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March 24, 2000, Friday

SECTION: CAPITOL HILL HEARING

LENGTH: 18492 words

HEADLINE: PANEL ONE OF A HEARING OF THE SENATE GOVERNMENTAL AFFAIRS COMMITTEE

SUBJECT: RISING OIL PRICES

CHAIRED BY: SENATOR FRED THOMPSON (R-TN)

LOCATION: 342 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON, D.C.

TIME: 10:07 A.M. EST DATE: FRIDAY, MARCH 24, 2000

WITNESSES: DAVID GOLDWYN, ASST. SEC. OF ENERGY FOR INTERNATIONAL AFFAIRS JAY HAKES, ADMINISTRATOR, ENERGY INFORMATION ADMINISTRATION

BODY:
SEN. THOMPSON: Let's come to order, please. Thank you all for being with us here this morning.

Today, the committee is holding an oversight hearing on rising oil prices, executive-branch policy, and U.S. security implications.

As we all know, oil is an essential component of our economic vitality and lifestyle. Petroleum products fuel 97 percent of our transportation needs, for example. Oil is the primary energy source for many industries and a key feed stock for others. High oil prices affect everything from travel, shipping, autos, chemicals, consumer products, technology and home heating. It wasn't long ago that we enjoyed historically low oil prices. A little more than a year ago, oil was about $10 a barrel; gasoline was less than $1 a gallon. In March of 1999, OPEC decided to decrease oil production and drive up oil prices, even as world oil consumption was rising.

Since then, oil prices have tripled, to about $30 a barrel. During this winter, home-heating-oil prices doubled in the Northeast. As Secretary Richardson put it, the administration was "caught napping" at that price jump. Economists are predicting gasoline prices will continue to rise in the near term, and some think that gasoline could cost about $2 a gallon this summer.

Oil has also important implications for our national security. Because oil is the life blood of our economy, it must be reliable, affordable and predictable. Relying completely on others to supply it can present dangerous consequences to our prosperity and way of life, both vital interests that the country must be prepared to defend.

The United States is becoming increasingly reliant on foreign oil. This is cause for alarm, given that some of the world's leading oil producers are politically unstable, face difficult internal issues, or live in tough neighborhoods. We now depend on foreign sources for over half of our oil needs, and we are heading to 60 percent within five years.

It seems that few people view our reliance on foreign oil as a problem until prices are raised. Here in Washington, it's tempting to enjoy the political windfall of low oil prices. So long as prices are low, policy-makers are prone to ignore the link between oil imports and national security. But it seems to me that there is a danger not having a proactive energy policy. The recent oil-price shocks may be a sign that these chickens will come home to roost and perhaps might be a blessing in disguise, if it gets our attention.

It seems to me that, after a decade when we using more oil, consumption was increasing and production was declining, during which we enjoyed historic low prices because of the given set of circumstances that were prevalent at the time -- Asian economic crisis, weather, various other things, miscalculation by OPEC, oversupply from their standpoint -- and those forces are simply reversing themselves now, as could be expected.

But after all of this happening, we find ourselves, now that OPEC has changed its mind about its policies, we're all in a state of shock that such a thing could happen. It doesn't seem to me like we really ought to be.

And so we're here now, we're looking at some short-term solutions that I hope will not present more problems than they cure, and also, hopefully, again, some long-term solutions that we usually seem to want to take a look at only when prices go up. But I think the issue of supply and stability, frankly, is much more important than temporary price increases, considering the historical price of oil anyway.

But anyway, with that, I will turn it over to Senator Lieberman.

SEN. JOE LIEBERMAN (D-CT): Thanks, Mr. Chairman. Thank you particularly for moving quickly to convene this timely hearing on this problem that's been of great concern and frustration to the Northeast this winter, and now is to consumers of gasoline throughout the country.

The worst of the home heating-oil panic that hit the Northeast this winter has now subsided, mostly because temperatures have warmed, although the supply eventually came up to begin to meet the demand. But consumers are still bearing a very heavy financial burden with oil prices at the $27 to $28 a barrel range. And gasoline prices, as everyone knows, are still rising unabated. Because our gasoline stocks are now at about the level they usually are on Labor Day, reputable analysts are predicting drivers could be paying between $2 and $2.50 a gallon at the pump as the spring and summer vacation season approaches.

Incidentally, one of the questions that I will want to ask the witnesses today is about the inventories. There was a recent article in Business Week that indicated that normally the oil industry builds its stocks to a peak around April 1st and then runs them down through the summer driving season.

This year, however, gas stocks are at ultra-low levels now, usually seen around Labor Day, and I want to ask questions about that.

More generally, Mr. Chairman, I know Secretary Richardson has had some success in pressuring OPEC to step up its oil production, and of course I'm grateful that he's taken an aggressive part in trying to ease the current squeeze. But still, we won't know by how much or how soon output will be raised until the OPEC conference in Vienna on Monday. And that reminds us of what Senator Thompson has said, which is that we have put ourselves in a position where we are dependent on foreign sources of oil and, therefore, vulnerable.

I was also encouraged that the president, in his radio address last Saturday, called for the creation of a regional home heating oil reserve for the Northeast with an appropriate trigger that would supply additional heating oil to the market during a future shortage. Senator Dodd and I introduced a proposal along these lines last month, so I look forward to working with the administration on a bill that we can hopefully pass this year so that we can give some sense of security to businesses and consumers, family consumers, in the Northeast before next winter's home heating oil season begins. But I must say, none of this eases the frustration of being caught in an all-too-familiar and aggravating OPEC oil vise yet again.

So I hope we can discuss today how this great country of ours got to this point of economic vulnerability to a cartel whose supply- controlling, price-fixing practices would be illegal in this country. And I hope that we will not, if you will allow me to put it this way, not just get mad at OPEC today, but figure out how to get even and in that sense, I mean by beginning to take the steps that are necessary for our country to be more energy-independent.

In the meantime, a lot of us have talked about the desirability of responding to the oil crunch by drawing down from the enormous crude oil inventory we have in the Strategic Petroleum Reserve to add to supply that will reduce prices. I don't view this as a panacea, but it certainly could, and probably would, have a short- to mid-term effect on gasoline prices.

And it gives some strength to our position and makes us, I think, more than simply a supplicant without resources at -- begging, really, pleading at OPEC's table,

I remain concerned that we've not done that yet, that is, to go into the Strategic Petroleum Reserve, but I'm encouraged that some of our witnesses advocate the approach, and particularly and preferably the so-called "swap" approach, that would involve the release of oil now to refiners in exchange for a promise to return additional amounts of oil to the reserve in the future.

But let's step back and look at the big picture, and it looks a lot like the chairman indicated. It's clear that the price volatility and the threat it presents are symptoms of the more fundamental long- term problem, which is our dependence on foreign oil. By failing to provide our own citizens with energy alternatives that are within our control, we limit our options in times of national emergencies and entrust our economic and therefore our strategic security too much to the whims of others.

I think it's imperative that we take some steps now to wean ourselves from foreign oil and develop a domestic infrastructure to deliver reliable alternatives.

First, we need to invest time, money and energy in wisely increasing our domestic gas and oil production, diversifying our energy mix to include more solar energy, fuel cells, wind, and even nuclear power, and developing long-range strategies for harnessing these additional energy resources.

I know in this regard that there are different and difficult balances to be made, particularly about the drilling of oil domestically. Again, some have suggested that we target, for instance, the Arctic National Wildlife Refuge. For me, the U.S. Geological Survey estimate that there's less than a six-month supply of commercially recoverable oil in ANWR, which is not inconsequential but nonetheless convinces me, as I make my personal balance, that it's not worth it to destroy this refuge for that amount of oil, which some have estimated would never meet more than 2 percent of our nation's needs at a given time.

But those are the balances that we're going to have to make, each of us and the nation as a whole, as we try to become less dependent on foreign sources of oil.

Second, in the context of the utility deregulation debate, Senator Jeffords and I are cosponsoring legislation that would require utilities to use renewables for ultimately 20 percent of their power projection by the year 2020.

Third, we've got to take stock of the domestic energy market and evaluate national and individual consumer decisions affecting our energy supply and efficiency. In some areas here the results are actually encouraging. Conservation measures, efficiency measures that have been taken by American businesses have significantly improved the energy efficiency of the overall economy. During the crisis of the 1970s, nearly 9 percent of our GDP was spent on oil. That's down to 3 percent today. And I think we can build on that progress.

But the record is not so bright across other sectors of the economy, particularly when it comes to our driving habits, where vehicle miles traveled have increased by 130 percent over the last 30 years. And despite early improvements in fuel efficiency, current standards have, unfortunately, stagnated, and Congress has imposed a freeze on raising or even studying the benefits of raising the corporate average fuel efficiency. I think we've got to do much better at that.

So bottom line, Mr. Chairman, I hope that we will use this moment of dwindling oil supply and rising prices to heed the warning signs, to think about our future health and security as a nation, and to act together to adopt a new, progressive energy policy for this new century. I thank you. We have an excellent group of witnesses, and I look forward to hearing from them this morning.

SEN. THOMPSON: Thank you very much.

Senator Voinovich, do you have any comments?

SEN. GEORGE VOINOVICH (R-OH): Mr. Chairman, first of all I want to thank you and Senator Lieberman for holding this hearing today.

I have been concerned about this nation's lack of an oil policy or energy policy back from the '70s when we had that terrible situation where our gas prices went through the roof. And in spite of the fact that we've been through these peaks, this nation hasn't taken the time to sit down and develop an energy policy and to get all of the competing interests together in a room and figure out where we're going.

Yesterday Senator Warner and Senator Baucus and I held a news conference in opposition to reducing the tax on gasoline by 4.3 percent, which, you know, people are suggesting is going to solve the problem that we have, on the grounds that about all that would do is save the average driver a year about 43 bucks and break the covenant that was made by this Congress to the governors of this country that we would have a reliable and stable source of revenue, so that we could deal with the highway problems that we have and transportation problems that we have in this country.

And I also mentioned the fact that it was just another thing to take our eye off the real issue. And the real issue -- we don't have an energy policy.

And Senator Lieberman, I think you eloquently spoke to some of the various options that are available to us. But we haven't been willing to do that, to bring them to the table. And the environmental interest -- you know, we can't do this, we can do that. The fact is, you have to get our national security interest on the table, you're got to get our economic interest on the table, you have to get your environmental interest on the table and reconcile them.

But one thing I think most people would conclude after we do that is that we are too dependent on oil from around the world, from a lot of places that are very unstable, and that we have to do, as a nation, a better job of providing our own source of oil. And the issue is, how do you go about doing that and at the same time give consideration to the environmental concerns and other concerns that people have? This is an ideal time to do it, because of the fact that we're seeing just what impact this has had on our economy in the short run. And God knows how long it'll be, but I suspect that Secretary Richardson and the president -- we got a November election coming up -- some miracle's going to happen before November, and the gas prices are going to go down. I'm confident of that, folks. (Scattered laughter.) It'll happen.

