[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
THE NEW DOMESTIC ENERGY PARADIGM: POTENTIAL FOR SMALL BUSINESSES AND
THE ECONOMY
=======================================================================
HEARING
before the
SUBCOMMITTEE ON AGRICULTURE, ENERGY AND TRADE
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
JUNE 20, 2013
__________
[GRAPHIC] [TIFF OMITTED]
Small Business Committee Document Number 113-025
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMER, Missouri
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Scott Tipton................................................ 1
Hon. Patrick Murphy.............................................. 2
WITNESSES
John W. Larson, Vice President, Economics & Country Risk, IHS
Global Insight, Washington, DC................................. 3
Simon Ormerod, CEO, Ajax Rolled Ring & Machine, York, SC,
testifying on behalf of the Forging Industry Association....... 5
Chuck Grobe, Commissioner, Moffat County, Craig, CO.............. 7
Sean Meyn, Director of the Florida Institute for Sustainable
Energy, University of Florida, Gainesville, FL................. 8
APPENDIX
Prepared Statements:
John W. Larson, Vice President, Economics & Country Risk, IHS
Global Insight, Washington, DC............................. 20
Simon Ormerod, CEO, Ajax Rolled Ring & Machine, York, SC,
testifying on behalf of the Forging Industry Association... 25
Chuck Grobe, Commissioner, Moffat County, Craig, CO.......... 30
Sean Meyn, Director of the Florida Institute for Sustainable
Energy, University of Florida, Gainesville, FL............. 36
Questions for the Record:
None.
Ansers for the Record:
None.
Additional Material for the Record:
The Benefits of Natural Gas Production and Exports for U.S.
Small Businesses - Raymond J. Keating, Chief Economist,
Small Business & Entrepreneurship Council.................. 43
University of Florida - Sean P. Meyn......................... 92
THE NEW DOMESTIC ENERGY PARADIGM: POTENTIAL FOR SMALL BUSINESSES AND
THE ECONOMY
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THURSDAY, JUNE 20, 2013
House of Representatives,
Committee on Small Business,
Subcommittee on Agriculture, Energy and Trade,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building. Hon. Scott Tipton
[chairman of the subcommittee] presiding.
Present: Representatives Tipton, Mulvaney, Luetkemeyer, and
Murphy.
Chairman TIPTON. The hearing is now called to order and I
would certainly like to thank our witnesses for being here on
time. Sorry we were not. We did have votes going on, but I
certainly appreciate your patience. I am joined here by Ranking
Member Murphy, and we also have Representative Mulvaney here as
well. And I certainly thank you for your time.
I would like to thank all of our witnesses for appearing at
today's hearing to be able to discuss job creation potential of
the domestic oil and natural gas development.
Until very recently, many geologists, energy market
participants, and policymakers assumed that the overall rate of
domestic oil and natural gas production had peaked and had
entered into a permanent period of decline--a scenario that
could result in higher energy prices, an increase in oil and
gas imports, and the imposition of measures intended to reduce
demand for petroleum as a fuel source.
However, the advent of new technologies and changes to
market fundamentals has led to a paradigm shift in the energy
outlook of the United States. Where there was once energy
scarcity, there is now a potential for an energy bounty.
According to a number of recent studies of the United
States' oil and natural gas resources, America now has the
potential to supplant a significant portion of foreign oil
imports with domestically produced oil, and it has the ability
to be able to produce enough natural gas to satisfy domestic
demand and offer natural gas export opportunities.
As impressive as these gains are, this Committee is most
interested in the potential economic and job creation benefits
of domestic oil and natural gas production as they may accrue
to small businesses and developing those resources responsibly.
Overall, 88 percent of domestic oil and natural gas producers
are classified by the United States Small Business
Administration as small businesses. If America's oil and gas
potential is fully realized, oil and gas producers could create
up to 600,000 new jobs by the year 2020.
In addition to jobs created directly by producers, more
than 900,000 indirect jobs could be created at supplier firms
supporting oil and gas development. This number would be in
addition to more than 1.4 million induced jobs created as the
economic effects of oil and gas development flow throughout the
broader economy. These potential benefits to the United States,
small businesses, and rural communities are truly
extraordinary.
At the same time, while domestic oil and natural gas
production has many benefits, it is not the silver bullet
solution to all of our nation's energy economic and
environmental needs. Rather, it is an element of an ``all of
the above'' strategy that must be used to promote long-term
energy independence for our country.
I look forward to hearing from today's witnesses and
hearing their views on these issues, and I would now like to
yield to Ranking Member Murphy for his opening statement.
Mr. MURPHY. Thank you, Mr. Chairman. And I would like to
thank the witnesses for their time with us here today.
During the last decade, energy prices have risen
dramatically. In fact, 10 years ago today oil was trading
around $30 a barrel and a gallon of gas was $1.45. Since then,
we have seen it reach highs of nearly $150 a barrel and then
drop back down to around $100 a barrel where it is today. In
the last year, it has become not uncommon for a gallon of gas
to be around $4 a gallon depending on where you live. With
these prices, innovative energy technologies and alternative
energy sources are critical, and in many cases, small
businesses are leading the way, whether they are working to
develop new sources of energy, rethinking how we use existing
fossil fuels, or making improvement to the electrical grid,
these entrepreneurs have become agents of change in the energy
industry, engineering new ideas and jobs that come from them.
The reality is the more domestic options we have for energy,
the better it is for everyone. With all these alternatives on
the table, the U.S. is better positioned to reduce its
dependence on foreign oil over the long term, and small
business leaders are the ones who allow us to reach this goal.
In my home state of Florida, we are seeing this change
firsthand, particularly in the area of solar energy. This is
not surprising in a state with an abundant source of fuel for
that--sunshine. Florida is quickly becoming a leader in this
sector and is one of the nation's largest suppliers of utility-
based solar power. Small businesses in Florida are not just
installing solar systems in homes and businesses; they are
developing in manufacturing the cutting-edge technologies upon
which these systems are built. With more than 430 companies and
nearly 16,000 workers, my home state has one of the largest
concentrations of suppliers of silicon and other solar module
components in the U.S.
Another area that shows great promise is biofuels where
Florida is also a top producer. Small businesses making
biofuels can draw on our state's huge volume of biomass feed
stock, including sugar cane, citrus residues, and urban wood
waste. This production accounts for about seven percent of
total U.S. biomass output. Further, some of the most advanced
biomass energy research is conducted at Florida universities,
leading to the development and production of new, cutting edge
biofuels.
Small businesses also play a key role in traditional energy
innovation. This clearly is evident with regard to natural gas
exploration. Shale gas in particular has created new jobs for
specialty manufacturers, drilling service companies, and
regional heavy equipment companies across the United States. As
they grow, so do the local economies where demand is created
for restaurants, hotels, and many other service companies.
I look forward to hearing how we can continue to support
energy-focused small business. We must find sensible ways to
invest in the energy sources of tomorrow while ensuring that
traditional fossil fuels can be used in an efficient and clean
manner today. Determining the proper mix of these policies is
often challenging but that is why this hearing today is so
important.
I also look forward to understanding what barriers these
innovative companies face, as well as hearing whether
government should play a greater or lesser role. The challenges
of small businesses are the challenges of this Committee, and
we are committed to ensuring that small firms continue to
benefit from the recent developments in the energy industry.
Thank you.
Chairman TIPTON. Thank you.
If the Committee members have opening statements prepared I
ask that they be submitted for the record.
I would like to take a moment to be able to explain the
timing lights that are in front of you. The light will start
out as green. You have five minutes for your testimony. Once we
get down to one minute, the light will turn yellow, and
finally, it will turn red. And at that time, if you could wrap
up we would appreciate it.
We would now like to be able to go ahead and start with our
panel. First, I would like to be able to introduce our first
witness, Mr. John Larson. He is vice president of Economics and
Country Risk at IHS Global Insight, an economics forecasting
firm. His most recent work is focused on measuring the
potential employment contributions of unconventional oil and
gas development in the United States economy, the subject of
today's hearing.
Mr. Larson, I appreciate your willingness to be testifying
before our Committee, and we look forward to your testimony.
STATEMENTS OF JOHN LARSON, VICE PRESIDENT, ECONOMICS AND
COUNTRY RISK, IHS GLOBAL INSIGHT; SIMON ORMEROD, CEO, AJAX
ROLLED RING AND MACHINE; CHUCK GROBE, COMMISSIONER, MOFFAT
COUNTY; SEAN MEYN, DIRECTOR, FLORIDA INSTITUTE FOR SUSTAINABLE
ENERGY, UNIVERSITY OF FLORIDA
STATEMENT OF JOHN LARSON
Mr. LARSON. Great. Thank you, Chairman Tipton, Ranking
Member Murphy, and distinguished members of the Committee. It
is an honor to speak with you today.
As you have rightly pointed out, the United States is in
the midst of an unconventional oil and gas revolution that is
fundamentally changing the energy position that we enjoy in the
world today. It is also improving our global competitiveness
and helping to stimulate a manufacturing renaissance.
Since 2009, our company has been engaged in several studies
to better understand the economic contributions associated with
this revolution, and we will be releasing a study in July that
will focus specifically on the manufacturing benefits and
implications.
So far, the unconventional activity is supporting 1.7
million jobs in this country. Looking towards the future, the
industry will support three million jobs by the end of the
decade. At a time of great concerns about federal budgets, it
is also important to note the revenue implications associated
with this revolution. Total government revenue from
unconventional activity accounted for $62 billion last year and
will rise to 111 billion by 2020. By 2035, unconventional
activity is expected to generate 2.5 trillion in cumulative
revenues to the federal and state governments.
These impacts are also meaningful at a state level. In
Colorado, for example, unconventional activities supported
78,000 jobs in 2012 and generated 1.5 billion in state and
local taxes.
