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Hearing of the Energy and Mineral Resources Subcommittee of the House Natural Resources Committee - Energy Outlooks, and the Role of the Federal Onshore and Offshore Resources in Meeting Future Energy Demand

Hearing of the Energy and Mineral Resources Subcommittee of the House Natural Resources Committee - Energy Outlooks, and the Role of the Federal Onshore and Offshore Resources in Meeting Future Energy Demand

HEARING OF THE ENERGY AND MINERAL RESOURCES SUBCOMMITTEE OF THE HOUSE NATURAL RESOURCES COMMITTEE

TITLE: ENERGY OUTLOOKS, AND THE ROLE OF THE FEDERAL ONSHORE AND OFFSHORE RESOURCES IN MEETING FUTURE ENERGY DEMAND

CHAIRED BY: REP. JIM COSTA (D-CA)

WITNESSES: FATIH BIROL, CHIEF ECONOMIST, INTERNATIONAL ENERGY AGENCY; HOWARD K. GRUENSPECHT, ACTING ADMINISTRATOR, ENERGY INFORMATION ASSOCIATION; BRENDA PIERCE, PROGRAM COORDINATOR, ENERGY RESOURCES PROGRAM, U.S. GEOLOGICAL SURVEY

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REP. COSTA: We're meeting today with regards to energy outlooks and the role that the federal offshore -- onshore and offshore resources play in meeting future energy demands.

Under the committee rule, 4g, the chair and the ranking member may make an opening statement, and if any other members have statements, they can be included on the hearing record under unanimous consent.

I will allow the ranking member of the full committee -- Doc Hastings is also with us today -- to provide some thoughts, and we appreciate your participation.

Additional, under Committee Rule 4h, any members submitted for inclusion in the hearing record must be submitted, again, 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 Subcommittee in this Congress dealing with the big picture. I always try to refer to that in the previous hearings that we've 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've said before -- the big picture and utilizing all the energy tools in our energy toolbox.

We have three distinguished witnesses today: a leading international and the 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 trends, 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 director 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're glad that you're 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, interim and long-term needs. I think that's 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 sources of 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 on, 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's where 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'm hopeful that today's hearing will set the discussion in what we need to do in terms of a short-term in using all these energy tools in our energy toolbox. In the near-term -- I mean by that the next five to 10 years -- and in the long-term, and by that I mean 20 years and beyond.

I'm 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 -- if we do not lead the world in clean, renewable energy, our 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 the subcommittee on energy -- on how energy can be produced on public lands, both traditionally and alternative forms of energy -- we must keep in mind as to what the jurisdiction of this subcommittee is. But also, I think it's 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's 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 issue 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 with regards 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 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 thus far 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'd like to now recognize my colleague and ranking member of the subcommittee, Congress member Doug Lamborn of Colorado.

REP. DOUG LAMBORN (R-CO): 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-a-barrel 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 working 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 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 '70s, we would have more than 18 billion barrels of oil and 89 trillion cubic feet of gas in the Atlantic alone.

More important is the fact that the resources off the coast of California are probably some of the post accessible in the world. At 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 anytime 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, and 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 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 primarily believed to be a gas-rich area rather than an oil-rich area.

Finally, I am concerned that the EIA outlook presented here to date 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 certainly -- excuse me, 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 re-tooling 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.

REP. COSTA: I thank the gentleman from Colorado.

It's 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 in their presentation, and I think we obviously want to get to our witnesses.

I might also add with votes sometime after 4:00, the chair will certainly try to ensure that everyone has five minutes for comments or questions, and whether or not we're 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.

REP. DOC HASTINGS (R-WA): Thank you, Mr. Chairman, and I appreciate the courtesy you've given me to make a statement, and let me just add parenthetically sometimes five minutes is too short. I think this is probably a good idea to allow the witnesses to go on longer because there's a lot of information to digest.

Mr. Chairman, I just want to say there are two certainly -- 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 to believe (sic) 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 five-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 the cap and trade plan that was proposed by President Obama in his budget last Thursday -- the 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'll 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.

REP. COSTA: 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. We have a -- a green light will be on and that will remain green for nine minutes and then at the ninth minute it will turn yellow. And when it turns red you're in real trouble if you're still speaking. So, no, you've got an easy chair here; I'll cut you a little slack, if I find it interesting. (Laughter.)

Please begin, Doctor.

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 adviser 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 '73-'74 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 the 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 chief OPEC countries.

As you stated, Mr. Chairman, last November the IEA released the 2008 edition of its "World Energy Outlook," 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, affordable energy -- the first challenge -- and second, affecting 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 up to 6 degrees Celsius, which would have, as we all know, dramatic effects on our planet and our -- on the human beings.

Let me turn to oil.

Our report provides a detailed assessment of oil supply prospects than has ever before been released by the IEA. In our reference scenario, the base scenario in which we assumed the government policies would 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 860 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 incomes levels in China, India and other countries, only demands will grow and this will put a pressure on the demand sides.

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 to over 50 percent in 2030. And the bad news for the non-OPEC countries is that production, oil production has peaked in most of the non-OPEC countries and 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 here 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 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 that they have today are declining and they have major difficulties to access the new reserves mainly in the hands of the national oil companies.

