<DOC>
[109th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:26999.wais]
EIA'S REPORT ON SHORT-TERM ENERGY
OUTLOOK AND WINTER FUELS OUTLOOK
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ENERGY AND AIR QUALITY
of the
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
OCTOBER 19, 2005
__________
Serial No. 109-80
__________
Printed for the use of the Committee on Energy and Commerce
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
__________
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COMMITTEE ON ENERGY AND COMMERCE
JOE BARTON, Texas, Chairman
RALPH M. HALL, Texas JOHN D. DINGELL, Michigan
MICHAEL BILIRAKIS, Florida Ranking Member
Vice Chairman HENRY A. WAXMAN, California
FRED UPTON, Michigan EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia FRANK PALLONE, Jr., New Jersey
ED WHITFIELD, Kentucky SHERROD BROWN, Ohio
CHARLIE NORWOOD, Georgia BART GORDON, Tennessee
BARBARA CUBIN, Wyoming BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois ANNA G. ESHOO, California
HEATHER WILSON, New Mexico BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona ELIOT L. ENGEL, New York
CHARLES W. ``CHIP'' PICKERING, ALBERT R. WYNN, Maryland
Mississippi, Vice Chairman GENE GREEN, Texas
VITO FOSSELLA, New York TED STRICKLAND, Ohio
ROY BLUNT, Missouri DIANA DeGETTE, Colorado
STEVE BUYER, Indiana LOIS CAPPS, California
GEORGE RADANOVICH, California MIKE DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania JIM DAVIS, Florida
MARY BONO, California JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon HILDA L. SOLIS, California
LEE TERRY, Nebraska CHARLES A. GONZALEZ, Texas
MIKE FERGUSON, New Jersey JAY INSLEE, Washington
MIKE ROGERS, Michigan TAMMY BALDWIN, Wisconsin
C.L. ``BUTCH'' OTTER, Idaho MIKE ROSS, Arkansas
SUE MYRICK, North Carolina
JOHN SULLIVAN, Oklahoma
TIM MURPHY, Pennsylvania
MICHAEL C. BURGESS, Texas
MARSHA BLACKBURN, Tennessee
Bud Albright, Staff Director
David Cavicke, Deputy Staff Director and General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Energy and Air Quality
RALPH M. HALL, Texas, Chairman
MICHAEL BILIRAKIS, Florida RICK BOUCHER, Virginia
ED WHITFIELD, Kentucky (Ranking Member)
CHARLIE NORWOOD, Georgia MIKE ROSS, Arkansas
JOHN SHIMKUS, Illinois HENRY A. WAXMAN, California
HEATHER WILSON, New Mexico EDWARD J. MARKEY, Massachusetts
JOHN B. SHADEGG, Arizona ELIOT L. ENGEL, New York
CHARLES W. ``CHIP'' PICKERING, ALBERT R. WYNN, Maryland
Mississippi GENE GREEN, Texas
VITO FOSSELLA, New York TED STRICKLAND, Ohio
GEORGE RADANOVICH, California LOIS CAPPS, California
MARY BONO, California MIKE DOYLE, Pennsylvania
GREG WALDEN, Oregon TOM ALLEN, Maine
MIKE ROGERS, Michigan JIM DAVIS, Florida
C.L. ``BUTCH'' OTTER, Idaho HILDA L. SOLIS, California
JOHN SULLIVAN, Oklahoma CHARLES A. GONZALEZ, Texas
TIM MURPHY, Pennsylvania JOHN D. DINGELL, Michigan,
MICHAEL C. BURGESS, Texas (Ex Officio)
JOE BARTON, Texas,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Caruso, Guy F., Administrator, Energy Information Administration. 16
Additional Material Submitted for the Record
Caruso, Guy F.:
Written response to questions from Hon. Ralph M. Hall........ 41
(iii)
EIA'S REPORT ON SHORT-TERM ENERGY
OUTLOOK AND WINTER FUELS OUTLOOK
----------
WEDNESDAY, OCTOBER 19, 2005
House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Energy and Air Quality,
Washington, D.C.
The subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2123 of the Rayburn House Office Building, Hon. Ralph M.
Hall (chairman) presiding.
Members present: Representatives Hall, Norwood, Shimkus,
Shadegg, Radanovich, Walden, Otter, Murphy, Burgess, Barton (ex
officio), Boucher, Ross, Markey, Wynn, Green, Allen, and Solis.
Staff present: Mark Menezes, Chief Counsel for Energy and
Environment; Maryam Sabbaghian, Counsel; Peter Kielty, Clerk;
Bruce Harris, Professional Staff; and Sue Sheridan, Senior
Counsel.
Mr. Hall. Okay. Thank you. The subcommittee will come to
order. Without objection, the subcommittee will proceed
pursuant to Committee Rule 4(e), which--hearing no objection.
Prior to the recognition of the first witness for
testimony, any member, when recognized for an opening
statement, may defer his or her three minute opening statement,
and instead, have three additional minutes during the initial
round of witness questioning.
And I recognize myself for an opening statement. I first
want to welcome our witness today, Mr. Guy Caruso,
Administrator of the Energy Information Administration, and
thank him for sharing this time, the time it took for him to
get over here today, the time it took for him to gain the
knowledge that he has, and I look forward to his testimony. I
have had a brief discussion with him and enjoyed it, and
learned a lot in five minutes. And I know we are going to get a
lot of--B.S. in business administration, an M.S. in economics
from the University of Connecticut, and earned a master's of
public administration from Harvard University. And he has
worked here, domestically, he worked at the Paris-based
International Energy Agency, IEA, first as a head of the Oil
Industry Division, and later, as Director of the Office of
Nonmembers Countries, so we have, we are really blessed with
good testimony, and we have a witness that will give us
testimony.
Just to give him some comparison of how we value his input,
it took, I think, 15 the last time we had a hearing, to provide
us the information we needed. So, Caruso, we are looking
forward to hearing from you, and so you are, of course, you are
welcome. And it is trite to say that the United States is
facing an energy crisis. Even before the hurricanes, the prices
for oil and natural gas were on the rise, and in response to
that, and after years of trying, Congress passed a
comprehensive energy bill, H.R. 6, and our chairman, in
conjunction with both Democrats and Republicans, worked through
some hard times during the hearing of H.R. 6, and for the first
time in 10 years, we did get a bill to the President's desk,
and he signed it.
After the hurricanes, Congress responded, again, with the
GAS Act, which built on the first bill and focused more on
increasing our supply of refined oil. Now, we are faced with
the winter heating season, that is forecasted to cost people an
average of, I think, the testimony is going to show 40 percent
more than last year, and if the weather is colder than
expected, the number could reach 70 percent for those that heat
their homes with natural gas.
It has been said by many of us, and we have made speeches
and written articles, the papers have reviewed it, how
unfortunate it is that such a tragedy as Katrina had to happen,
but actually, it served us the purpose of opening our eyes to
the country's energy vulnerability, and pushed the discussion
of our current energy infrastructure and future energy needs to
the forefront, where it needs to be. We can no longer put off
to tomorrow what needs to be addressed today, or actually,
should be addressed yesterday.
We are holding this hearing to discuss EIA's short-term
energy outlook and winter fuels outlook, which tells us that it
is going to cost more to heat our homes this winter, and that
prices for petroleum products and natural gas will remain high,
and that the price for crude oil is going to remain high. So, I
hope as a result of this hearing we can all get a good
understanding of what to expect this winter, what our
constituents can expect as well. I hope that all of my
colleagues will then join me in trying to find a way to ease
the burden on them, because I for one feel that they have had
enough of the high energy costs, and deserve a break. I want my
constituents to be able to spend their disposable incomes
however they want, not on having gas for their cars and heat
for their homes.
Mr. Hall. With that, I yield back the balance of my time,
and I recognize Mr. Allen for the time he chooses to take under
the rules, and I thank you for your opening statement.
Mr. Allen. Thank you, Mr. Chairman, and thank you, Mr.
Caruso, for being here today.
The numbers that you are presenting to us are shocking. Gas
prices continue to be at near record highs, and you estimate
that the average price of gasoline nationwide will be $2.68 per
gallon, and will not drop significantly in the near future. EIA
also estimates natural gas costs to increase, on average, by 48
percent nationwide, with areas in the Midwest to increase
nearly 61 percent. New England, where I am front, doesn't fare
any better. Home heating oil costs are expected to rise more
than 32 percent nationwide, and prices in the Northeast are
expected to average more than $2.55 per gallon. My constituents
are very, very worried about that price. I will come back to
that in a moment.
Now, what was not in your report, but was reported
yesterday by the Bureau of Labor Statistics, is that the
Producer Price Index increased by 1.9 percent in September,
mostly because of soaring energy prices. It was the single
largest jump in 15 years. Last week, BLS reported that consumer
prices rose 1.2 percent last month, and 4.7 percent in the 12
months that ended in September. That was the largest monthly
advance since March of 1980, and the steepest annual rise since
May 1991. Clearly, energy prices are affecting our economic
competitiveness.
How do we get here? What has this committee and this
Congress been doing? I do have a different view than my friend,
Chairman Hall. We passed an energy bill this summer that would
do nothing to help consumers cope with higher energy prices. In
fact, your agency, Mr. Caruso, estimated that legislation
similar to the Energy Policy Act would actually increase
gasoline prices. In the last month, this committee rushed to
the floor a bill, the GAS Act, that would also do next to
nothing to help consumers. Like the Energy Policy Act, it
provided huge subsidies to already incredibly profitable
industries. It also gutted environmental laws for no apparent
reason, other than that the oil industry wanted it done.
We have done next to nothing for development of renewable
fuel technology, at least on the scale that this crisis calls
for. We have stubbornly refused to consider raising fuel
economy standards, and we have balked at even the most modest
conservation measures, such as labeling and rating replacement
tires for efficiency. And now, we have a report from EIA which
should surprise nobody. Fuel is going to be very expensive this
winter. Small businesses will suffer. Consumers will suffer.
The poor and the elderly will suffer.
This is just one example. The average LIHEAP benefit in
Maine is about $440, if the program's funding levels remain
constant. The average oil tank in Maine is 200 to 250 gallons.
You estimate the price of oil to be at $2.55 per gallon. That
means the LIHEAP benefit won't even buy one tank of oil for my
constituents who qualify. During an average Maine winter, most
households use four tanks, and many use considerably more than
that. So, increasing the amount of money that is appropriated
for LIHEAP is one short-term fix that Congress must consider.
Another is, through the Tax Code, to find some way to help
small businesses. I have introduced legislation, H.R. 3944, the
Small Business Fuel Cost Relief Act, to give small businesses a
tax credit for fuel costs above the Labor Day 2004 price. Now,
I know that tax legislation is not under the jurisdiction of
this committee, but the committee's bill, the Energy Policy
Act, contained robust tax credits for the oil, gas, and nuclear
industries. I believe, simply, small businesses and family
farmers and fishermen deserve the same attention.
