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+ - ENERGY OUTLOOKS, AND THE ROLE OF FEDERAL ONSHORE AND OFFSHORE RESOURCES IN MEETING FUTURE ENERGY DEMAND
+
+[House Hearing, 111 Congress]
+[From the U.S. Government Publishing Office]
+
+
+For Sale by the Superintendent of Documents, U.S. Government Printing Office
+Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
+Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001
+
+47-755 PDF
+
+ ______
+
+2009
+
+
+
+ ENERGY OUTLOOKS, AND THE ROLE OF FEDERAL ONSHORE AND OFFSHORE
+ RESOURCES IN MEETING FUTURE ENERGY DEMAND
+
+=======================================================================
+
+ OVERSIGHT HEARING
+
+ before the
+
+ SUBCOMMITTEE ON ENERGY AND
+ MINERAL RESOURCES
+
+ of the
+
+ COMMITTEE ON NATURAL RESOURCES
+ U.S. HOUSE OF REPRESENTATIVES
+
+ ONE HUNDRED ELEVENTH CONGRESS
+
+ FIRST SESSION
+
+ __________
+
+ Thursday, March 5, 2009
+
+ __________
+
+ Serial No. 111-8
+
+ __________
+
+ Printed for the use of the Committee on Natural Resources
+
+
+
+ Available via the World Wide Web: http://www.gpoaccess.gov/congress/
+ index.html
+ or
+ Committee address: http://resourcescommittee.house.gov
+ COMMITTEE ON NATURAL RESOURCES
+
+ NICK J. RAHALL, II, West Virginia, Chairman
+ DOC HASTINGS, Washington, Ranking Republican Member
+
+Dale E. Kildee, Michigan Don Young, Alaska
+Eni F.H. Faleomavaega, American Elton Gallegly, California
+ Samoa John J. Duncan, Jr., Tennessee
+Neil Abercrombie, Hawaii Jeff Flake, Arizona
+Frank Pallone, Jr., New Jersey Henry E. Brown, Jr., South
+Grace F. Napolitano, California Carolina
+Rush D. Holt, New Jersey Cathy McMorris Rodgers, Washington
+Raul M. Grijalva, Arizona Louie Gohmert, Texas
+Madeleine Z. Bordallo, Guam Rob Bishop, Utah
+Jim Costa, California Bill Shuster, Pennsylvania
+Dan Boren, Oklahoma Doug Lamborn, Colorado
+Gregorio Sablan, Northern Marianas Adrian Smith, Nebraska
+Martin T. Heinrich, New Mexico Robert J. Wittman, Virginia
+George Miller, California Paul C. Broun, Georgia
+Edward J. Markey, Massachusetts John Fleming, Louisiana
+Peter A. DeFazio, Oregon Mike Coffman, Colorado
+Maurice D. Hinchey, New York Jason Chaffetz, Utah
+Donna M. Christensen, Virgin Cynthia M. Lummis, Wyoming
+ Islands Tom McClintock, California
+Diana DeGette, Colorado Bill Cassidy, Louisiana
+Ron Kind, Wisconsin
+Lois Capps, California
+Jay Inslee, Washington
+Joe Baca, California
+Stephanie Herseth Sandlin, South
+ Dakota
+John P. Sarbanes, Maryland
+Carol Shea-Porter, New Hampshire
+Niki Tsongas, Massachusetts
+Frank Kratovil, Jr., Maryland
+Pedro R. Pierluisi, Puerto Rico
+
+ James H. Zoia, Chief of Staff
+ Rick Healy, Chief Counsel
+ Todd Young, Republican Chief of Staff
+ Lisa Pittman, Republican Chief Counsel
+ ------
+
+
+ SUBCOMMITTEE ON ENERGY AND MINERAL RESOURCES
+
+ JIM COSTA, California, Chairman
+ DOUG LAMBORN, Colorado, Ranking Republican Member
+
+Eni F.H. Faleomavaega, American Don Young, Alaska
+ Samoa Louie Gohmert, Texas
+Rush D. Holt, New Jersey John Fleming, Louisiana
+Dan Boren, Oklahoma Jason Chaffetz, Utah
+Gregorio Sablan, Northern Marianas Cynthia M. Lummis, Wyoming
+Martin T. Heinrich, New Mexico Doc Hastings, Washington, ex
+Edward J. Markey, Massachusetts officio
+Maurice D. Hinchey, New York
+John P. Sarbanes, Maryland
+Niki Tsongas, Massachusetts
+Nick J. Rahall, II, West Virginia,
+ ex officio
+ ------
+ CONTENTS
+
+ ----------
+ Page
+
+Hearing held on Thursday, March 5, 2009.......................... 1
+
+Statement of Members:
+ Costa, Hon. Jim, a Representative in Congress from the State
+ of California.............................................. 1
+ Hastings, Hon. Doc, a Representative in Congress from the
+ State of Washington........................................ 6
+ Prepared statement of.................................... 7
+ Lamborn, Hon. Doug, a Representative in Congress from the
+ State of Colorado.......................................... 3
+ Prepared statement of.................................... 5
+
+Statement of Witnesses:
+ Birol, Dr. Fatih, Chief Economist, International Energy
+ Agency..................................................... 8
+ Prepared statement of.................................... 11
+ Response to questions submitted for the record........... 13
+ Gruenspecht, Dr. Howard K., Acting Administrator, Energy
+ Information Administration................................. 18
+ Prepared statement of.................................... 21
+ Response to questions submitted for the record........... 25
+ Pierce, Brenda S., Program Coordinator, Energy Resources
+ Program, U.S. Geological Survey, U.S. Department of the
+ Interior................................................... 36
+ Prepared statement of.................................... 39
+ Map of Undiscovered Technically Recoverable Oil and Gas
+ Resources on Federal Lands............................. 44
+ Map of Total Mean Undiscovered Gas Resources............. 44
+ Map of Total Mean Undiscovered Oil Resources............. 45
+
+Additional materials supplied:
+ Briggs, Don G., President, Louisiana Oil and Gas Association,
+ Letter submitted for the record by The Honorable John
+ Fleming.................................................... 65
+
+
+
+
+OVERSIGHT HEARING ON ``ENERGY OUTLOOKS, AND THE ROLE OF FEDERAL ONSHORE
+ AND OFFSHORE RESOURCES IN MEETING FUTURE ENERGY DEMAND.''
+
+ ----------
+
+
+ Thursday, March 5, 2009
+
+ U.S. House of Representatives
+
+ Subcommittee on Energy and Mineral Resources
+
+ Committee on Natural Resources
+
+ Washington, D.C.
+
+ ----------
+
+ The Subcommittee met, pursuant to call, at 2:00 p.m., in
+Room 1324, Longworth House Office Building, Hon. Jim Costa
+[Chairman of the Subcommittee] presiding.
+ Present: Representatives Costa, Holt, Sablan, Heinrich,
+Sarbanes, Lamborn, Gohmert, Fleming, Chaffetz, Lummis, and
+Hastings.
+
+ STATEMENT OF THE HON. JIM COSTA, A REPRESENTATIVE IN CONGRESS
+ FROM THE STATE OF CALIFORNIA
+
+ Mr. Costa. The Subcommittee on Energy and Mineral Resources
+will now come to order.
+ For this afternoon's hearing, we are meeting today with
+regard to energy outlooks and the role that Federal onshore and
+offshore resources play in meeting future energy demands.
+ Under Committee Rule 4(g), the Chair and the Ranking Member
+may make an opening statement. And then, if any other Members
+have statements, they can be included in the hearing record
+under unanimous consent.
+ I will allow the Ranking Member of the Full Committee, Doc
+Hastings, who is also with us today, to provide some thoughts.
+And we appreciate your participation.
+ Additionally, under Committee Rule 4(h), any material
+submitted for inclusion in the hearing record must be submitted
+no later than 10 days following this hearing.
+ Members of the Subcommittee, our witnesses, and those of
+you in the audience, this is the first energy hearing for the
+Energy and Mineral Resources Subcommittee in this Congress
+dealing with the big picture. I always try to refer to that, in
+previous hearings that were held by the Full Committee and in
+the last Congress, because I think, to really talk about
+developing a new energy policy in this country, we have to look
+at, as I have said before, the big picture and utilizing all
+the energy tools in our energy toolbox.
+ We have three distinguished witnesses today, the leading
+international and United States sources of energy statistics
+and forecasts, who are well-respected throughout the country
+and throughout the world, I might add.
+ Dr. Fatih Birol is the Chief Economist of the International
+Energy Agency. They are responsible for writing the
+organization's annual ``World Energy Outlook,'' which looks at
+energy trends throughout the world to the year 2030. I don't
+know if we can accurately predict that, but obviously we have
+to try. The outlook also focuses on some topics that are of
+particular interest to the Subcommittee that we will discuss
+this afternoon as it relates to oil and gas production.
+ Dr. Howard Gruenspecht--did I pronounce that properly? Dr.
+Gruenspecht is the Acting Administrator of the U.S. Energy
+Information Administration, which puts out a continuous wealth
+of energy analysis and forecasts, for both short-term and long-
+term forecasts, that include the ``Annual Energy Outlook,''
+which focuses on trends in America, again, to the year 2030.
+ Last, but certainly not least, is Ms. Brenda Pierce. She
+heads the Energy Resources Division of the United States
+Geological Survey, which is the world's leading source on oil
+and gas resources.
+ And we are glad that you are here.
+ Members of the Subcommittee and those of you in the
+audience, I hope the discussion today is on how we can figure
+out ways in which we can come together to achieve clean and
+sustainable domestic energy that will address our Nation's
+short-term and long-term needs. I think that is everyone's
+goal.
+ As I said in a hearing we had last month, while we can
+agree on the goal, we have a number of different views on how
+we reach those goals. Obviously, we want to reduce the
+dependency on foreign sources of energy that we import, reduce
+it significantly, so that we are not held hostage and so that
+America's economy can remain stable. We also want to reduce our
+dependency, as we move into the 21st century, on fossil fuels.
+We want to be able to have a greater reliance on renewable
+sources of energy.
+ But that is what we have to focus on, in terms of how we
+use all the energy tools in our energy toolbox, knowing that
+both our petroleum and our fossil fuels will continue to play a
+very important role as we deal with our long-term energy needs
+in the 21st century and as we transition.
+ So I am hopeful that today's hearing will set the
+discussion in what we need to do in terms of the short term in
+using all these energy tools in our energy toolbox; in the near
+term, by that I mean the next 5 to 10 years; and then the long
+term, and by that I mean 20 years and beyond.
+ I am a strong believer that we can be successful in
+achieving these goals. We know that oil and gas and coal are
+absolutely essential today, and they will be for a long time.
+But that should not allow us to rest at ease or to take any
+comfort in the fact that, if we don't lead the world in clean,
+renewable energy or energy efficiency, because conservation is
+an ethic that I think we all embrace--and so, therefore, we
+need to also look at other sources that have been successful.
+For me, that includes nuclear energy, coal to liquids, advanced
+biofuels and, in short, all the tools, again, in our toolbox.
+ The jurisdiction, of course, of this Subcommittee on how
+energy can be produced on public lands, both traditional and
+alternative forms of energy, we must keep in mind what the
+jurisdiction of this Subcommittee is.
+ But, also, I think it is timely, as this hearing will
+certainly play out. And every day, every Member of Congress is
+mindful of the fact that our economic recovery is dependent
+upon putting together a comprehensive energy plan. I think
+everyone feels that is incumbent and, therefore, we have to
+focus on that today. We need, when we discuss energy
+legislation in the coming year, to think about how this best
+invests in future jobs in America, builds on new markets,
+promotes new technologies, as it relates to our energy long-
+term needs.
+ Another pressing need in this country is obviously a lower-
+carbon economy. This week, the United Nations' top climate
+officials are in Washington. In China, Secretary of State
+Clinton has engaged China, the world's biggest emitter, along
+with ourselves, in regard to energy and the impacts that the
+carbon emissions have with regard to the energy that we
+consume.
+ The President has signaled that he is placing the United
+States at the forefront of the international effort to deal
+with these climate issues. And his chief climate negotiator
+said last week, according to a report in the New York Times on
+Sunday, that the United States would be involved in the
+negotiations of a new international climate change treaty,
+hopefully to be signed in Copenhagen in December of this year.
+We hope that that is successful.
+ The hearing today focuses on those areas that we know
+relate to our choices, the choices we have to make as it
+relates to the impacts on our climate. So I look forward to
+hearing from our witnesses not only about their long-term
+visions of the big picture of energy production, on public
+lands, but both how we ensure that onshore and on the Outer
+Continental Shelf we can do everything possible to provide a
+balanced energy future that I think we all strive for.
+ With that, I would like to now recognize my colleague and
+Ranking Member of the Subcommittee, Congressman Doug Lamborn of
+Colorado.
+
+ STATEMENT OF THE HON. DOUG LAMBORN, A REPRESENTATIVE IN
+ CONGRESS FROM THE STATE OF COLORADO
+
+ Mr. Lamborn. Thank you, Mr. Chairman. And I want to thank
+you also for calling today's hearing.
+ This hearing will continue our focus on the Nation's Outer
+Continental Shelf, as well as onshore oil and gas resources.
+Our witnesses today will share with us the energy outlook for
+the United States and the world through 2030, based on the best
+information they have.
+ Their testimony, while tremendously helpful, is still only
+a projection and not the reality that we may face. No one could
+have predicted $150-a-barrel oil last year or 30-some-dollar-a-
+barrel of oil today. Such tremendous swings in prices have
+dramatic impact upon our economy, as the current recession has
+shown. Professor James Hamilton from UCSD has written that,
+quote, ``Nine out of 10 of the last U.S. recessions since World
+War II were preceded by a spike up in oil prices.''
+ As we work to get our economy moving again, we must be
+prepared to face rising energy prices. The President's budget
+recently proposed massive tax increases on the oil and gas
+industry of America starting in 2011, and upon electricity from
+cap-and-trade in 2012. These massive tax increases coincide
+with the projections by EIA of a return to $100-a-barrel oil.
+ If energy price spikes are what got us into this recession
+and nine out of 10 recessions since World War II, what will
+happen if we face another price spike, as well, when we begin
+to pull ourselves out of this recession? Couldn't that have a
+similar negative impact?
+ This hearing will focus, again, on what resources may be
+available in the OCS. While I believe we can all agree that the
+OCS moratoria areas are a fairly unknown commodity, the truth
+is that we have companies willing to gamble billions of their
+own dollars to explore these unknown areas at no risk and no
+cost to the taxpayer.
+ It was stated at a previous hearing that, if the estimates
+in the Atlantic--currently 3.8 billion barrels of oil and 37
+trillion cubic feet of natural gas--which were last surveyed in
+the 1970s, were to expand in the same fashion that Gulf of
+Mexico resources have expanded since the 1970s, we will have
+more than 18 billion barrels of oil and 89 trillion cubic feet
+of gas in the Atlantic alone.
+ More importantly is the fact that the resources off the
+coast of California are probably some of the most accessible in
+the world. In many places on the California coast, we have
+leases which could be slant-drilled from shore from existing
+coastal infrastructure. In addition, the resources off the
+coast of California are fairly well-known, and we could develop
+much of that area within just a few years, creating American
+jobs and reducing our dependence on foreign energy, not to
+mention having more accessible energy for America's working
+families.
+ Our dependence on foreign energy, sadly, is not something
+that we will reduce any time soon. Based on current law, the
+projections in the EIA outlook show that we will still be
+importing a tremendous amount of oil in 2030. Reducing our
+dependence on these imports should be a major focus of this
+committee.
+ An increase of 1 million barrels per day of domestic
+production would reduce our imports by a million barrels a day.
+In today's economy, that means adding nearly $13 billion per
+year to the American economy that we currently ship overseas to
+foreign governments. So, as we talk about potential oil and gas
+resources in the U.S. as a few million barrels here and a few
+million barrels there, let's remember that those barrels add up
+to billions of dollars for the U.S. economy, for U.S. jobs, and
+for the U.S. Treasury.
+ EIA's analysis also shows that, while we close our import
+dependence on natural gas, we will remain dependent on foreign
+gas to meet our demands. Developing the Atlantic OCS region
+will help to further shrink that gap, as it is primarily
+believed to be a gas-rich area rather than an oil-rich area.
+ Finally, I am concerned that the EIA outlook presented here
+today projects that we will become dependent on imported
+biofuels, such as from Brazil, to meet the renewable fuel
+mandate passed last year. One of the goals of biofuels
+development was to reduce our dependence on foreign energy. If
+that mandate will suddenly make us more dependent on foreign
+energy by simply changing our dependence from oil to more
+costly biofuels, then we will need to re-examine this issue
+much more closely.
+ Finally, Mr. Chairman, we must remember throughout our
+focus on the OCS development that this just isn't about
+drilling or pumping oil and gas. Opening the OCS is about
+retooling our energy economy to focus on creating American
+manufacturing jobs, and good-paying jobs at that, and building
+the infrastructure to harness our domestic energy.
+ We all agree that America is too dependent on foreign
+governments for our energy supply. We can and should determine
+the most responsible way to develop our OCS resources. However,
+in the end, finding solutions to developing these resources
+should be our ultimate goal. America is a nation rich in
+resources. Developing these resources will free us from our
+dependence on foreign oil.
+ I look forward to hearing from our witnesses. And I yield
+back, Mr. Chairman.
+ [The prepared statement of Mr. Lamborn follows:]
+
+ Statement of The Honorable Doug Lamborn, Ranking Mmber,
+ Subcommittee on Energy and Mineral Resources
+
+ Mr. Chairman, I want to thank you for calling today's hearing. This
+hearing will continue our focus on the nation's Outer Continental Shelf
+(OCS) as well as onshore oil and gas resources. Our witnesses today
+will share with us the energy outlook for the United States and the
+world through 2030, based on the best information they have. Their
+testimony, while helpful, is still only a projection and may or may not
+be the reality that we will face. No one could have predicted $150 oil
+last year, or $30 oil today. Such tremendous swings in prices have
+dramatic impact upon our economy as the current recession has shown.
+Economy
+ Professor James Hamilton from the University of California San
+Diego (UCSD) has written that ``nine out of ten of the U.S. recessions
+since World War II were preceded by a spike up in oil prices.'' The
+President's budget recently proposed massive tax increases on various
+sources of energy in America starting in 2011. These massive tax hikes
+coincide with projections by the Energy Information Administration
+(EIA) of a return to $100 oil. If energy price spikes are what got us
+into this recession, and 9 out of 10 recessions since World War II,
+what will happen if we face major tax hikes as we begin to pull
+ourselves out of this recession? Couldn't that have a similar negative
+impact?
+Resources
+ This hearing will focus again on what resources may be available in
+the OCS. The bottom line is that we have companies willing to commit
+billions of their own dollars to explore these unknown areas, at no
+cost to the taxpayer.
+ It was stated at a previous hearing that surveys from the 1970's
+revealed 3.8 billion barrels of oil and 37 trillion cubic feet of
+natural gas in the Atlantic Ocean. If Atlantic supply estimates were to
+expand in the same fashion that Gulf of Mexico resource estimates have
+expanded since the 1970's, America would have more than 18 billion
+barrels of oil and 89 trillion cubic feet of natural gas in the
+Atlantic alone.
+ Resources off the coast of California are probably some of the most
+accessible in the world. In many places on the California coast we have
+areas which could be slant drilled from shore using existing coastal
+infrastructure. In addition, the resources off the coast of California
+are fairly well known. They could be developed within just a few years,
+creating American jobs and reducing our dependence on foreign energy.
+Projections
+ Based on current law, the projections in the EIA outlook show that
+we will still be importing a tremendous amount of oil in 2030. Reducing
+our dependence on these imports should be a major focus of this
+committee. An increase of one million barrels per day of domestic
+production would reduce our imports by a million barrels a day. In
+today's economy, that means adding nearly $13 billion per year to the
+American economy that we currently ship overseas to foreign
+governments. So as we talk about potential oil and gas resources in the
+U.S. as a few million barrels here and a few million barrels there, let
+us remember that those barrels add up to billions of dollars for the
+American economy and the U.S. Treasury.
+ EIA's analysis also shows that while we reduce our import
+dependence on natural gas from an estimated 54% of total U.S. domestic
+demand down to 41% of total U.S. domestic demand, we will remain
+dependent on foreign gas to meet our needs. Developing the Atlantic OCS
+region will help to further promote U.S. energy self sufficiency, as
+the Atlantic OCS region is primarily believed to be rich in gas rather
+than oil.
+ Finally, I am concerned that the EIA outlook presented today
+projects that we will become dependent on imported biofuels to meet the
+renewable fuel mandate passed last year. One of the stated goals of
+biofuels development was to reduce our dependence on foreign energy. If
+that mandate will suddenly make us more dependent on foreign energy by
+simply changing our dependence from oil to more costly biofuels, then
+we may need to reexamine the issue of biofuels much more closely.
+Closing
+ Finally, Mr. Chairman, we must remember throughout our focus on OCS
+development that this isn't just about drilling or pumping oil and gas.
+Opening the OCS is also about retooling our energy economy to focus on
+creating good-paying American manufacturing jobs and building the
+infrastructure to harness our domestic energy.
+ We all agree that America is too dependent on foreign governments
+for our energy supply. We can and should determine the most responsible
+way to develop our OCS resources. Finding solutions to developing those
+resources should be our ultimate goal.
+ America is a nation rich in energy resources. There's absolutely no
+question that developing those resources will help free us from our
+dependence on foreign oil.
+ I look forward to hearing from our witnesses.
+ ______
+
+ Mr. Costa. I thank the gentleman from Colorado.
+ It is the intention of the Chair to recognize the Ranking
+Member of the Full Committee, the gentleman from Washington
+State. But before I do, I want to suggest to Members that,
+following his statement, we will then defer to our witnesses.
+We are going to make an exception and allow each of the
+witnesses 10 minutes in their presentation because of the
+detail and depth of their subject matter and their
+presentation. And I think we obviously want to get to our
+witnesses.
+ I might also add, with votes sometime after 4 o'clock, the
+Chair will certainly try to ensure that everyone has 5 minutes
+for comments or questions. And whether or not we are able to
+achieve a second round will be dependent upon our time.
+ The gentleman from Washington State, the Ranking Member of
+the Full Committee, Doc Hastings.
+
+ STATEMENT OF THE HON. DOC HASTINGS, A REPRESENTATIVE IN
+ CONGRESS FROM THE STATE OF WASHINGTON
+
+ Mr. Hastings. Thank you, Mr. Chairman. And I appreciate the
+courtesy you have given me to make a statement. And let me just
+add parenthetically, sometimes 5 minutes is too short. I think
+this is probably a good idea, to allow the witnesses to go on
+longer, because there is a lot of information to digest.
+ Mr. Chairman, I just want to say there are certainly two
+front-page issues that have a significant impact on our
+Nation's energy outlook. One is the production of more
+American-made energy, both offshore and on Federal lands. There
+is no question that the creation of more energy in our Nation
+will help create new jobs and make us more secure by lowering
+our dependence on foreign oil.
+ The development of our OCS resources is critically
+important to both our energy future and our economic future.
+While we are discussing possible future development, later this
+month the Department of the Interior will conduct a lease sale
+in what is believed to be one of America's best untapped areas,
+the 181 South Area of the Gulf of Mexico.
+ Today, I and a number of my colleagues are sending a letter
+to Secretary Salazar stressing the importance of moving forward
+with this critical lease sale. And I say that for this reason:
+because of the Secretary's recent actions by revoking leases in
+Utah, reinstituting the moratoria on the OCS by delaying the 5-
+year plan, and stopping oil shale research in its tracks in the
+mountain West, to me that shows a clear trend against oil and
+gas development and job creation.
+ So my colleagues and I are concerned that, should the
+Department act to delay the Central Gulf Oil and Gas Lease Sale
+208, it will further establish a dangerous trend of blocking
+new American-made energy and the creation of new American jobs.
+Additionally, a delay of this sale would throw obstacles in the
+way of providing Americans oil and gas that the Energy
+Information Administration says that the Nation will need well
+past 2030 and also discourage energy companies from pursuing
+new opportunities in our country.
+ And the other front-page issue affecting our Nation's
+energy outlook is the cap-and-trade tax plan--the Chairman
+alluded to that briefly in his opening remarks, regarding the
+carbon releasing--but that cap-and-trade plan that was proposed
+by President Obama in his budget last Thursday.
+ As a conservative estimate in that budget, this is a $646
+billion cost that is being imposed on our economy. And anyone
+who uses energy--families, schools, factories, farms and so
+forth--will be affected.
+ When you boil it right down, what a cap-and-trade tax means
+is that the Federal Government is going to purposely increase
+energy prices. In these difficult times, we need to keep a
+focus on growing our economy, not imposing additional taxes
+that will drive up the cost of energy for all Americans and
+potentially further push our economy in the wrong direction.
+ I know that EIA has extensively examined the impacts of
+cap-and-trade programs that they will have on our economy, and
+I look forward to listening and learning from these witnesses
+and the other witnesses.
+ So, Mr. Chairman, once again, thank you very much for your
+consideration. And I yield back my time.
+ [The prepared statement of Mr. Hastings follows:]
+
+ Statement of The Honorable Doc Hastings, Ranking Member,
+ Committee on Natural Resources
+
+ I want to thank the Chairman for holding this hearing so we can
+examine the energy outlook for our nation. There are certainly two
+front-page issues that have a significant impact on our nation's energy
+outlook. One is the production of more American-made energy both
+offshore and on federal lands. There's no question that the creation of
+more energy in our nation will help create new jobs and make us more
+secure by lowering our dependence on foreign oil.
+ The development of our OCS resources is critically important to
+both our energy future and our economic future. While we are discussing
+possible future development, later this month the Department of
+Interior will conduct a lease sale in what is believed to be one of
+America's best untapped areas, the 181 South Area of the Gulf of
+Mexico.
