House 112-176. September 13, 2012. The American energy initiative part 28: A focus on the outlook for Achieving North American energy independence within the decade. House of Representatives. 167 pages.
Proclaimers of energy independence:
- Ed Whitfield, Kentucky
- Fred Upton, Michigan
- Joe Barton, Texas
- Mr. Harold Hamm, Chairman and CEO of Continental Resources and energy policy advisor to Governor Romney
- Daniel Ahn, Chief Commodities Economist at Citigroup in New York
- John Freeman, Energy Research Group at Raymond James
- Mark P. Mills, Senior Fellow, Manhattan Institute
- Steve Scalise, Louisiana
ED WHITFIELD, KENTUCKY. Today we are going to talk about what I consider some very good news, and that is the achievability of North American energy independence and particularly oil independence within the span of a mere decade.
So after many decades of hearing that the United States basically reached the end of its reserve, as a matter of fact, as recently as 2010 President Obama stated in a national address that we are running out of places to drill, and he still cites the outdated and misleading claim that we possess only 2 percent of the world’s oil reserves. But this pessimistic view is being blown away by reality.
The global implications are tremendous because the one thing that has not changed is the instability in the Middle East and the hostility of several major oil-producing nations towards the United States. However, the more oil that is produced in the United States and Canada, the less leverage OPEC or any of its individual member nations can exert over us. And now we have the chance to reduce that leverage virtually to zero with North American oil independence.
The geopolitical benefits alone are enough to make this goal worthwhile, and the economic benefits are simply icing on the cake. North American energy independence would bring with it hundreds of thousands, if not millions, of new jobs in a rejuvenated energy industry. Indeed, it would succeed where unfortunately our stimulus package failed, and rather than cost over $800 billion, it would actually add revenues to the Federal Treasury. And when you compare the real oil-industry jobs already being created in States like North Dakota, and as you know, in North Dakota right now, the unemployment rate is less than 3 percent, and all the experts agree that that primarily comes from the fact of the new oil fields that have been hit there, the jobs that are being created. And not only can we talk about oil but we also could talk about independence in natural gas because of the tremendous finds that we are finding.
Today, we are going to talk about some very good news – the achievability of North American energy independence, and particularly oil independence, within the span of a mere decade. However, in order for this potential good news to become reality, the federal government has to take certain steps to allow it to happen. I might add that it was not long ago that we were repeatedly told that we would have to live with declining U.S. and North American oil production.
Even more troubling is the fact that the president has blocked access to many energy-rich federal lands and offshore areas. Indeed, the increase in American oil production is especially impressive given that we have done it with one hand tied behind our back. According to the Congressional Research Service, fully 96% of the increase since 2007 has occurred on non-federal lands, where the Obama administration doesn’t have the power to block leasing or impose permitting delays. But on federally controlled lands and offshore areas, production has actually declined by two percent.
BOBBY L. RUSH, ILLINOIS. Unlike the simplistic Sarah Palin ‘‘Drill, baby, drill’’ Romney-Ryan energy plan, President Obama has put forward a comprehensive energy policy that encompasses concrete proposals to not only make us less reliant on imported oil from overseas but which also takes into account the serious issue of climate change. While my Republican colleagues are loathe to even mention the words ‘‘climate change’’ and have claimed it to be a hoax, I can assure you, Mr. Chairman, that most of the farmers across this Nation will disagree with that position as we have witnessed the worst year of record temperatures, drought and crop loss in modern American history.
FRED UPTON, MICHIGAN. The advances in drilling technology that we will hear about today have accomplished more for the American people than all of the Solyndras and other federal stimulus giveaways combined. They have already rewritten the conventional wisdom that America’s natural gas production is declining, and are now doing the same for domestic oil production. In fact, predictions of dwindling North American oil supplies have been replaced with very realistic predictions of North American oil independence within a decade.
JOE BARTON, TEXAS. We have a possibility to be energy independent almost at any time we want to be in the next 10 to 15 years.
HENRY A. WAXMAN, CALIFORNIA. Today’s hearing presents two different visions of an energy policy for America.