Mr. Chairman, we need to find innovative solutions to the
immediate energy crisis while developing a long-term energy
plan to wean us away from foreign oil, to promote cleaner
alternative energy sources, and reduce costs to consumers and
control pollution in the air. If we do not act soon, our
economic competitiveness and our children's future will suffer.
Mr. Caruso, thank you again for being here. Mr. Chairman, I
yield back.
Mr. Hall. I thank the gentleman. I would like for the
record to reflect that you used the word next to nothing
several times, and that it is the opinion of the chair that
next to nothing is better than nothing, and that is what we
have had, and that it is what this hearing is about.
The chair recognizes the chairman, Mr. Barton.
Chairman Barton. Thank you.
Mr. Hall. For whatever time he takes.
Chairman Barton. And I will yield to Mr. Allen time to
answer me whenever he wants to.
Mr. Allen. Thank you, Mr. Chairman.
Chairman Barton. I, too, want to thank Mr. Caruso for being
here. I wish that this hearing room was full. You know, it is
odd to me that we are going to face some of the highest energy
prices we have ever faced as a nation this winter, especially
in the Midwest and the Northeast, and as those Congressman and
Congresswomen go to their districts, they are going to be
besieged by constituents, rightly so, asking what we are doing
or not doing about it, yet one of the most important hearings
we are going to do in the next two months. As far as I know,
there is no television coverage of this, and there is no great
media coverage. This is very important, what we are going to
talk about. I have reviewed the EIA outlook, and I have taken a
glance at your testimony, and I am sure that you are going to
tell us that winter fuel prices are going to be higher this
year because of supply constraints. And that is a true
statement.
Two weeks ago, we passed on the House floor the GAS Act,
which is intended, and I think would increase the supply of
gasoline. It passed 210 to 212. Not one Democrat voted for it.
Not one. It is a disappointment to me. That act would give the
Federal Government the authority for the first time to
investigate price gouging. That act, for the first time, would
make it easier for governors of states that were willing to
build new refineries to get an expedited permitting process
without changing one environmental law that is currently on the
books. And that is only if that governor and the constituents
of his or her state were willing. If they don't want to do it,
they don't have to ask for the expedited procedure. Would
reduce the number of boutique fuels, make it easier and more
fungible for fuel gasoline to go around the country. Most
people think that is a good idea, not a bad idea. Yet we didn't
get any of our friends on the minority side to vote for that
bill.
Today's hearing, we are going to look at winter fuels like
natural gas and home heating oil. It is expected that
households that heat with those fuels are going to pay about
$350 more a year this winter for fuel, depending on the fuel
source that they are using. That is a real price increase,
approximately $100 a month, that is real money. They are going
to hit real Americans. These price increases carry a message.
We need less politics and we need more energy policy, which
results in more fuel. Today, and this winter's high energy
prices are driven by the need for supply. Do we really want to
tell the American people that the way to solve the energy
problem is to freeze to death by lowering your thermostat? I
don't think so.
And it is with great concern that I review the list of
energy projects, and these are real projects, folks. These
aren't make believe. These are real projects that have been
delayed, killed, postponed, in the very areas of the country
where the prices for winter fuels are expected to be the
highest. And let us go through some examples. In the West, 62
percent of all the households rely on natural gas. California,
the largest state by population in the Union, is the second
largest natural gas consuming state in the country. There are
at least two liquefied natural gas projects that would have
brought significant LNG supply to California, but they have
been delayed. One is in Long Beach. It is delayed by the
California Public Utilities Commission. The other is at
Cabrillo Port, and again, it has been held up by the state of
California regulatory hurdles. In the Northeast, where the
winters are somewhat colder than they are in California, 51
percent of the households rely on natural gas. That is over
half. Again, projects that would have provided more natural gas
to heat Northeastern homes have been stopped cold. To name a
few, the Islander East Gas Transmission Pipeline Project, from
southern Connecticut across Long Island Sound to western Long
Island, and to New York City. Initially, Connecticut denied the
CZMA approval. After the project sponsors overcame that hurdle,
Connecticut denied the project its Clean Water Act permit, and
that dispute is dragging through the state court. The
Broadwater Energy Offshore LNG Terminal Project, located nine
miles north of Long Island in New York state waters, both New
York and Connecticut Congressional delegations have come out in
opposition to this project. These projects don't help Texas.
They don't help Oklahoma. They help New York. They help
Connecticut. They help New England. And yet, their own areas
are opposing them. The Weaver's Cove LNG project in Fall River,
Massachusetts. This project showcases the lengths opponents
will go to stop a project. After the Federal FERC approved the
application, the opponents slipped a provision in the highway
bill to prevent the demolition of the Brightman Street Bridge
in order to block LNG tankers from using the river to get to
the project.
Now, we know who is going to complain about high gas prices
this winter. And they should. I am not saying we should support
higher natural gas prices. The real conspirators seem to be the
very people we are trying to help, the people of New England
and places like Fall River, Massachusetts. I give a direct
quote from the mayor of Fall River, Massachusetts. I have never
met the person. I am going to state that he or she is probably
a very decent human being, so I have got absolutely no
animosity towards this individual. But here is what the mayor
of Fall River said about a project to bring more fuel to that,
to his or her own town: ``I will make it bleed with a thousand
paper cuts until its investors lose interest and go away.''
Increasingly, energy policy of some states and localities
in the Northeast seems to be let us freeze in the dark. For the
most part, Northeastern homes that don't use natural gas use
home heating oil instead. In the Northeast, 30 percent of the
households use heating oil as their primary heating fuel.
However, 50 percent of the Northeast distillate consumption,
which is where home heating oil comes from, must be brought in
from other areas or overseas. When Northeast constituents raise
concerns about the prices, and again, rightfully so, that they
will be forced to pay for home heating oil, the need for
increased domestic refining capacity should be clear.
And yet, even as we face dramatic price increases at the
beginning of what is likely to be a cold winter, no refinery
seems likely to ever be built in the Northeast, ever. Why is
that? In my Congressional district of Texas, it will produce,
this year, over a trillion cubic feet of natural gas. My
district doesn't use a trillion cubic feet of natural gas. I
have natural gas drilling rigs within 10 miles of my backyard,
about a half a dozen of them, and I wish I had a dozen. My
Congressional district, at one time, was the eighth largest oil
producing country in the world, if it were a country instead of
a Congressional district. My district is going to do its part
on the supply side. And a lot of the natural gas, and a lot of
the oil that we still produce is going to go all over this
great Nation, as it should, so it really, really upsets me when
I look around the country, and we see these high prices, and we
have a clamor to do something about it, but when we try to do
something about it, the very people we are trying to help say
no.
So, Mr. Chairman, I am looking forward to this hearing. I
hope we can put on the record the facts about what the price
situation is going to be, and the supply situation is going to
be, and then I hope we can work together on a bipartisan,
bicameral basis to really try to do something about it. I don't
want to do this kind of a hearing every year.
Thank you, Mr. Chairman.
Mr. Hall. Thank the chairman. The chair recognizes Ms.
Solis for three minutes.
Ms. Solis. Thank you, Mr. Chairman, for holding this
important hearing this morning, and I want to thank Mr. Caruso
for also being here and appearing before us to testify on the
Energy Information Agency's winter fuel report.
And I have to tell you, just briefly reading, I concur with
much of what your statement, that you will be presenting to us,
in terms of rising costs. And I, too, am very concerned,
because I realize that in the state that I represent,
California, one of the most populous in the country, the
gasoline prices have been way, way high, for the last, almost I
would say year. So, we have seen prices of gasoline, in my
district alone, $3 and above for I would say a steady six
month, at least. And we know that folks out there are looking
for relief, and the last two energy bills that came through
this committee, in my opinion, have not provided any sort of
immediate relief. California also has some very high standards,
in terms of environmental regulations that protect our
environment, and those have been put in place many years before
I got here to Congress, and I can see that there is a slow
erosion that is occurring here in terms of support for those
regulations.
When our own attorney generals are stripped of the ability
to protect our communities and our local governments, who are
helping to enforce protections. It is not to say stop all these
processes and projects that need to be developed, but I think
communities of interest have to have a say-so in where these
projects are placed. And as the chairman of our committee
stated, Long Beach, California, yes, there is a proposed plan
to put a liquefied natural gas facility there, but the
community residents in the area do not want it. They still do
not believe that that is the most efficient way of providing
support in that local area, and their input has been very loud
and clear to many of the elected officeholders there in that
region.
So, I for one am for having a discussion, but let us be
very clear about who that discussion includes. In many cases,
those witnesses that are opposing those kinds of efforts are
not allowed to come and testify before this committee. So, I
think that we have to call it for what it is. And I am very
concerned that, again, this last energy bill did not do enough
to provide relief to consumers, working families, that right
now, as a last resort, are still trying to pay their bills from
last year, their winter bills. In California, we are having
very unseasonable weather. Right now, I mean, we are having
some tremendous rainstorms and flooding that is occurring. We
have had some brownouts in Los Angeles with the DWP there, and
so we know we have to do something, and we are not about saying
no. We are saying about let us have a discussion that is
inclusive, and that includes all of the diversity of our
communities.
So, I want to thank you, Mr. Caruso, for being here, and I
do intend to be a part of the discussion, so that my community
has representation at the table. Thank you very much.
Mr. Hall. Thank you very much. The chair recognizes Dr.
Norwood, the gentleman from Georgia, for three minutes.
Mr. Norwood. Thank you very much, Mr. Chairman, and I want
to say to my friend, Mr. Allen, I think that the chairman laid
it out pretty clear. I would like to just add a little bit to
it, maybe be a little more blunt.
You have made a case that you have considerable concerns
for your constituents this winter, and we are all in sympathy
with that, but you know, we had an energy bill three or four
years ago. It got stopped by the Democrats in the Senate. You
voted against the LIHEAP provision, where the Southern states
were trying to have just a little share of that LIHEAP money,
because more people are killed from heat than cold. You voted
against the energy bill. You voted against the GAS bill.
Now, I want to tell you, Mr. Allen, with all respect, it
makes me a lot less concerned about your concerns when you do
things like that. I yield back.
Mr. Hall. The gentleman yields back. The chair recognizes
Mr. Green, the gentleman from Texas.
Mr. Green. Thank you, Mr. Chairman. I ask unanimous consent
for my full statement to be placed into the record.
Mr. Hall. Without objection.
Mr. Green. I want to welcome Mr. Caruso, and having read
your statement, I think, you know, those of us who lived
through the energy bill and the GAS bill two weeks ago
understand that that was happening. Let me follow up on what my
colleague from Georgia said. Our committee had a chance to
reform LIHEAP during the energy bill, and we voted down an
amendment that would have made it based on need, for people who
need energy assistance. I find it amazing, the last two weeks,
I see the New York Times, the Boston Globe, Chicago Trib, the
New Jersey Leader, they have headlines talking about how high
fuel heating costs and natural gas costs.