+ Today, I lead a number of my colleagues in sending a letter to
+Secretary Salazar stressing the importance of moving forward with this
+critical lease sale. The Secretary's recent actions: revoking leases in
+Utah, reinstituting the moratoria on the OCS by delaying the 5-year
+plan, and stopping oil shale research in its tracks, show a clear trend
+against oil and gas development and job creation. My colleagues and I
+are concerned that should the Department act to delay the Central Gulf
+Oil and Gas Lease Sale 208, it will further establish a dangerous trend
+of blocking new American-made energy and the creation of new American
+jobs. Additionally, a delay of this sale would throw obstacles in the
+way of providing American oil and gas that the Energy Information
+Administration says the Nation will need well past 2030 and also
+discourage energy companies from pursuing new opportunities in our
+country.
+ And the other front-page issue affecting our nation's energy
+outlook is the cap-and-trade tax plan proposed by President Obama in
+his budget from last Thursday. At the conservative estimate included in
+the budget, this is a 646 billion dollar cost being imposed on our
+economy and on anyone who uses energy, from families to schools to
+hospitals to factories to farmers.
+ When you boil it right down, what a cap-and-trade tax means is that
+the federal government is going to purposefully increase energy prices.
+ In these difficult economic times, we need to keep a focus on
+growing our economy, not imposing tax schemes that will drive up the
+cost of energy for all Americans and push our economy further in the
+wrong direction.
+ I know that EIA has extensively examined the impacts that cap-and-
+trade programs will have on our economy and I look forward to listening
+and learning from the Administrator and the other witnesses.
+ Thank you.
+ ______
+
+ Mr. Costa. I thank the gentleman from Washington State very
+much for your comments.
+ Now we will begin with recognizing our witnesses, who we
+appreciate very much, first Dr. Fatih Birol.
+ Did I pronounce that properly? Thank you.
+ He is the Chief Economist for the International Energy
+Agency.
+ And we look forward to your testimony. You probably know
+the system here. A green light will be on, and that will remain
+green for 9 minutes and then, at the 9th minute, it will turn
+yellow. When it turns red, you are in real trouble if you are
+still speaking. No, you have an easy Chair here; I will cut you
+a little slack--if I find it interesting.
+ Please begin.
+
+ STATEMENT OF FATIH BIROL, CHIEF ECONOMIST,
+ INTERNATIONAL ENERGY AGENCY
+
+ Mr. Birol. Chairman Costa, members of the Committee, thank
+you for the opportunity to appear before you today to discuss
+the views of the International Energy Agency, IEA, on the
+outlook for global energy markets over the medium and longer
+term.
+ By way of background, the IEA is an intergovernmental
+organization based in Paris which acts as an advisor to 28
+member countries, including the United States, in their effort
+to ensure reliable, affordable, and clean energy for their
+citizens.
+ We were founded during the oil crisis of 1973-1974, and our
+initial role was to coordinate measures in times of oil supply
+emergencies. However, as energy markets have changed, so has
+the IEA. Our mandate now incorporates work on climate change
+policies, market reform, energy technological collaboration,
+and outreach to the rest of the world, especially major
+consumers and producers of energy, including China, India,
+Russia, and key OPEC countries.
+ As you said, Mr. Chairman, last November the IEA released
+the 2008 edition of its ``World Energy Outlook,'' the WEO 2008.
+Our report concludes that it is not an exaggeration to claim
+that the future of human prosperity depends on how successfully
+we tackle the twin energy challenges facing us today--twin
+energy challenges.
+ The first one of these challenges is securing the supply of
+reliable and affordable energy, the first challenge; and
+second, effecting a rapid transformation to a low-carbon,
+efficient, and environmentally benign system of energy supply.
+ The current trends point to rising imports of oil and gas
+into all OECD regions and developing Asia while the growing
+concentration of production in an ever-smaller number of
+countries threatens to increase our vulnerability to supply
+disruptions and sharp price hikes.
+ On the climate change front, in the absence of stronger
+policy action, rising consumption of fossil fuels will drive up
+emissions and atmospheric concentration of greenhouse gases,
+putting the world on the perfect track for an eventual global
+temperature increase of up to 6 degrees Celsius, which will
+have, as we all know, dramatic effects on our planet and on
+human beings.
+ Let me turn to oil. Our report provides a more detailed
+assessment of oil supply prospects than has ever been before
+released by the IEA. In our reference scenario, the base
+scenario, in which we assume the government policies do not
+change, oil demand continues to grow, mainly coming from China,
+India, and Middle East countries.
+ And the fundamentals are there. Today in China, 18 persons
+out of 1,000 persons own a car. And in the United States, 850
+persons out of 1,000 persons own a car. In Europe, 680 persons
+out of 1,000 persons own a car. So, with the increasing income
+levels in China, India, and other countries, oil demands will
+grow, and this will put pressure on the demand side.
+ On the supply side, the bulk of the increase we expect to
+come from in the future from key OPEC countries. The share of
+OPEC, which is about 40 percent today, will increase over 50
+percent in 2030. And the bad news for the non-OPEC countries is
+that oil production has peaked in most of the non-OPEC
+countries and it will peak in most others before long.
+ Coming back to the United States, in the absence of new
+policies, we see that the U.S. oil imports will be around 12
+million barrels per day in 2030, very similar to what we have
+today.
+ These are not the only changes that we see in the future.
+Perhaps the most crucial change is that there will be a sea
+change in how the oil industry is being formed. If I may say
+so, the time of the Big Oil, international oil companies are
+passe, because the reserves, what they have today are
+declining, and they have major difficulties in access to new
+reserves, mainly in the hands of the national oil companies.
+And we expect the bulk of the growth of the production of oil
+and gas in the future, if it comes, it will come mainly from
+the national oil companies under different rules, what we have
+seen in the past when the international oil companies were
+dominating the game.
+ Based on our field-by-field analysis of the 800 top fields
+of the world--we analyzed 800 top fields of the world, which
+make more than three-fourths of the global reserves--we see
+that the existing fields are declining in the world
+significantly. And this decline will accelerate in the future,
+especially in the non-OPEC countries, including Mexico, a key
+supplier of crude oil to the United States.
+ Let me give you an example, ladies and gentlemen, of how
+important it is to understand the issue of declining oil
+fields. We do not know, as one of the members of the Committee
+said, how much oil demand will grow exactly in the next years
+to come. But even if we assume that global oil demand, which is
+about 85 million barrels per day today, will stay like this in
+the next 20 years, even then there will be no growth in the
+global oil demand. In order to compensate the decline in the
+existing fields, just to compensate the decline, we have to
+bring four new Saudi Arabias in the next 20 years just to
+compensate the decline. And I can tell you that this is a major
+challenge.
+ Here, I would like to highlight, in addition to this
+geological challenge, another challenge which is a key one,
+namely the challenge of investments, especially nowadays. The
+credit crisis and deepening economic downturn is leading to a
+scaling back of all types of investment in most countries along
+the oil supply chain. While demand is also falling with the
+economic slump, there is a danger that the investment in the
+coming months and years is reduced too much, leading to a
+shortage of capacity and another spike in prices several years
+later when the economy is on the road to recovery, due to the
+long lead times in completing large upstream and refining
+projects.
+ These trends I told you about, the declining security of
+supply and climate change, are definitely sobering and alarming
+trends. However, I can tell you that they are not set in stone.
+Indeed, there is much that can and is being done in many parts
+of the world to address these twin energy-related threats.
+ In the past, the IEA has noted that very significant room
+remains to increase fuel-efficiency standards for trucks and
+cars in the United States, which would immediately contribute
+to energy and environmental security. In that respect, we
+commend the new American Recovery and Reinvestment Act.
+ We believe consideration could also now be given to taking
+advantage of the recent slide in the world oil price to review
+the gasoline and diesel taxes and thereby lock in the
+efficiency gains that resulted from last year's price surge.
+ Similarly, I believe efforts to maximize the production of
+U.S. domestic oil and natural gas resource, including through
+an expansion of drilling on the Offshore Continental Shelf,
+could form a crucial part of a comprehensive strategy to
+enhance the Nation's energy security.
+ To finish, looking at the global picture, the only possible
+solution to a long-term sustainable future is to strive for an
+energy mix that uses all options simultaneously. We need to
+combine greater energy efficiency improvements with more
+renewables and more nuclear power. We must seek to minimize our
+dependence on fossil fuels while recognizing that they will
+need to continue to make a significant contribution for meeting
+our energy needs for several years to come. And I want to
+emphasize this, Mr. Chairman: It is not realistic to expect
+low-carbon technologies to replace fossil energies overnight.
+ Finally, it is also imperative that international
+collaboration on energy policy is enhanced. Perhaps the best
+demonstration of this is on the climate change front. Many
+countries, such as the United States or the European Union,
+make suggestions to reduce CO2 emissions 20 percent,
+15 percent. However, even if we assume that, as of tomorrow,
+U.S. emissions--forget the reduction in the emissions, but
+would go to zero, completely zero, and stay like that for the
+next 25 years, European emissions will go to zero and stay like
+that 25 years, Japan and the others, and if China and India
+would continue with their existing policies, we would be still
+perfectly in line with a 6-degrees increase in temperature. So
+there is a need for cooperation in getting China, India, and
+Russia on the books.
+ And even if the U.S. were to succeed in lowering its oil
+imports in the coming years, increasing import dependency in
+other major consuming regions, mainly in China and India, would
+still mean that any oil supply disruption anywhere in the world
+would result in severe knock-on effects for the U.S. market.
+ Mr. Chairman and members of the Subcommittee, this
+completes my statement. I would be happy to take any questions
+you may have. Thank you.
+ [The prepared statement of Mr. Birol follows:]
+
+ Statement of Dr. Fatih Birol, Chief Economist,
+ International Energy Agency
+
+ Chairman Costa, members of the committee, thank you for the
+opportunity to appear before you today to discuss the views of the
+International Energy Agency (IEA) on the outlook for global energy
+markets over the medium and longer-term. My name is Fatih Birol and I
+am the Chief Economist and the Director of the office responsible for
+the economic analysis of energy policy at the IEA.
+ By way of background, the IEA is an intergovernmental organisation
+which acts as an advisor to 28 member countries including the United
+States in their effort to ensure reliable, affordable and clean energy
+for their citizens. Founded during the oil crisis of 1973-74, the IEA's
+initial role was to co-ordinate measures in times of oil supply
+emergencies. As energy markets have changed, so has the IEA. Its
+mandate now incorporates work on climate change-policies, market
+reform, energy-technology collaboration and outreach to the rest of the
+world, especially major consumers and producers of energy including
+China, India, Russia and the OPEC countries.
+ Last November, the IEA released the 2008 edition of its World
+Energy Outlook (WEO-2008). The report concludes that it is not an
+exaggeration to claim that the future of human prosperity depends on
+how successfully we tackle the twin energy challenges facing us today:
+securing the supply of reliable and affordable energy; and effecting a
+rapid transformation to a low-carbon, efficient and environmentally
+benign system of energy supply. Current trends in energy supply and
+consumption point to rising imports of oil and gas into OECD regions
+and developing Asia while the growing concentration of production in an
+ever smaller number of countries threatens to increase our
+vulnerability to supply disruptions and sharp price hikes. And, in the
+absence of stronger policy action, rising consumption of fossil energy
+will drive up inexorably emissions and atmospheric concentrations of
+greenhouse gases, putting the world on track for an eventual global
+temperature increase of up to 6+C.
+ The report provides a more detailed assessment of oil-supply
+prospects than has ever before been released by the IEA. In a Reference
+Scenario, in which government policies are assumed to be unchanged, oil
+demand continues to grow strongly over the medium and longer-term. All
+of the projected increase is expected to come from non-OECD countries,
+led by China, India and the Middle East. The bulk of the increase in
+supply is expected to come from OPEC countries, their collective share
+rising from 41% today to 51% in 2030. Production has already peaked in
+most non-OPEC countries and will peak in most of the others before
+long. With respect to the United States, in the absence of a change in
+policy, we expect it to be importing around 12 mb/d of oil by 2030,
+only slightly down on current levels.
+ These trends point to a sea change in the structure of the upstream
+oil and gas industry. The international oil companies, which have
+traditionally dominated the sector, will be increasingly squeezed by
+the growing power of the national companies and by dwindling reserves
+and production in accessible mature basins outside OPEC countries. The
+challenges confronting the oil sector will be further exacerbated by
+the prospect of accelerating declines in production at individual
+oilfields. Based on the WEO-2008's detailed field-by-field analysis of
+the historical production trends of almost 800 of the world's
+oilfields--the most comprehensive study of its kind ever made public--
+we expect decline rates to accelerate significantly. Declines are
+fastest at oilfields in non-OPEC countries, including Mexico--a key
+supplier of crude oil to the United States.
+ Our analysis demonstrates that projections of oil supply are far
+more sensitive to assumptions about decline rates than to the rate of
+growth in oil demand. For instance, even if global oil demand was to
+remain flat until 2030, some 45 mb/d of additional gross capacity--the
+equivalent of over four times the current capacity of Saudi Arabia--
+would need to be brought on stream simply to offset declining
+production at existing fields.
+ The world's total endowment of oil is large enough to support the
+projected growth in output. The immediate risk to supply, however, is a
+lack of investment where it is needed. There remains a real possibility
+that under-investment will cause an oil-supply crunch in the medium
+term. More immediately, the credit crisis and deepening economic
+downturn is leading to a scaling back of all types of investment in
+most countries along the oil supply chain. While demand is also falling
+with the economic slump, there is a danger that investment in the
+coming months and years is reduced too much, leading to a shortage of
+capacity and another spike in prices several years later when the
+economy is on the road to recovery, due to the long lead times in
+completing large upstream and refining projects.
+ Although the trends that I have outlined are a cause for serious
+concern, they are not written in stone. Indeed there is much that can
+and is being done in many parts of the world to address the twin
+energy-related threats. In the past, the IEA has noted that very
+significant room remains to increase fuel-efficiency standards for
+trucks and cars in the United States, which would immediately
+contribute to energy and environmental security. In this respect, the
+new American Recovery and Reinvestment Act, with its strong focus on
+reducing fossil fuel dependence and greenhouse gas emissions by
+pursuing more aggressive demand-side and clean energy policies, is to
+be commended. Indeed we believe it makes good sense to exploit the
+opportunity of the financial and economic crisis to effect a shift in
+investment to low-carbon technologies. For example, the $95 billion
+that the IEA estimates the United States must invest each year in the
+power sector to move onto a pathway consistent with limiting the
+increase in the average global temperature to 2+C would also create
+jobs and enhance energy security.
+ Consideration could also now be given to taking advantage of the
+recent slide in the world oil price to review gasoline and diesel taxes
+and thereby ``lock-in'' the efficiency gains that resulted from last
+year's price surge. Similarly, I believe efforts to maximize the
+production of the United State's domestic oil and natural gas
+resource--including through an expansion of drilling on the Offshore
+Continental Shelf which is thought to contain significant amounts of
+recoverable resources--could form a crucial part of a comprehensive
+strategy to enhance the nation's energy security.
+ However, at the global level, the only possible solution to a long-
+term sustainable future is to strive for an energy mix that uses all
+options simultaneously. We need to combine greater energy efficiency
+improvements with more renewables and more nuclear. We must seek to
+minimise our dependence on fossil fuels while recognising that they
+will need to continue to make a significant contribution to meeting our
+energy needs for several decades to come: it is not realistic to expect
+low-carbon technologies to replace fossil energy overnight.
+ It is also imperative that international collaboration on energy
+policy is enhanced. Perhaps the best demonstration of this on the
+climate change front is that even if all OECD Member countries were to
+immediately reduce their CO2 emissions to zero, we would
+still not be on a sustainable path unless non-OECD countries such as
+China, India and Russia were also to curb their emissions. IEA
+countries must also work with non-Members to address energy security,
+because all countries trade oil in an interconnected global market.
+Even if the United States were to succeed in lowering it oil imports in
+the coming years, increasing import dependency in other major consuming
+regions--notably China and India--would still mean that any oil supply
+disruption anywhere in the world would result in severe knock-on
+effects for the U.S. market.
+ Mr. Chairman, and members of the Subcommittee, this completes my
+statement. I would be happy to take any questions you may have.
+ ______
+
+
+ Response to questions submitted for the record by Dr. Fatih Birol
+
+Questions from Chairman Jim Costa, from the State of California
+
+1. Dr. Birol, we hear a lot about the impact, or lack thereof, of
+additional drilling on oil prices. However, we hear less about the
+potential impact of drilling on natural gas prices. Does increased
+drilling in the former moratoria areas of the OCS have the potential to
+significantly impact natural gas prices, and if so, on what sort of
+timeframe?
+ The potential impact on natural gas prices would depend on the
+quantities of additional gas supply that these areas were able to
+produce and the supply-demand balance of the market at the time.
+Offshore exploration and development of both oil and gas resources
+typically takes several years before production can be marketed, so it
+is unlikely that there would be a substantial effect felt during the
+next few years.
+
+2. Dr. Birol, the New York Times reported on March 15 about the steep
+decline in U.S. drilling activity, caused by the equally steep
+reduction in oil and natural gas prices since last summer. During last
+summer's high prices, a common argument was that increasing drilling in
+the U.S. Outer Continental Shelf and on federal lands out west would
+result in lower prices for consumers. However, it appears that instead
+of the amount of drilling being a determining factor on the price of
+oil and natural gas, in fact the price of oil and natural gas is the
+determining factor on the amount of drilling activity. In simpler
+terms: drilling doesn't drive prices, but prices do drive drilling. Are
+these accurate statements?
+ Prices are driven by the supply-demand balance of the market. The
+effect of drilling is to maintain and increase the supply, but the
+investment needed for drilling is funded (over a period of time) from
+the sale of oil and gas, hence prices and drilling are linked via the
+market.
+
+3. Dr. Birol, we would like your thoughts on what our definition and
+goals should be for energy security, as this Committee works on energy
+policy this Congress. Sometimes we talk about energy security as
+meaning freedom from foreign oil. But there are broader ways to think
+about the term, and the World Energy Outlook puts it very well in the
+first sentence in the Executive Summary: ``Current global trends in
+energy supply and consumption are patently unsustainable--
+environmentally, economically, socially.'' So can I ask you to give us
+your thoughts on what a ``secure'' energy future means? Should it be
+independence from foreign oil, or should it be something more?
+ I believe the concept of energy security is much broader than just
+reducing dependence on foreign oil. There are essentially five steps
+that need to be taken. Firstly, we need to create an investment
+environment where the private sector is willing and able to do its job
+of providing secure, affordable, clean energy. Secondly, we need to
+continue efforts to diversify our fuel mix, including the geographic
+sources of those fuels. Thirdly, we need to peruse stronger
+conservation and efficiency policies. Fourthly, we need to improve
+energy market transparency. And finally, we must ensure that we have
+appropriate emergency preparedness measures in place.
+
+4. Dr. Birol, one of the issues this Committee has been trying to get
+a handle on is how much it costs oil and gas companies to do business
+here in the United States, and if that is significantly cheaper or more
+expensive elsewhere in the world. The GAO has put out a couple of
+reports saying that the amount of revenue the government brings in, as
+a percentage of the total revenue from the oil and gas, is one of the
+lowest percentages in the world. But on the other hand, some Members of
+Congress have said that it has to be that way because the costs of
+finding oil in the United States are so much higher than they are in
+other countries. Is it significantly more expensive to produce a barrel
+of oil in the United States, onshore and/or offshore, than it is in
+other countries?
+ Excluding fiscal burdens, the cost of production per barrel of oil
+depends on multiple factors including geology, location (onshore/
+offshore, water depth, type of terrain, climate, accessibility, etc.),
+infrastructure, distance to market and others. There is limited data
+that could be used to provide a truly representative comparison,
+however overall production cost indices in the U.S. are higher than the
+worldwide averages.
+
+5. Is there an estimate of the additional cost incurred by production
+companies as a result of complying with federal regulations?
+ I am not aware of an independent estimate, but no doubt some
+production companies have quantified the magnitude of various
+regulatory expenses.
+
+6. Dr. Birol, USGS has noted in recent assessments that about 60% of
+the world's known oil shale is in Utah, Wyoming, and Colorado. And the
+figure ``1 trillion barrels'' is often used to discuss the amount of
+the oil shale resource. In addition, the U.S. has significant resources
+of tar sands, another unconventional resource. lEA stresses the need to
+undertake a major decarbonization of the world's energy systems; to
+what extent does it makes sense, relative to other energy options, for
+the U.S. to be pursuing oil shale beyond Research and Development
+leases right now?
+ It does make sense to pursue the development of non-conventional
+oil resources--including the vast deposits of oil shale in the United
+States--as they have the potential to make a significant contribution
+to energy security in the decades ahead. However, it is important to
+recognise that the production of non-conventional resources leaves a
+large environmental footprint, including significant carbon dioxide
+emissions. Therefore we must also support the research and development
+of technologies such as carbon capture and storage which offer the
+opportunity to continue using fossil fuels while still decarbonising
+the world's energy system.
+
+7. Dr. Birol, in the 2009 Annual Energy Outlook, EIA points out that
+the oil fields in the areas formerly under moratoria are expected to be
+much smaller than the average undiscovered field size in the Gulf of
+Mexico. And the 2008 World Energy Outlook states that small fields
+decline at a much more rapid rate than large fields. So does this mean
+if we started drilling in frontier areas, companies would have to drill
+considerably more wells, over wider geographic areas, than they would
+in the Gulf of Mexico?
+ Yes. It is likely that more exploration wells would need to be
+drilled per barrel of oil found and more wells would need to be drilled
+for a given volume of oil produced. Or, put the other way round, well
+productivity--barrels produced per well--would be expected to be lower
+than in the Gulf of Mexico. As you point out, smaller fields tend to
+decline faster once peak is reached; they also peak sooner and have a
+higher peak relative to reserves than larger fields.
+
+8. Dr. Birol, the World Energy Outlook says that the role of
+speculation on oil prices ``remains unclear'', but that was written
+last fall, before oil prices completed their spectacular fall to where
+they are today. Is there a better idea now on what role speculation
+played in these wild price swings?
+ It will never be possible to prove one way of another the precise
+impact of speculation on the historical movements in the price of any
+commodity. That said, we remain of the view that speculation may well
+have amplified the effect of market fundamentals in driving prices up
+but was not the principal cause of the price rise. Data that has become
+available in recent months provides strong support for the argument
+that we advanced last year in the World Energy Outlook and in the
+monthly Oil Market report that tight distillate markets--caused by a
+lack of refining capacity and exceptionally strong demand--were a major
+factor behind the surge in prices.
+
+9. Dr. Birol, from an efficiency standpoint, how much sense does a
+hydrogen economy make? Particularly if you use electricity to create
+the hydrogen, it appears that the various steps of hydrogen formation,
+transportation, and recombination creates a number of opportunities for
+power loss in each of the steps, while direct electricity use just
+incurs transmission losses. So, energetically, does it make more sense
+to try to get cars that run on hydrogen, or to focus on plug-in
+hybrids, or purely electric cars?
+ Each conversion step has losses, and therefore the typical
+hydrogen-fuelled vehicle is disadvantaged in this respect to an
+electricity-fuelled vehicle. However a hydrogen fuelled vehicle could
+overcome the limited driving ranges of current pure electric vehicles,
+and would have lower CO2 emissions than plug-in hybrids
+which run on petroleum fuels for some part of their driving (assuming
+the hydrogen was produced using low CO2 emission sources).
+Widespread penetration of hydrogen as a fuel has other challenges such
+as infrastructure and technology development of fuel cells, however
+some vehicle manufactures are putting much effort into RD&D of hydrogen
+vehicles.
+
+10. Dr. Birol, the 2008 World Energy Outlook projects considerably
+higher levels of needed investment than the 2007 World Energy Outlook--
+over $4 trillion more, which is nearly a 20% increase. Why is that?
+What changed in that year to indicate that such higher investment
+levels would be needed?
+ The cost of bringing on new supply in the energy sector surged in
+2007 and 2008, leading to the upward revision of $4.4 trillion for
+energy sector investment needs to 2030. However, as a consequence of
+the downturn in the global economy, there are signs that unit costs,
+including labour, concrete, steel and drilling rig day-rates, are now
+starting to fall back.
+
+11. Dr. Birol, has your organization modelled the impact of the
+proposed Alaska Natural Gas Pipeline, if and when it gets built? Is
+there a sense of the impact that might have on U.S. natural gas
+supplies or prices?
+ We have not modelled in detail the impact of the pipeline as such,
+though our projections assume that a pipeline from Alaska to the lower-
+48 states is built and commissioned after 2015 and before 2030. We
+assumed the capacity would be around 4 billion cubic feet per day
+(roughly 40 billion cubic metres/year). Were such a pipeline to be
+built, the incremental supplies would certainly have some impact on gas
+prices, as it would relieve the pressure to either develop indigenous
+resources in the lower-48 states or import liquefied natural gas.
+Putting a precise figure on the price impact is very hard, as drilling
+costs and LNG prices are likely to continue to change over time.
+
+12. Dr. Birol, the World Energy Outlook projects a major contribution
+from carbon capture and sequestration in order to meet lower carbon
+targets. The reference case of the outlook only has a minor
+contribution from CCS, but indicates that stronger policies, such as a
+carbon cap, would be needed to get significant amounts of CCS by 2030.
+Are there any other policies that could or should be adopted by the
+U.S., or other nations, besides a carbon cap, to accelerate the wide
+scale deployment of CCS? How quickly should we be doing those?
+ CCS is a technology that is very promising but there remains some
+uncertainty as to whether it will be viable on a cost-effective basis.
+While a carbon cap may play a central role in incentivising its
+deployment, there are research and development issues to be addressed
+before deployment can ever happen on the scale set out in our Climate
+Policy Scenarios. Consequently, there is an important role for the U.S.
