>> i'm not even asking you to guess what it is. i'm asking a w said, okay, they're affecting the price by 50% or they're affecting the price by 30% or 30% of the -- above $60 to $70, which mr. tillerson says is the marginal cost for producing another barrel of oil. and so if that's what it is -- and we know there's all sorts of these other factot do you think the asset class investmentmmiti and becomes a problem? if it's affecting 30% of the price? if it aff it affect 50s%? >> you know, i don't know what the point is. testified, the cost ay the cost since developing the marginal barrel of oil has gone up so much that number would be raised somewhat. but i think -- you know, i guess you're asking not in terms of the current circumstances but at what point. >> would you worry ou

yeah. >> and i don't have an answer for that right now. i'm looking rather at the market and saying, based upon, as you said, and- you know, the fundamentals are what's there and there's a fear factor or premium factor in it, but i don't know. do you have a number in mind or -- >> well, i definitely believe that we should get these asset class investors out of this market. that's my personal opinion. when i look at mr. verrastro's chart here ands level of volatility at this end and this level of growth, i start asking myself, is it worth $50 a week more to a washington consumer driving to allow a bunch of hedge fund investors to drive up this price when it hurts the u.s. economy? i think the answer is no, because commodities markets are about price and supply -- you know, price and supply discovery. so they are to meet, you know, that marketplace for legitimate henlers. saying we are going to allow a

bunch of investors to treat the commodities market like they want to treat the rest of wall street from a securities and investment perspective i think is the wrong idea for commodities. something particularly as vital as gasoline. >> i understand. the only thing i would kind of add is i think that that point about if those markets were to leave the united states and not be -- i'd rather see these markets in the united states regulated with the kind of scrutiny they have than occurring somewhere elsewhere they're not under scrutiny. so part of the issue is it is a global marketplace. >> and i would add to that, because i'll bet you you could get the europeans and the chinese and everybody else to add in, because many of those people -- they've been to my office. i think it's amazing that they come to my office, even people from japan, saying whack you do to get these investors out of the commodities market? they're feeling the pinch around the globe. thank you, mr. chairman. >> thank you. senator portman. >> thank you, mr. chairman. i enjoyed the testimony earlier. i'm sorry i had to run to another of the three hearings

going on at the same time. one thing that struck me about your earlier testimony is as hard as congress tries we can't reveal one law, and that's the law of supply and demand. and it's working right now. it's working to the detriment of the folks at the level of the gas pump. it's pain at the pump because, you know, we have a disconnect right now. we have a little bit increase in ke dea demand and we have some supply constrictions. looking at your testimony, mr. gruenspecht, you talked about pricing being based on global supply concerns. mr. yergin, you talked about in your op-ed recently i saw but also in your testimony today th you talk about, concerns over the straits of hormuz front page of the paper, i think, is what you said. exacerbated by the fact that we and i guess my th don't have spare production we should have, tight markets. give than that's the situation, libya geopolitics. if we were to increase certainly, again, the focus on iran right now. production in this country, all the oil market is reading the things being equal, don't you

effect on price? yeah. >> in a very simple answer, yes. i think the increase that we have had in the last four years has actually been very beneficial because we would be looking at much higher prices in a much tiger market without it. so this -- that what's happening in the united states both on the demand side but on the supply side have a big influence on the global market. >> is so the statement that som me, but even the last few weeks, as we've been talking about this on the floor and so on, u.s. domestic production doesn't affect the price of gasoline, i don't see how that can be true if, in fact, there is this supply and demand reality out there. second is, as you all talked about today, it matters as to where we're getting our source. it's not just supply and demand. it's where the supply comes from

and increasingly volatile and dangerous parts of the world are not a good place to rely on, as we saw last year with libya. i just think it's not only supply and demand, but tell me, isn't it also the fact that if we had more domestic production and i would say even production from countries our supply may matter but may matter less for the price than for other aspects, you know, security aspects. also production is an important part of the u. there's economic activity. it's not just all a matter of prices. i think both supply and demand

