next, the senate energy and national resources committee looks at factors impacting global oil prices. they heard from researchersin the energy industry . at the start of the hearing committee members voted on for nominees. this runs a little over two hours. >>. >> ..

>> china and india. at the same time, we're dealing with the fallout from opec's strategy of artificially restricting supply from its members. there is no question that that

has reduced inventories and pushed prices higher. we're also seeing the effects of supply disruptions across the globe from libya to venezuela to canada. on the other side of the ledger, there's somewhat of a silver lining. we're seeing that while prices are higher, it's not as bad as it could have been, and that's largely because of of significant increases in u.s. production. america's shale revolution has brought tremendous benefits to our country and the global economy, and as we produce more, we're creating jobs, we're generating revenues, we're bringing a degree of stability and confidence to global markets. we've also made smart policy decisions like lifting the ban on u.s. crude oil exports that are allowing us to become a major power on the global stage. i think it's complicated enough to understand where we are today, but again, i think most focuseds are interested in figuring out -- folks are interested in figuring out where are we headed. will markets loosen up as production in the u.s. and

countries like saudi arabia continues to rise? are we accounting for strong growth in global demand? where are the geopolitical hot spots where substantial supply could disappear from the markets at a moment's notice? and then we've got the wildcards. what will happen if we fail to build needed infrastructure in the u.s. to insure that energy can be transported from where it's rused to where it's -- produced to where it's consumed? what will happen if the u.s. releases oil from the petroleum reserve? what are tariffs mean for the viability of domestic energy projects and our ability to access markets in countries like china? and what will happen as global spare capacity the shrinks and we no longer have a cushion of production that can be brought on line quickly? also what are the looming impacts of regulations like the international maritime organization low sulfur standards? and then, of course, front and

center, front passenger in all the -- front page in all the news right now, what will happen with iran. i believe our best course is to continue with our efforts to produce more oil here at home particularly in places like alaska where we have the will and capacity to do so. and that's why i believe it was the right move to begin to open the coastal plain of anwr to responsible development, why i support the five-year program for offshore development. i think there's no substitute for u.s. production. for as long as we need it, even as we seek to diversify away from oil. so here to help us understand all of this is a truly distinguished panel of witnesses from as far away as the international energy agency in paris. we have one witness, mr. mcnally, who literally wrote the book on crude volatility. we have another, mr. boar dawf who has come full circle. we also welcome mr. auers.

so counting, we're not quite to 12 yet. so, senator cantwell, why don't i turn to you for opening, and we can get to the business meeting right after that. >> thank you, madam chair. thank you for scheduling what is a very timely hearing on global oil prices, because every family and business across americaing is feeling the burden of higher fuel prices forcing average u.s. households to pay $155 more in fuel costs this summer's driving season as compared to last year's. gasoline and diesel prices are currently around 60 cents more than last year. my constituents are marley aware of the -- marry aware of the prices -- particularly aware of the prices at the pump. i believe even more than in some places than alaska, which i find hard to believe. currently, truck drivers are shelling out $3.41 per gallon. that means that every gas station fill-up costs washington

drivers about $8 more than it did last summer. that means everything from boaters to people who are moving products that are key to getting products to market are paying more and making things more expensive. which means that's less take-home pay and higher retail prices for the goods that they transport. given the prolonged impact higher fuel prices have, we need to take aggressive action on all fronts to make sure we are policing these gas prices and markets. not only do we have international cartels, artificially constraining price, obviously lots of statements in the last couple of days are leading to uncertainty in the markets. what happens if the iranians do follow through on their threat to shut down the strait of hormuz? about a third of the world's sea borne petroleum passes through that checkpoint where the shipping lane is just 3 kilometers at its narrowest point, so i hope to ask our expert witnesses about that as well. we also see in tight oil markets the opportunity for volatility

and potential for manipulation. we must continue to find ways to protect consumers on all of thesish shus -- these issues and continue to make sure we are breaking monopolies at the pump. whether that means continuing to aggressively look for alternatives to fuel markets and solutions or making sure that we continue to focus on opportunities. i'd like to learn more about why record level oil production here in the u.s. is not providing any leaf at the pump. relief at the pump. just last week we reached a new record of 11 million barrels per day, only slightly behind russia's 11.4 million barrels per day. so even putting aside the fact that continuing to put that level of carbon in the atmosphere is unsustainable, america's increase in fossil fuel production seems to be only padding bloated oil economy profits rather than helping the household budgets of consumers. in fact, i read just yesterday that this friday analysts expect exxon to post a 62% increase in

quarterly profits to $5.45 billion. so the reality is, is even as crude oil prices have doubled over the last two years, oil supplies have been relatively flat despite the u.s. crude oil production. that's because opec and other producers like russia agreed to set supply quotas starting in january of 2017. the more we pumped, the harder they worked to make sure that the prices stayed high. so it's very hard for us to drill our way out of this problem. the effective ways to reduce our fuel costs both nationally and individually is to beat the opec monopoly with some good old-fashioned competition at the pump. americans should be able to fill up with home grown biofuels instead of the saudi or russian crude, and we should continue to push for electric vehicles and lower operating costs for our consumers. members of in this committee has been instrumental in increasing

fuel economy standards, but now the administration is trying to reverse that progress reduce consumption of oil in the united states by 2.4 million barrels per day is where we were on track for 2030 saving consumers in the united states $130 billion. but implementing these policies and reducing oil consumption we have learned also has been creating jobs credited for more than 288,000 automobile manufacturing jobs and 1,200 jobs across the united states. so these alternatives are showing that we can produce pressure to, as an alternative to gasoline supplies, and we need to keep moving forward. unfortunately, as i said, the trump administration seems to be adhering to trying to tear down these alternatives. i also today want to talk to our witnesses about what else the executive branch could be doing using its existing regulatory and investigative authority to make sure that untoward things

are not happening in our supply chain. recent steep one-day changes in price of crude oil have raised concerns about the role of speculators with automatic trading and algorithms. on july is 19th -- july 3 19th domestic and international oil futures had the steepest one-daydecline in more than a year. these have caused market observers and analysts to raise concerns about automated trading, so this is something i'll ask our witnesses about today. so, madam chair, obviously all of these tools should be in our toolbox to continue to focus on giving the american driving mix the best opportunity to have low fuel prices. i look forward to asking our witnesses about these questions. >> thank you, senator cantwell. we do have a quorum present, so we will proceed with our business meeting to consider the four nominations for the department of energy that are on today's agenda. we've circulated this

previously. it's on the dais in front of each member. we have ms. terry donaldson, ms. cain evans to be the assistant secretary of energy for cybersecurity, energy security and emergency response, dr. christopher fall to be the direct every of the office of science and mr. daniel simmons for energy efficiency and renewable energy. a roll call vote has been requested to the nomination of mr. simmons. the question is on the nomination of mr. simmons, and the clerk will call the roll. [roll call]

[roll call] [inaudible conversations] >> by this vote, the ayes are. 14, the nos are 9, the nomination is agreed to. >> thank you. if there are no objections, the committee will now voice vote is en bloc the nominations of the remaining three. so are there any objections? hearing none, the question is on the nominations of ms. donaldson, ms. evans and dr. fall. all those in favor say aye. >> aye. >> all those opposed say nay. the ayes have it, the nominations are ordered reported

favorably. any senators who wish to be recorded as no on the nomination that we just favorably reported? >> madam chair? >> senator hirono. >> i ask to be recorded as no on ms. evans. >> any other members? are there any members who wish to make brief statements about any of the nominees who have just been favorably reported? i would note that in the interest of time those statements can also be included as part of the record. seeing no comments, that concludes our votes, and this business meeting is adjourned. so we now turn back to our full committee meeting. i appreciate the members being here so we can expeditiously conduct this meeting. with this, we will now turn to our full panel, and as i've mentioned, we have a distinguished panel before us. and we will begin, we will begin with you, mr. sadamori.

