Oil Dependence and what to do about it. Senate hearing 2007

[ In recent years there have been so many hearings proclaiming energy independence that I thought I should publish more sessions where Congress admits to a dependency on oil. The same old solutions and ideas appear: drill baby drill, ethanol, make cars more efficient, and a former Navy Admiral advises the Senate that oil wars are not a good way to reduce oil dependency.

Alice Friedemann   www.energyskeptic.com  author of “When Trucks Stop Running: Energy and the Future of Transportation, 2015, Springer]

Senate 110-260. May 8, 2007.  Energy security and oil dependence–recommendations on policies and funding  to reduce U.S. Oil dependence.  U.S. Senate hearing.

Excerpts from this 50 page document follow.

Senator DORGAN. We’re here to take testimony and better understand the key steps and funding mechanisms that are necessary for reducing U.S. oil dependence and for future U.S. energy security. We’ll also discuss the results of an analysis conducted to assess the economic impact of implementing the recommendations to the Nation on reducing U.S. oil dependence, a report that has been put together by the Energy Security Leadership Council. That’s a group of distinguished business and military leaders who, like me, view U.S. oil dependence as detrimental to our long-term security interests as well as our economic health. I think it’s safe to say that the goal for all of us is to improve the national economic and energy security of the United States.

We are, this country, the top oil consumer in the world. Most of us know that we suck about 84 million barrels of oil a day out of this planet of ours. We stick little straws in the Earth and suck oil out, and we in the United States use fully one-fourth of it every single day. We are prodigious consumers of oil.

Much of our oil comes from where it is most vulnerable in the world. Some very vulnerable regions of the country have a substantial amount of the resources. We are about 60 plus percent dependent on foreign sources of oil. That clearly, it seems to me, is not in our best interest. About 70 percent—just shy of 70 percent of the oil that comes into this country is used for transportation. We are unbelievably dependent, and growing in that dependence, on oil that comes from very troubled parts of the world. A substantial part, of which, after we import it, is used for transportation. And so God forbid there should be some terrorist attack some day that would shut off the pipeline of oil coming into this country. We would not only see dramatic increases in the price of that which we could import, but we would also see substantial disruption and substantial problems, and I think our economy would suffer a very serious long-term problem.

Let me say that I also, coming from a State like North Dakota, have a pretty acute awareness of the energy issue, particularly with respect to oil. We drive exactly twice as much per person in North Dakota as New Yorkers do. It’s not unusual for somebody to jump in a pickup truck and drive 200 miles, one way, to get some parts for the combine and drive 200 miles back and then go to work after that.

It seems to me that there are no silver bullets to address these issues, but there are plenty of good ideas that we need to embrace. We need to find ways to conserve. We need to find ways to produce more, domestically. And we need to encourage, especially, our home grown biofuels industry in this economy. With input from the Energy Security Leadership Council, Senator Craig and I have introduced something called, the SAFE Energy Act of 2007 that has four cornerstone principles, to reduce oil dependency.

These include increasing auto efficiency, expanded production and the use of biofuels like ethanol and biodiesel, and producing more of our own oil and gas resources by allowing access to domestic reserves, particularly in the eastern Gulf of Mexico.

SENATOR PETE V. DOMENICI.  I am certain that there is no magic bullet or immediate panacea to remedy this global problem of supply and demand economics. But this much I know—in order to strengthen our energy and economic security we must do more to reduce our dependence on foreign oil. That requires a common sense, balanced approach. It means that policies of drill-only or conserve-only are not enough. Instead, we must support policies that advance conservation and efficiency at home, additional domestic production in an environmentally sound manner, and diversification of the kind of fuels that power our lives.

When I was chairman of the Energy Committee in 2005, we passed the most wide-ranging comprehensive energy policy in decades. This bill includes long-term innovative policies on efficiency, renewable energy, nuclear energy, electricity. It also established the first-ever renewable fuel standard which brought renewable biofuels into our mix to displace foreign oil and created literally thousands of jobs and millions of dollars in a revitalized rural economy in America. Last year, we passed the Gulf of Mexico Energy Security Act which opens up the 181 Area and 181-South Area in the Gulf of Mexico. In total, these 8.3 million acres are estimated to contain 1.26 billion barrels of crude oil and 5.83 trillion cubic feet of natural gas—enough natural gas to heat and cool 6 million homes for about 15 years. This will provide much needed natural gas relief for our industrial and home consumers, and will bolster our energy security by increasing our domestic oil and gas production. Finally, this year, we have passed a biofuels and energy efficiency bill out of the Energy and Natural Resources Committee

