SPEAKERS CONTENTS INSERTS
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2006
WESTERN HEMISPHERE ENERGY SECURITY
HEARING
BEFORE THE
SUBCOMMITTEE ON
THE WESTERN HEMISPHERE
OF THE
COMMITTEE ON
INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
MARCH 2, 2006
Serial No. 109–204
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Printed for the use of the Committee on International Relations
Available via the World Wide Web: http://www.house.gov/international—relations
COMMITTEE ON INTERNATIONAL RELATIONS
HENRY J. HYDE, Illinois, Chairman
JAMES A. LEACH, Iowa
CHRISTOPHER H. SMITH, New Jersey,
Vice Chairman
DAN BURTON, Indiana
ELTON GALLEGLY, California
ILEANA ROS-LEHTINEN, Florida
DANA ROHRABACHER, California
EDWARD R. ROYCE, California
PETER T. KING, New York
STEVE CHABOT, Ohio
THOMAS G. TANCREDO, Colorado
RON PAUL, Texas
DARRELL ISSA, California
JEFF FLAKE, Arizona
JO ANN DAVIS, Virginia
MARK GREEN, Wisconsin
JERRY WELLER, Illinois
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MIKE PENCE, Indiana
THADDEUS G. McCOTTER, Michigan
KATHERINE HARRIS, Florida
JOE WILSON, South Carolina
JOHN BOOZMAN, Arkansas
J. GRESHAM BARRETT, South Carolina
CONNIE MACK, Florida
JEFF FORTENBERRY, Nebraska
MICHAEL McCAUL, Texas
TED POE, Texas
TOM LANTOS, California
HOWARD L. BERMAN, California
GARY L. ACKERMAN, New York
ENI F.H. FALEOMAVAEGA, American Samoa
DONALD M. PAYNE, New Jersey
SHERROD BROWN, Ohio
BRAD SHERMAN, California
ROBERT WEXLER, Florida
ELIOT L. ENGEL, New York
WILLIAM D. DELAHUNT, Massachusetts
GREGORY W. MEEKS, New York
BARBARA LEE, California
JOSEPH CROWLEY, New York
EARL BLUMENAUER, Oregon
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SHELLEY BERKLEY, Nevada
GRACE F. NAPOLITANO, California
ADAM B. SCHIFF, California
DIANE E. WATSON, California
ADAM SMITH, Washington
BETTY McCOLLUM, Minnesota
BEN CHANDLER, Kentucky
DENNIS A. CARDOZA, California
RUSS CARNAHAN, Missouri
THOMAS E. MOONEY, SR., Staff Director/General Counsel
ROBERT R. KING, Democratic Staff Director
Subcommittee on the Western Hemisphere
DAN BURTON, Indiana, Chairman
RON PAUL, Texas
JERRY WELLER, Illinois, Vice Chairman
KATHERINE HARRIS, Florida
JAMES A. LEACH, Iowa
CHRISTOPHER H. SMITH, New Jersey
ILEANA ROS-LEHTINEN, Florida
CONNIE MACK, Florida
MICHAEL McCAUL, Texas
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ELIOT L. ENGEL, New York
GRACE NAPOLITANO, California
ENI F.H. FALEOMAVAEGA, American Samoa
DONALD M. PAYNE, New Jersey
WILLIAM D. DELAHUNT, Massachusetts
GREGORY W. MEEKS, New York
BARBARA LEE, California
MARK WALKER, Subcommittee Staff Director
JASON STEINBAUM, Democratic Professional Staff Member
DAN S. GETZ, Professional Staff Member
BRIAN WANKO, Staff Associate
C O N T E N T S
WITNESSES
The Honorable Karen A. Harbert, Assistant Secretary, Office of Policy and International Affairs, U.S. Department of Energy
Ms. Anne Korin, Co-Director, Institute for the Analysis of Global Security
Sidney Weintraub, Ph.D., William E. Simon Chair in Political Economy, Center for Strategic and International Studies
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Mr. Eric Farnsworth, Vice President, Council of the Americas
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
The Honorable Dan Burton, a Representative in Congress from the State of Indiana, and Chairman, Subcommittee on the Western Hemisphere: Prepared statement
The Honorable Karen A. Harbert: Prepared statement
Ms. Anne Korin: Prepared statement
Sidney Weintraub, Ph.D.: Prepared statement
Mr. Eric Farnsworth: Prepared statement
Council of the Americas report, ''Energy in the Americas''
APPENDIX
The Honorable Ileana Ros-Lehtinen, a Representative in Congress from the State of Florida, and Chair, Subcommittee on the Middle East and Central Asia: Prepared statement
The Honorable Barbara Lee, a Representative in Congress from the State of California: Statement for the record and questions for the Honorable Karen A. Harbert
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The New York Times article, ''As Profits Sour, Companies Pay U.S. Less for Gas Rights,'' dated January 23, 2006
WESTERN HEMISPHERE ENERGY SECURITY
THURSDAY, MARCH 2, 2006
House of Representatives,
Subcommittee on the Western Hemisphere,
Committee on International Relations,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:06 p.m. in room 2172, Rayburn House Office Building, the Honorable Connie Mack presiding.
Mr. MACK. Good afternoon. A quorum being present, the Subcommittee on Hemisphere will come to order. I ask unanimous consent that all Members' and witnesses' opening statements be included in the record. Without objection, so ordered.
I ask unanimous consent that all articles exhibits and extraneous or tabular material referred to by the Members or witnesses be included in the record. Without objection, so ordered.
I ask unanimous consent that any Member who may attend today's hearing be considered a Member of the Subcommittee for the purposes of receiving testimony and questioning witnesses after Subcommittee Members have been given the opportunity to do so. Without objection, so ordered.
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Today we are convening a hearing on energy security in the Western Hemisphere. Your testimony will help the Subcommittee in making an assessment of hemispheric oil market and the ongoing development of energy resources in North America and the Caribbean regions. By the time we are finished today, I hope the Subcommittee will have a better understanding of the energy investment climate in these regions and the risks in the hemispheric energy markets linked to political trends, the politicization of these strategic commodities, and the potential production and supply disruptions.
We undertake this oversight hearing with the keen eye toward our broader foreign policy goals of strengthening stability in the Americas through growth and development and strong support for further democratization.
I first want to welcome our distinguished new Ranking Member, Congressman Eliot Engel of New York. Congressman Engel represents the 17th District which includes the Bronx, Westchester and Rockland Counties. He is a member of the Human Rights Caucus, serves as Vice Chair of the House Democratic Task Force on Homeland Security and the Democratic Task Force on Health. We look forward to working with you and your staff on Western Hemisphere affairs.
Mr. ENGEL. Thank you.
Mr. MACK. Welcome.
I would like to for the record state that Chairman Burton is not able to make it today. He is feeling ill, and I will be reading and also placing his opening statement into the record, and I must say it is an honor and privilege to do so. The following is his statement.
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I believe that the energy and ideas are two primary drivers of growth and development. When free market forces drive the exchange of both of these commodities, nations stand a better chance of enjoying equitable distribution of the fruits of economic growth. When energy markets are free of corruption and promote open, responsible, and environmentally-safe investment, nations stand a better chance of governing these resources and the revenue that is generated for the benefit of their people.
Conversely, when rigid artificial mechanisms are put in place, development of energy resources is often stifled, or these resources are exploited, squandered and enjoyed by only a select few.
This is a subject we have been focusing on for many months, with high oil and gas prices costing consumers more than ever. Obviously, Hurricane Katrina focused our attention like a laser beam to the very real threat of disruption in our own domestic energy supply.
Almost 40 percent of the energy we consume in the U.S. is supplied by petroleum, and our appetite has nearly tripled in the last half century. In his most recent State of the Union address, President Bush, like many of his predecessors, rightly pointed to the need to reduce our dependency on foreign oil from volatile suppliers in the Middle East.
Just last week, Saudi Arabia security forces thwarted a terrorist attack against a facility which produces two-thirds of the country's output. The threat of supply distribution saw crude oil futures spike more than $2.30 to almost $63 per barrel. Militants in Nigeria and protestors in Ecuador have disrupted output in these countries, and insurgents in Iraq have interrupted production there.
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Political instability and security threats in the countries that supply our energy needs, along with greater competition for fossil fuels, is driving costs even higher. Clearly, part of our strategy must be to conserve and diversify our sources of energy. We cannot afford to delay research and investment in alternative fuels. Equally important is to work with the major stable partners we have—like Mexico and Canada—to improve technologies and to develop infrastructure and expand investment. We can and we must do more to encourage multilateral investments that foster greater integration and development of regional energy sectors.
The newly-elected President of Bolivia, Evo Morales, will be making decisions about the hydrocarbons industry in that country that will have deep social, economic long-term implications. Expectations are high, particularly with Mr. Morales' supporters in the indigenous communities that have been marginalized historically.
Despite conflicting signals to foreign investors, President Morales has pledged to renegotiate with foreign oil companies in order to develop Bolivia's natural gas reserves. The people of Bolivia will benefit from increased development of natural gas, and the economic growth that will come from expansion beyond traditional markets like Argentina and Brazil. Fresh investments however remains on the sidelines as political uncertainties and risks appear high.
Similarly, political instability and legal uncertainties in Ecuador have resulted in prolonged investment disputes for United States companies and a 50 percent drop in oil production. Strikes, protests, and sabotage of oil pipelines in the country have further exacerbated problems there.
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Venezuela has been a dependable supplier of oil to the United States, and up until recently, bilateral relations have been good. As this Subcommittee knows, Chairman Burton has tried to temper public remarks about Venezuela in the last 12 months, and he wants to make it very clear that he wishes to continue to pursue dialogue with Caracas.
Nevertheless, in recent weeks I have become increasingly convinced that the Government of Venezuela is seeking to destabilize the region and dismantle the institutions of democracy within its borders and beyond them.
Equally worrisome, in recent weeks President Hugo Chavez and Communist Dictator Fidel Castro of Cuba, along with other Latin American leaders, have begun reaching out to known Islamic terrorist organizations, such as Hamas, and cozying-up to renowned terrorist-sponsoring nations like Iran and North Korea.
Any alliance between terrorist-sponsoring nations and leftist leaders in Latin America will be viewed as a serious and direct threat to the national security of the United States and our friends in the hemisphere. When they cooperate with terrorist organizations such as Hamas, or cooperate with renowned terrorist-sponsoring nations like Iran or North Korea, President Chavez and the Cuban dictator are putting themselves and others at risk, and several world bodies will be no longer tolerate it.