he is from the energy markets and security director at the international energy agency. we welcome you to the committee. mr. robert mcnally, who i mentioned in my previous comments, is the founder and president for the rapid energy group. welcome. mr. rusty, is it braziel? >> brazil. >> chief executive officer for rbn hlc. mr. john auers is the executive vice president for turner mason and company and mr. jason bordoff is the founding director for the center on global energy policy at columbia university. we welcome each of you to the committee this morning. we'd ask that you try to keep your comments to about five minutes. your full statements will be incorporated as part of the record, but as you can see, we've got a great deal of interest in the committee this

morning and the words that you have to share with us. so, mr. sadamori, if you would like to begin. thank you. >> thank you, chairman. chairman murkowski, ranking member cantwell and distinguished members of the committee, thank you for the opportunity to present the international energy agency's view on the factorses affecting the global oil prices. let me start by conveying his best regards from dr -- [inaudible] the iae executive director, to members of the committee. for more than 40 years since the iea's establishment, the united states has played a critical leadership role in the iea. thanks to the shale revolution, u.s. is leading global supply growth both in oil and gas, making enormous contributions to supply security. the iea's role has expanded, and the oil security system continues to be the core mandate for the agency.

global crude oil prices are more than 50% higher than a year ago. this reflects steady oil demand growth and overachievement of the vienna production cuts agreement by opec and some non-opec producers. and some supply disruptions in other countries. commercial oil stocks in oecd countries declined from more than 3 billion barreled in january 2017 to 2.8 billion barrels in may 2018, and they have been below the five-year average since march. all this points to tightening market and the rising prices from the low point of less than $28 per barrel for brent many january 2016 -- in january 2016 to nearly $80 per barrel in may 2018. so going forward following factors should be considered. global oil demand growth is relatively steady at the 1.4

million barrels per day, but there are signs of stress in some countries with oil price increase. many developing countries recently reduced or eliminated subsidies for the oil products, and is so higher global oil prices more directly translates to the higher prices at the pump. with stronger u.s. dollar, some countries in their currency terms have seen sharp rises in their domestic cost of oil. the current trade tensions, if escalated, could adversely impact the global economy with a knock-on effect on oil demand. there are several major supply uncertainties. the first is iran. at this time we can not know how much iranian oil will be removed from the world markets by the u.s. sanctions. but the recent indications point to the shortfall being significant. is secondly, collapse of oil production in venezuela is continuing. production currently is only 1.3 million barrels per day and

could be below 1 million barrels per day at the end of this year. in libya the recent strike against the oil infrastructure resulted production falling from 1 million barrels per day to about half a million barrels per day. the situation seems to be improving, but we cannot be sure if the stability stays there. disruptions are happening in other renales including iraq -- regions including iraq, canada and brazil. under such market conditions, decision by signatories to the vienna agreement is welcome in supporting the stability of supply to oil markets, but it comes at the expense of the global spare capacity -- [inaudible] the united states is already the is single largest contributor to the supply increase growing faster than the global growth. the iea, however, sees little scope to revise it upwards even with the recent price increase because of the constraints in pipeline takeaway capacity.

the tight supply situation is not helped by the recent hoe level of investment in the upstream oil and gas industry. we should also not forget that the production from the existing fields is declining by more than 3 million barrels per day, and that's about the size of the entire north sea field each year. so we are in a very volatile and challenging period. geopolitical factors even more than pure fundamentals are important in determining oil price movements. despite the rapid growth, the oil will continue to be the dominant fuel as well as important feed stock for the petro-chemical products in decades to come. emergency oil stock system, managed by the iea and its members, therefore, will continue to be critical to be prepared for the rainy day and insure the stable functioning of global economic systems. for its part, the iea is engaged in close dialogue with the major oil producers and consumers both

inside and outside the family, and we are monitoring market developments to be prepared to provide any support that might be needed to insure market stability. on behalf of everyone at the iea, i wish to thank again, thank you for inviting me before this committee, and i'm happy to answer any questions. thank you, chair. >> thank you, mr. sadamori. mr. mcnally, welcome. >> madam chairman, ranking member cabotwell, members of the committee, i thought what i'd do is focus on three things. first, the return to authentic boom/bust oil price cycles. secondly, factors that are pushing oil prices down and up in the near terms as the chairman alluded to, and third, a oil issue that's been preoccupying us in the industry for years now. and, frankly, it's remarkable how little notice it's gotten in washington, and that's imo 2020. before delving into the detail about the up and down, met me just step -- let me just step back and note these haven't been

normal oil prices in the last 15 greers. you just don't see a near quintupling without a war on the persian gulf in modern times. that doesn't happen. but it happened from 2004-2008. and you just don't see oil prices fall 60% in half a year as we did in 2014 without a recession or sudden supply surge. this is unusual in modern times. we have to ask ourselves why. since the beginning of the modern oil market oil prices have exhibited a proneness to wild boom and bust swings. now, when oil was just a lighting fuel in the 1800s, it wasn't so much of a problem, but in the 20th century it became a problem this volatility not just for the oil industry, but for you, for governments, for industry, for airlines, for everyone who depends on oil, which is most of us. to vanquish oil's wide swings and stablize prices, governments and the industry regulated production, and folks forget the united states was the king of

opec. specifically, the state of texas. the state of texas exhibited heavy-handed intervention in a market that would have made, forgive me, mao tse-tung blush. the texas railroad commission met once a month for 40 years, and they set quotas well by well, field by field. when opec is getting along, they meet twice a year and set quotas most of them ignore. we were the king of opec. now, why did the good folks in texas who normally want to limit government and produce oil, why did they a agree to heavy-handed intervention in the market? to stabilize prices, to vanquish that boom/bust that we saw from the 20s and '30s. now, some folks thought opec took over from us in 1972, and they lost it in 2008. now, some folks thought maybe shale oil would be the new swing producer, and we saw that failed. $28 brent, $26 wti in 2016. that didn't work out too well. others think this new entity

formed by saudi arabia and russia will be the new opec. i have any doubts. this is very important, it comes from history, i be we isn't -- but we haven't seen this type of volatility. no swing producer, nobody regulating supply, no peace in oil prices. now, turning to the here and now, as the chairman alluded, we have forces pushing prices down. supply is growing faster than demand. the iea, the eia, opec, we were barrel counters, all of us see the market loosening up a little bit next year. strong production growth in the united states, brazil, saudi arabia, other places. even with good demand, kind of pushing prices down. there's a lot of fear in the market right now with trade wars and the dollar being strong which makes oil more expensive around the world. there's fears about demand, that's putting prices down. but the concern is also forcing pushing prices up, and that is geopolitical. and this gets back to the square production capacity issue. when you have a swing producer regulating supply to keep prices

stable, they usually hold back supply. we call that spare production capacity. now, that spare production capacity acts like a fire d. in a wooden city, okay? when you get into a disruption or a war, you want to call on the fire d., you call on that extra supply that's being held back by regulators to come in and douse the fire before it bufferins down the whole city. right now -- burns down the whole city. right now it's close to or near zero. that is dangerous in light of the disthe resumptions in libya, venezuela, and, of course, iran. iran. iran exports 2.5 million barrels a day, but in the oil market few barrels make big difference in price. with zero spare production capacity and commercial inventories kind of back to normal, the loss of 2.5 million barrels a day would be a big problem in terms of oil price stability. now, iran has threatened over the weekend to interrupt the 19 million barrels a day that flows through the state of hormuz. senator cantwell alluded to. that is really the biggest

problem that we in the oil industry prepare for and analyze. while our military would clearly prevail over the iranian military in a conflict, i think we ought not be complacent about how long that strait, that narrow strait would be closed. it's cleaning up the mines, it's insuring the insurance companies that they can insure those ships to go through. so that is a deadly serious issue for the oil market to continue -- to consider. oops, i'm out of my last minute so i'll stop here and perhaps get into imo in the q and a. a final quick statement, i wish i could constantly predict stable, comfortable oil prices. in 2012 i had the honor of testifying to your colleagues in the house small business committee and noted crude oil prices and, therefore, pump prices had entered a new space mountain era of boom/bust price cycles. i main that view. eventually, we will go through a boom. if a new swing producer does not emerge, we should all buckle up for a continued roller coaster ride on space mountain.