SENATOR LARRY CRAIG.  Americans are growing increasingly concerned that we are phenomenally dependent on unstable foreign sources of oil. In Nigeria today, three pipelines blew up. Six Chevron employees held hostage. It is a very unfriendly world out there. And that unfriendly world in the name of Petro-Nationalism has learned how to jerk the tail of the giant, us. And that’s a tragedy for us, potentially, if we don’t do something about it.   For this great Nation not to know what’s in the No Zone of the east coast, not to know what’s in the No Zone of the west coast, not to be optimizing that which is in the gulf, is a shame on us.


The Energy Security Leadership Council is a group of 20 business CEOs and retired military officers, who’ve been moved to action out of the conviction that oil dependence severely threatens the economic and national security of the United States. We would argue, in fact, that oil dependence is the most important security issue facing the Nation, with the possible exception of weapons of mass destruction.

In December the council unveiled a set of recommendations to the Nation on reducing U.S. oil dependence. The report outlines a comprehensive energy security strategy based on four measures: One, new strength in vehicle fuel efficiency standards; two, increased domestic oil production in conjunction with expanded environmental protections; three, greater availability of alternative fuels; and four, improved international arrangements to secure global oil supplies.

The recommendations replace the false hope of domestic energy independence with realistic policies for better managing the reality of global energy interdependence.  We believe the time has come for Americans to unite behind an aggressive campaign to reduce our dependence on oil and increase domestic and global energy security. The recommendations we’ve made are balanced policies. We consume now, more than 20 million barrels of oil a day, one-quarter of the world’s total. More than 60 percent of the oil we use is imported; 70 percent of that oil goes toward transportation, which relies on oil for 97 percent of delivered energy with almost no substitutes available. As the CEO of an organization of 280,000 people operating 677 aircrafts around the world and over 70,000 vehicles, I can assure you this issue commands our daily attention.

In the event of an oil crisis, transportation would break down and paralysis would spread into all economic sectors. A brief look at the history of Japan and Germany during World War II will illustrate the importance of energy vulnerability.

The American people must recognize that the 21st century global oil market is well removed from the free market ideal, as you mentioned. By some estimates, over 90 percent of all oil and gas reserves are now held by national oil companies that are partially or fully controlled by governments, many of whom do not have America’s best interest at heart.

The American people must be told the hard facts about energy security.

The time has come for Americans to unite behind an aggressive campaign to reduce our dependence on oil and increase domestic and global energy security. To succeed, we must move beyond the narrow interests, political polarization, and short-term thinking that have prevented meaningful national progress for the last 20 years.

Unless we tackle these hard choices, I have no doubt that oil dependence will result in major economic disaster for this country. Oil is the life-blood of our economy.

FedEx has grown because quick and efficient transportation creates value throughout the entire economy. In the event of an oil crisis, transportation would break down and paralysis would spread into all economic sectors.

Given these hard realities, we must accept that market forces alone will not solve our oil problems. Instead, government must step in to spur and, in some cases, require private-sector responses. This is not a decision I came to easily, and I am certainly not one to encourage regulation where other effective solutions are available. But the fact is the supply of oil—the most valuable commodity in the world—is determined by a group of men who gather together and collude in ways that would be considered illegal in the United States. To combat such anti-competitive practices, government intervention is not merely desirable—it is essential.

The Council’s approach tackles oil dependence through many policies, but none is more crucial than reformed and strengthened vehicle fuel-economy standards. Under the Council’s proposal, the fleet of new passenger cars and light trucks sold in the United States each year will have to get 4 percent more miles per gallon than the fleet of cars and light trucks sold the year before. The same improvement will be required for commercial trucks, which have never previously been subject to fuel- economy standards.

Four percent is not an arbitrarily chosen number. It reflects the historical annual gains that were achieved when the Nation last committed itself to fuel economy. It is also perfectly consistent with expert forecasts of potential future fuel economy improvements.

To improve energy security, America needs to get millions of fuel efficient cars on the road.

