within a timely manner. that ability to other than the provide for additional capacity? >> essentially no. just a little bit in a few other countries in the middle east. >> i think there is a little bit but -- >> limited. >> no question that saudi arabia would be the major holder of spare capacity. >> thank you, gentlemen. >> senator franken. >> thank you, mr. chairman. gentlemen, thank you for your texas we are kerntly working to reduce tax loopholes that benefit the top five oil companies, that benefit them to the tune of $2 billion plus a year. these companies made $137 billion in profits last year. the top five. let me repeat that. in a time of budgeary constraints american taxpayers

are companies that make $137 billion in profits in one year. and they made nearly a trillion dollars of trafts over the last decade. we're looking to remove, again, $2 billion of tax loopholes. you would think that these company who is have the privilege to drill on oil rich stands that belong to the arena people would acknowledge that it's absurd to get a $2 billion subsidy when you're making billions of profits off of government lands. there are some in this baed who claim that getting rid of these loopholes will cause prices to rise. there will be less exploration. as it turns out last year they put $38 billion of their profits to just repurchasing their own stock. while again, these subsidies are only $2 billion.

so, mr. verrastro, what do you think about the assertion that getting rid of $2 billion of subsidies will raise gas prices? would it follow -- just what do you think of that? would that raise prices? >> a couple thoughts on that, senator. i think the subsidies, subsidies have been thrown around the senate and tax loopholes. there are provisions in the tax code put t f i think you can argue that some of those are price sensitive. i think there's different baskets, the independents are a cash flow operation so taking away the expensing of geophysical costs would make sense because they need that money to drill their next well. the majors are in a different situation, my sense would that be the foreign tax credit would

be the big one. this's a number of other things. no one likes to get taxed. you make a fair point when you look at quarterly or annual profits. >> these are essentially loophole subsidies. wouldn't it follow if cutting these subsidies would increase the price of oil then one way to bring gas prices down would be ? why don't we do that? why don't the taxpayers pay more? >> i think that the exploration and production budgets now are allocated on a certain basis. companies -- i think one of the big problems is the government's role and stake holders are different from the private sector's role. so you actually have a fiduciary obligation to get the best response for your shareholders. so some of that means reinvestm repurchasing stock, putting money in research.

i guess i would contest it on the grounds -- >> all of you are saying that among the factors driving the price of gasoline are demand in developing countries, non-opec supply setbacks, and uncertainty vis-a-vis iran. wouldn't lsi subsidies to the top five oil companies have a minuscur nonexistent effect on the price at the pump? >> senator, if you put that the way, yes. >> well, that's not what i've heard from my colleagues on the other side. >> i just think you have to put it in context. there is -- >> that's the context i put it in and you agree with me so there. >> 2 billion in the dours of what it would mean to substantially raising or gas pre absolutely correct. >> let me ask you another question. and it's -- i'll read from a letter from -- to the minneapolis star tribune from

commissioner of the u.s. commodities future trading cois story in the strip, lawmakers say excessive speculation drives up gas prices, side of the issues with regard to the impa. senators al franken and amy clob a char are right, however, the speculation ha prices. even goldman sachs in a research report acknowledges the fact. also data generated by the federal reserve petroleum marketers and others indicate that one of the major high prices is oil speculation others, have y the senators, introduced legislation to force the commodity's commission to place limits on speculators and the commissioner has agreed.

what do you think about it. can you tell me what has happened over the last decade with respect to the ratio ofecue oil markets. >> i would suggest that maybe paul or howard might be better situated to answer this. i think there has been a change historically between commercial players and traders or money managers. it used to be the commercial traders did a lot more of the exchange because they used the oil. that has reversed itself over the last connect dade and clearly money managers play an increasing role. we saw in terms of dollars a lot of money move into commodities, whether it was gold or silver or oil. so it's treated as a global capacity. in terms of the impact of speculative vi bfore the fact d prices up or supporting the price increases, examination and eia examination probably have better data. >> i know my time is up so i

