Mar 7: As WIMS has previously reported the political parties and interest groups remain far apart on energy policy and solutions to stabilize gasoline prices [See WIMS 3/2/12]. Today, the House Energy and Commerce Committee, Subcommittee on Energy and Power Subcommittee Chaired by Representative Ed Whitfield (R-KY) held a hearing on Rising Gasoline Prices. Witnesses included representatives from: American Petroleum Institute; The Rapidan Group (energy market & policy research firm); American Fuel & Petrochemical Manufacturers; CarbM Trucking; Center for American Progress; Truman National Security Project; and National Association of Convenience Stores. The opening statements and witness testimony provide a clear outline of the issues and different positions.
In an opening statement Chairman Whitfield said: "With every gas price spike comes some very familiar calls from policymakers. Some argue for increased domestic drilling, some say we should release oil from the Strategic Petroleum
Reserve. Others lay the blame for high prices on Wall Street and the oil companies. Before we discuss the merits of these causes and solutions, let's start with the facts.
"First, Iran has threatened to block the Strait of Hormuz – a narrow channel in the Middle East through which a third of the world's waterborne crude oil passes every single day. As a result, a geopolitical risk premium is being priced into every barrel of oil. Until the situation with Iran is resolved, and hopefully that is soon, we will see above-average oil and gasoline prices.
"Second, in addition to geopolitical tensions and their effect on oil prices, fundamental supply and demand is creating an environment of high prices. There is large demand growth from China, India, the Middle East, and Brazil. At the same time, current supplies are not growing at rate that can keep up with surging demand from these economies. That is why countries like Brazil and China are moving forward with aggressive oil production plans at home and abroad.
"Third, North America's oil market has undergone a dramatic transformation over the past five years. We are now producing over 500,000 barrels per day in North Dakota. In 2005, that number was below 100,000. In Texas, oil production has increased 50 percent in just four years. Like the natural gas revolution, North America is now experiencing its own oil boom. Oil production is surging in this country in no thanks to the Obama administration. All the new volumes coming online are happening on private- and state-owned lands. Production is declining at an alarming rate on federal lands and waters. There is a lot more that can be
done if the federal government would simply get out of the way. . .
"The president has proclaimed we have only two percent of the world's proven oil reserves and we can't drill our way to energy security. But if you know what a proven oil reserve is, you would realize America's energy potential is nearly unlimited. A proven oil reserve is a figure that is obtained by an oil producer once they have fully explored and developed an oil field. Using the president's definition, the U.S. has 28.4 billion barrels of oil. That equates to two percent of the world's oil. But if you look at all the untapped resources, the U.S. holds trillions of barrels of oil. The Obama administration says we have only two percent of the world's oil because that's all they will let us have. . ."
Full Committee Chairman Fred Upton (R-MI) said, "The administration's hostility towards domestic drilling has not changed, only his rhetoric has. The president now boasts that domestic drilling is up - but he neglects to mention that the increase is due to production on private and state-owned lands where federal regulators have little to no power to block drilling. Production actually declined on federal lands from 2010 to 2011, and the administration has offered up no policy changes that would reverse this disturbing trend. Some in Washington claim that producing more domestic oil won't make any difference in prices, but the American people know better. The American people also know better when it comes to the Keystone XL pipeline expansion project that would allow more Canadian oil to reach American market. . ."
In response, Ranking Member Henry Waxman (D-CA) said, "Gasoline prices go up; politicians make false promises about how they will bring prices down; and nothing gets accomplished. We've seen it with the push to open our coastlines to more drilling. We've seen it with enactment of legislation to promote refineries in 2005. Still, prices rise. Now, the Republican mantra is that we need to "drill, baby, drill." This slogan may sound good, but it's based on a complete fiction. We are drilling more, but prices are still going up. U.S. crude oil production is the highest it's been in eight years, and the U.S. has more oil and gas drilling rigs operating right now than the rest of the world combined. Net oil imports as a share of our total consumption declined from 57% in 2008 to 45% in 2011 -- the lowest level since 1995.
"We need to face reality. And the reality is that oil prices are determined on a global market. No matter how much we drill, our gasoline prices are going to rise if there's a crisis in the Middle East, labor unrest in Nigeria, or any of a host of other factors we can do little about. There's only one way we can protect ourselves from the impacts of rising oil prices: we need to reduce our dependence on oil. There are no short-term solutions. There is no silver bullet. We need to invest in clean energy to diversify and reduce our energy use. The President has taken important steps. He has acted to cut the emissions of cars and trucks, doubling the fuel efficiency of our fleet. As a result, our dependence on oil has declined.
"But he needs our help. Oil companies are making record profits, yet they are still getting $4 billion in subsidies from taxpayers each year. We can't afford to take money from taxpayers struggling to pay their mortgages and fill up their tanks and hand it to oil companies making billions in profits. That is why we need to repeal the oil subsidies and use the money to develop sources of clean energy that reduce our dependence on oil. Today, we are going to hear a lot of the same old unsupported claims. . .
"My staff contacted some of the nation's leading energy economists, and they told us that the so-called solutions we'll hear today from the oil industry will not reduce our gasoline prices. John Parsons is an economist at MIT and one of the nation's leading experts on oil markets. He told us the industry claims are 'not remotely plausible' because drilling more will have 'at best a miniscule impact' on gasoline prices. Oil industry expert Phil Verleger told us that announcing more production would have: 'no impact – ZERO on the current price.' He predicted that the people who buy or sell oil would simply ridicule these recommendations as a plan for reducing gasoline prices. . . We should start by facing facts, listening to experts, and crafting policies that will reduce our dependence on oil."
The Rapidan Group testified, "A crucial step is to increase oil supply everywhere: In a tight market and especially when spare capacity is otherwise low, every extra barrel of supply on the margin counts and can help reduce future price volatility. If North America succeeds at increasing oil supply by some 6 mb/d or more, then it would free up more Middle East oil to go to Asia or remain in spare capacity to offset a disruption."
The Truman Project testified, "A $10 increase in the price of a barrel of oil costs the Department of Defense an estimated $1.3 billion. . . Reliance on this single source of fuel is a security risk we can no longer tolerate. . . America sends over $1 billion per day overseas for oil. iv It should not be a surprise, then, that oil is the single largest contributor to our foreign debt, outpacing even our trade deficit with China. . . research concluded that for every $5 rise in the price of a barrel of crude oil, Putin's Russia receives more than $18 billion annually, Chavez's Venezuela an additional $4.9 billion annually, and Ahmadinejad's Iran an additional $7.9 billion annually. . . a simple request: lead us in building an alternative energy economy that can break our dependence on oil, ensure our future prosperity and security, and finally put Americans in control of our own energy future."
American Petroleum Institute (API) testified, "Gasoline prices are climbing primarily because the cost of crude oil -- which accounts for 76 percent of the price at the pump -- also has been rising, pushed higher by global demand and Middle East tensions. These market forces are challenging, but America doesn't have to be held captive by them. We have choices. By increasing access to North American energy, we will help put downward pressure on fuel prices."
Access the Republican Committee website for background, statements and testimony (click here). Access the Democratic Committee website for a webcast, statements and testimony (click here). [#Energy, #energy #gas #POTUS #DEMS #GOP]
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