One vision doubles down on the energy policies of the past. Its mantras are ‘‘drill, baby, drill’’ and tax breaks for the oil industry. The other vision recognizes that energy is key to America’s economy, national security and environment. It supports a mix of energy sources to provide American consumers with affordable, clean energy. The choice is all of the above or oil above all, and the answer will affect the lives of every American.
Not so long ago, we actually implemented an energy plan written by and for the oil industry. In 2001, President Bush and Vice President Cheney unveiled the Bush administration’s energy plan, written in secret with oil, coal and other energy-industry interests.
So in 2005, I examined what had happened to energy prices and dependence on foreign oil under the Bush energy policy since 2001, using data and analysis from the EIA. Under the Bush-Cheney oil industry energy plan, gasoline prices more than doubled. Crude oil prices more than doubled. The average American family spent $2,000 more each year on energy costs. And the oil companies reaped record profits. This energy plan did not benefit America’s families. It did not boost our economy or improve our national security, and it certainly did not clean up pollution or address the threat of climate change.
Today we are discussing another Republican energy plan that was drafted with industry, especially the oil industry. And it is a backwards-looking plan that resurrects the Bush-Cheney policies. It calls for more tax breaks for oil companies, opening new areas to drilling, and putting the States in charge of issuing drilling permits on Federal lands.
The Obama administration’s energy policy is fundamentally different. President Obama hasn’t just promised to reduce our dependence on foreign oil; he has actually done it. For the first time in decades, we are importing less than half the oil we consume. His administration’s new motor vehicle standards will save more than 2 million barrels of oil per day. And U.S. domestic oil and natural gas production has reached record highs. Perhaps most important, the Obama administration has also made investing in clean energy technologies a national priority.
GENE GREEN, TEXAS. I think it is misleading to debate our energy independence based on geology, technological or economically achievable in the absence of other constraints. There are always external factors that affect the level of production.
Mr. Harold Hamm, Chairman and CEO of Continental Resources and energy policy advisor to Governor Romney. I’m here today to talk to you about the viability of American energy independence. I am here to testify to the policies needed to insure North American Energy Independence in the next decade. There are three basic policies needed to continue the march towards North American energy independence.
- Reasonable and consistent environmental regulations
- Encouraging development of federal lands
- Maintain tax policies that let us keep our own money to drill.
America is endowed with an estimated 139.6 billion barrels of recoverable oil-enough to replace Persian Gulf imports for the next 50 years. We also have undiscovered technically recoverable natural gas of 1445.3 trillion cubic feet.
We now have natural gas reserves of over a century.
With this extraordinary advance in technology we can now access the immobile oil
The tax provisions in place for over 50 years that let us keep our own money to reinvest in drilling are crucial to keep this energy revival going. We support comprehensive tax reform. When that process begins we should all be willing to make the case as to why provisions in the code are beneficial to all Americans. We will make the case that the repeal of these tax provisions would result in as much as a 40% decrease in drilling activity and stop this American energy renaissance.
Some call this expensing of ordinary business expense a “subsidy”.
Sixty-Two Percent of the known Oil Resources on Federal lands Are Off-limits. Based on resource estimates, these lands contain about 62 percent of the oil on federal land (19.0 billion barrels) and 41 percent of the natural gas (94.5 trillion cubic feet).
Daniel Ahn, Chief Commodities Economist at Citigroup in New York. Earlier this year, my colleagues and I published a report entitled ‘‘Energy 2020: North America, the New Middle East,’’ and I would like to take the opportunity to share and update its conclusions. North America has recently become the fastest-growing hydrocarbon producer and exporter in the world, and this trend should accelerate to the end of the decade. This energy renaissance has been driven by both declining domestic consumption and the successful deployment of new technologies to extract hitherto inaccessible oil and gas resources, particularly in tight and shale rock formations using horizontal drilling and hydraulic fracturing techniques. These two trends, declining demand and burgeoning supply, should have dramatic consequences for national energy security and for the domestic and global economy.
