of our analytical peers believe it can. higher oil prices have put some expansion projects elsewhere back on track while the application of shale gas technology to tide oil has transformed u.s. upstream oil prospects, as doctor said. light tide oil alone could grow by 250,000 barrels per day, to reach 870,000 barrels per day in 2012. in fact, increased supply from the united states, canadian oil stands, and brazilian deepwater output generates much of the expected 1 million barrels per day growth we see for non-opec production in 2012, with russia, biofuels, and natural gas liquids also making significant contributions. while there are, of course, downside risks to this forecast of non-opec supply growth, oil demand might also fall short of our expectations. recently announced revisions to the imf's world economic outlook

posit global gdp growth for 2012 at 3.3%, compared to previous forecasts that were nearer to 3.9%. arguably, downside risks for demand and non-opec supply might balance each other out. if so, opec may well try to navigate through 2012, producing at or around 30 million barrels per day, implying underlying spare capacity of between 3 million and 4 million barrels per day. now, this estimate of spare capacity will come under scrutiny as another looming supply-side issue for 2012 unfolds. i'm speaking of iran. the recently announced u.s. sanctions on entities having financial dealings with the iranian central bank and the new european union embargo on oil imports from iran will clearly affect the mix of crude oil supply available on a regional basis, even if absolute levels of global crude supply may be impacted to a lesser degree.

iran currently exports around 2.5 million barrels per day of crude oil, which 65% of this going to asia and some 30% into europe, mostly to refiners around the mediterranean. a significant portion of the 1.3 million barrels per day of iranian crude imported by iea member countries, which, of course, include some countries in asia, like japan and korea, anyway, increasing a significant portion is likely to be affected by these measures. even if refiners will have until june or july to source alternative barrels, most are already looking for incremental supplies from outside iran, which is exactly the the intent, of course, of the sanctions. in terms of crude quality, buyers are likely to seek extra barrels from saudi arabia, russia, or iraq, to make up from lost sales from iran. while saudi arabia has publicly reassured customers that it will meet their requirements, analysts have raised questions

over the extent of the kingdom's spare capacity, the proportion of arab medium, which is a good substitute for the bulk of iranian exports, within that spare capacity, and the kingdom's logistical flexibility to reorient its exports to european refiners. ultimately, refiners denied the ability to import iranian oil will most likely find the extra barrels they need, but perhaps at higher prices than might otherwise have been the case. of course, iranian authorities also have threatened to institute an embargo of their own on exports to europe, and to impede traffic through the strait of hormuz. the latter threat is of greater concern to world oil markets. 17 million barrels per day, equivalent to some 20% of global oil supplies pass through the strait. to a degree, such threats have already been factored into market prices, we believe, and the likelihood of a prolonged

blockage of hormuz transits is seen as being fairly low. mr. chairman, in sum, all of this suggests that those who are seeking a more tranquil oil market in 2012 may well be disappointed. at the iea, we'll continue our monitoring of oil market conditions and in particular the availability of alternative market supplies. no physical disruption of oil supply has occurred yet, but as always, the agency will remain vigilant and stands ready to act rapidly and decisively if a major disruption occurs. thank you, mr. chairman. >> thank you very much. mr. burkhard, go right ahead. >> mr. chairman and senator murkowski and other members of the committee, thank for the opportunity to share some thoughts with you today. mr. chairman, as you mentioned, 2011 was quite turbulent because of the libyan civil war, the eurozone crisis, iran, and the slowing global economy. at the same time in 2011, we saw

the highest annual average oil price ever on an annual average basis. but the energy story is not just limited to high prices and geopolitical concerns. that's very important and i'll talk about that in a little bit. but the energy story in the united states is also about creating jobs and economic growth and more domestic supply. one of the most significant stories or developments in the energy markets in recent years is what we call the great revival. the great revival in u.s. oil production. the long decline in u.s. production was never supposed to end, but it has come to an end, and between 2008 and 2011, over that the three-year period, u.s. liquids production, so that's crude oil, natural gas, liquids, some biofuels, u.s. liquids production grew by 1.3 million barrels per day in that three-year period. that was the biggest increase during that time by any country

in the world, just for context, the number two source of growth was russia, which grew by about 500,000 barrels per day. north dakota is an important part of this story. north dakota a few years ago wasn't producing much oil. today north dakota produces about as much as ecuador. ecuador is a member of opec. i don't want to suggest north dakota's going to join opec, but it does give you a sense of the context, how big that increase has been. looking out over the next decade, when we look at the potential for the u.s. and canada combined, we see the potential for u.s. and canadian production from 2008 to 2020. over that 12-year period, to grow by about 4 million barrels per day. that's more than what iran produces today. that's the potential, it's quite significant. on the demand side, we've seen peak demand.

