Hearing of Committee on Energy and Natural Resources - EIA 2005 Annual Outlook Report
Hearing of committee on Energy and Natural Resources - EIA 2005 annual Outlook Report
Senator MURKOWSKI. Thank you, Mr. Chairman.
I want to talk just real quickly about two of Alaska's neighbors, Canada and Russia. A very quick question on Canada, and this is probably to you again, Mr. Caruso. I came in at the end where you were talking about Canadian exports of natural gas and your assumption that there would really not be much coming to the
United States from Canada because of their consumption. I am assuming you factor in the gas coming down from Mackenzie and that line.
Mr. CARUSO. Yes.
Senator MURKOWSKI. But it is your assessment that the Canadians will use what they currently have in addition to the new source coming out of Mackenzie.
Mr. CARUSO. That is correct. We made our latest forecast taking into account the National Energy Board of Canada's forecast for Canadian production as well as consumption and, of course, bringing on stream the Mackenzie Delta valley gas toward the latter part of this decade, I think 2009, 2010. We have it in our outlook.
But even with that, we have less gas coming from Canada over this outlook period over the next 20 years.
Senator MURKOWSKI. So you do not view the two projects, the Mackenzie line and the Alaska natural gas line, as competing projects.
Mr. CARUSO. Definitely not. They will both be needed.
Senator MURKOWSKI. Absolutely. Thank you.
And then a question about Russia. Just reading through the background, recognizing that Russia is currently the second largest exporter, how much do we import from Russia?
Mr. CARUSO. Not very much.
Senator MURKOWSKI. So it is negligible.
Mr. CARUSO. 100,000 barrels a day or so out of our more than about 11 million.
Senator MURKOWSKI. I was reading, Mr. Verrastro, your comments about the future for Russia and a very tentative assessment of where you think they are going. You state that the developments raise the prospect that they may be nearing a temporary peak because of a multitude of reasons that you cite. You also indicate that the inability to continue to increase production rests on several considerations. Production practices are suspect. What do you mean by that statement?
Mr. VERRASTRO. I think two things. The resource base. Most people believe that Russia has substantial resources. The question is whether they have been producing for rate or actually exploring new territories that they can produce for over the long term. There is concern that Yukos, in particular, over the last several years,
while they were very successful in moving oil to market and increasing production, that it was what we call step-out drilling. It was the easy oil to get to, least expensive, and you are actually depleting the reservoirs faster. There has not been new exploration. And the infrastructure, quite honestly, is also suspect in terms of
pipelines and delivery systems.
Senator MURKOWSKI. It is old or when you say it is suspect?
Mr. CARUSO. Yes. When we were in the Caspian, the rated capacity of some of the Russian lines that were at 200,000 barrels a day, if you put 200,000 barrels a day through them, they would burst at the seams. So part of the reason that they were running at about 50 percent capacity was just because they were concerned
about infrastructure breakdown.
Senator MURKOWSKI. Where do you see them going then? You recognize they have got the resources. They are somewhat like Alaska. We have definitely got the resources. With us it is absolutely access, and to a certain extent, the Russians are in the same situation. But how do you see them moving forward?
Mr. CARUSO. I think the three restrictions are in terms of infrastructure, policy, and investment, and also the introduction of new technologies. Where they go from here, some people are projecting 10 million to 12 million barrels a day, in terms of increased production. Others are looking at a plateau and then a decline if new investment is not brought in soon. I think the Yukos episode kind of froze people in place, at least for a time, just to see what policies would be emanating from the Kremlin. Prior to that, Russia looked like a great place to go explore and invest, but increasinglyand you saw it with Conoco-Phillips that the way to do business in Russia, at least at this particular time, is to go to the Kremlin first, get the approval from the president, and then go do your side deals to do investment or equity participation in projects or with other companies in Russia. Right now it is probably not the way to go.
Senator MURKOWSKI. You used the term it needs to happen soon,'' and I am assuming because of all the reasons that you have cited, whether it is the infrastructure or the policies. But we recognize that when you build a pipeline of any size, it is going to take some time to bring on. It seems that there is a lot of expectation
or hope coming out of Russia that they are going to be able to keep the levels of production that they have, that they will continue to be the second largest oil exporter. But your assessment is, as I say, somewhat hesitant here. Do you think that they can maintain that status?
Mr. VERRASTRO. I think a lot depends on where the policies go forward. I think President Putin recognizes that oil and gas are the engine that is going to fuel economic growth in Russia. The point is that I think he is looking to centralize control, whether it is in state-owned companies or government mandates. Gazprom and e 0ct 09
Transneft control the distribution networks. So even if you produce, you have to find a way to export. The oil is there. It is just a question of how you get it out and move it to market.
Senator MURKOWSKI. I struggle with what we are able to do on the North Slope of Alaska. As I say, we have got the resources up there, but we have got some issues in terms of getting them out. And some of those that would look at extraction up north and production opportunities instead go to our neighbors right across the
water. I would like to think that we offer them a little more stability, a little more security in terms of policies and in terms of opportunities. So I am curious to hear your perspective on Russia. Mr. Slaughter, I would love your comments.
Mr. SLAUGHTER. May I jump in on a couple of things there? I think it is not a question of Russian resources getting developed in competition with Alaskan or Canadian resources. I think over the next 20 or 30 years, the world will need additions from both and be very capable of absorbing all the production that both regions
can give. Russian production will fluctuate year to year as policy changes, as capacity gets built or gets delayed, but over the long term, we are very optimistic the resource base will be developed. We have
got some very big investments in Russia. Some of our competing companies do as well, and we have to work with them on a company- to-country basis and on a country-to-country basis to ensure a stable and fair fiscal and regulatory environment over the long term. I think it has to become clear to all the big players in world
energy markets that we need that stable environment to develop resources.
Senator MURKOWSKI. Are things getting better as you engage in the dialog with the Russians as it relates to your business investments?
Mr. SLAUGHTER. I am sorry. I did not quite
Senator MURKOWSKI. Well, is it getting easier to deal with them or is it still complicated?
Mr. SLAUGHTER. We deal with them on a project-by-project basis, based on our particular investment profile. I think it has been challenging at times, but we get things done and it is moving on and we would like to have more of the opportunities. In terms of the Mackenzie Delta and Alaska gas, I would like to say that the assumptions on those are largely based on current outlooks for production in both areas, both in Alaska and MacKenzie. There are step-out opportunities offshore, for example, which are very interesting, which could actually supplement the Canadian supplies and it could also supplement the Alaskan supplies long
term. I think we need to look at those as well as focusing on the existing proved resource.
Senator MURKOWSKI. Absolutely. I want to thank you all for your time here this morning. I certainly learned a lot and appreciate the information. Thank you, Mr. Chairman.
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