Iraq's invasion and the surging oil prices that have resulted make it imperative that we develop and implement a national energy strategy. Today I am introducing, Mr. Chairman, legislation requiring the President to convene a national energy summit. Last year we had an education summit. This year we have had a budget summit. In light of our current energy problems, I call on the President to convene a summit on energy. Our energy problems as just as much a threat to our economy as our budget woes. The people of Hawaii understand the urgent need to address our energy problems. We read about it on an almost daily basis. Yesterday's headline comes across loud and clear and here is the headline: Your Electric Bill is Going to Soar by 33 Percent. An energy summit would permit Congress and the President to chart a road map for America's future energy security. We would set goals for energy efficiency and consumption and we would commit ourselves to energy technologies that offer hope of greater independence from certain foreign supplies. An energy summit is the only answer, but it certainly can be a part of the solution. I am sure that you will have other suggestions that may be equally sufficient. I thank you very much, Mr. Chairman, for the opportunity to make this statement. Senator BINGAMAN. Thank you very much, Senator Akaka. Senator BURNS. I have no opening statement. We have all this brain power here this morning, and I have come to hear what they STATEMENT OF HON. TIMOTHY E. WIRTH, U.S. SENATOR FROM COLORADO Senator WIRTH. Thank you, Mr. Chairman. I am delighted to have this distinguished panel here. Mr. Gibbons, I want to just first of all applaud you on the recent OTA study on replacing gasoline, which I thought made a great deal of sense and I hope we have a chance to talk about that morning. The Straits of Hormuz, as we know, Mr. Chairman, are just as narrow today as they were 10 years ago and 20 years ago and 30 years ago and that will be the same 10 years from now and 20 years from now and 30 years from now. Unhappily, the present administration seems to believe that the way for us to approach this is to get out tire gauges and make sure that we have the right pressure in our tires. It reminds me a little bit of a previous Secretary who told us that the cure for the ozone problem was to wear dark glasses and hats and so on, and suntan lotion, I believe. I hope that we do get a feeling of some sense of urgency and some understanding that our national security is now dramatically being redefined. The timing of this hearing is really very coincidental and I think reminds us of the fact that the world has changed. As Germany unites only today, our national security has gone from one of confrontation of the Soviet Union to one of understanding that our national security is defined by environmental issues, population issues, energy issues, and we have to think a lot more differently. There is nothing, I do not think, maybe we will discover some great new ideas today, but I suspect we will hear exactly what I have heard from every member of this panel before, that we ought to be encouraging energy conservation; that transportation uses two-thirds of our oil, so therefore our transportation sector ought to be more efficient; that we ought to be encouraging domestic fuels, particularly natural gas; that we ought to have a realistic pricing policy that encourages conservation and encourages us to move toward alternative programs, that we are going to have to bite the political bullet and do some research on nuclear, to see if that is going to pay off down the line. We do not know if it will or not. There is not much new about all of this, I would suspect, and it is a matter of garnering the political will to take it on. I am greatly appreciative of having this panel here and maybe we will increase the level of debate and we will go beyond tire pumps and tire pressure gauges and think about the long-term issues that we have to understand, undertake and that will really put together a better understanding of energy as it relates to the economy and the environment. Thank you very much, Mr. Chairman. I am very pleased that you urged Chairman Johnston to do this and we greatly appreciate all of you for being here and look forward to hearing from you. Senator BINGAMAN. Thank you very much. Senator McClure, did you have a statement? Senator MCCLURE. I would ask that it be put in the record. Senator BINGAMAN. It will be included in the record in full. [The prepared statement of Senator McClure follows:] PREPARED STATEMENT OF HON. JAMES A. McCLURE, U.S. SENATOR FROM IDAHO I want to commend Senator Johnston for holding this oversight hearing on the policy implications of the oil situation, and the necessary elements of a national energy policy. While no commodity is more essential to a modern society than energy, it is largely taken for granted-that is until we are told that we have to do with less or that we must pay higher prices. Although it is too early to determine the full impact of the current supply disruption-in part because we do not know how serious the situation may get-it is already having significant economic, military and geopolitical consequences. In the short-run, if the lost Iraq/Kuwait production is not made up by increased production elsewhere, oil prices will remain high. And prices