Well, in my home state of Texas, from May to September, and
we have 90 degree temperatures this week, we could get no
sympathy from the folks because of the formulas weighted for
the Northern states. And so, I follow up on my colleague from
Georgia, that you know, I guess it is location, location,
location, that those newspapers are only in the North, but we
were trying to reform LIHEAP to make it fair, based on need. We
could not get the votes in this committee. We did get a study
on the energy bill, but again, I have more people die and
suffer from heatstroke and heat-related than they do from cold,
and this Congress, because of something that happened years and
years ago, will not change it.
The LIHEAP formula is ancient, and now, I hear that my
colleagues from the North are asking for additional emergency
funding. Well, we tried to get additional funding in the
authorization for LIHEAP, simply because that would then put us
on par with the certain level, but if emergency funding is
approved, that doesn't benefit those of us, the half of the
country that lived south and have heat problems. So again, I
know we need to do better on conservation, but I couldn't tell
my constituents this summer that I am sorry you are paying high
gas prices because you want to cool your home, or you want to
turn on your attic fan, but you better check the air in your
tires to make sure you are efficient. I don't think that is the
way to work, and I think this Congress needs to look at
exploring for more domestic sources for natural gas. And it is
interesting. It is not Congress that is keeping some of that
off the table. It is a Presidential moratorium in the eastern
Gulf of Mexico, in Section 181, that we might have more natural
gas that would lower the prices, because you bring in more
supply, but we are not doing it. So, there is blame enough
going around both for Congress and the President that we need
to have more domestic production of natural gas. So, maybe we
can lower the heating costs in the Northeast. At the same time,
maybe lower our cooling costs in the South from May to
September.
And again, I yield back my time.
Mr. Hall. I thank the gentleman. The chair recognizes Mr.
Shimkus, the gentleman from Illinois, for three minutes.
Mr. Shimkus. Thank you, Mr. Chairman, and Mr. Caruso,
welcome. And you can hear the frustration. We are going to hear
sobering numbers from you, and we are struggling, obviously,
with this. I believe an ideology, and I believe how you view
government, and my frustration is those who would try to
control the free market, to prohibit it from providing the
goods and services at the lower cost, then claim and cry for
government subsidies to either the individual consumer, who now
is hurt because of high costs, or the individual small
businesses.
It is really counterintuitive, unless you get a competitive
market, and that is what an energy bill does. Part of our
natural gas problems is because we had no energy plan. We have
shifted electricity to natural gas. I mean, what a terrible use
of natural gas. We could no longer put it in caverns and save
it over the summer. We are using it to generate electricity.
So, as the demand goes up, the importance of the energy bill,
these are all interwoven. The problem with natural gas is also
a problem with our electricity generation issues, and that is
why it is important to diversify.
So, you are getting all of the frustrations of our public,
as we are trying to shift out how to do this. The natural gas
is of a major concern for much of the home heating and also
manufacturing. When Russia is paying $0.95 per million BTUs,
and we are paying $14 for BTUs, we are competitively
disadvantaged. You want to talk about the damaging to the
manufacturing, base, that is the damage to the manufacturing
base. China is paying $4.85 per million BTUs, $10 less than we
are for natural gas.
Now, here is a map of the United States. We are the only
developed nation in the world without access to our outer
continental shelf. All the OCS on the West, all the OCS on the
East. As Mr. Green said, all the eastern Gulf, off-limits. Look
at my friend John Shadegg's area. Off-limits. I think the
public, if they would understand that here we are complaining
about subsidizing people because they can't afford heating, and
we can't allow people to have access to these natural gas
reserves. It is criminal negligence, and it has to stop, and
that is why it is important.
We need to hear these sobering numbers, because we are
going to hear it from our constituents. And what I am going to
say is, we do not have access to our OCS reserves. We do not
have access to our facilities, and we are continuing to work on
this issue. Thank you for being here, and I look forward to
asking a few questions with respect to that. And I yield back,
Mr. Chairman.
Mr. Hall. I Thank the gentleman. The chair now recognizes
Mr. Ross, the gentleman from Arkansas, one of my favorite BRAC
fighters, for three minutes. Mr. Ross.
Mr. Ross. Thank you, Mr. Chairman, members of the
committee, for holding this hearing in an effort to address
natural gas and home heating oil prices that are, and have
been, and will continue to adversely impact Americans,
especially as we enter into the fall and winter seasons.
Our country was experiencing record fuel costs before the
hurricane season, and in their aftermath, our Nation's domestic
energy production and distribution infrastructure encountered
significant damages, causing fuel prices to increase even more.
I am hopeful the efforts to reestablish energy operations in
the Gulf of Mexico will move swiftly, as both demand and price
continue to increase.
I am extremely concerned that energy and winter fuel prices
will be unbearable for many Americans during the 2005-2006
heating season. In fact, in Arkansas' Fourth Congressional
District, the average household income is about $29,000 a year.
One of the 29 counties I represent has an average household
income below $9,000 a year, one of the poorest counties in
America. The people I represent cannot afford $3 gasoline, and
they certainly cannot afford $12 or $15 per thousand cubic feet
for natural gas. Natural gas is the primary heating fuel for
most of the households in my district, and 55 percent of them
in America. This means families who heat their homes with
natural gas are expected to spend about $350 more, which is
about a 48 percent increase this winter on their gas bills, 48
percent increase on their gas bill, and yet, the minimum wage
in this country has not been raised in a very long time, and
has the buying power that it had back in 1980. And for those of
you that want to believe that minimum wage is something paid to
high school and college students, I have got constituents, I
have got working families in my district trying to get by on
$5.15 an hour.
This significant price increase will cause considerable
negative impact on all Americans, especially the working poor,
the elderly, the disabled, and also, industries that rely on
natural gas. My Congressional district in Arkansas ranks fourth
among all Congressional districts in America in poultry
production. Poultry producers depend on natural gas to heat
poultry houses during the winter months, and these outrageous
natural gas prices will make it impossible for many of our farm
families. The electric power sector's reliance on costly
natural gas to produce electricity will translate into
increased electric costs, and nearly 30 percent of all
households in this Nation rely on electricity as their primary
heating fuel.
I am hopeful this committee will continue to increase
funding authorizations for programs such as LIHEAP, Low Income
Home Energy Assistance Program, and rethink and address the
discrepancies and the funding formula that surrounds LIHEAP, a
program that truly helps those families in need. These are
serious issues that will seriously impact the citizens of our
Nation, and I hope my colleagues on both sides of the aisle
will join me in researching all options, and taking the
necessary actions to provide relief to our constituents in the
coming months.
Mr. Chairman, thank you for allowing me to use up all of my
time, plus 35 seconds of somebody else's.
Mr. Hall. I thank the gentleman. The chair now recognizes
Mr. Murphy from Pennsylvania, three minutes.
Mr. Murphy. And thank you, Mr. Chairman.
I just want to follow up on a couple elements here that we
know are part of this, as we look at and lament the high cost
of natural gas. I hope that our discussion just doesn't go in
terms of there is a high cost, and we need to look at other
ways of subsidizing this. We have made several efforts in this
committee, which as the chairman pointed out, ended up being
not bipartisan, and that is tragic, because we could have
benefited greatly from bipartisan input and influence on this.
In the coming weeks, I hope we can deal with some of the
aspects that are driving up natural gas costs.
These include the issue of our energy plants, which could
be using clean coal technology, which we included in the energy
bill, continue to move more towards natural gas use. That
increases demand and increases price. If we are able to
sincerely look at new source review, and how that punishes
plants who are wanting to combine maintenance with some
cleaning up, and instead, telling them that they have to do
everything, and so, the plants choose to do nothing. We would
be able to use our abundant coal energy instead of continuing
to deplete our natural gas resources. We also note that that
would increase jobs. That would increase jobs for boilermakers
and teamsters and carpenters and laborers and sheet metal
workers, and all the folks who could be rebuilding our
infrastructure of our energy power plants, which are so
inefficiently continuing to use a system now.
If we are going to use this, and really look at this
carefully, about natural gas costs, we also have to look at the
costs on jobs. We are losing our petrochemical industry. We
have lost 90,000 jobs in the chemical industry alone. It drives
up fertilizer costs. That affects our agricultural costs, our
farmers, and ultimately, the meals that we put on our tables.
These are the kind of things we all need to put in perspective,
and working together on comprehensive energy bills means doing
all the parts for this. This also means that when we are
looking at such things as the GAS bill we passed a week ago
without any votes from the other side of the aisle, it is
unfortunate that the only option offered was to have the
Federal Government design, construct, and mothball until we
need it, oil refineries. That is not the way we have a
comprehensive energy policy, and we are much better off all
coming together and say how do we have further exploration,
diversification, and conservation of our resources together.
That has to be part of the package.
And so, I hope that what comes out of this hearing is not
just more political talk, but real policy that allows us to
come up with some plans for the American people, who are going
to be paying a lot more, and it will be sad if all we can tell
them is that more bills were blocked, more progress was
stopped, we are still not using coal, we are not using nuclear,
instead using more and more natural gas in less effective ways.
And that is what we need to be working on, Mr. Chairman, and
that is what I hope comes out of this with some sound
legislation as well.
I yield back.
Mr. Hall. The gentleman yields back. The chair now
recognizes the gentleman from Massachusetts, Mr. Markey.
Mr. Markey. Thank you, Mr. Chairman, very much.
Last Thursday, for the first time since its creation, the
Northeast experienced sustained levels of home heating oil
prices high enough to trigger the exercise of your discretion
to protect heating oil consumers by releasing product from the
Northeast Home Heating Oil Reserve.
This is, without question, an opportunity for us to begin
to discuss when the Bush Administration is, in fact, going to
exercise that authority. The report right now, from the
Department of Energy, is that home heating oil prices are
likely to rise 31.5 percent this winter, for the average
consumer. That will be an increase of $378 per consumer across
the whole Northeast for this winter, and that is if it is a
normal winter. If it is an above normal winter, it would be
$774 per family for this coming winter.
So, what we are seeing is a dramatic spike. It is occurring
on a sustained basis, and we need a plan. The plan that we have
heard thus far from the Republican side is that we will build
new refineries in the years ahead. Unfortunately, we have
already heard from the President of Shell Oil, who says that
his company has no plans of building new refineries, even if
the bill became law, and we also have a word from the Senate
that they don't intend on passing legislation to that effect.
So, what are we left with? Well, we are left with the
existing Home Heating Oil Reserve in the Northeast. Now, I must
point out that the chairman of this committee, Mr. Barton, was
good enough when he was chairman of the Energy Subcommittee, to
make that possible, and it sits there, its existence, largely
because of his support for it, in partnership with me. The
question now is, when will the Administration use it? Because
that, ultimately, is the only time and place in which the
facility will make any sense.