And we expect bulk of the growth of the production of oil and gas in the future, if comes, it will come mainly from the national oil companies under different rules than 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 gentleman, 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 demands will grow exactly in the next years to come. But even if you assume the global oil demands -- which is about 85 million barrels per day today -- we stay like this in the next 20 years, even there would be no growth in the global oil demands, 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 a major challenge.

Here I would like to highlight, in addition to this geological challenge, another challenge which is a key one: mainly 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 the completing large upstream and refining projects.

These trends (I told you ?) about the decline 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 that 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 the U.S. domestic and oil 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, when 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 to meeting our energy needs for several decades to come.

And I want to emphasize this, Mr. Chairman: It is not realistic to expect low-carbon technologies to replace fossil energy 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 their CO2 emissions 20 percent to 15 percent.

However, even if you 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 others, and if China and India would continue with their existing policies, we would be still perfectly in line with the six-degree increase in the temperature. So there is a need for cooperation and having China, India and Russia on the boards.

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 sever knock-on effects for the U.S. market.

Mr. Chairman and the members of the subcommittee, this completes my statement. I would be happy to take any questions you may have. Thank you.

REP. COSTA: Thank you very much, Doctor. You did get over time a little bit, but we found you interesting. So I appreciate that. And I do agree, 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.

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 affect 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 retail -- 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're 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 rose 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's 28 states and the District of Columbia that have those policies.

Resources on federal lands, both offshore and onshore, 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 the -- our practice at EIA of reflecting existing laws and regulations, our reference case that I 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 of 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 drilling schedules, costs, the type of platform we select, reserves to production ratios in the Pacific, Atlantic and Eastern Gulf of Mexico in 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 do 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 new 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 560,000 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 and 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 low price case, which the oil price remains 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's 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'd be happy to answer any questions you or the other members may have.

REP. COSTA: We'll look forward to asking you questions when that time arrives, Dr. Gruenspecht. We do appreciate that. I am not sure I made it clear in your introduction that you are the acting administrator for the Energy Information Administration office at this time.

Our next witness to present is the program coordinator on the Energy Resources Program for the U.S. Geological Survey within the U.S. Department of Interior. We would very much welcome the testimony of Brenda Pierce.

Brenda, please present.

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 the U.S. onshore and state waters in 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've 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 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 geological 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 to 4.3 billion barrels of undiscovered, technically recoverable oil to compare to the U.S -- 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 for the next seven years, as new deepwater 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 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, 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 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 a specified date, are expected to be commercially recovered from known accumulations 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. And 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.

U.S. undiscovered, technically recoverable mean oil resources total 48 billion barrels of oil on shore 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 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 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 coal field. The Gillette area accounts for nearly 40 percent of the nation's current coal production, making it the single most important coal field 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. The 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 of 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 on all 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, 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 assess 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.

REP. COSTA: Thank you very much, Brenda.

Now we'll get to the part of the questions.

I'd 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, i.e., 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: For the undiscovered, we really rely on USGS and MMS. For the reserves part -- the part that, you know, the operators have already identified and booked and report to the U.S. Securities and Exchange Commission, if they're public companies -- that we collect directly.

The bigger part of the resource is the undiscovered resource, so maybe --

REP. COSTA: So how well do you think your numbers are in the undiscovered, based upon current technology and --

MS. PIERCE: It's a very good question. It does depend upon 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's less certain, and that's why we do probabilistic estimates. We give a range. And so 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's a mixed bag; some areas we're pretty certain, some not so.

REP. COSTA: I think you gave a good big picture for us to begin to try to draw a road map for a policy. I question, as we ponder the issue of providing more availability of OCS leases, when many of my colleagues question whether or not we're realizing the full potential of those leases that are already available -- do you understand what I'm 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's 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 it's currently available for utilization pertain that same carbon footprint, whether it be oil or gas, as you make these estimations? Do you understand my question?

MR. GRUENSPECHT: I'm not sure I do, sir.

REP. 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 had the same carbon footprint, i.e., the same amount of oil and gas -- or gas -- in each leased lot that now is available for drill purposes, then logically you would assume that you would take ready usage of all that resource that's available in that area that's already available for lease.

MR. GRUENSPECHT: You know, my understanding of the situation is that, again, we are projecting growing production from the OCS, and this we are pretty certain about because close in, you know, between now and 2015, we know what projects are under way 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, you know, there are multiple stages, there are issues about the connection to existing infrastructure --

REP. COSTA: Let me ask the question a different way. To your understanding, does every lease available for utilization purposes contain the same amount of carbon in that lease, whether it be oil or gas -- in terms of the value and with the production of that --

MR. GRUENSPECHT: No, that is not my understanding.

REP. COSTA: Okay.

MR. GRUENSPECHT: They do not.

REP. COSTA: And you would concur, U.S. Geological Survey? I mean, it's logically why different leases are priced differently when they go to bid.

MS. PIERCE: No, that's right. And I do have a colleague from MMS here if you have specific questions for MMS.

REP. COSTA: All right.

MS. PIERCE: And geologically I would concur. Yes, they are not all created equal.

REP. COSTA: Dr. Birol, you -- and my time's running out here -- 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 a sustainable energy policy for a comprehensive energy policy today? What should we be doing in the next five to 10 years and beyond?

I'm going to take the privilege of the chair because my time has just run out. But please answer the question. (Laughs.)

