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Speeches/TestimonyNPRA Testimony
Before the Energy Policy, Natural Resources and Regulatory
Affairs Subcommittee of the Committee on Government Reform Good morning, I am Bob Slaughter, General Counsel of the National Petrochemical and Refiners Association (NPRA). I thank you for this opportunity to offer our views on gasoline supply and other issues involved in setting national energy policy. NPRA represents almost 500 companies, including those who own or operate roughly 98% of domestic refining capacity as well as petrochemical manufacturers with processes similar to refiners. NPRA's members supply consumers with a wide variety of products used daily in homes and businesses. These products include gasoline, diesel fuel, home heating oil, jet fuel, lubricants and the chemicals that serve as the "building blocks" in making products as diverse as plastics, clothing, medicine and computers. For many of our members, energy is both an input and output. Thus, the current review of our nation's energy policy is of vital and direct interest to NPRA. Our members are eager to help identify ways to develop additional energy supplies, enhance national security and use energy more efficiently. Current Gasoline Market Overview The 2001 summer driving season has begun. Consumers and policymakers are expressing concerns about gasoline price levels and whether supplies will be adequate to see them through this period of peak demand. Unfortunately, NPRA cannot predict price movements or whether, like last summer, unforeseen events will affect supplies in some regions of the country. We believe, however, that continued reliance on market mechanisms will provide consumers with the greatest assurance that adequate supplies will be available at appropriate prices. We do, however, have some good news to share with the Committee. The U.S. refining industry is once again running at extremely high rates of capacity utilization and is producing record supplies of gasoline. According to the EIA, the industry has been running at a greater than 95% average rate of capacity utilization for the past month. Although there are no guarantees about future prices, in the past month prices have been relatively stable and actually declined in many areas. Although they are still within the low range, gasoline inventories have increased somewhat, providing some assurance to a very "transparent" market. This continuing record of accomplishment reflects the refining industry's commitment to meet its customers' needs to the very best of its ability. The thousands of men and women in our industry who are responsible for this outstanding effort have good reason to be proud of their accomplishment. Gasoline Prices in Perspective Gasoline prices are higher than many would like, but, adjusted for inflation, they are well below the record high prices set in 1981. In fact, over the past two decades, nominal gasoline prices (unadjusted for inflation) increased only 25%. This figure should be compared to the comparable figure for new cars (41%) used cars (60%), airline fares (120%) and health care costs (200%). (These are API statistics.) Viewed from this perspective, gasoline prices seem a relative bargain. Gasoline price levels have risen, however, since the roughly 200% increase in the price of crude oil which has occurred since the fourth quarter of 1999. And consumers are much more likely to compare current gasoline prices to those in 1998 or early 1999 (when crude prices approached $10 rather than today's $29-30), than they are to reach back in their memory to 1981's $2.62 average price (inflation adjusted). Crude oil costs are the largest component of the gasoline price, except for taxes. Uncertainties Remain Once again, the wild card in the deck this year is whether we will experience unforeseen problems such as those that occurred in the Midwest last summer. If we do, consumers could experience supply and price disruptions until supplies are sent to the affected area. Prices probably rise as they did in the Midwest last summer until supply/demand equilibrium is achieved. Again, this is not the likely situation for this summer. The industry's production efforts to date make it more likely that, given a normal summer, supplies will suffice and prices will be relatively stable. But it would be irresponsible for us not to point out that the underlying supply/demand balance is still rather precarious. EIA said much the same thing in Mr. Cook's May testimony before the Energy and Commerce Committee; no less an authority than former FTC Chairman Robert Pitofsky made a similar observation when the FTC released in March of this year its findings on the investigation of summer 2000 Midwest gasoline prices. Put in its simplest terms, the underlying reason for continued uncertainty is that the supply/demand balance in the gasoline market has tightened over the years. This is due to steadily increasing gasoline demand (Americans drive larger cars greater distances; the U.S. experienced a major economic expansion in the last decade) and flat refining capacity in the United States (no new refineries since 