in the united states are part of a global picture, policies influencing u.s. supply and demand affect world markets both directly and indirectly. so indirect effects can arise -- use to raise fuel economy in the united states go to the rest of the world lower demand globally. that has a big effect. the same is true on the supply side. ouppd sewhere. so, again this is mostly about oil, but you have something like shale gas, which has obviously had a very big and tight oil. to the extent that those technologies are applied to the rest of the world, you know, t effect and the same applies to our deep-water impact -- yeah. i'll stop. >> no. anilling, it's not natural gas. it's natural gas -- >> and tight oil. >> it's tight oil. you know, in my state of ohio,

right now we have wet gas, dry gas, and oil coming from -- ale. it's very -- >> and it's about a futures market, too, isn't it. so it's about what the future might hold with this new technology. >> right. >> that can have an effect. let me ask one more question, and feel free to jump in here. i have only a few seconds left. but in terms of this issue of affecting the price of the gas at pump, i look at what happened in the windfalls tax, at the uk in their experience. but let me hear counter point of view if you disagree with me, but what do you think the effect would be on the price of gas at the pump if coxeanies by say $25 billion over the next ten years? would it have a positive or negative effect or no effect? >> so to the extent you're paying more in tax and less ine you're reducing supply.

right? that'stt- >> take it to the next level. >> i'm sorry. >> so what does that mean? >> i was going to take that a when you get to the point that increased production is a good thing, i think your assumption that production -- all things being equal -- lowers price. more production, more supply, good for the world. but there's a demand side, as well. so i don't know that there's a definite guarantee. you increase production but prices don't necessarily go down because we are 18 million barrels a day give or take of demand in a million barrel a day a world, we produce about 7 million barrels a day of liquids. so you increase that by 400,000 barrels a day. that's a great thing. it's more than iraq's si. it doesn't mean that the fundamentals change all that much. so i just think we have to be careful. >> but all else being equal, if you additional supply, it would have -- >> i sloipt agree with that. i think the additional supply has been terrific and it's been very helpful. i think the concern is that this

is a dynamic market and there's leads and lags and investment needs to be made. but to make the assertion that more or less production, unless it's a huge scale -- you know, 2 million or 3 million barrels is .a g 200,000 or 300,000 barrels a day significant, it's a big contributor, it's great for the united states. it doesn't affect materially market prices. ? thank you very much. thank you, mr. chrman. >> senator koonce. >> thank you. thank you, mr. cy be a part of this hearing today. in delaware, where i'm from, we've had some real success in reopening the delaware city refinery, which was but there have been some difficult announcements in the past year by sunoco and conocophillips that they're either idling or closing major r in pennsylvania.

previously questions were asked about refining capacity, logistic, and how that contributes to price. i'm concerned about trying to make clear whether or not federal government regulatory actions have contributed to these decisions, to idle or close these refinery, and the very negative impact that can have on employment and gasoline prices or whether these are really the results of m decisions. mr. verrastro, do you have any opinion on that? >> thank you, senator. two quick points. i think we were due ofraonaliza capacity in this country. in point of fact, if east coast 70% utilization and two close down, delaware city will be better economically all things considered. i think we're bigger rationalization in the future for some of the reasons that the senators have raised about dcontinent.oduction increasi this is lighter, sweeter oil,

and our gulf coast refineries are configured to be able to run heavy, sour oil and make a lot of nice products as a result of that. but this is kind of the big build that's coming. in terps of refinery economics, you look at the total cost and then the total value of the product. i would argue that refiners have been under siege with higher prices, if youe unsophisticated refinery, because crude oil prices that you need -- and, senator, you talk about crude oil, light, sweet, heavy, sour, ad, when you're buying a specifically type of crude oil, you need that to produce the product slate that your customers demand. so if product prices are competitive at the back end and your crude oil cost goes up, that's the big driver. so clearly have epa regulations had an impact on the prices in terms of maybe cents per gallon? that's true. there's a cap ex and opex piece

