[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
EXAMINING THE EFFECTS OF LIQUEFIED NATURAL GAS EXPORTS ON U.S. FOREIGN
POLICY
=======================================================================
HEARING
before the
SUBCOMMITTEE ON ENERGY POLICY,
HEALTH CARE AND ENTITLEMENTS
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
APRIL 30, 2014
__________
Serial No. 113-109
__________
Printed for the use of the Committee on Oversight and Government Reform
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Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida ELIJAH E. CUMMINGS, Maryland,
MICHAEL R. TURNER, Ohio Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of
JIM JORDAN, Ohio Columbia
JASON CHAFFETZ, Utah JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee MATTHEW A. CARTWRIGHT,
TREY GOWDY, South Carolina Pennsylvania
BLAKE FARENTHOLD, Texas TAMMY DUCKWORTH, Illinois
DOC HASTINGS, Washington ROBIN L. KELLY, Illinois
CYNTHIA M. LUMMIS, Wyoming DANNY K. DAVIS, Illinois
ROB WOODALL, Georgia PETER WELCH, Vermont
THOMAS MASSIE, Kentucky TONY CARDENAS, California
DOUG COLLINS, Georgia STEVEN A. HORSFORD, Nevada
MARK MEADOWS, North Carolina MICHELLE LUJAN GRISHAM, New Mexico
KERRY L. BENTIVOLIO, Michigan Vacancy
RON DeSANTIS, Florida
Lawrence J. Brady, Staff Director
John D. Cuaderes, Deputy Staff Director
Stephen Castor, General Counsel
Linda A. Good, Chief Clerk
David Rapallo, Minority Staff Director
Subcommittee on Energy Policy, Health Care and Entitlements
JAMES LANKFORD, Oklahoma, Chairman
PATRICK T. McHENRY, North Carolina JACKIE SPEIER, California, Ranking
PAUL GOSAR, Arizona Minority Member
JIM JORDAN, Ohio ELEANOR HOLMES NORTON, District of
JASON CHAFFETZ, Utah Columbia
TIM WALBERG, Michigan JIM COOPER, Tennessee
PATRICK MEEHAN, Pennsylvania MATTHEW CARTWRIGHT, Pennsylvania
SCOTT DesJARLAIS, Tennessee TAMMY DUCKWORTH, Illinois
BLAKE FARENTHOLD, Texas DANNY K. DAVIS, Illinois
DOC HASTINGS, Washington TONY CARDENAS, California
ROB WOODALL, Georgia STEVEN A. HORSFORD, Nevada
THOMAS MASSIE, Kentucky MICHELLE LUJAN GRISHAM, New Mexico
C O N T E N T S
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Page
Hearing held on April 30, 2014................................... 1
WITNESSES
Mr. Christopher A. Smith, Principal Deputy Assistant Secretary
for Fossil Energy, U.S. Department of Energy
Oral Statement............................................... 5
Written Statement............................................ 8
Mr. Amos J. Hochstein, Deputy Assistant Secretary for Energy
Diplomacy, Bureau of Energy Resources, U.S. Department of State
Oral Statement............................................... 14
Written Statement............................................ 16
APPENDIX
Statement by Ambassador-at-Large for Energy Security, Dr. Anita
Orban from the Ministry of Foreign Affairs in Hungary submitted
by Rep.James Lankford.......................................... 54
Opening Statement by Rep. Michael R. Turner...................... 57
Opening Statement by Rep. Matt Cartwright........................ 62
Supplemental Information: Admin. Officials Recognize the Benefits
of U.S. Natural Gas Exports submitted by Rep. James Lankford... 64
EXAMINING THE EFFECTS OF LIQUEFIED NATURAL GAS EXPORTS ON U.S. FOREIGN
POLICY
----------
Wednesday, April 30, 2014
House of Representatives
Subcommittee on Energy Policy, Health Care &
Entitlements,
Committee on Oversight and Government Reform,
Washington, D.C.
The subcommittee met, pursuant to call, at 9:35 a.m., in
Room 2154, Rayburn House Office Building, Hon. James Lankford
[chairman of the subcommittee] presiding.
Present: Representatives Lankford, Jordan, Walberg,
DesJarlais, Farenthold, Woodall, Massie, Speier, Norton,
Duckworth, Cardenas, and Lujan Grisham.
Staff Present: Melissa Beaumont, Majority Assistant Clerk;
Molly Boyl, Majority Deputy General Counsel and
Parliamentarian; David Brewer, Majority Senior Counsel; Caitlin
Carroll, Majority Press Secretary; Drew Colliatie, Majority
Professional Staff Member; John Cuaderes, Majority Deputy Staff
Director; Adam P. Fromm, Majority Director of Member Services
and Committee Operations; Linda Good, Majority Chief Clerk;
Tyler Grimm, Majority Senior Professional Staff Member; Ryan M.
Hambleton, Majority Senior Professional Staff Member;
Christopher Hixon, Majority Chief Counsel for Oversight; Matt
Mulder, Majority Counsel; Laura L. Rush, Majority Deputy Chief
Clerk; Jessica Seale, Majority Digital Director; Jaron Bourke,
Minority Director of Administration; Courtney Cochran, Minority
Press Secretary; Jennifer Hoffman, Minority Communications
Director; Adam Koshkin, Minority Research Assistant; Elisa
LaNier, Minority Director of Operations; Juan McCullum,
Minority Clerk; Dave Rapallo, Minority Staff Director; and
Katie Teleky, Minority Staff Assistant.
Mr. Lankford. The committee will come to order.
I would like to begin this hearing by stating the Oversight
Committee mission statement.
We exist to secure two fundamental principles: first,
Americans have the right to know the money Washington takes
from them is well spent and, second, Americans deserve an
efficient, effective Government that works for them. Our duty
on the Oversight and Government Reform Committee is to protect
these rights. Our solemn responsibility is to hold Government
accountable to taxpayers, because taxpayers have a right to
know what they get from their Government. We will work
tirelessly in partnership with citizen watchdogs to deliver the
facts to the American people and bring genuine reform to the
Federal bureaucracy. This is the mission of the Oversight and
Government Reform Committee.
Today we are here to discuss the role of liquefied natural
gas, the exports and how we are handling that, and national
security policy and foreign policy. This hearing builds on
another hearing held by this subcommittee last year that
focused on the Department of Energy's strategy and process in
reviewing applications to export LNG, specifically to non-Free
Trade Agreement countries. At that hearing we were joined by
Mr. Christopher Smith of DOE, who is here again with us today.
Thank you. We would also like to welcome Deputy Assistant
Secretary Hochstein from the U.S. State Department's Bureau of
Energy Resources. Thank you both for coming.
By now it is obvious the United States is in the middle of
an energy production revolution. This is due almost entirely to
advanced drilling techniques, such as hydraulic fracturing,
horizontal well drilling that gives us access to resources that
were not previously recoverable. Prior to 2005, it was
estimated there was less than 200 trillion cubic feet of dry
natural gas proved reserves in the United States. As of 2010,
that number had risen to over 300 trillion cubic feet, an
increase of over 50 percent in just five years.
Economic studies such as the NERA study commissioned by the
DOE to inform its decision-making on LNG exports indicate the
United States will see a net economic benefit from LNG exports.
Energy exports could also be a powerful and much-needed
foreign policy tool should we choose to wield it. Many of our
friends and allies are forced to buy their oil and gas from the
resource autocracy of Russian President Vladimir Putin. In
order to meet its domestic power needs, Ukraine imports over 60
percent of its natural gas. All these imports are from Russia.
This gives Russia an immense amount of power over Ukraine. This
is also the case for several other Eastern European countries,
such as Hungary and Lithuania. Russia has a habit of squeezing
its neighbors' energy supplies when it wants to influence their
actions.
The United States has the resources to counter this and to
come to the aid of our Eastern European allies; what it needs
is the political will. As mentioned in our previous hearing,
this subcommittee is familiar with the DOE process for
improving LNG export licenses. For countries with which we have
a Free Trade Agreement covering natural gas, the natural Gas
Act of 1938 requires DOE to grant applications to export LNG.
Such export is deemed to be consistent with the public
interest, and the authorization must be granted without
modification or delay. For countries with which we do not have
a Free Trade Agreement covering natural gas, the Natural Gas
Act still presumes that DOE will grant the application to
export LNG unless the Department finds the proposed exportation
will not be consistent with the public interest.
The United States has exported natural gas via pipeline to
Canada and Mexico since the 1930s. Furthermore, the U.S. has
exported LNG from the Kenai Peninsula in Alaska since 1969. For
the lower 48 States, in May of 2011, the Department of Energy
granted the first permit to export LNG to non-FTA countries.
That facility is currently under construction in southwest
Louisiana and will begin exporting LNG very soon.
When we had our last hearing on this topic, this was the
only facility approved for non-FTA export. I am pleased to see
that number is now seven. However, there are still 24
applicants waiting for DOE approval. I encourage DOE to process
these applications expeditiously. The process to determine that
exporting excess American product is in our national interest
has stretched on for months.
In December 2012, President Obama said to TIME Magazine,
``The United States is going to be a net exporter of energy
because of new technologies and what we're doing with natural
gas and oil.'' The President also recognized that these
``energy [developments] could have a huge geopolitical
consequence.''
It would seem that the President's remarks are embodied in
the State Department's Bureau of Energy Resources. This Bureau,
set up only a few years ago, states as one of its goals ``To
manage the geopolitics of today's energy economy through a
reinvigorated energy diplomacy with major producers and
consumers.''
One objective that I hope to accomplish with this hearing
is to get a sense of how the Administration is taking advantage
of this national security and diplomatic opportunity afforded
by the export of LNG. It seems clear to me this Administration
has identified LNG exports as a valuable, if not crucial, part
of U.S. diplomacy and strategic relations. I would like to make
sure that the different parts of our Government are
communicating effectively and efficiently. Is DOE aware of the
foreign policy objectives pushed by the State Department? Are
these agencies working harmoniously to advance the
Administration's goals? Are there any intra-governmental
barriers that we can help fix to move this along?
Allowing more exports of this domestic commodity will have
a clear effect on the fulfillment of our foreign policy agenda.
We need to ensure that we have a strategy in place that
safeguards our allies from political volatility outside their
borders, and we must have the cross-agency coordination to
carry it out.
I thank the witnesses for appearing and I look forward to
your testimony.
With that, I recognize the distinguished ranking member,
the gentlelady from California, Ms. Speier, for her opening
statement.
Ms. Speier. Thank you, Chairman Lankford, for today's
hearing. I look forward to what I hope will be an informative
discussion.
First, I certainly agree that Russian control of the
natural gas supplies into and through Ukraine is a critical
issue. The OPN Union gets 24 percent of its gas from Russia.
But some countries, such as Lithuania, Finland, and Latvia, are
dependent on Russia for the entirety of their supply.
Considering President Putin's obvious imperial ambitions, the
United States must help our European allies lessen their
dependence on Russian gas as much as possible.
Unfortunately, at least in the short-term, proposals to
help Ukraine by fast-tracking approvals of new LNG export
terminals will not meet the goal intended of quickly getting
U.S. LNG to Europe, and Ukraine in particular. Currently, the
U.S. has only one LNG export terminal, in Alaska, with another
terminal in Louisiana scheduled to start operation in 2015.
Building more terminals and finding the private investment to
fund them will take several years.
I am all in favor of giving the Department of Energy and
the Federal Energy Regulatory Commission the resources they
need to speed the permitting process. FERC, in particular, has
a complex and slow process which could benefit from additional
resources. However, we shouldn't pretend that faster permitting
alone is a panacea.
In addition, the main barrier to the U.S. export to Europe
is not the permitting process; it is the fact that U.S. gas
shipped to Europe would be substantially more expensive than
cheap Russian gas. Most experts agree that LNG exports from the
U.S. would be far more likely to go to Asia, where prices are
higher than in Europe. This is not to say that the U.S. should
not aim to market gas to Europe. But taking note that
conducting foreign policy via energy export is complex.
So how can we help Ukraine, given these practical
constraints? A number of efforts are already underway. The U.S.
is working with the EU and the International Monetary Fund on a
number of efforts to move Europe towards a greater diversity of
energy sources, such as reversing flows of natural gas from
existing pipelines into Ukraine and further developing
Ukraine's own natural gas resources.
