industry. shale is a huge part of our energy potential, particularly in my district of eastern and southeastern mile. .. we've seen this most recently in the administration to prove the pipeline. this project is a no-brainer for job creation of also

significantly decrease our dependence on hostile foreign sources of oil. there is no logic to the administration's insistence on refusing a permit for this project. the united states doesn't have to be on the receiving end of opec's decisions. we have great potential and all the resources we require to secure our own energy needs. we can actually be the nation's leading the global energy transition to the west. the question is will we have the leadership to take control of our future and make this a reality? thank you, mr. chairman and i yield back. >> mr. sherman. >> thank you for holding these important hearings. the effective energy on the national security to cannot be overstated by but i know that most of the comments have been about the keystone pipeline i think these are far broader and the impact of energy in the national security is more significant than this pipeline.

to address the pipeline, the environmental concerns about how that pipeline should be built, the route it ought to take and why it is bypassing the markets of the midwest to go down to texas which is the one part of the united states that already has more oil than it can consume. there are some in the environmental movement who know if the pipeline is built and the carbon atoms on the petroleum under the ground of canada will not be burned and mixed into oxygen atoms and sent into our atmosphere. i think the of their opening statements have made it clear that at some point can canada will find a way to exploit this whether it is through the united states or the port of vancouver to the world markets.

however, we shouldn't think that is automatic or easy or that keystone is going to go away next week. there are environmentalists in canada. i have met them and they are no more excited about the building of the east and west pipeline through canada than our environmentalists for the pipeline. energy really comes down to two separate issues or somewhat separate issues, and that is how we generate the electricity and how we move our vehicles? this is sometimes a lump together in one issue as we have a national security crisis hell are we going to generate electricity? the we have a world environmental crisis and global warming when we burn coal, which we do to create about half of our electricity.

so, one, energy market is for electricity, and the other is reliving vehicles and it is removing vehicles that has been the national security crisis because the world hasn't found a better system yet than petroleum and petroleum for reasons that have not been explained to me is in all of the wrong places at least that which was exploitable by the technology heretofore. could prices have almost quadrupled since the year 2000? the now stand at $94,000. opec's now headed by a senior commander of the revolutionary guard corps of iran. i think this illustrates the fact we do have a national security problem when it comes to vehicle propulsion. i've been a strong supporter of international and domestic research has to clear operation

with other countries we have as one model the u.s. energy cooperation act in which both countries put up the same amount of money for the research projects and both have a strong incentive to win the world from petroleum. in contrast, the subcommittee on asia and the pacific had hearings in a 4 million-dollar program to give foreign aid to china to help with its energy problems and to help it meet its carbon emissions objectives. i think chinese carbon is a chinese problem and last i checked, they had enough dollars to pay for any american technology that they think necessary to deal with the issue. so, i look forward to hearing from our witnesses chiefly as to how we are going to propel our vehicles without propeling to greater power to the enemies of the united states. and finally, i want to echo the gentleman from virginia that a

pipeline that bypasses america's midwest markets and takes oil to the ports in the united states for possible export may not be the best way to ensure our national security. i yield back. >> i thank the gentleman, and we will go now to the panel. energy specialist at the congressional research institute where he helps members, our staff, understand the complexity of the energy markets and energy security and international energy issues. and prior to being with crs he analyzed for a major energy company. mr. robert is the founder and president of an independent energy consulting firm and he served several positions in the energy industry and in the previous administration. he served as the senior director

for international energy on the national security council. mr. martin durbin is the executive vice president for government affairs at the american petroleum institute. he is responsible for the policy. they have 450 members ranging from the largest oil and natural-gas companies to the small and independent companies. he worked on the hill as a staff member. the executive director of the institute for the analysis of global security. that is a think tank focus on energy security coming and he serves as an adviser to the united states energy security council and is the co-founder of the set america free colish and. we welcome all of the witnesses to the subcommittee. all have five minutes. to complete your written testimony, which we have in the record anyway, and we will start

with mr. >> thank you. a ranking member sherman and distinguished members of the committee. i'm an energy specialist and congressional research. we appreciate the opportunity to testify about how energy markets are changing. note that crs takes no position on questions posed by these developments. i will discuss three main points for my testimony. how markets are changing, how this affects leal concerns and a broad set of issues. first, rapid energy intensive economic growth in developing countries has raised global energy demand in recent years. economic growth is the main driver of demand. energy production has been able to publish this demand at prevailing prices. this contributed to the rising prices particularly for oil and gave rights to security and economic concerns. energy production is capital-intensive. the of lead times and can face geopolitical constraints. oil prices fell in the global economic downturn of 2008 but

