already mentioned, those play a tremendous role in oil consumption in the future. and we're seeing higher fuel economy standards, not just in the u.s. but also europe and china, other markets. one more challenging aspect to the efficiency efforts are buildings and structures. cars on the road for maybe 12 years, a building can be around for 100 years. and encouraging, providing incentives for greater building efficiency could go a long ways. >> yes. mr. diwan. let me ask a very quick final question for dr. gruenspecht since you mentioned heating oil in the northeast. i'm very concerned about pad one, as you pointed out. you talked about the refineries that are down on the east coast. can you talk about the correlation between that, if there is any, and what we're seeing in increased costs for home heating oil in the northeast.

>> thank you. i don't think there's really much correlation. i describe the broader picture of gasoline and distillate and, you know, as senator brasso pointed out, distillate prices in wyoming are very high. i don't think this refinery issue this winter so far has been much of the issue. i would point out that in our -- we do a winter fuels outlook at the beginning of each winter. i think in october. and we did flag the, you know, the heating bills as being for oil users as being pretty significant. this upcoming winter -- >> right. >> -- and, you know, we've gotten a little bit of a break on the weather, and that's helped everybody, i think. it's come down a little bit, the projected expenditure increases. but i think we're still looking for the average heating oil user -- and it varies a lot depending on where you set your thermostat, where you are, how

good your house is insulated, going back to energy efficiency, but still looking at $2400, $2300, you know, high as the winter fuel bills for heating oil households. and that's much higher than households using other fuels. >> yes, thank you very much. >> bad news travels fast. >> senator portman. >> thank you, mr. chairman. i really appreciate the testimony. i got a chance to read through some of it while i was waiting to ask the question that i missed earlier. this is actually, i think, a lot of good news today that we're hearing in terms of additional energy supplies. and i'm particularly heartened by the comments of ambassador jones and mr. burkhardt about efficiency because that's an issue where i think we can make huge progress. i'm one of those. and i won't necessarily associate my colleague and co-sponsor with this, but, you know, we need to produce more and also use less. and those are not inconsistent. but my colleague and i do work

very hard on trying to promote efficiency. and as mr. burkhardt mentioned, a lot of this has to do with buildings. our focus is really manufacturing efficiency and buildings. and it's trying to deploy as ambassador jones said some existing technologies so we're not as much focused on even the innovative side, although we want to encourage that, and taking best practices in the united states has tremendous potential to even catch up with some other industrialized economies, namely japan and some of the european countries. and we can be more economically efficient and therefore help our economy by being more competitive and also, of course, as you said, we can use fewer imports by doing so. but we also need to produce more. and again, i think those two are not only not inconsistent, but i think they both help to create jobs and economic activity. again, i found looking at your testimony some very good news. mr. burkhardt, you talked about

the fact that ihs global has now said that shale gas production has supported more than 600,000 jobs in 2010. they project 870,000 jobs by 2015. i think that's low. just based on what's happening in ohio where we have another projection showing another 200,000 jobs from utica alone during that time period which would account for almost all of that growth. so i think there's a lot of good news here. what is holding back the natural gas production and distribution, mr. burkhardt? >> well, the -- on the natural gas side, prices are quite low because of this revolution and shale gas production. but what we're seeing is more companies shift towards liquids or producing oil. and one of the factors that's influencing the pace of investment is the rise in costs, finding the right people, the

right equipment. there's not a limitless supply. there's, in fact, a missing generation of folks in the petroleum industry because from about 1986 to earlier this decade, oil prices were low. the industry was consolidating. there weren't many people entering the industry at that time. and as prices have risen, oil prices have risen. and activity has picked up particularly in this country. there's been a great deal of pressure in finding the right people and getting the right equipment to the right places. so that's a significant challenge. >> so the testimony this morning, that's interesting, you all talked about the fact that because there is both wet gas and oil in some of the shale finds that that has encouraged people to go ahead and explore and extract even though the natural gas prices are relatively low. will that continue? i think of marcellus where maybe there's less of the wet gas or oil, but utica, maybe there's more. will that encourage more develop in some of those finds?