Encouraging energy efficiency rarely makes headlines, but
in Ukraine it could be a game-changer. Ukraine produces nearly
as much gas as it uses, but Ukrainians are notoriously
profligate energy users thanks to government energy subsidies.
By implementing the same efficiency measures that other
European countries already use, Ukraine could be nearly self-
sufficient.
Mr. Chairman, I think these efforts to use America's
resources to bolster our foreign policy are admirable and will
become increasingly important over the next decade. However, we
must not lose sight of the economic and environmental side
effects of our current energy boom. A Brookings Energy Security
Initiative study found that U.S. LNG exports would have a
modest upward impact on domestic prices. Even this modest
increase, estimated to be around $50 per family, would be
damaging to low-income consumers, who must often choose between
heating their homes and buying food. That means that an
increase in LNG exports should go hand-in-hand with full
funding of the Low Income Home Energy Assistance Program.
We must also not forget the businesses and manufacturers
that have built business plans around plentiful low-priced
natural gas. Creating jobs through LNG export could be offset
by the loss of jobs elsewhere in the economy.
Increasing LNG exports would also increase the
environmental risks associated with drilling and gas
liquefication. A strong foreign policy cannot come at the cost
of polluting Americans' drinking water with unknown chemicals
from fracking fluid or drowning the coasts, including my
district, with uncontrolled sea level rise. U.S. LNG exports
can provide substantial benefits, but we must be realistic
about what is feasible and control for the costs.
Thank you again, Mr. Chairman, for holding this hearing,
and to our witnesses for being here today.
Mr. Lankford. Members will have seven days to submit
opening statements for the record.
We will now recognize our first and only panel.
Mr. Christopher Smith is the Principal Deputy Assistant
Secretary for Fossil Energy at the U.S. Department of Energy.
Mr. Amos Huchstein is the Deputy Assistant Secretary for
Energy Diplomacy in the Bureau of Energy Resources, the U.S.
Department of State.
Pursuant to committee rules, all witnesses are sworn in
before they testify. If you would please stand and raise your
right hand.
Do you solemnly swear or affirm that the testimony you are
about to give will the truth, the whole truth, and nothing but
the truth, so help you, God?
[Witnesses respond in the affirmative.]
Mr. Lankford. Thank you. You may be seated.
Let the record reflect the witnesses have answered in the
affirmative.
In order to allow time for discussion, I would ask you to
limit your oral testimony to five minutes. We will have plenty
of time for oral discussion and questions after your testimony
is finished. Obviously, your written statement will be made a
part of the permanent record as well.
Mr. Smith, you are recognized first.
WITNESS STATEMENTS
STATEMENT OF CHRISTOPHER A. SMITH
Mr. Smith. Well, thank you very much, Chairman Lankford and
Ranking Member Speier, and members of the subcommittee. I
appreciate the opportunity to discuss the Department of
Energy's program regulating the export of natural gas,
including liquefied natural gas.
The incredible abundance we are experiencing in our
domestic natural gas supply provides unprecedented
opportunities for the United States. Over the last several
years, domestic and natural gas production has increased
significantly, outpacing consumption growth, resulting in
declining natural gas imports. Production growth is primarily
due to the development of improved drilling technologies,
including the ability to produce natural gas trapped in shale
formations.
Production from these sources made up less than 2 percent
of the U.S. supply in 2000 and rose to 40 percent of that total
in 2012, a dramatic change.
Historically, the Department of Energy has played an
important role in development of technologies that have enabled
the United States to expand development of these energy
resources. Beginning in the late 1970s, research investments by
the Department contributed to the development of hydraulic
fracturing and extended horizontal lateral drilling
technologies that were later refined and commercialized through
private sector investments and continued industry innovation,
unlocking billions of dollars in economic activities associated
with shale gas production.
Thanks to American ingenuity and know-how applied to our
abundant domestic natural gas resources, the United States is
now the world's number one natural gas producer and is poised
to become a net exporter of natural gas by 2018, according to
the Energy Information Administration.
Today, domestic natural gas prices are lower than
international prices of delivered LNG to overseas markets. As
in the United States, demand for natural gas is growing rapidly
in foreign markets. Due primarily to these developments, the
Department of Energy has received a growing number of
applications to export domestically produced natural gas to
overseas markets in the form of liquefied natural gas.
The Department's authority to regulate the export of
natural gas arises from the Natural Gas Act, which provides two
statutory standards for processing applications to export LNG
from the United States. By law, applications to export natural
gas to nations with which the United States has a Free Trade
Agreement that provides for natural treatment of trade in
natural gas are deemed to be consistent with public interest
and the Secretary of Energy must grant authorization without
modification or delay. As of March 24th, the Department of
Energy has approved 35 such applications.
For applications to export natural gas to non-FTA nations,
the Secretary must grant the authorization unless, after
opportunity for hearing, the proposed export is found to not be
consistent with the public interest. In executing that
requirement, the Department of Energy established a robust
process to assess the public interest, a process that affords
the opportunity for the public comment and transparency, and
also allows balance of the many aspects of public interest that
are potentially affected by the export of natural gas.
While section 3(a) of the Natural Gas Act establishes a
broad public interest standard and presumption favoring export
authorizations, the statute neither defines public interest nor
identifies criteria that must be considered. In prior
decisions, however, the Department has identified a range of
factors that it evaluates when reviewing an application for
export authorization. These factors include economic impacts,
international considerations, security of natural gas supply,
environmental considerations, and others.
To conduct its review, the Department looks to record
evidence developed in the application proceeding. Applicants
and interveners are free to raise new issues or concerns
relevant to the public interest that may not have been
addressed in prior cases. To date, the Department of Energy has
granted seven conditional authorizations for long-term
applications to export domestically produced lower 48 LNG to
non-FTA countries, equivalent to 9.3 billion standard cubic
feet per day. As of today, 24 applications are pending to
export LNG to non-free trade agreement countries.
The Department will continue processing the pending non-FTA
LNG export applications on a case-by-case basis following the
order of precedence previously established and set forth on the
Department's Web site. During this time, the Department will
continue to monitor any market developments and assess their
impact and subsequent public interest determinations as further
information becomes available.
Given the topic of this hearing, I would also like to note
that, as I mentioned earlier, the Department considers
international factors as part of the public interest
determination, among many other domestic factors. Of course, we
are monitoring the situation in Europe very closely, and we
certainly take energy security of our allies very seriously. We
have taken recent global events into account in making
decisions in recent applications.
The United States' commitment to free trade is another
factor in our reviews. An efficient, transparent international
market for international gas with diverse sources of supply
provides both economic and strategic benefit to the United
States and our allies. Indeed, increased production of domestic
natural gas has already significantly reduced the need for the
United States to import LNG, and global trade LNG shipments
that would have been destined for United States markets have
been redirected to Europe and Asia, improving energy security
for many of our key trading partners.
To the extent United States exports can diversify global
LNG supplies and increase the volumes of LNG available
globally, it will improve energy security for many U.S. allies
and trading partners.
In conclusion, Mr. Chairman, I would like to emphasize that
the Department of Energy is committed to moving forward on LNG
applications as expeditiously as possible. We understand the
significance of this issue, as well as the importance of
getting it right. And I would be happy to answer any questions
that you may have.
[Prepared statement of Mr. Smith follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Lankford. Mr. Hochstein.
STATEMENT OF AMOS J. HOCHSTEIN
Mr. Hochstein. Mr. Chairman, thank you for having me appear
before this committee. Ranking Member Speier, thank you and the
members of the subcommittee. It is always good to be back here.
As someone who served on the House Foreign Affairs Committee
staff, it is good to be able to be back in the House, so I
appreciate the opportunity, especially on this critical topic.
The hearing comes at a critical time. Today, the
relationship between security and access to energy is drawn in
sharp relief. With the illegal annexation of Crimea by Russia
and its role in the unrest in Eastern Ukraine, we are
witnessing the unacceptable and, frankly, shocking violation of
the sovereignty and territorial integrity of one country by
another.
The Department of State is not the agency responsible for
the process of approving natural gas export licenses, and my
colleague Chris Smith, from the Department of Energy, has just
addressed that issue. But the crisis led many to argue that
accelerated approval of LNG exports is the magic bullet to
provide energy security to our European allies and partners.
While critically important, U.S. energy resources,
including LNG exports, are just one tool among many that we can
and are utilizing to address the energy security challenges in
Europe and elsewhere. We have been working in many ways around
the world to contribute to that energy security, and we will
continue to do so in the weeks, months, and years to come.
There are renewed fears that Russia will use energy as a
political tool, as it did in January 2009, when Russia cut off
gas supplies to Ukraine. All Russian gas flows through Ukraine
were halted, cutting off supplies to Southeastern Europe
completely for 13 days. A shocked European Union began the
process of moving towards diversifying its resources of energy
and the routes by which the energy is delivered. The EU began
to implement regulations and build infrastructure toward a
common integrated and transparent energy market.
The U.S. has been working closely with the EU to prevent a
repeat of the 2009 crisis. We established that year the US-EU
Energy Council, an annual meeting co-chaired by the Secretaries
of State and Energy to address strategic energy issues and
forms of collaboration. The first meeting was held that year,
in November of 2009; the fifth meeting was held just a few
weeks ago.
What we have to take into consideration as we look at these
issues is the global context in which we are living, and the
supply-demand changes that have occurred around the world.
First, the supply mechanism has changed from a small number of
countries supplying the world to a much larger number of
countries around the world supplying energy, both oil and gas.
And in demand, while OECD countries were driving the demand
until now, for the decades to come that demand will be driven
by non-OECD countries, principally China, India, and Asia.
As we have worked with Ukraine and with Europe to address
the energy security of Ukraine and of Europe as the downstream
countries, we are looking, as Ranking Member Speier said in her
opening testimony, at not just the issue of LNG exports, but
the issues that would require Europe to be able to address
their own needs, and that means addressing the infrastructure
shortages and shortfalls that Europe suffers from. With
pipelines that go from Russia down south into Europe, to make
sure that those are able to reverse flow so that they can
supply Ukraine. The fact that Poland and Hungary have already
been able to reverse their flows, and I am pleased to announce
that two days ago a major deal was reached between Slovakia and
Ukraine to reverse the flow, these are steps that could not
have happened had we not learned the lessons from 2009 and have
spent the last four to five years working with our EU partners
to make those changes available and capable.
For example, the UE passed theirs, as a result of 2009, the
Third Energy Package, which changed the regulatory framework.
Without that, today the reverse flows into Ukraine would not
have been possible.
But it is not enough to look at this from Russia to Ukraine
and into Europe; we have to look at pipelines that go not just
north-south, south to north, but east-west and west to east so
that gas can flow. We have to make sure that there are LNG
receiving terminals so that there is capacity to receive the
LNG and that it is done in a way that is bankable and
financeable.
But as we look at this, this is not just about the United
States and its exports that will come in the years to come.
This is, as I talked about before, the supply change. And I am
going to get to what Ranking Member Speier said in her opening
testimony. We are looking at Australia coming online with
enormous amounts of natural gas over the next several years.
Mozambique and Tanzania have made impressive discoveries, and
they too will come online in the coming decade. Offshore,
Israel is already delivering new gas to its domestic market,
and is poised to become an exporter in 2017 or 2018. Same for
Cyprus. Potentially, Lebanon, Egypt, and the rest of the
Eastern Mediterranean. North Africa, South America, and other
areas are all looking to become new producers.
So as we look at this, this is a global context that we
have to understand how to address, and we are doing so today,
together with the Department of Energy, Department of State,
and the rest of the Administration, to ensure that we can be
there to allow and to make sure that not only Europe is
supplied, but that energy is used as an energy resource for
cooperation, and not resource for conflict.
In conclusion, Mr. Chairman, LNG exports may become an
important factor in assisting our allies and friends, but it is
only that one factor, that one tool. And we have to work on all
these other areas that I just mentioned in order to make sure
that our commitment to energy security, as we did with the
Baku-Tbilisi Ceyhan pipeline in the 1990s and as we are doing
now with the southern corridor from Azerbaijan and other
projects, to make sure that that energy security is achieved.