The Venezuelans can sell their oil anywhere they like. Venezuela is a sovereign state. They can sell it at deep discounts or finance consumption of their oil. Some observers point to the obvious with arrangements in Cuba. The artificial mechanisms will further indebtedness in some of the poorest countries in the hemisphere, not to mention, over-reliance on a single energy source. I believe it also bears mentioning in this hearing that huge oil revenues have not resulted in a reduction of poverty rates under Hugo Chavez's version of democracy in Venezuela.
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I will ask our witnesses today to address these and other concerns I have in the hemisphere.
President Bush has laid out a roadmap for cooperation to consolidate democracy in the Western Hemisphere, and to use trade as a catalyst for positive growth in the region to create conditions which will alleviate poverty and strengthen democratic institutions. A cohesive energy security framework will provide the economic underpinnings for the growth and stability that most of the governments in the region are pursuing. Twenty-nine of the thirty-four Western Hemisphere nations that met in Argentina last year are in favor of moving forward on free trade negotiations. Cooperation in these areas of energy development and investment and integration must be a top priority of policy makers.
[The prepared statement of Mr. Burton follows:]
PREPARED STATEMENT OF THE HONORABLE DAN BURTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF INDIANA, AND CHAIRMAN, SUBCOMMITTEE ON THE WESTERN HEMISPHERE
Today we are convening a hearing on Energy Security in the Western Hemisphere. Your testimony will help the Subcommittee in making an assessment of hemispheric oil markets, and the ongoing development of energy resources in North America, the Andean and Caribbean regions. By the time we are finished today, I hope the Subcommittee will have a better understanding of the energy investment climate in these regions, and the risks in hemispheric energy markets linked to political trends, the politicization of these strategic commodities, and potential production and supply disruptions.
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We undertake this oversight hearing with a keen eye towards our broader foreign policy goals of strengthening stability in the Americas through growth and development, and strong support of furthering democratization.
I first want to welcome our distinguished new Ranking Member, Congressman Eliot Engel of New York. Congressman Engel represents the 17th District which includes the Bronx, Westchester and Rockland Counties. He is a member of the Human Rights Caucus, serves as Vice Chair of the House Democratic Task Force on Homeland Security and the Democratic Task Force on Health. We look forward to working with you and your staff on Western Hemisphere Affairs.
I believe that energy and ideas are two primary drivers of growth and development. When free market forces drive the exchange of both of these commodities, nations stand a better chance of enjoying equitable distribution of the fruits of economic growth. When energy markets are free of corruption and promote open, responsible, and environmentally-safe investment, nations stand a better chance of governing these resources and the revenue that is generated for the benefit of their people. Conversely, when rigid, artificial mechanisms are put in place, development of energy resources is often stifled, or these resources are exploited, squandered and enjoyed by only a select few.
This is a subject we have been focusing on for many months, with high oil and gas prices costing consumers more than ever. Obviously, Hurricane Katrina focused our attention like a laser beam to the very real threat of disruptions in our own domestic energy supply.
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Almost 40% of the energy we consume in the U.S. is supplied by petroleum, and our appetite has nearly tripled in the last half century. In his most recent State of the Union address, President Bush, like many of his predecessors, rightly pointed to the need to reduce our dependence on foreign oil from volatile suppliers in the Middle East.
Just last week, Saudi Arabian security forces thwarted a terrorist attack against the Abqaiq facility, which processes two-thirds of the country's output. The threat of supply disruptions saw crude oil futures spike more than $2.30 to almost $63 per barrel. Militants in Nigeria and protestors in Ecuador have disrupted output in those countries, and insurgents in Iraq have interrupted production there.
Political instability and security threats in the countries that supply our energy needs, along with greater competition for fossil fuels, is driving costs ever higher. Clearly, part of our strategy must be to conserve and diversify our sources of energy. We cannot afford to delay research and investment in alternative fuels. Equally important is to work with the major, stable partners we have—like Mexico and Canada—to improve technologies and to develop infrastructure and expand investment. We can and we must do more to encourage multilateral initiatives that foster greater integration and development of regional energy sectors.
I have personally raised this with Inter-American Development Bank President Moreno, and was briefed on his plans to finance both public and private sectors to generate electricity and transport and distribute electricity and natural gas. Last year alone the IDB approved more than $1 billion dollars in lending to energy projects/investments in Latin America and the Caribbean.
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The newly-elected president of Bolivia, Evo Morales, will be making decisions about the hydrocarbons industry in that country that will have deep social and economic long-term implications. Expectations are high, particularly from Mr. Morales' supporters in the indigenous communities that have been marginalized historically. Despite conflicting signals to foreign investors, President Morales has pledged to renegotiate with foreign oil companies in order to develop Bolivia's natural gas reserves. The people of Bolivia will benefit from increased development of natural gas, and the economic growth that will come from expansion beyond traditional markets like Argentina and Brazil. Fresh investment however, remains on the sidelines, as political uncertainties and risks appear high.
Similarly, political instability and legal uncertainties in Ecuador have resulted in prolonged investment disputes for U.S. companies and a 50% drop in oil production. Strikes, protests and sabotage of oil pipelines in that country have further exacerbated problems there.
Venezuela has been a dependable supplier of oil to the United States, and up until recently, bilateral relations have been good. As this Subcommittee knows, I have tried to temper public remarks about Venezuela in the last twelve months, and I want to make it very clear that I wish to continue pursuing DIALOGUE with Caracas. Nevertheless, in recent weeks I have become increasingly convinced that the government of Venezuela is seeking to destabilize the region and dismantle the institutions of democracy within its borders and beyond them. Equally worrisome, in recent weeks President Hugo Chavez and Communist Dictator Fidel Castro of Cuba, along with other Latin American leaders, have begun reaching out to known Islamic terrorist organizations, such as Hamas, and cozying-up to renowned terrorist-sponsoring nations like Iran and North Korea. Any alliance between terrorist-sponsoring nations and leftist leaders in Latin America will be viewed as a serious and direct threat to the national security of the United States and our friends in the Hemisphere. When they cooperate with terrorist organizations such as Hamas, or cooperate with renowned terrorist-sponsoring nations like Iran or North Korea, President Chavez and the Cuban dictator are putting themselves and others at risk, and several world bodies will not long tolerate it.
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The Venezuelans can sell their oil anywhere they like. Venezuela is a sovereign state. They can sell it at deep discounts, or finance consumption of their oil. Some observers point to the obvious with arrangements like Petro-Caribe; these artificial mechanisms will further indebtedness in some of the poorest countries in our hemisphere, not to mention, over-reliance on a single energy source. I believe it also bears mentioning in this hearing that huge oil revenues have not resulted in a reduction of poverty rates under Mr. Chavez' version of democracy in Venezuela.
I will ask our witnesses today to address these and other concerns I have in the hemisphere.
President Bush has laid out a roadmap for cooperation to consolidate democracy in the Western Hemisphere, and to use trade as a catalyst for positive growth in the region to create conditions which will alleviate poverty and strengthen democratic institutions. A cohesive energy security framework will provide the economic underpinnings for the growth and stability that most of the governments in the region are pursuing. Twenty-nine of the 34 Western Hemisphere nations that met down in Argentina late last year are in favor of moving forward on free trade negotiations. Cooperation in the area of energy development, investment and integration must be a top priority of policy makers.
I now recognize the distinguished ranking member from New York, Eliot Engel, for any statement he may wish to make.
Mr. MACK. I now recognize the distinguished Ranking Member from New York, Eliot Engel, for any statement he may wish to make.
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Mr. ENGEL. Well, thank you very much, Mr. Chairman, and thank you for your very kind words of welcome. I really appreciate them, and I look forward to working with you.
Before I turn to the Subcommittee hearing, I want to reiterate what you already mentioned, that today marks my first hearing on the Western Hemisphere Subcommittee, and I am honored to join you as Ranking Member. Again, thank you for the very, very kind words.
I look forward to working with our Subcommittee Chairman, Mr. Burton, with whom I have worked closely over the years. I have heard such good things about how he runs the Subcommittee that I am excited to collaborate with him on future legislative efforts. I understand, as you mentioned, he is not feeling well today, and I wish him a speedy recovery. I also look forward to working on a bipartisan basis with all of my fellow Subcommittee colleagues to raise the profile of the Western Hemisphere region and help ensure that its numerous pressing issues receive the attention they deserve.
Turning to the issue at hand, as President Bush said during his State of the Union address, America is dangerously addicted to oil. We consume nearly 21 million barrels of oil per day, every day, and our appetite is increasing. Today the American economy demands over 25 percent of global oil production while our known oil reserves make up only 3 percent of global supply.
For our imports, the United States has long relied on Western Hemisphere suppliers of oil and gas. Indeed, according to the most recent statistics, crude oil imports from Canada, Latin America, and the Caribbean amount to 50 percent of total United States imports.
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Even as our thirst for more oil increases, China, India, and the development world are demanding a greater share of the pie. Being so completely dependent on a single finite and pollution-causing fuel might only be an economic or environmental problem if it were not for the fact that the United States must import over 60 percent of our oil, which is over 12 million barrels per day, and much of that from nations with fragile, unfriendly or outright hostile governments to ours.
Whether it is the kidnappings in Nigeria's oil fields, the rampant corruption in Russia, the war in Iraq, or the nuclear stand off with Iran, when it comes to oil imports America has few good options.
In an era of increasing volatility in the Persian Gulf and the Gulf of Guinea, events have shown that some Western Hemisphere energy suppliers are not immune. From Bolivian riots over natural gas and natural gas policy to Venezuelan musings about shifting export focus away from the United States to developing Chinese interests in the Western Hemisphere region, even our closest neighbors are not a completely stable source of supply.
Addiction to foreign oil limits our actions on the global stage and our choices here at home. It leaves us vulnerable to acts of God and acts of man, and it is intertwined with terrorism. Dependency on foreign oil is one of the central national security problems we will face in this 21st century. It is therefore imperative to U.S. national security that we wean ourselves off of oil.
Mr. Chairman, I am proud to add that I am Co-Chair of the bipartisan Oil and National Security Congressional Caucus, which I Co-Chair with Congressman Jim Saxton, that I am also the lead Democratic sponsor of H.R. 4409, the Bipartisan Fuel Choices For America's Security Act, which I am doing with our colleague Jack Kingston.
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As in our hearing today, our efforts seek to find ways to reduce the amount of oil we use and import as well by finding alternatives to gasoline in the cars we drive.
At today's hearing, I welcome the opportunity to explore the profound challenges our dependency on foreign oil poses to our national security and questions related to energy security in our hemisphere. I also welcome the opportunity to learn about developments in the Western Hemisphere region, and how the United States can improve its relations within the hemisphere and reduce its vulnerability to supply disruption.