subsequently rebounded. demand from the countries has pushed global consumption to new highs in 2010 and 2011. now, the crisis in terms of motivated investment, technology development and policy incentives contributed to increasing energy supplies particularly from new complex are expensive resources around the world. a number of examples come from the united states and elsewhere in the hemisphere. for instance, u.s. tight oil and shale production, u.s. and brazillian ethanol production, offshore presold resources in canada's oil sands. turning to the oil market, the world consumes 88 million barrels a day related to oil fuel. 40% is met with oil from opec which includes major oil producers in the middle east, africa and south america. the world's largest non-opec oil producers are russia and the united states. united states is also the world's largest consumer and largest importer. net imports make 45% of u.s. oil consumption, but this is down from the peak of 50% in 2005. net imports have declined by

4 million barrels a day in six years. nearly half these declines can be attributed to lower u.s. oil consumption, the result of the economic downturn and higher oil prices. the rest is due to higher domestic production of oil and other liquid fuels, particularly on short crude oil and ethanol. the largest crude oil production increase is taking place in north dakota and texas. production in north dakota formation as rapidly increasing in recent years and enabled the technology advances and horizontal drilling and hydraulic fracturing. ethanol production supported by federal policy and higher gasoline prices. among the largest declines in production have been alaska and california. despite lower u.s. imports, u.s. imports from canada have increased by 20% since 2005 to 2011, aided by growth in oil sands output. accounting for about a quarter of u.s. imports canada is now the largest foreign source of oil. meanwhile, import volumes of opec have fallen. opec countries continue to account for half of u.s. imports. most of that whoever comes from members of sight of the persian

gulf and venezuela and nigeria, for example. there's a broad set of issues to consider here, i will briefly cover three. first, the impact of high energy prices investment, technology development and policy incentives are not limited to oil. if you're driving for instance rapid growth and a renewable electricity generation. also, a drilling technology innovation increased unconventional national gas lines and helped keep the gas prices low. shale gas is a dramatically changed the u.s. natural gas out looks so much so some companies are now considering a new liquefied gas exports. other countries are looking to see if they can replicate the gas experience. second, some energy sources and solve environmental and fiscal trade-offs. for example, the use of hydraulic fracturing to recover the wheel has raised concerns about the risks. and some are concerned about the greenhouse gas emissions and ecosystem impacts from the oil sands production and import refining. they're also fiscal tradeoffs, where new energy sources require

government support, for instance, tax credit for ethanol. finally, the oil market is globally integrated into the market events anywhere can affect prices everywhere. for example, even though the united states and portable oil from libya the crisis contributed to the high your costs year whether there was imported by ships, pipeline or produced at home. foreign oil market disruptions can continue to affect the prices even if the u.s. were to produce as much as it consumes. in conclusion, rapid energy intensive economic road from developing countries contributed to energy price increases which in turn enables the new sources of energy supply growth, however, some of the sources have high your commercial, environmental and fiscal costs. domestic oil supply growth is reducing the need for imports while we remain connected to the global oil market where the supply continue to cause economic energy security concerns. thank you for the opportunity to appear before the committee, and i am happy to address your questions.

>> thank you. we will go to mr. mcnally. >> chairman, ranking member sherman, members of the committee, thank you for allowing me to testify. i would also like to make three points on my testimony. submitted into the record. one, new energy supplies in the hemisphere will have real benefits if we allow them to be produced. number two, even if we produce more oil and gas year we will still be connected to a global oil market and pledge of vital national security interests in and around the persian gulf. three, the risks of oil price spikes must not and need not be an excuse to invade the dhaka avoid. the laws of girons because exports can be offset by halving strategic reserves and increasing production in saudi arabia. a nuclear iran would possess far -- pose far greater and longer lasting risks of price spikes. to the first point, potential new and u.s. western hemisphere oil and gas supplies could cover real benefits but whether we realize them will depend on future regulatory fiscal policies. those includes lower import

