months as we approach the summer driving season. i've said on several occasions in recent days and i believe it's important to use accurate

facts when we work on these important energy policy issues if they are subject to dispute may be the witnesses can correct me on that i think they are accurate. we know that the price of oil on the world market and that changes in our own production do not have a major impact feet, and we do not face cycles of high gasoline prices in the united states because of a lack of domestic production or lack of access to federal resources or environmental regulations we look forward to hearing the dynamics of the various factors and i also we can take what we learn to focus on policies that can actually lead to more stable gasoline prices over time. this committee did good work on those issues in 2007 in developing the bipartisan energy bill we passed that year. that bill has delivered more biofuel for transportation and more efficient vehicles on the roads. it's already helped significantly reduce dependence on foreign oil. we need to continue to be less dependent on the of volatility,

less vulnerable to the volatility of the world oil market on how we can do that having any comments she wants to make. >> thank you mr. chairman and welcome to a distinguished panel. we are all anxious to hear your comments and i think we are looking for the quick and easy answer that realistically we know there are no quick and easy answers to the fact we are seeing significantly high prices at the pump, and this morning "washington post" the headline is area gas prices top $4 a gallon i do a little independent survey of my community dhaka home unleaded is going for

$5.75, juneau state capital was $5.14 common no ms. $5.98, and just above it is $7.41. so they are looking at what the national average is now and saying in the rearview mirror that looks pretty good because we are getting nailed with the high prices. they are looking for answers so when there has been suggestions either in the political commentary or the news somehow or another this is a political opportunity i don't think most who are feeling the pain of the pump and their pocketbooks they don't view this as a political opportunity. they want to know what it is that can be done so the in the exchange this morning is important. we recognize there are a lot of different factors driving up the fuel cost. some are beyond the control of

this congress and we recognize that but there are some things we can influence. we heard of how we have limited ability to control the instability in the middle east or the growing demand in china and other emerging countries and economies and of course our influence is limited and that is clearly a contributing to the oil prices. we recognize that but there's other areas the u.s. and particularly federal government can have an impact we can influence the pipeline capacity by encouraging them on a timely basis and we can't influence whether the refineries stay in business by virtue of the regulations we apply to them. we can influence the value of the dollar and tax rates on the production and i think the federal government controls access to the millions of federal land and of all factors i've listed i think access is the only area this committee has

direct jurisdiction over our decisions to determine whether companies have access to the outer continental shelf to the non-wilderness portion, much of the rocky mountain west, so if i seem somewhat eager to focus on access to federal land and water it's because i think this is one of the areas that we can have in the direct authority and we do have the direct authority to have. i believe quite strongly in supply and demand absolutely matter. it's not just one or the other. we are the world's number three producer of oil and the world's number one consumer, the production is rising on state and private land. the question nobody seems to be asking is with the price of oil would be if that were not happening if we were not seeing this increase the president

keeps pointing to and in my mind there's no doubt it would be hired, it would be worse. i think most of us are using the terminology that we should pursue and all of the above energy policy, and i think that means increased or higher efficiency standards for vehicles of all sizes and investments in r&d for the alternatives and a concerted effort to bring more of america's oil to market. with that i look forward to the testimony of the questions and answers from those of us here on the committee. thank you, mr. chairman. >> thank you. let me introduce our witnesses. we appreciate them being here. dr. howard is the acting administrator and deputy administrator with the energy information administration and the department of energy. dr. daniel juergen is the chairman of the iehs cambridge energy research associates in washington and the franc vice

president director of energy and national security program for the center for strategic and international studies here in washington. dr. paul horsnell, and if you could each take whatever time you think is necessary to make the points that you think we need to understand, your full statements will be included in the record as if read. dr. gruenspecht? >> thank you. i appreciate the opportunity to appear before you. the energy administration is both statistical and a local agency in the department of energy because the eia doesn't take positions on policy issues and his independence with respect to the information it provides. you shouldn't be construed as representing those of the department or other federal

agencies. prices for all petroleum products have resumed in recent months but gasoline prices are of particular concern to most consumers. the national average price of the regular gasoline averaged 358 per gallon in february, 47 cents higher than in february, 2011 and certainly since over the past month as well, and the february price was in the historical high from any feb there is however significant regional variation as illustrated in the figure of my testimony. crude oil price increases have eclipsed. other drivers of the motor fuel prices have shown in figure to a and three of my testimony. while both gasoline and diesel prices rose by 37 cents per gallon from february, 2011 to february, 2012 the cost of crude oil to the refiners rose by

about $20 per barrel, 48 per gallon over the same period. the increases in the crude oil prices since the start of 2011 appeared to be related to the tightening supply-demand balance and concerns over geopolitical issues that have impacted or have the potential to impact supply from the middle east and north africa the region that is critical to the global supply. demand growth in the developing countries drove in 800,000-barrel per day rise in world demand in 2011. non-opec supply mostly from outside of the middle east has had some recent setbacks has described in my testimony. in addition, both the united states and the european union have acted to tighten sanctions against iran including measures with both immediate and future effective dates back.

current prices reflect expectations as well as today's commissions and many analysts see continuing demand growth with possible tightening and supply over the coming months, and that is a combination that's affecting the market. the jihadi a data shows that the united states became a net exporter products that's not including crude oil just things that come out the other end of the refinery for the first time since 1949 and 2011, however, we don't think the higher gasoline prices are being caused by higher product exports. u.s. gasoline exports of grown as a result of the refiners having excess capacity as u.s. consumption of petroleum based liquid fuels has declined. between 2007 and 2011 the u.s. consumption of liquid fuels fell by 1.85 million over the same

period domestic production of the motor fuels increased buy roughly half a million barrels per day. will the domestic demand for petroleum fuels has declined, many u.s. refiners have a competitive advantage in markets in latin america and other regions that need gasoline imports to meet growing demand. u.s. refiners are taking advantage of these export opportunities and accordingly, they reduce crude-oil inputs to the refineries buy only a little more than 300 barrels per day between 2007 and 2011 despite the much larger decrease in liquid fuel consumption in the united states and the increase of the non-petroleum liquid fuel to meet that consumption. without product experts they would have reduced the run by a much larger amount.

in the on a march short-term outlook, the cost of crude oil to the refiners continues to be the major factor affecting the gasoline and diesel prices, the average refiners' acquisition cost of crude oil is forecast to increase from $102 a barrel in 2011 to almost $115 per barrel in 2012 but fall back in 2013. eia recognizes that significant uncertainties could push the price is high year were lower than the forecast. based on the five day period ending last friday, market participants apparently believe that there's a 14% chance that the june 2012 wti contract will expire above $100 per barrel,

$14 higher than the wti spot price of march 23rd. it trades at a significant premium over the wti and is generally more representative of water borne crude prices in today's market the probability of exceeding particular dollar threshold's are correspondingly higher. the march outlook affects the average retail price of the regular gasoline in the united states to average $3.79 per gallon for 2012 compared with $3.53 per gallon in 2011. much recent information points towards a somewhat higher gasoline price forecast in the next outlook. qassam options over the five days the probability of the june june 2012 future conflict blend

stock expiring above $3.45 per gallon which would be comparable to a 4-dollar per gallon national average retail price for the regular gasoline is approximately 44%. the iea expects to average 36 cents per gallon above government gasoline prices in 2012. the prices are affected by world demand growth in other distillate fuels, particularly in the emerging economy and that has outpaced gasoline demand in recent years. in conclusion, while the cia doesn't take the policy positions it has often responded to requests from this committee and from others from the data and special analyses and i want to assure you we stand ready to respond to such requests over the coming weeks and months bring the member murkowski and distinguished members i would be happy to answer any questions you may have.

>> dr. yergin, go ahead treat stomach mr. chairman, ranking member murkowski, members of the committee, it's an honor to be here. obviously this is a very timely hearing and i am very pleased to be part of this panel in terms of trying to sort out the questions of what is happening with the gasoline prices. senator bingaman and senator rakowski have outlined the problem that is on the table to be addressed in terms of where the gasoline prices are now and the pain they are causing for consumers. also the larger question is we're looking at an economic recovery here what happens in the breezes will be important. gasoline prices where they are now is where they were 40 years ago when they last the committee was concerned with what was happening. if we look at the prices, howard

gave the latest pricing tebeau orie. at the end of may, 2008. so what is the saying? the market was driven by what we may call the emerging markets and this kind of becker did disruption with a lot of supply beyond different parts of the world. the emerging markets are virtually the only source of growth and demand although not as strong as it was half a decade ago. disruptions and i think the number that is used now is about 750 a day are disruptive when you add up what is happening in different parts of the world. we also have the basic tight market in terms of supply, tighter than it was last year, spare capacity of we estimate 1.8 to 2.5 billion barrels a day and that would create upward

pressure in any case. two things are different. one is of grave concern and the other is of reassurance. one difference is the geopolitics. geopolitics isn't a strong factor when we solve a price that we are seeing today. it certainly is today. it began with of the libyan disruption, the arab spring but its focus right now on the iran's nuclear program and the sense that the clock is ticking between now and the end of june when the sanctions going to place. writing to say that it's a new phase only on iran but the attack on the oil market began at the end of november when the united nations came out with its report on the nuclear program saying that it was to put it together the capability for the nuclear device. then you look what happened to the pricing in mid december, the oil prices are about 20% cut in u.s. gasoline prices are up

about 20% coming and it is a unique situation because basically the europeans and the united states have focused in on targeting very directly the wheel revenues. those provide over 50% of the government total operating revenue so between the embargo and the sanctions which eminently we presume will be put into place to play out in june this is a new way to receive exports. they have threats of military exercises. the oil market has jumped when they threatened to close the strait of hormuz. it's worth reflecting on that for a minute because of all of the exporters the punishment would be iran which doesn't have the same financial wherewithal of other exporters and the other thing about that, it's kind of a classic threat threatened the

united states and western europe, but they didn't look quite closely at their numbers because actually china depends more on the street of hormuz over 2 million barrels a day than we do, and was the chinese premier who reminded tehran to avoid what he called extreme action involving the street. so the question is how to move the market into balance as an effort to reduce a significant share of the oil exports without driving up the price of oil. saudi arabia plays a very key role. there's an article today by the minister i think it is in today's financial times describing what they are doing and the of the extra capacity and what was noteworthy was a paragraph about how their inventory all learned the blissful. that was actually good news. but what has to happen is to replace those either with supply from elsewhere or on the demand

side, both are necessary. i think that over the next few months we may see it and having a bigger impact keep one thing we should keep our eye on is what happens with inventory. i said one thing is different that is of concern which is iran. the other thing that is a difference is very positive news is that is a bunning with the u.s. energy production. you know, four years ago when the committee assembled and when the prices were going up there was a general mood of pessimism the u.s. was finished as a producer. we were on the road to be a major importer of natural gas and spending upwards of $100 million a year and we are now in a position as abundant natural gas. the of the thing is what has happened to the u.s. oil production. production is up 20% since 2008.