But then the issue is, after the dog has stopped barking, are we just going to go back to the way we did things before and not really confront this issue?

So it's time to get together on a bipartisan basis and try and face this thing forthright and stop dealing with it by putting it in the drawer, and of course try to explain to -- you know, to the American public that there's a lot of things that we could be doing.

But it's going to be a multifaceted program that we have and not just one silver bullet that we're going to say is going to solve this problem.

I'm anxious to hear what you have to say about this issue from a national defense point of view. We don't think about that, do we? We have our strategic petroleum reserve, but what if we do really get in a jam? What impact -- how vulnerable are we, from a national security point of view, as a result of the policies that this nation has been following?

So I -- again, I want to congratulate the two of you for holding this. And let's hope that after this crisis is over, that everybody just doesn't go back to where they were before, and that we ought to take this thing on and make a covenant among ourselves that we're going to stay on this administration and the next administration to make sure that this nation has an overall energy policy and one that will protect our security interest and also deal with own economy.

Thank you.

SEN. THOMPSON: Thank you.

Senator Akaka, did you have any opening comments?

SEN. DANIEL AKAKA (D-HI): Thank you very much, Mr. Chairman, and I want to thank the chairman and the ranking member for having this very important hearing this morning. America has energy problems, and we all understand that there is no overnight solution, but we've got to work on it.

More than 55 percent of the oil we consume is imported, and in places like Hawaii and New England, import dependence is 75 percent or greater. Our import dependence has been rising for the past two decades, and we can't turn this trend around overnight, and this is our problem. As I see it, two things will reverse our energy problem: a multi-faceted energy strategy and the commitment to sustain that strategy. In my judgment, we need both of these in equal proportions.

If we want to improve our energy outlook, we should adopt energy conservation and demand reduction measures. We should develop energy resources that diversify our energy mix and strengthen our energy security. We should adjust tax policies to assist marginal oil producers, encourage energy efficiency, and promote renewable energy. We should build more efficient buildings and weatherize existing structures so that they waste less energy. We should give up our gas- guzzling SUVs and drive a new generation of cars that consume one- third as much energy.

These are long-term measures to improve energy security, but I want to point out an immediate, short-term energy security initiative championed by the Clinton administration that is not being given the praise it deserves, and I'm referring to the Clinton initiative to fill the Strategic Petroleum Reserve. for the first time in many years, the Clinton administration has added a significant volume of oil to the Strategic Petroleum Reserve. This achievement was possible thanks to a collaboration between the Department of Energy and the Department of Interior.

This creative arrangement, known as the Outer Continental Shelf Royalty-In-Kind Program, will add 28 million barrels to the SPR this year. Instead of receiving lease payments for oil produced on fertile land, the government receives crude oil that we deposit in the Strategic Petroleum Reserve. Filling the SPR means greater energy security in times of crisis.

For too many years, we treated our SPR reserve as a petty cash account. In 1996 and 1997 we sold $450 million of SPR oil for deficit reduction. Whenever we needed a quick budget fix, Congress and the administration agreed to dip into the SPR and sell emergency reserves. Through the Royalty-in-Kind program, we reversed many years of bad energy policy. Unfortunately, this is a temporary program that expires later this year. But if we extend the Royalty-in-Kind Program, we could fill the SPR to capacity by the year 2007.

That would be a great accomplishment if we can do it, but it won't happen without an extension of the Royalty-in-Kind Program.

Six members of this committee come from New England and mid- Atlantic states that are suffering high energy prices. I'm sure that all of you support the Clinton administration proposal to establish a regional home-heating oil reserve. If you support the regional home heating oil reserve, you should also support an extension of the Royalty-in-Kind Program. Royalty-in-Kind oil has been the only source of new oil for the SPR in the past decade, and it's likely to be the only source of petroleum product to fill New England's regional reserve.

Thank you very much, Mr. Chairman.

SEN. THOMPSON: Thank you.

Senator Cleland, did you have any comment?

SEN. MAX CLELAND (D-GA): Yes, sir. Mr. Chairman, thank you for having this hearing. It's very timely. And I want to thank you and Senator Lieberman for bringing us together.

Mr. Chairman, I might say the question of high gas prices for me is deja vu all over again. I was the head of the Veterans' Administration and in this town in the late '70s. One of the devastating things that I remember about those years is rising gas prices, which basically on their own programmed in about 3 percent of the terrible record inflation that we had in those days. So I think that rising oil and gas prices are a tremendous threat to the economic growth that we've sustained over the last seven or eight years, and I think we have to act on this threat to our economic well-being and we have to act quickly.

I think we need to go back and turn the pages of history back about 20 years to what President Carter was thinking about in those days. That was synthetic fuels and more research in that regard, ethanol, and using some of our technology to devise means where we could become more energy self-sufficient.

How did we get to where we are? Well, the 1997 Asian economic recession, among other factors, led to a decrease in global demand for oil. As the market became saturated, the price per barrel of crude oil plummeted. At the beginning of 1999, consumers enjoyed the lowest real-dollar price for gasoline in history. Mr. Chairman, actually, in my state, the average price last year in Georgia for gasoline was 89 cents a gallon. I can't even hardly run my wheelchair on -- that economically efficient. That is pretty cheap. Now Senator Lieberman tells us that gas prices by Labor Day may go to $2 a gallon or $2.50 a gallon. This is of great concern to us and a great concern to our citizens in this country and people in my state.

Well, the 1999 gas prices didn't stick. The events caused domestic oil production to be curtailed in extremely low levels. In fact, by July 1999, domestic oil output had fallen to levels last seen in 1946, right after World War II. Think of that. By July 1999, domestic oil output had fallen to levels last seen in 1946. All of these events compounded to amplify the devastating effect when in March of '99, OPEC adopted production quotas to reduce the global supply of petroleum.

By cutting output as much as 4 million barrels a day, OPEC was successful in driving the cost of gasoline up as much as 33 cents per gallon in just a single year.

This sharp increase in oil prices has caused tremendous hardship for many of our industries in this country, and certainly in Georgia and elsewhere, not to mention those individuals who must rely on home heating oil for warmth in the winter months.

Over the last several weeks, I have been contacted by many of my constituents, who have expressed their serious concerns about the impact of the recent dramatic increase in petroleum prices.

Among other concerns, propane dealers are facing significant difficulty in trying to purchase and market their product. In several areas of my state, propane provides vital fuel for home heating.

Also, propane is heavily integrated into the management of Georgia's poultry operations. We're the leading poultry processor in the country, and the poultry operations are our leading industry in the state. The high cost and lack of product have caused economic hardships to these industries, which rely on propane for daily operations.

Because of my concern about the continued rise in oil prices, I have contacted President Clinton to request the administration's assistance in addressing the problem. I also called on the president to examine the release of petroleum from the Strategic Petroleum Reserve.

While the release of petroleum from the SPR is one possibility, I believe we actually have got to consider any and all policy options, which may serve to alleviate the increasing cost of oil, including strong diplomatic pressure on those oil-producing nations, which actually rely on the United States for two things: one, a market for their products; and two, the guarantor of their security. Hello? Good morning.

We should also take a close look at several legislative proposals to reduce or temporarily suspend the tax on gasoline and diesel fuel. Senator Campbell has introduced S. 2090, America's Transportation Recovery Act, to place a one-year moratorium on the 24.3-cent-a-gallon tax on diesel fuel, effective only if the price per barrel remains above the December 31, 1999, market value, followed by a permanent reduction in the tax to 4.3 cents, to begin on October 1, 2005.

While I want us to do what's right and prudent and wise, but there is a very palpable air of near crisis. Now, when I go home to my state and see the very real effects the rising oil prices are having on average working Americans, when they have to fill up the gas tank to drive or to car-pool, or when they buy airline tickets to visit friends or family, or when they are paying their monthly utility bills, my constituents are getting socked where it hurts, in their wallet, every single day. When I go home to Georgia each weekend, people want to know what we are doing in Washington to address incredibly high gasoline prices.

Mr. Chairman, I am grateful for this hearing today so we can review what's actually being done and possibly come to a consensus on what else is appropriate. I know this is a very delicate global situation, but it's having very painful consequences on Georgians and on all Americans. We must all recognize the severity of the situation and the need to act, and act swiftly. The American public is looking to us to produce an effective and bipartisan response to this challenge.

Thank you very much, Mr. Chairman.

SEN. THOMPSON: Thank you very much.

Senator Domenici, I think, suggested we go directly to the witnesses.

Senator, do you --

SEN. PETE DOMENICI (R-NM): I have been stimulated.

SEN. THOMPSON: All right. Senator Domenici.

SEN. DOMENICI: And I finally woke up. Is that all right with you, Mr. Chairman? Thank you very much for having this hearing. Thanks to our witnesses.

Actually, what caused me to say a few words is my friend, Senator Lieberman, met me back behind the chairman's desk and told me that today he did not leave out nuclear energy. Heretofore he has --

SEN. LIEBERMAN: We have a running dialogue on that.

SEN. DOMENICI: Heretofore he has spoken about America's energy mix, and I have not heard him say that we need to look at nuclear power. But he has told me that privately, that it's absolutely urgent, and so I wanted to thank him for being all-inclusive this morning.

SEN. LIEBERMAN: Thanks for making that public again, Senator. (Laughter.)

SEN. DOMENICI: And essentially, I have a lot of questions. I would suggest, however, right up front that the response of the administration, versus the size of the crisis and the dimension of this crisis' potential harm to Americans, is totally inadequate. This is a big-time American problem. Now, we can keep putting it off. We'll have a new president who will do little or nothing. But the truth of the matter is it doesn't go away, because we are at the mercy of a number of countries who have their interests at stake, not ours.

And as a matter of fact, when we talk about that bad cartel, we've got to remember that we didn't say anything when there was $10- a-barrel oil and Mexico could not make it economically at $10 a barrel, but we were thriving on cheap oil like kids with a new toy. The same thing happened for month after month during this recovery period. Venezuela the same way. They're totally an oil economy, and when it was $10 and $9.50 and $11, we didn't say, "Wait, wait. Maybe we ought to figure out some way so that they can make a reasonable -- have a reasonable economy." And so now, when it goes up, we think we can go negotiate our way out of this.

I want to tell you another thing. There's all this notion that we can go send our ambassador, as good as he is, Secretary Richardson, around the world to negotiate. Negotiation with the cartel is no substitute for an energy policy. It is not an energy policy. It's, in fact, the opposite of an energy policy. It means we don't have an energy policy, and as a consequence, we have to go try to convince countries to change their policies so that we can get by.

