House 113-2. February 13, 2013. American Energy Outlook: Technology market and policy drivers. House of Representatives hearing.
[ Excerpts from the 119 page transcript of this hearing ]
Chairwoman Cynthia Lummis, Wyoming. It is difficult to overstate the importance of energy to America’s success. Abundant, affordable energy is arguably the single most important factor to enabling our prosperity, from our health and wellness to our national and economic security. Technology development impacts all components of a healthy, developed energy system, including exploration and production, transportation, and consumption. By providing the private market with the tools to innovate, our energy system can add new technologies to reliably provide affordable and abundant energy. The jurisdiction of this Subcommittee, which includes about $8 billion in research and development at the Department of Energy, provides us a unique opportunity to help share the direction and future of energy in America.
As a Congressman from Wyoming, I see the many benefits associated with energy production. Wyoming is the United States’ second leading producer of total energy. It is the top producer of coal and uranium, third in natural gas, eighth in oil. Wyoming is also a national leader in renewable energy, generating significant energy from wind and geothermal resources as well. In fact, we are number one in wind energy resources, many of which are yet undeveloped. I am a strong supporter of an all-of-the-above energy strategy.
And now, more than ever, Congress and the President must take real steps to advance such a policy. The timing has never been better. U.S. energy is in the early stages of a historic period of technology-driven transformation. Advancement in horizontal drilling and hydraulic fracking has unlocked vast amounts of oil and gas, so much that the International Energy Agency projects that by 2020—that is just seven years from now—the United States will overtake Russia and Saudi Arabia to lead the world in oil production.
The EIA also projects that coal will be the dominant energy source globally by 2030. While domestic use of coal declined last year, the global use of coal is increasing by leaps and bounds. Coal is abundant in America, and it is the only source of energy that can meet the scale of energy demand for those billions of people worldwide who have no electricity at all. And quite frankly, it is not our call to hold those people back by denying them the affordable resources to bring them into the 21st century. Throughout our languishing economic recovery, expanded domestic natural gas is a bright spot in the current economy and has the potential to revitalize America’s economic engine. Increased production has created sorely needed jobs, stimulated local economies, and contributed to low unemployment in States like North Dakota and Wyoming. Additionally, affordable and abundant natural gas is poised to drive a revival in the American manufacturing sector, a sector we heard about a lot last night in the State of the Union speech. Perhaps less obvious, but equally significant, is the potential for increased energy production to help address the Nation’s spiraling debt. As Wyoming’s former State Treasurer, I can testify firsthand to the importance of mineral revenues to Wyoming’s sovereign wealth and ability to provide quality K–12 educations, as well as roads, sewers, and the infrastructure to have a vital, vibrant society. Last week, the Institute for Energy Research reported that increasing access to energy development would, in addition to growing GDP by $127 billion annually, increase federal revenues by $24 billion annually for the next seven years, and $86 billion per year thereafter. Most of the options we have to address the budget crisis, cutting spending and increasing taxes, are difficult to achieve. Increasing energy production should be easy to achieve. Our great energy story here in the United States has not gone unnoticed around the world. The German Economic Minister recently expressed concern that German firms are relocating to the United States primarily due to lower energy prices. While President Obama often cites European energy policies as a model he would like to follow in the United States, statements such as these should provide a powerful reminder of the importance of affordable energy to our global economic competitiveness.
Mr. SWALWELL. Our responsibility is to ensure that this country is prepared for whatever changes that the markets may experience. Overreliance on a limited range of technologies and finite resources is unsustainable and unreasonable. We know that the U.S. uses 20 percent of the world’s oil but that we only have two percent of the world’s oil reserves. Our strength will lay in our ability to transition to new, cleaner, more sustainable resources. Simply, we cannot drill our way out of this problem. However, we can innovate our way out of this problem and we can work to make our country more energy secure and help make a thriving economy. We must be competitive and not let ourselves get behind. As Washington bickers, our competitors are pulling out all of the stops to capitalize on the booming clean energy economy.