1.1 million barrels a day senator murkowski, the point he made that has a big impact is the 1.1 million a day wasn't there we would be looking at higher prices. the production might increase by at least another that's another and were not set. the canadian oil sands of troubled since 2000 and currently the output is greater than libya was producing before the civil war so it's a big number so those are the positives. between what we call peak demand in the united states and the increase in the tools senator bingaman referred to, this has changed our position. our we'll imports have declined from 60% in 2005 to the latest number i've seen in your numbers, 44%. well, what to do in the near term to mitigate prices of the,

obviously, you know, there are no silver bullets and magic buttons to push the supply it rise in inventory at the disruption during hurricane katrina and rita dr., the flexibility in the movement to the product as a very important offset and that refers to the need we have for the jones act and the ability to move supply we need to boast the confidence about the supply in both north america and internationally. the united states might work in concert with the countries and the others what kind of coordinate measures relatively modest measures that individuals and companies can take that collectively at up to modulate demand because what will happen here is the demand will be very important, and of course any relaxation or realism on the part of iran would be taken as

welcome to the market and so, i think that we should expect the kind of ebbs and flows in responding to what happens. but if events remain on the kind of course described and the calendar that's going to unfold between now and the end of june, we should expect they will be a register of the tensions and what unfolds in the months ahead will be calibrated at the gasoline pump, so there is the importance to focus on the forces of the supply and demand to offset the risk that will be seen in the months ahead. >> thank you very much. mr. verrastro? >> thank you mr. bingaman. senator murkowski, members of the committee, thank you for the opportunity to appear today. the rapid rise in the gas prices has become a staple of the evening news that you are all too aware. it's understandable painful for the american consumers and it's a threat to the economic recovery. so i commend the committee for

holding the hearing at this time. given the expertise in the panel why won't repeat what they've just said, because of a agree with the forecast and what has occurred. i will list and highlight a few points and i've brought some slides to my testimony and if you refer to those especially the first three and the last one we can walk through these quickly. the first slide shows the prices and we registered in terms of rent rather than wti because it is no longer a world class marker. after last year the prices essentially settled into a narrow band for the last half a year and you can see that from july through december and this was largely as a consequence of what we feel were counterbalancing signals of the weak economic growth and the euro crisis on the one hand and proceed stress on the supply side on the other. at the beginning of the year however this began to change and between january 1st and march 9th as both have said, the prices rose by $20 a barrel for

the past bouncing around in the new of the entire band and yesterday closed at about $124, the price this morning at 8:00 was 12504 to the economic improvement in the u.s. and elsewhere as well as other related offenses contributed to this sentiment but the concerns of the supplies were also readily apparent command of a threat to close the strait of hormuz drove much of that increase chiara and when you look at the figure, and i know this has been an issue senator frank and his look at deutsch and the upside potential of the commodity investments in oil have also increased and this is not unlike what occurred in 2008 and until some seven. at the bottom line is at least for the near-term the current psychology of the market is supportive of keeping prices at a higher level, and i think the psychology is in part because when you look at the prices to all the fundamental used to be supply command in the inventory and now we're looking at the

current crisis whether the crude oil and this idea of breaking the market momentum is important when you see the ups and downs in the market. demand growth is forecast as we move through the year and the potential for the disruption threats and ongoing supply disruptions in south sudan, russia, yemen, canada, china, syria, the north sea and nigeria and potential dislocations as well in places like brazil and iraq, these continue to push upward pressure even as we see increases coming out of saudi arabia and the united states. in addition in the aftermath of japan's inability to restore the nuclear reactors in 53 of the 54 reactors are currently shut down this resulted in the demand for oil as well as for lng. even without the closure of the street from use, the removal of several hundred thousand barrels a day of the production as a consequence of the sanctions

will put added stress on the market as we move further into the spring. such a market even good news like saudi arabia to increase production has been tempered by the notion that additional output would deplete the world's available spare capacity as we are so close to that edge and that would mean price, near-term increases in libya and the use of strategic stock is the only weapons available to dampen even on a temporary basis upward movements in the event of additional and unanticipated disruption. this is not a comforting thought. there's been a lot of discussion the market's refinery at mabey philadelphia as raw material feedstock is the component of the gasoline prices to increase in the crude prices as has already said is necessarily reflected in the price to pay at the pump. but concerns about the delivered a devotee of the refinery

closures were also factors. the middle east and asia are shipments from the gulf coast will close that down to the prize is given a transportation costs are likely to be higher until we find lower-cost logistical alternatives and they actually become readily available to read severance from the gulf which the deliver of the the people be influenced by the availability of the jones act vessels were possibly waivers. stocking facilities and regional and local pipeline capacity. the good news and this is figure three is that absent the massive global destruction our market tightening beyond what we foresee today if history is a guide it's always easier to predict in the future the gasoline prices generally decline or tend to decline after july. unfortunately for consumers, and i think we are all of the same

by a there's little that can be done in the near term and the free-market system price is always the final allocator of resources, members of the committee have offered a number of measures to help mitigate these impacts and i am happy to discuss any and all of these. while we don't have time to elaborate on the price section of the testimony i hope you will find these points informative and entertaining, and i welcome questions and comments as we go forward to it from print, the remainder of the charge energy landscape so artfully described and raises the question of whether and how we want to use our unconventional resources along with an array of new technologies, efficiency and renewables to build the new energy future. dr. john paul who is a colleague of ours is characterized this as a great dilemma and it's an issue this committee will be dealing with the next several months as well as years. the last 40 years the policy has

been predicated on the notion of a growing demand resource scarcity. especially in relation to oil and natural gas. we are now potentially looking at the demand reduction and resource abundance. and the landscape is being transformed even as we sit here today. higher prices and technology applications of the scale are driving an unconventional resource revolution and this phenomenon has the potential for creating an energy reality. one in which the united states once again becomes a global leader in the oil and gas production coupled with efficiency as you mentioned, senator rakowski some improvements and alternatives, supplements, the revolution can substantially lessen the imports achieving a significant reduction in the balanced payment it will also simultaneously create an engine for growth, platform for technology and innovation, new job creation, new tax and royalty revenues and the revitalization of the domestic

industry. in the development must be managed responsibly in line with balancing our environmental economic and foreign policy goals and the policy modeled which is on my last slide is what we would advance in terms of discussing and balancing the trade-offs. it's actually a policy for the 2007 npc study and it basically says efficiency is the sweet spot but any given point of time it's a vital economic concerns or foreign policy concerns or environmental concerns can subordinate the policy and the trick is to make sure that you balance all the way through. if we are able to do this, the successful development of the resources will give us breathing space to develop and dispatched the next clean burning fuels that currently do not exist to scale. as senator bingaman said the production is at its highest level since 2003 natural gas has

eclipsed the setback in the 1970's. oil imports comprise of the 45% of total consumption and refined product exports are averaging almost 3 million barrels a day and this gives domestic refining and the enormous value add to reduce the development continues in the scale they will undoubtedly arise in putting the bill out of new supporting infrastructure, the experts, the timing and sequencing of the development initiatives including cementer rakowski with tasks we need to get on and the right mix of the federal and state regulation and the new energy reality will require a policy rethinking when it comes to mapping out the decades coming to read with the ability to access to resources we may very well be on the verge of the american energy renaissance. while the indications are quite positive with respect to resource abundance, we are in the very early stages of this. i would say chapter 1, page ten, and we've collected in that

industry and government need to make the right choices operationally in terms of safer, smarter and cleaner as well as with respect to investments, policy and regulation that will enable the potential to become reality. dalia appreciate the opportunity to elaborate on these issues and look forward to answering your question. thank you. >> thank you very much, dr. horsnell? >> chairman bingaman, ranking member murkowski and members i'm grateful for the opportunity to appear before you today. my written testimony details six points about of the current dessel leni and global crude-oil markets and i would like to use my time today to just briefly raise all six of those. the first concerns the pacific discuss specifics as other panelists noted that prices have risen faster than other product prices and crude oil prices, and

that does appear to be a fairly strong effect from the closures and the potential further closures at the capacity along the east coast and the caribbean and other refineries in europe. those concerns appear to be markets worried about the transition from the domestic supply of gasoline in the northeast market. i think the point we would like to make is that there is no global deficit of gasoline. there's a lot of additional refinery capacity that's coming on primarily in china and india and the global level even with a large amount some 2 million barrels a day of the european refining capacity to come off between last year and this year there is no shortage. the problems them are very much to deliver devotee issues, transitional issues and it's very much where the market is now and rougher delicate stages in the peak of the driving

season starts to come forward. i would argue a fair degree of the rises were down to some of these deliver devotee concerns and it's an issue the colleagues of the eia are put forth in very closely. turning more to the crude oil market, the point i might make is on the spare capacity is remarkably limited at the moment and we estimate about 1.7 million barrels a day of the sustainable capacity and by that i mean the capacity that can be brought on the market fairly timely within 30 days and can be kept on stream for 90 days if you allow more time more capacity can come and but it appears to be less than 2% of the market. more worrying that level of despair the market does appear to be balanced he mentioned in his op-ed in the financial times

today the market does appear to be balanced. while that is of concern it's coming off the period what tenures where the demand has run at the head of supply and the global one gentry colin for eight straight quarters which is unprecedented. so to get the prices up to this level and have the spare capacity down to that level and a balanced market is a matter. further concern is where they worry more about loss of the service capacity by the extra supply and he goes very close to that point. it is the dominant point if it is in all of the others in the variation of the supply and demand just to go through those the feared future is a very strong change which the previous panelists' referred to oil supply the surgeon production

from north america and 550,000 additional as a whole was your we expect another half a million from north america this year which 80% will come from the u.s., and again come to go back to senator murkowski's point about what things would have been like without. the production outside of america failed last year by some 580 barrels a day that perhaps surprisingly it actually fell in 2011 simply because the dead weight is coming from the production particularly in the north sea but also other areas. so again, without the contribution from the change in the north american pattern the supply rate would have been quite serious. this is the fourth sitting point

there is a rather high rate of supply losses in the non-opec areas in the situation in south sudan has taken 400,000 vessels a day in the market and looks to that for an extended period for the recent deterioration in the relationship and the border incident, production is down and yemen down from syria and there's been some accidents in canada just as weakened further accidents have taken on some other portions. it would estimate just over 1 million vessels a day of the non-opec production is out unexpectedly. that is more than we would expect in this part of the reason why the market is still balanced despite the high rates of the production. so it's very hard to factor in.

they are significant markets and its to hold on demand, demand growth is continuing and its modest of the cool level and it's very heavy to concentrate if you take brazil, india, china, saudi arabia that is those four countries alone, just as they have over the past five years constitute the net and global demand grew out side of those as being pulled in for a very long period. this is a jury specific feature for the attention of the impact of fukushima and falling as it has for a while but the strong japanese demand last year primarily for lng but also oe all and this year we think it increases the nuclear the advance continues to go to stay down is going to be treated as of now the 54 japanese nuclear units there's only one currently

operating and even that is very likely to come on stream in the maintenance team may and there is a factor that has tightened up on the demand side and it hasn't fallen quite as much as we might have expected given the prices. the final feature coming in again, i don't want to repeat the previous analysts have said, there's an unusually high degree, but this goes back to spare capacity and we worry about when mr. capacity is slow if we are in the world of three years ago and a lot of the spirit capacity, then the number of the potential political issues that might impact on your market would be limited and the response would be relatively muted. as the spare capacity gets less things that can affect the prices increase in the sensitive it increased.