thank you, madam chairman. >> thank you, mr. mcnally. mr. braziel, welcome. >> we're going to have a different view. rbn energy is a consultancy and market analytics company based in houston. most of our work involves infrastructure analysis, production, transportation, processing for both crude oil and gas and natural gas liquids. so you mentioned a few minutes ago that production is up to 31 million barrels -- 11 million barrels a day. in 2011 it was 5.5 million per day, so we're double over the course of that period of time, and that's why we call in the shale revolution. this morning instead of focusing on the magnitude of that growth, i want to focus on the responsiveness, the swingness, if you will, of u.s. production. what happens when prices go up, what happens when they go down. it's the nature of this responsiveness that i think has had as much a big impact on global markets, and i'll pleax

what i mean, but let's first talk about a few fundamentals that kind of get me to that point. the big driver in all of this has been productivity improvement. productivity improvement that is radically changing the supply curve for u.s. oil production. finish today one rig can bring on anywhere between 5-11 times the amount of crude oil that one rig could do in 2011. these shale wells come on strong, they -- producers have learned how to drill them fast. the result has been a dramatic reduction in the per-unit cost of production. in other words, lower marginal cost. over the course of the past seven years, the u.s. is shoving about 4.5 million barrels a day of this marginal production back into the global market, and that's precisely why opec and nopec found it necessary to reduce their production about two years ago in order to support global prices and, in fact, make room for u.s. production. geography of this production in the united states has been quite concentrated. 85% of the growth over the last

two years since crude oil prices started kicking back up comes from five basins with more than half of that growth coming from the permian by itself. and it's even more concentrated than that. almost all of the growth in those five basins actually comes from only 28 counties, a land area of only about 50,000 square miles, 1.7% of the u.s. lower 48 surface area about size of louisiana. but that's today. the land area where crude oil production is economically viable, what producers call their sweet spots, expands and contracts with the price of crude oil. so, for example, if higher prices provide more -- higher prices do provide higher revenue per well, so smaller wells, well, that lowers yields of crude oil becomes economically viable. so the sweet spots get larger when crude oil prices increase. of course, the inverse is equally true. and that's what i mean by

responsiveness. it's been a key to the growing influence of u.s. production now in global energy markets. and going to get a lot more responsive. our firm prepares a production forecast several times a year for the u.s. we just completed a new update. we did one for prices staying at $70 flat for the next five years, another one at $55 flat for the next five years. there is a -- that $15 difference means a 3 million barrel a day change in the forecast between those two scenarios. so a relatively small price differential in crude oil prices results in a big change for the u.s. production. the implication for u.s. production, for the u.s. is now that we are fully capable of responding in a meaningful way to increases and decreases in price, enough to have a substantial impact on the global crude oil market. so if prices increase, drilling economics improve. producers drill more wells and production increases.

prices fall, drilling economics become less favorable, producers produce fewer wells and production volumes drop. but here is the key in this. the oil in the ground didn't go away. when prices are low, production of those barrels are simply put on hold, waiting for a price signal in order to bring those barrels to market. takes time. but it's all, it's almost like those barrels are in a storage tank just waiting for the high sign, for a signal to withdraw that oil and move it to refineries both in the u.s. and throughout the world. .

i express my thanks to all of the members for allowing me to present my testimony to focus on the downstream industry in the u.s.. energy independence is the goal but the administration upped that to energy dominance or that might be my standard political posturing that with support with upstream and midstream has affected the dominance in its own sector of the energy business. since 2007 the u.s. has transitioned from the largest importer to the largest exporter by most measures. measures. that niche product balances from the shortage of 2.5% to the surplus of 3 million a. to maintain the position has and will be dependent on things that will be well and also on the

failure by the competitors around the world. the equation of the free market environment which the u.s. industry is left to operate it in thwithin the case in most otr countries is a key driving force market signals are close and remain facilities to the most advanced set of refineries in the world into this allows the u.s. refiners to the more difficult crews and valuable products all high yield and require any other region in the world. the u.s. also has the deepest refinery labor pool in the world all the way from management into the skill levels combined with flexible employment, work rules this allows the refiners to run their plants more reliably, safely and at a higher rate and allows fans to execute capital projects to perform at a world cost by a higher wage. major boosts to the refineries in recent years has been the shale revolution.

further advantage of the industry has been the difficulty expressed building is accomplished task probably be experienced but efficient properly to operate maintenance execution and planning efforts. compared to over 90% in the u.s. despite the regional demand and capacity at the decline in the last decade this hasn't been for lack of trying to.

the cost overruns and delays in much of the problems related to the sponsorship by government controlled companies with the issues of conflict of planning and in many cases incompetence. it is a man picked up the operation existing plans and results in the projects in latin america that have grown by almost 2 million barrels a day over the last decade. the successful growth the necessity for their u.s. refinery sector and the domestic demand. with a strong growth of the last few years as the result of lower prices to the domestic consumption is over 900,000 per day over in 2017 then the demand of 2005. despite this from our friend in europe and japan were shutting down the 3 million barrels per day of the capacity and in a similar environment. the u.s. was able to increase the capacity by 1.4 million barrels per day. the refining renaissance has benefited the country as a whole and consumers of petroleum projects at all levels. together the production has been

a major contributor in reducing the trade deficit and it's also led to a higher degree of supply security and lower prices in the previous environment where they had to be imported. this is particularly important in the supply disrupting even a prime example of this in the true conservation of the robust and resiliency of the industry is rapidly turn supply of hurricane rv devastation into the gulf coast. looking into the future of the refinery industry will depend on a variety of factors including our diverse geopolitical developments and changes in the regulatory environment domestically and globally. on the regulatory front and domestic regulations were depressed demand and increase customer limit access and all could negatively impact the competitiveness. more costly environmental rules certainly follow this category. perhaps the biggest threat to other segments of the industry could be more restrictive trade policies. tariffs being imposed on steel and aluminum would have a negative impact on the critical projects in all sectors. one example, the steel used in u.s. pipelines comes from

overseas due to the lack of availability domestically. more impactful still, crude and the biggest threat could be the potential for an all-out trade war that leads to the decline in global and domestic economic growth and demand. new regulations and policy initiatives could be positive for the industry and consumers and corporate taxes would lead to more capital investment in every segment as we move about the hurdle rate him as the countries around the world environmental rules the u.s. refiners have already had to make those investments with relative advantages and the maritime organization mandates to increase the bunker fuel software might be the single biggest on the horizon and the advantage with many refiners especially the complex facilities that could be a challenge to others. let me just say the critical resource for any country thrives not just major benefits to the economies of the whole and consumers but also important national security asset.

nations around the world targeted self-sufficiency and spend billions in an attempt to achieve this goal. the u.s. refinery system has risen to the top, not through the involvement or subsidies but by being allowed to develop and grow in a true market environment. and the impact on the health is the final industry resulting effects on any legislation that they consider. thank you very much. >> chairman michalski, ranking member, my apologies. thanks for the invitation to appear before you begin today. as the chairman noted i was here in april of 2016 to testifying about low oil prices at a time when they collapsed from $115 a barrel in may the 2014 to the high 20s in early 2016 and then back to around $80. so let me explain the factors that have driven those independent offer three observations about the policy implications of them.

