[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
THE ENERGY POLICY AND CONSERVATION ACT
OF 1975: ARE WE POSITIONING AMERICA FOR
SUCCESS IN AN ERA OF ENERGY ABUNDANCE?
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ENERGY AND POWER
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
DECEMBER 11, 2014
__________
Serial No. 113-187
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
___________
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COMMITTEE ON ENERGY AND COMMERCE
FRED UPTON, Michigan
Chairman
RALPH M. HALL, Texas HENRY A. WAXMAN, California
JOE BARTON, Texas Ranking Member
Chairman Emeritus JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky FRANK PALLONE, Jr., New Jersey
JOHN SHIMKUS, Illinois BOBBY L. RUSH, Illinois
JOSEPH R. PITTS, Pennsylvania ANNA G. ESHOO, California
GREG WALDEN, Oregon ELIOT L. ENGEL, New York
LEE TERRY, Nebraska GENE GREEN, Texas
MIKE ROGERS, Michigan DIANA DeGETTE, Colorado
TIM MURPHY, Pennsylvania LOIS CAPPS, California
MICHAEL C. BURGESS, Texas MICHAEL F. DOYLE, Pennsylvania
MARSHA BLACKBURN, Tennessee JANICE D. SCHAKOWSKY, Illinois
Vice Chairman JIM MATHESON, Utah
PHIL GINGREY, Georgia G.K. BUTTERFIELD, North Carolina
STEVE SCALISE, Louisiana JOHN BARROW, Georgia
ROBERT E. LATTA, Ohio DORIS O. MATSUI, California
CATHY McMORRIS RODGERS, Washington DONNA M. CHRISTENSEN, Virgin
GREGG HARPER, Mississippi Islands
LEONARD LANCE, New Jersey KATHY CASTOR, Florida
BILL CASSIDY, Louisiana JOHN P. SARBANES, Maryland
BRETT GUTHRIE, Kentucky JERRY McNERNEY, California
PETE OLSON, Texas BRUCE L. BRALEY, Iowa
DAVID B. McKINLEY, West Virginia PETER WELCH, Vermont
CORY GARDNER, Colorado BEN RAY LUJAN, New Mexico
MIKE POMPEO, Kansas PAUL TONKO, New York
ADAM KINZINGER, Illinois JOHN A. YARMUTH, Kentucky
H. MORGAN GRIFFITH, Virginia
GUS M. BILIRAKIS, Florida
BILL JOHNSON, Ohio
BILLY LONG, Missouri
RENEE L. ELLMERS, North Carolina
7_____
Subcommittee on Energy and Power
ED WHITFIELD, Kentucky
Chairman
STEVE SCALISE, Louisiana BOBBY L. RUSH, Illinois
Vice Chairman Ranking Member
RALPH M. HALL, Texas JERRY McNERNEY, California
JOHN SHIMKUS, Illinois PAUL TONKO, New York
JOSEPH R. PITTS, Pennsylvania JOHN A. YARMUTH, Kentucky
LEE TERRY, Nebraska ELIOT L. ENGEL, New York
MICHAEL C. BURGESS, Texas GENE GREEN, Texas
ROBERT E. LATTA, Ohio LOIS CAPPS, California
BILL CASSIDY, Louisiana MICHAEL F. DOYLE, Pennsylvania
PETE OLSON, Texas JOHN BARROW, Georgia
DAVID B. McKINLEY, West Virginia DORIS O. MATSUI, California
CORY GARDNER, Colorado DONNA M. CHRISTENSEN, Virgin
MIKE POMPEO, Kansas Islands
ADAM KINZINGER, Illinois KATHY CASTOR, Florida
H. MORGAN GRIFFITH, Virginia JOHN D. DINGELL, Michigan (ex
JOE BARTON, Texas officio)
FRED UPTON, Michigan (ex officio) HENRY A. WAXMAN, California (ex
officio)
(ii)
C O N T E N T S
----------
Page
Hon. Ed Whitfield, a Representative in Congress from the
Commonwealth of Kentucky, opening statement.................... 2
Prepared statement........................................... 2
Hon. Bobby L. Rush, a Representative in Congress from the State
of Illinois, opening statement................................. 3
Hon. Joe Barton, a Representative in Congress from the State of
Texas, opening statement....................................... 4
Hon. Fred Upton, a Representative in Congress from the State of
Michigan, prepared statement................................... 114
Hon. Gene Green, a Representative in Congress from the State of
Texas, prepared statement...................................... 79
Witnesses
Adam Sieminski, Administrator, Energy Information Administration,
Department of Energy........................................... 6
Prepared statement........................................... 8
Lucian Pugliaresi, President, Energy Policy Research Foundation,
Inc............................................................ 18
Prepared statement........................................... 20
Charles K. Ebinger, Senior Fellow Energy Security Initiative, The
Brookings Institution.......................................... 29
Prepared statement........................................... 32
Deborah Gordon, Director, Energy and Climate Program, Carnegie
Endowment for International Peace.............................. 50
Prepared statement........................................... 52
Submitted Material
Report of the United Steelworkers, ``Crude Oil Exports--Lost
Jobs, Lost Growth,'' submitted by Mr. Rush..................... 95
Article of December 4, 2014, ``The Fracking Fallacy,'' by Mason
Inman, Nature, submitted by Mr. Rush........................... 98
Letter of December 10, 2014, from Louis Finkel, Executive Vice
President, Energy API, to Mr. Whitfield and Mr. Rush, submitted
by Mr. Whitfield............................................... 102
Letter of December 10, 2014, from Charles T. Drevna, President,
American Fuel & Petrochemical Manufacturers, to Mr. Whitfield
and Mr. Rush, submitted by Mr. Whitfield....................... 104
Letter of December 10, 2014, from Allen Schaeffer, Executive
Director, Diesel Technology Forum, to Mr. Whitfield and Mr.
Rush, submitted by Mr. Whitfield............................... 107
Letter of December 18, 2014, from Jay Hauck, Executive Director,
The CRUDE Coalition, to Mr. Whitfield and Mr. Rush, submitted
by Mr. Whitfield \1\
Executive summary, ``An Analysis of U.S. Light Tight Oil
Absorption Capacity,'' September 24, 2014, by Richard X. Thomas
and Kevin G. Waguespack, Baker & O'Brien, Inc., submitted by
Mr. Whitfield \1\
Report, ``Lifting the Crude Oil Export Ban: The Impact on U.S.
Manufacturing,'' October 2014, by Thomas J. Duesterberg, et
al., The Aspen Institute, submitted by Mr. Whitfield \1\
----------
\1\ The information has been retained in committee files and also is
available at http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=102781.
Policy brief, ``Changing Markets: Economic Opportunities from
Lifting the U.S. Ban on Crude Oil Exports,'' September 2014, by
Charles Ebinger and Heather L. Greenley, Brookings Energy
Security Inititative, submitted by Mr. Whitfield \1\
Analysis, ``What Drives U.S. Gasoline Prices?,'' October 2014,
Energy Information Administration, submitted by Mr. Whitfield
\1\
Report to the Ranking Member, Committee on Energy and Natural
Resources, U.S. Senate, ``Changing Crude Oil Markets: Allowing
Exports Could Reduce Consumer Fuel Prices, and the Size of the
Strategic Reserves Should Be Reexamined,'' September 2014,
Government Accountability Office, submitted by Mr. Whitfield
\1\
Report submitted to American Petroleum Institute, ``The Impacts
of U.S. Crude Oil Exports on Domestic Crude Production, GDP,
Employment, Trade, and Consumer Costs,'' March 31, 2014, ICF
International and EnSys Energy, submitted by Mr. Whitfield \1\
Press release of May 29, 2014, ``Lifting Export Restrictions on
U.S. Crude Oil Would Lower Gasoline Prices and Reduce U.S.
Petroleum Imports While Supporting Up to 964,000 Additional
Jobs, IHS Study Finds,'' IHS Inc., submitted by Mr. Whitfield
\1\
Issue brief, ``Crude Behavior: How Lifting the Export Ban Reduces
Gasoline Prices in the United States,'' February 2014 (revised
March 2014), by Stephen P.A. Brown, et al., Resources for the
Future, submitted by Mr. Whitfield \1\
----------
\1\ The information has been retained in committee files and also
is available at http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=
102781.
THE ENERGY POLICY AND CONSERVATION ACT OF 1975: ARE WE POSITIONING
AMERICA FOR SUCCESS IN AN ERA OF ENERGY ABUNDANCE?
----------
THURSDAY, DECEMBER 11, 2014
House of Representatives,
Subcommittee on Energy and Power,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 9:30 a.m., in
room 2123, Rayburn House Office Building, Hon. Ed Whitfield
(chairman of the subcommittee) presiding.
Members present: Representatives Whitfield, Shimkus, Pitts,
Terry, Latta, Olson, McKinley, Gardner, Pompeo, Kinzinger,
Griffith, Barton, Rush, McNerney, Tonko, Yarmuth, Engel, Green,
Capps, and Barrow.
Also present: Representatives Flores and Mullin.
Staff present: Nick Abraham, Legislative Clerk; Charlotte
Baker, Deputy Communications Director; Sean Bonyun,
Communications Director; Leighton Brown, Press Assistant;
Allison Busbee, Policy Coordinator, Energy and Power; Patrick
Currier, Counsel, Energy and Power; Tom Hassenboehler, Chief
Counsel, Energy and Power; Brandon Mooney, Professional Staff
Member; Graham Pittman, Staff Assistant; Chris Sarley, Policy
Coordinator, Environment and the Economy; Joe Banez, Democratic
Policy Analyst; Peter Bodner, Democratic Counsel; Matt
Connolly, Democratic Professional Staff Member; Michael Goo,
Democratic Senior Counsel; and Caitlin Haberman, Democratic
Professional Staff Member.