The fuel economy of medium and heavy trucks is well below what it could be. A 2002 study conducted by the U.S. Department of Energy (DOE) found that currently available technologies could raise tractor-trailer mileage from 6 mpg to 10 mpg. A more recent analysis performed by DOE in 2005 suggests that an even higher level is feasible. Potential improvements for medium trucks run as high as 90 percent. And, perhaps most importantly, these gains are not projected to have any negative impact on performance.

So, you may be asking, why don’t we have these trucks? Don’t truck operators look to minimize costs by adopting cost-effective fuel-saving technologies? The answer, of course, is that some do and some don’t. As with purchasers of passenger cars, it is often difficult for truck buyers to correctly value the financial benefit of fuel-efficiency investments that require large up-front investments and produce savings over an extended time. Lack of information about available technologies and their fuel saving potential may also slow adoption of fuel-saving technologies, especially since fuel efficiency depends on a combination of elements (e.g., engine, chassis, aerodynamics) that are often marketed by separate manufacturers. But if you ask me, the key reason for lagging truck fuel economy is that manufacturers have not made such vehicles available. The market failures that have worked against passenger fuel economy are also evident in the truck sector. Indeed, since the manufacture of commercial vehicles is even more concentrated than is the case for passenger vehicles, the effects of the market failure may be even more pronounced in this sector.

To improve energy security, we must use oil more efficiently, but we must not stop there. Diversifying our transportation fuel supply should also be a key part of our national strategy to reduce oil dependence. Without an expanded supply of alternatives, conventional petroleum will continue to power nearly all of our motor transport. Such reliance on a single non-substitutable input creates profound economic dangers.

Biofuels are part of the solution, but we should not fool ourselves into thinking that America can ‘‘grow’’ its way out of this problem. America’s fuel needs cannot be met with biofuels alone. Even Brazil, which has roughly the same land mass as the continental United States, but whose fuel requirements are only a small fraction of ours, still relies on oil for most of its transportation energy.


Oil dependence is one of the most serious economic and national security challenges facing our Nation.

Ever since launching his war against the United States, Osama bin Laden has threatened attacks on oil installations in the Arabian Gulf region. Just last year massive oil supply shock was only narrowly averted when the al-Qaeda attack on the Abqaiq facility was barely foiled. Sixty percent of Saudi Arabia’s oil goes through this facility. Two weeks ago the Saudi authorities again uncovered an al-Qaeda plot that threatened oil infrastructure targets.

Iraq is also the scene of persistent insurgent and terrorist attacks on pipelines and pumping stations especially in the north of Iraq and in the offshore loading platforms in the northern Arabian Gulf. These attacks have curtailed Iraqi oil exports and cost the Iraqi government billions of dollars in revenue at a time when American taxpayers are spending billions on reconstruction. The danger of attacks in shipping is also quite real. In October 2002, the French supertanker, Limburg, was rammed by a small boat packed with explosives off the coast of Yemen. Most of all shipments from the Persian Gulf have to pass through a handful of maritime chokepoints. Fully one-half, 40 million barrels a day of oil, transiting our world’s oceans go through restricted waterways: the Strait of Hormuz, the Strait of Mirlocca, the Strait of Babel Mandeb, the Turkish Straits, and the Suez Canal. All of our regional combatant commands handle all security tasks. For instance, the European command, where I commanded naval forces at the close of my career is involved in oil security tasks and missions from the Caspian Sea Transcaucasus region to the Gulf of Guinea in West Africa. And you just heard what happened there today in Nigeria.

The armed forces of the United States have been extraordinarily successful in fulfilling their energy security mission but this very success may have weakened the Nation’s strategic posture by allowing America’s political leaders and the American public to believe that energy security can be achieved by military means alone. We need to change that paradigm. The U.S. military is certainly not the only instrument, in many cases not the best instrument, for confronting the strategic dangers that emanate from oil dependence.

This is particularly true when oil is used as a political weapon and we certainly all remember the 1973 oil embargo and the consequences of that. And that—we all know that Russia is beginning to exercise its commodity muscle as evidenced by the stop of natural gas exports to Ukraine, which, in turn, withheld natural gas destined for western Europe.

Energy exporting governments don’t need to resort to full-fledged embargoes to hurt U.S. and other importers. They can manipulate prices through less drastic production—cuts and by foregoing improvements in their infrastructure. Witness what is happening in Venezuela. Currently an estimated 90 percent of global oil reserves are controlled by national oil companies, NOX, which are highly susceptible to being influenced by political objectives. European Union’s reliance on Middle Eastern oil and Russian gas continues to complicate U.S. foreign policy efforts, especially with regard to stopping Iran from developing nuclear weapons. China, of course, exercises its interest in Sudanese oil by stymieing diplomatic efforts in Darfur. The U.S. Government must make comprehensive energy security a top strategic priority.