key factors in the 2014 oil price collapse included surging production that you've heard about in the decision by the opec countries led by saudi arabia not to cut the production widely condemned by many of the war in shale. after the prices have fallen han below $30 a barrel, opec along with several countries notably russia came together to cut production and drop the price is the recovered into the mid 50s for much of 2017 and then they began to surge for several reasons. one they worke worked and brougn inventorieinventories in the sed growth has been exceptionally strong above its ten year average and then we have heard from the eye ea about the production collapsin collapse if the tragic economic situation. more recently several factors pushed up prices even further. president trump pulled the deal on the nuclear agreement raising concerns about additional oil supply and production fell by

half due to the political unrest and short-term averages and then all of this was exacerbated by the capacity explained. in the last few weeks the prices fell again as the countries announceannounced they would pue supply in the market to supply came back online and at the trump administration did three things first signaled an approach towards the implementation and second it raised more fear about the potential for the economic slowdown as a result of an escalating trade war and third it was reported. what does this mean for policy? first it's impossible to predict a future oil price and few policy options that we have at our hands today to provide relief in th the near term so te energy policy decisions whether it is to increase production or anything else should largely be

made independent of today's oil price. one policy action that would reduce the oil prices possibly albeit temporarily could be the release of the spr i do not believe the current conditions warrant that and there are better ways to mitigate the price impacts of re- imposing sanctions on iran. there are a few signs of shortage in the market, geopolitical risks still loom and as i testified before the committee before i think the congress should avoid further selling off this national security asset to pay for other priorities. second, the revolution has been transformational for the u.s. energy outlook delivered enormous economic and geo-political benefits but the prices are still based on oil prices and they are still sent out an integrated market so that means when a prices spike, consumers feel it at the pump regardless how much less import dependent we are so it can be ramped up and down more quickly and i do not think it is true in the supply. the market comes less from how

much you produce them from the buffer of the spare capacity you might choose to hol hold until t fell below $30.2 years ago and then sort of to $80 it couldn't stabilize thcouldstabilize the b so mainly to saudi arabia which is the only country that chooses to hold a meaningful amount of the capacity. third of the best way to reduce the exposure of consumers to the inevitable future oil price shocks is to reduce how much oil the economy uses in the first place continuing with planned café increases is one good way to d do that's not to mention to reduce greenhouse gas emissions. while increasing production, does not for the higher pump prices it's important to note the harm to the economy overall from higher oil prices by lowering import dependence because more of the increased consumer spending on fuel circulates within the u.s. economy rather than flows overseas. the converse of that is why they

benefit from the collapse of 2014 and 15 then previously had been the case because the consumer savings at the pumps werpumpwere offset by the reducl related investment which was a bigger share of the economy as a result of this move. we heard about the infrastructure and policy makers can facilitate responsible production by inefficiently permittinefficientlypermitting e without undermining the needed environmental reviews and by avoiding a trade war that threatens to raise material costs like steel, aluminum and lead to retaliatory terrorists on the energy expert. members of the committee thank you for inviting me and i look forward to your question is. >> i want to start off again with the subject everyone has been talking about this week and that is weaker to several of you

mentioned the supply disruptions for the global disruptions that we have seen in venezuela and libya and certainly with a potential for iran going off-line. the question i will direct to you we've got a 100 million-barrel per day market so where does the supply come from in this short-term to meet the potential for a shortfall and then if i can have you both address this issue of spare capacity this is something i've raised over the years and trying to get a handle on what we truly understand to be spare capacity to. you mentioned it's only saudi arabia that has this spare

capacity. your suggestion that it's not necessarily spare capacity or the swing supply that is needed. can i have a conversation about this and where do we go if we do have this severe disruption of that iran may contribute in addition to what we have seen and how does the global spare capacity factor into what assurances do we have so we have enough to take us through? >> the question about where the additional supply can come from, we have to take note of the fact that the production in the agreement are still maintained and of course they are producing

a lot less than their target and they are also coming from a the unintended decline in countries like venezuela but the agreement that we understood in the last meeting is that they would increase production and move the compliance 100%. that means that there are some countries in that group producing less intentionally left in the capacities of these older expectations. >> to extend should this play? >> we expect the members along the gulf coast together they

should hav have more than 2 billion barrels per day in the spare production capacity. also, the other producer if we can increase the production would be russia. indeed we are already seeing the debate they already started to open in june sai so the increass already happening. so it is to the production cuts agreement. on the other hand, the u.s. is increasing production at a very fast pace, 1.7 million barrels per day in one year in 2018. and we expect that to continue a bit slower but still 1.2 million today in 2019. but, the market participants already incorporated the faster production growth in the united states and what we are seeing right now, as i said, there is

the pipeline take over capacity. of course we understand the many projects in the regions like texas should be completed about before that and a very short term it is hard to expect the production to grow before the pipeline is to be resolved. this is something i thought about and worked with when i was in the council with my colleague and president obama working with president bush when we liberated iraq and we thought very much about this. the policy problem even though it is 100 million barrel barrely or only talking about a couple million barrel disruption, a small disruption can mean a big price spike and a problem for the economy so where did you go for quick supply because you can thincandepend on the oilfield ry fast? the first place you want to go

for something like that if you suddenly lost 2.5 million barrels per day or three or four you go to the spare production capacity held by mainly saudi arabia. we went there in 1990 and 91 and they were late in getting there. saudi arabia provided that before we liberated iraq in 2003 so that is the first resort that is what the fire department is for. you call the fire department problem is there is no fire department today. you mentioned that the saudis are going up and i want to have a word about defining the spare capacity in a second. we agree it is almost very tight if not completely absent for the next place you go with commercial inventories. we had extra inventory so if we had to work about the little faster that would have been okay we wouldn't have had to have higher prices. but we can only see them in the rich world and now a growing part of the world we don't see those inventories, so they are normal and the rest of the world is probably a little tight so if

we were to draw down commercial inventory data 2.5 million barrels a day it would put upward pressure on prices which leads us to the last resort which is a strategic stock held in the united states and other iaea countries principally germany and japan. we are fortunately decided to sell off our strategic stocks to pay for the expenses comes to the protection is being reduced that is where you want to go and frankly in my view, were we to lose iran 2.5 million barrels per day later this year or next and certainly were there to be an interruption in the 19 million barrels a day that would constitute a legitimate use of the strategic stock. final word on defining the spare the iaea has a higher number of the spare production capacity. they have writing about 3 million barrels a day because they count oil that saudi arabia could bring on but in several month's. we have a strict definition.

on the definition they have a littllittle lower definition abt 1.5 million barrels a day into the way we count it is really tight and relative to the risk that we face. >> senator cantwell. >> thank you madam chair and witnesses. all of you painted a collective picture of what the roller coaster looks like the future, and i think that is the most challenging thing for us to get our mind around is the roller coaster is going to continue. so, for consumers at home it is obviously going to be buried in the very devastating. and so, to me i think you said it best the best thing we can do is diversify because of that integrated market and now the spare capacity issue although we upped production we are not going to avoid being wrapped around to the global market and the challenges of the local market.

so, one thing i wanted to ask about obviously everybody has talked a lot about iran. when we were focusing on high prices during a decade ago, one of the issues people put or at least a lot of the oil executives would say there is a premium of a threat of terrorism activity disrupting supply. so they would say that there's something between to 20% increase in price based on the factor. do you have a sense of what the issue might be causing in the markets today? >> it's hard to put a dollar figure on it. we do see the prices move in responses to the signals from the administration that it would take a harder or softer line toward implementing sanctions.

when an official was giving a briefing and said there would be no exceptions some countries had to go to zero and then the administration seems to block that a little bit. i do think that tool is an important one that we should remember and the petroleum reserve is designed to deal with short-term temporary supply disruptions from implementing sanctions against any country against their oil supply. the iran statute was written with a mechanism built into it to try to take account of conditions to make sure we were imposing paying on iran without shooting ourselves in the foot at the same time. >> is causing a level of increase in price. >> recently it had a little bit of the opposite effect because

the new sanctions that were announced against the traditional chinese goods raised fears that the trade war could be worse and that might have a negative effect on the global economic growth and the rate of gdp growth is a very important factor in how strong the oil demand growth is which could push up prices in the tightly balanced market. so there is a lot of geopolitical risks out there. iran is one, venezuela is another and in general, the potential for increased tensions or conflict in the middle east or elsewhere as we've seen in social media and other places in the last few days. >> what do we get out of the 4 billion-dollar tax break and tax plan that he gave t we gavel companies? what do we get out of that in the context of here we are getting a 4 billion-dollar tax break the new one in addition to the lowering of the corporate race we gave additional investors and yet here we are paying higher gas prices so what

do we get ou out out of the bacf that lacks >> i don't know that i can comment specifically but the general increased production and to what extent it helps consumers i think in the opening remarks he made a comment about how we have increased production and the prices have still gone up. that's partly because they are set in the market and there is a limit to what it can do. it is doubling oil production this has been the largest increase of any country in history that is a staggering turnaround from what the outlook was not long ago. it's fair to say that hadn't happened we would be facing a different oil price outlook right now. >> i guess i would say i don't think that is fair use of the money to give a tax break and now we are seeing a spike in prices. i would prefer us to think about this issue of what can we do on the spare capacity side, what more can we do if there is lots

