[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
   THE NEW DOMESTIC ENERGY PARADIGM: DOWNSTREAM CHALLENGES FOR SMALL 
                           ENERGY BUSINESSES

=======================================================================

                                HEARING

                               before the

             SUBCOMMITTEE ON AGRICULTURE, ENERGY, AND TRADE

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             JUNE 26, 2014

                               __________

                               [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 113-073
              Available via the GPO Website: www.fdsys.gov

                                 ______

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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                      BLAINE LUETKEMEYER, Missouri
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director


                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Scott Tipton................................................     1
Hon. Patrick Murphy..............................................     2

                               WITNESSES

Mr. Russell Smith, Executive Vice President, Public Affairs, 
  Quantum Energy, Inc., Williston, ND............................     4
Mr. Kevin Book, Managing Director, ClearView Energy Partners, 
  LLC, Washington, DC............................................     5
Mr. Jared Blong, CEO/President, Octane Energy, Midland, TX.......     7
Mr. Greg Dotson, Vice President for Energy Policy, Center for 
  American Progress, Washington, DC..............................     9

                                APPENDIX

Prepared Statements:
    Mr. Russell Smith, Executive Vice President, Public Affairs, 
      Quantum Energy, Inc., Williston, ND........................    24
    Mr. Kevin Book, Managing Director, ClearView Energy Partners, 
      LLC, Washington, DC........................................    36
    Mr. Jared Blong, CEO/President, Octane Energy, Midland, TX...    44
    Mr. Greg Dotson, Vice President for Energy Policy, Center for 
      American Progress, Washington, DC..........................    56
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.


   THE NEW DOMESTIC ENERGY PARADIGM: DOWNSTREAM CHALLENGES FOR SMALL 
                           ENERGY BUSINESSES

                              ----------                              


                        THURSDAY, JUNE 26, 2014

                  House of Representatives,
               Committee on Small Business,
     Subcommittee on Agriculture, Energy and Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:02 a.m., in 
Room 2360, Rayburn House Office Building, Hon. Scott Tipton 
[chairman of the Subcommittee] presiding.
    Present: Representatives Tipton, Luetkemeyer, Huelskamp, 
Murphy, and Schrader.
    Chairman Tipton. I would like to call our hearing to order.
    I need to start off by congratulating Mr. Murphy and the 
Democrat Members on their victory at the baseball game last 
night, even though there were many questionable umpire calls 
that we certainly would like to have reviewed.
    I would like to thank our witnesses for taking the time out 
of your busy schedules to appear before our Committee to 
discuss a topic that was all but unimaginable just a few short 
years ago.
    For decades, the consensus among geologists, energy 
producers, and policymakers was that oil production in the 
United States was in permanent and irreversible decline. 
However, advances in new technologies and the adaptation of old 
technologies for new purposes have now made it economical to 
produce enormous quantities of oil and natural gas in the 
United States, which has substantially increased the volume of 
our Nation's proven reserves of oil and gas.
    The potential benefits of this new domestic energy paradigm 
to small businesses and the broader economy are significant. As 
the Subcommittee has previously examined, the full upstream 
development of our Nation's oil and gas resources could produce 
more than 1.4 million direct and indirect energy-sector jobs 
and another 1.4 million jobs outside the oil and gas industry.
    Many of these energy-production-associated manufacturing 
jobs will be created by small businesses. Of course, these jobs 
will only materialize if the United States responsibly utilizes 
the abundant resources it has at its disposal. Unfortunately, 
that is presently not the case.
    In previous hearings, the Committee has examined upstream 
challenges to realizing America's full energy potential, 
predominantly those created by government regulations and 
bureaucratic inertia. These upstream impediments include 
policies that have made it difficult to obtain access and 
permits to drill for oil on Federal lands.
    However, it now appears that additional challenges are 
emerging further downstream that could likewise reduce the 
potential production of oil in the United States and jeopardize 
the new jobs and other economic benefits that would result from 
that production.
    Specifically, there is growing mismatch between the 
increasing amount of light, sweet-grade crude being produced in 
the United States and the available utilization capacity of the 
midstream and downstream refining sector to process this grade 
of crude into high-value products such as transportation fuels.
    The reasons for this are many, but they include previous 
assumptions that the United States would import most of the oil 
it consumed, and those imports are different grades of oil than 
what the U.S. is producing today. There are also regulatory 
requirements and other burdens that make it difficult to 
significantly expand refining capacity in the United States.
    The solutions to these challenges are complex. They are not 
only including building up the refining capacity but may also 
include ending of our Nation's de facto ban on petroleum 
exports, which proponents claim would address downstream 
challenges to upstream oil production and help facilitate a 
reduction in the price consumers pay at the pump for gasoline 
and other transportation fuels.
    In relation to the matter of oil exports, today's hearing 
couldn't be more timely. As Members may know, according to 
reports, the Obama administration may soon approve licenses for 
two companies to export minimally produced petroleum 
condensates. Whether this is a significant step or an interim 
step in addressing the oil supply and refinery utilization 
challenges and what impacts it will have on domestic fuel 
prices is a question that I believe today's witnesses will help 
answer.
    I would now like to yield to Ranking Member Murphy for his 
opening statement.
    Mr. Murphy. Thank you, Mr. Chairman.
    And thank you all for being here.
    Excuse my voice. It was a very exciting baseball game, and 
I got a little raspy last night.
    Today, America is producing more oil than we have in 
decades. In 2013, domestic oil production reached its highest 
level since 1989 and helped satisfy nearly half of America's 
oil demands. These developments in drilling are now leading to 
changes in the American refining industry.
    Over the last 10 years, refiners have faced several market 
challenges based on various factors. Because of changes in the 
U.S. market, refiners have had to confront possible long-term 
reductions in demand, and they responded by cutting costs, 
reducing capacity, and closing facilities.
    But, now, new, cheaper crude oil is leading to the 
expansion of existing refineries and the reopening of many 
shuttered ones. After a period of refinery closings and several 
decades after no new single large refinery had been built in 
the United States, a few new refineries are being planned or 
built in North Dakota, Texas, and Utah. These refineries and 
expansions that are scheduled to be completed over the next few 
years represent roughly $5 billion in investments in the 
refining industry.
    With new oil sources and types of crude, this industry must 
adapt to the changing market. These new conditions are growing 
our domestic refining capacity and making smaller refineries 
more competitive.
    Our hearing today will focus on how to make this industry 
more efficient by analyzing the strategic investment and 
operating choices by oil refineries in response to the changing 
market. We will also look at how these decisions affect 
downstream gas prices and small businesses.
    The refining industry is subject to environmental rules 
that are designed to increase energy efficiency and reduce 
energy production's impact on our climate. Standards for 
greenhouse gas emissions, Tier 3 rules, and renewable fuel 
standards all play a part in the planning necessary to small 
refiners and producers but also serve a critical purpose in 
reaching our Nation's environmental policy goals.
    I also look forward today to hearing about the ongoing 
debate surrounding the ban on domestic oil exports. Some 
experts claim that continuing the ban is critical for 
protecting American jobs, while others claim that lifting the 
ban could lower gas prices and help our economy.
    As we examine the policies that make oil production and the 
refining industry more efficient and that impact their business 
decisions, it is important to understand the potential effect 
that these changes have on small-business energy consumers. A 
healthy economy requires a thriving small-business sector, so 
we must ensure small firms continue benefiting from the recent 
developments in the energy industry.
    I thank the witnesses for being here today, and I look 
forward to your comments.
    Thank you, Mr. Chairman.
    Chairman Tipton. Thank you, Mr. Murphy.
    If the Committee members have an opening statement 
prepared, I would ask that they submit it for the record.
    I would like to be able to take a moment to be able to 
explain our timing lights that are in front of you. The light 
will start out as green. When you have 1 minute left, it will 
turn to yellow. And then when it turns red, if I would 
summarize your comments, we would appreciate it. We do have 
votes that are going to be coming up shortly, and so, if we can 
kind of stay on schedule, it would be much appreciated.
    I would like to begin with our first witness. I would like 
to welcome Mr. Russell Smith. He serves as executive president 
of Quantum Energy, a small business in the process of building 
five small-scale refineries in North Dakota. In addition to his 
experience in the energy industry, Mr. Smith has also worked in 
the technology, defense, and healthcare industries.
    Mr. Smith, thank you for taking the time to appear today, 
and please deliver your testimony.

