floor fighting with one another. one of them whose name was wade did a couple of his wig off during the fight and someone yelled he scalped ten and that was enough to stop the fight. [laughter] >> congressional historians richard baker, donald richie and pray this one on c-span q-and-a. .. you

>> when i look at the global markets i see factors pushing oil prices up to significant factors that are restraining them. on the one hand global oil prices has strong economic

growth and this is almost a trade off. prices were a lot lower when the economy was weaker but i don't think any of us want to trade our remarkable pace of job creation and low unemployment to go back to those days. another factor with higher prices with rising and not falling in the driver is led by emerging economies such as china and india as the same time we have fallout from the strategy of artificially protecting supplies no question that has renewed inventory to push prices higherer we also see the effects of supply disruption across the globe to canada and venezuela. there is somewhat of a silver lining while prices are higher it is not as bad as it could have been because of significant increases inin production to bring tremendous benefits to our country in the

global economy to create jobs bringing degree instability to the market and to make policy decisions with those exports that allow uss to become a major power on the global stage. u it is complicated enough to understand where we are today but most are interested in figuring out what really lies ahead. as markets cement lung -- loosen up with global demand where are the geopolitical hotspotsul disappearing from the market at a moments notice? what will happen to ensure that energy can be transported from where it is produceds and

consumed what happens if it releases oil from the eject petroleum reserve not for an emergency vet to manage market what about tariffs and the abilityke to access markets in countries like china? what will happen if global capacity shrinks? what are the looming impacts of the low sulfur standards? and friends and center front page and all the news what will happen withpe iran? i believe the best course is to continue efforts particularly where we have the capacity to do so that was the rightr to open the coastal plain for offshore development.

there is no substitute for u.s. production as long as we need it as long as we can diversify away froml oil. this is a truly distinguished panel of witnesses we have one witness who literally wrote the book on crude volatility. in another who has come full circle to testify in 2016 about the impact of low oil prices and then others who will share their perspective on the north american market. we are not quite at 12 yet so senator cantwell you can do the opening hearing. >> this is the time the meeting. so to feel the burden of higher fuel prices $155 more

in fuel cost as compared to last year. prices are around 60 cents more than they were this time last year and that is the highest we have seen in four years my constituents are aware of those prices from the third highest prices in the country even more than some prices like alaska but currently drivers are shelling out $3.41 per gallon it cost about eight dollars more than last summer. everything from those who are moving product are key again in those products to market and make it more expensive. that is less take-home pay and higher prices for the good that they transport.an with that impact to take aggressive action a all fronts

and then with those prices not only do we have the internationalfi cartel market obviously lots of statements in the last couple of days leading to uncertainty in theth market what if those iranians do follow through on their threat and then the shipping lane is just 3 kilometers. i hope to ask the expert witnesses about that as well. also in the tight oil markets for volatility and potential for manipulation to find ways to protect consumers on all of these issues that we are breaking monopolies at the pump whether that means progressively look for alternatives to solutions to make sure we focus on opportunity i would like to learn more why record levels

of production does not provide any relief at the pump. last week we reached a new record of 11 million barrels per day slightly behind 11.4 million barrels per day. with that level of carbon in the atmosphere to be unsustainable that increase is a bloated whale economy with those household budgets. and then to propose a 62% increase in quarterly profit so the reality is that they have doubled supplies have been relatively flat and that is because opec and r other producers started in january 2017 harder they work to make

sure prices stay high it is hard forl us to grow our way out of the problem the effective way of the national an individual cost to beat the opec monopoly with some good old-fashioned competition at theom pump they should have homegrown biofuels and we should continue to push for electric vehicles and lower operating cost for consumers members have been instrumental but now the administration tries to reverse the progress reduce consumption by 2.4 million barrels per day when we were on track saving $130 billion to implement these policies reducing oil consumption we have learned it is also creating jobs for more

than 288,000 manufacturing jobs and 1200 jobs across the united states. t these alternatives show that can and we need to keep moving forward but the trump administration seems to be adhering to tear down these alternatives. i also want to talk to our witnesses what the executive branch is using the investigative authority to make sure that untoward things are not happening in the supply chain with those one day changes have raised concerns about the role ofat speculators with the algorithms. on july 11 domestic oil futures have the steepest one-day percentage decline in more than a year the strata changes in one day have caused the market observers to raise

