN. Absolutely not. No. I think in cases where natural 

gas is viable as a transportation fuel, particular medium and heavy 

trucking or garbage trucks, things like that, municipal fleets, we 

should be embracing any opportunity to lower the single-source dependence of our transportation sector on oil. I think that is good. 

I think—I am also in favor of other technological approaches as 

well. I think the more diversity there is in that sector, the better 

off we are. 

100 

Mr. BARTON. OK. And finally, Mr. Halleck, as the person who is 

living in the real world in Ohio, what is the long-term expectation 

to the local economy in your area because of the Marcellus drilling 

activity? Is it positive, negative, short term, or is the expectation 

that it is going to create a stable employment base for decades to 

come? 

Mr. HALLECK. Well, Congressman, we have been told that it is 

certainly 20 to 25 years. There have been some that has told us it 

is as much as 50, but I think conservatively 20 to 25 years. And 

it has certainly been a game changer in our area. And for the first 

time in—I was a commissioner back in the 1990s as well—we are 

not struggling like we used to to balance our budget. 

Mr. BARTON. We have the Barnett shale down in my part of 

Texas, and we think another 50 years. And it is not nearly as big 

a reserve base as the Marcellus is. 

Mr. HALLECK. Yes. 

Mr. BARTON. With that, Mr. Chairman, I yield back. Thank you. 

Mr. WHITFIELD. At this time I recognize the gentleman from New 

York Mr. Tonko for 5 minutes. 

Mr. TONKO. Thank you, Mr. Chair. And welcome to our panelists. 

Virtually all of you have addressed the question of whether we 

should or should not export LNG, and most have testified in favor 

of the government allowing exports of LNG. Senator Johnston 

noted that an LNG facility takes some 5 to 7 years to build at an 

investment cost of some $10 to $40 billion. A facility has to secure 

those long-term contracts for supplies, obviously, of the gas to export and from customers to sell it to. 

I observed that there are markets at all scales, and the interest 

in exports appears to be driven primarily by a desire to maintain 

or expand production here in the United States, to ignore or override the signal our national market is providing to the gas-production industry, the low price indicating an excess of demand over 

supply and the market signal to reduce production. 

The other benefits we may achieve nationally by exporting LNG 

would not drive this debate alone, so I expect we will export LNG. 

I am wondering whether you have opinions about what the right 

level of exports might be? How much exporting should we allow 

and from which areas? 

Mr. JOHNSTON. My point really is that the market should determine that. And, you know, there are all of these market signals 

that are changing day to day. I mentioned some of those: the price 

of labor, the price of interest rates, diesel, steel, technology, capital 

availability, regulatory delay, et cetera. All of these are market signals which are changing month to month, day by day, and those 

are going to restrict the amount of LNG that you can export. And 

there are also these worldwide competitors: Australia, Indonesia, 

Qatar. All of these are going to be working simultaneously. And I 

don’t think that any regulators, not this committee, not myself, not 

anybody, can determine a proper level. 

I think the better way to do it is to let the market do it. The 

market is not perfect, but I think it is better than regulators would 

be. 

Mr. TONKO. Any other one? Any other panelists have an opinion? 

Yes, Ms. Jaffe. 

101 

Ms. JAFFE. I think that what you are going to find is that, first 

of all, it takes a long time, as the Congressman said, to build these 

facilities. And there are some regions that the cost of producing gas 

is going to be higher or lower than others. So, for example, in 

northwest Canada, the natural gas there is stranded. 

So if we were to choose not to build, not to allow LNG exports 

from the U.S. Gulf of Mexico, those facilities, the economics would 

be that that gas would go out in that direction, that would raise 

the overall prices of North America to the small amount that would 

happen. So this idea that somehow if we were to block the Gulf 

Coast, that would help some manufacturer in my State of California and other places, that is not likely to happen, because there 

will be exports from North America when the market demands it. 

But as I mentioned, there is so much natural gas in other places 

that I really do think that it probably would be a very small 

amount of exports that will come from the United States. 

And if we had an export facility, one of the things that would 

happen is if I was a producer in another market, and I had a reason to seasonally store my LNG, because the United States has 

such giant saltstone storage for natural gas, we might find that 

producers would bring their natural gas here and store it and then 

have the opportunity to export it at a later date. So we might find 

that we provide what I call hub services, where the United States 

would be a focal point for export of natural gas globally in storage. 

And so we might actually benefit from having our facilities be used 

in a way that would help the international market, and we might 

have gas actually flowing here just as a storage facility. 

Mr. TONKO. Well, I believe DOE has applications for some 30 facilities. How do they approach this? Do they—should they move forward? 

Ms. JAFFE. Let me speak to that. As you know, we have more 

than a dozen LNG import facilities that were built that are going 

to be empty for the foreseeable future, maybe for, you know, 20 to 

30 years. And obviously if the industry could forecast correctly how 

many facilities we need for export or import, we wouldn’t have all 

these bankrupt facilities now that are sitting empty for importation. 

So I think the fact that companies applied for a license is really 

pretty insignificant. What you really need to know is that there is 

one company, Cheniere, that has made a commitment to build a facility, and that facility will likely go. 

In the natural gas business, there is something we call the first 

mover advantage. The first facility that gets built will be the profitable facility, if any facility will be profitable. I might question 

whether or not even any facility will wind up being profitable over 

the long term, but the point is if I am first, I am much more likely 

to make a business out of it than if I am fifth or tenth. 

And so people put their licenses in. Thirty people might put their 

licenses in. Some of it is gaming: I want to get everybody else to 

be discouraged to do this, because there are so many of us. Right? 

And then maybe only the first one or two or three will ever get 

built. And if you think of how many facilities were built here in the 

United States to import, and how many of them got approved, and 

102 

how many of them are going to remain empty, you can think about 

the fact that those 30 applications are really meaningless. 

Mr. TONKO. Mr. Chair, I yield back. 

Mr. WHITFIELD. The gentleman’s time has expired. 

At this time I recognize the gentleman from Texas Mr. Hall for 

5 minutes. 

Mr. HALL. Thank you, Mr. Chairman. 

And I also thank the two Senators there that I worked with for 

many years, both great leaders. And I enjoyed, Senator Johnston, 

following you and Lloyd Bentsen. You were simply great. And 

thank you for coming here today. And to you others, I appreciate 

the time you put into it and the time you have given us here with 

your testimony. 

Joe, I was with you out there when we went West to sign the 

last good energy bill that this Congress has passed. And I well remember Bush giving some of us pins, but I well remember him, in 

good nature, turning to me and saying, Ralph Hall is with us because he likes the coffee on Air Force One. What he didn’t know 

was I had six of his mugs in my briefcase at that time. 

But, you know, Senator Dorgan, you are exactly right on your 

fine energy past, and history and support, and you are right when 

you say we must understand climate change. And we get a lot of 

that from the other side, too, and, of course, we should. 

And we must understand, though, that we have also spent $34 

billion and had very little change, climate change, very little effect 

on it. I just think that it is obvious that we have an administration 

that is antienergy. And the environmentalists did say don’t drill on 

little ANWR, it is just 19 million acres there. 

And I well remember we had, I think, 22 bills over to the Senate, 

and we had Senator Frist, I believe, Doctor, was the chairman then 

at that time. And he thought more like a businessman than he did 

about energy, in my opinion, because one of those bills got through, 

and Clinton vetoed it. And the Bushes had a shot at, I think, the 

other 20. And someone would get up to filibuster it, and the Senator would pull it down because I think he didn’t want to waste 

the Senate’s time. I really think he should have burned them down, 

let those who wanted to filibuster filibuster, and we would have 

some drilling on ANWR that we don’t have now. 

They say don’t drill on little ANWR, it is just 19 million acres. 

If we don’t want to drill on, what, a couple of thousand acres or 

a thousand acres there for 60, maybe 50 years of energy, I think 

we ought to be doing that. 

I guess it is obvious that we do have an antienergy administration, and my question to you, I guess, Senator Johnston, is do you 

believe that our national energy policy is still mistakenly based on 

the belief that we are somehow in an age of energy scarcity? 

Mr. JOHNSTON. You know, I don’t really believe in energy scarcity. I think new supplies are pulled up all the time. They are 

based on technology like fracking. I well remember—you know, it 

wasn’t very many years ago that we had almost not heard of shale 

gas. George Mitchell, down in your State, old friend of mine, you 

know, he went in with some DOE money and created that new 

technology, which has revolutionized America. Bakken oil and the 

103 

Bakken shale has revolutionized certainly my colleague’s home 

State. 

So I think there is not the scarcity that some talk about. I think 

we can be energy independent in this country, and I think it is a 

goal we should pursue. 

Mr. HALL. And we talk about free market versus regulation. Of 

course, that is an easy choice for me, but if I would come down on 

the side of regulation, I would have some concern about the EPA 

and their regulation, their lack of science that they take into consideration as they—— 

Mr. JOHNSTON. Well—— 

Mr. HALL. They really damaged the energy thrust. 

Mr. JOHNSTON. Well, I disagree with the EPA on some things, 

agree with them on others. Certainly we need the highest environmental standards, which I think we can, consistent with energy 

independence. 

One of the things that neither EPA nor any other agency can do 

is allocate resources, and that really is the heart of my point today, 

that government regulatory bodies just can’t allocate resources. Let 

them make safety rules, but don’t try to allocate resources. 

Mr. HALL. Thank you. 

And I will just close with the fact that jobs are hurting us, and 

they are hurting for 18-, 19-year-olds, and graduates who want jobs 

and are seeking jobs. There are fewer jobs, and unless we change 

some things up here, we are not going to have very many employers a year from now. The most important word in the dictionary 

today other than ‘‘prayer’’ for young people is the world ‘‘energy.’’ 

And I thank you both, and I thank this panel for your input. 

I yield back. 

Mr. WHITFIELD. At this time I will recognize the gentleman from 

California Mr. Waxman for 5 minutes. 

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

We have heard a lot lately about U.S. carbon dioxide emissions 

being at their lowest levels since 1994. The implication is that no 

further action to address climate change is necessary, and that is 

simply not the case. 