don't want to ask to speak to that unless it comes up from someone else's question. >> all right. okay. >> thank you m chairman. dr. yergin, i would like to ask you about the petroleum reserve. obama administration is proposing that several european nations tap their strategic oil reserves to address gasoline prices. this would be the second time this administration has tapped the strategic reserve t obama administration tapped it last june and to my knowledge has not yet filled the reserve back to capacity. i understand that thegey has not supported the obama's administration proposal, the executive director of the ieae said no specific supply destruction is under way. germany is also resisted the proposal. the economy minister insisting

that germany's reserve are are for a genuine physical shortage. in your op-ed you said there should be some caution about using ourreserves before it is absolutely necessary. you think it is appropriate to tap the steej ek petroleum reserve at this time? >> i think caution is still the word. i think this system of the international energy agency, emergency sharing, was set up to deal with disruptions and major threats to gdp. i think we're heading, you know, if you listen to these numbers capacity and paul described it a high degree of geopolitics. what's different is part of it is aimed at reducing an important source of oil supplies but that hasn't happened and it's not going to hpei think th

important ai set but it's really there to deal with a disruption. there are a lot of uncertainties ahead. >> thank you. i also want to talk about i read it from the u.s. chamber of commerce. you stated that keystone pipeline is really a symbol for the oil sands and the mst irhas with carbon emissions. you setd the numbers have been misconstrued. you explained that if a barrel of petroleum made from -- in terms 02, you said americans use other oils that add about that same amount of extra kre 2 to the atmosphere. you hope the decision will be reversed by the beginning of 2013 about if not before then. would you elaborate how critical you think the oil sands and the pipeline are to america's energy security. >> i think the united states and canada become much more

integrated in terms of energy. canada is a larger source of imports. it happens to be our neighbor. the growth of the oil sands has been really quite going from being a fringe to being something significant. if you look on a well to wheels basis, carbon footprint is 5 to 15% higher. the one to bring down that disparity. what strikes me about the keystone in the discussion is there has been less discussion about the security aspects of that. and that if you look at the threw-put that would pass, the volumes that would pass through that pipeline isal iran's total. that's a wermd class number. that side of it has to be part of the discussion. >> i'd like to ask you about the epa's pending tier 3 regulations

for american refiners. they are going to rir further reduction and there have been some ideas of how much that would impact and apparently the cost would be increased 6 to 9 cents a gallon. you think it's appropriate to move forward with these? >> i haven't studied that so i can't answer that. >> let me ask you one other thing then. i'd like to ask about oil futures markets that's come up previously. in the discussions. in january this committee held a hearing on u.s. and global energy outlook at the time ambassador richard jones, the deputy executive director of international energy agency testified, and ambassador jones said the hand of speculators is often referred to as having held oil prices artificially high, and yet detailed research he said has failed to identify a smoking gun in the commodities

market. i went on to explain there is no clear thing between future price tha received slim surrounding so called excessive speculation. you think these are fair statements by ambassador jones? >> i think from our understanding, there is the oil has to becomep commodities that become an asset class, and invested in that, that there is a role -- of course the word speculation. if you are an airline you need a speculator on the other side so that is kind of how it works.ut the overwhelming factor. you look at today the factors of going back to senator the supply demand balance and the policy o the flow of iranian oil in the market. that's what the reaction is. and if

going to hedge yourself against the uncertainties. i find there is not a clear scenario but a sense of theious issues on the table. >> thank you mr. chairman. my time expired. thank you. >> thank you, senator. >> thank you all for your service. the thing i talking about oil p and gasoline prices and what it means to the people at the pump. in west virginia it's close to

liquids, compressed natural gas, things of this sort not traded away, you're traiting all. we have a lit more control of our destiny. even in secretary chew has said cold liquids with biomass make sense. it does not leave a carbon footpri footprint. the germans perfected it in 36. senator jennings randolph flew a plane from west virginia on the liquids.we cldn't even get a bi passed to use alternative fuels for our military which makes no sense. yet we are held aptive by global markets that they they have no control over. i thought it might be hard for you being in oo if i could hear from all of you, do you not believe that we should be changing and could change, and

it can make a difference in the price at the pump and go right down the line. >> again, don't misinterpret, i don't remember saying there's nothing you can do. i think what we're saying the problem isn't all of the above problem. >> i want to know about coal liquids and natural gas as a transportation fuel. >> been, that's why oil prices are now clearing at a higher level, to bring on technologies. >> 1936. >> they were all technologies but at $20 crude they were not economic. we're now moving into lefting where we can get those technologies toor there is anyt that precludes those technologies.