+and other major economies to play in investing in CCS pilot projects in
+order to assess and develop the technology's potential. It is important
+that development of CCS technologies takes into account the likely
+future uses for the technologies, in the U.S. but also in key countries
+such as China and India, and across both power generation and
+industrial uses. Given the cost involved, a co-ordinated, international
+approach to CCS research, development and deployment may be most
+effective.
+
+13. Dr. Birol, the World Energy Outlook projects that $1.1 trillion
+that would be needed in transmission and distribution investment in
+North America through 2030. How much of that would be needed
+specifically in the United States? Is that investment necessary to
+support additional capacity, or to provide access to new sources of
+renewable energy, or to replace aging transmission lines, or is it a
+combination of all of those?
+ About 80% of this amount (or $900 billion) is what the United
+States will need to invest in transmission and distribution networks
+through 2030. This investment is necessary to support additional
+capacity, to replace aging transmission lines and to integrate
+renewables. Please note that this is the investment needed in our
+Reference Scenario, which takes into account current policies only. Our
+low carbon scenarios show that this investment can in fact be lower
+because of lower electricity demand (as a result of greater energy
+efficiency in buildings and in industry), which results in fewer power
+stations being built. For example, in our 450 ppm Policy Scenario
+(which assumes stabilisation of greenhouse gas emissions at 450 parts
+per million in the long run) we estimate that the investment needed in
+networks is $530 billion.
+
+14. Dr. Birol, in the low carbon projections of the World Energy
+Outlook, there are significant cost savings to making the necessary
+investments. For the 550 parts per million scenario, the additional
+investment in the world is $4.1 trillion, while the fuel savings from
+those investments and new policies end up saving the world over $7
+trillion. Does this mean that instead of being a crushing blow to the
+world's, or the United States', economy, a carbon cap could actually
+end up making us money? Are there additional costs that the world, and
+the United States, would be expected to incur if no action was taken to
+address climate change?
+ There are indeed many investments in our Climate Policy Scenarios,
+which effectively pay for themselves, or generate net savings, as a
+result of energy efficiency improvements. These include more fuel-
+efficient vehicles, building insulation and more efficient appliances.
+Although in most cases, up-front costs will take several years to
+recover, savings globally in the 550 Policy Scenario do exceed
+additional investments.
+ For other investments, particularly in power generation and
+industry and those needed to achieve the 450 Policy Scenario will incur
+net financial costs. Certainly, no envisaged carbon cap looks like
+being a ``crushing blow'' to either the world's or the United States
+economy, particularly given the importance and benefit of taking early
+steps to transform the energy sector. The precise costs and benefits to
+the economy will ultimately depend on the level of the carbon cap and
+the effectiveness of policies to underpin it.
+
+15. Dr. Birol, could you provide your thoughts about our ability to
+harness some of the potential of enhanced geothermal systems? Is
+enhanced geothermal likely to be feasible in the near future? How long
+would it take before people could start building EGS power plants?
+ While this technology has a great potential to provide cheap
+baseload electricity, I do not expect that it will make a major
+contribution in the short to medium-term as significantly more R&D is
+needed to bring costs down and to improve performance. Drilling
+represents a significant portion of the total cost; the technology
+could benefit from improvements in drilling in the oil and gas
+industry.
+
+16. Dr. Birol, in the World Energy Outlook, there is a very
+comprehensive review of the potential for various ocean renewable
+energy technologies, including tidal and wave power. However, I don't
+believe there was anything on ocean thermal energy conversion or deep
+seawater air conditioning. These are both technologies that might be
+very useful for tropical islands, such as the U.S. territories that are
+under the jurisdiction of this committee. Do you have any thoughts
+about the potential of these technologies?
+ Ocean thermal energy conversion is a technology with a large
+potential, but for the longer term. I do not expect any major
+deployment before 2030, as it is still in its infancy and needs R&D
+support. Deep seawater air conditioning is already being used, although
+in just a few locations around the world. It can be a solution for
+small islands.
+
+17. Dr. Birol, during the hearing, you indicated that there might be
+some countries that placed some restrictions on where oil and gas
+companies were allowed to drill offshore, but you were unable to name
+them at the time. Could you provide the Committee with a list of
+countries that do not provide complete and unfettered access to the
+entirety of their extended continental shelves for the purposes of oil
+and gas leasing, and describe the nature of whatever geographical
+restrictions or limitations are in place?
+ The IEA does not maintain a database on geographical restrictions
+on drilling. In many cases, restrictions exist in order to slow the
+pace of development of hydrocarbon resources. It is not always clear to
+what extent the limitations on drilling are the result of concerns
+about the environmental impact rather than a general goal of limiting
+the overall pace of development.
+Questions from the Ranking Member Doug Lamborn, from the State of
+ Colorado
+
+1. In your own testimony you state that no global warming program can
+succeed without cooperation of China and India. Do you have any
+information on the number of coal plants that China and India have
+built and are planning to build?
+ Collectively China and India have about twice as many coal plants
+as the United States. Both countries plan to build many more. Without
+any additional efforts to reduce GHG emissions, they could build over a
+thousand new coal plants by 2030, which is about three times more than
+the present number of coal plants in the United States. These new
+plants are expected to use more advanced technology than what they use
+now. China is already building more efficient (and therefore less
+polluting) power plants using the same technology as OECD countries and
+India is catching up. Moreover, both countries are participating in
+international programs to develop carbon capture and storage.
+
+2. What kind of environmental standards does China impose on coal-
+fired or other power plants? Would these plants meet U.S. environmental
+standards for SOX and NOX?
+ China has introduced legislation to control air pollutants from
+power plants. The most important piece of legislation was introduced in
+2003 and sets emission standards for power plants. Others concern
+incentives to operate flue gas desulphurisation (FGD), costs of
+installing and operating FGD, outdated equipment that is not to be
+used, and a trial scheme that introduces penalties for failing to
+operate FGD plant. Moreover, China plans to shut down older polluting
+plants. We expect sulphur emissions in China to rise only modestly in
+the future as a result of greater efficiency in electricity production
+and greater use of FGD. In contrast, we expect the absolute level of
+NOX emissions to continue to rise, although NOX emission per plant will
+decline.
+
+3. What would happen to American jobs if the U.S. increased domestic
+energy costs by 100% as a result of restricting carbon emissions while
+the developing nations continue business as usual with no carbon
+controls?
+ There are many possible variations to such a scenario, so we are
+unable to quantify the employment impact. However, our analysis
+indicates that the transition to a low-carbon energy sector in the U.S.
+would be likely to result in a strong positive impact on employment.
+Such a scenario would operate as a demand stimulus, with positive
+impacts on a number of sectors--particularly construction, automobiles
+and high value-added technology.
+
+4. The world leader in car purchases in January of this year was
+China. What sort of ``CAFE'' or mileage standards does China have? Does
+India have something similar to the U.S. CAFE standards? In addition,
+can you describe the modem pollution control requirements for these
+countries?
+ China has enacted fuel economy standards which are based on the
+weight of the vehicle split into 16 different weight classes. For
+example, Chinese fuel efficiency standards for passenger vehicles are
+currently around 30% more efficient than those of the United States.
+China also has emissions standards based on the EURO standards used in
+the European Union. India does not currently have mandatory fuel
+economy standards, however they have mandatory standards for pollutant
+emissions similar to those adopted in the European Union, which may
+also have the effect of improving fuel economy. For example EURO II
+standards were introduced nationwide in India in 2005, they were
+introduced in Europe in 1995. Also several of the largest cities in
+India have regulations regarding CNG vehicles due to local pollution
+concerns.
+
+5. The development of the recent Nano by India's Tata motors means
+that the developing world intends for every family to have a car. What
+impact will this have on gasoline prices, green house gas emissions,
+and climate change going forward?
+ Increasing mobilisation helps to drive a countries economy and also
+improve the quality of life for its inhabitants. The introduction of
+low-price vehicles provides access to motorised mobility to more of the
+world's inhabitants, but it should be noted that it is increasing
+incomes in developing countries that also has a large effect on vehicle
+ownership, and that these low cost vehicles are often small and
+relatively efficient. The majority of the global oil demand growth in
+the mid- to long-term will come from the transport sector in developing
+countries. This demand growth will put upward pressure on oil prices,
+and we may see oil prices return to their highs of last summer over the
+mid-term.
+
+6. What impact will a cap and trade system have on the domestic
+agriculture sector, particularly on those sectors which are heavily
+dependent on fertilizer? How about the domestic cement industry?
+ The impacts of a cap and trade system will depend on which sectors
+are included, which gases are included and how the system is designed,
+including how it links with international trade and other countries'
+cap-and-trade systems. Given these variables, it is not possible to go
+into specifics. However, as a general rule, cap-and-trade will provide
+incentives for businesses in high-emitting industries to adopt more
+efficient, and less polluting, processes and technologies. At the same
+time, the price mechanism should create greater allocative efficiency,
+to allow those sectors that most need to pollute (due to a lack of
+viable alternatives) to continue to do so, while securing emissions
+reductions from those parts of the economy where it is more cost-
+effective to achieve them.
+ ______
+
+ Mr. Costa. Thank you very much, Doctor. You did go over
+time a little bit, but we found you interesting. So I
+appreciate that. And I do agree that we obviously have to
+cooperate and collaborate both at home and abroad.
+ Which brings us to our next witness, Dr. Howard
+Gruenspecht, to testify.
+ Mr. Gruenspecht?
+
+ STATEMENT OF HOWARD K. GRUENSPECHT, ACTING ADMINISTRATOR,
+ ENERGY INFORMATION ADMINISTRATION
+
+ Mr. Gruenspecht. Mr. Chairman and members of the
+Subcommittee, I appreciate the opportunity to appear before you
+today to discuss the U.S. energy outlook to 2030 and energy
+resources on Federal onshore and offshore lands, focusing on
+the role of the Outer Continental Shelf, or OCS.
+ The Energy Information Administration is the independent
+statistical and analytical agency within the Department of
+Energy that produces data projections and analyses to assist
+policymakers, help markets function efficiently, and inform the
+public. We do not promote, formulate, or take positions on
+policy issues, unlike my colleague Mr. Birol, and our views
+should not be construed as representing those of the Department
+of Energy or the Administration.
+ Later this month, EIA will release the complete 2009
+edition of our ``Annual Energy Outlook.'' Notably, our
+reference case projects no growth in U.S. oil consumption,
+reflecting the combined effect of recently enacted corporate
+average fuel economy standards and requirements for increased
+use of renewable fuels, as well as a rebound in oil prices as
+the world economy recovers. That affects both domestic oil
+consumption and domestic oil production.
+ The net import share of total liquid supply, including
+biofuels, declines from 58 percent in 2007 to about 40 percent
+between 2025 and 2030. The world's crude oil price is projected
+again to rise as the global economy rebounds and global demand
+once again grows more rapidly than liquids production outside
+of the OPEC area. In 2030, the average real price of crude oil
+is about $130 a barrel in 2007 dollars, which is actually quite
+similar to the projection that the International Energy Agency
+has.
+ I should say that, unlike the International Energy Agency,
+we also prepare low- and high-oil-price cases because--and I
+think they would share this view--we are very uncertain about
+what oil prices will actually be, as recent history suggests.
+ Turning to natural gas, EIA has raised its projection for
+both U.S. production and consumption, reflecting increased
+availability of gas shale resources and higher demand for
+natural gas use in electric power generation, due in part to
+the apparent impact of concerns related to greenhouse gas
+emissions on power plant investment decisions.
+ With growing projected production of natural gas from gas
+shale and other unconventional onshore resources, the OCS and
+Alaska, the net import share of total natural gas use also
+declines from 16 percent in 2007, most of which comes from
+Canada, to less than 3 percent in 2030.
+ Total consumption of marketed renewable fuels grows by 3.3
+percent per year in our reference case. This rapid growth
+reflects the renewable fuel standard provisions included in the
+Energy Independence and Security Act of 2007 and strong growth
+in the use of renewables for electricity generation that is
+spurred by renewable portfolio standards for electricity
+generators in many States. I think it is 28 States and the
+District of Columbia that have those policies.
+ Resources on Federal lands, both onshore and offshore, are
+important to U.S. oil and natural gas production. In 2007,
+roughly 32 percent of U.S. oil production and 29 percent of
+U.S. natural gas production were from Federal lands. Looking
+forward, which is always more uncertain, production from
+Federal lands is projected to reach 47 percent of total
+production for oil and 36 percent of total production for
+natural gas by 2030.
+ The rest of my testimony offers additional detail on
+current and projected OCS production, which provides a
+preponderant share of oil from Federal lands and, over time, a
+growing majority share of natural gas from Federal lands. I
+will also discuss some of the factors, including access
+conditions and prices that drive our estimates.
+ In 2007, the OCS areas produced 1.3 million barrels per day
+of crude oil, amounting to about 25 percent of total U.S. crude
+oil production, down from peak OCS production of 1.6 million
+barrels per day in 2003. Natural gas production in the OCS in
+2007 was 2.8 trillion cubic feet, down from a peak of 5.1
+trillion cubic feet in 1997. Although OCS production has fallen
+off in recent years, in the near term we expect OCS production
+of both oil and natural gas to rise, as new projects begin
+operation in OCS areas that have long been open.
+ Consistent with our practice at EIA of reflecting existing
+laws and regulations, our reference case that I have discussed
+reflects removal in 2008 of the moratoria for drilling in the
+Atlantic, Pacific, and parts of the eastern Gulf OCS areas.
+ Based on the average Minerals Management Service estimates
+for undiscovered resources and our own information on crude
+reserves and reserves appreciation, these areas held about 20
+percent of the total OCS technically recoverable oil resource,
+exclusive of past production, as in the beginning of 2007, 18
+billion barrels out of a total of more than 93 billion barrels.
+ For natural gas, the corresponding estimate of unproduced
+but technically recoverable OCS resources at the beginning of
+2007 is 456 trillion cubic feet. Roughly 76 trillion cubic feet
+is estimated to be in areas under moratoria prior to 2008.
+ Assumptions about exploration, development, and production
+of fields such as growing schedules, costs, the type of
+platform you select, reserves-to-production ratios in the
+Pacific, Atlantic and eastern Gulf of Mexico, in the EIA's work
+are generally based on data for fields in the central gulf that
+are of similar water depth and size. In addition, when we did
+our work, we assume that local infrastructure issues and other
+potential non-Federal impediments are resolved. Lack of
+resolution of those issues would, of course, affect our
+projections.
+ By 2030, total lower-48 offshore crude oil production,
+including very small amounts in State waters, is projected to
+nearly double from the current level to nearly 2.7 million
+barrels per day, while lower-48 offshore natural gas production
+is projected to rise by nearly two-thirds, to 4.9 trillion
+cubic feet a year.
+ Production from OCS leases in the Pacific begins in the
+next decade, with total crude oil production reaching nearly
+500,000 barrels per day in 2030. And some of the opening
+statements have already referred to the oil-prone nature of the
+Pacific resource. Crude oil production from the Atlantic region
+begins somewhat later, reaching 200,000 barrels per day by
+2030.
+ As part of this year's long-term outlook, which again will
+be released later this month, EIA also prepared a restored
+moratoria sensitivity case. OCS crude production in 2030, in
+that case, is about 565,000 barrels per day less than in the
+reference case. And cumulative domestic production of crude oil
+from all U.S. Federal and non-Federal sources between 2010 and
+2030 is 4.2 percent lower than in the reference case.
+ Estimates of production from the OCS areas previously under
+moratoria are higher than in EIA's previous analysis that was
+presented in our 2007 energy outlook, primarily because the
+2009 outlook has significantly higher oil and natural gas
+prices. Also, in this year's outlook, the assumed initial flow
+rates in the Pacific OCS fields in shallow waters were adjusted
+to better reflect the production potential from these oil-prone
+fields compared to the more natural-gas-prone fields in the
+central Gulf of Mexico that were used as the basis of earlier
+estimates.
+ Restoration of the previous OCS moratoria also affects the
+supply of natural gas but to a lesser extent. With the restored
+moratoria, production lower-48 offshore is 800 billion cubic
+feet lower in 2030 than it is in the reference case, but the
+resulting higher natural gas prices increase the projection for
+onshore natural gas production by 200 billion cubic feet in
+2030. Overall, the difference, the cumulative natural gas
+production between 2010 and 2030, including both Federal and
+non-Federal, is about 1.3 percent lower in the moratoria-
+restored case than in the reference case.
+ Again, prices, as well as access, affect the reproduction
+from the OCS. In the oil price case--where oil prices remain
+about $50 in real terms, close to where it is today--projected
+OCS crude production under full access is 2.1 million barrels
+per day, slightly below the projected production under
+reference case prices in the restored moratoria case. So,
+again, access matters, but prices also matter. That is an
+important point.
+ In sum, the OCS is expected to remain a substantial
+contributor to domestic crude oil and natural gas supply under
+a range of access and price assumptions.
+ That concludes my statement, Mr. Chairman. I would be happy
+to answer any questions you or the other Members may have.
+ [The prepared statement of Mr. Gruenspecht follows:]
+
+ Statement of Dr. Howard Gruenspecht, Acting Administrator,
+ Energy Information Administration
+
+ Mr. Chairman and Members of the Committee, I appreciate the
+opportunity to appear before you today to discuss the U.S. energy
+outlook to 2030, focusing on the role of the Outer Continental Shelf
+(OCS) in current and projected energy production.
+ The Energy Information Administration (EIA) is the independent
+statistical and analytical agency within the Department of Energy that
+produces objective, timely, and relevant data, projections, and
+analyses to assist policymakers, help markets function efficiently, and
+inform the public. We do not promote, formulate, or take positions on
+policy issues, and our views should not be construed as representing
+those of the Department of Energy or the Administration.
+The Energy Outlook: The Big Picture
+ The full Annual Energy Outlook 2009 (AEO2009), which will be issued
+later this month, includes over 35 cases. The reference case and other
+AEO2009 cases provide the results discussed in this testimony.
+ Liquid Fuels Consumption and Import Dependence. For the first time
+in more than 20 years, the AEO2009 reference case projects no growth in
+U.S. oil consumption, reflecting the combined effect of recently
+enacted Corporate Average Fuel Economy standards, requirements for
+increased use of renewable fuels, and an assumed rebound in oil prices
+as the world economy recovers. With overall liquid fuel demand in the
+AEO2009 reference case growing by only 1 million barrels per day
+between 2007 and 2030, plus increased use of domestically-produced
+biofuels and rising domestic oil production spurred by higher prices,
+the net import share of total liquids supplied, including biofuels,
+declines from 58 percent in 2007 to less than 40 percent in 2025 before
+increasing to 41 percent in 2030.
+ Natural Gas Consumption and Import Dependence. The reference case
+raises EIA's projection for U.S. production and consumption of natural
+gas compared to the previous Annual Energy Outlook (AEO), reflecting
+increased availability of resources and higher demand for electric
+power generation, due in part to the apparent impact of concerns
+related to greenhouse gas emissions on power plant investment
+decisions. With growing production of natural gas from unconventional
+onshore sources, the OCS, and Alaska, the net import share of total
+natural gas use also declines, from 16 percent in 2007 to less than 3
+percent in 2030.
+ Total Primary Energy Use and Energy-Related Carbon Dioxide
+Emissions. Recently-enacted efficiency regulations and higher energy
+prices in the AEO2009 reference case, compared to the last AEO, slow
+the rise in U.S. energy use, which is projected to grow from 101.9
+quadrillion Btu in 2007 to 113.6 quadrillion Btu in 2030. When combined
+with the increased use of renewables and a reduction in projected
+additions of new coal-fired conventional power plants, this slows the
+growth in energy-related greenhouse gas emissions. Energy-related
+carbon dioxide emissions grow at 0.3 percent per year from 2007 to 2030
+in the AEO2009 reference case, reaching a level of 6,414 million metric
+tons in 2030, compared with 6,851 million metric tons in the Annual
+Energy Outlook 2008 reference case.
+ Oil Prices. The assumption of a higher world oil price path in the
+AEO2009 reference case reflects tighter constraints on access to low-
+cost oil supplies in a setting where the forces driving growth in long-
+term demand in countries outside of the Organization for Economic
+Cooperation and Development remain as strong as previously expected.
+The world crude oil price is projected to rise as the global economy
+rebounds and global demand once again grows more rapidly than non-
+Organization of Petroleum Exporting Countries liquids supply. In 2030,
+the average real price of crude oil is $130 per barrel in 2007 dollars
+($189 per barrel in nominal dollars).
+ Renewable Energy Use. Total consumption of marketed renewable
+fuels--including wood, municipal waste, and biomass in the end-use
+sectors; hydroelectricity, geothermal, municipal waste, biomass, solar,
+and wind for electric power generation; ethanol for gasoline blending;
+and biomass-based diesel--grows by 3.3 percent per year in the AEO2009
+reference case. This rapid growth reflects the renewable fuel standard
+provisions included in the Energy Independence and Security Act of 2007
+and strong growth in the use of renewables for electricity generation
+that is spurred by renewable portfolio standards for electricity
+generators in many States.
+ As requested by the Committee, the remainder of my testimony
+focuses more specifically on projections for oil and natural gas
+production from onshore and offshore resources, the factors that drive
+the projections, and sensitivity analyses under alternative access and
+price assumptions.
+Federal Offshore and Onshore Resources in Context
+ Resources on Federal lands, both offshore and onshore, are
+important to U.S. energy production. Table 1 places onshore and
+offshore oil and natural gas production for 2007 in the context of
+total U.S. production and consumption. In 2007, roughly 32 percent of
+U.S. oil production and 29 percent of domestic natural gas production
+were from Federal lands.
+[GRAPHIC] [TIFF OMITTED] T7755.001
+
+ .epsLooking forward, production from Federal lands is expected to
+play an increasingly important role in total U.S. oil and natural gas
+production. Through 2030 the share of production from Federal lands is
+projected to increase to 47 percent for oil and 36 percent for natural
+gas (Table 2).
+[GRAPHIC] [TIFF OMITTED] T7755.002
+
+.epsOCS Production: Historical Data and Near-Term Forecast
+ OCS areas in the Western and Central portions of the Gulf of Mexico
+(GOM) are an important source of oil and natural gas production. In
+2007, the GOM OCS areas, which have been producing substantial volumes
+of oil since the 1970s, produced 1.3 million barrels per day, amounting
+to about 25 percent of total U.S. crude oil production and down from
+peak OCS production of 1.6 million barrels per day in 2003. There are
+small amounts (less than 70 thousand barrels per day) of additional
+production from the Pacific OCS. Dry natural gas production in the GOM
+OCS in 2007 was 2.8 trillion cubic feet, down from peak production of
+5.1 trillion cubic feet in 1997.
+ In the near term, OCS production is expected to rise as projects
+already under development come into operation. By 2012, projected GOM
+OCS oil production is 2.1 million barrels per day of oil and 3.4
+trillion cubic feet of natural gas. As discussed below, forward-looking
+OCS production estimates to 2015 and later years, beyond the
+commissioning of projects already under development, are necessarily
+less certain since they are sensitive to the actual resource available,
+future prices, and future access to resources. However, using
+information from the Department of Interior's Minerals Management
+Service (MMS) regarding undiscovered technically recoverable resources,
+EIA data and MMS estimates regarding known reserves (proved reserves
+and projected reserve appreciation in known deposits), and assumptions
+regarding access policies, EIA develops projections of offshore oil and
+natural gas production through 2030.
+ Consistent with the AEO practice of reflecting existing laws and
+regulations, the AEO2009 reference case reflects the removal in 2008 of
+the moratoria for drilling in the Atlantic, Pacific, and parts of the
+Eastern GOM OCS areas. Timing issues constrain the impacts of increased
+access in the near term. The MMS began the process of developing a
+leasing program that includes selected tracts from these areas after
+the moratoria were removed, with a timeline calling for the first
+leases to be offered in 2010. Once offered, leases must be bid on and
+awarded, and the wining bidders must develop and get approved
+exploration and development plans before any wells can be drilled.
+Thus, even if leasing were to begin next year, conversion of these
+newly-available resources to production would require some time. The
+AEO2009 reference case assumes that the Pacific and Atlantic OCS
+regions are open for leasing starting in 2010 and that leasing begins
+in the Eastern GOM in 2022.
+ Based on the mean (50-percent probability) MMS estimate of
+undiscovered technically recoverable resources and estimates of known
+reserves and resources, the OCS areas that were until recently under
+moratoria in the Atlantic, Pacific, and Eastern GOM are estimated to
+hold about 20 percent of the total OCS technically recoverable oil
+resource (TROR)--18 billion barrels out of a total of more than 93
+billion barrels, exclusive of past production as of January 1, 2007.
+The estimates of TROR in the GOM OCS areas open to leasing prior to
+2008 and the Alaska OCS are 47 billion barrels and 27 billion barrels,
+respectively. According to MMS estimates, there is only a 5-percent
+chance that OCS areas formerly under moratoria have more than 27
+billion barrels of TROR.
+ Based on the MMS mean estimate of undiscovered technically
+recoverable natural gas resources and estimates of known reserves and
+resources, total technically recoverable natural gas resources in the
+OCS are estimated at 456 trillion cubic feet as of January 1, 2007.
+Roughly 76 trillion cubic feet (or 17 percent) are estimated to be in
+areas formerly under moratoria in the Atlantic, Pacific and Eastern
+GOM--nearly half or 37 trillion cubic feet in the Atlantic, 18 trillion
+cubic feet in the Pacific, and 21 trillion cubic feet in the Eastern
+GOM.
+ Assumptions about exploration, development, and production of
+economical fields, such as drilling schedules, costs, platform
+selection, reserves-to-production ratios, etc., in the Pacific,
+Atlantic, and Eastern GOM are generally based on data for fields in the
+Central GOM that are of similar water depth and size. In addition, it
+is assumed that local infrastructure issues and other potential non-
+Federal impediments are resolved. Lack of resolution of these issues
+would, of course, affect the projections.
