Energy

Floor Speech

ENERGY -- (Senate - July 17, 2008)

BREAK IN TRANSCRIPT

Ms. KLOBUCHAR. Mr. President, I have been coming to the Senate floor to address the price of oil for several months now. It continues to astound me that every time I speak, the prices continue to go up.

The average price of a gallon of regular gas hit $3.95 in Minnesota and $4.11 cents nationwide. The price of diesel fuel is at $4.76 per gallon. The price of crude oil recently hit an unbelievable $145 per barrel.

There seems to be no relief in sight. Prices have gone up more than $1 per gallon over the last 6 months. Everyone knows that demand has not gone up 25 percent over the last 6 months, but the prices have gone up $1 per gallon over the last 6 months.

This increase is astonishing. Even more astonishing is the fact that the administration has continued to do nothing about the speculation issue, continues to do nothing to push the CFTC to use the tools it has and to push for more tools to do something about the excessive speculation that is going on in this market.

We cannot continue to do business as usual. I have heard from people in Minnesota who have canceled their trips up to their cabins because they simply cannot afford to fill their car with gas anymore. They have canceled their summer vacations. These are not glamorous summer vacations, these are little cabins up on the lakes of Minnesota.

I have heard from farmers who are having a hard time making ends meet, even in spite of the high commodity prices, because the cost of their input, diesel fuel for farm equipment and fertilizer made from natural gas, has spiraled out of control.

I have heard from the CEO of Northwest Airlines, based in Minnesota, about how the speculation in the oil markets has so greatly contributed to their cost and made it very difficult for them to continue business as usual with prices going up, grounding flights, not having as many flights leaving, leading to more delays in the summer, because if a passenger misses it, and we had a hearing on this in the Commerce Committee--there are not as many backup flights because there are not as many flights.

So the list goes on. The high price of energy has inflated the price of everything from groceries, to transportation, to home heating. It has impacted every sector of the economy, from manufacturing to forestry, to farms and small businesses.

Middle-class families are already struggling, as you know, with the high cost of health care and college education. We know we need to do things about that, but we keep getting blocked. We are very hopeful, with the new President, that we are going to be able to get things done for the middle class.

But for now, we have people in my State who simply cannot afford the price of gas when you couple it with everything else that has been going on in their lives. We know the statistics. We know what has been happening, where average families in the last 8 years, their wages have gone down about $1,000 a year, but their expenses have gone up about $4,000; so that is a net loss of $5,000 a year to them.

Many of the people in my State, and I know you know this, Mr. Presiding Officer, in Colorado, many of the people in my State are in rural areas. They do not have access to public transportation. They do not have a choice in how much they drive. They have to get to work. They have to get to the grocery store. They have to get to the doctor. Any pay increase they have gotten in the last year, if they have gotten one, has been eaten up by the cost of gas.

More often than not, I will tell you, there has not been a pay increase. But yet, as recently as February of this year, the President seemed taken aback when someone asked him about $4-a-gallon gas. He said:

You are predicting $4-a-gallon gasoline? That is interesting. I had not heard that.

The fact is this administration has failed to provide Americans with a meaningful energy policy that would provide relief from high gas and energy prices. They saw this coming. They saw it was going on in the international markets but they failed to act. This country needs a bold energy policy for the future, a policy that will stabilize prices and give consumers more alternatives and reduce our dependence on foreign oil and provide us with the next generation of homegrown biofuels.

In short, I believe we have to invest in the people, the farmers and the workers, from my perspective, of the Midwest, not the oil cartels of the Mideast. The same could be said of any area of this country. This country spends $600,000 every minute on imported oil. That money leaves the pockets of American drivers, going overseas, and contributing to our enormous trade deficit. It amounts to a tax on the families and businesses of this country, and it undermines our national security.

Why does it affect our national security? That is because America has roughly 3 percent of the world's proven crude oil reserves, but we are responsible for about 25 percent of the world's oil consumption. Now, we know we cannot continue on this path without becoming more and more vulnerable to other parts of the world, some of which are politically unstable, some of which we do not want to do business with.

But there is another way. If you look at what is going on in Brazil, they have achieved energy security with a combination of biofuels. Now, they have sugarcane, so it is easier. But we have all kinds of things. We have all kinds of things: Switchgrass, prairie grass, that has not even been developed, other parts of the corn. We know we cannot do it all with corn. We are talking about algae, we are talking about biofuels. We are talking about residue from logging. There are all kinds of possibilities.