As a result of increased renewable energy generation, a shift 

from coal to natural gas generation, and the economic recession, 

U.S. emissions have dropped in recent years. But what matters 

most is whether U.S. emissions are on track to decline in the future by the amount needed to prevent dangerous climate change, 

and I am not aware of any reputable expert who believes this to 

be the case. 

Scientists tell us that our emissions need to decline by at least 

80 percent below 1990 levels by 2050 to avoid a dangerous level of 

warming. The latest projections by the Energy Information Administration show that U.S. carbon dioxide emissions from fossil fuel 

combustion actually will be 13 percent higher than 1990 levels in 

2040, the last year in EIA’s model. There is an enormous gulf between what these emissions will be without additional action and 

what they need to be to avert catastrophic warming. 

Senator Dorgan, you co-chaired a bipartisan panel that issued 

recommendations for our energy policy. Was there agreement that 

104 

climate change is a serious issue and that additional policies will 

be necessary to reduce greenhouse gas emissions? 

Mr. DORGAN. Congressman Waxman, we did at the front end of 

this report indicate that we felt climate change was an issue that 

needed attention, it needed policy direction. We did not attempt in 

this report to create a policy framework for how we might address 

climate change, but we did indeed say that, well, we are going to 

cover a lot of energy issues, that climate issues were important and 

needed to be addressed. 

Mr. WAXMAN. Thank you. 

We need to think about LNG exports through the lens of climate 

change. If the U.S. is going to export LNG, if we are going to make 

long-term, multi-billion-dollar infrastructure investments, it is important for those exports to produce a climate benefit. 

Methane emissions from the natural gas industry are a challenge 

in that regard. Methane is a potent greenhouse gas, and it is crucial that we reduce those emissions. 

Mr. Bradbury, are there measures that can be taken to reduce 

methane emissions from the U.S. natural gas sector using existing 

technology? 

Mr. BRADBURY. Yes. Absolutely, Congressman. There are—in a 

report we recently published, we identified a total of eight technologies that would cut these upstream greenhouse gas emissions 

by more than 50 percent. In my testimony includes more detailed 

analysis of that and through a couple of different scenarios. 

Mr. WAXMAN. These measures are cost-effective as well? 

Mr. BRADBURY. They are. And all eight that we looked at are 

definitely cost-effective. 

Mr. WAXMAN. How long, Mr. Bradbury, would it take for these 

measures to generate enough savings to cover the cost of implementing them? 

Mr. BRADBURY. The payback period—thank you for the question. 

The payback period, we found, is up to 3 years at most for each 

of these measures and technologies, sometimes only a few months. 

So we are talking about wasted energy in addition to a powerful 

and potent greenhouse gas, so it is much like energy efficiency, can 

be very cost-effective. 

Mr. WAXMAN. What is a reasonable target for methane leakage? 

If we took the cost-effective steps you described, would we meet the 

target? 

Mr. BRADBURY. Yes. There are a couple targets you would want 

to shoot for. For natural gas to be less greenhouse-gas-emissionsintensive than coal, you want your emissions levels to be—your 

methane leakage levels to be below 3 percent of total production. 

Right now, according to the recent EPA inventory, we are below 2 

percent. So we are in a pretty good zone in that regard. 

And a better target, I think, for total leakage would be 1 percent 

leakage as a portion of total production, which we can get to with 

these technologies and measures that I mentioned. At the 1 percent 

leakage point, that is where you are at break even with respect to 

diesel. If you are going to switch from natural gas to diesel, and 

you want there to be an immediate—diesel fuel for long-haul 

trucks, for example, if you want to have an immediate climate benefit. 

105 

Mr. WAXMAN. Thank you very much. I appreciate it. 

I am obviously looking at this whole question before us from the 

perspective of climate change, but I know that there is a lot of 

focus on the exports, and I think Ms. Jaffe, who I am happy to see 

again, has made a very powerful case. I am open to that issue, I 

want to think about it. But as usual, you are very astute in your 

expression of things that we ought to take note of, and I thank you 

so much for your testimony, and all the other witnesses as well, especially my two former colleagues, who have such a distinguished 

record in the energy field. 

Thank you, Mr. Chairman. 

Mr. WHITFIELD. At this time I recognize the gentleman from Illinois Mr. Shimkus for 5 minutes. 

Mr. SHIMKUS. Thank you, Mr. Chairman. 

I am going to try to get to four questions in 5 minutes, so if I 

ask it concisely, and I get somewhat a concise response, maybe I 

can get that done. 

I want to start with Mr. Bradbury there. Are you or any of your 

organization invested in any energy enterprises? 

Mr. BRADBURY. No. 

Mr. SHIMKUS. Actually have skin in the game—— 

Mr. BRADBURY. No. 

Mr. SHIMKUS [continuing]. To be able to make a financial projection of whether there is a 3-year-to-1 payback on all this stuff? 

These are just theoretical, right? You are not putting real money 

into this? 

Mr. BRADBURY. No, we are not putting our own money. 

Mr. SHIMKUS. OK. That is—thank you. 

Senator Dorgan, 2005, I was here, too. It was one of the great 

energy conferences where we actually debated amendments. I wish 

we could get back to that era, because it was a great debate in this 

committee room. 

I did look at the executive summary. I didn’t read the whole report. You do in the executive summary have a bullet point on 

transmission, but it kind of—you are really referring to the transmission pipeline for transportation of either natural gas or liquid 

transportation fuels; is that correct? Or are you talking about the 

electricity? 

Mr. DORGAN. Mostly the electricity when we refer to that, but, 

you know, when you talk about transmission, you also want to 

be—— 

Mr. SHIMKUS. I think it is something we really have to focus on, 

because what we see going on right now—and I just read an article 

today about Canada and Maine, and the market will move a product, and it will—there is—it is dislocating other types unless we 

have a very good policy of incentivizing the building of more pipelines. 

Mr. DORGAN. We do have—we have electric transmission problems and issues of stranded energy—— 

Mr. SHIMKUS. Right. 

Mr. DORGAN [continuing]. Because we can’t transport to the load 

centers—— 

Mr. SHIMKUS. Correct. 

Mr. DORGAN [continuing]. Where you get wind or store—— 

106 

Mr. SHIMKUS. Especially with the green. 

Mr. DORGAN. And we also pipeline transmission issues. 

Mr. SHIMKUS. Right. 

Mr. DORGAN. Although we have built a lot of pipelines in the last 

10 years, natural gas pipelines. 

Mr. SHIMKUS. Right. There are stories about us—as reverse flowing now natural gas from the plays to maybe the LNG terminals 

and stranding refined product along the path of the old stranded— 

I would hope that is something we can look at, and I will look 

through your report to see. I think it is a big issue. I know of two 

areas where retailers are now being stranded by their product because of LNG movement. 

Mr. JOHNSTON. Let me mention to you on oil, every day in the 

Bakken in North Dakota, they are transporting 500,000 barrels of 

oil a day by train; not by pipeline, by train. 

Mr. SHIMKUS. Right. 

Mr. JOHNSTON. Burlington Northern has—— 

Mr. SHIMKUS. Well, to address the greenhouse gas issue, what is 

a better ability if you are worried about this, I am personally not, 

but would be by pipeline; not by trucks, not by train, but by pipeline. So I would hope the environmental community—and we see 

what they are doing with Keystone XL, they are not helpful—they 

would understand that moving commodity products through pipeline is the most efficient, safest way, and actually in the greenhouse gas arena, it is a tremendous savings. 

Mr. Halleck, I have got an article here from a local paper, southern Illinois paper, which is where I am from, and I just want a 

quick response to these two statements I have highlighted in this 

article. 

Some envision the kind of economic boon they have heard about 

in other States: tens of thousands of workers drilling for oil and 

gas, local businesses barely keeping up with demand, and many 

municipal coffers flush with cash. 

Is that what you have observed? 

Mr. HALLECK. I would concur with that, though, while we are in 

much better financial—— 

Mr. SHIMKUS. Yes. This is poor southern Illinois. I represent 33 

counties. And so there is—we have got a play coming, and so there 

is this whole debate, and you have lived it. 

The other part that says, others are spooked by stories of housing shortages, towns overrun with strangers, torn-up roads, and 

claims of polluted water, and worry that drilling would forever 

alter the serenity, beauty and very character of an area they consider special. 

Has that happened to your county? 

Mr. HALLECK. That is not really a concern. The technology today 

is such that we actually have rigs that have been on site, and they 

are gone in 30 days. So that is no problem. 

Mr. SHIMKUS. Great. Thank you. 

And if the staff would put up this slide for Ms. Jaffe. 

I also chair the Baltic Caucus. And I hope this comes up right. 

I have a picture here. 

So that is a proposed LNG terminal that will go in in Lithuania. 

Also, I think there is one being proposed for Poland. I deal with 

107 

Eastern European issues, democracy movements. I have been very 

focused in Russia does extort their neighbors through energy. 

If we have the ability to export liquefied natural gas, what does 

that do to two things: the ability of Russia to extort their neighbors, and the ability of the local Eastern European countries and 

allies, most of all who are NATO now, they are all in the EU, what 

does it help with their economy? 

Ms. JAFFE. Well, I think it is very important. You raised an extremely important point, because, number one, we don’t want Russia to use the threat of a cutoff of natural gas to create a wedge 

between us and our allies in Europe. We want everyone in Europe 

to feel a strong alliance, economic and otherwise, with the United 

States and not have to worry about their energy supply being curtailed by Russia. 

Secondarily, you can imagine how positive it would be if the Russians threatened to cut off one of our allies in Europe, and an 

American company could supply them with natural gas through an 

export terminal from the United States. 

Mr. SHIMKUS. You all did great. Thank you very much. 

I yield back, Mr. Chairman. 

Mr. WHITFIELD. At this time I recognize the gentleman from 

Texas Mr. Green for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. And I said in my minute 

my ranking member gave me, but, again, I want to welcome our 

two Senators, and appreciate your leadership on energy for many 

years. 

Senator Johnston, my only concern is that the one LNG export 

facility, Cheniere, it is on the Sabine side of Louisiana instead of 

on the Texas side, but the company actually is a Houston company, 

so we have worked together across that Sabine River for many 

years. 

And, Senator Dorgan, it goes without saying, some of the success 

in the Bakken shale and the report that you just did, and I will 

have some questions in a minute. 