Now, my suggestion is that if the administration doesn't want to, that somebody up here that has jurisdiction ought to look at every single aspect of energy supply for the United States and then proceed to maximize the use of that variety of energy sources.

Now, obviously, environmental concerns will come into being. But the production of energy should not be "necessary evil," as I have heard some in this administration say, as it relates to public domain and the use of public domain for oil and gas drilling -- a necessary evil. Not so. An absolute necessity -- not evil. And we should open all our lands that we possibly can to exploration. During this administration, we have minimized them. Now, how in the world do we send any signal to anyone when we minimize the public domain lands?

We talk about natural gas as being the great, great solver of all this, and we lock up huge supplies of natural gas in the off-shore fields that are loaded with natural gas, all in the name of the environment. And we turn around and have a thousand new ships, loaded with oil, have to hit our ports because of our growing dependence. And where's the environmental risk? There's a great environmental risk when you add hundreds and thousands of huge ships that have to come into our harbors loaded with oil and other related products. And we leave our lands and our off-shore drilling because somebody has decided that that's a big environmental issue.

Let's look at it. How big is it versus the crisis?

And I close by saying we ought to look at the reality. Oil patch suffers from lack of reasonably priced capital. There is no doubt about it. The administration is right in one thing; this is a stability problem. This is a volatility problem. Part of the volatility has to be solved by new mechanisms for financing oil-field operations. I'm going to introduce a bill to create an entity much like Fannie Mae and Freddie Mae (sic) for oil patch. We're going to call it Paddie Mac. And anybody who wants me to spell it -- P-a-d-d- i-e Mac. It will be introduced pretty soon. It will be a very good talking point for us to consider. Won't cost anybody any money. You'll use the great skills of hedging on the marketplace to assist those who are investing in oil patch.

And last, I want to conclude that today, as we sit here, there are 103 nuclear power plants roaming the seas and oceans of the world, 103. More than America has onshore producing energy. They're run by the United States Navy, and they're on naval ships, from battleships to submarines. One hundred three is my number, I believe.

Now, since their inception in 1954, I say to my friend Senator Lieberman, there has not been one accident. There has not been one leak. There has been absolutely nothing happen except precisely what the Navy has predicted: total safety. Now, isn't -- and only one seaport will not accept them, Senator Lieberman. They pilot right into any seaport in the world with the nuclear power plants in their hulls, operating. New Zealand decided many years ago they would not accept them. All the rest of the seaports of the world accept them. They aren't afraid of them. They don't tell them to camp out 200 miles offshore. There they are.

Here we are, fussing over what are we going to do with waste in the United States, to put it in a temporary disposable situation so we can move in with nuclear -- the second generation or third generation of nuclear power. Borderline insanity from the standpoint of an enlightened country what we are doing with nuclear power.

I wasn't going to talk, but I did. Thank you. (Laughter.)

SEN. THOMPSON: Well, as you see, we are desperately seeking solutions, since we have no opinions ourselves -- (laughter) -- as to what to do about this matter.

So we're pleased to have with us today Mr. David Goldwyn, assistant secretary for international affairs at the Department of Energy; and Dr. Jay Hakes, administrator of the Energy Information Administration. Thank you both for being with us. Mr. Goldwyn -- and the full text of your remarks will be entered into the record. Summarize them for us, if you would.

Mr. Goldwyn, would you like to proceed with your testimony.

MR. GOLDWYN: Yes. Thank you, Mr. Chairman.

Mr. Chairman, members of the committee, I'm pleased to appear before you today, and I appreciate the opportunity to address the current situation in the world oil market and the short and long-term solutions that have been advanced by the Department of Energy and the administration to respond to the situation we now face.

The measures that we've taken are substantial and they seek to protect our economic security and national interests. The administration is concerned, as all of you are, about oil price volatility. Oil inventories have fallen to levels that could put global economic growth at risk unless OPEC and non-OPEC producers increase production soon. OPEC will obviously have its chance to act when it next meets on March 27th.

Many of you and your constituents are asking, How did this happen? Why are prices so high? And, What is our government doing about it? My testimony will seek to respond to each of these questions, and I hope to reassure you and the American people that the Department of Energy, led by Secretary Richardson, is concerned, is taking measures to deal with the problem, and that we do have an energy policy and an energy strategy in place to deal with the current situation and to respond in the future.

While on the whole, competitive markets have provided consumers low average prices, the price volatility that we've been seeing in the market -- $10 a barrel a little over a year ago and $30 a barrel early this month -- hurts both consuming and producing nations. Here at home, as you know, $10 oil led to shutting wells and put many independent producers out of business; $30 oil hurts our consumers, especially those on low incomes, those who drive long distances, as well as businesses and truckers.

Overseas, it was no different. Ten-dollar oil, as Senator Domenici put out, was harmful to Mexico and Venezuela and other countries, and $30 oil is causing severe damage to oil-importing nations in the developing world as well and threatens the economic recovery in Asia. So what we all want, producers and consumers, is a more stable market and our energy policies are focused on ensuring stability in the long run and addressing the recent volatility that we have been seeing.

My colleague, Dr. Hakes, is going to talk about the market conditions that led us to this situation and also the current market, so I'm not going to address those points. But let me turn to what we have been doing to restore stability, increase production and address our short- and long-term energy strategy.

Secretary Richardson and the Department were out in front in recognizing the problem of low inventories. When we received signals from our Energy Information Administration last fall, Secretary Richardson began quietly starting diplomatic action with the major producers. And because of our efforts, we're no longer the lone voice calling for action -- major consuming nations, the European Union, the International Energy Agency, the OECD countries have all joined our efforts.

There has also been a shift in the attitude of producers in the last month. A month ago, when we started this, they were saying they thought there was no problem in the oil markets. They thought that prices were all right, that stocks were satisfactory, and there wasn't any jeopardy to the world economy. After Secretary Richardson went to Mexico and Norway and Saudi Arabia, Kuwait, and had meetings and phone calls with other ministers, including Venezuela, there is now a consensus to increase production. There's a consensus that volatility is bad. There is agreement they will reevaluate the data, and Dr. Hakes and I were both on the trip with Secretary Richardson to give them this data, so that they can look at the current oil market situation and try and reach a new level of production which would do what all of us want, which is to sustain world economic growth.

This week, the secretary's energy diplomacy is continuing in earnest. He has been to Nigeria, Algeria and Norway, and met with the OECD ambassadors in Paris. And our momentum is continuing; Kuwait, Venezuela, Saudi Arabia, Algeria, Iran, Mexico, Norway have all made public statements saying they support production increases. So now we're in an environment where the question has gone from "if" or "when" we're going to have an increase in production to "how much?" And the secretary and others have pushed for an early and substantial increase in production.

But our concerns about long-term energy security didn't begin with $10 oil or $30 oil. Since Secretary Richardson has been at the Department of Energy, we've taken a number of measures to increase our nation's energy security. In February, 1999, we took steps to strength domestic production and improve security for the long term. Senator Akaka mentioned the program to add 28 million barrels of oil to the Strategic Petroleum Reserve from royalty-in-kind oil. To support domestic production, we streamlined procedures for producers, produced administrative and accounting relief for small producers and invested in technology for recovering in endangered or hard-to-produce oil reservoirs, as well as many other steps.

We have also been working to diversify our sources of supply. You know, I can talk later about our work in Africa and Latin America, and also the Caspian.

And there is concrete evidence that, in terms of diversity of supply, this approach is working. Our top supplier of oil varies from week to week among Canada, Venezuela, Saudi Arabia and Mexico. And we are actually less dependent on OPEC oil and last year imported crude oil from 40 different countries.

I talked a lot about what we are doing internationally, but there's been a number of domestic responses, as well.

This past weekend, as you know, the president announced a series of steps to address the current situation, strengthen our energy security, and reduce our reliance on foreign oil. The president's plan includes: establishing an environmentally sound home-heating oil reserve in the Northeast; calling for reauthorization of the Strategic Petroleum Reserve, which is due to expire next week, through extension of the Energy Policy and Conservation Act; enacting a comprehensive package of tax incentives to improve our energy efficiency, promote the use of alternative fuels, and preserve the productive capacity of the domestic oil industry.

He talked a lot about investing in energy efficiency and alternative energy technologies by calling on Congress to fully fund the more than $1 billion request the administration has made to accelerate research and development of more energy-efficient technologies.

And over the past month, the administration has also made a number of aggressive short-term moves to ease the current situation. The president released almost $300 million in funds of low-income individuals to pay their higher heating bills. And fortunately this year, that aid reached people in time, rather than the sort of slow pace in earlier instances. He has asked for $600 million more to replenish that fund, and is also seeking $19 million from Congress for low-income home weatherization.

We have also taken measures to increase oil supply through increasing Coast Guard support for tankers, small-business loans for heating oil distributors and other small businesses, and also encouraging refiners to produce as much heating oil as possible. The president has also directed the department to study ways to reduce regional reliance on heating oil, mainly through the increased use of natural gas, and to study the impacts of interruptible natural-gas contracts on heating oil supply. And we expect these studies to be completed soon. These are all concrete measures whose impact in the future can be significant.

In terms of future responses, we have looked at ways which we can prevent this from happening again and looked at how the department can help. One is by reestablishing an Energy Emergency Office. Another is working with industry to get better information on world oil inventories. And a third is the possible development of global data regimes to give producing and consuming nations an early-warning system when supplies and production levels get out of balance with demand and consumption needs.

Mr. Chairman, in a few short days, we are going to have some important news. OPEC ministers are going to begin their meeting, on March 27th in Vienna, and we expect that OPEC and its allies will agree to increase oil production effective April 1st. The oil market seems to be sharing this view, as oil prices have come down over the past few weeks, falling below $30 a barrel.

But we still don't know what the magnitude of the production increase will be and what the timetable will be. With enough additional supply, we should expect some further easing of crude-oil prices, in the next few weeks, although it does take a while for those to reach the pump.

OPEC's decision is not going to be the whole story. We are also going to need to look at what non-OPEC producers are doing and how the market reacts. Our fundamental policy is not to interfere with market forces. But Secretary Richardson and the rest of the administration will look at these measures next week, see what OPEC and non-OPEC producers do, and assess what additional steps, if any, need to be taken at that time.

I heard many of the questions, and I think I'll leave those for the question-and-answer period. So that concludes my prepared testimony.

SEN. THOMPSON (?): Thank you very much.

(Mr. Hakes ?)?

MR. HAKES: I'd like to thank the committee for the invitation to appear today.

I would point out that the Energy Information Administration is an independent data and analytic arm of the Department of Energy. I frequently testified before congressional committees on energy issues. And I think members on both sides of the aisle will tell you that we try to base this on good analysis and let the chips fall where they may.