But Brazil was able to do it with a combination of sugarcane and domestic production and a government policy that drove them to energy independence. We need to put together a forward-looking energy policy with the same sense of urgency we had 40 years ago when we put a man on the Moon.

In the long term, this is going to mean strategic investment, putting these standards in place so people will push to buy the hybrid cars, electric cars, new solar technologies, cellulosic ethanol, other forms of energy for biomass.

We need to have better fuel efficiency standards for our cars and trucks. I am proud the Senate, on a bipartisan basis, for the first time since I was in junior high school, increased the gas mileage standards on cars by 10 miles a gallon. But there is so much more we can do.

We need a renewable electricity standard, we need to look at other sources, as I said, solar, we need to do more with nuclear, we need to do more to increase responsibly our domestic production. We need to have functioning refineries.

These are long-term solutions. I believe very strongly they are important, and we need to get them done.

But there is also something we can do in the short term about high gas prices that will bring immediate relief; that is, to address the role market speculation is playing in driving up energy prices. The administration likes to tell us these high gas prices are just a simple case of supply and demand; more people are driving, so the price of gas goes up. We know that is not true in our country. Fewer people are driving. There have been some increases internationally, but when the expert, Mr. Yergin, testified before our committee, he said there has been sort of a leveling off in terms of demand for world oil. Whatever it is, we know that even if there has been an increase in demand, it hasn't been 25 percent, such as we have seen with the dollar-a-gallon increase in only the last 6 months. The answer that it is just supply and demand doesn't hold true any longer.

Listen to the oil executives on this matter. On October 30, 2007, the CEO of Marathon Oil said:

$100 oil isn't justified by the physical demand in the market.

On April 11 of this year, the CEO of Royal Dutch Shell said:

The [oil] fundamentals are no problem. They are the same as they were when oil was selling for $60 a barrel.

On April 1, a senior vice president of ExxonMobil testified before the House:

The price of oil should be about $50-55 per barrel.

If oil should be roughly $50 to $60 a barrel given market fundamentals, as we heard from the oil executives, why is it trading so high? Why is it trading at over $100 a barrel? If supply and demand, which should be the market forces which determine price, don't explain the high price of gas, what does? According to the experts, there is a frenzy of unregulated market speculation in the oil futures market that is driving prices up to record highs.

I would like to share a quote from an energy market analyst with Oppenheimer and Co. who was recently named by Bloomberg as the top-ranked energy analyst in the country:

I'm absolutely convinced that oil prices shouldn't be a dime above $55 a barrel ..... Oil speculators include the largest financial institutions in the world. I call it the world's largest gambling hall ..... It's open 24/7 ..... It's totally unregulated ..... This is like a highway with no cops and no speed limit, and everybody's going 120 miles per hour.

Why are these trades in a commodity as vital as oil unregulated? You have to go back in time, to the middle of the night in 2000. A provision was inserted into the Commodities Futures Modernization Act that exempted electronic energy trades from Federal regulation. In the absence of oversight, what was once a small niche market became a booming industry, attracting rampant speculation from hedge funds and investment banks, the largest financial institutions in the world. Oil and natural gas prices became volatile. The provision came to be known as the Enron loophole because it made possible the many abuses that triggered the Western energy crisis and led, in part, to the collapse of Enron and cost the economy $35 billion and 600,000 jobs.

I am pleased to say that we succeeded in partly closing the Enron loophole in the farm bill. Those provisions will provide new protections in the natural gas market. They will put a new regulatory structure on ICE, the electronic exchange in Atlanta, where large traders try to game natural gas futures on an unregulated electronic exchange. But we need to do more. That is why I am proud to be a cosponsor of the Stop Excessive Energy Speculation Act of 2008. It was introduced by our leader, Harry Reid, and my colleagues, Senators Durbin, Schumer, Dorgan, Murray, and others.

This bill has a number of provisions that will fight the kind of excessive speculation that drives up energy prices for hard-working American families.

This bill will close the so-called London loophole. It will stop traders from routing transactions through offshore markets in order to get around limits on speculation put in place by U.S. regulators. Specifically, the Intercontinental Exchange, or ICE, in London allows trading in American oil futures, gasoline and home heating oil, with far less stringent reporting requirements than what we have at home. This has driven a lot of energy trading offshore and out of the reach of our regulators. This bill will make those foreign trades in American oil and gasoline futures subject to the same reporting requirements as trades made at home, so we can stop a glut of overseas trades from driving up our energy prices.