Thank you, Mr. Chairman.
Mr. MACK. Thank you, and now I will recognize myself for an opening statement.
I am glad to be able to play a part in this important hearing today. I want to thank the witnesses for sharing their insight with us, and I would also like to thank the Subcommittee for all of their help in preparing for today's hearing.
Today, the United States is the largest consumer of global energy resources, thereby making access to energy a strategic importance for our nation. The President, in his State of the Union speech, said that America is addicted to oil, which is often imported from unstable parts of the world.
Although I strongly agree with the President that we must become a country less dependent on foreign sources of energy, the reality is that in the near term we are very dependent upon energy from places and countries that may not have the United States best interest at heart.
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Today's hearing is focused on understanding the risk in the Western Hemisphere energy markets, the political trends which may impact the energy, markets, and the potential production and supply disruption. I think this issue is of critical importance to this Congress, especially in light of the growing instability in Latin America.
While freedom is on the march on many places around the world, a resurgence of socialist, communist and anti-freedom governments and movements in Latin America represent an emerging threat to freedom in the region and to the energy needs of the United States.
The instigator is Venezuela's Socialist President Hugo Chavez who is using state-owned oil money to underwrite his iron-fisted control of Venezuela people and to back his alliance with leftist leaders and causes through Latin America.
With Venezuela as the world's fifth largest oil producer, and oil at over $60 a barrel, Chavez has assumed the identity of a modern-day Simon Bolivar who attempted to unify Latin American in the 1800s. Oil is Chavez's ATM to finance a bolivarian revolution that abuses Presidential power in Venezuela and fans the flame of Socialism and regional instability.
In many of the Western Hemisphere, we are seeing a free market approach to energy production. However, in Venezuela I am alarmed by the changes we are witnessing. While Chavez still respects an arrangement with foreign companies doing business side by side with government-owned oil companies, Hugo Chavez has slowly stepped up controls of foreign operators.
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Many foreign energy companies are doing well in Venezuela, and are hesitant to make much noise to fear upsetting the apple cart. But make no mistake, Chavez aims to nationalize the Venezuelan oil sector. He is putting increased pressure on foreign companies by forcing them to pay back taxes, threatening seizures of property, and energy fields, and even renegotiating contracts.
I will ask our witnesses today to address my concerns about Venezuela, Hugo Chavez and his growing influence in the region, and his impacts upon our energy security.
I now would like to introduce our first guest, our first panel, Karen Harbert, is Assistant Secretary of Policy and International Affairs with the U.S. Department of Energy. Her office is the primary policy advisor to the Secretary in the department of domestic and international energy issues, new policy initiatives and implementation of the national energy policy.
Previously, she served as Deputy Assistant Administrator for Latin America and the Caribbean at the U.S. Agency for International Development, with primary responsibility for foreign assistance programs in South America and the Caribbean, and she also had oversight of programs in 11 countries, totaling over 800 million and 1,000 employees.
Good to have you with us, Secretary.
[Witness sworn.]
Mr. MACK. Thank you, and now if you would please summarize or give your opening statement, we would appreciate it.
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TESTIMONY OF THE HONORABLE KAREN A. HARBERT, ASSISTANT SECRETARY, OFFICE OF POLICY AND INTERNATIONAL AFFAIRS, U.S. DEPARTMENT OF ENERGY
Ms. HARBERT. Good afternoon, Mr. Chairman, and welcome, Congressman Engel, to the Subcommittee. I look forward to working with both of you and Members of the Subcommittee in the times ahead.
I am very pleased to be here today to discuss the importance the Administration places on energy security and efforts to strengthen energy security in our hemisphere. As you both have stated, U.S. energy security is inextricably intertwined with our economic prosperity and our national security, and that is why the President has made energy security a real focus of his Administration, and chose to highlight new initiatives in the State of the Union.
We believe that a secure and prosperous Western Hemisphere is vital for our national interest. Integrated markets, interconnected infrastructure, technologically-advanced deployment of a broad range of resources, and efficient end-use of energy will create a strong, confident and prosperous Western Hemisphere.
The prospects for economic growth in the hemisphere and development in the region are going to be increasingly reliant on unlocking valuable resources that are in the Western Hemisphere.
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The United States consumes 20.7 million barrels of oil per day, of which close to 6 million of that comes from the Western Hemisphere, especially from our border countries of Canada and Mexico. The United States imports 58 percent of its oil and petroleum products and 19 countries in the Western Hemisphere contribute to half of that imported from those energy sources.
When we look at how we apply our international energy policy on the international front, we believe and we presume that access to secure, reliable, affordable sources of energy is fundamental to national economic security. Energy is clearly the life blood of economies around the world. Global economic growth that we want to see sustained and increase is dependent upon the supply of this energy. It has to be adequate, it has to be reliable, it has to be affordable.
Our key foreign policy objectives, like the promotion of democracy, the promotion of trades, sustainable economic development, poverty reduction, environment protection, all of those rely on the provision of this energy.
We are the world's largest producer and consumer of energy, and therefore the U.S. must assume a leading role in addressing the world's energy challenges. As you all have pointed out, there are a few key trends out there that are of particular concern. Most of the energy that drives the economic growth that we are experiencing today is derived from fossil fuels from a relatively small number of producers.
Record high oil prices indicate limited spare oil capacity, and that is due to the lack of new investment and new supply, and unforeseen levels of demand in parts of the world like India and China.
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New resources are located in places that are geographically hard to reach, geologically difficult to develop, politically unstable, and unfriendly to new investment. Also, we have to keep in mind that nearly 2 billion people in the world lack access to reliable affordable energy.
We must be mindful of the environmental challenges and the climate change challenges that will only become more prevalent in years to come, and they will require us and others to respond in ways that provide energy for economic growth and poverty reduction, but they have to ensure the long-term safety and environmental safety of our planet.
With all of that as a backdrop, what are the U.S. goals to achieve the very vital energy diversification that we and others in national security depend upon?
First, we must expand energy production to meet the needs of a growing economy. We have to do that by using technology to diversify the types of energy we consume, improve energy efficiency, and lessen the environmental burden of energy consumption.
We have to do that by improving investment climates in resource countries, and we have pursue market-based pricing, and lastly and very importantly, we have to modernize and protect the global energy infrastructure.
The Western Hemisphere produces one-fourth of the world's crude, one-third of the world's natural gas, one-fourth of its coal, and over a third of global electricity, but our focus in the Western Hemisphere must begin here at home as well.
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Our domestic resources still provide a major portion of the energy consumed in the United States, and we have to remember that. The United States produces almost 90 percent of the hemisphere's coal. We have significant coal reserves. We possess the sixth largest natural gas reserves, and the eleventh largest crude reserves. We still produce 40 percent of what we consume, and obviously we are importing 60 percent of what we consume.
Our most important energy partners lie on our borders. Our most important energy partner in this hemisphere and in the world is Canada. The current and future energy supply and our integrated energy infrastructure further binds an already strategic and fruitful relationship.
The Canadian provinces of Alberta, British Columbia, Saskatchewan provide the majority of our natural gas imports, and Canada provides almost 80 percent of all the natural gas that is entering the United States.
Twenty-five percent of our imports come from Canada and Mexico combined. Mexico is our second largest supplier and the prospects between Canada and Mexico of increasing production in both those countries through technological break-throughs and hopefully private sector investment will only further solidify a very strong cultural, economic, and trade relationship.
Of course, other countries have important roles to play to ensure hemispheric energy security and economic prosperity to us and their citizens.
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Venezuela sends close to 60 percent of its oil to the United States. We are a very important export outlet for Venezuela's state-owned oil company, PDVSA. Venezuela outfitted CITGO, its refineries here in the United States, to particularly use Venezuela's heavy sour crude as its feedstock, and very few refineries around the world exist that could actually be sufficient in number to make Venezuela's crude oil imports be economic.
Venezuela also possesses the continent's largest gas reserves, but significant investment and expertise are needed to develop this substantial resource, and in a few minutes I will detail what those challenges are.
The U.S. appetite for LNG is growing, and new authorities under the EPACT that was signed into law by the President in August 2005 are going to allow for increased import capability. At present, we have no greater, no more reliable LNG partner than Trinidad and Tobago. This Caribbean country accounts for 70 percent of our total LNG imports, and it is continuing to expand its supply.
Bolivia, as you all have pointed out, has the second largest proven natural gas reserves in South America, and those reserves, if used for development of their country, could be a tremendous platform for prosperity for that country.
There are other projects underway in Central America, like the Central American Natural Gas Pipeline and South American gas ring that could also lead to greater integration of our energy infrastructures.
Undiscovered oil and gas in the hemisphere is estimated at 30 percent and 20 percent of the world's total undiscovered resources, respectively. Oil producers in the hemisphere have tremendous potential for increasing output over the next decade, and certainly at the price points we are experiencing today there is ample incentive. However, technical, economic, and political challenges exist.
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The United States is firmly committed to promoting the importance of a stable transparent investment climate which invites private sector investment to unlock those resources and invites the expertise that is resident in the private sector to do so. Those resources, if developed responsibly, will help Latin America lead its way out of poverty.
Where are these new sources of production? They reside first in North America. Canada has very rich resources in its oil sands. They rank second only to Saudi Arabia. Mexico also has great potential to increase its output. However, they must address their current prohibitions on private investment in the oil and gas sector.
Venezuela also has significant additional heavy oil. Venezuela needs capital, it needs technological expertise to untap or to develop these resources.
Currently, PDVSA's production is declining significantly, producing almost 50 percent less than at its peak. Total Venezuelan output is now only 2.5 million barrels per day. It does not even meet its OPEC crude quota. This emphasizes PdVSA's need for investment and technical expertise. Without it, and without the new investment which is similar to the amount of investment needed in Canada to unlock the oil sands, future production will continue to decline.
In 1998, the Department of Energy made a forecast based on what it new then of what Venezuela's production would be in 2005. They estimated it to be 5.5 million barrels. It is now at 2.5 million barrels, a 3 million barrel differential.
How do we unlock these resources in the Western Hemisphere and abroad? The best way to do it is to harness the power of technology to diversify. Harnessing the power of technology and of markets to improve energy conservation and efficiency is a goal that we have embraced and was outlined in the State of the Union.
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Renewable energy offers the possibility to reduce reliance on oil, not just for the United States but for many countries in the Western Hemisphere. Brazil is notable in its efforts to transform its transport sector and use ethanol. We also have to do this not just bilaterally, but by using multilateral initiatives through hydrogen, carbon sequestration, and new nuclear technologies.
A few words about the investment climate, and then I look forward to answer your questions.