 STATEMENTS OF RUSSELL SMITH, EXECUTIVE VICE PRESIDENT, PUBLIC 
 AFFAIRS, QUANTUM ENERGY, INC., WILLISTON, NORTH DAKOTA; KEVIN 
   BOOK, MANAGING DIRECTOR, CLEARVIEW ENERGY PARTNERS, LLC, 
   WASHINGTON, D.C.; JARED BLONG, CEO AND PRESIDENT, OCTANE 
  ENERGY, MIDLAND, TEXAS; AND GREG DOTSON, VICE PRESIDENT FOR 
 ENERGY POLICY, CENTER FOR AMERICAN PROGRESS, WASHINGTON, D.C.

                   STATEMENT OF RUSSELL SMITH

    Mr. Smith. Thank you, Mr. Chairman, Ranking Member Murphy, 
and members of the Committee. Thank you for the opportunity to 
come before you today. Much appreciated.
    I would like to discuss some issues that are important for 
small business, not only in the oil and gas industry, but also 
in the agricultural, retail, services, and mom-and-pop business 
community in the Williston Basin and the Bakken shale 
formation.
    Quantum Energy is here before you as a development-stage 
company. We are currently in the capital acquisition process to 
build five 21st-century energy centers that will consist each 
of one 20,000-barrel-per-day microrefinery, a 100,000-barrel-
per-day natural gas, or NGL, stripping facility, and a CO2 
recapture capability for use in downhole recovery enhancement.
    As a development-stage company, we have had to make some 
tough decisions in the early stages of our business planning 
processes. The toughest of these decisions was facing the 
reality that EPA emissions regulations have basically put a 
limit on the feedstock size of new refineries to avoid being 
classified as a major refinery.
    That threshold is required because the emissions, if you 
work backwards, limit us to 20,000 barrels per day. And that is 
evidenced by the Montana-Dakota Resources new refinery 
currently being built near Dickinson, Montana. That refinery, 
when it comes on line later this year or early next year, will 
be the first greenfield refinery built in the United States 
since 1976, which is an important development and one we look 
forward to, in essence, copying the process that they went 
through.
    The economic model that drives our current business plan is 
built around a pressing need for local and regionally refined 
supplies of diesel fuel in the Williston Basin and a very 
pressing need for local and regionally refined propane in the 
Upper Midwest and the northern mountain west States. Both 
supply deficits have created distinctly higher prices for these 
essential commodities.
    The region currently has a daily need for over 55,000 
barrels per day of diesel, a need which will grow over the 
coming 18 to 24 months to exceed 75,000 barrels per day. The 
region's sole legacy refinery meets only approximately 28,000 
barrels per day of this need. This new microrefinery outside of 
Dickinson will meet another 6,000 to 7,000 barrels per pay.
    Our five 21st-century energy centers will, using a similar 
design to the Dickinson refinery, each produce 6,000 to 7,000 
per day, for an aggregate of 30,000 to 35,000 barrels per day 
of new diesel. In aggregate, that will then mean that these 
seven refineries will be meeting 85 to 90 percent of the 
region's diesel requirements within the 24- to 36-month 
timeframe.
    Likewise, our NGL-stripping facilities will provide the 
opportunity for relief from skyrocketing propane prices in the 
greater region. Low- and middle-income families are struggling 
under the burden of these prices, particularly in rural areas, 
where propane is the most common home heating fuel.
    We additionally believe that our NGL-stripping facilities 
deliver a refined crude product that meets the language 
contained in the 1970s-era rule that banned the export of 
nonrefined crude from the lower 48. The language in that rule 
that comes the closest to providing a definition of ``refined 
crude'' surrounds crude that has passed through a distillation 
tower. Our NGL-stripping facilities do utilize distillation 
towers and, as such, we believe, meet that standard.
    As the production in the Bakken continues to ramp up from a 
current level near a million barrels per day to an anticipated 
2 million barrels per day in the next 3 to 4 years, the 
domestic refining capacity, which is already struggling to 
handle the supply, may force a slowdown in production growth. 
This will be harmful to producers, the local economies, and the 
continued growth of good, well-paying jobs throughout the 
region.
    Therefore, in the absence of an abolition of the ban, we 
strongly feel that locally refined and NGL-stripped crude made 
available to the export markets can play a vital role in 
alleviating any potential slowdown in the growth of Bakken 
production.
    In summary, local and regional refining capacity helps: 
one, producers, large and small, through limiting impediments 
to both increased drilling and production while opening 
potential export markets in an age of a global economy; number 
two, local and regional economic development by reducing prices 
and increasing the local and regional supply of vital 
commodities such as diesel and propane; and, third, low- and 
middle-income families through provision of the above-mentioned 
benefits.
    Members of the Committee, we thank you for the opportunity 
to appear before you, and we welcome any questions.
    Chairman Tipton. Thank you, Mr. Smith.
    I would now like to introduce Kevin Book. He serves as 
managing director of ClearView Energy Partners, an economic 
analysis firm with expertise on energy issues. In addition to 
his work at ClearView, Mr. Book was appointed to serve on the 
Department of Energy's National Petroleum Council Advisory 
Committee.
    Mr. Book, thank you for being here, and we look forward to 
your testimony.