Mr. Whitfield. I would like to call the hearing to order
this morning. And before we get into the subject of the
hearing, I would mention that this will be the last hearing of
the 113th Congress for this subcommittee, and I did want to
recognize a number of Members who are on the subcommittee and
have been valuable Members of Congress for a number of years
who will not be coming back.
First, on our side of the aisle we have Ralph Hall of
Texas. All of you know Ralph. And unfortunately, he was
involved in a car accident right after the election and I think
is still in the hospital.
We have Lee Terry from the great State of Nebraska on the
subcommittee. Dr. Bill Cassidy will be moving over to the U.S.
Senate and Cory Gardner will be moving over to the U.S. Senate.
But I just wanted to thank them for the many contributions that
they have made and the great job they did representing their
constituents.
And then on the Democratic side, of course, the ranking
member, Henry Waxman of California, served many years on this
committee as chairman and as ranking member, will not be
returning. Mr. John Dingell, who all of you know, chairman of
this committee for many years. John Barrow of Georgia, and
Donna Christensen of the Virgin Islands.
So I just want to thank all of them for their many
contributions. And with that, you can talk about them in your
opening statement if you want to, Bobby. I think that is OK.
But anyway, I will go on at this time and recognize myself
for an opening statement.
OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF KENTUCKY
This morning's hearing we are going to be focused on the
Energy Policy and Conservation Act of 1975. We are going to get
a little history lesson. As many of you remember, that act
established the price controls on domestic oil, also
established the Strategic Petroleum Reserve, also established
CAFE standards, and also set the prohibition on the export of
crude oil.
And as you know, Ronald Reagan eliminated the price
controls when he became President. Certainly, Strategic
Petroleum Reserve and the CAFE standards are still out there
and have a great impact on our economy and our society.
And the big question that we hear more and more about,
though, is the wisdom of maintaining this prohibition on the
export of crude oil. Of course, under the act, the President
does have the authority to allow the export of crude oil, but
Joe Barton and others have raised the issue about adopting
legislation that would remove this prohibition. And just as we
had extensive review of the impact of such a move on the export
of natural gas, that is what we intend to do on this question
of export of crude oil.
So we are going to have a lot of hearings. We want to hear
from all sides of the issue because there are a lot of
different opinions about it. And that is why we are delighted
to have our distinguished witnesses with us this morning to
provide us with this historical perspective. And we will be
having some more hearings about it, because as I said we want
to be very thorough before we make a decision to go one way or
the other.
[The prepared statement of Mr. Whitfield follows:]
Prepared statement of Hon. Ed Whitfield
This morning's hearing will focus on the Energy Policy and
Conservation Act of 1975 (EPCA). In particular, we will explore
whether this very important but nearly 40-year-old statute is
suited to deal with the Nation's changing energy landscape.
In the years since EPCA was enacted, we have reviewed many
of its key provisions to determine if they still made sense.
Some, like the price controls on domestic oil, were deemed
counterproductive and were dropped. Specifically, we learned
that suppressing the price of American oil did nothing to lower
the price at the pump and instead served to discourage domestic
drilling. As a result, President Reagan eliminated these price
controls, and we are all better off because of it.
In contrast, other provisions in EPCA are still being
implemented including the Strategic Petroleum Reserve and the
Corporate Average Fuel Economy (CAFE) standards for cars and
trucks.
Among the provisions still in place are the restrictions on
exports of crude oil. In retrospect, it is easy to understand
why these restrictions were a part of the 1975 law. At the
time, America was facing declining domestic oil output and
increasing dependence on imports from nations hostile to our
interests. And at the same time, the Nation's demand for
gasoline was on the rise. Export restrictions were also
necessary to avoid circumventing the price controls then in
effect.
So, despite the fact that America usually favors free
trade, we decided to make an exception when it comes to oil.
And almost 40 years later, this policy remains in place.
But as we all know, the trends behind the oil export
restrictions have dramatically reversed themselves in recent
years. Thanks to advances in hydraulic fracturing and
directional drilling, domestic oil production has been sharply
rising, and the Energy Information Administration expects
continued increases in the years ahead. Meanwhile, oil imports
have declined from a peak of 60 percent to around 30 percent
today, and EIA expects the net import share to decline to 21
percent in 2015, all while gasoline usage has begun what many
predict to be a long-term decline. Overall, most of the
original justifications for the oil export restrictions are
disappearing.
In fact, America may soon be producing more oil than it can
handle. It is important to note that not all oil is the same,
and in fact there are distinctly different types. The largest
increases in American production have been the lighter types of
liquid hydrocarbons, which are not what most U.S. refineries
are set up to process. This light oil is better suited to many
foreign refineries, and for that reason there is a strong
demand for American oil around the world.
This morning's hearing lays the foundation for our
discussion of oil exports with a thorough historical review of
current law and its origins. There are a number of questions
that need to be answered, but first we need a better
understanding of how we arrived where we are today.
As with our discussion of natural gas exports, we will
conduct a thorough analysis and give all points of view the
opportunity to be heard before we consider whether to take
action.
Mr. Whitfield. And with that, I yield back the balance of
my time, and I recognize the gentleman from Illinois, Mr. Rush,
for his opening statement.
OPENING STATEMENT OF HON. BOBBY L. RUSH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Rush. I want to thank you, Mr. Chairman. I, too, want
to thank and congratulate and commend those departing Members
from this subcommittee. They were all very, very highly
esteemed and contributed mightily to the work of the
subcommittee and the work on the full committee, work of the
Congress, and certainly to the benefit of all the citizens of
our great Nation. And I just want to take my hat off to them
and wish them good biddings and bright futures and many
continued blessings as they move forward in their lives.
I want to take particularly time out to allow me a
statement to bid farewell to Mr. Waxman, who has been the
former chairman on the full committee and been an extraordinary
leader on environmental issues and other issues, and
particularly as it relates to consumer protection and
protection of the environment against the harsh realities that
we are confronted with today, climate change and many, many
others.
And I want to also take a moment out of my opening
statement to commend the one man who has probably affected my
life more than any other legislator in my service in the
Congress, and that is John Dingell. John Dingell has not only
been a true friend of mine and worked with me, helped advise
me, but John Dingell is the kind of legislator, I call him, and
a lot of others call him, the Lion of the House. You can learn
just by watching John Dingell. He doesn't have to be doing
anything or saying anything especially to you. You just learn
how he operates and watch him from afar, and you will learn
more than most legislators learn in a lifetime just watching
the example of John Dingell, and his impact on this committee
and on this Congress will never fade.
And so, Mr. Chairman, I want to thank all those departing
members for their contribution.
I want to thank you, Mr. Chairman, for holding this
important hearing. As we enter into an era of the new American
energy renaissance that we are experiencing, it is important to
better understand all of the implications that are associated
with exporting crude oil due to the recent surge in domestic
production. I think it is entirely appropriate for this
subcommittee to revisit the Energy Policy and Conservation Act
of 1975, which restricts the export of domestically produced
crude oil, as conditions today have shifted dramatically from
the 1970s when the bill was first enacted.
What is less clear, however, is how long this current
increase in oil production will last and what type of impact
will lifting the ban--permanently, I might add--have here on
domestic consumers.
Mr. Chairman, I come to this issue with truly an open mind,
and I look forward to hearing from today's panel of experts. To
be more specific, I am looking for answers regarding how
exporting this important commodity would impact American
families and the American economy in general in regards to
domestic gas prices, consumers goods, manufacturing, and jobs.
Mr. Chairman, I am going to close my mouth and open my mind
now, and I want to thank you. I was going to yield my time to
Mr. Green, who asked for it, but I will yield my time back, Mr.
Chairman. Thank you so very much.
Mr. Whitfield. Thank you very much.
Is there anyone on our side of the aisle that--OK. Joe, you
are recognized for 5 minutes. They hadn't instructed me who all
was speaking today. So I am glad to recognize you for 5
minutes.
OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Barton. Well, Mr. Chairman, if you need some of that
time, I can give some of it back. I mean, I do want to talk for
a couple of minutes.
Well, thank you, Mr. Chairman. We have a number of Members
on this committee that probably weren't alive when we passed
the Energy Policy and Conservation Act of 1975. In that same
time period, I believe in that act, we put into place a ban on
the export of crude oil from the United States.
Now, in the mid-1970s, Mr. Chairman, the OPEC oil cartel
had had an oil embargo against the United States and Western
Europe, and it devastated our economy. I can remember living in
Crockett, Texas, and I could buy 10 gallons of gas on odd days.
I could go to the gas station and buy 10 gallons of gas on odd
days based on the last digit in my license plate. That was not
fun. There were gas lines. There were plant closings. We were
producing, I can't remember exactly, but we were probably
producing 5 or 6 million barrels of oil a day, but we were
consuming in the neighborhood of 15 to 16, I think.
So putting a ban on crude oil exports at that time made
some sense, to husband that resource as a strategic commodity.