>> yeah. >> mr. diwan. >> yes. we need to think about the u.s. gas market as an island. so if we oversupply, which we are right now and prices are low, on the oil side, we don't have the same issue. oil prices are already global. and at the present prices and the present taxation system in the united states, these barrels are very profitable. so we will see a continued development of liquid plays. and i think in the next two to five years, we'll have three or four new plays emerging just because of that price differential. >> mr. burkhardt, when i asked you about what might hold it back, you talked about skills, personnel and just resources devoted to oil maybe taking away from natural gas, the price of natural gas. you didn't mention infrastructure, although in your testimony, you talked about that. can you talk about what you see as some of the limitations on natural gas use and distribution because of our infrastructure challenges? >> well, one of the new really exciting developments in energy is the northeast from ohio,

pennsylvania, that area becoming a significant gas producer and possibly oil producer as well. there weren't -- the u.s. pipeline system wasn't set up to ship gas away from those areas. it was shipping gas to those areas. so the challenge now is, you know, getting the right pipelines to the right places so that gas and liquids can be economically developed. what we're seeing is this great revival on the supply side. this great revival has showed -- illustrated that our inf infrastructure system, our pipeline system, whether we're talking about the midwest or the northeast has yet to catch up with this great revival. >> and you would add keystone to that as well as mr. diwan said earlier, there still is adequate capacity now, but soon there won't be. and that would limit as well some of the development of some of our north american resources.

>> there is enough cross-border capacity for the next few years, probably maybe till around 2019. but the problem in the short term, say in the next one to two years, is saturation of the midwest refining market. there's only so much oil that refiners in the midwest can take from canada. so that's expanding the reach of canadian oil to other markets in the u.s., namely the gulf coast. >> the gulf coast is critical. >> listen, grit testimony. thank you, doctor, and all of you. my time is up. we appreciate your continuing to give this committee good information. >> senator landrieu. >> thank you, mr. chairman. i really appreciate the testimony, as usual. it's very, very helpful as we try to direct our policies to respond to some of the changing reali reality. i'd like to submit first for the record a report that just came out from our greater new orleans inc. that talks about the hidden job loss along the gulf coast.

a story that really, in my view, hasn't been told because the unemployment numbers after the mccondo spill have stayed relatively flat. employment and unemployment. but it's because of the shift from south louisiana to north louisiana with the shale plays. but in south louisiana, we still are experiencing tremendous downturn because of the slow permitting process. the deepwater plays are significant, but the shallow water drillers have really been hurt. and according, mr. chairman, to this report, which is really the hidden story of the mccondo spill and the, i thought, inappropriate moratorium, put down 41% of the respondents said they are not currently making a profit. these are the small oil and gas independent marine operators. 70% said they have dipped into their cash reserves. so they're not laying off their employees, but at great hardship

to these small and independent businesses that are servicing an industry that the top line looks good, but there's a lot underneath. so i'd like to submit that for the record. >> we'll be glad to include that. >> secondly, in the report, supply rising in the west growth at risk in iraq, i think it's -- the page is not numbered, but this is in your report -- you all say that we have pencilled in an end to output losses in the gulf of mexico after the mccondo spill. and it's in the paragraph where you talk about the u.s. will lead the growth in liquids, et cetera. can you help us understand what the output losses in the gulf were after the mccondo spill? yes. >> yeah, i'm not sure that the report you're reading from is iaea, but maybe it is. >> maybe it's mr. diwan's report. >> yes, i'm sorry, mr. diwan.

>> i can help you with your question anyway. >> let's get him and then we'll get you. thank you. >> well, delaying permitting has an impact on our projection for the deepwater output. and was the restart of the permitting process. now we are not seeing decline anymore, and we're seeing a flattening further out on the horizon. we passed the bottom of that forecast. >> but i'll say as the representative from the state that has the most besides texas of offshore drilling, it's been a very painful three years. and i know that senator portman talked about producing more. we've got to get the gulf back up and operating and producing. not only is it the home to tremendous opportunities for oil and gas both deep and shallow, but the refining capacity for the country is, in large measure, or a large part of it, and the pipeline system, which is much more robust than other

pipeline systems there. so getting the gulf back up and operating, mr. chairman and ranking member, is important, and it's going to remain a priority. let me ask any of you to further discuss the significant increase in liquid fuel production because while climate is important and the environment is important, i'm really, and my constituents, are very concerned about the economic vitality of the united states going forward. the president talked about building an economy to last. people are very interested in making america more energy secure. you talked about the increase -- substantial increase in liquid fuels. could someone describe in a little bit more detail, are we talking about oil, or are we talking about biofuels? where is the growth potential there? created from other agricultural or other scientific processes like algae,

et cetera? does anybody want to comment on that? because the combination of increasing our liquid fuel production and decreasing our use through efficiencies and automobiles is extremely exciting because i think if i'm hearing what you're saying that we could have a major impact on not just job creation but on the economic security of the united states. am i reading too much into the possibilities here? starting with diwan. >> yeah, actually, i think you're not reading enough into what we're saying. we all believe that actually the production of crude oil and natural gas liquid in the united states will grow tremendously over the next ten years. the technology is there now. the resources are there, and industry is investing to bring them up. so we're really talking about a major revival of the u.s. oil and gas industry.