                    STATEMENT OF KEVIN BOOK

    Mr. Book. Thank you, Chairman Tipton, Ranking Member 
Murphy, and distinguished members of the Committee, for 
inviting me to appear before you today.
    My name is Kevin Book, and I head the research team at 
ClearView Energy Partners, an independent firm headquartered 
here in Washington, D.C., that provides macro-level analyses to 
institutional investors and corporate strategic planners.
    My testimony today suggests that, even as many Americans 
celebrate the renewed production of light, sweet crude oil, 
current trends may be creating an unstable equilibrium. Shale 
oil production has been growing incredibly fast. Demand has 
been growing fast, too. Newfound U.S. volumes have gone to 
three principal outlets: increased refinery utilization; 
displacement of imported light, sweet crude; and exports to 
Canada.
    In my written testimony, there is a picture, Figure 1, 
which shows the growth of shale oil supply relative to those 
three outlets, and it looks pretty balanced. But there are 
several caveats.
    First, petroleum refining is a manufacturing process that 
requires a certain amount of downtime to ensure safety and 
optimal performance. This limits the extent to which existing 
capacity can absorb incremental crude volumes without capacity 
expansions. Refiners have already ramped up their throughput 
considerably.
    Second, domestic production has already replaced nearly all 
of the volumes of light, sweet crude previously imported into 
the east coast and the Gulf of Mexico.
    Third, during the course of the last 2 decades, much of the 
U.S. refinery fleet was upgraded to process heavy, sour crude 
that tends to yield a thicker cut of the middle distillates 
that earn a premium relative to other products, such as 
gasoline. As the U.S. crude mix gets lighter and sweeter, U.S. 
producers must offer the Nation's newly upgraded refiners 
discounts to encourage greater acquisition of a less suitable 
feedstock.
    Fourth, and perhaps most importantly, many government 
agencies and private forecasters expect U.S. crude production 
to continue growing in the years ahead, likely exhausting 
import substitution here in the U.S. and eventually in Canada 
and outgrowing the ability of U.S. and Canadian refineries to 
increase their runs without expansions or modifications. This 
creates the prospect that the U.S. could soon become saturated 
with light, sweet crude, driving the price down here at home.
    Despite high global prices, widening discounts to global 
prices could discourage new upstream investment. Most producers 
plan their drilling programs 6 to 12 months ahead, but the 
smaller investments involved and faster completion of shale 
wells theoretically offer them the ability to change their 
drilling plans in the event that saturation leads to a 
sustained atypical discount. My cursory examination of the 
correlation between West Texas Intermediate and Bakken prices 
and rig counts suggest somewhere between 4 and 8 months of skid 
marks between a price collapse and a production slowdown.
    It is no secret that shale oil has benefited producer 
States in the Nation at large. A jobs multiplier may be 
responsible, meaning that States don't just realize direct 
economic benefits from upstream production activities but also 
the benefits from activities indirectly associated with 
production as well as the jobs induced by new income. Put 
another way, oil and gas production jobs may have 
disproportionate economic impact because of this multiplier. 
And it may be worth considering the extent to which a jobs 
multiplier could also work in reverse if saturation leads to a 
production slowdown.
    Current U.S. crude-oil export prohibitions tend to favor 
refiners, especially low-complexity refiners that rely on 
light, sweet crudes, by providing them with discounted 
feedstock relative to their global competitors. Trade 
statistics from the U.S. Bureau of Economic Analysis show that 
the combination of importing less petroleum of all kinds and 
exporting more refined products appears to be responsible for 
roughly $40 billion per quarter in combined trade benefit.
    It may be tempting to extrapolate from the status quo and 
conclude that continuing current policies might perpetuate 
these economic benefits, particularly if U.S. refiners add 
capacity. On the other hand, that may not be true for several 
reasons, even without liberalized crude-oil exports. Saturation 
could lead producers to pare back upstream investment. 
Alternatively, significant downstream capacity expansions could 
exert upward pressure on feedstock costs from the demand side.
    However they come about, higher costs could weaken the 
business case for new refining capacity. That said, even if 
U.S. crude prices rise, U.S. refiners appear likely to continue 
to enjoy lower process energy costs, thanks to cheap natural 
gas, contributing to their overall competitive advantage.
    In conclusion, producers may be soon selling their crude at 
deeper discounts relative global prices, while refiners must 
consider whether to commit capital to new infrastructure, 
predicated in large part on these feedstock discounts. I 
believe that moving as quickly as possible towards a clear and 
durable policy decision regarding crude-oil exports appears to 
be in the interest of all parties.
    Mr. Chairman, this concludes my prepared testimony. I look 
forward to any questions at the appropriate time.
    Chairman Tipton. Thank you, Mr. Book.
    I would now like to introduce Jared Blong. He serves as 
president and CEO of Octane Energy, a small business that 
provides oil field services, headquartered in Midland, Texas. 
Mr. Blong and his partner started their business last year and 
currently employ 12 workers.
    Mr. Blong, thank you for being here, and we look forward to 
your testimony.

                    STATEMENT OF JARED BLONG

    Mr. Blong. Thank you, Chairman Tipton, Ranking Member 
Murphy, members of the Subcommittee. My name is Jared Blong, 
and I serve as chief executive officer and president of Octane 
Energy, a Midland, Texas-based small business that provides oil 
field services to oil and gas exploration companies. It is an 
honor to address you today on the critical subject of crude-oil 
exports and the downstream challenges facing small energy 
businesses.
    Today I have the privilege of speaking to you not as a 
representative of a special interest group or a research firm 
but, instead, from the perspective of a small-business owner 
from the heartland of the American energy industry--real boots-
on-the-ground perspective from a small-business owner who could 
very well succeed or fail based on the policies you adopt.
    Octane Energy is truly a small business. Our company was 
founded in 2013 in response to the energy renaissance our 
country is experiencing. We have a staff of 12, of which 50 
percent are veterans of the American forces, and we hope to 
double in size over the next 12 months.
    Our company is on the front lines of the energy resurgence. 
We see firsthand how this energy renaissance has positively 
impacted jobs, how it has created greater sustainability in a 
historically cyclical market, and how it is helping to achieve 
energy security for our country.
    But I also see unnecessary hurdles that could limit the 
opportunities for U.S. businesses. For instance, the 1970s-era 
policy banning oil exports is creating growing market 
distortions and needs to be revisited. This policy prevents our 
small business and others from growing as we otherwise could, 
prevents us from creating jobs as we otherwise could, and, most 
importantly, prevents our country from being as energy-secure 
as it otherwise could.
    Let me explain how.
    First, I should state that our small business, like many 
other small businesses involved in the energy industry, is 
directly impacted by the rig count--that is, by the number of 
rigs that are actually drilling for oil and gas in the United 
States. The more rigs that are drilling in the United States, 
the more people I can employ, as a general rule.
    In addition to simply adding numbers to our team of people, 
the quality of jobs is also very notable. As an example, in 
Octane's consulting practice, we can conceivably add up to four 
well-site leaders per rig at a typical remuneration of $220,000 
per year per team member. We also are in the process of 
establishing a drilling company, which will require up to 25 
employees per rig, with an average annual pay of $76,000 per 
employee.
    Many of these folks we seek to employ are American veterans 
who possess small-unit leadership skills and an intrinsic 
appreciation for teamwork, sweat, and rigid operating 
procedures that are crucial to exceeding mission objectives in 
the energy industry.
    Lifting the ban on oil exports would ensure sustainability 
of these well-paying jobs in our company and in companies 
around the industry. The same goes for catering companies that 
feed rig hands, restaurants in those communities nearby, for 
steel manufacturers that make drill pipe, for countless other 
businesses that take part in supporting energy exploration and 
production.
    Creating a sustainable and increased rig count is directly 
tied to lifting the export ban and will facilitate Octane 
Energy's direct investment in the manufacturing of an American-
made rig fleet, which will also create secondary and tertiary 
job growth. The $12 million to $15 million manufacturing 
investment for each Octane rig would create and sustain jobs in 
New York for the production of shale shakers, in Illinois for 
the manufacture of mud pumps, and various locations in Texas 
for drill pipe, automation, and iron, just to name a few.
    Current U.S. policy is artificially suppressing that very 
rig count and thereby suppressing U.S. jobs, manufacturing 
investment, tax revenue, as well as oil and gas production--by 
a lot, as it turns out. If it is suppressed, we have reduced 
investment, which means fewer rigs. Fewer rigs means fewer rig 
hands and support services, fewer oil field service companies 
like Octane, and fewer people employed at well-paying jobs.
    So, today, on this hill, America finds itself at a 
crossroads: Do we cap oil production or allow exports?
    At a time when unemployment sits at nearly 7 percent and 
first-quarter GDP in negative territory, the energy sector has 
sustained and added jobs for millions of Americans, both 
directly and indirectly, through energy production, service and 
equipment companies. As an example, the unemployment rate in 
the Permian Basin is currently 2.3 percent and has been below 4 
percent for the last half-decade.
    By supporting the export of domestically produced crude, 
U.S. lawmakers can counteract the national trends in the form 
of increased jobs, GDP, tax revenues, not to mention helping 
put veterans to work as they return from battle and transition 
to civilian life.
    I ask you to consider the course of our energy future. The 
world has changed significantly since the OPEC oil embargo and 
enactment of Federal regulations in the 1970s. Today I ask you 
to take a stand for a fundamental principle: that the role of 
government is to enable its people and to remove unnecessary 
roadblocks that stand in the way of our national security and 
prosperity.
    Thanks for considering our views.
    Chairman Tipton. Thank you, Mr. Blong.
    And I would now like to yield to Ranking Member Murphy for 
introduction of our next witness.
    Mr. Murphy. Thank you, Mr. Chairman.
    It is now my pleasure to introduce Mr. Greg Dotson, vice 
president for energy policy at the Center for American 
Progress. For more than 18 years, he was the lead environmental 
and energy staffer to Representative Henry Waxman and top 
staffer on the House Energy and Commerce Committee and the 
House Committee on Oversight and Government reform.
    Welcome, Mr. Dotson.