Clearly, we face committed enemies with the intent and capability to cause major disruptions. Some of their attacks on the Saudi oil economy have already succeeded, for instance their attacks on expatriate residential compounds in Riyadh in 2002 and in al-Khobar in 2004.

Iraq is the scene of persistent insurgent and terrorist attacks on pipelines and pumping stations, especially in the North of the country. These attacks have curtailed Iraqi oil exports and cost the Iraqi government billions of dollars in revenue at a time when American taxpayers are spending billions on reconstruction. If violence continues, and especially if it spreads to the south, where most export facilities are located, then all of Iraq’s oil production could be at risk. The danger of attacks on shipping is also quite real. In October 2002, the French supertanker Limburg was rammed by a small boat packed with explosives off the coast of Yemen.

Nearly all of our U.S. military commands handle oil security tasks. Central Command guards access to oil supplies in the Middle East. Southern Command defends Columbia’s Cano Limon pipeline. Pacific Command patrols tanker routes in the Indian Ocean, the South China Sea, and the Western Pacific. European Command, where I was in charge of all naval forces at the close of my career, is involved in oil security all the way from the Caspian Sea to West Africa. The armed forces of the United States

The 1973 Arab embargo is still the most famous example of the use of energy as a strategic political weapon. But in recent years, Russia has shown the most willingness to play this dangerous game, just as at the beginning of 2006 when it stopped natural gas exports to the Ukraine, which in turn withheld natural gas destined for Western Europe. The danger of conflict with a nuclear power like Russia should make it abundantly clear that there are limits on how we can use military power to guarantee energy flows.

In an oil-dependent world facing increasingly tight supplies, the growing power of the oil-exporting countries and the shifting strategic calculations of other importing countries have lessened U.S. diplomatic leverage. Iran, which exports to the U.S.’s European and Asian allies, has threatened to use the ‘‘oil weapon’’ to retaliate against efforts to constrain its nuclear program. Venezuala’s Hugo Chavez incessantly brandishes the threat to cut off oil to the U.S. And Russia’s growing self-assurance and assertiveness cannot be divorced from the leverage it enjoys because of its oil and gas resources. European Union reliance on Middle Eastern oil and Russian gas continues to complicate U.S. foreign policy efforts, especially with regard to stopping Iran from developing nuclear weapons. China, with its rapidly growing dependence on foreign oil, also blocks U.S. diplomatic initiatives in order to strengthen its own ties with oil exporters. Chinese opposition has helped thwart U.N. Security Council sanctions against Iran and prevented significant intervention in the Darfur region of Sudan.

Mr. KARSNER.  The question focusing on E85 pumps and flex fuel vehicles is emblematic of the problem as a whole. The problem as a whole is that we have a sufficiently mature technology and availability of resources that can help us mitigate and hedge the security risk; but we haven’t devised sufficient policy with a scale and a rate that would be commensurate with the magnitude of the challenge. So, with regard to E85 and flex fuel, last year we had a banner year—450 new stations added—equaling a total national capacity of 1,200 stations. So, even with 60, 70 percent growth year on year, 750 had been the total we had ever put out of flex fuel pumps. Even if we maintained that rate of 450 per annum—that record rate—of new E85 pumps across the Nation, it would still take us up to 100 years to get to a scale that would matter, 50,000 pumps available for the country.

Mr. SMITH. We have about 77,000 trucks, a little more.

Senator DORGAN. And what prevents you—you’re a big purchaser of trucks, one of the Nation’s largest, I assume—from saying, ‘‘You know what? I want more efficient trucks and so I’m going to make an informed choice as a purchaser and buy only this kind of truck.’’

Mr. SMITH. We, along with Eaton Corporation and the Environmental Defense Fund, pioneered a new electric hybrid pick-up and delivery (PUD) vehicle. It produces about 50% greater fuel efficiency, about 90 percent greater emissions efficiency or emissions reduction over our traditional diesel powered PUD vehicles. Those vehicles are about 75% more expensive from a capital acquisition cost. So, obviously, being in a competitive business, we can’t buy one set of vehicles if there is no economic return.

