Mr. President, the pending business that will be before the Senate is S. 2284. That is a bill to reauthorize the Federal law governing flood insurance. Our next scheduled vote, as my colleague from Alabama just pointed out, does not relate…
Mr. President, the pending business that will be before the Senate is S. 2284. That is a bill to reauthorize the Federal law governing flood insurance. Our next scheduled vote, as my colleague from Alabama just pointed out, does not relate to that bill. Our next scheduled vote does, in fact, not relate to the subject of flood insurance at all. The next vote will be on an amendment which the Republican leader has filed, allegedly to deal with the high price of oil and the high price of gasoline at the pump. I will oppose that amendment tomorrow when the vote is cast, and I urge my colleagues to do the same.
The high price of oil and gasoline and diesel that are refined from that oil is creating a very substantial economic burden on the American consumer and on the U.S. economy. At the close of business Friday, the price of oil stood at about $126 per barrel on world markets. The average price of gasoline in this country was around $4 per gallon. This reflects a dramatic increase over prices a year ago. The increased cost is difficult for many Americans to avoid because many Americans commute to work or they otherwise need to travel substantial distances where there is no ready alternative to the use of their private vehicles. To the extent Congress and the administration can take action to reduce the burden of this increased cost, we should do so.
Unfortunately, the amendment of the Republican leader is not a credible proposal for reducing that burden. We should be honest with the American people about this so-called debate on high gas prices. This is an election-year effort. This is election-year politics in its classic form. It is Washington finger-pointing. Unfortunately, it is very little else.
Let's be clear. The President set the tone for the debate. On April 29, 2 weeks ago, the President went to the Rose Garden to express his concern about the price of gas and to blame the Congress for it. While he was there in the Rose Garden, he also took the occasion to blame the Congress for the rise in food prices. Unfortunately, as far as I know, there has been no effort by the President to sit down with the leaders of Congress and to work out a consensus on constructive actions that might actually help, either with the high price of gas or with the high price
of food. The amendment of the Republican leader, which will come up for a vote tomorrow, continues with this same old ``blame the other guy'' approach.
Let's talk about the facts of why oil and gas prices are so high. In my view, there are supply and demand factors in world oil markets that explain some of what we have seen, and some of those factors are outside our control--at least in the short term. The simple fact is that the market for oil is a global market. The price of oil is reflected on that market.
The United States is the largest purchaser of oil in that market. China is rapidly gaining on us in that regard. We are not even close to being the largest producer of oil for that market. In fact, we import about 60 percent of the oil we consume. If we want to affect the price of oil either by reducing world demand or increasing our supply, our ability to do so is limited.
By far the most significant step we can take to reduce demand in the short and medium term is to improve vehicle fuel efficiency in our cars and our trucks. Last fall, we did just that. Many of us believed the increase in required miles per gallon was too modest, but it was a substantial improvement over what had prevailed for the three previous decades. We need to look at other ways to reduce demand for oil in the short and the medium and the long term.
On the supply side, our ability to affect world prices is even more limited. That is simply because of our limited reserves. We have about 3 percent of the world's oil reserves. Also because most experts believe that U.S. production in the coming years will do well to maintain its current level. We can affect that production somewhat by adopting enlightened policies, but its impact on world markets and consequently on the world price of oil will be limited.
When we look at issues that we in the U.S. Government can most directly and immediately affect, I would cite two. We can reduce the incentives for speculation in the oil market--that is No. 1--and second, we can strengthen the dollar by showing some commitment to getting our own fiscal house in order. Let me comment briefly on each of these issues.
The Committee on Energy and Natural Resources, which I am privileged to chair, has held several hearings on oil and gasoline prices and markets this year. Other committees in the House of Representatives had similar hearings. Current high prices are a result of several factors. One of them is certainly the tight global supply-demand balance. One thing stands out from all the testimony both the Senate and House has heard: A key factor pushing oil prices into the triple digits in recent months is a dysfunctional energy market.