We should also leverage equitable and innovative financing mechanisms where the market is not well structured to take on the often high technical and financial risks. With scientific research, nothing is guaranteed and so we need to be willing to take risks. I come from the Bay area, which includes Silicon Valley, where risk-taking is critical to the region’s economy. Taking risks means sometimes you will not succeed, but scientific progress in our country and internationally has never been a straight line. The big energy challenges we face require big lead times to solve. We thus can’t let bureaucratic inertia and partisan politics delay or get in the way of us making investments and encourage research, innovation, and competition.
Adam Sieminski, Administrator for the Energy Information Administration at the U.S. Department of Energy.
EIA projects no growth in transportation energy demand between 2011 and 2042 with declining light-duty vehicle energy consumption of over 1.5 million barrels a day out to 2040. The growth in heavy-duty vehicle demand also spurs some fuel-switching to natural gas, as I mentioned earlier. Natural gas is projected to have a significant impact on heavy-duty vehicle energy consumption in relatively high travel applications such as tractor-trailers, which account for two thirds of all heavy-duty travel.
We try to take that into account by looking at the reserve base and ultimate resource base for the different fuels. We are fairly confident that the resource base for natural gas will allow for continuing increases in production in the United States, all the way out to 2040 with shale gas currently accounting for about one third of U.S. production reaching half of U.S. production by 2040. We think that the coal resource base is also pretty strong, and although the deepest research on that was done quite some time ago, one of the reasons that it hasn’t been updated is because the resource base is actually so vast that it didn’t make as much sense to concentrate on that.
Mr. ROHRABACHER. I would like to ask, a few years ago we were gloom and doom about peak oil and how we are going to be energy-wise, things are going to get worse and worse. What about peak oil and gas? Is that just a false alarm?
Adam Sieminski : The problem that I saw as an energy economist, the problem that I always had with the peak oil hypothesis was that it was entirely geology-based. The view assumes that the resource base is completely known, and once you produce half of it that you inevitably are on a downturn. I think that this Committee particularly understands that there is a role for both prices and technology to dramatically change our understanding of the resource base. And that is what we have seen.
ROBERT MCNALLY, PRESIDENT, THE RAPIDAN GROUP
It is hard to overstate but often overlooked how much modern civilization depends on the continuous access to substantial flows of energy from producers to consumers. ‘‘Energy,’’ as Nobel chemist Richard Smalley noted in 2003, ‘‘is the single most important factor that impacts the prosperity of any society.’’ Fossil-based energy, or hydrocarbons—oil, gas, and coal—account for about 3/4 of our energy supply, and experts project that share will grow in coming decades.
As a primary energy source, hydrocarbons are far superior to others, such as biomass or renewables, because they are dense, highly concentrated, abundant, and comparatively easy to transport and store. Our transportation food and electricity systems, among others, depend critically on hydrocarbon energy.
Second, many major energy transitions take a very long time, measured in decades if not generations. Recognizing the overwhelming superiority of hydrocarbons, rapidly industrializing and urbanizing countries in Asia, the Middle East, and Latin America are making enormous investments in hydrocarbon energy production, transportation, refining, distribution, and consumption systems and devices. These could not be quickly replaced in any reasonable scenario. Energy transformations are more akin to a multi- decade exodus than a multiyear moon-shot. Pretending otherwise misleads citizens and distracts from serious debate about real circumstances and practical solutions.
Third, just as history has humbled energy experts who make bold predictions about future energy trends, policymakers should be cautious and restrained when setting arbitrary, unrealistic, and aggressive energy targets, much less spending tax dollars on subsidies or grants in an attempt to reach them. The historical record is littered with failed policy targets
Fourth, energy can deliver unwelcome surprises with no short- term solutions. For instance, our oil production is soaring but so are our gasoline prices. They are at record levels. The combination of rising oil production and prices can be befuddling. Moreover, large gasoline price swings have become more frequent in recent years and consumers are wondering why this is the case. Pump prices at home are determined mainly by crude prices set in a global oil market. Crude oil prices are rising mainly because global supply-and-demand fundamentals are tight and geopolitical disruption risk is high. OPEC’s spare production capacity—almost entirely held by Saudi Arabia and which in the past has been used as a buffer against disruptions or tight markets—is low.