Conversely, the Bush Administration, the Republicans in
general, are opposing increases in the funding for LIHEAP, the
program which is used in order to help people with higher home
heating oil bills. So, if we release the Home Heating Oil
Reserve, prices will go down. If we don't release it, then
prices go up, and we need more LIHEAP money for the people who
will suffer from these higher prices. But we can't have a black
hole here, where neither one of those avenues is, in fact,
used. And that is where we are right now, and that is why I
believe that this hearing is so important, and I yield back the
balance of my time.
Mr. Hall. I thank the gentleman. The chair recognizes Mr.
Otter, the gentleman from Idaho, for three minutes.
Mr. Otter. Thank you, Mr. Chairman.
Mr. Chairman, some wise man once said that insanity is
doing the same thing over and over again, and expecting
different results. And as I have served on this Energy
Committee, I am reminded of that often, that one side of the
aisle says no, let us let the marketplace work. Let us
incentivize the system to build new plants and drill new holes
and lay new pipelines, and create more, rather than get the
government in the business, as the other side of the aisle
continues to suggest. No, let us get the government in the
business of passing out and distributing the scarcity, and that
is basically where we find ourselves today.
As I look back over the energy history of this committee
and of this Congress, I find very little effort on the side of
those who wish the government to be in the business of
distribution and drilling and separation, and then, of course,
passing out favors, and passing out heating oil, in order to
keep the folks happy. I see they actually have created an
environment in which the big boys can exist, the big boys they
now decry as making way too much profit, and actually taking
advantage of the market. Yet, it has been their handiwork at
regulations, whether it is the EPA or the ESA or the lack of an
energy bill that has, quite frankly, created an environment for
the big boys to exist, and the little folks to pass out of
existence. They are thereby restricting competition.
I was in the oil business in the early '80s. I had a
company called Kyn-Ten Drilling Company, and we drilled over
500 oil wells in Kentucky, Tennessee, and Ohio. And when I was
running that little company, I was pretty excited when we went
into the business, because oil was about $30 a barrel, and all
I needed to turn out was about four or five barrels a day, in
order to actually amortize the system, and amortize my costs of
getting into the business.
But then, I found out I couldn't sell the oil, and I found
out one of the reasons I couldn't sell the oil is because there
wasn't a distribution, there wasn't a way, there wasn't a
pipeline. There wasn't a way to get it there, and so we said,
well, that is easy, let us build a pipeline. And then, we ran
into the restrictions of having to go across government land,
and nobody wanted to build a pipeline across government land.
And nobody wanted to build a grid system across government
land.
And so, I find it just a little ironic, in fact, economic,
perhaps, economic ignorance, for those who would spend $700
million a year, a year, on the West Coast, for environmental
purposes, and $2 billion, and then ask for another $2 billion a
year for LIHEAP. I find it a little disingenuous, in fact,
because they, in fact, have created the environment in which we
have restricted supply. It put me out of business. It put all
the little companies out of business. There is no question why
there is only four left, and that is because of the handiwork
of restriction and government regulation has put these folks
out of business, and caused that restriction.
And so, I am interested in hearing what we are going to do
to create more supply, not more government, and I invite you to
speak to those when you get the opportunity, Mr. Caruso. Thank
you.
Mr. Hall. I thank the gentleman. The chair now recognizes
Mr. Wynn.
Mr. Wynn. Thank you, Mr. Chairman, for calling this
hearing. It is indeed an important issue.
The outlook is not good for our citizens. Sixty million
households that use natural gas in the United States could see
their home heating bills increase by an average of 50 percent.
This translates to an increase of about $350 more than last
winter's costs. In my district in Maryland, 60 percent of my
residents use natural gas for their homes. This means that from
about $750 last year, they could see an increase to about
$1,100 this year, almost 100 percent increase.
In terms of home heating oil, we have 8.5 million homes
that use home heating oil across the country. Residents can
expect an increase in their heating bills of about 32 percent,
which translates into an increase of $378 more in home heating
expenses this winter. For the almost 7 percent of my district
residents that use home heating oil, including myself, this
means that last year's average expenditure of about $1,200
could be as high as $1,600 this year.
The point that I would like to bring home in the context of
this hearing is that while we need to do a lot of things in
terms of alternative energy development, increasing supply,
people are going to be cold this winter. We need to prepare to
do something for this winter. Increasing home energy costs will
disproportionately impact low income and elderly citizens. All
of a sudden, we in America have discovered the poor. Well, they
are going to be not only poor. They are going to be cold,
unless we do something.
Consider the following. Low income households spend a
whopping 14 percent of their annual income on energy
expenditures, while non low income households only spend about
3.5 percent. That is the face of poverty in America. In fact,
two thirds of the families that utilize LIHEAP for assistance
have annual incomes of about $8,000. This makes low income
Americans have to choose between heating their homes and
putting food on the table. Thus, I think it is essential, since
our task is to create a better quality of life in America, that
the Administration fully fund the Low Income Home Energy
Assistance Program, LIHEAP, and to authorize $5.1 billion a
year level, and that we consider appropriate increases to
correspond to the increase in energy costs that we are
experiencing.
There are a lot of perspectives on this issue, and I am not
going to belabor the point further, except to say that there
are a lot of people who are poor who are going to see
significant increases in their energy costs, and it is our
responsibility to do something to help them. We cannot just
stand by and watch, as they shiver in their homes, and take
comfort that we are not in their unfortunate circumstances. I
hope this hearing will lead to concrete action on the part of
Congress to both preserve the existing levels, and hopefully to
expand to new levels the LIHEAP program.
Thank you.
Mr. Hall. Thank Mr. Wynn. The chair at this time recognizes
Mr. Shadegg from Arizona for three minutes.
Mr. Shadegg. Thank you, Mr. Chairman, and thank you for
holding this hearing. I want to associate myself with the
comments of both Mr. Murphy and my colleague, Mr. Otter. Mr.
Murphy is correct. We cannot continue to rely solely on oil and
other fuels of that character to go into the future. We need a
diversified portfolio, but my colleague Mr. Otter is also
right. It is the height of hypocrisy for a Member of Congress,
particularly one who has been here for years, to sit in this
room and complain about the high cost of fuel. It is, indeed,
the exact parallel to the child that murders both parents and
then complains of being an orphan.
Year after year, decade after decade, this Congress has
imposed higher burdens on the construction, exploration,
development, and refining of fuel. My colleague Mr. Shimkus
just held up this map. All of the East Coast is off-limits. You
can't go get the oil there. You can't go get the gas there, not
because it is not there, but because the government, the people
in this room, the people in this Congress who have been here
for decades, voted to put it off-limits. All of the oil and gas
on the West Coast is off-limits. All of the oil and gas under
all of the Federal land in the western part of the United
States where I live is off-limits. So, we put all this oil and
all of this gas totally off-limits, and then we are shocked,
stunned, mystified, and outraged that prices are higher. Well,
you know, it seems to me some Members of Congress ought to go
back and take Economics 101. We tried to pass a bill last week.
Thankfully, we did pass it by a bare two votes, that simply
eases the siting and permitting restrictions, by letting the
President designate areas where you could build a refinery,
including closed military bases, to get around the NIMBY
syndrome. Many Members of Congress voted against that. Indeed,
every single one of my colleagues on the other side. You talk
about the cost of $3 a gallon gasoline, and how expensive it
is. In part, it is that expensive because we have 17 different
boutique fuels. That bill tried to solve the problem by saying
no, we don't need the 17 to have clean air. We can indeed get
by with six. Nonetheless, people voted against that. Well,
where has that brought us?
Natural gas, the subject of this hearing, is $13 per
million BTUs in the United States. In China, it is less than
$5, and in Australia, it is less than $4. We have a problem,
ladies and gentlemen, that is bigger than home heating bills.
You bet. We need, as my colleague from Maryland just said, to
help the people who will be cold this summer who can't afford
to pay their bills. But by God, we better look beyond that. We
better look at the long-term problem. We better take a rational
look at the restrictions we have put on this map to say you
can't explore anywhere in the United States. You can't buy or
build anywhere in the United States. My colleague from
Massachusetts says well, Shell says they are not going to build
a refinery even though we passed a bill letting them build a
refinery under easier restrictions. Guess what? Shell doesn't
want more refineries, because Shell is getting rich off of the
shortage of refineries. But thank God, in a free market
economy, other investors will figure that out, and small
investors will put together capital to build that refinery. How
do I know that? Because it is happening in Yuma, Arizona, in my
state, right now. Small investors are putting together the
capital to build the first refinery in this country since Elvis
was impersonating Elvis. So, we need to look at supply in this
country. We need to look at a rational balance in this country,
and we need to move forward with this hearing, and I commend
you, Mr. Chairman, for holding it.
Mr. Hall. I thank the gentleman. The chair recognizes the
good doctor from Texas, Dr. Burgess, for three minutes.
Mr. Burgess. Thank you, Mr. Chairman. I appreciate, also,
you holding this hearing.
I was just going to submit my statement for the record, but
that map that Mr. Shimkus brought, if you look at that map,
about the only place left to drill for natural gas in the
United States is my district in North Texas, so Cooke, Denton,
and Terry counties are enjoying a boom, and we thank the
restrictions on the other parts of the country, but maybe it is
time to relax those somewhat. And I will yield back.
Mr. Hall. I thank you, and Mr. Ross and I are going to try
to have your refinery over at Texarkana, to bring you
something. The chair now recognizes Mr. Walden, the gentleman
from Oregon.
Mr. Walden. Thank you very much, Mr. Chairman.
I appreciate your holding this hearing, and look forward to
reading the text of our witness. I had a meeting this morning
with a gentleman who represents and works with some 2,500 wheat
farmers out in northwest, especially the east part of Oregon
and Washington, and let me just tell you what $14 natural gas
is doing to farmers, who have to use nitrogen fertilizer. It is
driving them out of business, and I sit here, as I have for a
number of years, and I listen to all the information that comes
out about the lack of supply, the lack of access to product,
and I was a journalism major, not an economics major. But if
you constrict supply, and you don't go replace it, and demand
continues either at pace or increases, price is going to go up.
And you get a natural catastrophe like Katrina and Rita, and
you get a new spike, and you see that in these charts that this
gentleman gave me, that show just what has happened to the U.S.
nitrogen producer costs of ammonia, the price per ton. The dark
blue on here is the component of natural gas. And I listen to
some of my colleagues time and again talk about well, we can't
drill there. We can't import here. We don't want to produce
that kind of power. We don't like windmills off the coast,
because we can see them. But we all want to turn on the lights,
and we want $1.50 gasoline, and we want natural gas back to $2.