we believe u.s. demand for oils peaked in 2005. and given these supply and demand trends, imports in 2020 are likely to be well below what they were as likely in 2005. and for illustrative purposes, if you've seen the price of oil's $100 in 2020. and given these demand and supply trends, the u.s. import bill for oil could be about $182 billion less than what it otherwise would be. and that $182 billion is about one third of the 2011 trade deficit, the entire trade deficit. these gains, these increases in u.s. production and canadian production are not guaranteed. impacts on local communities and the environment, obviously, need to be addressed appropriately there are new questions that have been raised about the pace of growth in the canadian oil sands, which is an important part of this continental growth story. but the potential is significant. and if it were to be realized, and perhaps spread to other

places around the world, it would be a source of downward pressure on oil prices. getting to the broader oil market, there's a tug-of-war right now between slowing global economic growth and geopolitical concerns. oil demand growth is weak, the global economy has slowed over the last year, which would see to be a recipe for lower prices, yet prices are high. why is that? limited spare capacity and geopolitical concerns. spare capacity, which is the oil market's shock absorber, is quite low, today compared with recent years. we estimate it's around 2 million barrels per day, roughly. 2 to 2.5.cole years ago, it was about 5.5 million barrels per day. so spare capacity is significantly less. in 2012, the iranian nuclear issue could have a significant impact on the oil market. the combination of tighter u.s. and european financial sanctions, the european oil embargo on purchases of iranian

oil, political infighting in iran, and iran's growing fear of encirclement creates a volatile atmosphere where miscalculations could lead to grave consequences. an escalation of efforts to disconnect iran from the local economy has increased supply anxiety, the anxiety about the oil supplies, which is a key support for high prices. assessing the future course of the oil market is always a challenge, and this year, there's a wide spectrum of potential outcomes. if the eurozone crisis were to worsen, we can't rule out a recession this year, which could lead to economic worries, overwhelming the geopolitical concerns right now. so any oil market outlook faces uncertainties, but in 2012, the uncertainties are perhaps broader than usual and fraught

with risk. however, the great revival in u.s. oil production and gas production are sources of growth and secure production at a time of heightened anxiety. thank you. >> thank you very much. more diwan, thank you for being here, and please go right ahead. >> good morning. and it's an honor to speak again for the u.s. committee on oil and natural resources. i'll focus my remarks on the state of the oil market in the beginning of the year and talk a little bit about what's happening in our states. the way i'm looking at the oil market and the way to summarize what the panel before me has said is really we have a bipolar crude oil market, where we have significant downside risk because of the economic conditions in europe and on the other side, we have significant upside risk, because of the tensions with iran and the possibility to lose some supply from this market. and the implication of losing

barrels from the persian gulf. if you look at the forward-looking balances, we are seeing that the acute market tightening experience in 2011 is not likely to be in store in 20 2012. demand in underperforming. we believe, actually, demand will be probably smaller than what the iea believed, probably below 1 million barrel per day on average with significant downside. with a few exception, when we look at oil demand globally, it's negative or the gross is decelerating, particularly in asia decelerating. and growth is only focused on the middle east, latin america, and asia. the bulk of the weakness is in europe and also in the united

states where we have significant structural trends of declining demand. on the supply side, we had a very disappointing year last year, because we had obviously the problem is in libya, but we also had a number of problems during the summers, which we all believe are one off and not recurring. a lot of supply and new project coming online, mostly from the u.s. canada, and russia. we don't believe actually brazil will be able to add a lot of barrels this year. there is one uncertainty that we haven't talked about, which is iraq. baghdad maintains an optimistic outlook on production growth of around 500,000 to 600,000 barrel per day in 2012. in our view, the iraqi government forecast is over optimistic, given the security condition on the ground. we also have to remember we're basically lost two small

countries in the recent months from production sudan, recently, syria, a couple months ago. we might still have problems in libya and nigeria, they're not solved. the supply risk are still abundant, even if we still believe we can have a million barrels per day of growth from non-opec crude and liquids and opec liquids. we also need to talk about iran and the impact of sanctions. when we look at the potential countries that iran could divert its european supply to, we actually don't see a lot of them, and we don't see a lot of countries willing to be more reliant on iranian barrels. so there's a good chance that by the end of the year, that iran will have to shut down 400,000 to 500,000 barrel per day that need to be replaced by other producers. we need to take into account that forcing opec to produce more, reducing further the spare