But there is also a very important impact beyond those
states that actually enjoy geographic activity around this
unconventional revolution, and that is, in fact, 30 percent of
all jobs are found in states that do not actually have a
geographic play in this activity.
If you look at Florida, for example, the state currently
has about 36,000 jobs and $181 million in revenue generated
through the supply chains across the country that help enable
this unconventional activity to take place. A key reason,
obviously, for this profound economic impact, both at the
national level and the state level, is that this industry
combines a capital-intensive industry with a broad domestic
supply chain. As many of you know, this industry is really a
homegrown result of our technology, innovation, and know-how.
And so what that means is that dollars spent here, stay here in
domestic suppliers.
Equally impressive are the larger macroeconomic effects
attributed to the savings brought about by lower natural gas
prices and the corresponding electricity prices. In our study
of the economic and employment contributions of shale gas in
the United States, we identified how lower natural gas prices
will increase industrial production 2.7 percent by 2015, and
4.7 percent by 2035. And for households we identified, these
lower prices cascade through the economy resulting in savings
to consumers. It increases annual disposable income by nearly
$1,000 by 2015.
What does all this mean for manufacturing specifically?
Several factors are shifting the economics in favor of
onshoring and refueling a resurgence of manufacturing in the
United States. First, global labor wage rates for many
offshoring locations have significantly outpaced the U.S. wage
increase narrowing the wage gap. Second, in an increasingly
advanced manufacturing world, technology is shifting the
balance away from the importance of low cost labor and toward
high skilled work forces. And third, in a rapidly evolving
energy landscape, the fundamentals around supply chains and
offshoring are shifting. Higher oil prices, as you pointed out
Ranking Member Murphy, which have tripled in the last decade,
have significantly increased transportation costs, making the
offshoring less attractive. Also, in the United States, the
unconventional revolution is creating significant competitive
advantage for both energy intensive industries and energy
industries that rely on natural gas and their derivatives with
feedstocks. As a result, companies are now talking about
planned investment that will appear in the hundreds of billions
of dollars in this country.
All together, this unconventional revolution has already
had a major impact. It is fundamentally transforming U.S.
energy supply and contributing to the growth in government
revenues, manufacturing, and economy-wide employment. Its
significance will continue to grow as it unfolds, and these
hearings I think provide a timely opportunity for assessing
that impact and the significance that it will have in many
dimensions.
And I am pleased to answer Committee questions. Thank you.
Chairman TIPTON. Thank you, Mr. Larson. We appreciate your
testimony.
I would now like to be able to introduce our next witness,
Mr. Simon Ormerod. Am I getting that correctly?
Mr. ORMEROD. That is right.
Chairman TIPTON. Okay, great. Thanks.
He is CEO of Ajax Rolled Ring, a material forging
manufacturer located in York, South Carolina. Mr. Ormerod is
currently serving as president of the Forging Industry
Association, and is testifying today on behalf of FIA.
Mr. Ormerod, thank you for appearing today, and we look
forward to your testimony.
STATEMENT OF SIMON ORMEROD
Mr. ORMEROD. Thank you. Chairman Tipton, Ranking Member
Murphy, and members of the Subcommittee, thank you for the
opportunity to testify before you today on the economic
benefits of increased domestic supplies of natural gas and oil.
And specifically, how those benefits might impact a small
business like mine.
My name is Simon Ormerod, and I am the CEO of Ajax Rolled
Ring and Machine based on York South Carolina. I am currently
the president of the Forging Industry Association. The FIA is
the primary trade association representing the bulk of forging
capacity in North America.
Forging is the oldest known metalworking process, where
metal is heated and formed under high pressure into a wide
variety of high-strength parts using anything that rolls,
floats, or flies.
My company has approximately 100 employees and has been in
York, South Carolina since 1980. We are a custom manufacturer
of seamless rolled rings used in such critical industrial
components as bearings, gears, flanges, and valve seat rings
applied in end-use markets such as power generation, mining,
and construction equipment, oil and gas, petrochemical,
defense, rail transportation, and a wide variety of general
industrial applications. The rings we make range from 7.5 to
100 inches in diameter and weigh from 15 to 3,500 pounds.
The modern forging process is both capital-intensive and
energy-intensive. Adding a new production line for our company
would cost in excess of $15 million, and we have significant
expenditure on equipment every year due to the intense wear on
the equipment. We are also a major user of natural gas and
electricity in our region. Given those requirements, it may
surprise you to know that most forging plants are small and
medium-size businesses. Specifically, 95 of FIA's approximately
200 members qualify as small businesses. Forged parts are
strong and reliable and therefore, vital in performance of
critical applications. It would take fully my allotted five
minutes to name all of the components that contain forgings,
but they are found in virtually all industries, and
applications include automotive, aerospace, defense, power
generation, mining, rail, hand tools, and even golf clubs.
Forgers, like Ajax, are in a unique position to comment on
the overall benefits to the economy created by the increased
supplies of domestic natural gas and oil we are now enjoying in
the U.S. Increased exploration for oil and gas is not only
beneficial to our cost structure through lower priced energy,
but also leads to increased amount for our forgings. My company
makes forged rings that are used in gears and bearings and
flanges that are subsequently sold to valve, pipe, and flange
manufacturers in the oil and gas fields. Our products are also
sold to manufacturers of drills, pumps, and many other oil and
gas related equipment applications. Other forgers make critical
parts such as the forged drill bits without which the hydraulic
fracturing or fracking activity in our country would not be
possible. Our industry is, in fact, integral to the increased
supply of domestic natural gas we are seeing today.
Demand for forged rings that we supply for valves used in
oil and gas pipelines has risen by 20 to 30 percent in the past
two years. We have added at least 10 new positions in that time
for both forging and precision machining activities. The
exacting requirements of those valves, many of which are for
subsea applications, are such that only stainless steel
forgings of the very highest standards and machine-to-
tolerances of thousandths of an inch are acceptable.
But for forgers, the benefits of this energy boom are not
limited to increased demand for our products. Natural gas is a
key import and a cost-driver in our manufacturing process, so
we also benefit from stable pricing of that energy source. Most
forgings are processed at temperatures up to 2,300 degrees
Fahrenheit, with subsequent heat treating done up to 1,900
degrees Fahrenheit--so using natural gas or electric furnaces.
Therefore, forgers require adequate, stable, and affordable
supplies of natural gas and electricity to make the critical
parts we make for nearly every industry sector imaginable. As
recently as 2008, we were challenged with significant natural
gas price volatility. Prices ranged from $5.80 for a million
BTU to $12.70. When natural gas is a key import and a key cost
driver, that market volatility makes it extremely difficult to
plan for some of the investments I mentioned earlier.
Forgers' other key raw material is, of course, steel. The
metal producers also require natural gas as a key import and a
low and stable gas price helps them to keep metal prices low
for our customers. So today, with the abundant natural supplies
of natural gas being extracted and sold in the U.S., we have
confidence in the stability and competitive price of the
market.
So in conclusion, it would be remiss if I did not point out
the FIA believes strongly that the U.S. must avoid enacting
unnecessary regulatory barriers to increase domestic supplies
of oil and gas. Polices that artificially increase prices or
restrict supplies will certainly have a direct negative impact
on the entire oil and gas supply chain regardless of company
size, but they would also negatively affect hundreds of small
manufacturers like Ajax and other forging industry supply
chains. Policies that encourage safe exploration and
development of domestic energy sources are critical to the
continued revival of manufacturing, including the forging
industry.
Thank you for the opportunity to appear before you today,
and I look forward to your questions.
Chairman TIPTON. Thank you, Mr. Ormerod. And I apologize to
my colleague, Mr. Mulvaney. I did not see the note that he was
going to introduce. So if you would like to make a comment to
welcome him, certainly feel free.
Mr. MULVANEY. You did a fine job.
Chairman TIPTON. Okay. Thanks.
Mr. Ormerod, I thank you for your testimony.
Our next witness is a member out of my home district in
Colorado, Mr. Chuck Grobe. He is currently serving as county
commissioner for Moffat County in Colorado. Prior to his recent
election as commissioner, Mr. Grobe served two terms as mayor
of Hayden, Colorado, and prior to that he served for six years
on the Hayden Town Council. In addition to his service in
elected office, Mr. Grobe has been active in the Associated
Governments of Northwest Colorado.
Mr. Grobe, I would like to thank you for making the trip
here, and we look forward to your testimony.
STATEMENT OF CHUCK GROBE
Mr. GROBE. Thank you, Chairman Tipton, Ranking Member Mr.
Murphy, and the other members of the Committee for inviting me
for this important hearing.
Moffat County is the second largest county in Colorado,
with over three million acres of land, 60 percent of which is
managed by federal government. The top 10 taxpayers in Moffat
County are all energy related, 20 coming from oil and gas.
Our citizens have had a history of working in the energy
field, agriculture, and recreation, and through this we have
worked on a very cooperative working relationship with
organizations and people in the community to work through our
controversial use of public lands. One of these was Vermillion
Basin, which a decade ago was in negotiation working on an
agreement to be able to get gas reserves out of there. It is a
77,000 acre parcel of land with 200 billion cubic feet of
natural gas. We worked up a collaboration and had an agreement
where we would only have a one percent disturbance to the land
at any one given time. But entirely due to political reasons,
the agreement was overturned by Washington politics, and
because of that, the economic loss to the area and to the state
were $700 million worth of revenue from that source--$25.6
million would have been taxes coming to Moffat County. Of that,
53 percent would have been to the school districts; $7.7
million in bonus payments; $87 million in federal royalties
partially returned to cities and counties; $43.75 million was
the State of Colorado's share of the royalty; and $77 million
of ad valorem and severance tax payments. And that is just from
77,000 acres of the 1.8 million under federal control.