+ Lower-48 offshore crude oil production is projected to increase
+from 1.4 million barrels per day in 2007 to 2.7 million barrels per day
+in 2030. Production from new OCS leases in the Pacific is projected to
+begin in 2015, with total Pacific production reaching nearly 0.5
+million barrels per day in 2030. Crude oil production from the Atlantic
+region is projected to begin in 2019, reaching 0.2 million barrels per
+day by 2030. Crude oil production in all areas of the GOM rises from
+1.3 million barrels per day to 2.1 million barrels per day between 2007
+and 2030.
+ Estimates of production from the OCS areas previously under
+moratoria are higher than in a previous analysis presented in the
+Annual Energy Outlook 2007 primarily because the AEO2009 has
+significantly higher oil and natural gas prices and because the assumed
+initial flow rate of Pacific OCS fields in shallow waters was adjusted
+to better reflect the production potential from these oil-prone fields
+compared to more natural-gas-prone fields in similar water depth and
+size in the Central GOM.
+ Lower-48 offshore natural gas production is projected to increase
+from 3.0 trillion cubic feet in 2007 to 4.9 trillion cubic feet in
+2030. By 2030, Pacific natural gas production is projected to reach
+nearly 0.3 trillion cubic feet and production from the Atlantic region
+is projected to reach 0.5 trillion cubic feet.
+EIA's OCS Estimates: Discussion and Comparison with Historical
+ Experience
+ One way to gain perspective on EIA's estimates of production in OCS
+areas formerly under moratoria is to consider how the relationship
+between projected production and MMS indicators of resource levels and
+characteristics in those areas compares to that for the GOM OCS area
+that was open prior to 2008.
+ TROR Comparisons. Oil reserves in the GOM OCS area open before
+2008, which has already been leased and developed extensively, are
+about 4 billion barrels, with an additional 9 billion barrels of
+expected reserve appreciation in discovered fields. Adding the estimate
+of 34 billion barrels of undiscovered TROR, the mean estimate of total
+TROR in the GOM area open before 2008 is 47 billion barrels, which is
+more than 2.5 times the MMS mean estimate of 18 billion barrels of TROR
+in OCS areas formerly under moratoria.
+ Average Field Size Comparisons. Field size matters because larger
+fields are more attractive development targets than smaller ones. The
+average size across all existing GOM OCS oil and natural gas fields is
+43 million barrels of oil equivalent. MMS has also developed field size
+distributions for undiscovered OCS fields that it used to prepare
+reports mandated under the Energy Policy Act of 2005. The MMS estimate
+of the average undiscovered field size in GOM OCS areas open to
+drilling prior to 2008 is 59 million barrels of oil equivalent, which
+is significantly greater than the average field size of 15 million
+barrels of oil equivalent for OCS areas formerly under moratoria.
+ Other Project Development Factors. Project development time frames
+and expected returns vary substantially across offshore projects
+depending upon such factors as: 1) size of the field; 2) relative
+proportion of oil, natural gas, and condensates in the field; 3)
+reservoir and oil characteristics,;4) water depth; 5) distance to
+nearest oil and/or natural gas pipelines; 6) whether there are other
+nearby fields to share in the expense of building new pipelines; and 7)
+the type of production system chosen for field development, e.g.,
+anchored platform, tension-leg platform, tethered spar, or floating
+production storage, and offloading ship.
+ To the extent that information is available, the indicators of
+resource levels and characteristics for the OCS areas previously under
+moratoria are generally inferior to those for the GOM OCS open prior to
+2008, as discussed above. This is reflected in EIA's view that, through
+2030, access to the OCS areas formerly under moratoria adds only a
+fraction of the daily production volume provided by the GOM OCS area
+open prior to 2008.
+ EIA recognizes that all forward-looking production estimates are
+inherently uncertain. Some factors that could lead to higher daily
+production estimates for the OCS areas formerly under moratoria include
+the use of the 5-percent, or 1-in-20, probability estimate of TROR and
+the assumption of a more favorable field size distribution than that
+used by MMS in its recently published reports. Consideration of any
+long-term constraints on rig availability that reflect the
+prioritization of alternative offshore projects or the possibility that
+non-Federal impediments to production would persist over time could
+result in lower daily production estimates.
+AEO2009 Access Sensitivity Case
+ As part of the AEO2009, EIA prepared a restored moratoria
+sensitivity case. U.S. OCS crude oil production in 2030 is projected to
+be 565,000 barrels per day lower in the restored moratoria case than in
+the reference case--2.2 million barrels per day compared to 2.7 million
+barrels per day. Cumulative domestic production of crude oil from both
+onshore and offshore sources between 2010 and 2030 in the restored
+moratoria case is projected to be 2.1 billion barrels, or 4.2 percent,
+lower than in the AEO2009 reference case.
+ As with oil, access to OCS resources affects the domestic supply of
+natural gas. However, because the volume of technically recoverable
+natural gas in the OCS areas previously under moratoria accounts for
+less than 5 percent of the total U.S. technically recoverable natural
+gas resource base, the volume impacts are smaller relative to the
+baseline supply level. Cumulatively, domestic natural gas production
+from both onshore and offshore sources between 2010 through 2030 is
+projected to be 1.3 percent lower in the restored moratoria case than
+in the AEO2009 reference case. Natural gas production from the Lower-48
+offshore in 2030 is projected to be 4.1 trillion cubic feet in the
+restored moratoria case compared to 4.9 trillion cubic feet in the
+AEO2009 reference case. In contrast to the situation in oil, the
+reduction in offshore supply of natural gas in the restored moratoria
+case is partially offset by an increase in onshore production. Reduced
+OCS access in the restored moratoria case results in higher natural gas
+prices, which increase the projection for U.S. onshore gas production
+by 0.2 trillion cubic feet in 2030 compared to the level in the
+reference case.
+AEO2009 Low Price Sensitivity Case
+ The impact of access to OCS resources on domestic production is
+lessened in the low price case, where oil prices are assumed to remain
+near $50 per barrel (2007 dollars) through 2030, rather than rising to
+$110 per barrel by 2015 and $130 per barrel (2007 dollars) by 2030 as
+assumed in the reference case. In 2030, total OCS crude oil production
+is projected to be 440,000 barrels per day higher in the low world oil
+price case than in the low oil price case with the OCS moratoria
+reinstated--2.1 million barrels per day compared with 1.7 million
+barrels per day. The observation that U.S. OCS production in 2030 under
+reference case prices with full restoration of the OCS moratoria, at
+2.2 million barrels per day, is projected to be higher than U.S. OCS
+production in the low price case with no moratoria underlines the
+importance of prices as a determinant of future production.
+ The OCS is expected to remain a major contributor to domestic crude
+oil and natural gas supply under a variety of price and access
+assumptions. Although a significant volume of undiscovered technically
+recoverable oil and natural gas resources has been added with access to
+the Pacific, Atlantic, and parts of the Eastern GOM OCS, there is a
+great deal of uncertainty surrounding the resource estimates as well as
+the timing and cost to explore and develop these resources.
+ This concludes my statement, Mr. Chairman. I will be happy to
+answer any questions you and the other Members may have.
+ ______
+
+
+ Response to questions submitted for the record by
+ Dr. Howard K. Gruenspecht
+
+QUESTIONS FROM CHAIRMAN COSTA
+
+Q1 Dr. Gruenspecht, we hear a lot about the impact, or lack thereof,
+of additional drilling on oil prices. However, we hear less about the
+potential impact of drilling on natural gas prices. Does increased
+drilling in the former moratoria areas of the OCS have the potential to
+significantly impact natural gas prices, and if so, on what sort of
+timeframe?
+ A1 Increased drilling in the former moratoria areas of the OCS is
+not expected to significantly impact natural gas prices between now and
+2030. As part of the Annual Energy Outlook 2009 (AEO2009), the Energy
+Information Administration prepared a restored moratoria sensitivity
+case. Because the volume of technically recoverable natural gas in the
+OCS areas previously under moratoria accounts for less than 5 percent
+of the total U.S. technically recoverable natural gas resource base,
+results show that access does not significantly impact natural gas
+production or price levels.
+ Cumulatively, domestic natural gas production from both onshore and
+offshore sources between 2010 and 2030 is projected to be 1.3 percent
+lower in the restored moratoria case than in the AEO2009 reference
+case. Total U.S. production of dry natural gas is 210 billion cubic
+feet less in 2020 and 600 billion cubic feet less in 2030 in the
+restored moratoria case than projected in the reference case. The
+reduction in offshore supply of natural gas in the restored moratoria
+case is partially offset by an increase in onshore production of 170
+billion cubic feet and a decrease in consumption of 360 billion cubic
+feet in 2030 compared to the levels in the reference case. The average
+U.S. wellhead price of natural gas in 2030 (per thousand cubic feet, in
+2007 dollars) is 8 cents higher in 2020 and 21 cents higher in 2030 in
+the restored moratoria case, representing price increases of 1 percent
+and 3 percent, respectively. The increased onshore production and
+decreased consumption result from higher natural gas prices, which are
+seen mainly in the later years of the projection.
+
+Q2 Dr. Gruenspecht, the New York Times reported on March 15th about
+the steep decline in U.S. drilling activity, caused by the equally
+steep reduction in oil and natural gas prices since last summer. During
+last summer's high prices, a common argument was that increased
+drilling in the U.S. Outer Continental Shelf and on federal lands out
+west would result in lower prices for consumers. However, it appears
+that instead of the amount of drilling being a determining factor on
+the price of oil and natural gas, in fact the price of oil and natural
+gas is the determining factor on the amount of drilling activity. In
+simpler terms: drilling doesn't drive prices, but prices do drive
+drilling. Are these accurate statements?
+ A2 Prices definitely drive drilling, but drilling can also drive
+prices. The processes involved in the formation of prices and the
+collective decisions to drill are interrelated and complex.
+ Prices respond not only to actual supplies made available by
+drilling, but to expectations of supplies that will or even that can be
+brought to market. In that sense, the first potential effect on crude
+oil prices of changing expectations about access to supply from the
+U.S. Outer Continental Shelf and on Federal lands would be a signal to
+raise expectations of global supply in the future. While the exact
+response of the market would be difficult to predict, an increase in
+expected future global supply availability could be expected to result
+in somewhat lower prices.
+ On the other hand, the drilling response to price declines in oil
+and natural gas we are seeing now is part of a business cycle that has
+occurred several times in the past few decades. Lower price
+expectations make investments more difficult to justify on their own
+merits, thus leading to the cancellation of less profitable drilling
+prospects. In addition, when crude oil and natural gas prices fall,
+companies' cash flows decline. We are seeing a slowing of some capital
+projects in exploration and production as well as in other areas,
+including refinery investments.
+ A notable result of the drilling response to price is that by
+eliminating more marginal investment opportunities, the efficiency of
+the market increases. As a result, though drilling is dropping steeply,
+new production is falling less quickly. In effect, the best prospects
+are getting drilled and the less attractive are not. The same goes for
+the drilling equipment and crews. As the number of rigs running drops,
+only the most effective and efficient continue to work. Also, the base
+of production from already-drilled wells is large compared to the
+total. As a result, the drop in drilling does imply a proportional drop
+in production. Longer-term effects could be significant if the capacity
+of the industry to respond to stronger price signals in the future is
+reduced. This lagged market/investment response is what drives some of
+the price cycles in the oil and natural gas supply.
+
+Q4 Dr. Gruenspecht, one of the issues this Committee has been trying
+to get a handle on is how much it costs oil and gas companies to do
+business here in the United States, and if that is significantly
+cheaper or more expensive elsewhere in the world. The GAO has put out a
+couple of reports saying that the amount of revenue the government
+brings in, as a percentage of the total revenue from the oil and gas,
+is one of the lowest percentages in the world. But on the other hand,
+some Members of Congress have said that it has to be that way because
+the costs of finding oil in the United States are so much higher than
+they are in other countries. Is it significantly more expensive to
+produce a barrel of oil in the United States, onshore and/or offshore,
+than it is in other countries? Is there an estimate of the additional
+costs incurred by production companies as a result of complying with
+federal regulations?
+ A4 The costs of finding and producing oil and natural gas vary
+considerably across world regions and can be quite volatile, but they
+tend to be higher in more mature producing areas such as the United
+States. The combined cost of finding and producing oil and natural gas
+also tends to be greater in the U.S. offshore areas than in the U.S.
+onshore. Costs have risen sharply and have been more volatile in recent
+years because of substantial increases in expenditures for property
+acquisition, exploration, and development of oil and natural gas
+resources. We do not have an estimate of the additional costs incurred
+by production companies as a result of complying with Federal
+regulations.
+ EIA collects data on the costs of finding and producing oil and
+natural gas in its Financial Reporting System (FRS) survey. EIA
+publishes finding costs (which include the costs of unproved property
+acquisition, exploration, and development of the oil and natural gas)
+and production costs (which include the costs of extracting or lifting
+the oil and natural gas). Finding costs are usually larger than
+production costs and tend to be more volatile.
+ The finding cost calculation is a ratio of expenditures for
+exploration and development to proved reserves found. The difference in
+timing between the expenditure of funds and the booking of proved
+reserves is one important reason for the volatility in finding costs.
+This is especially evident when changes occur rapidly, as has been the
+case in recent years. The large and rapid increase in oil prices since
+2002 resulted in large increases in expenditures for exploration and
+development. Proved reserves have not increased to the same extent as
+yet, resulting in higher finding costs. Increased acquisition activity,
+which results in unusually large acquisition expenditures in the year
+the acquisition takes place, also causes volatility in finding costs.
+ One way to smooth this volatility is to average the data over
+several years. The figure below shows the costs of finding and
+producing oil and natural gas in the U.S. onshore and U.S. offshore
+regions and three international regions over the ten-year period from
+1998 to 2007. Canada and Europe are more mature producing areas like
+the United States. Their combined finding and production costs were
+higher than the U.S. onshore but lower than the U.S. offshore. The
+``Rest of World'' region, an average of the other regions of the world,
+had the lowest total finding-plus-production costs.
+[GRAPHIC] [TIFF OMITTED] T7755.007
+
+
+.epsQ5 Dr. Gruenspecht, there were a lot of energy provisions in the
+recent stimulus bill (H.R. 1) that Congress passed and the President
+signed--this was a major commitment to developing new, cleaner forms of
+energy. Has EIA analyzed the bill and determined if it will have any
+effect on your short- or long-term projections? If there has not been a
+formal EIA analysis, are there any general expectations that EIA would
+have about some of the energy-related provisions in that legislation?
+ A5 EIA has prepared an updated Annual Energy Outlook 2009 reference
+case reflecting provisions of the American Recovery and Reinvestment
+Act (HR.1) and recent changes in the economic outlook. A copy of the
+paper, which is also available on EIA's website, is attached.
+
+Q6a Dr. Gruenspecht, has EIA looked at the potential of federal lands
+to provide renewable energy?
+ A6a In 2001, EIA prepared maps showing Federal lands and total
+lands (lower-48 States) with renewable resources with high potential
+for generating electric energy. EIA has used the information in its
+analysis and forecasting products. The maps are based on resource data
+prepared by the National Renewable Energy Laboratory (NREL), the
+Pacific Northwest National Laboratory, and Southern Methodist
+University, collated with Geographic Information Systems (GIS) analysis
+by EIA. More recent data are now available from NREL, which could alter
+the assessment. Five renewable resources were mapped: wind, biomass,
+geothermal, concentrated solar power, and photovoltaic solar energy.
+The data showed that Federal lands contain almost half of the national
+endowment for geothermal resources (46 percent). In contrast, Federal
+lands contain only 38 percent of concentrating solar, 29 percent of
+wind, 27 percent of solar photovoltaic, and 13 percent of biomass
+resources.
+
+Q7 Dr. Gruenspecht, in the Annual Energy Outlook reference case in
+2008, EIA projected that carbon dioxide emissions from energy would
+grow at an average annual rate of 0.9 percent. In the 2009 Outlook, EIA
+projects that energy related CO2 emissions grow by 0.3
+percent per year. What are some of the reasons for that change, and do
+those reasons give us any direction as to how we could lower that even
+more?
+ A7 The projected slowdown in the growth in U.S. energy-related
+carbon dioxide emissions that occurred between the 2008 and 2009
+versions of the AEO was driven by numerous factors including: higher
+energy prices that reduced growth in energy consumption, the growing
+use of renewable fuels in the transportation and electricity sectors,
+and growing concerns about greenhouse gas emissions that dampen the
+projected additions of new coal power plants.
+ For example, in the AEO2008 reference case, world oil prices were
+projected to rise to $72 per barrel (2006 dollars) in 2030 while in the
+AEO2009 reference case they are expected to rise to $130 per barrel
+(2007 dollars), more in line with the high price projections from the
+AEO2008. This change was driven by the belief that oil demand in
+developing countries would continue to grow rapidly while oil-rich
+countries would seek to control access to their low-cost resources and
+develop them more slowly than anticipated in the AEO2008. These higher
+oil prices lead to reduced transportation energy use and lower carbon
+dioxide emissions as consumers drive less and purchase more fuel
+efficient cars.
+ Carbon dioxide emission projections are also lower because of the
+expected reduced dependence on new coal plants. In the AEO2008
+reference case, over 100,000 megawatts of new coal capacity was
+projected to be added to meet the growing demand for electricity, while
+in the AEO2009 reference case this projection was reduced by more than
+half because growing concerns about greenhouse gas emissions have
+dampened the interest of developers, regulators and the financial
+community in new coal plants. Over the past few years, as oil and
+natural gas prices rose, a large number of new coal plant projects were
+announced. However, while some new coal plants are under construction,
+many of the projects that had been announced have already been
+cancelled. This led to a reassessment of potential new coal plant
+additions in the AEO2009 and increased dependence on new natural gas
+and renewable plants.
+
+Q8 Dr. Gruenspecht, the 2009 Annual Energy Outlook points out that oil
+imports are projected to fall, apparently by quite a bit, by 2025. This
+appears to be the result of increased production, some of which is on
+the OCS, and decreased consumption, partially through new car fuel
+economy standards. Which one of those has a bigger impact on the drop
+in imports: increased production from the OCS or increases in fuel
+economy standards?
+ A8 The new car fuel economy standards account for the larger
+portion of the impact on oil import reduction. Depending on the method
+used to calculate the energy savings from the new Corporate Average
+Fuel Economy (CAFE) standard, between 72 percent and 81 percent of the
+reduction in oil imports would be due to the new CAFE standard.
+ The U.S. offshore is estimated to contain substantial resources of
+both crude oil and natural gas, but there are uncertainties regarding
+potential leasing and development of the Outer Continental Shelf (OCS).
+Assuming that leasing goes forward as previously leasing programs have,
+conversion of available OCS resources will require considerable time
+and financial resources to develop. The Annual Energy Outlook 2009
+(AEO2009) reference case projects that significant increases in OCS
+production occur after 2020. By 2030, EIA projects that lifting the ban
+on OCS drilling will increase domestic crude oil production by 8
+percent (0.5 million barrels per day) and will increase domestic
+natural gas production by 3 percent (0.6 trillion cubic feet per year).
+ An evaluation of the energy impacts with and without the new CAFE
+standards was not included as part of the AEO2009. However, the AEO2008
+did examine the energy impacts with and without the 35-mpg CAFE
+standard required under EISA. Although the AEO2008 estimates might not
+be directly comparable to a similar analysis using the AEO2009, they
+provide a reasonable expectation of the impacts of the new CAFE.
+ In the AEO2008 Early Release reference case (December 2007), which
+did not include the new CAFE standard in EISA, light-duty vehicle
+average fuel efficiency was projected to be 30.0 miles per gallon,
+significantly above the floor of approximately 26.4 miles per gallon
+set by the pre-EISA CAFE standard. Consumer behavior coupled with
+technology improvements resulted in vehicle owners choosing more
+efficient vehicles than those required by the CAFE standard of the
+time. In the full AEO2008 reference case (June 2008), which included
+the new CAFE standard, consumers do not purchase vehicles significantly
+more fuel efficient than the new CAFE standard of 35 miles per gallon.
+ With the new CAFE standard, light-duty vehicle consumption is 1.2
+to 1.4 million gasoline-equivalent barrels per day (12.1 to 12.9
+percent) less than in the case with the previous CAFE standard.
+Measured against a case where vehicle efficiency does not improve above
+the floor set by the previous CAFE standard (a frozen-efficiency case)
+the new CAFE standard reduces light-duty vehicle gasoline-equivalent
+barrels per day by between 2.1 and 2.2 million barrels per day (17.9 to
+18.2 percent).
+ As a result, depending on the method used to calculate the energy
+savings from the new CAFE standard, a low estimate of the reduction of
+oil imports would be between 1.7 and 1.9 million barrels per day, with
+new CAFE standards accounting for approximately 72 percent of the
+reduction. A high estimate of the reduction in oil import would be
+between 2.6 and 2.7 million barrels per day, with CAFE standards
+accounting for approximately 81 percent of the projected reduction.
+
+Q9 Dr. Gruenspecht, in your testimony you mention that there are local
+infrastructure issues regarding production from the former moratorium
+areas, and that your projections assume they are resolved. Could you
+give us a little more detail on what these issues are, and what their
+potential for impacting your projections would be?
+ A9 To produce oil and gas from former moratoria areas that have
+been closed to exploration and production for decades, considerable
+infrastructure will need to be built. Major infrastructure categories
+include platform fabrication yards, port facilities, shipyards and
+shipbuilding yards, support and transport facilities, waste management
+facilities, pipelines, pipe coating yards, natural gas processing
+facilities, natural gas storage facilities, and petrochemical
+facilities. States and local areas affected by offshore development
+activities have a say in the approval process and could hold up
+development. EIA assumes in the Annual Energy Outlook 2009 analysis
+that issues regarding local siting and permitting will be resolved by
+the producers and the State and local governments in an expeditious
+manner. Protracted permitting processes could add significantly to the
+time and/or cost to develop offshore resources in affected regions and
+possibly discourage development of associated offshore areas, resulting
+in less and/or more costly production from portions of the OCS.
+
+Q10 Dr. Gruenspecht, in the 2009 Annual Energy Outlook, EIA points out
+that the oil fields in the area formerly under moratoria are expected
+to be small--much smaller than the average undiscovered field size in
+the Gulf of Mexico. And the 2008 World Energy Outlook states that small
+fields decline at a much more rapid rate than large fields. So does
+this mean if we started drilling in frontier areas, companies would
+have to drill considerably more wells, over wider geographic areas,
+than they would in the Gulf of Mexico?
+ A10 Yes. The Minerals Management Service estimates that the average
+field size in the Gulf of Mexico is almost 3 times greater than the
+average field size in the Outer Continental Shelf areas formerly under
+moratoria (43 million barrels of oil equivalent compared to 15 million
+barrels of oil equivalent). Because of the smaller size of the fields
+in the areas formerly under moratoria, in areas deemed profitable
+companies will need to drill more wells over a wider geographic area to
+achieve the same output as in the Gulf of Mexico where the average
+field size is considerably larger.
+
+Q11 Dr. Gruenspecht, you mentioned in your testimony that various
+characteristics of the new OCS areas are generally inferior to those
+areas currently open. There are three separate areas that need to be
+considered, though: the Atlantic, the Pacific, and the Eastern Gulf of
+Mexico. Could you put those in order--which has the least inferior
+characteristics and which has the most inferior characteristics?
+ A11 While it is difficult to rank the areas of the Atlantic,
+Pacific, and Eastern/Central Gulf of Mexico (GOM) that were previously
+under moratoria based on their inferiority relative to those areas that
+were already open, certain generalizations can be made considering
+resource level, average field size, and proximity to existing
+infrastructure. The areas previously under moratoria rank differently
+depending on whether the emphasis is on oil or gas production.
+ Resources: The EIA relies on estimates of technically recoverable
+resources provided by the Minerals Management Service (MMS). The
+Pacific resource estimate for undiscovered oil (10.5 billion barrels)
+is almost three times as much as the estimate for either the Atlantic
+(3.9 billion barrels) or the Eastern/Central GOM (3.7 billion barrels),
+compared to 47 billion barrels of technically recoverable resources in
+the Central/Western GOM. The Atlantic resource estimate for
+undiscovered natural gas (36.5 trillion cubic feet or Tcf) is almost
+double that of the Eastern/Central GOM (21.5 Tcf) and the Pacific (18.4
+Tcf), compared to 247 Tcf of technically recoverable resources in the
+Central/Western GOM.
+ Average Field Size: The MMS estimates of the average undiscovered
+field size in GOM Outer Continental Shelf (OCS) areas open to drilling
+prior to 2008 (59 million barrels of oil equivalent (mmBOE)) and in the
+Eastern GOM (43 mmBOE) are significantly greater than the average field
+size for the Pacific (11 mmBOE) and Atlantic (16 mmBOE) OCS areas
+formerly under moratoria.
+ Infrastructure: The Eastern/Central GOM has the advantage of being
+closer to extensive existing infrastructure in the Central and Western
+GOM areas that have been open to exploration and development. Some
+infrastructure exists in the Pacific near currently producing leases.
+This suggests an assignment of the highest ranking to the Central/
+Western GOM, followed by the Pacific, then the Eastern/Central GOM, and
+last the Atlantic.
+
+Q12 Dr. Gruenspecht, has EIA modeled the impact of the proposed Alaska
+Natural Gas Pipeline, if and when it gets built? Is there a sense of
+the impact that might have on U.S. natural gas supplies or prices?
+ A12 In the Annual Energy Outlook 2009 (AEO2009) reference case, an
+Alaska gas pipeline to the lower-48 States is projected to begin
+operation in 2020. The 2020 date is largely dictated by the 9 years
+required to design, permit, and construct this pipeline. Once
+completed, an Alaska gas pipeline is expected to take 2 years to
+achieve full operation, delivering 1.4 trillion cubic feet (Tcf) per
+year to the lower-48 States by the end of the second year.
+ The AEO2009 also includes a scenario entitled the ``no Alaska
+pipeline case'' in which an Alaska gas pipeline is precluded from going
+into operation. The no Alaska pipeline case projections of U.S. natural
+gas production, consumption, imports, and prices can be compared to
+those projected in the reference case to ascertain the impact of the
+pipeline.