MR. BIROL: Okay. So I think in the short term there are low- hanging fruits in the United States which are -- the most important one being the improving the energy efficiency, using energy much more efficiently, ranging from the transportation -- cars, trucks, jets -- to the electrical appliances. There is huge room to improve the energy efficiency there and we can save a lot of energy in the short term.

Second is the current administration's very much determined to make more use of renewable energy -- wind, 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 -- (inaudible) -- 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 the electricity 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.

REP. 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 is energy efficiency improvements, renewables and nuclear power, sir.

REP. COSTA: And 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 and jets -- there's huge room for improvement. But also in China, India, Middle East countries, there's a strong room for improvement. And nuclear power -- I think throughout the world, we have the chances to increase the share of nuclear energy, which is good for the twin challenges I described here to address the climate change issue and to address the security of energy supply issue.

REP. COSTA: That good old-fashioned ethic of conservation.

MR. BIROL: Yes, it is. That's right.

REP. COSTA: All right, to conserve.

My friend from Colorado, Congressman Lamborn.

REP. LAMBORN: Yeah, 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 -- and I'd like to ask you a couple questions about that.

The report that EIA put out said, quote: "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 and the industry nearly 30 percent rise in cost under the -- essentially the basic case presented by EIA of the Lieberman-Warner bill, is that correct?

MR. GRUENSPECHT: I'm trying to remember back exactly what we had. I remember that we did several different cases, in part because of the issue of it's very difficult to know will nuclear power really be available, will coal with carbon-capture sequestration really be available. So 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.

REP. 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 --

MR. GRUENSPECHT: Right.

REP. LAMBORN: -- to the economy and to economic growth and jobs?

MR. GRUENSPECHT: I'm sure we did. I'm 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 the level of consumption, which is another measure of welfare, clearly depending on what technologies at what cost were soon to be available.

You know, one thing to keep in mind, I think, is the EIA has sort of a funny mission. We try to present information. There's 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, you know, 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 know, 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? The economy is very big, you know, so a difference of a few hundred billion or trillion, which is certainly a lot of money to me, you know, 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'm saying is you can take the same results and, depending on how they're framed, you know, you can say, gee, this is a tremendous burden or not.

REP. LAMBORN: Okay, thank you.

If we're going to do cap and trade knowing that it would raise energy prices, would you have a recommendation on the timing for instituting that, I mean, 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.

REP. LAMBORN: Okay.

MR. GRUENSPECHT: But I think you could imagine what an answer might be.

REP. LAMBORN: Okay. (Laughs.) Okay.

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's not -- certainly in the power sector there's no carbon capture and sequestration operating on a full-scale power plant. That would be correct.

REP. LAMBORN: Okay.

MR. GRUENSPECHT: But there is carbon capture and sequestration going on in oil production and in some other areas.

REP. LAMBORN: Okay, thank you for that clarification.

So as far as the cost that that would add to energy and so -- or even if it's feasible on a commercially scalable and viable level, we don't even really know that for sure, do we?

MR. GRUENSPECHT: It's pretty significant. I mean, the issue of a base load power generation I think that my colleague Dr. Birol raised, you could think of, you know, 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 costs of those tend 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's pretty expensive.

REP. LAMBORN: Okay, thank you. I see my times up.

Thank you, Mr. Chairman.

REP. COSTA: I thank the gentleman from Colorado.

We now will give five minutes to the gentleman from the American territories of Northern Mariana, Mr. Sablan.

DEL. GREGORIO "KILILI" SABLAN (I-MP): Thank you, Mr. Chairman. I have one question only.

And, Ms. Pierce, I'd like to thank USGS for, you know, some of the recent activities you had in the Northern Mariana Islands. I come from the Mariana Arc in the Pacific Ring of Fire and 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 that other kind of energy that's actually clean that no one has thought of. Well, they've thought about using it, but not in a commercial -- but 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 sometime?

MS. PIERCE: Recently we've been very focused on domestic oil and gas resources in our purview of 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's done, we need another year to integrate those efforts. But as that year goes on we're going to reprioritize the rest of the world -- where there are holes, where there's missing information and where we need to focus on next.

So certainly in that time frame we'd be looking at potential and what we might do and so we'd be developing those plans.

DEL. SABLAN: Thank you.

REP. 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 that -- resources become available that they do so, if that's your intent?

DEL. SABLAN: Well, actually, yes, Mr. Chairman. And actually I would also ask the -- 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's been done yet. So I'd also ask -- you had a hearing in the Virgin Islands --

REP. COSTA: No, we did and part of it was on -- we did it with our colleague --

DEL. SABLAN: Right, thank you.

REP. COSTA: You've just gotten some new information?

MR. GRUENSPECHT: I'm informed that there is work under way on that request, so it has not been forgotten.

DEL. SABLAN: All right, so they do listen to --

REP. COSTA: (Laughs.) Does that include -- besides the U.S. Virgins, the Northern Mariana territories as well?

MR. GRUENSPECHT: I thought it was all of the -- (inaudible) -- territories. I believe it was.

REP. COSTA: I thought it was too, but I'm just -- 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? (Laughs.)

REP. COSTA: I think it'd be appropriate if your agency would provide a letter to the subcommittee and to the representative indicating what's taking place and on what timeline. And then if we need to follow up with further response we can do so.

MR. GRUENSPECHT: I think that's very reasonable, sir.

REP. COSTA: Okay?

