education and an all of the above strategy for developing domestic energy resources. the u.s. economy has considerable long-run strengths that will put us in good stead as long as we build on our strengths and take the necessary actions to make the economy more inoaf vative and our workforce more highly skilled. this point was made very clearly by president obama. in his speech in kansas he noted that, quote, the world is shifting to an innovation economy and nobody does innovation better than america. no one has better colleges, nobody has better universities, nobody has a greater diversity of talent and ingenuity. no one's workers or entrepreneurs are more driven or more daring. the things that have always

been -- >> and we're going to break away from the last few minutes of this program. can you of course watch it on our web site in its entirety at c-span.org. we take you live back to capitol hill. a recent triple a survey find gas has risen an average of over 30 cent as gallon. we see the senate energy committee getting ready to hear from independent analysts and government officials about those rising costs. the pulitzer prize winning author of "the cause and the quest," daniel yergin will be among those testifying. our live coverage about to getnd way. we can see the chairman on the right, new mexico senator jeff bingaman, who we saw on "washington journal" this morning. he is the chair. we'll have live coverage here on c-span3.

we're just about to get

started with the senate hearing on rising gasprices. >> also republican leaders trying a different approach, going for a simple majority to pass. that would them to get to final passage. the senate working on limiting debate on a bill that would repeal tax breaks for o also senators resuming debate on the tax rates for high-income earners. this hearing on gas prices getting under way here on c-span3.

okay. why don't we get started. thank you all for coming today. this is an oversight hearing of the senate energy and natural resources committee on the current and near term future price expectations and trends for gasoline at the pump. as we all know, americans are facing high prices when they go to fuel up their cars and trucks at the pump. they're struggling with the impact of those prices. the high prices are also a

significant drag on our entire economy as we work to increase growth and job creation. we've organized this hearing to learn more about what is contributing to these higher prices, what we can expect in the coming months as we approach the summer driving season. i've said on several occasions in recent days i believe it's important for us to use accurate facts when we work on these important energy policy issues. that's a major reason why we ask the panel of experts to come speak to us today to provide us with their views on what those facts are. let me just note a few key points that i think are beyond disputeubject to dispute, maybe our witnesses canink ey're accurate. knothat s

set on a world market and that domestic oil production do not have a major impact on the price of oil on that market, that world market. we do not face cycles of high gasoline prices in the united states because of a lack of domestic production or a lack of access to federal resources or because of environmental regulations getting in the way of us obtaining cheap gasoline. we also know that there are many factors that can impact world oil markets and we hope to hear more about those factors today from all of our witnesses. we look forward to hearing from them about the dynamics of these various factors and what we can expect in coming months. i also hope we can take what we learn and use it to focus on policies that can actually lead to more stable gasoline prices

over time. this committee did good work on those issues in 2007 in developing the bipartisan energy bill we passed that year. that bill has delivered more biofuels for transportation and more efficient vehicles on our roads. hlped to significantly reduce our dependence on foreign oil. we need to continue our ways to find ways to use less oil and be less vulnerable to the volatility of the world's oil market. i hope tos on how we can do that. before we hear from our witnesses, let me turn to senator murkowski for any comment she wants to make. >> thank you, mr. chairman. welcome to our distinguished panel. we're all anxious to hear your comments this morning. i think we're all looking for the quick and easy answer but i

th that there are no quick and easy answers to the fact that we are seeing significantly high prices at the pump. in this morning's "washington post," the headline is "area gas prices top $4 a gallon." i do a little independent survey of my communities back home and just do a week-by-week assessment here. unleaded in bare ro is going for $5.75, juneau, state capital, $4.15. nome is $5.98, and they're looking at what the national average is now and saying, boy, in the rear view mirror, that looks pretty good because we're getting nailed with the high prices. they're looking for answers. and so when there has been suggestion either in political

commentary or in the news that somehow or other this is a political community for us, i don't think most who are really feeling the pain at the pump, feeling the pain in their wallet and their pocketbook, they don't view this as a political opportunity. they expect us to do something here. they want to know what it is that can be done. so this exchange this morning i think is important. we of different factors that are driving up the fuelso are clear control of this president, clearly beyond the control of this congress and we recognize i think that we can influence. we've heard about how we've got limited ability to control the instability in the middle east or the growing demand in china and other emergent countries and economies and of course our influence there is limited and that is clearly contributing to higher oil prices. we recognize that. but there are a number of areas where the u.s. and particularly

our own federal government can have anwe can influence pipelin capacity by improving them on a timely basis, we can influence whether refineries stay in business by virtue of thely to e can influence the value the dollar and tax rates on the production, delivery and use of fuel. and i think very importantly the federal government controls action ses to millions of acres of federal land with oil potential. of all the factors have i listed, i think access is really the only area here where this committee has direct jurisdiction over our decisions help determine whether companies have access to the outer continental shelf, to the nonwilderness portion of and war. so if i seem somewhat eager to federal lands and waters, it's because i think this is one of the most -- perhaps the most significant area that we can have or we do have the direct authority to help.