In order to develop and secure these energy resources now and for the future, massive amounts of investment are necessary. The International Energy Agency estimates that Latin America will require $1.3 trillion of investment in the energy sector between 2001 and 2030. That type of investment will only happen if there is the right investment climate. Capital is a coward and will go where it is most comfortable. We want it to be comfortable in the Western Hemisphere.
Therefore, the Western Hemisphere countries must establish predictable, transparent, and nondiscriminatory investment in trade policies. Retroactive contract changes, investment disputes, and unclear rules will drive away investment, damage economies, and in the long run ultimately it is the citizens of the Western Hemisphere that will pay the price.
Countries such as Canada and Trinidad and Tobago have developed regimes and created new opportunities. Others are choosing to close off their sectors to foreign investment, or are rejecting their openness to investment. Some positive examples right now are Colombia and Peru where increased transparency and predictability is showing new exploration. Trinidad and Tobago is developing their natural gas resources.
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Right now Ecuador is experiencing tremendous problems. The importance of forthright negotiation and communication is critical. There are significant investment disputes right now in Ecuador. We hope that the Government of Ecuador will make the right decision.
Bringing energy infrastructure throughout the Western Hemisphere up to meet contemporary needs depends on deepening our interconnections and expanding our markets. We have already done that with a variety of trade pacts between us and Canada and Mexico, the Central American, Dominican Republic Free Trade Agreement, and the new agreements in the Andes.
The United States recognizes that as part of the Western Hemisphere our energy future rises and falls with our neighbors. While energy exists in the world market, our energy security is best served by working with our partners in the hemisphere to ensure that we all produce at optimal levels, and that our infrastructure development and energy consumption occur at the most efficient levels and in the most efficient ways.
However, energy security depends on the choices countries make, and we are concerned that some countries in this hemisphere are making the wrong choices. Moves to restrict foreign investment and implement or increase the reach of state-run industries limit their ability to access capital for investment, restricting the development and access to energy supplies and infrastructure.
It is a model that many hold as patriotic, but delivers less prosperity to their citizens, and ultimately threaten world energy markets.
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Thank you.
[The prepared statement of Ms. Harbert follows:]
[Note: Image(s) not available in this format. See PDF version of this file.]
Mr. MACK. Thank you, thank you very much.
I would like to focus some questions on Venezuela, and Latin America. You talked a little bit about the crude that they have and that it takes a certain capacity refineries to be able to handle that crude. I have read and seen statements from Hugo Chavez threatening to stop selling oil to the United States. I am also under the understanding that there is not too many other places that can take what he has to sell, and bring it to market.
Can you talk a little bit about that?
Ms. HARBERT. Certainly. We in the United States are well equipped to refine his crude. The type of crude that Venezuela produces is a very particular type of crude that requires a certain type of refining capacity. We are the closest place that can actually do that. If there are other countries that he is interested in selling to, it is a sovereign country and can do that.
If you incorporate transport costs and the infrastructure and investment that would be needed to build new refineries to process that, the price of that crude would go up significantly. So I am not sure how many people would be interested in making those new investments, and then paying the much higher price if their citizens would have to pay to actually utilize that crude.
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So it is a mutually beneficial arrangement. We are close to him and we have got the capacity here to actually accommodate his crude.
Mr. MACK. So I guess the point that I am trying to get to is if we are looking to diversify our energy supply or to find ways for more secure energy sources here in the Western Hemisphere, countries talking about stopping selling of oil and trying to limit investment into the future is not going to move us toward security for anybody in the hemisphere, and it seems to me this is what Venezuela is up to; that they are trying to isolate at least the United States, whether it is with Ecuador and others, and not investing into the future.
You talked about how the production in Venezuela has dropped some. What was the number?
Ms. HARBERT. Well, it has dropped by 3 million barrels relative to our forecast from 1998. We thought they would be at about 5.5, and they are at 2.5 right now.
Mr. MACK. And that is as a result of not investing into their own infrastructure, is that how you——
Ms. HARBERT. At high oil prices certainly all countries have ample incentive to be producing at maximum capacity. Unfortunately, their capacity right now is 2.5 million which, as I said, is under their OPEC quota.
Energy is a commodity traded on the global market, and I think we have to be very aware of if one country or another decides not to sell to another country, it does not take those commodities off the market. They will just be reallocated.
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The market is a very efficient mechanism. As we found in the wake of Hurricanes Katrina and Rita, resources will be allocated where the demand is, and so we have to be aware that should one country choose not to sell to another country, it just means that other countries and the markets will reallocate that supply to where the demand is.
Mr. MACK. Can you talk a little bit about diversification? We talk a lot about finding new places to drill for oil. We talk about conservation. We talk about alternative energy supply. Can you talk a little bit about in the Western Hemisphere what you see as a trend toward diversifying our energy supply?
Ms. HARBERT. Well, I see it as threefold. Diversification of where we get our energy from, and we certainly see new ample supplies of both oil and natural gas because gas is certainly becoming a more important commodity to the United States economy, and we see supplies from Canada, from Mexico, from Bolivia, from Peru, from Colombia, and limited supply from Brazil. So those new resources we see as an important part of our diversification of where we get our energy from.
We also see important diversification of the type of energy that we use. As we seek to reduce our dependence on oil, certainly there is going to be increasing demand for natural gas and liquified natural gas, and we are seeking to have a better ability to import liquified natural gas from places in this hemisphere and outside of this hemisphere. Trinidad and Tobago certainly is our primary partner in the hemisphere, and they are expanding in that regard.
In addition, not only the United States but other countries in the hemisphere are looking to expand their use of ethanol, their use of solar and wind and geothermal and hydro for some countries, and Central America is still a very important part of their energy mix.
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We have to incorporate a whole variety of energy sources in order to secure our energy future. It has to be a short, medium, and long-term strategy. In the United States, we are looking for the long-term where we are investing in such technologies as hydrogen. In the medium term, we are looking at ethanol. We are looking at solar and wind to be an increasingly larger part of our energy mix. In the short term, we have to have to have much more effective energy efficiency measures.
In 2006, we have, because of the energy bill, a lot of new tax incentives that encourage consumers, residents, homeowners, businesses, to be more efficient users of energy. We are trying to help countries in the Western Hemisphere to employ the same type of legal and regulatory framework that we have here to encourage those countries to be more efficient users of energy. We all have to be better producers, and equally as important is to be better consumers of energy.
Mr. MACK. One of the things I did not hear you say, and maybe I just did not hear it, but does nuclear energy also play not just here in the United States, but also in the hemisphere?
Ms. HARBERT. There is no more nuclear-friendly Administration than this Administration, and the President strongly believes that we in the United States have to incorporate nuclear power in a much larger way, and has received new authorities in the Energy Policy Act to do that, and unveiled in his Fiscal Year 2007 budget a new global nuclear energy partnership that will help countries around the world incorporate energy in a proliferation-resistant manner, and we will be willing to assist them.
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The President today is in India, and they were able to ink a new agreement on being able to expand the use of civilian nuclear power in India.
We believe globally it is in our interest and it is a very climate-friendly, environmentally-friendly technology, and if we are able to help Brazil, Argentina, that are already using nuclear power, and other countries in the hemisphere that will be interested in expanding it in a proliferation-resistant way, we are able to do that.
So we are strongly in support of it, and we are strongly supporting this to be used on a global basis.
Mr. MACK. Thank you.
Congressman Engel, do you have any questions?
Mr. ENGEL. Yes, thank you. Thank you, Mr. Chairman.
Secretary Harbert, thank you for your testimony, very excellent testimony.
You said that Latin America and energy resources will need $1.3 trillion of investment. While obviously we all want to see oil prices drop, will not investments of this size merely extend or addiction to oil and fossil fuels and in essence keep prices high as a result?
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In comparison, we invest only a few billion dollars in alternative fuels. And if the President, and I welcome his words at the State of the Union, if the President is serious about ending our addiction to oil, I think that we need to put those tens of billions into alternative fuels, and use our technological edge to make other forms of energy economical and efficient, and I am wondering if you could respond to that.
Ms. HARBERT. The President in his 2007 budget, you will see a 22 percent increase in the research and development component of our budget to develop clean energy. He strongly believes that the way that we are going to get out of the energy situation in which we find ourselves is not to drill our way out of it; it is to innovate our way out of it, and innovation is something that the United States has always excelled in.
He has an Advanced Energy Initiative, along with that an advanced American Competitiveness Initiative that will increase our investments in science and technology, and help to what I call make sure that we have the back bench; that the people that are in kindergarten, the people that are in college actually are given the opportunity to study technologically advanced solutions to our energy problems and will be able to carry that forward, because this is not a solution that we are going to solve today or tomorrow or even during this Administration.
We have to set the framework in place to make the investments over time that will help us to have those technologies available and be able to be commercialized and used not only here and not only in the Western Hemisphere but in economies like China and India that are growing at a very rapid pace.
Mr. ENGEL. Well, thank you, but since you mentioned the budget, let me say that many of us, myself included, believe that there needs to be much more allocated for energy and alternative fuels, and looking to wean us off of oil, and I hope that the budgetary process that is going to go on here in the next weeks and months that we will be able to add to that because I think that while we are all in a pinch, and obviously we wish we had more money for everything, I think the President's budget is inadequate, frankly, in the monies allocated to look at alternative fuels.
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I would like to—yes.
Ms. HARBERT. I want to say on the 1.3 trillion, just to answer your question on that: That is actually from the private sector that will need to be invested, private capital to actually develop the energy infrastructure so that there is affordable, reliable access to energy in Latin America.
As I pointed out in my testimony, and both of you mentioned that that is dependent on an investment climate in the Western Hemisphere that will attract that capital. Otherwise, we are not going to be able to have the people in this hemisphere have access to the energy that they need to develop their own economies.
Mr. ENGEL. Thank you. I want to ask you about the proposed Latin American pipeline because that is something that obviously can be very important.
South American leaders from Venezuela to Argentina are proposing to build this pipeline, and it would be the world's largest pipeline across Latin America. They say they see the plan as the first blue print for a new era of regional cooperation, greater independence from international markets, and the United States, and a more prominent voice on the world stage.
President Chavez, as has been mentioned, of Venezuela has called the proposal a symbol of diminishing United States influence in Latin America, and observers have called the project an effort to forge a new South American identity.
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Despite the public pledges of unity, the pipeline is still a long way from being built. What do you think is the likelihood that the many remaining obstacles—finding the estimated 20 billion to pay for it, resolving the environmental concerns of burrowing through the Amazon Rain Forest, dealing with competing interests of individualized nations—can be overcome?