1975; limited opportunities for expansion; low returns on investment). An extensive and pervasive overlay of intricate and conflicting regulations completes the picture and often intimidates all but the most intrepid of potential investors in this part of the energy industry. Capacity Restraints Exist As the number of operating refineries declined from slightly more than 200 in 1990 to the 152 today, the nation's cushion of excess refining capacity also disappeared. Today's 95% refinery utilization rates enable the industry to meet increasing demand with the help of a modest level of product imports; it would be nearly impossible to run the refining equipment at a higher rate for any significant period of time. In addition, equipment changes and plant expansions have been made increasingly difficult by regulatory-induced uncertainties. Unocal Gasoline Patent In addition to regulatory constraints, NPRA is concerned about the impact of Unocal's gasoline patents on supplies of certain gasolines. Gasoline manufacturers who are concerned about potential liabilities under the patents may choose to avoid making certain types of gasolines or blendstocks entirely. Alternatively, they may attempt to blend around the patent, resulting in reduced supplies of gasoline due to the nature of this process and the greater chance that reprocessing may be necessary. We believe that the FTC should determine whether Unocal's actions in the California and federal regulatory proceedings furnish grounds for remedial action under the FTC's statutory authority. Individual refiners have made similar requests of the Commission. The President's Recommendations The President's Energy Policy recommendations acknowledge that fundamental problems face the downstream sector, and propose a course of action to help solve those problems. NPRA commends the President and Vice President for their honesty and courage in pointing out unpleasant truths and not shrinking from measures necessary to address them. We urge members of Congress from both parties to give the President's plan a fair hearing, and to contribute their own opinions and suggestions as the debate proceeds. Other Issues NPRA offers the following comments regarding specific issues involving gasoline supply and prices. On calls for yet another FTC investigation of gasoline prices and supply--the FTC completed earlier this year two separate investigations of gasoline pricing behavior. One involved the West Coast and the other last summer's Midwestern situation. In each study the Commission found no illegal conduct and brought no charges. In his testimony before the Senate Commerce Committee earlier this year, former FTC Chairman Pitofsky said that roughly one-third of the entire Bureau of Competition's budget in the last three years has been spent on study and investigation of gasoline markets and competitive behavior in those markets. He explained his extensive involvement in each of three major mergers in the energy industry and the actions he took to protect and maintain effective competition in those markets as part of each of the mergers which he reviewed. These efforts by the FTC certainly constitute the most far-reaching and intensive examination of gasoline and other petroleum product markets in several decades, and it was conducted by one of the recognized experts in the field of antitrust law. Perhaps perpetual accusation and investigation is the price such a visible industry must pay in order to operate in a free market. This often seems to be the case, even though refining returns are historically below the average of all industries. If so, that helps explain why capital often is put to uses other than investments in refining. But it would be consoling if those who call for new investigations do take time to read the results of nearly identical investigations so recently concluded. They should also examine Mr. Pitofsky's testimony in the Senate, or at least review his comment regarding the Midwestern investigation that "while there were many short-term causes of the increases, the underlying lack of U.S. refining capacity threatens similar price spikes in the future in the Midwest and elsewhere" and then consider what steps are really necessary to remedy the situation. On California refineries threatened by rolling blackouts--NPRA thanks Chairmen Ose, Burton and Horn for their letter urging Governor Davis to exempt California refineries from rolling blackouts. Even the temporary loss of electrical power threatens long-term outages for refineries and lost supplies of critical petroleum products for consumers. We understand that Governor Davis has sent a letter to the California PUC requesting similar action. Our members who operate in California appreciate your help on this matter and your continued interest in normalizing the electricity situation in the state. On denial of the California oxygenate waiver--this recent decision indicates that no political consensus exists regarding the future of the reformulated gasoline oxygenate requirement. Our refining members supported the waiver and favor elimination of the oxygenate requirement nationwide. They believe that this action