American dependence on imported oil outside of North America should shrink or even be eliminated entirely.
Global oil prices could fall by 15 or even 20 percent. Energy-intensive manufacturing industries such as petroleum refining, petrochemicals, fertilizers, iron, steel, aluminum smelting, all should strategically benefit. Natural-gas-fueled vehicles could proliferate on American roads. Distinguished committee members, a minor industrial revolution is in the making in our heartland. This is testament to the technical ingenuity and flexibility of American workers and enterprises and the bounty of our natural resources.
The United States was once the world’s largest oil producer for much of the 20th Century, after Russian production collapsed during the Revolution of 1917. The United States maintained this status for half a century, notably providing the oil necessary to fuel the critical Allied war effort throughout the two World Wars. However, faced with aging fields, American production peaked in 1970 and subsequently declined despite new production from Alaska. Increasing reliance upon imported oil proved a critical economic vulnerability during the oil shocks of the 1970s, fueling a painful period of economic malaise and high inflation. But 2007 proved a turning point, with record-high oil prices above $100 per barrel triggering two transformative factors that proved the “peak oil” pundits wrong again.
The United States and North America more broadly, is in the throes of a historic energy revolution, driven by two factors: declining consumption and growing production. Gasoline and other refined petroleum consumption in the US have been in decline since 2007, in part due to cyclical economic weakness but also structural factors. This structural trend is expected to continue due to demographic shifts, higher vehicle efficiency standards, and other energy efficiency savings. Meanwhile, North American production of hydrocarbon liquids and gas has skyrocketed. Most notably, new production from unconventional sources such as tight and shale rock formations have been made possible thanks to the deployment of hydraulic fracturing and horizontal drilling technologies. Given the confluence of declining consumption and growing production, and what is geologically, technologically, and economically feasible, we project that North America can potentially achieve energy independence (i.e. oil/gas net self-sufficiency) by 2020.
John Freeman, Energy Research Group at Raymond James.
America is already a major exporter of coal, and together with Canada, we are already self-sufficient when it comes to natural gas, and for the first time in over 50 years, there is clear visibility on how oil independence can be achieved.
Many of the themes I am going to describe today are sustainable trends driven by the private sector, and they can continue for a long time, even without additional policy steps.
The Nation’s all-time peak for petroleum imports was in 2005 at 13.5 million barrels a day. By 2011, imports were down to 9.7 million barrels a day. That reduction in imports was almost evenly balanced between rising domestic production and declining consumption, and we believe imports can disappear entirely by as early as 2020.
The nation’s oil demand began to fall well before the onset of the financial crisis in 2008. Between 1992 and 2005, demand was up every single year except one. Since 2005, demand has fallen every year except one. There are four long-term drivers, and in our view will result in a sustained decline in U.S. oil demand. The first driver is ongoing improvement in fuel economy. Between 2006 and 2011, the increase in average fuel economy of actual passenger car sales improved more in absolute terms than it had in the 15 years combined prior to that. Second, there is an ongoing decline in vehicle miles traveled. The use of public transport, greater reliance on Internet commerce, the fact that the number of automobiles per household peaked in 2007, due in part to demographics, are just some of the factors driving this trend.
In conclusion, America is blessed with an abundance of natural resources. We are the largest producer of natural gas in the world, the second largest producer of coal, and in the next several years will become the largest oil producer in the world. The future has never been brighter for achieving energy independence.
Summary of Testimony – John Freeman, Energy Research Group, Raymond James & Associates, Inc. Supply: • U.S. can become energy independent by 2020 • Before the end of this decade the U.S. will become the largest oil producer in the world • Three areas (Bakken, Eagle Ford, Permian) will drive 80% of the production growth
Daniel J. Weiss, a Senior Fellow at the Center for American Progress Action Fund, a tax exempt organization dedicated to improving the lives of Americans by transforming progressive values and ideas into policy. The question posed for this hearing is “A Focus on the Outlook for Achieving North American Energy Independence Within the Decade.”