Well, what is the situation today, Mr. Chairman? The United
States is the number one oil producer on a daily basis in the
world. Today we will produce in the neighborhood of 9.5 million
barrels of oil in the United States of America. If you combine
the oil that we import from Canada and Mexico, our NAFTA
partners, you can put another 2 million barrels a day, maybe
even 3.
Our consumption is down. Our production is up. We have a
surplus on the world market today, Mr. Chairman, of 2 to 3
million barrels a day. And the result is that instead of $110-
barrel oil, we have, I think yesterday, West Texas Intermediate
closed at about $63 a barrel.
That is a good thing for the American consumer, Mr.
Chairman. It is a good thing that you are holding this hearing.
And I would hope in the new Congress we take a look at the bill
that I have introduced this week, H.R. 5814. It is a page-and-
a-half bill. It is very simple. It repeals the ban on crude oil
exports, and it requires a study reported to this committee of
what we do with the Strategic Petroleum Reserve.
It is a different world today, Mr. Chairman, and when you
are number one you use that status. If we allow our producers
to export the crude oil that can't be consumed here in the
United States or refined here in the United States, we put
pressure on OPEC, we put pressure on Russia, we create jobs
here at home, and we make sure that that world price which sets
the crude oil price is based on real supply and demand, and
that is a good thing for everybody.
So I am extremely pleased that you are holding this
hearing. I would ask you also to look at such anachronisms as
the Renewable Fuel Standard, and I know how contentious this is
on our Gulf Coast States. But I think we should also look at
the Jones Act, and as I said earlier, the Strategic Petroleum
Reserve.
With that, Mr. Chairman, I still have about a minute, and I
would be happy to yield to whoever you wish me to.
Mr. Whitfield. Does anyone seek this additional minute?
OK. The gentleman yields back. At this time, Mr. Yarmuth,
do you or Ms. Capps want to make a comment? Ms. Capps? Mr.
Barrow? We have already thanked you for your service, John, so
thanks.
Mr. Barrow. That would be John Barrow, the late.
Mr. Whitfield. OK. Thank you.
Well, that concludes the opening statement. And as I said,
we have a distinguished panel of witnesses.
And I am just going to introduce you as I introduce you to
make your opening statement.
So first opening statement will be by Adam Sieminski, who
is certainly no stranger to this panel.
And we welcome you back, Mr. Administrator, with the U.S.
Energy Information Administration, and you are recognized for 5
minutes for your opening statement.
STATEMENTS OF ADAM SIEMINSKI, ADMINISTRATOR, ENERGY INFORMATION
ADMINISTRATION, DEPARTMENT OF ENERGY; LUCIAN PUGLIARESI,
PRESIDENT, ENERGY POLICY RESEARCH FOUNDATION, INC.; CHARLES K.
EBINGER, SENIOR FELLOW, ENERGY SECURITY INITIATIVE, THE
BROOKINGS INSTITUTION; AND DEBORAH GORDON, DIRECTOR, ENERGY AND
CLIMATE PROGRAM, CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE
STATEMENT OF ADAM SIEMINSKI
Mr. Sieminski. Chairman Whitfield, Congressman Rush,
members of the subcommittee, thank you for the opportunity to
be here today to discuss the history of the U.S. ban on crude
oil exports and to contrast the market conditions at the time
of the ban with those today.
The U.S. Energy Information Administration, EIA, is a
statistical and analytical agency at the Department of Energy.
By law, EIA's data, analyses, and forecasts are independent of
approval by any other officer or employee of the U.S.
Government, so the views expressed here should not be construed
as representing those of the Department of Energy or any other
Federal agency.
At the time of the passage of the Energy Policy and
Conservation Act in 1975, U.S. net imports of petroleum were
rising rapidly due to declining domestic production while
growth in consumption was rocketing up. U.S. net oil imports
more than doubled between 1970 and 1978, from 3.2 to 8.6
million barrels per day, driving imports as a share of total
consumption from 22 percent to 47 percent.
Internationally, when OPEC declared an oil embargo against
the United States in 1973, 65 percent of rising U.S. crude oil
imports were coming from OPEC countries. To protect consumers
from price shocks, the U.S. policy response at the time was to
limit the price for oil produced from U.S. wells existing in
1972 while allowing new oil to sell at world market prices.
Limiting exports prevented circumvention of these domestic
price controls; however, the separation of new and old oil
pricing did not really stem the production declines as oil
production in the lower 48 States fell some 23 percent between
1973 and 1980.G
By 1981, it was clear that the policy wasn't working, and
the price and allocation controls were removed. That is on
figure 2 of my testimony. For nearly 3 decades after the
removal of price controls, declining production, coupled with
rising demand, pushed the U.S. towards ever-increasing imports
until net imports as a share of total U.S. petroleum
consumption peaked at 60 percent in 2005.
Restrictions on crude oil exports remained in place, but
limited modifications from time to time allowed exports to
Canada, exports of production from Alaska that went through the
Trans-Alaska Pipeline, and certain California heavy crude oil.
Since 2008, however, these conditions have been reversed,
partly as a result of the growth in domestic supply, and also
as a result of swelling demand. U.S. domestic crude oil
production has increased by 3.4 million barrels a day, some 68
percent, to its highest level since 1986.
Meanwhile, between 2008 and 2014--this year, we are
estimating for the full year--total U.S. liquid fuel
consumption fell from 19.5 million barrels a day to 18.9
million barrels a day. The U.S. went from being the world's
largest net importer to becoming a big net exporter of
petroleum products. In 2014, net imports as a share of total
U.S. petroleum consumption is now down to below 30 percent,
close to 25.
The dramatic production growth in the U.S. midcontinent and
Canada has resulted in logistical constraints that are
reflected in a wide variation of prices for domestically
produced crudes. In 2008, benchmark crude, West Texas
Intermediate, or WTI, sold for a premium of $2.73, a premium
higher than Brent that comes from the North Sea.
In 2014, through October, WTI has been trading at a
discount of over $6 a barrel to Brent crude oil. EIA's latest
short-term energy outlook forecasts recent trends in U.S.
petroleum markets will continue into 2015 with domestic crude
oil production averaging 9.4 million barrels a day, 10 percent
above the 2014 level.
Gasoline demand and net imports as a share of domestic
consumption could be 21 percent as recent dramatic declines in
crude prices may affect our outlook, but more so, I think, in
the longer term rather than in the very short term.
So petroleum market conditions today are very different
than they were in the 1970s when the ban on crude oil exports
was enacted. Key trends in U.S. oil markets have reversed.
Then, demand was rising rapidly and production was falling.
Now, production is rising rapidly and demand is falling. U.S.
crude production may soon hit an all-time high, surpassing the
previous record set in 1970. Gasoline demand is down from its
peak and is likely to decline even more as the vehicle fleet
becomes more efficient.
In addition to this trend reversal, international oil
production is less concentrated. OPEC's share of production is
down from 53 percent in 1973 to about 35 percent today. The
existence of oil contracts on the futures markets, the
development of benchmark crude oil pricing, and the
availability of basic data from EIA, created by Congress in
1977, have all brought greater transparency to the oil markets.
As described in my written statement, EIA is actively
pursuing a number of important initiatives related to the
timeliness and detail of oil market data.
I would like to thank you for the opportunity to testify
here today, and I hope to be able to answer your questions.
Thank you.
[The prepared statement of Mr. Sieminski follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Whitfield. Thank you very much.
And our next witness is Mr. Lou Pugliaresi, who is the
president of the Energy Policy Research Foundation.
And you are recognized for 5 minutes.
STATEMENT OF LUCIAN PUGLIARESI
Mr. Pugliaresi. Thank you. Thank you, Mr. Chairman, and
thank you, members.
Mr. Whitfield. Be sure and turn your microphone on.
Mr. Pugliaresi. Yes, I think we have some slides. The next
slide. So what I would like to do is sort of put a little bit
of this in context, and the first thing I think we ought to
talk about a little bit is what is energy security.
So we tend to think about energy security as a
concentration of low-cost reserves in unstable parts of the
world which tend to provide two risks to the U.S. One, they can
restrict output and charge higher prices that would prevail in
more competitive environments. And two, some of these guys
could go out of business with more terrorism, even embargoes
also imposing price spike and large costs on the national
economy.
So one of the best ways to deal with this threat or this
problem is to have a production platform in a stable part of
the world, which turns out to be North America. And if you look
at what has happened here in this slide, you can see that, if
you take the U.S. and Canada together, which Congressman Barton
just spoke about, we have had a remarkable increase in
production. And it is very important to look upon this through
a North American lens because it is this North American lens
that is so stable, and it is this rapid runup in production,
particularly if you include natural gas liquids, that has made
a remarkable change.
Next slide.
Now, you can see prices have come down, but I don't think
we quite understand what this means. And I have testified here
many times where Members have said, well, you know, we know,
Mr. Pugliaresi, if we open up ANWR, if we do X or Y, we will
get more production, but OPEC will just cut production, the
price won't come down. Well, the price has come down, and this
price decrease is an enormous benefit to the world economy. The
world consuming centers are going to get a savings of
approximately $1.3 trillion next year if these prices persist.
The American driver who spends about $3,000 a year in gasoline
is going to get an $800 savings. This is enormous boom and
benefit to the national economy, to the world economy, and it
is being delivered to us through these production gains we are
having in this stable North American platform.
And we want to preserve that platform. Right? We want to
make the distribution of crude oil efficient. That is why we
need Keystone. We want to have good regulations. We want to
open up the Federal lands a lot more. You know, all this
production we have seen has come from Federal lands.