You can't get there if you don't go find it, produce it, and
get it to where it is being consumed, the effect of which is we
are having an incredibly corrosive effect on the economy, on
the men and women whose pocketbooks we all care about, we all
care about.
Now, I was just suggesting to the chairman, I have tried to
figure out why the Northeast has their own Home Heating Oil
Reserve. We don't have one in the Northwest, and it gets kind
of chilly out there from time to time. I have supported your
efforts on the Northeast Home--I have supported increasing
funding for LIHEAP, and I understand those are patchworks.
Those are the safety net. That is the safety net, when what we
fail to do to provide adequate supply to meet market demand,
causes a problem, along with perhaps a natural occurrence, or
unnatural, like Katrina and Rita. And when you look at the
price of natural gas around the world, and you understand we
have failed to go get the natural gas we need here, even though
we have enormous deposits, then don't come and complain to me
about jobs being outsourced and off-shored in plastics and
fertilizers. Don't come and complain to me about those sorts of
trade issues, when one of the fundamental ingredients in our
economy is energy, and we are not doing our part to go find it
in an environmentally safe and sound way, and I fully believe
we have those capabilities. We can do this, folks, if we quit
throwing rocks at each other, come together as a committee and
as a country, and say there are resources. We understand we got
a real problem. We need to go tap them, and get them to the
people, so that we don't have to reach into these what should
be one time emergency reserves. And now, we are looking at them
as just a sort of everyday experience. That is not what we
ought to be about.
So, I hope we can move forward on some of these
initiatives, and resolve this energy problem that we know is
there, and we have the tools and the capability, the science,
the research, to do it right. Thank you, Mr. Chairman.
Mr. Hall. All right. I thank the gentleman. I believe that
is all the opening statements we have, and I am sure, Mr.
Caruso, that you have supplemented your degrees from
Connecticut and Harvard. This last hour, you have patiently
listened to all of us, and if one thing you have gleaned, it is
probably that we all agree on one thing, that is, that we have
a problem, and we are going to listen to you for your
suggestions, and recognize you at this time for whatever time
it takes. I hope it doesn't take over about five minutes, but
we will yield to you, and thank you very much for being here,
and being so patient.
STATEMENT OF GUY F. CARUSO, ADMINISTRATOR, ENERGY INFORMATION
ADMINISTRATION
Mr. Caruso. Thank you very much, Chairman Hall, and
Chairman Barton, members of the committee. I appreciate your
invitation to present the Energy Information Administration's
winter fuels outlook.
As you know, the EIA is the analytical and statistical arm
of the Department of Energy, and we do not formulate or take
policy positions. If we were holding this hearing on August 28,
I would have been telling you that the world oil market is
tight. Crude oil prices were high. Gasoline prices are high, as
we find the reserve being heavily utilized, and natural gas
prices were very high, due to a very warm summer, in
particularly, those areas that require air conditioning. And on
August 29, 54 days ago, Katrina, Hurricane Katrina made
landfall, and since that time, we have had more than 60 million
barrels a day of our domestic oil production shut in, more than
300 billion cubic feet of natural gas shut in, and that is
continuing. About 10 percent of our refinery capacity is still
offline, due to both Katrina and Rita.
[Chart.]
So, this is the situation as we prepare our winter fuels
outlook, and the first chart I want to call your attention to,
which you have in your handout, shows the summary of the
different costs to our consumers in the various regions of the
country, and by fuel type. On average, the average U.S.
household will pay about $260 more for heating oil this winter,
but that varies considerably. Natural gas bills will be
averaging about $350 more, a 48 percent increase. Heating oil,
about $380 more, a 32 percent increase. Propane, $325, 30
percent. Electricity gets off a bit better, with only $38, or a
5 percent increase, and that is largely because 70 percent of
our electricity in this country is generated by coal and
nuclear. However, the expenditures for individual households,
as a number of the members have pointed out, can vary
significantly from those national averages, and even regional
averages, based on the size and efficiency of the home, and
their equipment that is using their fuels.
[Chart.]
The next chart shows the impact of the shut in production
of crude oil on oil prices, and where we see that going over
the coming months, and we do see the shut in capacity gradually
coming back online, and we do anticipate that crude oil and
natural gas production will be fully back online by the end of
the winter. But nevertheless, there will be a continued shut in
production of both oil and natural gas in the Gulf of Mexico,
and the price of crude oil, in our view, will stay relatively
high, at about $64 to $65 per barrel this winter.
[Chart.]
For the refineries that have been shut in, you see in the
next chart, that they are coming back online. At one point,
more than 20 percent of our refinery capacity was offline. Now,
it is about 10 percent. And we see all of the refineries being
fully back online by the end of the year. Nevertheless,
gasoline prices, as has been mentioned, and diesel fuel,
heating oil, and jet fuel prices remain very high, and
particularly, middle distillates will stay high, because of the
particular problems in producing, and the demand for those
fuels. We see the prices coming down, but still remaining $2.55
for gasoline in December, and $2.73 for diesel.
For natural gas, as was mentioned, we are now looking at
about $14 for the spot price of natural gas on the New York
Mercantile Exchange, and on the Henry Hub Spot Markets. This
will come down, but slowly, because so much natural gas
production is still shut in, and the processing facilities
onshore remain offline and affect the processing of that
natural gas.
[Chart.]
If there is an element of good news, the next chart shows
where we are with respect to working gas in storage. Every
year, our local distribution companies and gas companies--oh,
sorry. The next chart, please. It does show that natural gas
storage, as we approach the winter season, is approaching the 3
trillion cubic feet level, which industry considers about
normal for going into the wintertime, so that we feel that even
with a colder than normal winter, there will be sufficient gas
in storage to meet this increased demand. Just for your
information, during the peak months of January and February,
about one third of our gas consumption comes out of this
storage, so it is critically important that we go into the
winter with high levels of natural gas storage, and indeed, one
of the reasons gas prices, natural gas prices, have been under
such pressure is that the local distribution companies have
been bidding up the price in order to make sure there is enough
gas in storage, in order to serve their customers. So, this is
part of the picture.
[Chart.]
On the individual regions of the country, the next chart
shows natural gas heating bills by region, and as some members
have already mentioned, it does vary considerably, and indeed,
for natural gas, the Midwest, which uses, about 75 percent of
the homes use natural gas for heating, will experience about a
61 percent increase in expenditures. But other regions will
also see from 32 percent up to that 61 percent increase.
Electricity expenditures are going to be more, increases will
be more modest, as shown in this next chart, although that also
varies by region, with the South being the area where the
largest percentage of households use electricity as their
primary source of heating.
[Chart.]
Heating oil, in the next chart, is very much concentrated
in the Northeast, as Mr. Allen and others have pointed out,
with 30 percent of the homes there using heating oil for
heating their homes, and we expect about a 30 percent increase
in that price for the Northeast. Finally, the Chairman, the
last fuel we examine in our winter fuels outlook is propane,
and the expenditures there are going to be up, on average,
about 30 percent, and that affects about 4 percent of the homes
in the United States.
Mr. Chairman, once again, I would like to thank you for the
confidence in letting me present the Energy Information
Administration's outlook for this winter, and I would be
pleased to answer any questions that you may have.
[The prepared statement of Guy F. Caruso follows:]
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Mr. Hall. Thank you, and I will start with the first
question. Your outlook base case projects a colder winter, as I
understood you, than last winter, and I think, as you know,
there are other projections. A lot of other people are
projecting, some even, for some reason, projecting a warmer
winter. Well, that is something we can hope for and pray for,
but what are your winter weather projections based on, and can
you explain why others have been projecting a warmer winter,
and why you differ with them?
Mr. Caruso. Thank you, Mr. Chairman. Our weather forecast
is based on the latest outlook of the National Oceanic and
Atmospheric Administration's Climate Prediction Center, NOAA.
They have released this in late September, and their
indication, as we convert their temperature projections into
heating degree days, into our model, indicates a slightly
colder than normal winter, when weighted by population, which
is what we do for our modeling exercise. But it will be several
percentage points colder than last winter. So, both of those
factors go into the numbers I have just presented with respect
to consumption estimates by region.
There are others who look at the same NOAA forecast, and
come up with slightly different conclusions, but mainly, it is
the methodology that we use to convert the temperature
estimates into heating degree days, and weight that by
population for our model. That gives you a slightly different,
but nevertheless, we are looking at slightly colder than normal
winter, but about 3 to 4 percent colder than last winter.
Mr. Hall. And as you know, there are primarily three
distillate fuels, diesel, home heating oil, and jet fuel. I
guess my question is, what percentage of distillates are used
for home heating, as opposed to transportation, if you have an
estimate of that?
Mr. Caruso. Yes. We do. Approximately one million barrels a
day of heating oil is used during the winter heating season,
but I can give you a much more precise breakdown for the
record, but of the total barrels, about 33 percent is middle
distillate. Of that 33 percent, jet fuel, which is part of
that, is 7 percent, and then, the remainder is diesel fuel
mainly used for transportation, and heating oil. That breaks
down to 25 percent for those two fuels, and during the winter,
it is about 50/50 between home heating and diesel fuel in
trucks. But I will give you more precise figures for the
record, sir.
Mr. Hall. And if you will, for the record, just tell us to
what extent will the increase in diesel consumption affect home
heating oil supply.
Mr. Caruso. That is an excellent question. One of the
problems in this country we face is not only the lack of total
refining capacity, which has been mentioned by several members,
but the conversion capacity of turning crude oil into specialty
products, most notably gasoline, but in recent years, the
demand for the middle distillates, diesel fuel, heating oil,
and jet fuel, has been rising in this country, in Europe, and
in Asia, all of which has put extremely heavy pressure on our
refineries, on European refineries, and in Asian refineries to
meet that demand.
The middle distillate part of the barrel has actually
increased more than gasoline, and as you can see from the chart
I showed on the refinery outlook, distillate prices are now
higher than gasoline, which is rather unusual, and the reason
is the competing uses for that middle part of the barrel are
putting upward pressure on price. Therefore, we expect higher
heating oil prices this winter, not only because of the
increase in crude oil, but because the heating oil component of
barrel competes with jet fuel and diesel fuel, and as you also
are aware, the airline industry is suffering in this picture as
well.
Mr. Hall. Yes. And if you can, without answering it now, my
time is about up, how interchangeable are these two products,
and what are the typical, we talked about profit and profit
margin. We have had a hearing on that and what caused the
escalation at the gas pumps. What are the typical profit margin
differences between diesel and home heating oil? If you can do
that, I will appreciate it, and I think my time is up.
I now recognize the ranking member, Mr. Boucher of
Virginia.
Mr. Boucher. Well, thank you very much, Mr. Chairman, and
Mr. Caruso, thank you for taking your time with us this
morning, and preparing your always very thorough presentation
for us.