would provide flexibility needed to respond to regulatory action (such as that in California) which eliminates or restricts use of MTBE. NPRA petrochemical members who are MTBE manufacturers believe that the identified environmental concerns associated with MTBE usage are manageable and that the positive impacts of MTBE usage, especially on air emissions, should not be ignored, despite potentially adverse impact on water supplies. Apparently, the debate about oxygenate-related issues will continue in the Congress and elsewhere, until some resolution of the issue is achieved. NPRA has urged policymakers to provide adequate lead-time and flexibility for refiners to comply with any fuel specification changes that result from actions taken to address this issue. We have also urged policymakers who are considering this issue to take into account the significant volumetric contribution to fuel supply provided by MTBE in the large majority of RFG markets where it is the oxygenate of choice. Part II--Extended Discussion of Policy Issues More detailed NPRA comments on the current energy supply situation follow. So do a discussion of EPA's new source review program, more information on boutique fuel requirements and a short statement of NPRA's concerns about the EPA's program to reduce sulfur in on-highway diesel. Our Goals In this extended portion of our testimony, NPRA seeks to: - provide our perspective on the current energy situation and how it developed; - highlight several key regulatory programs that have made, or will soon make, it more difficult to meet consumers' energy needs; and - identify certain policy principles that can be used to shape new energy policy directions. Recent History In the past year or so, consumers have felt supply and cost impacts from disruptions in heating oil, gasoline, natural gas and electricity markets. Weather, unforeseen equipment problems, and changes in consumer demand patterns can play a role in affecting supply and increasing costs, but government policy is also a major factor determining whether adequate supplies of energy will be available at reasonable cost. It has been many years since a serious national debate on energy policy took place. For much of the last decade or two, low prices and plentiful supplies have enabled consumers to take energy for granted. As a result, policies have often been pursued in a piecemeal fashion, with no serious attention paid to their impact on energy supply or on the mix of energy supply sources. We have missed the "big picture" because we don't determine the cumulative impact of regulatory programs. We also fail to balance other important national goals such as environmental improvement with the need to maintain reliable domestic energy supplies. Too often, we have not acknowledged the difficult tradeoffs inherent in major policy decisions. Economic reality eventually catches up with us, however. The recent energy situation has been characterized by: 1) significant
concerns about heating oil prices in the Northeast last
winter after a prolonged cold snap; Overall, our national energy policy has resulted in the following: - Refining
capacity is stretched to its limit and the prospects
for expansion are limited by regulatory policies. Current Energy Consumption Patterns According to the Energy Information Administration's (EIA) Annual Energy Outlook 2001, total U.S. energy consumption in 2000, by fuel source, was: - 39% oil
This seems like a reasonably diverse mix of energy use. However, critical sectors of the economy are heavily reliant on a particular energy source. For example, barring unforeseen technological advances, petroleum products will be needed to provide the vast majority of transportation fuels for at least the next decade or longer. EIA estimates that petroleum use for transportation will increase by 5.6 million barrels per day (MMB/D) between 1999 and 2020. U.S. Refining Infrastructure Needs Attention Domestic refiners are increasingly challenged to meet current energy demand. Since 1983, the number of US refineries has decreased from 231 to the 152 that are operating now. While total refining capacity has remained relatively stable throughout this period, the demand for our products has increased dramatically. Thus, for a substantial period of the last year, refineries were running at or near their operational maximum. The overall U.S. refinery utilization rate peaked at 97% last summer and was as high as 94% in December (based on EIA data). As the attached graph from the recent National Petroleum Council (NPC) study ("U.S. Petroleum Refining: Assuring the Adequacy and Affordability of Cleaner Fuels") shows, U.S. demand for petroleum products exceeds domestic refining capacity, hence the growth in refined petroleum product imports (see attachment 1). Due to both financial and regulatory constraints, it will be very difficult to construct new refineries in the United States. Indeed, no new refinery has been built in 25 years. The rate of return on investment in refining has averaged about 5% in the last decade. This is roughly equivalent to the return from an investment in Treasury bills, but with much greater risk. During