Lapas attēli
PDF
ePub

Now some believe that it is all right to shut-down operable nuclear powerplants and even oppose research and development into passively safe nuclear power technology; others believe that it is OK to impose onshore and offshore leasing and production moratoria and import replacement supplies; and still others are comfortable imposing new clean air requirements which not only constrain future energy development, but also may well result in the closure of existing facilities, refineries in particular.

In this Senator's mind it is only too obvious that these views are short-sighted and not in our Nation's long-term interests.

In closing let me say that there is one thing that is important for us not to do: that is to use the Strategic Petroleum Reserve to manipulate the price of oil. The Reserve must be preserved for the purposes for which it was originally created, that of responding to international disruptions of oil supplies.

The Reserve was established to offset physical shortages of oil, not to respond to consumer complaints about prices, and the law is quite clear on this point. Moreover, using the Reserve at this time to dampen prices could unintentionally result in its not being there when we actually need it.

I look forward to the views of today's witnesses about the situation and what ought to be in a long-term national energy policy.

Senator BINGAMAN. Let us go ahead with our witnesses. The first witness is Dr. Daniel Yergin, who is an internationally recognized expert on energy issues. He is the President of Cambridge Energy Research Associates in Cambridge, Massachusetts, and formerly a professor at the Kennedy School of Government and the Harvard Business School.

Dr. Yergin, why do you not go right ahead. I would just urge that all witnesses take 10 minutes or so and summarize their statements and then we will include in the record any written statements that they have or any other items they would like to include in the record.

Dr. Yergin.

STATEMENT OF DR. DANIEL YERGIN, PRESIDENT, CAMBRIDGE ENERGY RESEARCH ASSOCIATES, CAMBRIDGE, MA

Dr. YERGIN. Thank you. Mr. Chairman and members of the committee. I am very pleased to have this invitation to appear before the committee and also pleased to be part of this expert panel.

It seems to me that this hearing is really picking up where a hearing I participated in last March 26 in this room left off. At that point this hearing room was pretty sparsely attended, and yet the record of that hearing, as we look back, makes very dramatic and striking reading in terms of the context of where things stand today.

At the time, Senator Johnston said that it is time we sound the klaxon, no one heard it then, and Senator Domenici said that although nobody is very concerned, sometime we will be back in this room when oil is a crisis and the hearing room will be filled. And having looked around before, it looks to me like this hearing room is pretty crowded today.

Responding to the committee's gracious invitation, I would like to offer a few thoughts about where we are and how we might proceed. Let me explain the context for my remarks. I have just come to the end of a long, really a too long, research project that centers on the relationship among oil, politics, economy, and our way of life.

In the time available to me this morning I would like to respond to the topic of this hearing and draw on some of the things that I

learned in the course of this work that are relevant and put forward what might be a few guideposts for thinking about the future. First, a simple question, how did we go from $15 to $35 to $40 so suddenly? I think that question takes us back to the hearings last March and the trends that formed the basis of the discussion then and are the trends that are shaping today's situation.

The oil market was tightening rather rapidly, our imports were going up, the market was tightening because of the fall in U.S. production, the strong demand for oil, particularly in the Far East, and growing problems in Soviet oil production.

Spare capacity, which is the key concept in terms of stability in the world oil market, had declined from 10 million barrels a day in the middle of the 1980's to around 4 million barrels per day by the middle of this year.

Dependence on the Middle East was rising rapidly and the question of the timing of capacity additions was moving to the fore. This meant very simply that the world oil market was becoming increasingly accident prone or crisis prone and yet for the most part, these trends were ignored or waved away with the refrain that oil would always be available.

Well, a few years ago the world oil market could have lost 4 million barrels a day with no difficulty and made up that loss. Today, with the loss of Iraq and Kuwait, we are scrimping by. We are barely scrimping by and there is essentially no give at all in the system. There is no spare capacity and, indeed, apparently not quite enough capacity to meet demand.

The high prices we see today reflect two components: one is the significant disruption in supplies, the tautness in the market, the problem of crude quality, logistical disruption, and I think that logistical disruption is something that needs more emphasis. This disruption is on the same scale as 1973 and 1979.

But the other component is simple anxiety and fear. We will see the oil price rise and fall on fears and expectation of military conflict at any given time. The blunt fact is that today, in addition to retrostream market conditions, the oil price has become a thermometer that measures war fever.

Will oil prices go higher? There are forces that will work against that: the apparent recession, the conservation response, the existence of inventories and, of course, the existence of the strategic petroleum reserve.

What could push prices up? The weather, unexpected accidents, or bottlenecks in oil production and refining anywhere in the world and conflict in the Middle East.