dependence which would strengthen the resilience disruption and reduce the need to borrow abroad. new supplies anywhere outside the middle east reduces all else equal validity to disruption in that volatile part of the world. on the road we may be able to use vast shale gas to displace oil imports through the fleet electrification. natural gas vehicles to revitalize our domestic chemical sector and exports to reduce russia's europe. second, even if we reduce the oil dependence our economy and national security will remain tightly linked to the global oil market especially to the events in the persian gulf. leal is a fungible commodity that is widely traded in a global market. as my colleague said a disruption are price shock anywhere means a price shock everywhere. gloor wheelan part improves the resilience but will not inslee from the shock. we project our oil imports will fall to about 42% of the demand by 2035. oil imports where 30% of the demand in 1973 when we had the

first price shock. the persian gulf now amounts to 16% of crude oil imports and is expected to stay at that level through 2035. even if we didn't in party drop from the middle east our vital national interest there would remain. the middle east and the persian gulf is and will remain the world's most important energy region. as of 2009 it held 56% of global proven oil reserves, nearly all of those in the persian gulf. we project least share of global oil production will rise from 28 to 30% to 2035 the higher market share and higher prices, middle eastern oil producers are going to earn trillions and trillions of dollars in revenue. we must remain engaged in that region to ensure that windfall was not spent to threaten us or our allies. another interest is to make sure china and india as soaring dependence on middle east leal as mentioned earlier does not lead to strategic competition or conflict. the energy agency's ease china's import headed over 84 per cent. and india, over 92% by 2035.

u.s. foreign policy can and should aim to share the costs, burdens and responsibilities of protecting the gulf with other friendly and capable importers. such cooperation exists to some extent already such as with multinational and i piracy patrols. for the foreseeable future only the united states can play a leading role in guaranteeing the stability of the persian gulf. this brings me to the last point. the iranian regime pursuit of the nuclear weapons poses a grave, clear and present danger to the national security including the risk of economically damaging oil price spikes. we and especially you face a dilemma. only interrupting year of's crude oil exports is likely to change. but that step could cause oil price spikes if it hurts the of iranian crude and motorists. the expert to .2 million barrels a day, total spare capacity in the world is about 3 million barrels a day. as my colleagues said this year we find out what happens when we lost 1.7 million a day, gasoline

prices went up to 4 billion a gallon. the alternative to buying oil sanctions military options would also cause price spikes. and fighting leal sanctions or military options are not used come here on will probably get nuclear weapons. this outcome poses the biggest and most enduring risk not only to the national security but also of oil price spikes. some believe a nuclear-armed iran could be contained a entered is the soviet union was during the cold war. even if containment worked, it is a costly and dangerous strategy. the early decades of the cold war or violent and catastrophic. i doubt the prices will remain stable after israel, saudi arabia and iran test nuclear weapons and state the retaliatory doctrines much less continue to fight proxy war and conflict arising from the millennia of religious, ethnic and cultural hostility. iran's pursuit of nuclear weapons is likely to raise oil prices one way or the other. officials could manage the oil price risk by adopting what i

call a quarantine and release strategy. we would halt all or most if not all of iran's leal exports while offsetting the supply loss with a drop -- draw down in the strategic stock and higher the saudi production. strategic stock or large, secure, and located in the consuming regions. they are an important tool that can protect the economy when we raise the cost of the regime for its illegal and dangerous nuclear weapons quest. short of a military action, quarantine release may be the last option to avoid a nuclear iran which would pose the biggest risk to the national security as well as to the oil prices. thank you. >> thank you. mr. durbin. >> good morning, mr. chairman, mr. chairman, members of the committee, and thank you for the invitation to testify this morning. as the title in place there's no question global energy markets are changing. one of the members continue to operate and investor of the world, there's growing recognition that a rebalancing

of energy markets is occurring and that due to enormous new potential reserves both onshore and in the deep water, and deutsch to the geopolitical stability, the western hemisphere is quickly becoming a much bigger player on the global energy stage. for today's purposes, however, i will limit my comments to opportunities we have to enhance our energy and national security right here in north america. in some parts of the u.s., as has been notable become oil and natural development is booming. while total crude production is constant in 2010, gulf of mexico offshore, and alaskan production has dropped. this has been offset mainly by increased production on shore and north dakota and texas almost exclusively on the on federal land. the increase in domestic onshore production along with an overall drop in demand has allowed the imports to decline during this period. the fact is we are an enormously energy rich nation and we should be taking better advantage of those domestic energy resources. to highlight this point, the