+ After 2020, Alaska natural gas production is 1.6 Tcf per year lower
+in the no Alaska pipeline case than in the reference case. The lower
+Alaska production includes both the pipeline throughput to the lower-48
+States and the natural gas consumed in the production, processing, and
+compression of the pipeline gas.
+ In the no Alaska pipeline case, later-period Henry Hub spot natural
+gas prices are higher than in the reference case. Regional prices may
+differ to greater or lesser extents. The greatest Henry Hub price
+difference occurs in 2022 at $0.69 per million Btu (2007 dollars),
+which is 9.5 percent higher than the reference case price. After 2022,
+the magnitude of the natural gas price impact gradually diminishes, as
+lower-48 natural gas supply grows and consumption declines. By 2030,
+Henry Hub gas prices are only $0.15 per million Btu or 1.6 percent
+higher in the no Alaska pipeline case relative to the reference case.
+ As a result of the higher natural gas prices projected in the no
+Alaska pipeline case, lower-48 natural gas production and imports are
+higher, while natural gas consumption is lower.
+ In the no Alaska pipeline case, the higher natural gas prices cause
+lower-48 production to increase by 800 billion cubic feet (Bcf) in
+2021, and then level off to around 600 Bcf per year for the remainder
+of the projection. Of the lower-48 natural gas production categories,
+unconventional natural gas production posts the greatest increase,
+adding about 500 Bcf per year from 2022 through 2030.
+ Net natural gas pipeline imports are about 525 Bcf higher in the no
+Alaska pipeline case in 2028. LNG imports increase only slightly in the
+no Alaska pipeline case due to the high LNG prices relative to the less
+expensive U.S. and Canadian natural gas production.
+ The greatest impact on natural gas consumption occurs in 2026, when
+total natural gas consumption is about 760 Bcf lower than in the
+reference case, with the largest share of the decline--290 Bcf--
+occurring in the electric power sector.
+
+Q14 Dr. Gruenspecht, could you provide your thoughts about our ability
+to harness some of the potential of enhanced geothermal systems? Is
+enhanced geothermal likely to be feasible in the near future? How long
+would it take before people could start building EGS power plants?
+ A14 It is EIA's understanding that current efforts related to
+enhanced geothermal systems (EGS, also known as ``hot dry rock''
+systems) are limited to pre-commercial research and development
+efforts, with a few proof-of-concept projects and limited government-
+funded research efforts in several countries (including the U.S.).
+Given the lack of current commercial-scale experience with this
+technology, EIA does not believe that EGS technology is likely to
+contribute significantly to U.S. electricity production in the near
+future. The timing of its ultimate introduction to commercial service
+will largely depend on the ability of researchers and private investors
+to develop a cost-competitive product, and may also depend on future
+policies to support this technology specifically or to support
+renewable or carbon-free technologies in general.
+ EIA does not currently include projections for enhanced geothermal
+systems in our Annual Energy Outlook 2009. This is, in large part,
+because the technology is not sufficiently well developed to establish
+reasonable estimates of cost and characterization of the resource base
+that could be used in our National Energy Modeling System. EIA expects
+that these data should develop in advance of significant commercial
+deployment.
+
+Q15 Dr. Gruenspecht, in her testimony, Ms. Pierce states that ``the
+EIA's 2009 forecast of significant increases in domestic oil production
+is partly owing to advances in enhanced oil recovery technologies.''
+Could you provide additional detail regarding this statement? What is
+the growth of enhanced oil recovery (EOR) that EIA projects to 2030? Do
+these projections assume existing EOR technology or ``next-generation''
+EOR? How much of the growth in EOR is driven by carbon dioxide-EOR, and
+how much is from other injectants? Does EIA project how much carbon
+dioxide used for EOR would be coming from anthropogenic sources versus
+natural sources?
+ A15 In the Annual Energy Outlook 2009 (AEO2009), EIA projects that
+oil production from enhanced oil recovery (EOR) will increase more than
+fivefold between 2007 and 2030, growing from 0.3 million barrels per
+day in 2007 to 1.7 million barrels per day in 2030. The projections
+assume some improvement in carbon dioxide (CO2) EOR
+technology over existing technology, but not what might be considered
+``next generation'' technology. The current National Energy Modeling
+System (NEMS) used for the AEO2009 only includes CO2
+flooding; other injectants were not competed in the model. The new Oil
+and Gas Supply Module of NEMS currently under development includes 4
+EOR processes: CO2 flooding, steam flooding, polymer
+flooding, and profile modification. Roughly 37 percent of the projected
+CO2 used for EOR production in the AEO2009 is from
+anthropogenic sources versus natural sources.
+
+Q16 Dr. Gruenspecht, please provide an update to the Committee on
+EIA's efforts to provide additional energy data for the U.S. insular
+areas (in particular the Commonwealth of the Northern Mariana Islands,
+Guam, American Samoa, and the U.S. Virgin Islands). When does EIA
+expect to be able to provide State Energy Profile pages for each of
+those territories?
+ A16 EIA plans to publish State Energy Profiles for the five U.S.
+insular areas (American Samoa, the Commonwealth of the Northern Mariana
+Islands, Guam, Puerto Rico and the U.S. Virgin Islands) on the EIA web
+site by June 12, 2009. Each Profile consists of a map, a narrative
+section, and a data table. There are very limited EIA and other data
+available on the U.S. territories. Options to expand territory data
+collection are outlined in EIA's January 2009 report to Congress, State
+Energy Data Needs Assessment, prepared in response to the direction in
+section 805(d) of the Energy Independence and Security Act of 2007,
+P.L. 110-140. This report is on our website at http://www.eia.doe.gov/
+oiaf/service_rpts.htm.
+QUESTIONS FROM RANKING MEMBER LAMBORN
+
+Q1 UCSD Economics Professor James Hamilton has written that ``nine out
+of ten of the U.S. recessions since World War II were preceded by a
+spike up in oil prices.'' Has the EIA examined the impact of the high
+energy prices Americans faced last year on our GDP and the recession?
+ A1 EIA has not formally examined the impact of the high energy
+prices on the recession. However, the most widely-cited reasons for the
+current recession include the inflated housing market and its impacts
+on financial institutions, and financial institutions' treatment of
+risk. The higher energy prices impacted the economy, although the
+impacts of housing price inflation, wealth deflation, global recession
+and the credit crunch probably outweigh impacts of high energy prices
+alone.
+
+Q2 In your various studies and the Annual Outlook you address the
+impact high energy prices will have on our economy correct? Do these
+findings uniformly show that high energy prices are a drag on our
+economy?
+ A2 The results from EIA's analysis of the impacts of higher energy
+prices depend on the supply and demand responses to increased energy
+prices as well as the trajectory of higher prices. Initially, when
+faced with higher prices, the economy will experience a reduction in
+gross domestic product (GDP), a broad measure of economic output;
+however, if prices begin to stabilize the economy will begin to
+recover. With respect to higher oil prices, other important factors
+include to what extent domestic producers can increase their production
+and how much oil imports will fall. Typically, the economy will
+experience an early reduction in growth and, depending on the oil price
+trajectory and supply response, may return to the reference case growth
+trajectory over time.
+
+Q3 Is it safe to say that a majority of the studies you have done on
+congressional proposals like Renewable standards and cap and trade
+proposals have shown that increases in the cost of energy result in a
+lower GDP going forward?
+ A3 Most of the past EIA studies on renewable energy standards have
+found very modest impacts on energy prices and the economy. However,
+EIA has found that under some circumstances, a greenhouse gas cap and
+trade policy could lead to significant energy price increases and a
+reduction in economic output. In an analysis of S. 2191, the Lieberman-
+Warner Climate Security Act, EIA found that total discounted gross
+domestic product (GDP) losses over the 2009 to 2030 time period range
+from $444 billion (-0.2 percent) to $1,308 billion (-0.6 percent)
+across the cases considered. Similarly, the cumulative discounted
+losses for personal consumption range from $546 billion (-0.2 percent)
+to $1,425 billion (-0.6 percent). GDP losses in 2030, the last year
+explicitly modeled in the analysis, range from $27 billion to $163
+billion (-0.1 to -0.8 percent) while consumption losses in that year
+range from $58 billion to $149 billion (-0.4 to -1.1 percent). Economic
+impacts were largest when it was assumed that key low-emissions
+technologies including nuclear, fossil with carbon capture and
+sequestration, and various renewables are not developed and deployed in
+a timeframe consistent with the emissions reduction requirements, and
+international offsets are not available. Generally higher energy prices
+represent higher costs to the economy and the magnitude of the impacts
+depends on price impacts of the policies analyzed.
+
+Q4 In January 2007, EIA was asked to analyze a generic cap and trade
+program by Sen. Bingaman and others, and in that analysis you were
+asked to consider options for both a partial auction and a full
+auction. A brief excerpt from that report, ``GDP and consumption
+impacts in the Full Auction case are substantially larger than those in
+the Phased Auction case. Relative to the reference case discounted
+total GDP (in 2000 dollars) over the 2009-2030 time period in the Full
+Auction case is almost twice the estimated consumption loss in the
+Phased Auction case.''
+
+Q5 Can we assume based on this study that in most cap and trade
+schemes a full auction of carbon allowances will have a higher cost to
+the economy than a partial auction? Do you think, as analyzed in the
+January 2007 study, the costs of a full auction plan might be double a
+quarter auction plan? Could those costs be triple?
+ A4-5 The economic impacts of a greenhouse gas cap and trade policy
+will depend on many factors, including the stringency of the emissions
+cap, the speed of implementation, and the use of carbon allowance
+revenue. The January 2007 EIA analysis did show larger gross domestic
+product (GDP) and consumption losses in the full auction case compared
+to the partial auction case; however, it also stated that the economic
+impacts would be different if alternative revenue recycling assumptions
+were made, so a general conclusion that a full auction case would
+always have worse economic impacts than a partial auction case is not
+warranted. Likewise, a general conclusion that a full auction would
+have double or triple the negative economic impact of a quarter auction
+is not warranted.
+
+Q6 In the EIA analysis of the Lieberman Warner Cap and Trade proposal
+the EIA findings say that energy costs will rise. Specifically, the
+report states that ``The Consumer Price Index (CPI) for energy, a
+summary measure of energy prices facing households at the retail level,
+increases by approximately 18 percent above the Reference Case level by
+2030. Industrial energy prices increase 10 percentage points more, at
+29 percent above Reference Case levels.''
+
+Q7 So this finding says that consumers will see a nearly 20% rise in
+costs and industry, nearly a 30% rise in costs under the basic case
+presented by EIA of the Lieberman Warner bill. In addition, the EIA
+report states that in what it views as essentially the most restricted
+case ``consumer energy prices increase as much as 62 percent and
+industrial energy prices by 100 percent.''
+
+Q8 What would be the impact on American industry if we increased our
+energy prices by 100% and other nations, without restrictions on carbon
+emissions, continued to reduce their energy costs?
+ A6-8 We have not estimated the impact on American industry if we
+increased our energy prices by 100 percent and other nations, without
+restrictions on carbon emissions, continued to reduce their energy
+costs. The April 2008 EIA analysis of the Lieberman-Warner Climate
+Security Act (S. 2191) showed a range of industrial shipment impacts
+consistent with the projected increase in energy costs.
+ In the April 2008 analysis, the industrial shipment impacts ranged
+from 2.9 to 7.4 percent below reference case levels by 2030, depending
+on the assumptions used. Over the period of 2009 to 2030, industrial
+impacts in the analysis ranged from 1.3 to 3.6 percent below reference
+case levels. 1 The industrial impacts presented in the April
+2008 report only included the manufacturing, construction, mining and
+agriculture sectors of the economy. It did not include the service
+sector, which is an increasingly important part of the U.S. economy.
+---------------------------------------------------------------------------
+ \1\ Cumulative impacts, present value calculated using a 4 percent
+discount rate
+
+ Q9 In EIA's analysis of the Lieberman-Warner Climate Security bill
+last year, some of the key findings pointed out that ``The electric
+power sector accounts for the vast majority of the emissions
+reductions, with new nuclear, renewable, and fossil plants with CCS
+[Carbon Capture and Sequestration] serving as the key compliance
+technologies in most cases. [And] Many existing coal plants without CCS
+are projected to be retired early because retrofitting with CCS
+---------------------------------------------------------------------------
+technology is generally impractical.''
+
+Q10 This was in a bill which had only a ``share of the
+allowances...auctioned, while the remainder would be distributed for
+transition assistance to covered entities, energy consumers, and
+manufacturers as incentives for carbon sequestration''. Can you
+estimate for the Committee how much higher the costs might be under a
+similar regulatory scheme where 100% of the credits are auctioned at
+the beginning of the program?
+ A9-10 Since the EIA analysis of the Lieberman-Warner Climate
+Security Act used the allowance distribution called for in the bill, a
+100-percent auction case was not prepared. A 100-percent auction case
+would lead to higher energy price impacts but the economic impacts
+could not be determined without knowing how the auction revenue was to
+be used.
+
+Q11 In the assessment of Lieberman-Warner, EIA says ``As energy prices
+increase, the energy-intensive sectors, including food, paper, bulk
+chemicals, petroleum refining, glass, cement, steel and aluminum, show
+greater losses compared to the rest of the industrial sectors, reaching
+between 5 and 10.2 percent'' in most projections.
+
+Q12 Do you believe these projections to be on the low side if we
+adopted a 100% auction of carbon allowances as proposed in President
+Obama's Budget?
+
+Q13 Would we see a doubling of those projections? Meaning could we see
+20%, 30% or 40% job losses in our industrial sector as a result of the
+Presidential proposal with 100% auctions?
+ A11-13 As noted in the previous answer, a 100 percent auction would
+lead to somewhat higher energy price impacts than what we estimated in
+our analysis of the Lieberman-Warner legislation, but the economic
+impacts could not be determined without knowing how the auction revenue
+would be used. The overall impacts on energy intensive industries would
+vary depending on how the overall economy reacts to the distribution of
+the carbon allowance revenue as well as the technologies used by firms
+to substitute away from or reduce their use of fossil fuels. However,
+larger impacts on energy-intensive industries in response to a carbon
+allowance price do not translate into the same impacts experienced by
+the U.S. industrial sector as a whole, since energy-intensive
+industries comprised approximately 20 percent of industrial (non-
+service) gross output from 2003 to 2007.
+
+Q14 Can you elaborate on the subsidies for energy creation. It's a bit
+dated but EIA data shows that solar energy was subsidized at $24.34 per
+megawatt hour and wind at $23.37 per megawatt hour for electricity
+generated in 2007. By contrast, coal received 44 cents, natural gas and
+petroleum received 25 cents, hydroelectric power 67 cents, and nuclear
+power $1.59 per megawatthour.
+ A14 In 2008, EIA's most recent report on energy subsidies (Federal
+Financial Interventions and Subsidies in Energy Markets 2007) developed
+estimates of electricity subsidies by fuel, and then compared those
+subsidies to actual electricity output in Fiscal Year 2007. This
+approach yields a wide range of estimates when subsidies are expressed
+in proportion to the overall level of electric output. Technologies
+like solar and wind have relatively large subsidies per unit of output
+for two reasons. First, subsidies are often motivated by a policy goal
+of making new technologies more competitive, so subsidies may be
+directed disproportionately to these emerging technologies, rather than
+to more mature forms of production. Second, there are substantial
+differences in generation between established base-load generating
+technologies (primarily coal and nuclear), which account for 70 percent
+of all generation, and relatively new renewable technologies like wind
+and solar, which together accounted for 1.3 percent of total net
+generation in 2008. The per-unit measure of electricity production
+subsidies used in EIA's report may provide a better indicator of
+certain market impacts than the dollar amount of the subsidy. For
+example, even though coal receives higher subsidies in absolute terms
+than wind power, the use of wind is likely to be more dependent on the
+availability of subsidies than the use of coal. Other factors can also
+play an important role in determining the market impact of a particular
+production subsidy. For example, credits claimed by refined coal
+producers have lapsed since EIA's 2008 report, and the small amount of
+generation using refined coal as fuel has probably been replaced by
+steam coal. In contrast, generation from wind power, supported by
+renewable production tax credits, would likely be replaced with
+generation from a broad mix of fuels if that credit were unavailable.
+
+Q15 The 2007 energy bill, the 2009 stimulus package, and the FY09
+omnibus appropriations all included increased funding for renewable
+energy we [sic] would expect those numbers to be slightly higher than
+the 2007 data correct? Do you have any idea how much higher those
+numbers might be? Would you be willing to update those figures for this
+committee?
+ A15 EIA is able to provide an updated comparison to some of the
+programs itemized in EIA's report Federal Financial Interventions and
+Subsidies in Energy Markets 2007 by using the Treasury Department's tax
+expenditure estimates for Fiscal Year 2009 (FY09). These estimates are
+itemized in the Office of Management and Budget's (OMB) Analytical
+Perspectives, Budget of the United States Government--Fiscal Year 2009.
+The latest Treasury Department estimates also include revisions to FY07
+and FY08 data contained in EIA's report. However, EIA cannot update the
+Joint Committee on Taxation (JCT) estimates of tax expenditures enacted
+in the Energy Policy Act of 2005 because they are not itemized by the
+Treasury Department. EIA is able to update its FY07 tax expenditures
+and provide a comparison of FY08 and FY09 estimated tax expenditures,
+but no updates are available at this time for direct expenditure
+programs, research and development programs, or Federal electricity
+programs.
+ Table 1 shows FY07 estimated tax expenditures contained in EIA's
+report, along with revised FY07 tax expenditures and FY08 and FY09
+estimates reported in the FY09 budget documents. For these items, EIA
+previously reported $10.1 billion of tax expenditures (excluding tax
+expenditures scored by the JCT) for FY07, while the revised FY07
+expenditures from the Treasury Department are about $300 million
+higher. The latest Treasury Department estimates show these energy-
+related tax expenditures declining approximately $700 million in FY08
+and $1 billion in FY09.
+[GRAPHIC] [TIFF OMITTED] T7755.008
+
+ .epsThe decline reflects the expiration of certain tax expenditures
+and changes in the tax credit rates applied in certain other programs
+based on the tax law as it existed at the time the FY09 budget was
+submitted to Congress in February 2008. The Energy Independence and
+Security Act of 2007 (EISA), although it had been signed by that time,
+did not contain energy production-related tax expenditures. While Table
+1 shows tax expenditures declining, energy legislation passed
+subsequent to the submission of the FY09 budget expanded and extended
+existing tax expenditures. The Energy Improvement and Extension Act of
+2008 (EIEA), and the American Recovery and Reinvestment Act (ARRA)
+extended and expanded existing energy production tax credit and
+investment tax credit provisions, and appropriated significant funds
+for direct expenditures associated with the development of new energy
+infrastructure and end use energy efficiency.
+ The extended and expanded energy tax expenditures include:
+ Long-term extension and modification of the renewable
+energy production tax credit. The credit is now available through 2012
+for wind projects and through 2013 for other forms of renewable energy.
+It has been expanded to include marine and tidal projects.
+ Allowing renewable energy producers to take the
+investment tax credit in lieu of production tax credits for those
+facilities placed in service in 2009 and 2010.
+ Creation of a new tax credit for combined heat and power
+systems.
+ Extension of the expiration date for solar energy, fuel
+cell and microturbine property tax credits through the end of 2016.
+ Repeal of the double-dipping limitation to allow energy
+projects receiving subsidized financing to realize the full benefit of
+investment tax credits; and
+ Authorizing an additional $1.6 billion of Clean Renewable
+Energy Bonds.
+ These items have not yet been quantified by the Treasury Department
+in terms of their estimated losses to the Treasury.
+
+Q17 In your studies you say that many of our current coal fired power
+plants will be phased out as a result of their inability to meet carbon
+control requirements. What percentage of current plants do you estimate
+would be candidates for CCS technology?
+ A17 EIA has not performed a study of the potential to retrofit
+existing coal plants with Carbon Capture and Sequestration (CCS),
+rather than retiring and replacing them to meet carbon control
+requirements. Numerous factors would influence such a decision
+including the age and vintage of the plant, the technology employed at
+the plant, the plant's efficiency, the availability of space to install
+capture equipment and the proximity of suitable sequestration
+locations. The Department of Energy's National Energy Technology
+Laboratory (NETL) found in a recent study (see http://www.netl.doe.gov/
+energy-analyses/pubs/CO2%20Retrofit%20From%20Existing
+%20Plants%20Revised%20November%202007.pdf) that, while it was
+technically feasible to retrofit existing coal plants with CCS, it
+could be economically challenging.
+
+Q20 What impact will a cap and trade system have on the domestic
+agriculture sector, particularly on those sectors which are heavily
+dependent on fertilizer?
+
+Q21 How about the domestic cement industry?
+ A20-21 The impact of a cap-and-trade program on agriculture and
+other sectors will depend on the details of the program that is
+implemented. The allocation of allowances is a critical factor for all
+sectors, but agriculture will also be impacted by provisions that may
+allow farmers to receive offset credits for practices that reduce or
+sequester carbon dioxide and other greenhouse gases. The fertilizer and
+domestic cement industries are both classified as energy-intensive
+industries. Therefore, to the extent that a cap-and-trade program
+raises the cost of using fossil fuels, there industries would be
+expected to experience higher product costs.
+QUESTION FROM REPRESENTATIVE BOREN
+
+Q1 The Obama Administration proposes to increase taxes on the nation's
+oil and natural gas industry by 34 billion dollars. Most of the burden
+will fall on independent producers. Given that these independent
+producers currently drill 90% of new natural gas wells and produce more
+than 80% of the nation's natural gas, can you estimate the impact on
+domestic natural gas production that will result from the taking of so
+much capital from these producers?
+ A1 EIA has not done an analysis of this issue, so we cannot
+quantify the impacts. In December 2007, EIA produced a service report
+``Oil and Natural Gas Market Supply and Renewable Portfolio Standard
+Impacts of Selected Provisions of HR. 3221.'' That legislation also
+included some proposals impacting the taxation of the oil and gas
+industry. While EIA was not able to analyze those provisions, which are
+not the same as those presently proposed by the Obama Administration,
+our December 2007 report does provide some context on oil and gas
+industry cash flows that may be helpful.
+ [NOTE: The attachment, "An Updated Annual Energy Outlook 2009
+Reference Case Reflecting Provisions of the American Recovery and
+Reinvestment Act and Recent Changes in the Economic Outlook," April
+2009 Report by Energy Information Administration, U.S. Department of
+Energy, has been retained in the Committee's official files.]
+ ______
+
+ Mr. Costa. We look forward to asking you questions when
+that time arrives, Dr. Gruenspecht. We do appreciate that. I am
+not sure I made it clear during your introduction that you are
+the acting administrator for the Energy Information
+Administration office at this time.
+ Our next witness is to present as the program coordinator
+on the Energy Resources Program for the U.S. Geological Survey
+within the U.S. Department of the Interior. We would very much
+welcome the testimony of Brenda Pierce.
+ Brenda, please present.
+
+ STATEMENT OF BRENDA S. PIERCE, PROGRAM COORDINATOR, ENERGY
+ RESOURCES PROGRAM, U.S. GEOLOGICAL SURVEY
+
+ Ms. Pierce. Mr. Chairman and members of the Subcommittee,
+thank you for the opportunity to appear here today to discuss
+with you the U.S. Geological Survey's role in studying,
+understanding, and assessing the undiscovered geologically
+based energy resources of U.S. onshore and State waters and the
+world and the Minerals Management Service's role in providing
+information on Federal resources of the Outer Continental
+Shelf.
+ Adequate, reliable, and affordable energy supplies obtained
+using environmentally sustainable practices are essential to
+economic prosperity, environmental and human health, and
+political stability. National and global energy demand and
+resource consumption are projected to increase over the next
+several decades, as you have heard. Thus, the volumes, quality,
+and availability of domestic and foreign energy resources are
+of critical importance to the United States.
+ The Nation continues to face important decisions regarding
+the competing uses of public lands and offshore waters, the
+supply of energy to sustain development and enable growth, and
+the environmental effects of energy resource development. The
+USGS provides the research and information needed to address
+these challenges by conducting scientific investigations of
+geologically based energy resources, such as oil, gas, and
+coal; emerging resources, such as gas hydrates; underutilized
+resources, such as geothermal; and unconventional resources,
+such as oil shale; and research on the effects associated with
+energy resource occurrence, production, and utilization.
+ The results from these geoscientific studies are used to
+evaluate the quality and distribution of energy resource
+accumulations and to assess the energy resource potential of
+the Nation and the world. As one example, the USGS recently
+produced the first-ever estimate of undiscovered, technically
+recoverable gas from natural gas hydrates. Although these
+resources have not yet been proven economic, this USGS
+assessment estimates a mean of 85.4 trillion cubic feet of
+technically recoverable gas from gas hydrates from the Alaskan
+North Slope.
+ USGS assessments focus on undiscovered, technically
+recoverable oil and natural gas resources of the United States,
+exclusive of the Federal OCS, which is assessed by the MMS.
+Undiscovered, technically recoverable resources are resources
+that have yet to be found or drilled but, if found, could be
+recovered using currently available technology and industry
+practice. Economic factors are not always considered. For
+example, it may not be economically feasible to exploit those
+gas hydrate resources on the Alaskan North Slope, but they are
+technically recoverable.
+ The purpose of USGS and MMS assessments are to develop
+robust, geologically based and statistically sound and well-
+documented estimates of quantities of energy resources that
+have the potential to be added to reserves and, thus,
+contribute to the overall energy supply. The USGS and MMS
+resource assessment methodologies are thoroughly reviewed and
+externally vetted so as to maintain the transparency and
+robustness of the assessment results.
+ The assessment of undiscovered, technically recoverable
+resources do change over time. There are several reasons for
+this, including scientific and technological developments
+regarding petroleum resources as well as improvements to the
+geologic understanding in numerous settings.