may remain high even if it is made up because of the current market psychology. While that would be harmful to consumers and damaging to our economy, the longer-term Implications of our energy situation are even more significant. We should view what has happened in the oil market since the August 2 invasion by Iraq like the recent California earthquake: it is just a warning. The BIG ONE has yet to come. Keep in mind that the Middle East countries account for 38 percent of the free world's oil supplies. Right now there is no physical shortage of oil, but if Iraq invades Saudi Arabia there would be one that would dwarf what we have seen so far, including the 1973 Arab oil embargo. Without comprehensive action to address our energy problems, not only with respect to oil and natural gas, but also nuclear and coal power, our future situation can be boiled down to one basic fact: foreign dependency. Our energy supplies will increasingly be controlled by foreign producers who place their interests first, not ours. Now some believe that it is all right to shut-down operable nuclear powerplants and even oppose research and development into passively safe nuclear power technology; others believe that it is OK to impose onshore and offshore leasing and production moratoria and import replacement supplies; and still others are comfortable imposing new clean air requirements which not only constrain future energy development, but also may well result in the closure of existing facilities, refineries in particular. In this Senator's mind it is only too obvious that these views are short-sighted and not in our Nation's long-term interests. In closing let me say that there is one thing that is important for us not to do: that is to use the Strategic Petroleum Reserve to manipulate the price of oil. The Reserve must be preserved for the purposes for which it was originally created, that of responding to international disruptions of oil supplies. The Reserve was established to offset physical shortages of oil, not to respond to consumer complaints about prices, and the law is quite clear on this point. Moreover, using the Reserve at this time to dampen prices could unintentionally result in its not being there when we actually need it. I look forward to the views of today's witnesses about the situation and what ought to be in a long-term national energy policy. Senator BINGAMAN. Let us go ahead with our witnesses. The first witness is Dr. Daniel Yergin, who is an internationally recognized expert on energy issues. He is the President of Cambridge Energy Research Associates in Cambridge, Massachusetts, and formerly a professor at the Kennedy School of Government and the Harvard Business School. Dr. Yergin, why do you not go right ahead. I would just urge that all witnesses take 10 minutes or so and summarize their statements and then we will include in the record any written statements that they have or any other items they would like to include in the record. Dr. Yergin. STATEMENT OF DR. DANIEL YERGIN, PRESIDENT, CAMBRIDGE Dr. YERGIN. Thank you. Mr. Chairman and members of the committee. I am very pleased to have this invitation to appear before the committee and also pleased to be part of this expert panel. It seems to me that this hearing is really picking up where a hearing I participated in last March 26 in this room left off. At that point this hearing room was pretty sparsely attended, and yet the record of that hearing, as we look back, makes very dramatic and striking reading in terms of the context of where things stand today. At the time, Senator Johnston said that it is time we sound the klaxon, no one heard it then, and Senator Domenici said that although nobody is very concerned, sometime we will be back in this room when oil is a crisis and the hearing room will be filled. And having looked around before, it looks to me like this hearing room is pretty crowded today. Responding to the committee's gracious invitation, I would like to offer a few thoughts about where we are and how we might proceed. Let me explain the context for my remarks. I have just come to the end of a long, really a too long, research project that centers on the relationship among oil, politics, economy, and our way of life. In the time available to me this morning I would like to respond to the topic of this hearing and draw on some of the things that I learned in the course of this work that are relevant and put forward what might be a few guideposts for thinking about the future. First, a simple question, how did we go from $15 to $35 to $40 so suddenly? I think that question takes us back to the hearings last March and the trends that formed the basis of the discussion then and are the trends that are shaping today's situation. The oil market was tightening rather rapidly, our imports were going up, the market was tightening because of the fall in U.S. production, the strong demand for oil, particularly in the Far East, and growing problems in Soviet oil production. Spare capacity, which is the key concept in terms of stability in the world oil market, had declined from 10 million barrels a day in the middle of the 1980's to around 4 million barrels per day by the middle of this year. Dependence on the Middle East was rising rapidly and the question of the timing of capacity additions was moving to the fore. This meant very