of, the chair and i are both interested in making sure we work with the secretary at the time to increase the infrastructure so that its robust enough for us but what about the way they look at the jet oil fuels and why not look at creating more mechanisms for the industry to have more spare capacity? they have a reserve as it relates to we are not at that point yet but in the last decade, there was a huge roller coaster for the airline industry and a lot of people lost their jobs and lost their pensions and lost everything because of the spike so what can we do now to help create a spare capacity as a big issue. >> we don't have the ability that a company that controls the oil production has to back spare

capacity. the responsiveness and to the extent to which it grows is determined by the individual economic decisions of the actors throughout the united states. companiecompanies with a level f inventory that makes sense for them. we have government held a stock that are more responsive than the privately held stock when they are used by the government said again that is a sort of extraordinary circumstance and raises the question of whether the governments role to provide the oil price stability moving forward and whether there are other actions we can take to reduce how exposed our economy is because of how dependent we are on the oil. i was going to make one other point we are talking about what extent it can be a source to ramp up and down quickly and if it can vanquish the role others could have that comes at a cost. when truck drivers are making six-figure salaries and losing their jobs and the volatility in the oil output can be different

for the communities to manage even though it may have a benefit in stabilizing the global prices. >> i am way over so i will just say yes i endorsed your statement that the best thing to do is get us off the roller coaster by diversifying off of the oil so i would endorse that. in the meantime, we should be given a question on this issue but i think that you've looked at jet fuel as a specific way of increasing supply so we will ask that for the record. thank you. >> thank you madam chair and witnesses for being here today. i want to talk a little bit about the tax cut conversation that is a fascinating one because in the context of other costs, if you look at the utility rates for instance 101 have cut their rate as a result of the tax cut that's $3 billion in savings as a result of those, so i think it's important to talk about all of the ways the economy has grown as well as

people saving money because the tax cuts at every congressional district. i wanted to ask you a little bit about the concerns i have on state policies. policies. there may be some efforts in colorado this year to once again trietry to ban oil and gas production. the eia estimates because of its 611,000 barrels of oil became produced in the state of colorado. this is an incredible number. what were to happen if you see success in banning oil production in a state like colorado in that level of production. >> what we would do in that case is to forgo an opportunity to a real problem. if you look back at 2011 and 2012 when the prices were $100 in gasoline prices were $4 a gallon, we lost libya and then we put sanctions on iran and the spare capacity was tight. the reason we didn't go back to

the $150 a barrel in 2012 and 2013 like we were just almost as in 2008 is because the oil production kind of galloped over the hill and started ramping up in the nick of time. even though it is much more responsive it does act more quickly. you have to have states that are open to the permitting and openness in the resources and take of a capacity. it has to be well regulated because they need a social license to operate, if you don't want to have an across-the-board advance. we had things like that we we wouldn't have had the calgary to save us in 2011 and made a double dip into the recession. we wouldn't have had the gas bill and earlier which changed things in the atlantic and made russia forced into losing their power in europe and so forth. so across-the-board bans would have deprived us of some of the biggest wins we had geopolitically and economically the last 20 years and going forward one would hate to think

about what we would lose by doing something like that. >> if you can just talk about your take on the pipeline and what effect that has on geopolitical security particularly what it could mean for ukraine. in general terms, we think that it would be very crucial thing for the european countries. so, the fundamentalist question is how they can diversify the social supply. that also comes to the issue of whether they can secure a. some i understand the various discussions that are going on at various levels. >> does your organization take a look at the concerns that russia

may pose when it comes to the energy deliveries to europe and what that could mean for the european energy security? >> it may not be appropriate to talk about the kind of hypothetical situation come about i would recall that in the energy meeting there was an agreement by the energy minister of the leading countries that the energy resources, the energy shouldn't be used as a weapon so a kind othey kind of favors ande supply needs to be secured. i think that would be a very important issue. >> i agree with that. has russia used their energy as a weapon fa >> i'm not talking about the specific behavior of the countries. what i'm talking about is a kind of general agreement. >> would you consider shutting

off a pipeline to a country to perhaps in the middle of winter shutting down that supply is that utilizing energy as a weapon >> i don't mean to talk about the use as a kind of weapon, that the recent history back in 2008 and 29 and 2014 there was a serious concern on the countries about the stable supply of the natural gas and that was in the middle of winter, so it unlike the electricity that has other sources like this based on the kind of infrastructure setting it is hard to find a replacement.

in that respect they are kind of serious concerns on the side and that led to the kind of intensive discussions in spite of europe about how they can secure. >> i'm out of time but i am concerned about the security and one country to see them become more reliant on that is a concern. this country has grown tremendously. it's what we can do to affect the prices on the supply-side and then to the demand side.

the best way to reduce the exposure to the future oil shock is by reducing oil consumption in the first place. this seems to be a timely observation given that we are wondering what the trump administration is going to do in their anticipated move to roll back the fuel efficiency standards and in minnesota for e strong efficiency standards that we have replaced by the obama administration are estimated to save the consumers about $650 million. in 2030 if they were left in place the average household would be almost $3,000 richer so it has a pocketbook impact. and also of course it creates jobs in minnesota because our state is a biofuel producer. so, could you just talk a little bit more about the role that these standards can play in our

ability to cope with higher prices? >> as i said in my testimony, thank you for the question, senator. gasoline prices are set in a global market so whether regardless of how much we are producing in the united states, consumers are still going to face prices at the pump a song that is happening in the oil market. the u.s. shale production can help as an additional supply and putting another 5 million a day on the market certainly has a. we are going to see the prices go up and down and that's difficult to. the policies that produce the

energy intensity and efficiency are good for those reasons come economic reasons as well as for the problem of climate change. the opportunities around keeping the vehicle efficiency standards in place to help protect consumers to. they are taking the leases off of this wonderful thing that is free-market and it allows them to innovate and increase efficiency. and they will do that on their own given the proper price signals, and the price would come in having the efficiency standards that are regimented and fixed can cause these situations but we are not

creating the optimal environment to make the most efficient decisions on whether it is fuel efficiency or anything else. so, it is important to keep in mind to allow the market d to do its thing. i always look at how a football game or basketball game is officiated. the government should play the role of an official to call fouls but to keep the game moving and allow the teams to become to make the decision. the challenge i think i'm hearing your point is the challenge the way the prices are set don't always include all of the externalities that are involved in the full cost of the pricing is a indoor nlg the market isn't including all those things. so this is a sort of issue in minnesota at first glance they appear to be higher cost but if

you consider a low carbon fuel standard o airshows if you lookt these costs they are not assigned to the market. i don't have much more time but i think that is a really important point here. in order to consider all of those issues. madam chair i know i'm out of time but i want to know what i'm going to be leaving to go to the agriculture. to take a look at that the agriculture committee is going to be holding a hearing right now on the nominee to the commissioner.

thank you. >> thank you senator smith. >> enjoy your testimony, all of you. a couple of things for the record in terms of strategic petroleum reserves we mentioned a portion of it that we haven't solved it yet. to sell it high and replenish backflow. they kind of if you will or a win-win. i've been told by folks that the companies have accelerated the pipeline construction that was planned for the early 20s into

these years because of the five-year depreciation and so they taken advantage of the jobs act so they are responding to the tax bill so that would be one answer to the senators problem. the keystone xl pipeline has definitely created a supply constraint and the gulf coast refineries use that oil from the committee and the last administration putting the constraints now we are complaining about the higher gas prices when it was the policy which is contributed to that and i also wish to point that out and we wouldn't be talking about the midstream constraint.

i will note when the price is so, part of the reason they sell is an overextended shale producer had hedged the future production. they continue to produce even though the prices were $30 because they had hedged 60. they've shaken out of the more efficient those that have the cash cushion to get through the low price. co. survived a. they will be hedged, but they will bring out so somebody mentioned or a read in my state which is coming online and is going to be in the near term and intermediate a new source of

production which probably well over produce a little bit. any comment on the role of these other fuels coming online to the intermediate. the way that it works is exactly the reason you said because the economic support drilling. all the other basin reasons i mentioned a few moments ago also. so what is happening in the market is exactly given the response that we would expect. it's not going to be a swing supplier getting too before we. it's not going to happen in four weeks.