the same period, refiners made substantial capital investments to meet environmental requirements - investments that the NPC estimated exceeded the book value of the entire refining industry. To maintain or increase capacity, refiners must make expansions at existing sites. The alternative is to meet increased demand with increased imports of petroleum products. As demand for petroleum products increases at a fast pace in other areas of the globe, however, imported supplies may become increasingly unavailable to us. So it is very unfortunate that EPA's permitting programs and the retroactive reinterpretation of New Source Review (NSR) rules have made expansion of existing capacity an even more formidable challenge. I will discuss this later in greater detail. Environmental Progress Has Been Significant Since there are few currently viable substitutes for petroleum-based transportation fuels, the emphasis in environmental policy has been on reducing emissions and making petroleum products cleaner burning. Since the Clean Air Act Amendments of 1990, refiners: - reduced the volatility of gasoline (as measured by its RVP); - introduced oxygenated fuels in carbon monoxide nonattainment areas; - reduced on-highway diesel fuel sulfur levels; - introduced federal reformulated gasoline in 1995 with a second phase requiring even more stringent emission reductions in 2000. Refiners face even more challenges ahead. As this chart demonstrates (see attachment 2), an avalanche of new environmental requirements faces refiners - and most fall within the same narrow time period for implementation. NPRA estimates that some $20 billion must be spent over the next decade to comply with newly issued or anticipated gasoline and diesel fuel requirements. The recent closure of one Midwest refinery is a reminder that all existing refineries may not continue to operate. Many Different Types of Gasoline Are Required The product distribution structure is already severely challenged, even without new fuel requirements. This chart (attachment 3) was prepared by ExxonMobil and identifies current fuel requirements within different regions of the United States. A complicating factor in recent years has been the addition of area-specific and state requirements (so-called "boutique" fuels) to the federal programs already in place. As you can see from this map, more than 16 categories of gasoline are represented (14 shown in color on the map plus conventional gasoline meeting Northern and Southern volatility requirements). Assuming three grades (regular, midgrade and premium) of each type of gasoline, almost 50 distinct gasolines are represented on this chart. And that is before any new requirements are considered. Pipelines and fuel terminal operators struggle to keep all these grades separate. In the future, they could be faced with the need for additional segregations and new storage tanks to maintain compliance and fuel integrity. Yet, they too are faced with additional constraints on their operations and, like refiners, find it difficult to expand their facilities. The many different fuel requirements have led to increased volatility in gasoline markets and to reduced flexibility in shifting available supplies to areas that need fuel the most. As we saw in the Midwest last summer and California previously, differing fuel specifications can severely limit the ability to move supplies to areas that are short. The petroleum refining and distribution industry has worked hard to optimize this situation, which is results from both over-regulation and political choice. The boutique fuel phenomenon is ripe for study and reform, but proposed changes must be carefully considered and adequate lead-time provided for their implementation. Any solution that increases the cost of manufacture will put additional domestic refining capacity at risk and should be rejected. A Tight Supply/Demand Balance Has Predictable Consequences NPRA believes that U.S. policymakers have paid too little attention to the supply side of the energy supply equation. This causes serious problems when demand steadily increases due to unprecedented economic growth (as in the recent past). If demand exceeds supply, market economics operate and price becomes the allocation mechanism for any available supplies. The result is a supply disruption and price spike such as that seen last summer in Chicago. The former Chairman of the Federal Trade Commission (FTC), Robert Pitofsky, in the Commission's recent report on Midwest gasoline prices, noted that "while there were many short-term causes of the increases, the underlying lack of U.S. refinery capacity threatens similar price spikes in the future in the Midwest and elsewhere." Looking ahead, fundamental changes in energy markets have increased the potential for supply constraints and price volatility. Due to these changes, it is even more important that future government policies be fully evaluated to determine and understand the impact on energy supplies. But first we must deal with several current initiatives that pose threats to future energy supplies. New Source Review Reform is Essential Most significant is EPA's New Source