Next slide.
This shows you the permit activity for oil and gas drilling
permits just for 90 days prior to the--December 1st, 2014. Of
course, we are a little concerned that these lower oil prices--
and we are getting some evidence that the permit activity is
coming off.
And I think that is a good reason to have this hearing. We
need to look at our whole regulatory structure and see, ``OK.
What do we--what do we need to do to make it as efficient as
possible?''
Because, once again, we want this platform, the upstream,
the midstream, and the downstream--we want it to perform as
best as possible, and we are concerned about this.
But I must say we met with some of the world's best
extraction technologists in Houston the last couple of days.
There are a lot of exciting things going on out there. As long
as we have an open system, I think we are going to find ways to
drive down these extraction costs. I mean, there are very
interesting things happening out there.
Next slide.
This is our estimate of--in a sort of $80 environment of
what we think the U.S. could do, at least in the near term, by
API gravity. You see we are producing a lot of light sweet
crude, and we are not sure how much this is going to be
disturbed by these lower oil price environment. Probably going
to see some reduction there. But, you know, the outlook is
still very positive.
Next slide.
I want to leave you with just a couple of things here. One,
if you look at this slide, it is quite interesting.
Traditionally, conventional oil had a very modest decline rate,
maybe 5 percent, and a pretty high recovery factor, as much as
50 percent.
What I don't think we understand is that, even though we
have this very high decline rate in these unconventional
resources we have now, but we have to keep drilling, our
recovery factor is quite small. Small improvements in this
recovery factor are going to make a big difference. That is why
we want--you know, we want to see this technology continue to
progress.
And, you know, if you look at this whole North American
success story and we get back to EPCA, keep in mind that we
should have a lot of humility about how we proceed. We want you
to--we had mandates on ethanol. We had price--we had 6-month
oil embargo, and then we had 10 years of price controls. We had
a Fuel Use Act which prevented the use of natural gas.
So as we go forward, I think one of the things I want the
members to think about is: What are the benefits of an open
system? You know, William Pratt, the famous--Wallace Pratt, the
famous geologist, said in the 1930s, ``Oil is first discovered
in the mind of man.'' And I think that we want to keep that
intellectual capacity going here in the U.S.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Pugliaresi follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Whitfield. Thank you very much.
And our next witness is Dr. Charles Ebinger, who is a
senior fellow at the Brookings Institution. Thank you for being
with us. And you are recognized for 5 minutes.
STATEMENT OF CHARLES K. EBINGER
Mr. Ebinger. Thank you, Mr. Chairman, and thank you,
Congressman Rush, for inviting me to testify this morning on
the origins of the crude oil export ban, which ironically was
enacted nearly 40 years ago.
Given the profound changes that have occurred in
unconventional oil and gas production that we have already
heard about over the last 6 years, I think it is important to
look back and remind ourselves how our energy situation has
evolved since 1975.
In the years prior to the OPEC oil embargo, the chief
issues dominating energy policy in the United States were
debated over the future of nuclear power, especially whether we
should recycle plutonium and develop the breeder reactor, price
controls on domestic oil and natural gas, which, I remind you,
were enacted by President Nixon back in 1971 out of concern
that inflation had reached the dangerous levels of 4.4 percent,
and various programs, both a voluntary oil import program and a
mandatory oil import program, to hold down oil imports as a
protection for our domestic industry.
In reviewing this history--and this is a critical point--
what stands out is just as is the case today. Most energy
issues were discussed in isolation from one another.
On the geopolitical front, the early 1970s saw momentous
changes in the Middle East and North Africa as King Idris in
Libya was deposed by Colonel Gaddafi, and in response to a
decline in real oil prices, the major oil-producing countries
mounted a unified campaign against the petroleum companies to
extract more of the economic rent from their oil production.
Under two major agreements negotiated in Tehran and Tripoli
between the international oil companies and OPEC, the OPEC,
concerned about inflation and a general sense that they were
not being treated fairly by the international oil companies,
demanded a major increase in the price of their oil.
After these two agreements, OPEC was able to introduce an
escalation clause in its contracts that it believed would
protect their members from inflation. This proved, however, not
to be the case.
But what helped OPEC was--as Mr. Sieminski noted, was the
surge in demand worldwide not only in the United States, but in
Western Europe and Japan, which allowed OPEC to, every time a
contract was up for renegotiation, demand further upward price
revisions.
Mr. Chairman, it is worth noting that the global market
conditions in the early 1970s could not have been more
different than they are today, as we heard from Congressman
Barton. Demand for oil throughout the industrialized world was
skyrocketing.
In the United States, domestic production had peaked in
1970, leading a Cabinet task force to recommend the gradual
elimination of the quotas under the mandatory oil import
program.
In retrospect, given the changed circumstances confronting
the U.S., it is remarkable that this recommendation did not
receive more salience from the Congress, despite the fact that
U.S. oil consumption was skyrocketing, domestic production was
peaking, and oil imports were up to nearly 30 percent of U.S.
consumption on the eve of the oil embargo.
The U.S. could not have been more ill-prepared for the
embargo. In response, one of the primary actions taken was
enactment of complex regulatory procedures for oil and gas
prices as well as an incredibly complex system of allocation
controls leading to gasoline lines in the districts and surplus
supplies in Potomac.
Unfortunately, they were so--these were so ill-conceived
that they accentuated the impact of the crisis and exacerbated
gasoline shortages, causing long lines for angry--angry
motorists buying regulated volumes of fuel. And I am glad the
Congressman got 10 gallons because, as a graduate student, I
only got 5 gallons in New England.
In response to the crisis, President Nixon launched Project
Independence, designed to eliminate oil imports by 1980, when
comprising a host of initiatives, including the Energy Policy
and Conservation Act.
Under EPCA, the President was granted the authority to
restrict exports of coal, petroleum products, natural gas,
petrochemical feedstocks, and supplies of materials and
equipment for the exploration, production, refining, and
transportation of energy.
EPCA also authorized the President to exempt crude oil and
natural gas exports from such restrictions where doing so was
deemed by the President to be in the national interest.
As the act today only relates to crude oil, the main
exceptions that have been made are predominantly for shipments
to our neighbors in Canada and Mexico in recognition of our
historic trading relationships. Other exemptions to the ban are
noted in detail in my formal testimony.
Today, through modifications to EPCA, the U.S. allows
unrestricted exports of all fuels except crude oil, and natural
gas has to go through a cumbersome regulatory procedure, but it
is not banned. The only expressed ban that remains today is on
crude oil.
In reviewing the history since the early 1970s, it is
apparent that, whenever the U.S. Government has tried to favor
a particular fuel, absent market realties, there have been
unintended consequences which have been deleterious to the U.S.
economy and to our natural energy security.
Controls on natural gas prices led to the failure to
develop the Alaska Natural Gas Transportation system, creating
massive natural gas shortages in my home territory in the
industrial midwest in the winter of 1977-1978 with devastating
economic impact, some of which remains to this day.
The ban on using oil and gas in industrial boilers and
power generation led to a major switch away from gas and oil
towards coal. This rush towards coal has led to scores of aging
coal facilities that now have to be replaced as part of our
national environmental policy and our international climate
policy.
Mr. Chairman, in conclusion, it is evident that the U.S.
energy situation today is far different from what it was when
EPCA was enacted. With crude oil production continuing to rise,
it would be detrimental to U.S. energy and economic policy to
keep the ban on crude oil exports.
Keeping the ban and attempting to manipulate policy to
control a globally traded commodities with hopes that the U.S.
Oil boom will lead to energy independence is a fallacy as the
U.S. is part of the global market and must, therefore,
participate in it.
Lifting the ban will generate paramount foreign policy
benefits, it will increase U.S. GDP--and Brookings did a major
study on this issue that is on our Web site, if anyone cares to
look at it--and it will reduce unemployment, all of which will
be foregone if the ban remains in place.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Ebinger follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Whitfield. Thank you.
And our next witness is Deborah Gordon, who is the Director
at the Carnegie Endowment for International Peace.
And you are recognized for 5 minutes.
STATEMENT OF DEBORAH GORDON
Ms. Gordon. Subcommittee Chairman Whitfield, Ranking Member
Rush, distinguished members of the subcommittee, thank you for
the opportunity to testify today about EPCA in an era of oil
transition.
In my remarks, I will discuss three key points: First, the
need to understand the changing conditions influencing today's
crude oil market; second, the need for better information about
the makeup and specifications of U.S. oils; and, lastly, the
need to deal with the environmental consequences from an
unconditional lifting of the oil export ban. I explore these
issues in greater detail in my written testimony, which I
submitted for the record.
The bottom line is that oils are changing and a more
complex array of hydrocarbon resource is replacing conventional
oil. Public and private stakeholders need to understand the
environmental impacts inherent to different oils. The best way
to position America for success amid energy abundance is to
generate information necessary to make wise decisions among
many oil options.
The truth is we know precious little about these new
resources. The Nation needs reliable, consistent, detailed,
open-source data about composition and operational elements of
U.S. oils. Significant information gaps have accompanied the
Nation's oil--increased oil production.
Although EPCA was adopted in response to a set of--a
specific set of oil supply problems, it can serve as a template
for addressing some of the shortcomings that exist today as
America struggles to manage the economic, geopolitical, and
climate impacts of its new oil bounty.
It will be important for policymakers to think
comprehensively about the full range of current oil issues.