Then let me also throw out that how vulnerable is the project to political and financial turmoil in the area, in your opinion, given that the Presidential elections is slated for many countries, including Brazil, Venezuela, before the end of the year, does the pipeline have a future beyond the planning of photo opportunities in summits?
Ms. HARBERT. The best model of energy integration is actually found in this hemisphere, and it is what the United States, Canada and Mexico have already undertaken and integrating our energy infrastructure, and for whether it is in Central America or in South America as countries look to integrate their energy infrastructure to be more economic and more efficient, they should look at the model we have currently employed, whether we have harmonization of our regulatory frameworks, harmonization of supply, it is truly a model that one needs to look at.
For this specific project, you correctly point out, it is years in the offing, if it ever comes to fruition. Tremendous technical challenges. There are tremendous environmental challenges. But most importantly, there are tremendous financial feasibility challenges to that.
Capital will be attracted to this project if the investment climates in all of the countries that it has to traverse actually make the decision that they are willing to open up and be inviting to the private capital. It is in the interest of everybody for there to be a more efficient allocation of natural resources. I do not see this pipeline's coming to fruition of being exclusionary of the United States.
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As I said before, energy is traded on an open market. And so if it is used there, then other energy will be freed up somewhere else to come to the United States. But it would be up to the countries and their governments to make the decision that they are going to open up, that it is going to embrace market principles, and that they are going to be open for business to the very significant technical expertise that is needed, and the technical expertise does not rely or reside in state-owned oil companies. It resides in the private sector that is putting their own private capital into research and development, so they will have to be open to capital and to foreign expertise.
Mr. ENGEL. Mr. Chairman, if you will indulge me, I would just like to ask another series of questions.
We have talked a lot about Hugo Chavez and Venezuela and some of the things that he has threatened. There are a lot of eyes looking at Bolivia as well. The new President, Evo Morales, obviously has some decisions to make. There has been rhetoric, there has been all kinds of things, no one really knows what direction he will go.
In your estimation, what do you think is the likelihood of the Bolivian President Morales nationalizing the Bolivian gas sector? And what are the political, economic, and social implications of nationalization in Bolivia, and how should investors approach a potential nationalization?
Ms. HARBERT. You correctly point out that the new President, President Morales, has a tremendous opportunity before him. He has the opportunity to make the right decision for the people of Bolivia, and that is that he is going to unlock those resources and use them for the development of his country.
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I do not believe that nationalization will lead to that in the most economic and efficient way, and probably not within the time frame of his presidency. This type of resource and the amount of capital that is needed does not reside in Bolivia.
Bolivia does not have a very good economy. And if they are going to unlock these resources to actually pump up their economy, even pay their external debt, they need to do that using foreign capital, using foreign expertise that comes only if he is willing to make the decisions to have the type of climate and have the type of predictable investment climate that will allow companies to actually make the decision to stay in Bolivia or to come to Bolivia for the long run.
Mr. ENGEL. Well, thank you, and I have one final question that I would like to ask you about Canada, because you made a point to emphasize that our major supplier and trading partner in this sector is Canada.
What mechanisms exist to work toward common ends and to address issues of concern with Canada, be they energy issues or other issues that could spillover and affect our energy relationship with Canada?
I represent New York, and we all remember the infamous blackout of August 2003, I think it was, and that had something to do with Canada. Everyone put the blame on everybody else, but obviously it was very important that we coordinate things with Canada.
So if there are disputes, what mechanisms do we have to address common issues of concern?
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Ms. HARBERT. Certainly. Just a note on the blackout. From everything that happens that is unfortunate you hope to learn from it, and we learned from that that we needed far more cooperation on the regulatory side of things, and I am pleased to say that our FERC regulators and their regulatory agencies are now meeting on a very regular basis to find out where there are glitches, where there are gaps, how we can harmonize things to actually ensure the reliability of the system because they are very interconnected, and we have now invited Mexico into this process because increasingly we are going to have a connected system on our southern boarder, and we think it is in our interest in their interest to see how we are solving our problems with Canada.
We have a very strong bilateral relationship with Canada today. We unveiled a new report that is called ''The North America: The Energy Picture II,'' which is a very concrete picture of how we see our relationship with Canada and Mexico, how we see ourselves trilaterally, and that was published by the Security and Prosperity Partnership Working Group, and that is a set of government officials from Canada, the United States and Mexico that worked together on a regular basis to address issues, whether they be trade, whether they be on the energy side, whether they be—whatever issue that we might have either bilaterally or trilaterally.
Energy is one of the most important parts of the relationship, and we have nine working groups that work throughout the year to address issues.
Mr. ENGEL. Thank you very much.
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Ms. HARBERT. Thank you.
Mr. MACK. Thank you, and just to follow up on that question, I think this will probably be it. But can you talk a little bit about China's involvement or role or stake in the oil sands that you talked about in Canada?
Ms. HARBERT. As I pointed out, and I detail a little bit more in my written testimony, the importance of the oil sands for the United States, for Canada, and ultimately for the world energy market, and it requires a tremendous amount of investment. Canada has been open to investment just as we are open for investment, and the Chinese have invested in a small part of the oil sands.
I think that that is perfectly normal. We need investment to unlock those resources. They are not taking by this investment any of these resources off the table and cipher them off for other things, so we are quite comfortable with additional investment going into the oil sands.
Certainly if we do not develop those oil sands over time, it is not in our interest since the destination of a majority of that product will be the U.S. market.
Mr. MACK. Okay, thank you very much, and we appreciate you coming before the Committee, and your testimony, and we look forward to hearing from you again soon.
Ms. HARBERT. Thank you.
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Mr. MACK. I now would like to invite the second panel to come forward. Eric Farnsworth, Dr. Sidney Weintraub, and Anne Korin.
[Witnesses sworn.]
Mr. MACK. Ms. Korin, if you would like to begin with your opening statement.
TESTIMONY OF MS. ANNE KORIN, CO-DIRECTOR, INSTITUTE FOR THE ANALYSIS OF GLOBAL SECURITY
Ms. KORIN. I will try not to repeat what was said before. I am co-director of the Institute for the Analysis of Global Security, which is a think tank focused on energy security, and I also Chair the Set America Free Coalition, which is a coalition of national security and foreign policy-focused organizations and prominent individuals along with environmental, labor, religious and business groups, all concerned about our increasing dependence on foreign oil, and focused on ways to reduce that dependence.
I want to thank the Chairman and the Ranking Member for inviting me to brief you today.
I think it is very obvious that we have a situation of increasing global instability in the energy sector, and most particularly in the oil market, and unfortunately, there is very, very little that we can do about it in terms of ensuring our security of supply and the stability of supply.
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When we look at the Persian Gulf or the Gulf of Guinea, we see increasing violence, increasing attacks against infrastructure, and of course political disruptions, and different statements by the leaders, various leaders in these regions that indicate that they might use oil as a weapon.
Unfortunately, we are also seeing that kind of behavior in the Western Hemisphere. Following the President's remarks on our addiction to oil and the need for the United States to stop being so dependent on countries that do not particularly like us, it would seem natural that we increase our dependence on our own hemisphere where it would seem that it should be easier for us to secure supply and to develop better relationship with the countries in the region.
Unfortunately, what we see is that we have very little control over what is going on in our own back yard.
While obviously we have a very excellent relationship with Canada, even when you look at Mexico, we can do very little to improve the investment climate in Mexico and to open Mexico up to foreign investment, and that is what is going to be required for a country like Mexico to really develop its energy resources, and to not drop down in terms of its energy production, and because we are so dependent on Mexico, it would be very much detrimental to our national interest to see the production in Mexico go down.
Looking further south, Venezuela is clearly the biggest problem that we have in the Western Hemisphere in terms of energy production because Chavez, who appears to want to replace Fidel Castro in terms of being the regional troublemaker and instigator against the United States, is kind of leading the charge, and what he is doing is basically bribing, trying to bribe the countries around him with preferential terms for energy, and using energy to expand his sphere of influence.
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That, of course, is detrimental to our national interest. We need to increase our own influence in our own back yard, and instead we are watching it go down. We are watching anti-Americanism increase in our own back yard.
We can go country to country, and I think we see an enormous amount of problems, from riots in Bolivia over natural gas issues, and keep in mind that the last several governments in Bolivia were toppled because of energy issues. You look at Ecuador, and just like in Nigeria, you are seeing a tax against energy infrastructure there. You even had attacks in Venezuela. Right on the eve of the election December you had attacks against the pipeline there.
I just came back from Prague where IGS organized the NATO Forum on Energy Security, and the major focus there was critical energy infrastructure protection, and the fact is that it is extremely, extremely difficult no matter how many resources you throw at the problem to protect pipelines from attack; just too easy to do, and in an area where you see increasing discontent, increasing discontent and an increasing anger targeted especially at foreign oil companies, unjustified in my view, but certainly a lot of anger targeted at foreign oil operators in the region. You are going to see, I believe, more and more of these types of attacks.
So what we need to do since we are, I think, unable to do much to influence the internal politics of these countries, what we need to do is look inward, is look inward and think about what the U.S. in terms of policy can do to better insulate itself to energy supply shocks, and how it can use energy policy as a tool to improve the geo-political situation.
What we have really seen is because of our increasing energy consumption, particularly our oil consumption, we hear a lot about energy dependence, but the fact is that the U.S. has a lot of energy. We just do not have enough oil to meet our needs. We have 3 percent of the oil reserves and we account for a quarter of world oil demand, and our import rate has grown from 30 percent in the early 1970s to over 60 percent today and steadily increasing. We do not have enough oil to meet our needs.
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So what we see is, unfortunately, very often our energy imperative has the effect of forcing our hand when it comes to foreign policy. But I think we have a real opportunity in the Western Hemisphere to do something different here, and when I think of doing something different, I think specifically of ethanol.
We are in a very bizarre situation where we do not tax oil coming from Saudi Arabia. We do tax ethanol coming in from Brazil, for instance. When we talk about increasing the energy security of the United States and diversifying our fuel supply, and keep in mind that over two-thirds of our oil consumption is in the transportation sector, so diversifying fuel, increasing fuel choice in the transportation sector is really key to improving our energy security just as we did in the power sector. Today, only 2 percent of our electricity is generated from oil.
Alternative fuels are a very good way to do that, and we have an opportunity to develop economic interdependence with our neighbors in the Western Hemisphere. There is a limit to how much ethanol we can produce here at home cheaply. The best way to produce ethanol, there has been a lot of talk about cellulosic ethanol and all this, and this is worth investing in. It is a promising technology, but it is not yet economic at a commercial scale, and it remains to be seen if the technological and economic hurtles will be overcome.
What we do know is that ethanol from sugarcane is——
Mr. MACK. I am sorry. If you could wind it down, so we can get the others.
