Testimony of Kenneth B. Medlock III
James A. Baker, III, and Susan G. Baker Fellow in Energy and Resource Economics, and Senior Director, Center for Energy Studies
James A. Baker III Institute for Public Policy, Rice University
Senate Committee on Energy and Natural Resources Washington, D.C.
Hearing on The Evolution of Energy Infrastructure in the United States and How Lessons Learned from the Past Can Inform Future Opportunities
Infrastructure is vital for well-functioning markets. It plays a critical role in connecting supplies with demands, and is the architecture through which price carries signals to producers and consumers. Indeed, if deep, well-functioning markets are desired, then sufficient infrastructure is critical. For investments to occur in developing new supplies, access to infrastructure to connect producers to consumers is vital. In fact, this establishes the physical connection that leads to greater market depth and liquidity, which is important for energy security. The absence of sufficient infrastructure can disrupt investment and have bearing on whether there is adequate and reliable supply available to end-users.
This paper discusses the central role that infrastructure plays in price formation and touches on the additional impacts it has on foreign policy and US projection in diplomatic discussions. In addition, the interrelated nature of energy infrastructure with regulatory and legal frameworks establish the rubrics that govern the behaviors of market participants. To be clear, this brief testimony is not meant to be exhaustive, but it will highlight some key points that must be brought forth in any policy discussion related to energy infrastructure.
Altogether, the aim here is to highlight some critical discussion points when considering the role of policy for infrastructure. There are no explicit policy recommendations herein, as there are other issues beyond the scope of this discussion; rather, there are frameworks that must be used to analyze various pathways under consideration. Insufficient infrastructure in the energy domain can present a barrier to investment and growth, largely because commercial returns are unattainable. This, in turn, impacts producers and consumers, carrying implications for price and more broadly, energy security.
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