Several EPCA provisions merit careful review and consideration
and possible updating: One, widely expanding oil data
collection, making this information publicly available; two,
increasing the heavy-duty vehicle efficiency standards for
trucks and marine vessels that move the oil and petroleum
product that we are trying to consume less of at home; and,
three, revisiting oil accounting practices so that the SEC is
fully informed about oils that are on tap to bolster U.S.
markets.
America is one of the first in line to win the
unconventional oil lottery, but despite newfound energy
resources at home, the U.S. exists in an increasingly oil
interdependent world. As such, if U.S. policymakers enact
effective safeguards to minimize unintended consequences,
America will be better positioned to chart a path that others
can follow.
Two questions require attention.
First, do policymakers and the public have sufficient
information about America's oil? Unfortunately, they do not.
Ironically, there is more detailed open-source data about OPEC
crudes than the oils in the Bakken, Permian, and Eagle Ford.
In seeking to obtain and verify these needed oil data, we
have encountered several obstacles, from data inconsistencies,
to withheld data, to Government limitations on expanding oil
reporting.
I would be happy to elaborate on any of these issues. The
overarching concern, however, is that oil markets cannot
function efficiently without transparent high-quality
information.
Question 2. What are the environmental risks these new oils
pose? The Carnegie Endowment is developing an oil-climate index
that compares global oils with one another in terms of total
greenhouse gas impacts. Together with Stanford University and
the University of Calgary, we are modeling the entire oil value
chain, from where the oil comes out of the ground through to
how the products are used.
Our preliminary findings, based on 28 sample oils, global
oils, are that oils' greenhouse gas footprints vary by at least
80 percent from one another. In other words, replacing a high
greenhouse gas oil with a lower one could almost halve the
impacts of greenhouse gases for every barrel of oil.
There are several categories of higher emissions from oils.
These include gassy oils, like the Bakken or Nigeria, where gas
associated with oil is flared or burned instead of separated
and sold; heavy oils, those that use more heat, steam, hydrogen
through their value chains to yield more bottom-of-the-barrel
products like petroleum coke, a coal substitute; watery oils,
which are interesting, like those in California's San Joaquin
Valley where it takes a tremendous amount of energy to lift as
much as 50 barrels of water for every one barrel of oil that
you produce; and extreme oils like those in the Gulf of Mexico
that are miles below the surface or those in the boreal peat
bogs in Alberta, where carbon is naturally sequestered.
As one of the world's fastest-growing oil producers, the
U.S. has the opportunity and the responsibility to be a global
leader in the energy sector. A balanced energy policy informed
by oil transparency must guide energy decisionmaking in ways
that satisfy U.S. consumers, strengthen the American economy,
protect the climate, and enhance national and global security.
In closing, a national discussion, one informed by reliable
open-source data about the composition, quality, and
environmental profile of new oils will be key to making
effective and sustainable decisions.
Thank you.
[The prepared statement of Ms. Gordon follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Whitfield. Thank you, Ms. Gordon.
And thank all of you for your testimony.
At this time I will recognize myself for questions, and
then we will give every other member the opportunity as well.
Just from a practical aspect here, anytime you start
talking about crude oil, most of the American people think
about gasoline prices. That is why it is more volatile, I
think, when you talk about exporting crude oil than certainly
natural gas or something like that.
Do any of you have an opinion on, if you were at a Rotary
Club, how you would explain that exporting additional crude oil
would not necessarily raise gasoline prices?
Mr. Sieminski.
Mr. Sieminski. Mr. Chairman, it is always a challenge.
Usually, at those Rotary Club functions, I get asked why
gasoline prices are so high. Lately I haven't gotten that
question.
Mr. Whitfield. Right.
Mr. Sieminski. EIA has tried to examine your question from
the standpoint of how gasoline prices are set in the U.S.
markets and what gasoline prices relate to. And what we found
in a study that we published just a short while ago was that
these two benchmark crudes that I talked about, the one in the
U.S., WTI, West Texas, and Brent in the international markets,
that gasoline prices historically tend to be much more closely
related to Brent crude oil prices than to the domestic
benchmark.
The second thing that we found was that U.S. gasoline
prices tend to be more closely related to gasoline prices in
markets like Singapore and Rotterdam in the global markets than
to comparing, let's say, Chicago prices with prices in the Gulf
Coast.
The conclusion that one would draw from that is that
gasoline prices, because we are exporting and importing so much
gasoline, are really set in the global markets--gasoline prices
in the U.S. tend to reflect that global market--and that, if
exports of crude oil resulted in higher prices for West Texas
Intermediate or crudes that are benchmarked to that, it would
not have much impact on gasoline prices.
Mr. Whitfield. And I am glad you mentioned we are already
exporting gasoline anyway. So we are talking about----
Mr. Sieminski. Quite a bit, actually.
Mr. Whitfield. Quite a bit.
Did you have a comment, Mr. Pugliaresi.
Mr. Pugliaresi. I think, you know, how I would explain is
that, if you want to constrain volatility in the market, if you
want to constrain rising gasoline prices, you should promote a
very stable and growing production of crude oil in North
America.
Mr. Whitfield. Right.
Mr. Pugliaresi. We have evidence that this is having a big
effect. And that is the answer. We are--as Adam said, we are
well integrated into the world oil market. The only thing we
can--well, what we can do is have a stable growing production
of crude oil outside of these more volatile areas.
Mr. Whitfield. Right.
And do you have a comment, Dr. Ebinger?
Mr. Ebinger. If I could just add, Mr. Chairman, I think an
easy way to look at this is, since, as Mr. Sieminski said,
gasoline prices are predominantly set in the international
market, if we have a set volume of crude oil in that market and
all of a sudden we put more oil into that market, adding to
supply while demand stays relatively constant, on the basis of
kind of fundamental economics--more supply, constant demand--
prices should come down and then refiners buying that oil
around the world will--in theory at least, if they wish to be
competitive, will lower their product--petroleum product
prices, including gasoline, and, hopefully, for New England,
home heating fuel. I think that is the way I find sometimes
trying to explain it, seems to have some say in it.
Mr. Whitfield. Ms. Gordon, do you have a comment?
Ms. Gordon. Yes. I don't know that it would be easy for
consumers to understand this. But because oils are so
different, the oils that we are largely now set to refine, the
heavier oils, don't preferentially make more gasoline. They
make more diesel.
So the oils that we are now looking to export, the light
tight oils, those do. They are lighter oils. They go through
hydroskimming refineries. They make more gasoline.
So we might be getting ready to export the perfect oil to
make more gasoline in order to keep and refine the oil that
makes more diesel.
It is not a consumer issue then because our consuming
public doesn't use diesel. They use gasoline. So it gets a
little bit complicated here.
And the big question that Lou raised was volatility. I
think that consumers are going to need to understand--in the
future, possibly not be explained high prices, but volatile
prices.
And volatility will really hurt America because we are
equal, in large parts, consumer and producer of oil and
product, that, if the markets become very volatile, we are
going the hurt more than anyone else.
Mr. Whitfield. OK. Well, my time is expired.
Mr. Rush, you are recognized for 5 minutes.
Mr. Rush. I want to thank you, Mr. Chairman.
I share the optimism of the panel, but there are some
cautionary items or cautionary indications that I want to at
least consider for the record.
Ms. Gordon, what type of impact would lifting the crude oil
ban have on climate change? Are these precautions or conditions
that Congress should consider if we were to lift the ban on
crude oil altogether?
Ms. Gordon. It is a great question. And the reality is, as
my testimony stated, we just don't know enough about these
light tight oils that are coming out of America.
What we do know is, like I said, they are lighter oils. Our
refineries are set to run much heavier crudes. Those heavier
crudes need much more heat. They produce more bottom-of-the-
barrel products. So the heavier oils are generally more
greenhouse gas-intensive.
So we are setting ourselves up to be a refiner of higher
greenhouse gas oils as we export possibly, if they are not
flared, lower greenhouse gas oils to others, which puts a
bigger burden on America to control--in terms of global climate
agreements, control what we are doing when we are handing off
our oils.
So I think that there are real questions from a climate
perspective, what are these oils and what are we giving away.
Mr. Rush. Is there any other panelists who would like to
comment on this? Are there any other panelists that would like
to comment on this?
Well, let me ask you a question. Mr. Ebinger, in your
written testimony, you stated that lifting the ban on crude oil
exports would boost economic growth, wages, employment, trade,
and, overall, the economic welfare of the Nation.
What, in your opinion, are potential downsides to removing
the ban?
Mr. Ebinger. I don't believe, Congressman, that there are
sizeable downsides to lifting the ban, with the possible
exception of what Ms. Gordon said, that we don't know
completely the impact on greenhouse gases.
In a major study that Brookings recently did in association
with the economic consulting firm NERA, we have some very
detailed data in there on what we think will happen to
employment, overall economic welfare for the Nation, and the
numbers in various scenarios are almost constantly positive.
And our study has been pretty much seconded or maybe a
couple came out before us, but there have been now five or six
major studies done by IFC, done by a whole--some by the
Government, that have all concluded the benefits far outweigh
any potential costs. So I guess I will leave it at that.
Mr. Rush. Well, I want to ask the other three panelists: Do
you have any comments regarding the economic impact on lifting
the ban?
Mr. Pugliaresi. So I think you want--whenever we go to a
free trade alternative--which, you know, I think everybody here
has a lot of training in economics. No one is going to be
against free trade. We think it is a good thing and it is going
to make the economy more efficient.