One of the pressures on natural gas prices is the
tremendous demand for natural gas on the part of electric
utilities. And I wonder if you could give us some indication of
whether you see any kind of changing in the long-term plans
that utilities are making with respect to the fuels for their
new generating units. Do you, for example, based upon natural
gas prices today, at I think you said $14 per million BTUs, see
utilities beginning to look more toward coal? In their early
planning, does coal play a larger role? You might also make
reference to the new coal technologies that are now reaching
commercialization, and in particular, integrated gasification
combined cycle. American Electric Power and Synergy have now
both announced plans to build commercial units for IGCC. And I
am wondering if you are seeing a broader look at that
technology by other electric utilities in the wake of those
decisions by those two, and the fact that this new technology,
which is far more environmentally friendly than the current
pulverized coal technology, is now at the commercial stage, and
is being utilized by two major utilities.
So, generally, what is the outlook? Is there going to be
relief on gas because of a shift to coal?
Mr. Caruso. Thank you, Mr. Boucher. The broad answer to
your question is, we definitely see utilities taking another
look at their fuel mix, and we anticipate, in our long-term
outlook, that partly because of new technologies such as IGCC,
and other cleaner coal-burning technology, that utilities will
add new coal-fired power plants in the future. Most of the
projects we are looking at are looking at about a 10 year lead
time, so we are expecting much new before 2015. And of course,
the energy bill, which you are very familiar with, did also
provide some incentives for technologies such as IGCC, that
will further enhance that.
The other area where we see a new look is nuclear, and when
we come out with our new long-term outlook in the coming
months, probably late November, early December, we will include
new nuclear plants for the first time in our outlook, for the
first time in many years. We have not had any prospects for new
nukes for a number of years. We do think beyond the 2015,
particularly towards 2020, because of the longer lead time, we
will have new nuclear power. So, in general, we do see, because
of high natural gas prices, and because of the incentives from
the Energy Policy Act, a shift slightly, not a dramatic shift,
but a shift towards fuels other than natural gas. As you know,
natural gas has comprised more than 95 percent of new
generation capacity in the last seven or eight years, and we
see that surplus of gas-fired, particularly combined cycle,
turbine gas-fired plants, working its way through the system
over the next 10 years, and when new investment decisions are
made by utilities, they will be looking much harder at coal,
nuclear, and in some cases, renewables also as a result of the
EPACT '05.
Mr. Boucher. The report that you will put forward in
December is going to analyze the longer term picture, in terms
of the fuel mix for electricity generation. Did I understand
that correctly?
Mr. Caruso. That is correct.
Mr. Boucher. And as a part of that, you are going to
analyze the potential for new nuclear plants to be a part of
that mix. Are you also analyzing the potential for coal-fired
facilities?
Mr. Caruso. And coal. Yes.
Mr. Boucher. And--
Mr. Caruso. All fuel sources, and alternative sources, as
well.
Mr. Boucher. Right.
Mr. Caruso. And we are going to incorporate, for the first
time, the effects of EPAct '05, which is the one of the
reasons, and the other reason is the higher natural gas price
assumptions, which will clearly make a difference in investment
decisions, not only in the electric power sector, but as
someone mentioned, ammonium nitrate fertilizers for example, so
heavily dependent on natural gas, there will be a huge shift
outsourcing out of the country.
Mr. Boucher. All right. That is good, Mr. Caruso, and I
look forward to seeing that report. Let me shift now to
gasoline. I note from your presentation today that in 2006, we
can expect prices at the pump for gasoline to be on the order
of about $2.34 per gallon. That is a pretty substantial
improvement from where we are now, but it is still a
significant increase from what were the previous norms, the
pre-hurricane norms. And my question focuses on the increase
from the pre-hurricane norms to $2.34 per gallon, which is what
we expect next year. To what extent is that increase
attributable, in your opinion, to a shortage of refinery
capacity?
Mr. Caruso. It is a combination of the continued
expectation of a very tight world crude market. Therefore, our
expectations are for, in this case, west Texas intermediate
benchmark crude to stay in that $63 to $65 per barrel range
that it is selling at today. That is the number one factor. The
second one is this increased pressure on the refineries, and
the difference between the crude price and the gasoline price,
the so-called crack spread, has widened, and we expect that to
stay wide, because of the inability of our refiners to meet the
demand for not only gasoline, but probably even more
critically, diesel fuel and other middle distillates.
Mr. Boucher. And aviation fuel.
Mr. Caruso. And aviation fuel, exacerbated by--
Mr. Boucher. And so--
Mr. Caruso. --the new requirement that refiners now must
produce ultra-low sulfur diesel fuel, beginning in the middle
of '06. We have some concerns about their ability to do that,
and if they do it, it certainly will be done at a higher cost
and price.
Mr. Boucher. Have you done an analysis, or do you intend to
do one, of whether or not the refinery companies, the petroleum
companies and others, that build and operate refineries, intend
to add capacity, in light of that increased demand?
Mr. Caruso. Yes, we follow very closely, and indeed, we put
out a report annually on what companies--
Mr. Boucher. Well, what--
Mr. Caruso. --additions to refinery capacity--
Mr. Boucher. What conclusion can you make about that today?
Mr. Caruso. Well, I would think, first of all, what we have
been saying is that the typical refiner will add capacity over
time at existing facilities, by adding these conversion units,
and indeed, in some cases, overall primary distillation
capacity. But we were not expecting any new, grassroots
refineries to be built in this country. That is what we said
last year.
Mr. Boucher. Well, it really matters less about whether it
is a Greenfield build, or an extension of an existing facility,
as long as the capacity that is necessary gets added. Let me
just say that there is a fair amount of skepticism about
whether the refineries really intend to add that capacity, in
light of the fact that it has been fairly widely reported that
over the period from September '04 to September '05, that one
year period, the profits of refineries in the U.S. increased by
255 percent. I would be very interested to see any projections
you are making as to the amount of capacity that actually is
going to be added when there are a lot of people who are
arguing that refiners are making more money by refining less
gasoline, and if you add capacity, that means your profit per
gallon decreases, so the financial incentives would appear to
be, at least arguably, keep the current capacity, and just let
the price continue to rise. Do you have any response to that?
Mr. Caruso. Sure. Our long-term outlook was we expected,
first of all, starting with history, we have added about 3
million barrels a day of capacity in this country in the last
20 years. There is a lot of focus on the fact that 300
refineries in 1980 is now down to 149 refineries. What is not
focused is those 300 refineries had the capacity to produce
about 18 million barrels a day of oil, and those 150 refineries
that have been closed, of course, have reduced that, but the
existing 149 have all, many of them have been expanded, so that
we are now back to about 17, so it has been like a U shape. We
have added capacity at the existing facilities, even though
many small refineries have closed.
The second thing is we expected that the profit incentive
will be increased by the recent margins, not just the one year,
but we have now had about three of the last four years have
been very good years for the downstream, and the profit
incentive is there, and--
Mr. Boucher. Is there to build new capacity?
Mr. Caruso. --is there to build additional capacity, and we
think it will happen, because although you presented one side
of it, which is if we hold back on capacity, prices will go up.
The other side of it is, if we would make the investment, we
will increase our market share, and I think that incentive, in
the history of the oil industry, has outweighed the other one.
Mr. Boucher. Okay. Thank you, Mr. Caruso. My time has
expired. Thank you, Mr. Chairman.
Mr. Hall. Thank you, Mr. Boucher. The chair recognizes the
chairman of the Energy and Commerce Committee, the gentleman
from Texas, Mr. Barton.
Chairman Barton. Thank you. Mr. Caruso, back in 1981, when
our refinery capacity was at its peak, which is, I think, 18.1
million barrels a day, what was our demand for refined products
then?
Mr. Caruso. 1981.
Chairman Barton. Wasn't it less than 18 million barrels a
day? It was about--
Mr. Caruso. I would have to check, but it was probably was
less.
Chairman Barton. I think it was about 16.
Mr. Caruso. Yeah. Probably was about--
Chairman Barton. I think we had about a 2 million barrel a
day surplus capacity. So, you know, we closed all these
refineries, and now, you say 17 million. My number is about 16
million. But what is our demand for refined products today?
Mr. Caruso. 20.5.
Chairman Barton. 21.
Mr. Caruso. Yeah.
Chairman Barton. 21 a bigger number than 16 or 17?
Mr. Caruso. Even the head of a statistical agency has to
agree with that.
Chairman Barton. So, when we had the most refinery capacity
in this country, we had less demand than capacity, and so
margins were not good, but it was good for the American
consumer, because we got a lot of competition, for a lot of
different reasons. A lot of those refineries that were closed
were really old refineries. They were in Pennsylvania in Texas,
from the late 1890s, and small, 50,000 barrel, 25,000, so it is
a good thing that a lot of those refineries have closed, from
an environmental position, and an efficiency position, but
since we have not built a refinery in this country in 30 years,
we are now in a situation where we have a demand that is over
20, and a capacity that is 16 or 17, so we have this capacity
gap, and Mr. Boucher is 100 percent right that demand has
continued to go up, and the profitability of the existing
refineries has gone up. So, we need to, and I think Mr. Boucher
thinks, his alternative, he had a strategic refinery
alternative in the Democratic substitute, so we both agree that
we need more refineries.
I want to ask you a question. It costs about $1 billion per
hundred thousand barrels of new refinery capacity, whether it
is brand new or expanded. So, that is basically $10 million,
1,000 barrels. If you had $1 billion that you wanted to invest,
and you looked at the refinery situation in this country, and
said you know, there is some money to be made. Now, if I start
the process, it is going to take me nine or ten years to get
the permits. So my billion dollars is just going to sit around.
Or, if the poor little old bill that passed the House a week
and a half ago by two votes were to become law, and we get an
expedited permitting procedure that a governor can opt into,
that you get all those 40 some odd permits, you still have to
get them, but we consolidate with the Department of Energy and
the EPA, so that you get concurrent review and timelines, and
current law is actually met, if it says the permit decision has
got to be made 90 days or 180 days, you got to do it. That is
current law. That is not new law. That is current law. That you
could get a permitting decision within a year, six months to a
year, what makes you more likely to want to invest your billion
dollars to build a new 100,000 barrels, a permitting process
that takes ten years, or a permitting process that takes a
year?
Mr. Caruso. Regulatory uncertainty has clearly been one of
the impediments, in addition to the very low rate of return on
capital invested in the--
Chairman Barton. But wouldn't you be more likely--
Mr. Caruso. Definitely.
Chairman Barton. --to make the decision, if you would get a
decision within a year, as opposed to within nine or ten years?
Mr. Caruso. Definitely.
Chairman Barton. That is just common sense.
Mr. Caruso. Yes, sir.