simply that the world oil market was becoming increasingly accident prone or crisis prone and yet for the most part, these trends were ignored or waved away with the refrain that oil would always be available. Well, a few years ago the world oil market could have lost 4 million barrels a day with no difficulty and made up that loss. Today, with the loss of Iraq and Kuwait, we are scrimping by. We are barely scrimping by and there is essentially no give at all in the system. There is no spare capacity and, indeed, apparently not quite enough capacity to meet demand. The high prices we see today reflect two components: one is the significant disruption in supplies, the tautness in the market, the problem of crude quality, logistical disruption, and I think that logistical disruption is something that needs more emphasis. This disruption is on the same scale as 1973 and 1979. But the other component is simple anxiety and fear. We will see the oil price rise and fall on fears and expectation of military conflict at any given time. The blunt fact is that today, in addition to retrostream market conditions, the oil price has become a thermometer that measures war fever. Will oil prices go higher? There are forces that will work against that: the apparent recession, the conservation response, the existence of inventories and, of course, the existence of the strategic petroleum reserve. What could push prices up? The weather, unexpected accidents, or bottlenecks in oil production and refining anywhere in the world and conflict in the Middle East. Looking back on the 1970's, we can see the stresses that this type of situation puts on our political system. Sharply rising energy prices hit the public hard, particularly lower income groups, and the Kuwait crisis was neither in anybody's GNP projections nor in anybody's family budget. There is an inevitable cry to do something, and that tends to get us off in domestic political controversies that miss the point that there is a real and genuine disruption in the world. With a little time, the global logistical system and supply system can adapt. I hope that this crisis does not develop into an extended affair. If it does, I certainly hope that we as a country can keep our eye on the ball and the main issues. Short-term expedients like price controls and allocations end up imposing a long-term cost on the Nation and impede the adjustment. Many of you will remember the irony of the gas line shortages in the cities and areas of population growth, with gasoline to spare in resort areas to which no one could get. Our allocation that we have used in the past really led to rationing by gas lines. The crisis once again demonstrates the importance of a coordinated international response among the industrial nations through the mechanism of the International Energy Agency. There is only one oil market, and all buyers are affected. The IEA helps to modulate the rivalries, suspicions, and fears which in general fuel panic and, in this case, would undercut the remarkable international consensus that the administration has forged. I think it is important to keep in mind that there are many suspicions that we do not hear and see in the United States. We tend to underestimate them. We do not appreciate the way that the United States is seen as the behemoth in the world oil market, the Saudi Arabia of oil consumption. Where do we go from here? Clearly, energy and oil are at the heart of this conflict and a situation in which we depend on an increasingly taut world oil market holds unacceptable costs. Two directions are pretty clear as to ways in which we ought to move. One is to increase the use of North American natural gas and to move away the impediments to its use. The other is a renewed commitment to conservation. It is noteworthy that both of these were already being propelled forward by environmental considerations. A difference from the 1970's is that today, by contrast, there is a wide recognition that conservation has a very important contribution to make to our economic well-being and our security. The argument ahead and the argument with which I think that this committee will be dealing over the next couple of years is how to achieve it, whether you do it by urging it, by pricing it, by taxing it or by regulating it. I imagine that there will be a good deal of discussion on that in this room in the future. Rapid growth in U.S. oil imports is not only expensive for this country but destabilizing for the world market. We have to address the question of the U.S. production decline and what can be done about it, what can be done to slow it. It is something that has been remarkably ignored. U.S. crude and condensate production has fallen by 1.6 million barrels since 1986, and we would expect another 1.5 million-barrel decline by the year 2000. Looking back, we can see that the United States rather wantonly let a lot of oil production evaporate that is not recoverable. The production loss might have been mitigated, but that is history. The loss of that production turns out to be a heavy cost for the whole Nation, as every motorist is finding and as we see recession stalking the economy. It is important that we look again at the energy research and development questions. I would think that Dr. Gibbons will go into that more, and so I will not pursue that right now. |