others beyond, there are concerns about nigeria in the wake of the situation and politically over the purse of the last few months there were also some concerns about sustainability of the production and in particular continuing to speak to train the region over the law and getting the full potential of the production to go forward so it's not just iran, there are others which i think play across the market rate. to despite a look for to answering any questions from that. thank you. >> thank you and all of you for your excellent testimony. let me start with five minutes of questions. on the issue of the refining capacity and the decision the companies have made to close

some of their refining capacity and the effect that might be having on the price of gasoline particularly in the east, east coast, maybe any of you -- i don't know if you have any more insight you can give us on that point as to what is causing them to shut down this refining capacity if there is any clear indication as to how much of the price increase we are seeing results. >> thank you, mr. sherman. as you know, the eia has put out a couple of brief reports on the refining and it is an evolving situation. we are not privy to the company decisions to close the refinery is and they are made within the strategic plans of each company, but it's likely that the reason

the refiners are closing the particulars on the east coast is that they are not making money, they are not profitable operations. they have higher crude acquisition cost in the companies and other parts of the united states because there are the premium light crude from africa which are some of the most expensive crude oil. the refiners in the mid contador getting the cheaper crude oil and on the gulf the process of lower quality crude oil because they have different resigning capabilities. at the same time, europe has a sort of access supply of gasoline available for export which tends to keep prices on the east coast relatively moderate. we are not seeing high prices relative to other parts of the country at this time. in fact in philadelphia where

the refineries were actually closing, we have been looking at the prices, and the chicago has high praise is now. it's really not of the east coast that has high prices relative to other areas at this time. there are concerns i agree it's more about logistics and the supply of gasoline. there are concerns related to one refinery that's still operating in the area and philadelphia if that were to shut down there might be some areas in the northeast that could potentially be subject to a low supply. let me just leave it there because others may want to speak. >> i would add two points to that. one of the refining companies have said they have been losing a million dollars a day and you can't go on very long losing a

million a day. i think we need to look at what is happening in refineries and what is happening to the u.s. energy demand. u.s. demand for oil is down 2 million barrels a day since 2007. the 10% drop in fact our demand level now back to what they were in 1997. so, that is a part of the context in which it is kind of rebalancing the talked-about. at that time it's the largest independent in the united states the refining business has always been difficult. we are in a situation now we have the decline in product demand and if you're in the east coast refineries dependent on the light speed crude to make the gasoline or acquisition costs are higher but your pressure on the back and because there's a lot of competition.

especially the last two years while a lot of the refiners reduced dependence on the crew. there were nigerian which is the same that a lot of the europeans were at the times of the acquisition costs necessarily rose and they were losing a million dollars a day which is difficult to do. there's one offsetting factor i know in the case they intend to keep the terminal facility which means the intent to continue to supply customers, so it won't be all of their customers a suspect contract customers will continue to get products and working out arrangements for that. there are space customers that may be in a different situation, and then the logistics. towns paul talked about the deliverability issue is important. philadelphia has historically been a crude oil if the refineries are not of their to reproductive to change out the tanks and pipes and the pump and

storage facilities to move the products. new york is typically the refining center but to get the supply down to western pennsylvania and ohio probably in the near term so this will all worked out in time it's just over the driving season and might be a little difficult to read >> did you have anything more to add on this? >> just briefly it is an issue for the refineries across america and europe and those dissipated in a coup by the nature their impact of the nature of the refineries equipment are all under pressure, so it's not just an east coast specific factor. but the potential problems the share to its trustees are transitional to do with living from the domestic markets to the great reliance on imports. >> senator murkowski?

>> thank you. gentlemen, thank you for your testimony this morning to religious duty to explore more on the capacity. i think with you mr. horsnell you use the term remarkably limited when you talk about the global spare capacity and in previous statements to use the terminology ridiculously thin so any way you cut it there's not enough that is out there and it seems to me that when we are talking about politics of what is happening in iran and yemen and what is seen an increased demand in the developing countries, all of these things we have no control over the issues spare capacity is the key when we are talking about the impact on the prices and the vulnerability that we have coming from the energy perspective and certainly from the security perspective this

goes back to my opening comments in the production here if we were to bring on the two and a half million barrels a day and then responded by holding back the same amount as the qis resources come longline they are going to hold that would that not amount to greater spirit capacity in the system and potentially a cheaper price of oil? and i threw that out to any of you. go ahead. >> so, all things being equal, but the demand side of the ledger is also important, so the demand also goes up and of swords that extra production. you're right if they were to hold more spare capacity that's the question for when it goes up but of the demand also starts rising as the result of the

lower prices it isn't oecd demand expansion that we are seeing it's good to stay ahead so i would welcome any and all production that doesn't necessarily translate in the time to lower prices. >> senator murkowski i think your focus on the spare capacity goes to the heart of the matter before the book when i use writing it i spent a fair amount of time writing the hearings. >> sorry about that. >> another interesting and lively, but spare capacity was the kind of love that things came down to and if you look back when the prices went up in the last decade you look back at 2005 it was a spare capacity issue it was as tight as a clause in the 1973 crisis and when you adjust it for the fact the world demand is higher, and i noticed paul's number mr. capacity was even a little tighter than ours, and it's

worrying it's a market with a lot of flexibility when you have that spirit capacity so it is along with inventory one of the things that we need to focus on. >> let me ask in another way and perhaps dr. horsnell, you can weigh in as well. if they were to do what has been asked by some to put an additional two and a half million barrels a day out on the market, doesn't that then remove some of the spare capacities, and could that not act to create a higher risks premium and impact the price of oil because now you are in a position where yeah, they've done what we've asked and theoretically trying to help out here, but by doing so, you eliminate or certainly reduce the spare capacity that is then available, you don't

have that safety net if you will, and could that not have an unintended consequence of the increase? dr. horsnell? >> that is a good point. we are very close to that point where the column in effect to bring on more supply could very much be overwhelming to be listed on the more supply they did increase dramatically from this point. >> that's more supply that should be a depressing effect but spare capacity nothing left at all and i don't think there is very much on the market, so we are very much on the cusp where the further increases may not bring prices down much further. >> they have been brought to the minister's recent statements but probably take 90 days to bring

on. despite what could be brought on in 30 days is probably 1.7, 1.8 million barrels a day, but bringing all of that on the system and the capacity. so, dr. yergin said that would be -- >> my time is expired but i want to make sure i understand when we are talking about the spirit capacity it's not only what you have felt there was research if you will or additional supply, it is your ability to bring it on within a timely manner. is there any one other than the saudis that have that ability to provide additional capacity? >> nope. i think it's the little bit in a few other countries in the middle east. i think there is a little bit but there's no question that saudi arabia would be the major. >> general? >> senator franken?

>> thank you, mr. sherman. gentlemen, thanks for your testimony. we are currently working on this legislation to reduce tax loopholes of benefit of the top five oil companies to benefit them to the tune of $2 billion plus i hear. these companies and $137 billion in profits last year. let me repeat that. in a time of budgetary constraint, american taxpayers are subsidizing companies that make $137 billion in profits in one year and made nearly a trillion dollars in profits in both the last decade and we are looking to move again to hundred billion dollars worth of tax loopholes, and you would think the companies that have the privilege to trial on the land that belonged to the american people would acknowledge it's a little absurd to get a $2 billion subsidy from american taxpayers when they are making

billions of profits off of government land, and there are some in this body who claim to getting rid of the tax loopholes will cause gas prices to rise and they claim the companies will do less exploration as a result. but as it turns out last year they put $38 billion of their profits to just repurchasing their own stock. well again, the subsidies are only $2 billion. so, let's go to mr. verrastro. what do you think about the assertion that getting rid of $2 billion worth of subsidies will raise gas prices, what followed -- what do you think of that? will that raise prices? >> a couple of thoughts on that, senator. i know the subsidies have been

thrown around and the tax loopholes there are provisions the were put there for a reason. you can argue some of the more price sensitive. i think there's different baskets. the independence or a cash flow operations are taking away the expense of the geophysical process would make a lot of sense but do they need that money to drill their well? >> they are in a different situation and my sense would be the tax credit for example would be the big one for them. there's other things no one likes to get taxed by you make that point when you look at the quarterly or annual profits. >> these are essentially local subsidies. wouldn't it filed that if cutting bees would increase the price of oil than one way to bring the gas prices down would be to increase? why don't we let the taxpayers to pay more? >> i think the exploration and

production budgets are now looking under a certain basis. companies -- of the one of the big problems is the government role and stakeholders are different from the private sector so you have a fiduciary obligation. i'm not defending that you have a fiduciary obligation to get the best response for your shareholders some of that means reinvestment and repurchasing stock, some of that means putting money in research. i guess i would contest that on the ground of the -- >> all of you are saying that among the factors driving the price of gasoline are the demand in the developing countries, non-opec supply set back and uncertainty in iran. wouldn't lose in these subsidies to the top five oil companies have an essentially minuscule or nonexistent price of the pump. >> senator, if you put it that

way, yes. >> that's not what i heard from my colleagues on the other site. >> i think you have to put it in context. >> i just put it in and you agreed with me. so there. islamic in the course of what it would mean to substantially raise or lower gasoline prices, no. you're absolutely correct. >> let me ask another question. i will read in a letter to the minneapolis star tribune from the commissioner of the u.s. commodities futures trading commission matisses the story of the lawmakers say is a speculation that drives up gas prices to seek the balance given by the issues in regards to the impact of speculation in the oil trading. senator al franken and amy klobuchar of minnesota are right, however, that speculation has caused unfair prices. even goldman sachs in the research report last year acknowledges the fact of the

data generated by the st. louis federal reserve petroleum marketers association and others indicate that one of the major factors in the high prices is oil speculation, and that's why senator klobuchar, sanders and myself among others have introduced legislation on the commodities future place limits on speculators, and the commissioner has agreed. what do you think about? can you tell me what has happened in the last decade with respect to the ratio of the speculators and the users in the markets? >> i suggest paul r. howard may be better situated to answer this question. the to change to starkly between the commercial traders or money market managers. it used to be the commercial traders did a lot more of the exchange because they actually used the wheel that has reversed itself over the last decade and clearly money managers play an

increasing role. in 2007 and 2008 we actually saw in terms of dollars a lot of money in the commodities whether it was gold or silver or oil so it is treated as a global commodity. in terms of the impact of the actual expected that activity whether it is perfect driving the prices of orange after the fact supporting the price increases the cftc examination is of better data stomach going back to speak to that it comes up from someone else's question. >> senator barrasso is next. >> thank you. dr. yergin, i would like to ask about the strategic petroleum reserve. yesterday the financial times reported the obama administration is proposing the u.s. and japan and several european nations tap the reserve to address gasoline prices.

.. about using our strategic reserve before it's absolutely necessary. do you think it's appropriate to tap the strategic petroleum reserve at this time? >> i think option is still the word. i think the strategic petroleum reserve is a whole system of the international energy emergency sharing list that deals with

disruptions in major threats to gdp. and i think that we are heading -- if you listen to these numbers that have been used here today about spare capacity and paul described a high degree of geopolitics but what is different about the geopolitics this time, part of this aimed at reducing an important source of oil supplies on the market but that hasn't happened yet. it's not going to happen until june so i think the spr is a very important asset along with this whole thing but it's really there to deal with the disruption. there are a lot of uncertainties ahead. >> thank you and i also want to talk about the interview you gave because i read it from the u.s. chamber of commerce and he stated that the keystone, the keystone pipeline is really a symbol to the oil sands in the major argument against this. it has to do with carbon emissions. you also said the numbers have been misconstrued. you explain that a barrel of petroleum aid from oil sands in

terms the co2, you went on to say americans use other oils that also add about that same amount of extra co2 to the atmosphere. you said you hope the president's decision will be reversed i think by the beginning of 2013, if not before then. would you please elaborate on how critical you think the keystone in xl pipeline is to america's energy security? >> the united states and canada become much more integrated in terms of energy. canada is by far larger source of imports and happens to be our neighbor and the longest undefended border in the world. and the growth of the oil sands is really quite extraordinary of course from being something really significant and if you look at the well to wheels bases in the carbon footprint is about five to 15% higher and there is a lot of work being done to bring down that disparity.