i believe quite strongly supply and demand absolutely matter. it's not just one or the other. we are the world's number three producer of oil, the world's number one consumer of oil. our production is rising on state and private lands. no one is asking what the price of oil would be if that weren't happening, if we weren't seeing this increase that the president keeps pointing to. in my mind there's no doubt that it would be higher, that the pain at the pump would in fact be worse. i think most of us are using the terminology around here that we should pursue an all of the above energy policy and i this that that means increased or higher efficiency standards for vehicles of all sizes, it means investments for r & d for alternatives and it certainly manse a concerted effort to bring more of america's oil to

market. with that i look forward to the testimonynd questions and answers from those of us here on the committee. thank you, mr. chairman. >> thank you very much. let me briefly introduce our witnesses. we very much appreciate them being here, dr. howard gruenspecht is the deputy administrator with the energy information administration in the department of energy. dr. daniel yergin is chairman of ihs cambridge energy research associates here in washington. mr. frank verrastro is the senior vice president and director of energy and national security program for the center for strategic and international studies here in washington. dr. paul horsnell is the managing director and head of commodities research with barclays capital in london. thank you all very much for being here. if you could each take whatever time you think is necessary to make the points that you think we need to understand, your full

statements will be included in the record as if read. dr. gruenspecht. >> thank you, mr. chairman, ranking members of the committee. i appear the opportunity to appear before you. we are the statistical and analytical agency within the department of energy. our views should not be construed as representing those of the department or other federal agencies. prices for all petroleum products have ris i don't know in recent months but gasoline prices are of particular concern to most consumers. the national average price of regular gasoline averaged $3.58 per gallon in february 2012, 37 cents higher than in february 2011 and it has certainly risen since, over the past month as well. and the february price was an

historic high for any february. there is, however, significant can't regional variation in prices as illustrated in figure one of my testimony. crude oil price increases i think have eclipsed other drivers of et motor fuel prices as shown in figure 2 and 3 of my african-american. while both gasoline and decemberel prices rose by 37 cents per gallon from february 2011 to february 2012, the cost of crude oil to refiners rose by about $20 per barrel, about 48 cents per gallon over the third period. the increases since -- demand

growth in developing countries drove an 800,000 per day rise in world demand in 2011. non-opec supply, mostly from outside of the middle east, has had some recent setbacks, as described in my testimony. in addition, both the united states and the european union have acted to tighten sanctions against iran, including measures with both immediate and future effective dates. current prices reflect expectations as well as today's conditions and many analysts see continuing demand growth with possible tight i don't knowing and supply over the coming months. and that's really a combination that's affecting the market. eia data show that the united states became a net exporter of petroleum products, that's not including crude oil, just the things that come out the other end of the refinery, for the

first time since 1949 in 2011. higher gasoline prices are being caused by higher product exports. u.s. gasoline exports have grown mainly as a result of refiners having excess capacity as u.s. consumption of petroleum based lick which fuels has declined. between 2007 and 2011, u.s. consumption of liquid fuels fell by 1.85 million barrels per day. over the same period, domestic approach ducks of ethanol and biodiesel, which is diplaces petroleum in motor fuels, increased by roughly half a million barrels per day. while the domestic demand for petroleum fuels has declined, many u.s. refiners had a competitive advantage in markets in latin america and other regions that need gasoline imports to meet growing demand.

u.s. refiners are taking advantage of these export opportunities and reduced crude oil imputs to their refineries by only a little more than 300,000 barrels per day between 2007 and 2011, despite the much larger decrease in liquid fuels consumption in the united states and the increase of peoleum liquid fuels to meet that consumption. exports, domestic refiners would have reduced their runs by a much larger ou crude oil to refiners continues to be the major factor affecting gas loon and decemberel prices. the average refiners acquisition cost of crude oil is forecast to increase from $102 a barrel in 2011 to almost $115 per barrel in 2012 but falls back in 2013.

eia recognizes that significant uncertainties could push oil prices higher or lower than our forecast. based on option and futures prices for the five-day period ending last friday, market participants apparently believe that there's a 14% chance that the june 2012 -- sorry. the june 2012 wti futures contract will expire above $120 per barrel, $14 higher than the wti spot price on march 23rd. for brant, which trades as a significant premium over wti and is generally more representative of waterborne crude prices in today's market, the probabilities of exceeding particular dollar correspondingly higher. eia's march outlook expects average retail price of regular

gasoline in the united states to average $3.79 per gallon in 201. more recent information points toward a some gasoline price forecast in the next outlook. based on, again, options and futures prices over the five days ending march 23 t probability of the june 2012 futures contract for reformulated blend stock expiring above $3.35 per gallon which would be comparable to a $4 per gallon national average retail price for regular gasoline, is approximately44%. eia expects diesel prices to average 36 cents per gallon above gasoline prices in 2012. diesel prices are affected by world demand growth for diesel and other distillaterticularly ecsiificantly outpaced gasoline