As we saw with Libya in 2011 and Iran in 2012, when the market is tight and fearful, even relatively minor disruptions or risks of disruption anywhere in the world can send our gasoline prices up fast. Unfortunately, there are no effective short-term policy options to counter the short-term crude and gasoline price volatility caused by fundamentally tight and fearful global oil market. A crucial step is to increase oil supply everywhere. In a tight market, every extra barrel counts.
And this leads me to my fifth and final point. Not all surprises in energy are bad. The most pleasant surprise in energy, if not in our entire economy in the last few years, has been the ability of oil and gas producers to unlock vast previously unreachable resources through multistage hydraulic—horizontal hydraulic fracturing of domestic oil and gas reserve trapped in deep shale formations. Last week, Dan Yergin testified before your colleagues in the House Energy Committee and called the boom in unconventional oil and gas production ‘‘the most important energy innovation so far in the 21st century.’’
Mr. SWALWELL. In the United States there are approximately 5 million commercial buildings, approximately 72 billion square feet of commercial buildings. And commercial buildings consume about 19 percent of all energy in the United States.
Mr. SIEMINSKI. Not just EIA but virtually every other research group that has ever looked at the opportunities finds that now that we have moved as rapidly as we have on light-duty vehicles, the next best place to find energy efficiency savings in the United States is likely in the buildings area.
Mr. KENNEDY. I represent a city called Fall River in southeastern Massachusetts, and there is a company there called TPI Composites that manufactures wind turbines along with other military and transportation equipment in their product lines. I spoke just last week with the CEO of TPI Composites and he expressed obviously the importance of the production tax credit for their business model and for facilities that continue to invest in wind energy despite loaded upfront costs that should thus bring an additional element of diversification to our American energy portfolio. So if we know that clean energy technology manufacturing can create high-quality jobs in Fall River, and we know that minimizing uncertainty about our federal investment can create a dependable landscape that encourages further private sector investment in these technologies, but we also recognize that renewable energy alternatives like wind are not yet priced competitive with other existing technologies and traditional fossil fuels, what, then, would your path forward be that you suggest? You testified a bit about the market-based incentives and the need to make energy security policy a priority. While fossil fuels are deeply entwined in our current way of life and our standard of living, federal investments like the production tax credit are industry-wide, that you are not picking individual winners and losers, I think have a value for adding renewables and other clean energy sources to the mix.
Mr. MCNALLY. During these times of stretched fiscal resources and difficult budget questions and constraints, the proper role for Federal Government is in the basic research area. I would rather shut down the production tax credit, which is really helping mature but uneconomic renewable energies, and take some of that money and hire scientists to figure out how to produce batteries that can store and discharge electricity better than they can now.
Ralph Hall, Texas: I know you know the importance of energy. It is a national defense issue for us. In the last ten years, U.S. energy outlook has been transformed from what some refer to as an energy renaissance or revolution. Can you explain how various technological developments and advancements such as widespread adoption of the hydraulic fracturing have revolutionized the U.S. energy outlook?
Mr. MCNALLY. It is really in innovation and technology and the industry figuring out in the late 1980s in Texas and Oklahoma how to get at resources that are vast and that we have known are there. Now, we have known that there are vast amounts of oil and gas trapped in rock 10,000 feet below the ground for decades. We have been using hydraulic fracturing some say since the Civil War throwing dynamite down a hole. The Federal Government reportedly looked at nuclear explosions underneath the ocean floor to stimulate wells by fracturing. But the real innovation came with going after the shale deposits and using hydraulic fracturing. And that turned what we call resources, which is the oil that we think is in the ground but we don’t know how to get out, into reserves, producible by our companies. And we are having continuous improvement and how to frack those wells, how to do so more efficiently, to go horizontally and in multi-stages, not just one straw into the ground. So really, it is a remarkable story of industry progress with some government involvement mainly at the core, basic research level we should note. But it is brought to us by the industry and it has smoothed out our supply curve not only for natural gas but also for oil to the point where, according to some forecasts, we will surpass in the near future Saudi Arabia in production
Mr. VEASEY. I have a concern that I have with the flaring of natural gas. As you know in the Bakken, they are producing a lot of oil but I also know they do not have the pipeline capacity and so they are flaring quite a bit of natural gas. The Texas Railroad Commission does a really good job in Texas of keeping up with the number of permits that are given to operators, but I know in the Eagle Ford in particular and even some in my area, in the Barnett Shale, that there is some flaring going. I know you specifically talked a little bit earlier about the rising cost of natural gas as it goes worldwide particularly. If the Department of Energy decides to export liquefied natural gas, or LNG, is there any technology on the horizon that would make it where we wouldn’t have to flare so much natural gas so we would have more in quantity? I mean I think that that should be one real environmental concern that we have, particularly when you start talking about drilling in remote places like Alaska where there would be a lot of associated gas produced with oil production that would have to be flared off. In Alaska there is a lot of gas that comes up in Alaska with the oil, but it is re-injected back into the formation. And so there is very little flaring taking place in Alaska.