Giving states the authority to allow drilling in National Park Service units and other public lands within their borders tempts them to seek oil revenues rather than safeguard health and natural resources. The New York Times noted “States, as a rule, tend to be interested mainly in resource development.” Yesterday the Center for American Progress released data highlighting 30 National Park units that face the prospect of future oil and gas drilling, including the Flight 93 Memorial and Everglades National Park. These places would be vulnerable if federal oversight of energy on public lands is eliminated in favor of more relaxed state regulations.
Parks with possible drilling
- San Antonio Missions National Historical Park — Texas
- Guadalupe Mountains National Park — Texas
- Palo Alto Battlefield National Historical Park — Texas
- Bluestone National Scenic River — West Virginia
- Cane River Creole National Historical Park — Louisiana
- Carlsbad Caverns National Park — New Mexico
- Chaco Culture National Historical Park — New Mexico
- Dinosaur National Monument — Colorado, Utah
- Everglades National Park — Florida
- Flight 93 National Memorial — Pennsylvania
- Fort Necessity National Battlefield — Pennsylvania
- Fort Union Trading Post National Historic Site — North Dakota, Montana
- Friendship Hill National Historic Site — Pennsylvania
- Glen Canyon National Recreation Area — Arizona, Utah
- Grand Teton National Park — Wyoming
- Great Sand Dunes National Park and Preserve — Colorado
- Gulf Islands National Seashore — Florida, Mississippi
- Hopewell Culture National Historical Park — Ohio
- Indiana Dunes National Lakeshore — Indiana
- Johnstown Flood National Memorial — Pennsylvania
- Jean Lafitte National Historical Park and Preserve — Louisiana
- Little River Canyon National Preserve — Alabama
- Mammoth Cave National Park — Kentucky
- Mesa Verde National Park — Colorado
- Nicodemus National Historic Site — Kansas
- Santa Monica Mountains National Recreation Area — California
- Steamtown — Pennsylvania
- Upper Delaware Scenic and Recreational River — New York, Pennsylvania
- Theodore Roosevelt National Park — North Dakota
- Washita Battlefield National Historic Site — Oklahoma
Parks with current drilling
- Alibates Flint Quarries National Monument — Texas
- Big Thicket National Preserve — Texas
- Lake Meredith National Recreation Area — Texas
- Padre Island National Seashore — Texas
- Aztec Ruins National Monument — New Mexico
- Big Cypress National Preserve — Florida
- Big South Fork National River & Recreation Area — Tennessee, Kentucky
- Cumberland Gap National Historical Park — Kentucky
- Cuyahoga Valley National Park — Ohio
- Gauley River National Recreation Area — West Virginia
- New River Gorge National River — West Virginia
- Obed Wild & Scenic River — Tennessee
Earlier this week the Washington Post reported that drought and rising temperatures are forcing water managers across the country to scramble for ways to produce the same amount of power from the hydroelectric grid with less water, including from behemoths such as the Hoover Dam. Hydropower is not the only part of the nation’s energy system that appears increasingly vulnerable to the impact of climate change, as low water levels affect coal-fired and nuclear power plants’ operations and impede the passage of coal barges along the Mississippi River. Drought conditions can also interfere with the hydraulic fracking employed to produce shale gas. Citi GPS found that Fracking is a water-intensive process. The EPA estimates that 1.2 to 3.5 million gallons of water is used to frack a well. Water is the very component in hydraulic fracking that makes the current shale gas and oil boom possible by creating fractures in the oil and gas-bearing shale gas rock thousands of feet below ground. Some of the largest tight oil and shale gas fields are in Texas plagued by drought in 2011 and 2012. NOAA predicts that the nationwide drought conditions will remain mostly unchanged through the end of November.
Giving states control of resource development on federal lands is a real threat to some of America’s most special places for hunting, fishing, hiking, and recreation. They could permit controversial projects near national parks such as uranium mining around the Grand Canyon, oil and gas drilling near Arches National Park in Utah, and coal mining 10 miles from that state’s picturesque Bryce Canyon National Park.