concerns about automated trading. so obviously all of the tools should be in the toolbox to give the american driving public the best opportunity and i look forward to asking our witnesses. >> we do have a quorum present so we will proceed with the business meeting to consider the for nominations for the department of energy we circulated this previously secretary donelson and ms. evans assistant energy for emergency response and the director of office of science and mr. simmons assistant sec. for energy efficiency and renewable energy. a roll call vote has been called for mr. simmons the

question is on the nomination and the clerk will call the role. tee4 [roll call] [roll call]

nomination is agreed to now we will go to voice votes on the members that will be recorded in opposition are there any objections? ms. donelson and mr. evans all those in favor? all those opposed? the nominations are ordered recorded favorably would anybody like to be recorded as no on the name and -- on the nomination? >> ms. long -- no on ms. evans. >> anybody who wants to make statements? those statements can be included as part of the record.

the business midi is adjourned i appreciate the members being here so we can expeditiously conduct the meeting. with this we will now turn to the full panel with a distinguished panel before us and we will begin. from the energy market security agency. and the founder and president for the energy group

mr. brazil is president and chief executive officer welcome. vice president for turner mason and company we welcome each of you to the committee this morning. wonderful statements are incorporated a and in those words to share with us he would like to begin? >> thank you chairman. ranking member cantrell and distinguish members thank you for the opportunity to present on the factors affecting the global oille prices.

and the executive director and that plays a critical leadership role and thanks to the chairman the u.s. is leading supply growth in oil and gas and it has expanded in the oil security system as a mandate for theob agency. here more than 50% higher than a year ago and the over achievement by opec and non-opec producers and for more than 3 billion barrels

january 2017 and below the five-year average. from the low point and nearly $80 per per barrel in may 2018's going forward and the global oil demand growth. but there are signs of stress with oil price increase. and to originally reduced or eliminated subsidies and translate to the higher prices at the pump. and to see sharp rises in their price of oil.

and it has escalated to inadvertence the impact of the economy. there is several major supply uncertainties. we cannot know how much uranium oil will be removed but the recent indication that the oil production in venezuela is continuing it is only 1.3 per day and could be below that by the end of this year. the recent strikes a goes to about half per day but the situation is improving and we cannot be sure. the disruptions are happening

including iraq and canada in the north cm brazil. under such market conditions decisions by the signatories to increase production is welcome but it comes at the expense that united states is the largest contributor to the supply increase going faster than the global demand growth. it has been revisited upwards because of capacity of the pipeline. it hasn't been helped with that low level of investment and also don't forget the production from the existing fields is declining 3 million parts per day and that is the north sea field each year. we are in the challenging period. political factors more than

pure environmental's are important to determining prices. despite the rapid growth oil will be the dominant fuel. and in decades to come. therefore we will continue toed be critical for a free night -- rainy day in economic systems. and to have inside and outside and the marketing development but on behalf of everyone i am happy to answer any questions. >> mr. mcnally. welcome. >> madam chairman, ranking member members of the committee am honored to be

back today. i thought what i would do is focus on first the return to authentic boom and bust cycles on those factors that pushed the month as the chairman alluded to but the real issue preoccupying us in the industry for years and frankly it is remarkable how little notice itt has gotten in washington. that is imo 2020. but step back to note these are not what normal oil prices last 16 years you don't see them tumbling in crude oil without a war but it happens in 2004 through 2008. and they just don't fall 60% in half of the year without a recession or a supply surge. this is on usual. why?

now when and then it became the volatility touches for the oil industry but for government and industry and airlines for everyone who depends on oil. to vanquish to stabilize prices governments and the industryun and the folks forget the united states was the king of opec. specifically state of texas. exhibiting heavy-handed intervention and the road commission and they go well by well or field by field if opec is getting along then we were

the king. why did those folks in texas agreed to heavy-handed intervention in the market? stabilize. >> opec took over from us in 2008 but many thought that shale will but those that think that new oddity i have my job so we can discuss that. but this is veryom important. we haven't seen in four generations this type of volatility. nobody regulates supply. turning the hero we see the

market loosening witht production and now brazil and saudi arabia even with good demand. there is a lot of fear in the market with trade t wars. that puts prices down and then also pushes prices up and this gets back to the capacity issue. and then they will hold plaque but when you get into why disruption about war just want to call to douse the fire before it burns out the holes he but iran exports