We are strongly committed to Europe's energy security and
we will continue our joint efforts with the EU to make that a
reality.
Thank you very much for allowing me to testify before you
today.
[Prepared statement of Mr. Hochstein follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Lankford. Thank you.
I will begin with five minutes of questioning. We will go
around the dais and then we will do a second round in just a
moment.
I would like to first enter, without objection, Ambassador-
at-Large for Energy Security, Dr. Anita Orban from the Ministry
of Foreign Affairs in Hungary, a statement that she has written
about this same hearing and some of the issues. Without
objection, so ordered.
It shows a statement in this that I want to just be able to
read to you quickly. She testified on the Hill March the 25th.
She said, I used $400 as an example of how unrealistically high
Russia may raise the price of 1,000 cubic meters of gas
delivered to Ukraine if it chooses to use gas as an economic
weapon. This was before they invaded Crimea. In fact, Moscow
went above that number with a wild number and now quotes $485.
Now, the current price is around $268. Four times the amount
that is the Henry Hub Price.
Given that Ukraine had difficulty setting its invoices even
when the price was 268, the new price seems well beyond what
Kiev will be able to cover. Ukraine may face a winter without
gas supplies from the east and will have to either buy gas from
the west or cave in politically. This is the reality that is on
the ground.
One other statement that she makes I think is pertinent. On
April 11th, Russian President Vladimir Putin sent a letter to
18 European countries, warning them about potential supply
disruptions in the winter. This is hardball and this is one of
the situations that we have to be able to respond to, and
respond to with clarity in the process.
I say one final statement. Let me read one final statement,
as well, as she makes this. She said U.S. LNG export
liberalization is no panacea in the short-term. The gas could
not be delivered in large volumes to Ukraine immediately. It
will not save Ukraine and possibly other parts of Central
Eastern Europe from a very cold winter in 2014. Yet, it makes
the medium-term solution very clear and this prospect would
have immediate impact on pricing and maybe even availability.
Her request is interesting. Her request is if we will begin
to act, it at least sets a marker out there that shows Russia
that we are serious and they know that we are moving.
Two years ago, when we started the process of these
conversations, I had two different individuals internationally
that came to visit my office immediately, the Japanese and
members of Parliament from Ukraine. Two years ago. And their
question was the same, how quickly could we get American
natural gas. Since that time period multiple other countries
have come to be able to visit with me with the same question,
how quickly could we get American natural gas.
This is one of those conversations that we need to be able
to determine. I understand full well we have the first
responsibility to take care of America and Americans. That is
in our national interest. That is our first responsibility. But
when there is economic benefit and there is also diplomatic
strength that comes from the export of energy, this is one of
those issues I continue to ask why is it taking so long in the
process.
So I know that was a long statement for me to make as well.
Mr. Smith, let me start this conversation. It has taken,
depending on the different permit, sometimes it has taken 11
weeks, sometimes it has taken 8 weeks, sometimes it has taken
different times to be able to actually get a permit one after
another here. So the initial one, obviously, the Sabine Pass
approval, took approximately 8 months after the application.
Well, we have had some now that are 29, 27, 23 months after the
application. Is this process getting faster? I know you are
working through the process. Is it getting faster? Is the
Department of Energy getting more efficient in the approval
process?
Mr. Smith. Thank you for the question, Mr. Chairman. First
of all, as you note, we are working through the queue on a
case-by-case basis. The first application we did obviously took
some more time because we had to do the full study to look at a
cumulative impact. Since then a lot of scrutiny has been made
on the time between each application. One might be 9 weeks, one
might be 11 weeks, one might be 7 weeks.
What I can say to that is that we have a great team of
people working to write these orders. Our focus is on making
sure that we get the public interest appropriate and we get it
right and that we get an order that is going to withstand the
scrutiny that is it sure to receive. So our task is to make
sure that we keep moving forward as expeditiously as possible.
There is not a time line that we are on; there is not a clock
that we follow. Essentially the team looks at each issue. Each
of the orders is different, so they are going to take different
amounts of time because they will require different analyses.
But once each order is done, it is released by the team and we
move on to the next order. So that is the process that we have
been on, and we are moving through the queue.
Mr. Lankford. Let me interrupt real quick because I want to
be able to transition and let other folks speak. So at this
point you don't have a requirement on your team whether they
take two years or two weeks to work through the next permit? It
is just whenever they get done at whatever speed?
Mr. Smith. The requirement is to move forward as
expeditiously and professionally as possible, but to make sure
that they get the analysis right.
Mr. Lankford. But it may take two weeks or it may take two
years.
Mr. Smith. It takes the time that is required, Mr.
Chairman. It is not a time-bound requirement; it is a
requirement bound on the necessity to make sure we make a good
public interest determination.
Mr. Lankford. I am very aware there is not a time bound on
it, but the issue is the clock is ticking internationally. That
is part of the issue; it is not only domestically, but
internationally.
Let me move on. I want to be able to honor everyone's time
today with that.
Ms. Speier.
Ms. Speier. Thank you, Mr. Chairman.
Let's just address the likelihood that liquefied natural
gas will go to Europe if it is manufactured here in the United
States. Most of these companies are domestic companies with
shareholders, correct? And do they not have a responsibility to
acquire the highest price for their gas in order to maintain a
profit that is appropriate? Let's ask Mr. Smith and Mr.
Hochstein.
Mr. Smith. Thank you for the question. Certainly, I think
you raise the point that once approved by the Department of
Energy, the Department of Energy does not determine where the
gas will go; it is going to be determined by the companies that
receive the authorizations. And, indeed, those companies will
certainly move to send the gas to the place that has the best
return for orders.
Ms. Speier. What is the price differential between Europe
and Asia?
Mr. Hochstein. The price of natural gas, as you state, is
not like crude oil, where there is more or less of a balanced
price around the world; there is a difference. So whole people
talk about Henry Hub as the American price, Europe is about,
let's see, 460 or so traded these days, and Europe is anywhere
between $10 and $13, and Asia is anywhere between $16 and $18.
Then you have different regions within that that probably are a
little bit different.
But I think it is important to note that you can't simply
take one price in one area and make the transport of that
equal. So if you take the price from the United States LNG
exports that are approved here, you would have to add the cost
of the liquefaction, the transport insurance, the re-
gasification. Probably the kind of increase in price that you
would have to add on puts it right in the range of what prices
are today in Europe. So it wouldn't be much above it, but it
wouldn't be much below it, either.
Ms. Speier. So the likelihood of it going to Europe is not
nearly as great as it is to go Asia, in any case?
Mr. Hochstein. I think as Mr. Smith said, we, as a
Government, don't tell our companies who to sell it to.
Ms. Speier. Exactly.
Mr. Hochstein. But I think you are right that the companies
are going to make a decision where to sell it to. But, if I
may, I think the issue here is not where we send our gas. I
think this is about a global market. And wherever our gas will
go, and it is likely to go to wherever the traders feel that
they need to put this gas based on a variety of factors,
including price, it will make a difference in all other
regions. So it will make a difference, as I think Mr. Smith
said in his opening testimony. We have already made an enormous
impact on the market by removing, if you look at the
expectations of what we would be importing in 2014 just a few
years ago, that delta is enormous.
Ms. Speier. Okay, Mr. Hochstein, I want to try to get a
couple more questions in.
One of the points that I think hasn't been made well enough
yet is that the infrastructure in Europe to receive the LNG is
not yet robust, and that these import terminals need to be
built. Do we know how many need to be built? Do we know how
much that would cost? Is that something that the United States
would or could invest in?
Mr. Hochstein. We are working with the EU on that issue for
the last several years. There is quite a bit of capability at
the moment that is full. There is more that is being built. The
EU has had some regulatory challenges in getting some of these
through. There is one in Lithuania that is going to be built;
there are some in Italy. But there has also been a sharp
decrease in demand for LNG in Europe over the last couple years
partly because the price of coal has come down quite a bit in
the United States and made coal cheaper in Europe, so there has
been a transition from gas to coal. There have also been very
warm winters for the last couple years that have affected
demand. So you are right. I don't know that we would be as
investors, that is for the private sector to do, but we are
working with the EU to figure out how to make these financeable
and bankable so that they are more likely to be built.
Ms. Speier. All right, according to the Center for
Strategic and International Studies, saving Ukraine from its
gas-related diplomatic disadvantage with Russia is both a
matter of money and political reform. They say the only way to
extract Ukraine from the immediate payment crisis is to provide
money for Ukraine to pay down its debts. However, that does not
address the fundamental problem that resulted in Ukraine's
indebtedness in the first place: massive corruption, opaque
markets, and poor pricings.
Mr. Hochstein, do you agree with that view, and what do you
think we should be doing about that?
Mr. Hochstein. I do largely agree with that view. We have
to look at this in a number of ways. The IMF package is
hopefully going to be approved fairly soon. That will, with it,
release American money that Congress has authorized, as well as
European EU money. The need to pay down the arrears immediately
is urgent so that additional supplies can come and we don't
have a cutoff. But we have to address the reform of the
industry. This is an opportunity, this crisis is an opportunity
for Ukraine to open a new page and to address the reform that
the sector desperately needs so that we don't end up in the
same place that we are today a few years down the road, after
paying the debt.
Mr. Lankford. Mr. Walberg.
Mr. Walberg. Thank you, Mr. Chairman.
Mr. Smith, as I understand it, companies that are seeking
to export LNG today are required to go to the Department of
Energy seeking a determination on public interest. Could you
tell us the criteria that the Department of Energy uses to
determine that term, public interest?
Mr. Smith. Thank you, Congressman, for that question. So
the Natural Gas Act essentially creates a rebuttable
presumption that exports are in the public interest unless the
Department determines that approving such application would be
deleterious to the overall public interest. The law, however,
does not give a specific definition of the public interest;
that has been left to the Department to interpret.
So we have a wide range of criteria that we use when we are
looking at public interest. We look at impact on the economy;
we look at job creation; we look at energy security; we look at
prices; impacts on consumers; foreign issues; issues of
international affairs. So there is a very broad range of
factors that we use.
Mr. Walberg. Are any of the factors weighed differently?
Mr. Smith. Well, one thing that we don't have is a formula
or matrix that we plug numbers into and get an answer out.
Essentially what we allow for is a period of public comment in
which the public can opine on these, and we think that is a
very important part of the process. We then have to make a
qualitative decision on all the arguments that are made for and
against LNG exports. In fact, when you see one of the orders
that we have written , they are extensive documents. We are
required to make very clear and transparent the reasoning that
we make for each one of these applications, so we have to talk
about the arguments that are made and either accept or rebut
each of those individual arguments.
Mr. Walberg. Are international considerations weighed in
any different way? Are they more significant, less significant?
Do you work with the Department of Energy on making
international determinations?
Mr. Smith. With the Department of State, certainly. Yes,
Congressman, we work very closely with the Department of State
on all issues. But in terms of international considerations,
you will see in the most recent order that we put out there is
a very specific reference to the importance of energy security
for the United States allies and trading partners, and that is
something that we do take into consideration, it is something
that is very important to us.
Mr. Walberg. But not heavier than any other factors?
Mr. Smith. Well, Congressman, I think that all these
factors are important. I mean, we care about impacts on
American consumers; we care about prices; we care about
international impacts. So all these are important.
Mr. Walberg. Is the process working as well as you would
like it to, in your determination?
Mr. Smith. I think that the team is doing an excellent job
of making very important long-term decadal energy decisions in
terms of looking at public interest, so I think the team is
going a good job.
Mr. Walberg. How many are awaiting approval right now, the
projects?
Mr. Smith. Thus far we have approved 7 projects. I think we
have more than 20 that are waiting in the queue. So to date we
have approved 9.27 billion cubic feet per day of exports, and
we are working through that queue on a case-by-case basis.
Mr. Walberg. Thank you.
Mr. Hochstein, if you could tell us about the
Unconventional Gas Technical Engagement Program and the Energy
Governance and Capacity Initiative. Give us a little background
on that.