                    STATEMENT OF GREG DOTSON

    Mr. Dotson. Chairman Tipton, Ranking Member Murphy, and 
members of the Subcommittee, my name is Greg Dotson. I am the 
vice president for energy policy at the Center for American 
Progress. Thank you for the opportunity to testify today 
regarding the future of the oil industry.
    There are three main points I would like to make today. One 
is that U.S. oil production is up and is expected to increase, 
but this does not insulate the country from price shocks in the 
global oil market. Second, lifting the crude-oil export ban 
could have negative economic and environmental impacts on the 
Nation. And, third, energy policy decisions should be made in a 
way that helps to mitigate the serious threat of climate 
change.
    I am submitting a lengthier statement for the record, but 
because the crude-oil export ban has been a topic that has come 
up repeatedly, I will focus my oral testimony on that issue.
    For decades, oil in the U.S. has been characterized by 
ever-increasing demand and declining domestic production. We 
were relying more and more on imported oil. But this has 
changed in recent years. Since 2008, we have experienced a 
transformation in our oil markets. New tailpipe standards for 
cars and trucks are curbing pollution and bringing increasingly 
efficient vehicles to market, and our oil consumption is no 
longer on the rise.
    New technology and policy have unlocked additional oil 
supply. North Dakota is producing more oil than previously 
understood to be possible because of new drilling technology. 
Heavier and dirtier forms of oil, such as the Canadian tar 
sands, are being brought to market. North America is awash in 
oil for the time being.
    But this new oil supply doesn't ease the challenge of our 
Nation's dependence on oil. Global demand for oil is still on 
the rise. Supply disruptions in far-flung areas of the world 
still impact the prices we pay here. Just look at what is 
happening due to the situation in Iraq.
    Oil is a global commodity, and, absent unique regional 
market conditions, prices are generally set by the world 
market. Experiences in other countries show that price spikes 
are not prevented or mitigated by higher levels of domestic oil 
production.
    The nonpartisan Congressional Budget Office examined 
gasoline prices in Canada, the United States, and Japan over 
the last decade. CBO found that gasoline prices in those 
countries rose and fell in tandem with the world market, even 
though Japan produced almost no oil, Canada was a net exporter, 
and the United States produced less than half of its own oil. 
More domestic supply did not protect Canadian consumers from 
price shocks.
    Some have cited a recent study by IHS to argue that lifting 
restrictions on oil exports will reduce global oil prices and 
save American consumers money through 2030. It would be prudent 
to approach this study with a good deal of caution. The IHS 
study essentially suggests that, rather than reduce our 
dependence on oil, the United States should double down on our 
dependence on oil. The study is not on strong ground in making 
that recommendation, and I would like flag two points related 
to that.
    First, the study assumes that there is a vast domestic 
resource base that will support a massive increase in oil 
production for decades to come. This assumption differs from 
that of the U.S. Energy Information Administration's Annual 
Energy Outlook for 2014. The EIA's reference case projection is 
a business-as-usual trend estimate given known technology and 
technological and demographic trends. The reference case 
projects that domestic oil production will peak in 2019 and 
then begin to decline.
    That is a point that is very important to emphasize and one 
that I don't think you have heard earlier today. EIA suggests 
that there may be more oil, much more oil than that, but they 
also say there may much less oil than that. And that is a huge 
uncertainty that should be resolved prior to taking rash action 
on the crude-oil export ban.
    There is another aspect of the study that deserves further 
examination. The study assumes that the U.S. is able to boost 
oil production to such a degree that it decreases world oil 
prices significantly and that American households are able to 
enjoy those reduced prices unabated through 2030. This 
assumption deserves serious scrutiny.
    The Congressional Budget Office has stated that, even if 
the United States were to develop additional resources, this 
process would take years, and oil producers around the globe 
would likely respond by constraining their development, 
dampening the effects of increased production on prices. CBO 
stated, and I quote, ``Increasing production of oil in the 
United States might not increase the world's oil supply 
substantially or lower the price of oil significantly.''
    That means that even if increased domestic production could 
reduce oil prices, such price reductions could be short-lived, 
severely undermining the policy argument advanced by the IHS 
study. That is why we need to reduce our dependence on oil 
overall, not just from other countries. The less oil we use as 
a Nation, the less impact we will feel from international 
disruptions in oil markets.
    Thank you. I am happy to answer questions at the 
appropriate time.
    Chairman Tipton. Thank you, Mr. Dotson, for your testimony.
    We will now move into the questioning phase, and I would 
like to begin with Mr. Luetkemeyer.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Mr. Dotson made some interesting remarks there.
    I was just kind of curious, I saw something the other day 
that we have, like, 800 years' worth of oil that we have now 
found here in the United States. Is that correct? Can anybody 
answer that question?
    Mr. Dotson. I think----
    Mr. Luetkemeyer. What the volume of supply is that is known 
and anticipated to be able to be touched and tapped in the next 
100 years?
    Mr. Dotson. Congressman, I would be happy to expand on my 
remarks slightly. The----
    Mr. Luetkemeyer. Well, Mr. Dotson, everything you said in 
your--I wrote down the words ``could,'' ``may,'' ``might,'' 
``maybe,'' ``could happen.'' I never heard anything definitive 
from you. I am looking for somebody who can give me a definite 
answer on how much they think is underneath the ground here.
    Mr. Book. I can give you a different answer that isn't 
definite, which is that, in the history of oil production, we 
have run out a bunch of times, and it has never happened. And 
the reason is that our understanding of what can be 
economically produced from existing technology is always 
undercounting the success of our innovation and our ability to 
respond to price signals.
    We are in a pretty high-price environment right now, I 
don't think anyone is missing that point, and the innovation is 
going crazy. We are at the very beginning of our learning curve 
on formations, but we have no idea of what the tails look like. 
I think it is reasonable to expect, based on history, that we 
are going to see far more than we currently think we are going 
to get, not less.
    Mr. Luetkemeyer. Well, it would seem to me, you know, to 
follow your line of thought, Mr. Book, I think that that would, 
you know, certainly undermine many of the arguments that Mr. 
Dotson made about concerns about production down the road, 
about prices, you know, production may decline. I don't know 
where that remark comes from, but all of the things I have seen 
is natural gas, coal, all the fossil fuels, including oil, 
there is more and more that is being found.
    And, Mr. Book, you make the point that, as we continue to 
develop new technologies and new ways of getting it out of the 
ground, it makes more of it available. We can go back to old 
oil wells, if I am not mistaken, and pull some old oil back out 
of those wells and make them profitable again. I assume that 
that is still the case. I mean, I have been told this by many 
people in the business.
    I guess, Mr. Blong, you are in the business of putting 
these rigs together. I am kind of curious, what does a rig cost 
to put up and then to operate? You said 25 people to run it. 
The actual physical-structure rig, what does it cost? And then 
how much capital does it take to operate the rig?
    Mr. Blong. So capital expenditures for a drilling rig, at 
least of our design--and they vary, obviously, from company to 
company, and those range, generally speaking, from $12 million 
to $25 million. For our design, we are looking at deploying 
from $12 million to $15 million per unit.
    Mr. Luetkemeyer. So when you decide that you want to drill, 
what is the anticipated amount of oil that you have to pull out 
of the ground to be able to make that thing work? So many 
barrels per day? Per month? Or how do you do that?
    Mr. Blong. Right, so, fortunately for us, we work for the 
companies that are extracting that oil from the ground, and we 
