Legislature(1999 - 2000)
03/23/1999 08:33 AM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
GENERAL SUBJECT(S): WORLD OIL PRESENTATION
The following overview was taken in log note format. Tapes and
handouts will be on file with the House Finance Committee through the
21st Legislative Session, contact 465-2156. After the 21st Legislative
Session they will be available through the Legislative Library at 465-
3808.
Time Meeting Convened: 8:33 a.m.
Tape HFC 99-50, Sides 1 & 2
Tape HFC 99-51, Side 1
PRESENT:
House Finance Committee:
Senate Finance Committee:
X
Co-Chair Therriault
X
Co-Chair Parnell
X
Co-Chair Mulder
X
Co-Chair Torgerson
X
Vice-Chair Bunde
X
Vice-Chair Donley
X
Representative Austerman
Absent
Senator Adams
X
Representative J. Davies
X
Senator Green
X
Representative G. Davis
X
Senator Kelly
Absent
Representative Foster
X
Senator Leman
Absent
Representative
Grussendorf
X
Senator Phillips
Absent
Representative Kohring
X
Senator Wilken
Absent
Representative Moses
X
Representative Williams
ALSO PRESENT:
REPRESENTATIVE GAIL PHILLIPS; REPRESENTATIVE JOE GREEN; DAVID TEAL,
DIRECTOR, LEGISLATIVE FINANCE; PETER BOGIN, CAMBRIDGE ENERGY
RESEARCH ASSOCIATES; DOUGLAS MACINTYRE, US ENERGY INFORMATION
ADMINISTRATION, US DEPARTMENT OF ENERGY.
LOG
SPEAKER
DISCUSSION
000
Co-Chair Parnell
Convened the Joint HFC & SFC meeting at
8:33 a.m. He introduced Mr. Bogin and Mr.
MacIntyre and reviewed their biographies
(copies on file).
056
PETER BOGIN,
CAMBRIDGE ENERGY
RESEARCH
ASSOCIATES
Provided members with a handout for the
House and Senate Finance Committees from
the Cambridge Energy Research Associates
(Attachment 1, copy on file). He noted
that the price forecast is on the upswing.
He felt that oil prices reached bottom in
1988.
102
Mr. Bogin
Discussed the page 2 of Attachment 1, The
Oil Price and Production Cycle. As
investment rises production rises.
Technology is reducing the cost of
production. Production reaches a price
peak and declines. The cycle has been
reduced because the price does not have to
be as high to bring money into the
industry. Oil at $12 dollar a barrel is
profitable.
150
Mr. Bogin
Reviewed page 2, Tomorrow's World. He
noted that the implementation of new
technology has shifted the market. There
are signs of growth and recovery in Asia.
The world economy is growing. Emphasized
the impact of environmental concerns on
economic growth. The desire for clean air
and water will not end. Energy providers
must do business without spoiling the
environment. Providers must decide if they
should produce more now, due to a concern
that the future for oil will decline.
207
Mr. Bogin
Observed that all oil companies must be
part of a local community. Stakeholders
and shareholders want corporations to be
responsible.
241
Mr. Bogin
Discussed role of company versus role of
governments. The role between company and
government is becoming blended.
251
Mr. Bogin
Discussed page 3, The Blurring of
Boundaries. He noted that new political
alliances are being developed. There is an
exchange across borders. He discussed new
political alliances.
267
Mr. Bogin
Observed that technology is being blurred.
There is inter-fuel and gas to liquid
competition. Observed that there is new
information technology. Oil and gas
companies are expanding to become energy
companies.
302
Mr. Bogin
Noted that they are concerned with long
term supply energy and demand. See a
triangle of difference forces that impact
energy demand. Reviewed page 4. Technology
sets baseline of how energy supply and
demand will be affected. Noted that cars
use less oil today due to fuel efficiency
standards. Political decisions shift how
oil is consumed. Economics affect the
short-term of oil demand.