I would also say that we're a major provider of data and information on this subject. In recent days, we've had as many as 35,000 people come on to our website in one day, looking for information on energy, particularly oil issues.

I think the history of this is relatively clear. OPEC took a third step last March to cut production, and over time, because of rising demand in the world, we got a situation where the world was producing less oil than it was consuming. World stocks got drawn down, creating a seller's market and very high prices.

I think the data on this is showed pretty well in the graph that I brought. It's actually in the handout. It's the third item there, even though it looks like the first item. And you can see that when the cuts started, the inventories in the United States for all petroleum were above normal levels. And late last year there was a dramatic drop, bringing levels to well below the normal range that we would expect, and creating what my somewhat conservative government agency has called "alarming stock levels."

One way we started to describe this some months ago was that we were skating on thin ice. In other words, when stocks are very low, you may, if you get -- all the breaks go your way, you may not get big run-ups in prices, but if any little thing goes wrong, like a frozen Hudson River or a refinery going down, it gets very magnified because of these low stocks.

And I think -- (to staff) -- if I can show the next graphic, it shows what happens when the ice breaks. And this is basically the situation in the Northeast, where you had a run-up in prices that took place in just a very brief period of two or three weeks. Diesel fuel ran up to $2.12. This was one of the most rapid increases in prices in American history.

As you can see, the market did correct this regional imbalance, and prices are basically back down to the national levels, albeit high levels. We're in a situation now where actually gasoline costs more than diesel fuel, and prices on the West Coast are higher than they are on the East Coast.

I think that as long as we maintain low stock levels, that the U.S. will be vulnerable to these kinds of price spikes. It's particularly true in the coast. In the middle of the nation, people are more tied into the delivery system and less subject to these interruptions. But in California and in New England, which are sort of at the end of the delivery chain, this vulnerability will continue to exist.

Of course, we will be looking at what happens on Monday to see if production levels will be increasing, and some steps will be taken to get world inventories back into more equilibrium.

I'll cut my comments short because I know all of you will have many questions.

SEN. THOMPSON: Thank you very much, Dr. Hakes.

We all know, I think, we're here today primarily because of oil prices. I am hopeful that it will cause us to once again focus, as Senator Voinovich has pointed out, especially here this morning, on something that I consider a much more serious problem, and that is supply. Nobody holds hearings or gets very excited about the issue of supply until we have an issue with regard to prices. And now everyone wants to focus on short-term solutions as to what to do about it.

I guess I approach it, as I have had time to think about it and look at some of the writing on the subject, maybe from a bit of a contrarian position, maybe as far as most of us here behind the table are concerned, and that is that it seems to me the quicker the so- called "solution" affects prices, the more skeptical we ought to be about the solution because it interferes with market forces, which will invariably reverse themselves and moderate out.

And it allows us to ignore the longer-term problem of supply and stability in regions of the world, as Senator Domenici pointed out. There's only one oil market and that's the world market. And it's important that our supplier friends maintain themselves, too. If they, through instability or other reasons, are not able to supply not only us but the world, then we've got a world problem.

You state, Mr. Goldwyn, in your testimony that the administration's energy policy is based on market forces and not artificial pricing. You note that the oil price controls of the 1970s prolonged shortages and high prices, yet the administration is still talking about the Strategic Petroleum Reserve to address the high oil prices and is proposing a home heating oil reserve to address higher heating prices in the Northeast. Now, clearly the Northeast has a special problem and it deserves attention, but these are both market interventions. So which way is it; an energy policy based on market forces or one based on market interventions?

I was under the impression that the Strategic Petroleum Reserve was there for disruptions in supply, it wasn't set up to have anything to do with prices. Perhaps some would like to change that now. I don't think it would be a good idea to change that policy. And it also seems to me that the swap ideas that we've heard discussed in terms of the SPR perhaps makes sense unless prices actually go up and we miscalculate, and prices actually go up, and we'll be able to get our oil at the lower price, but that would be pulling oil off the world market at a time when prices are already going up. I would also think that OPEC would be watching to see what we're doing with regard to our reserve and would react accordingly.

On the home heating situation, what do you do -- I mean, if people know that at a target price, that oil is going to be dumped on the market and prices are going to go down, how is that going to affect them?

So, what's the administration's position with regard to these two so-called "short-term" solutions? And if they're really viable and on the table, do they not go against a policy based on market forces that I think most everybody has concluded that basically is the way to go?

MR. GOLDWYN: Mr. Chairman, the administration's policy is to respect market forces. I think in terms of the use of the Strategic Petroleum Reserve, you're absolutely correct that the legislation provides that it's for national supply emergencies. And the reluctance of the secretary to recommend its use or to recommend a swap so far, the reluctance of the president to use it so far is because there has been no determination that there is a national supply emergency at this time. And we've been working to get OPEC and non-OPEC producers to do what the market is encouraging them to do, which is to allow supply to meet demand. And we've got to see how that works out. And that's why there have been no actions on that so far.

Now, I guess the reason that the president, I think, has said that all options remain on the table, including a sale or a swap or other measures, is that if OPEC refuses to let market forces do what they're intended to do, if there is an artificial response which causes a supply emergency, then the question is, is that an appropriate time to use the Strategic Petroleum Reserve for a sale or a swap; are they creating an emergency situation here or not? That's a determination that's going to have to be made in the future when we see how the market reacts.

I would distinguish the swap from the sale only in the sense that whenever you hear people say government ought to act more like business, businesses are smart in sort of how they manage their resources and are able to, you know, sort of sell high, you know, or sort of -- you know, buy low and sell high, the federal government (has tended ?) to do just the opposite.

The idea behind at least a swap is that we could grow the size of the reserve by the end of the year, increase our security, and try and deal with, you know, a short-term situation. But it's not a preferred option. I think that's why you haven't seen it exercised so far.

With respect to home heating oil and the creation of a reserve in the Northeast, you know, the Northeast is a different situation, as you pointed out. And this winter, a lot of the problem was that there weren't stocks, and so when the prices went up and there wasn't a reserve there and harbors froze over and barges couldn't get through, supply couldn't get to market. And it would have been good, I guess, if there had been higher supplies and if people had thought ahead, you know, who were responsible for stocking home heating oil to do that, but it didn't happen, and so I think the idea of a reserve is meant to address the unique situation of the Northeast.

But one of the things we'll have to do in the coming weeks is to figure out, How do you create that in a way that doesn't mess with the market? How do you do that in a way that is sort of respectful of the businesses that work there, but also protective of the interests of consumers? And it's not an easy question, but I think it's one that we're going to apply ourselves to in order to minimize the interference of the market.

SEN. THOMPSON: All right, sir. You talked about domestic production and taking steps to assist there, and I think we all know that solutions to the problem have to do with either decreasing consumption or increasing production, and we all have ideas about what to do or what not to do on both sides of that ledger. But clearly, as has been pointed out, an administration, the administration, must take the lead in coming together with the right kind of package here.

But it certainly would seem that domestic production, increasing domestic production, new oil fields, increasing production from existing fields, is an important part of that. Domestic production has dropped 5.6 percent in 1999 and a great many of our small producers went out of business. So the proof's in the pudding, isn't it? It doesn't seem like we're doing very much in that regard.

MR. GOLDWYN: Well, Mr. Chairman, I would say two things. One is that obviously domestic producers respond to the market, and part of the problem, as Senator Domenici pointed out with the volatility is when prices swing up and down, you know, there is less incentive when it is down for them to produce. It's hard for them to predict what their income is going to be and so producers got hurt badly by that drop in oil. And right now, what we saw as a slowdown in exploration and production when it wasn't profitable, but now we need that production, and so it's not there.

But the administration in fact has taken a number of measures, and I'm just going to give the very highlights of this, because we have been and are concerned about domestic production. One of them was lifting the ban on the export of Alaskan North Slope oil to extend the life of the fields there. Another was in Alaska also opening the I think it's the National Petroleum Reserve, also on the North Slope; providing heavy oil and stripper well royalty relief on federal lands; the Deep Water and Marginal Leases Royalty Relief Measures have actually brought, I think, deep water Gulf production to sort of new highs; an alternative minimum tax relief for small producers.

Research and development helps industry a lot, lowering finding costs and enabling them to basically make more money by making it cheaper to do production in difficult circumstances or geologic environments.

So funding 32 reservoir-class technology demonstration program projects has been much appreciated by industry; the Royalty Fairness and Simplification Act and also revisions we have made in the Energy Policy and Conservation Act.

Last year, when oil prices went so slow, there were additional measures to deal with the impacts on small producers, particularly suspending production requirements for strip royal on federal lands and royalty relief on federal lands; also some new technologies for independent producers, and trying to make more advanced technologies for improved recovery available to them.

So I think there has been a good deal of concern, a good deal of money put into research and development; and some concerns balancing the environmental concerns, to have some deep-water exploration, but not in other areas where, as you know, there is more sensitive environmental concerns.

SEN. THOMPSON: I think several of those things were begun last year, weren't they?

MR. GOLDWYN: A number of those were done last year, and others were done earlier; yes, sir.

SEN. THOMPSON: It's kind of late in the game, isn't it?

MR. GOLDWYN: Well, on the small-producer front, I guess they -- when they were in deep trouble, we moved to help them. But I think the opening of the NPR and others earlier--

SEN. THOMPSON: Well, a lot of people think the country is in deep trouble with a 55-percent dependency. And we have been in that way for a long time. And as -- we can get into this a little earlier back as far as at least 1994, the Department of Commerce determined that increased oil imports impair our national security. So this is not new news to us.

Senator Lieberman?

SEN. JOSEPH I. LIEBERMAN (D-CT): Thanks, Mr. Chairman.

Dr. Hakes, just by way of some factual premises here; how much of our imported oil, percentage-wise, comes from the OPEC countries?

MR. HAKES: I'll try to get you an exact number. I know that we actually import less from the OPEC countries than we did in the 1970s. We -- you know, the growth of production, in places like Mexico and Canada, has led much of our dependency to be on places that are closer to us. OPEC actually has less of a share of the world market today than it did in the 1970s, and much less of our petroleum comes from OPEC.

That may not be a definitive issue in the sense that it's a world oil market --

SEN. LIEBERMAN: Yeah, right. And --

MR. HAKES: -- and you said a world price.

SEN. LIEBERMAN: -- and OPEC still obviously helps determine -- plays a critical role in determining the world market.

MR. HAKES: Yes.

SEN. LIEBERMAN: Secretary Goldwyn, what do we need OPEC to do on Monday at their meeting in Vienna? In other words, what are we looking for to create the kind of supply that will meet demand here? And obviously, I am speaking short term, and leaving aside everything else we have talked about, our longer-term energy policy changes.