DEL. SABLAN: Thank you, Mr. Chairman. I yield the rest of my time.

REP. COSTA: All right, thank you. A gentleman always appreciates when members are judicial (sic) with their time, which brings me to the next witness.

The gentleman from Utah, Mr. Chaffetz -- Chaffetz.

REP. JASON CHAFFETZ (R-UT): "Chaffetz."

REP. COSTA: "Chaffetz."

REP. CHAFFETZ: Yes, thank you. Thank you, Mr. Chairman.

Mr. Gruenspecht, I appreciate --

REP. COSTA: For five minutes.

REP. CHAFFETZ: -- all three of you being here, but my questions are primarily directed to you.

What percentage of -- it's not a trick question -- what percentage of Americans consume energy?

MR. GRUENSPECHT: All of them.

REP. 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.

REP. CHAFFETZ: One hundred percent of Americans. One of the things that interesting here is that in what I've read -- and correct me if I'm wrong -- is that it assumes that 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 maybe manufacture and extract 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're dealing with an issue, for instance, in Utah. After a multiyear process we're -- 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's actually a very, very tough -- it's a tough -- it's not a trick question but a tough question.

REP. CHAFFETZ: In about 20 seconds. (Laughs.)

MR. GRUENSPECHT: In 20 seconds.

There is an impact. If one knew what the ultimate decisions were going to be policywise, I think everyone would agree that you'd rather know about them and when they would occur. You'd rather know about them now than be uncertain about them.

But on the other hand, there's a lot of disagreement about what the policy decisions are going to be, and I think the parties also care about how the program comes out and how the decisions come out.

REP. CHAFFETZ: Certainly you wouldn't disagree with the fact that, given a 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 from -- 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's what I would say. And that's really the truth. I mean, that's an honest answer.

REP. CHAFFETZ: And over the course of time, at least till 2030, you do see an increase in the consumption or the 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 of the efficiency options that we think are really coming into play, in part because of some of the legislation that you all have enacted. I mean, you've enacted fuel economy standards in 2007 and other things.

REP. CHAFFETZ: Now, there's a lot of discussion about increasing wind and solar development to reduce our dependence on foreign energy. Can you help quantify for me 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 electricity is used to generate oil -- little oil is used to generate electricity, one would not expect --

REP. CHAFFETZ: Okay. So if we don't generate much electricity from oil, how much electricity do we import from foreign nations?

MR. GRUENSPECHT: I think we're net importers from Canada, but not much.

REP. CHAFFETZ: So it's a very negligible -

MR. GRUENSPECHT: Trade back and forth.

REP. CHAFFETZ: Okay, so clearly when we talk about reducing our dependence on foreign energy, it isn't about creating more wind and solar power or about generating electricity. It's about the combination of producing more oil and gas here at home and consuming less.

If that's 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's -- again EIA would not take a policy position. People would argue that there's still more room for increased efficiency.

REP. CHAFFETZ: But still, in your --

MR. GRUENSPECHT: Certainly it's 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.

REP. CHAFFETZ: And my last question, Mr. Chairman, is 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. Correct?

MR. GRUENSPECHT: I think our reference case projection would have something like that.

REP. CHAFFETZ: We're still going to have more than 80 percent -- we're still --

MR. GRUENSPECHT: That would be down from the current 96 percent, yeah.

REP. CHAFFETZ: But still a huge 80 percent?

MR. GRUENSPECHT: A lot, yeah.

REP. CHAFFETZ: Thank you, Mr. Chair. I yield back the balance of my time.

REP. COSTA: Thank you. We appreciate that.
ssments: Our nation depends heavily on imported energy resources; about 58 percent of the oil
The next gentleman in the subcommittee that the chair will recognize, Mr. Sarbanes from Maryland.

Good to have you here.

REP. JOHN P. SARBANES (D-MD): Thank you.

REP. COSTA: Thank you.

REP. SARBANES: Good to be here. Thank you for holding the hearing.

I have an assortment of seemingly random questions, so bear with me.

The first one is just definitional. "Undiscovered, but technically recoverable" means what?

MS. PIERCE: We produce resource estimates on those that are not currently reserves, so not booked by the SEC, not currently in production.

They are undiscovered, so they have not been drilled yet.

REP. SARBANES: So would there be three categories? 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's yet a bigger one of all undiscovered, like all molecules in the ground.

REP. SARBANES: There's like four categories?

MS. PIERCE: There's many, but in general.

REP. SARBANES: Okay.

MS. PIERCE: In general.

REP. SARBANES: All right.

The OCS discussion is one that we've been having for the last couple of weeks, and of course we're operating now in an environment where the moratorium has been lifted so the discussion is over are we 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 to 16 percent or something like that -- that was available for exploration and production, because what I'm trying to get a handle on is until that was lifted, presumably people were projecting models on how we were going to make this transition and where our resources were going to come from that assumed the moratorium would stay in place.

And maybe, Ms. Pierce, you could speak to the question of -- you mentioned the Gulf of Mexico; there's going to be new deepwater production there in the next few years or something. Is that in a place that was exempt from the moratorium when it was in place?

MS. PIERCE: Yes. And I would like to --

REP. SARBANES: Okay.

MS. PIERCE: -- have MMS answer that question.

REP. SARBANES: Okay. Okay.

REP. COSTA: State your name for the record please.

HAROLD SYMS (Minerals Management Service): Excuse me, I have a cold. Harold Syms.