energy consulting firm mckinsey calculated the benefits of expanded domestic development earlier this year and the study conducted. it concluded that america's oil and natural gas industry can create 1.4 million new jobs by 2013. 1 million of those could be created in the next seven years. the same study showed that allowing greater production in the u.s. can generate an additional $800 billion to federal and local treasury 1pi 30. that will decrease our debt is a nice down payment. and it doesn't end there. in 2010 our industry directly contributed more than $470 billion to the u.s. economy in spending capital investments, wages and dividends. that's more than half the size of the 2000 mine federal stimulus bill. but this stimulus happens every year without an act of congress and with no cost the taxpayer. the keystone pipeline is a predictable tener 90 project that will enhance the national security. now in its fourth year of review

keystone xl will create thousands of good paying jobs for american families. as the labor unions whose members will directly benefit from the project testified last week, it is more than a pipeline. it is a lifeline and it's time to put the safest most highly productive work force to work on this project. it's also worth noting that keystone exfil pipeline will only be an outlet for the oil sands in canada but for the increased production we are seeing in the upper wing states and north dakota and montana. looking to canada its more than just one pipeline project, 80,000 americans are currently employed because of canadian baliles and and according to the canadian energy research institute we stand to create an additional 500,000 american jobs to 2035 with $770 billion in economic activity. already there are it least 2400 companies either by providing the supply of the services in canada or expanding our pipeline and refinery systems here in the

u.s.. another fact and i believe is the chairman noted for every dollar the u.s. spends on canadian products including leal canada returns 90 cents to the purchase of u.s. goods and services. you simply don't see that level of return with other trading partners. but we also have to think more broadly about our energy future. the energy information not mr. sean forecasts the world wide consumption of energy is expected to grow 50% between 35 and the u.s. will require 20% more energy. the also project renewables will meet only 13% of that energy demand while leal and gas, oil and natural gas will continue to supply 55%. but the choice is not between fossil fuel and renewable fuel. we are going to need all of it. in fact, our industry and member companies invested more in the zero carbon energy research and the federal government. and nearly as much as all of the industry's combined. so the growing renewables will continue to be important, but secure sources of oil and natural gas will be essentials.

canada is already the number one supplier of the oil and when projects like keystone we have the ability to significantly increase the canadian imports, which already are making up for the decline in the imports from mexico and venezuela. cambridge energy research associates project that they could supply 5 million barrels of oil a day to the united states in 2013. one and 4 barrels expected to consume. by expanding access to domestic energy resources, strengthening our energy partnership with canada, and increasing our domestic biofuels used as possible we could produce all of america's liquid fuels needs by 2026. so, in closing, we'll and natural gas will continue to be critical to meeting our energy needs. so we can choose to safely and responsibly produce more american energy, creating hundreds of thousands of new jobs and generating billions in the revenue for the government or we can stand on the sidelines and watch as other countries produce those resources that we will then have to purchase.

thank you, mr. chairman. >> thank you. >> good morning, mr. chairman, members of the committee. i'm honored to represent here the united states energy security council, to which includes former secretaries of defense, state, interior, transportation, homeland security, agriculture and air force, former chairman of the said alan greenspan, national security adviser director of the cia, flag officers and former the retired detective from shale oil and kraft foods. all of them are concerned about our growing dependence on petroleum and the impact on the national security and economic well-being. as was mentioned before, earlier this year, the department of energy announced that u.s. imports of petroleum declined from 12 plight 5 million barrels a day in 2005 to 8.6 million before this year. the independence dropped from

60% to 46%. now this reduction in our level of imports in just seven years is a remarkable achievement. some of this is due to the recession, but most is due to as mentioned fuel efficiency and even more important, the significant ramp up in the technologies. so far, so good, but here is the rub. when america's oil imports dropped, our foreign oil expenditures declined buy almost 60% to under $47 billion in 20005. the three injured $67 billion this year. the share of oil imports in the overall trade deficit grew from 32% in 2005 to 51% this year. worst of all, the gallon of gasoline increased by 65%. so despite the lower demand the drivers spent this year on gasoline more than any other year before.

serious, we have become more self efficient and more efficient will become poorer and deeper in debt. we are becoming so called more energy independent less processed. what's wrong with this picture? clearly something is wrong with the method. being self-sufficient as a shield the economy from the oil shocks and the price of oil slicks for everyone. only 9% of the oil comes from the persian gulf, yet the economy is always very vulnerable when things happen there. as long as oil remains the only source of energy to participate in the transportation fuel markets, there's a control of the production reserves. particularly referring to opec which despite the control of 79% of global conventional oil reserves produces today almost the same number of barrels they did 30 years ago.