Senator DORGAN. Have you had other business executives look at you cross eyed and say, ‘‘What on earth are you thinking going to Washington asking for more regulation?’’

Mr. SMITH. Well the short answer to that is, yes. As you may know, Senator, I’ve spent a lot of time up here over the last 30 years basically arguing against Government regulation. It took a considerable intellectual journey for me to come to the point of concluding that absent Government action, regulation, if you will, the problem can’t be solved.

Dr. WESCOTT.  If we think about an oil shock hitting the U.S. economy as in 1973–74, the early 1980s, and in 1991, economists think about channels of influence or lines of impact on the economy. The first one is on the pocketbook of the average household. And energy, historically, has been somewhere between 3 to 9% of the family budget. So, in the low oil price days of the early 1990s for example, when it was just 3% of the family budget, obviously that was a small piece of the budget. Now as we get up to 8 to 10% of the family budget it gets a more substantial piece. And if it doubles, then you’re basically constraining the purchases that people can make of other things.

Approximately one-half of all U.S. households are basically cash constrained, they don’t have surplus funds. They don’t have thousands of dollars in the bank. And so, right off the bat if you jump the price of oil and double it, as we did in this oil shock, you’re forcing about one-half of American households to almost immediately cut back on their movies that they go to and their purchases of other items. So, that’s one of the key channels of influence.

Another key channel of influence is through the financial markets. And especially if it’s caused by a terrorist attack or something a 9/11 or one of these sorts of events, it can have psychological effects. And so, we know that after 9/11, for example, the U.S. stock market fell by almost one-quarter. The Dow Jones average fell. So, that has wealth effects on people. People tend to consume about 3 to 4 percent of their wealth every year. And if suddenly their household wealth is sharply reduced because of a bad psychology or fear of terrorism or whatever that could also have a negative effect on the economy.

The third way that it can affect the economy is direct industry effects. There is going to be some industrial activities that are just plain shut down immediately if prices double.

Some chemical factories would shut down. They just couldn’t—they couldn’t physically run their business. They’re tied into contracts or whatever and they would get less for selling their goods then it would cost them to make it. These would be some of the very disruptive effects of an oil shock.

Senator DORGAN.  When we talk about CAFE standards and the greater efficiency of the system that powers our vehicles, I’m in support of that greater efficiency. But I guess my preference would be that this be a bridge to get to the next technology, hydrogen fuel cells, for example. What’s your assessment of whether that’s 20 years or 40 years from now?

Mr. SMITH.   I am a believer that there will be technological breakthroughs. But, I think in our particular case what we have tried to do is to have very practical recommendations on what today’s technology is rather than, to use an old aviation term, you know, have a wish and a prayer that these technologies will be produced in the future.

The CEO of Auto Nation, came by to see me long ago and he gave me a chart that showed fuel economy ranked number 12 in buying choice reasons.  After sound systems, interior conveniences, seating capacity, ergonomics, in fact, it was even after cup holders.  The same thing actually applies in the industrial truck sector because the market responds to what’s here and now.

Senator DORGAN.  I, and several others, have been pushing very hard to move more aggressively toward a different technology future using hydrogen and fuel cells, where you get water vapor coming out the tail pipe. You get twice the efficiency of power to the wheel and hydrogen is everywhere. And so, ultimately I want to disconnect from our need and demand for oil. Now that’s not going to happen quickly but we need to make that happen at some point.  I especially want to find a way to pole vault to a different kind of energy future. More specifically from my standpoint, it ought to be a hydrogen fuel cell future.

The Commerce Committee today passed new CAFE standards. These are auto efficiency standards and I was a part of it. CAFE is a significant part of the SAFE Act, which I’m pleased about, but I know the administration will probably view this as a mandate, which in fact it is. What will be the administration’s position? I know the President has indicated he would not support a mandate. He thinks it should be voluntary and so on. Are we going to be facing a veto threat?

I would like, Secretary Karsner to really urge the administration to take a new look. The last time they testified before the Commerce Committee on this subject not many weeks ago, the refrain was, ‘‘Yes voluntary standards. Yes, improve it, but voluntarily.