Mr. CRAMER. I spent the last ten years as a public utilities regulator in North Dakota prior to coming to Congress, and one of the things that oftentimes gets overlooked is that while North Dakota is in fact the second-leading producer of oil, largest producer of gas, we mine 30 million tons of coal, generate about 5,000 megawatts of electricity with that coal, export it to many States and provinces, we also enjoyed the lowest natural gas residential retail rates in the country. I am looking right now at the average retail price of electricity to ultimate customer users by end-use sector—that is one of my more common tables that I look up—and see that North Dakota continues to be among the three for lowest-priced electricity States in the country. And so when I hear, frankly, Ms. Jacobson, somebody talk about leveling the playing field for all forms of energy, what I really hear is manipulating the playing field to create an advantage where one doesn’t exist when the playing field is level. And so I would be interested in public policy thoughts as to how we would properly incent the marketplace. My definition, of course, properly might not be the same as yours. But it truly creates the level as opposed to manipulation. The other thing, and then I will let Mr. Sieminski perhaps answer this question first and then we can get into the other stuff, but with regard to electricity prices and the use of the shift by policy from coal to natural gas, realizing that even in my short term on the Public Utilities Commission in North Dakota, the Public Service Commission, that I saw gas at $12 and I saw gas at $2 and everywhere in between. Do we run the risk of tightening this demand-and-supply curve of natural gas even in this abundance to a point where we make ourselves dependent on a fuel source that is so volatile? How much of that do you consider when you consider the price and the outlook going forward?
Mr. HULTGREN. I had heard you mention a little bit earlier, again, of how important basic scientific research is and the fear of really undercutting that, of how that puts us at a disadvantage. The President seems to think that asking us to spend more money on these short-term items is really the only way to achieve clean energy future. He seems to have this sense that we can just buy an immediate change in our economy. My sense is that it is going to take maybe 20 years or even longer of long- term, basic research in the very subjects he is cutting—high energy physics, nuclear physics—in order to produce a change and really change our fundamental ability to produce energy in a cleaner and cheaper way.
Mr. MCNALLY. The reason I thought that we would want to maybe invest in some research into batteries is because the reason—one of the main reasons wind is not economical is because you cannot store electricity. The wind blows in places where we don’t need it and electricity, unlike oil and coal, cannot be stored. So if we can figure out ways to store and discharge electricity, we will make all renewable forms of electricity, solar and wind, more economic. And that is an example of the potential benefit of core research. Another one—and again, my wife calls me Mr. Worst-case-scenario, so I am not known for flowery predictions about wonderful transformations, but I will say, as I said in my testimony, if you ask me what plausible transformative change is out there that could happen in our lifetimes that could completely upend in a positive way our energy outlook, and I would think that is—that we figure out how to get methane hydrate out of the Earth’s crust. Like shale gas and shale oil of the day, we know it is there. We know the resources are enormous. Some estimates say there is 6 trillion TCF in the Gulf of Mexico. That is equal to total proved reserves in the world, conventional reserves. But we have not figured out yet—and we and the Japanese and others are working on it and DOE is doing some good work here—is to get that methane hydrate out of the crust in a safe way that doesn’t create methane burps if you will and emissions.
Those are the kind of problems that humans can solve. We don’t have to figure out how to make algae go into gasoline. We know how to use methane. We just have to figure out how to get it out of the crust. We did it with shale gas and shale oil. I think we can do it with the government’s help in the core basic research area with methane hydrates.