+ One example of this is the change in the recently updated
+USGS assessment of the Bakken Formation of the U.S. portion of
+the Williston Basin. This assessment, released just last year
+in 2008, shows an estimated 3 billion to 4.3 billion barrels of
+undiscovered, technically recoverable oil, to compare to our
+1995 mean estimate of 151 million barrels of oil.
+ Oil and natural gas produced offshore on the Outer
+Continental Shelf is a major supply source of energy for the
+domestic market. About 17 billion barrels of oil and 174
+trillion cubic feet of natural gas have been produced from the
+OCS since 1954. Current production levels are about 1.4 million
+barrels of oil and about 8 billion cubic feet of natural gas
+per day. This represents approximately 27 percent of domestic
+oil production and 14 percent of natural gas production. These
+shares are expected to grow over the next 7 years, as new deep-
+water production in the Gulf of Mexico comes on.
+ OCS oil and gas resource assessments are completed as part
+of the Secretary's responsibilities for managing OCS energy and
+mineral resources and their requirement to assure fair-market
+value for OCS lands to be leased. The MMS conducts resource
+assessments for the OCS at various scales and for many
+purposes, such as evaluating future supply options, analyzing
+the relative merits of oil and gas development proposals, and
+providing critical input to decision-makers regarding various
+policy alternatives, and providing data essential for valuing
+Federal lands prior to leasing.
+ MMS assessments estimate the undiscovered, technically
+recoverable resources of oil and gas for individual plays.
+Estimates of the quantities of historical production reserves
+and future reserves appreciation are presented to provide a
+frame of reference for analyzing the estimates of undiscovered,
+technically recoverable resources.
+ Reserve growth is a well-documented phenomenon in the
+United States and is a major component of the Nation's
+remaining oil and natural gas resources. In fact, most
+additions to the world oil reserves in recent years are from
+growth of reserves in existing fields rather than new
+discoveries.
+ Given this context, it is important to note the important
+distinction between the terms ``resource'' and ``reserves.''
+``Resource'' is a concentration of naturally occurring
+hydrocarbons in or on the Earth's crust, some of which is, or
+potentially is, economically extractable. ``Reserves''
+specifically refer to the estimated quantities of identified,
+discovered petroleum resources that, as of the specified date,
+are expected to be commercially recovered from known
+cumulations under prevailing economic conditions, operating
+practices, and government regulations.
+ The assessment of both undiscovered resources and of
+additions to reserves from discovered fields and reservoirs
+requires estimation of reserve growth. The USGS has an active
+research effort to develop a methodology approach for better
+quantifying domestic and global contributions of reserve growth
+to the petroleum resource endowment.
+ U.S. undiscovered, technically recoverable mean oil
+resources total 48 billion barrels of oil onshore and in State
+waters and 86 billion barrels of oil for OCS. Undiscovered,
+technically recoverable mean natural gas resources total 743
+trillion cubic feet onshore and in State waters and 420
+trillion cubic feet for the OCS.
+ These resources have the potential to be added to reserves
+but are not yet proven and may or may not be economic at
+current or future prices. For example, the 86 billion barrels
+of undiscovered, technically recoverable oil resources in the
+OCS--of that, 54 billion barrels of that is estimated to be
+economically recoverable at about $46 per barrel.
+ Turning to other energy sources, coal accounts for 48
+percent of domestic electricity generation. USGS has recently
+completed an assessment of coal resources and reserves in
+Wyoming's Gillette coalfield. The Gillette area accounts for
+nearly 40 percent of the Nation's current coal production,
+making it the single most important coalfield in the United
+States.
+ A total of 164 billion tons of original coal resources was
+found in the six beds included in the evaluation. Of that
+original resource, 10 billion tons, or about 6 percent, can be
+classified as reserves at the current average estimated sales
+price. So USGS studies will determine what portion of the
+resource base are technically and economically recoverable.
+ The USGS also evaluates renewable resources, such as
+geothermal energy. We recently completed a national geothermal
+resource assessment, the first one in more than 30 years.
+Results indicate that full development of the conventional,
+identified systems could expand geothermal power production by
+approximately 6,500 megawatts of electricity, or about 260
+percent of the currently installed geothermal total of more
+than 2,500 megawatts electric.
+ The resource estimate for unconventional, enhanced
+geothermal systems is more than an order of magnitude larger
+than the combined estimates of both identified and undiscovered
+conventional geothermal resources, and, if successfully
+developed, could provide an installed geothermal electric power
+generation capacity equivalent to about half of the currently
+installed electric power generating capacity of this country.
+ America's oceans may also provide potential new renewable
+energy sources to support our Nation's growing energy needs,
+and MMS is developing a program for managing their uses. To
+date, there is no comprehensive evaluation for the available
+renewable energy potential in our offshore waters, but
+researchers have begun to examine the resource potential in
+specific areas of interest.
+ Although significant wave, wind, tidal, and current
+resources exist in close proximity to coastal population
+centers, areas that consume the majority of the Nation's
+electricity generation, the technologies used to generate this
+energy are relatively new and untested so far in the offshore
+environment of the U.S. OCS.
+ And, briefly, USGS international resource assessments. Our
+Nation depends heavily on imported energy resources. About 58
+percent of the oil and 16 percent of the natural gas consumed
+in the U.S. come from imports. Given the significance of
+imported oil and gas in the U.S. energy mix, scientifically
+robust, unbiased assessments of the world's remaining endowment
+of petroleum accumulations are very important.
+ And a major focus of USGS research recently has been the
+Circum-Arctic petroleum assessment, which is the first estimate
+of the entire area north of the Arctic Circle. Results from
+that, released last July, indicate that there are 90 billion
+barrels of undiscovered, technically recoverable oil north of
+the arctic and 1,670 trillion cubic feet of technically
+recoverable natural gas. This accounts for about 22 percent of
+the undiscovered, technically recoverable resources in the
+world, 13 percent of that oil and 30 percent of that gas.
+ So, in conclusion, during the next decade, the Federal
+Government, industry, and other groups will need to better
+understand the domestic and global distribution of, genesis of,
+use of, and consequences of using geologically based energy
+resources to address national security issues, manage the
+Nation's domestic supplies, predict future needs, anticipate as
+well as guide changing patterns in use, and facilitate creation
+of new industries.
+ As the Nation's energy mix evolves, the USGS and MMS will
+work to ensure that our research and assessment portfolio ties
+into a comprehensive suite of assessments to inform
+policymakers about the energy choices. USGS and MMS stand ready
+to assist Congress as it examines these challenges and
+opportunities.
+ Thank you for the opportunity to provide an overview of our
+work, and we would welcome to answer questions.
+ [The prepared statement of Ms. Pierce follows:]
+
+ Statement of Brenda S. Pierce, Program Coordinator, Energy Resources
+ Program, U.S. Geological Survey, U.S. Department of the Interior
+
+ Mr. Chairman and Members of the Subcommittee, thank you for the
+opportunity to appear here today to discuss with you the U.S.
+Geological Survey's role in studying, understanding, and assessing the
+undiscovered, geologically based, energy resources of the Nation
+(exclusive of the Federal offshore) and World and the Minerals
+Management Service's (MMS) role in providing information on Federal
+resources of the Outer Continental Shelf (OCS).
+Introduction
+ Adequate, reliable, and affordable energy supplies obtained using
+environmentally sustainable practices are essential to economic
+prosperity, environmental and human health, and political stability.
+National and global energy demand and resource consumption are
+projected to increase over the next several decades, though at a slower
+rate than in recent years. The United States currently consumes 21
+percent of the total world primary energy consumption and produces 15
+percent of the total world primary energy production. Thus, the
+volumes, quality, and availability of domestic and foreign energy
+resources are of critical importance to the United States. The Nation
+continues to face important decisions regarding the competing uses of
+public lands and offshore waters, the supply of energy to sustain
+development and enable growth, and the environmental effects of energy
+resource development.
+Role of the U.S. Geological Survey
+ The U.S. Geological Survey (USGS) provides the research and
+information needed to address these challenges by conducting scientific
+investigations of geologically based energy resources, such as research
+and assessment on the geology of oil, gas, and coal resources, emerging
+resources such as gas hydrates, underutilized resources such as
+geothermal, and unconventional resources such as oil shale, and
+research on the effects associated with energy resource occurrence,
+production, and (or) utilization. Our goal is: (1) to understand the
+processes critical to the formation, accumulation, occurrence, and
+alteration of geologically based energy resources; (2) to conduct
+scientifically robust assessments of those resources; and (3) to study
+the impact of energy resource occurrence and (or) production and use on
+both environmental and human health. The results from these
+geoscientific studies are used to evaluate the quality and distribution
+of energy resource accumulations, and to assess the energy resource
+potential of the Nation (exclusive of the Federal OCS)) and the World.
+As one example, the USGS recently produced the first-ever estimate of
+undiscovered, technically recoverable gas from natural gas hydrates.
+Although these resources have not yet been proven economic, this USGS
+assessment estimates a mean of 85.4 trillion cubic feet of technically
+recoverable gas from gas hydrates on the Alaska North Slope.
+ The results from this and other USGS research provide impartial,
+robust scientific information about energy resources that directly
+supports the U.S. Department of the Interior's mission of protecting
+and responsibly managing the Nation's natural resources. The USGS and
+MMS information is used by policy and decision makers, land and
+resource managers, other Federal and State agencies, the domestic
+energy industry, foreign governments, nongovernmental groups, academia,
+other scientists, and the public. The USGS works with the MMS, which
+has responsibility for energy and minerals management in Federal
+offshore waters, to provide an integrated evaluation of the Nation as a
+whole. Collectively, information from USGS research advances the
+scientific understanding of energy resources, contributes to plans for
+a balanced and secure energy future, and facilitates the strategic use
+and evaluation of resources.
+USGS and MMS National Oil and Gas Resources qResearch and Assessment
+ Activities
+ The overall goal of USGS domestic energy activities is to conduct
+research and assessments of all geologically based energy resources.
+This includes undiscovered, technically recoverable oil and natural gas
+resources, both conventional and unconventional of the United States
+(exclusive of the Federal OCS, which is assessed by the MMS). These are
+resources that have yet to be found (drilled), but if found, could be
+recovered using currently available technology and industry practice.
+Economic factors are not always considered; for example, it may not be
+economically feasible to exploit gas hydrate resources on the Alaska
+North Slope and both conventional and unconventional Alaskan gas
+resources are currently considered stranded without the means of
+transporting gas from the region. The purpose of USGS and MMS
+assessments are to develop robust, geologically based, statistically
+sound, well-documented estimates of quantities of energy resources
+having the potential to be added to reserves, and thus contribute to
+the overall energy supply. The USGS and MMS resource assessment
+methodologies are thoroughly reviewed and externally vetted so as to
+maintain the transparency and robustness of the assessment results.
+ The current USGS effort to update national (onshore and State
+waters) assessments of oil and gas resources is done in support of the
+Energy Policy and Conservation Act (EPCA) Amendments of 2000 (P.L. 106-
+469 Sec. 604). Through a collaborative, multi-agency effort involving
+the Bureau of Land Management, the USGS, the U.S. Forest Service, the
+Department of Energy, and the EIA, the USGS provides the oil and gas
+resource estimates as the basis for the EPCA inventory. The USGS role
+is to assess the potential volumes of conventional and continuous
+(unconventional) resources (e.g., coalbed gas, shale gas, tight gas
+sands) in each priority province using established, externally reviewed
+and vetted methodologies and provide this information to the
+appropriate land and resource management agencies for subsequent
+analysis. The Energy Policy Act of 2005 (P.L. 109-58) re-authorized
+EPCA 2000 assessment activities by the USGS, emphasizing the unique and
+critical role of the USGS and specifically mandated that ``the same
+assessment methodology across all geological provinces, areas, and
+regions [be used] in preparing and issuing national geological
+assessments to ensure accurate comparisons of geological resources.''
+ The estimate of undiscovered, technically recoverable resources
+changes over time. There are several reasons for this, including
+scientific and technological developments regarding petroleum resources
+in general and improvements to the geologic understanding in numerous
+settings. These advances in geologic understanding, as well as changes
+in technology and industry practices, necessitate that resource
+assessments be periodically updated to take into account such advances.
+One example of this change is the recently updated USGS assessment of
+the Bakken Formation in the U.S. portion of the Williston Basin. This
+assessment, released in 2008, shows an estimated 3.0 to 4.3 billion
+barrels of undiscovered, technically recoverable oil compared to USGS's
+1995 mean estimate of 151 million barrels of oil. Another example is
+the USGS assessment of gas hydrates on the Alaskan North Slope.
+Substantial investments in gas hydrate research now support
+categorizing some accumulations of gas hydrates as technically
+recoverable. Research challenges remain in order to determine if this
+technically recoverable resource will be economically recoverable, but
+current multi-organizational (including USGS) and multi-disciplinary
+efforts are focused on overcoming these obstacles.
+ The passage of the OCS Lands Act in 1953 established Federal
+jurisdiction over the mineral resources of the OCS and authorized the
+Secretary of the Interior to manage oil and natural gas and other
+marine minerals activity seaward of state submerged lands. Oil and
+natural gas produced offshore on the OCS is a major supply source of
+energy for the domestic market. About 17 billion barrels of oil and 174
+trillion cubic feet of natural gas have been produced from the OCS
+since 1954. Current production levels are about 1.4 million barrels of
+oil and about 8 billion cubic feet of natural gas per day. This
+represents approximately 27 percent of domestic oil production and 14
+percent of natural gas production. But these shares are expected to
+grow over the next 7 years as new deepwater production in the Gulf of
+Mexico comes on line (Gulf of Mexico Oil and Gas Production Forecast:
+2007-2016, May 2007). Recent discoveries in the deep and ultra-deep
+waters of the Gulf of Mexico could help provide a significant source of
+oil and gas supplies for decades to come.
+ OCS oil and gas resource assessments are completed as part of the
+Secretary's responsibilities for managing OCS energy and mineral
+resources and the requirement to assure fair market value for OCS lands
+to be leased. The MMS conducts resource assessments for the OCS at
+various scales and for many purposes. Regional assessments may be
+prepared simply to develop an inventory of potential oil and natural
+gas resources as part of an evaluation of future supply options.
+Assessments may be undertaken to analyze the relative merits of oil and
+gas development proposals and alternatives versus other competing uses.
+Resource estimates also provide critical input to decision makers
+regarding the virtues of various policy alternatives, and provide data
+essential for valuing Federal lands prior to leasing or analyzing
+industry exploration or development proposals. The MMS conducts
+periodic national assessments of the oil and natural gas resource
+potential of the Nation's Outer Continental Shelf; and in 2005,
+Congress directed (in Section 357 of the Energy Policy Act of 2005)
+that the Secretary conduct a comprehensive inventory and analysis of
+oil and natural gas resources of the U.S. OCS. This MMS assessment,
+which was completed in 2006, considers recent geophysical, geological,
+technological, and economic information and utilizes a probabilistic
+play based approach to estimate the undiscovered technically
+recoverable resources (UTRR) of oil and gas for individual plays. This
+methodology is suitable for both conceptual plays where there is little
+or no specific information available, and for developed plays where
+there are discovered oil and gas fields and considerable information is
+available. After estimation, individual play results are aggregated to
+larger areas such as basins and regions. Estimates of the quantities of
+historical production, reserves, and future reserves appreciation are
+presented to provide a frame of reference for analyzing the estimates
+of UTRR.
+ Reserve growth is well documented in the United States and is a
+major component of the Nation's remaining oil and natural gas
+resources. In fact, most additions to world oil reserves in recent
+years are from growth of reserves in existing fields rather than new
+discoveries. The EIA's 2009 forecast of significant increases in
+domestic oil production is partly owing to advances in enhanced oil
+recovery technologies. Given this context, it is important to note the
+important distinction between the terms ``resource'' and ``reserves.''
+Resource is a concentration of naturally occurring solid, liquid, or
+gaseous hydrocarbons in or on the Earth's crust, some of which is, or
+potentially is, economically extractable. Reserves specifically refer
+to the estimated quantities of identified (discovered) petroleum
+resources that as of a specified date, are expected to be commercially
+recovered from known accumulations under prevailing economic
+conditions, operating practices, and government regulations.
+ Reserve growth occurs for a variety of reasons, including: (1)
+extensions of existing fields, infill drilling and new pool
+discoveries, (2) application of new recovery technologies and improved
+efficiency, and (3) revisions resulting from recalculation of viable
+reserves in dynamically changing economic and operating conditions. The
+assessment of both undiscovered resources and of additions to reserves
+from discovered fields and reservoirs requires estimation of reserve
+growth. The USGS has an active research effort to develop a methodology
+and approach for better quantifying domestic and global contributions
+of reserve growth to the petroleum resource endowment.
+ Undiscovered, technically recoverable mean oil resources total 48
+billion barrels of oil onshore and in State waters and 86 billion
+barrels of oil for the OCS. Undiscovered, technically recoverable mean
+natural gas resources total 743 trillion cubic feet onshore and in
+State waters (or 657 trillion cubic feet, exclusive of the recent
+natural gas hydrates assessment), and 420 trillion cubic feet for the
+OCS. These resources have the potential to be added to reserves, but
+are not yet proven and may or may not be economic at current or future
+prices. For example, according to the 2006 MMS national assessment
+(http://www.mms.gov/revaldiv/PDFs/NA2006
+BrochurePlanningAreaInsert.pdf), of the 86 billion barrels of
+undiscovered, technically recoverable oil resources in the OCS, 54
+billion barrels of that is estimated to be economically recoverable at
+$46/barrel. Of the 420 trillion cubic feet of undiscovered, technically
+recoverable natural gas resources in the OCS, 215 trillion cubic feet
+is estimated to be economically recoverable at $6.96/million cubic
+foot.''
+ These numbers can be compared to proved reserves numbers (EIA):
+proved U.S. petroleum reserves (for 2007) are 22 billion barrels of oil
+and proved world petroleum reserves are 1,317 billion barrels; proved
+natural gas reserves for the U.S. are 204 trillion cubic feet and for
+the world are 6,124 trillion cubic feet.
+Unconventional Oil and Gas Resources
+ In April 2007, the USGS received funding for a two-year project to
+reassess oil shale deposits of the Eocene Green River Formation of
+Colorado, Utah, and Wyoming. The new assessment will incorporate
+considerable data acquired by the USGS following the collapse of the
+oil shale industry in the 1980's. It will subdivide the oil shale
+section into various subunits that will be assessed separately and the
+data will be made available on-line in a manner that can be easily
+utilized by modern computer models. This will allow simulations of
+various development scenarios for open pit mining, underground mining,
+and in-situ retorting, should oil shale development ever get underway.
+Coal
+ Coal dominates the U.S. fossil energy endowment and accounts for
+48% of domestic electricity generation. The USGS has recently completed
+an assessment of coal resources and reserves in Wyoming's Gillette
+coalfield, the most prolific coalfield in the country. This assessment
+is part of the National Coal Resource and Reserve Assessment, which is
+systematically evaluating the domestic coal resource and reserve base.
+By utilizing an abundance of new data from coalbed methane development
+in the region, the USGS was able to produce the most comprehensive
+assessment to date. The Gillette area accounts for nearly 40 percent of
+the Nation's current coal production making it the single most
+important coalfield in the United States. A total of 164 billion tons
+of original coal resources was found in the six coal beds included in
+the evaluation. Of that original resource, 10.1 billion tons (6
+percent) can be classified as reserves at the current average estimated
+sales price. Substantial additional resources could be recoverable
+assuming increased market prices will support the higher costs needed
+to recover deeper coal. Coal is currently the most important fuel for
+electricity generation and the USGS studies will determine what portion
+of the resource base is technically and economically recoverable.
+Renewable Energy
+ In addition to petroleum and coal resources, the USGS also
+evaluates renewable resources such as geothermal energy. The USGS
+recently completed a national geothermal resource assessment, the first
+one in more than 30 years. The USGS evaluated 241 moderate- and high-
+temperature geothermal resources capable of producing electricity. The
+USGS assessment estimates (1) 9,057 Megawatts-electric (MWe) of power
+potential from conventional, identified geothermal systems, (2) 30,033
+MWe of power generation potential from conventional, undiscovered
+geothermal resources, and (3) 517,800 MWe of power generation potential
+from unconventional Enhanced Geothermal Systems (EGS) resources. The
+results indicate that full development of the conventional, identified
+systems could expand geothermal power production by approximately 6,500
+MWe, or about 260 percent of the currently installed geothermal total
+of more than 2,500 MWe. The resource estimate for unconventional EGS is
+more than an order of magnitude larger than the combined estimates of
+both identified and undiscovered conventional geothermal resources and,
+if successfully developed, could provide an installed geothermal
+electric power generation capacity equivalent to about half of the
+currently installed electric power generating capacity of the United
+States.
+ America's oceans may also provide potential new renewable energy
+sources to support our Nation's growing energy needs, and MMS is
+developing a program for managing their uses. Resources on the OCS can
+be used to generate electricity in a variety of ways. To date there is
+no comprehensive evaluation for the available renewable energy
+potential in all offshore waters, but researchers have begun to examine
+the resource potential in specific areas of interest. DOE's National
+Renewable Energy Laboratory has a program to produce validated wind
+resource maps for priority offshore areas, and the results show that
+the offshore wind resource potential is vast and has the potential to
+meet a significant amount of the Nation's future energy needs. Although
+significant wind, wave, tidal and current resources exist in close
+proximity to coastal population centers--areas that consume the
+majority of the Nation's electricity generation--the technologies used
+to generate this energy are relatively new and untested in the offshore
+environment of the U.S. OCS. Wind, wave and ocean current technologies
+have been demonstrated at the pilot scale, and wind has been developed
+at the commercial scale outside the United States--e.g., offshore
+Denmark, the United Kingdom and Germany.
+U.S. Geological Survey International Energy Studies
+ Our Nation depends heavily on imported energy resources: about 58
+percent of the oil and 16 percent of the natural gas consumed in the
+U.S. come from imports. Given the significance of imported oil and gas
+to the U.S. energy mix, scientifically robust, unbiased assessments of
+the world's remaining endowment of petroleum accumulations are of the
+utmost importance. For this reason, global petroleum resource
+assessments are a core USGS research activity and have significant
+global visibility. The USGS world oil and gas resource estimates are
+used as a standard reference by many organizations including the EIA
+and the International Energy Agency (IEA).
+ The overall objectives of USGS studies of international petroleum
+resources are to continue providing high-quality, comprehensive
+petroleum assessments and to update previous assessments as needed. A
+major focus of recent USGS research in this area is the Circum-Arctic
+Resource Appraisal (or CARA), the primary emphasis of which is to
+provide a comprehensive, unbiased probabilistic estimate of potential
+future additions to conventional oil and gas reserves in the high
+northern latitudes. The Arctic is an area of high petroleum resource
+potential, low data density, high geologic uncertainty and sensitive
+environmental conditions. The assessment is the first publicly
+available petroleum resource estimate of the entire area north of the
+Arctic Circle.
+ The results of the assessment, released last July, estimate that
+the area north of the Arctic Circle has 90 billion barrels of
+undiscovered, technically recoverable oil, 1,670 trillion cubic feet of
+technically recoverable natural gas, and 44 billion barrels of
+technically recoverable natural gas liquids in 25 geologically defined
+areas thought to have potential for petroleum. These resources account
+for about 22 percent of the undiscovered, technically recoverable
+resources in the world. The Arctic accounts for about 13 percent of the
+undiscovered oil, 30 percent of the undiscovered natural gas, and 20
+percent of the undiscovered natural gas liquids in the world. About 84
+percent of the estimated resources are expected to occur offshore.
+Conclusion
+ During the next decade, the Federal government, industry, and other
+groups will need to better understand the domestic and global
+distribution of, genesis of, use of and consequences of using
+geologically based energy resources to address pressing environmental
+problems such as climate change, national security issues, manage the
+Nation's domestic supplies wisely, predict future needs, anticipate as
+well as guide changing patterns in use, and facilitate creation of new
+industries. Energy resources research and assessments are a traditional
+strength of the USGS and the MMS, and these activities provide
+impartial, robust information necessary for the many needs just
+outlined. As the Nation's energy mix evolves, the USGS and MMS will
+continue to work with other Federal agencies such as DOE to ensure that
+our research and assessment portfolio ties into a comprehensive suite
+of assessments to inform policymakers about energy choices. Future USGS
+and MMS assessments are anticipated to include hydrocarbon-based (for
+example, unconventional gas from coal and shale, gas hydrates, oil
+shale) and nonhydrocarbon-based sources (for example, geothermal
+resources and uranium) and address the effects of such resource use on
+land use, ecosystem health, and human welfare. USGS resource
+assessments and research play an important role in the public and
+government discourse about the energy resource future of the Nation so
+that science can inform, advise, and engage decision makers. The USGS
+and MMS stand ready to assist Congress as it examines these challenges
+and opportunities.
+ Thank you for this opportunity to provide an overview of USGS and
+MMS research and assessments of geologically based energy resources. I
+would be happy to answer your questions.
+[GRAPHIC] [TIFF OMITTED] T7755.003
+
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+
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+
+ .eps__
+
+ Mr. Costa. Thank you very much, Brenda.
+ Now we will get to the part of the questions.
+ I would like to ask you at U.S. Geological Survey and the
+gentleman from EIA, given the changes that have occurred in
+recent decades--I mean, just think about in the last 10 years,
+the last 20 years--in our ability to determine carbon deposits,
+either oil or gas, with the seismology technology and others,
+how good the estimates are that both of you have just made your
+comments on.
+ Mr. Gruenspecht. Well, for the undiscovered, we really rely
+on USGS and MMS for the reserves part--the part that the
+operators have already identified and booked and report to the
+Securities and Exchange Commission if they are public
+companies--that we collect directly. The bigger part of the
+resource is the undiscovered resource, so maybe----
+ Mr. Costa. So how good do you think your numbers are on the
+undiscovered, based upon current technology?