Chairman Barton. Well, I just wanted to make that point,
because we, as you pointed out, you know, what you call it, the
crack gap, is going up. You know, crude oil prices are going
up, but retail prices are going up more rapidly. It is because
we have got a refinery constraint in this country. And if we
are going to import our way out of it, you have got to pay the
people from overseas. You have got to pay them all their
transportation costs, plus the profit on top of that. So, we
are not going to lower refined product prices by imports. If we
are going to get that gap back down, we are going to do it by
building more refineries in this country.
And I want to ask you some questions about natural gas.
What, if anything, has been done in this country to expand
underground natural gas storage capacity in the Midwest and the
Northeast?
Mr. Caruso. There has been some gradual expansion by the
owners of storage facilities, but it has been motivated by
commercial--
Chairman Barton. What is some? What percent of
underground--
Mr. Caruso. I don't have the specific number, but we have
about 4 trillion cubic feet of capacity existing in working gas
in storage for this winter.
Chairman Barton. Can EIA put a number on--
Mr. Caruso. Yeah. We have the numbers. I can certainly
provide that for you.
Chairman Barton. Isn't it true that if my producers in
Texas and everywhere in the country produced as much as they
could, we would still have a price problem, because we can't
store the natural gas for the demand that exists in the Midwest
and the Northeast?
Mr. Caruso. I definitely think we would still have a price
problem, because the problem is, ultimately, we are not
producing enough new gas to meet the growth and demand in the
last decade or so.
Chairman Barton. I mean, if you were me and this committee,
would you consider natural gas storage an issue we need to try
to address in some way, underground natural gas storage, or
even aboveground natural gas storage? Don't we need to get more
storage capacity closer to the markets, so that if we can get
the production capacity up, you have to store in the summer
months, in the fall months, so that you have it available for
the peak winter months? Isn't that a true statement?
Mr. Caruso. That is true, and I would say it is certainly
worth studying. I think it is the whole system. It is from the
wellhead through the burner tip.
Chairman Barton. Okay. Are you aware of what the prospects
are for some of these LNG projects being permitted? Do we have
any that are close to being approved? I know we got about 50
that are under consideration.
Mr. Caruso. Yeah, there is more than 50 under
consideration, and I believe the last numbers I saw FERC and/or
the Coast Guard, if it were offshore, have approved about five.
Chairman Barton. So, we could see--when might me see a new
LNG facility actually in operation?
Mr. Caruso. You know, I believe the first--
Chairman Barton. Two years from now?
Mr. Caruso. --new regasification facility we have in our
outlook is late '07 or early '08.
Chairman Barton. '07, '08. And finally, what percent of the
natural gas that is consumed in this country is consumed by
electrical power plants for electricity generation?
Mr. Caruso. I believe that is around 20 to 23 percent, but
I will--
Chairman Barton. So, that is 20 to 23 percent, put that in
trillion cubic feet. Is that about 4 trillion cubic feet, 8
trillion cubic feet?
Mr. Caruso. We are consuming about 22 trillion, about 80.
Yeah.
Chairman Barton. 80 trillion, so to follow up on what Mr.
Boucher was saying, if we were to really revitalize the coal
sector for power generation in, as you pointed out, the nuclear
sector, that would take a lot of pressure off of natural gas
prices, if we could go--you know, back in the 1970s, we had a
Fuel Use Act that said you couldn't use natural gas to generate
electricity.
Mr. Caruso. Yeah.
Chairman Barton. So, if we can do something to help Mr.
Boucher's constituents in the coal regions, and get the nuclear
industry, that would help our natural gas situation.
Mr. Caruso. Yes, sir.
Chairman Barton. Okay. And one last. Why do we have the
price disparity on natural gas prices by region, from a 61
percent to a 31, 34 percent of total expenditures, and from a
55 percent to a 29? Why such a big gap in the average price
increase, when natural gas, I would think, would tend to be a
fungible commodity? Is that a supply constraint situation?
Mr. Caruso. I believe it is a combination of supply
constraints, and in this case, these are the residential
consumers, and it also affects the pace at which the individual
local utilities--
Chairman Barton. So different--natural gas at retail is
regulated, so is this a regulatory issue?
Mr. Caruso. Yeah. It is partly regulatory. It is partly the
earlier point you mentioned, in terms of regional differences.
Chairman Barton. Could your staff elaborate on that, and
give us--I would like a little more definition as to--I don't
argue with the fact that prices are going up. I mean, that is a
given. But it is somewhat puzzling that we are having that wide
of a disparity of price increase.
Mr. Caruso. Yes.
Chairman Barton. Okay. Thank you.
Mr. Caruso. I will provide more detail on that for the
record.
Chairman Barton. Thank you.
Mr. Caruso. Mr. Chairman.
Chairman Barton. Thank you.
Mr. Hall. Gentleman yield back. I thank the chairman. The
chair recognizes Mr. Allen.
Mr. Allen. Thank you, Mr. Chairman.
Just a couple of comments, Mr. Caruso, and then, I have a
couple of specific questions for you. I let the chairman's
remark go by, but I can't let all the remarks that were made
earlier go by without some response, because several of my
friends on the other side of the aisle were suggesting that the
whole problem here is we have to do more drilling, and
certainly, we need to do more drilling for oil. We have to
increase our supplies of natural gas, but the implication that
several of them made was that if only we drilled more, more oil
and more natural gas, well then the people who are getting
LIHEAP today, to take one example, wouldn't need it, because
the prices would be lower. And you know, from where we sit,
that is the most bizarre thinking, to be kind, because if you
are thinking of someone, there is, I would suggest, no evidence
to suggest that the price of oil, or the price of natural gas,
can be driven low enough so that people earning $11,000 per
year, living on $11,000 per year, can get by without some sort
of subsidy. And that is where I think we get, you know, the two
sides here get crossways with each other.
Some day, we will have an energy bill which is as energetic
on renewable fuels and conservation as it is on subsidies to
the oil and coal industry, but we haven't had that particular
bill yet, and when we do, we ought to make some real progress.
So, we do have a different approach.
Now, what I am really concerned about is a couple things.
One is, the suggestion was also made that if we only drilled
more natural gas, then the price would come down. Well, in the
past, when there has been more natural gas available, then we
have turned to electric generation from natural gas. You said
it is 20 to 23 percent of the natural gas supply. I guarantee
you that keeps the price up. The bottom line is, with respect
to oil, we have 2.5 percent of the world's oil reserves, we
have 4 to 5 percent of the population, and we consume 25
percent of the oil in the world. You can't drill your way out
of those numbers, no matter how much you do, though more supply
is appropriate.
My immediate concern, Mr. Caruso, is the effect of the
narrow margin of natural gas supplies on the electric grid,
particularly in the Northeast. Natural gas producers are
required to provide product to their gas utility customers, but
they are not under obligation to provide product to electric
utilities. Especially in the Northeast, this often results in a
significant reduction in wattage of gas-fired power plants.
They may be taken offline in the winter months. And so, can you
comment on the effect that tight natural gas supply margins
could have on electric supply, particularly in the Northeast?
Is there a risk of disruption in the electricity marketplace?
Mr. Caruso. Our outlook does not anticipate that there was,
and we certainly look at that closely, but we do not anticipate
that. There may be some, as you point out, interruptible
customers that choose to shift to a different fuel, where that
is possible, but that is rather limited in the Northeast.
Mr. Allen. It is very limited in the Northeast, because I
think virtually all of the power plants constructed in the
Northeast in the last 10, 15 years have been natural gas.
Mr. Caruso. Correct.
Mr. Allen. And there is a related issue, which is that if
we, if the response of people in the Northeast, say, is to use
space heaters and not their furnaces, then we may find an
increase in demand for electricity in the Northeast, and I
wondered if, I mean, I suspect that you may have the same
response, but it is an issue.
Mr. Caruso. Yeah. We are worried about it. As you can
appreciate, the peak demand for electricity is, on a national
basis, is in the summertime, for air conditioning, mainly
because the space heating is--although it is used at about 29
percent of our households, it is not the majority. So, I think
in a normal winter, and we are not anticipating the kind of
behavior you just pointed out, we would expect there would be
sufficient generation capacity. But clearly, it is something
that the utilities would be watching closely.
Mr. Allen. I would encourage you to take a look at it,
because this won't be a normal winter in the Northeast, because
the rapid increase in price for home heating oil has my
constituents, businesses, and homeowners very, very worried.
Our thermostat's going down, I know, but you know, we don't
really know what kind of a winter it will be.
And one last point. If you have data comparing the 05-06
projections to the 03-04, not 04-05 winter, but the 03-04, that
would be very helpful, because that was a cold winter, and if
we have another one like that, it could be quite serious.
Mr. Caruso. We have every year, and certainly, I would be
happy to provide that for the record.
Mr. Allen. Okay. I would appreciate it. I see my time has
expired. I yield back, Mr. Chairman.
Mr. Hall. The gentleman complete? Thank you. The chair
recognizes Mr. Shimkus, the gentleman from Illinois.
Mr. Shimkus. I hate doing that. I need to turn off the
microphone before I move it over. My friend, Mr. Allen and I,
continue to debate this over the years, and I imagine we will
continue to debate it from decades to come.
But I have to remind him and, in the first energy bill, we
increased the authorization for LIHEAP to $3 billion. We did,
Bobby Rush's amendment. I also have to remind him that we
increased, in the last refinery bill, we increased the
Northeast Home Oil Heating Reserve from 2 to 5 million barrels.
It is in there.
So, we made the attempts. But it is--again, I will go back
to the premise. I don't mind trying to debate this issue.
Natural gas, if you are from a region of the country that uses
natural gas to generate electricity, which is because we didn't
have them diversify the energy portfolio, and then you do not
allow exploration for natural gas off your coast, I find that
really challenging to accept how in the world do we move to a
position where this whole debate of we want to use electricity,
we want to use gasoline, but we don't want to look for it. We
don't want to explore it. We don't want to drill it. I mean, we
just--it is tremendously frustrating. 85 percent of our outer
continental shelf is off-limits. And in those 85 percent, there
are natural gas reserves. And we ought to be there. And we
ought to encourage that.
We are going from, in 1981, $1 per 1,000 cubic feet. I
don't even know the terminology. It is now $15. It is totally
disruptive of our own prices. And what is our response? Let us
give tax breaks to the businesses so they can afford high
natural gas prices. Let us give home heating resources, so the
poor--instead of saying let us get more supply, or let us
change our electricity generation away from natural gas to coal
generation. Oh, no, we don't want to do that. Okay. Let us move
to nuclear power. Oh, no, we don't want to do that. Well, what
do we want to do? How do we want to use energy in this country,
and where do we want to get it from? And that is our
frustration, and I will take this debate anywhere in the
country, with these principles.
I want to ask, do we see an easing up of the demand for
natural gas in the future?
Mr. Caruso. Well, I think that very much depends on the
price, and as you pointed out--
Mr. Shimkus. You mean the market might have some role in
this?
Mr. Caruso. I think it would have a big role.