what strikes me about the keystone in the discussion is that there has been less discussion about the security aspects of that and that if you look at the throughput that was passed, the volumes that would pass through that pipeline is equivalent to one third of iran's total exports. that's a big number and that is a world-class number. that side of it i think has to be part of the equation and part of the discussion. >> i also wanted to ask you about the epa's pending tier 3 recommendations for minors that will require further did -- reductions in sulfur in gasoline. there have been some ideas of how much that would impact and apparently the cost of reducing gasoline but increased by 69 cents a gallon. do you think it's appropriate to move forward with these regulations? >> i have not studied that so i cannot answer that. >> let me ask you one other thing then. i'd like to ask about the oil futures markets that have come up previously in the

discussions. in january this committee held a hearing on u.s. and global energy outlook. at the time ambassador richard jones the deputy executive director of the international energy agency testified with dr. bruce beck and others. besser town said the end invisible hand is also referred to as having held oil prices artificially high and yet detailed research he said has so far failed to identify a smoking gun in the commodities derivatives market. he went on to explain there is no clear link between futures market activity and oil price moves and quote evidence is slim surrounding excessive speculation. do you think these are fair statements by ambassador jones? >> i think from our understanding, there is -- oil has become a commodity asset class. of course the word speculation, if you are an airline and you

need a hedger, community speculator on the other side to hedge it did so that is kind of how it actually works but you know that is one factor but it's not the overwhelming factor. all you have to do today is look at the factors going back to senator murkowski's question about spare capacity, supply and demand balance and that is the policy of the u.s. government to reduce the flow of iranian oil into the world market. that is what the reaction is and if you are an airline, you are going to hedge herself against the uncertainties and i think i find that there is not a clear scenario about what happens but there's a sense of the great seriousness, a somber seriousness about these issues that on the table. table. >> thank you very much mr. mr. chair. my time has expired. >> thank you. >> senator begich. >> thank you very much mr. chairman and thank you all for your service. the thing i was wanting to know is, we are talking about oil prices and gasoline prices and what it means to people at the

pump and west virginia's close to $4. we are probably one of the states, the most rural states commuting for jobs. we have to say you have to drive to survive in west virginia. with that being said i'm hearing so much from all of u.s. experts that there is very little we can do any can imagine the frustration when we go home and people say, can't you help me? we feel frustrated. we think we can help by alternative fuels, coal and liquid and natural gas, things of this sort. it's not going to be the way you are trading oil but we have more control of our own destiny and we know the technology is there. secretary chu has said coal liquids with biomass really make sense and it does not leave a carbon footprint. it basically can work and it has worked. the germans basically perfected it and senator jennings randolph flu and airplane in 1942 from

west virginia to washington d.c. on liquids that the air force has tested. we couldn't get a bill passed here to use alternative fuels for our military which makes no sense at all and yet we are held captive via global market that we have no control over. i would like to hear and it might be hard for you but if i could hear from all of you, do you not believe that we should be changing and we could change the technology there and it could make a difference in the price at the pump? we will start in go right down the line. >> again i don't misinterpret your premise. i don't think we are saying there's nothing we can do. >> i want to go about coal liquids and natural gas in the transportation field. >> again that is the reason why oil prices are at the highest level. to create --

>> 1936. >> at 20-dollar crude they were not economic. we are now moving into levels where you can get most technologies to work economically think clearly that is where the price signal is given. those technologies -- >> do you think we should be developing those technologies and trying to move forward so we have more control over destiny as far as the price at the pump? >> do you agree that we are not going there because of the epa them because of all the different infringements we have on government? >> i don't want to say precisely. at a global level, progress in terms of fuels has been relatively slow. some of that has to do with economics and -- but it does take quite a long time to bring these things then and again that

is back to the all of the above. >> thank you senator. i am getting into some dangerous territory here and i follow paul's comments that there are benefits to be derived from ira prices and the first and foremost of that is a lot of these unconventional's wouldn't have been developed. shale gas would not have been developed before the fact that we have private lands ask with huge technology and 12-dollar gas prices in 2007 in 2008. that is what spurred the development. ultracheap water oilsands, the unconventional's, a lot of production is higher cost production and one of the benefits of reaching a level is not $125 but a higher level means you can bring on more production and moderate future. i agree with you on expanding the use of alternative fuels. i think the problem as paul has said is that gasoline actually does very well in terms of the

ability. it's portable and fungible and storable. >> we are running out of time. coal to liquid? secretary chu said himself that using carbon capture sequestration with biomass actually reduces the amount of carbon dioxide in the atmosphere. we know we can do it. we have the technology to do it. the epa and the administration will not help us move in that direction. >> i think part of the problem senator with all due respect in west virginia that on the cold side, the scale is enormous. i agree with everything the secretary said with those conditions is absolutely right but if we do fuel efficiency is 60 miles a gallon it will be difficult for anything to compete with the gasoline. >> if i could -- what frank said his cold wickets, i think the other side of natural gas, the difference is a year or two ago is natural gas is going to be part of the

diversification of transportation in certain types of vehicles and we will see the cuts with that. the other thing, think it's incredibly important what has happened on the demand side to go from 30 miles to gallant 254 miles to the gallon, that is going to happen so i think the efficiency part of it also -- speeches having control of our own destiny. we have no control over global prices of oil. >> i will be getting on the airplane with paul, but you know, i guess gas and light duty vehicles, natural gas, there was an effort to do that and it has been tried. it didn't succeed very well in the marketplace. i think there is a lot of interest in natural gas or heavy-duty heavy duty vehicles, ford trucks and a lot of interest in liquefied natural gas as a fuel for trucks. we are going to it included sensitivity case in the upcoming

energy outlet that addresses that. there's also a lot of potential for methanol from natural gas either as an additive to gasoline, not so much in the united states but we are using ethanol as an additive to gasoline. throughout the world the gasoline pool was used with methanol in the same way that they use ethanol in the states. there's a lot of opportunity to displace oil and there's probably a lot of opportunity for ethanol fueled vehicles. i think i agree with dr. yergin. >> i agree with dr. yergin that there are some challenges in the cost of the coal to liquid technology especially with private capture and sequestration. >> thank you. senator risch. >> thank you mr. chairman. first of all let me say thank you for your testimony. i think probably for people who are watching this, it's an eye-opener as far as how important the refining process is in all of this.

i think americans have a tendency to think about this is the price of a barrel of oil and they ignore the different kinds of oil that is out there but more importantly, they ignore the fact that once a barrel of oil is produced, there is a complex process by which it is turned into something they can put in their automobile and actually use and transport to a place where it can be used so your testimony in that regard is very welcome. i think as far as helping clear up this picture. again though it underscores the fact that the law of supply and demand is indeed a love. law. here in this town, with the politicians we find that a lot of people believe that it is merely a suggestion and unfortunately we have to overcome that from time to time. as you will know we are debating a bill on the floor right now and i come at it from 180 from

where senator franken comes at it. he talks about these awful loopholes and subsidies. language is an amazing thing in this town. when those were put into place they were called incentives, in order to get the companies to produce more oil and gas so that we could have, so that they love supply and demand would work in favor of the consumer. now they are labeled as loopholes and subsidies is supposed to spending so i appreciate, and appreciate your help to clear that up and i guess i come from this from a relatively simple standpoint. i don't know how anyone who has even the slightest understanding of economics can believe that by increasing the cost, namely the tax, that you'll you will somehow lower the price for the consumer. that absolutely boggles the mind. you can go into a long theoretical discussion about oh in the long run it will bring an

alternative fuels etc., etc. but my constituents are looking for price reductions today and you can't reduce the price by increasing the cost. finally let me say one thing. i appreciate your thoughts on the speculators. again, you need market makers. i think everyone would agree that unique market makers. am i right or am i wrong on that? if you are going to just buy from the producer, there is always room for manipulation. they have market makers. you get a free market that is very very difficult to limit. the problem that i have is limiting the speculators. how in the world and maybe you guys can answer, how in the world if we actually prohibit speculation in america, put a 25 year sentence, mandatory, on anyone who engaged in speculation. how would you stop that from

happening in another country? after all we make up only 330 million people in the planet has 7 billion. it seems to me they would open up tomorrow in singapore or somewhere else to do the exact same thing they are doing here. am i right or am i wrong on this? >> i think paul should answer some of that but i think definitely you know, we are part of the world oil market. we are not the oil market. we are the u.s. oil market and if you really look at these annual reports of southwest airlines, it's clear that without the ability to hedge the price risk, they would not have been able to stay in business. this is what their message is. someone on the other side of that and that is what future markets do, so if we didn't have these kinds of markets in the situation we would be looking at today, airlines would be taking their planes out of the sky and parking them in the desert because they were not agent --

able to hedge the financial risk. the markets have to be regulated and watched very closely but when you have a big trading commodity, people need to banish the risk. >> thank you dr. yergin. dr. said to you seem to be modestly from a year with britain. could we pass a law that would regulate the speculators? >> i think i would ring one further which is switzerland. i cover more the fiscal markets but particularly over the last couple of years it has been a very large movement out of london and into switzerland. some of the most important traders now are not swiss-based traders. that may be part of the process you are talking about. it's much harder to get full flexibility on an oil market

where it has shifted away from more regulated and into other areas. there are various shifts going on from new york and london into switzerland, and that might be an interesting development as the years go by in this particular area. >> my time is up. senator can i add just 1.? you talk about tax incentives and i think that's absolutely right. i think time changes and i actually think the debate would be markedly different if it was a discussion of corporate tax rates overall, that we wouldn't be in the position of subsidies and tax incentives. they there would be a balancing. they will call anything that has to do with corporations a loophole or a subsidy, so i would like to share your optimism but i don't. >> senator cantwell. >> thank you mr. chairman and

thank you all of you gentlemen. i have enjoyed this discussion and i certainly believe in market fundamentals myself and certainly believe in making sure that market fundamentals are policed, but i going to remember a time on this committee that we talked and talked and talked about what was wrong with electricity when enron was manipulating the market. there were a lot of people that thought it was 3000 things other than manipulation until we prove that it was manipulation and then everybody was like, oh its manipulation. the point here is what is the functionality of the market that we really want to see lex i was looking at your testimony mr. yergin, dr. yergin, but the financial is asian of oil in the commodities market. so i was curious as to your thoughts on this. at what point is really become a problem? it's quite clear the commodities exchange act made it very clear that the commodities future market would create over

2 million -- want to provide a remedy for consumers we had mr. tillerson come before the finance committee a year ago now and that was when oil was at $98 a barrel and i asked him, what should that price be? he volunteered, if you are basing it on the next production price for a barrel of oil, it should be he said between 60 and $70. it's clear that obviously, and we know that this is the process having both legitimate hedgers and speculators. there is obviously a fear factor that is driving it up and my question really is about the institutional investors that

make the commodities, treated almost like an asset class like securities. and so these are people who are not in the market for any other reason than to make -- they are not in the hedging for legitimate purposes or price discovery. they are there because of the great financial play and i am curious, at what point, at what price point or what percentage point to you think that is a problem? i don't mean the price of oil but if mr. tillerson is right in here is what he says the production cost is in a lot of people think it's 15 to 20% added on to the fear factor and obviously there things that happen on any given day but what price do you think that aspect class treatment of financial is a shin really becomes a problem? >> i think the financial is asian certainly has to do with what you were talking about, institutional investors or hedge funds who are in their regarding

an asset class. i think it's, when i use the term i mean something broader because the largest pension fund in the unit back in regards to commodities in an asset class. so it's not easy to say, two separated in two segments and if i understand the question you're asking -- >> i'm not asking what it is. i'm saying if i said, they are affecting the price by 50% or they are right in the price by 30% above 60 to $70 which mr. tillerson says is the marginal cost for producing another barrel of oil. so if that is what it is, and we know there are all sorts of other factors, but at what point do you think the asset class investment changes the commodities market and becomes a

problem? is it affecting 30% of the price or 40% of the fraught price? >> does it affect 50%? >> i don't know and i would say by the way the cost, you testified the cost of developing the marginal barrel has gone up somewhat and that number would be raised somewhat. but i think, you are asking not in terms of the current circumstances but at what point -- i don't have an answer for that right now and looking rather at the market and saying, based upon the fundamentals, are what is there and there is a premium factor in it but i don't know if you have a number in mind. >> well, i definitely believe we should get these asset class investors out of the picture. when i look at mr. horsnell's charden i look at the volatility