Mr. Hochstein. For the last several years the Department of
State and our offices have worked together with the Department
of Energy and other agencies with friends and allies around the
world who have sought to look into the possibility of
addressing their unconventional and shale resources. What we
have done is we don't encourage any country to do or not to
pursue unconventional, but if they are going to do so, to offer
them the support of understanding the regulatory mechanisms to
make sure it is done in a safe and environmentally sustainable
way. And for that we have a program that supports a number of
countries. We worked very closely with Poland. We actually
started working with Ukraine before the crisis, about a year
ago, and we are looking at expanding that program now to be
able to bring about more resources there.
The EGCI program that you mentioned, Congressman, looks at
the governance of oil and gas sector overall to make sure,
again, that as we see new countries coming online as new
producers, that they are not suffering from the same trap that
some others have done before them, and to make sure that those
resources are made available to all the people of that region
and that country, and that it is done with a governance
structure.
Mr. Walberg. Are you achieving that goal, in your
estimation, right now, like Ukraine and the situation?
Mr. Hochstein. Yes. I think on the unconventional, yes, I
do. It is a very difficult task, but I think that it is
important that countries make the decision on unconventional
based on science and not on emotions, and, if they are going to
do so, that we support them in being able to develop and
increase their production from conventional and unconventional
resources.
Mr. Walberg. Thank you.
Mr. Lankford. Mr. Cardenas.
Mr. Cardenas. Thank you very much, Mr. Chairman.
In order to expedite LNG exports, environmental concerns
and what is in the public interest, it is my understanding, are
involved in the process. Section 3 of the Natural Gas Act
requires companies seeking to export natural gas to obtain
approvals from the Department of Energy, Office of Fossil
Energy, and the Federal Energy Regulatory Commission. Under
this section, no export of natural gas will be permitted unless
it is consistent with the public interest.
So, Mr. Smith, can you describe the various approvals that
are required and what the roles of each agency are?
Mr. Smith. Well, thank you very much for the question,
Congressman. There are two primary agencies that are involved
in this process, there is the Department of Energy, which
essentially grants the authorizations to export the molecule,
and then there is the Federal Energy Regulatory Commission that
grants permission to actually build the plant. So those are two
different processes. They are separate, but they are both
critical and important to get a project up and running and
exporting natural gas.
Mr. Cardenas. Okay, thank you. Mr. Smith, what are the
specific criteria for making the public interest
determinations?
Mr. Smith. Thank you for the question, Congressman. There
is a wide range of criteria that we use when we are looking at
each one of these applications on a kind of case-by-case basis.
We have to look at a wide range of factors that are important
for American consumers and American industry and our national
security, so we look at energy security, we look at supply
availability, we look at environmental impacts, we look at
international effects, we look at prices, impacts on consumers,
on industrial customers. So those are all things that we have
to consider for each and every one of these applications.
Mr. Cardenas. Okay, thank you.
Mr. Hochstein, are you aware of any provision under the
public interest determination for benefitting U.S. foreign
policy?
Mr. Hochstein. We at the State Department are not involved
directly in the approval process, but, as Mr. Smith said, the
Department of Energy and the Department of State work very
closely together and I think we share information, and when
they make their determination they have our views in mind.
Mr. Cardenas. Okay.
Mr. Smith, what, if any, environmental determinations does
the Office of Fossil Energy make in determining the public
interest?
Mr. Smith. So that is going to be on a case-by-case basis
depending on the application that we are looking at, but we are
compelled to look at a wide range of issues; where the gas is
coming from, how it might impact local communities. So those
are things that are considered.
Mr. Cardenas. And what about other agencies?
Mr. Smith. Well, the Federal Energy Regulatory Commission,
the FERC, also has to do an environmental analysis and, in
fact, we are a core operating agency in their environmental
process that looks at the impact of the terminal itself, the
footprint of the terminal, and the impacts of actually
constructing the facility itself. So we are a coordinating
agency with FERC in that process, so we work together in that
way.
Mr. Cardenas. Okay. Mr. Smith, would you describe the
involvement of these processes as very simplistic or
complicated?
Mr. Smith. I would certainly say it is an important and
complicated decision, and we have processes that match the
gravity of the decision we have to make.
Mr. Cardenas. For example, if somebody were to put in an
application in January of 2010 and then, all of a sudden,
somebody puts in what looks to be, on the face of it, a similar
application in January of 2014, would you say that there are
some variables that may have changed between those two?
Mr. Smith. There certainly would be variables that would
change. Just temporally factors changes, and each of the
individual applications will have factors that might be
different. So we have to consider the comments that are made by
the public in this public and transparent process, and we have
to consider each of those on a case-by-case basis.
Mr. Cardenas. For example, in a hearing like this, do you
imagine that in 2010 somebody would have mentioned Ukraine,
Ukraine, Ukraine; whereas, now they may be mentioning it quite
often? Is that a variable that perhaps complicates it a little
bit more?
Mr. Smith. That certainly is something that has changed
dramatically over the course of the past few months.
Mr. Cardenas. Yes. One of the things that I find
fascinating is that, a lot of times, when we have public
hearings like this, people like to try to force the issue to be
simplified more than it possibly can be. I mean, I got my
degree in engineering, and the one class that I remember the
most and that apply in almost everything that I have done since
I have left college is something called feedback systems.
Simply put, it is a class of every engineer of every kind takes
as a freshman and it basically explains that what goes in and
what comes out is very different based on what happens in
between, and no feedback system is identical to another. And it
seems like that is the kind of thing that departments have to
deal with on a daily basis.
I want to thank you very much for doing a very good job of
simplifying it as much as possible so that we in the public can
understand how complicated it is and how important it is. Thank
you so much.
I yield back my time.
Mr. Lankford. Mr. Jordan.
Mr. Jordan. Thank you, Mr. Chairman.
Mr. Hochstein, when can we expect a decision on the
Keystone pipeline?
Mr. Hochstein. Sir, unfortunately, I can't answer that
question.
Mr. Jordan. Do you know when the application for the
Keystone pipeline was filed?
Mr. Hochstein. I don't have the date in front of me, sir.
Mr. Jordan. Six years ago, September 2008. When do you
think we can expect a decision?
Mr. Hochstein. The process in the Department of State, as
you know, is ongoing.
Mr. Jordan. Are you involved in that decision?
Mr. Hochstein. I am personally not involved in the process;
my office is.
Mr. Jordan. You are the Deputy Assistant Secretary for
Energy Diplomacy. Big title. Diplomacy in the title and you are
not directly involved?
Mr. Hochstein. I think that we have different people
working on a variety of different issues. Obviously, I am part
of the leadership of the Bureau, so involved in that sense----
Mr. Jordan. Mr. Hochstein, are you aware the EPA's final
report was released clear back in 2011, three years ago, stated
there were no significant impacts on the environmental side?
Are you aware of that?
Mr. Hochstein. Yes, I am, sir.
Mr. Jordan. And the folks who are going to make the
decision, are they aware of that at the State Department?
Mr. Hochstein. I believe they are, sir.
Mr. Jordan. Are they aware that, two and a half years ago,
Congress sent the President a bill saying, hey, make a
decision? The President delayed that and said we want to wait
for the Sand Hill issue to be resolved. And you are aware that
that has been resolved, Mr. Hochstein?
Mr. Hochstein. I am, sir.
Mr. Jordan. And the people who are making that decision are
aware that it has been resolved?
Mr. Hochstein. I believe people are aware of a variety----
Mr. Jordan. Are they aware that the governor of the State
was initially against it, now he is for it?
Mr. Hochstein. If I may, Congressman, I think that as the
process continues and we look at a variety of these different
issues that are affecting this decision----
Mr. Jordan. Do you think we can get a decision before this
year is over?
Mr. Hochstein. I can't answer that directly.
Mr. Jordan. Then you would meet the six year time frame. If
you get it done before September, you have done it in six
years.
Mr. Hochstein. Congressman, if I may, one sentence. I think
I can give you what I think is happening at the moment, and
that is that as we have new data coming in, such as the
decision of the court in Nebraska, we are not stopping the
process, we are not suspending the process, the process is
ongoing.
Mr. Jordan. Do you know The Washington Post said that
waiting any longer--and this is not Jim Jordan, this is not The
Washington Times, this is The Washington Post, said to not make
a decision is absurd and laughable. Again, not Chairman
Lankford, not members on the Republican side; The Washington
Post. And it kind of is six years. And you are telling me you
don't know if you can get it done before September of this year
to meet the six-year time frame?
Mr. Hochstein. What I am saying, Congressman, is as we are
trying to make the process move as expeditiously as possible--
--
Mr. Jordan. No, that cannot be true. That cannot be true.
You are trying to make it move as expeditiously as possible.
The Washington Post says it is absurd not to make a decision
now. It has been almost six years. You can use any other
adjective you want to use, but expeditious is probably the
wrong one to use.
Mr. Hochstein. We have a significant and overwhelming
volume of public comments that we are going through. We have a
court decision in Nebraska that just was announced just a few
weeks ago that has to be addressed, as well, just on the root--
--
Mr. Jordan. But my point is when. My point is when. Or
maybe a better question is will you ever make a decision.
Mr. Hochstein. Yes, we will make----
Mr. Jordan. You will make a decision at some point? Okay,
well, that is a step in the right direction, because there are
some people who are starting to think there is never going to
be a decision. Now, do you think it will happen--let's take
this date. Do you think it will happen before the November
elections this fall?
Mr. Hochstein. Sir, I can't----
Mr. Jordan. Is it likely to happen before the November
elections this fall?
Mr. Hochstein. As I was trying to say, sir, I can't----
Mr. Jordan. Do you want it to happen before the November
elections this fall?
Mr. Hochstein. Did you want me to answer, sir?
Mr. Jordan. I want you to answer that last one first, if
you could.
Mr. Hochstein. Okay.
Mr. Jordan. Do you want it to happen before the November
elections?
Mr. Hochstein. I would like to be able to go through the
process in the way that we are required to do, addressing all
the issues that have come before us, including the recent data.
Had you asked me this question a few weeks ago, before the
court decision in Nebraska, we would have been in a different
situation. I think what we are trying to do is----
Mr. Jordan. The Washington Post used the terms absurd and
laughable, knowing about the court issue, Mr. Hochstein. You
are aware of that, correct?
Mr. Hochstein. I am aware of what The Washington Post said.
They don't speak for me and I don't always agree with what The
Washington Post says.
Mr. Jordan. Let me just ask you this. Will there be a
decision before the November elections of this year?
Mr. Hochstein. As I said, Congressman, I can't stick to a
specific time line of when this decision will be made.
Mr. Jordan. Yes or no, do you, as Deputy Assistant
Secretary for Energy Diplomacy, want there to be a decision
before the November elections this fall?
Mr. Hochstein. I would like to be in the position where we
have done all the work that we are required to do to be in a
position in the time line that we can do. If that is before the
election, then I hope that that is done. But what I cannot say
is whether or not we are going to be able to make that time
line. We are trying. We have a lot of people working on this.
There are a number of factors that we are looking at, including
the enormous volume of----
Mr. Jordan. We want you to try harder. It has been six
years. We want you to try harder. Frankly, we want a decision
yesterday, but we know that is not going to happen. So, at a
minimum, it makes sense the American people could know about
this before an important mid-term election.
With that, I yield back, Mr. Chairman.
Mr. Lankford. It is becoming increasingly apparent that to
stop any permit, you just flood the office with public
statements and everything stops. At some point leaders have to
make decisions.
With that, I recognize Ms. Duckworth.
Ms. Duckworth. Thank you, Mr. Chairman.
Let's return back to the topic of today's hearing, which is
liquefied natural gas. The crisis in the Ukraine is yet another
reminder of how energy independence and our national security
interests are closely tied. Countries like Russia have shown,
obviously, that they are more than willing to use energy as a
weapon. Natural gas exports have the potential to not only
provide significant economic benefits to our Country's national
security interests, but can also advance our national security
interests and increase energy security.
While this discussion of the international picture of
energy security is important, I want to focus a little bit on
the domestic side and what these effects can be for our
domestic consumers of LNG.