Looking back on the 1970's, we can see the stresses that this type of situation puts on our political system. Sharply rising energy prices hit the public hard, particularly lower income groups, and the Kuwait crisis was neither in anybody's GNP projections nor in anybody's family budget.

There is an inevitable cry to do something, and that tends to get us off in domestic political controversies that miss the point that there is a real and genuine disruption in the world. With a little time, the global logistical system and supply system can adapt. I hope that this crisis does not develop into an extended affair. If it

does, I certainly hope that we as a country can keep our eye on the ball and the main issues.

Short-term expedients like price controls and allocations end up imposing a long-term cost on the Nation and impede the adjustment. Many of you will remember the irony of the gas line shortages in the cities and areas of population growth, with gasoline to spare in resort areas to which no one could get. Our allocation that we have used in the past really led to rationing by gas lines.

The crisis once again demonstrates the importance of a coordinated international response among the industrial nations through the mechanism of the International Energy Agency. There is only one oil market, and all buyers are affected. The IEA helps to modulate the rivalries, suspicions, and fears which in general fuel panic and, in this case, would undercut the remarkable international consensus that the administration has forged.

I think it is important to keep in mind that there are many suspicions that we do not hear and see in the United States. We tend to underestimate them. We do not appreciate the way that the United States is seen as the behemoth in the world oil market, the Saudi Arabia of oil consumption.

Where do we go from here? Clearly, energy and oil are at the heart of this conflict and a situation in which we depend on an increasingly taut world oil market holds unacceptable costs.

Two directions are pretty clear as to ways in which we ought to move. One is to increase the use of North American natural gas and to move away the impediments to its use. The other is a renewed commitment to conservation. It is noteworthy that both of these were already being propelled forward by environmental considerations.

A difference from the 1970's is that today, by contrast, there is a wide recognition that conservation has a very important contribution to make to our economic well-being and our security. The argument ahead and the argument with which I think that this committee will be dealing over the next couple of years is how to achieve it, whether you do it by urging it, by pricing it, by taxing it or by regulating it. I imagine that there will be a good deal of discussion on that in this room in the future.

Rapid growth in U.S. oil imports is not only expensive for this country but destabilizing for the world market. We have to address the question of the U.S. production decline and what can be done about it, what can be done to slow it. It is something that has been remarkably ignored. U.S. crude and condensate production has fallen by 1.6 million barrels since 1986, and we would expect another 1.5 million-barrel decline by the year 2000.

Looking back, we can see that the United States rather wantonly let a lot of oil production evaporate that is not recoverable. The production loss might have been mitigated, but that is history. The loss of that production turns out to be a heavy cost for the whole Nation, as every motorist is finding and as we see recession stalking the economy.

It is important that we look again at the energy research and development questions. I would think that Dr. Gibbons will go into that more, and so I will not pursue that right now.

The north-south struggles in the 1970's seem to be behind us for the most part, and I think that gives us an opportunity. With the sovereignty issue firmly resolved by the oil-producing nations, the possibility exists for more creative relationships between the United States and the various oil-producing countries which would meet these nations' objectives and also encourage energy production. That is certainly the case here in this hemisphere with Venezuela and Mexico.

Two more points. In the 1970's, the biggest source of contention in the domestic energy arena I think as we look back was the economic clash, producers versus consumers, markets versus regulations. From the vantage point of today, the central clash in the 1990's looks to be different between environmental and supply considerations.

How do we find the balance between these legitimate and competing concerns? The reality is that the environmental consensus has broad support and has become an integral part of our political process and our national culture. Yet, it is no less true that the production and consumption of energy are intimately linked to our economic well-being and our security and strength as a country.

Will the conflicts between these two sets of concerns be resolved only on a case-by-case basis, issue by issue, the outcome depending on the constellation of forces at any given time, or can we find some form of mediation? I do not see a clear answer at this time, but that question will provide the context in which so many energy issues will be fought out, and it behooves all of us to apply ourselves to the critical question of the framework for approaching them.

I know others will address the question of motor fuel and transportation, so let me conclude with one final point. It is a lesson that Winston Churchill enunciated some 77 years ago when he was leading the effort to convert the British Navy to oil. Britain did not produce oil, as Churchill knew so well, only Welsh coal, and that meant it was going to be dependent on imports. His answer to the security problem posed therein was diversification.

He said, "On no one quality, on no one process, on no one country, on no one route, and on no one field must we be dependent. Safety and certainty in oil lie in variety and variety alone.'

The case for diversification of options was overwhelming at the beginning of the 20th century. The Kuwait crisis reminds us that it is no less applicable at the end of the 20th century. What was wisdom for Winston Churchill in 1913 is wisdom for America in the 1990's.

Thank you.