Regulatory uncertainty, unnecessary federal regulations,
frivolous lawsuits, and a lack of political courage by the
current administration to allow development of these new oil
and gas resources puts jobs in our area in jeopardy. Congress
must struggle with national rules, such as hydraulic fracking
with BLM. Trends of increased regulation in the oil and gas
industry have manifested locally through creative avoidance of
federal lands where now most of our leases and everything are
on private land which costs 8-1/2 times more for the leases
than if we were on federal land.
Colorado is filled with beautiful scenery and abundant
wildlife. Current technology allows us to work harmoniously
with the two areas and still produce energy. Being home of the
largest concentration of greater sage grouse in Colorado, we
have been working for decades to protect and improve the
habitat and improve the population of the sage grouse, because
without the natural resources we would not be what we are
either.
Finding balance where both wildlife and oil and gas can
thrive seems to employ as many biologists and rig hands. The
past week and a half since I got the invitation, I have been
talking to a lot of our small businesses in Craig and in Moffat
County, and the volatility and the uncertainty of natural gas
production has been on everybody's comments. From starting a
welding business that was shut down in 2008 where they had to
retool and move in a different direction and now all of their
work in the oil industry is outside Colorado, to another
business that refused to be involved with oil and gas
development because it comes in fast but his quote was ``it
leaves even faster.'' So with the federal regulations where we
are it is hard to keep and draw small businesses into being
profitable. Thank you.
Chairman TIPTON. Thank you, Mr. Grobe.
I would now like to be able to yield to Ranking Member
Murphy so he may introduce our final witness.
Mr. MURPHY. Thank you.
Mr. Meyn is a professor of Electrical and Computer
Engineering at the University of Florida, where he also holds
the Robert C. Pittman Eminent Scholar Chair and serves as the
director of the Florida Institute for Sustainable Energy. The
Institute brings together research capabilities with a goal of
creating a sustainable energy future. It encompasses more than
150 faculty members and 22 energy research centers at the
University of Florida. In the last few years alone, the
University of Florida has received more than $70 million in
federal and state research funds to conduct energy research.
Thank you.
STATEMENT OF SEAN MEYN
Mr. MEYN. Thank you very much, Ranking Member Murphy, and
Chairman Tipton, and the members of the Committee. Yes, it is a
great pleasure to be here to speak today.
I have been working in the area of complex systems and
controlled them for half of my life. The energy grid is a
beautiful example. And it is an exciting time to be working in
this area because I can remember the revolution in the
telecommunications area of the 1990s where in the 1980s it
seemed like an impossible problem. It seemed like there was no
science to support management of this incredibly complex grid
for communications, and within five years these impossible
problems were solved by people who understood how to think
about complex systems like the network. We pick up our phone
today and we think, oh, it is so easy, but if you knew the
mathematics and science that went into this phone it would blow
your mind. It looks like abstract nonsense, the information
theory, computer science that came into that. And so today this
is a very similar situation where people feel that it is too
complex to deal with and I think it is no harder than the
telecommunications problem.
There has been incredible innovation lately for two reasons
that I have seen. The Department of Energy has helped some very
risky but innovative small businesses and some have failed and
some have been incredibly successful. There are some examples
in Florida that have been fantastic. And the Federal Energy
Regulatory Commission has made some changes to the market
structure which has completely changed incentives in the power
area. So the impact has been incredible how just slight changes
of rules--it is like SimCity. Change the rules a little bit,
the whole world changes.
In their point there are, I guess, four themes. I concur
that cheap natural gas is absolutely going to change the
economy in many, many positive ways, and I am very pleased to
hear the comments that we do have to think about--well, first
of all, I am very happy to hear the comments from Mr. Larson
about the entire supply chain. The macro effects are absolutely
critical, and that is what really concerns me about too much
talk about exporting our natural resources considering how much
value added they can be here.
I strongly want to say that it is unwise to put all of our
energy in one natural gas basket. The forecast on natural gas
prices, you can get anyone to give you a different forecast,
and the Black and Veatch forecast shows the prices going up
very steadily while coal prices are being flat. And that
uncertainty is dangerous. So we want a diverse energy portfolio
for national security. And again, the macro effect is
incredible--the number of small businesses that will be
involved.
So back to my first comments. The telecommunications
evolution has resulted in innovations in hardware but some of
the biggest challenges were scientific, dealing with congestion
and the grid level issues. And they took an incredibly,
impossibly complex problem and with cooperation between R&D
labs and mathematicians in my field they are able to crack
these problems. So it seems completely transparent today. Cell
phones seem trivial. And I think we can do the same thing with
the grid.
And particularly, the state of Florida. I do not see why we
do not have 30 percent solar today. I just do not know why we
do not have that. We know how to deal with the volatility. I
think that the science is there, and we have to just get
started. We will need power engineers and we will need the same
breed of scientists who helped to build the telecommunications
grid.
So in terms of needs, the energy was defunded for 20 years
at the university, so there are practically no professors in
power systems anymore, so that is clearly going to need to
change. And universities need support. I hope the Federal
Energy Regulatory Commission continues the good work they are
doing. In the last year or so they finally realized they are
not incentivizing a responsive generation, the sort of
regulation needs of the grid. And they have only just realized
this.
And I hope the Department of Energy--even though there have
been failures, there have been incredible success stories of
the risky businesses that they have supported. And so I hope
that they continue. I know it has to be watched, but I hope
they continue to help out crazy ideas. It does not take that
much money to help a small business succeed.
Thank you for giving me this opportunity.
Chairman TIPTON. Thank you for your testimony.
We will now begin our series of questioning, and I would
like to start with Mr. Mulvaney.
Mr. MULVANEY. Thank you, Mr. Chairman. Thank you to all
four gentlemen for coming.
A couple questions for Mr. Ormerod first and then some
questions for the broader panel.
Mr. Ormerod, in your written testimony--you did not get a
chance to talk about it much in your verbal testimony--but in
your written testimony you specifically mention the Keystone XL
Pipeline and the impact that would have in your industry. Would
you mind taking a few minutes and tell us specifically what
that project means not only six months on but a year on, two
years out? Tell me what that project means to the forging
industry.
Mr. ORMEROD. That project would be very significant for the
forging industry. It is, as you can imagine, on a pipeline of
that scale and that size, there is a lot of critical components
that have to be put in place to make sure that the oil
transported is going to be transported in a very safe way. The
forgings are--that is what they are absolutely made for. They
are made for those critical applications. So there will be
rings for flanges. There will be a lot of forging connections
put in place to make that pipeline, to support the pipeline, to
make sure it is a safe pipeline. So I think it will be very
significant for the forging industry.
Mr. MULVANEY. As you know, one of the things I like to do
when I am back home is tour manufacturing facilities, and I was
touring one last week and asked what I thought was a fairly
straightforward question and I got a very straightforward
answer. I asked one of the manufacturers. I said, ``What can
Congress do?'' Give me three things that Congress can do to
help create manufacturing jobs, create an environment where we
can grow manufacturing jobs. And the answer I got was very
insightful because the person did not hesitate for a second.
They said, number one, keep energy prices down. Number two was
regulation. Number three was the tax code.
I would be curious to know, Mr. Ormerod, if you would put
those in the same order, and if so, why?
Mr. ORMEROD. Certainly, energy is a critical cost driver
for our business, so for us, as I talked about in my testimony,
we have to heat up the steel in order to be able to forge it,
so we heat it up either by using electricity or using gas.
Mostly gas. And then we have to also use gas to treat the
forgings after we have processed them. Energy, I would say, has
been very volatile over the years, over the past few years for
us, and it has created a lot of difficulty for us with the
energy prices going up and down. So yes, to put energy at the
top of the list, I would absolutely concur with that.
Mr. MULVANEY. Mr. Larson, you mentioned the natural gas and
its impact--lower natural gas prices have a tremendous impact
on economic activity. I have heard that before. I have heard it
not only from the folks who are using natural gas to heat metal
to forge it but also from the chemical industry. It is actually
a growth industry now in the United States because of the low
cost of natural gas.
Could you walk through for the record, please, why you
think low natural gas prices would have such a dramatic
economic impact?
Mr. LARSON. Yeah, you are correct. There is a profound
impact, and it stems from, first, all industry needs low costs
of input to allow them to thrive in a competitive environment.
You have to remember we are in a global-linked economy.
Mr. MULVANEY. And I do not want to cut you off but this is
someplace we have a tremendous competitive advantage over
manufacturers overseas.
Mr. LARSON. That is correct. Our prices are right around a
third of what they are in, for example, Asia; a little more
than a half of what they are in Europe. So there is a
tremendous competitive advantage that all companies that rely
on energy, either as an input or feedstock, enjoy relative to
their global competitors. That is the first thing.
The second thing is you talked about volatility. It was
mentioned earlier today. The ability to have stable, as well as
low prices is very important, too. And if you look at where we
were in the volatility prior to this unconventional revolution
to where we are today, that volatility has been significantly
contracted, so there is more certainty in the environment
overall.
And then there is the knock-on effect. So it is not just
the chemical industries who are going to be hugely competitive;
we are already seeing large increases in production and output
from those, and I think you are going to see the chemical
industries be very, very successful going forward. There is a
whole knock-on effect from that supply chain. You think about
all the chemicals that go into manufacturing an automobile. We
have talked about the steel that goes into it. You talk about
the chemicals from the floor mats to the plastic that goes into
all these. All those are knock-on effects and those costs are
passed on. And at the end of the day what it means is, as I
mentioned in my testimony, consumers are actually benefitting
as well. So now you have the households having about $1,000
more in their pocket by 2015 as a result of all these passed-on
savings to consumers. That flows right back into the economy as
the consumer can now step back out and spend that $1,000 in
other ways.
Mr. MULVANEY. Thank you, Mr. Larson.
Mr. Chairman, I think it bears noting that these are the
types of jobs that both parties say, and rightly so, that we
want to grow in this country. These are heavy manufacturing
jobs. We are talking about forging metals. We are talking about
chemicals. This is the type of opportunity that we have in
large part now because of your relatively low injury prices. We
should be doing what we can to maintain that competitive
advantage.
