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 c

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

dr. yergin. particularly for you because you have educated me on the fact there are a lot of changes going on. and because you all didn't touch on this one in your testimony, i just want to see if you all share my view that this has been a significant -- >> well, yes, i think it's been a significant change. i don't think based upon our understanding today that it is the driving force that can accentuate things. i was thinking when there was a crisis in iran in 1979 and '80, there were no futures markets and the price also went up very sharply. so it's part of the mix and a very visible part. i guess, frank, it's your graphic. >> so, senator, part of the reason i think we didn't go into detail in any of your testimony because was at one point i think we anticipated a second panel with commissioners, so we were going to leave the kind of to their area of expertise. i agree with what howard and dan have said. i think there's been a change in the market. i don't want to characterize it as necessarily

dr. yergin. >> i agree with dr. yergin that there are some challenges in the cost of the coal to liquid technology especially with private capture and sequestration. >> thank you. senator risch. >> thank you mr. chairman. first of all let me say thank you for your testimony. i think probably for people who are watching this, it's an eye-opener as far as how important the refining process is in all of this. i think americans have a tendency to think about this is the price of a barrel of oil and they ignore the different kinds of oil that is 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 into something they can put in their automobile and actually use and transport to a place where it can be used so your testimony in that regard is very welcome. i think as far as helping clear up this picture. again though it underscores the fact that the law of supply and demand is indeed a love. law. here in this town, with the politicians

dr. yergin. >> two point as to that. what howard says one of the refining companies has publicly said they have been losing a million dollars a day and you can't go on very long losing a million dollars a day i think we need to look at what's happened to overall u.s. energy demand. u.s. demand for oil is down 2 million barrels a day since 2007. that's a 10% drop. in fact, our demand levels now are back to what they were in 1997. so, that is part of the context in whichs howard and frank talked about is occurring. >> yes. was , go ahead. i director of crude gest independent in the united states. i think howard and dan have summarized it correctly. the refining business has always been difficult. we're 18 situation we have declining product demand. if you're an east coast refinery your acquisition costs are higher but you're pressured on the back end because there is a lot of competition. especially in the last two years, while a lot of the east coast refineries were depending on libya crude, when libya went down they were

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 a

dr. yergin. i agree with dr. ergin, there are some challenges in the cost with some of the coal to liquid technology especially with carbon capture and sequestration. >> thank you. senator rich. >> thank you mr. chairman. first of all, let me say thank you for your testimony. i think probably for people who are watching this, it's an eye-opener as far as how important the refining process is 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 is 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 into something they can put in their automobile and actually use in transport to places where it can be used. your testimony in that regard is very welcome i think as far as helping clear up this picture. again though it underscores the fact that the law of supply and demand is indeed a law. here in this town, with the politicians, we fin

dr. yergin didn't highlight additional issues in my judgment on this question and without keeping you here all afternoon, i would just note that saudi arabia has 2.5 million barrels a day of capacity. they're now engaged in a major drilling program to expand their capacity. reuters is reporting they'll have 140 drill rigs operating in saudi arabia. so this conversation is obviously going to be continued on the question of capacity, on theue speculation, but i want the four of you to walk out of here with a request from me that i would be very appreciative if you would analyze those three studies. the goldman sachs analysis, the consumer federation of america, and we can certainly get you the testimony that led the exxon mobile ceo to offer the judgment of speculation that increased the price a barrel of oil by $20, and i would like to hear from you four recognized authorit whether you think those three studies are off base, because i'm stipulating to the fact that i think iran's a tipulate trying almost daily what's happeningnc hard to walk away from these judgments from three people who h

dr. yergin mentioned here. the last question for you is it -- is if you can share a little of the experience that great britain had a couple years ago faced with high gas prices. they made a decision to increase their taxes quite dramatically. we just came from a vote that attempts to do the same effectively increase the taxes on the oil and gas industry. you now reversed that position. it's my understanding in the two years since the increase in taxes, what you have seen is a tripling of the decline in production and so can you speak to the experience there and what led to the decision to impose the taxes and now to reverse those? >> yes, sorry. i think i'll say the tax increase was greeted by the industry with a certain amount of shock, not only because it was a tax increase, but also because it made the whole fiscal regime somewhat unstable. it was a surprise. it's making long term decisions on how to exploit the declining phase and then finding the fiscal regimes bounced around. it certainly meant that in t