Could you ask that again, please?

REP. COSTA: I'm not quite sure --

REP. SARBANES: Well, the question was whether the -- the specific question's whether that 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.

REP. SARBANES: Yeah.

And so I guess my point is that we're still in that time period where we're 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 seem 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 have -- you'd be able to make this transition that we all talk about making from our current portfolio of energy resources to a new one that's less dependent on oil and all the rest of it.

And so what I'm asking -- and maybe, Dr. Gruenspecht, you could speak to this  is 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 --

REP. SARBANES: Right.

MR. GRUENSPECHT: -- in one case to about total Lower 48 offshore would be something like 2.2 million barrels a day; in the other case it's something like 2.8 million barrels a day. But they're both higher than today's 1.3 million barrels a day in the OCS.

And the other thing to keep in mind is that the open -- you know, there's the -- there's Alaska, Atlantic; there's the Gulf of Mexico that was open prior to 2008; there's the eastern Gulf of Mexico that was off limits; there's the Pacific that was off limits. You know, the Gulf of Mexico that was open actually -- and again, MMS can speak for the undiscovered part  but I think those resources were something like, you know, 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 --

REP. SARBANES: Okay.

MR. GRUENSPECHT: -- in square miles or something.

But, you know, that's a very rich part, but the Atlantic and Pacific together has been discussed as being about 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.

REP. SARBANES: Well, you've -- my time's expired, but I think you've help make the point I'm trying to make, which is that there's 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 might 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.

REP. COSTA: Thank the gentleman from Maryland. And that just goes to prove that we all have difficult perspectives on this.

The gentleman from Texas, Mr. Gohmert.

Would you yield for a point of order?

You were talking and I thought the question was very good between you and the gentleman from Maryland. My understanding is is when we then -- and I asked you how good are your determination on these numbers, haven't most of the fields, once we've determined, been lower than the projections -- I mean, higher than the once they've gone into production?

MR. GRUENSPECHT: Yeah, I mean, I --

REP. COSTA: The initial projections?

MR. GRUENSPECHT: Sure. And I know GS has done studies on this, but there have been fantastic studies of some of the California fields and some of the Texas fields.

And, you know, I don't have the picture in front of me -- I would need the picture; maybe Brenda would 

REP. COSTA: You might provide that as --

MR. GRUENSPECHT: But I'll be glad to provide that to you.

REP. COSTA: Provide that information.

MR. GRUENSPECHT: Absolutely.

REP. COSTA: The gentleman from Texas. Thank you for yielding.

REP. LOUIE GOHMERT (R-TX): Absolutely. Thanks for having the hearing. I mean, you called the hearing, so why wouldn't I yield? (Laughter.)

So -- (laughs) -- so I'd like to ask Dr. Birol, the UCSD economics Professor James Hamilton had written that, quote, "Nine out of 10 of the U.S. recessions since World War II were preceded by a spike up in oil prices," unquote.

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: It will be -- we looked into that and it will 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 fertile ground for a higher impact of the financial crisis on the economy.

REP. GOHMERT: Well, thank you.

There are people around Capitol Hill today who are concerned because they've been notified it looks like there'll be additional taxes on the manner of producing oil and gas. Now, I'm 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.? Americans will end up buying more foreign oil if we tax more of our own production? I mean, don't we normally see that?

Anybody.

MR. BIROL: Since I'm not American perhaps I can answer better -- (laughter) -- this question.

REP. GOHMERT: I enjoy your accent. (Laughter.) Yeah. You may enjoy talking to me since I don't have one. (Laughter.)

REP. COSTA: I was wondering when we were going to go there. Would you like me to translate for each of you? (Laughter.)

REP. GOHMERT: You may need to translate for him. I can understand him. (Laughter.)

MR. BIROL: Let the first -- 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, what the big oil companies have, are declining on 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're under the control of the national oil companies and they do not allow these international oil companies to go and invest and increase the 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's a tax, additional tax, on production, this will 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 market, economic and political implications of that? But just looking at it from oil production prospects, it will definitely have a negative implication for the U.S. oil production prospects.

REP. GOHMERT: And thank you. That means less jobs, it means less American energy that would be produced, and apparently higher prices for what is.

But we keep talking about the carbon footprint, cap and trade, and, you know, I had some very good teachers growing up and they were basically all Democrats and they were brilliant and they said -- they taught me that if you don't have carbon dioxide, plants die, that you've got to have carbon dioxide or plants die.

And obviously there's concern on Capitol Hill that we produce too much carbon dioxide up here, especially on the floor -- (laughter) -- but the problem is if we're going to have caps on carbon, it looks like we're going to have to cap what people -- some people are breathing too much, apparently.

But now there's a disagreement over global warming and now I think that's why people are starting to call it climate changes because they're not sure it -- that maybe we're cooling instead of warming and they don't want their contributions to slack off so we need to go calling 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? Anybody know? Because I don't know. It's not -- I'm curious if anybody knows. Are there other countries that place --

MR. BIROL: I will say very few, sir.

REP. GOHMERT: If they're -- do you know of any personally?

MR. BIROL: No.

REP. GOHMERT: You can't name any countries that do?

MR. BIROL: I don't know that -- I don't know how many.

REP. GOHMERT: So either they're all really, really stupid, or draw your own conclusion.

Thank you very much. (Laughter.)