MR. GOLDWYN: What we want them to do is to -- and in fact, we have been working with them to do -- is to understand what market demand is; that market demand is not going to -- demand for crude oil is not going to go down the second quarter, as many of them said, but it will go up in the United States, and it will be level in other places. We are asking them to look at the gap.

Looking in the last quarter, there was 75 million barrels being demanded and 73 (million barrels) being produced. So we have said, "You know, you've got to let supply meet demand." But we also want them to look ahead for the second quarter, and the third and the fourth quarter for that matter, and plan production increases. They are going to bring the market back into equilibrium.

We don't recognize their -- the legitimacy, and so we don't tell them, "Pick a price," you know, or, "Here's the exact amount you need."

SEN. LIEBERMAN: Yeah.

MR. GOLDWYN: But we educated them, with help from Dr. Hakes, on what our situation is, on the need for crude oil to get into the market, in April and May, so it can be refined for gasoline over the summer, and that this is a worldwide situation. So we are looking for a significant increase at this meeting and -- substantial.

SEN. LIEBERMAN: So are we looking for 2- or 3-million-barrels-a- day increase in supply?

MR. GOLDWYN: Well, I guess we're -- we've been reluctant to put a number on it, in part because we don't want to get into OPEC's -- into the business that OPEC is, of picking what's the right number of supplies. So what we've given them is really orders of magnitude. So far, that's been the size of the gap. And so -- but we want to look at, you know, the third and the fourth quarter also, but, I think, in terms of order of magnitude.

SEN. LIEBERMAN: Will the announcement they make on Monday be clear? In other words, do we expect it to have a number attached to it, or will it be more fuzzy diplomatic language? In other words, will they say we're going to increase production --

MR. GOLDWYN: It may not be --

SEN. LIEBERMAN: -- 3 million barrels a day?

MR. GOLDWYN: I'm sorry. It may not be clear, and it may not be Monday.

SEN. LIEBERMAN: It may not be Monday. Why?

MR. GOLDWYN: In that meetings begin on Monday, but they may run it may run for a couple of days.

SEN. LIEBERMAN: Right.

MR. GOLDWYN: And it's hard to predict, from their past behavior, how they're going to act. I think they understand, because Secretary Richardson has called everyone, every oil minister with whom -- in OPEC with whom we have diplomatic relations, that we need a clear signal for the market. But they have a number of choices in how they could characterize their position. It could be an increase in production or it could be an increase in quota. And so it'll take us some analysis, I think, to look at what they say and then what the market effect is going to be.

The other thing I should say that we're going to at is not -- OPEC is not the whole story --

SEN. LIEBERMAN: Right.

MR. GOLDWYN: -- is that we're going to look at what non-OPEC producers do as well -- Mexico has already indicated it will go its own way and that it will increase production -- what Norway is going to do or other non-OPEC members are going to do. And that -- OPEC's our analysis of OPEC's decision, non-OPEC producers, and then how the market reacts is going to be what's going to tell us what the real effect of that decision is. And that may take us a little bit of examination to go through.

SEN. LIEBERMAN: Okay. If, by whatever means, we determine that the OPEC decision and the decision of the other oil -- non-OPEC oil- producing nations is inadequate to meet demand -- and here, again, I'm thinking short-term, second, third, fourth quarter of this year -- what alternatives does the administration have to try to make the problem less painful for the American consumer and the American economy?

MR. GOLDWYN: Well, two of them have been talked about this morning, and the president said that all options remain on the table. One of them is the swap of SPR oil. Another is the sale of that kind of oil. Another is to try and work with refiners to take whatever measures we have now and make better use of them. Those are the top of the list.

We're already taking measures to make sure the federal government, you know, makes more efficient use of the oil that we consume, but a lot of those are going to be sort of medium-term rather than short-term measures.

SEN. LIEBERMAN: Right.

I hear you to say -- and I'm just going to make my own statement and not only you, but other administration officials -- that if OPEC doesn't adequately increase supply next week at their meetings -- and the same is true for the non-OPEC oil-producing nations -- that -- let me put it this way: It's more likely that the administration will consider swaps from the strategic petroleum reserve as a way for us to increase supplies short-term. And I guess I would simply say I hope so. I hope that's true if OPEC doesn't meet -- bring supply to meet demand, because otherwise we're going to have a very difficult driving season, spring and summer, in this country.

Dr. Hakes, let me ask you to speak -- and Secretary Goldwyn, if you want to add -- a little bit about this question of oil inventories in our country. And let me state it with this edge to it, if I can: I mean, some have suggested to me -- not that there's anything illegal about it, as far as I can tell; I don't believe there is -- that the oil industry, our oil industry, acted in its economic self-interest as the price of world oil went up, which is to say they bought less of it, hoping it would go down, and they'd buy at more favorable prices.

But the effect of that was to make the problem worse, because they reduced supply. And I wonder if you could just, from your expertise, sort of describe what happened in the last, oh, six months or so, maybe a year, after OPEC spiked up the price of world oil, to evaluate the behavior of our oil industry and the oil inventories and then to suggest if there's anything we could or should be doing about that, which is to say, to intervene in the market. And then I'd ask Mr. Goldwyn -- that's more future-oriented, about if this happens again -- to answer the same.

MR. HAKES: Well, I guess I would prefer to deal with this year, to sort of avoid a long dissertation. If you go a few weeks before the real run-up in prices in the Northeast, the refineries were running at very low levels, which did lead to low product stocks. Now, if you look at the economics of refining at that point, they were operating on very, very thin margins, so it would be hard to, for an outside person, to understand why they would be running at high levels, because there just were not margins available for them to make much money.

Now, once the price ran up, then the margins ran up, and this has been an incentive for refining to pick up a bit. It's running higher now than it was then. However, refining levels are still lower than they were last year at this time, and maybe a little bit lower than one might expect from the spreads that currently exist. Last week, refineries ran at about 89 percent of capacity. We estimate that at points this spring refineries will have to run at about 98 percent to provide the necessary supply.

So I think these inventories, I don't know what the alternatives are to the market. I mean, the market certainly brings about corrections. You can see even in the Northeast, as bad as that problem was, there was some market correction to it. But I think this is an area that requires continued discussion. It's a little more severe in the heating oil situation because you're talking about health and safety there. I mean, if a person pays more for gasoline, that's very irritating and maybe economically damaging, but if you were actually to run out of heating oil, that could be a real health and safety issue for a lot of people. So I think that inventory's question in particular requires more work. And of course we are doing some larger studies on these issues so we can answer that question a little bit more -- in a little more detail.

SEN. LIEBERMAN: I'll look forward to the results of those. Secretary Goldwyn, did you have any thoughts on this, which is whether government should be doing anything to either require or incentivize, create incentives, for oil inventories to be maintained at a more even level so that we avoid the exacerbation of the impact of world price fluctuations?

MR. GOLDWYN: It's a hard question, Senator Lieberman, because it's -- you know, past attempts to try and incentivize or try and control prices (with ?) incentives have often led to worse situations than existed before, before the intervention.

I mean, I think it was a hard market lesson for all the people who sell home heating oil in the Northeast --

SEN. LIEBERMAN: Right.

MR. GOLDWYN: -- not to have planned ahead. And that's a lesson that they may -- they may change, in the fact that the government is working to get into creating a reserve is going to have an impact on them. You know, we'd had a bunch of warm weather, warm winters, and so I think everyone is, at a high price, attuned to the fact that we've got to plan for the worst and not for the same.

In terms of other inventories, it's hard to imagine what we could do to be helpful, but as Dr. Hakes said, people who are expert in this and we obviously work closely with API and others in this -- will look at the question of what we can do to not let this happen again.

SEN. LIEBERMAN: Okay. Thanks very much. My time is up.

SEN. THOMPSON: Thank you. Senator Voinovich.

SEN. GEORGE VOINOVICH (R-OH): I'm pleased with the fact that there's a lot more diversification in terms of foreign oil supplies; we're not as reliant as we have been on some of the nations that are a little bit questionable. But the fact of the matter is, is that we've seen an enormous increase in gasoline prices, and in all due respect, I think that the Department of Energy should have been paying more attention and monitoring this situation so that we're not where we are today, where all stops are being pulled out to try and see if we can't bring the price down.

And I share Senator Lieberman's interest in what's going to happen at that meeting in Vienna, and hopefully we're going to get a good result, and with a little cramming, take care of a situation that could have been taken care of, if we had done our homework during the past number of months.

That being said, I notice that we've seen a greater and greater reliance upon foreign oil. And all of the projections that I see indicate that we're going to be even more reliant on foreign oil. Has anyone every sat down to figure out what the number ought to be? Are we too reliant? Should we be less reliant? And if we should be less reliant, in terms of our national economic and security interests, how do we go about achieving that goal?

I think of our exploration policies, I think of our tax policies, I think of our environmental policies. Has the Department of Interior, the Department of Energy, the Environmental Protection Agency ever sat down together and talked about does the left hand know what the right hand is doing?

We haven't built any new refineries in this country. If you talk to the refiners, they say our environmental policies have had a negative impact on their going forward with refineries. We have a new controversy over new-source pollution permits by the Environmental Protection Agency, where they're cracking down, that's going to make it more difficult. We just have ordered the oil companies to reduce substantially the sulfur in the gasoline, which some predict will be five or six cents more per gallon. It may be very well justified.

But there are so many -- Yucca Mountain -- well, Senator Domenici isn't here. But we passed the bill about moving forward with that place to store high-level radioactive material, and the president is threatening to veto it. And that leaves the whole issue of nuclear power -- and, I mean, the biggest problem with nuclear power in this country is what do you do with the waste? And we've had that around a long time. The Europeans seem to handle it. We just can't seem to get that under control.

I just -- if you start looking at all of these various things that are going on, it doesn't really seem like we've got our act together. And I'd like to know, from your perspective, what is the number in terms of our reliance on foreign oil? Are we too reliant today on foreign oil supply?

MR. GOLDWYN: Senator, let me try and answer all those questions. And first, we are very dependent on foreign oil and we should be less dependent on foreign oil. And that's the direction we wanted to go, and it's going up and not down. And this has been a problem for a long time for the United States. Since the 1970s, we've been looking at measures to try and make ourselves more energy secure and reduce our dependence. A number of those measures have been successful.

And so I think we haven't picked a number, but what we have done is launched a series of measures to give us choices, to give Americans choices, and to give us the ability to reduce our dependence on foreign oil.

Let me just try and deal with them in a couple of baskets.

I mean, since -- you know, after the oil shocks of the 1970s, we decided first we needed to have some security in case there was an interruption. So not only do we have the Strategic Petroleum Reserve, but we've got the International Energy Agency, 25 countries in there, and they've got reserves. So we've got some insurance against a supply interruption.