Oil companies not using federal leases
Despite their demand to open fragile, previously protected places for oil and gas production, oil and gas companies are not developing many of the leases that they already hold. A huge portion of leases held for public lands and waters lack exploration or development plans according to Department of Interior data. The department found that 56 percent of the leased acres onshore in the lower 48 states are not in production or exploration. The percentage is even larger offshore, where 72 percent of leased acres are dormant. This simply means that big oil companies currently hold the keys to vast amounts of publicly owned resources but have chosen not to develop them right now. As of the end of fiscal year 2011, there were more than 38 million onshore acres under lease, but the industry was only actively producing on just more than 12 million acres. The story holds true down the line, given that as of the end of fiscal year 2011, the industry was holding more than 7,000 authorized permits to drill with parcels that were unexplored or undeveloped. Idle leases in the Gulf of Mexico contain large amounts of oil. The tracts that are not producing oil or subject to pending or approved exploration and development plans are estimated to contain 17.9 billion barrels of “undiscovered technically recoverable resources” oil and 49.7 trillion cubic feet of UTRR natural gas. According to the same report from the Department of Interior, “More than 70% of the tens of millions of offshore acres under lease are inactive.” This includes almost 24 million acres that do not have “approved exploration or development plans” in the Gulf of Mexico. This area has an estimated 11.6 billion barrels of oil and 50 trillion cubic feet of natural gas.
the Energy Information Administration said a rapid increase in natural gas production from shale resources over the last 5 years has significantly affected natural gas prices and the relative attractiveness of Federal and Indian lands as areas for development of conventional natural gas resources.
As the price of natural gas dropped, there was a dramatic decline in the amount of public land nominated by the industry for leasing. Since fiscal year 2006 there has been nearly a 67% decline in the amount of onshore public land nominated by the industry in the Rocky Mountain States. As one industry expert told The Wall Street Journal, “It is safe to say that there will be fewer natural gas wells drilled in 2012.”
Given the current low price of natural gas, there is simply less demand from industry to drill at all, let alone on public lands. In addition, the oil and gas industry has been less focused on public lands and waters, since many of the best resources are currently located on private land. And oil companies drill where the best resources are.
John Purcell, Vice President of Wind Energy for Leeco Steel. Leeco Steel first began delivering steel plates and fabricated plate products to the wind industry in 2004. Revenue from the wind industry now accounts for nearly 40 percent of our company’s revenues. Leeco Steel has provided over 500,000 tons of steel plates to 12 tower manufacturing facilities in 12 States across the United States,
Mark P. Mills, Senior Fellow, Manhattan Institute. The United States is the largest single supplier of grains, accounting for about 40 percent of global exports. We enjoy the associated trade, jobs, and revenue benefits that come from being the world’s breadbasket. Technology is now doing for the American energy and fuel sectors what it previously did for the agricultural sector. In a complete reversal of the widely accepted energy paradigms of declining domestic hydrocarbon production, dependence, and shortage, it is now realistic for America not just to feed the world, but to fuel it as well. Last year the United States exported almost $140 billion in agricultural goods – and about $120 billion in hydrocarbons. Within a year or so, we will likely export more fuel and petroleum products than food. Shortly after that, hydrocarbon exports will exceed those from information technology equipment, and then quickly exceed automotive sector exports. This is only the beginning of what is possible. Policies that accelerate hydrocarbon production could create at least 3 million jobs and $3 to $7 trillion worth of economic benefits, and would completely reset energy geopolitics. I have outlined the staggering magnitude of the jobs and economic benefits in a Manhattan Institute report this past summer titled Unleashing the Energy Colossus, work that expands on similar bullish analyses from organizations like Citi bank, Wood McKenzie, HIS CERA, Deloitte, and industry insiders like Bentek Energy.
The United States can, quite literally, drill, dig, build, and ship its way out of the current economic and jobs malaise. The new reality of hydro carbon abundance makes possible not only energy independence, but also a credible scenario in which the Middle East is displaced as the world’s primary energy exporter.