i don't think we really disagree on the magnitude even. so we all believe it's really the biggest thing happening in the oil and gas industry going forward. and the investments are available. the funds are available. we have, as jim described, issues in finding enough people, actually, and costs are rising because of that. that development, i think, limits also the growth of the other fuels outside of oil and natural gas liquids because we have such an abundance now. and so much to invest into that area that i think we all have limited growth in other fuels. and -- >> and we call them drop-in fuels, you know. alternative fuels that you can drop into the pipeline without having to redo all the pipelines. what are our most significant opportunities in drop-in fuels? go ahead. >> yeah. in the energy independence and

security act of 2007, you know, congress enacted and the president signed a very ambitious mandate for increased use of biofuels. i think that's pretty challenging. right from the start it looked pretty challenging for us. the cellulosic biofulls in particular which is supposed to grow to 15 billion gallons by 2022, you know, we've always been fairly skeptical that you could actually get there, and the passage of time has not ameliorated that skepticism. think of as -- there was a vision perhaps in some people's minds that a lot of that would be cellulosic ethanol. and we believe that a lot of that what is done which we think will be less than the full amount would be a drop-in, what we call biomass to liquids. a diesel-type fuel that unlike

ethanol would go into the normal stream of commerce, if you will, as, you know, interchangeable with regular fuel. >> it doesn't require as much of a subsidy. and anything fro amssador jones? and thank you, mr. chairman. >> first of all, i agree with all of the comments that ahave been made. in terms of biofuels worldwide, all types of biofuels, we, in our world energy outlook, we saw them tripling between now and 2035. so that's probably a little bit more than 3% per year worldwide. in the united states. so they're fairly aggressive policies, although they fluctuate. and again, i agree that cellulosic biofuels are going to be a long time coming. ethanol is going to be the main source of biofuel. i think for some time. particularly sugar cane ethanol, which the brazilians are trying to spread their experience

around the world in tropical climates. but other crops can also turn -- >> and one other thing i'd mention that's significant, the country, first mr. chairman and ranking member, issued its first permit to build an export facility for natural gas. the company received its permit. and i helped to push that and proud of it. i know there's a debate about whether we should keep the natural gas as an island. the problem is if you don't create a market for it, you get prices as low as they are today which is a disincentive to production. so you've got to figure out the right price point where you can get people to invest in natural gas which is a cleaner fuel, but also, you know, so opening up that export i think is the right thing to do. and i just want you all to say yes or no. do you agree with that or not? opening up exports for gas. yes or no. >> i don't think i'm allowed to have a position on that.

>> ambassador jones? >> yeah, we believe that trade should be more driven by the market. if the market -- if there's market demand for it, we don't think that there should be export restrictions. >> developments that foster and enhance global trade of energy makes for a more robust system. >> mr. diwan. >> i agree with them. >> senator murkowski, did you have additional questions? >> i do, mr. chairman. a couple follow-ups, one on iran sanctions, and then the second on the issue of reserves that i mentioned in my opening. so let me start with the sanctions. and this is directed to you, mr. diwan. dealing with the potential additional impact of sanctions. we know that the europeans have agreed in principle to ban the imports. but reading from your testimony, it seems that neither italy nor greece will comply at least to the extent that would have been expected. and given your point that you've got india, you've got south

korea, turkey, all increasing imports combined with what we know about the strong demand from china, what do you think the practical effects of these new sanctions will be? >> italy and spain will have to comply with the sanction by july 1st. the question is would they do much between now and then to try to diversify their social supply? they have long-term contracts. i think it's not very easy unless the iranians decide to embargo them. the problems are specific for each country -- which refinery gets what from there and there's long-term commercial relations. but it's likely that over the course of the year by the end of the year, they will not be allowed. they won't be able to import as much as they are right now. so we believe that they will have to decrease their supply by

around 400,000 combined. the question is, are there other countries willing to pick up that slack from iran and in a way just shift the barrels as ambassador jones said. when you look at the countries which are really potential clients here, turkey can increase a little bit, and the question is how much will the u.s. face the sanctions. it's unlikely that a country in asia will take more iranian crude. and the question is really how much india and china are willing to become more dependent on iran as a source of supply. we don't believe, actually, that china will be very aggressive in increasing its imports of iranian barrels because it will make them more dependent and volatile to disruption of iranian barrels. and they have somehow indicated that they're likely to keep the percentage of imports from iran stable which is around 10% of