2.5 million barrels per day but in the oil market it makes a big difference in price with commercial inventory back to normal the loss of two and half million would be a big deal. iran has threatened to interrupt the 19 million baron billion barrels per day. that is a bigger problem the biggestre problem that they cared for and it is cleaning up the mind that they can assure those chips goes through so i'm chairman i will

stop here wish i could predict mike i had the honor to testify you build pump prices had entered a space mountain. i maintained the view in the bang for the roller coaster ride on space mountain. >> mr. brazil welcome. we will have a different view. our vm energy is a and market analytics company when processing for the crude oil andiq gas.

so we are double that is right because the shale revolution but instead of focusing on the magnitude of that growth i want to focus on the responsiveness with u.s. production. the nature of this responsiveness to be impact on the global market and i will explain what i mean in a few minutes t where those fundamentals to get you to that point. it has radically changed so today it can bring between five and 11 times the amount of crude oil in 2011 they come on strong producers can drill

them fast in the results is a dramatic reduction of the per unit cost. those have 4.5 million barrels per day and that is why is because for them to reduce production from two years ago he had in fact to make room for u.s. production. your free --dash geography of thehe last two yearsk and then more than half ofan that growth and it is even more concentrated than that. and with 28 counties with 55 square miles and then that is

the size of the wheezy anna. that's today. where we'll prediction expands and so if higher prices providero so smaller wells will produce lower yields is economically viable. but but that is what i mean with responsiveness with key to u.s. production now in the global a energy markets. it will give more responsive. a prediction for times a year forr the u.s. and we did one for seven bucks flat and then another at $55 flat.

that $15 differences differences 3 million barrels per day change in the forecast between those two scenarios one could be a small price differential but then to respond in a meaningful way the increase and decrease of price. so the economics improve and then production increases. in production volumes drop. but it is like they are in a

store -- a sewage tank so it is market price. but honor : --dash that will continue further in the years as shale production continues to grow. and for the world as a whole for that matter and i appreciate the opportunity to speak with you. >> thank you very much thanks to all committee members but to have independence as a goal now we want energy dominance.

to stand with the political posturing in fact has already established in some sector of the energy business. u.s. has transitioned from the largest importer by the largest exporter. moving from a shortage of 2.5 million barrels per day to a surplus of 3 million barrels per day to become a global expert powerhouse will depend on what they do well and the failure of competitors around the world. that environment is the case in most other countries over the years the market signals have been to the herd and with the most advanced and complex assignments in the world this allows them to process crude with high yield also has the

deepest labor pool in the world management and combined with more flexiblele employment work to allow them to run their plans higher rates and also perform maintenance activity at a lower cost. a major boost is the shale revolution this event also facilitated by the free market allows quail and gas production to soar. and has many global competitors. but that boom and oil production that is substantive in the other advantage building and running the fires is a complex task and then to

be properly incentivized to operating planning efforts many of those are lacking in other parts of the world due to the overregulated environments. and then with help to u.s. refiners averaging with 70% in the u.s. and despite thatde regional demand and capacity over the last decade not for lack of trying to the plans are initiated and was no significant cost overruns and delays with government control companies with big correct staffing. those same issues with the plants most 2 million barrels per day in the last decade. with the export markets have been a necessity and with that

strong growth experience with l higher prices with domestic consumption still 100,000 barrels per day. the spices are friends were shutting down in a similar areare they had 1.4 million barrels per day. together the boom of domestic crude production is a major contributor. and this is important with the recent example is the resilience as they try to supply after the u.s. gulf coast with hurricane harvey.

men to put those developments of changes in the regulatory environment. on the regulatory front and all could negatively impact to cost you fall in this category with the other segments of the petroleum industry i just have one example of u.s. pipeline. wonderful still the biggest threat was a declining domestic accountability by demand. those new regulations for the consumers and then a capital judgment of every segment. also countries around the world with transportation

fuels and environmental rules. the 40 made those advantages. and then to mandate with those complex facilities that is a challenge for others. let me just say. also an important national security aspect. and as an attempt to achieve the goal. but that income that for policymakers to remember this with the effects on consumers the legislation they consider.