are the means to that extraction. So, for us, the internal rate 
of return on that well is important from a sustainability 
standpoint for our company, because we want to continue 
working. So if our customers are realizing the quantity of oil 
that they want out of each wellbore, then it would make sense 
for us to continue on and sustain those jobs and that sort of 
thing.
    Mr. Luetkemeyer. One of the comments you made, though, was 
that, you know--and I think I saw it in your testimony or 
somewhere--I mean, I think you made the point, as well, with 
regards to being able to sort of turn these things off and on. 
I mean, you could do it every 3 or 4 months, you could ramp it 
up with a rig, and then you could ramp it down.
    Is that possible? I mean, when you have the kind of 
investment out there, are you looking to be able to have that 
sort of flexibility, be able to move this around?
    Mr. Blong. I don't recall that particular portion as my 
testimony that was submitted.
    Mr. Luetkemeyer. Maybe I misunderstood what you were 
saying.
    Mr. Blong. Yes, sir.
    You know, I will speak in maybe a broader brush. In our 
opinion, you know, the Permian is a really great case study for 
the first portion of your question that you addressed and then 
the secondary part. You know, we have been commercially 
producing oil in the Permian Basin for almost a century, and we 
continue to find new horizons to drill into, which makes our 
basin somewhat unique in the North American landscape and, 
really, the global drilling landscape, for that matter.
    So ramping up and ramping down I don't think is really the 
key question that we are asking our customers, that our 
customers are asking of us. The question more is, how can we 
delineate and develop this in almost a manufacturing 
environment, where we gain efficiencies, thereby increasing 
their rates of return so they can continue to deploy rigs and 
capital into the field? That allows them to continue to 
produce.
    But the turning off and turning on, I wouldn't be able to 
speak to that with any level of conviction.
    Mr. Luetkemeyer. Okay.
    I see my time is up, but I was kind of curious, also, about 
the numbers of refineries and how that may be a chokepoint for 
being able to access and produce and really flood the world 
with oil and oil products, but I am sure the chairman will get 
into that.
    I thank you for your time and your testimony.
    Thank you, Mr. Chairman.
    Chairman Tipton. Thank you, Mr. Luetkemeyer.
    I would now like to turn to Mr. Schrader for his questions.
    Mr. Schrader. Thank you, Mr. Chairman.
    Mr. Smith, just a little background. I am not an oilman. 
The original ban set up in the 1970s, can you give a quick, you 
know, why it was set up, what was the rationale, and why that 
may not be applicable right now, in your opinion?
    Mr. Smith. To the best of my understanding, having been 
somewhat young at the time, the original rationale came out of 
the Arab oil embargo. I think that was the motivation for the 
act that was passed in 1975.
    It was an interesting piece of legislation, in that, rather 
than provide a legislative prescription for exported crude, it 
was essentially an authorization bill that gave the 
administration the authority to do a rulemaking.
    And the rulemaking is somewhat vague. I actually have with 
me a Congressional Research Service paper that looked into the 
history of the bill, Mr. Schrader, and examined what 
definitions existed in the bill. And it is interesting that the 
language of the rule that was issued does not explicitly define 
``refined crude.''
    What it does define is ``crude.'' And that definition, I 
will read it very quickly, sir. I think it is relevant. 
``'Crude oil' is defined as a mixture of hydrocarbons that 
existed in liquid phase in underground reservoirs and remains 
liquid at atmospheric pressure after passing through surface 
separating facilities and which has not been processed through 
a crude oil distillation tower.''
    That is the only definition of ``crude.'' But, by 
inference, one could say that refined crude would be something 
that had been passed through a distillation tower. That is the 
part of the process that is involved in our natural gas 
liquids, or NGL, stripping facilities.
    Mr. Schrader. Okay.
    Mr. Smith. And I think that, as that affects the ban 
itself, it also impacts some of the downstream refining issues 
that we have mentioned. Because some of the issues, Mr.----
    Mr. Schrader. Can I just stop you there?
    Mr. Smith. Yes, sir.
    Mr. Schrader. I appreciate that. That is a very thorough 
explanation, most of which went over my head, but I am sure my 
staff will explain it to me later.
    Mr. Dotson, would you comment also, your perspective also?
    Mr. Dotson. On the crude-oil export ban?
    Mr. Schrader. Yes.
    Mr. Dotson. I think, you know, essentially what we are 
seeing right now is a discussion that is happening within the 
oil industry. And the producers see that they can perhaps get a 
few additional dollars per barrel if they are able to bypass 
the domestic refining sector and export directly overseas.
    And I think, from the refiners' perspective, they say: We 
have made hundreds of billions of dollars of investments in 
this refining infrastructure. We have good-paying jobs today. 
We have skilled workers. Don't bypass us.
    In fact, the Congressional Research Service said that 
lifting the crude-oil export ban could affect refining 
operating margins and, they say, quote, ``may result in some 
refineries ceasing operations.''
    So I think there are economic reasons to really take a very 
close look at this, and there are environmental reasons, as 
well.
    Mr. Schrader. Mr. Blong, do you--just trying to get 
perspective here. Mr. Dotson has indicated there may be an 
opportunity for increased excess capacity, refining capacity, 
right now. Your testimony seemed to indicate the opposite a 
little bit. Where are we on that, in your opinion?
    Mr. Blong. We feel that the chokepoint, more than the 
refining sector, is really in the transmission sector still--
pipelines getting that crude oil, or railcars, for that matter, 
getting crude oil to market, wherever that market may be most 
economically viable for that particular product and that 
particular basin.
    Contrasting Mr. Dotson's remarks, however, we have 10,000 
operating companies, or producers, in the U.S. that we would 
consider as independents, and they have no stake in refineries. 
And so they are forced to essentially take a discount simply 
because they don't have the organizational wherewithal or 
financial structure to have that investment in a refinery, 
whereas the super-majors, as we call it in the industry, or the 
integrateds, have that excess.
    And we feel like that is a disproportionate and maybe 
somewhat governmentally augmented advantage that is given to 
those integrated companies versus the small operators that are 
really the ones driving this shale revolution.
    Mr. Schrader. I guess a question for Mr. Blong, Mr. Book, 
and Mr. Smith, from my standpoint, is, you know, if we go ahead 
with the increased oil/gas production, there is a big concern 
by a lot of people in America, regardless of where you 
personally are on the issue, about greenhouse gas emissions.
    So how do we deal with that concern? You know, the oil 
could be a great export opportunity, could maybe drive prices 
down worldwide, maybe we have centuries of it, but how do we 
answer the concerns of folks about how do we keep that 
production from destroying our climate at the same time?
    Is that okay, Mr. Chairman, to ask those three guys?
    Chairman Tipton. Go ahead.
    Mr. Smith. One of the new technologies that is coming out, 
it is very cutting-edge, it is one that we are strongly 
examining using in our microrefineries, Mr. Schrader, is the 
CO2 recapture capability. And there is a large market for that 
in the downhole recovery enhancement that was mentioned by the 
other Member earlier asking about reworking some of these old 
wells.
    This is a great opportunity to take that CO2 out of the 
emissions that are a resultant from the refining process and 
basically go bury it in the ground. There is a market for doing 
that, because you are helping rework old wells and enhance the 
production of existing wells. And so it is a get rid of it, get 
rid of the bad stuff, in a really good way. And there is a 
market for it.
    Mr. Schrader. Mr. Book?
    Mr. Book. Thank you for the question.
    Generally speaking, producing hydrocarbons corresponds to 
greater amounts of greenhouse gases. That is a fact. But there 
are different ways of producing those hydrocarbons. More 
venting and flaring, more greenhouse gases into the atmosphere. 
Good operating practices here in the U.S. can make our crudes 
potentially less greenhouse-gas-intensive than overseas crudes, 