Ms. Jaffe, I want to—we miss you in Houston at the Baker Institute at Rice University, but I know at UC Davis you are much closer to the wine country there, although we still have some Texas 

wine we are working on. 

But I represent one of the largest petrochemical complexes in the 

world in east Harris County, and I got some pushback a few years 

ago for supporting LNG exports, because I also represent a lot of 

folks who work in the fields, whether they be in south Texas or 

west Texas or anywhere else. But I support the exports, not just 

from the free-market perspective, because we need the additional 

incentives for production in certain parts of the country. And producers in south Texas are still producing dry gas, natural gas, simply because they get liquids. And when I drive through south 

Texas, I see the amount of flaring of the dry gas. It hurts me, because I know those—one, it is bad for the environment, but all 

those producers would love to be able to have a market for that gas 

instead of sending it in the air. So our chemical industry and our 

utility sector want stable, low prices, but we need to ensure that 

the market will still be there and incentivize it. 

108 

Senator Dorgan, you testified that after reviewing several recent 

studies on the impacts of LNG exports, the Bipartisan Policy Center and Energy Board concluded that domestic gas prices are more 

likely to drive export levels than exports are likely to determine domestic prices. This is an important point, because I think it is a 

fear that we have 19 export applicants that could end up constructing export terminals. I just don’t see our market allowing 19 

of them. But why do you think the domestic gas prices more likely 

will drive the export levels than exports are likely to drive the domestic prices? Why do you think that is going to happen? 

Mr. DORGAN. Well, first of all, I don’t think any of us really understand very well the economics of moving liquefied natural gas 

from our country after recovering it and moving it halfway around 

the world. I don’t think anybody fully understands the economics 

of it, but I do think that, you know, if natural gas prices were to 

rise in this country in any significant way, that would have an impact on whether it would be economical to continue that practice. 

The studies suggest that there would be an impact, but it is very, 

very modest. And, you know, just how little we knew 5 years ago 

about where we are today describes how little we know today about 

what might or might not happen. All we can do is use an antenna 

for guidance on what should be the best practices and what should 

represent the best interests of our country. 

Mr. GREEN. Well, and my colleague from Illinois, I was proud to 

be on the committee, we did the 2005 energy bill, and at that time 

Congressman Tierney and I actually had an amendment to that bill 

that federalized importing, because I have a chemical industry, and 

we were getting our lunch eaten by Rotterdam, and the North Sea 

gas is cheaper, so we wanted to import it. And now the good example of the Cheniere there in Sabine River, they built an import facility, but now they are investing another $2 billion to build an export facility. So you are right, our crystal ball just doesn’t work as 

well as we would like to it do. 

Ms. Jaffe, you mentioned the U.S. Asian allies, Japan and South 

Korea, are seeking flexible U.S. Gulf Coast LNG contracts for reasons of economic and geopolitical. Can you elaborate on their geopolitical calculation for wanting this LNG, particularly, obviously, 

Japan, because of their decision to downgrade nuclear, and they 

are buying that LNG from anybody who can sell it to them? So 

could you just elaborate on that? 

Ms. JAFFE. Yes. I think that it is important in the context of the 

Arab Spring, and also, of course, in the past history with Russia, 

that these countries want to be able to buy natural gas from a market where there is a multitude of competitive players so the gas is 

not controlled by a state monopoly, they don’t have to worry about 

there being a change of power in the country and suddenly their 

contract isn’t honored, or that there is some leverage, geopolitical 

leverage, that is at—you know, brought to bear in the discussion 

of supply. 

So the great thing about the United States market is that 

through innovation and competition, we have, you know, dozens 

and dozens and dozens of companies, and we have a very competitive market. We have what we call natural gas-on-gas pricing; so 

109 

in other words, we don’t have an artificial price tied to oil or some 

other commodity. 

So by allowing some amount of exports, what it means is countries like Japan or South Korea can ask for a natural gas price tied 

to a market price and not be subject to sort of artificial constraints, 

not have to worry about cutoff of supply. It just makes a big difference, makes a more dynamic market. 

And I do think that what is going to happen over time, though, 

you know, one can never have a crystal ball, is that as the United 

States market is more connected with the global market, then what 

you are going to see is oil-linked price contracts imposed by a Russia or by a Middle East country will not be able to stay up, because 

there will be so much supply, and you have a global market, and 

you will have more flexible competitive markets, more projects will 

compete into different markets. 

We have the industry developing these technologies where they 

have ships that can be moved from place to place to do production, 

or to have even a ship that can be a receiving terminal, and we 

will get to have a very commoditized market in natural gas where 

countries like Japan will not have to worry about their supply. 

Mr. GREEN. Mr. Chairman, I know I am out of time. I had a 

question for Mr. Bradbury. I would like to submit it. 

But I am glad we are at 2 percent leakage on methane, and that 

is below the 3. Believe me, every producer that I know would love 

to get down to 1 percent, because they would like to have that 

methane being sold on the market to somebody instead of releasing 

it into the air. 

So again, thank you, Mr. Chairman. 

Mr. WHITFIELD. At this time I recognize the gentlemen from 

Texas Mr. Olson for 5 minutes. 

Mr. OLSON. I thank the chair. 

And welcome to our panelists. Special welcome to our two Senators, Senator Johnston, Senator Dorgan; and Ms. Jaffe, who spent 

some time at the Baker Institute at my alma mater, Rice University, in Houston, Texas. 

I am going to focus on the national security implications of LNG 

exports. Having deployed to the Persian Gulf and the Strait of 

Hormuz from June of 1994 until November of 1994, I have seen 

firsthand how important that region is to the global economy and, 

by extension, U.S. national security. 

This new U.S. energy renaissance gives our country a once-in-alifetime chance to minimize the direct impacts on our economy 

from the Persian Gulf and to develop strong diplomatic relations 

and increase our national security. One way to do that, I think, is 

exporting LNG. 

We have talked about benefits with Japan’s recovery from the 

earthquake, tsunami, South Korea. I want to focus on the world’s 

largest democracy, India. One in six human beings lives in India, 

over 1 billion people. That is a huge market potential for American 

companies. And I am blessed to have a consulate from the Indian 

Government in Houston, Texas, who just reported on board this 

past fall. I spent 3 hours having lunch with him, 30 minutes talking about their need for U.S. LNG. He said basically to keep their 

110 

economy growing, they have to have more sources of oil and gas, 

because they don’t have much domestic sources at all. 

They are not getting pipelines built from the west, not going to 

come through Pakistan. Obviously they don’t get along together. To 

the north, the Himalayas. If you can get a pipeline through the 

Himalayas, God bless you, 20,000-feet altitude, man, oh, man. That 

is the eighth wonder of the world. And to the south is a region of 

the world that is quickly destabilizing, which seems like all terrorists are moving down towards Myanmar, that part of the world. 

And again they need, they want our gas. So, Ms. Jaffe, could you 

care to comment on giving India natural gas? Benefits to the 

United States? Cons? 

Ms. JAFFE. I think the point that we really warrant to focus on 

is that the United States has this ability, which we have never had 

before, sort of like the opposite of Russia being able to cut people 

off, right? We might have the ability to supply our allies or to supply other countries. As we become more energy independent, and 

I really believe the combination of our improving efficiency of automobiles, combined with deep water and combined with the shale 

play, we are probably going to get to the point where we are not 

going to be—the imports we are going to have are going to be from 

Canada, or Saudi Arabia, is going to be bringing oil to the refineries it owns in the United States. And when we get to that point, 

we are going to have a lot of opportunities. We are going to have 

the opportunity to step up to the plate and we be the swing producer to the global market like the United States was in the 1960s. 

So we will have the opportunity if we have an ally that is having 

an energy problem, we will have the opportunity to offer energy aid 

through sales of exports. And indeed we might be able to use our 

Strategic Petroleum Reserve more flexibly if we have an ally that 

has a supply disruption. 

So if you think about it, during Hurricane Rita and Katrina, how 

did we get past our terrible shortages in Houston and other cities 

is we were able to borrow gasoline from the emergency stockpile of 

Europe. And we, the United States, could wind up being in a position to be able to be a key supplier. We will be able to use our energy relationships to strengthen our national power. And when we 

have a better trade balance it will make us stronger in the global 

economy, we will be able to stand up to China in a different way 

because we are going to be an energy exporter when they are an 

energy importer. They are going to have the energy dependence 

that we have been talking about for 30 years and we are going to 

be a major energy supply source. 

So we really have a tremendous potential here to get it right. 

And you are already seeing yourself with improved relationships 

with India, that they care about the United States from an energy 

point of view, and that is exactly the opportunity we have in front 

of us. 

Mr. OLSON. Yes, ma’am. 

Senators, either one care to comment about that, India LNG benefits for America? 

Mr. DORGAN. Make a point: I would not want us to be talking 

about using SPRO in this country to help an ally. 

Mr. OLSON. Oh, yes. This is pure exports. 

111 

Ms. JAFFE. Only if we didn’t need imports at all. If we don’t need 

any imports then we don’t need the international tool. Our imports 

are not needed (off mike) our domestic production supply all our requirements. 

Mr. OLSON. And I am on the negative side of my time, so I yield 

back the balance. 

Mr. WHITFIELD. Thank you very much. At this time I recognize 

the gentleman from Pennsylvania, Mr. Doyle, for 5 minutes. 

Mr. DOYLE. Thank you, Mr. Chairman. And welcome to all our 

witnesses, especially our two distinguished colleagues from the 

Senate. We appreciate your testimony. 

Mr. Chairman, I have been engaged on this issue for quite some 

time now and been particularly interested in the role the Federal 

Government takes in permitting LNG export facilities. And unlike 

some of my colleagues on this committee, I have actually been 

pleased with the careful consideration DOE has given to the issue. 

You know, it wasn’t that many years ago when companies were 

building LNG import facilities, making bets on the need for imported LNG to meet our energy demand. Who would have guessed 

in less than a decade these same companies would now be petitioning DOE to turn those import facilities into exports facilities? 

So I don’t fault DOE for taking a cautious and careful approach to 

approving these permits. 

By submitting a two-part study on the effects of LNG export on 

the U.S. economy and reviewing the hundreds of public comments 

submitted to those studies, DOE has taken the proper action to understand the issue. But that study showed us that in every scenario modeled LNG exports offer a net gain to the U.S. economy. 