going into winter they have to keep full production otherwise they will freeze in and some of these things will be setting their stride. stride. is that a fair statement we can expect after labor day some relief? >> one of the things that has not been mentioned so far is the forward price of crude oil and in oklahoma that is the price beewebeen talking about for thet part. the price in five years and 2023 is still $55. circling back to senator cantwell's question, what is the price premium in the market for all of these various uncertainties we are seeing in the marketplace i could make an argument over the uncertainties added up because if somebody wants to sell or buy crude oil right now and 2023, they will do it at $15. keep in mind back to the decision of hugo to make about when you want to do something i

tend to think it ought to be saved for some real crisis. >> it just hasn't been sold of the amendment that has been adhered to. >> my only point is that price right now in 2023 is $55. >> you mentioned we are always going to be in the boom and bust in on the other hand plausibly we can say that with the pipeline being built it was being built from the permian and elsewhere in the midstream and then i'm told by the super majors that they ar are going bk out into the continental shelf that we are going to have significant production supply over the last one to four years which may account for the there'll but we may see some leveling off.

to connect it to we could expect that to expand. congress and president clinton last sold the crude for budget expenses in 97. at that time they were on the high end of the range. they thought they were selling-$26 a barrel. i was in the white house and the national city council after 9/11 it oversaw the refilling of the higher prices so i will predict as i said before we may think we are selling high, but i predict

that we will put those barrels back in. we may have to buy them from the chinese with higher prices after the next over emergency. i think we should hold it for emergency with respect. >> i'm way over time and i will yield back. >> i agree madam chair. i want to make it as simple a as icann we are producing more oil than we've ever produced in the united states on a daily basis. that is an accurate statement, critic,correct come and, and ths we froze our exporting ability from 75 to 2015. and now they've opene we've opee 2015 with twice the production that we have ever had. the people back home ask how come the prices are going up if we are so enriched with all this

technology and oil and surplus. and i know i've heard all the comments today. it's hard t to go back home and talk to somebody in maine or west virginia and explained we are doing better than ever. we are producing more stabilized global market of loyal or are we producing for the benefit of the united states market, which one do you think is getting the best way on this either one or both of you. >> senator, as said it is our prices in montana, west virginia all set in the global markets at answer the question i would say we are exporting to stabilize the global oil market so that we may stabilize our own market. >> we tried to put an amendment on that death sentenc said the s spike in the united states, our main purpose and constituency is the united states and all of us

here where would you predict a spike that would concern us. >> when i think about the roller coaster in space mountain wearing very worried about how we diagnose the price booms and sometimes the misdiagnoses and i am concerned that when we go back to four or $5 a gallon of ablwewill say that its exports t with respect if we were to close that they and we would have less production. we are saying basically it concerns us and we are producing twice as much as we are asking people to accept the technology production in the pipelines and everything is going to benefit

our economy and they don't see a benefit to that. that is where we get to push back so we are very concerned about that. i want to move onto something very quickly on natural gas. west virginia we have had some good opportunities and produced an awful lot of liquids. there's liquids are extremely valuable. also, we know that we are vulnerable down in the southwest. i've been told i've seen the model with a horrific hurricane moving up the energy chain and markets in america. we are trying to get an energy hub strategically. you all know enough about that and have you looked into it?

>> generally with what is going on did any of you want to comment on what it would do to stabilize the markets in america because we are very vulnerable and we know that every time we are not prone to hurricanes and west virginia. we've been blessed. anything that creates a transportation system and the ability to do multiple directions is a good thing. that is what it is going to do with all of this natural liquid oil that we have if we are going to help in the global supply because we are exporting that and there is more and more coming onto the terminals if we can send the liquids out, is that even if it? >> there is a new pipeline that is being built over the area right no now that they have troe getting thegetting finished finu need the pipeline to be finished. >> we will keep some of the product in our essential states

of west virginia, ohio and pennsylvania because they've become a backup strategically for the national interest and concerns but also, we can create a whole new energy o, chemicals, cracking and all these things that need to go in line. it would be a good thing. the more storage you have is good. >> do you all agree that most of our energy is in one basket as far as production, refineries, everything down in the southwest? >> you are moving a lot of down to the gulf coast right now in the pipelines of it is one basket. you are moving him up to canada so that's another. you have some supply diversity. some diversity i should say. >> if you look int we look intos storage hub and the resiliency of the market as well. >> thank you madam chair.

>> thank you madam chair for calling this fascinating hearing. thank you all. the most profound observation i evehad heard about the oil prics was back at the university of maine that set the prices in the future will always be the opposite of what you think today and that's proven true if you think about it. they will be high than two things happen. we have more drilling and we have more conservation. if we think they will be well we have less drilling and was conservation, people find trucks instead of the previous is and that seems to be the dynamic iron member from 35 years ago. it's sort of carried through over the years to get a couple specific questions and we have limited time just as you did so try to be as brief as you can. what is the cost of production? anybody know? >> that would be the cost of production in the single digits, $5, $10. they can sell at $30 a barrel

and make money they just don't make as much. >> the budget couldn't handle it. they would cover the production cost but they couldn't be there social spending at that level but the cost is a lot lower for example. second question. i want to add something to that. that is true on the existing production come incremental new production is much higher. are there estimates, is there a limit to the production that we have or do we know the producible reserves is there any upward limit, is there a finite capacity? >> the more you can produce because the less economic wealth. >> that is exactly it. if the price does go to 75 we will produce more than.

>> next one. maybe you can try this one. >> is taking iran out of the market through the sanctions priced into the market today or will it increase prices later on? to some degree pulling the oil of the market is placed for thes a wide range of views out there about how the impact of theory imposed sanctions will be from the half-million barrels up to 2 million a day and that's why the signals from the administration about how strict it will be in the enforcement of sanctions has an impact on the market. >> but it's very limited in spare capacity to 2 million a day.

this trade would be a catastrophe at the level that we are talking about in this petroleum being reserved is that correct. it is beyond the genuine capacity. how many million barrels? >> i believe it is 600 or 70,000,670,000,000 in the u.s.. i do believe we've sent off a little bit of that over the last few years. if it is dropped down t cut dowr four in the decade. >> said, i am just doing about a month. >> if we think about that it's not just the stockpile, it is the flow rate so it is 19 million a day. it says we can flow at 4 million barrels a day so there's questions we can't cover the straight.

>> so, even the petroleum reserve isn't -- >> we could cover iran as two and a half month the straight up to 19. >> part of the reason the modernization for which a little bit whistle and funding is made available is important to increase the rate. and it is a technical constrai constraint, but it's technical, yes we built the reserve and we planted the pipes north because we thought that it would be blockaded or embargoed and we would have to feed the refineries now we need to export that so we have to move the pipes around but it's also been degradation and the logistics and so forth, so that gives him as well. >> when we are predicting the global demand would we think that the vehicles and conservation of electric vehicles that have moved faster than people thought they would be inviting as you mentioned, the principal use of petroleum as transportation. >> yes sir. we have all of our eggs in one

basket and transportation. it's all about oil. the policy just came out with a fabulous study that looks at the forecasts from government govere visit of the alleged vehicle penetration and it's at least there's some skepticism about how we are being too optimistic about how quickly batteries will fall and consumers will take them up and it's a different picture in 1912 and in manhattan you see horses and cars and one and the other why can't we do that. the reason is we developed an energy source that consumers find affordable and took up quickly and -- they are not there yet so there may be a little too much optimism in the official forecast. we hope we get there but we should be automatic. we may be on a little longer than folks think. >> that scenario assumes that it

will expand rapidly to 300 million people by 2040. the displacement of oil is limited to 3 million barrels per day. >> that would only result in going to 300 billion electric vehicles would result in a diminishing of 3 million barrels a day of oil. >> exactly. the legal consumption may decline, but there are heavy-duty trucks and ships, airplanes and all in all we expect to see the demand peak and that is a conclusion. >> i'm out of time but just one more answer what is the proportion of transportation versus petrochemical feedstock and the use of oil today? >> at this moment it is one of the largest demands in oil.

i need to go back to something like 60% in the transportation sector and 30% also in the petrochemical. going back to the preset number. >> thank you madam chair. >> chair michalski and ranking member cantwell, thank you for having this hearing. in montana, the average price of fuel is around 70 to 80 gallons which is similar to or probably a little over than national average. for most of the fuel prices are the main interaction with global oil prices when you are in a state like montana, number one economic driver we talked about inputs and outputs, fuel price is a very important not to mention fertilizer and so forth. for those working the oil field in the energy sector, global oil prices can determine if they go

to work tomorrow. so this is important for a state like montana. i am very thankful for the work of this committee and my colleagues in the u.s. senate who are able to lift up the crude oil export ban finally for 1002 in alaska and it would reduce some burdensome and only adding costs and regulations as well as tax reform. although this haall of this hast boost in u.s. oil and gas production, and this is moving us to a very aspirational kind of goal which is largest energy independence but truly global energy dominance. ..