which would mean that if we were to export and displace other 
production elsewhere, we might have small, but significant over 
time, differential results.
    Most of the impact really has to happen on the demand side. 
And ultimately what you are seeing is that, along the way, some 
of the interim steps include things like using carbon dioxide 
as a way to get more oil out of the ground and storing that 
carbon dioxide as a consequence of production in the geological 
formation.
    So there are small opportunities, but you wouldn't want to 
oversell it.
    Mr. Schrader. All right.
    And Mr. Blong?
    Mr. Blong. I can speak to our company from the drilling 
perspective, really, most efficiently, and that is, you know, 
innovation has really started to impact the notion of greening 
up the oil patch, if I can use that term.
    Drilling companies like ours and many counterparts are 
looking at bi-fuel solutions where we are using that flare gas 
that is typically seen if you drive through the oil patch and 
see flares going about. You can recapture that energy in power 
drilling rigs, which offsets an incredible diesel expenditure 
as far as just sheer consumption.
    Some other things that we are looking at implementing 
specifically is waste-heat capture using the organic Rankine 
Cycle to generate fuel-free, emission-free electricity off of 
those bi-fuel motors, engines, generators, so that we are 
capturing more of that energy and putting it to good use, 
rather than it simply just being a waste product.
    So, within the context of the drilling industry, those are 
just a couple of examples of what we are trying to do to deal 
with that more from an innovative perspective. And we see that 
if we lead out in that effort that the production community 
will follow suit.
    Mr. Schrader. Thank you very much.
    I yield back, Mr. Chairman.
    Chairman Tipton. Thank you, Mr. Schrader.
    Mr. Huelskamp?
    Mr. Huelskamp. Thank you, Mr. Chairman.
    I appreciate the opportunity to be at this hearing and 
visit with the gentlemen here that are talking about the 
restrictions on your business.
    I am a cosponsor of the Bridenstine bill that was 
referenced earlier, as I believe we need to lift the 
restrictions to allow you to actually continue to do your 
business and actually create some more American jobs, which are 
in desperate need in many areas of the country.
    But I want to shift gears to a very specific topic and, I 
believe, a specific threat to the industry, and that is the 
Endangered Species Act and the efforts by a number of 
environmental groups to use that to impact and shut down parts 
of your industry.
    In May, the lesser prairie chicken, which I understand is a 
very tasty bird, was listed as threatened. And in my district 
in western Kansas, it has essentially shut down a number of 
operations, not just temporarily till the mating season is 
over, but we are hearing many cases where drilling rigs are 
pulling out permanently, leases are going away, they are not 
happening, because folks are not going to take that risk. 
Because there is a $25,000 to $50,000 fine not only for killing 
the bird, but if you would somehow impact the habitat, which is 
very undefined.
    But the truth is, with the lesser prairie chicken, here 
supposedly the historical habitat area, that also happens to 
match up with something called a drought. And, ladies and 
gentlemen, until it rains--and I am trying to get this message 
across to the Fish and Wildlife Service--until it rains, you 
are not going to grow any habitat. And so hopefully it will 
start raining.
    But one thing I do want to note, that the impact is--
because of the sue-and-settle strategy, in which environmental 
groups have sued, settled basically out of court with the 
Federal Government and cut a deal that could lead to the 
listing of 250 new threatened or endangered species--and I know 
that, after the lesser prairie chicken, the next one is the 
sage grouse, which will impact a lot of areas.
    But the reality is that folks in this industry are not 
going to take the risk of a $50,000 fine or going to jail for a 
bird they may never see or for a habitat that is undefined. But 
what we have seen, particularly with the sagebrush lizard, 
which is not in my area, and I think it might be in Mr. Blong's 
area, you had a voluntary conservation effort between the 
industry, and it was able to say, hey, we don't need that, we 
can take care of it ourselves without a Washington approach.
    So, Mr. Blong, I don't know if you have any background with 
the sagebrush lizard, but can you tell how your industry works 
together to do this in a voluntary manner to preserve and 
protect our species?
    Mr. Blong. One of the things that we have seen in the 
Permian Basin, in particular, which is really the epicenter of 
the North American energy renaissance now, is an unusual 
collaboration effort that has not historically been seen on 
that front. And I would be reckless to say that it was simply 
economically driven. I think the Permian Basin houses some of 
the most entrepreneurial and innovative people in the country, 
where opportunity exists, as we mentioned, to create jobs, but, 
in light of that, we also see some of the finest stewards in 
North America in our basin.
    And if any of you have traveled there, it would appear to 
the eye that there is not a whole lot to be stewards of. We 
happen to live in a very flat north Chihuahuan desert with lots 
of mesquite scrub brush.
    So the fact that we are really taking the initiative to 
meet with regulators not just simply in Washington but in 
Austin and Santa Fe, as well, which are the other areas that 
are affected by what we are doing, or trying to do, I would say 
that operators, the service contractor community, both are 
really taking an aggressive initiative to say: Listen, we can 
collaborate and work together, because we all have a vested 
interest. We actually all live here. Water matters to us. Our 
surroundings matter to us. We are raising our children in this 
place. So why on earth would we be so haphazard with our home, 
our own backyard?
    Mr. Huelskamp. Well, I appreciate your efforts on that. And 
that is a great example where it can be done voluntarily and 
together with folks in the oil and gas industry as well as the 
ag industry, which I am in, as well.
    Mr. Book and Mr. Smith, any thoughts on these endangered 
species efforts, which I think are directly going to impact 
your industry?
    Mr. Smith. Yes, sir. I think it is also interesting to note 
that a number of the new technologies that are coming out, the 
things such as I mentioned before, like CO2 capture, much more 
responsible drilling practices than, say, you would have seen 
even 15, 20, 30 years ago, pose far less of a threat to birds 
than wind farms, for which the Obama administration has 
recently issued an exemption from the raptor act to allow for 
wind farms to slaughter as many eagles and hawks and owls as 
they want, while you or I, if we shot one on our ranch, would 
go to Federal prison.
    Mr. Huelskamp. Absolutely.
    Mr. Book?
    Mr. Book. Yeah, I think that Mr. Smith made perhaps the 
most important point, which is that the operating practices 
have become decreasing invasive to the habitat of species, 
whether they be endangered, threatened, or just out there. You 
are seeing less surface impact in drilling operations now.
    And I think it is safe to say that, also, what Mr. Blong 
pointed out is very true; there is an incentive for companies 
to become able stewards of their operating environments. And 
there are histories here. The sage grouse was managed locally 
sufficiently that it was deemed to be maybe at risk but still 
just a candidate. There are good stories, there are good-news 
stories in the history of species management and oil production 
alongside it.
    Mr. Huelskamp. Those are great to see.
    And your point, Mr. Blong--if I might, Mr. Chairman, one 
last thing--the idea that the folks closest, that actually live 
there actually know a little bit more than some lawyers in a 
courtroom somewhere, where it was at, to make a decision about 
what happens in your area or my home area.
    We are working hard, but until it rains in my area 
significantly, it doesn't matter, you are not going to grow 
anything. And I just can't get the lawyers and the bureaucrats 
to understand that. So I appreciate you shedding some light on 
that.
    I yield back, Mr. Chairman.
    Chairman Tipton. Thank you, Mr. Huelskamp.
    I now recognize Ranking Member Murphy for his questions.
    Mr. Murphy. Thank you, Mr. Chairman.
    From my understanding, it sounds like some companies are 
finding ways around the restrictions to export crude oil. Can 
any of you explain how this is happening and what it means for 
the smaller competing refineries that are actually following 
the rules?
    Go just in order. Mr. Smith, go ahead. Or whoever wants to 