Hydrocarbons currently supply 85% of the world’s energy and every forecast sees them as central for the foreseeable future. Essentially all growth in global energy demand is now outside of the United States.
When asked what constrains expansion, businesses across the country universally cite the crushing weight of the existing regulatory system. Policies and regulations have evolved unintentionally to become complex, over-reaching, and often capricious. Regulations are suppressing American energy productivity.
Peter Howard, President and CEO Canadian Energy Research Institute.
Western Canada:
- Conventional light Crude 562,000 bbls/day
- Condensate (C5+) 128,000 bbls/day • Conventional Heavy Crude 422,000 bbls/day
- Upgraded Bitumen (SCO) 846,000 bbls/day
- Non-Upgraded Bitumen 759,000 bbls/day
From Eastern Canada:
- Conventional light Crude 272,000 bbls/day Total 2,989,000 bbls/day
In 2011 Canada’s average daily exports were 2,138,000 bbls per day with 98% of those volumes going to the United States.
CONVENTIONAL Oil AND Oil SANDS
Canada’s conventional oil production (light and heavy) peaked in the mid-70s at 2,200,000 bbls/day and has been on a steady decline since that point in time until recently. In 2010/2011 the year over year production rate increased. The reason: applying horizontal drilling technology to old oil fields to access bypassed oil and increase the recoverable oil percentage. During those years the number of oil directed wells increased from 1,647 wells in 2008 to 3,109 in 2010 and 4,339 in 2011 with horizontal wells accounting for 60% of the total. CERrs conventional oil model is forecasting a conservative increase in conventional oil of 200,000 bbls/day by 2015 and an optimistic increase of 300,000 bbls/day.
Oil sands currently produce, on average, 1,618,000 bbls/day (2011) with 60% sourced from mining operations and 40% from in situ operations. Production ramp-ups and debottlenecking efforts over the next 2 years will expand production to 2,200,000. By 2013, an additional 408,000 bbls/day is scheduled to be connected from projects that are currently under construction and due on stream prior to 2015. Additional volumes of 1,300,000 bbls/day have been approved by the regulator and are awaiting start of construction. Also, there is another 1,300,000 bbls/day from projects that are waiting for approval by the regulator and a further 1,000,000 bbls/day from projects that have been announced. Total potential from the oil sands is 5,300,000 bbls/
The current capacity of the export pipelines from the WCSB from an operational point of view is 3,450,000 bbls/day.
Mr. POMPEO. Mr. Hamm, it wasn’t very long ago that there was peak oil, we are about out of the stuff. All of American energy policy really for the last 25, 30 years under both parties was premised on that notion. Any validity to the fact that you are wrong, that what we have heard from these economists today is wrong and that we do have this challenge in front of us in the near term?
Mr. HAMM. There are several believers in peak oil. I wasn’t in that group. You know, there are still some people, I guess, that maybe are talking about peak oil. But, you know, frankly it is supply and development and we are seeing so many other oil plays across the United States today that, you know, it is almost too many to quantify at this time. But the big ones that we have, of course the Bakken and Eagle Ford, and that is adding so much supply here in the United States, plus natural-gas production across the United States brings a lot of liquid with it as well.
Mr. MILLS. If I might just briefly add on your question about peak oil because it is a very interesting one, the abundance of oil production and natural gas in the United States is not a consequence of us suddenly discovering that there is oil or gas here. We didn’t find a new planet or a country; we got new technology. And what is interesting with the technology aspect of this is, technology unleashes the resources, not finding the resources per se, and it is an indicator of what the future holds, the idea whether this is a peak or not. We can look at patents as sort of a forward-looking indicator of what is emerging. So we did some research and looked at the last 5 years the numbers of patents issued in non-hydrocarbons, about 60,000. The number of patents issued in the same 5 years in the hydrocarbon fields is 150,000. So this is a permanent shift in the technological revolution.
Steve Scalise, Louisiana. I think a lot of us have been pushing to get North America energy independence within a decade. It is clearly a goal that we can achieve, but it is also clearly a goal that can’t be achieved under the current policies of President Obama,