Here is what a senior vice president of a major oil company said at one of these hearings on the House side:
When you look at the fundamentals of our business,
Congressman, the supply/demand fundamentals, our assessment
would be the price should be somewhere around [$]50 [or $]55
a barrel. There is a disconnect. To me, there are three
factors that contribute to that. One is the monetary issue,
the weaker dollars we've already talked about. The other is
geopolitical political risk. And the third, we believe, is
speculation.
Other key analysts in the Government and the private sector have made similar statements, although their assumptions about what exact price level was supported by supply and demand fundamentals have differed. But it would be fair to say that key energy analysts are in general agreement that around $30 of the current price of a barrel of oil is a result of market pressures unrelated to supply and demand for physical barrels of oil.
This general assessment of a significant cause of high oil and gas prices is broadly shared. One noted energy economist put it this way recently in the Wall Street Journal:
Crude futures prices have decoupled from the forces
controlling the underlying physical flows of the commodity.
In plain English, that means crude oil prices are not connected to supplies. If oil prices are not being driven by supply and demand, then by what are they being driven? We heard some strong testimony on this in our committee from Cambridge Energy Research Associates, the firm headed by Daniel Yergin, who is a leading oil expert, well known to all in this field. Here is what their analyst had to say in early April:
Crude oil futures trading activity on the New York
Mercantile Exchange--the largest in the world--is currently
about 350 percent higher than in 2002. Noncommercial
investors have contributed to this increase. . . .
New fundamentals--new cost structures and global financial
dynamics--are behind the momentum that pushed oil prices to
record highs, around $110 a barrel.
That was $110 a barrel in early April.
If we want to get at the real question why oil today is around $125 a barrel and why gasoline is closing in on $4 a gallon across the country, we will not find the answer in the Republican leader's amendment. We are witnessing a substantial influx in speculative money into energy markets. It is bidding up the price of oil beyond any reasonable level that could be explained by supply and demand. Every consumer can see it at the pump. But do we have any serious effort to regulate that speculation or even to notice it?
A Commodity Futures Trading Commission witness told our committee they did not see any evidence that speculation was a factor in oil prices. I thought they were alone in that view because the amendment of the Republican leader seems to agree in that it fails to acknowledge or deal with this significant part of the problem.
If we are going to protect consumers, we need to have a Federal Government as an effective overseer to start policing these markets. There is a proposal Senator Reid has introduced that will begin to address the issue. That bill requires the Commodity Futures Trading Commission to start doing the job Congress intends for it to do; that is, to make sure oil trading is done with adequate transparency and to make sure limits on speculation apply across the board. Right now, it is entirely possible for hedge funds or traders to evade the protections put in place for trading oil in the United States. They simply trade U.S. crude oil in foreign markets that the Commodity Futures Trading Commission has decided it will not regulate. The Commodity Futures Trading Commission could regulate these so-called dark markets, but it has decided not to. Instead of turning a blind eye to this offshore oil trading, Senator Reid's bill will ensure that the Commodity Futures Trading Commission makes a priority of protecting American energy consumers. The majority leader's approach is aimed at bringing down the price of oil in the near term by having effective regulation of speculation. Some big hedge funds will not like that, but it will help the average consumer.
Let me talk for a minute about the second issue which both the Congress and the administration ought to be addressing. If we are going to get commodity markets of all kinds to act in a more rational way, we also need to do something serious about our overall fiscal policy in this country.
The United States is borrowing money on world financial markets because we cannot summon the political will to actually pay for the things we want our Government to do. We are fighting a war in Iraq on borrowed money, to the tune of over a half trillion dollars since 2002. A number of us have proposed to strengthen and to extend tax incentives to spur energy production from renewable sources, but those are being opposed by others here in the Senate for the simple reason that we are proposing to pay for those, the extension of those tax provisions, instead of borrowing even more money from overseas to cover their cost.
Because of the mismanagement of the economy and our high borrowing overseas, the value of the dollar has fallen dramatically. The price we are paying for international commodities such as oil is rising. That is another major factor driving up the price of oil. We need to face up to it here in the Senate. If Senators want to lower high oil prices, getting our budget house in order will do much more to strengthen the dollar and to lower gasoline prices--and sooner than any of the new drilling called for in the amendment of the Republican leader.