This really shouldn’t surprise any of us, the fact that economies 

gain from allowing trade is not new, but as a guy from Pittsburgh 

who has witnessed the effects of trade on the local economy I think 

what we should be concerned with is who gains, how much do they 

gain, and at what cost to the environment. 

And while I remain convinced that LNG exporting should be both 

allowed and supported by the Federal Government, I don’t believe 

a careless, blanket approval of all pending permits would serve the 

purpose of the American people. 

Let me asked my two distinguished colleagues, you both indicate 

your support for LNG exporting whether by allowing the free market to act or by opposition to any kind of export ban, and I agree 

with that. Do you believe, though, that the Department of Energy 

does have a role to play, a proper role to play in the permitting of 

LNG export permits as determining it is in the public interest? 

Mr. JOHNSTON [off mike]. A preference is to issue the permit, I 

think that is a proper role and I agree with you they did the proper 

thing in commissioning the study, the SPRO study which indicated 

in all of the different scenarios that it is in the national interest 

of consumers. 

Mr. DOYLE. Yes, Senator Dorgan, you agree with that? 

Mr. DORGAN. And I think, you know, I think ultimately there 

will be far fewer facilities built than the numbers that are being 

tossed around these days. 

And let me before I leave here today, Mr. Chairman, have the 

record show my great restraint as an author of the renewable fuel 

112 

standard in 2005, my great restraint sitting next to my friend Senator Johnston without responding to a bit of it. 

Mr. JOHNSTON. We don’t grow corn in Louisiana. 

Mr. DOYLE. And to both my colleagues, you believe DOE currently has the sufficient information to act on these remaining permits? 

Mr. JOHNSTON. I believe so. 

Mr. DOYLE. Yes. Thank you. 

I want to will also ask Mr. Bradbury. First, I want to say welcome back to the committee, Mr. Bradbury, it is a pleasure to see 

you here. And as some of my colleagues on the committee may recall, Mr. Bradbury was instrumental in developing a mechanism in 

the Waxman-Markey bill, which later became called the Doyle-Inslee provision, which offered protection for energy-intensive and 

trade-exposed industries. It seems like you are back here today 

with some equally impressive work. 

While I note my support for LNG exporting, I take seriously the 

concerns you have raised about methane leakage and life cycle 

emissions. As you know, EPA just lowered its estimates of methane 

leaks during natural gas production by almost 20 percent from 

what they had previously reported. Nonetheless, if concerns about 

methane leakage remain, it is important, I think, that we address 

them if we are going to support export of this resource to other 

countries. 

So to that end, Mr. Bradbury, could you please help us understand how the technologies you cite in your testimony work? Can 

they really significantly reduce fugitive methane emissions while 

being cost effective and have payback periods of 3 years and less? 

Could you give us some detail on that? And then secondly, if these 

technologies help a company retain their product by not letting it 

escape into the air, why aren’t gas companies making the investment in them? 

Mr. BRADBURY. Well, thank you for the question. I will do my 

best to respond as quickly as possible. And to the first question 

also, I think as a partial response to Mr. Shimkus’ question earlier, 

which is that our projections of payback period for these technologies are actually not theoretical, they are based on published 

estimates from actual experience with these technologies, which 

you can find on Natural Gas STAR Web site and other sources as 

well. 

So as I noted earlier in response to Mr. Waxman’s question, it 

really is, this is analogous to energy efficiency. You are not wasting 

product and so there is a benefit economically over time. More details on these technologies to some extent are in my testimony, but 

also in a full report, which I would be happy to share with you and 

discuss afterwards. 

A couple technologies I mentioned initially. So green completions 

I also mentioned earlier, which is very cost effective and now required for gas wells. There is the use of plunger lift systems for liquids unloading, it is essentially to remove liquids from a well so 

that gas can flow more freely. These systems avoid venting that is 

unnecessary when you are cleaning these wells up that could be 

used more widely. And just simple leak detection and repair, so 

sending people out to these sites to identify the leaks and then reVerDate Nov 24 2008 15:52 Oct 23, 2013 Jkt 037690 PO 00000 Frm 00118 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-38 CHRIS
113 

pair them. Of course it puts people to work doing that and you can 

get a good payback as well. 

And there is a final point I really would like to emphasize. The 

reason that companies aren’t doing this in some cases, there are a 

couple of different answers. It is similar to why companies don’t always have the most efficient systems in terms of energy efficiency, 

is there are competing priorities for investment and there is also 

market structure issues. The production company that owns the 

gas is often not the same as the service company or midstream 

company that processes the gas or the pipeline companies through 

which the gas flows. And FERC has authority over that to set tariffs and rates, but sometimes they are structured so that this is 

just a pass-through cost. So while it would beneficial for the environment and to consumers to reduce these leaks, it is not necessarily aligned properly through the market structure in terms of 

business interest. 

Thanks for the question, and great to see you again and great 

to be back. Thanks for your remarks. 

Mr. WHITFIELD. The gentleman’s time has expired. At this time 

I recognize the gentlemen from Ohio, Mr. Johnson, for 5 minutes. 

Mr. JOHNSON. Thank you, Mr. Chairman. And I, too, would like 

to thank the rest of our distinguished panel for being with us today 

to talk about this important topic. 

Mr. Halleck, you and I come from a region of the State of Ohio 

and a region of America where people are struggling. Unemployment is still excessively high. Many Americans struggle to provide 

their children with the clothes and supplies that they need to go 

to school. The average median income is well below the national 

average. Double-digit unemployment through much of our region. 

What is happening in oil and gas in Ohio is a big deal to the people 

that live there. 

In your testimony you talked about the astounding blessing that 

gas production, oil and gas production has meant to our county. 

Can you illustrate for us a little bit about what this transformation 

has been? What was it like prior to oil and gas development? 

Mr. HALLECK. Well, Congressman, what brought me initially 

some 30 years ago to Ohio, formerly I was in the clothing business. 

And I have watched the steel mills in our area, the automobile industry, I have watched a lot of things over the past 30 years, some 

through automation, but importation, just an overall decline in the 

economy in that part of our State. And there is really nothing to 

replace that. Someone asked me the other day about, what do you 

know about oil and gas, and I said really not much other than 

what I watched on the Beverly Hillbillies growing up. And I say 

with all due respect to our constituents, there is actually some of 

that today that is going on. 

I have been told we have over 200 new millionaires just in the 

county I represent. It is conservative by nature so you wouldn’t always know that, but I can just tell by looking at the percentage 

that our general fund budget in terms of our sales tax, property 

taxes, and others has drastically improved. But it has been a game 

changer and it has given opportunity certainly to those that aren’t 

only about I think 8, 10 percent of our communities went on to 

higher education. And this gives these folks that would lean more 

114 

towards vocational training some, really some $100,000-a-year jobs 

that normally they would never have. 

Mr. JOHNSON. Sure. Let’s talk a little bit about LNG exports. As 

you know, I have been a staunch supporter of LNG exports as well. 

We live in a manufacturing corridor. You talked about the steel 

mills. Manufacturing is an industry that is very important to the 

economy of our region. Can you talk a little bit about how important you think it is that we open up the lines for exporting liquid 

natural gas? 

Mr. HALLECK. Well, if the estimates, and I am sure a lot of the 

reports have been maybe overly optimistic, but even if they are just 

optimistic, they are overwhelming in terms of the supply that we 

would have. In fact, Senator Johnston and I were talking earlier, 

in my humble opinion it would seem to me that if—we were talking 

about flaring—if we get to the point where natural gas is too 

cheap, then, for lack of a better term, they would turn off the spigot. I think it not only would stabilize prices, but certainly give us 

a sense of energy independence. 

Mr. JOHNSON. Do you see increased exporting of liquid natural 

gas as a threat to a manufacturing resurgence in Ohio or do you 

think it would help? 

Mr. HALLECK. No, I think it would help. I don’t see it as a threat. 

Mr. JOHNSON. Great. Great. 

We often hear from Hollywood and from opponents of oil and gas 

development that the only people that are benefiting from the oil 

and gas boon in places like eastern and southeastern Ohio is some 

CEO of a distant oil and gas corporation. How widespread has the 

benefit been? You talked about the new crop of millionaires that 

have been created, can you expand on that a little bit? 

Mr. HALLECK. Well, it is certainly a trickle-down affect. Just in 

our county the other day we asked, there was a parcel of property 

that we own, or the county, I should say, and they wanted to use 

because it was close by a small stream for water. Just in a 2-week 

period it brought in almost $40,000. Now, that would not be a lot 

of money in Los Angeles, but that would be a lot of money in Lisbon, Ohio. That is just one small example. 

If you look at the farm equipment, because we are an agricultural community, which is not taxed, there has been literally tens 

of millions of dollars through the royalties that have been spent on 

people that were leasing land. So it is far reaching, and it is a 

trickle down certainly. 

Mr. JOHNSON. Well, thank you very much. 

Mr. Chairman, thanks for letting me participate and I yield back. 

Mr. WHITFIELD. The chair recognizes the gentleman from New 

York, Mr. Engel, for 5 minutes. 

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

Several years ago I founded the Oil and National Security Caucus, and one of the reasons I have an open mind about all of this 

is that I think that we cannot really be free with our policies as 

long as we rely on foreign oil. And so anything that can ramp up 

production of domestic resources for energy is something that I 

think we should look at, albeit there are some safety concerns, 

there are some environmental concerns. But I think it is something 

that we need to look at. 

115 

So I have been focused on North American energy independence, 

and the increase in natural gas supplies obviously are a boon to 

this possibility. Can someone speak, I want to piggyback on the exporting of LNG, will we hurt our long-term energy security? Can 

someone speak to the long-term impact of exporting LNG? I know 

there is a rush to say that we should export it, but, you know, I 

am wondering should we not try to keep more for domestic purposes. 

Ms. JAFFE. I think the one thing you need to bear in mind, because of course markets change, and I know there is a concern, 

first people are telling us we don’t have enough resource and then 

suddenly we have this hugely abundant supply. I think the point 

is that nothing is irreversible. So we can allow LNG exports, they 

can bring a benefit to our trade balance and our international stature. And if some later date 30 years from now or 20 years from 

now we find that that policy no longer fits we might have different 

circumstances, we can revisit it. I don’t see that it is necessarily 

going to be a threat to our energy security. 