answer it.
    Mr. Smith. Yes, I am not really aware of any individual 
companies that are specifically getting around the ban, Mr. 
Murphy. What some companies are doing is developing splitter 
refineries, which do partially refine the crude.
    And, again, in response to the Member's question about the 
export ban, it is that distillation process that occurs in a 
splitter refinery. So you are actually taking different 
components of the crude off the crude, if you will, lighter 
components that are often more volatile than the heavier 
components. And their position is, as is our position, sir, 
that that is exportable crude and falls under the definitions 
of the rule that was promulgated after the 1975 act.
    Yesterday, the administration announced that they were 
going to offer an exemption for certain condensates. We do not 
yet know specifically whether those are lease condensates or 
plant condensates or a combination thereof. Those are different 
processes that result in those condensates. But our position 
would also be that that exception to the ban was a valid 
exception under the language in the rule.
    Mr. Murphy. Does anyone want to add anything?
    Mr. Book. Well, part of the problem in answering the 
question, Congressman, is that we don't know what BIS actually 
did, other than what we can read in the newspapers.
    Simply put, what seems to have occurred is that a subset of 
the oil being produced from shale formations is being processed 
in a fashion that BIS has deemed acceptable for export once the 
processing is complete.
    So that is a subset of a subset, and it is not necessarily 
a very big change, but there is a lot of question about where 
the line might be. I know yesterday I spent a lot of time on 
the phone with my clients, who were trying to make sense of it, 
too.
    But whether this compromises other refineries is entirely a 
question of the scale of its impact.
    Mr. Murphy. Okay.
    Mr. Blong. If I may reword the question, Mr. Murphy, or at 
least regurgitate the question, can we speak to several 
producers getting around the ban, I think what we have really 
seen more than anything else is American ingenuity in its 
finest working and business folks understanding the context of 
the law and creating innovations, much like Mr. Smith's company 
has done, to facilitate continued growth.
    I certainly would say, from our perspective, not that we 
are legal experts by any stretch, but it seems like they have 
taken what is written in the law and understood that well and 
are trying to play within the confines of those rules, but 
innovatively and creatively as they can.
    Mr. Murphy. Just as a follow-up, it was recently reported 
that the Obama administration approved recently the export of 
unrefined oil, and that was the first time in, I guess, nearly 
4 decades.
    How does that affect your business plan and other--I guess, 
any of your industries and that of the refining industry?
    Mr. Blong. Based on all the reports that we have read 
really in the last 24-plus hours, I think it is too early for 
us to tell, really. I think we are trying to interpret what 
exactly has taken place and what the impacts would be on our 
clients and our businesses.
    Mr. Murphy. That is votes, so we are going to run out of 
time here. Just real quick, I want to kind of switch gears a 
little bit.
    This is the Small Business Committee. You sort of alluded 
earlier, I guess, Mr. Dotson, to the super-majors and their 
prowess in the market. What can we do on this Committee 
specifically? If there was one regulation, if there was one 
rule, if there was one thing we could do to help small 
businesses enter the market, help you grow, help you expand, 
and help new startups, what would that be?
    Mr. Blong. I think lifting this export ban is the place to 
start. It de-risks the investments of the producers, which de-
risks the investments of drilling companies and consulting 
firms like ourselves and everyone else down the line.
    And so, when the investment community sees that their 
investment is de-risked and has sustainability, which I think 
really is the conversation at hand today more than anything 
else, at that point in time, then we can create jobs and have 
direct investment into American manufacturing.
    Mr. Murphy. Okay.
    Mr. Book or Smith, do you care to comment?
    Mr. Smith. With respect to small businesses, you know, we 
firmly believe that the development of increased refining 
capacity here onshore will benefit both small businesses in the 
areas where the refinery capacity is increased and also small 
businesses that live along the food chain that would 
potentially benefit from a lifting of the export ban.
    Mr. Book. I would have to say that the oil price drives the 
bus, and investment follows the price. And with that investment 
comes a series of those indirect and induced jobs, many of 
which are supplied by small businesses.
    And so what you want to do is keep the investment going. 
And you can do that with policy that is clear so that you can 
make investment decisions and count on what the future looks 
like. Opening up U.S. crude to the world should help keep that 
investment going.
    Mr. Murphy. Okay.
    Mr. Dotson, can you comment on that, as well, and maybe 
talk about some of the recent EPA regulations, like Tier 3 and 
GHG and RFS rules and if that will hurt small operators and 
refining companies?
    Mr. Dotson. Sure.
    Just on the small-business point, I would say refining is 
such a capital-intensive sector that having small businesses 
enter that sector and compete is a very unlikely proposition. 
As my co-panelists have said, production, though we are seeing 
lots of small-business activity there. And that is booming 
right now. And I don't know that there is--I would actually say 
I am not sure that there is action necessary by Congress on 
that boom, because it is growing so quickly. In fact, you will 
read press articles about how the industry is actually having 
problems identifying workers to participate and they are 
growing so quickly.
    With regard to the environmental regulations, I would say 
140 million people in the United States still live in areas in 
which there is more air pollution than is considered healthy. 
And so EPA's mission in implementing the Clean Air Act is just 
to attempt to protect public health.
    They have finalized Tier 3. That is a set of emission 
standards for cars and trucks, and it also requires cleaner 
fuels to be produced. And it is really--it is something that is 
great for the American people. It helps reduce illness, helps 
prevent asthma attacks.
    And it is also good for domestic manufacturing, because the 
one area that the United States has a manufacturing edge is in 
the manufacturing of emissions controls. And they celebrated 
this victory. They see this as something that is good for 
hundreds of manufacturing jobs, because they want us to 
continually push for cleaner technology so they can manufacture 
that technology and export it abroad.
    Mr. Murphy. Okay.
    Thank you.
    Chairman Tipton. Thank you, Mr. Murphy.
    Mr. Book, it seems a little--and I think we can offer this 
to the entire panel here--it seems a little counterintuitive to 
say that lower prices for domestic oil are a bad thing. Could 
you explain to the Committee how lower domestic oil prices 
wouldn't reduce fuel prices?
    Mr. Book. Happy to do so, Mr. Chairman.
    As one of the other panelists pointed out, global supply 
and demand trends set the price of oil. And while you can 
actually influence global price a little bit by adding to 
supply, most of what happens here in terms of the prices that 
we receive for gasoline at the pump, which is where consumers 
meet the oil industry face-to-face, that is determined by the 
global price, which has a lot to do with other things.
    What happens here is that folks, like the folks to my left 
and right, are making investments, and they are making 
investments, again, based on the environment that the oil price 
suggests. So if our oil price is for some reason artificially 
constrained from reaching global prices and is lower, firms 
will make that investment elsewhere.
    And that doesn't happen necessarily right away, nor is it 
obviously going to happen when prices are as high as they are 
now. But bring Libya back on line. Solve some of the problems 
in the world, and the global price falls. And that differential 
will really make a difference.
    Chairman Tipton. I think we tried setting prices in the 
Nixon administration. That didn't work out too well for us as a 
country at that time.
    Any other comments in regards to that?
    Mr. Smith. Not to sound like a broken record here, but 
another issue that does impact gasoline prices specifically is 
refining capacity. And that is one of the areas that we have 
literally built our business plan around.
    And I might mention, we are not the only kids on the block. 