REP. COSTA: Thank the gentleman from Texas. I'm glad that we're not determining that there's a lot of carbon problems with the subcommittee here today. And so that we're keeping that under control.

And I do want for the record it to be stated that the gentleman from Texas has acknowledged that there are smart Democratic teachers. (Laughs.) I always enjoy our exchange.

REP. COSTA: I think the next committee member who's up is Mr. Heinrich from New Mexico. The gentleman from New Mexico.

REP. MARTIN HEINRICH (D-NM): Thank you, Mr. Chair.

REP. COSTA: For five minutes.

REP. HEINRICH: Dr. Birol, in your testimony you stated that you believe that expanded drilling in the OCS could form, quote, "a crucial part of a comprehensive strategy to enhance the nation's energy security." And 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's 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 the 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's more than the total  which I believe we talked -- I believe mentioned was 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 U.S., as in many countries, is facing two major challenges and 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, and this is a win-win solution.

The question you raise, Mr. Chairman, which policies -- energy efficiency, renewables, nuclear power -- they are good for the climate change but at the same time for energy security, too. This is a win- win situation here, and 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.

And in terms of energy security, I think a major problem for the United States which is going to come is the increasing risks with the oil import dependency. Twelve million barrels per day of oil import is very high in 2030, especially if you 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 a very few number of countries.

And two countries which are very important in this context are Saudi Arabia and Iraq, just to underline which will be the major exporting countries in the next years to come.

And in that 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, the question of increasing efficiency, especially in the transportation sector; it's an old, definitely, concept, but it is a very important concept. And there is a lot of room still to imply this old but not yet fully implemented concept to different channels -- one, standards and regulations, and second perhaps it is not very politically correct here but perhaps looking at the prices of gasoline and diesel in the United States and bringing it to a level which will discourage the wasteful use of oil. So this on the efficiency side which will bring the demand growth slower, which would make U.S. to import less oil.

And the second issue is, as you mentioned, Distinguished Member, is increasing production from offshore. Throughout the world offshore will be very important. If you look at the last 20 years, almost all the growth in crude oil came from the offshore fields -- no onshore growth. Almost all the growth came from the offshore fields and now you'll look at the reserves worldwide, 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.

And in the context of the prioritization, I would think that Gulf of Mexico and Alaska, these are the areas that we have to look very carefully, but this shouldn't exclude to look at the other parts of the offshore, especially in terms of having much more realistic assessments in terms of having more drilling there.

Thank you.

REP. HEINRICH: Mr. Chair, do I have time for another question or am I out?

REP. COSTA: If it's a quick one.

REP. HEINRICH: Real quick question: We've heard about the risks of addressing pollution from carbon; do you see an economic risk in not addressing pollution from carbon as the temperature rises?

MR. BIROL: There may be long-term implications in terms of the climate change, would have effect on many areas of the world, including the United States, ranging from the productivity in the agriculture sector to the availability of water, changing the landscape of the plants and the others. There are definitely such applications. But secondly, 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 everywhere in the world, especially in China, India and also in those OCD countries which do not take into account the climate change issue and those investments are, once they are done -- for example, building a coal-fired power plant, it will be with us 50, 60 years. So the earlier, if we were to give a signal to the investors -- we give is the better and less costly it is in the next years to come.

REP. COSTA: Well, we thank the gentleman for his response. It may have been a quick question. It wasn't a quick answer.

REP. HEINRICH: I apologize for that. I thought it was a yes or no, but --

REP. COSTA: Well, no -- (laughs).

REP. HEINRICH: It was a very good answer, nonetheless.

REP. COSTA: I think he tried to respond in a complete fashion.

The chairman is pleased to recognize the gentlewoman from Wyoming, Ms. Lummis.

REP. CYNTHIA M. LUMMIS (R-WY): Thank you, Mr. Chairman.

My first question is for Dr. -- is it "Greenspecht"? Would you pronounce it for me?

MR. GRUENSPECHT: "Gruenspecht."

REP. LUMMIS: "Gruenspecht." Thank you. I -- my husband --

MR. : (Off mike.)

REP. LUMMIS: Yes. There's a really great town in Texas called -- and it's -- they pronounce it Green, but it's pronounced like your name. No, it's just really neat. You ought to go down there sometime.

What percentage of our domestic energy use is renewables right now?

MR. : (Off mike.)

MR. GRUENSPECHT: (Off mike) -- and the wind and the solar all together would probably be close to -- maybe nine or 10.

REP. LUMMIS: Okay. And what do you predict that percentage will increase to by 2030?

MR. GRUENSPECHT: We see the -- I don't have the renewable all together, but I have the -- the fossil part is like 85 percent now and I see -- we see that dropping to about 79 percent. So the other 15 percent would be the renewals and nuclear now and then that -- renewables and nuclear would grow to about 21 percent by 2030.

REP. LUMMIS: Okay.

MR. GRUENSPECHT: I can get you the breakdown you wanted, but I just don't have it in my head.

REP. LUMMIS: Thanks, Mr. Chairman.

I'd love to have that, so thanks.

The president's budget -- I'm on the Budget Committee and I was over there this morning -- his budget proposes to repeal the intangible drilling costs 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've been informed that eliminating the IDC deduction will increase the costs 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, you know, agree or disagree with the specific estimate you cited. The other thing that matters a whole lot is the price of natural gas and we -- you know, as a person from an energy-producing state, you know 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 well-head prices available matter.