+ Ms. Pierce. It is a very good question. It does depend on
+the amount of data and what that technology will help us
+understand. So areas that we have seismic or drill-hole data, I
+think our estimates are fairly good because we understand that.
+In areas that there are very little data, like parts of the
+Arctic, it is less certain.
+ And that is why we do probabilistic estimates; we give a
+range. And so the uncertainty is reflected in that range, so
+some of the estimates are quite uncertain and are reflected. So
+these numbers I shared are only mean numbers. So it is a mixed
+bag. Some areas we are pretty certain; some not so.
+ Mr. Costa. I think you gave a good big picture for us to
+begin to try to draw a road map for our policy.
+ I question, as we ponder the issue of providing more
+availability of OCS leases, many of my colleagues question
+whether or not we are realizing the full potential of those
+leases that are already available.
+ Do you understand what I am saying, Mr. Gruenspecht?
+ Is it your determination, as that discussion--I mean, I
+made the comment last week that I thought part of the debate or
+discussion last year was somewhat, in my view, mindlessness,
+but maybe that is my own view, about ``use it or lose it'' or
+``drill, baby, drill.''
+ But having said that, is, to your knowledge, every carbon
+footprint on lease that is currently available for utilization
+retain that same carbon footprint, whether it be oil or gas, as
+you make these estimations? Do you understand my question?
+ Mr. Gruenspecht. I am not sure I do, sir.
+ Mr. Costa. Well, if the idea is that all we really need to
+do is to exercise all of those lands that are currently
+available for lease, and if you were to assume that they all
+have the same carbon footprint, i.e. The same amount of oil and
+gas, or gas, than each lease lot that now is available for
+drill purposes, then logically you would assume that you would
+take, really, a usage of all that resource that is available in
+that area that is already available for lease.
+ Mr. Gruenspecht. You know, my understanding of the
+situation is that again we are projecting growing production
+from the OCS that at least we are pretty certain about, because
+close in, you know, between now and 2015, we know what projects
+are underway in the deepwater Gulf in particular. And we do see
+rising oil production coming out of that and rising natural gas
+production coming out of that.
+ But part of the development decision, as I understand it,
+there are multiple stages, there are issues about the
+connection to existing----
+ Mr. Costa. Let me ask the question. To your understanding
+is there a lease available for utilization purposes containing
+the same amount of carbon in that lease, whether it be oil or
+gas? In terms of the value of the production?
+ Mr. Gruenspecht. No, that is not my understanding.
+ Mr. Costa. You would concur, U.S. Geological Survey, why
+different leases are priced differently when they go to bid?
+ Ms. Pierce. No, that's right. I do have a colleague from
+MMS here if you have specific questions for MMS. And
+geologically I would concur, yes. They are not all created
+equal.
+ Mr. Costa. Dr. Birol, I talked in my opening statement
+about the near term, the interim and the long term. What should
+we be doing to utilize these resources for sustainable energy
+policy for a comprehensive energy policy today? What should we
+be doing in the next 5 to 10 years and beyond?
+ I am going to take the privilege of the Chair because my
+time has just run out, but please answer the question.
+ Mr. Birol. OK, I think short term there are low hanging
+fruits in the United States which are the most important way to
+improving energy efficiency, using energy much more
+efficiently, the energy from transportation, cars, trucks, jets
+to electrical appliances. There is huge room to improve energy
+efficiency there, and we can save energy in the short term.
+ Second is the current Administration is very much
+determined to make more user renewable energy with solar and
+biomass. But at the same time it will not be a bad idea to look
+at the option of nuclear power as it provides energy,
+particular energy, without emitting carbon emissions and
+without creating problems for security of supply.
+ In the longer term we all know that coal is the backbone of
+electric generation in the United States and will remain so for
+many years. So to look at the possibilities of using coal in a
+cleaner way may be a very good option.
+ To sum up, more energy efficiency, more renewables, more
+nuclear power and in the longer term clean coal technologies.
+ Mr. Costa. My final question, if we were to take advantage
+in the short term of that low hanging fruit that you described,
+what are the best examples around either here in the United
+States or elsewhere of that low hanging fruit for us to pattern
+after?
+ Mr. Birol. I think the most important ones today are energy
+efficiency improvements, renewables and nuclear power, sir.
+ Mr. Costa. In what places are those most exhibited?
+ Mr. Birol. Energy efficiency--almost throughout the world,
+but in the United States especially in the transportation
+sector--cars, trucks--there is huge room for improvement. But
+also in China, India, Middle East countries, there is strong
+room for improvement and nuclear power. We have the chance to
+increase the share of nuclear energy, which is good for the
+twin challenges I described here--to address the climate change
+issue and the security of supply issue.
+ Mr. Costa. That good old-fashioned ethic of conservation?
+ Mr. Birol. Yes, it is. That is right.
+ Mr. Costa. Sir, my friend from Colorado. Mr. Lamborn.
+ Mr. Lamborn. Thank you, Mr. Chairman. Mr. Gruenspecht, you
+did some analysis last year for the Senate Lieberman bill,
+Lieberman-Warner bill on cap and trade, your organization. I
+would like to ask you a couple questions about that. The report
+that EIA put out said, ``The consumer price index for energy, a
+summary measure of energy prices facing households at the
+retail level, increases by approximately 18 percent above the
+reference case level by 2030. Industrial energy prices increase
+10 percentage points more at 29 percent above reference case
+levels.''
+ So by my reading of this report consumers will see a nearly
+20 percent rise in cost in the industry, nearly 30 percent rise
+in cost under essentially the basic case presented by EIA of
+the Lieberman-Warner bill; is that correct?
+ Mr. Gruenspecht. I am trying to remember back exactly what
+we had. I remember that we did several different cases in part
+because of the issue of it is very difficult to know will
+nuclear power really be available, will coal carbon capture and
+sequestration really be available. I do recall we did a range
+of cases. But certainly not surprisingly coal is some of the
+cheapest--the electricity sector is where a lot of the
+reductions occur. It comes from backing out the current coal
+technology. So one needs to build a lot of new capacity of
+other types if one is subject to these caps and it does have
+significant impacts on energy prices, particularly electricity
+prices, and there are some impacts on gasoline prices and other
+fuel prices.
+ Mr. Lamborn. Now did your analysis go on to analyze what
+would happen with these kinds of price increases, depending on
+the scenario and I know that that varies to the economy and to
+economic growth and jobs?
+ Mr. Gruenspecht. I am sure we did. I am trying to again
+think back to that, but I know there was a range of economic
+impacts on both the overall size of the economy and level of
+consumption, which is another measure of welfare, clearly
+depending on what technologies at what costs were soon to be
+available.
+ One thing to keep in mind, I think, is the EIA has sort of
+a funny mission--we try to present information. There is
+certainly uncertainty in all projections, but we don't do a lot
+of framing of that information. A good example would be the
+economic effects of a climate change policy. You could either
+measure it in how many billions or hundreds of billions or
+maybe even trillions, a number that we use more and more
+frequently in Washington these days, of dollars you get
+comparing one case to another.
+ On the other hand, you could say, you know, how big is the
+economy in 2030 if we did this and if we didn't do it. And the
+economy is very big, you know. So a difference of a few hundred
+billion or a trillion, which is certainly a lot of money to me,
+if you put those two bars next to each other in a 20 or 30
+trillion dollar economy out into the future it doesn't look
+like that much. All I am saying is you can take the same
+results and depending on how they are framed you can say gee,
+this is a tremendous----
+ Mr. Lamborn. Thank you.
+ If we are going to do cap and trade, knowing that it would
+raise energy prices, would you have a recommendation on the
+timing for instituting that? In other words, during a time of
+growth or during a time of recession if that was the two
+choices that we had?
+ Mr. Gruenspecht. That probably strays into the policy area
+where EIA does not play.
+ Mr. Lamborn. OK.
+ Mr. Gruenspecht. But I think you could imagine what an
+answer might be.
+ Mr. Lamborn. On carbon capture and sequestration am I
+correct in assuming that there is absolutely no proven
+technology for that today?
+ Mr. Gruenspecht. I think that is not--certainly in the
+power sector there is no carbon capture and sequestration
+operating on a full scale power plant. That would be correct.
+But there is carbon capture and sequestration going on in oil
+production and in some other areas.
+ Mr. Lamborn. OK, thank you for that clarification.
+ So as far as the cost that that would add to energy and so
+on or even if it is feasible on a commercially scalable and
+viable level, we don't even know--really know--that for sure,
+do we?
+ Mr. Gruenspecht. It is pretty significant. The issue of
+baseload power generation, I think my colleague Dr. Birol
+raised, you can think of nuclear as one carbon free option and
+coal with carbon capture and sequestration as another. We
+probably have a lot more experience with nuclear. In EIA's
+analyses, the cost of those tends to be actually pretty close
+to each other. So coal with carbon capture and sequestration in
+addition to the extra kit that you need, you also use a lot of
+the energy that you generate in the plant to run that extra kit
+to capture and handle the carbon. So it is pretty expensive.
+ Mr. Lamborn. Thank you, I see my time is up. Thank you, Mr.
+Chairman.
+ Mr. Costa. Thank the gentleman from Colorado. We now will
+give 5 minutes to the gentleman from the Northern Mariana
+Islands, Mr. Sablan.
+ Mr. Sablan. Thank you, Mr. Chairman. I have one question,
+Ms. Pierce. I would like to thank you USGS for some of the
+recent activities you had in the Northern Mariana Islands. I
+come from the Mariana Arc in the Pacific Ring of Fire. I have
+no idea if we have oil in the Marianas, I don't know if you do,
+but I know we don't. But it seems that we have other kind of
+energy that is actually clean that no one has thought of--well,
+they have thought about using it but not in a commercial way.
+Do you have any efforts to update the national assessments of
+oil and gas resources on offshore and state waters? It does not
+appear that you have those assessments completed for the
+Northern Mariana Islands. Is USGS planning to perform an
+assessment some time?
+ Ms. Pierce. Recently we have been very focused on domestic
+oil and gas resources in our state waters and onshore. And our
+international assessment has been focused solely on the Arctic
+because that was such a large piece missing. Now that the
+Arctic is done we need another year to integrate those efforts.
+But as that year goes on we are going to reprioritize the rest
+of the world, where there are holes and where there is missing
+information where we need to focus on next.
+ So certainly in that time frame we would be looking at
+potential and what we might do, and so we would be developing
+those plans.
+ Mr. Sablan. Thank you.
+ Mr. Costa. If the gentleman from the Northern Marianas
+would like to try to get some direction for the U.S. Geological
+Survey to focus in your area, I would be pleased as the
+Subcommittee Chairman to put together a letter to ask that when
+the resources become available that they do so if that is your
+intent.
+ Mr. Sablan. Well, actually yes, Mr. Chairman. And actually
+I would also ask one of the other witnesses. In your last
+hearing in the Virgin Islands you actually asked, I think it
+was Energy Information Administration, to put some information
+for the territories, and I don't think it has been done yet. So
+I would also ask for that. You had a hearing in the Virgin
+Islands.
+ Mr. Costa. No, we did. And part of it was done with our
+colleague.
+ You have just gotten some new information?
+ Mr. Gruenspecht. I am informed that there is work underway
+on that request. It has not been forgotten.
+ Mr. Sablan. So they do listen.
+ Mr. Costa. Does that include, besides the U.S. Virgin
+Islands, the Northern Mariana Islands as well?
+ Mr. Gruenspecht. I thought it was all of the territories.
+ Mr. Costa. I thought it was, too. I want to get
+clarification since we have a Representative here who obviously
+needs to be clear as to what he understands is taking place.
+ Mr. Gruenspecht. How about if it doesn't, it will?
+ Mr. Costa. I think it would be appropriate if your agency
+would provide a letter to the Subcommittee and to the
+Representative indicating what is taking place and on what time
+line. And then if we need to follow up with further response we
+can do so.
+ Mr. Gruenspecht. I think that is very reasonable, sir.
+ Mr. Sablan. Thank you, Mr. Chairman. I yield the rest of my
+time.
+ Mr. Costa. The gentleman always appreciates when Members
+are judicious with their time, which brings me to the gentleman
+from Utah, Mr. Chaffetz.
+ Mr. Chaffetz. Thank you, Mr. Chairman.
+ Mr. Gruenspecht, I appreciate all three of you being here,
+but my questions are primarily directed to you. It is not a
+trick question. What percentage of Americans consume energy?
+ Mr. Gruenspecht. All of them.
+ Mr. Chaffetz. And so if we had a tax, a cap and trade tax,
+what percentage of Americans would be affected by that tax?
+ Mr. Gruenspecht. Probably all of them.
+ Mr. Chaffetz. One hundred percent of Americans.
+ One of the things that is interesting here is that what I
+have read, and correct me if I am wrong, is that it assumes the
+current laws and regulations are in place. And one of my
+concerns is the disruption that we have, the lack of regulatory
+certainty that those companies that may be manufacturing and
+extracting these resources are dealing with.
+ Can you try to help me quantify or understand what the
+impact is when there is a lack of regulatory certainty? We are
+dealing with an issue, for instance, in Utah after a multi-year
+process where unilaterally we were no longer allowed to proceed
+with some leases on public lands. What sort of impact do you
+think that that lack of regulatory certainty has in the market?
+ Mr. Gruenspecht. It is actually a very tough question. It
+is not a trick question.
+ Mr. Chaffetz. In about 20 seconds.
+ Mr. Gruenspecht. Twenty seconds. There is an impact. If one
+knew what the ultimate decisions were going to be policy wise,
+I think everyone would agree that you would rather they know
+about them now than be uncertain about them. But on the other
+hand, there is a lot of disagreement about what the policy
+decisions are going to be. I think the parties also care about
+how the program comes out and how the decisions come out.
+ Mr. Chaffetz. Certainly you wouldn't disagree with the fact
+that, given the lack of regulatory certainty, there are real
+expenses that are ultimately passed on in the consumption of
+energy?
+ Mr. Gruenspecht. Uncertainty has a cost, but certainly
+people would rather be uncertain and not have the outcome they
+don't want than be certain that they have the outcome that they
+don't want. That is what I would say, and that is really the
+truth. That is an honest answer.
+ Mr. Chaffetz. And over the course of time, at least until
+2030, you do see an increase in the consumption or extraction
+of resources in all areas, including those resources that are
+extracted from public lands?
+ Mr. Gruenspecht. We do and we see energy demand growing,
+but not growing that fast, in part because of some efficiency
+options that we think are really coming into play and in part
+because of some of the legislation that you all have enacted.
+You enacted fuel economy standards in 2007 and other things.
+ Mr. Chaffetz. Now, there has been a lot of discussion about
+increasing wind and solar development to reduce our dependence
+on foreign energy. Can you help quantify how many imported
+barrels of oil will be reduced by generating more electricity
+from renewable sources?
+ Mr. Gruenspecht. Well, I would say that very little oil is
+used to generate electricity right now. So while certainly
+using more renewable energy to generate electricity would
+affect the use of fossil fuels, probably since little oil is
+used to generate electricity, it would not affect----
+ Mr. Chaffetz. So if we don't generate much electricity from
+oil, how much electricity do we import from foreign nations?
+ Mr. Gruenspecht. I think we have net importers from Canada,
+but not much.
+ Mr. Chaffetz. So clearly when we talk about reducing our
+dependence on foreign energy it is not about creating more wind
+and solar power or about generating electricity, it is about
+the combination of producing more oil and gas here at home and
+consuming less. If that is clearly the case, since we have put
+in place many of the standards to begin to control the
+consumption of oil, shouldn't our focus be on increasing
+domestic production to reduce our import dependency?
+ Mr. Gruenspecht. Again, I think people would argue that
+there is--again EIA would not take a policy position. People
+would argue that there is still more room for increased
+efficiency. Certainly it is a combination of less demand and
+more domestic supply that reduce imports. So if your focus is
+on reducing imports both demand and supply matter.
+ Mr. Chaffetz. My last question, Mr. Chairman. My
+understanding is that by 2030 the United States will still need
+to rely on oil for more than 80 percent of its transportation
+fuels, is that correct?
+ Mr. Gruenspecht. I think our reference case projection
+would have something like that.
+ Mr. Chaffetz. We still are going to have more than 80
+percent.
+ Mr. Gruenspecht. That would be down from a current 96
+percent, yes.
+ Mr. Chaffetz. But still a huge 80 percent.
+ Mr. Gruenspecht. A lot, yeah.
+ Mr. Chaffetz. Thank you, Mr. Chairman. I yield back the
+balance of my time.
+ Mr. Costa. Thank you. We appreciate that.
+ The next gentleman on the Subcommittee that the Chair will
+recognize, Mr. Sarbanes from Maryland. Good to have you here.
+ Mr. Sarbanes. Thank you. I am glad to be here. Thank you
+for holding the hearing. I have an assortment of seemingly
+random questions, so bear with me.
+ First one is just definitional. Undiscovered but
+technically recoverable means what?
+ Ms. Pierce. We produce resource estimates on those that are
+not currently reserved, so not booked by the SEC, not currently
+in production. They are undiscovered so they have not been
+drilled yet.
+ Mr. Sarbanes. So would there be three categories or would
+there be in production and then there would be reserve, a class
+of reserve items, and then there would be this undiscovered,
+but technically recoverable.
+ Ms. Pierce. And there is yet a bigger one of all
+undiscovered, like all molecules in the ground.
+ Mr. Sarbanes. So, there are like four categories?
+ Ms. Pierce. There are many, but in general, in general.
+ Mr. Sarbanes. The OCS discussion is one that we have been
+having for the last couple of weeks and, of course, we are
+operating now in an environment where the moratorium has been
+lifted so the discussion is over. Re-imposing it or not having
+it at all, and so forth.
+ Describe, if you will, what you view as the practical
+impact of reimposing the moratorium, recognizing that when it
+was in place there was a fair amount of the OCS what, 15 or 16
+percent or something like that, that was available for
+exploration and production, because what I am trying to get a
+handle on is until that was lifted presumably people were
+projecting models on how they were going to make this
+transition and where our resources were going to come from that
+assume the moratorium would stay in place.
+ And maybe Ms. Pierce, you could speak to the question. You
+mentioned the Gulf of Mexico, there is going to be new
+deepwater production there in the next few years or something?
+ Ms. Pierce. Yes.
+ Mr. Sarbanes. Is that in the place exempt from the
+moratorium when it was in place?
+ Ms. Pierce. Yes. And I would like to have MMS answer that
+question.
+ Mr. Costa. State your name for the record.
+ Mr. Syms. I have a cold. Harold Syms.
+ Could you ask that again, please? I am not quite sure.
+ Mr. Sarbanes. The specific question was the Gulf of Mexico
+anticipated increased production that was referenced was
+something that was exempt from the prior moratorium that was in
+place?
+ Mr. Syms. It was.
+ Mr. Sarbanes. And so I guess my point is we are still in
+that time period where we are referencing things that we could
+have explored and produced, notwithstanding the existence of
+the moratorium because people haven't yet built all the new
+models that would assume the moratorium was gone. And the old
+models seemed to make it sound like there was a significant
+amount of resources that could come, energy resources that
+could come, even though the moratorium was going to be in
+place, and that you would be able to make this transition that
+we all talk about making from our current portfolio of energy
+resources to a new one that is less dependent on oil and all
+the rest of it.
+ And so what I am asking, and maybe, Dr. Gruenspecht, you
+could speak to this, when the moratorium was in place we still
+saw our way clear to a decent transition, notwithstanding the
+new needs that we project, right?
+ Mr. Gruenspecht. As I discussed in the testimony, we expect
+total OCS production to increase whether or not the moratoria
+are restored. In one case to about total lower 48 offshore
+would be something like 2.2 million barrels a day and in the
+other case it is something like 2.8 million barrels a day, but
+they are both higher than today's 1.3 million barrels a day in
+the OCS.
+ The other thing to keep in mind, the open--there is Alaska,
+Atlantic, and Gulf of Mexico that were open prior to 2008.
+There is the eastern Gulf of Mexico that was off limits and the
+Pacific that was off limits. The Gulf of Mexico that was open
+actually, and again MMS could speak for the undiscovered part,
+but I think those resources were something like 40 billion
+barrels. And the total OCS undiscovered is something on the
+order of 100. So actually the open part by the estimate of oil
+that it contains is actually more than the 17 or 18 percent
+that you referenced in your question. That might be the square
+miles or something.
+ Mr. Sarbanes. OK.
+ Mr. Gruenspecht. That is a very rich part, but the Atlantic
+and Pacific together has been discussed as being 18 billion
+barrels of oil, and then you have the Alaska OCS which is open,
+was not subject to the moratoria, although there has not really
+been significant development there.
+ Mr. Sarbanes. My time has expired, but I think you have
+helped make the point I am trying to make, which is that there
+is all this alarm about how we would be tying our hands if we
+went back to the moratoria that were in place when in fact we
+could argue we were in pretty decent shape with making the
+transition we need to make.
+ Now I myself argue that we should put more off limits than
+even the moratoria required, but at the very least it seems
+that going back to the moratoria isn't going to put us in a
+highly compromised position in terms of getting the energy that
+we need.
+ Thank you, Mr. Chairman.
+ Mr. Costa. I thank the gentleman from Maryland. That just
+goes to prove that we all have different perspectives on this.
+ The gentleman from Texas, Mr. Gohmert. Would you yield?
+ I thought the questioning was very good between you and the
+gentleman from Maryland. My understanding is and I asked you
+how good your determination on these numbers. Haven't most of
+the fields once we have determined been lower than the
+projections? I mean higher once they have gone into production,
+the initial projections?
+ Mr. Gruenspecht. Sure. I know USGS has done studies on
+this, but there have been fantastic studies of some of the
+California fields and some of the Texas fields. I don't have
+the picture in front of me. I would need the picture. Maybe
+Brenda----
+ Mr. Costa. You might provide that information.
+ Mr. Gruenspecht. I would be glad to provide that for the
+record.
+ Mr. Costa. Thank you.
+ The gentleman from Texas. Thank you for yielding.
+ Mr. Gohmert. Absolutely. Thanks for having the hearing. I
+mean you called the hearing, why wouldn't I yield?
+ So I would like to ask Dr. Birol, the UCSD economics
+professor James Hamilton had written ``Nine out of 10 of the
+U.S. recessions since World War II were preceded by a spike up
+in oil prices.''
+ Has EIA examined how much high energy prices Americans
+faced last summer may have contributed to reducing our GDP and
+pushing us into a recession at the end of the summer?
+ Mr. Birol. We looked into that and it would be definitely
+an exaggeration to claim that the current recession is because
+of the high energy prices, but we do believe that high energy
+prices did make the economy much more vulnerable through higher
+budget deficits and provide a fertile ground for higher impact
+of the financial crisis on the economy.
+ Mr. Gohmert. Thank you. There are people around Capitol
+Hill today who are concerned because they have been notified it
+looks like there will be additional taxes on the manner of
+producing oil and gas. And I am from east Texas where
+apparently we produce more natural gas in east Texas than
+anywhere else in the State of Texas. And people are concerned
+obviously that if this taxation goes into place, as was
+established earlier, it means every American will pay higher
+prices for everything at the worst possible time.
+ And so anybody can answer, but if we raise taxes on U.S.
+production, doesn't it mean that the marketplace will go
+outside the U.S., the Americans will end up buying more foreign
+oil if we tax more of our own production. Don't we normally see
+that? Anybody?
+ Mr. Birol. I am not an American. I can better understand
+question.
+ Mr. Gohmert. I enjoy your accent. You may enjoy talking to
+me since I don't have one.
+ Mr. Costa. I was wondering when we were going to go there.
+Would you like me to translate for each other?
+ Mr. Gohmert. You may need to translate for him. I can
+understand him.
+ Mr. Birol. Let me just put the big picture. I tried to say
+in my testimony that the good times for the international oil
+companies will be soon over, mainly because of the fact that
+the reserves of the big oil companies are declining on the one
+hand. Second, there are enough reserves somewhere in the world,
+especially in the Middle East and elsewhere, but the big oil
+companies have difficulties to access those reserves because
+they are under the control of the national oil companies and
+they do not allow these international oil companies to go and
+invest and increase production.
+ So what happens is that the international oil companies now
+have to turn to perhaps less profitable fields to increase the
+production. And anywhere in the U.S. and elsewhere, if there is
+a tax, additional tax on production, this would definitely
+discourage those companies to increase the production and this
+would definitely have implications for the U.S. oil production
+prospects in a negative sense.
+ But, of course, this picture needs to be put in a broader
+context. What are the macroeconomic and political implications
+of it? But, just looking at it from oil production prospects,
+it will definitely have a negative implication for U.S.
+production prospects.
+ Mr. Gohmert. Thank you. That means less jobs and it means
+less American energy that will be produced and apparently
+higher prices for what is.
+ But we keep talking about the carbon footprint, cap and
+trade, and I had some very good teachers growing up and they
+were basically all Democrats and they were brilliant. And they
+taught me that if you don't have carbon dioxide plants die,
+that you have to have carbon dioxide or plants die. Obviously
+there is concern on Capitol Hill that we produce too much
+carbon dioxide up here, especially on the Floor. But the
+problem is if we are going to put caps on carbon, it looks like
+we are going to have to cap what some people--some people are
+breathing too much apparently. But now there is a disagreement
+over global warming, and now I think that is why people are
+starting to call it climate changes because they are not sure
+that maybe we are cooling instead of warming and they don't
+want their contributions to slack off. So we need to go calling
+it climate change.
+ But this last question, do you know how many countries with
+coastlines besides the U.S. have historically placed their
+offshore oil and gas resources off limits, besides the United
+States? Does anybody know, because I don't know. I am curious
+if anybody knows. Are there other countries?
+ Mr. Birol. I would say very few, sir.
+ Mr. Gohmert. Do you know of any personally?
+ Mr. Birol. No.
+ Mr. Gohmert. You can't name any countries that do?
+ Mr. Birol. I don't know how many.