you agree we're not going to, right? >> because of the epa and all of ene di have on government. >> as -- i don't want to say precisely. >> down to an american then. >> i'd say that we have at the global level progress in alternative fuels has been relatively slow, some of that is to do with economics, some of that -- but it does take quite a long time to bring these things in. again, that's back on to the all of the above. a start has to be made at some point. >> thank you, senator. so i'm going to enter into dangerous territory and follow paul's comments there are some benefits to be derived from higher oil prices. and the first and foremost of that is that a lot of these unconventionals wouldn't have been developed, shale gas wouldn't have been developed before the fact that we have private lands access, this new technology and $12 gas price in

2007 and 2008. that's what spurred t development. ultra deep water oil sands, the unconventionals, a lot of this new production is higher cost production. and one of the benefits of reaching a level not $125 but a higher level means you can bring on more production and then moderate future prices. i agree with you on expanding the use of alternative fuels. i think the problem as paul said has been that gasoline actually does well in terms of energy content rich and the ability is portable, fungable, it's storable. >> i know we're running out of time. coal tooley quids. >>he quids using carbon sequestration with biomass actually reduces the amount of carbon dioxide in the atmosphere. we have the technology but the epa, the administration will not help us move in that direction. >> so i think part of the problem, senator, with all due respect to west virginia is ode

enormous lift. i agree withcrety said with tho conditions it's absolutely right. but the we do fuel efficiency at 60 miles to the gallon it's going to be difficult compete. >> dr. yergin. >> if i could divide into two, what frank says coal tooley quids, the technology is doable, it's the cost. the other side, natural gas i think the difference even from a year or two ago is the sense ficaon of al gas is going to be the transportation fleet, in certain types of vehicles, we seem to be on the cusp of that. i think that important what's happening on the demand side to go from 30 miles per gallon to 54 miles per gallon that is worth many, many oil fields to make that happen so i think the efficiency part is also -- >> having control of our own destiny, we have no control over global pricing of oil.

>> i'll be getting on the plane with paul but you know, i guess gas in light duty vehicle, natural gas, there was an effort to do that. it has been tried. it didn't succeed very well in the market place. i think there is a lot of interest in natural gas for heavy duty vehicles for trucks, a lot of interest in liquified natural gas as a fuel for trucks. we are going to include a sensitivity case in the upcoming annual energy outlook that addresses that. there's also a lot of potential for methanol from natural gas either as an additive, not so much in the united states where we're using ethanol as an additive but throughout the world, gasoline pool was used with meth 0 nol the same way we use it in the united states, there is a lot of opportunity to displace oil, probably some opportunity for straight meth 0 nol fueled vehicles. i think i agree with dr. yergin

on the -- right? i agree with dr. yergin on some? >> thank you so much. >> there are some challenges in the costs of the cold liquid technologies. >> thank you very much. i'm sorry. >> thank you. senator risch? >> thank you, mr. chairman. first of all, let me say thank . i think that probably for people who are watching this, it's an eye opener as far as how important the refining process in all of this. i think americans have a tendency to think about this as the price of a barrel of oil, and they ignore the different kinds of oil that's out there, but more importantly, they ignore the fact that once a barrel of oil is produced there is a complex process by which it is turned i in their automobile actually use and transporting it to the place where it can be used.