in the level of growth i start asking myself is it worth $50 a week more to the washington consumer driving to allow a bunch of hedge funds investors driver of the price when it hurts u.s. economy? i think the answer is no because the commodities markets are about price and supply, price and discovery. so they meet that market price for legitimate hedgers. allowing a bunch of hedgers to treat the commodity like they want to street -- treat the rest of wall street is a wrong idea for wall street. >> understand. the only thing i would kind of addis i think that point about, those markets were to leave the united states and not the -- i'd rather see these markets in the united states regulated but the kind of scrutiny they have been occurring somewhere else where they are not under scrutiny so part of the issue is that it's a

global market or krusbe i would add to that because i will bet you could get the europeans and the chinese and everybody has to add them. they have been to my office and i think it's amazing they come to my office, he even people from japan saying what can you do to get these investors out of the commodity market because they are feeling the pinch around the globe. thank you mr. chairman. >> thank you. senator portman. >> thank you is to chairman. i had to run to three hearings at the same time. one thing that i think struck me about your earlier testimony is we can't repeal one law and that is the love supply and demand and it's working right now and working to the detriment of folks at the level of the gas pump. we have a disconnect right now. we have a decrease in demand and we have supply restrictions. looking at your testimony mr. gruenspecht you talk about

prices being based on global supply concerns. mr. yergin you talked in your op-ed recently i saw but also your testimony today that sanctions on iran exacerbated by the fact that we don't have the spare production we should have, tight markets. other geopolitics and the focus on iran right now. the oil market is on the front page of the paper i think is what you said and i guess my question is this. given that is the situation, if we were to increase production in this country, all things being equal, don't you believe that would have an effect on price? >> in a very simple answer, yes and i think the increase that we have had in the last four years has actually been very beneficial because we would be

looking at much higher prices and a much tighter market without it. so what is happening in the united states both on the demand side but on the supplies sand -- side in the global market. >> the statement of someone made which is surprising to me but in the last few weeks we talked about this on the floor and so on which is u.s. production does not affect the price of gasoline. i don't see how that can be true if in fact there is this supply and demand reality out there. the second is, as you all talked about today, it matters as to where we are getting our source so it's not just supply and demand. it's where the supply comes from and increasingly from dangerous parts of the world is not a good place to rely on such as libya. i think it's not only supply and demand but is it also the fact that if we had more domestic production, and i would say even production from countries where there is more reliable source

like canada, that would have a positive impact on price? do you all agree with that or do you disagree with that? >> i don't think we are going to have sort of a separate price from the rest of the world. >> that is not what i'm saying. globally but in terms of the u.s. price and where we are getting our supply, does that matter? >> i think where we are getting our supply may matter but matter less for the price than for other aspects, security aspects and also production it is an important part of the u.s. economy for the jobs and economic activity. it's not just all a matter of prices. i think both supply and demand in the united states are part of the global picture. policies with supply and demand affect world markets directly and indirectly so for example the technologies we use for the fuel economy in the united states go to the rest of the

world and it could lead to a lower demand globally. that has a big effect. the same mr. on the supply-side. supply technologies are applied elsewhere so again this is mostly about oil but if you have something like shale gas which obviously had a big effect on the united states and the extent that those technologies are applied in the rest of the world, there is a significant indirect effect and the same for deep water technology. >> and hydraulic fracking and horizontal drilling is not natural gas. >> and tight oil prices. >> in my state of ohio, right now we have wet gas, dry gas and oil. it's about a futures market so it's about what the future might hold with this new technology. >> let me ask one more question and feel free to jump in.

i have only a few seconds left but in terms of this issue of effecting the price of gas at the pump on taxes, i look at what happened with the property tax and what happened in the u.k. and their experience. from a counter point of view, if you disagree with me, what's what do you think the affect on effect on the price of gas if taxes were raised by it oiled companies by say 25% over the next five years? would it have a positive or negative effect or no effect? >> centura paying more in taxes and less reduction you are reducing the cost. that's pretty clear. in terms of the direct -- >> so what does that mean? >> when you get to the point it increases production, it's a good thing. i think your assumption is that reduction, all seems to be

equal, more supply good for the world but there is a demand side as well. i don't know there is a definite guarantee to increase production if prices don't necessarily go down because we are 18 million barrels a day give or take demand and at 90 million-dollar a day world. we produce about 7 million barrels a day so you increase that by 400,000 barrels a day it's a great things in more than iraq is increasing. doesn't mean the fundamentals change all that much. so i just think we have to be careful. >> if you didn't have the additional -- >> i absolutely agree with that. the initial supply is terrific and it's very helpful. i think the concern is that this could be a dynamic market and there are lags that need to be made that to make the assertion that more or less production, unless it's a huge scale. two or 300,000 barrels a day,

significant, big contributor and great for the united states. it doesn't affect market prices. >> thank you gentleman. >> senator coons. >> thank you. thank you mr. chairman. thank you for the opportunity to be a part of this. in delaware, where i'm from, we have had success in reopening the delaware city refinery which was idle but there have been some difficult announcements in the past year by sunoco and conocophillips that they are either idling or closing three major refineries on the river in pennsylvania. in combination they represent half of the refining capacity of the east coast. chairman engemann and senator risch asked about capacity and how that contributes to price. i am concerned about trying to make clear whether or not the federal government regulatory actions have contributed to these decisions and the negative

impact that can have on employment and gasoline prices. whether these are the result of market decisions and private businesses. mr. verrastro? >> to quit points. i think we were due for a rationalization of domestic refining capacity in this country and point in fact, if east coast refineries are operating at 70% operation we will be better economically. i think we are going to be going through a bigger rationalization in the future for some of the reasons that the senators have raised about domestic -- this is lighter sweeter boyle and are confined areas are dealing with heavy oils and make a lot of nice products as a result of that but this is a big bill that is coming. in terms of refinery economics, you look at the total cost and the total value of the product or code argue that refineries

under siege with higher prices if you have an unsophisticated refinery because crude oil prices that you need and senator you talk about crude oil, light, sweet, heavy sour is not necessarily good and bad. when you are buying specific type of crude oil, you need that to produce the products that your customers demand so product prices are competitive in your crude oil cost goes up, that is the big driver. clearly epa regulations had an impact on the prices are going terms of cents per gallon. that is true. there is a cap ex-here. i don't think that was positive in the closure of those refineries. >> there was a study recently -- release that looks at the horst over the world of federal subsidies in shaping the industry market and they concluded that 94.6% of all

federal subsidies over the last century have gone to oil, gas and nuclear and roughly 5%, less than 5% in the development of oil fuels. does that suggest anything about what our path forward out to be if we are going to pursue and all of the above energy strategy and over the long run work our way out of basic higher gas prices? >> who did that study? >> gdl investors. >> i think eia has a very different view. >> thanks dan. [laughter] >> once you have canceled, but it is hard to put these things together. there are lots of different ways to slice and dice it. we try to do it -- i'm not accusing anyone of doing something else that we try to do it from a pretty neutral perspective. i mean, one can -- i'm not sure what period of time

you look at and how you measure some of these things. we have looked, we have done a series of studies including one pretty recently looking at federal subsidies. you know i think it changes over time. right now again, a lot of subsidies and support are going to, i don't know a lot of, one man's a lot as a another man's little. their support for renewable technology and their significant support for efficiencies. some of the subsidies like some of the subsidies for synthetic coal, transformed coal have expired so things change over time. you know there have been specific subsidies to both fossil and non-fossil fuels and to increasingly efficiency.

>> last question. i'm going to run out of time so if i could focus his last question. partnerships is one of the ways that financing will be available to build transmission pipelines to help with capital investment. that is not currently open to all forms of energy. would opening up existing support support master limited be a possibly sustainable path forward to broadening our energy? >> again, i haven't started that but i think in terms of wind farms it might be a reasonable way to do it. if i can just go back to the subsidies, i think what senator risch said that word goes back and forth. i did read one study on the subsidies and gas into sham by far the largest one was the tax credit. i then checked the footnotes and

there was only one footnote, which i know very well did just the opposite thing so i think is howard said, how these things get defined are really, lead to very different conclusions. >> thank you. >> thank you mr. chairman. doctor i will probably start with you but i will refer to comments each of you made talking about the supply and demand equation. will demand is going higher for crude oil and for energy in general. and so, we have tied or very little spare capacity in the crude oil market, so that, there are two aspects of that. the supply and demand equation creates upward pressure on gas prices today. but also then there is the anticipated future situation, if we know we have growing global demand and ran it ran not going to supplied that creates upward

pressure on gas prices as well. doctor, is that accurate so far in terms of reflecting your statements? okay, so my question to you and to the others is, so if the has policies and if his congress has policies that allow more access on shore, onshore drilling and offshore drilling on federal lands come if we allow more access with with that tend to help create more supplies and with that tend to reduce gas prices both in terms of actual supplies to produce more what but also in terms of arcus signal saying hey we are going to try to produce more energy? >> i think the increase of supply would have an impact. here i have a price disagreement with frank. if we saw the increase coming out of iraq or some other

country would be thrilled. that is quite a significant number of arrows coming into the market when every barrel counts and i think this kind of, what frank describe this change, both psychology and outlook in the united states that we have a more resource rich opportunity here than we thought a few years ago. it just does not happen overnight. >> but there there is both a media supply and demand equation but also anticipated in terms of where we are going. that affects outlooks in terms of raising decisions and also drives prices as well. for example if we have policies that provide more access onshore and off, then for example pipelines rather than blocking pipelines, logistics. one of you referred to the viewpoint of logistics further. streamlining rather than adding

regulatory red tape and reduce regulatory burden rather than adding regulatory burden, wouldn't those types of factors send clear signals that we are going to work to expand supply and the market would take that into effect in price? i would like each of you to respond to that question. >> i think yes and i think one of the things you pointed to is the expediting of decision-making would be very valuable in committing capital and making the best decisions for giving them the confidence to go ahead. >> dr. gruenspecht. >> my answer to senator portman's earlier question is they're probably both effects is where i would stand on that. >> you would agree that if you take a whole range of steps to increase supply, that would tend to help in terms of downward pressure on prices versus a whole range of steps that constricts applied would tend to create an upward pressure. at that generally be true? >> all else being equal, it's

true. >> very good. thank you. mr. brazeau. >> part of the issue is timing so there is difference in a currently tight market, if you bring a lot of barrels to bear immediately and that has a big impact saying you're going to do something that results in production and even five years down the road has less of an impact. and if you can clarify a think i am in the same boat. i believe i am not downplaying. production of three or 400,000 euros a day is an always enormously help will. >> but i want you to respond to my question. see you managed to describe it so thank you. i think a couple of things. i think should i pipelines spilled, and some people are willing to put up $7 billion to build a pipeline and oil sands to the gulf coast and saying absolutely. >> that is a great place to start. thank you dr. one -- dr. gruenspecht.