Mr. Smith, studies that the DOE has commissioned have found
that the export of natural gas will have a net benefit on our
economy and that there is significant potential here for
bringing more wealth to our Country and creating more American
jobs, something I think we all agree with. The Gas Technology
Institute, a not-for-profit research lab that I am proud to
have in my district, has been at the forefront of developing
technologies that make natural gas development safer, more
efficient, more environmentally sustainable, and in turn have
really helped to make the natural gas success story one of our
wins in our domestic industry.
Mr. Smith, do you see that efforts and capital investments
in exporting more natural gas will also help to develop greater
use of natural gas domestically, for example, the use of LNG as
transportation fuel or to meet its domestic demand for its use
to generate electricity?
Mr. Smith. Well, thank you very much for the question,
Congresswoman. First of all, the Department of Energy has a
long relationship with the Gas Technology Institute, and that
relationship has actually been very instrumental in developing
many of the technologies that have led to this increase in our
domestic production of natural gas.
In terms of the interaction between LNG exports and
domestic use, if the United States does move forward to export
additional quantities if these terminals are built by the
private sector, it is essentially going to put greater demand
on our domestic supply here domestically, and that is going to
have impacts on a variety of things, and that is what we look
at in a public interest determination.
In terms of exporting LNG increasing the use of liquefied
natural gas for transportation, I don't see a strong
correlation between those two issues; I think they are driven
by different factors. But, indeed, we are seeing a greater use
of natural gas in the transportation sector. Particularly in
fleet vehicles we are seeing that being picked up right now,
and we think that is important; it creates greater options for
American consumers and American businesses. It helps to reduce
greenhouse gas emissions, so we see that as being very
positive.
Ms. Duckworth. I also represent, Mr. Smith, a lot of small
manufacturers. I have the largest concentration of tool and dye
manufacturers in the Nation in my district, for example, and
many of the folks I have talked to in domestic manufacturing
have expressed real concerns that increased exports will lead
to price increases at home and, in turn, harm our businesses
and consumers. What effect does DOE expect natural gas exports
to have on the domestic manufacturing sector's consumption and
the prices that we must pay domestically for natural gas?
Mr. Smith. Well, thank you very much for that question,
Congresswoman. We are certainly concerned about consumers in
Poland and Ukraine, but we are also very concerned about
consumers in Illinois and Ohio and Oklahoma. So we have to take
both into consideration, which is why these public interest
determinations are indeed complicated.
The Department of Energy has commissioned a number of
studies that have looked at price impacts significantly. The
NERA study that was done before this had been passed export, so
it showed, in most cases, a modest impact on industry; it
showed a modest impact on consumers, but one that we do have to
take into consideration and balance against the benefits of LNG
exports, balance of trade, job creation in producing States,
greater production, other things. So it is a balancing act that
we have to show, but we certainly are interested and concerned
about potential impacts on consumers and, importantly, on those
businesses that use natural gas to create jobs. So that is a
very important factor in our considerations.
Ms. Duckworth. Thank you. I have real concerns that our
foreign manufacturing competitors don't take advantage of our
cheap natural gas prices at the expense of our domestic
manufacturers. Thank you.
I yield back.
Mr. Lankford. Mr. Woodall.
Mr. Woodall. Thank you, Mr. Chairman, and thank you for
holding the hearing. I would like to focus a little bit more on
the domestic side of that for a moment.
I represent the State of Georgia, Mr. Smith, where I am
told, depending on the day of the week, Southern Company, our
utility down there, is either the number one, number two, or
number three consumer of natural gas in the Nation; and yet
Southern Company has come out in support of LNG exports as part
of that national mix.
But our pipes are full in our part of the world; we can't
get any more gas in our infrastructure. I look at the map on
the EIA Web site of where the natural gas is coming from and I
am thinking, man, how in the world are they getting that stuff
out of the Bakken. I listen to that conversation that Mr.
Jordan just had here and I think what is the impact that prices
have on domestic manufacturing is going to be dramatically
different if we have an infrastructure that can get every
diesel gallon equivalent of natural gas out of the Bakken and
down into the great State of Georgia than if we don't have that
infrastructure in place.
Talk to me about what kind of infrastructure needs to be
created, which I suspect will be dominantly pipeline
infrastructure, in order for the American consumer and our
exporters to be able to maximize the use of our natural
resources.
Mr. Smith. Thank you, Congressman, for that question and a
lot of really big issues there. First of all, I will mention
that the Department of Energy has a very important
collaboration with Southern Company. One of the most important
demonstrations of carbon capture and sequestration is being
done in Kemper County in collaboration with Southern, so that
has been a really important initiative that has the potential
to benefit both the company here and internationally.
In terms of the infrastructure question, that is actually a
really big topic. When we look at the growth of shale gas and
the success that we have had here in the United States versus
the challenges that you have in Europe, the challenges that you
have in China, one of the big factors that was in our favor
here in the United States was the fact that there was already a
very robust infrastructure in place such that, as fields were
drilled, you had to wait to get that gas to market, and that,
indeed, is built and expanded by the private sector as new gas
is developed.
There is the potential for infrastructure to lag. The
resource in areas in which you have very rapid growth, and we
have seen a bit of that in North Dakota, we have seen a bit of
that in South Texas, but overall there is certainly a very
direct profit motive to build these infrastructure facilities
that are necessary to make sure that we get this energy to the
consumers that are going to be using it, and we believe that is
generally happening.
Mr. Woodall. And do you believe that profit motive exists
irrespective of the answer to the LNG exports question?
Mr. Smith. Certainly. I mean, I do not see LNG exports as
being the single factor that determines whether or not private
industry builds the infrastructure that we need to get gas to
markets.
Mr. Woodall. So when I see natural gas being flared off
around the Country due to a lack of infrastructure, clearly
either the motivation is not there today because of low gas
prices or the cooperation is not there today to go through the
permitting process to get that infrastructure installed.
Mr. Smith. Well, that is actually a big question,
Congressman. I mean, there is a challenge when you have lots of
associated gas being produced along with oil in places where
the oil is valuable and the gas is a byproduct of the oil
production. So if you are in a situation where the
infrastructure would be expensive to build, sometimes it is
difficult for companies to justify the expense of building that
infrastructure when they have the option of glaring the gas
instead of building infrastructure to take it to market. So
there is a market inefficiency there somewhere, but certainly
State regulators and industry are working together to try to
make that work better.
Mr. Woodall. But from a DOE perspective, DOE is just
willing to let those market forces be at play if those market
forces require that we flare off our natural resources to no
benefit of the consumer, fair enough, and if those market
forces require that we need to build a pipeline to get those
resources to consumers, then they would be supportive of that
as well?
Mr. Smith. Well, I wouldn't characterize that as a matter
of willingness. I mean, the Department of Energy has a mission,
so we are the technology organization. I oversee the National
Energy Technology Laboratory that does much of the R&D both
intramurally and with industry and academia that leads to
solutions for environmental sustainability and safety. I think
we are working together with State regulators in some cases,
but there is a question of oversight or some of these
questions, and a lot of them are complex and involve multiple
market actors in the private sector.
Mr. Woodall. Speaking on behalf of the State that gave
America the president who created the Department of Energy, we
support your mission of creating a safe and sustainable
structure here in the Country that hopefully will not only lead
to the manufactures that Ms. Duckworth talked about, but really
change our balance of trade with the world.
Mr. Chairman, thank you again for holding the hearing. I
yield back.
Mr. Lankford. Thank you.
Ms. Norton.
Ms. Norton. Thank you, Mr. Chairman. You are holding this
hearing at an interesting time when there is a lot of talk
internationally about natural gas and perhaps new
opportunities, new marketing opportunities here, where we see
very low prices even given the technology and environmental
challenges. So my question really is for Mr. Hochstein.
Mr. Hochstein, I promise to give you time to answer my
questions.
You hear much of it off the top of the heads of people talk
about our natural gas supplies being of aid to Europe and even
Ukraine during the crisis that Ukraine is now experiencing.
According to figures I have, Europe gets a quarter of its gas
from Russia and half of that, and that was really news to me,
half of that passes through Ukraine.
We remember that in 2009, early in 2009, the pipelines were
shut down through Ukraine. What was the reason for that again,
please?
Mr. Hochstein. There was a price dispute between--Ukraine
had not paid debts and the Russians shut down the gas supply to
Ukraine first, and then to the rest of Southeastern Europe
through Ukraine a few days later.
Ms. Norton. So they didn't have much of an effect on Europe
at that time because of the short duration?
Mr. Hochstein. It had actually a tremendous effect in both
13 days of no gas in the dead of winter. And Europe uses gas
primarily for heating, so the timing was not accidental.
Ms. Norton. What did it do, increase the price?
Mr. Hochstein. What it did----
Ms. Norton. I mean, was there real scarcity going to
Europe?
Mr. Hochstein. It lasted 20 days in total, 13 days for most
of Europe; and, as a result, what it really did was drove home
the realization of the vulnerability that Europe has in its
reliance on Russian gas and its need for diversification.
Because it only lasted 13, the pain was short-lived.
Ms. Norton. Well, does that mean that Europe is less
dependent on Russia today? Did it diversify?
Mr. Hochstein. Europe did a number of things and we worked
very closely with Europe for the last five years to do that.
They are less reliant today on Russia, while still are
extremely reliant and they will be for a long time to come. But
because they passed the Third Energy Package, which required
that the destination clauses be gone, it meant that when Russia
exports gas into the EU, the first country of transit, let's
say Germany or Ukraine or other EU countries, could not say,
they couldn't dictate you may not pass this on without my
permission to another country. So what it allowed it to do is
the minute the gas comes into the EU, it is now EU gas and can
be transferred further.
So as we talked before about reversing the flows from
Poland, from Hungary, from Slovakia into Ukraine, that would
not have been possible in 2009 because of the regulatory
structure that was in place. So by working with Europe to get
the regulatory structure there, making some investments,
getting them to make investments in infrastructure, they are
less reliant today. But as Russia will continue to be a
supplier into Europe, there is more we can do together to make
sure that that reliance is diminished, and quite significantly.
Ms. Norton. Well, is it, and forgive the pun, a pipedream
for Americans to see themselves in anything like the near
future providing natural gas to Europe, and would that have any
effect on our domestic market or do we have so much that it
would simply mean a new market and a new, perhaps, reduction in
the trade imbalance if we were able to do that?
Mr. Hochstein. I think that the United States has a role to
play in this and that our exports are an important factor----
Ms. Norton. We are not exporting at all now, are we,
natural gas?
Mr. Hochstein. Today we are not exporting. We do not have
any facilities to export that are ready yet.
Ms. Norton. That is what I mean. When we hear people talk
about our becoming a supplier, that would mean a large and
immense effort to construct the infrastructure to do so.
Mr. Hochstein. Yes, that is true, but some of that is
already in train, and the first one will come online in about
18 months from now. I just would mention that the gas that has
already been approved by the Department of Energy is about half
the amount of gas that Europe imports annually today. So it is
an enormous amount of gas that has already been approved, but
the market forces have to be there to build the facilities that
have been approved.
Ms. Norton. Thank you very much, Mr. Chairman.
Mr. Lankford. Thank you.
I am going to open this up for open conversation on this,
so anybody can jump in on any point.
I just need to get some clarification there. You had
mentioned we are not exporting natural gas now. Would you
include Canada, Mexico, or off the Kenine Peninsula of Alaska
in that we are not exporting natural gas comment?
Mr. Hochstein. I meant to say LNG of the ones that have
been approved through this process. Clearly, Alaska and the
pipelines to Canada and the narrow region----
Mr. Lankford. Okay, so we are a net exporter already of
natural gas, and we do LNG off the Kenine Peninsula at this
point. But we are exporting, not importing, natural gas.
Mr. Hochstein. We are also importing natural gas today. We
are not a net exporter yet, but we are poised to become one.
Mr. Lankford. Okay. So what was the time frame on that?
Mr. Hochstein. I think as our exports--you know, it is hard
to predict that. I can say that by 2018, which is the
prediction that EIA has for becoming a net exporter, and I
would let my colleague address that, but I think it is
important to say we give permits for, as the Department of
Energy gives permits, they have to be built and then decisions
have to be made to actually sell it.