capacity, which is not very large to start with. and if you add to that the supply risk that i talk about, that would make oil market pretty nervous. finally, from the u.s. perspective, the development of oil production and the decline in oil demand mean that security and reliability of supply is rising. last year when i testified here, i was asked, where do i believe the best place to invest, and i answered to many of you were surprised that it's the united states. and we see that now, where we have the full revolution, if you want, in gas being translateded to oil. we believe, actually, by 2020, the united states will become again the largest producer of hydrocarbon in the world, surpassing russia. and what we have seen between 2004 and 2008 in the u.s. gas market, the increase in prices has allowed the industry to

crack the shale code and to unleash this new golden era in the u.s. oil patch. and this gold en era veiis real reshaping the oil and gas industry. we feed to think that when you look at investment globally right now, in the last three years, the u.s. has been key area of investment flows, if you look at the last ten years, a producer in the united states used to produce, make profit here and invest abroad, because they didn't believe they can make sustainable reinvestment in the united states, what we see right now is exactly the contrary. the global oil and gas industry is making profit all over the world and investing in the united states. the united states is a net absorbant of cash. and that's a huge change in the industry. thank you. >> thank you very much. senator manchin, did you have a question you wanted to ask at the beginning? i was told you had to leave.

[ inaudible ] okay, why don't you go ahead. >> thank you all of you for coming -- thank you. and i'll get right to the point. it's the xl pipeline, and i'll ask all of you to comment, but i'm having a hard time why this has become a political football. it makes so much sense that you want to buy off your friends and not your enemies. and i think going down where we're going to go with the jobs, i want to hear y'all's maybe a yes or no, maybe a comment. there should be jobs created in the united states by this building of the pipeline. i understand that there's a difference between what the state department has done, the environmental, versus the epa. our own government's fighting among itself for whatever reasons. and next of all, the ability that alberta and canadians are going to produce this no matter what. and if china becomes a player or the asia becomes a player

market, taking this product, if we don't, what it does to our security and security should be the most factor, i think the main factor of what we should be concerned about. so i would ask, i think, the question i would ask and doctor, i'll start with you, if you would, do you believe the oil sands will be developed, no matter whether we buy it or not? >> at the -- thank you. at the prices we have in our long-term projections, the oil sands would likely be -- the oil sands, tar sands, call them what you will -- would likely be developed whether or not we purchase. >> okay. and does everybody agree, ambassador, do you agree, that they're going to develop the oil sands? >> yeah. i would agree with that. >> okay. i'm sure that everybody else agrees with that too. and i would assume that you all think that would be a job creator for america if we built it through, into america? do you all agree that there

would be jobs? i'm sure there has to be people, jobs to build the pipeline. so it would be a job producer for us? >> well, again, this goes a little bit beyond what eia does -- >> but common sense. you're experts. common sense, it takes americans to build it, right? ambassador? >> well, you'd have an initial spurt of construction jobs and then you'd have some jobs to operate the pipeline. i'm not sure what the numbers would be. i don't know that it would be a great percentage of increase in employment, but there would be some increase, sure. >> yes, it would create jobs, and i think the broader -- a broader point here is the oil sands development in alberta, there are many american companies that are involved in that, so the american economy does benefit from further development of the oil sands as well. >> which country would benefit most if america does not build a pipeline and that product does not come? who would take it and who would

benefit most? >> i think it's likely not to be built, is the case. i think it's very difficult to send that oil outside of the united states for canada, to take it to the west coast and ship it abroad, actually pose even bigger environmental concern. so let me try to answer a little bit differently. i think what we're seeing here, between the development of the oil sand and the united states -- >> sorry, i hate to rush you, i don't have much time, they only give me so much time here, and i'm going to have to run. but you're saying, you think they're going to be held captive? and we're understanding that the alberta province is already meeting right now with china? has already developed this? >> correct. but it's, i mean, from all the comics, if you look at it, this oil is most likely to come to the united states. and by the way, we still have capacity for the next four, five, six years to absorb with the present infrastructure that oil. >> thank you. doctor, if i could, i want to switch to the manufacturing jobs that in sourcing is the new word, the new buzz word we're

all using now. we want to start building things again in america. as i'm understanding and senator murkowski just talked about the now projections as far as what our supplies will be for the shale and shale gas, west virginia's been a big player in marcellus, as you know. and the coal and everything we've been blessed with. if that's been downgraded now to the point where it could affect the cost of what we would manufacture, do you see the supply having a big impact on pricing and us manufacturing in this country again, by not having the dependability with the slashing of the reserves? >> i think this reserves or resources story is a more accurate way to phrase it, because i think the numbers we're talking about are total recoverable resources, not reserves, which is a much smaller number. but i think sometimes too much