There is a lot of opinion about how much resource we have. I do 

believe that the resource is so extensive that we probably could export a substantial amount from several terminals and have it actually not affect prices all that much except maybe occasionally seasonally. And I think that one of the impacts, I mean the reason 

that a Japan or an India or a South Korea are lining up to buy 

these exports is because they actually see a price advantage. In 

other words, they are paying very high-priced oil-linked prices for 

natural gas. If they could at least have our market integrated, we 

have what we call gas-on-gas pricing, then they could move the 

market to a more competitive footing where natural gas prices 

would trade based on natural gas prices and not based on instability in the Middle East. 

There is great advantages to having all the oil globally in the 

system move to natural gas. Japan is burning crude oil and oil for 

both electricity, and also China uses oil in their petrochemical industry. Just for both environmental reasons and for strategic reasons we would want to see the world moving more away from oil 

in those industries and even maybe in transportation to natural 

gas because it is so much more plentiful and so less controlled by 

artificial forces like Russia or OPEC. 

So I think that it is important at this time when we have the 

luxury of having abundance to make a statement as the United 

States that we favor free trade, we are going to honor our free 

trade agreements, we export natural gas to Mexico. I don’t think 

we can turn around and tell South Korea, that we also have a free 

trade agreement with, but somehow we are not going to provide 

them with the same opportunities. 

So I think that we really have to look at the balance of our strategic and foreign policy and understand that at least in the immediate term chances are these exports are not going to affect domestic consumers, right? And, you know, again I want to emphasize 

this is sort of a topic for another time. When we export refined 

products in this country we are going to export LNG. The way to 

ensure that consumers are not harmed in a case where we have a 

sudden seasonal change in temperature or we have a sudden refinVerDate Nov 24 2008 15:52 Oct 23, 2013 Jkt 037690 PO 00000 Frm 00121 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-38 CHRIS
116 

ery accident and there is a disruption, the way to do that is to ensure that we have minimum inventory standards for companies operating in this country, which they have in Europe and they have 

in Asia. We can say that you have to hold a certain number of days 

of your customer supply. And the reason we have volatile prices in 

this country is that we don’t do that, even though if we did we 

would not have to worry about the impact on consumer prices of 

being part of a global market. 

Mr. ENGEL. Well, thank you. I had another question but I guess 

all my time is used. I just want to welcome back our colleagues Mr. 

Dorgan, Mr. Johnston. 

Good to see both of you. Thank you all. 

Mr. WHITFIELD. Thank you, Mr. Engel. 

And thank the witnesses once again. We genuinely appreciate 

your being here with us to talk about this important subject matter. And I want to ask unanimous consent that we enter into the 

record a letter from Congressman Michael Turner on this issue, the 

mayor of Youngstown, Ohio, and the Cato Institute. And the record 

will remain open for 10 days for any additional submissions. 

[The information appears at the conclusion of the hearing.] 

Mr. WHITFIELD. Do you have a comment, Mr. Rush? 

So with that, today’s hearing is concluded, and we look forward 

to working with all of you as we move forward. Thank you. 

[Whereupon, at 12:30 p.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

117 


82191.070

1'1:< 

May 7, 2013 

House Committee on Energy and Commcr'ce 

Subcommittee on Energy and Power 

I'" 

"U.S, Energy Abundance: Exports and the Changing Global Energy Landscape" 

Statement for the Record 

The Honor'able Michael R. Turner 

Chairman Whitfield, Ranking Member Rush, and Members oflhc subcommittee, thank you fl1r the 

0pp0l1unity to submit a statement for the record for this important hearing. 

Helping our allies diversify their energy rcsources is important to strengthening our strategic 

partnerships and bolstering security, That is why I authored II.R. 580, thc Expedited LNG for 

American Allies Act, which seeks (0 help bolster our alliances, reduce the trade delicit and boost 

job growth right here at home. Specifically. the bill streamlines the regulatory process to export 

natural gas to NATO countries, Japan and possibly others. H.R. 580, the I-louse companion 

measure to Senator John Barrasso's (R-WY) S. 192, is an updated version of legislation from thc 

112th Congress introduced by Senator Richard Lugar (R-fNl and myself. 

Ovcr the last several years, exploration and development of U.S. natural gas, particularly shale gas. 

has increased signi1icantly. The United States is one the largest producers of natural gas in the 

world, and according to the U.S. Energy Infonnation Administration (ElA), has ncarly a I DO-year 

supply. In fact, last week, the Department of the Interior announced that there is thrce times the 

amount of shale gas in North Dakota, South Dakota and Montana than prcviously estimated. 

As a result of increased production. the price of U.S. natural gas has fallen. making it competitive in 

the global market place. This presents significant opportunities to CXPOli U.S. natural gas and 

create American jobs. A recent Department of Energy-commissioned report found that increasing 

exports of natural gas would have positive economic benefits lor our country. In my home state of 

Ohio. exploration and development in the Utica Shale would have a $5 billion economic impact and 

create or supp0l1 nearly 66.000 jobs in Ohio by 2014. 

As energy security continues to play an impOliant role in global relationships and dialogue, 

increased U.S. natural gas production also stands to bcnelit our strategic allies abroad. In my rolc 

as Chairman o1'lhe U.S. Delegation to the NATO Parliamentary Asscmbly, many foreignlcadcrs 

and ollieials havc expressed to me the need to divcrsify energy resources away from one source or 

from unstable regions. Several ofthc largest natural gas importers arc also NATO members with 

strong national security tics to thc Uni1<:d States. 
118 


82191.071

Tn recent years, various disputes have caused several European countries to experience natural gas 

supply disruptions from Russia, the largest supplier of natural gas to Europe. Turkey relics on 20 

percent of its natural gas fj'om Iran. Earlier this year, Islamist militants attacked a natural gas 

facility in Algeria, which is the third largest exporter of natural gas to Europe. 

Japan, a strategic ally in Asia and already the world's largest importer of natural gas, may need to 

seck greater imports of natural gas as a result of its 201 I nuclear plant disaster. Japan already relics 

on 42 percent of its natural gas from Russia, the Middle East and N01ih Afi·ica. According to recent 

press reports, Japan is ncgotiating with Russia to imp01i more nat mal gas. 

Increasing natural gas exports would not only help reduce our trade dcficit and create jobs for 

American workers, but also help our key allies diversify their energy resources, bolstcr their energy 

and national security, and strengthen our strategic alliances. 

There have been several studies examining the geopolitical impact of cxpoliing U.S. natural gas. A 

recent ropOl1 by the Brookings Institute entitled "Liquid Markets: Assessing the Case for U.S. 

Exports of Liquefied Natural Gas" states: 

"The risk of high reliance all Russian gas has bcen a principal drher a/European energy 

po/iC)' in reccnt decades. Among central and eastcrn European slates, particularly those 

/ormerlv aligned H'ith the SO\'iel Union s1Ich as Poland, HWlgWy, and the Czech Republic, 

the issue of reliance 071 imports of Russian gas is a pril11(l!Y energy sccllritv concern (lnd has 

inspired energy policies aimed at dil'ersijicatioll offil(d sourcesjiJr powcr generation. From 

the us. perspcciil'c such Russian influence in/he a/filiI'S of these democralic nations is an 

impediment to efforts at political and economic reform. lite market po,,'el' (lGazprom, 

Russia's state-owned gas monopolv is e\'idenl in thesc countries . .. 

" ... Ihe addition of a 1(lI~,?e. l71arkf!/-based produccr H'i!! indirec/ly sen'e to increase gas 

supply diversi/y 10 Europe, thereby pro\'idillg European conSlimers with increased flexibilitl' 

and market pml·cr . .. 

On our key pm111crships in Asia, the Brookings Institute rep011 states: 

"incrcased LNG exports will provide similar assistance 10 strategic Us. alli!?s inlhe I'acific 

Basin. '! 

" ... the abili(JI of the Uniled Siaies 10 pro\'ide a degree 0/ increased energy securil)' and 

pricing relic/to LNG importers in the region will be an imporloni economic and strategic 

asset . .. 

A study by De]oittc entitled "Exporting the American Renaissance Glohal Impacts of LNG 

Exports ii'om the United States" states: 

"Maintaining market share and oil-indexed prices (lrc major cOl1ce1'l1sjor Russia . .. 
119 


82191.072

"Russia /wsjeaiousiv guarded ils Europc{1/1 market share through control {;fits pipeline 

transit c(ll'ocilics. Bv restricting aecl'ss to its pipelines. Russia is able to prcr('nl supplies 

/i'01l1 other cmmlries .. ji'0111 reaching iucmlil'e Europcail markets alld competing with 

Russian supplies . .. 

"u.s. LNG exports willlikc/y app(v greater pressure on Russia and other gas exporters 10 

transition 10 coml'ctitiveZv sel prices . .. 

The surplus of U.S. natural gas production is already having an impact on global natural gas 

markets. Natural gas previously destined for the United States, but no longer needed as a result of 

increased production, was diverted to other markets. In 2012, nearly half of natural gas supplied to 

Europe was purchased under spot contracts. A recent article in the Wall Street Joumal cntitk'<l "In 

Reversal. Neighbors Squeeze Russia's (Jazprom Over Natural Gas Prices" states: 

"In Europe, where Ga;;proll1 once had a reputation.fi)r hardhall tactics and dictating prices, 

customers are tapping nell' sources. Booming shale-gas production ill the Us. hasfrr?ed up 

1'asl quantities %therfitelfrol11 arollnd the world. including American coal no longer 

Ilceded at home. With that nell' leverage, Gazprol11 '5 European customers hare squeezed 

billiol1s o{dol/ars in discOlllllsfi'ol71 the company, and they arc preSSing/or more. " 

Under section 3 of the Natural Gas Act, companies seeking to export natural gas must receive 

pCl1nits from the Department of Energy, which dctel1nines i r such expOlis are in the public interest. 

Export permits to countries with which the United States has a Free Trade Agreement (fTA) are 

automaticallyapprovcd. For non-FTA countrics, tbere is a regulatory process to determine if such 

exports are in the public interest. 