even though the world economy more than doubled since. the arabs during created a situation which the governments have gone into major liabilities to the tune of about $160 billion tipping the people happy so they don't end up with mubarak and the other leaders. who's paying for it? we are paying for this. and i find it to be sad while we have this conversation in the united states about reducing entitlement programs to hard-working americans we are funding the program is in saudi arabia, kuwait and the immigrants. what is wrong with the myth is we fail to address the rules of the energy vulnerability with virtual monopoly over transportation fuels. this monopoly is enabled by the fact that for the past for the most part the automobiles are blocked. since 2005, roughly 100 million new petroleum vehicles on u.s.

roads each with an average life cycle of 15 years. by allowing this to happen lock for the next two days with all the implications. congress can break the monopoly in the stroke of a pen by enacting the open fuel standards act which was introduced earlier this year. this to page bill would ensure cars sold in the united states are open to fuel competition so that the drivers can compare per mile and make choices between gasoline and diesel and a variety of them on petroleum fuel. as i indicated in my testimony the open fuel would also open the door to methanol which is an alcohol fuel that provides the most economical way to introduce our abundant natural gas resources as the transportation sector. mr. chairman, this time to hundred years ago they were preparing the army to march and to russia.

was the most important commodity by virtue of the monopoly on the food preservation. the deposit conferred natural power for us all. it was the persian war machine. the status of the strategic commodity ended with the invention of alternative ways to preserve the fuel by refrigeration to read the disaster russian campaign was the last time in history that salt played a role in the world politics. today we consume and import more salt than ever. i doubt anybody in the room is consulted about the dependence or where our salt is coming from. petroleum today occupies the same strategic ground and salt did. a with a simple legislative fix it is zero affect the taxpayers the can deliver to leal the same fate humanities delivered to assault. so let's get it done. thank you, mr. chairman. >> thank you very much, doctor.

let me open with a few questions for the panel. in the near future china is going to make up the third of the world's oil demand growth, and that has driven the foreign policy and around the world. we have seen that whether it is in sudan for burma or central asia. we've seen some of the consequences because it is all about resources for beijing. and i would add where china goes corruption also follows in terms of their attempt to have access to this. well, now they are in our hemisphere. now china is here. they have established a working group on energy and chinese companies have invested 10 billion in canada's oil sands. now, this is my perspective on this. but it seems to me that the

obama administration has laid out a welcome mat for china with respect to the keystone pipeline project. in the decision not to go forward. and i base that partly on the reaction in canada, or if any of the members of the press would like to talk to the canadian embassy about this, this really pained the canadian government. and just days after the obama administration announced the keystone delay the canadian prime investor, steven harper, met with chinese hu jintao, and harper was painfully blunt and what he said was, quote, this does underscore the necessity of canada making sure that we are able to access asian markets for our energy products. that was his quote.

and those remarks spurred headlines are now the world. asia, a priority for canada after u.s. believes keystone. and in "the wall street journal," canada shops zero leal after the pipeline halt. and it is a halt. at a press conference not long ago with a representative of the company, the company that's making that pipeline. so he said last week they laid off 60 employees and there are more coming as a consequence of this decision. and indeed, there are now canadian proposals to dramatically increase the capacity for whale from alberta to reach the canadian west coast in order to be shipped to china.

these plans are being sent with a view towards diversifying away from an unreliable partner the united states and instead they are looking to china. and this is all being planned with a long-term focus on the chinese markets. mr. durbin, canada is not waiting around. i wonder if you share my concerns. and i would ask how a sensible is canada's alberta oil market to the chinese market? >> mr. chairman, thanks for the question. i'm not sure i can give you a clear answer on the accessibility of china to the canadian market other than to say, as you pointed out, they've made a significant investments in the oil sands. i don't think that is any

surprise. as has been pointed out, canada has an enormous resources. they are going to find a way to get this to market. i think our focus and certainly at api we share your disappointment to delay the pipeline, but, you know, we are today utilizing oil sands and canadian air benge resources to a great extent, and i think it is in our national interest, our energy interests, our security interests to enhance that even more. there is no question that canada is going to find outlets before the oil sands, and we just believe there are too many benefits from the job creation of economic growth and energy security and national security to bypass that opportunity. >> let me follow up with a quote from the u.s. department of energy with a study that they commissioned a and this was their conclusion. if pipeline projects to the