I have covered two of the most important things we can do to address high oil and gas prices; that is, curbing oil market speculation and, secondly, getting our budget and fiscal policy in order.
Now, let me turn more specifically to the Republican leader's proposal. The
amendment is a grab bag of energy-related provisions which have little connection either to the current or future price of oil or gasoline. Although the amendment contains various other disconnected proposals, the main thrust of the amendment is to increase the amount of Federal land available for leasing for oil and gas exploration and production in the areas proposed for leasing:
First, the Outer Continental Shelf off the Atlantic and the Pacific coasts of the country. And, second, a portion of the Arctic National Wildlife Refuge. The underlying assumption on the proposal is that our lack of supply is a result of our refusal to permit exploration and drilling on Federal lands, that changing the law to permit drilling in these two specific areas will solve the problem.
Well, what about that basic assumption? Is our ability to produce oil and gas domestically being held back because of our unwillingness to lease the Outer Continental Shelf off the east coast and the Outer Continental Shelf off the west coast and the area known as the Arctic National Wildlife Refuge? Well, let's look at the facts. What is happening on the supply side for oil production in the United States?
Last year, we saw the amount of crude oil produced in the United States remain constant, instead of falling. That may not sound like a big achievement, but it is an improvement on previous trends. It is no doubt a reaction to higher prices, but it also reflects bipartisan support to increase production on Federal lands in places where it is appropriate. I have three charts that illustrate the general trend of what has been going on, and all of these relate to onshore oil and gas drilling and production.
This is acreage of new national oil and gas leases in millions of acres. Last year, we leased 4.6 million acres of Federal land for oil and gas production onshore in the United States. That is the column on the right.
That is in places such as my State of New Mexico and Wyoming and Colorado. That is almost double the 2.6 million acres we put up for leasing in the year 2000. So the trend is for leasing of more acres of Federal land for oil and gas production onshore.
And, of course, these figures do not include all the leasing we did last year in the Outer Continental Shelf. Let me show another chart. This chart is approvals of applications for permits to drill, APDs. In the business they are referred to as APDs. Last year, we approved 7,124 permits to drill oil and gas wells on Federal land. Again, this is all onshore. That is the right-hand column. That is more than double the number approved in 2000.
This is partly due to the direct funding stream we put in place for this process as part of the Energy Policy Act of 2005. Now, let me show you one other chart. This one relates to drilling activity initiated on Federal lands. As a result of the increased number of drilling permits, and that was the previous chart, we had actual drillings start last year on 5,243 new wells, both oil and gas wells. That is approaching a doubling of the number that were drilled in 2000, which was 2,861.
So these are three charts that make the case for what has been happening onshore. Similar positive trends are underway in the Gulf of Mexico, although the overall results today are more modest. According to the latest report by the Minerals Management Service, total production of oil in the Gulf of Mexico was up slightly in 2007 to 1.3 million barrels per day.
That is an increase of about 10,000 barrels per day of oil over 2006 levels. We have gone from drilling 134 deepwater wells in the Gulf of Mexico in 2006 to 142 new deepwater wells last year. There were also eight announced deepwater discoveries in the Gulf of Mexico in 2007.
We are certainly not in decline in oil production in the Gulf of Mexico, but the increase in activity painted by these statistics is not overwhelming either. So there is still much more we could be doing to support domestic production of oil and gas.
The most effective strategy we could pursue, I believe, is something that is not in the Republican leader's amendment. To understand where our greatest opportunity for making progress on increased domestic production lies, we need to focus on a significant problem in the management of oil and gas on Federal lands, including in the Outer Continental Shelf.
Simply put, all the policy emphasis has been on having more lease sales, but not enough emphasis has been placed on encouraging diligent development of Federal lands once they are leased.
While it is generally true that leases must be produced within certain time parameters, Federal agencies have substantial discretion in managing those provisions. I am concerned we may not be following the correct policies to bring about production in the most timely fashion. I have asked the Government Accountability Office to examine this topic.