Thank you for the opportunity.
Chairman TIPTON. Thank you, Mr. Mulvaney.
I would now like to yield to the ranking member for his
questions.
Mr. MURPHY. Thank you, Mr. Chairman.
Mr. Meyn, you spoke briefly about the grid and some o the
opportunities there. What are the biggest impediments to
putting these strategies into practice right now?
Mr. MEYN. Well, there is an issue in the fact that
reliability is very reliable until you get it. And so basically
right now in the Pacific Northwest, the people who regulate the
grid would pay anything to get regulating resources, and it is
very, very valuable. But nobody will come there to do it
because as soon as they go there the value drops to zero. And
so it is very difficult to design markets around this, and
basically reliability is like a public good problem. Everyone
wants a clean park but nobody is willing to pay for it. And I
think we are almost forced to have some help from the
government on just the reliability end. Of course, we can have
energy markets, but reliability is something that is very
difficult to have markets for.
Mr. MURPHY. Have there been pilot programs or other
countries that are doing this better that we should be looking
toward?
Mr. MEYN. Everyone has made the same mistakes. Germany
installed all this wind without thinking at all about how much
they needed to deal with the volatility issue. Switzerland has
been much more thoughtful about this and they have actually,
you know, they have generalized storage in all their large
buildings, things like this to absorb volatility from
renewable. But it is all so new. It is only the last few years
and mistakes have been made all over the world. But they are
learning quickly and so, for example, I have given the reports
as examples. For example, ALCOA now has deals with utility
companies to ramp up and down their consumption of electricity
as a way of regulating the grid. The wind starts blowing; they
ramp up production. That sort of thing. And that is going on
all over the country. And the U.S. is a leader in those ideas,
actually. And that is something that is going to grow quite a
bit.
Mr. MURPHY. Thank you.
You also mentioned the increase in natural gas. We have all
seen it. What do you feel the effect of that will be on some of
the alternative energy sources--the cleaner the biofuels?
Mr. MEYN. The beautiful thing about natural gas is it is
incredibly responsive. So it is a way to have a lot of
renewable energy. You can have 50 percent renewable energy
easily in the Pacific Northwest if you have got gas turbine
generators next door that can ramp up and down and regulate the
system. Coal cannot do that. Nuclear cannot do that. So natural
gas is a regulation. Just like an airplane, it is like the
flaps on the wings of an airplane. It stabilizes the grid. It
is incredibly valuable in that sense.
Mr. MURPHY. Thank you.
Mr. Ormerod, we have seen the wind industry has grown
dramatically. I think last year I read that more than 13,000
megawatts were installed. How does this affect your industry?
Mr. ORMEROD. Well, the wind industry is a great--there is a
lot of demand for forgings that go into a wind turbine, whether
they be bearings, gears, the main shaft. All those things, they
are all critical applications, of course, so that is a good
source or good need for forged products which are supplied to
these critical applications.
So yeah, for the wind market, if the wind market would have
grown to be a steady demand in the wind market, that is
certainly very good for our industry.
Mr. MURPHY. Okay.
Mr. Grobe, you noted in your testimony about the lack of
our government looking into natural gas on federal lands. I am
curious, is there some potential, is there maybe--I am just
thinking out loud here--something we should be looking into? We
all know what a public-private partnership is, but expanding
that model and looking at a partnership where you have the
federal government, the state, the local, and private
businesses involved, all coming up with an agreement where
there is some sort of cost sharing where maybe a percentage of
profits go back to renewables and alternative energies and
resources. I think most people would agree that we should be
taking advantage of our domestic energy fuels but maybe in 50
years that is not necessarily the answer. As technology
progresses, as wind gets better and solar and thermal and
everything else, that that is eventually the future but right
now we need this bridge, and natural gas is a great
opportunity. But if we got all the players invovled--the state,
the local, federal--that we might be able to make a little more
ground. Any thoughts on that?
Mr. GROBE. I think so. That would bring some sort of
stability to the regulations because our problem that we are
seeing is every election it seems to change where we have
businesses depending on this kind of direction to go in and
then all of a sudden a new person ends up in power, whether it
is a governor or the president or whatever and the pendulum
swings another way stopping business or halting it all
together, you know, where if we have that stability, which I
agree would be great, then we could move forward in a constant
direction because right now, like I said, we have
collaboratively worked with agencies to come up with an
agreement but then it depends on what Washington says is
whether we can follow through with it.
Mr. MURPHY. Okay. Thank you.
I always get a different answer on this one so I am
hesitant to ask. But fracking. Every time we have different
panels you always hear different answers on this. So what are
your thoughts on fracking? On its effects on the environment?
Perhaps how far we have come in the last 40 years of fracking
that we should be aware of? And what do folks in your area
think?
Mr. GROBE. People in Moffat County are supportive of
fracking as long as it is done in the proper fashion with
encasing the wells and making sure that we are not influencing
other aquifers and stuff like that, where the technologies have
moved in that direction. But that is a whole can of worms, and
it is an interesting debate in Moffat County, but if you go
across the border into Routt County, they are trying to rewrite
regulations themselves. So it is interesting as you move
between counties within Colorado or you move within states,
everybody is looking at it differently and that is where I like
your idea of everybody getting together, come up with one plan,
and let us move forward.
Mr. MURPHY. Thank you.
Last question, Mr. Chairman.
Mr. Larson, I do not know if you heard Mr. Meyn's
testimony. He spoke briefly about some of the concerns of the
United States shipping liquefied natural gas and what that
could do to prices. Just interested in your thoughts, how you
think it would affect businesses and prices in the long run.
Mr. LARSON. Yeah. I think it is an important thing. The
risk I actually think around the price domestically from LNG
exports comes more from the ramp up in demand domestically
inconsistent with the underlying infrastructure to get the
resources to the market if you will, to where that demand is.
The supply is not the issue. It is sort of a peak demand
situation. If you look at what is happening in the global
market, global market LNG exports or imports are about 33 BCF a
day. We have on the books applications to the DOE for about 28
BCF a day. And so there is no way that all these facilities
will be market viable. The market will self contain the number
of facilities that will be built out of the states. It is
probably going to cap out somewhere around 5 BCF a day because
of the global market. And so I think the bigger risk is how you
manage it and how you think about the internal infrastructure
ensuring that we are able to connect supply to demand.
You can point to an example. For example, in the Northeast
where even with all this abundance we ended up actually
importing LNG this year simply because we do not have the
pipeline to move the resources from where they reside to where
the demand is.
Mr. MURPHY. Great. Thank you.
Chairman TIPTON. Thank you, Ranking Member.
Mr. Luetkemeyer, would you like to proceed with your
questions?
Mr. LUETKEMEYER. Thank you, Mr. Chairman.
Mr. Larson, I would like to follow up on your last comment
with regards to we do not have enough pipeline constructed
right now to haul all the natural gas demand. How much more do
we need? Is it not located correctly, dispersed correctly
around the country? Can you give me some information on it?
Mr. LARSON. Yes. I cannot give you actual miles. I think
what I will say is that the really exciting part about this
unconventional revolution is there is sort of a democratization
of energy. If you think about the old energy map of the United
States, it is sort of gravitated towards the traditional energy
states. That is being flipped on its head with this
unconventional revolution. States have really fundamentally
shifted, and so now we have got this geographic diversity of
where our resource base is and where the in-demand markets are.
And a lot of our pipelines are set up right now to move in the
wrong direction. And so we do need to significantly change our
pipeline infrastructure, add a lot more miles to connect, in
particular from the inlands. I will give an example. On the oil
side, in the Bakkan, we are railing out between 500,000 and
600,000 barrels a day of oil. The ability to connect that
through something like a Keystone XL would be significant to
take that capacity off of the rail and allow it to move to
market faster. So there is, I think, a strategic evaluation
that needs to be made in this country about where our pipelines
are situated relative to where demand is, and where our
resource supply resides.
Mr. LUETKEMEYER. Thank you.
Mr. Grobe, first, thank you for your public service. I know
sometimes it is a rather thankless situation, so----
Mr. GROBE. Thank you.
Mr. LUETKEMEYER. I appreciate your willingness to step up
and serve. Obviously, from the situation with the oil leases
and the activities in your area there, there is a lot of
leadership that needs to take place and I am sure you are in
the middle of that.
Can you give us just a little bit of an insight into--the
oil recently has been up in the Dakotas, you know, that is
mostly on private land. And in your testimony here you have got
some very significant figures of oil, gas, and coal in
Colorado. Can you give us a little insight? I assume most of
that is on federal land; is that correct?
Mr. GROBE. No, actually, the older drillings and stuff, a
lot of it has been on BLM, but here the past 10 years or so it
has been primarily private land.
Mr. LUETKEMEYER. Oh, really?
Mr. GROBE. Because the regulations are so stringent on
federal land. That is where I stated in my testimony, the
written testimony is their private land cost 8-1/2 times more
leasing than federal land but they are moving to private land
because of the regulations federally.
Mr. LUETKEMEYER. Okay. And so the lease that you talked
about losing here, that was on federal land; is that right?
Mr. GROBE. Yes.
Mr. LUETKEMEYER. Okay. And the reason for that was? You
were rather general in your testimony.
Mr. GROBE. The secretary of the interior flew over and
said, ``No, we are not going to allow that to happen.'' So that
is why.
Mr. LUETKEMEYER. Okay.
Mr. GROBE. And that was a collaborative effort between all
the agencies in our area.
Mr. LUETKEMEYER. Okay.
Mr. Meyn, you, in your testimony, said that you got $70
million worth of research last year for your school.
Mr. MEYN. Last year? Oh, no. No. Seventy million?
Oh, excuse me.
Mr. LUETKEMEYER. Did I misunderstand you?
Mr. MEYN. Oh, yes. Absolutely. I gave----
Mr. LUETKEMEYER. Where does 70 million----
Mr. MEYN.--a total. I am not sure, actually. I do not
remember. The disclosure?