their crude imports. their crude imports are rising. so that 10% means a little bit more barrels than the year before, but it's not significant. the question is really india. but the volume we're talking about, 400,000 to 500,000 per day from iran which do not have a place to go in europe, it's unlikely they can absorb that much. in a way, iran will have difficult to be able to replace these markets. and we believe it's more likely actually that we'll have to shut down some production or at least have floating storage for some of that production before they shut it down. >> then following on that, can you discuss the ways that iran could possibly circumvent the current sanctions both in terms of financial payments or physical delivery, then? >> well, they need a client who's willing to circumvent the financial sanction. and the way to do it is to

deposit local currencies into a local bank that the iranians can draw from what they need to import back into iran. i think they'll have real difficulty to go through the international financial system. it limits, again, which countries have the capability and the ability to do that. >> so really, it's going to be incumbent on all those that are adhering to the sanctions. some pretty robust monitoring and some enforcement there. i would imagine. mr. -- dr. gruenspecht, i wanted to follow up with regards to the eia's lower natural gas reserve estimates. indicated that they've dropped precipitously 40%, as i recall. do you expect that this lowering of the estimates may possibly discourage further exploration?

is this going to have any impact one way or another? >> i would say not. again, whether the u.s. has 100 years of total recoverable resource at current rates or 90 years of total recoverable resources estimated at current rates. i just don't think it has much of an effect. i think the thing that would affect development would be the view of companies on the ground as to how much it costs them to drill a well and what they can recover by drilling the well. and the price so they care about the quantity they can recover by drilling a well. what it costs them to drill a well and what they think the price is going to be. that's really what they're focused on. you know, whether we have 90 years of total recoverable resource or 100 years. >> i would agree with that.

40% reduction is noticeable. but as you put it in those context -- let me ask, then, how much of the eia reserve estimate, then, is actually driven by the production data that's out there? >> again, i would say that usgs is the primary agency in the united states government that does resource estimates. we do the work on reserves primarily. resources is a larger concept. the usgs had not done a marcellus estimate in a long time. they had a very what we consider to be a very low estimate, one that we couldn't use. so we made up or developed our own. made up is a bad word. >> bad word. >> strike that from the record. and then after we did that, usgs came out with an updated marcellus estimate which was the

84 trillion cubic feet compared to their prior estimate. the 84 trillion cubic feet was significantly lower than the number that we had developed internally. you know, we're obviously sad that when they came out, we would update our work based on the usgs work. we did try to do that. >> so do you think that you will revise the estimate again? >> i think this is a really tough area. i think there's too much emphasis put on that number, no matter whose number it is. i think that as we gain more and more experience with actual drilling, the numbers will always tend to evolve on total recoverable resource. and again, i don't think it's that material for the 25-year horizon that i think we have been looking at in our projections long term that the iea looks at.

in fact, we have more production and lower natural gas prices in this outlook than we had in the previous one. and that really reflects the drilling costs and the productivity. >> i think this is an important part of what it is that we're talking about and understanding what's going on. again, the president's state of the union that he gave last week, he, again, repeats the fact that -- i shouldn't say it's a fact. the statement that this country only has 2% of the world oes oil. well, when we're talking about reserves versus resources and recoverable, we all -- you all know at this table that the number can be all over the board here. and it's how we define it. and i think sometimes it's a pretty loose definition that would lead people in this country to believe that we really don't have much of a

recoverable resource. so it's important that we use the right terminology and try to be as accurate as we can, recognizing that we're dealing with a very fluid assessment again as our technologies and our capabilities expand. did you want to finish up? >> no. >> okay. no, i appreciate that. mr. chairman, that's all that i have. thank you. >> thank you. let me ask one other line of questions. dr. gruenspecht, your testimony, in discussing the world or the international energy outlook, you say renewable energy is projected to be the fastest grow ing source of primary energy over the next 25 years. the renewable share of total energy use increases, in your projection, from 10% in 2008 to 15% in 2035.

do you also have in your report an analysis of what those trends would be with regard to renewable energy? >> yes, particularly in our annual energy outlook, there's a lot of information on renewable energy. again, it's very fast growing for two reasons. one, in the transportation sector, you have the mandates for the biofuels, which even though we don't believe that the target at 2022 would actually be met. that certainly is driving renewables in that sector. and we have a lot of renewables in the electricity sector. the share from renewables i think grows from, like, 10% of generation to 16% of generation. so that's a pretty big increase. generation is going up. although not too fast. we have renewables being pretty

fast growing in the united states. on the electricity side, it's mostly driven by the state renewable portfolio standards. there's also some interaction between the transportation side because the plants that produce cellulosic biofuels, those plants will throw off some. it's a very interesting story. >> does the analysis that your agency has made, is it consistent with this as far as renewable energy being the fastest growing source of primary energy over the next 25 years? >> well, it's certainly growing very rapidly, yes. i was just checking my testimony. according to the world energy outlook, the share of