No mandates. No regulation.’’ It seems to me all of us have to give a little here. And the only way to make progress on efficiency is not by saying to the auto industry, please help us. I mean we’ve seen for 25 years very, very little progress in this area. I think that this panel says it right and I think the Commerce Committee said it right this morning. It is time for us to take some aggressive and some bold action. And I hope you will pass that word back to the administration. We all ought to be working on the same sheet here and that is regulation. It should be mandatory.


In his 2007 State of the Union Address, President Bush challenged our country to reduce gasoline consumption by 20 percent within the decade, the ‘‘Twenty in Ten’’ plan. The President called for a robust alternative fuel standard requiring the equivalent of 35 billion gallons of renewable and alternative fuels by 2017. Expanding the mandate established by the Energy Policy Act of 2005 is expected to decrease projected gasoline usage by 15 percent.

While the Department of Transportation has primary authority for addressing the President’s call to reform and elevate CAFE standards, the Department of Energy invests in the vehicle technologies and attests to their availability to increase fleet efficiency. Those provisions of the bill that broadly support the President’s vision of increasing efficiency alongside technologies to displace fuel consumption are integral to a comprehensive national strategy.

The United States and all major oil-consuming countries currently rely on imported petroleum as our major fuel source.

Secretary Bodman recently announced that the Department of Energy (DOE), under the authority provided in EPACT section 932 will invest up to $385 million for six commercial scale biorefinery projects over the next 4 years and up to $200 million for cellulosic biorefineries at 10 percent of commercial scale.

The question that is most urgently before this subcommittee, I believe, is how many Federal dollars will it take to satisfactorily address our addiction to oil. I suggest to you that there is no amount of Federal spending that can achieve this goal alone, without catalyzing private investment. If we are serious about changing our Nation’s energy portfolio, we must unleash the vast potential and transformative power of our capital markets.

The challenge for large-scale, up-front investments and clean energy is that the potential for outstanding returns must be realized over an extended period of time or the life cycle of the technologies use. This is true whether dealing with the solar roof top, cellulosic biorefineries, large wind farms, nuclear powerplants, energy efficient products like the ubiquitous compact fluorescent light bulb, or even transmission linking our clean energy resources with our national urban load centers.

Though the energy source is domestically available and generates little to no greenhouse gases, uncertainty over a technology’s life cycle risk and cost severely retards the amounts and types of private capital available being deployed. Effective capital formation requires the Federal Government to provide the necessary policy predictability and economic climate that enables massive investments at an accelerated pace. Responsible leveraging of Federal tax dollars to catalyze and accelerate private infrastructure financing and capital flows is essential to enable our national strategy of a new clean energy economy.


Probably the single most important conclusion of the study is that by substantially reducing America’s oil dependency, the economy will be much better prepared to withstand a future oil shock, such as those that hit the U.S. economy and contributed to recessions in 1973–74, 1980–81, and 1991. That is, the ESLC energy package can be thought of as a self-financing insurance policy that will make the economy more robust in good times and more resilient in the face of potential future energy shocks.

  • The fuel economy measures included mandated 4 percent annual increases in fuel efficiency standards for passenger cars and light-duty trucks, strengthened fuel efficiency standards for medium-duty and heavy-duty trucks, and improved Federal Aviation Administration traffic routing for airplanes. Altogether it was assumed that primary oil demand could be reduced by 5.8 million barrels per day (mbd) by 2030 with these steps.
  • The study also assumed that expanded ethanol production could contribute 0.7 mbd for transportation by 2030 and that biodiesel could add 0.2 mbd to production, for a total of 0.9 mbd from biofuels.
  • Finally the study assumed that through a relaxation of moratoria on oil and gas drilling in the outer continental shelf (OCS) and through more rapid implementation of enhanced oil recovery methods, domestic oil and gas production could be boosted by 2.5 mbd by 2030.

We assumed, for example, that in order to achieve higher fuel efficiency, new automobiles would require new engines/motors, advanced controls, electronics, new materials, and batteries and would cost about 10 percent more each year than they did in the baseline scenario. We also took into account the fact that higher ethanol production would require a growing share of U.S. corn production, and that the price of agricultural products would rise as a result, and that ethanol production itself

KEY FINDINGS. Under the ESLC energy policy package, the study found that the U.S. economy will become significantly less oil intensive. By 2030 U.S. oil demand is projected to be 5.9 million barrels per day (mbd) less than in the baseline case, a reduction of 23 percent. In cumulative terms during the 2007 to 2030 period, the ESLC policy package reduces U.S. consumption by 22 billion barrels of crude oil equivalent through conservation and the use of alternative fuels. This aggregate figure is about 3 times the 7.4 billion barrels of crude oil consumed by the United States in 2006.