+ Mr. Gohmert. Either they are all really, really stupid or
+draw your own conclusion. Thank you very much.
+ Mr. Costa. I thank the gentleman from Texas. I am glad that
+we are not determining that there is a lot of carbon problems
+with the Subcommittee here today. So that we are keeping that
+under control. And then I do want for the record it to be
+stated that the gentleman from Texas has acknowledged that
+there are smart Democratic teachers.
+ Mr. Gohmert. Very smart.
+ Mr. Costa. I always enjoy our exchange.
+ I think the next Committee member who is up is Mr. Heinrich
+from New Mexico. The gentleman from New Mexico for 5 minutes.
+ Mr. Heinrich. Thank you, Mr. Chair.
+ Dr. Birol, in your testimony you stated that you believed
+that expanded drilling in the OCS could form ``a crucial part
+of a comprehensive strategy to enhance the Nation's energy
+security.'' I don't think that anyone can disagree with the
+idea that oil production from the OCS is critical to our energy
+security and will be for some time to come.
+ The question that a number of us are wrestling with as a
+Nation and on this Committee is where should that expanded
+production take place from in the near term before the long
+term. And should it be those areas where drilling has already
+been allowed before the moratorium expired or should we be
+focusing on these new areas that seem to be the focus of
+renewed interest?
+ Now we heard the statistic today that the MMS provides that
+says that roughly 80 percent of the oil and gas on the OCS is
+in those parts of the Gulf of Mexico and Alaska that are open
+for leasing. But another statistic that I find interesting from
+the MMS is that just in the central and western Gulf, where
+almost all of our offshore oil currently comes from, 60 percent
+of undiscovered oil is in the areas that have not been leased.
+That's about 24 billion barrels in the Gulf of Mexico available
+for leasing but not yet leased. That is more than the total,
+which I believe we mentioned about 18 billion, available in MMS
+estimates under the previous moratorium areas.
+ So when you say that drilling on the OCS should be
+expanded, should we be prioritizing basically the western-
+central Gulf region or should we be looking immediately to
+those new areas such as the Atlantic and the Pacific?
+ Mr. Birol. I think, first of all, we should see that the
+U.S., as in many countries, is facing two major challenges. We
+cannot disconnect these two challenges, the energy security
+mainly on the oil side, and the second one is climate change.
+And in many cases the policies which are good for the climate
+change are at the same time good for the energy security. I
+wanted to make this point here that this is a win-win solution.
+ The question you raised, Mr. Chairman, which policies
+energy efficiency, renewables, nuclear power, they are good for
+the climate change but at the same time for energy security
+this is a win-win station here. I think there is no
+contradiction between pushing energy security or the climate
+change agenda. So I wanted to make this point that there are
+many synergies there.
+ In terms of energy security, I think a major problem for
+the United States which is going to come is the increasing
+risks with oil import dependency. 12 million barrels per day of
+oil import is very high in 2030, essentially if we see that one
+of the major suppliers such as Mexico, the production is going
+to decline, so U.S. has to import oil from longer distances and
+from countries which are far from the United States and very
+few number of countries. And two countries which are very
+important in this context are Saudi Arabia and Iraq, which will
+be the major exporting countries in the next years to come.
+ In this context I think there are two areas which are key
+to address this oil import dependency issue. One is using less
+oil, the question of oil import dependency, and because of
+increasing efficiency especially in the transportation sector.
+It is an old concept but it is a very important concept, and
+there is a lot of room still to apply this old but not yet
+fully implemented concept to two different channels. One
+standards and regulations and, second, perhaps it is not very
+politically correct here, but perhaps you can get the prices of
+gasoline and diesel in the United States and bring it to a
+level which would discourage the wasteful use of oil. So this
+on the efficiency side and which will bring the demand growth
+slower, which would make U.S. import less oil.
+ And the second issue you mentioned, distinguished member,
+it is increasing production from the offshore. These reserves
+offshore will be very important. If you look at the last 20
+years, almost all the growth including what came from the
+offshore fields, no onshore growth, almost all the growth came
+from offshore fields. And when you get to the reserves two-
+thirds of the global reserves are under the water. So there is
+no way of escaping this. This is under the water, otherwise we
+will lose that domain. In the context of the prioritization I
+would think that the Gulf of Mexico and Alaska these are the
+areas that we have to look at carefully, but this shouldn't
+exclude to get to other parts the offshore especially in terms
+of having much more realistic assessments in terms of having
+more drilling.
+ Thank you.
+ Mr. Heinrich. Mr. Chair, do I have more time for another
+question or am I out?
+ Mr. Costa. If it is a quick one.
+ Mr. Heinrich. Real quick question. We heard about the risk
+of addressing pollution from carbon. Do you see an economic
+risk in not addressing pollution from carbon as the temperature
+rises?
+ Mr. Birol. That may be long-term implications in terms of
+the climate change would have an effect on many areas of the
+world, including United States, ranging from the productivity
+in the agriculture sector, to the availability of water,
+changing the landscape of the plants and others. That may have
+such implications.
+ But second, I think more importantly, the later we address
+the climate change issue, the more costly it will be in the
+future. Because there are a lot of investments being done, not
+everywhere in the world, especially in China and India and also
+in those countries which do not take into account the climate
+change issue, and those investments once they are done, for
+example, building a coal-fired power plant, it will be with us
+50, 60 years. So the earlier, if you want to give a signal to
+the investors we give, the better and less costly it is in the
+next years to come.
+ Mr. Costa. We thank the gentleman for his response. It may
+have been a quick question, but it wasn't a quick answer.
+ Mr. Heinrich. I thought it was a yes or no. I apologize.
+ Mr. Costa. I think he tried to respond in a complete
+fashion.
+ The Chairman is pleased to recognize the gentlewoman from
+Wyoming, Ms. Lummis.
+ Mrs. Lummis. Thank you, Mr. Chairman. My first question is
+for Dr.--is it Gruenspecht. Would you pronounce it for me?
+ Mr. Gruenspecht. Gruenspecht.
+ Mrs. Lummis. Gruenspecht. Thank you.
+ Mr. Gruenspecht. Gruen means ``green,'' so you are pretty
+close.
+ Mrs. Lummis. There is a great town in Texas called Gruen
+and they pronounce ``green,'' but it is pronounced like your
+name. It is really neat. You ought to go down there some time.
+ What percentage of our domestic energy use is renewables
+right now?
+ Mr. Gruenspecht. I would say probably close to 10. And the
+biomass industry and the wind and the solar all together will
+probably be close to maybe 9 or 10.
+ Mrs. Lummis. And what do you predict that percentage will
+increase to by 2030?
+ Mr. Gruenspecht. I don't have the renewable all together,
+but I have the fossil part, is like 85 percent now, and we see
+that dropping to about 79 percent. So the other 15 percent
+would be renewables and nuclear now and then that renewables
+and nuclear would grow to about 21 percent by 2030. I can get
+you the breakdown if you want. I just don't have it in my head.
+ Mrs. Lummis. Thank you, Mr. Chairman, I would love to have
+that. So thanks.
+ Mrs. Lummis. The President's budget, I am on the Budget
+Committee and I was over there this morning, his budget
+proposes to repeal the intangible drilling cost deduction for
+oil and gas producers. And that would prevent people who are
+drilling for oil and gas to deduct some of their business costs
+up front like other industrial sectors do. I have been informed
+that eliminating the IDC deduction will increase the cost
+associated with domestic natural gas production to such a
+degree that it will single-handedly reduce the number of
+natural gas wells in the U.S. by one-fourth.
+ How would such a decrease affect your analysis that net
+imports of natural gas will decline to less than 3 percent by
+2030?
+ Mr. Gruenspecht. Clearly in our projection we do have an
+increase in natural gas drilling in the unconventional areas. A
+lot of that it would be sensitive to--tax provisions definitely
+matter, although I can't agree or disagree with the specific
+estimate you cited. The other thing that matters a whole lot is
+the price of natural gas. And as a person from an energy
+producing state, you and I know that drilling right now is--
+natural gas prices have come down quite a bit, as have oil
+prices come down and drilling activity is down dramatically. So
+I would say that certainly tax provisions matter and certainly
+the wellhead prices available matter.
+ Mrs. Lummis. Thank you. My next question, Mr. Chairman, is
+for Dr.--and once again is it Birol?
+ Mr. Birol. Birol.
+ Mrs. Lummis. Thank you for joining us. The whole panel has
+done a great job. You state in your testimony that even if
+global oil demand remained flat until 2030 the equivalent of
+over four times of the current capacity of Saudi Arabia would
+be needed to offset declining production at existing fields.
+How much of that global oil demand do you associate with the
+United States?
+ Mr. Birol. I think for the United States likely we expected
+that the oil demand in the U.S. in 2030 will be less than
+today. But still a significant portion of the oil demand would
+come from the United States but less than today. And the bulk
+of the growth would come from China, India, and the Middle East
+countries.
+ Mrs. Lummis. OK. And is there an analysis that you know of
+regarding how much of that demand could be met if the OCS areas
+that were formerly under a moratorium were actively developed?
+ Mr. Birol. It would depend on how much of the OCS will be
+utilized. But I wouldn't say that OCS will be a big part.
+ Mrs. Lummis. Thank you. One more question, Mr. Chairman,
+this one for Mrs. Pierce. You made a key point in your
+testimony that the estimate of technically recoverable
+resources changes dramatically over time. It is based on
+geologic understanding and developing technology.
+ One of the technologies that has really improved production
+in recent years and has the potential for doing so into the
+future years is that of a fracking technology. And that has
+allowed us to recover from tight sands, and so forth.
+ There is concern here in Congress, on my part certainly,
+that if fracking technology is not allowed to be used and it is
+brought under the Safe Drinking Water Act and basically
+regulated out of existence, that even more resources that we
+could recover with nonconventional fracking technologies would
+be lost. Do you think that is a fair statement?
+ Ms. Pierce. It probably is a fair statement. I mean part of
+the reason the Bakken Formation grew exponentially in terms of
+resources, and the Barnett Shale and the Marcellus Shale, is
+the technology you are talking about and the horizontal
+drilling.
+ Our assessments are technically recoverable and they are
+based upon what technology is used today. If any technology
+isn't used today, we don't use that in our technically
+recoverable resource estimate. So regardless of the type,
+whichever one is there or not, it will effect the resource
+estimates and what is usable and what is not, what is
+economically recoverable.
+ Mrs. Lummis. Thank you, Mr. Chairman. This has been a very
+informative panel, and I am deeply grateful to all of you for
+attending today. Thank you.
+ Mr. Costa. Thank you. And the Chair stands corrected. I
+believe I mispronounced the gentlewoman's name, it is Lummis?
+ Mrs. Lummis. Lummis, yes, thanks.
+ Mr. Costa. I know a Lummis in my district and so I
+mispronounced it, obviously not intentionally. Lummis.
+ Mrs. Lummis. Thank you very much.
+ Mr. Costa. You are welcome. It is the Chair's intention to
+recognize both the two remaining members of the Subcommittee
+who have not had a chance to ask questions yet, the gentleman
+from New Jersey and the gentleman from Louisiana, and at that
+time I think we are going to be having votes. So we will close
+the testimony. So Members who have additional questions, I
+don't think we are going to get to a second round is my point.
+ Anyway, the gentleman from New Jersey, who has a deep
+interest and his own research on this subject, Mr. Holt.
+ Mr. Holt. Thank you. I take that to mean I have only 5
+minutes.
+ Mr. Costa. Well, the Chair has been somewhat generous with
+the time.
+ Mr. Holt. I would gladly spend all afternoon talking with
+the witnesses. It is an excellent panel.
+ Mr. Costa. It has been a good panel.
+ Mr. Holt. I apologize for my absence earlier in the
+hearing.
+ Mr. Costa. We missed you.
+ Mr. Holt. Let me ask a general question that is, I guess, a
+request for your help in answering what we all hear from our
+constituents, and I suppose this would be directed to Dr. Birol
+and Dr. Gruenspecht. We have heard drill here, drill now, pay
+less. Last summer we got a lot of mail from constituents on
+both sides of that, but they said, gasoline is at $4 a gallon,
+you have to start drilling off the Jersey shore or off the
+Virginia shore or wherever else. What would you say to the
+people who write us Members of Congress and ask that? I think
+it is worth noting that the price has dropped from $4 a gallon
+to considerably less than that and this drilling didn't take
+place. And that during the early part of the 21st century for
+the first half dozen years there was quite a bit of drilling
+and prices went up.
+ So let me ask you to help us answer those constituents.
+ Mr. Birol. I guess our answers would be a bit different,
+because I don't have the concern to be elected or reelected. So
+I will tell you what I believe.
+ Mr. Costa. That is why he is asking you the question.
+ Mr. Birol. So I would say even if it is $4 per gallon, it
+is cheap. It is still half of the money that the people pay in
+Europe or even less than they pay in Japan.
+ Mr. Holt. But putting that aside, and I take your point.
+ Mr. Birol. Yes.
+ Holt. But really what I wanted to get at is the effect of
+drilling here, drilling now on gasoline prices for the
+commuter, for the local businesses.
+ Mr. Birol. I wouldn't say that even drilling here or there
+will have major impact to bring the price down. It may have
+some impact by increasing the production, but I would be
+surprised if it would change a lot. Because why the prices so
+increased was the result of what happened in the entire
+nation's oil markets. And the drilling and getting more oil
+from here and there wouldn't have a major impact on the
+international oil markets and wouldn't unfortunately bring the
+prices significantly down, is my answer.
+ Mr. Holt. Mr. Gruenspecht.
+ Mr. Gruenspecht. I think that all else being equal, which
+is an important thing, because all else is not always equal, I
+think more production has some impact on prices but a pretty
+small impact on prices. When we have done analyses of
+increased--either it is opening ANWR, which we have been asked
+to look at that by various folks over the years, or the OCS.
+Again in our OCS case without the moratoria restored, we get
+about 600,000 barrels a day more production in the U.S. That is
+in the long-run setting. It isn't like you added 600,000
+barrels a day to the market today. In the short run that could
+make a very big difference, but over time there is both supply
+response from other suppliers and there is also a demand
+response to prices and the effect of adding 600,000 a barrels a
+day is probably $1 or $2 a barrel, which translates into the
+$0.02, $0.03, $0.04 or $0.03 to $0.05 a gallon.
+ Mr. Costa. Will the gentleman yield for a second? I will
+give you the extra time. Could you define for the Subcommittee
+what you mean by in the short time and the long term, years, 5
+years, 10 years?
+ Mr. Gruenspecht. Let's say if you are looking--when the oil
+markets were extremely tight, let's say before last summer when
+you were getting all your fan mail, adding a million barrels of
+demand to that market where there was no spare capacity or
+removing a million barrels of supply or adding a million
+barrels of supply could immediately make a difference. Over
+time people can make different decisions in terms of the
+vehicles they buy, in terms of the fueling decisions they make.
+So over a 10-year or 20-year period, we often talk about 2030,
+both the IEA and EIA, there are both responses from other
+suppliers and responses in demand that tend to attenuate the
+price effects.
+ So I don't know if I have answered your question. But I
+would say less than a year for a short run--10 years or longer
+for a long run--would be a fair way to look at it. But again
+the drilling takes time. So all these issues is that if one
+would start leasing or if one would--I know ANWR isn't on the
+agenda today, or open ANWR, it takes a long time for that
+production to occur, so one thinks that the long run responses
+where other suppliers adjust and other people take account of
+that in the equipment they buy is probably valid.
+ Mr. Holt. If the Chair will allow me to reclaim my time?
+ Mr. Costa. No, no, go ahead.
+ Mr. Holt. Your report and it is well-known that energy--and
+this is getting at the demand question. You report and it is
+well-known that energy intensity has decreased continually and
+actually quite in an almost a straight line, whether you are
+talking about energy per capita or energy per dollar of
+economy, economic activity, for now 30 years.
+ Do you see any reason for that to be leveling off any time
+soon?
+ Mr. Gruenspecht. We actually have had energy per dollar GDP
+has been falling off. Historically, energy per capita in the
+U.S. over the last 20 years has actually been pretty flat, but
+we do see it falling off going forward somewhat because--in
+part because of the things--again, what you folks do up here
+have consequences. So things like the Energy Independence and
+Security Act, which had the fuel economy standards, which has
+the appliance standards and lighting standards, we do see--and
+also our projection of prices with real energy prices in our
+reference case rising. We see per capita, which has been
+relatively flat since 1990, falling a little bit. We do see a
+continued decline, and you are exactly right, per dollar of
+GDP, it has been falling steadily and we see that continually.
+So we do see some growth in energy demand.
+ One of the differences between the U.S. and maybe Europe is
+that there is still population growth in the U.S. So, even with
+per capita declining a little bit, our overall energy use is
+growing a little bit, where in Western Europe, population is
+relatively flat or declining in many countries. And there are a
+lot of details, but I think that is the answer to your
+question.
+ Mr. Holt. I think my time has expired.
+ Mr. Costa. Thank you. I think we have all enjoyed the
+testimony here this afternoon. We may want to look for an
+opportunity to revisit this, because I think this is the
+thoughtful way we try to formulate policy, and I appreciate
+everybody's efforts.
+ Our last questioner is the gentleman from Louisiana. Am I
+to determine that your answer to the question--is long term by
+your definition as 10 years?
+ Mr. Gruenspecht. Oh. I am an economist, I have two hands.
+But I think 1 year is short term in the oil market, I think 20
+years is long term, and somewhere between 1 year and 20 years,
+which I have arbitrarily defined as 10 years, is a good way to
+think about it.
+ Mr. Costa. OK. Gentleman from Louisiana, Mr. Fleming.
+ Mr. Fleming. Thank you, Mr. Chairman. Am I to understand
+that I hear today that there is perhaps a consensus emerging
+that we need to move more toward nuclear energy which will help
+us out in the long run. Am I correct on that?
+ Mr. Birol. I think this will be a very good choice for both
+of the challenges we are facing, both security of supply and
+climate change. I look at the countries outside the United
+States. There is a change of wind, direction of wind. In last 3
+or 4 years, mainly for two reasons, many countries in Europe
+are changing their nuclear policy. Italy, for example, which
+banned nuclear power in 1992, is going back to nuclear power.
+Finland is building a new nuclear power plant. U.K. is changing
+its nuclear policy. And many developing countries want nuclear
+power because it produces electricity cheap without having
+security of supply problems and they deduct emitting in the
+carbon dioxide emissions.
+ Mr. Fleming. Do other panelists agree with that?
+ Mr. Gruenspecht. Well, I am not really in a position to
+agree with it. All I would say is that certainly if you are
+interested in reducing greenhouse gas emissions and baseload
+power generation, your two kinds of options are nuclear and
+coal with carbon capture and sequestration, if that comes into
+being. Whether nuclear is cheap or not, I think people would
+have--it is compared to what else you could do if you weren't
+worried about greenhouse gas emissions. It is probably less
+economic. But that is a policy call, not my call.
+ Ms. Pierce. And policy aside, all those factors are very
+true. I would just ask people to keep in mind it is still a
+resource. You still have to have the basic resources to run
+these nuclear power plants. And so again we need to understand
+where they are, at what cost they are provided, do we need to
+import those, do we have those resources. It is another thing
+to keep in mind.
+ Mr. Fleming. Well, it kind of gets back to the cost of
+energy. So I am very concerned we have got--as my friend from
+Wyoming just mentioned, we have this idea in the Fiscal Year
+2010 budget to remove incentives for drilling, which is going
+to add cost to oil and gas companies, which is going to hurt
+jobs. Then we are talking about $646 billion impact which
+regard to cap and trade, which is going to impact cost to the
+consumers and it could well hurt the poorest or working poor
+more because a higher percentage of their budget is going to be
+fuel oil and electricity warming their homes.
+ Mr. Fleming. So I am very concerned about some moves that
+we're making here. I believe that the more we replace coal with
+things like nuclear energy and also the more we produce oil and
+gas, and also, Ms. Pierce, you mentioned that there is actually
+more and more stores of natural gas being found. We have the
+Haynesville Shale in our area, and apparently they have
+underestimated what that can produce.
+ With all of that, it seems to me that if we provide
+increase in supply and reduction in demand by moving into more
+efficiency and more alternatives like nuclear energy, that the
+costs will come down. It seems like to me--I worry some that
+there seems to be a goal to increase the cost. And I think our
+constituents, particularly the working poor and the poor are
+going to be the ones to hurt the most.
+ So, and also, it is kind of a second unrelated question but
+I will let you all address both of these, is what are other
+countries doing? I see us potentially doing a whole lot but, of
+course, we are not producing all of the CO2 going
+into the atmosphere. So we can do a lot. But is that really
+going to have a big impact when other countries aren't?
+ I would love to have a response from any of the panel on
+these.
+ Mr. Birol. In terms of cost, it is too general to say that
+it depends on what we understand about the cost. But if we just
+look at the electricity generation cost, and natural gas and
+nuclear, if you compare this, too, if the oil prices were about
+$60 and above, nuclear power seems to be an economic choice.
+And in the absence of any carbon tax or anything. But if you
+have a carbon tax this would definitely favor, or any cap-and-
+trade whatever the system, this would definitely favor nuclear
+power or other carbon free sources.
+ But another thing for nuclear--we shouldn't think of
+nuclear only as a source of electricity generation. Today
+almost all the oil in the world, in the U.S. and other
+countries are used in the transportation system, cars, trucks.
+If you want to in the future move toward plug-in hybrids at
+electrical vehicles, we need electricity in order to feed those
+cars. And nuclear can also play a crucial role in that respect
+if we are forward looking in energy policy.
+ In terms of the carbon dioxide emissions initiatives, you
+are perfectly right, sir. As I tried to say, if the U.S.
+emissions tomorrow would be zero, European emissions would be
+zero, Japanese emissions would be zero and if it was to remain
+zero 20 years, no economic activity in the U.S., Europe or
+Japan, therefore no carbon dioxide emissions, if China, India,
+and Russia would continue with their policies we cannot make
+any significant improvement in the climate change. This is the
+point, unfortunately.
+ Mr. Fleming. Any other comments?
+ Mr. Gruenspecht. A short comment. You know, the relevant
+position of natural gas versus nuclear, I think there is a
+difference from looking at things from a world perspective or a
+U.S. perspective. In the U.S.-North American market we would
+expect the price of natural gas to be separated significantly
+from the price of oil in energy terms in part because of the
+unconventional resource that we have, which I don't think is
+fully reflected in the IEA's analysis. And certainly with oil
+at $60 a barrel we do not think nuclear would be competitive
+with natural gas.
+ And I guess this other point I would make is I agree with
+Fatih in many respects. There are synergies between these goals
+of energy security and climate change in some respects. But
+let's be serious. There are also conflicts as well. Something
+like coal to liquids in a country like the United States, very
+attractive for energy security given our coal resource, a
+disaster perhaps--I don't want to get carried away because you
+could have sequestration, but it could help you on one issue
+and hurt you on another issue. Something like biomass, do we
+use it as a source of a substitute for oil, which helps us
+maybe on energy security, or you could take the same biomass
+and use it to back out coal, which actually gives you a bigger
+carbon dioxide bang for the buck.
+ So I think you do have to--you know, sometimes there are
+synergies, sometimes there are conflicts. And we have to be
+kind of honest about what issues we care about. And again, the
+EIA doesn't have a position in how we prioritize those various
+concerns because it isn't like we are all going to hold hands
+and go down the street and everything will be a win-win because
+life is not really that way, as we all know.
+ Mr. Costa. We are trying.
+ Mr. Gruenspecht. Whatever.
+ Mr. Fleming. Mr. Chairman, I know I am out of time. I would
+like if it's OK----
+ Mr. Costa. You are out of time. What would you like to do?
+ Mr. Fleming. I want to enter into the record a letter from
+the Louisiana Oil and Gas Association President regarding this
+issue of the lack of incentives.
+ Mr. Costa. Without objection.
+ Mr. Fleming. Thank you.
+ Mr. Costa. Gentleman from Colorado, wind up here.
+ Mr. Lamborn. With leave of you as the Chairman, I would
+like to just ask just one very quick question of Ms. Pierce.
+ Mr. Costa. If she can give us a quick answer.
+ Mr. Lamborn. We have talked about other sources of energy,
+nuclear has come up briefly. What kind of supply does the U.S.
+have domestically for uranium?
+ Ms. Pierce. That is a good question, I don't think there
+has been a recent assessment. We are gearing up to look at
+doing a resource assessment. But there is not a current
+assessment on uranium.
+ Mr. Costa. Good question, gentleman from Colorado. If you
+could respond to the Subcommittee as to how that assessment is
+going to take place and what timeline we can determine the
+proven reserves, I don't know if that is a term of art or not,
+proven reserves of uranium that would be available for what
+type of nuclear expansion might be contemplated, that would be
+helpful. We would like you to do that.
+ Mr. Costa. We are going to close here. I just want to
+mention to members of the Subcommittee that you have not seen.
+Dr. Birol, who has done such a good job, produces this World
+Energy Outlook every year, the international consortium that he
+is a part of, and so I would urge members of the Subcommittee
+to get this in your office. It is, I think, a helpful resource
+material. I am not plugging it for any reason. Dr. Birol and I
+don't have anything going. But I do find this helpful, and we
+do appreciate the good work you do, the good work that all the
+witnesses who testified here this afternoon do.
+ I want to thank the members of the Subcommittee for your
+focus, your attention, and your interest. We will continue to
+try to work on this effort so that, as Dr. Gruenspecht
+referenced, that maybe we can somehow find a way, all going
+down merrily that same road. Because certainly our Nation
+depends upon it.
+ Thank you very much. This hearing is adjourned.
+ [Whereupon, at 4:05 p.m., the Subcommittee was adjourned.]
+
+
+ [Additional material submitted for the record follows:]
+ [The letter submitted for the record by Mr. Don G. Briggs,
+President, Louisiana Oil and Gas Association, follows:]
+
+[GRAPHIC] [TIFF OMITTED] T7755.006
+
+ .eps
+