Witnesses:
Howard Gruenspecht
Acting Administrator, Energy Information Administration
Richard H. Jones 
Deputy Executive Officer, International Energy Agency
Jim Burkhard
Managing Director, Cambridge Energy Research Associates
Roger Diwan
Head of Financial Advisory, PFC Energy

 

Committee Members Present:
Jeff Bingaman, Chairman (D-NM)
Lisa Murkowski, Ranking Member (R-AK)
Joe Manchin (D-WV)
John Barrasso (R-WY)
Mary Landrieu (D-LA)
Rob Portman (R-OH)
Jeanne Shaheen (D-NH)

 

On January 31, 2012, the Senate Committee on Energy and Natural Resources held a hearing to receive testimony on the global energy outlook for 2012.

 

Chairman Jeff Bingaman (D-NM) opened the hearing by focusing on the recent unrest in the Middle East and the surging U.S. energy sector.  The conflict in Libya in 2011 halted its oil exports, which crippled energy supply in Europe and consequently hurt the global economy.  Refineries are now back on line and are expected to reach their former export levels in 2012.  One anticipated disruption in global oil prices in 2012 will be U.S. and European sanctions placed on Iran.  U.S. sanctions on Iranian oil have been in place since the 1980’s, but now Europe, a heavy importer of Iranian oil, is in the process of developing their own sanctions.  Iran has countered by threatening to close the Strait of Hormuz, a crucial oil exportation pathway for the Middle East.  Bingaman made it clear that these geopolitical issues will remain a critical factor in U.S. oil prices.  However, he went on to say that the U.S. oil market looks strong for 2012 because of decreasing reliance on foreign oil and increased domestic production.  He concluded by saying, “My view is we need to understand not only how to make the U.S. less vulnerable to oil disruptions, but understand what events and actions actually affect world oil prices.” 

 

In her opening statement, Ranking Member Lisa Murkowski (R-AK) reiterated the concern over Iran’s threat to close the Strait of Hormuz and the unforeseen consequences that may follow.  She encouraged Congress to set themselves up not to make the mistake they made in 2005.  In 2005, Congress was left scrambling for solutions to lower very high gas prices because the predicted outlook had not expected such a spike.  Murkowski believes the U.S. should take advantage of the “quiet time” that we have now to prepare for the unlikely occurrence of another price spike.  She feels the U.S. has a good problem developing with our superfluous amounts of natural gas.  She closed by telling the panel she looked forward to hearing what role they see Alaska playing in America’s energy scenarios.

 

In his testimony, Howard Gruenspecht of the Energy Information Administration (EIA) expressed a positive outlook by describing the results and findings of EIA’s report, Annual Energy Outlook 2012 Early Release.  The early release report shows that the EIA expects increases in renewable and domestic energy production in the next decade.  By 2035, renewables are expected to increase by 20 percent making them the fastest growing global energy.  During the same time period, liquid fuel consumption is expected to decline from 49 percent to 36 percent and carbon dioxide emissions are expected to remain below their 2005 maximum.  With the discovery of new reservoirs and improvements in extraction technology, the U.S. production of natural gas is projected to surpass the demand.

 

Richard Jones of the International Energy Agency (IEA) focused strictly on the oil market.  The IEA projects a global average increase of one million barrels of oil a day for 2012.  Shale gas production will increase globally by 250,000 barrels per day from nations that are not a part of the Organization of the Petroleum Exporting Countries (OPEC).  OPEC is expected to produce 30 million barrels of oil per day.  Jones said that the upcoming European sanctions on Iran will place pressure on Europe to find other sources of oil which may drive prices up.  IEA believes that long term closure of the Strait of Hormuz is unlikely, but the global market will be affected regardless.

 

Jim Burkhard of Cambridge Energy Research Associates opened his testimony by proclaiming that the U.S. is in the midst of a “great revival in U.S. oil production.”  Domestic liquid energy production has increased by 1.3 million barrels of oil per day since 2008, and North Dakota alone now produces more oil than Ecuador.  By 2020 the combined oil production of the U.S. and Canada will grow by 4 million barrels a day exceeding the oil production of Iran.  The current projections of a U.S. decrease in foreign oil reliance will save $182 billion annually.  With a more diverse oil market the price per barrel and at the pump would be expected to go down, however geopolitical issues in Iran are thwarting any attempts at price reduction. 

 

In his testimony Roger Diwan of PFC Energy reiterated the message of his fellow witnesses by proclaiming we are in a “new golden era in the U.S. oil patch.”  By the year 2020 the U.S. will be the largest producer of hydrocarbons in the world.  Diwan said the bipolar trends of the global crude oil market will continue until the Strait of Hormuz threat is resolved.  He does not foresee many countries willing to except Iranian oil, which will lead to a decrease in production and loss of financial resources for the country. 

 

Senator Joe Manchin (D-WV) asked the panel if the Canadian oil that would potentially be delivered to the U.S. through the proposed Keystone XL pipeline would be exported to China if the U.S. does not approve and allow the pipeline to be constructed.   Gruenspecht replied that Canada will develop full production capacity regardless of whether the U.S. accepts Keystone XL or not.  Diwan replied that he believes shipping oil to China would be difficult and that Canadian oil will eventually make it to the U.S.  Manchin then inquired about the state of the Marcellus Shale, a large producing shale formation in the northeastern United States.  EIA explained that their revised estimate of natural gas reserves in the Marcellus Shale decreased from previous estimates.  In 2011, the United States Geological Survey (USGS) released a report amending their 2002 report on Marcellus Shale natural gas reserve estimates.  The releasing of these new USGS estimates prompted the EIA to conduct a new study in their Annual Energy Outlook 2012 Early Release.  The new study resulted in an 80 percent decrease from their original study in estimated natural gas reserves.

 

Murkowski questioned the panel about an article describing the unlikelihood of a natural gas pipeline from Alaska to Alberta.  Gruenspecht replied that the possibility is low due to the costly nature of an overland pipeline, but EIA has not conducted a study regarding the transport of natural gas from Alaska to Alberta and that he will follow up with the senator.    

 

Bingaman asked how increases in fuel economy standards would affect projected oil imports.  Gruenspecht could not give a specific number but acknowledged that it would make the percentage of imported oil lower than their current projections.  Bingaman questioned the panel on why refineries are shutting down.  Gruenspecht and Diwan attributed this to geographic location.  Refineries on the East coast are closing but refineries in the Midwest and along the Gulf of Mexico are opening to meet the demand of oil plays in North Dakota and Alberta.

 

Senator John Barrasso (R-WY) inquired about the significance of coal to China and India’s energy needs.  Jones replied that one half of energy growth from 2000-2010 is attributed to coal.  This was because the rapidly expanding countries of China and India needed to get cheap electricity to portions of their population that had never had electricity before.  Concern over rampant pollution in Chinese cities is causing the Chinese government to reevaluate the use of coal, but thus far economics have ruled out controlling pollution. 

 

Witness testimonies and the hearing web cast can be found on the Senate Energy and Natural Resources Committee web site.