>> many of us remember growing up and the 70s and that shocked our world economy to

have that insular removal from those shocks because of the significant revolutionary increase as a good thing for the international economic security. this focuses on the global prices and as i look at it it is more of a supply and demand issue. we see a robust economy more americans traveling and spending more money. this leads to more demand the best way to check the rising prices to produce more. the crude price is already lower with increased production we can increase this trend. mr. mcnally i am interested how the u.s. can play a larger and beneficial role of lower

oil prices as well as a geopolitical trend many oil producing companies tend to be less stable, more volatile or have all terrier political aims and sometimes adversarial. this can cause traumatic shifts in prices as we saw in the early 2000's. so do you believe with a more active u.s. production to export oil to the allies there can be a stabilizing role in global oil prices? >> thank you for the question senator. absolutely history shows the windfall of natural gas where the boom first started turned around we were looking at to be as dependent on the middle east for gas as oil and that change completely to now where

the germans are more captive to the russian pipeline gas but now the refusal of those imports to make those available to europe and makes them impose prices to hero. with the obama administration was quite powerful and the trump administration and the same thing with whale. the shale oil over the horizon prevented a return because the market was getting tight and disruptive and we can expect those things going forward. looking at a dangerous actor like iran or russia. not just with a strategic stockpile but if we keep open the export facilities to supply that diversity.

>> thank you. to meet the global demand and then be enrolled in manufacturing operations most of my life. you are only as good as what the constraint is in the supply chain. what do we need to do to get the project up and running? most of those bottlenecks that exist right now. those are regulatory issues that could be addressed but what really happened is the crude oil market and two years ago to start building those pipelines. so what happened was the producers just did not sign

up. and they are developed like the biggest constraints will still be about a year before the pipelines are built. there is very little the federal or state government can do to expedite that. but in the future make sure we don't get caught in that situation to have the right tax incentives or regulatory structure to build that pipeline as fast as possible. >> so with those huge tax cuts to the richest 1% and that the utilities have cut costs but they did so because it was

required by the regulators to pass on the benefits of the tax cut to their consumers. they have not done anything of the sort. and have not raised wages or bought back their stock so i just want to make that note. this is a question with hawaii the highest gasoline prices in the country $3.70 a gallon in contrast to the cost in the senator state. with those proposals to stop fuel standards that could save $8000 over a new 2025 vehicle but the trump administration will propose a freeze viewable fuel economy standard and seek to revoke california's authority for automobile omissions recognized in 1970 clean air act.

what does freezing the standards have the effect on the u.s. or to find an alternative? what you call for in your testimony? >> it would slow those efforts with those fuel economy standards the evidence today shows it could be achieved without significant economic harm or driving up the price of the vehicles beyond the benefits with the social benefits of reducing oil demand and greenhouse gas emissions also i would just observe i don't think it's good for consumers to make decisions about long-term investment where they live or what kind of car they will buy. this is long-term not to mention automakers. we will move to a position where potentially we try to

move california's authority and think 12 or 14 other states have joined that and it does create several years of and certainty about what the standards are likely to be or maybe two different standards. that would be more constructive to bring everyone together as the last administration try to do to compromise in a cost-effective way to reduce with those options and alternatives. >> administration's proposal for those standards really isn't getting us to where we need to be. >> i don't think it is a constructive course forward to rollback those fuel economy standards. >> i realize oil prices are set on the world market with an interview with nbc

president trump said he would place tariffs on all those imported into the united states $505 billion last year. you all recognize the geopolitical effects of our trade decisions but what impact do the tariffs have on the cost of construction with the oil and gas industry to make new investments in the united states with consumers at the gas pump? do you care to respond? >> as an example three quarters of all steel used comes from overseas. and to refine in the industries the same way to have a direct negative impact on project liability from tariffs on imported steel. the worst thing as i mentioned

if this led to a trade war that was with negative implications domestically and internationally. it is bad news so we do what we can to get others to play fair but we have to be careful how far we go. >> to the rest of you agree there are unintended consequences to these consequences and pronouncements from the president and what i get what you are saying is we are trying to go for stability in this market as well as our own country. and that's not what is happening now. thank you very much. >> thank you senator. >> both of you mentioned the 2020 and mr. mcnally you said your talking points that you were not able to get to that

due to time constraints i will give you that opportunity now i also referenced the international maritime organization standards set to take effect in january 2020. the standard will reduce limits of marine fuels and look to the environmental impact on health. but the concern that is out there that compliance isn't moving along at the expected rate which could pose a burden going forward and since we are talking about where to go from here those unknown factors that are out on the horizon with the unintended consequences so to talk about that. can you walk this throughout -- through the standards the options for compliance and what that means for the market?

and whether you share the concern that i have raised that we could potentially see some price impacts and increases perhaps where we may not expect it for those who rely on diesel for heating or power or transportation from those that rely on home heating fuels sting i thank you senator. yes. the oil industry and market has been preoccupied with this issue for the last several years subject for a whole afternoon discussion but on january 2020 the limit on sulfur emissions of marine bunkers and heavy oceangoing ships will fall from 3.5 down at 5% sulfur sulfur very, very clean. there are two options.

one is to put a scrubber on your ship could still use the dirty stuff but scrub away the sulfur emissions. most agree has not installed enough and it is too late so the most likely option is to get cleaner fuel. so we will see a scramble from the heavy fuel oil and stop using that and go and put lighter much lower mostly diesel fuel in their ships to comply. there is no phase-in or credit trading so it is overnight you just have to comply. there is a concern that has been raised in the industry is unprepared. we haven't seen the scrubbers being built or at the global level the equipment to make that enough low sulfur fuel so

part of the solution unfortunately is that shippers coming to those who are currently using the low sulfur distillate like home heating oil road diesel users and farmers and tractor equipment and railroads and airlines they all use the same kind of fuel now we will bid that away from you that will increase prices with a 20 or 30% increase in the price of distillate next year others have raised the concern that the crude price could go up because the refining industry will scramble to run more crude and they are already working hard to make more distillate so while the environment will benefit and human health will benefit and are complex refiners will do very well we specialize that making this high quality distillate that for consumers

there is a real risk for a period of years the lack of preparedness for the january 2020 start date will lead to a substantial spike of consumer fuel onshore. >> 20 or 30% increase is that factored on all the other global certainty? uncertainty? that isn't a very cheery way to end this hearing. do you want to comment what we could do to avoid these increases? >> the problem exactly as he has mentioned going cold turkey on -- cold turkey on a particular day if this was phased in macon accommodate. i think everyone is concerned they will wake up on january 21 and the rules would be changed if we could

mitigate that and frankly i think there will be away. there will probably be so much noncompliance that there will have to be some sort of accommodation made i think that is likely and we have talked about it i think he has the numbers figured like 25% noncompliance. we think the same thing will happen. ironically it makes light crude or shale crude more valuable and petty crude like canadian crude less valuable but in the united states for producers it helps u us. >> but not necessarily the consumers. >> if you have focusing your state with diesel you need to be prepared what you need to say to them because their prices are going up.