Mr. Lankford. Right. We talk about it and we will come back
to Mr. Smith on that. Mr. Hochstein mentions the amount that we
have already permitted of the seven that are there. How many
export terminals do you anticipate will actually be
constructed?
Mr. Smith. I can't really say, Mr. Chairman.
Mr. Lankford. Give me your best guess. You are an expert at
this; you have lived and breathed it all the time on both
sides, of the import and export facility side of it. What is
your best guess of how many you think will be built?
Mr. Smith. Well, I can say a couple things on that, Mr.
Chairman. First of all, certainly there are terminals that are
being built right now.
Mr. Lankford. Right.
Mr. Smith. In terms of making predictions about what will
happen subsequently, my experience is that I came to this job
from industry; I spent 11 years at Chevron before I came to
Government. And I actually worked on the Sabine Pass terminal
when it was an LNG import terminals.
Mr. Lankford. Right.
Mr. Smith. So if you had asked me, at that point the
question you would have asked me was how many terminals to
import LNG would have been built and I probably would have made
you an estimate because I was working that field. So I am going
to demure from giving a numeric total because our collective
faith in our crystal ball should be diminished. I mean,
energy----
Mr. Lankford. Okay, we have seven permits out there
already; 24 permits that are still pending. Do you think we
will build 31 terminals?
Mr. Smith. I can safely say that I do not think 31
terminals will be built.
Mr. Lankford. Okay. Do you think we will build 15?
Mr. Smith. I don't know.
Ms. Speier. Mr. Chairman, let's kind of play this out a
little bit. Mr. Hochstein, I think, or maybe it was Mr. Smith,
said that what has already been permitted would generate about
half the LNG that Europe already uses. Now, if we don't want to
have--these companies are big boys, so they can make decisions
as to whether or not to build or not to build. They made
decisions to build import facilities and then got burned, and I
would venture to say they are probably going to be reluctant to
move too swiftly, because it appears that this particular
market varies dramatically from time to time in short periods
of time.
So if, in fact, half of the natural gas that is being used
by Europe today has already been permitted in the United States
and we have the countries of Australia, Mozambique, Israel,
Cyprus, and Lebanon coming online, I mean, what are we saying
here? They are not going to come online and not try and provide
that energy to Europe in many respects, so----
Mr. Lankford. Which is actually my exact point on this, and
Mr. Smith and I have had this conversation somewhat. If we
already know all these terminals are not going to be built, we
are giving a competitive advantage to people that filed a
permit request a couple of days before or a couple of weeks or
months before someone else, where they may have filed a--and
some of these folks filed actually their permit request the
exact same day, but they actually won't find out for maybe two
or three years later than other people on it. So we are giving
a competitive advantage to some companies and other companies
just have to wait two or three years until DOE makes the
decision and then start with FERC.
I agree all these facilities are not going to be built.
There will be a lot of competition worldwide, but we will lose
the competition worldwide if we continue to delay. So basically
we are saying to Australia and other countries you go compete
worldwide, we are going to discuss it.
Ms. Speier. But the flip side of that coin is part of our
resurgence, part of our economic reinvigoration is the fact
that companies are bringing manufacturing back to the United
States because the cost of fuel is so expensive in China and
elsewhere, and they see the net benefit. So we are creating
jobs in that regard. So we don't want to cut off our nose to
spite our face, either.
Mr. Lankford. I totally agree. We are about four and a
quarter right now for natural gas here in the United States; 12
bucks in Europe for the same piece. So even at that point
companies that are going to relocate are going to relocate. So
my conversation is how do we balance this out? How do we use
the economic engine? When you look at job growth over the last
several years, the largest area of job growth in America has
been energy. And how do we continue to maintain that engine to
continue to work in a very difficult economy, to say the least?
You continue to provide new markets for them to go to. So we
have an economic benefit here in the United States and we have
a geopolitical benefit worldwide, which I want to expand this,
if I can, real quickly.
Mr. Hochstein, as well, there is a lot of conversation
between India and Iran right now dealing with natural gas, so
we can continue to talk about Ukraine, but this is not just a
Ukraine issue; this is a worldwide issue. Is the State
Department comfortable with India's natural gas supplier being
Iran? And, if not, what are we going to do about that?
Mr. Hochstein. Thank you, Mr. Chairman, for that question.
We have been implementing and my office has been leading the
effort to implement the Iran sanctions on energy for the last
two years, especially since Congress passed it in late 2011.
First, let me say this. We do not believe there is any
truth or likelihood to gas supplies from Iran to India at this
time, or to Pakistan. Iran is a net importer of gas at the
moment. They export some to Turkey on one side of the country
and they import some other from Turkmenistan. And we have had
very close and open and frank conversations with our Indian
friends about their oil purchases from Iran, as well as how we
would view Iran exports of gas. But currently Iran doesn't have
the gas supply or the infrastructure, and that is due to
sanctions; they sit on the largest reserves. But as a result of
sanctions they have not been able to build out that
infrastructure and there is no infrastructure in sight to be
able to deliver that.
If they do build it, Mr. Chairman, I assure you that our
views are very well known to our friends and allies about how
we feel about as long as sanctions are in place.
Mr. Lankford. But are we in a position to be able to say,
India, we will supply your natural gas needs? Or are they a
spot to just say go in the market and find it?
Mr. Hochstein. India will be one of the first that already
has contracted for natural gas from Sabine Pass.
Mr. Lankford. Okay.
Other questions?
Mr. Farenthold, this is the second round on this. Do you
have questions you want to be able to ask?
Mr. Farenthold. I do, and I apologize for not being here
earlier.
Mr. Lankford. Go right ahead.
Mr. Farenthold. There is a Judiciary markup on human
trafficking, so I am kind of bouncing between committees. But I
do have some questions.
Mr. Lankford. Go ahead.
Mr. Farenthold. I would like to ask our State Department
representative there have been some discussions they have told
me about here today and I have read your testimony, and a lot
of what we focused on is exporting U.S. source LNG to the
Ukraine. U.S. LNG exports are an important foreign policy tool
for assisting our allies, especially when dealing with Russia,
and it would certainly benefit our economy at home. But I would
like to talk to you a minute about the benefits of potentially
assisting the Ukraine not with U.S. LNG, but with world source
LNG.
The State Department has repeatedly asserted that LNG
exports are not a viable option for helping the Ukraine in the
near term because U.S. LNG exports are such a long way away. I
am going to have a conversation with Mr. Smith about that when
I am finished talking to you, but I do want to know while this
is unfortunately true, it is my understanding the Ukraine has
been in discussions with at least one U.S. company about
constructing an LNG terminal in the Ukraine and bringing world
source LNG in until the U.S. supplies are available. It is my
understanding that this could be done in as little as six to
eight months. No one is saying they can get a plant built in
six to eight months, I do point that out. However, Turkey is
causing some potential problems by denying access to the
Bosporus Straits for the passage of LNG tankers.
What is the State Department's view of this? Are you aware
of the world source LNG could be a viable solution in the
Ukraine and what are your thoughts on this?
Mr. Hochstein. Yes, Congressman, thank you for that
question. You are right, when we talk about LNG as a solution,
I don't think it is a comprehensive solution for all problems,
and the U.S. is not, but we are not the only supplier; there
are others and, in fact, some of the European countries that
are building LNG terminals are in contact with other suppliers
for more immediate gas.
As far as Ukraine, we have had this conversation for quite
a while about the interest in Ukraine to build an LNG facility
on the--and it is not really to build a terminal, I will just
say, and that is why it takes sort of--it is to bring in a
floating LNG facility, a boat that will come online. So it is a
little bit different.
The concern and what is blocking it, as you said, in the
Black Sea is exactly what you said: Turkey does not allow LNG
tankers to cross through the Bosporus. They maintain that that
is a national security issue. This has ben a longstanding
position that came up several years ago----
Mr. Farenthold. Are you guys working with them on it?
Mr. Hochstein. I am sorry?
Mr. Farenthold. Are you guys working to educate them on the
fact these things probably aren't going to blow up the way they
think they are?
Mr. Hochstein. We have very frank, open, and honest
conversations with our friends in Turkey about LNG trade and in
general about what it means to have open access trade through
the Bosporus. But their positions are theirs to have and they
have concerns.
Mr. Farenthold. Certainly we don't control Turkey, but
Turkey has been a good friend and ally to this Country, and
hopefully we can bring them along.
Mr. Smith, in a previous hearing we have heard from the
Department of Energy on the process for getting LNG export
facilities permitted. One of the things that I have heard that
the DOE considers is, all right, well, we don't want to get too
many of these because we want them all to be profitable. It
seems to me is that an appropriate role for the Government to
decide how many to have so they are going to be profitable, or
is that something that should be left up to the market? If the
market has a demand for, let's say, 20 LNG export terminals and
25 are built, well, that is not the Government's money that is
going to be lost; that is those investors' money that is going
to be lost for making a bad investment.
Can you talk a little bit about that, how big of a
consideration that is in the process?
Mr. Smith. Well, thank you very much for that question,
Congressman. That, indeed, is not a point of disagreement. The
Department does not take into consideration whether or not a
company is going to be profitable or not; it is not our job to
protect companies from themselves.
Mr. Farenthold. So why is it taking so long to get these
permits out?
Mr. Smith. Well, I think it was instructive to hear the
dialogue between the ranking member and the chairman in terms
of some of the issues that we are dealing with. There are very
strong views on both sides of the equation about the need to
balance the increased production and balance of trade and job
creation and the places where the terminals are being built
with the impact on consumers and prices and impact on
manufacturing sector, environmental factors. So those are a
balance that we have to make.
Mr. Farenthold. I will concede some environmental factors
to you, but it seems like when the Government starts regulating
based on marketplace factors and such, I think we are getting
out of line. We could have a debate about that between the
sides on this dais and probably the Administration, but I am
out of time on this. The potential is so much there and the
delays are just frustrating to me, but I am out of time, so I
will quit preaching.
Mr. Lankford. You can get a second round as well.
Ms. Lujan Grisham.
Ms. Lujan Grisham. Thank you, Mr. Chairman. Well, maybe I
can take on the preaching. Thank you very much for being here
and thank you very much, Mr. Chairman, for the hearing. We are
all looking for those investments and balances, wanting to move
forward quickly enough that we experience the right kind of
results from those investments.
In my State, I am from New Mexico, the energy industry is
certainly critical to our economic success; it is a significant
component of our current economic base and, in fact, I think it
is responsible for about 30 percent of our State's general fund
revenue; and in a poor State like New Mexico, that is the only
way we pay for education. It is also clear to me that the
natural gas revolution has national security implications.
According to the International Energy Agency, the U.S. has
enough natural gas to meet all of its energy needs from
domestic resources by 2035, and that allows us to be less
reliant on the Middle East and other countries for energy.
With that said, I know this has been discussed already, we
have a responsibility to make sure that we manage the resources
in a safe and responsible manner. We want to protect public
health, wildlife, the environment, and our water resources. But
I think it is important to explore ways to ensure that the
Ukraine and our allies have access to reliable supplies of
energy for their own national security reasons; and it is
certainly all of our understanding that the Ukraine faces
numerous energy security vulnerabilities, including a lack to
an adequate energy infrastructure, which I just heard you talk
about, which I appreciate, several times.
But I would love it if you would elaborate. I know that we
started that conversation with Representative Holmes Norton,
but I do want to talk about specifically if you could elaborate
on what those strategies are and give me a little bit more
depth, please.
Mr. Hochstein. In securing the energy security in Europe?
We are working on a number of factors simultaneously. Number
one is to make sure--and I am going to separate out what we are
doing for Ukraine and there is the rest of Europe, and
primarily the Baltics or South Central Eastern Europe.
In Ukraine it is about making sure that, if there is a
shutoff of gas in the near term, that we have reverse flow
capability in Hungary, in Poland, and in Slovakia, and to
expand that to the degree possible that it takes care of the
portion of gas that they import.
Number two, that we help them become a more efficient and
more capable producers of their own gas. They are quite an
impressive producer of natural gas, but a lot of that
technology is 1970s Soviet technology that can be updated and
they can be using and producing more natural gas on their own.