But there will be dislocations. I think some sectors--some
segments of the U.S. refining industry, particularly if we have
this high production scenario, will have--you know, will find
themselves in a less, you know, economically advantaged
position.
However, we have a very complex and advanced refining
sector in the United States. The capacity to refine very
complex kinds of crudes are there. I think we want to--you
know, as we go--if we go to lifting the ban on crude oil, we
want to look and make sure, ``OK. Are we burdening the
downstream sector with kind of unnecessary regulations? What is
RFS doing? What are ozone regulations doing? What is the permit
doing?''
In other words, you know, also, as Congressman Barton
raised, maybe we need to look at some--some kinds of
adjustments in the Jones Act. That is very tough. I understand.
But, you know, there will be adjustments. But, on balance, the
economy will be better off.
I think, in the short term, the refining industry
probably--you know, probably can handle what is going on right
now. It is really a more longer term problem.
But I also think that, you know, probably immediately we
should look--look very closely at the condensate issue, which
is starting to cause a lot of problems in Eagle Ford.
Mr. Sieminski. Congressman Rush, let me just add that the
reason that the U.S. is exporting gasoline from the Gulf Coast
is that we really have a surplus of gasoline. Domestic demand
for gasoline has been declining and is likely to continue to go
down as autos become more efficient.
And, in a sense, what refiners are doing is exporting the
surplus product so that they can more efficiently fill the
demand for other products in the U.S. market that are more
valuable. So the export of gasoline may actually be helping
keep overall product prices for U.S. consumers down.
Mr. Rush. I want to thank you, Mr. Chairman. I yield back.
Mr. Whitfield. At this time I recognize the gentleman from
Texas, Mr. Barton, for 5 minutes.
Mr. Barton. Thank you.
I am just looking around the dais here, Mr. Chairman.
First of all, we want to welcome Mr. Flores. We see he is
here. He is a new number of the committee. We are glad to have
him here.
We have got Mr. Bud Albright Bratta in the audience. He
used to be a staffer in the committee. We are glad to have him
here.
Mr. Whitfield. We got Mr. Mullin, too, here.
Mr. Barton. I didn't see him. From Oklahoma. Glad to have
him here.
I see Mr. Barrow over there. He is a member who is not
going to be here next year. His State is the Peach State.
Do we have a ban on exports of peaches? Yes or no?
OK. We got Mr. McKinley up here, who is the Coal State.
Do we have a ban on the export of coal? No.
We got Ms. Capps from California.
Do we have a ban on the export of movies? I don't think so.
We have got Mr. Pompeo and Mr. Terry from the Corn States.
Do we have a ban on the export of corn? No.
Mr. Whitfield. We are exporting bourbon, too.
Mr. Barton. I was saving that for last, Mr. Chairman.
My point is that there are--in a free market economy like
the United States, there are almost no commodities or products
that we have a ban on. We are the free market nation in the
world.
Now, as has been pointed out, in the 1970s, the OPEC cartel
banned exports of crude oil to the United States and we
retaliated by creating the Strategic Petroleum Reserve and also
requiring that no crude oil, with few exceptions, could be
exported from the United States. That made some economic sense
and some strategic sense in the 1970s, but this isn't the
1970s.
Now, the key question--or one of the key questions the
chairman of the subcommittee has already asked, you know: What
would happen if we repealed the ban? What would happen to
domestic gasoline prices? I haven't seen any study that says
they would go up.
And, you know, the reverse question would be: What would
happen if we don't? What happens to domestic oil production in
the near term, in the mid term, in the long term if we keep the
ban in place?
Now, the key issue there is the market for domestic crude
oil. U.S. refinery capacity, I think, is around 12 million
barrels a day.
Is that correct, Mr. Sieminski?
Mr. Sieminski. If you add in all of the other things.
Domestic crude oil is getting close to 9 million barrels a day,
and you get to 12 by adding in biofuels and----
Mr. Barton. No. I am asking what the refinery capacity is,
the U.S.----
Mr. Sieminski. Oh. Over 16 million barrels a day.
Mr. Barton. It is over 16.
Mr. Sieminski. Yes, sir.
Mr. Barton. OK. I didn't think it was that high.
My point was going to be, if we don't have a market in the
United States for the crude oil at our refineries, if you can't
export it, you keep it in the ground.
But if it is 16 million barrels, then we can increase
domestic supply fairly significantly and we just--we just
freeze out or push out imports from overseas. Wouldn't that be
correct?
Mr. Sieminski. You raise an interesting point, Congressman.
Many people look at the growth in domestic production and
the flatness in demand and they envision a world where the U.S.
is not importing any oil.
But, in fact, the U.S. may continue to import oil simply to
refine it in our very efficient refining system and sell those
products back out into the global markets.
Mr. Barton. Well, Mexico is finally freeing up their oil
economy and, if they follow through with their constitutional
change, you will see a large number of U.S. producers and
explorer exploration going down to Mexico.
And I would assume that there would be additional oil in
Mexico that could come up to the United States in the next 5 to
6 years. Plus, we have got Canada. And I know there are some
issues on the environmental front with the Canadian heavy oil.
I guess I only have 22 seconds. I didn't--if I had to look
at this panel and you had to vote yes or no on repealing the
ban, I think I have three yeses and a maybe.
I am going to ask Ms. Gordon--I didn't sense that the
Carnegie Institute is totally opposed to repealing the ban. I
think your concern is transparency and information for
environmental purposes. Is that correct?
Ms. Gordon. Yes. I think we have a reprieve here because
demand has really cooled off globally. So there is not much of
a place to put a lot of oil right now.
And that gives time to do the due diligence that has to
happen with information so that we have a better sense of what
is going to happen when we do change policy some day, because I
do think we are headed toward more open markets, I mean, in
general.
But do remember, I just should add, the oil market is one
of the least efficient markets. There are so many reasons:
barriers to entry, barriers to exit, not enough information,
externalities. There is far more efficiency in peach markets
than in oil markets. So that is--it is a big question.
Mr. Barton. Could I ask one more question?
Is it possible for these lighter shale oils that are being
produced in the Eagle Ford and up in North Dakota to be
exported as refined products because they are so light and
almost need no refining?
Ms. Gordon. They are really different from each other. The
Bakken oil is like Nigerian crude. In fact, we have backed out
a lot of Nigerian crude since we have been producing in the
Bakken.
So if we export Bakken, we are probably going to have
implications for Nigeria in the North Sea because that is what
the oil is like.
The Eagle Ford is really unusual. It is much, much lighter
and it needs to have the condensates stripped out of it. So
even with the light tight oil category, there is a lot of
diversity here that we don't have a lot of information about.
Mr. Barton. Thank you, Mr. Chairman.
Mr. Whitfield. At this time I recognize the gentleman from
Kentucky, Mr. Yarmuth, for 5 minutes.
Mr. Yarmuth. Thank you very much, Mr. Chairman.
I thank all the witnesses for their testimony and
knowledge.
I have learned a lot, but I am still not sure where I am on
this issue. And I am curious. We talked about the potential
downside. And while everything looks wonderful right now with
an abundance of oil and petroleum in the world and prices down,
that would seem to be--mitigate against worrying about a
crisis.
But isn't it entirely possible that we could return to a
1970s situation? I was a staffer here in the 1970s and remember
those lines as well.
So would it not be useful to have at least some contingency
measure if we--whether it is an international outbreak or a
war, terrorism, whatever it may be, that we have some way to
protect our domestic supply in case of an emergency as opposed
to just saying we are not--we will worry about that when we get
to it?
Ms. Gordon?
Ms. Gordon. So I think, because we are in this era of new
oil and everything is changing, the risks are changing. We have
the geopolitical risks, on the one hand, with many of the
places abroad that have historically produced oil, and then we
have operational and environmental risks here that we have to
contend with.
So we have new oils, new conditions, and then we have huge
growth in China in terms of demand that is sporadic. It is not
going to be, you know, red hot consistently. It is a market.
And so we do tend to talk about oil at a moment in time, maybe
because it is sold on every corner, that it is as if this is
the condition that exists for all time.
But the reality is it is very dynamic and we could easily
return with risks, differential risks, different consumption
patterns. Even in America, we are selling a lot more SUVs right
now. They are up tremendously. I mean, we could--we are
reversing our demand profile, as Adam said, but we are not
necessarily bound to that.
Mr. Yarmuth. So there is no guarantee, given the volatility
of the market, that if we eliminate the prohibition, that we
can have the kind of impact on prices that we would expect,
that the prices will necessarily be lower. We can't guarantee
that.
Ms. Gordon. Yes. And in addition to what was said earlier
where we will--because we have the huge--the largest refining
capacity, we will maintain imports of oil even--you know, just
because we want to put product on the market. That is what
industry does here. It is one of the big parts of industry.
Mr. Ebinger. I think, if I could just----
Mr. Yarmuth. Sure.
Mr. Ebinger. If I could just add--answer your question, you
know, most of the oil we consume in the United States is in the
transportation sector. And it seems to me that, rather than
maintain the ban on crude oil exports, we would be much wiser
to have an accelerated program to use our vast natural gas
reserves to a greater degree in transportation.
There have been numerous studies--you know, it would take a
long--it would be a long-term effort, but if we could replace
the diesel fuel that we use in our 18-wheel trucks, some people
say that would be another 1.8 million barrels a day of oil we
didn't use.
If we can use natural gas in marine transportation on the
Great Lakes and our major rivers, coastal trade, that is
another major place we could save. And we have companies
already experimenting with using LNG in railroad locomotives.