Let me illustrate my concern with the following charts. Here, first, with regards to onshore production. This pie chart on the left shows all the leased acreage on Federal land for oil and gas development onshore in the lower 48 States.
As you see, about three-quarters of all of this in red, three- quarters of the Federal land we have leased onshore is not currently being produced. Of the over 45.5 million acres of land that have been leased, oil companies are sitting on 31 million acres on which no production is occurring. A similar story can be told in terms of the Outer Continental Shelf. This is the chart on the right. This is offshore.
Of a total of 41 million acres that have been leased offshore, 33 million of that 41 million are not being produced. The Republican leader's amendment proposes to open the entire Atlantic and Pacific coast to leasing and development. Although the amendment speaks to petitions from Governors to lease in specific areas, the way the amendment is written, the Secretary can open for leasing even areas where no such request is pending, by including them in the next so- called 5-year-plan from the Minerals Management Service.
Here is a map of all the leases in the Outer Continental Shelf in the Gulf of Mexico. To get an idea of what we are talking about, the blue squares represent areas that have producing leases. As we can see, there are many of those. The much more numerous yellow squares represent leased blocks where nothing is happening. The red blocks, which are also scattered around, represent new areas that have been added through recent lease sales.
For all the increases in drilling activity I have mentioned earlier in the talk, you will see we still have a great many areas where no exploration or production is ongoing, even though those areas have been leased. We recently have added even more leased areas to this map.
Here is a second map of the oil-and-gas-producing regions on the North Slope of Alaska. In the middle is the private and State land, the tan-colored area. This small area to the right over here is area 1002, the 1002 area of the Arctic National Wildlife Refuge which the Republican leader's amendment would open to leasing.
The large area on the left, this yellow area, is the National Petroleum Reserve-Alaska. This area was specifically set aside to be exploited for oil and gas development. The National Petroleum Reserve- Alaska totals 23.5 million acres, most of which can be developed and drilled. The mean estimate of oil resources in the National Petroleum Reserve-Alaska is 9.3 billion barrels of technically recoverable oil. That is significantly more oil than is estimated to be contained in the national portion of the Coastal Plain of the Arctic Refuge.
To date, 3.8 million acres of this NPRA have been leased. That is twice the size of the portion of the Arctic Refuge that is being talked about in the Republican leader's amendment. Here is a slightly more detailed version of that chart that shows where those leased areas are. You can see that a large portion of the leased areas--those are the areas in red--is on the eastern side of the Petroleum Reserve, very close to the Alpine field which is tied into the Trans-Alaska Pipeline System. So the infrastructure to take oil from the Petroleum Reserve in Alaska, on the North Slope of Alaska to the lower 48 is very close at hand.
So with all those favorable factors in place, you would wonder how many production wells do we have operating on the 3.8 million acres of the Petroleum Reserve that we have leased? And
the answer is zero. Zero current production from these leases should be a substantial cause for concern. It illustrates a basic problem with our domestic production of oil and gas. It is not that we have not leased Federal land for exploration and production. We have leased large tracts of Federal land. We are leasing more all the time.
Oil and gas companies certainly benefit by having these leases on their books and claiming the potential oil as part of their reserves. But we need to get these oil and gas resources out of the reserves column and into the production column.
What does the Republican leader's amendment do about any of this? Absolutely nothing. He is calling for more leases in areas that are much more remote from oil and gas transmission infrastructure than the acreage we have already leased.
It would take a decade or more for those resources to come into production at the very best. Why should we expect oil and gas companies to rush into new areas to begin production when they are sitting on literally millions and millions of acres of existing leases without doing any production on those?
The fact is, having a lease sale in the Arctic National Wildlife Refuge will not do a single thing to bring down gasoline prices anytime soon. Opening offshore areas such as off the east coast and off the west coast, where there is no infrastructure, is also a very ineffective response to the prices that consumers are seeing today. These are not real solutions to what is wrong in energy markets today.
If we are serious about doing something to boost domestic production, we need to focus on better management of Federal leases. Let me describe two concrete suggestions in that regard.