Review enforcement initiative, which, for refiners, began in 1998-9. EPA has engaged in retroactive reinterpretation of its permitting rules - the effect is to change regulatory policy without public notice and opportunity for comment as required under the Administrative Procedures Act. In so doing, EPA has targeted two energy providers that already face increasing difficulties in meeting consumers' energy needs -- utilities and domestic refineries. EPA has reinterpreted its rules covering modifications to existing facilities long after those modifications have been completed. In effect, EPA is seeking to penalize those who acted in good faith but who failed to comprehend the incomprehensible-EPA's reinterpretation of its own rules after the fact. Companies face potential fines in the millions of dollars and they are pressed to install equipment at their facilities that is not required by law or regulation. This situation has caused great confusion and uncertainty in the refining industry during a critical period. Four refining companies have settled with EPA simply in order to get on with their business, others are talking with EPA and some have begun or are considering legal challenges to EPA's actions. EPA's enforcement reinterpretations center on three elements of the NSR permitting requirements: 1) the provisions allowing exemptions for routine maintenance, repair and replacement activities; 2) calculation of whether an action resulted in significant emissions increases using a discredited method for determining emissions based on "potential" rather than actual emissions; and 3) unrealistic requirements to aggregate and assess potential changes to the facility which may, in fact, never occur. Senators Inhofe and Breaux recently sent a letter to Vice President Cheney questioning EPA's approach. We agree with their concern that unless addressed, "…EPA's implementation of NSR permitting requirements will continue to thwart the nation's ability to maintain and expand refinery capacity to meet fuel requirements." We also agree that "EPA's NSR interpretations have created great uncertainty as to whether projects long recognized to be excluded from NSR permitting can be undertaken in the coming months to assure adequate and reliable energy supplies." As noted earlier, refiners face an avalanche of new regulatory requirements that will require many facility modifications. The uncertainties surrounding EPA's NSR interpretations will slow down future modifications necessary to produce complying fuels and will discourage refinery capacity expansion. The refining industry's ability to meet consumers' demands for fuels today is based in part upon the same modifications now questioned-retroactively-- by EPA. If refiners had not acted - in compliance with interpretations of the law and regulations at the time - consumers would be worse off today, facing reduced fuel supplies and higher costs. Unless capacity can be further expanded to meet increasing demand, future domestic fuel supplies will grow tighter and markets even more volatile. NPRA is encouraged that the President's energy recommendations include studies of the prospective and retroactive impact of the New Source Review program. It is time to reassess this program, which limits American industry's ability to modernize its plants and take advantage of technological advancements. Of course, for the sake of equity, any future action will need to consider those who have settled with EPA so as not to place them at a disadvantage. We clearly cannot afford to continue the failed NSR policies of the past few years. The current uncertainty threatens the implementation of key environmental programs such as the Tier II low sulfur gasoline program. This program begins in 2004 and requires numerous refinery modifications. Yet, because it is both difficult to determine when an NSR permit is needed and very time-consuming to secure permits, the NSR program may delay or even prevent prevent the timely introduction of cleaner burning fuel. Policy Improvements Can Increase Flexibility It will be important not only to address the problems of the past, but also to consider improvements for the future. For example, flexibility in meeting requirements could be enhanced by greater use of market-based incentives in permitting programs. The effectiveness of market-based incentives has been demonstrated in the successful sulfur dioxide trading program implemented under the acid rain provisions of the Clean Air Act. Administrator Whitman, in her recent letter issuing EPA's FY2000 Annual Report, highlighted the importance of these types of incentives. Ideas such as cap and trade, averaging and "bubbling" (setting an emissions target for a facility, not for individual processes or pieces of equipment) should be explored as ways to assure continued environmental progress while providing refiners the flexibility needed fuel supplies. NPRA welcomes the Administration's recently issued executive order that encourages expediting of permit applications and related decisions. Diesel Sulfur Reduction Another EPA initiative that could severely jeopardize fuel supplies and economic growth is