>> and people in alaska i would say wait a minute. this is july you have plenty of time to figure it out. >> i agree with the other witnesses. we also understand there is not enough investment happening for the scrubbers. or there is not an option to use lng for the fuel. but it takes time and requires the infrastructure investment. so what will probably happen at the start of the deregulation the industry will rush with the low sulfur fuel oil and the diesel and by the way the low sulfur fuel will have to depend as the same market as american diesel so in terms of the refineries of

those certain types of crude, even though we have not come up with any type of numbers. we expect there will be a tight supply and demand situation. so that is what we are concerned about and we try to keep track of. >> we have three maritime states with washington and maine and alaska also play one -- pay close attention would you like to add to this? >> yes i agree we will definitely have the bump in the distillate prices it will cause a bump in crude prices because they are sanguine so it is difficult to say but our view which is purely a

guesstimate in 2020 this is the first global wide product specification change we've had low sulfur gasoline or diesel in other countries in asia and other places with the global wide impacting four or 5 million barrels per day of fuel so that has a huge impact on the market. there are options for waivers. the market will work itself out when it sees the problems that will happen i think we will see use obviously they have to take action and we will probably see some steps taken and the u.s. is a member of the imo can have a voice and that to help provide two phases and there will be a disruption unless something is done. our number at 25% noncompliance that is i guess.

it could be higher but it will be substantial because there isn't a uniform enforcement mechanism in the open water. every country has to enforce on their own. >> my time is well over but i want to jump in here really quick? >> i agree in part there are some mitigating factors don't forget the significant health benefits the increased demand for diesel is at a time when headwinds globally as companies move away from diesel they have known about these rules for many years. some have taken further steps than others including u.s. refiners and shippers so would to inject that element of uncertainty now could hurt the companies that have taken steps to prepare now and they start to get ready maybe they are not sure so that could

hurt in that. so if the far rules are far more disrupted they can issue waivers for lack of availability. just like with a new pipeline being built it takes a year or two so there will be a period of adjustment but history suggests that it often resolves itself more than we think they will. >> hopefully. senator cortez master we have done a full round but we can stop and include you. >> thank you very much for this incredible discussion. i am bouncing between two hearings. i appreciate the opportunity to read your comments before hand as well. i know there was some discussion in you testimony with the energy impact of

widespread usage of automated vehicles with estimates ranging from 60% in decline at a 200% increase depending on which they use for fuel or electricity can you elaborate what factors contribute to that large estimate range and what policy recommendations are on the low end? >> when we think of automated vehicles in the first instance we have to realize this will provide transportation services to those who are housebound. we will vastly expand demand for transportation wired, but there will be a big increase in demand. so the ease and convenience and the lower cost of travel it's not at my fingertips but

the chart of the percentage of americans with driving age but not a drivers license it is a big number so now imagine that is opened up so now the question is what will fuel these vehicles? will they be electric? most people hope that but then you can expect big climate and environmental benefits. there is a real risk as academics say it isn't a guarantee we will figure out this before that with that car shows up in front of your house is diesel or gasoline remember they always get more efficient they are not standing still. then we could see that 200% explosion of fossil fuel demand to up and the consensus forecast of a decline of oil

demand it could go like this because once again we discovered a new technology making the blessing of technology even cheaper and easier i can point some studies your way but others may have those that go into more detail. >> you all talked about the geopolitical risks. to lessen those is it fair to say if we go down the path of electric vehicles more so than anything else that would lessen our dependence to address that geopolitical risk? >> i don't think so near term there isn't a lot we can do with energy transformation the next weeks or months or decades energy transitions take decades unfortunately. for our lifetime in the foreseeable future we have to look at strategic stops. >> i'm talking long-term.

>> i bet we will be off of oil we will have that transformation like 1908 through 1915 but not because of government policies but the ingenious inventors will have figured a new energy source like hydrogen or electric or biofuels or something we haven't thought of yet and the new technology that will give us that transportation and a better way. when that happens it will flower very fast and not smart enough to know what it is. >> thinking madam chair. >> did you want to put a date to that? [laughter] neck i hope my grandchild sees that senator. >> so we are paying 452 million more this year than last year is the roller coaster you will described and how we continue to diversify from the fuel sources because

we have very affordable electricity as it is today and driving electric cars we see that transition in the northwest from some great companies like the trucking companies with energy efficiency moves. we will go as fast as we can. i asked in my opening statement about the high volume of trading going on and if that is something we needed to take a look at. for the volume of west texas intermediate trade has dramatically increased over the last five years seeing something like 276% increase in the number of trades per minute. is this what the cftc should look at make sure automatic trading process does not

create a spike or distort the market from the mom -- supply and demand fundamentals? >> this isn't an issue we have studied carefully i will caveat with that. it is true algorithmic training -- trading activity has increased significantly since 2008. as many other financial markets. the behavior and the implications of this type of market participation merit research and limited by poor data transparency i am not aware of studies on this issue i have heard market participants that algorithmic trading can lead to price wings and volatility there was a research note from citigroup noting the recent sharp

selloff stems in part by an element of trading. it is important to recognize even algorithmic trading leads to short-term price swings my colleagues may have of you that doesn't necessarily mean that affects those physical barrels paid by refiners or the price at the pump so that is a question of further study. >> i was just going to say i bet he does have something to say about this because those in the business have seen the unbelievable actions of the financial markets have great impact make yes. i mentioned earlier spent 15 years as a trader i am on the other side of this. more trading volume in the futures market then at any time of the electronic market

is a good thing because it creates more liquidity in the markets of the market is more responsive to supply and demand and getting back to what jason talks about you want your financial markets to be reflective in the physical markets and the higher-level volatility or trading that you have more like the that will be the volatility comes from the supply demand scenario is self. in terms of the electronic trading fee the changes that happened in seconds. whenever there is a new statistic the price may jump a few dollars because of getting in there but that impact goes away very quickly. from the cst c perspective they may need to look at it but from a market perspective.

>> we will definitely follow up with the cftc they had one case already where they were concerned about somebody impacting that. the tighter the markets the more you want to have transparency to make sure they are not affected. thank you for the hearing i think there is lots to do to focus on this issue and make sure we are having our colleagues have done a good job to bring up these other issues of investments for the future. so we can look at that as a follow-up hearing. >> senator? >> i want to bring it back to why we are here. in maine a one dollar change in oil and gas prices is $1 billion out of our economy. we are relatively small state. those of the numbers we are

talking about that are really significant. i just think it is important to remember that and it was interesting that senator said of the prices going up the only thing to do is to produce more. there are two things one is to produce more the other is to use lesson that will affect the price just as an increase in production that is something we need to keep focusing on. what worries me is the roller coaster that we start. i'm not a great believer in government intervention but i do think we need to think of the policy implications and long-term price implications of what we do to increase the volatility because that translates to people's ability to buy groceries rather than gasoline and it's important to continue to ask those kinds of questions. i think the witnesses this has

been an informative and important hearing. >> thank you for that add-on we recognize there are some things we can control and some things we cannot you cannot control the volatility that you see with political issues and other nations. there are somethings that are well beyond our control like natural disasters to bring about shortages that you could never predict that there are policies within our own government we can look to critically and while sometimes we cannot accurately predict all those consequences that are unforeseen i think that is part of the job to try to reduce the volatility to the extent that it is possible to be cautious and careful and moderate it is not about approach. with that, thank you for your contributions this morning.

it has been a very informative hearing. you helped to round out our thought and we appreciate what you the [inaudible conversations]

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i don't want my kid to read stories that are sad, disturbing coming down, whatever. it's not a totally legitimate thing to say. i want to choose as a parent when my kid understands the stuff that might bring them brief but there is also a certain point beyond which they are 14 now so when will you introduce them to the idea that not everything is perfect outside of your all white suburb. all of those factors i think swirled together to create the perfect fire of censorship

the whistleblower and president clinton and monica lewinsky scandal spoke publicly for the first time in years joined by lawmakers and others in marking the whistleblower they. this runs about two and a half hours. >> patron saint of whistleblowers, save my case and dean is now here to introduce