We also started a campaign then, which has intensified now, to reduce the intensity, basically how efficiently we use oil. And as a result, the U.S. economy is far less dependent on oil and the ability of oil to impact other sectors of the economy. It's far less than it was in the 1970s, and that's provided us some energy security and some insurance as well. And we have had campaigns to try and give Americans choices in kinds of supply as well as diversity of supply. We've also sort of worked around the world to make sure there are more suppliers that are outside of OPEC, in Africa and Latin America and the Caspian, so that no one particular country can have too disproportionate an influence on our security or the security of our allies.

But we've -- and the two big baskets are energy efficiency and renewables. Energy efficiency is an important thing. I mean, I've got one statistic here on some investments that we're making in energy efficiency which, if things like advanced vehicle technologies and alternative fuel research were successful, we could reduce our consumption by 700,000 barrels a day by 2010, and 1.5 million barrels a day by 2020. And that's pretty much the order of magnitude we're talking about now.

SEN. VOINOVICH: And I've seen some of that information. But when you see what the experts are saying, they're saying we're going to become more reliant on foreign oil. I mean, in spite of all of what you're saying --

MR. GOLDWYN: But we have choices, Senator, and there are choices to make right now, which is either we can continue to invest, and invest more, as the administration has recommended for some time, in alternatives, in alternative fuels, in renewable sources of energy, in research and development that will give us, you know, give us more choices. And if we have those, if we do that research and development, if we're able to make that investment, then we will have choices other than crude oil and gasoline; things like the new generation of vehicles.

SEN. VOINOVICH: But isn't it a combination of a couple of things? That's what I always -- you know, "Well, we're going to become more energy efficient, we're going to do this and we're going to do that." And so you go ahead and do it, and you're still -- in spite of that, you're continuing to be more reliant on foreign oil. I mean, it's not one thing or another. Don't we really have to look at opening up more opportunities for us to have a domestic supply of oil, combined with that?

In other words, we have this, "Well this is the way to get the job done." We had a hearing in Cleveland, a couple of congressmen, about bringing nuclear waste through our city streets, or our highways, and people were very disturbed about that. I said don't worry about it, because Yucca Mountain, you know, is not going to be there; forget that, I'll be dead before that happens. What you ought to be worrying about is the nuclear stuff that's piling up at our two nuclear power plants in Ohio that one of these days are going to run out of space, and what are they going to do at that time? But the issue that came up was, what's the solution? You know, where are we going to get our supply of energy if you don't nuclear? And somebody said solar.

I mean, what I'm trying to say is that I think there's too much of this "this is the silver bullet thing." And what I'm interested in is what are your ideas on how we can expand the availability of more oil, domestically produced oil? What are your thoughts on that?

MR. GOLDWYN: Well, we do believe that we need to take measures and, in fact, have proposed measures to increase domestic oil production, both in opening the National Petroleum Reserve, NPR, up in Alaska; there's more off-shore drilling in the Gulf, and we're making investments in nuclear energy, too. I'm sorry Senator Domenici isn't here right now. But we've asked for a 56 percent increase in the Nuclear Energy Research Initiative. We're looking at a fourth generation of nuclear reactor technology.

So you're right; we've got to look at nuclear, we've got to look at domestic production, we've got to find ways to make it economic for domestic producers to do this. We're looking at gas-to-liquids technology to get the natural gas from Alaska in a cost efficient way into the U.S. market so we don't have to buy it from someone else.

And so we have to look at the -- you know, at the supply side, and we also have to look at the demand side. Consumption is increasing. And so I think you're right, there isn't a silver bullet, and we have to do all of them. But our ability to make huge gains in reducing dependency is probably going go come more from providing choices and making more efficient use of the oil that we consume and having more new industries use other kinds of fuel than it is from the domestic side. But you're right, we've got to do both.

SEN. VOINOVICH: You know, usually in -- when I was governor, we used to set -- you know, I'd always say, if you can't measure it, don't do it. We'd say, "By X time we're going to try and reach a number." Have you sat down and said, "By X year, we're going to be less reliant on foreign oil, and that we're going to bring it down to 50 percent or 45 percent? And what's the method that we're going to use in order to get where we want to go?" I mean, you've got to have some goal. Have you done that?

MR. GOLDWYN: Well, I think we do it -- we have done it, but not in the sense of picking a number to reduce by. But we have done it in saying that we've got to do less, and we have to look at all the measures -- you know, domestic production, you know, research and development, efficiency and everything else, to make that number go down and not up.

SEN. VOINOVICH: Well, I would suggest that as a nation, we ought to figure out what the number is and then figure out how we're going to achieve it, and hold ourselves responsible. And you know something, if we do that, we might just make it.

MR. GOLDWYN: Thanks, Senator.

SEN. THOMPSON: Thank you very much.

Senator Akaka?

SEN. DANIEL AKAKA (D-HI): Thank you very much, Mr. Chairman.

Secretary Goldwyn, one week from today, provisions of the Energy Policy and Conservation Act, which authorizes SPR and DOE's international programs, will expire. Because of high oil prices and the desire to change our energy policy, we're facing a difficult time passing a reauthorization. There will be many amendments related to the current energy situation, and it's probably unlikely that we can resolve them and enact a bill before the March 31st deadline.

I'm sure that the leadership of the Energy Department is concerned about what would happen if Congress failed to act and we had a gap in SPR or international energy authority at a time when we need it most. In today's tight energy market, the last thing we need is more uncertainty.

My question to you is, will you please tell the committee the consequences of Congress's failure to reauthorize the Energy Policy and Conservation Act?

MR. GOLDWYN: Senator, thank you for raising that. Obviously, we're deeply concerned about the extension of the Act. And all that we're asking for is really a simple extension of the existing law, which we hope will make it easy for the House to act.

I think our lawyers have looked carefully at what our ability is to do things like use the Strategic Petroleum Reserve in the absence of the Act, and we've looked at what the authorities are under appropriations law and other laws. I think the prudent answer is that it's a lot harder, and this is the worst possible time to let this act expire, and that we hope that it will be renewed, just a simple extension, before the 31st.

We're not without options, and I don't want to give the legal brief, since I am a lawyer, but not an energy lawyer, but the right answer is, as your question implies, is to renew that immediately.

SEN. AKAKA: Well, I hope there are contingency plans to take us on here. Secretary Hakes, you paint a fairly bleak picture about gasoline pricing, and during the summer driving season that's coming, you state that with low stocks and a market short on crude oil, the situation is ripe for gasoline price volatility. What is your prediction concerning supply? Do we expect gasoline supply shortages, and if so, do you have any expectation as to the location of shortages?

MR. HAKES: Well, I think we're back into a situation where we are skating on thin ice. Our prediction for the average price for regular gasoline, we think it will peak somewhere between $1.57, which is not too much higher than it is now, and $1.80. But I think that understates the threat of the volatility, because I think your state, the West Coast area, and the Northeast tend to be more vulnerable if, say, a single refinery goes down for unplanned maintenance. So you could see spikes well above this. We're seeing some of this on the West Coast right now. The price in California, the average price in California, is more than 20 cents higher than the national average, and in Northern California, even more than that.

Now, of course, this is very contingent on what happens next week, whether more supplies are produced, but based on what our current expectation is, we think this will be a very tight summer.

SEN. AKAKA: All right, from what you said, I take that the shortage will not be equitable, and probably Hawaii, the West Coast and the Northeast states will probably suffer more than the rest of the country.

MR. HAKES: I think because of the supply -- the transportation delivery system and the location of refineries, those areas tend to be more vulnerable, yes.

SEN. AKAKA: In his testimony on the next panel, John Holdren states that it is not certain if any oil will be found if the coastal shelf of the Arctic National Wildlife Refuge was open to oil development, and my question is, what is your prediction concerning oil supplies in that region?

MR. HAKES: Senator Murkowski has asked DIA to do a study of that specific question on the production capability in ANWR, and the U.S. Geological Survey, in my understanding, is actually coming out with some new information very, very soon, which we will use in that study.

So I would prefer to delay a detailed answer to that question a couple a month or two. I think we will be coming out with a specific study on that.

SEN. AKAKA: Should we -- our problem increase, do you see where we may be needing gasoline rationing?

MR. HAKES: No. You know, there's a lot advantages to the market setting the price. If you look back in the last two decades, since we moved away from price controls, on average, and even including this recent spiked price, energy prices in this country have risen more slowly than the general rate of inflation. And I think also because of the market, we don't get in quite as tight a box, where we would run out of supplies. So I may be proven wrong by events, but I have said with considerable confidence that I think the market -- even with these shortages, the market will be flexible enough to supply the product to people who want to buy it. It may come at a high price, but I don't think we'll see a repeat of the gasoline lines that we had in the 1970s, for instance.

SEN. AKAKA: Thank you very much.

Thank you, Mr. Chairman.

SEN. THOMPSON: Thank you.

Senator Domenici?

SEN. PETE DOMENICI (R-NM): Thank you, Mr. Chairman.

Doctor -- Jay, let me ask you, who made the miscalculation with reference to supply? Did somebody? Or was it intentional?

MR. HAKES: Are you talking about the estimations that were made last year of what the supply for the year would be?

SEN. DOMENICI: I'm talking about the fact that there is not enough supply and that that's why the prices are going up. And that happened because certain countries produced less. And I'm asking, why did they do that, and where did they get their information? I mean, it's not like this just happened, because -- it's because there was an actual intent by not just OPEC but those who work with OPEC. You know, we talk of OPEC, and we don't think Mexico's part, but thus far they have been -- they have not been running on unparallel tracks; they're running together, right?

MR. HAKES: Yeah. Well, I think there were two -- several factors. One is, it was never clear to the producers -- and, frankly, not clear to us at all points -- exactly what the OPEC strategy was going to be, in two respects.

One is, OPEC was a little bit more successful this time because they've had the best compliance record with their quotas that they've ever had. As you know, they frequently have had high levels of cheating. They did not have that this time.

The other thing that was unknown to producers -- and, I would say, also to us in the government -- is when OPEC -- how long the OPEC quotas cuts were going to last. Were they going to relax them in December? Were they going to relax them, you know, in March, whenever? So I think the investment community in the United States was -- and other producing areas -- was a little bit hesitant to rush back into production, because of these uncertainties. And as you've seen, the production response to higher prices has not -- it's been there, but it's been somewhat muted.

And I would say EIA, which is an independent organization -- I think we track this as well as anybody, and I'll match our record against anybody. But we certainly, if you look back to, say, June of last year, thought that OPEC would actually be producing more, because we thought that their production would be more at the levels of previous cheating and not this time. Venezuela in particular has really turned around from being one that almost ignored the quotas to now almost being the stricter -- strictest follower of the quotas.