here. >> there's a study that was recently released by dbl investors that looks a historical role of federal subsidies in shaping the energy market. and it concluded that 94.6% of nd support over the last century have gone to oil, gas, and nuclear and roughly 5% -- less than 5% to the development of biofuels and renewables. dr. yergin, does that suggest anything about what your path forward ought to be if we're going to pursue an all of the above energy strategy and try way out of facing higher gasoline prices? >> i think i saw -- who did that study? >> dbl investors. >> you've done -- ieia has done a very different view. >> thanks, stan. >> i'll let him answer. >> do you want to take -- >> why don't you just cancel -- >> it's hard to put these things

together. i mean, there are lots of different ways to slice and dic accusing anyone else of doing something else, but we try to do it from a pretty, you know, neutral perspective. one can -- i'm not sure what you include, what period of time you look at, how you measure some of these things. we have looked -- we've done a series of studies including one pretty recently, looking at federal subsidies and support. you know, i think it changes over time. right now, again, a lot of subsidies and support are going to a lot -- one man's "lot" is another man's "little," but there's significant support for renewable technologies. there's some significant support for efficiency. some of the subsidies like some of the subsidies for synthetic

coal, you know, coal, transformed coal, have expired. so things change over time. you know, there have been specific subsidies to both fossil and nonfossil fuels and increasingly to efficiency. >> can i just -- >> i'm going to run out of cou dr. yergin, on the last question. >> master limited partnerships is one of the ways that financing has been made available that's helped build helped with capital investment. that's not currently open to all forms of energy. would opening up existing support, tax advantage financing support like master limited partnerships to all energy strategies be a possibly sustainable path forward to broadening our energy market? >> again, i haven't studied that, but i think, for instance, in terms of wind farms it might apply, might be a reasonable way to do it. if i can just go back to the

subsidies senator first said that word subsidy, incentives, goes back and forth. i did read one s that the -- on the subsidy, the oil and gas industry, and by far the largest one was the foreign tax credit. i then checked the footnotes and there was only one footnote and it was to a book called "the prize," which i know very well said kind of just the opposite thing. i think as howard said, howdene really -- lead to very different conclusions. >> thank you. >> senator holdechairman. dr. yergin,withou and refer to that each of you have made. you've talked about the supply and demand equation. world demand is going higher. for crude oil and for energy in general. ando very little spare capacity in the crude oil markets. and so that kind of -- there's

two aspects of that. the supply and demand equation creates upward pressure on gas prices today based on supply and demand. but also then there's the anticipated future situation. if we know we have growing global demand and we're not growing supply, that creates upward pressure on gas prices as well. dr. yergin, is that accurate so far in terms of reflecting your statements? okay. so my question to you and to the others is going to be, so if the policies tion has policies and that allow for more onshore, onshore drilling and offshore drilling on federal lands and offshore, if we allow more ac, help create more supply and would that tend to reduce gas prices both today in terms of actual supply as we start to produce more, but also in terms of market signals saying, hey, we're going to try to produce

constrict it? >> well, i think the increase in supply would have an impact. here i have a slight disagreement with frank. i think a 300,000, 400,000 increase a bay day in the united states, if we saw that kind of increase coming out of iraq or some other country we would be thrilled. actually quite a significant number of barrels coming into the market whenever barrel counts. and i think this kind of -- what frank did describe, this change in both psychology and outlook in the united states that we have a more resource-rich opportunity here than was thought of a few years ago, that will contribute to the psychology of the market. you know, it just doesn't happen overnight. >> right. but there's both aspects. there's both immediate supply and demand equation but also anticipated in terms of where we're going. that affects outlooks in terms of pricing decisions and also drives prices as well. for example, if we have policies that provide more access onshore