So I received research funding from the AFOSR and from NSF
for the past--since 2006. It might add up to that much money
for graduate students and supporting lab.
Mr. LUETKEMEYER. Okay. So my question was what do you do
with the money? What kind of research do you do?
Mr. MEYN. I work on understanding large network systems.
How do you understand a power grid, for example. How do you
control it? Resource allocation problems. Once you have wind
that is 4 gigawatts and zero, how do you control the resources
to stabilize the whole system?
Mr. LUETKEMEYER. Do you submit reports to anybody on that?
Mr. MEYN. Yeah. Annual reports to the NSF and AFOSR.
Mr. LUETKEMEYER. Does anybody use the data?
Mr. MEYN. Well, does anyone use the data?
Mr. LUETKEMEYER. That is a pretty important question.
Mr. MEYN. Absolutely. I am just trying to think about how
to answer it because I have been working in the markets area
for 10 years and I think that FERC has listened to me. I think
the new market structures are in part from my discussions with,
for example, Dick O'Neill there for the last years.
In terms of the control issues, I think Pacific Northwest
National Labs, for example, is using these ideas in a lot of
their pilot programs. All this is very new, you know, it has
only been the last--there was almost no wind in the Pacific
Northwest several years ago and now there is 4 gigawatts.
Things are changing so fast it is hard to answer.
Mr. LUETKEMEYER. Your response leaves me speechless.
Thank you, Mr. Chairman.
Mr. MEYN. No, but there has to be a follow up then because
why is that? My graduate students are now working at Houston
trading companies and on Wall Street and they are professors in
various places. This is long-term research. I do not do
research--I am not a consultant. I am looking at what the world
will look like in 10, 20 years.
Chairman TIPTON. Thank you.
I appreciate the questions that we have had from our panel
members. I would now like to start out with Mr. Larson. One of
your comments when we were talking about affordable, reliable
energy, you took it down to the base important thing I think
for our communities, for our nation, when you started talking
about families, about moms being able to get kids to the soccer
match, and to be able to buy groceries, and to be able to fill
up that gas tank, and to be able to turn on heat in the winter.
Just to be able to protect our families.
So I guess my first question, Mr. Larson, is many of the
members of this Committee, we do, indeed, represent rural
areas, and my own district, as Mr. Grobe will testify, is not
only largely rural but many of these counties and communities
are located on or near federal lands. Has your first every
studied the potential implications of expanded energy
development in more of a micro sense in regards to the rural
areas? Because we certainly see pockets of prosperity in metro
areas in Colorado and I think elsewhere.
Mr. LARSON. Yeah. I appreciate the question.
So as we looked at this, we did not draw down into sub-
state levels, if you will. I mean, we looked at it by state by
state, but I think you are absolutely accurate in saying I
think one of the interesting things about this opportunity is
how impactful it has been in the rural communities. It really
is changing the face of some of these rural communities, and
that is a double-edged sword. My family comes from North Dakota
and they have been living in the Bakkan area, and so they have
enjoyed the upside of the evolution of this unconventional
revolution in Dickenson and Williston and everything, but there
is also the sort of change that it has brought about to these
communities from this influx of activity and a change of your
sort of way of life. That said, I think it is important to
think about those pocketbook issues. The average community, the
average household, $1,000, that is a lot of purchasing power
that is brought back home so that individuals can enjoy a
higher standard of living. And that is what this is. Lower
energy prices ensure higher standards of living for everyone in
the country.
Chairman TIPTON. Simply by creating American energy
security right here at home with American resources.
Mr. Grobe, maybe you would like to be able to speak to
that. When the secretary flew over Moffat County and said ``not
here, not now,'' how did that impact communities? People that
you and I know in our district?
Mr. GROBE. That was pretty devastating because we were
looking at the potential and these are good facts that we
presented to the group that came together and agreed on this
one percent disturbance. So when something like that happens,
it just kind of takes the wind out of your sail because we are
trying to move in a positive direction, work with small
businesses, get them established, and that is where I was
talking about earlier where the whims of the federal government
kind of blow and we need to get some stability there.
Chairman TIPTON. So just for clarity on this, in Moffat
County, and I believe this has been replicated on the west
slope of Colorado, brought together environmental groups,
brought together industry, brought together community leaders
such as yourself, other interested parties were able to come to
an agreement, and what some in Washington considers flyover
country, and I guess we are there, they are able to swoop over
the top and just say not here and completely upend all of the
efforts at the local level; is that correct?
Mr. GROBE. That is correct. Because those collaborative
efforts have been going on for eight or 10 years, and to have
that just swept away without even stopping and talking to the
locals, that was pretty disappointing.
Chairman TIPTON. Right.
Just as an aside, how important is coal in your district?
Mr. GROBE. Very important because we have a Craig
generating station there and two coal mines in our county that
80 percent of our top 10 taxing entities are from coal.
Chairman TIPTON. Right. We were just talking about fracking
just a moment ago. You and I know a lot of the people that live
and work there. These are family people. They love their
families. Is it your sense that they are making a committed
effort to make sure that we are doing this responsibly?
Mr. GROBE. Oh, yes. Every turn we are looking at better
ways to perform and work with the avenues and work with the
government to make sure that it is clean and energy efficient.
Chairman TIPTON. Mr. Larson, does this new petroleum
resource potential in our country mean that we can solely rely
on oil and gas for energy needs or are they just part of that
broader strategy that we need to be able to embrace of that
``all of the above,'' including coal, nuclear power,
hydropower?
Mr. LARSON. Yes. I think it is all part of an ``all of the
above'' strategy. I think those who talk about energy
independence do not recognize the international linkages that
exist. We are always going to have a relationship with Canada,
for example, and Mexico around energy. And so there are
important strategic relationships. I think it is also important
to point out that most of our refining capacity is set up for
some of the heavy sour crude from, for example, Venezuela or
the oil sands from Canada. So we are always going to be in a
position we are going to want to import some of that oil. The
beauty is that we can refine that oil and export it and change
some of our trade dynamics. In fact, in 2011, for the first
time in a quarter century, the United States was a world leader
in refined petroleum products. So I think there are some really
exciting opportunities but as was alluded earlier, all these
other energy sources creating diversity in, for example, our
power generation, if you will, is important. There is value in
diversity. We learned that from grade school on. You do not put
all your eggs in one basket. You want diversified energy
portfolios.
Chairman TIPTON. As you can hear, they are preparing to
call votes but I do have one final question for Mr. Ormerod.
When we are looking at the game changers that you had
talked about in terms of being able to provide energy needs and
revitalize the manufacturing in this country, would it be a
correct assessment that maybe the secret weapon that the United
States has had to not only be able to create jobs and good
paying jobs and still be competitive against people that can
afford to pay far less in foreign countries on a production
level has been affordable energy in this country? Is that a
fair statement?
Mr. ORMEROD. Well, it certainly helps a lot. The energy
costs that go into producing the steel that we use and also the
processing of that steel is very significant to us. So if we
can get cheap steel and we have got cheap energy to actually
process the steel at our place it makes a very big difference
to us.
Chairman TIPTON. Great.
Thank you all so much. We certainly appreciate your
patience at the beginning of this hearing, and we are doing the
other portion of our job in terms of the voting.
I would like to be able to submit with unanimous consent to
the record a report on the Benefits of Natural Gas Production
and Exports for U.S. Small Businesses because the big guys may
be able to play and to be able to generate, but small
businesses is the number one job creator in this country and
the domino effect that we see from responsible development of
these resources down to the local restaurant, I do not believe
that we can overstate.
So with that, so ordered.
Once again, I thank all the witnesses for appearing at
today's hearing and for your valuable insights that you
provided to this Committee. As I mentioned in my opening
statement, the potential benefit for these energy resources to
our nation are truly extraordinary. At the same time, Congress
should avoid the temptation of putting all of our eggs in one
basket, entrusting the economic security of this country to
just two energy sources. In addition to oil and natural gas,
the United States also possesses significant coal and
hydropower resources. Advances in technology are increasing the
capacity and reducing the cost of renewable energy as well.
There is some potential for nuclear energy that we can use in
this country, as well as wind and solar. In short, what I
believe we truly need is that ``all of the above'' energy
strategy.
I would like to be able to ask unanimous consent that
members have five legislative days to be able to submit
statements and supporting materials for the record.
Without objection, so ordered.
This hearing is now adjourned. And again, thank you for
being here.
[Whereupon, at 12:33 p.m., the Subcommittee was adjourned.]
A P P E N D I X
COMMITTEE ON SMALL BUSINESS
Washington, DC June 20, 2013
PREPARED TESTIMONY:
By John W. Larson \1\
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\1\ John Larson is the Vice President and global leader for
customized analytic and economic solutions within IHS Economics &
Country Risk Group.
Chairman Graves, Ranking Member Velazquez and distinguished
members of the Committee on Small Business, it is an honor to
speak with you today about the economic growth and employment
opportunities being fueled by our country's unconventional
---------------------------------------------------------------------------
energy revolution.
The United States is in the midst of an unconventional
revolution in oil and gas that, it becomes increasingly
apparent, goes beyond energy itself. Since 2009, our company
has engaged in numerous studies to better understand and
accurately quantify the dramatic economic contributions
associated with this unconventional revolution. Today, the
exploration and production industry driving this unconventional
revolution supports 1.7 million jobs across a vast supply
chain--a considerable accomplishment given the relative newness
of the technology. That number could rise to 3 million by 2020.
In 2012, this revolution added $62 billion to federal and state
government revenues, a number that we project could rise to
about $111 billion by 2020.\2\ What is now becoming clear is
that the exploration and production industry contributions to
the economy and the lower costs of energy brought about by this
abundant growth in supply is helping to stimulate a
manufacturing renaissance and improve the competitive position
of the United States in the global economy--further stimulating
job creation in the United States.