emphasis is placed on the estimates of recoverable resources. in fact, you know, despite this downward adjustment that we made, in fact, our natural gas production and price projections are actually lower in the new outlook than in the previous one. i would say that, you know, our -- we rely very heavily on the geological survey for information about geology. they came out with a new assessment of the marcellus after we published our last year's outlook. they raised their estimate of marcellus resources 40 fold from 4 trillion cubic feet to 84 trillion cubic feet. we had been using a number like 400 trillion cubic feet. after looking at what they had done and also looking at well productivity data, which continually comes out, you know we deferred to the ds on geology, but looking at the latest well productivity data,

we came in somewhat higher than the gs number of 84 trillion cubic feet. so it's lower than what we had in the last outlook, but it's higher than what gs came out with recently. it's a lot of natural gas. again, our outlook is out there. our view is that the u.s. would become a net export, our prices are lower than in last outlook. so i understand the entire to focus on one number and changes and disputes in that number. i think this will be an issue that we face for a long time. total recoverable resources is a squishy concept of what's under there. but i think the united states has a very bright future with natural gas. >> thank you. and if i may, just one second, mr. chairman, if i could, just

real quick, i'm concerned about the jobs we would be capable of even producing here, with manufacturing and so on, with the rising cost of our energy, making it more difficult to use our natural resources such as coal, the natural gas, the downturn as far as production of what we have. do you see that as a long-term concern and a problem? >> right now with the increasing display in the united states, the gas prices have fallen. and i think oil prices in the united states may also be, i mean, right now, wti, kind of the marker crude for the united states is running under brent by about 10 bucks a barrel. the differential has been even greater in the last year. it peaked at 24 or 27 or something like that. relatively speaking, u.s. prices are relatively low. if prices go down, that could be

a stimulus to the economy, but prices in the united states are generally lower than in other markets already. >> thank you, sir. >> thank you. senator murkowski? >> thank you, mr. chairman. dr. gruenspecht, just very quickly, i want to ask for some clarification here. there's an article coming out of a local alaska newspaper from yesterday that indicates that the alaska to alberta gas pipeline, the proposal that's been under consideration for several years has been taken out of the outlook reference case, because it determined that the project would not be economical based on the price forecast through 2035. and then there is another statement that says that the final 2012 outlook, which is to be issued in the spring, will, in fact, include some aspect or

will include alaska in its determination. can you help clarify this for me? the statement is eia's new outlook could bode well, but the full picture won't be known until this 2012 outlook. >> in terms of the piping natural gas from alaska, we had -- it had already been out of the reference case. >> right. >> which, again, is just a projection of last year's outlook, and it still is. and primarily for the same reason. that at the prices of natural gas that are now being projected, the economics are tough. >> the economics are tough for an overland route through canada into the lower 48, but do you take into account alaska's natural gas potential and opportunities for it for export? >> we will look closely at that going forward.

>> several of you have discussed the issue of spare capacity, and i think it was you, mr. burkhard, that indicated to to -- i think you said 2 billion barrels per day, down from 5 million barrels -- did i say million or billion? 2 million barrels per day is our spare capacity. and mr. diwan, you have mentioned some of the supply risk factors that are out there, some pretty considerable risks, whether you're talking about iraq and their ability to move things online. we don't know with nigeria, you mentioned sudan, syria, strait of hormuz with iran. when we're talking about supply risk, it is very, very difficult

to predict. so i guess the question is, how certain are we that we do have spare capacity in the numbers that you have referenced. and given the volatility that you have with the supply risk out there, how are we dealing with this? you had mentioned, mr. diwan, or excuse me, i guess it was you, mr. jones, you state that to a degree, threats surrounding strait of hormuz have already been priced into the market, while the likelihood of a prolonged stoppage for hormuz transit is seen as being fairly low. so when we're talking about what is going on with the price of oil, what we have available with spare capacity, what we know, and perhaps what we don't know with supply risk, what -- to what degree, ambassador jones, has the uncertainty already been

priced into the market? ho do we know that? these are some pretty gnarly questions that we're dealing with here that go to the heart of the reliability of any kind of an assessment, that any of you may do. so, ambassador jones, if you want to start first, and then we'll go down the line here. >> well, when we look at the situation to market, we basically see actually quite a bit of price stability over the last year plus now. prices peaked around 120 in april, i think it was, of last year. and they've been oscillating between 120 and 100 ever since. >> but the you had price stability last year, the picture going forward is a little -- >> well, i'm getting there. >> okay. all right. >> so what's been going on, we

basically see that the concern for the disruptions has put a floor under prices. that's at about the $100 level. and the concern of -- yeah, that's put a floor and a ceiling on prices is put because of the fear of economic activity. because we all know that if prices go up, it produces an external burden on importers. for example, i said last year before this committee that all the or several major recessions had been proceeded by an oil import bill of 5% or more. and in 2011, we had an oil import bill for the world of 5% or more. so there has beconstant pressur put on the world economy. so you can't look at it in isolation. yes, there's risk he