the ultra-low sulfur diesel program quickly adopted in the waning days of the previous Administration. The refining industry is committed to lowering sulfur in diesel fuel, having offered its own proposal to reduce sulfur by 90% from today's levels. However, EPA adopted a less cost-effective program by choosing a reduction of 97% and an effective date of 2006. As a result, future diesel fuel supplies are in jeopardy and vital parts of the economy are at risk. Most goods in the US are shipped by truck, including agricultural products. Regarding the threat to fuel supplies, Charles River Associates (in a study commissioned by API) determined that the EPA proposal would result in an average supply shortfall of 12% versus current supplies. However, that is a national average and regional shortfalls could be greater - Charles River Associates estimates that the Rocky Mountain region could face a shortfall of 37%. To make matters worse, the program's effective date forces refiners to make major investments in the same timeframe that they must modify refineries to produce low sulfur gasoline. These overlapping timeframes raise serious questions about the availability of the engineering and construction resources needed to tackle both programs simultaneously. As a result, the previously mentioned National Petroleum Council study cautioned that "…a significant risk of inadequate supplies will result." During the course of the rulemaking, the agricultural community, food marketers, trucking industry and even the Department of Defense raised concerns about diesel fuel availability and cost. And the nation's largest producer of truck engines also questioned EPA's analysis of the rule, indicating that its estimate of the potential engine costs (using a combination of as yet unproven technologies) to meet the heavy duty truck standards is some six times higher than EPA's. NPRA urged EPA to get more information about the rule's impact on supply by requesting an independent analysis by the National Academy of Sciences. We would still welcome such an assessment. Meanwhile, we are pursuing every avenue, including litigation, to focus attention on and to fix a rule that will have severe supply consequences. The current timeframe for this rule should be adjusted. This step would address many of the supply problems associated with this rule without affecting its overall environmental benefits. MTBE-Related Proposals A third area of supply concern involves proposals to reduce the use of MTBE. The Clean Air Act Amendments of 1990 require the use of oxygenates such as MTBE in federal reformulated gasoline (RFG) to ensure that an average of 2% oxygen by weight is maintained in this fuel. Oxygenates, like MTBE and ethanol, can assist in the production of cleaner burning fuels. They help expand the overall amount of gasoline supplies, add octane for better fuel performance and help reduce the use of other blending components that may make it more difficult to achieve lower emissions. However, oxygenates also present tradeoffs. MTBE can move farther and faster through the soil and into groundwater supplies should there be a spill or leak. Ethanol requires the use of lower volatility blendstocks to compensate for the increase in evaporative emissions. Also, since ethanol rapidly separates out from the gasoline blend when even small amounts of water are present, gasoline blended with ethanol cannot be shipped through pipelines, requiring special blending equipment and additional storage tanks at fuel terminals. Several states, including California, New York and Connecticut, have set timetables for ending the use of MTBE in gasoline due to groundwater concerns. However, MTBE plays a significant role in supplementing gasoline supplies. MTBE represents about 4% of the nation's gasoline supply on average, and even more in RFG areas on the coasts - 11%. Thus, we must fully understand the implications of actions to reduce its use on gasoline supplies, and provide for ample lead-time to make any changes. NPRA supports strong underground tank enforcement efforts and clean up of water already affected by MTBE. Further, if MTBE use is restricted, the 2% RFG oxygen mandate should be eliminated, while the air toxics reductions achieved in RFG with the help of oxygenate blending are maintained. Renewables, such as ethanol, can help expand our fuel supplies, but, given the logistical constraints on their shipment, they should be used where they make the most sense. Ethanol will continue to grow in importance as a source of fuel octane, but forcing its use through mandates will unnecessarily increase consumers' fuel costs. Ways to Improve Future Energy Policy In closing, NPRA suggests some guidelines for future energy policy: 1. Don't forget the full energy supply chain. Oil and gas are raw materials that must be converted into consumer products and delivered to end-users. As noted earlier, there is a critical need to remove existing impediments to expanding refinery capacity and to seek policy enhancements that maintain, or increase, domestic supplies. Similarly, emphasis should be placed on improving our domestic product distribution infrastructure. 