british columbia echostar build, they are likely to be utilized. this is because of the relatively short distances to major northeast asia markets. and future economic growth. and because of increasing ownership interests by chinese companies especially in the oil sands production such increased capacity would alter the trade patterns. canadian crude would be, quote, lost from the usa going instead to asia. there they would displace the world's balancing crude oil, middle eastern and african predominantly which would move to the usa. the net effect would be

substantially higher u.s. dependency on crude oil from those sources versus the scenarios where the capacity to move canadian crude to asia was limited. so, we have. and i would ask you do you share this analysis that the canadian oil in these words could be lost to china? that is there quote. >> that is a concern, and again from our broad concern has to be can we better control our energy future and the resources we have available to us from canada? it is one of the critical paths we have to take going forward to again retain that control. spinet used in your testimony we have a simple twist before us. it is pretty straightforward. i go to mr. chairman mao. thank you.

>> mr. durbin, with keystone be willing to build the pipeline if the law prohibited the export of the petroleum there was brought to us by the pipeline? >> i obviously can't speak for transcanada. i know they testified some of this last week as well. the only move the product. they don't -- >> would the american petroleum institute support a statute that provided the pipeline could be built with some additional environmental safeguards but prohibited the export of the oil carried by the pipeline? >> i don't think they would support that. >> so basically you are not here to try to give us energy security. you are here to try to let some oil companies make money by building a pipeline? >> i don't think that's right. >> you don't create energy security by having canadian oeo exported to europe as opposed to

exported to japan. >> the fact is if the proponents of the pipeline and the industry itself insists on the right to export come if the plan is to build a pipeline bypassing our interior market in the middle west and bringing it to the point well equipped for export it sure looks like export. but if you look at the refineries in the gulf coast the of invested billions of dollars to be able to process i'm not at all sure it won't be refined and used to be the largest market for gasoline and diesel and all of the incentive is to have the jobs here, the investment here, but again it is a global markets >> that doesn't seem to be the plan if the pipeline was to the u.s. markets in the midwest we wouldn't have this issue, we wouldn't be talking about the aquifer in nebraska and there

wouldn't be the risk of export. >> reclaiming my time. i want to turn to first need to put a few things in the record without objection i would like to put in the record material by the sierra club, the wilderness society statement by doctor of the wilderness society and a report from the leal change international concerning the pipeline. baquet ivies chairman i would say without objection, so ordered. i would also like to put in the pipeline in excellent article by dr. luft who is here with foreign policy magazine dealing with how the antirussia vested in the state department has

caused it to embrace pipelines designed to get natural gas to europe, and the natural gas may eventually come from within. it's a fascinating article about how iran's economic situation will be perhaps dramatically improved over the next decade or so as they are able to export natural gas to europe as a direct result of u.s. policy. and if i have time i would like to ask some questions about that but i want to shift to something else and that is the open fuel standards. when opened fuel standards means ethanol i'm not at all excited turning a corner into fuel is one of the reasons we have such - prices around the world and hasn't been an alternative. but we have natural gas deposits in north america and what would

be -- first of all how much more would be opened fuel standards cost to manufacture? and second, what is the technology to fuel a vehicle with natural gas? >> the open fuel standard isn't a fuel bill. it doesn't support or endorse any fuel. it is designed to deal with the fact that cars today block the competition. >> the automobile standard. estimate exactly. estimate how much more with the automobile charge for the car? >> it depends on the technology if they choose to electric vehicle will be $10,000. if they do the flex-fuel it will be in the order of $100 or less. so for $100 or less, the car would be able to run on gasoline, but also a variety of

alcohols. now ethanol is only one of them, but we do see the potential to methanol. as the just concluded in its report, the most economic use of natural gas if you convert into liquid fuel called methanol, the price today is about a dollar 13 cents a gallon if you convert to gasoline on the energy equivalence it would be significantly cheaper than gasoline at the pump. so there is a fuel that can compete against gasoline and it is made by domestic natural gas why not allow it to compete? why block it from the market? interestingly, it is the ordeal and gas industry that i think could benefit a lot from this bill because natural gas prices

are very low to become and the reason they are very low is because there is no demand. we are producing more and more but there is no way that we can absorb because our utilities don't observe it fast enough. >> interrupting basically this could very much help domestic oil and gas industry producers. it would be competition for the international oil industry. mr. durbin, where are you on the open fuel standards? >> i haven't had a chance to look. the first i heard of the idea -- >> i commend you for proposing the idea but it's the idea of requiring this e 85 or later get with the logo was of general motors. there is a lot of the flexible fuel standards on the road and i look forward to getting mr. durbin's organization on. i yield back. >> mr. johnson, please?