>> there is between seven and thousand barrels a day and 1 million barrels a day excess capacity rail and pie. there is no limitation on what is coming down from canada and probably won't be until 2016 so i don't think it's a national security issue right now. >> but there is a big difference when it is hauled by rail when it adds a significantly higher cost to it and there's also the issue of canada being, having the third-largest oil reserves in the country and the question whether we will develop them with things like better and our mental search of similar to conventional products going offshore. but i do want to give dr. horsnell a chance to answer as well. >> the expectation of the supply situation may improve into the midterm and a something which starts to anchor longer-term price expectations. and there does seem to be much more stability longer-term price expectations over the last year or so but most importantly 9200

is a good long-run price. that technologies do come on and so for anchoring the long-term does not bring it downward pressure on short-term price is. >> our expectations are changing >> i'm over my times it just very quickly, would you agree with that logistics are important building pipelines and making sure we can access oil? would you agree that those logistics are very important? >> debate billed as the next thing that is coming. >> so you say it's very important to do that? >> yes, sir. >> i noticed on the agenda the canadian energy research industry which has a conference every year in calgary. very clearly saying that they wish to develop their resources if they can get the pipeline to

come down south and they will try to build it out towards the coast of two southern china. the pipeline logistics are absolutely critical and long-term trade matters. >> thank you doctor. >> thank you. we are in the middle of a vote so i'm going to the floor to vote. senator wyden is arctic voted and returned and senators shaheen go ahead with your questions and senator wyden will conclude the hearing with any additional questions he has or any other senators. >> thank you all very much are being here. >> thank you very much mr. chairman. i listen to all of your testimony earlier and i am confused i think as i think many of my constituents are, it supplies up and demand is down, why are we not seeing the markets react? why why are we seeing gas prices go up so precipitously and you know, appreciate the geopolitical impact on prices, but why is there not some

leavening impact of having demand down? dr. gruenspecht? >> oil and oil products on the global market, demand is down in the united states as has been discussed in the hearing. globally demand is still rising because of the developing countries and at the same time there has been discussion by my colleagues of some of the supply issues, so i think that is the answer although it's not what your constituents would obviously like to hear. >> the dotcom it does speak to the fact that given that, even if we dramatically increase supply here and reduce demand, we are still going to be at the whim of what happens with the global market. >> well, i think one thing to say about that would be reducing demand, you know, basically if we are not going to get there easily because of oil that does

a lot of good things. heats or homes and we drive around with it. at but the bottom line is, if in fact one can find alternatives or displace oil demands than you are less at the whims. in terms of supply, contributing, we are a supply and they cringe riveting supply. >> i think that if you go back to what happened in the mid-19 80s are supply went way up and our demand went way down. that was the big factor that led to the real crisis coming down. what happens if the united states really does -- we are still the largest consumer but part of the global market. but if we make a big shift and we continue to be more efficient and are supply increases, then that will affect the prices that your constituencies pay at the pump and what they pay for heating oil. and even you look at norway,

which has much more oil than it needs, it still pays to world prices because it's one market. if we were 110% self-sufficient, it would get different game. >> mr. barrasso, i was interested in your policy model, the triangle that has energy efficiency in the center and i will tell you i am particularly interested in this because senator portman and i have legislation that tries to incentivize energy efficiency in our building sector, throughout the government and our industrial sector. i wonder if you could speak to the importance of energy efficiency and that model? >> sure, senator. when they try to compare security, availability and affordability the only sweet spot was you can get all of those efficiencies and is grossly overlooked. i think it's better in the united states than it is a lot of places around the world. is true that a barrel here on

the beltway is the equivalent of the barrels saved in china. i don't think we pay enough attention to it. it's difficult to get your arms around it because there are state and local codes and error disincentives between for example winters and the people that own the building. in new construction i think there is a way of doing it but the regulatory structure needs to be overall this well. >> actually our legislation has voluntarily building codes that have incentives and i incurred states to adopt them. i appreciate the point you are making. dr. yergin, the new hampshire legislature has just, has just asked the public utilities commission to look at the use of, the growing use of natural gas in new hampshire but the concern that, as we have in the past and over reliance of on oil and coal, there is some concern

that we might become over reliance on gas and i wonder if he could speak to that in light of the new reserves and whether there is reason to be concerned about that or whether we should be looking, whether we should be looking for a diversified portfolio? >> i think a diversified portfolio under any circumstances, to go back to your previous question, i talk about energy efficiency and indeed we are twice as energy efficient debt in the country today as we were 20 or 30 years ago and we have to be come price efficient again. i think a lot of people have raised the question as we have seen a shale gas development over the last five years, is this going going to be another cycle? are the supply is going to disappear? i think progressively you have seen consumers, industrial companies and utilities more and more confident that their is major supply here in that supply is going to continue and for not going to have another one of

these whipsaw but prudent see says that don't put all your eggs in any one energy basket. >> and we should pass energy efficiency, right? >> absolutely. >> my legislation was senator portman. thank you all for your testimony. >> thank you all very much for being with us and apologies that it was so hectic to see senators running, trying to keep up with hearings on the floor. i read all of your testimony last night and of course we are lucky to have all four individuals with lots of expertise in this area. i come to really try to zero in on a couple of factual judgments, and it really stems from some of the discussions you and i have had, dr. yergin, with respect to changes in the energy business. let me ask specifically about the oil futures business. when i look at the numbers, it

seems to me that there has been a dramatic change in the last four years and i want to just see if we can get on the record if you share that view. it looks to me like four years ago, the noncommercial traders, the person who is in effect called the speculator, these traders left half of the futures contracts for crude oil. a number of years ago we were talking about people who held these futures. they were trucking companies. they were airlines, these kinds of people who were not traders. now today, according to the chairman of the commodities futures trading commission, these traders now account for 85% of the crude oil futures market. and i read in your testimony

last night, and none of you touched on this factor. the changes in the oil futures market. i think the first question i want to get is to go right down the row. do each of you believe that this change, in the significant number of traders, commercial traders in the oil futures market, just yes or no and go down the route. >> maybe is not allowed. >> i actually think it's a legitimate question and one that we are very interested in but you want a very short answer. >> we are not opposing any in a gag order is. >> one of the questions is, first of all there's a lot of, because someone has a title for how they are categorized as an

organization does not necessarily tell you what the motivation is behind a particular trade is one question and the other thing is there's a lot of activity that goes on that are not included in the data. but i would say the general perception i would tend to agree with you, that there is a lot more activity. >> we are just going to try to -- i am going to ask him questions. dr. yergin. particularly for you because you have educated me on the fact that there are a lot of changes going on as we speak. because you all did not touch on this one in her testimony, just want to see if you all share my view? >> i think yes, it's a significant change. i don't think, based upon our understanding today, that it is driving forces to a -- when there is a crisis with iran in 1979 and 80 there were no futures markets in the price also went out very sharply.

so it's part of the mix and a very difficult part. >> senator, we the reason we did go to detail into detail on any of her testimony as we had a second panel with the cftc come come -- i agree with what howard and dan said. i think there has been a change in the market and i don't want to characterize it is necessarily good or bad. there are new players. it's part of what we are calling the new fundamentals which used to be supply and demand and in the tory. it's a lot more complex market. >> i think the reason it highlights the testimony is where reasonably happy with the explanations as to where prices are and the way they behave. there is not a big residual left so in that sense i don't think that change makes a difference

to where the price is today. this is a great american business success story, the success of liquidity and deepening the involvement and to meet liquidity is a good thing. this is a significant part of the very large global market that makes up, which has all kinds of other bids on properties. seeing more liquidity to regulate the exchanges, again this should be seen as good news to see activity taking place where i can see it. so i don't think it's a problem in terms of increasing prices. one further thing and just to go back, to think we need to draw a distinction between institutional investors and hedge funds. >> let me see if i can get one additional question in. goldman sachs produced an analysis with the speculation premium on crude oil could be $23 a barrel or 56 cents a gallon at the pump.

the consumer federation produce their analysis including speculation as 20% of the price of the pump or roughly 50 cents. year ago as we discuss briefly earlier, the exxonmobil ceo stated that speculation had increased the price of a barrel of oil by $20. now, can i just get a yes or no with respect to this question, whether you think these analyses, all three of them, all three of them agree that there was based a curative premium for a barrel of oil. i would like to know whether the four if you think that all of these analyses are wrong? go right down the row and take an extra minute. there were three separate analyses done by three different organizations with different philosophical roots and all of

them concluded there was a speculation premium. i would just like to know if you think those analyses are wrong? just go right down the row. >> i would want to read the specific studies before i commented on them but i think a lot of the issue, sometimes a different assessment, the role of speculation has to do with the standard of proof for the burden of proof that is supplied. if you apply an innocent until proven guilty beyond a reasonable doubt standard my reading of the lecherous a whole, not just the studies which i have not read is that speculation would not be convicted. if instead -- beyond a reasonable doubt that some jurisdictions use when considering whether to exonerate convicted prisoners, speculation is probably not going to get out of jail anytime soon so you know know -- >> i'm going to take that as a no.

>> i've a feeling that different people have the discussion are applying different standards of proof and that is the issue as much as the competition of these different results. >> dr. yergin? >> oil prices and gasoline prices are up 40% with iran's degree program so i would not call its speculative. i would call it a risk premium or security premium but there is a premium that reflects an increased anxiety in the market. >> and not surprisingly i agree with both howard and dan. i think there is a premium in the market over and above finding a developing cost. i would like to see what the studies are in the definitions are really important. >> likewise, it's a no for me in the studies still sound very plausible. ..

because i will tell you i don't just operate under the assumption that somebody with a xerox machine can turn out a study in the dhaka to be what we make public policy but when you

have this cross section of the groups and individuals representing such a wide array of the philosophy saying there's a significant speculation premium, that's something that has to be addressed by policy makers. i gather that senator murkowski was here but she has had a turn. let's recognize senator udall. >> gentlemen, this has been informative and enjoyable. i've learned a lot, i think we all have. i want to piggyback on what senator wyden pointed out and that is we ought to be realistic as policymakers in washington we're going to see a risk premium that built into the international markets. i and dewaal agree and would be who've all of us when we start talking about the hockley oil prices for gas at the pump and

we've become outraged. for the most part here in washington we've citizen our national security interest to squeeze iran and as a part of the process, we can anticipate the gasoline prices are going to rise. we have to be straight with the american public that that is in part what has happened and i do think that senator campbell made a good points about the difference between legitimate hedgers and speculators. it would be interesting to speculate between the two but in that context i wanted to follow-up on what she began to elude to which is international global energy markets. can you will address how the u.s. can support competitive global energy markets how do we work in the international community so we can reduce payment of the pump not just for our citizens because some measure cantwell pointed out, japan, the europeans and the

chinese. i've been pushing the state department and the u.s. tiahrt to see what they can do to use all options diplomatic to help stabilize prices in that arena >> we can do that. not a policy agency but i will point out that the state department is establishing for the first time i believe a bureau of energy at the assistant secretary level i believe that's an initiative the nominee has been nominated and had its hearing recently. i think even before that there is a lot of outreach. i know in the shale - syria there's been a lot of international outreach not done by us, done by the state department but sharing technology and there's a lot of interest and invest how more in

companies and horizontal drilling and fracturing, hydraulic fracturing operations in part because they would like to gain some experience to the extent that plays out in the sort of tight oil which has been discussed at this hearing in part that's available in the united states in a big important change or leading to some of the increases in production in north dakota and some other places in california as well if the technology becomes more globally available as one would expect it will. maybe tight oil will become global and that becomes a much opportunity to change the supply demand in the oil markets i think there's a lot of opportunity. >> the same thing here to the extent that vehicles are more

efficient globally. there are other markets around the world things we can do to disseminate technologies that either increase the supply or reduce demand. seems very important to me coming and i know that the state department and others in the government are very interested in that. >> dr. yergin, i know you've got the answer here. >> hardly but i think what you are also talking about is encouraging others to have open markets to investment to make the investment i think what else you are suggesting is part of our trade agenda would be very constructive to this. that gets more supplies to the market and more quickly. spec augmenting with my colleagues have already said,

there are two additional pieces. when you look at international institutions, i think the use of the international energy forum and the bilateral arrangements i think by bringing saudi arabia to the g20 helps in the post will be in conflict. there was a day in july, the either the end of june or july we have a secure room to the co security forum and was the same day as the opec meeting, the minister described as the worst meeting ever and there was concern about the u.s. government expressing concern they didn't step up to the table and increased supplies if, so venezuela and iran, the saudis at police stepped up and said we want to balance market so we are diluting the impact of both by actually bringing responsible players in the g20. i do think get a senator, you talked about this before, the