The bill would also require the CFTC to review letters of no action it has issued to the ICE electronic exchange in Atlanta and the Dubai electronic exchange which operates in cooperation with NYMEX in New York. With those no-action letters, the CFTC gave these exchanges permission to operate in this country and trade in American energy futures with no oversight from U.S. regulators. I don't think I can tell the people of my State, in Duluth or Rochester, that they should rest easy because the Dubai Financial Services Authority is looking out for them. They know that is not true. We need to let speculators know that if they want to trade in American energy futures, they are going to be subject to American regulation.

We had the head of the CFTC testify before a joint meeting of the Agriculture and Appropriations Committees. I still can't quite believe the meeting. He was happy that we will give him more people to work in his agency since they have had an enormous decrease at the same time we have seen an enormous increase in rampant speculation. But I tried to push him. I said: When I was a prosecutor, I would want every potential way of trying to get evidence, trying to prosecute a case or get a sentence or a bill if it made sense and we could use it in going after a crook. It wouldn't mean we always used them. Some of them we maybe used once a year. With some of them, we have a hammer over someone's head. Some of them we used all the time. But you want to have those tools. He didn't seem that interested. That was the moment I thought: We are going to do everything we can to prop up this agency and get it moving, but we have to have people in charge who really want to do the job.

That is why I am so concerned about this administration. You haven't seen the same thing in the financial services area, where you have Secretary Paulson and Ben Bernanke working hard on this crisis, along with people in Congress on an equal footing, trying to get things done, communicating with us. I just didn't get that same feeling when we had that testimony before our committee.

What else will this bill do? This bill will also convene an international working group of financial market regulators to develop uniform reporting and regulatory standards in the major trading centers of the world to put an end to this problem of speculators shopping around the world for the weakest regulations.

The bill will require the CFTC to impose position limits on speculators who trade in energy futures but don't actually produce energy or receive physical delivery of energy commodities. So if you are an investor who buys and sells oil futures but you don't plan to even take delivery of actual barrels of oil, this bill will limit how much you can buy and sell so that you won't be distorting prices for your own personal gain. We know that has been going on. A lot of these people took the money, the funds, out of the subprime mortgage market and then started playing around in the oil market even though they are not truly involved.

Lastly, this bill is going to give the Commodity Futures Trading Commission the funding authority to hire at least 100 full-time employees so that the Commission can strengthen its regulations and improve its enforcement over the energy derivative markets. As a former prosecutor, I can tell you that good laws are not enough. You also need strong enforcement. You need the cops on the beat so that you can follow the money. When we follow the money in this $4-a-gallon gas, when we follow the money, we know where it is going to lead. We know it is going to lead--at least a piece of it--to market manipulation and speculation.

In conclusion, the cost of energy is hurting Americans from all walks of life and businesses in every sector of the economy. I don't think there is one silver bullet that will solve our energy crisis. It is more like a silver buckshot. We need a bold energy policy to carry the Nation forward. It needs to include both short-term and long-term solutions.

In the short term, we need to pass this bill and place stronger limits on market speculation. That will make a difference in the short term.

In the long term, we need to develop our energy resources at home. We need to improve refining capacity. We need to improve our domestic production. This is for the long term, so when speculators, even legitimate ones, are looking at America and thinking how much the price of oil is, they need to know we actually have a long-term plan. That, ultimately, is what will bring down the price, when they know we are ready to compete with big oil, that we have a plan, using increased efficiency of cars and trucks, that we have a plan which means looking at biofuels and truly having a competitive force. Maybe it is not E85; maybe it is E10, E20, so we have a blend of fuel. We have to invest in the research to get us those vehicles and get us that energy. We have to make a national commitment to generate electricity from renewable sources, just as my State of Minnesota does. I know there is groundbreaking work occurring in Colorado.

Finally, we have to embrace conservation. This is no longer Jimmy Carter going on TV in a sweater and looking glum. The people of this country see this not only as an environmental issue, they see it as an economic issue. They want to save a few bucks, whether it means putting in the right kind of lightbulbs or meters on their washers and dryers so they can figure out when to run them, whether it is more fuel-efficient cars. They want to do something differently. They are ready in my State to embrace conservation as a way to save money for their families.

The time is now for Congress to take strong steps toward creating a bold energy policy. American families are depending on us.

I yield the floor and suggest the absence of a quorum.

Source