We are also working with them on their interest in exploring
their unconventional gas areas. We are working with them to
make sure that the reform of the sector is such that they will
be able to not end up in the same situation that they are in
today, and to make sure that efficiency rates are there so that
they can do more with less; that includes subsidy reform,
etcetera.
In Europe we have to make sure that the infrastructure is
there, that the regulatory reforms that they have started
continue. We are working very closely with them on that, and to
look and make sure that there is no energy islands in Europe,
which is a stated goal of the EU. So the Baltics are a good
example of that. LNG is going to be a key factor in that.
Lithuania has gone a long way.
The chairman mentioned Anita Orbon, the Ambassador-at-Large
for Hungary, who is a good friend and we work closely together
as they represent and chair the V-4, the Vice Cred 4 countries,
plus Romania and Bulgaria, to make sure that, as a southern
corridor is established, that we have more infrastructure to
supply Europe.
So, as you can see, there is not one answer for any of
these, and it is unfortunate that you can't fit it into a
headline, here is what we do with Europe; it is a lot of
different aspects of it.
Ms. Lujan Grisham. And given that you have to have a broad
approach so that it is sustainable over the long haul, I
certainly can appreciate that and recognize, given that we have
our own natural gas exploration issues in New Mexico, because
we can't recapture the cost until a lot of this gets balanced,
and I am very supportive of moving so that we have more export
opportunities, because that is going to create an environment
in my State to further that exploration and then do exactly
what you said, which is looking at tertiary recovery that is
cost-effective and that we have the infrastructure to do.
But what of those strategies, in 15 seconds, are quick? So
I am looking at some of the stability issues in Ukraine. Can
you pick one or two that you think have more of an immediate
relief?
Mr. Hochstein. I think the reverse flow capability and
making sure that Ukraine is able to pay the arrears so that gas
continues to flow. But the reverse flows are very, very
important, and we have made a lot of progress on that and we
need to make more. If I had to say 15 seconds on one thing,
that is what it would be.
Ms. Lujan Grisham. All right. Thank you.
Mr. Lankford. You can go ahead and extend that out. If you
want to go ahead and answer that, that is fine, if you have
additional responses.
Ms. Speier. Why don't you speak about energy efficiency, or
the lack thereof?
Mr. Hochstein. Sure. As we discussed before, and I will
finish the answer, Mr. Chairman, it is critical as we look at
Ukraine, it is such a big problem, but if we look at the
numbers and we look at the production rates and the import
rates and what is in the system as made available by the
regulatory changes in Europe, we can expand those reverse flows
quite considerably so that maybe not fully for this winter, but
in the years to come Ukraine can choose whether or not to
import gas from Russia or to do it through other mechanisms. So
it is very important.
As far as the efficiency rates, ma'am, Ukraine is very
inefficient, and the Department of Energy, together with us, is
working on proposals to work with Ukraine to see what we can do
to increase efficiency rates, and that means, as many have
addressed, the subsidy issue, where a gas is so cheap that
people have no incentive to conserve, but also to put in place
the kind of mechanisms and structures that will allow for more
conservation so that they can do far more with less or with the
same amount. So that is a program that we have done in other
countries. DOE and the Department of State work together on
these issues, and I think we have a number of proposals that
could work very well for Ukraine.
Ms. Speier. Mr. Smith, can we talk about FERC and the
process there, which my understanding is more cumbersome and
takes longer? How does that interrelate with the process that
you have ongoing?
Mr. Smith. Well, thank you, Ranking Member Speier. I don't
want to get too far into the details of the FERC process
because I am not from FERC and I am afraid I would not be able
to characterize it appropriately, but I would say in general
terms the FERC has an important job of managing the
environmental process of evaluating the environmental impact of
the terminal itself, and they give the authorization to
actually build the terminal. So they have a very detailed and
important role to play in this process. Ours is kind of larger,
bigger picture, looking at the impact of exporting the
molecule, but they have to go through the very detailed process
of looking at the specific impacts beside itself. So we work
closely with them. We share information in terms of making sure
that we know where the different projects are in the queue, but
their process is separate from ours.
Ms. Speier. No, I understand that, but I have been told
that their process is cumbersome and long, and that they have a
huge backlog. Is that true?
Mr. Smith. I wouldn't characterize their process as
necessarily cumbersome. I think it is appropriately detailed
because it is a key part of the decision-making process.
Mr. Lankford. Can I ask a question of that as well? Are
some of the applicants in the FERC process, permitting process
now, even before they have a DOE permit?
Mr. Smith. Yes. We do see applicants going forward with the
FERC process, which is also a significant expenditure of funds;
you have to do a lot of work in terms of your initial
engineering and your environmental studies. So we do see
companies moving ahead.
Mr. Lankford. We are obviously pretty serious with that.
What happens when they get a FERC permit and the DOE process is
not complete and they are in the queue? If they have a FERC
permit in their hand, let's say they have gone through the
whole process and they have completed that, but they don't have
a DOE permit, what happens?
Mr. Smith. Well, I mean, there are two types of
authorization that DOE gives: we give conditional
authorizations, which is essentially consistent with the
precedent we have set for giving some sort of confidence to
individual investors that their final approval will be granted,
and then there is the final approval. So we have given seven
conditionals and we have given one final approval. So if there
was someone who actually did go through the entire FERC process
without a conditional approval, they conceivably could come
back for a final authorization from DOE.
Mr. Lankford. And would they still have to wait in line in
the queue on that? Let's say they are number 15--I am just
going to make up a number--in a list, but they have a FERC
permit done, but they are still waiting on DOE on this. Would
they have to wait until number 12, 13, 14 is complete before
they get it, or would they move up the queue?
Mr. Smith. That hasn't occurred yet, so I don't have a
definitive answer to that question, but conceivably, if they
were done with the FERC process, then we would have to come up
with some process for dealing with an applicant who went
forward, did all that work without having gone through the
conditional approval process. But, again, I don't have a
precedent to point to that.
Mr. Lankford. But it does become the challenge that if they
walk through that process and get that done, they are holding
the FERC permit process in place, they are ready to go. It
shows a seriousness that others may not have. You mentioned I
don't know how many it is total that have already started
through that FERC process on it. Do you know what the number is
that have already started through the FERC permit process?
Mr. Smith. I don't know. I could probably tally that up. I
don't know off the top of my head, but there are a number of
projects that, even though they have not gotten up in the queue
in terms of DOE, they have started with the FERC process.
Mr. Lankford. I am guessing, just based on the preliminary
report that I have, about seven companies have started working
with FERC to get that permit process, but they don't have DOE
approval yet, at various forms in that line. So the concern is
if they end up with one and they are waiting on the other one,
we are back to what Mr. Jordan and Mr. Hochstein had this
wonderful conversation about Keystone on; they are in this
unique situation where they are just waiting. That is the
difficulty of all this from a business side and from also our
foreign partners and allies around the Country, and when they
come to talk to me, their one statement is when will we get an
answer, and the difficulty is I can't tell them that.
As a member of Congress, I can't look at them and say here
is when the answer is coming, because there is no predictable
answer. Because, as we talked about before, it could be two
weeks before the next permit comes or it could be two years. It
might be 20 years; it could be five and a half years and still
discussing it. So there is no predictability in this, and that
is terrible for business and that is terrible for our allies.
So at some point we have to get some sort of predictability in
this process to know, yes, we are working through a process;
here is how many weeks it is going to take; and it is not a red
flag to people to say if you will just write more letters to
us, then we will slow down the process even more, which is what
it seems to be now.
Mr. Smith. Well, Mr. Chairman, I will make a couple points
on that. First, I think the Department of Energy has
established a track record of getting these authorizations
done. Again, these are all very complex, sensitive, complicated
evaluations that we have to do, where we have to balance a
myriad of sometimes conflicting interests. But the Department
has established, I think, a very credible and very reliable
track record of moving through the queue. Again, we don't have
a clock or a bell that says time for the next application. When
the team is done writing the application, the application is
released by the Department.
The second part of that answer, if someone says what is
going to be the availability of natural gas from the United
States, as my colleague from the State Department has pointed
out, we have already authorized 9.3 billion cubic feet per day
of exports, which is equal to all the LNG that goes into
Europe, it is equal to half the LNG that Europeans import from
Russia. So there has already been a tremendous amount of LNG
that we have authorized even going through this very important
public interest determination. And there will be a question
that you posed earlier about how many of these will be built.
At what rate will the private sector actually build the
terminals that we have already authorized.
So there is, I think, certainly some demonstrated progress
that we have made. It is a tremendous amount of gas that we
have already authorized and, indeed, the fact that we are no
longer importing large quantities of LNG has already impacted
global markets dramatically.
Mr. Lankford. With that, when you talk about a tremendous
amount that has already been permitted, is there some cap
amount, that you are saying we are going to get to this certain
cumulative total and we are not going to permit any more beyond
that?
Mr. Smith. No, there is not. We have not determined a level
beyond which we are not going to permit. So that is not
something the Department of Energy has identified or
determined.
Mr. Lankford. So best interest continues to be a subjective
for each location based on the letters that come in and
responses that come in for that area, working through looking
at did you fill out the application correctly type thing and
trying to evaluate that, getting a chance to interact with the
Department of State to see who the partners are and how much is
demanded from around the Country. Obviously, the NERA study
that DOE commissioned gave a more objective look at the
economic benefits of this, so while I understand you have
letters coming in that say we don't want this or we do want
this, you also have an economic study that you commissioned
that says, yes, this is a good idea and it is in the best
interest, economically, of the United States.
Mr. Smith. Indeed. I mean, there was a study that was
commissioned that was received by the Department that was
considered as part of all of our applications to date. But I
will point out that, as we go forward in time, conditions do
change. As was pointed out earlier, a couple months ago we
would not have foreseen sitting in this room talking about
issues in the Ukraine because it wasn't an issue that existed.
Mr. Lankford. Well, I am not sure that is 100 percent true
since, like I said, almost two years ago members of the
Ukranian parliament were already knocking on my door, saying
how quickly could we get this. They were already dealing with
Russia randomly shutting off their energy. I think this was a
pretty predictable crisis in Central Europe. It may not be
specific to Ukraine, but we knew it was coming somewhere.
Would you agree or disagree, Mr. Hochstein?
Mr. Hochstein. I would agree that we have been working on
the vulnerability that we identified the vulnerability that
Europe has with its reliance on a single source in many cases
and we have been trying to reduce that. So, yes, I would agree
that this is a crisis that is a surprise to some, but not to
others, the energy portion of the crisis.
Ms. Speier. Mr. Chairman, I don't know if we ever got
clarification of how much natural gas is going to be generated
by these other countries that you had mentioned earlier, Mr.
Hochstein.
Mr. Hochstein. By the other producers coming online? A lot
of this is we are early in the process. Israel has already
taken care of, with the first two fields that have come online.
The first big one, Tamar, has addressed their entire ABCM,
their entire domestic needs. They have come up with an export
policy, so it is not only about how much you are going to
produce, but how much you are going to put on the market, that
40 percent of their production of Israeli production will go on
to exports.
We don't know yet the amount out of Cyprus. We have one
field that has been proven, but there is going to be drilling
throughout the summer and fall by three companies, one U.S. and
two European.
Mozambique is about double the size of the Israeli find,
but they need to get their act together as well.
So a lot of the gas from Eastern Africa is going to end up
going to Asia, if you think of what makes sense from a
transportation perspective. And this takes us back to the
argument this is not just about Ukraine and Europe. This is
about a global demand. And as we are putting more product on
the market from a variety of places, there is demand that is
rising as well, in Asia in an impressive pace, and that has to
be addressed. So what happens to Europe, they are not entirely
at their own decision-making; there are a lot of market forces
that are going to have to come into play. And as we see what
the prices are around Asia, that will determine what the
supplies are available for Europe.
But that pressure is already there. As a result of our
production and not importing, Europe, for the first time,
actually went out and renegotiated and forced the Russians into
a renegotiation of price, and were able to get better terms
from the Russians a couple years ago in a way that they weren't
able to do that in the past. So these dynamics are having real
impacts.
I am with my colleague here, it is very difficult to make
some predictions on this, because if you read anybody's
predictions in 2009 into global supplies and trade of natural
gas, they would have been very, very mistaken today, in
hindsight.