>> thank you, mr. chairman. this week the house passed two bills on iran, house resolution 2105 and 1905. in addition the house passed the defense authorization bill, h.r. 1540, which included a provision to the sanction entities that do business with the central bank of iran. what's been the effect of sanctions imposed a bus for in the oil industry and what else can we do to prevent a nuclear weapons armed iran without disrupting oil markets? >> thank you for the question. the obama administration should be commended for the strengths against iran and putting on the oil industry including other countries to do so. as a result, iran has had to work harder to sell its oil and circumvent banks and find the go-between and give credit and we've made life a little more difficult to sell its oil.

however it is doing so. it exports about 2.2 million barrels a day. in my view of the legislation the has been worked on here is still too the key and gives the president easy outs to avoid sanctions the would print the oil exports significantly. it gives a national security out and it also gives an out where the president says there isn't sufficient supply. there would be a waiver. my message to you is with tight spare production capacity in the world most 3 million barrels a day that is the estimate it's probably very high. many in the private sector are lower. but at 3 million barrels a day, and expected to stay fairly low in the coming years, the market will always be to lactide to risk crème didier on's oil exports. in my view, that is why we must neuter the argument and look to welcoming the president's decision to use the strategic

stocks to offset the supply from iran. so in my view in shorter think the sanctions so far have been too weak. we've been playing patty cake and we need to start playing hardball. >> thank you. the united states has long band on iranian imports and there have been calls for the e.u. to do the same. what would be the impact of your opinion of the ban on arana and we'll? >> in my view, that would -- because europe only accounts for about 400,000 barrels a day of the total 2.2 million barrels a day of exports, i think that if were europe to ban the import fee would see their rearranging. would be a great day for russia because these refiners who have been taking in the crude would look to the russian exports to replace the perils, said there would be the rearranging of the flows and would probably lead to some higher costs for the

european consumers. all the again, they could lower their strategic stock to offset that. the iranians would have to sell their oil cheaper. the chinese are hard bargainers and when they showed up with these stranded beryl's they had been selling but no longer could, iran would have to accept the discount commesso elon what lose the revenue that it currently earns on its exports because it would sell ligon to a smaller market that was aware the barrels were blocked from europe, so it would print iran and make life more difficult and cut into the revenues somewhat. >> why would the effect of our bambi on the global markets? de mekouar ban of the iranian and parts? no effect that i am aware of. >> okay. with that i think i will yield back the remainder of my time to the gentleman. >> i will follow-up on that question.

we had a study from the depressed in the energy with of the gasoline prices in all markets served by the gulf coast and the east coast refineries would decrease including the midwest and was perplexed and the question that i assume part of the answer is that the excess refining capacity must leave the gulf and the midwest must be in full throttle so it would be dictated for the oil capacity to the midwest refineries the wouldn't be able to handle the excess. >> the midwest refineries are currently processing oil sands crude oil. so this does provide greater flexibility and greater diversity of supply in the gulf coast refineries to serve the domestic market. >> the problem is you've got limited refining capacity in the united states. i know that is a problem in california. and we will -- the government will not allow the new refineries to be built easily.

in the past experience. so the question is getting it to the refineries with excess capacity to serve the domestic market. >> what we go to mr. conaway. >> thank you mr. sherman. mr. durbin, i felt myself mostly in agreement with your opening statement, and i think to be intellectually honest you are right. the goal is to lessen reliance on foreign oil and especially from areas in the world that are problematic for lots of different reasons, frankly everything has to be on the table. to be honest everything has to be examined forthrightly on its merits, and so i applaud you for that principle i've got to guide what we do and with respect to the keystone pipeline it's not and is the logical issue but in the spirit of being intellectually honest, a couple of points.

does trans canada have a determinant in vancouver? is there not a line that ends in vancouver? i don't know whether transcanada has aligned. >> if that ran to the port of vancouver. i don't know. >> i have a map that says there is a pipeline that runs to the canadian west coast from the alberta oil sands i believe it is about 300 barrels a day. >> brenau california gets some capacity. >> there are proposals for expansion. >> is the purpose of that vancouver at least in part the purpose of the export? it's not for the domestic -- some of that goes to asia is that not correct? >> there is some going to china.