First, we might consider imposing a production incentive fee on all the Federal acres that are under lease, a fee that would increase over time but which would be cancelled by royalty payments. That would provide a disincentive for sitting on leases for purposes of inflating a company's reserve estimates.
Second, we enacted some specific provisions in the Energy Policy Act of 2005 that reduced pressure on the leaseholders in the National Petroleum Reserve-Alaska, in terms of their responsibilities to develop the oil resources there. We changed the law to allow oil companies with a lease in the National Petroleum Reserve-Alaska to hold it for 30 years or more, without producing.
I opposed those changes to the law but was unable to prevail on that point. Provisions that allow for decades of additional delay in developing oil on Federal lands that are dedicated for production of oil make no sense when that oil is selling at $126 a barrel.
If anyone in this Chamber wants to advocate for oil production in Alaska or anywhere on Federal land, then the threshold test is whether they are willing to change the incentive structure that currently rewards delay and inaction. That dysfunctional incentive structure was put in place in the law we passed in 2005.
If we are not willing to take action to bring the 3.8 million acres already leased in Alaska into production, then there isn't much credibility to the argument that somehow one more lease sale up there will greatly add to energy security.
There is another area in which the Republican leader's amendment misses the mark on promoting domestic oil and gas production. His amendment leaves out the one place offshore where it would be easiest and fastest to get additional production, and that is in the Gulf of Mexico. His amendment opens the entire Atlantic and Pacific coastlines for new oil and gas production but leaves in place the oil and gas moratoria in the Gulf of Mexico. That is out of touch with reality. The Gulf of Mexico is the first place we should be looking to for expanded production, not the one place we should leave off the list.
Let me put up this chart. When we last debated offshore oil and gas production in this Chamber in 2006, we made what I consider to be a very bad bargain. We put off limits--that is the yellow area on the chart--10 times the amount of natural gas that we opened to exploration and drilling. We made available for lease 2 trillion cubic feet of natural gas in the Gulf of Mexico while putting off limits 22 trillion cubic feet of natural gas. We also put new areas of the Gulf of Mexico under moratorium for the first time, including portions of the lease sale 181 area that were closest to the existing oil and gas infrastructure. The area now under current law is off limits until 2022 because of that provision we passed into law in 2006. The portion of the lease sale 181 area we put under moratorium for the first time contains a half billion barrels of oil and 4 trillion cubic feet of natural gas.
The available infrastructure to take it to market is already there. The interest by industry in these resources is intense.
This weekend I was reading the current edition of Barron's, the Dow- Jones business and financial weekly. There is a column in there by Jim McTague where he quotes President Bush's former economic adviser, Al Hubbard, as saying:
If the other 49 states realized what Florida is doing to
them, they'd be up in arms.
McTague goes on to lament the fact that President Bush does not support revoking the lease sale moratoria on the outer continental shelf that were first imposed by his father in the early 1990s.
He then states:
Bush, during the 2000 presidential contest, promised his
brother Jeb, Florida's governor at the time, that he'd
maintain the drilling ban.
So there you have it. If we are really serious about increasing domestic production and repealing existing moratoria, the place to start is here in the gulf. The Republican leader's amendment leaves that out, much to its detriment.
I have additional comments that I do not have time to go through. There is one area where I very much compliment the minority leader, and that is including in his amendment the proposal to suspend the filling of the Strategic Petroleum Reserve for the remainder of this year. Senator Dorgan has been pushing this legislation for many months. I have been glad to be a cosponsor. I know Senator Domenici recently indicated he now supports this position. This is a proposal that is in Majority Leader Reid's proposal. It is proposed legislation. It is also in the Republican leader's amendment. I congratulate him for that.
Right after we vote on the Republican leader's amendment, the large comprehensive amendment I have been talking about, the vote right after that will be on the proposal to suspend the filling of the Strategic Petroleum Reserve.
I hope will get a strong bipartisan vote. Clearly, it would be a step in the right direction. It is something we should do. I hope we can at least include that positive action before the Congress has to turn to other business tomorrow as it plans to, when we get back to discussing the flood insurance.
I yield the floor.