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Ms. KORIN. Sure.
Mr. MACK. And have time for the entire panel to ask questions.
Ms. KORIN. Sure. I would just say I want to commend Ranking Member Engel, along with Chairman Burton, who are both leading the H.R. 4409, the Fuel Choices for American Security Act, which basically removes this barrier to free trade, and increases energy security by removing this tariff on imported ethanol, among many other measures to improve energy security. I think it is the most comprehensive bill on the issue of oil savings brought before this chamber in many, many years, and I would encourage other Members to get on this bill as well.
[The prepared statement of Ms. Korin follows:]
[Note: Image(s) not available in this format. See PDF version of this file.]
Mr. MACK. Thank you very much.
Dr. Weintraub.
TESTIMONY OF SIDNEY WEINTRAUB, PH.D., WILLIAM E. SIMON CHAIR IN POLITICAL ECONOMY, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES
Mr. WEINTRAUB. Thank you for inviting me.
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Mr. MACK. Thank you.
Mr. WEINTRAUB. Let me make two big points. You have heard them before, but I do want to emphasize that 50 percent of our crude oil imports come from the Western Hemisphere. There are more products and other things, and in my prepared statement that you can have will have some details on those issues about what the other refined products are, and more than 95 percent—these are 2004 data—of our natural case, including LNG, comes from the Western Hemisphere. In other words, we have a big stake in this hemisphere.
Of the five largest oil exporters to the United States, three are in Latin America, Canada, Mexico, Venezuela, and the others are Saudi Arabia, and Nigeria.
You will have a lot more data from my organization, the Center for Strategic and International Studies, in the fall. We are engaged in a project, we are a year-and-a-half into it so far, looking at the situation of 11 countries in the hemisphere, the United States, Canada, nine in Latin America and the Caribbean, looking at each country, looking at the regulatory frameworks, who is producing what, where, and the project really has a double emphasis.
One is, what can be done to foster cooperation among the countries; and then second, analyzing in some detail the political impediments that stand in the way of cooperation, and the political impediments of fears as some of you have already noted with respect to Bolivia, Venezuela, and others.
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Let me just say a word, and not much more than that, on our three mail hemispheric suppliers. The United States companies are still investing in Venezuela. I will not go into the forms unless you really want to ask, but let me make a point that has not been made here before. The fact that the private sector remains engaged in Venezuela at a time when the public sector, the government cannot really get very far I think is useful for us, and I do not think we would want to interfere with that.
Mexico wants to cooperate, but Mexico, as Secretary Harbert said, Mexico has a capital shortage for many, many reasons, and I can get into that, both its tax system and its system of who controls the oil, which limits exploration and production, and could lead to a crisis in not too many years.
Canada is our most reliable supplier, especially now with the oil sands. I visited the oil sands. If you have not, it is an experience you ought to see. It is a massive, massive operation, and its future depends on technology and massive infusions of investment.
Let me give you three conclusions and I will stop. I think the conclusions are a little different from some of the things you have heard.
United States policy toward Latin America has alienated just about all the countries in the region. We are not very popular in Latin America. There are some exceptions. And I would think that—this is not the Congress I talked about now, this is the United States Government—that if we really want cooperation in the hemispheric field, we have to be cooperating generally in our foreign policy and take into account Latin America.
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In the President's State of the Union message, everybody in Latin America noticed, even when discussing energy, he never once mentioned Latin America, and that was noted.
Two, I do not think there will be any United States energy security if there is not also security in the Latin American/Caribbean region. This idea that we can independently be secure and they are not secure, I do not think is reality.
And finally, I think we must understand their aspirations too. There is a reason they undertake the policy they take. Sometimes they are misguided. Sometimes they are not, but there is a reason in each case, and I think we have to understand that.
My conclusion simply is I urge all of you to think and act broadly. As the title of these hearings imply, energy security in the Western Hemisphere, and keep that point Western Hemisphere in mind.
Thank you.
[The prepared statement of Mr. Weintraub follows:]
PREPARED STATEMENT OF SIDNEY WEINTRAUB, PH.D.,(see footnote 1) William E. Simon Chair in Political Economy, Center for Strategic and International Studies
I would like to begin my presentation with a few facts on the importance of the Western Hemisphere in supplying energy resources, especially crude oil and natural gas, to the United States. Imports of crude oil from hemispheric countries (Canada, Latin America, and the Caribbean) amounted to 50 percent of total U.S. crude oil imports in 2004, the latest year for which annual figures are available. Over and above this, the United States imports significant amounts of oil products from countries in the Western Hemisphere, as can be seen in the tables at the end of this presentation. With this much energy resource reliance on the hemisphere, it is remarkable that the U.S. government has so thoroughly ignored the hemisphere in its foreign policy.(see footnote 2)
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Imports of natural gas, including liquefied natural gas (LNG), from hemispheric countries in 2004 were 95.5 percent of total gas imports that year. The U.S. electric energy grid also involves trade in electricity with both Mexico, and especially with Canada.
The five most important foreign suppliers of crude oil to the United States in 2004 were Canada, Mexico, Saudi Arabia, Venezuela, and Nigeria, in that order. Three of the five are in the Western Hemisphere. Canada, in 2004, supplied 85 percent of the natural gas imported by the United States. Our most important supplier of LNG was Trinidad & Tobago.
The appendix to this presentation contains detailed data on the role of the Western Hemisphere in supplying energy resources to the United States.
The State of Energy Cooperation in the Western Hemisphere
I will devote the rest of this presentation to some key analytical issues related to energy cooperation in the Western Hemisphere and to political problems that impede the extent of cooperation that would enhance hemispheric energy security. The material I am presenting today will be amplified later this year, in the autumn I hope, when the Center for Strategic and International Studies (CSIS) publishes a study now in progress there on energy cooperation in the Western Hemisphere. The study will have chapters on the energy and political situations in 11 hemispheric countries that are producers of oil and/or gas (Argentina, Bolivia, Brazil, Canada, Colombia, Ecuador, Mexico, Peru, Trinidad & Tobago, the United States, and Venezuela), as well as a chapter on cooperation among the three countries of North America, plus material on the energy infrastructure in the hemisphere, a comparative presentation of regulatory procedures and issues, and a discussion of the roles of China and India in seeking energy sources in the hemisphere. The book will also contain educated estimates on which hemispheric countries will be important oil and gas producers in 2025.
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The most significant country energy problem from the U.S. vantage is Venezuela because of its large oil and gas endowment coupled with the animosity between its president, Hugo Chávez, and the United States. Venezuela is producing less oil today than it did when Chávez became president in 1999 because of the sacking of key personnel in the state-owned energy company, Petroleos de Venezuela, S.A. (Pedevesa). Venezuela is providing oil at discounted prices to Caribbean countries, including Cuba, and Chávez is using this generosity to organize countries in the Caribbean, and elsewhere in Latin America, against the United States. From time to time he threatens to cut off oil exports to the United States, but it is unlikely that he can do this in the near future and find alternative markets where Venezuela's heavy oil can be refined. Venezuela is raising the government take on oil concessions to private companies, including U.S. companies, but foreign investment continues because operating in Venezuela is still profitable and most companies are looking to the long term to a Venezuela under different leadership. Venezuela, under its president, evidently is not a country interested in promoting hemispheric energy cooperation that includes the United States.
Mexico is friendly toward the United States and wishes to cooperate, but the problem there is the inability to fashion a policy that facilitates cooperation, or even a policy that takes into account Mexico's own medium- and long-term oil and gas needs. Because of insufficient tax collection to meet the needs of the federal government's outlays, about one-third of fiscal expenditures come from taxes on the gross revenues of Petróleos Mexicanos (Pemex), the government oil monopoly. Consequently, despite high oil prices, Pemex in recent years has had a net loss in its accounts each year. The company is already borrowed to the hilt. The Mexican constitution and regulations do not permit private equity or risk investment in oil and gas. As a result, there has been inadequate exploration for oil and gas, and hence little prospect for increases in output, absent some lucky find. It is revealing to look at a map showing deep-water drilling in the U.S. and Mexican areas of the Gulf of Mexico. The U.S. side is covered with dots showing where drilling has taken place, whereas the Mexican side is almost devoid of dots. At current rates of production, if there are no important new discoveries, Mexico will run out of oil in about 11 to 12 years. In addition, Mexico is now a large importer of natural gas and refined products, like gasoline. The unwillingness to allow private risk contracts is deeply rooted in Mexican history and hard to change, perhaps impossible to change during the current presidential election year. It has also proved to be near impossible to raise more tax revenue. A valid question to ask is whether Mexico can alter the politics connected with either private investment and/or tax collections to head off an energy collapse, or whether the country will act only after the crisis has erupted.
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Canada is the largest oil and gas exporter to the United States; in 2004, Canada supplied 16 percent of U.S. oil imports and, as noted earlier, 85 percent of U.S. gas imports. Of the big three hemispheric oil suppliers to the United States, Canada is by far the most reliable. Much of Canada's oil production now comes from the oil sands in Alberta, and if past increases in oil sands output is any guide, Canada's oil production future should be comforting from the viewpoint of U.S. energy security. However, future production from oil sands depends on the development of efficient technologies for in situ production to extract bitumen that is far below the surface (as contrasted with mining operations to extract the bitumen closer to the surface), dealing with major environmental problems of water usage and air emissions, and finding substitutes for natural gas to heat the bitumen enough so that it can flow and be recovered and upgraded. Projected investments in oil sands to meet these needs are huge, and are likely to be made. There is no indication in any of the three North American countries that output of natural gas will be augmented enough to meet the needs of the region, which is why much attention is being given to infrastructure needs to import LNG from outside the region.
Hemispheric energy security must deal not only with U.S. and North American security, but the security of supplies for Latin America and Caribbean (LAC) countries as well. I will touch only briefly on LAC country issues in this written presentation.
Bolivia has large proven reserves of natural gas (49 trillion cubic feet), but the political situation in the country makes it an uncertain supplier. Natural gas exports from Bolivia now go to Brazil and Argentina; the Brazilian national oil company, Petrobrás, is a large investor in Bolivia and Petrobrás has indicated that it is ready to invest further if certain understandings are reached. Bolivia has refused to consider a gas pipeline to a Pacific Ocean port in Chile because of lingering animosity over Bolivia's loss of territorial access to the sea more than 100 years ago. Bolivia's reliability as a supplier depends heavily on the flexibility that Evo Morales, the new president, has to meet the gas needs of neighboring countries, while at the same time fulfilling the nationalist demands of the voters who elected him into office.
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Trinidad & Tobago has followed a consistent policy over decades in developing its energy resources, particularly natural gas, and has become the leading supplier of LNG to the United States.