[The prepared statement of Dr. Yergin follows:]

PREPARED STATEMENT OF DR. DANIEL YERGIN, PRESIDENT, CAMBRIDGE ENERGY

RESEARCH ASSOCIATES, CAMBRIDGE, MA

I very much appreciate the invitation to appear before the Senate Energy Committee at this critical moment. It seems that the Committee is really picking up where it left off in its hearings on "World Oil Outlook" last March 2, 1990. The hearing room then was rather sparsely attended. And yet the record of that hearing makes striking reading in the context of where things stand today. In that hearing, the chairman, Senator Johnston, expressed his concerns about the trends in world oil and the potential effects on the "economy of the United States." It is time, he

said, “that we sound the klaxon." Unfortunately, the klaxon was not well heard. And I vividly remember Senator Domenici's prediction that, despite the fact that "nobody seems very concerned," nevertheless, "we will be back in this room" when oil is a crisis and the hearing room will be filled, for "the second most serious crisis for the United States, without any question, is our continued growing dependence upon foreign oil." None of us were privy to Saddam Hussein's thoughts and thus did not know we would be back so quickly. Yet here we are back in this hearing room, not two or three years hence, as we might have thought, but a mere seven months.

Responding to the committee's gracious invitation, I would like to offer a few thoughts about where we are and how we might proceed. Let me explain the context for my remarks. I have just come to the end of a long research project that centers on the relationship among oil, and politics, and our economy, and our way of life. It is entitled, perhaps ironically, "The Prize." In the time available this morning to respond to the topic of this hearing, I would like to draw on some of the things that I have learned in the course of this project that are relevant and put forward what might be suggested as guideposts for the future.

(1) First, how did we go from $15 to $35-40 oil so suddenly? That question takes us back to those hearings last March and the trends that formed the basis of the discussion then. The world oil market was tightening rather rapidly, because of the fall in U.S. oil production, strong demand for oil particularly in the Far East, and the problems in Soviet oil production. Spare capacity-which is the key concept-had declined from 10 million barrels per day in the middle 1980s to around 4 million barrels per day in the middle of 1990. Dependence was rising rapidly on the Middle East, and the question of the timing of capacity additions was moving to the fore. This meant that the world oil market was becoming increasingly crisis or accident prone. Yet, for the most part, these trends were simply ignored or waved away with the refrain that oil would always be available. If you will forgive me, I think what I observed in those hearings last March is still very relevant to how we got to this point: "The world of quotas is over. The surplus era seems to be over, at least for the time being, and OPEC is operating at a very high capacity rate. That means that there is not much give in the market. . . . You can start making a list of things and suddenly you can see . . . the kind of event that can cause a shock, a temporary shock, but the consequences of it can be very destabilizing to the economy." 2 A few years ago, the world oil market could have lost four million barrels per day and with no difficulty made up that loss. Today, with the loss of Iraq and Kuwait, we are scrimping by, and there is essentially no give at all in the system. There is no spare capacity, and indeed apparently not quite enough capacity to meet demand. The high prices we are seeing today reflect two components: One is the significant disruption in supplies, the tautness in the market, the problems of crude quality, the logistical disruption (which should get greater attention), and so forth. This disruption is on the same scale as 1973 and 1979. The other component is anxiety and fear. What pushed up the price over the last couple of weeks specifically, in addition to the fundamentals of supply and demand, were the Iraqi moves on the foreign embassies in Kuwait and then Saddam Hussein's verbal threat to the Saudi oil fields. We will see the oil price rise and fall on fears and expectations of militarily conflict at any given time. The blunt fact is that, in addition to registering market conditions, the oil price today has become a thermometer that measures war fever.

Will oil prices go higher? There are forces that will work against that the recession, the conservation response to higher prices, and the existence of inventories. And we have a great source of strength that we did not have in previous crises-the Strategic Petroleum Reserve which was created specifically to counter disruptions and to ward off the severe economic harm of such disruptions. What could push prices up? The weather, unexpected accidents or bottlenecks in oil production and refining anywhere in the world-and conflict in the Middle East. Remember it is uncertainty or even panic that causes buyers-whether they be oil companies or airlines or industrial users or individual motorists-to build inventories during a crisis, and it is drive for higher inventories that pushes up the price.

(2) Looking back on the 1970s, we can see the stresses that this type of situation puts on our political system. Sharply rising energy prices hit the public hard, particularly lower-income groups. And the Kuwait crisis was neither in anybody's GNP projections nor in anybody's family budge. There is an inevitable cry to "do something" and that tends to get us off on domestic political controversies that miss the

U.S. Senate, Committee on Energy and Natural Resources, World Oil Outlook: Hearing, 101st Cong., 2nd Sess. (Washington: GPO, 1990), pp. 2, 32. 2 Ibid., p. 99.

« iepriekšējāTurpināt »