SEN. DOMENICI: Okay. So for my understanding of this, the OPEC was successful in keeping everybody on board and reducing the quotas of the members.

MR. HAKES: They're more successful than they've ever been. The current quota is 23 million barrels a day, and they're actually producing 24 million barrels a day. So over time, there has been some erosion in the quota. But if you compare this to other actions by OPEC in the past, they've had the highest level of compliance they've ever had.

SEN. DOMENICI: So do you have any idea why they arrived at that quota? Where did they get it? Did they think it would be a supply shortage in the world? Did they think the prices were going to go up dramatically?

MR. HAKES: I think originally they were shocked by $10 a barrel. They had made an increase in 1987 at the time that they thought would meet rising world demand, and shortly after that increase, the world price started to drop dramatically. And just as this hurt private producers all around the world, the treasuries of these nations were decimated. At the time, they said that what they wanted to do was bring stocks back into the normal level, but as stocks got back into the normal level, the quotas stayed where they were, and so that the delay in raising production has been a serious problem. But their initial goal as they stated it was to deal with this big overhang in supply, which was -- created a difficult situation.

I mean, I think some consumers at the time were happy with the 80 cent gasoline, but the fact of the matter was that those prices, they weren't sustainable because the world can't produce oil at those prices. And I don't think OPEC's going to be able to maintain the price at $25 a barrel because I think other places in the world can produce a lot of oil at $21 a barrel. So any swing in the market, I think, over the long term is unsustainable. But I think their initial action was based on a fear of that $10 a barrel oil.

SEN. DOMENICI: So if we thought we were getting a good deal at 89 cent-a-gallon gasoline, clearly that was going to be short-lived, and somebody as knowledgeable as you knew that.

MR. HAKES: Yes. We, I think, have pointed out at every valley and peak in the market that this was likely to be a short-term situation. Now, this situation turned around faster than we were saying at the time because we had no knowledge of how OPEC was going to deal with it. And OPEC -- the three OPEC cuts combined are almost 4-1/2 million barrels a day. That's a lot of oil. So the decision that they made, I think, caused everybody -- you know, we had said, well, this will take a while to work off these low prices. They got worked off a lot quicker because OPEC made a decision they could cut oil production by 4-1/2 million barrels a day.

SEN. DOMENICI: I would ask, Mr. Goldwyn, did I hear you correctly that with reference to incentives to Oil Patch, America, that you were aware that incentives had to be built in that would be tied to price, so that if the oil came below a certain price, they would trigger in, if it got over a certain price, they would be triggered out? Did I read that or hear you say something like that?

MR. GOLDWYN: No, sir. If I did that --

SEN. DOMENICI: Let me ask you. If we're talking about something like stability or consistency, wouldn't it be a good idea to take a look at all of the tax incentives that go to Oil Patch and say they ought to be -- I'll use the word "counter-cyclical," but I don't want to stop there because it's hard for people to know what that means, but essentially, that the incentives would be triggered on and off, depending upon the price, which would keep us from closing down a lot of our wells and the like when the price -- if the price came tumbling down?

And, 4. Increasing integration in international trade and capital flow.

These efforts resulted in reducing the size of the public sector by more than 40% in the economic life, thus allowing the private sector to account currently for more than 70% of the Egypt's GDP. These figures prove that our commitment to privatization is invariable. The IMF ranks Egypt fourth- after Hungary, Malaysia, and the Czech Republic - with a considerable and sustained privatization rate of the GDP annually.

Egypt's improved business climate has promoted a revival of private sector initiatives and risk taking among Egyptian companies. Egypt is seen to become the largest African economy in terms of inflow of FDI - according to international standards - which credit our country with political stability, continuing strong rates of growth, skilled and educated labor, and progressive trade agreements. In this, Egypt is utilizing its central geographical and geopolitical position to become a hub for regional trade. Although Egypt was successful in progressing its economic ties with many parts of the World, trade with the Americas still alludes us despite the amicable political relations and the potential of cooperation between us.

Trade between Egypt and Latin America never exceeded $800 million in any given year, thus, developing our trade relations requires both pragmatic and a realistic approach. Consequently, the Ministry of Foreign Affairs hosted this month a seminar on "Ways and Means" to advance economic relations between the two sides. The seminar concluded that one of the major obstacles to further develop relations is the lack of information, proper information about the markets. A joint action plan is needed to address this issue while taking into consideration the following recommendations: Updating and creating a legal framework through which bilateral economic relations could be enhanced. Exchanging visits by officials and members of the business community. Enhancing scientific and technological cooperation. And, establishing joint business councils.

The seminar could be a good starting point in our path to enhance our bilateral relations in all fields. Let us consider establishing a mechanism by which a stable and sustained dialogue could be maintained by the two sides.

In the last few years, Ladies and Gentlemen, we fostered our relations with the world's major economic blocks. The Egyptian- American partnership, partnership with the European Union, and the Asian economies. Furthermore, we have become the 20th member of the Common Market for East and Southern COMESA. In October 2000, a free trade area will be established, comprising 380 million consumers with total trade volume approaching $ 4 billion. We need to open up our gates to the NAFTA, MERCOSUR, and ANDEAN.

Despite the fact that Egypt is also keen to develop further its successful economic and trade relations with both the United States of America and Canada. However, relations with both Northern American partners is a model that would lead our way and inspire our approach to develop relations with the Latin America and the Caribbean as well as with trade groupings. Under the leadership of President Mubarak and Vice President Gore, both Egypt and the USA are building an enhanced economic relationship through the cooperative effort of US-Egypt partnership for economic growth and development, a practical framework to lead the profound relations which exist between both countries through the challenges, givens, and requirements of the new world economic system, basically marked by the features of globalization. The strategic dialogue established between Egypt and the USA is leading the same process of developing active partnership at the political level. Our economic relations with Canada and several other members of this organization possess all the potentials necessary to develop further towards higher levels of interaction and cooperation.

Mr. Chair Ladies and Gentlemen, Egypt is looking forward to build structural and beneficial economic and commercial ties with Latin America, Central America and Northern America. After all, we are all stakeholders for a better future for the coming generations, so let us join hands in an effort to boost our economic relations towards a new dimension, that would strengthen our future cooperation.

Thank you very much.

AMB. MURPHY: Thank you very much Mr. Minister. May I take this opportunity to extend to you this council's appreciation for your thought-provoking and engaging remarks.

I now offer the floor to delegations who may wish to comment on the Minister's remarks. The Chair recognizes the distinguished ambassador permanent representative of Antigua and Barbuda.

AMB. LIONEL ALEXANDER HURST: Thank you very kindly Mr. Chairman. Mr. Chairman, I wish to thank you for the invitation extended to Minister Moussa to address us, and I wish to thank Mr. Moussa for the very informative remarks which he made here this morning.

I had the great opportunity to visit this great country called Egypt in 1994 when the United Nations hosted the Conference on Population and Development in Egypt in Cairo in September of that year. For me, it was indeed a great awakening and for my delegation, I might add. As you know, Mr. Minister, the vast majority of people in the countries of the Caribbean have their origins in the continent of Africa. And for us returning, as it were, to the birthplace of civilization on the continent with which we have some kinship, we found Egypt's lessons in both development and certainly in your population control activities to be extraordinarily important.

We have listened with interest to the remarks which you made this morning, and very clearly, sir, we believe that Egypt will play, will continue to play a very important role on the continent. And, we wondered if per chance the great country of Egypt might also see an opportunity to work along side countries in the Caribbean. We know that you've had some relations with Cuba, and it is undoubtedly the largest of the countries in the Caribbean region. But very small countries in the Caribbean also have a great interest in ensuring that there is a link between the countries on the African continent and the countries which are populated primarily by people of African descent.

And so we want to ensure that there is some future link between us, and we would welcome an opportunity to hear your views on the possibility of establishing some sort of arrangement which would outlast not only the sordid history which brought us to the Western Hemisphere, but also a future which we deem to be of great importance as it unfolds, given the kinds of technological improvement now taking place.

So, we encourage you, Mr. Minister, to continue in your efforts to link your country with that of the countries of Latin America. We also encourage you, Mr. Minister, to establish a continued link with the countries of the Caribbean. Thank you very much sir.

AMB. MURPHY: Thank you very much, Mr. Ambassador, for your intervention. The chair recognizes the distinguished Minister of Foreign Affairs for a reply.

MIN. MOUSSA: Thank you, Ambassador, for your very thoughtful (and kind ?) remarks. The links with Africa when it comes to Latin America I believe would -- should be channeled through, number one, the OAU, OAS kind of interaction, partnership and knowing each other. In addition of course to the bilateral relations that do exist between several Caribbean countries, several Latin American countries, and several African countries. But also, in the age of globalization, attention should be given to Africa, more attention should be given to Africa, and to help African countries move ahead and cross a deep threshold towards the global age.

And it is really important. Economically, the African nations are rebuilding their system. As I mentioned in this brief intervention of mine, there are a lot of subgroups, economic groups, like the COMESA of the East, North, East and Southern Africa, that comprises over, or almost 400 million consumers. The Latin American countries, in fact, are well-advised to enhance their economic relations with the African markets that yearn to boost trade and more investment. And, indeed, it would be very very beneficial for the investors.

Thank you.

AMB. MURPHY: Thank you very much, Minister. The Chair recognizes the distinguished ambassador, permanent representative of Chile.

AMB. CARLOS ALBERTO PORTALES (Through translator.): Thank you, Chairman. My delegation associates itself with all the cordial welcome given the Foreign Minister of Egypt. We truly view and are sincerely grateful to have a respected minister of a very distinguished country and leader of the African community of nations.

On this occasion, Mr. Chairman, gives us yet another ideal opportunity to again reiterate the ties, the interest that this organization maintains with the continent, especially with Egypt, a country that has had a distinguished and leading role within the Arab World for years, and is contributing to an active peace process being consolidated today in the Middle East.

With you, Mr. Moussa, my country maintains a dynamic on-going relationship. Last year was the 70th year of our bilateral diplomatic ties, constantly being improved, productive and mutually beneficial for our two peoples. My country has with many other countries of this region have been the endpoint for thousands of Arab immigrants over the 20th Century, and continuing now into the 21st Century to be a source of tremendous social contributions to our countries, to our diversity, and our cultural enrichening.

You, Mr. Minister, as you mentioned in your speech, all of the main tenets there are based on solid foundation. Last year, our countries in the protection and promotion of investments, we have a commercial treaty with you. We are developing our treaties in the field of small and medium firms in the participation of international industrial firms, cooperations between our export, state export organs. In short, furthering our contacts both in communications, land communications, air communications and so forth. Our mutual bilateral relationship are growing evermore and we certainly hope this will strengthen the processes in both countries.

