Hearing of the Senate Energy and Natural Resources Committee - Energy Information Administration Annual Energy Outlook 2004

Federal News Service

HEADLINE: HEARING OF THE SENATE ENERGY AND NATURAL RESOURCES COMMITTEE

SUBJECT: ENERGY INFORMATION ADMINISTRATION ANNUAL ENERGY OUTLOOK 2004

CHAIRED BY: SENATOR PETE V. DOMENICI (R-NM)

LOCATION: 366 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES: PANEL I:

GUY CARUSO, ADMINISTRATOR, ENERGY INFORMATION ADMINISTRATION, DEPARTMENT OF ENERGY;

PANEL II:

RICHARD J. SHARPLES, SENIOR VICE PRESIDENT, STRATEGIC PLANNING AND MARKETING, ANADARKO PETROLEUM CORPORATION;

PAUL D. KOONCE, CEO - TRANSMISSION, DOMINION ENERGY, INC.;

JAY SAUNDERS, VICE PRESIDENT, ENERGY ANALYST, DEUTSCHEBANK

BODY:
SEN. SCHUMER: Thank you, Mr. Chairman. I appreciate the panel.

My first question-first I'd like Mr. Caruso to talk about it and then anybody else. This relates to the oxygenate requirement that you know is currently forcing California, New York and other states to use ethanol in the gasoline and as the summer blend requirements come online and base gasoline will need to be blended to have a lower RBOB, does EIA still believe as you stated in the October report that supply mismatches could result in extreme price spikes. Has the oxygenate requirement created a situation in which New York is an unattractive niche market for external gasoline suppliers?

MR. CARUSO: Thank you, Senator. We've been watching the MTBE ban development, of course in California last year and in New York/Connecticut as of 1 January this year, and the results so far have been relatively smooth in the winter-as you mentioned, winter blend gasoline or winter type gasoline. Our concern, as we mentioned in October and continue to be concerned about, as we go into this summer gasoline RBOB as you mentioned, period, is whether or not opportunistic suppliers of that product will be available to meet the full demands. And we still don't know the answer to that question. So the potential for a volatility continues to exist and I think we'll have some early hints even beginning this month, but it will probably be next month before we get a better idea of how much imports of this oxygenated requirement gasoline blended stock come into the arena.

SEN. SCHUMER: As you know, I've been pushing the administration. Governor Pataki has asked for an elimination or a waiver of the oxygenate requirement. They gave one to New Hampshire, a little different than New York. But what you're saying is the possibility of significant price spikes like we saw in California is very real. You're not sure it will happen but it could.

MR. CARUSO: Possible, yes, sir.

SEN. SCHUMER: Broader question on gasoline-anyone. First Mr. Caruso and then anyone else can answer it. Given the fact that the severe cold experienced by much of the country this winter has led to a longer period of heating oil production than normal. Winter gasoline-the fact that winter gasoline demand has been above average and crude oil stocks are at their lowest since '75, will U.S. refiners be able to physically meet the demand for gasoline heading into the summer months? It's a more general national question.

MR. CARUSO: Our short term outlook answer to that question is that we will need substantial imports, particularly from Europe to meet the summer gasoline which we do in a normal summer but I think there a few things that make it a little more less certain this summer than previously, and that is Europe itself is operating at fairly high rates of utilization and freight rates are up which tends to cause them to keep the product home.

SEN. SCHUMER: Are you saying it's possible that the national average, which is now what, about getting close to $1.80, is it?

MR. CARUSO: It's 1.72 this week.

SEN. SCHUMER: Could it get as high as $2 or no?

MR. CARUSO: I don't know the answer to that for sure, but we --

SEN. SCHUMER: It's above $2 in I think California right now.

MR. CARUSO: Yes, it's 2.10 in California this week. But we'll be looking at that more closely when we do our March outlook. I think we'll be raising our previous expectation which was then a peak of 1.69. We've already exceeded that.

SEN. SCHUMER: Yes. It's a pretty good bet you'll raise it.

MR. CARUSO: We'll be raising that. A key is where we think crude markets are going and earlier we discussed the current price of WTI at about 36. But we do think that will, on average, come down and, depending on the exact timing of that, will make a big difference in whether we'll get much above the 1.72. Certainly the risk is there. I think as I mentioned earlier, there is an asymmetrical risk of a higher price and a higher volatility this summer given the tightness in the gasoline --

SEN. SCHUMER: Yes.

Anyone else want to comment on that? Mr. Saunders?

SEN. CRAIG: Mr. Saunders has made comment on that and if you would respond.

MR. SAUNDERS: Just to reiterate what Mr. Caruso said on the imports. We're already seeing very little levels coming out of Venezuela which supplies about 10 percent of U.S. gasoline demand-or U.S. gasoline imports as well as the rest of South America on this low sulfur stack. So if you run with interim numbers and if you put a 10 percent say decline in imports relative to last year and if you get a percent and a half of demand growth and if your yields are at normal level for this time of year, you're still about five million barrels or so in inventory lower than you were last year. Remember the prices spiked at this time last year and the only reason they came down was that demand was-it took a relatively long time in kind of coming through because we had a lot of wet weather in spring last year.

SEN. SCHUMER: So where does that lead in terms of the practical question that I get asked all the time, where does that lead the price?

MR. SAUNDERS: I think it is largely a question of crude price which I think is going to come down but I think it's going to be a very high gasoline price season really.

SEN. SCHUMER: Would you want to take a stab at what you think the average will be?

MR. SAUNDERS: Well, the retail-these guys are much more familiar on the retail side than I am, but if you say crude's going to stay up at $34 or $35, I see no reason to think east of California that you won't be above $1.75 or $1.80.

SEN. SCHUMER: Okay, thank you.

Anyone else want to comment on that? All right. Next-final question because I know my time has expired.

SEN. CRAIG: If you could that. We need to be out of here by 12:00 and I'm sitting here contemplating Chuck Schumer on a bicycle all summer.

(Laughter.)

SEN. SCHUMER: I ride a bicycle around New York.

SEN. CRAIG: Fascinating idea. Especially right down to the middle of New York City. Anyway, excuse me. Go right ahead.

SEN. SCHUMER: Mr. Chairman, in deference to that I'll submit written questions, thank you.

SEN. CRAIG: I didn't mean to scare you off.

SEN. SCHUMER: No, no. You sometimes do but this wasn't one of those times.

(Laughter.)

SEN. CRAIG: No loaded gun.