your testimony in that regard is very welcome i think as far as helping clear up this picture.r the fact that the law of supply and demand is, indeed, a law. here in this town, with the politis that a lot of people believe that the law of supply and demanggestion. unfortunately, we have to overcome that from time to time. as you know we're debating a bill on the floor right now and i guess i come at it from 180 from where senator franken comes about it. he talksou subsidies. language is an amazing thing in this town. they were called incentives in order to get the companies to produce more oil and gas so that we could have sort of the law of supply and demand would work in favor of the consumer. now they're labeled as loopholes and subsidies as opposed toes.

i appreciate your helping to clear that up. i guess i come from this from a relatively simple standpoint. i don't know how anyone who has even the slightest understanding of economics can believe that b taxes, thawer e price to the co. i mean, that just -- that absolutely boggles my mind. you can go into a longl diussio oh, in the long run it will bring in alternative fuels, et cetera, et cetera. but my constituents are looking for a price reduction today. and you can't reducehe fiy,thing. appreciate your thoughts on the speculators. again, you need market makers. i think everyone would agreemak. am i right or am i wrong on that? i mean, if you're just going to buy from the producer, there's

always room for manipulation in that regard. but if you have market makers, you get a free very, very difficult to eliminate. pr franken talks about, and that is limiting the speculators, how in the world -- maybe you guys can answer this. absolutely prohibit speculation in america, put a -yea sentence mandatory on anybodyed the price, how would you stop that from happening in anotherr million people on theot 7 billi. it seems to me they'd ep up tomorrow in london or singapore or somewhere else and do the exact same thing theyright or w? dr. yergin? >> i think paul should answer some of that, but i think definitely we're part of a world oil market. we're not.

we're the north u.s. oil market. if you look at these annual reports of southwest airlines, it's clearhat without the ability for them to hedge their price risk they would not have been able to stay in business is what their message is. to hedge, you need somebody on the other side of that isre mar. so if we didn't have these kind of markets in a situation we'd be looking at today airlines of the skies and be parking them in the deserts because they were not able to hedge their financial harithose markets do. obviously, the markets have to be regulated, they have to be understood very closely. but when you have a big traded e their risk in order to stay in business. >> thank you, dr. yergin. dr. moderately understanding of s a washington, d.c., that would regulate the speculators in britain?

>> i think i bring one further country into this, which is actually switzerland. i cover for the fiscal markets but the trend we've noticed particularly over the last couple years has been a very large movement of oil trading out of london and into switzerland. some of the most important traders now are not banks thp they are swiss-baylesed traders. that may be part of the process you were talking about. it's much harder to get full visibility on an oil market where the balance has shifted away from more regulated centers shall we say or -- and into other various shifts going on, part from banks into traders from new york and london into switzerland. and that might be an interesting development as the years go by in this particular area. >> my time's up. >> sor, can i add one point?

you talked about the tax incentives. i think that's right. time changes and i think the debate would be markedly different if there was a discussion of corporate tax rates overall, that we wouldn't be in this position of subsidies and tax incentives. >> oh, i think you would. >> there would be a balancing of -- here they'll call anything that has to do with a corporation a loophole or a lik optimism, but i don't. thank you, mr. chairman. my time is up. >> senator cantwell. >> thank you, mr. chairman. good to see all of you gentlemen here. thank you. i've enjoyed this discussion, and i certain ly believe in market fundamentals myself and certainly believe that market fundamentals are policed. but i can remember a time on this committee that we talked and talked and talked and talked what was wrong with electricity when enron was manipulating the market. and a lot of people thought it was 3,000 things other than ma mip nation until we moved it was

manipulation, and then everybody's, like, it's a manipulation. the point is what's the functionality of the marks we want to see? i have looking at your testimony, mr. yergin, about -- dr. yergin, about the financialization of oil in the commodities market. and so i was curious as to your thoughts, you know, on this. at what point does it really become a problem? because it's quite clear the commodities exchange act made it very clear that the commodities future market were created for two basic purposes, one, to provide a revenue for producers and consumers of fizz kwphysica commodities to hedge their risk, and two, to establish a fair price on supply and demand fundamentals. so we had mr. tillerson come before the finance committee a year ago now, and that was when oil was at $98 a barrel, and i