There are a number of other companies that have similar 
business plans for developing additional refining capacity 
onshore. And as goes increased refining capacity will go 
lowered or stabilized gasoline prices at the pump.
    Chairman Tipton. Now, when we are talking about 
microrefinery that you were looking at, Mr. Smith, does that 
have the potential to lower fuel prices? Propane is a big deal 
in our part of the world out west.
    Mr. Smith. Yes, sir. Two components to the answer to that 
question.
    In our specific case, we are building the microrefineries 
to address local and regional diesel demand. The diesel prices 
in the region are extremely high compared to the other parts of 
the country. One of the reasons for that is they are hauling 
the crude oil to the coasts, refining it, and then hauling it 
back. The closest refinery to the Williston Basin would be in 
Denver, 600 miles away, and most of them are in the 1,200- to 
1,700-mile distance in terms of your supply chain for diesel. 
Gasoline would follow, as well. And so, while we are primarily 
producing for the local and regional market, others are in 
other markets and would affect that.
    The second part of the answer is the natural-gas-stripping 
facilities specifically provide for an increased locally 
produced supply of light gases, specifically propanes, butanes, 
that can then be fractured into their various components and 
delivered more locally to the market, thereby driving down 
propane prices.
    I also live in the mountain west, where propane is 
extremely expensive. And we feel that the closer to the 
consumer that you can place the refining processes, the better 
for the consumer, the better for prices.
    Chairman Tipton. Now, I do want to follow up a little bit 
on the refining end of this. You know, I remember, 1972, I 
think, we had the first Earth Day. The projections were we were 
going to run out of all of our fossil fuels I think by the 
1990s, at that particular point. I think we have had some great 
testimony that the technologies have improved.
    Mr. Blong, I embrace what you were saying. People that live 
there and work there, I have talked to people with dirt under 
their fingernails that work under these rigs, happen to love 
their--you are holding up your hand--you know, that actually 
love their families and love where they live and want to be 
able to do it right.
    But we haven't seen a major refinery built in this country 
now for--is it 40 years? Is that correct?
    Mr. Smith. 1976 was the last major. And the MD Resources 
refinery outside of Dickinson that will open at the end of this 
year, the beginning of next, will be the first greenfield 
startup refinery in nearly 40 years, sir. And we are hoping to 
be among the next after that.
    Chairman Tipton. What, kind of, inhibited developing a new 
technology to be able to do it better? Was it government 
regulations?
    Mr. Smith. It is not so much a technology inhibition, sir, 
as it has been the really draconian lowering of the level of 
emissions allowed by the EPA down to a 100--the cutoff is 100 
tons per year of any gas or emission deemed to be a regulatable 
gas.
    And at 100 tons per year, the guys with the fat brains can 
calculate backwards, and they have determined that you cannot 
have a feedstock input to a refinery in excess of 20,000 
barrels per day without exceeding that 100-ton threshold. 
Raising that threshold would greatly increase the odds of 
having larger refineries built.
    Mr. Dotson. Mr. Chairman, can I just add that, while it is 
true that we haven't had major development of a new refinery, 
we have had consistent additions to capacity at existing 
refineries. So we have seen a great consolidation in the 
refining sector. In the last 14 years, we have added 1.4 
million barrels per day of refining capacity. Today, we have 
almost 18 million barrels a day of refining capacity, which is 
at an all-time high. So we----
    Chairman Tipton. But that was geared towards not a light, 
sweet crude, but a heavy crude?
    Mr. Dotson. A lot of the recent investments have tended to 
focus on heavier crudes.
    Chairman Tipton. Right. Okay.
    I would like to follow up on Ranking Member Murphy's 
question, because it is about small business. And, heartening 
to me to hear about 12 employees, wanting to be able to expand, 
the average $76,000 a year in wages that you are able to pay 
the folks.
    What is the potential impact on domestic fuel prices of 
this limited decision that we just saw come out of the 
Department of Commerce when it comes to completely lifting the 
de facto ban on oil exports?
    Mr. Book. I mean, the decision out of the Department of 
Commerce is not at all clear. But if it is just a subset of a 
subset of our crude, the impact on prices is probably 
imperceptible. The impact of a wholesale lifting of the current 
policy could be meaningful. It depends on how much crude ends 
up being induced by the opportunity to come to market.
    But if you think of it, sort of, in a static sense, that 
every million barrels per day is roughly 10 bucks off the 
global price of oil, you can start to feel 10 to 15 cents at 
the pump when you get into that range.
    Mr. Blong. With respect to the job creation by a de facto 
lifting of the ban, we feel like that it is perhaps more 
sentimentally driven, which will ultimately drive the economics 
of the issue. But investors and operating companies, producers 
have to have some reassurance that there is incentive for them 
to continue to innovate and continue to deploy capital to 
develop our Nation's resources so that folks like us can create 
jobs alongside of them in cooperation.
    Chairman Tipton. Okay. Thank you.
    They have just called votes, but I do have one final 
question I would like to ask Mr. Book.
    Could you explain some of the tradeoffs involved in lifting 
the ban on crude-oil exports? And would the economic benefits 
of this decision be a net plus for the economy and for small 
businesses?
    Mr. Book. In general, if you increase the upstream 
investment, you are going to benefit all businesses across the 
country. There is a number of very well-documented studies that 
show how it reaches outside the oil patch, but there were 
comments by this panel this morning that do the same thing.
    In terms of the tradeoffs, there are currently, yes, some 
refiners that are benefiting from an artificially discounted 
crude-oil price, and they would be probably somewhat undercut 
in their current profits if that price were to go up. But it is 
my testimony that that price could go up for other reasons, 
even without the exports.
    And even if that price went up, they would still have two 
principal advantages. One, they would be able to buy the crude 
net of transportation costs here in the U.S., which might give 
them some advantage based on their proximity to the crude. And, 
second, they have low-cost natural gas as a processed fuel, 
which, in the fractions of a cent that make or break you in the 
refining business, is a very big deal. We have significantly 
cheaper natural gas and are likely to continue to have it for 
many years to come.
    Chairman Tipton. And I think there is certainly something 
to be said for domestic energy security, given what we are 
seeing going on in the Middle East right now in particular, to 
be able to make sure that we have those resources to be able to 
create our jobs here locally and make sure we keep the lights 
on and the heat on during the winter months.
    Gentlemen, I would like to thank you all once again for 
taking the time to be able to be here and appearing before this 
Committee. You have all provided valuable insight into how 
decisions in Washington affect small businesses operating in 
the real world.
    The shale oil and gas production revolution does hold 
promise to transform our economy and energy security. And, at 
the same time, we should be mindful that they are one part of a 
broader, comprehensive, all-of-the-above strategy that includes 
utilization of all of our Nation's available resources, 
including coal, hydropower, nuclear, and renewables.
    Certainly want to be able to recognize, we just had the 
70th anniversary, that we recognized on D Day, the efforts that 
you have made with half of your employees, Mr. Blong, in terms 
of being veterans, come out with some great skills. And 
certainly I think it is an appropriate thing for us to maybe 
have some legislation to make sure that we give access to those 
jobs for our veterans that are coming out of our service. So 
thank you for that.
    I would like to ask unanimous consent that Members and the 
public have 5 legislative days to submit comments and materials 
into the hearing record.
    Hearing none, so ordered.
    The hearing is now adjourned. And thank you.
    [Whereupon, at 11:08 a.m., the Subcommittee was adjourned.]


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