demand growth in recent years.c not take policy positions it has often responded to requests fro for data and special analysis and i want to assure you that we stand ready to respond to such requests over the coming weeks and months. mr. chairman, ranking member murkowski and distinguished members, i would be happy to answer any questions that you may have. >> thank you very much. dr. yergin, ahead. >> mr. chairman, ranking member murki,itte it's an honor to be here. it's obviously this is a very timely hearing and i'm very pleased to be part of this distinguished panel in terms ofs of what's happening with gasoline prices. senator bingaman and senator murkowski have outlined the problem that is o addressed in

gasoline prices are nowh are ca mosterists and consumers. also the larger question we're looking here, europe in a bad situation, what happens with oil prices will be very important. gasoline prices, where they are now is where they were four whe committee was very concerned with what s howard gave us the latest prices through february. if we look at the prices at the endf2012, they are more or less the same place prices were at the ends of may 2008. same? well, then the market was really being driven by what we might call demand shock from the emerging markets and this kind of aggregate disruption with a lot of supply being out in di some of those same factors are at work today. the emerging markets are

virtually the only source of growth and demand although not as stron decade ago. disruptions, and i think the number that's used now is about 750,00 disrupted when you add up what's happening in different parts of the world. we also have just the basically a tight market in terms of supply. it's tighter than it year. spare capacityf8 2.5 million by and that would create upward price pressure in any case. two things are one is of grave concern and the other is one of some reassurance. geopolitics. geopolitics was not a strong factor last time when we saw the prices that it certainly is today, it began with the libyan disruption t arab spring, but it's clearly focused now on the iran's nuclear program and a sense that a clock is ticking between now

and the end of june when various sanctions go into place. i think you could say that it really a new phase not only on iran but iran's impact on the oil market began at the end of november when the came out with its report on iran's nuclear program saying it was putting together the capabilities for a nuclear de happened to prices. since mid december world oil prices are up about 20%, u.s. gasoline prices are up about 20%. it is a unique situation because, basically, the europeans and the united states have focused in now on targeting very directly iranian oil revenues, those revenues provide over 50% of t government's total operating so, between the eu's embargo and the u.s. sanctions which imminently presume will be put into place and play out in june,

this is a wholly new situation to seek to reduce iranian iran has responded with threats with military exercises, the oil market has jumped when they threatened to close the strait of hormuz. it's worth reflecting on that because ll exporters, the country most punished by that is iran which does not have the same financial wear with all of the other exporters and the other thing about that threat it's kind of a classic threat, threat at any united states, to threat but th look closely at their numbers because actually china depends more on strait of hormuz than we do. and it was the chinese premier who reminded tehran to avoid what he called extreme action involving the strait. so, the question is how to move the market into balance as the effort to reduce some significant chair of iranian oil exports now takes place.

without, without driving up the price of oil. saudi arabia play as key role. there's an article today by the saudi oil minister, i think it's in today's financial times, describing what th extra spare capacity and what was note worthy was this paragraph about how their inventories all around the world are full, that is actually good news. but what haso replace the iranian barrels either with supplies from elsewhere or on the demand side, both are necessary. i think that over the next few months we may see demand having a bigger impact in balancing than might be expected now, and one thing we should keep our eye on is what happens with inventories. i said one thing is different that is of concern which is iran. the other thing that's different that is very positive news is what's happening with u.s. energy production. four years ago when this committee assembled when oil

prices were going up there was a general mood of pessimism that the u.s. was finished as a producer, we were on the road to being a major importer of natural gas, we would be spending upwards of $100 million a year to import natural gas. that's completely turned around now as we are now in a position of abundant natural gas. the other thing that has happened is what has happened to u.s. oil production. u.s. oil production is up 20% since 2008. 1.1 million barrels a day.ou made that has a big impact. if that 1.1 million barrels a day was it new there we would look at much higher prices than we look at today. we think u.s. oil production might increase by 300,000 barrels a day, that's an important offset. happening with canadian t is oil sands which have tripled since 2000. and if you look at canadian oil

sands currently that output is greater than libya was producing before the civil war. so it's a big number. call se are positives. mig peak demand in thetion increasee biofuels that senator bingaman referred to, our oil importsn your numbers, how44%. well, what to do in the near term to mitigate prices at the o silver bullets, magic buttons to push. what's key is rising inventorie disruptions during hurricanes katrina and rita drive home the fact of the flexibility, flexibility in the movement of crude and products as a very important offset. and that refers to thepipelines country, for logistics, addressing of course the jones act, the ability to move

to build confidence about new supplies, both north america and internationally. we, the united states, might look in the concert with the g-8 countries and other countries of what kind of coordinated measures, relatively modest measures, that individuals and companies can take that collectively add up to modulate demand because what will happen here demand will be very important. and of course, any relaxation or realism on the part of iran would be taken as very welcome by the market. and so i think we should expect kind of ebbs and flows in response to what happens. but, but, if events remain on the kind of course described above and that's going to unfold between now and the end of june, we should expect that oil prices will be a register of those tensions and what unfolds in the months ahead, and certainly will be calibrated in the gauge at the gasoline pump. so there is the importance