REP. LUMMIS: Thank you.

My next question, Mr. Chairman is for Dr. -- and once again, is it "Beerall"?

Thank you for joining us. The whole panel's 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 the current capacity of Saudi Arabia would be needed to offset declining production at existing fields.

How much of this global oil demand do you associate with the United States?

MR. BIROL: I think for the United States -- luckily we expected the oil demand in the U.S. in 2030 will be less than today, but still a significant portion of the oil demand will come from United States but less than today, and the bulk of the growth will come from China, India and the Middle East countries.

REP. LUMMIS: Okay. And is there 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 will depend on how much of the OCS will be utilized, but I wouldn't say that OCS will be a big part of the answer.

REP. LUMMIS: Thank you.

And one more question, this one, Mr. Chairman, for Mrs. Pierce.

You made a key point in your testimony that the estimate of technically recoverable resources changes dramatically over time. It's 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 fracking technology and that's 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's 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's 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 that you're talking about and the horizontal drilling.

Our assessments are technically recoverable and they're 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 affect the resource estimates and what's usable and what's not -- what's economically recoverable.

REP. LUMMIS: Well, thank you, Mr. Chairman. This has been a very informative panel.

And I'm deeply grateful to all of you for attending today.

Thank you.

REP. COSTA: Thank you.

And the chair stands corrected; I believe I mispronounced the gentlewoman's -- it's Lummis?

REP. LUMMIS: Lummis, yes, thanks.

REP. COSTA: I think I said I know a Loomis in my district and so I mispronounced it, obviously not intentionally -- Lummis.

REP. LUMMIS: Thank you very much.

REP. COSTA: You're welcome.

It's the chair's intention to recognize both the two remaining members of the subcommittee that 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're going to be having votes, so we'll close the testimony.

So members who have additional questions, I don't think we're going to get to the second round, is my point, so -- anyway, the gentleman from New Jersey, who has a deep interest and his own research on this subject matter, Mr. Holt.

REP. RUSH D. HOLT (D-NJ): Thank you. So I take that to mean I have only five minutes; that's -- so that's -- (laughs) --

REP. COSTA: Well, the chair has been somewhat generous with the time, so --

REP. HOLT: I would gladly spend all afternoon talking with the witnesses. It's an excellent panel.

REP. COSTA: No, it has been a good panel and we appreciate it, yeah.

REP. HOLT: Thank you for putting that together and I apologize for my absence earlier in the hearing.

REP. COSTA: We missed you.

REP. HOLT: So the -- 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've 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've got 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? It's, I think, worth noting in your answer that the price has dropped from $4 a gallon to considerably less than that and that 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 will be a bit different because I don't have the concern to be elected or re-elected -- (laughter) -- so I will tell you what I believe.

REP. COSTA: That's why he's asking you the question.

MR. BIROL: Exactly. (Laughs.)

So I would say it is -- even it is $4 per gallon, it is cheap. It is still half of the money what the people pay in Europe or in even less they pay in Japan.

REP. HOLT: But putting that aside -- and I take your point --

MR. BIROL: Yes.

REP. HOLT: Really what I wanted to get at was 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 -- (inaudible) -- some impact by increasing the production, but I would be surprised if the -- if it change a lot because the -- why the price is so increased was a result of the what happened in the international 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. That's my answer.

MR. GRUENSPECHT: I think the -- 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've done analyses of increased -- either it's opening ANWR, which is -- you know, we've been asked to look at that by various folks over the years, or the OCS. Again, in our OCS case, we get about 600 -- without the moratoria restored we get about 600,000 barrels a day more production in the U.S.

But in the long run -- that's in a 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's both supply response from other suppliers and there's also a demand response to prices, and the effect of adding 600,000 barrels a day is probably, you know, dollar, $2 a barrel, which translates into, you know, two, three, four cents -- three to five cents a gallon.

REP. COSTA: Would the gentleman yield for a second? I'll give you the extra time.

REP. HOLT: Could you define for the subcommittee what you mean by in the short time and the long term? I mean years -- five years, 10 years --

MR. GRUENSPECHT: Yes, one of the -- if you're looking -- let's say if you're looking at the -- when the oil markets were extremely tight, let's say before last summer, when you were getting all your fan mail, you know, 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 -- let's say a 10- to 20-year period -- we often talk about 2030, both the IEA and the EIA -- then those -- 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've answered your question, but I'd say, you know, less than a year -- short run -- 10 years or longer, long run would be a fair way to look at it.

But again, the drilling takes time. So all these issues -- you know, is that if one would start leasing or if one would -- I know ANWR's not 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.

REP. HOLT: If the chair will allow me to reclaim my time, then? Thank you.

REP. COSTA: No, no. Go ahead.

REP. HOLT: You report, and it is well known that energy -- and this is getting at the -- supply -- the demand question. You report, and it's well known, that energy intensity has decreased continually and actually quite -- in an almost straight line, whether you're 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 of GDP has been falling off. Energy per capita historically 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, you know, 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, which has the 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're exactly right -- per dollar of GDP. It's been falling steadily and we see that continuing. So we do see some growth in energy demand. I mean, 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 Europe, Western Europe population is relatively flat or declining in many countries.

And, you know, there are a lot of details, but I think that's the answer to your question.