In general when it comes to exporting U.S. goods, we often talk about ban'iers in otllcr countries our 

U.S. producers must overcome to sell their products overseas. In this case, we have, in fact, placed 

regulatory balTicrs on ourselves to sell natural gas to consumers willing and eager to buy. 

There arc currently 20 applications before the Department of Energy fi'om companies seeking 

approval to expoli natural gas to non-FTA countries. As the Depmimcnt of Energy evaluates these 

applications, I hope it takes into consideration not only the domestic economic benefits, but also the 

opportunities to strengthen Qur strategic partnerships with key allies and bolster our national 

security. 

At the same time, I believe we can do more to help our allies diversify their energy resources while 

creating job opportunities right here at home. My hill, H.R. 5RO, the Expedited LNG for American 

Allies Act, would make approval of export licenses to NATO countries and Japan automatic. The 

measure also creates a process that allows the addition of other foreign countries to this list ifthe 

Secretary of State. in consultation with the Secretary of Defense, detel111incs that it would be in our 

national security interests. 

Mr. Chainnan, exporting U.S. natural gas presents opportunities to create American jobs while 

helping to bolster our stratcgic alliances. Thank you again for the opportunity to sllbmit a statemcnt 

for the record. I look forward to continuing to work with you on this important issue. 
120 


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121 


82191.074

Chainnan Ed Whitfield 

Subcommittee on Energy and Power 

House Energy and Commerce Committee 

2125 Rayburn House Office Building 

Washington, DC 20515 

Dear Chairman Whitfield, 

May 6, 2013 

Please find the attached Cato Institute paper submitted for inclusion in the record for the May 7, 

2013 hearing of the U.S. House Energy & Power subcommittee on "U.S. Energy Abundance: 

Exports and the Changing Global Energy Landscape". I am an adjunct scholar with Cato and an 

international trade attorney who has worked and written extensively on global cnergy and trade 

policy. My latest paper, "License to Drill: The Case for Modernizing America's Crude Oil and 

Natural Gas Export Licensing Systems," explains how the United States' current natural gas 

export licensing system, as well as a similar system for crude oil, does not reflect the realities of 

the modem American energy market and raises serious economic and policy concerns. In 

particular, the systems contradict longstanding U.S. policy towards energy exports and export 

restrictions, appear to violate U.S. obligations under the World Trade Organization agreements, 

and could subject U.S. exporters of downstream products to anti-subsidy duties in key foreign 

markets. 

As most of the current debate surrounding LNG exports has centered on the short-term approval 

of pending export licenses, r hope that my paper will prompt Members of Congress to consider a 

broader overhaul of the problematic system under whieh those applications were filed. Such 

reforms would not only help to stabilize the U.S. energy market, benefit the U.S. economy and 

resolve numerous policy concerns, but also let the free market, not the whims of Executive 

Branch regulators, determine the future of American and global energy trade. 

Best regards, 
122 


82191.075

No. 50 • February 21, 

License to Drill: The Case for 

Natural Gas 

by 

his 0ll'fJ. 
123 


82191.076

Figure 1 

:-;.tural Gas Prices 1980-2025 Im-fl"'"",d) 

1980 1990 2000 2010 2011 

\Vorld BanL "Comnlt'uity Prict.' 

334934" 1 }O'+42RS861 JVPricc Forccast.pdf. 

United Japan (LNG) 
124 


82191.077

of Industry and Security (BIS), an agency within the 

Department of Commerce. 

The approval of crude oil export license applications 

by BIS will depend on whether the transaction meets certaiu listed criteria. According to the Export Administration 

Regulations (EAR) on short-supply controls, approval 

standards arc divided among two categories of crude oil 

exports: (i) presumption of approval, and (ii) approval 

only in the "national interest."" For the first catego!)', BIS 

will approve export applications that satisfy one of several 

discrete conditions, including "exports to Canada for con~ 

sumption or use therein." 

For the second catego!)" BIS will review applications 

on a case-by-case basis and "generally will approve such 

applications ifBIS detennines that the proposed export is 

consistent with the national interest and the purposes of the 

Energy Policy and Conservation Act [EPCAl," The agency 

retains discretion to approve or reject these applications, 

although the EAR notes that two types of exports "will be 

among those that BIS will detcnninc to be in the national 

interest and consistent with the purposes of EPCA": (i) 

those with equivalent crude oil or other petroleum product imports, made under contracts that may be terminated 

if U.S. petroleum supplies are interrupted or seriously 

threatened, and where the applicant can demonstrate that, 

for compelling economic or technological reasons beyond 

his control, the crude oil "calmot reasonably be marketed 

in the United States"; or (ii) those involving temporary 

exports or exchanges that are consistent with various statu~ 

tory exceptions. 

According to an April 2012 Congressional Research 

Service report, few crude oil export license applications 

have been granted under the "national interest" exception, 

and none since 2000. !2 The Financial Times reported in 

October 2012 that six companies have applied for export 

licenses for shipments to Canada and other countries. The 

BIS has not yet announced its decision on these applications, and the proceedings are confidential. l3 Thus, similar 

to the export licensing system for natural gas, BIS has discretion to consider license applications for most crude oil 

exports l.mder the "national interest" rule, and several pending applications have been delayed for months. 

Policy Concerns Raised by the Current Licensing 

Systems 

U.S. export licensing restrictions on natmal ga.<; and crude 

oil raise significant economic, legal and political concerns. 

The current export restrictions create a host of economic problems. First. by depressing domestic prices and 

subjecting export approval to government discretion, the 

U.S. licensing systems retard domestic energy production, discourage investment in the oil and gas sectors, and 

destabilize the domestic energy market. Artificially low 

prices prevent producers from achieving a sustainable rate 

of return on the massive up-front costs required to drill and 

extract oil and gas, and investors lack any assurances under 

the discretionary licensing systems that domestic prices 

will not collapse when output increases. In fact, recent low 

domestic gas prices caused many U.S. energy companies to 

3 

sell assets and shutter new projects. !4 These same concerns 

affect the domestic crude oil market15 and have led the lEA 

to warn that the current export restrictions have put the 

"American oil boom" at riskY' 

According to the EIA report commissioned by DOE, 

increased natural gas exports would lead to higher prices 

followed by increased domestic production. 17 But prices 

arc not expccted to skyrockct, and consumers will continue 

to benefit from hypercompetitive fuel and feedstock supplies, Independent report' from the Brookings Institution 

and Deloitte project that pennitting gas exports would !cad 

to a small and gradual increase in domestic natural gas 

prices. I g Such predictability and consistency is good for the 

industry and the overall stability of the U,S. enerb'Y market-it would prevent boom and bust cycles of high/low 

prices and high/low production that hurt the U,S, economy 

and prevent companies from implementing long-term 

investment, production, and hiring strategies. The current 

situation-~in which oil and gas export decisions are left the 

whims of federal regulators-has the opposite effect. 

Second, restricting U.S. gas and oil exports could hurt 

the U.S. economy, Recent studies indicate that U.S. natural 

gas producers could earn up to $3 billion per year from 

exports. 19 The Sabine Pass liquefaction facility-the lone 

DOE approval, thus faF·-is projected to create 30,000 to 

50,000 new American jobs, 

The export benefits would not be limited to energy 

producers, however. The NERA report found that LNG 

exports. even in unlimited quantities, would produce gains 

in real household income. 

Beyond the economic problems, both export licensing 

systems raise serious concerns under global trade mles. 

First, the U.S. export licensing regimes for natural gas and 

crude oil likely violate U,S, obligations under the General 

Agreement on Tariffs and Trade (GATT). Under GATT 

Article XI:i, \\/1'0 Members are generally prohibited 

from imposing quantitative restrictions on imports and 

exports. Under Article XI and related WTO jurisprudence, 

"'discretionary" licensing systems (i.e., those in which the 

administering authority has the freedom to grant or deny 

a license) and systems in which applications arc delayed 

for several months constitute impennissiblc restrictions on 

export quantities.20 On the other hand, licensing systems in 

which approval is automatic and relatively quick (e.g., five 

days) have been found to be lawfuL" 

Based on these standards, both the U. S. natural gas 

and crude oil licensing systems appear to violate GATT 

Article XI: 1.22 Each system provides the administering 

agency (DOE or BIS) with the discretion to grant or deny 

an export license based on subjective and nonbinding 

criteria (the "public interest" or "'-national interest" standards). Moreover, the pending export license applications 

have been delayed for several months (and, in a few cases, 

years), Both of these facts support findings of GATT violations. 

One or hoth licensing systems might theoretically be 

defended under the national security exception of GATT 

Article XXI, which pennits Members to impose WTOinconsistent measures "which it considers necessary for 
125 


82191.078

the protection of its essential security interests ... taken in 

time of. . emergency in international relations." No panel 

has ever ruled on the national security exception. but the 

standard is subjective: the text refers to a measure which the 

WTO Member considers "essential" for its security interests. Thus, a ViTO panel might defer to a Member's definition of what constitutes an "essential" security interest. 

Given that crude oil export.'i are regulated under the 

same apparatus, and by the same agency (BIS), as other 

goods regulated for express national security purposes, 

the U.S. govemment might be able to success/ully invoke 

GATT Article XXI to defend the system from allegations 

of WTO-ineonsistency. However, it is unclear whether 

the U.S. government would want to establish international 

legal precedent on "essential" security measures for a 

relatively obscure export restriction that has been in place 

since 1975 (i.c., during periods that were arguably not 

times of "emergency in international relations"). 

These same limitations could apply to the 1930s-origin 

natural gas licensing system, as could scyeral others. For 

example, the laws that govern the export of products that 

could have national security concems do not appear to 

apply to natural gas. Gas exports are regulated by DOE, 

rather than BlS (which, as noted above. typically handles 

national-security-related export controls). Finally, economic, not security, issues appear to drive the "public interest" standard and DOE's application of it. Only one of the 

public-interest criteria (U.S. "energy security") could be 

considered to relate to national security. but the available 

legislative history of the original 1938 Aet and the subsequent amendments do not indicate that the export licensing 

system was implemented for national security purposes. 2

:1 

Also, both the reports informing DOE's decisions on the 

pending LNG export applications address only economic 

matters. Thus, the U.S. govemment could be even more 

hesitant to claim that the natural gas system is "essential" 

to the country's national securityY 

Second, restrictive export licensing systems also raise 

potential concems under global anti-subsidy disciplines. 