and off, that -- for example, i was to build pipelines rather than blocking pipelineof you referred to the importance of logistics earlier -- that streamline perming rather than adding regulatory red tape, and a reduced regulatory baking powderha regulatory burden, wouldn't those types of factors send clear signals that we're going to work to expand supply and the market would take that into effect in pricing? and i'd like each of you to pond to that question if you would. >> well,o finish, i think yes, and i think one of the thicks you pointed to is the expedi expediting of decisionmaking would be very valuable to people committi committing capital and making investment decisions giving them >> dr. gruenspecht? >> both direct and indirect effects is is probably where i would stand on that. >> but you would agree that if

you take a whole range of steps to increase supply, that would tend to help in terms of downward pressure on prices versus a whole step, a whole range of steps that restrict supply would tend to create upward pressure. would that generally be true? >> yeah. i think all else being equal, it's true. >> thank you. >> mr. brasco. >> so i think part of the issue is timing? right. so there's a difference timing. if you bring a lot of barrels to bear immediately it has a big impact. saying that you're going to do something that affects production five or ten years down the road has a different impact. i'm not downplaying it. i think production of 0 400,000 barrels a day is enormously helpful. >> but it my question, not dr. yergin's. >> you managed to describe keystone without saying keystone. i think that a couple things happened with keystone. i think there's -- should a

pipeline be built, if some people are willing to put up $7 billion and build a pipeline and bring oil sands to the gulf coast, is that a good thing, absolutely. >> very good. that's a great place to stop. thank you, mr. verrastro. >> i need to say one more point. right now there's between 700,000 barrels a day and a million barrels a day xez capacity, rail and pipe. there is no limitation on what's co d now and probably won't be until 2016. so i don't think it's a national security issue right now. >> well, but there's a big difference when it's hauled by rail, which adds significant higher cost to it. there's also the issue of canada being the third -- having the third largest oil reserves in the country. the question whetherophem with better environmental things similar to conventional growing or see that product go offshore. i do want to give dr. horns knell an opportunity to respond as well. >> i think it's a timing. i think the question that the

supply situation may improve in into the mich starts to anchor longer-term price expectations. and there does seem to be much more stability longer term in the last eight years or so pointing to $90 to $100 as a good price. the price where the technologies do come on and where this development continues. so for anchoring the long term, pressure i'm sure. >> and the expectations are changing exactly for the reasons you're saying. >> ire so, just very quickly, mr. verrastro, would you agree logistics are important, building pipe lins and making sure we can access oil, would you agree those logistics are very important in terms of pricing around the country? >> senator, absolutely. the big build is the next thing that's coming. >> so you say it's very important we do that. >> yes, sir. >> very important. >> yes. >> i noticed on the agenda of

the canadian energy research institute, which has a conference every year in calgary, they're spending a session talking about native land rights. very clearly saying that they wish to develop their resource, and if they can't get the pipeline to come down south, then they will try to build it out towards the coast and sell it to china. so, again, those pipeline logistics are absolutely critical for long-term trade patterns. >> thank you, doctor. >> thank you. we are in the middle of a vote so i'm going to go to the floor to vote. senator widen has already voted and has returned. senator shaheen, you go ahead with your question, then senator widen will conclude the hearing with any additional questions he has or any other senators. but thank you all very much for being here. senator shaheen. >> thank you very much, mr. chairman. i listened to all of your testimony earlier, and i'm confused, i think, as i think many of my constituents are, if

supply is up and demand is down, why are we not seeing the market react in a way that -- why are we seeing gas prices go up so precipitously? and, you know, i appreciate the geopolitical impact on prices, but why is there not some leavening impact from having demand down. dr. gruenspecht? >> i would say that oil and oil products are really global market, and while supply is up in the united states and demand is down many tin the united stas has been discussed in the hearing, globally demand is still rising because of the developing countries. at the same time there's been discussion by my colleagues of some of the supply issues.that although it's not what your constituents would obviously like to hear. >> right. but it does speak to the fact that given that, even if we dramatically increase supply here and reduce demand, we're