Brazil is not now a major exporter of either oil or gas, and is unlikely to be one in the medium term because of the vast size of the internal market, but considerable exploration and development is taking place. What appear to be major natural gas finds in deep waters in the Santos Basin, off Saó Paulo state, are likely to reduce the need for gas imports over the next decade. Petrobras, the state-owned oil and gas company has developed considerable proficiency in deep-water drilling. There is also considerable foreign investment in oil and gas in Brazil, and this generally takes the form of joint ventures with Petrobras. Those Mexican officials who believe that private investment will be needed in the Mexican oil and gas industry to head off an energy crisis tend to point to Petrobras as a model that Pemex might emulate in the future.
Development of the oil and gas industry is held back in Colombia by the long-standing guerrilla movements there, including the targeting by guerrillas of oil and gas pipelines.
The reliability of the oil sector in Ecuador has been impeded by political insecurity; for example, martial law was imposed just last week. The oil and gas situation in Peru is much more favorable, and the Camisea project there is proceeding smoothly. There are plans for shipping LNG from Peru to the west coasts of Mexico and the United States over the next few years. Argentina, which has large natural gas reserves (proven reserves are 27 trillion cubic feet) , is not now meeting its potential largely because investment was impeded for a long period when sales prices by producers were frozen in depreciated pesos and consumer prices were subsidized as a way for the administration to gain political popularity. Indeed, Argentina felt it necessary to break a long-term contract to supply natural gas to Chile in order to satisfy domestic demand.
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Bolivia, as noted above, refuses to sell natural gas to Chile and this, combined with the Argentine cutoff, puts Chile in a bind to obtain secure supplies of natural gas. Some natural gas may come from Peru, but this is not certain, and Chile may fall back on developing the infrastructure to import LNG from Asia. The inability of Chile to be able to rely on its neighbors to obtain natural gas highlights the uncertainty of cooperation in energy matters in the southern area of South America. The political problems are more difficult to overcome than the technical ones.
Conclusion
The foregoing discussion does not deal with the U.S. energy situation or policy to overcome current and projected supply problems. My purpose in this presentation is to look at the situation in the rest of the hemisphere and how this may affect U.S. and hemispheric energy security. Part of the reason for my lack of analysis of the U.S. energy situation is that this is widely available from other sources; and also because I do not know what form U.S. energy policy will take in light of President Bush's state-of-the-union address. My purpose in this presentation is to look at the situation in the rest of the hemisphere and how this may affect U.S. and hemispheric energy security.
The main conclusion I wish to leave is that the hemisphere would benefit greatly if there were energy cooperation from Canada in the north to Argentina in the south. The impediments to this cooperation are more political than they are technical, although there are considerable financial and technical issues that must be resolved. The United States, I believe, can help in dealing with both the political and technical impediments to hemispheric energy cooperation. To play its proper role, the U.S. government must:
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Give higher priority than is now the case to the hemisphere generally, and with respect to energy in particular;
Take into account hemispheric capacities and aspirations in developing its own energy policies; and
Recognize that there will be no U.S. energy security if this security is lacking elsewhere in the hemisphere.
[Note: Image(s) not available in this format. See PDF version of this file.]
Mr. MACK. Thank you. Mr. Farnsworth.
TESTIMONY OF MR. ERIC FARNSWORTH, VICE PRESIDENT, COUNCIL OF THE AMERICAS
Mr. FARNSWORTH. Thank you, Mr. Chairman. I appreciate the opportunity to be here before you today.
My name is Eric Farnsworth, and I head the Washington Office of the Council of the Americas, and it is a privilege to appear before you.
Congratulations as well, Mr. Engel, for your position with the Subcommittee, and we look forward to working with you in the future.
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Mr. Chairman, let me give you the proverbial bottom line first if I can. Energy in the Western Hemisphere whether we realize it or not is of the highest strategic importance to the United States.
As you know, we are the world's largest energy user, we have talked about that already this afternoon. Even if we are overtaken at some point by China, our own energy needs will continue to increase as our economy and our populations both continue to grow.
At the same time though we ourselves have abundant energy resources as has also been mentioned, including oil and gas and coal, and a growing potential for alternatives, we are not self-sufficient, and frankly, self-sufficiency really is not a realistic goal at this point. Rather, we are energy interdependent, and to meet our needs we are going to have to continue to rely on imported energy. I think that is just a statement of fact.
Dr. Weintraub has mentioned that of our primary energy partners three of our top five in terms of imports come from the Western Hemisphere—Canada, Mexico and Venezuela—joining, of course, Saudi Arabia and Nigeria, making the Western Hemisphere key to our economic and strategic self-interests.
All other things being equal then, energy partnership in the Americas can and really must support our broader economic and strategic interests.
At the same time, and I think this is the key point, this is not a one-way street, it is two sides, if I can use another cliche, two sides of the same coin. The democratic development of Latin America and the Caribbean is a top priority for United States policymakers on a bipartisan basis and enhanced wealth creation in the region is a critical component of that development.
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To give just one statistic which really caught my eye just recently, the World Bank recently reported that between 1980 and 2000 per capital GDP in Latin America grew over a 20-year period less than 1 percent. On the other hand over the same period of time, China enjoyed per capita GDP growth of over 8 percent per year. That kind of puts it into perspective. It is addressing this development gap which increases every year that energy in the Americas becomes so important.
The opportunities are solid because Latin America, the Caribbean and Canada are truly blessed in terms of the level of proven energy resources they possess. Canada, for example, possesses an astounding 179 billion barrels of non-conventional oil sands, which are now economically viable given advances in technology and higher oil prices generally.
In fact, recoverable energy reserves in the Western Hemisphere, including unconventional oil reserves, surpass even Saudi Arabia, and dwarf other regions of the world.
In terms of proven conventional reserves in the Western Hemisphere, Venezuela is at the top—we have talked about that—followed by the United States, Mexico, Brazil and Ecuador, and Brazil, in fact, has just announced some additional promising finds.
The hemisphere also enjoys plentiful deposits of natural gas, a key fuel source in terms of electricity power generation. After the United States, Venezuela again has the highest level, followed in order by Canada, Bolivia, Trinidad and Tobago, and Mexico as well, and this goes to the point, Mr. Engel, that you were raising earlier, a significant potential exists to produce and consume alternative fuel sources from the hemisphere such as ethanol from Brazil and elsewhere to supplement United States production, or frankly, coal bed methane from Canada.
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In terms of coal, just to complete the picture, the United States remains well ahead of our neighbors in terms of both production and consumption.
So there is a real mutuality of interest here in terms of our need for energy resources and the hemisphere's ability to produce energy resources.
What is really not apparent at this point however, and this has already been discussed but I think it bears reemphasis, is how to mobilize the massive investments that will be required to fully develop these impressive hemispheric resources.
Secretary Harbert talked about $1.3 trillion of investment required over the next 25 years or so. That is clearly an estimate, but the numbers are big, and the numbers are not going to get smaller. The Western Hemisphere is part of a global economy competing for the same marginal investment dollars as everyone else.
To be direct, it is incumbent upon nations in the hemisphere wishing to develop their natural resources that might otherwise lack technical and managerial expertise, as well as significant capital of their own, to create an investment climate whereby foreign energy companies can work in partnership with local governments to develop their resources in a mutually beneficial manner.
Attention to industry-specific and more general investment climate issues is therefore needed. Improvements in education and the rule of law, regulatory certainty, nondiscriminatory and stable tax regimes, effective personal security, anti-corruption, and effective dispute resolution: Last is a critical point, and has already come up, and I would be happy to talk more about it if you would like.
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Those countries which have paid attention to these matters have seen investments increase, as well international financing institutions like the Inter-American Development Bank have a very important role to play in mobilizing capital for investment, and indeed have done so.
But we issued a report just before the Summit of the Americas in Mar del Plata which talks about energy security in the Western Hemisphere, and if I can, let me just pull out two or three primary points from that and then I would be delighted to answer some questions.
Briefly, the report argues that increasing partnership in hemispheric energy matters must be an important part of our overall hemispheric policy, not an afterthought, and not taken for granted. A balanced, engaged approach is needed.
Second, in the global environment, competitiveness is perhaps the key issue facing the hemisphere. High direct or indirect energy costs due to market rigidities impact all energy users, making the region a less attractive place to do business, to say nothing of quality of life issues.
As well, investment climates that are unattractive compared to other countries in the region will not attract the direct foreign and domestic investment required to develop either the energy resources mentioned above, or frankly, the broader economy.
Let me raise Mexico for example, which despite sitting on significant natural gas resources, actually has been importing natural gas since 2000, which obviously impacts their national income accounts. Mexicans go to the polls July 2. We do not know what is going to happen. Hopefully, there will be some movement on the investment side in Mexico after the elections, but frankly, this is a call for the Mexicans to make based on who they elect and based on what the newly-elected President and his Administration choose to do.
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Finally, in addition to conservation, which somebody has said may be the top form of alternative energy that actually exists, we must do a better job of exploring the possibility of alternative fuels in the hemisphere which could prove to be a boon for development while making the region less reliant on imports from elsewhere.
Of course, we have already talked about President Bush's State of the Union address. He also raised the issue with President Lula of Brazil when he was there in Brasilia in November.
The resources are there to supplement our own given Brazil's agricultural profile. What has been missing has been a market to use ethanol as well as a price point of conventional fuels high enough to make ethanol economically viable.
But really this is not so much a question of energy, it is a question of trade policy, and Chairman Mack, you coming from Florida, you certainly understand this, and it is an issue that is more broader than the energy side because Brazilian ethanol is made from sugar. That has already been put into the conversation, and anyone who followed the recent CAFTA debate knows the political sensitivities of these issues in the United States. That is just a statement of political reality. But as a strategic matter, this issue bears consideration and could provide a way forward not just on energy, but frankly, could provide a way forward perhaps on broader trade issues in the hemisphere.
These issues are ripe for further consideration. The resources exist, and frankly, so does the need. What does not exist yet, though could, is the size and quality of investment needed to develop and effectively utilize these resources. That in fact is the real issue, and I would submit the real opportunity facing those of us who promote energy partnership in the Americas.
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Mr. Chairman, again thank you for the opportunity to be here. I appreciate it and look forward to your questions.