There is limited WTO jurisprudence on whether an "export 

restraint" that lowers domestic input prices for downstream manufacturers constitutes a "subsidy" as defined 

by the WTO Agreement on Subsidies and Countervailing 

Measures. The WTO Panel in U.S.-Export Restraints 

found that certain export measures did not meet the WI~'s 

precise definition.25 However, the panel's ruling was spe~ 

cifie to the measures at issue and was not appealed to the 

WTO Appellate Body, whose rulings have more precedential value. No other disputes have addressed this issue. 

Moreover, the Panel ruling has not stopped national 

governments from imposing anti-subsidy measures (called 

"countervailing duties" or "CVDs") On downstream exports 

due to export restrictions on various upstream inputs. Most 

notably. the Department of Commerce has stated repeatedly that export restrictions arc a type of "indirect subsidy."26 

And DOC continues to treat them as such in new CVD 

investigations. 27 Furthennore) the European Commission in 

January 2013 recommended the imposition of anti-subsidy 

duties on Chinese exports of organic coated steel. finding 

4 

that the Chinese government provided the subsidies "mainly through export restrictions that artificially lower prices 

of rolled steel for domestic manufacturers. "2!( 

Thus, the crude oil and natural gas licensing systems 

might not only raise legal problems for the U.S. govem~ 

ment, but could subject certain energy-intensive U.S 

exporters to anti-subsidy duties that negate the competitive 

price advantages created by the licensing systems. 

Current policy is also at odds with other Obama 

administration policies. First, the restrictive export licensing systems undermine the National Export Initiative (NEI) 

and its goal of doubling U.S. exports between 2009 and 

2014. Second, the administration's reticence with respect 

to fossil fuel exports stands in stark contrast to its fullthroated advocacy of other energy exports, particularly 

renewables like biofuels and solar panels. Indeed, the 

September 2010 White House report setting forth the NEl's 

priority recommendations calls for increased government 

support for renewable and nuclear energy exports-but 

never mentions oil or natural gas.29 A November 2012 

follow-up report lauds the U.S. government's efforts to 

achieve these objectives, yet continues to ignore American 

fossil fuels, despite the massive increases in production and 

export potential that occurred between 2010 and 2012.:;0 

Furthermore, increased fossil-fuel exports could actually 

spur domestic production of renewable eneTf,Y)' through 

higher oil and gas prices. According to the EIA, the role of 

renewables in electricity generation would be "greater in a 

higher-gas-price environment."}! 

Third, the use of export restrictions to benefit downstream industries contradicts longstanding U.S. policy 

with respect to export restraints and illegal subsidies. The 

Commerce Department repeatedly has imposed anti-subsidy duties on imports due to countervail subsidies resulting 

from foreign export restrictions on upstream inputs. The 

administration's embrace of similar restrictions would not 

only be hypocritical, but would also expose U.s. exports 

of energy-intensive products (e.g., fertilizer) to "copycat" 

duties in kcy foreign markets.}:! 

Fourth, the U.S. government has long opposed restrictive and opaque export licensing systems in \VrO negotiations and dispute settlement. For example, in China-Raw 

Materials (DS394), the U.S. govemment challenged 

China's "non-automatic" export licensing systems for various raw materials as impermissible restrictions on exportation in violation of GATT Article XL" In March 2009, 

the United States and several other countries submitted a 

proposal to the WTO Negotiating Group on Market Access 

calling for increased disciplines on Members' usc of export 

licensing.}4 The current U.S. export licensing regulations 

for oil and gas contradict these positions and undennine 

laudable efforts to rein in such restrictions globally. 

Conclusion 

If the president really wants to develop America's 

vast energy resources, grow the U.S. economy. restore 

some coherence to U.S. trade and energy policy, and avoid 

potentially embarrassing trade conflicts, he should order 

the immediate approval of all pending license applications 
126 


82191.079

and then pursue, with Congress, an overhaul of our archaic 

licensing systems. Specifically, the White House and 

Congress should take the fo\lowing steps to improve and 

modernize U.S. energy trade policy: 

• First, DOE and BlS should immediately approve the 

pending export~license applications for natural gas 

and emde oil. and approve all future applications on a 

transparent. expedited basis. Such aclions would bolster investment, production, and employment in the oil 

and gas sector. benefit the overall U.S. economy. avoid 

the myriad policy and legal problems raised by the 

current system, and gain a rare moment of bipartisan 

praise from Congress and the general public. Although 

some people question whether natural gas exports will 

benefit the U.S. economy in the long-term. clearly the 

people best situated to make that detennjnation are 

those risking billions of dollars of their own money. 

not heavily lobbied government officials in Washington. D.C. Moreover. rejecting or delaying the pending 

applications could further undermine public support 

for our political s)'stem. as the government would 

likely be seen as subsidizing certain politically connected producers or coddling environmentalists at the 

expense of upstream enert,'Y producers, their workers, 

and the U.S. economy more broadly. 

• Second. the White HOllse should work with Congress 

this year to consolidate and overhaul the U.S. export 

licensing regime for energy products. All energy exports--fossil fuels. renewables, nuclear, etc. should 

be regulated by a single agency and subject to a 

transparent licensing system whereby applications are 

automatically approved within a finite period, unless 

the agency can demonstrate a tangible and immediate 

national security risk. These changes would create a 

more stable and secure domestic energy market and 

get the federal government out of the business of 

picking wilmers and losers therein. They also would 

confonn U.S. trade policy to today's energy and economic realities and to global trade and subsidy rules, 

:'Iiotes 

1, AE020! 3 Early Release Overview, U.S. Energy Infomlation 

Administration, Decembcr 5.2012, http://www.eia.goviforecasts/ 

acolcrlindex.cfm, 

2. Mark Perry, ·'Energy Facts of the Day on America's Energy 

Bonanza," AEldeas, January 28, 2013, http:/;www.aei-ideas. 

org/20 13/0 1 ienergy-fact,,-of-the-uay-on-americas-cnergy-bonanzal. 

3. Boston Consulting Group, "Rising U.S. Exports-- Plus Reshoring-----Could Help Create up to 5 Million Jobs by 2020," press 

release, September 21,2012. http://\\'\V\v.bcg.com/media/prcssrc 

leasedetails.aspx?id=tcm: 12-116389. 

4. International Energy Agency, "~orth America Leads Shift 

in Global Energy Balance, IEA Says in Latest World Energy 

Outlook," prcss release, November 12, 2012, http://www. 

iea.org!ncwsroomandevents/pressreleases!20 12inovember/ 

namc,33015,en.html. 

5. International Energy Agency. "World Energy Outlook 2012 

Executive Summary," November 2012, (http://www.iea.orgfpubli 

cationsifreepublications/publication/English.pdf. 

6. "DOE Lists Criteria Used to Detennine 'Public Interest' for LNG 

ExportA,pplications for Non-rTA Countries:' Inside u.s. Trade, 

January 15.2013. http://insidctrade.coml201301152421544IWTODocumentsfText-Document'd(}C~list<;"criteria-used-to-determinepublic-interest-for-Ing-export-applications-for-non-fta-countriesl 

mcnu-id-174.html (subscription). 

7. C.S. Department of Energy, "Applications Received by DOEl 

FE to Export Domestically Produced LNG from the Lower-48 

States (as of January 11,2013):' http;llwww.fossil.energy.gov/ 

programs/gasregulationireports/summary _log_ applications.pdf. 

8. U.S. Energy lnfonnation Administration, "Effect of Increased 

Natural Gas Exports on Domcstic Energy "\1arkets," January 

2012, http://www.eia.govianalysis!requcsts!fe/pd£lfe Jng.pdf 

CEIA Report"). 

9. ~ERA Economic Consulting, "Macroeconomic Impacts of 

LNG Exports from the United States," December 3, 2012, http:// 

w\\'"W.fossil,encrgy.gov/programs/gasrcgulationircportsinera _Ing_ 

report.pdf. 

10. U.S. Department of Energy, "Pending Long-Tenn Applications 

to Export L1\G to Non-FTA Counmes"-Listed in Order DOE Will 

Commence Processing," http://fossil.cner.b')'.gov/programsigasregu 

lationipuhlicationsfexport _applications_order _ oCpreccdence.pdf. 

11. Bureau of Industry and Security, "Export Administration 

Regulations," July 11,2011, http://wvrw.bis.doc.gov/policiesand 

regulations/cari754.pdf. 

12. Neclcsh Nerurkar, "U.S. Oil Imports and Exports," Congressional Research Service, Apri14. 2012, http://wwvdas.org/sgp/ 

crs/misc/R42465.pdf. 

13. Gregory Meyer and Ed Crooks, "Oil groups sent to export 

U.S. crude," Financial Times, October 11, 2012, http://ww\v. 

ftcom/intlicms/s/O/94933124-1322-11 e2-ac28-001 44feabdcO. 

html#axzz2Ik3jsCfz. 

! 4. Adam Wilmoth. "Natural Gas Price Drops Hurt Oklahoma 

Companies." Oklahoman. January 4, 2013, http://newsok.com/nat 

ural-gas-price-drops-hurt-oklahoma-companies/artklc/3742882< 

15. Christopher Swann, "Why Doesn't the United States Export 

More Oil?" Slate, (October 18. 2012. http://www.slate.com! 

blogslbrcakingviewsi2012!1 0/18!oil~ export_licenscs_ why_ 

doesn_.t_. thc __ unitcd _states_export _ morc_ oiLhtml. 

l6. Gregory Meyer and Ajay Makan, "U.S. Shale Boom at Risk, 

Watchdog Warns;' Financial Tim!!s, FcblUary 6, 2013, http://wv-.'W. 

ft.comiintlicms/s/0!2217180a~ 70aa~ 11 e2~85dO-00144feab49a, 

html#axzz2KnA3S38a. 