still going to be at the whim of what happens in the global markets. >> well, if you -- i think one thing to say about that would be that reducing demand, you know, does not put you -- i mean, it basically -- if we were not -- and we're not going to get there easily because oil does a lot of good things. it heats our homes. it -- in your area. we drive around with it. >> yes. >> but, i mean, the bottom line is, you know, if, in fact, one can find alternatives or displace oil demand, then you're less at the whims. in terms of supply contributing to -- you know, we are part of global supply and contributing to supply does matter also. >> i think that if you go back to what happened in the mid-1980s our supply went way up, our demand went down, and that was a big factor that led to oil prices coming down. so what happens in the united states really does have an impact because we're still the largest consumer, but we're part of this global market. but if we make a big shift, if

we continue to become more efficient, if our supply increases, then that will affect the prices that your sti constituency pay at the pump and what they pay for heating oil. you look at norway, which is, you know -- producing much more oil than it needs. its citizens still pay world prices because it's one market. if we were 110% self-sufficient, then it would be a different game. >> mr. verrastro, i was interested in your policy model, the triangle, that has energy efficiency in the center. and i will tell you i'm particularly interested in this because senator portman and i have legislation that tries to incentivize energy efficiency in our building sector throughout the government, in our industrial sector, and i wonder if you could speak to the importance of energy efficiency in that model.

>> sure, senator. when we tried to compare security, availability, affordability, the only sweet spot was efficiency. you can get all those gains from efficiency. it's grossly overlooked. i think it's better in the united states than it is in a lot of places around the world. it's true that a barrel saved, you know, here on the beltway is the equivalent of a barrel saved in china. i don't think we put enough attention to it. it's difficult to get your arms around, especially many the building code, because there's state and local codes, and there's disincentives between, for example, renters and the people that own the buildings. right? so in new construction, i think there's a way of doing it, but their regulatory structure really needs to be overhauled as well. but it's critically important. >> actually, our legislation does include voluntary building codes that have incentives to try and encourage states to adopt them. so i appreciate the point you're making. dr. yergin, the new hampshire legislature has just -- has just

asked the public utilities commission to look at the use of -- the growing use of natural gas in new hampshire with the concern that, as we have in the past been overreliant on oil and coal, that there is some concern that we might become over-reliant on gas. and i wonder if you could speak to that in light of the new reserves and whether there's reason to be concerned about that or whether we should be looking for a diverse -- and whether we should be looking for a diversified portfolio. >> well, i think a diversified portfolio is prudent under any circumstances, and just to go back to your previous questions, in the quest i talk about energy efficiency is the fifth fuel and that, indeed, we are twice as energy efficient as a country today than we were 20 or 30 years ago and we ought to become twice as efficient again. i think that, you know -- i think a lot of people have raised the question as we've seen the shale gas development in the last five years, is this

going to be another cycle, are these supplies going to disappear. i think that progressively you've seen consumers, industrial companies, utilities more and more confident that there is major supply here and that that supply is going to continue. and we're not going to have another one of these whipsaw. but prudent si just says obviously don't put all your eggs in any efficiency. right? >> absolutely. >> my legislation with senator portman. >> right. >> thank you all very much for your testimony. >> thank you all very much for being with us, and apologies that it's so hectic. you can see senators running hither and thiter trying to keep up with hearings on the floor. i read all of your testimony last night, and of course we're lucky to havefo individual with lots of expertise in this area. i come to really try to zero in on a couple of factual

judgments. and it really stems from some of the discussions you and i have had, dr. yergin, with respect to changes in the energy business. and let me ask specifically about the oil futures business. when i look at the numbers, it seems to me that there has been a dramatic change in the last four years. and i want to just get on the record whether you share that view. it looks to me like four years ago the noncommercial trader, the person who's, in effect, called a speculator, these traders held less than half of the futureson