354
Mr. Bogin
Skipped ahead to discussed page 9, Science
and Technology Putting the Brakes on
Hydrocarbon-based fuel Demand.
379
Mr. Bogin
Reviewed page 6, The falling of BTU
Barrier. Observed that technology has
lowered the cost of all fuels, not just
oil.
382
Mr. Bogin
Discussed page 7, Choices for Oil Demand.
Noted that oil is not used as a power
generation fuel. The use of oil for space
heating is being closed by natural gas.
Petrochemicals are in competition with
natural gas. Oil is still king in
transportation. Noted that the price of
oil for transportation in Europe is much
higher. The cost of gas in France is $4
dollars a gallon. Noted France earns as
much from taxation as from production.
Questioned how long oil will rule
transportation. Noted research on fuel
cells to power cars.
456
Mr. Bogin
Discussed page 8, Ground Zero: The
Challenges to Oil at $0 dollars a barrel.
Noted that there are lots of countries
that have gas to sell. There are pressures
to show that oil is environmental
friendly.
469
Mr. Bogin
Summarized that the demand for oil will
not stay the same. Observed that the
computer age is in its infancy. New
technologies are being developed. The end
of the cold world has unleashed brainpower
on energy issues.
494
Mr. Bogin
Reviewed page 12, Changes in Oil Demand by
Region. Forecasting growth of one million
barrels a day. Could be as low as 700 to
800 thousand barrels a day. Asia is
recovering. Demand will grow three times
as quick as the previous year. Demand
needs to be higher to stay up with
production growth. Doesn't expect a repeat
of 1988.
515
Mr. Bogin
Discussed page 11, Demand Side Risks in
1999. He observed that Brazil would be the
key. Japan is a key trade partner. Japan
is still in an economic morass. China is
economically healthy.
539
Mr. Bogin
Summarized that demand is better than 1998
but not great.
545
Mr. Bogin
Discussed page 14, Supply. Noted that
production costs are below $10 dollars a
barrel. Some areas are below $5 dollars a
barrel. Sixteen dollars a barrel generates
activity.
557
Mr. Bogin
Reviewed page 15, Estimated Operating
Costs Around the World. Noted that Canada
and Venezuela have the biggest supply of
oil. Canadian oil sands have huge supplies
that would be profitable at $20 dollars a
barrel. Reserves put a cap of how high oil
prices can rise in the future.
575
Mr. Bogin
Discussed page 16, World Liquid Productive
Capacity Outlooks. Will be 7 million
barrels a day lower in the year 2005.
Economics was lowering how much can be
introduced. OPEC members did not wait for
economics to work. Oil production capacity
will keep up with demand. Demand is
dependent on oil price.
(TAPE CHANGE, HFC 99 - 50, SIDE 2)
002
Mr. Bogin
Discussed page 17, Supply Side Risks in
1999. Iraq is on an upside curve. Nigeria
has risk of civil strife. North Sea
production was disappointing. The greatest
risk is that the OPEC agreements won't
stand.
011
Mr. Bogin
Discussed page 19, Oil Market Regulation:
The Playing Field.
028
Mr. Bogin
Stated that gas will go up a few cents a
gallon.
036
Mr. Bogin
Reviewed page 20, The Regulators Hold Back
- For How Long? Asia's crisis is weakening
demand and creating a pool of oil that
wants to come onto the market. Risk is
that the success of the agreement can be
the start of its own demise.
062
Mr. Bogin
Discussed page 23, Total US Crude Stocks.
Stock growth impact will hit in second and
third quarter and lead to higher prices.
089
Mr. Bogin
Summarized that oil will be in the $12
dollar range. Prices are forced down by
supply if they get too high for the
market. Prices in the $16 to $20 dollar
range leads to market adjustments.
Co-Chair Parnell
Questioned time frame.