---------------------------------------------------------------------------
\2\ IHS, America's New Energy Future: the Unconventional Oil and
Gas Revolution and the United States Economy, vol. 1 National Economic
Contributions (October 2012) and vol. 2, State Economic Contributions
(December 2012).
---------------------------------------------------------------------------
Where did the unconventional revolution come from?
The unconventional revolution has unfolded rapidly. As
recently as just a half-decade ago, during the period preceding
the Great Recession, it was widely assumed that a permanent era
of energy shortage was at hand. American's demand for oil and
natural gas was increasingly focused on non-dramatic sources.
The country, it seemed, was on a path to spending several
hundreds of billion of dollars more every year on imports to
meet oil and natural gas demand. How different things look
today.
US crude oil output, after a nearly 40 year decline, has
increased dramatically--by 46% since 2008.\3\ Net petroleum
imports have fallen from 60% of total consumption in 2005 to
36% in the first four months of 2013. The decline is due, in
part, to moderating energy demand during the slow recovery in
the wake of the Great Recession, however, greater fuel
efficiency in autos and a slowing of the growth in total
vehicle miles will continue to constrain the growth of demand.
But, the decline in imports has also been achieved through
significant supply side changes resulting from that dramatic
increase in U.S. oil production. The largest element of this
increase in production comes from what has become the newest
major advance in energy development: tight oil. In fact, oil
imports in 2012 would have cost the United States around $70
billion more and increased our trade deficit a little over
10%--were it not for the increase in production capacity
brought about by tight oil since 2008.
---------------------------------------------------------------------------
\3\ Energy Information Administration, Monthly Energy Review (May
2013).
With respect to natural gas, in just seven years, US
natural gas production has risen from 51 billion cubic feet
(bcf) per day to 66 bcf per day--a 27% increase. This rapid
rise was driven primarily by shale gas production. In 2000,
shale gas accounted for just 2% of total natural gas
production. Today, shale gas accounts for nearly 44% of total
natural gas production. This rapid rise in unconventional
production has also enhanced US energy security. Five years
ago, due to constrained production, the United States seemed
locked into importing increasing amounts of liquefied natural
gas (LNG) and was heading towards spending as much as $100
billion dollars on future imports to meet domestic demand. Now,
these newly unlocked resources ensure that the United States
will need, at most, minimal LNG imports to balance supply with
demand. Instead of debates over US imports, there is the
prospect of exporting some of the domestic surplus, as well as
the potential for using natural gas in some classes of
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vehicles.
What is the economic impact of the unconventional oil and
gas revolution?
While various states had begun to home in on the economic
development aspects of shale gas and tight oil, it was only in
last several years that its significance for the national
economy started to come into focus. We have undertaken a series
of studies to assess the economic impact of the unconventional
revolution. The first two--released late last year--examined
the national and state-by-state impacts.\4\ We are now
extending that study to assess the impact on manufacturing--
which will be released in July 2013.\5\
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\4\ IHS, America's New Energy Future: the Unconventional Oil and
Gas Revolution and the United States Economy, vol. 1 National Economic
Contributions (October 2012) and vol. 2, State Economic Contributions
(December 2012).
\5\ IHS, America's New Energy Future: the Unconventional Oil and
Gas Revolution and the Manufacturing Renaissance, vol. 3 (July 2013)
So far, this unconventional revolution is supporting 1.7
million jobs--direct, indirect, and induced. Looking towards
the future, the industry will continue to contribute to strong
job growth bringing the total to 3 million workers by the end
of this decade. At a time of great concern about the federal
budget, it is also important to note the important revenue
implications associated with this energy revolution. Total
revenues flowing to governments from unconventional activity
amounted to $62 billion last year and will rise to $111 billion
by 2020. This does not include revenue from traditional oil and
gas activity. By 2035, unconventional activity is expected to
have generated nearly $2.5 trillion in cumulative government
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revenues since 2012.
It is also notable that, owing to the long supply chains,
the job impacts are being felt across the United States,
including in states without significant shale gas or tight oil
activity.\6\ That is to say, when it comes to unconventional
activity, a state does not need to have a major unconventional
play within its geographic boundaries to benefit economically
from the activity. In fact, nearly 30 percent of all jobs
associated with the unconventional energy revolution are found
in states with no appreciable unconventional activity. For
example:
---------------------------------------------------------------------------
\6\ Producing states are defined as those that are part of the 20
largest unconventional oil and natural gas producing plays in the US
Lower 48, such as the Bakken and Marcellus Shale plays. Non-Producing
states are not part of the 20 largest unconventional oil and natural
gas producing plays in the US Lower 48 and are not part of an emerging
oil or natural gas play in the 2012 to 2035 forecast horizon. These
states may be part of plays that are currently producing oil and/or
natural gas, but nevertheless are classified as non-producing states,
because current production is relatively small and the prospect for
future unconventional production is unknown.
In Missouri, economic activity associated
withy supply-chains that supported unconventional
activity in 2012 contributed nearly 38,000 jobs to the
state and generated almost $290 million in state and
---------------------------------------------------------------------------
local taxes.
In New York, a state that currently bans
unconventional activity, 44,000 jobs along with $1
billion in state and local taxes can be attributed to
activities supporting the supply-chain associated with
shale gas and tight oil in other states across the
country in 2012.
A key reason for the profound economic impact of the
unconventional activity is the fact that it combines a capital-
intensive industry with a broad domestic supply chain. The
United States is a leader in all aspects of the unconventional
industry, which means that most of its suppliers are
domestically-based, and that means a larger portion of the
dollars spent are supporting domestic jobs in trucking, steel
fabrication, aggregates, heavy equipment manufacturing, hotels,
housing, and restaurants, among others.
But there is now an even bigger positive impact for our
economy that is beginning to be recognized. In addition to
these specific contributions to the economy, there are larger
macroeconomic effects attributed to the savings brought about
by lower natural gas prices and corresponding electricity
prices. In our study, The Economic and Employment Contributions
of Shale Gas in the United States, we identified the following
two important macro-economic implications stemming from lower
natural gas prices:
For U.S. based industries, the abundance of
affordable natural gas means lower input and feedstock
prices. As a result, industrial production--the measure
of output from manufacturing, mining, and utility
industries--will increase 2.7 percent by 2015 and 4.7
percent by 2035.
For households, these lower prices cascade
through the economy, resulting in a $926 increase in
annual average disposable income in 2015. By 2035,
annual average disposable income per household will
have increased by more than $2,000.
Manufacturing Renaissance?
The impact on manufacturing is notable. Several factors are
shifting the economics in favor of on-shoring and fueling the
resurgence of manufacturing in the US. First, global labor wage
rates for many off-shoring locations have significantly
outpaced US wage increase, narrowing the wage gap. Second, in
an increasingly advanced manufacturing world, technology is
shifting the balance away from the importance of low cost labor
toward higher skilled workforces. Third, rapidly evolving
energy landscape is fundamentally shifting the traditional
economics around supply chain as:
(1) higher oil prices, which have tripled in the last
decade have significantly increased the transportation costs
making off-shoring less attractive;
(2) the unconventional revolution in the US, which has
ushered in a new era of affordable and abundant domestic
natural gas, is creating significant competitive advantages for
both energy intensive industries and industries that rely upon
natural gas derivatives as critical feedstock to production.
As a result, companies are now committing or planning
investments that in total appear to range into hundreds of
billions of dollars.\7\ The US chemical industry is
particularly well positioned to capitalize on the benefits of
this unconventional revolution. This industry is highly energy
intensive using energy inputs, mainly natural gas and natural
gas liquids, as both the major fuel source and feedstock. The
US chemical industry's feedstock prices are now among the
lowest in the world. As a result, the US is gaining a decisive
competitive advantage in the cost of producing basic
petrochemicals like ethylene, ammonia, methanol, and their
downstream derivative products.
---------------------------------------------------------------------------
\7\ American Chemistry Council, Shale Gas, Competitiveness, and New
U.S. Chemical Industry Investment--An Analysis of Announced Projects
(May 2013)
A large number of chemical companies, for instance, have
announced plans to build or expand facilities in North America
with capital expenditures totaling close to $100 billion.\8\
Will all be built? Time will tell. But what is striking is
that, just five years ago, these companies would have scoffed
if they had been told that they would be investing back into
the United States. The investments are coming both from US
based companies, which are ``on-shoring'' in response to lower
energy costs, and from foreign companies.
---------------------------------------------------------------------------
\8\ IHS, Energy and the New Global Industrial Landscape: a Tectonic
Shift? (January 2013), p. 2.
---------------------------------------------------------------------------
Conclusion
Altogether, the unconventional oil and gas revolution has
already had major impact in multiple dimensions--beginning with
U.S. energy supply and costs and now extending to government
revenues, manufacturing, and the wider economy. Its
significance will continue to grow as it continues to unfold.
These hearings provide a very timely opportunity for assessing
that impact and significance in its many dimensions, and I am
pleased to respond to the committee's questions.
TESTIMONY OF SIMON ORMEROD,
CEO of AJAX ROLLED RING & MACHINE
PRESIDENT, FORGING INDUSTRY ASSOCIATION
BEFORE THE
U.S. HOUSE of REPRESENTATIVES COMMITTEE ON SMALL BUSINESS
SUBCOMMITTEE ON AGRICULTURE, ENERGY & TRADE
June 20, 2013
Chairman Tipton, Ranking Member Murphy, and Members of the
Subcommittee, thank you for the opportunity to testify before
you today on the economic benefits of increased domestic
supplies of natural gas and oil on manufacturing in general,
and the forging industry in particular.
My name is Simon Ormerod, and I am the CEO of Ajax Rolled
Ring & Machine in York, South Carolina. I am also the current
President of the Forging Industry Association (FIA) and am
honored to testify on FIA's behalf. Headquartered in Cleveland,
Ohio, FIA is the primary trade association representing the
bulk of forging capacity in North America.