iea sharing arrangement means an overhaul in terms of obligations and how we identify stockholding and things we do in the joint basis at how we engage china and india. >> do you want to bring the perspective for us? >> there are circumstances there is a foreign policy aspect and that surprises people the biggest supply interruption is the situation in south san. they are working with the idf

working with jody in proving that transparency of the global market is always an extremely good friend it has been addressed in recent years for energy policy to come in a utility vehicle unilateral and bilateral response it would work better in these kind of the aspects and it's been worrying perhaps a little bit over the course of the last couple of months u.s. senate encouraged to have an energy bureau and that is the difference to have that

as a clear component in the policy. >> i'm sure there was driven by senator bingaman and senator murkowski who led the committee. i would propose it to my colleagues to be produced in the last congress and we would see a lot of positive ripple on this topic we are discussing today. the plug on the energy bill let me ask since the good discussion here about the role of speculation and going to ask you to speculate just a little bit here. what do you think the response in the market would be if there were a commitment here in this country to bring on a million, 2 million barrels a day, even if we recognize okay as a and b5

years before we actually see that out in the market but the commitment to say whether it is an opening or whether it is a substantial commitment to additional production even though it's not here today, how do you think that impact the market? >> dr. gruenspecht? >> i would have to go on a plan all the way to australia. i think it really depends on the amount of oil from the nature of the commitment because a lot of commitments -- >> let's assume for the discussion it would be the real commitment of a million barrels a day. >> i think over ten years only modest price impacts would be expected crinkly if supplies from drilling in one area like the united states is offset by reductions in supply from other parts of the world which is another -- something that could

happen, or the demand is relatively, you know, more responsive to changes in supply and it is more price responsive over a longer time period. so the short run, the million barrels to market is a different thing than a million barrels ten years from now both in terms of offsetting responses and in terms of the demand response to reduce the mcginn modest impact on prices today. >> modest impact on prices but a lot of economic environmental and geopolitical benefits. i mean, those are the things that can be more confident of. >> what about the rest? dr. yergin? >> you know, looking over with iran right now writing to you can sort of see a change in expectations occurring in other countries and participants in the market as they see the u.s. instead of being in this inevitable decline is on an upsurge in its demand is going down, so i think it's their.

and to use -- to vary on what paul horsnell said it would anchor the expectations. obviously it's not -- it has to be credible to see it coming but i think even now things that can increase the sense of confidence, what we need -- and this goes back to senator wyden's question on the premium if there is a greater sense of confidence, and it can come from many different directions, it is an ingredient that would be helpful in the short term. >> i am more in line with the comments. the value add here moving to the unconventional, since we are doing it first if the u.s. can demonstrate they can get it right in terms of shale gas and tight oil production, it has huge implications throughout the globe and if you're looking at

the balance coming you can increase the volume by huge numbers. i guess the next piece is a kind of great alana. it's what do we want to be? when we increase, i know the environmental community gets very upset when you talk about 200 years of natural gas because if you look to move to the lower carbon economy that delays the reckoning date. there was a sense in terms of the narrative being consistent that if you're on the path to the clean fuel economy because you were running out and prices for get higher in volatility was increasing that gave additional impetus. now you are on a fast and abundant resources and you develop it, you extend which probably needs to be extended what the life of conventional fuel. they are cleaner and safer but they go on longer and in my mind it gives breathing space to figure out the next step because we are not there yet. >> i'm going to ask you a more specific question if i may come

and this is my last. but i wanted to ask about one because if we talk about the potential for anwar, it's not going to have an impact because you won't see production online for the period of 18 years under the best case scenario, therefore don't even start. i don't accept that logic and i do think it helps bring exactly the confidence that dr. yergin has mentioned. the last question for you is if you can share with us a little bit of the experience great britain had a couple of years ago faced with high gas prices they made a decision to increase their taxes quite dramatically. we just came from a vote that would attempt to basically do the same effectively increase

the taxes on the oil and gas industry. you have now reversed that position because it's my understanding and the two years since the increase in taxes what you have seen is a tripling of the decline in production in the u.k. in the past few years, so you are just reversing that. can you speak to the experience and what led to the decision to impose the taxes and now to reverse those? >> yes, and i would say the tax increase was greeted by the industry with a certain amount of shock not only just because it was a tax increase, but also because it made the whole fiscal regime somewhat unstable. it was a surprise making some very long-term decisions on how to exploit the declining phase

and then finding the fiscal regime is bounced around. it certainly meant in the occasional polls that people ask what is the most dangerous or what is the best place to invest in the the worst place to invest i think the government was surprised to see the u.k. was close. the stability was being undermined by some of the fiscal instability. >> so in a country like the united kingdom you respect up against other nations like angola saying you are a bad investment opportunity? >> yes, and we did that in the investment making the best of the last stage but it did appear the capitol could be employed elsewhere and the rate would

stem the prospect of any migration to make sure they continued. there was part of the reversal running through. in terms of the broad sweep of what's happened, i think the instability of the tax regime was something that would impact that investment. >> thank you. i appreciate the fact that you have come all the way to be part of the testimony this morning. a very credible panel and you've certainly enhanced that credibility. thank you mr. chairman. >> gentlemen, let me leave you with one other kind of thought because i know not just this committee but others in the country are going to ask your opinion about some of the policies we would have to address in the days ahead and buy restore the judgment and come to the hearing to offer the idea that to get a good public

policy, you've got to get your arms are at least around the common facts. you may not to get everybody to agree on every aspect of the factual situations. you got to find ways to get the common ground on some of the facts. i serve on the intelligence committee, for example, and i certainly share that iran as part of this debate. there's no question about that. but i'm reluctant to accept the idea that all of the risk is the situation in iran, and that's to a great extent you'll have guided much of this discussion. you look for example of the fact that goldman sachs practically

invented the commodity index fund. these are people through about the impact and have played an enormous role in the sector, and they produce an analysis suggesting this pick a lot of premium could be $23 a barrel or 56 cents a gallon at the pump and you have the ceo of the largest wheel company stating the speculation had increased the price of liberal of oil by $20. a cities are significant judgments, and i hope as we go forward we can continued the discussion and i know a number of you said you haven't had a chance to look at the studies, and i respect that.

but i hope that you will. i would like a very much to have your judgment with respect to whether you think those analyses are wrong and i want you to know somebody that's been on this committee for quite some time on am prepared to accept the proposition based on my work here and on the intelligence committee the situation in iran certainly part of the calculus. but i don't buy this year use that this is the entire concern that we are dealing with, and i hope that you will take a look at the studies because it was the fact the there were getting the facts and doing their homework and the fact that all

three of them reached this judgment to me has got to be a significant part of the the date. if we try to at least see if we can make some common ground to make policy, and i am prepared as a part of that to acknowledge there is no question that the situation in iran is a part. dr. yergin, your colleague had his hand up -- too if ntia is very interested in this topic, and that's very important to lay out. in 2009 we watch in energy initiative, exactly what the am assessing the influences of the activities and market such as speculation, hedging investment as well as our traditional fundamental work. we produced a website, the energy and financial.

we are very interested in increasing the evidence, the body of evidence so to speak. we update the lanham monthly basis and a brooch to give their the researchers in the area. i know there is pete paray professor ingalls en la carless de captivate could carnegie-mellon need to understand the link is in and want to carry a bridge with other agencies to improve that both of the data in this area which is a lot of the mission and the analysis in this area has been as far as recently jury interested in this. he has great expertise in this

area. this is not something we are ignoring and sent to me the eia has never said its song. it is a critical issue and want to be. i do think the standard of proof people apply had a very. that is where their role would be. i think that what you are describing has been quite marked since 2005, and it's important to understand it affects the oil market. weddington terms of facts on the ground there is a general agreement that is a premium and its.

the policy of the u.s. government, the policy of europe is to drive on the market. the second factor is we have a very tight market any way that it is reminds me of 2005 and the eve of the crisis and we were using a number of 750. i know paul's number is closer. so, it is iran. the concerns there. at the other hand it's also this is all occurring in a rather tight market to begin with, so that is certainly part of food. assuming those maritime the

verrastro en in my judgment on this. in the capacity they are now engaged in a major drilling program to expand their capacity sandra's reporting. it's obviously going to be continued on the question of capacity come on the question of iran and speculation but i want the four of you to look tough year. those three studies, the goldman sachs analysis, the consumer federation of america, and we can get you that led the

exxonmobil ceo that increased the beryl and i would like to hear from you, the recognized authority is in the field. i think that iran is a factor. charlie and follow almost daily what is happening in the capacity area. but it is hard to walk away from these judgments from three people who've spent a considerable amount of time all of whom concluding there is a significant speculation premium, so the door is going to be open to you, and i would be very interested in your reaction. gentlemen, if you have something strongly you feel about otherwise i think we've got to wrap this up.

would either of you like to -- >> i would be very happy to take all of those organizations on that point because i think they are wrong -- >> i got the drift on that. >> i wouldn't like to have the impression that they represent a majority of the views or the consensus colin analysts. it's a minority view and i think it is incorrect based on faulty analysis. >> that is why you are welcome to show why people like goldman sachs are wrong. all right, gentlemen, we thank you. you've been patient and with that the energy committee is adjourned. let me also say for the information of all members, questions and additional statements for the hearing are due by 5 p.m. tomorrow, march march 40th. [inaudible conversations]

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>> on or about for the november november 21st, i asked the head level poindexter treacly does the president no? he told me he did not. november 25th, the data that i was reassigned back to the marine corps for service the president of the united states called me to read in the course of the call the president said to me words to the effect i just didn't. those are the facts as i know

them. i was quiet when you introduced this you said you wanted to hear the truth. i came to tell you the truth, the good, the better, the ugly to refine your total, pleasant and unpleasant and accept responsibility for that which i did reply will not accept responsibility for that which i did not do. their force officials have yet to find the root cause in the problems involving the f-22 fighter jets. from 2008 to 2010 the u.s. air force experienced more than a dozen incidents involving the aircraft to recommendations from the investigation character they're forced to modify the handle that engages the emergency oxygen system and its entire fleet of the f-22 fighter jets. from the pentagon, this briefing

is about 50 minutes. >> ladies and gentlemen it is my privilege to welcome the general retired gregory martin, the chair of the air force scientific advisory board. manor majeure kimber of deputy steve plans and requirements include major general jul and air combat commanders director of operations. the gentleman on the panel represent nearly 10,000 flight hours of aircraft and extraordinary depths of experience to discuss the f-22 study in the way ahead. the review to prevent an update

on the scientific advisory boards to the end of life support systems installed and to discuss the f-22 operations since flights resumed in september of 2011. >> major general jones. >> good afternoon and thanks for joining us. today's update is of great importance to the air force and you, the media. the progress is the scientific advisory board, the study on the f-22 generation system. we understand your interest and agree with the attention it's received and we hope today's section will address your questions. the f-22 aircraft and the people that fly and maintain them are the national treasure. no other aircraft can match the combination of speed, stealth and maneuverability. it's integrated avionics and able to operate and survive and hi threat environments. simply put, there's no other

fighter in the world that can do what it does and the airplane capable that is crucial to the national security now and into the future. last year we determined the pilots were having and explained in flight physiological events at an unacceptable rate, and we took action. secretary of the air force donnelly asked the scientific advisory board to conduct a study of the oxygen generation system and some of the best minds in the nation were assigned to this task including scientists, engineers and medical professionals. they were led by the air force general retired greg martin, we are fortunate to have with us today. the team worked together for seven months investigating the incidents and the aircraft. general martin briefed the secretary and chief of staff on the air force on the findings and offered a list of recommendations to consider as we move forward.