We are certain that this collaboration can also take place throughs international organizations to which we both belong, and as such, we take the opportunity to give you a very special and warm welcome to this Organization of American States.

Mr. Minister, we are certain that we can continue to cooperate, that we can build this cooperation, and we think that this visit is actually a way of reiterating and reaffirming the commitment of your country and our Organization as peace-loving entities, to strengthen these ties and give a contribution to the international community.

Thank you.

AMB. MURPHY: Thank you very much, Ambassador, for your intervention.

The Chair recognizes the distinguished ambassador, permanent representative of Guyana.

AMB. ODEEN ISHMAEL: Thank you, Mr. Chairman. I too would like to join with the other members of this Permanent Council in welcoming the distinguished foreign minister of Egypt to this special meeting that we are having today.

Mr. Chairman, if you should ever visit the capital of my country, Georgetown, there is a special garden which hosts an area which we call a Non-Aligned Movement monument. And in that area you will find decorating the premises a magnificent bust of a great Egyptian, President Nasser. And everyday visitors who will go to that garden will remember and always recall the role of Egypt in its leading role so to speak in the work of the Non-Aligned Movement.

Mr. Chairman, I should point out too that my country and Egypt have had a long relationship, and there are quite a number of our students who over the years have earned their education, their higher education, through the very valuable assistance given to us by the government of Egypt.

The presence of the distinguished foreign minister of Egypt today also highlights a very important aspect of what is happening in the world today. It brings the continent of Egypt into this -- the continent of Africa into this chamber, and it also brings home to us the very stirring reminder that the continent of Africa is undergoing severe problems with which we ourselves in this hemisphere can associate ourselves with. We hear about the severe problems being experienced by countries like Mozambique and Madagascar. And only recently, as you know, Mr. Chairman, we in this region have suffered and are still suffering the pains of what happened in Central America just a couple of years ago, and what we are still feeling right now in Venezuela.

So we have to understand too that even though our continents are far apart, we are very close together in terms of the common problems. And we have to put our heads together to work together to help solve these problems.

So, Mr. Chairman, it is very important that we have had this informative and thought-provoking presentation here this morning by the distinguished foreign minister of Egypt, and we do look forward in hoping that our organization, the Organization of American States, would take up the challenges offered in this presentation and work towards a closer relationship for the offers made by the distinguished foreign minister here this morning. Thank you very much.

MR. MURPHY: Thank you, ambassador, for your intervention. The chair recognizes the distinguished ambassador, permanent representative of the Dominican Republic.

AMB. FLAVIO DARIO ESPINAL JACOBO (through interpreter): Thank you, chairman. My delegation too would like to associate itself with the remarks voiced by the previous delegations that have taken the floor, tendering a most cordial welcome to the foreign minister of Egypt, welcoming him to this House of the Americas, and to thank him deeply for his kindness in coming to discourse before the Permanent Council, offering us his reflections, his points of view on relations between Egypt and Latin America, and to share with us some of the specific concerns and perspectives of his government regarding those relations.

We think that notwithstanding the physical distance, there is much in common and much interest on both sides of strengthening these relations. In the case of my country, the Dominican Republic in the Caribbean region, we too have a strong Arabic community, always growing and having an ever more marked impact on the economy that can be a bridge to consolidating our relationship with Egypt. We would like too to thank him for his ideas on his concerns, and specifically in informing us on peace in the Middle East, and to tell you, sir, that we in the Americas are following closely development in this very important field, and we all have the hope that we come to a definitive and lasting peace in the Middle East.

Let me now very, very briefly mention to you, as chairman of the Committee on Hemispheric Security to the Permanent Council, I would like to transmit to the minister of foreign relations of Egypt through you, Mr. Chairman, the membership of Egypt in two important organizations, the Arab League and the Organization of African Unity. The General Assembly, through past resolutions, has mentioned the importance of the Organization of American States in building or creating ties, ever stronger ties, with other regional organizations such as the Organization of African Unity, collaborating ever more closely on questions of mutual confidence, confidence-building and other mechanisms and means for the prevention of conflicts. Therefore, chairman, in our organization, and again through you, sir, I would like to mention to the minister that our willingness and desire for opening closer ties with other international organizations I think that the very presence of the minister of foreign is hopefully a sign that can help in the strengthening of these. Thank you.

MR. MURPHY: Thank you very much, ambassador, for your intervention.

The chair recognizes the honorable minister of foreign affairs for his wrap-up remarks.

MIN. MOUSSA: Thank you, Mr. Chairman, and thank you very much, ladies and gentlemen. I wish to thank you, first of all, for your cordial reception and kind words, and very thoughtful remarks. And I thank all those who refer to the relations with my country and the people and the leaders, the Egyptian leaders. And I want to tell you that I really feel comfortable in your midst. There is something that reminds us as Egyptians, or as Arabs, or as Africans with Latin Americans. I will be very glad to come again and again and benefit from a discussion with you, and with more extended time. And I hope that we shall meet again on your visit to Egypt, and in the many conferences in which all of us attend, and the organizations to which all of us do belong.

Mr. Chairman, ladies and gentlemen, I thank you very much, and good luck to you. (Applause.)

MR. MURPHY: Thank you very much, minister. (Applause.)

ENDMR. GOLDWYN: Without being a tax lawyer, I mean, it makes -- we ought to have a rational system that doesn't provide incentives where none are needed and that has them there, when they are required.

SEN. DOMENICI: Okay.

Now, let me ask, if either of you with the Energy Department or I think it would be more you -- has the administration ever asked that there be an evaluation put on all of American-owned properties that are closed to energy production today and for you to estimate what they might yield, if in fact they were developed in an orderly and sound manner?

MR. GOLDWYN: I am -- in two ways. I think the -- I am aware that there are some analyses of what the oil productive capability of federal lands is. I don't know whether that's a comprehensive study or not. And certainly, in the preparation of a comprehensive National Energy Strategy, we looked at all those things, on federal lands and nonfederal lands, and also balancing the environmental costs of exploration on federal lands.

SEN. DOMENICI: Mr. Chairman, I don't want to ask them to do that. I think that would be a major undertaking. But I think it's very important that we ultimately know what we are talking about.

For instance, we know one thing; ANWR is American public domain, the ANWR reserves. And we do know there is a pitched battle as to whether or not we should make available, to the American consumer and to our enterprises, and our workers, the development of ANWR. Do either of you know what the estimated production of American oil would be, if we developed the ANWR Reserve?

MR. HAKES: The USGS has published studies on that in the past, as I believe EIA may have. But the Geological Service is updating some of its work, and we will be updating our work, at the request of Senator Murkowski. So I think we'll be able to give you our best estimate of that, in some detail, maybe in another six weeks or so.

SEN. DOMENICI: Well, I want to state for the record my own view.

It's pretty close to economic arrogance for a country like ours to say we are not going to seriously consider 16 billion barrels of oil that would come from our property, drilled for by Americans who would be employing Americans. And the cash flow would be to Americans instead of foreign countries. And that's my estimate -- is 16 billion (barrels). That's 30 years of Saudi imports to this country based on today, which is not a lot; they don't send us a lot. But that's a lot of oil.

In the scheme of things it may not be, but it's American. And I guess the Department of Energy clearly is not yet willing to look at that, and other sources of our own oil, to help show the world we are doing something for ourselves. Is that a correct statement, Mr. Goldwyn?

MR. GOLDWYN: It's a correct statement that the administration does not support exploration in ANWR because of the economic sensitivity of that area and the miles and miles of roads and pipe and other, that would be required to explore there. But the administration does support development on some federal lands, as they have in some places in Alaska. And so I think it's a -- you know, it's a question of balancing those two interests. But the administration is not opposed to exploration of oil on federal lands.

SEN. DOMENICI: Yeah. Well, Mr. Chairman, it's obviously not -- the environment is not the principal jurisdiction of this committee. But the question really is weighing risks. There is no question you have got to look at what risks are involved in doing this versus what risks are involved in not adding to the American production of home- grown oil for the next 25 or 30 years.

I'll submit some questions in writing. And I thank you, Mr. Chairman.

SEN. THOMPSON: Thank you very much.

I think this just points out the fact that each one of these options are very controversial. You were asked, you know, what's the plan? Well, the fact of the matter is, what we decide the plan is to a certain extent is the plan, and every one of these things are very, very controversial. And I despair over the fact that we're obviously not going to come together with some kind of a give-and-take on these various options until we absolutely have to.

It's just like Social Security. We continue with the goodies -- retirement income, and things like that, take the tax off of it -- and we put off reform until we absolutely have to. I assume in our case the price will have to get even higher for a longer period of time in order for us to do some of these long-term things, whether they be ANWR or the CAFE standards or whatever they might be.

One final thing. We're talking about everybody being kind of asleep at the switch here. But a year ago, a bipartisan request was sent to the administration for an expedited review and investigation, under Section 232 of the Trade Expansion Act, into the impact of the increasing foreign oil imports on U.S. national security. There had previously been a determination by the department in 1994, I believe, that it in fact did impact national security. So a year ago, a bipartisan group of senators asked that the administration take another look at that. My understanding is that the Department of Commerce has had a report on the president's desk since November.

What's your understanding about that? Is that true?

MR. GOLDWYN: I called over -- we called over to the White House this morning, anticipating that, Mr. Chairman, you might ask this question, and what we were told is that the findings of that study, which has been delivered to the White House, are being reviewed and that we expect a report to be released soon.

(Pause.)

SEN. THOMPSON: What about a little more than that? (Laughter.)

MR. GOLDWYN: I know we've submitted our -- SEN. THOMPSON: Don't make me go through the next two or three questions! (Laughter.)

MR. GOLDWYN: (Laughs.) The --

SEN. THOMPSON: When is "soon"?

MR. GOLDWYN: Well --

SEN. THOMPSON: Give me a range of time possibilities here.

MR. GOLDWYN: My life expectancy shrinks by the hours in which I give the White House time to do the report. But the White House is keenly aware of the urgency of this report; that it is expected here, and that indeed this morning, and even before then, that the senators asked for this to be delivered promptly.

SEN. THOMPSON: I'm sure they know that the longer we wait, the more the presumption is going to be against them in terms of what's in that report. So let's go ahead and get it out and factor that in.

You've got a distinct advantage as a witness. This gentleman, Mr. Goldwyn, was born in Tennessee and went to school in Connecticut, so he's practically the perfect witness -- (laughter) -- to come up here today!

Gentlemen, thank you very much.

MR. GOLDWYN: Thank you, Mr. Chairman. Thank you, members of the committee.

END

LOAD-DATE: March 25, 2000

Document 12 of 18.


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