Forging is the oldest known metalworking process, where
metal is heated and then formed under high pressure into a wide
variety of high-strength parts used in anything that rolls,
floats or flies. Virtually any metal can be forged, from
aluminum to zirconium. The process is usually performed by
preheating the metal to a desired temperature before it is
worked.
Ajax Rolled Ring & Machine was established in 1980 and has
approximately 100 employees. We are a custom manufacturer of
seamless rolled rings that are used in a variety of critical
industrial components including bearings, gears, flanges, and
valve seat rings for end-use markets such as power-generation
including steam and gas-turbine, wind energy, mining and
construction equipment, oil & gas, petrochemical, defense, rail
transportation, and a wide variety of general industrial
applications. We make rolled rings that range from 7.5 to 100
inches in diameter and weighing from 15 to 3,500 pounds, using
carbon, alloy, and stainless grades of steel as well as certain
non-ferrous grades such as copper.
The modern forging process is both capital-intensive and
energy-intensive. Adding a new production line for our company
would cost in excess of $15 million, and we have significant
expenditure on our equipment every year due to the intense wear
on the equipment. We also are a major user of natural gas and
electricity in our region. Given those requirements, it may
surprise you to know that most forging plants are small and
medium-sized businesses. Specifically, 95 of FIA's
approximately 200 members are small businesses. Focusing just
on our forging producer members, 50 out of 110 are small
businesses. Approximately half of our supplier members are
small businesses. 55% of FIA members have sales below $30
million. Only 12% have sales over $120 million. These plants
provide over 35,000 well-paid jobs and benefits. In 2012, the
average hourly rate for a forge employee was $19.28 with an
additional $9.48 of benefits paid by the employer.
In 2012, custom forging accounted for nearly $10.6 billion
of sales in North America. An additional $3-$5 billion in
catalog and captive sales would bring the industry total for
2012 to the $13.6-15.6 billion range. Comprised of less than
500 forging operations in 38 states, Canada and Mexico, the
largest U.S. presence of forging operations is in Ohio (77,
Pennsylvania (63), Illinois (54), Michigan (54), California
(38), Texas (41), New York (16), Indiana (18), Wisconsin (17),
Kentucky (13), Massachusetts (10) and South Carolina (9).
In spite of the fact that the industry is populated by
mostly small and medium-sized businesses, the forging industry
is critical to the U.S. economy. We are, in fact, one of the
corner stones of U.S. manufacturing.
Forged parts are strong and reliable and therefore, vital
in performance-critical applications. Forgings are rarely seen
or identified by consumers, because they are normally component
parts inside assemblies. For example, forgings are necessary
components in the following applications:
Automotive - A single car or truck may
contain 250 forgings, predominantly in the engine and
transmission; 40% of all truck axle assemblies are
comprised of forged components;
Aerospace - structural, engine and landing
gear parts of commercial and military aircraft are
forged;
Defense - a heavy tank contains over 550
separate forgings; the 120mm gun tube on the M1A2
battle tank is forged; the US Navy's Aegis Class guided
missile destroyers are steered by 2 forged rudder
stocks approximately 20 feet in length and weighing
35,000 pounds each; Cruise missile warheads and all
penetrator bomb cases are forged; a standard artillery
shell usually contains at least 2 forged components;
Power Generation - pressure vessels,
generator rotors, pump shafts, valve manifolds, valve
bodies, turbine blades and shafts, pipes and fittings
are forged for nuclear (commercial and naval), land and
marine power generation equipment;
Wind Energy - about 20 metric tons of
forgings are used in a typical large wind turbine;
Oil and Gas Exploration - hundreds of
forgings are used in both an oil rig tension leg
platform and a land-based drilling rig; in addition
forgings are used in the transportation of oil and gas
under high pressure;
Mining - forgings up to 70,000 pounds are
used in surface and underground mining equipment;
Rail - The Association of American Railroads
requires all axles to be forged for locomotives. The
traction gears and the engine crankshaft and camshaft
in locomotives are also all forged;
Medical - Quality surgical tools and joint
replacements require strong, lightweight forgings;
Tools - Hammers and wrenches are forged; and
Sports - Forged golf clubs allow more
efficient transfer of energy from club to ball than
traditional clubs--that equals more distance without
swinging harder.
Forging is Both Energy-Intensive and Critical to the Energy
Production Sector
Because we produce parts for the energy supply chain and
are heavily dependent on adequate supplies of competitively
priced natural gas and electricity, forgers like Ajax are in a
unique position to comment on the overall benefits to the
economy created by the increased supplies of domestic natural
gas and oil we are now enjoying in the U.S. Increased
exploration for oil and gas is not only beneficial to our cost
structure, through lower priced energy, but also leads to
increased demand for our forgings.
Direct Suppliers to the Oil & Gas Industry
As noted above, hundreds of forgings are used in both oil
rig tension leg platforms, land-based drilling rigs and
pipelines. My company makes gears, bearings and flanges that
are sold to valve, pipe and flange manufacturers in the oil &
gas field. Our products are also sold to the manufacturers of
drills, pumps and many other related equipment applications.
Other forgers make critical parts such as the forged drill
bits, without which the hydraulic fracturing (`fracking')
activity in our country would not be possible. This industry is
responsible for much of the increased supply of domestic
natural gas we are seeing today.
Demand for forged rings that we supply for valves used in
oil and gas pipelines has risen by 20-30 percent in the past 2
years. We have added at least 10 new positions in this
timeframe for both forging and precision machining activities.
The exacting requirements of these valves, many of which are
for sub-sea applications, are such that only stainless steel
forgings of the very highest standards and machined to
tolerances of thousandths of an inch are acceptable.
As many have noted, opportunities such as shale gas
extraction and the potential Keystone Pipeline extension in the
U.S. occur once in a generation. Shale gas extraction is
already providing significant benefits to our economy, and the
Keystone Pipeline extension promises to create a significant
number of jobs during construction as well as provide cost-
effective supplies of crude oil from a stable and friendly
source. The FIA strongly believes that safe, responsible
development of these energy sources will continue to fuel a
U.S. manufacturing renaissance, and U.S. policies should not
erect artificial regulatory barriers to their success.
Abundant Domestic Supplies of a Key Input to the Forging
Process
In the case of natural gas, we benefit directly from the
increased exploration, extraction and transportation of gas
because we supply to the industry itself. Also, as natural gas
is a key input and a key cost driver in our manufacturing
process, we also benefit from stable pricing of that energy
source.
Most forging work is done at temperatures up to 2300+F,
with subsequent heat treating done at up to 1900+F, using
natural gas or electric furnaces. Therefore, forgers require
adequate, stable, affordable supplies of natural gas and
electricity to make the critical parts we make for nearly every
industry sector imaginable.
In 2008, natural gas prices were extremely volatile and
supply was inadequate. Prices ranged from $5.8 per MBTU to
$12.7 per MBTU. When natural gas is both a key input and a key
cost driver, that market volatility makes is extremely
difficult to plan and to remain globally competitive. In
addition, the competitive nature of our industry means that
such cost increases can rarely be passed on to the customer.
Forgers' other key raw material is metal, and for most
forgers this means steel. The metal producers also require
natural gas as a key input and a low and stable gas price helps
them to keep metal prices lower for their customers. While the
majority of the metal producers might not qualify as small
businesses, their customers often are. These customers could be
forging companies, such as Ajax, or else distributors, many of
whom are also small businesses.
Today, with the abundant supplies of natural gas being
extracted and sold in the U.S., we have confidence in the
stability and competitive price of the market. Since the
beginning of 2011, the price range has been between $1.95 MBTU
and $4.50 MBTU. That means I can have confidence in my ability
to be competitive, because I can predict the cost of one of my
key inputs. I can also feel more confident in making investment
decisions, which involve a longer time horizon, because I have
more confidence that energy costs and supplies will be more
stable. A further factor is our competitive position versus
overseas forging companies. The fact that we have stable and
low priced energy helps us to compete with these companies both
in the U.S. and in overseas markets.
Conclusion
It is easy to see the immediate effect on job creation in
the towns and states where shale gas extraction is actively
being conducted. It is a logical next step to consider the
increased jobs that suppliers to the oil & gas industry, like
Ajax, have been enjoying as a result of this increased gas
exploration and extraction activity. Your subcommittee has
already heard from small businesses that will be directly
impacted by the building of the Keystone Pipeline extension.
For those of us that supply directly to the oil and gas
industry, demand for forgings has slowed somewhat now that the
extraction is actually taking place. Approval of the Keystone
Pipeline extension would obviously generate significant new
demand.
However, because natural gas is also an input and key cost
driver in my manufacturing process, the stable, adequate
supplies of less expensive domestic natural gas means that
there is more activity in many sectors, whether for defense
applications, rail applications or general industry and the
long term benefits will be significant.
The U.S. must be very cautious in enacting regulatory
barriers to increased domestic supplies of oil & gas. Policies
that artificially increase prices or restrict supplies would
certainly have a direct negative effect on the entire oil & gas
supply chain regardless of company size. But they would also
negatively affect hundreds of small manufacturers like Ajax and
others in the forging industry supply chain that provide
critical components to almost every industry you can imagine--
and that means everything from airplanes to hand tools to hip
joints. That is why we believe that policies that continue to
encourage safe exploration and development of domestic energy
sources are vital to the continued revival of U.S.
manufacturing, including the forging industry.
Thank you for the opportunity to appear before you today. I
look forward to your questions.
Testimony of Moffat County Commissioner Charles G. Grobe
In front of
Small Business Subcommittee on Ag, Energy and Trade
June 20, 2013
Thank you Chairman Tipton, Ranking Member Murphy, and other
members of the subcommittee for holding this important hearing.