the findings and recommendations are available in the media pack it in the journal martin will explain them in further detail today. general martin? >> thank you for giving us the opportunity to share some of the insights and lessons we learned as we went through the event. i was the chance to study the erfurt scientific study did known as the generation systems. i'm not the chair of the air force edify this report but rather was the chair of the study and what i will do is lay out the foundation of the study and its formation, a little of its process, some of the recommendations but i think you have in your package complete list of findings and recommendations so why won't go through each of those with you. first respect to the formation of the scientific advisory board from 2008, actually come april 2008 until may of 2010,

the air force experienced 14 physiological incidents with a fleet of the f-22. each of those incidents was fairly investigated through the normal air force safety investigation process these. but of those incidents as a result of the investigations done didn't reveal a route calls and the point general jones mentioned is what concerned the air force. in terms of numbers at the time of the last incident the airforce had flown about 100 fells and a worse in the fleet so that equates to one unexplained incident about a freakin' del suncoast were about every 9,000 so that gives an appreciation for how often an

event might occur. nonetheless, those are relatively low numbers it was the unexplained nature that caused their force concern to establish a broad area of review of the scientific advisory board took on. leading up to that chart for the air force board in january of 2010 as a result of the incidents that have occurred up to that point, a special class safety investigation board was commissioned by the air combat command, and the major general at that time ran the team and put together what i would consider to be in that form the nucleus of the team we worked with throughout our seven months

to try to get to the bottom of the root cause for the instance. in the time frame as he was presenting his updated brief to the chief and the secretary and the commander of the air force experienced three incidents in the f-22 between the last couple of days of april and first three days in may and at that point chose to grant the fleet. it was during that time that based on the investigations he had run and the test, fairly significant proposals of the crunk test for the life support system it was his recommendation to the chief and secretary to the established the broad area review team to the good things besides the f-22 life part system as it is but rather how it got -- what was developed, what decisions were made that

led to some of the incidents that perhaps had occurred, and also to ensure we better understood not just the f-22 on board oxygen generation system and life-support system, but also to take a look at the other aircraft that used the oxygen generation systems to determine if there were lessons learned that would apply to those aircraft as well. as a result of the recommendation that secretary chartered the advisory board to take the steady on and listed on the generation system. the charter was developed, and in june of 2010 the team informed and i was asked to chair it which i did and i informed the team to reach we have nine members on the team and we can go into details on these people what he would like

leader. bible and read the charter but i will tell you there were three main thrusts. there were several tasks given the three main thrusts to determine the causes of the philosophical incidents and safely returned to the normal operations because as a result of those incidents that occurred at the end of april and early may the fleet was grounded. it and understand the circumstances that may have led it to experience an unusually high rate of unexplained physiological incidents and make appropriate recommendations to preclude similar circumstances in the future and then review the other aircraft as i mentioned using onboard oxygen generation systems to determine if there are lessons learned so that is the gist of the church. at that point as i mentioned we had nine members that trend the team but we worked hand-in-hand with the safety investigation board which was a formal divorce

process for investigation. the scientific advisory board doesn't get involved with ongoing activities. they usually take a long-term perspective but they also have residence on the of war as well as access to some of the greatest minds in the nation to work problems. we were asked a woman to the long-term perspective and the organization procedures but also determining the root cause. we were able to work not only with a scientific advisor board but the system program office and air combat command we will hear about in a few moments. it's a major commands and their force as well as the navy who uses the on board as well and several of its aircraft and what i would consider to be completely club credit relationship with the primary

manufacturers in this case lockheed martin and all of whom were in my view focused on providing the people we needed and the assets needed to get to the bottom of the problem. we also took the results of the protest that the general and his team had run and his recommendations for the dynamic tests because some of the things that were occurring in the aircraft in the incidents happened in the air couldn't be repeated on the ground and during what i would say is a challenge to test to the life-support system and the on board oxygen generation system, the believed that the needed to special the instrument benet 22 integrated in the air to determine whether we could find repeats of the incidents and get the root cause.

as we took the basic results and recommendations for the flight test, worked through those in detail and established a flight test series of protocols for measuring the system we had if you were to see the picture over 40 installations on matter plan to try to understand the entire process of producing oxygen for the pilot. as a result of the work on the initial look at the data as well as the design of the flight testing i would say two things were important here. one, we developed a series of policies that could be broken down into the to maine hypotheses. the generation system is not producing enough oxygen for the circumstance the pilot finds

himself in that moment, select of production. second, for some reason the on board oxygen generation system and environmental control system that feeds it, there that produces the oxygen from me be in putting some contaminant that is getting through the generation system and perhaps denying the pilot in normal function or the ability to a loss of oxygen at a normal rate so those were the hypotheses and each of them had five and in one case six of which helped us structure the testing and ultimately the procedures we would use to return the aircraft to fly. we also knew from the statisticians at the time that given the history of the seals a coincidence in the aircraft flight test profile of the 14 forties including all of the

sensors and the testing on the ground at the post flight we would be unlikely according to the statistics to have a physiological incident present itself or conditions the might result in a physiological incident. we were unlikely to have that case. nonetheless we knew as a result of the sensors we were going to understand the system better and its vulnerabilities and that would then leave the groundwork for that kind of things we would do to the entire fleet and provisions we could provide the would be doing the ground engine runs and would make it safe for them to return to fly while we continue to gather data and understand what the root cause might be. at the end of the flight test we determined we were able to put in place the proper safety

measures and techniques that will allow fleet to return to fly at a greater rate while we were continuing to collect data from the systems and the protocol we put in place to ensure the integrity of the life support system, so we went from the ground test to flight test to what we called return to fly fees and it's still in the return to fly fees' and transition fees. despite those efforts we do not have the root cause in hand. we have pretty good ideas and a series of tests the scientific advisory board believes are necessary to continue to explore the envelopes of the system and understand it completely and the stand-up of that activity or the

continuation of the activity is being managed by the general and his task force was recommended by the scientific advisory board to stand in september and begin the process of collecting the data, analyzing the data and determining other activities as appropriate for the fleet. those are ongoing today. now when we get to the findings and recommendations of their for scientific advisory board i wouldn't read them to you but there is a break down into three main areas. one deals with policies and procedures usually a high year level if you will than a tactical level in terms of our acquisition process and policies. the are also in an organizational and last, and equipment recommendations set out to not only protect the

pilots and crew members today but also to give the kind of information we will need as we get to the cause which i'm sure we will find eventually. but also as we go through the process some of those equipment recommendations will remain because the f-22 as general jones indicated is a very unusual airplane in terms of its capabilities. there's nothing else like it operating in environments we haven't typically operated our aircraft in that type of environment and sell some of the things we have recommended give a better understanding of the pilots performance in those environments we haven't operated before and it's a good thing to know not only for the public to know what for us because it will furthered our understanding of

the aviation aspect of operating in that environment which we frankly are not as aware of as we should have been in the recommendations put in place the mechanism by which we will become more in that area. with that in mind we can talk about the activities and the task force. >> ladies and gentlemen, good afternoon. i'm the director of operations. our role is to provide mission ready forces to conduct operations in the specific case fleeing the superiority missions in support of the combat commanders of the globe. last summer i returned from a tour of duty in afghanistan as we are in the midst of a cent down. i was asked as the summer ended to get involved to become a part of this effort by general martin and others to prepare to return the fleet. i'm happy to report since september of last year we flem

for 10,000. that is a lot in a short amount of time. the f-22 provides unmatched capabilities to protect our friendly forces on the ground and at sea and ensure our allies around the globe. our task force. our task force consists of members from inside the government across different commands and different disciplines and members of industry for a collaborative effort. the that is shared from every investigation board, every at his record, every source sharing data to get to the root cause. we are implementing the recommendations given to us by general martin and others and we continue to pursue the cause of these unexplained incidents. safety is paramount to the men

and women who operate it and the commanders who commanded them and those senior officers like myself but when we wear this uniform there is risk, risk inherent in aviation and conducting military operations. we have a motto here at the combat command. people first commission always. as we return to fly, i was and continue to be confident in the safety of this aircraft because it is the people, the sons and daughters of american bombs and fothen as we put in the aircraft in the air and on the ground to conduct emissions the nation asked us to do. as we are into the implementation phase over 10,000. the incident rate related to the subject san ysidro .1%. let me see that differently. 99.9% effective flying rate but that's not good enough.

we will not rest or stop, we will not end the journey we are on until we carry that to the farthest decimal point we can. that concludes my opening remarks. >> we will go ahead and take some questions. >> this is for a general law and with the future use of the f-22. is there a feeling right now to finance index is the f-22 in places like alaska and others? connect thanks for the question. the f-22 is general martin diluted to earlier exceeds that of any other we've produced. we are operating on the envelope that exceeds what we do with any current aircraft in our inventory.

in terms of alert to the f-22 has set airspace controlled alert. currently sitting in the continental united states with a lower 48 if you will. we also use other aircraft, the f-16 and f-15. we if use as many as is required and it's not uncommon to see us use a variety to fulfill the mission. >> it doesn't have any restrictions right now to the estimate is sitting on the missions today. >> and there is no restriction. >> i'm not going to get into a detail of some of the operational capabilities in this form but i can tell you it is operating in an envelope that expands and goes beyond that of any other that we have today. >> i would like to follow up

without getting into the classified information. can you help us understand what is different about the environment and the pilot is in an f-22 that essentially, particularly in the case of the oxygen generator increases the risk. what's different in terms of the pilots environment. >> let me cut if i could talk about that. as i can on active duty in 1970, ausley along with all pilots go through a physiological training course that is required every three years, and we try to understand the effect of altitude and day and night on the ability to operate in the aviation arena. to think we can to make the aircraft and as close to, but

the fact is as we go all antonette cultic we remain a preferential differ between the outside air into the cockpit. in an aircraft used the at 8,000 feet. it begins to go out mana systems and you want of a catastrophic explosion during the decompression. all of those years we drew a line in this guide that said at 50,000 feet will not fly above that altitude without a pressure suit on would cause evacuation of air from your lungs and that the rate you couldn't survive without having a pressure suit. the airplane flies routinely.

we have in our life support and life sustaining system a capability for the pilot to survive a rapid. it's about 50,000 feet. it's not so much the environment of the cockpit as much as the potential should the pressure, the rapid decompression occur that caused the restrictions. this talk the cabin pressure is 20 to 22,000 feet, so you must use supplemental auction for the high percentage just as you were if your mountain climbing. have you been able to determine?

>> if we look to the incidents, what we will find as we have a series of hypoxia like incidences or. we would expect them to be sent 25,000 or below but not an instance like this. we have pretty good assessments and tests. we have some altitudes you would not have expected as have other aircraft by the way, not just the f-22. is their someone who isn't a pilot, can you describe. just the crash of the f-22, and it's.

usually identified by the crew member come usually recognized as a result of the training to see what would happen if they begin to not get the oxygen they need it. we actually train that on the ground. we have altitude chambers we take people up and they take the mask off and they begin to see their color goes down, they begin to get lightheaded and feel woozy, a headache, something like that. so the understand what their symptoms are, and the physiological the incident than as a condition where the public recognizes that something is not working exactly right with respect to his understand the environment cannot control the aircraft, were his senses of normalcy. they can manifest themselves in many different ways, so because

the concern of the presentation of oxygen we tried our best to understand there may be a condition for easter they feel different or season reading that doesn't make sense to would declare an emergency and use the oxygen and come in and land and that is a physiological incident. the second part? there have been none. there have been none. we have had with respect to an oxygen failure system, there's been no crashes and no loss of life to the pilot. >> is that being reviewed in the case -- >> no, i would say that the investigation has