Compared to the baseline case, the supply enhancements and conservation measures combine to reduce imports of crude oil by 8.2 mbd by 2030, a 47.3 percent decrease. Cumulatively during the 24-year period under consideration, the United States would import 32.2 billion fewer barrels of foreign oil. This figure compares to estimated remaining proved reserves of 4.3 billion barrels for Prudhoe Bay in Alaska and less than 30 billion barrels for the entire United States.

Reduced U.S. demand on the global oil supply should lead to modestly lower world oil prices throughout the projection period. The baseline case assumes a nominal price of oil of $107 by 2030. This study estimates that the price of oil would be $95 per barrel, or about 13 percent lower, with the ESLC policy package. Lower oil imports and lower world oil prices would mean that by 2030, oil imports will be lower by $278 billion per year. During the 2007 to 2030 period, the Nation’s economy will avoid the expenditure of $2.5 trillion for imported crude oil.

R.M. ‘‘JOHNNIE’’ BURTON. thank you for the opportunity to appear here today to discuss with you the actions the Department of the Interior’s Minerals Management Service has taken to reduce U.S. oil dependence and to protect the Nation against supply disruptions. This committee has played an important role in shaping our domestic energy program, particularly with regard to encouraging environmentally sound development of our domestic oil and gas resources on the Outer Continental Shelf. The Department and its agencies, including the Minerals Management Service (MMS), serve the public through careful stewardship of our Nation’s natural resources. The Department also plays an important role in domestic energy development. One third of all energy produced in the United States comes from resources managed by the Interior Department. As energy demand continues to increase, these resources are all the more important to our national security and to our economy. The Energy Information Administration estimates that, despite increased efficiencies and conservation, over the next 20 years energy consumption is expected to grow more than 25 percent. Even with more renewable energy production expected, oil and natural gas will continue to account for a majority of energy use through 2030. Interior’s domestic energy programs, particularly offshore oil and gas production, will remain vital to our national energy portfolio for some time to come. The Federal Outer Continental Shelf (OCS) covers 1.76 billion acres and is a major source of crude oil and natural gas for the domestic market. In fact, according to the Energy Information Administration, if the Federal OCS were treated as a separate country, it would rank among the top five nations in the world in terms of the amount of crude oil and second in natural gas it supplies for annual U.S. consumption.

The Program continues to schedule annual lease sales in the Central and Western Gulf of Mexico. The Gulf of Mexico Energy Security Act (the Act), signed by President George W. Bush on December 20, 2006, requires oil and gas leasing in portions of the ‘‘Sale 181 Area’’ in the Central Gulf (2,028,730 acres) and in the Eastern Gulf (about 546,000 acres) Planning Areas as well as the ‘‘181 South Area’’ (5,762,620 acres). The total acreage of new areas in the Gulf offered under the proposed program is 8,337,443 acres. Under the 5-year program, the portion of the ‘‘Sale 181’’ area in the Central Gulf would be included in the October 2007 lease sale, and the portion in the Eastern Gulf would be offered for the first time in March 2008. The 181 South area is scheduled for lease in 2009 following additional environmental studies and requirements under the National Environmental Policy Act (NEPA). The leasing program schedules 8 sales in Alaska: 2 in the Beaufort Sea; 3 in the Chukchi Sea; up to 2 in Cook Inlet; and 1 in the North Aleutian Basin—in an area of about 5.6 million acres that was previously offered during Lease Sale 92 in 1985. These areas would be subject to environmental reviews, including public comment, and extensive consultation with state and local governments and tribal organizations before any lease sale proceeds. The program also includes a proposed sale in the Mid-Atlantic Planning Area, beyond 50 miles of the coastline of Virginia, in late 2011. This area was included in the 5-year program at the request of the Commonwealth of Virginia. This sale would only take place if the congressional moratorium is discontinued and the presidential withdrawal is modified for this area. This proposed sale area excludes a 50-mile coastal buffer from leasing consideration as requested by the Commonwealth of Virginia.

Our analysis indicates that implementing the new 5-Year OCS Oil and Gas Leasing Program would result in a mean estimate of an additional 10 billion barrels of oil, 45 trillion cubic feet of gas over a 40-year time span,

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