My name is Chuck Grobe, and I am a county commissioner from
Moffat County, Colorado. When combined, the coal, uranium,
vanadium, oil shale, shale-oil and natural gas in our region
has the potential to power our nation for generations as
technologies continue to unlock and enhance their energy
potential. I will be sharing with you the benefits of oil and
natural gas production related to job creation in Northwest
Colorado.
Moffat County is the second largest county in Colorado with
just over 3 million acres of land, 60% of which is federally
managed. Our public and private lands host a variety of uses
that sustain our economy and culture. The top ten taxpayers of
Moffat County are all energy related, and 20% of our tax base
is supplied from the oil and gas sector. The Yampa River runs
through the middle of our county and hosts endangered fish
along with sport fish. The Sagebrush Steppe in our county hosts
some of our state's largest cattle ranches, various oil and gas
operations, coal mines, a power plant, and Colorado's largest
Greater Sage Grouse populations. In the past and future, coal
has and will play an important role in the economic well-being
of Moffat County. The Mancos and Niobrara formations exist
throughout Colorado (and other states) and hold the promise of
great prosperity for Western Colorado. In fact, recently, the
most prolific Niobrara well in Colorado was drilled in
neighboring Garfield County and is the highest producing shale
well in Colorado to date. Our citizens have a history of
generations being employed by the agriculture, energy, and
recreation sectors all receiving various nationally recognized
awards for land animal conservation. Most importantly, our
community has decades of on-the-ground examples of
collaborative efforts that bring varous interest groups to the
tables to reach agreement on the most controversial public
lands issues.
Vermillion Basin:
One of these issues is that of the Vermillion Basin. The
Vermillion Basin is a 77,000 acre cold desert shrub land that
hosts a 200 billion cubic feet natural gas resource as well as
equally valued scenery and wildlife. Over a decade ago, and
very early in the Bureau of Land Management's land planning
process, the Moffat County Commissioners acknowledged the
environmental values of Vermillion Basin as well as its natural
gas potential. Moffat County proposed to protect those
environmental values while encouraging the local economy
through natural gas development, having only the absolute
highest reclamation standards known to work in the high desert
ecosystems of the Vermillion Basin. Moffat County then led the
consensus building process between all affected governments and
agencies, known as Cooperating Agencies, to agree to protect
99% of Vermillion Basin while only utilizing 1% of the surface
at any given time. For several years, the local Bureau of Land
Management office backed this plan. Entirely due to political
reasons, the locally supported plan of protecting 99% of
Vermillion Basin's surface was overturned by Washington
politics, and Vermillion Basin is currently inaccessible to
natural gas development. The economic losses of not developing
Vermillion Basin translate to:
$700 million of natural gas resource that
would be extracted (sold at $3.50/mcf)
$25.6 million to Moffat County Taxing
Districts (Moffat County School District, Colorado
Northwestern Community College, Craig Rural Fire
Protection District, City of Craig, Town of Dinosaur,
Colorado River Water Conservancy District, and Moffat
County)
$7.7 million in bonus payments split between
the State and Federal government and partially returned
to counties and cities within Moffat County (leased at
$100/acre Moffat County average 2008-2010)
$87 million in federal royalties partially
returned to cities and counties within Moffat County
$43.75 million of the State of Colorado's
share of royalty
$77 million of ad valorem (i.e. production)
and severance tax payments
With the uncertainty of conducting business where
situations such as the Vermillion Basin example carry the day,
where political will rather than facts dictate the outcome,
small businesses across our region cannot afford to risk the
finances to start or grow business that do not have regulatory
certainty and businesses cannot provide reliable employment.
Excessive local, state, and national regulations on the oil
and gas industry cause volatility to our economies:
Despite the good news of jobs and new revenues on the
horizon, the promise of prosperity for rural Western Colorado
is obstructed by a very dark cloud. Regulatory uncertainty,
unnecessary federal regulations, frivolous lawsuits, and the
lack of political courage by the current administration to
allow development of these new oil and gas sources, puts our
jobs potential in jeopardy. Quite often political will, rather
than facts, dictate whether or not to develop particular energy
projects. Unfortunately, this misguided approach has had
numerous consequences for small businesses and our economics
across the region. Regulatory uncertainty for the oil and gas
industry has a negative impact on small businesses. Wages in
the oil and gas industry are 51% higher than most other
industries in the state. These are good paying jobs. Oil and
gas employees stay at our local hotels, eat in our restaurants,
and shop on main street. Many companies have chosen to focus
their efforts in states with pro-development policies. As a
result, Colorado has lost important revenues and jobs.
To demonstrate how companies desire to avoid regulation, in
Northwest Colorado, the Niobrara Shale-oil project has been
heavily explored for the last couple years. The Niobrara oil
resource straddles Routt and Moffat County equally. The USGS
identifies the Niobrara oil resource as similar acreage in each
county, similar depth in each county, and generally regards the
geophysical opportunity for extraction equal in each county.
Each of these counties has long standing, tremendously
different philosophical perspectives on drilling. Moffat County
generally has a blue-collar work force that make a living in
the energy industry and their elected officials have
traditionally represented such. Routt County is more of a
resort area and is regarded by the state Oil and Gas Commission
as one of the most regulatory restrictive counties in the state
on oil and gas development. Last year, 20 wells were drilled in
Moffat County exploring the Niobrara oil resources. Given the
equal geologic opportunity to explore the Niobrara oil
resource, one would expect a similar number of wells in Routt
County. However, solely due to public desire and a long history
of elected officials representing that public desire in the
form of regulation, only one (1) well was drilled last year in
Routt County.
This same trend experienced locally was translated to the
state level in 2008 when, due to additional regulatory burdens
placed on the state by the Colorado General Assembly,
significantly more strigent rules were placed on oil and gas
operators through a new rulemaking process of the Colorado Oil
and Gas Commission. The new rules gave Colorado national
recognition as one of the most highly regulated states in the
nation for oil and gas development. While the State will
broadly acknowledge a general increase in applications to drill
and the oil and gas associations will pubically acknowledge
industry continues to drill in Colorado; this is not because of
the additional rules, but in-spite of the rules.
Just as in both the county and state examples above,
Congress must struggle with national rules, such as the Bureau
of Land Management's hydraulic fracturing rules. Trends of
increased regulation in the oil and gas industry have
manifested locally through creative avoidance of federal lands.
For example, it is common in my county for Federal Exploratory
Units, known as federal units, to now follow unusual aliquot
descriptions to avoid as much federal surface and minimize the
inclusion of federal minerals simply to decrease the federal
regulatory footprint. In fact, the same 2010 University of
Colorado study mentioned above reveals the fact that oil and
gas companies focus activity three fold greater on private land
sthan they conduct activity on federal lands. This trend is
alarming considering the cost of leasing private lands in
Colorado is 8.5 times greater than federal lands. Despite the
added costs of moving into private lands to avoid regulatory
burdens, the trend is growing. The Niobrara shale oils in
Moffat County are almost entirely being explored on private or
State Trust Lands surface. The trend of oil and gas companies
increasing operations on private lands is not only local and
statewide, but national. See graphs below.
[GRAPHIC] [TIFF OMITTED] T1700.001
Balancing wildlife interests with energy development:
The above mentioned December 2011 Colorado University
School of Business study revealed statistics that provided
insights about the importance of the oil and gas industry for
our nation, Colorado and small businesses. ``The OIL & GAS
Industry in Colorado directly employs over 40,000 people and
supports over 107,000 jobs in the state and provides $6.5
billion in total labor income and $31 billion in economic
output annually.''
Some important figures from the above referenced study are:
$130 million to school and education funds
solely from State Land Board leasing/royalties (oil and
gas, 2012)
The oil and gas industry pays over 90% of
our state's severance tax.
For Moffat County:
629 producing wells owned by 41 different
operators
44 horizontal wells were permitted in 2012
with 16 currently producing. This is a significant
increase from years past. If this trend continues,
there will be more significant oil production on
significantly less acreage, in turn, this will mean
significantly higher property tax revenues with less
surface disturbance.
Oil production in Moffat County has
increased 25% from 2011 to 2012 which will be reflected
in 2013 when 2012 taxes are collected.
The tax revenues provided from the industry provide
critical resources for education and other important programs.
Protesters who oppose development fail to make this connection
and do not consider that many of the other programs they
support receive revenues and royalties from the oil and gas
industry.
Colorado is filled with beautiful scenery and abundant
wildlife. Current technology allows for a balanced approach
that respects the environment but still allows us to make best
use of our natural resources. Being home to the largest Greater
Sage Grouse populations in Colorado, Moffat County has long led
planning efforts to assure the thriving of grouse populations
while simulateneously protecting a vibrant local energy
economy. Known as the ``Elk Capital of the World,'' we
constantly struggle between balancing timing stipulations
recommended by the Colorado wildlife management agency and
finding a window within the year for industry to operate.
Finding the balance where both wildlife and oil and gas can
thrive seems to employ as many wildlife biologists as rig
hands!
Summary
In addition to my years of experience working for a local
power generation plant and experience as a local elected
official at both the city and county levels, I have spent
several hours discussing these issues with local business
owners around my community. The need for stability within local
businesses is evident. I have found that the uncertainty of the
oil and gas industry, because of additional regulations, has a
ripple down effect on local businesses. A local specialty
industrial parts supply house has chosen to focus on supplying
products to the local power plant and coal mines instead of the
volatile oil and gas industry. While the entrepreneurial spirit
still exists, a consistent theme of being beat down by state
and federal regulations causes companies to look for new
markets. For example, a welding and fabrication shop has
diversified and begun servicing oil fields in other states. The
higher wages cause local business to desire to stay in the oil
and gas industry. However, additional regulation is mounting on
their backs and gradually growing regulatory burdens drag them
down. High paying jobs and the entrepreneurial spirit is still
driving extracting oil and gas resources from Moffat County,
yet limited access to federal lands is driving exploration to
the private land. Wilderness Study Areas, wildlife
stipulations, and additional state regulatory burdens provide
resistance to recovery from a nation-wide recession.
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