REP. HOLT: I think my time has expired.

Thank the chairman.

REP. COSTA: Thank you.

Well, I think we've all enjoyed the testimony here this afternoon and 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, is 10 years? (Laughs.) Yes, or no. I mean --

MR. GRUENSPECHT: I am an economist, so I have to have two hands, but I think, you know, one year is short term in the oil market. I think 20 years is long term and somewhere between one years and 20 years, which I've arbitrarily defined as 10 years, is a good way to think about it.

REP. COSTA: Is mid-term -- okay.

The gentleman from Louisiana, Mr. Fleming.

REP. JOHN FLEMING (R-LA): Yes, thank you, Mr. Chairman.

Am I to understand that I hear today that there's perhaps a consensus emerging that we need to move more towards 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. And when you look at the countries outside of the United States, there is a change in -- of wind -- direction of wind in the last three, four 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 to be nuclear power because it produces electricity cheap without having security of supply problems and without emitting any carbon dioxide emissions.

REP. FLEMING: Okay. The other panelists agree with that?

MR. GRUENSPECHT: Well, I'm not really in a position to agree with him, but all I would say is that certainly if you're interested in reducing greenhouse gas emissions and base-load power generation, your two kind of options are nuclear and coal with carbon capture sequestration, if that comes into being. Whether nuclear is cheap or not, I think people would have -- you know, compared to what else you could do if you weren't worried about greenhouse gas emissions, it's probably less economic.

But that's a policy call, not my call.

REP. FLEMING: Sure.

MS. PIERCE: And policy aside -- all those factors are very true -- I would just ask people to keep in mind it's still a resource and you still have to have the basic resources to run these nuclear power plants. So again, we need to understand where they are, at what cost they're provided, do we need to import those, do we have those resources -- so just another thing to keep in mind.

REP. FLEMING: Well, it kind of get back to the cost of energy. See, I'm very concerned we've got -- as my friend from Wyoming just mentioned, we've got this idea in the FY 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're talking about $646 billion impact with regard to cap and trade which is going to impact costs to the consumers. And it could well hurt the poorest or the working poor more because a higher percentage of their budget is going to be fuel and electricity warming their homes. So I'm very concerned about some moves that we're going 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've under estimated what that could produce. With all of that it seems to me that if we provide increase in supply and reduction in demand by moving into, you know, more efficiency and more alternatives like nuclear energy, that the cost 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's kind of a second, unrelated question, but I'll let you all address both of these -- is what our other countries doing? I see us potentially doing a whole lot, but of course, we are not producing all of the CO2 into the atmosphere. So we can do a lot, but is that going to really have a big impact when other countries aren't?

Would love to have a response from any of the panel on these.

MR. BIRO: In terms of cost, it would be too general to say but it depends on what we understand about the cost. If we just look at the electricity generation costs and with the natural gas and nuclear -- if you compare these two, 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 we have a carbon tax, this would definitely favor or -- (inaudible) -- whatever the system -- this would definitely favor nuclear power or other carbon-free sources.

But another thing for nuclear, we shouldn't think nuclear only is the 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 we want to in the future move towards a -- (inaudible) in hybrids or 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, you are perfectly right, sir. As I try 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.

REP. FLEMING: Okay.

Any other comments before we --

MR. GRUENSPECHT: A short comment. I mean, the relative position of natural gas versus nuclear, I think there's 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, you know, 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 disaster -- perhaps -- I don't want to get carried away, because you could have sequestration -- but it may help you on one issue and hurt you on the other issue.

Something like biomass -- do we use it in -- 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've got to be kind of honest about what issues we care about. And again, EIA doesn't have a position and how we prioritize those various concerns, because it isn't like we're all going to hold hands and to go down the street and everything's going to be a win-win because life is not really that way, as we all know.

REP. COSTA: We're trying. (Laughter.)

MR. GRUENSPECHT: Yes, well, whatever.

REP. FLEMING: Mr. Chairman, I know I'm out of time. I would like, if it's okay --

REP. COSTA: You are out of time. What would you like to do?

REP. FLEMING: I just wanted to enter into the record a letter from the Louisiana Oil and Gas Association president regarding this issue of the lack of incentives that will be stripped away.

REP. COSTA: All right -- without objection.

REP. FLEMING: Thank you.

REP. COSTA: Gentleman from Colorado -- wind up here.

REP. LAMBORN: Mr. Chairman, with leave of you as the chairman, I'd like to ask one very quick question of Ms. Pierce.

REP. COSTA: If she can give us a quick answer.

REP. LAMBORN: Okay, we've 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's a good question. I don't think there's been a recent assessment. We are gearing up to look at doing a resource assessment, but there's not a current resource assessment on uranium -- domestic.

REP. COSTA: That's a good question, the gentleman from Colorado.

We'd like you to give us -- if you could respond to the subcommittee as to how that assessments going to take place and in what timeline we can determine the proven reserves -- I don't that's the 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'd like to do that.

We're going to close here. I just want to mention to members of the subcommittee that you've not seen. Dr. Birol has done such a good job, produces this World Energy Outlook every year, the international consortium that he's a part of, and so I would urge members of the subcommittee to get this in your office. It's, I think, a helpful resource material. I'm 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 our way all going down merrily that same road, because certainly our nation depends upon it.

Thank you very much. This hearing is adjourned.

END.


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