17. EfA Report, pp. 10-12. 

18. Don Boudreaux, "Banning Natural Gas Exports Is Economic 

Illiteracy in the Extreme, ,. Fairfax Times, January 25, 2013, http:'!/ 

www.fairfaxtimes.com/apps/pbcs.dlliarticle?AID"""'120 130 1251 

OPINIONi130 129277/1 065/banning-natural-gas-exports~is-cco 

nomic-illitcracy-in-thc-cxtrcmc&&template=PrinterFriendlyFFX. 

19. Ryan Olson, "How to Boost U.S. Exports: Legalize Them," 

Helitage Foundation, September 26, 2012, http://blog.heritage. 

org/20 12i09/26/how-to-boost -u-s-exports-legalize-them/. 

20. ATT Panel Report, "India --Quantitative Restrictions:' para. 

5.130; "Japan---Trade in Semiconductors," para. 118. 

21. GATT Panel Report, "Japan-Trade in Semiconductors," 

para. 118. 

22. The licensing systems' preferential treatment for Canada (in 
127 


82191.080

the case of crude oil) or all FTA partners (in the case of natural 

gas) also could violatc the Most Favoured ?\ation (MFN) Principle of GATT Article 1:1 because it discriminates against products 

destined for certain countries. Howcver, this discrimination could 

be defended under GATT Article XXIV, which penuits Yfembers 

to grant preferential (and othelwise WTO-inconsistent) treatment 

to PTA partners. 

23. See, for example, H.R Rep. No. 74-265l, at 1 (May 13, 

1936); S. Rep. No. 75-1162, at 2 (August 9,1937). 

24. For various reasons, the licensing systems \\'ould probably not 

qualify for the other GATT exceptions listed in Article XX. For example, "conservation" measures under Article XX(g) require comparable domestic restrictions on production and consumption, and 

"short supply" measures under Article XX(j) must be temporary. 

Both systems arguably fail to meet either requirement. Moreover, 

the United States might have ditllcuJty demonstrating, as required 

by the chapeau of Article XX for all exceptions, that the licensing 

systems are not "a disguised restriction on international trade:' 

25. Panel Report, "U.S.-Export Restraints," paras. 8.75 8.76. 

26. Department of Commerce. "Countervailing Duties; Final 

Rule," 63 Fed. Reg. 65351 (November 25,1998). http://wW\v. 

gpo.gov/fdsys/pkgIFR-1998-11-25/htmli98~30565.htm. 

27. See. for example, Dcpartment of Commerce. "Certain Coated 

Paper Suitable for High~Quality Print Graphics Using Sheet-Fed 

Presses from Indonesia," 75 Fed. Reg. 59209 (September 27, 

2010), Issues & Decision ~1emorandum at 12~14. 

28. Joshua Chaffin, "Ell Berates China oYer Steel Subsidies," Financial Times, January 14,2013, http://www.ft.com/ 

int1lcms/s/O/6d4c6408~ 5e68-11 e2-b3cb~OO 144feab49a. 

html#axzz2Ik3jsCfz. 

29. United States Trade Promotion Coordinating Committee, 

"Report to the President on the National Export Initiative," September 2010. at 31~32 http://www.whitchousc.gov/sites/defauJtl 

filcs/nci_rcport_9-16-1 0 ~fulLrdf. 

30. Unitcd States Trade Promotion Coordinating Committee, 

"2012 National Export Strategy," December 2012 (at 44). http://ex 

port.gov/static!2012%20National%20Export°AI20Strategy-06%20 

12 19_Latest_eLmain_056128.pdf. 

31. E1A Report, p. 12. 

32. Scott Lincicome, "Countervailing Calamity: HO\v to Stop the 

Global Subsidies Race;' Cato Institute Policy Analysis no. 710, 

October 9, 20 12, http://www.cato.org!publications;poJicy~analysis/ 

countervailing-calamity-how-stop-global-subsidics~race. 

33. united States Trade Representative. "China-Measures 

Related to the Exportation of Various Raw Materials (DS394, 

DS395, DS398). First Written Submission of the United States 

of America," (June 1,2010), at 87, http://W\\'w.ustr.gov/\·vebfm ... 

send/J948. 

34. Japan Machinery Center for Trade and Investment, "Enhanced Transparency on Export Liccnsing: Communication from 

the Separate Customs Territory of Taiwan, Pcnghu, Killmcll and 

Matsu: Japan; Korea and the United States," TNfMNW/15J 

AddAIRcv.3. March J9, 2009. http:!h.vwwjmctLorg,'2000roundi 

comldoha/tnimaitn ~ rna ~ w. 015 .. add4 _ rev3 .pdf. 
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Suite SO() 

20002 

Me Bradbury: 

Thank 

cc: Honorable Bobby 

Subcommittee on 

Attachment 

2013, 
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For the record, and in response to the following questions from the Honorable Gene Green. 

Q: Mr. Bradbury, I appreciate your concern for addressing climate change. I (00 believe this is 

something that the Congress should work on. However, are you advocating that restricting 

international trade in fossil fuels is an effective policy to reduce global greenhouse gas 

emissions? Or are you just advocating for the use of green well completion technology? 

In response to the first question: The World Resources Institute does not take a formal position 

on the question ofliquefied natural gas (LNG) exports or related trade. My testimony was 

intended to infonn members of the committee regarding the implications of LNG exports, from 

the climate perspective. In particular, the construction and use of LNG export terminals would 

very likely lead to a net increase in greenhouse gas (GHG) emissions from the U.S. 

In response to the second question: Given that LNG exports would likely cause a net increase in 

domestic GHG emissions, WRI recommends policy actions that would help to avoid this 

expected outcome through cost-effective strategies to help reduce fugitive emissions from 

natural gas systems. To this end, "green completions" are one example of a technology that 

could be used more widely than current law requires. For example, new federal rules that require 

the use of green completions at natural gas wells could be expanded to also require the use of this 

technology at oil wells. Additionally, to help enable further reductions in GHG emissionsincluding methane emissions from all stages of the na(ural gas life cycle - my testimony 

included six specific policy recommendations for consideration by the Subcommittee. 

My testimony also offered the following suggestion: 

"We [the United States] also have an important indeed urgent - opportunity to improve our 

economic and geopolitical standing by showing leadership in addressing global climate change. 

We can do this through policies that promote the development. deployment, and export oflowcarbon products and services to help enable global GHG emissions reductions from all sectors, 

including through technologies and practices that allow for the cleaner production and more 

efficient end-use of natural gas:' 

For more detailed information regarding the second question, I refer you to a recently published 

WRI working paper on this topic. "Clearing the Air: Reducing Upstream Greenhouse Gas 

Emissions from U.S. Natural Gas Systems" (available at: 

http://www.wri.org/publication/clearillg-the-air) 

Very best regards, 

James 
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Supplement 

By Amy Myers Jaffe, Executive Oirector, Energy and Sllstaillability 

University of Calif om ill Da\'is 

Graduate School Managemellt 

Institute of Tnlllspm·tatioll Studies 

U.S. Housc of Representatives 

Committee 011 Ellergy and Commerce 

Subcommittee 011 Ellergy Power 

June 

security mutually exclusive'! C02 have 

fallell begilllling offlle an the lowest sill(:e 

1994. Do yoti belitwe tbl) growth of natural gall had anytbing do witll that? 

801 

shuttered. 

remained flat to 
132 


82191.085

Figure A 
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82191.086

Worldwide, coal is 

natural gas "Ql""u,~" 

B 

B 

C02 Emissions f'Or Select Cases 
134 


82191.087

At present, California's Low Carbon Fuel Standard (LCSF) gives natural gas vehicles a 

pollution credit compared to oil-powered vehicles. A push to promote renewable natural 

gas (biogas) 1 could also provide support for natural gas fueling infrastructure and vehicles 

in the state. But environmental groups have raised concerns about methane leakage that 

takes place throughout the natural gas supply chain. Oil companies say that green 

completions are enabling companies to limit methane emissions from production activities 

to 2 percent or lower in most instances but initial studies arc showing that some 10% to 

15% of drillers are not using the most advanced procedures to limit venting of C02 from 

shale gas operations. At leakage rates below 2%, natural gas offers a carbon emissions 

improvements over other fossil fuels. Studies to determine the leakage rates in urban 

distribution and delivery systems are being undertaken in several locations including 

Boston and New York City and preliminary data shows a highly variable range of ambient 

methane concentrations, requiring further analysis to determine the sources. 

The controversy over methane leakage derives from the fact that methane is a more potent 

global warming gas than C02. The intensity depends on the time horizon under 

consideration because methane is shorter lived than C02. For example, over a 20-year 

period, methane is 70 times more potent than C02. Over a 100-year horizon (the usual 

period for comparison) methane is only 20 times more potent than C02. 

Fugitive emissions of methane happen throughout the supply chain of natural gas, oil and 

coal. There are involuntary leaks, and voluntary venting and flaring of methane. 

Finally, it is worth mentioning than greenhouse gas emissions are a global concem, and there are 

ways in which a reduction in the use of carbon intensive fuel in the United States through higher 

natural gas use and fuel substitution can actually increase the rest of the world carbon emissions 

based on a "rebound effect": grO\vth in domestic shale gas use, ifnot coupled with the possibility 

of US natural gas exports, will make more oil and coal available in intemational markets, dropping 

the prices of those commodities and incentivizing usc, which could result in an overall net 

incremental gain in global GHG emissions, according to ongoing research by the Institute of 

Transportation Studies (ITS) at University of Cali fomi a Davis. The ITS Davis research shows that 

U.S. LNG exports might indeed be more carbon friendly than an export ban which could encourage 

higher oil and coal use in other parts of the globe by displacement (see Figure C). 

1 The California Biomass Collaborative, a University of California Davis led public·private partnership for the 

promotion of California biomass industries, estimates that 32.5 million BDT of in-state biomass feedstocks could 

be available for conversion to useful energy. In particular, estimates for methane production from landfill gas 

are 55 BCF Iyear, 4.8 BCF Iyr for waste water biogas, and 14.6 BCF/yrfor hiogas from manure sources. Similar 

biomass resources are located in states that border California or along routes for the transmission of natural gas 

to the state from major prodUCing states. We estimate that the methane potential from landfill gas in the 

Western states outside of California is 105 BCF Iyr based on existing and candidate landfills identified by the U.S. 

Environmental Protection Agency. 
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