Mr. Shimkus. In fact, it does, doesn't it?
Mr. Caruso. Yeah.
Mr. Shimkus. What is happening to the natural gas
generation of electricity in this country, because of the high
natural gas prices?
Mr. Caruso. Well, we do anticipate there will be a
reduction in natural gas demand this year.
Mr. Shimkus. So, those environmentalists who like
electricity generation by natural gas, but will not allow us to
get to the outer continental shelf, are actually hurting their
debate, because of the high natural gas prices, we are going to
turn off the electricity generations. The market is going to
turn it, because the price is going to be too high.
Mr. Caruso. In many instances, it is not as economically
efficient to dispatch even new natural gas-fired combined cycle
plants, in particular, in the South and Southwest. So, that is
happening. Nuclear and coal are the base loads, and those will
be dispatched first, and at a lower cost.
Mr. Shimkus. In fact, we are seeing great interest in new
coal generating facilities, and of course, those of us from
coal regions, the natural gas prices are going to probably help
renew coal generation in this country, which is great for
America, and we are obviously very excited about that.
I mean, there are so many issues in this debate. I do want
to ask about two provisions. Have you done any analysis on the
future, part of the refinery bill was defining coal to liquid
technology as refineries, and then, if that is the case, in
your analysis and the future analysis, it would probably be
very helpful to say what are our coal reserves, and how would
new technologies, because of the high prices, how do we roll
that into, you know, in essence, fuel production for
automobiles? We do know there is foreign, you know the Fishcer-
Tropsch technology and now, because of the high prices, that is
going to be affordable and within reach. So, that should be
part of it. Also, the whole debate about the renewable fuels,
and the component of renewable fuels. I come from the Midwest,
and have been very, very fortunate, because of the refineries
that have been built have been renewable refineries. The new
ones, we have seven in Illinois, we have nineteen on the
drawing board, and I am paying, on average, $0.30 less a gallon
to fill up my Ford Explorer with 85 percent alcohol-based fuel,
and hopefully, the other states will be able to take advantage
of that.
So, is there a renewable fuels component in your
calculations?
Mr. Caruso. Yeah. We do look at all the fuels, including
renewables, and in particular, with the higher price
assumptions that we did even last year, with the high, we did
four price assumptions. In the highest one, you do get a
substantial amount of coal to liquids coming on-stream at about
$40, between $40 and $45 crude oil costs in real terms, over
the long term. And we will be looking at that even more
carefully this year, because we will be raising our, as you can
imagine, our price assumptions yet again in our long-term
outlook. So, it has an impact on coal to liquids, and it has
some impact on renewables, although most of the renewables in
our outlook last year were as the result of renewable portfolio
requirements on a state basis. There are about 14 states that
have renewable portfolio requirements.
Mr. Shimkus. And that is mostly in electricity generation.
You are not talking about the fuel--
Mr. Caruso. Almost all of it--
Mr. Shimkus. Right.
Mr. Caruso. --in electricity generation.
Mr. Shimkus. All right. Well, I thank you. Mr. Chairman, I
have gone over my time. I appreciate it. Thank you, and I yield
back.
Mr. Hall. I thank the gentleman. The chair recognizes the
gentlelady from California, Ms. Solis.
Ms. Solis. Thank you, Mr. Chairman.
Mr. Caruso, I wanted to draw your attention, we have been
talking a lot about refineries and capacity, and I wondered if
you were familiar with a case in Arizona, Yuma, and I want to
just start by saying I would like to ask unanimous consent to
submit for the record an article by the Yuma Sun, and also, an
article from the Arizona Clean Fuels, an article that is
printed on their website.
If I can request unanimous consent to have that submitted
for the record.
Mr. Hall. Without objection.
[The information follows:]
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Ms. Solis. And I would like to just go into this discussion
about the refinery. We have talked about the fact that there
hasn't been any refineries built in the last 30 years, and the
one that was permitted actually was in Arizona, Yuma, and this
was back January 16, 1992. The Arizona Department of
Environmental Quality actually issued a permit. They did not
move ahead at that time. They said that they didn't have enough
financing. They let that go dormant, and then, they come back
April 14, 2005. The Arizona Department of Environmental Quality
again, then, issues another permit. Now, we are finally hearing
that they are looking back at plans now to open it up, but my
understanding is that they are looking for financing from the
Mexican government, from President Fox, and that they have a
plan to transport, I would say, maybe half of the capacity of
that refinery, whatever they are able to provide, to Mexico.
Do you know anything about that?
Mr. Caruso. I am not familiar with that specific request
for financing. I can say that we export a fair amount of
gasoline to Mexico currently, so it fits in with the current
situation.
Ms. Solis. Would you know how much, offhand? What are we
talking about here?
Mr. Caruso. I have it. It is about 100,000 barrels a day.
Ms. Solis. And what is that? What does that--
Mr. Caruso. Well, we consume 9 million barrels a day, so it
is relatively small, compared with our total consumption, but
it is our largest recipient of our exports of gasoline. Mexico
is our largest. And most of that comes from the Gulf Coast
refineries, some of which have been, have, or continue to be
shut in. So, it is--the reason--I had a chance to look at that
more carefully lately is looking at the impact of the
hurricanes on those refineries, part of which is the exports of
gasoline to Mexico.
Ms. Solis. One of the concerns I have is that there has
been statements made that the fact that we haven't had refinery
capacity is because of environmental regulations, when in fact,
we are really looking at financing here, and the compression of
these refineries, and the fact that those that are in
operation, that do exist, are the ones that are actually
reaping these profits. And I just find it ironic that somehow,
now, we are trying to negotiate with Mexico to ask them for
support, and in that agreement, that we will also provide them
with, I believe, half of the capacity that would come out of
that refinery in Yuma would go to Mexico.
I think the public is not fully aware of these items that
are coming to us, and I would love to have more detail from
you, Mr. Caruso, about any other projects like that that you
may be aware of, or not aware of.
Mr. Caruso. Well, financing has been a major issue with
respect to refinery projects. I mean, most sources of finance
in the last 20 years have not seen that to be a worthwhile use
of capital, because of the low rate of return during the '80s
and '90s. That may be changing now, with the higher margins.
And the Yuma case is a specific example I have heard from the
financial community that the main obstacle, in addition to
permitting, was financing of the Yuma project.
Ms. Solis. That was the main obstacle?
Mr. Caruso. Yes.
Ms. Solis. Thank you very much. I yield back.
Mr. Hall. All right. I thank the lady, and Mr. Otter, we
will recognize you. Apparently, you will be the last witness.
Mr. Otter. Thank you, Mr. Chairman.
Mr. Hall. We are expecting a vote in the next five, ten, or
fifteen minutes.
Mr. Otter. About two years ago, the Speaker of the House
put together what he called the HEAT Team, which was the House
Energy Attack Team, and the questions that we were asked to
answer, there was ten of us, I think there was ten of us on the
committee, and the question that we were asked to answer was
how can we keep home heating bills lower? How can we get
affordable natural gas was the primary question.
So, we went about the business of trying to assess that by
having twelve meetings throughout the United States. At nearly
every meeting, one of the questions that continued to come up
through the testimony was why do we have such terrible
restrictions on drilling and exploring on Federal lands, and
not only drilling and exploring, but also accessing right of
ways through Federal lands for pipelines, for power grids, and
that sort of thing.
And I remember the testimony that we received in Colorado,
at the Colorado School of Mines, which was particularly
interesting to me, because that is where we got some good, hard
facts. In other words, in the Great Basin, that is between the
west bank of the Mississippi River and the toenails of the
Rockies, there is estimated to be 193 trillion cubic feet of
natural gas. Most of that, of course, lays under ground that is
hard to access, because it is either BLM or Forest Service, or
some kind of government ownership, and therefore, an
environmental restriction, or you are in for a lot of
environmental lawsuits.
The testimony that was particularly interesting to me was
whether it was in Colorado or Wyoming. It was estimated that it
takes 15 days to get a drilling permit to drill on private
ground, 15 days, and the cost of that permitting process is
about $1,000 a day, 15 days on private ground. If you are
wanting to drill on the state of Idaho public lands, it took
about 30 days, or Wyoming public lands, or Colorado public
lands. Over 500 days to drill on U.S. land. Now, some of it was
three or four or five or six years, because of the lawsuits
that ensued, development and exploration.
Would you agree with those figures, 15, 30, and over 500
days?
Mr. Caruso. I have heard similar numbers. I can't subscribe
to those specifically, but those are not out of the range of
which I have heard from private sector.
Mr. Otter. If it stands to reason that we have got a
reservoir, a known block of gas, of 193 trillion cubic feet,
would you agree with that, in the Great Basin?
Mr. Caruso. I think that sounds about right. I have the
actual specific numbers that the Department of Interior has
published, and the USGS.
Mr. Otter. What I would like to do, Mr. Caruso, is have you
and your staff put together the amount of known, identified gas
blocks, whether it is in the Gulf, or anyplace in the U.S.
intercontinental shelf, or if it is within the Great Basin, or
whatever.
Mr. Caruso. Sure.
Mr. Otter. And give us, and Mr. Chairman, for the record, I
would like to have that submitted for the record on this
hearing.
Mr. Hall. Without objection, it is submitted.
Mr. Otter. Give us the total amount of gas that is within
the dominion of Federal lands, or is off-limits as a result of
Federal regulation or rules. In many cases, we found out that
Congress hadn't done anything, and so, either the Environmental
Protection Agency, through the Endangered Species Act, the Army
Corps of Engineers, through the Wetlands Act, or some
government bureaucratic office, through some rules that they
had promulgated themselves, and Congress had never questioned
and tested and vetted, that actually put these areas--but my
point in bringing all this up is there wasn't one industry
interest group that came before the HEAT committee in all our
hearings that said that they wouldn't rather spend $15,000 on a
drilling permit or $30,000 on a drilling permit, as opposed to
a half a million.
And so, I think, you know, perhaps I ought to make a
motion, too, Mr. Chairman, to put in the record, in this
record, Economics 101, the entire textbook on Economics 101, so
that we can get away from this silly debate as to whether or
not--but I will not make that motion.
Mr. Hall. It would probably die for--
Mr. Otter. But I think it is--
Mr. Hall. It would probably die for a lack of a second.
Mr. Otter. Probably. I couldn't get a second out of the
chair?
Mr. Hall. Well, you might.
Mr. Otter. Thank you, Mr. Chairman. Thank you very much,
Mr. Caruso, for being here.
Mr. Hall. And I thank you and Mr. Caruso, we thank you. You
are one of the few witnesses that has had total respect from
both sides. No one has doubted your conclusions, or argued with
you. You are unusual and very resourceful, and we thank you.
Mr. Caruso. Thank you, Mr. Chairman.
Mr. Hall. And thank you for your time. We are adjourned.
[Whereupon, at 12:05 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows.]
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