[The prepared statement of Mr. Farnsworth follows:]
PREPARED STATEMENT OF MR. ERIC FARNSWORTH, VICE PRESIDENT, COUNCIL OF THE AMERICAS
Good afternoon, Mr. Chairman and members of the Committee. My name is Eric Farnsworth, Vice President of the Council of the Americas. As you know, for over 40 years the Council of the Americas (''Council'') has been a leading voice for policy and business in the Western Hemisphere, from Canada to Argentina. Our members include some 170 prominent companies invested and doing business in the Americas, with a mandate to promote partnership in the Americas based on democracy, open markets, and the rule of law. Thank you, Mr. Chairman, for the opportunity to appear before you on an issue of such importance to both the United States and the Western Hemisphere.
Mr. Chairman, let me give you the proverbial bottom line first. Energy in the Western Hemisphere—whether we realize it or not—is of the highest strategic importance to the United States. As you know, we are the world's largest energy user; even if we are overtaken at some point by China, our own energy needs will continue to increase as both our economy and population grow. At the same time, though we ourselves have abundant energy resources including oil, gas, coal, and a growing potential for alternatives, we are not self-sufficient, and self-sufficiency really isn't a realistic goal at this point. We are energy interdependent, and to meet our needs, we will have to continue to rely on imported energy.
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Currently, three of our top five sources of imported energy are in the Western Hemisphere: Canada, Mexico, and Venezuela, along with Saudi Arabia and Nigeria, making the Western Hemisphere a key to our economic well-being and strategic interests. That's particularly important to remember as recent terrorist attacks against Saudi oil refineries or Nigerian supply disruptions fill the news, to say nothing of ongoing difficulties in Iraq and Iran or the exponentially increasing demands of China and other rapidly developing nations. All other things being equal, energy partnership in the Americas can, and really must, support our broader economic and strategic interests.
At the same time, the democratic development of Latin America and the Caribbean is a top priority for US policymakers on a bipartisan basis, and enhanced wealth creation in the region is a critical component for that development. To give just one statistic, the World Bank recently reported that between 1980 and 2000, per capita GDP in Latin America grew, in total, less than one percent. On the other hand, over the same period of time China enjoyed per capita GDP growth of over eight percent per year. It's in addressing this development gap, which increases every year, that energy in the Americas becomes so important.
The opportunities are solid, because Latin America, the Caribbean, and Canada are truly blessed in terms of the level of proven energy resources they possess. Canada, for example, possesses an astounding 179 billion barrels of non-conventional oil sands, which are now economically viable given advances in technology and higher oil prices generally. In fact, recoverable energy reserves in the Western Hemisphere, including unconventional oil reserves, surpass even Saudi Arabia and dwarf other regions of the world. In terms of proven conventional reserves in the Western Hemisphere, Venezuela is at the top, followed by the United States, Mexico, Brazil, and Ecuador, and Brazil has just announced promising additional finds. The hemisphere also enjoys plentiful deposits of natural gas—a key fuel source in terms of electric power generation. After the United States, Venezuela again has the highest level, followed in order by Canada, Bolivia, Trinidad and Tobago, and Mexico. As well, significant potential exists to produce and consume alternative fuel sources, such as ethanol from Brazil and elsewhere to supplement US production, or coal bed methane from Canada. In terms of coal, the United States remains well ahead of our neighbors in both production and consumption.
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These resources by any measure can play an important, if not paramount, role in regional development if developed and consumed wisely. On the supply side, absent energy, the development prospects for a nation such as Bolivia, South America's poorest nation, or Ecuador, are uncertain at best. On the demand side, without greater attention to market efficiency in the development and utilization of hemispheric energy resources, it will be more difficult for producers and consumers both to build regional competitiveness in a global economy. This directly impacts the hemisphere's ability to compete successfully against the rapidly modernizing economic giants of China and India, as well as a host of other nations.
For the United States, if existing trends continue projecting out until 2025 or 2030, the increasing US demand for energy can be met by sources from our own hemisphere, though that is not guaranteed. What's not yet apparent is how to mobilize the massive investments that will be required to fully develop these impressive hemispheric resources, particularly in an environment where, as former Secretary of State Colin Powell has said, global capital is a coward and it will always seek its highest risk-adjusted return.
Clearly, there would appear to be a mutuality of long-term interests in the hemisphere in building energy partnership in the Americas.
The Western Hemisphere is part of a global economy, competing for the same marginal investment dollars as everyone else. For investors to invest, the risk adjusted climate must be welcoming. To be direct, it is therefore incumbent upon nations in the hemisphere wishing to develop their natural resources that might otherwise lack technical and managerial expertise, as well as significant capital of their own, to create an investment climate whereby foreign energy companies can work in partnership with local governments to develop their resources in a mutually beneficial manner. Attention to industry-specific and more general investment climate issues is needed: improvements in education, training, and the rule of law; regulatory certainty; non-discriminatory and stable tax regimes; effective personal security; anti-corruption; and effective dispute resolution. Those countries which have paid attention to these matters have seen investments increase. As well, international financing institutions such as the Inter-American Development Bank have an important role to play in mobilizing capital for investment, as the IDB has done, for example, in Peru's Camisea natural gas fields.
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With these issues in mind, the Council of the Americas released a report late last year, in advance of the fourth Summit of the Americas in Mar del Plata, Argentina, which suggests a number of recommendations for hemispheric policymakers. With the Chairman's agreement, I would ask that that report be introduced in the record.
Briefly, the report argues that maintaining a secure supply of energy from foreign sources is a strategic matter for the United States, and energy in the Americas must therefore be a priority. Increasing partnership in hemispheric energy matters must be an important part of our overall hemispheric policy, not an afterthought or taken for granted. A balanced, engaged approach is needed.
Second, in a global environment, competitiveness is perhaps the key issue facing the hemisphere. High direct or indirect energy costs due to market rigidities impact all energy users, making the region a less attractive place to do business, to say nothing of quality of life issues. As well, investment climates that are unattractive compared to other countries and regions will not attract the direct foreign and domestic investment required to develop either the energy resources mentioned above or the broader economy. Mexico, for example, despite sitting on sufficient natural gas reserves, actually imports natural gas and has done so since 2000. This directly impacts Mexico's national income accounts and their competitiveness profile at a time when that nation, even with the NAFTA relationship with the United States and Canada, faces a direct economic challenge from China. Hopefully, we'll see some movement on these issues in Mexico after their elections on July 2, but that remains to be seen, and of course it's up to Mexicans themselves to determine how to best develop their own energy resources.
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In the North American context, energy issues are an important part of the Security and Prosperity Partnership (SPP) which the Administration has rightfully made a priority, and which the Council has strongly endorsed. As in other hemispheric nations, it's difficult to see how Mexico develops if its energy reserves continue to fall due to a lack of energy sector investment, and an underdeveloped Mexico, as the Council has pointed out elsewhere, is of strategic concern to the United States. But it's not just Mexico; it will be impossible to fully develop Canada's energy resources, discussed earlier, unless the three governments find a means whereby labor markets and products to service the fields are made more flexible through the SPP or alternative means. Addressing market rigidities in North America and throughout the region would help make partnership possible.
Finally, in addition to conservation, which may be the top form of alternative energy available, we must do a better job exploring the possibility of alternative fuels in the hemisphere, which could prove to be a boon for development while making the region less reliant on imports from elsewhere. Of course the President mentioned ethanol in his State of the Union address, and he also discussed it directly with Brazil's President Lula during a short trip to Brasilia in November. The resources are there to supplement our own, given Brazil's agricultural profile; what's been missing has been a market to use ethanol as well as a price point of conventional fuels high enough to make ethanol economically viable. But as oil prices remain historically high, the cost of ethanol production is now economical. As well, flex fuel automobiles, which automatically determine the proper fuel mix between gasoline and ethanol, are becoming a real alternative. The question, though, is not one of energy, but rather trade policy. Brazilian ethanol is made from sugar, and anyone who followed the recent CAFTA debate knows the political sensitivity of these issues in the United States. But as a strategic matter, the issue bears consideration and could provide a way forward not just on energy, but also on trade matters generally.
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These issues are ripe for further consideration. The resources exist, and so does the need. What doesn't yet exist, though could, is the size and quality of investment needed to develop and effectively utilize these resources. That is the real issue, and the opportunity, facing those who would promote energy partnership in the Americas.
Mr. Chairman, thank you again for the invitation to be with you today. I look forward to answering any questions you might have.
Mr. MACK. Thank you very much.
Two quick questions and maybe each one of you can offer some ideas on them.
First, there was a discussion, you have all talked about ethanol, an alternative energy source for us in the United States, and you are correct about the political nature of our friends and sugar producers in the United States. So I would like to get your opinion. How much is this ethanol, how quickly can we move it forward? Is the investment opportunities there. Outside of the United States, is it some people are also looking toward alternative energy? That is one.
And number two, there is no doubt, and I think Dr. Weintraub was heading and talking about this, that when we talk about security in the Western Hemisphere and energy, certainly there has been a void of leadership that has been needed in Latin America and other parts of the United States.
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But if places like Venezuela are moving toward nationalizing their energy sector, how is foreign investment, there is not an opening, an opportunity for foreign investment to unlock potential. So I would like, if you could, to talk about, each one of you take an opportunity to talk about those two issues.
Ms. KORIN. I think they are actually both very much tied together, and the reason is if we open up the market to ethanol imports, what we will do is really create an opportunity for our neighbors in the Western Hemisphere and throughout the world really, many poor countries throughout the world whose climate enables them to be cheap sugarcane producers, and thus cheap ethanol producers, we will enable them to grow wealthier, and thus create an economic interdependence, increase or sphere of influence and counteract forces like those of Chavez that are moving against capitalism, against openness to investment and all of these things.
So the way that we can help promote the types of values that we want, the type of transparency and openness that we want is this lever, which is ethanol, and I think we need to do that.
Mr. MACK. And if I could just on that, and you can care to comment if you would like, each one of you, but we have seen the oil prices keep going up, and we have seen Venezuela and Hugo Chavez having the opportunity to make lots of money, but we still see poverty very high, so we could help broaden energy supply with ethanol and others throughout the Western Hemisphere, but how do you make sure that that ultimately goes to help the people in those countries that need the help when you still see, I believe it is in Venezuela 80 percent of the people are still living in poverty, so I think it is a noble goal, and something that the United States ought to take a leadership role in, but what would you suggest that we do to make sure that those fruits are getting to the people of those countries to help rise all boats?
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Ms. KORIN. There is very little that we can actually do to change the type of—to improve the governance of the region. However, when you look at oil in particular, it is a resource that requires very little participation on the part of the population in terms of extraction and so forth, and so you have what is known as a natural resource curse. You do not just see it in Venezuela, you see it around the world. Look at Nigeria. Nigeria has taken in billions of dollars in oil wells, yet most Nigerians live on less than a dollar a day.
If you have a resource that requires more people to work, creates more of a middle class, and ethanol production certain qualifies, then you are just increasing th