>> so the idea that because of the delay canada is now looking at the chinese market. that's not true. as a matter of fact, the dent in the china market and the reason to book is not anything to do with the delay. it has to do with the fact they are the fastest-growing market in the world, and has enormous potential and if you are an oil exporter in that business that is a market you don't look at, isn't it, just reasonably? you didn't assert that, the chairman did. >> the gentleman would yield it was not me asserting that it was the prime minister of canada asserting it with the employees of the embassy that a search. let's put back up the quote -- you can have your time dhaka time just going to put up the quote for the prime minister of canada. >> reclaiming my time. the government knows how to communicate with the united states government and that is

not what we are hearing in the subcommittee. so if they want to communicate to the united states government their concerns about the pipeline or the chinese market, they know how to do that. but i thank the chairman and i'm happy to yield. the proposed permanence at port arthur texas, this is what i'm stuck on in the spirit of being intellectually honest, transcanada has a different business model where it is actually limited contrast to the long term contracts including with the two major exporters and the retrofitting or the building of the refineries seems to be export not for the domestic market why would do we build new refineries and port arthur texas if the programs were solely for the domestic consumption why not do it in the midwest we already have pipelines and they are coming into the united states such that we have a glut in that area and keystone pointed out if

we don't do something to eat leafy that prices will fall. if we do something to eat leafy it about like the pipeline, they say in their application papers prices, unlike what the chairman has indicated, would actually rise per barrel of heavy crude. why would we have a determinant at port arthur, texas if it were not clearly for export? media not exclusively but just like the vancouver -- >> the capacity in the port arthur area the contract your putting in place with refineries throughout the area and continue to do so that is where the capacity is. the idea -- >> in the spirit of your testimony which i commend come intellectual honesty, don't we have to concede that the purpose of putting the support at port arthur is for export? >> i just want to say it is not the purpose. >> i said among other purposes it is for export, and i acknowledge we are dealing with

global markets. and right now we are -- >> we are exporting -- >> the arguments used in favor of the pipeline have exclusively been about enhancing the domestic supply in the united states. no one's talked in favor of the pipeline in congress about the global market and we have to deal of shared in the pipeline in the capacity to enhance exports to other countries. >> the time is expired. >> thank you mr. chairman and thanks for having us. this hearing is very timely, and i will go back to what we heard earlier in the year from the leaders of the country when they said that there can be no national security without energy security. i believe energy is a silly to job creation and that's what the congress needs to be talking about and that's what we hear the other side tried to talk about these jobs, creation of

jobs. the keystone xl pipeline is a job creator. it creates construction jobs and i'm not too young to in defeat remember the impact the alaska pipeline have on employment as we developed the alaska pipeline to meet our energy needs. it is an ex sample of what we can do with xl, keystone exfil pipeline and produce jobs. all canadian oil whether it is used in this country or shipped around the world is exported from canada. it exported to the united states from the largest trading partner, someone we have been trading with every opportunity we get. we should be utilizing the atmospheric resources. the american public is frustrated when they pay over $3 a gallon at the pump, knowing that we have the resources in this country and in the western hemisphere with friendly countries like canada that can supply the resources that we

need. they are frustrated when they see this government standing in the way. >> one minute remains in the vote. >> i want to give mr. durbin an opportunity to respond to mr. sherman with the balance of my time. >> thank you mr. duncan, and again, i think this is and cme said at the beginning we are exporting the product now, so certainly this is the addition of the canadian crude into our market and our refining is simply providing more supply diversity, allow us to produce the fuel we need here and when it makes sense we are certainly going to be able to export products as well. we import and export but more importantly dhaka canadian crude coming to the gulf coast refinery is replacing crude oil that we had been bringing from venezuela and mexico sending

more products overseas to asia and elsewhere and mexico production simply on the decline. and we need to replace that and it's not only in places it will be even more and that does improve our overall energy and national security. >> as we adjourn, let me just close with the comment again of the prime minister of canada. this was several days after the obama administration announced the keystone deily. primm minister steven harper had had a face-to-face with chinese hu jintao and afterwards to the press. these were his words. the decision by the united states, this does underscore the necessity of canada making sure we are able to access markets for our energy products. it's pretty straightforward. we stand adjourned. thank you.

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