108
Mr. Bogin
Prices coming down because the price of
production is falling. Technology accounts
for increased production in the same field
and allows oil to be found in new
locations. Politics are allowing the
search for oil in new places. Prices will
continue to fall. Over 5 to 10 period the
cost will move down by approximately $2
dollars.
150
Representative
Green
Questioned if there is the same price
situation in mature fields.
158
Mr. Bogin
If price is high enough technology will
help to get more oil out of mature fields.
188
Mr. Bogin
Discussed page 26, The 1996-2000 Oil Price
Environment. Noted stability and felt that
the lowest curve would not occur.
Estimated that OPEC agreements will be
maintained and will lead to an average of
$13 dollars. Estimated $11.25 in the first
quarter. Estimated a $14.20 dollar a
barrel average next year. Possibly up to
$15 dollars a barrel on upside. Stressed
that oil prices estimates are dependent on
OPEC agreements and actions.
220
Mr. Bogin
Reviewed page 27, Y2K. The oil industry is
spending billions of dollars to fix the
problem. Nothing is expected on the supply
side until January 2000. Demand could
increase in the middle of 1999 as people
start to stockpile. This could affect
prices. There could be an upward swing
around the second half of the third
quarter. If nothing happens after January
prices will fall. If there are production
problems prices could remain higher
longer. Noted Alaska oil companies are on
top of the problem, but companies in third
world countries may not be as well
prepared.
276
DOUGLAS MACINTYRE,
US ENERGY
INFORMATION
ADMINISTRATION, US
DEPARTMENT OF
ENERGY.
Provided members with a handout "World Oil
Price Outlook" (Attachment 2, copy on
file). Observed that data collection of
the US Energy Information Administration
is independent.
319
Mr. MacIntyre
Discussed page 1 of Attachment 2, Outlook
for Alaskan Oil Revenues. Concluded that
Alaskan oil revenues will remain low, but
may increase in the year 2000. Observed
that Alaskan oil production is declining.
World oil prices are expected to increase
from historically low levels.
340
Speaker Phillips
Noted that one of Alaska's major producers
has been advocating "no decline after
'99." She asked if the opening NPRA and
ANWR was taken into account.
350
Mr. MacIntyre
Stated that only current policies and
production were included.
362
Mr. MacIntyre
Discussed page 2, Oil Prices and Alaskan
Oil Production. Alaska crude oil
production will be close to 1 million
barrels a day by the year 2000.
369
Mr. MacIntyre
Reviewed page 3, Outlook for Alaskan Oil
Revenues. Pointed out that their estimates
do not account for inflation.
373
Mr. MacIntyre
Discussed page 4, Why Are World Oil Prices
so Low? Prices are low due to increases in
oil production in Iraq, less demand of
Asian countries, warmer than normal
winters in the last 2 to 3 winters, and
increases in oil supply. In 1997 there was
a lot of supply growth. Sustained high
prices lead to greater investment and
increased supply.
398
Mr. MacIntyre
Discussed page 5, Factors Influencing
World Oil Market, Part 1 - Iraq. Noted
that because of the oil for food agreement
that Iraq has increased production to 2
million barrels a day. Most of the growth
that can occur in Iraq has occurred.
411
Mr. MacIntyre
Discussed page 6, Factors Influencing
World Oil Market, Part I - Iraq continued.
There has been a lot change in Iraq
production. The current production program
goes through May. Future increases will be
smaller.
433
Mr. MacIntyre
Reviewed page 7, Factors Influencing World
Oil Market, Part 2 - Asia. They are
projecting 1.5 million barrels a day
production for Asia. This is 2 million
less then what was projected.
454
Mr. MacIntyre
Discussed page 8, Factors Influencing
World Oil Market, Part 2 continued. Growth
in Japan has declined. Other Asia
producers have slowed growth. Less impact
in China.
462
Mr. MacIntyre
Discussed page 9, Factors Influencing
world Oil Market Part 3, Warm Weather.
There has been warmer than normal weather
in the Northeast US and Western Europe
over the past 2 - 3 years. These are
regions where heating oil is still being
used for space heating.