chairman and ranking member outlast here april 2016 at a price when they had collapsed to the high 20s and now around $80. so to explain those factors.he with those policy implications. without shale production. after they fell about $30 a barrel countries came together

to prop up prices to the mid- 50s for much of 2017 and they began that the cuts work to bring down excess inventory and then that has been exceptionally strong with the tenure average. in the venezuela production collapse then those additional factors to push up prices even further. with that additional oil supply with the introduction well to half with short-term averages. with those fears of the historical small capacity as my colleague explained so well. and then prices fell again as opec countries announced it would put more supply in the market. in the trump administration

signaled a softer approach and raise more fears for the slow down as a result of the escalating trade war and what does this mean for policy? first it is impossible to predict at our hands today and the energy policy decisions should largely be made independent of today's oil price.de t one that would reduce oil prices could be a release with current conditions do not warrant that there are better ways tont mitigate and with those significantal geopolitical risk and then i said i think

pay off for other priorities. >> the shale revolution is geopolitical benefits. they are still based on oil prices so when the prices spiked so shale can be ramped up and down more quickly that comes less from how much you can produce to what you choose to hold two available two years ago then shale could not stabilize the market. that is the only country that chooses to have spare capacity. the third way is to future oil shocks and then continuing

with planned and then to reduce greenhouse gas emissions. g while there is light to reduce demand can reduce the harm of the economy overall from oil prices to lower imports because the increase of consumer ohe spending circulates within u.s. economy rather than flows overseas. why the u.s. economy is so much less benefits from the oil pricece collapse then from previously was the case. because the consumer savings at the pump were offset to reduce oil related investment which is a bigger share of the economy as a result. we heard about the infrastructure bottlenecking to facilitate responsible productionon without that you

have been led to retaliatory efforts. >> thank you for your questions. >> thank you all very much it is very interesting. i want to start off with the subject that everyone is talking about this weekend that is iran. several of you mentioned the surprise disruption and global disruption we have seen in venezuela and bolivia and certainly with the potential for iran to go off-line. so where does the supply come from in so to meet the

potential for shortfall. and then if i could have what we discussed the issue of spare capacity this is an issue trying to get a real handle on that you have mentioned it was really only saudi arabia that has true spare capacity. that your suggestions that shale oil is not necessarily sparee capacity so can i have a conversation about where do we go if we do have this severe disruption so how does the

global so what assurance do we have? nothing. have to take note of the fact that the but then they also come from countries like venezuela but the fundamental agreement that we understand from the last meeting is that they would recover and increase the production and low word the liberal compliance. so that means the rest of the

countries in that group are producing less intentionally than their capacity. >> so to what extent should they increase production? >> in terms of the numbers. and those that are the opec members but together they should have with overproduction capacity and the producer who can increase will be russian and indeed there would he started to open in june. it is happening

>> of course. they seem to be increasing at the very top rate. >> he is one year 2018 we expect that to continue but that is all at once. but in a sense the market participants are incorporated in the united states. so what we seeg right now is the pipeline capacity which is preventing that part of growth in the short term. we understand those many projects from west texas a&m that pipeline is completed the timing and 2019. but in universal terms it is hard to expect and then not to see the infrastructure.

>> would you like to add to that? >> yes chairman what i was with president bush when we liberated iraq. v so the policy problem. >> you cannot take it out the oil field but the first place if you lost two 1/2 million million barrels per data and you goo to spare production capacity held by saudi arabia we went there 90 and 91 they they were a little late. saudi arabia provided that that's the third apartment.

>> back in the last two years we had extra inventory so we had to work it off faster that would be okay and not have higher prices. but those commercial inventories in asia and africa we don't see those. and then to bring down russian and this leads us to our guest result and in other iaea i so we are reduced when you wentnt to see what are we to lose?

and later this year or next year. certainly this and it is about 3 million barrels per day because they have the -- howdy. in history and. >> that is the lower that you have deduction but then what does the roller coaster look like for the future? that is one of the most challenging things to get our lines

around. so as a consumer now that spare capacity issue. we will not avoid still being wrapped around the global market. so one thing i wanted to ask about lot of the oil executives will say there is a

but there something between 15 andet 20% with the increase in price based on the fear factor is there a sense. >> it is hard to put. >> they could take a harder or softer line is and then to run into the iranian oil purchases it is designed to doced againste

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

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