Mr. Lankford. Mr. Hochstein, you mentioned before that the
State Department is helping some of the folks in Europe with
non-conventional explorations of oil and gas, and you made the
comment that you are helping them focus on science, not
emotion. Can you clarify that?
Mr. Hochstein. I didn't say I am helping them; I said that
we recommend that when you are going to make a decision on
whether or not to explore unconventional and shale, it is
important to look at what the science is and what is and what
isn't true. We have had a great experience here in the United
States with a regulatory system of both Federal and the States
of looking at that, and what we would like to do is to brief
them and educate and show what we have been able to learn from
the experience here.
We have brought a variety of delegations here to the United
States, together with EPA, Department of Interior, Department
of Energy to learn from the process here; and what is great
about it is that it is not a monolithic here is how to do it.
Here is how we do it at the Federal level, but then look at
what Colorado is doing, versus what New York or Pennsylvania or
Texas, etcetera. I think that has been very useful and there is
a larger and larger interest in that program.
There are some countries that have announced moratoriums on
shale development and exploration, and that is their decision
to do it, and if they don't want to explore it, that is fine.
We continue these conversations even with those countries, but
obviously don't have programs with them to support the process
if they are going to have a moratorium.
Mr. Smith. I would add one thing, if I could, Mr. Chairman,
to that observation. A couple years ago I traveled to Warsaw
with Mr. Bob Secuda, who is the Principal Deputy Assistant
Secretary for the Bureau for Energy and Natural Resources,
where Mr. Hochstein works, and we participated in a session
that was held by the IEA called the Golden Rules for the Golden
Age of Gas, and it was a collection of subject matter experts
from around the world convening to discuss their experiences in
shale gas and unconventional gas development.
Again, I will reiterate it isn't our jobs to tell other
sovereign nations what to do with their resources, but we think
it is in the best interest of the United States to be as open
and transparent in sharing the best practices that we have
learned here to help build kind of a scientific basis for
decision-making. So we see that as being positive and something
that we affirmatively support through our actions.
Mr. Lankford. Just for clarification on this, the State
Department is working with other countries that have shale to
be able to bring them to the United States, to be able to
interact with some of our regulators, to be able to look at
some of the science side of this, how we can actually do it, do
fracking, do horizontal drilling to be able to take this on,
because obviously their country--well, depending on the nature
of their country and whether they own their own oil companies;
some places do and some don't. Basically exposing them to what
we are doing in the United States, saying this is a good idea
for you to be able to take this on so you can provide your own
energy resources in your own country.
Mr. Hochstein. I would agree with everything except for the
last sentence. It is not for you to encourage you to do so. It
is not our decision; it is a sovereign decision. If they decide
that they want to move ahead and go ahead and exploit it, we
will be there to support them with this program, if they are
interested, to show them all the other things that you just
said, yes.
Mr. Lankford. Right. You can't force a country to say I
want to be independent, but most countries would say, if they
have the opportunity to not be dependent on someone else for
energy, they would most likely take that.
Mr. Hochstein. Mr. Chairman, at times there are also
external factors and external forces that come into countries
to encourage them not to explore those resources.
Mr. Lankford. I would say Oklahoma would be welcome to
receive folks from around the world to be able to show them how
we do natural gas exploration, how we do it extremely well,
extremely clean. And our regulatory scheme in the State of
Oklahoma and how we actually regulate things as far as
exploration is exemplary. I encourage people to come drink our
water and breathe our beautiful air and see our wonderful land,
and to be able to see how you can do this and can do it clean.
We have had over 100,000 fracs in Oklahoma, and it is a
beautiful State and has very clean water and very clean air.
So, as you mentioned before, trying to deal with the
science, not the emotion, when you are finished with the rest
of the world, I would appreciate it if you would come back to
the United States and share what you have learned as well about
dealing with the science, not the emotion.
One other comment, unless the ranking member has another
question on this, I want to shift topics. I promise I won't
stay long. I want to bring up the issue of crude oil exports.
And what we are hearing from our international partners on
that, we already export refined products around the world. We
are currently not exporting crude. What are we hearing? We have
heard quite a bit from people. They are very interested in our
LNG. What are we hearing about crude and the request for that
from our allies?
Mr. Hochstein. I think just like in the United States, this
is a conversation that is happening around the world, and I
think it was the next logical conversation that we were going
to see happen. We are following that discussion of what it
means. We are in the very early stages of this conversation. I
followed what has been done here in Congress, both in the House
and the Senate side, of discussion on what does this mean to
have crude oil exports. I think this is a much bigger
discussion. We have been so focused on the LNG side that the
oil side is next. So I think we are in the early stages of
understanding what it means and listening to the views that are
being expressed.
I think there is less than a drum beat as far as our
partners; I think there is more of a focus on natural gas. But
there is definitely an interest in the topic of what the United
States is going to do, but less of independence for those
countries like the discussion of gas and more from the aspect
of understanding how will this impact the mid-and long-term oil
markets and prices and structures.
We have talked a lot about gas today, but we have the same
changes, radical changes in the oil markets around the world
today that are happening in gas; they are just slightly
different. Big changes from the days where OPEC dominated the
market; new players. And with most OPEC countries today
producing at maximum capacity for a variety of reasons, some
for sanctions, some for political instability, some for
technical reasons, and some because that is the most they can
do, the question of what happens to the market if the United
States starts exporting is one that is fascinating those who
follow the energy markets.
Mr. Lankford. So let me just complete that thought. Prices
drop worldwide if we start exporting, correct or not correct?
Mr. Hochstein. I think it would depend on the dynamic. I
have learned one thing in this business, which is that any
prediction on oil prices, those who make those predictions
usually regret them later.
Mr. Lankford. It tends that all it takes is a little cross-
border war somewhere in the Middle East and it changes
everyone's gas prices all the time. I do understand that. But
is there an unease, I would say, in the OPEC countries that the
United States could become an exporter?
Mr. Hochstein. I think they are watching our decision-
making process very carefully.
Mr. Lankford. Okay.
Mr. Smith, do you want to make a comment about that?
Mr. Smith. I would probably second the comments of Mr.
Hochstein. There has been more focus on gas, obviously, because
there is a statutory process for dealing with natural gas and
there is not a statutory process for dealing with oil. But this
certainly is a topic that we think is of interest, but we don't
have a direct role in even the current limited capability of
exporting oil if there is a waiver granted, so the DOE does not
have a role there.
Mr. Lankford. Is the DOE doing a study of oil capacities,
what is coming online, our capability of production and what we
will actually use?
Mr. Smith. Well, that is something that obviously the
Energy Information Agency follows very closely, and that is
kind of a semi-autonomous part of the Department of Energy. We
are consumers of their analysis, so we follow that very
closely.
Mr. Lankford. Semi-autonomous. I am enjoying that
conversation. We can have that conversation about several
agencies, actually, and several departments, semi-autonomous.
The length of time issue you and I have talked about often,
as far as the permitting, getting back to LNG. Predictability I
think is extremely important not only for American companies
and American production, but I think it is extremely important
for our international partners at this point. I don't know how
we get there, because, based on what you are saying, your team
is working on it, but there are no deadlines and there are no
demands on certain time periods; it is we will get it done when
we get it done. And my concern is, for our international
partners, they need some certainty. The folks that have come to
visit my office have all said the same thing: when?
Ms. Speier. Well, Mr. Chairman, let me interject, then. If
this is one of speediness and still doing the job, then the
question becomes are the fees that are being charged to provide
this evaluation adequate to do the job and does the office need
more staff. Maybe you can address that as well.
Mr. Smith. Well, thank you. I will make two points on that.
First, when I go and talk about LNG at various venues, I am
often followed by a market expert who will put a chart on the
wall that shows the exact length of time between various DOE
actions and juxtapose that against prices or a bunch of other
things, and there is all this analysis about why is it 10 days
longer between these two than these other two. So those are
always interesting to watch because there is all this
theorizing about what is the back story about the extra four
days here, and the bottom line is that there is not a back
story; all of these are slightly different.
But what we can see is that we have established, I think, a
fairly reliable track record of getting these authorizations
out in a reasonable amount of time. There has been a
consistency over the past year or so. It varies from order to
order within a reasonable amount because all the orders are not
the same. So it is our intention to make sure that we are
moving forward in that manner. We have already authorized,
again, 9.3 bcf, which is a considerable amount, and the biggest
uncertainty really now is what is going to be the reaction of
the private sector that has already received these
authorizations. At what rate are these terminals going to be
built? Because they are massive multi-billion dollar
investments that are complex to get built, and they will be
built if the market determines that there is going to be a
demand for U.S. gas.
Mr. Lankford. But if they have the FERC permit done, they
are not moving in line or they are moving in line?
Mr. Smith. Again, we have a number of applicants that have
not yet received a conditional authorization from the
Department of Energy that are working through the FERC process.
We have not come to the position where someone has finished
that process in advance of having received a conditional
authorization, so unfortunately I don't have an answer to that
question because it is sort of a hypothetical at this point.
Mr. Lankford. I understand, but that will be a big issue. I
mean, obviously this becomes very, very significant. I would
hope that you are addressing this, that if someone is holding
the FERC permit in their hand, but it is two and a half years
of still waiting on the DOE piece, or it is unpredictable, they
just don't know--I know you said we have established a process
that has some predictability, but just because it has been done
that way in the past, as you mentioned already, doesn't mean it
is going to be done that way in the future. You are not saying
it is going to be six to ten weeks between each one; you are
just saying this is what we have done in the past.
Mr. Smith. I am saying that we have established a track
record. But, again, this is an unprecedented activity. I mean,
the Department of Energy, when this market changed, and you
referred to this energy production revolution in your opening
statement that has taken the regulators within my organization
and they have gone from looking at import terminals to export
terminals. Everything has changed. So I think there are a
number of hypothetical situations that one could come up with
and say, well, what are you going to do in this situation, what
are you going to do in that situation? We are busy and hard at
work at making sure we are doing the work that is before us,
that we are meeting our commitment to get these out in as
timely a manner as possible; and as we move into new
situations, those are things that we are going to have to
consider and made the best decision that we can.
Mr. Lankford. So it is possible at that point, if they are
holding a FERC permit, for them to be able to come back and be
able to step out of line. We have to reevaluate that.
Mr. Smith. I will certainly say that at all times we are
looking at ways to make the process better and more efficient
based on signals that are being sent by the markets. So as the
market sends us signals that are different from the signals
that were sent when we established a certain process, we are
not inflexible to doing the thing that is appropriate based on
appropriate market signals and our assessment of public
interest.
Mr. Lankford. Okay.
We will still have more conversations about this,
obviously, because I understand you are still saying look at
our history, but there is no predictability of what happens in
the future, and that is really a much needed thing right now,
both in our Nation, development of infrastructure. If any of
these facilities are going to be built, we have to get
pipelines to them. That is years in the process, it is years of
construction and it is lots of capital. It is going out and
pursuing contracts worldwide. It is our international partners
saying, okay, we are going to get it, here is the date we are
going to happen. All those things are all pending on your team
making a decision and people knowing when it is going to
happen.
So not to say you have the whole world in your hands, but
there are a lot of folks around the world that are waiting on
decisions that if we can't get predictability of when they are
going to happen, there are a lot of folks around the world that
are just waiting a lot of economic development here in the
United States that is waiting to be released pending a decision
from your office. So if we can get some level of predictability
on that, it would certainly help our economy and would help our
geopolitical situation as well.
Mr. Smith. Understood.
Ms. Speier. Mr. Chairman, I would just like to close by
thanking our two witnesses who have, I think, presented some
very persuasive arguments for why this is global in nature and
not something that the United States, in and of itself, is
going to fix. But certainly your admonition that there should
be some predictability is worthy of us reviewing, but I would
urge us to look at FERC as being part of that, and they are
absent from this discussion here today, and they are a key
component as well.
So thank you for your good work and for your service to our
Country.
Mr. Lankford. Gentlemen, thank you.
With this, this hearing is adjourned.
[Whereupon, at 11:56 a.m., the subcommittee was adjourned.]
APPENDIX
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Material Submitted for the Hearing Record
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