So if we could reduce the use of oil in transport by
relying on our vast natural gas, I think that would be a far
more prudent policy than continuing the ban on crude oil
exports.
Mr. Pugliaresi. If I could just add one thing, you know, if
we go back and look at the history of EPCA and everything we
did, if you want to take one lesson out of that, we need
policies which are robust against uncertainty.
And every time we try to guess or we think we know what the
future looks like, nuclear power is going to be too cheap to
meter or we are going to ban the use of natural gas and power
plants, we really have a hard time getting this right.
And we don't really know what the future looks like, but
what we do know is that we do much better when we have policies
that allow a lot of--you know, a lot of the marketplace and
individuals to adjust to changing circumstances.
Because once we you put something in place here in Capitol
Hill, it is really hard to fix it, you know. Those of us who go
way back remember, you know, we had dozens of these small
refiners. So people remember this? We had dozens of these small
refineries which came of the arcane regulations of price
controls. And when it came time to decontrol crude oil prices,
it was really hard because we had a political establishment of
small refiners all over the country. So I think we have to keep
in mind as we go forward that what the real lessons of this
renaissance is, it was an open system, right? This all occurred
on private land.
The heavy hand of the Government was really not trying to
stop these guys. We didn't have to rely on Federal land. And so
as we go forward, we ought to really think hard about what
kinds of strategies are likely to be more productive.
Mr. Yarmuth. Thank you, Mr. Chairman. My time is up. I
yield back.
Mr. Whitfield. At this time, I recognize the gentleman from
Illinois, Mr. Shimkus, for 5 minutes.
Ms. Shimkus. Thank you, Mr. Chairman. This is a tremendous
panel and a great hearing, so thank you, Chairman, for that.
I have tons and tons and tons of questions, so I want to
try to put them in some sensible order.
But, Ms. Gordon, I appreciate your testimony. EPCA, the
original EPCA, I didn't know there was reporting requirements
more transparency. And following up on what Congressman Barton
said, there is probably some truth to getting more information
so that markets can operate more effectively and efficiently,
so I appreciate those comments. There are different types of
crude oil, that is going to be the major front to my question.
But we also know refiners have made major investments based
upon a world they perceived 6 years ago, which has
significantly changed today--from heavy crude to light sweet
and the refinery expansions.
I think the other thing that has not been a part of this
discussion or debate is transportation costs and long pipeline
versus what could actually happen in the future with all these
more localized resources available is that you could see closer
interaction between these new finds and more local refineries
in a more localized system.
Mr. Pugliaresi, I appreciated this statement because of the
need for production platform in a stable part of the world, I
think is really not just for what it does on hedging the risk--
the volatile risk of pricing, really kind of addressing my
colleague from Kentucky's question. But also internationally,
and I focus on Eastern Europe a lot of times, and I understand
energy extortion. And so importation of LNG, which we have
passed through the House that we would like to see for other
allies in Europe and Eastern Europe, I think would be true on
crude oil exports. But you have to have a stable platform to be
able to do that; hence the next kind of position.
Because even in the map, the figure that you have in your
testimony, figure 3, you have these major basins, but there are
probably more are going to develop, like the southern Illinois
basin, which now we have gone through the legislative process.
But you have the online basin, we still have more Deepwater
applications. We have got Anwar debate that will always be
there. We have the National Petroleum Reserve. We have the
Atlantic Coast exploration. We have Keystone XL debate.
What I hear I think is that--because I am afraid we have
this huge supply, but we can't rely on Government to set these
parameters. We have got to let the markets do it. The markets
will then send a signal of which of these oil basins are
recoverable based upon the pricing of a barrel of crude oil.
Some of these may not be able to be now exploited because
the cost of recovery is high. But then in the case where there
is a new change in world dynamics, then that cost might be
available for continued exploration. Do I make sense in any of
that analysis?
Mr. Pugliaresi. Let me say, right now, there is a race
going on between the lower valuations and the advances in well
productivity and technology. As I said, we are seeing some
things, they are out there a few years. Some things are very
near in which--if you look at a traditional hydraulic
fracturing job, across the U.S., 40 percent of the frack jobs
are very uneconomic in some ways. Or they are 40 percent of the
preparation on a horizontal pipe are not working. But there are
technologies developing now that are going to drastically
improve that.
So you can have a high-cost basis, which doesn't look like
it is doing too well right away, but in a few years, things
could change. Once again, we want strategies which are robust
under uncertainty. If we try to prescribe the future, we are
going to be wrong.
Ms. Shimkus. Dr. Ebinger, in your testimony, you did state
that increasing oil exports will help lower the prices at the
pump, that was part of your written testimony.
Mr. Ebinger. Lower gasoline prices, yes, sir.
Ms. Shimkus. And then the last thing I want to ask, because
it has been raised--we are now having people think we might do
this. We are starting to get talked to by a lot of people. Is
there a difference, because really, except Ms. Gordon may--
start separating heavy, sour and light sweet, is there a
difference, is there a credible argument in separating the
crude oil price and easing the ban on one, but not easing the
ban on the other? That will be my last question if some people
want to weigh in on it.
Ms. Gordon. I just will add that I think the time is coming
that we are going to have baskets of crude that are split much
more on quality than on location. I think that these oils are
quite different from each other, and they get very long-term
investments that last generations. So the market needs this
information. So whether regulations follow or not, I think that
the idea of separating oils into these baskets, which is
somewhat done but not largely in the market right now, is
probably a wave of the future.
Ms. Shimkus. The rest of you are chicken and not going to
answer that question?
I yield back.
Mr. Whitfield. This time I recognize the gentlelady from
California, Ms. Capps, for 5 minutes.
Mrs. Capps. Thank you, Mr. Chairman.
I want to thank each of our witnesses for your testimony
today at this hearing.
I also want to take a moment since it is I believe our last
hearing in this session of Congress to honor and acknowledge--
as I walked in the room, I realized I am walking into the John
Dingell room. The incredible service that--it is the John
Dingell room, our colleague, former chairman and under whose
leadership I was first asked to be on the committee. And also
my colleague from California, ranking member and my neighbor,
Mr. Henry Waxman, for their incredible service to this
committee and to our Nation.
I know he stepped out, but I want to also bid farewell to
our friend John Barrow from the Peach State, who I believe has
added much value to this committee, as well. These are people
who will be missed.
The oil export market is complex. I picked that up from the
hearing today. We need detailed, accurate information, I
believe, to conduct a proper assessment of increasing exports.
Yet, Ms. Gordon, in your testimony, you say that accessing
this information is difficult. In fact, you said we actually
have more data, which I find quite stunning, about OPEC crude
oils than about some new American oils, crude oils.
My question for you to elaborate a bit is on that. Why is
this information so difficult to access?
Ms. Gordon. There are so many reasons why the information
is not there. The first reason is that the light tight oils are
the newest kid on the block so to speak. They just haven't been
around as long. In the 20 test oils that we have modeled in the
oil-climate index, we have Venezuelan oils. And you think about
getting information from Venezuela. There is UAE. There are
oils from all over the world, Indonesia, but we don't have any
oils that are from North Dakota or Texas, these light tight
oils.
There are--one of the big problems is that in order to get
information on oil, you do an assay, which is a chemical
footprint of the oil. But everyone does assays differently, so
when assays are reported, you can't compare oils to one
another. So having more consistent reporting on information is
one big problem.
Another one, having met with DOE, is that apparently--and I
think Mr. Sieminski could talk more about this--apparently, the
Energy Department can't really collect data on oil freely. It
turns out OMB--and I was kind of flabbergasted when I learned
this--but OMB says this is duplication of effort. Industry
submits data on oil. DOE doesn't set reporting requirements for
oil.
Although, when you read EPCA, there is room for this to
happen. It just hasn't really evolved that way. So DOE is
actually only getting the information that industry wants to
report out. These are new oils; there is less information
reported out.
The third one I will mention, one of our partners tried to
purchase data. There is data that is owned by these big oil
consultancies, and after negotiating for a matter about a year
and hundreds of thousands of dollars, they were told the data
wasn't for sale because it is competitive. They don't want the
academic sector to compete with the consulting sector. So there
a lot of concerns when it comes to oil data, especially as now
more oils are out there.
Mrs. Capps. I want to use that last sentence as a segue to
another kind of topic that might be appropriate now. Any
discussion of oil exports must also be considered in the
context of our overall energy policy and the realities of
climate change. And you also touched on that.
You have done an extensive analysis on the climate impacts
of our Nation's oil policies. In your testimony, you discussed
preliminary research on the climate impacts of various types of
American crude oils that could be exported if the current ban
is lifted.
Now my question, given the transparency challenges that you
just described, have you been able to complete this climate
assessment with the data available to you?
Ms. Gordon. No, none of the 28 oils that we have been able
to model are--we have U.S. Oils that have been around like Gulf
of Mexico, Mars, but we don't have Arlex and North Slope, but
we don't have any of the new light tight oils so far in the 28
test oils because data is just not available.
Mrs. Capps. I am prepared to yield back, but Mr. Chairman,
this lack of transparency I believe is very concerning not just
for our assessment of oil export policy but for conducting
proper oversight of the industry in general. If the industry is
asking us to lift the export ban, I believe they need to
provide the information that is so clearly needed to properly
assess the very policy that they asking us to expand upon. I
yield back.
Mr. Whitfield. The gentlelady yields back.