2. Strike a sensible balance. As we know from our own lives, decisions involve tradeoffs. We should work to preserve the dramatic environmental improvements that have been made in the last few decades. However, Americans would also like to continue improving their lifestyles and they desire further economic growth. To honor these goals, we must fully understand the implications of policy choices and carefully weigh the tradeoffs inherent in those choices. We can strike a better balance between environmental goals and the need for reliable energy supplies. These are not incompatible goals, but we must work on the right balance. The right policy tools can help us make more informed decisions and better understand the associated tradeoffs. The President recently took an important step in this direction by requiring that major regulatory actions be accompanied by a thorough energy impact analysis. Similarly, periodic review of the cumulative effects of regulations could help us understand whether the balance is shifting too far in one direction or the other. The President's plan also requires analysis of the cumulative effects of the many fuel regulations currently scheduled for implementation in the near future. 3. Pursue improvements in how regulations are made. Lessons have been learned about how to develop more effective, and more efficient, regulations. It is time to put those lessons to work for us in developing national energy policy. We should set performance goals rather than mandating the use of specific technologies or setting product specifications. The command and control approach stifles innovation. We should avoid overlapping leadtimes for regulatory programs whenever possible. Costs are greater for programs that must compete for goods and services necessary to ensure compliance. We should enhance flexibility through market-based mechanisms and incentives. Emissions credit trading has been demonstrated to lower compliance costs. Incentives could help encourage earlier introduction of cleaner fuels without resorting to unrealistically stringent mandates, which threaten refiners' viability. And we must seek the best information available to inform our policy choices. Reliance on sound science and cost-benefit analyses would help us better understand the full impact of policy decisions. 4. Don't pick a favorite. The nation is best served by a diverse portfolio of energy supplies. For example, the consumption pattern of natural gas is has been changed by government policy. A few still remember the 1970s when concerns about natural gas supplies led, for a time, to prohibition of its use for electricity generation. More plentiful supplies in much of the intervening period have generally erased that memory. Recently, environmental considerations have led to increased natural gas use for electricity generation. This trend seems likely to continue unless we make a serious commitment to improving clean coal technology or change the public's attitude about nuclear power. In fact, EIA projects that natural gas use for electricity generation (excluding cogeneration) will triple over the next two decades. EIA expects that 89% of new electricity generation built between now and 2020 will be gas-fired. Absent additional natural gas supplies in the United States (and Canada) and additional pipeline capacity to transport these supplies, questions arise whether natural gas and natural gas liquids will continue to serve as reliable and affordable petrochemical feedstocks, allowing domestic petrochemical manufacturers to be competitive in global markets. 5. Provide access. Many areas in the United States have been placed "off limits" for oil and gas exploration and development. NPRA understands public concern about protecting the environment of these areas. However, technology is available to minimize the development "footprint" and to help prevent adverse impacts. Access to promising areas must be provided to spur development of additional domestic oil and gas supplies. 6. Encourage new technologies to revitalize traditional energy sources. U.S. coal reserves are extensive. This fuel could continue to play a key role in our energy equation if "clean coal" research and development is given greater emphasis and encouragement. Coal could make an important contribution in powering future electricity generation in an environmentally acceptable manner. This would allow natural gas (and natural gas liquids) to provide reliable feedstocks for petrochemicals where there are few, if any, substitutes. 7. Promote Conservation. While I have concentrated on how to enhance energy supplies today, we cannot forget about the demand side of the equation. Energy efficiency improvements also play a vital role in helping us meet our energy needs. For example, lighter weight materials can assist in improving vehicle fuel economy. Incentives for the purchase of higher fuel economy vehicles might also be considered. Improvements in our roads to improve traffic flow and reduce congestion can also help conserve our energy resources. Thank you
again for the opportunity to share our views. I look
forward to responding to your questions. |