480
Mr. MacIntyre
Discussed page 10, Factors Influencing
World Oil Market, Part 3 continued. 1992
and 1993 were warmer than normal. Cyclical
patterns where demand peaks in last two
quarters. Last two winters were even
warmer than 1992 - 1993.
494
Mr. MacIntyre
Discussed page 11, Factors Influencing
World Oil Market Part 4 - Other Supply
Increases in 1997. Iraq is still the major
OPEC producer. OPEC growth overall in 1997
was 546,000 barrels a day. Overall
production increased by 2 million barrels
a day.
513
Mr. MacIntyre
Reviewed page 12, Recent Energy
Information Administration (EIA) World Oil
Price Forecasts. EIA did not forecast fall
of price. Forecasts price around $11
dollars a barrel. The forecast was set
before the OPEC announcement of March 23,
1999 to cut more production.
(TAPE CHANGE, HFC 99 - 51, SIDE 1)
001
Mr. MacIntyre
Expects prices to rise. Noted a balanced
1999 market. Demand and supply should be
equal. If OPEC cuts only half of their
projected amount there would be a draw on
oil stocks that have been built up.
035
Mr. MacIntyre
Discussed page 13, Long Term Outlook: No
Improvement. Less than 1% annual increase
in world oil price.
051
Co-Chair Torgerson
What number is being used for inflation?
058
Mr. MacIntyre
Observed that between 1997 and 2020 there
would be less then a 1- percent increase.
Noted that increase would be less then
inflation. Observed that when oil prices
flatten out is unknown.
081
Mr. MacIntyre
Summarized that long term analysis is for
a steady decline through the year 2020.
The year 2000 should be slightly better
than 1999.
112
Mr. MacIntyre
Reviewed page 14 and 15, Energy
Information - A Click Away. Noted that
there is a lot of information on their
website.
145
Co-Chair Parnell
Observed that the meeting was intended to
enable the committees to make better
decisions. He asked for impressions on how
the information impacts long term fiscal
planning.
159
Co-Chair
Therriault
Without a dramatic change in production,
prices are not going to be the state's
salvation. He stressed that an upward
swing will not make the difference without
a major find. It will be tough to keep up
with the decline in production from
Prudhoe Bay.
179
Senator Phillips
Stressed that the state needs to prepare
for the worst and hope for the best.
184
Speaker Phillips
Stressed that it would be wise to look at
the range of a two-dollar decrease.
Shouldn't look higher than $14 dollars.
199
Senator Wilken
Emphasized that the good news is that it
is not going to get much worse, but noted
that it is not going to get much better.
Committed to the creation of a 10-year
financial plan. Slight price increase does
not lessen the responsibility for a good
course.
206
Representative
Green
Observed that Alaskan producers assured
the state that they would spend as much on
the last years of their fields as they did
in the beginning. He suggested that this
would be curtailed due to the low price of
oil. This will lessen supply. The rate of
decline will be greater. The outlook could
be as bad or worse. Cannot anticipate a
higher rate. Need to bite the bullet.
238
Co-Chair Torgerson
Observed that the financial projections
from the Department of Revenue show prices
of $17 - 27 dollars a barrel. Doesn't
expect the price to be as good.
249
Vice-Chair Bunde
The ride is over. Might not be worse in
the near time, but the pipeline will need
to be dismantled at some point. Focus will
shift to gas and allow opportunities
264
Representative G.
Davis
Any plan should have an upside and a
downside to allow flexibility.
273
Senator Leman
Stated that the information is not new.
Observed that the information is
consistent. The challenge is to address a
methodology to respond to unexpected
draws.
294
Co-Chair Parnell
ADJOURNMENT
The meeting adjourned at 10:37 a.m.
JOINT HOUSE AND SENATE FINANCE COMMITTEES
LOG NOTES
March 23, 1999
Joint HFC & SFC 1 3/23/99
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