At this time, I recognize the gentleman from Pennsylvania,
Mr. Pitts for 5 minutes.
Mr. Pitts. Thank you, Mr. Chairman.
Thank you for your testimony. I, too, remember the long
lines in the 70s. What wasn't said is that after waiting for 45
minutes or an hour with your car idling, and the lines backed
up on the highway, and some people just topping off, and some
people about to go empty, there were a lot of short tempers.
And it was a very bad situation, wasting a lot of oil and
gasoline.
Were any studies ever made on how much waste there was with
those long lines back in the '70s? Mr. Sieminski.
Mr. Sieminski. I don't think that EIA did, but I think you
are absolutely right, Congressman Pitts, that the whole idea
behind the program I think made some sense at the time, but the
implementation of it left a lot to be desired. A lot of the
problems had to do with the availability of gasoline in
different areas. It was based on the year-ago use. People in
the prior year were all out having vacations outside of the
cities, and that is where all the gasoline went. But during the
crisis, they were all in lines in the cities. And so they
couldn't get the gasoline to go out on their family holiday. It
was a bit of a mess.
Mr. Pugliaresi. So, actually, I worked on this program a
bit when I was with the Department of Energy. You cannot
imagine the small changes, you know, people just think a
refinery takes crude oil and processes it into gasoline, but
they are blending dozens of components. And we were trying to
control the prices of all of these. And every day, there was
enormous misallocation shortages, the wrong kind of mixes,
because the market was completely surpassed by the Government
price control system. I mean, I don't think you can find
anybody who has looked at this program that wants to defend it.
It was an unmitigated disaster. It substantially delayed our
capacity to even adjust to the crisis.
Mr. Pitts. In addition, after waiting for 45 minutes to an
hour, the station, many of them would run out of gas, you would
have to go home and come back on another day.
The average family as we heard can expect to save several
hundred dollars a year if prices stay where they are.
Administrator Sieminski, how can we maximize these benefits and
sustain them over the long run?
Mr. Sieminski. The benefit to household income is coming
from lower oil prices, most of that coming in gasoline, the
number of about $800 per household is right for a $30 decline
that is from average prices last year that would be sustained
for about a year. Those numbers could even be a little bit
higher than that, depending upon where oil prices settle out.
That is going to have a pretty positive affect on the
ability of households to spend. And I think we will begin to
see the positive impact of that on the economy. EIA
macroeconomists took a look at this. If we had this $30 decline
sustained for a year, it could add as much as 1 percent to U.S.
GDP.
Mr. Pitts. If the ban were lifted, what effect would it
have on gasoline prices? And how would it impact our refinery
sector? Do you want to continue?
Mr. Sieminski. Well, gasoline prices, again, if we stay at
these levels, gasoline prices could be down almost 77 cents a
gallon. That is, again, a huge plus with gasoline prices
averaging that much lower than the prior year. Obviously, there
will be some losers in the production. Producers are going to
have lower income. This could have big effects on countries
like Venezuela and others. It depends on oil revenues. That
could lead to unrest there. This is why I think the idea that
policies, that outcomes, and forecasts are uncertain is really
huge. If you lost that oil production from Venezuela because of
social unrest there, you could see prices come back up again.
In general, when I think, Mr. Yarmuth, about policies, EIA
is not a policy organization, but I think I could describe the
three components of energy policy. It is, What does it mean for
the economy? What does it mean for the environment? And what
does it mean for national security? And you were asking about
national security issues. I would imagine that a key thing in
thinking about this is how to weigh those impacts from a policy
standpoint. I think the Strategic Petroleum Reserve is probably
our key tool in security.
Mr. Pitts. My time is expired. Thank you.
Mr. Whitfield. At this time, I recognize the gentleman from
Georgia, Mr. Barrow, for 5 minutes.
Mr. Barrow. No questions, thank you.
I would like to yield time to Mr. Green.
Mr. Green. Thank you, Mr. Chairman.
I hope I get my own 5 minutes. I thank my colleague.
I represent Houston, Texas, and we have five refineries in
East Harris County, but also, I have all my service companies,
obviously, Halliburton, you name it, Baker Hughes and groups
like that.
I want to keep them working in the oil patch, but I also
know that this is probably the best time in my history that we
have seen the refinery margins where we are at. That is why I
wanted to ask Mr. Sieminski--or Administrator--typically, the
integrated oil companies that have refiners and production,
they have refining, but that is not their profit center. Most
of the profit center is the production side. Although we do
have three of those refineries are also independent refiners
that are not integrated or majors.
Have you seen--have you all done any research on the
refining capacity, because I know the shutdown of refineries,
smaller refineries around the country, there was some concern
over the years that even though--and we weren't producing as
much crude as we needed right now, but also we were losing
refining capacity. Have you all looked at those numbers?
Mr. Sieminski. We have a study underway on the ability of
U.S. refineries to absorb this increase in the lighter oils
that are being produced from the shale formations. And we will
have that out I think some time in the early part of next year.
I think the general feeling is and if you come back to the
complexity to this, there are--removing the export ban does
have impacts on different sectors in the economy, and the
independent refiners are very concerned about how they would
come out in that analysis.
Mr. Green. And what happened in the 1990s is because we
weren't producing lighter sweet in the United States, most of
our refiners who were successful converted, and it cost I know
at one refinery about $2.5 billion to convert to do the heavier
crude.
Have you all put any cost estimates on----
Mr. Sieminski. Congressman, you are right in there, we
should come up and brief you when we have this study done. We
are going to have some estimates in there of what the costs are
associated with adding the equipment that is needed to take
care of this increase in lighter crudes and how fast those
light crudes will be growing.
What we do know is that over the past--if you look back
over the last decade, billions of dollars were invested in
upgrading refineries in Texas, Louisiana, and elsewhere on the
Gulf Coast to process heavy crude oil, and now we have a
surplus of light crudes and so it has created problems.
Mr. Green. I think the concern--that surplus of light crude
because they are typically the shale plays in those wells are
very short-lived; although they are much cheaper to drill than
the earlier ones. There are some issues with are we going have
to reinvest for those refineries another $2.5 billion to handle
heavier to lighter crude.
Mr. Sieminski. There are upgrading and new construction
projects underway right now to allow the refiners to handle
that, and a lot of those are taking place in your district.
Mr. Green. Has EIA looked at the issues, because in the
past, we typically used whatever we refined in our country. But
now we are producing so much more that it is actually we are
having those downstream jobs that are exports. Back in Houston,
we are exporting just tons in the last few years of low sulfur
diesel. Because of the heavier crude, we get more diesel. But
the low sulfur diesel actually is improving the environment in
the countries we are sending it to, in Latin America
particularly where our customers are and, of course, Europe,
but Latin America predominantly.
Have you all looked at some of those issues. And I am going
to ask if that has been looked at by our environmental
community? Has EIA done that?
Mr. Sieminski. That is going to be part of our study.
Mr. Green. OK, I look forward to the study.
Ms. Gordon, has there been any qualification of that, even
though we are doing heavier crude and are producing a lot more
diesel that we don't use in our country, but it is also low
sulfur because that helped in the countries that are buying
that from us now, compared to the diesel that may be coming
from other parts of the world?
Ms. Gordon. Yes, certainly taking the sulfur out will be
fantastic for health and for the environment. But a bigger
question with the heavier oils is petroleum coke and what
happens with the very bottom of the barrels. So when you put
coking capacity into these refineries, you basically remove the
middle of the barrel and you end up with a lot more gasoline
and diesel, which is good for profit, and then a lot more of a
solid substance, called petroleum coke. And we are also
exporting that.
I think we have increased out of Texas, we have increased--
the U.S. has increased its petroleum coke exports to China like
seventyfold in the last several years. It is a coal substitute,
and it is worse than coal in terms of emissions. So it kind of
cuts both ways.
Mr. Green. Mr. Chairman, I know I am over my time. But I
would like to talk about petroleum coke when I get to my time.
Mr. Whitfield. This time right now the gentleman from Ohio,
Mr. Latta, for 5 minutes.
Mr. Latta. Thank you, Mr. Chairman.
Again, as has already been stated, thanks to our panelists
for being here today. It has been really informational. I
really appreciate your time.
If I could just kind of hit a few points. As we have been
sitting here, I checked when we started committee that West
Texas was selling at $60.70 when we started. It is down to
$60.51. And Brent was at $64.23, and it dropped to $64 in the
last few minutes.
I think the discussion we are having here is very
informational, because also I think it was in the Wall Street
Journal this morning, it was the headline in one of the
sections of the paper about the decreasing costs of oil from
West Texas and what that is doing here in this country to a lot
of our producers, especially out west. Of course, in Ohio and
also in Pennsylvania with our Utica Marcellus Shale that we are
developing in our States, especially for me in Ohio, it is
really interesting and also your concern because if the price
drops, you want to make sure that we can keep that production
up and also keep people out there producing.
Administrator, if I could just go to your testimony. I
really found it interesting, because, on page 5, you state that
the U.S. crude imports declined by 2.4 million barrels per day,
or 25 percent, the lowest since 1995. And the percentage of
U.S. crude demand supplied by imports has fallen by 67 to 47
percent, the lowest level since 1992.
In the testimony, you all have been talking about today,
especially about the oil coming in and the refining, how much
when that oil comes in that we have imported goes back out as
an export, just as a curiosity--or a product? Administrator,
would you like to take that? And then anybody else like to
answer the question?
Mr. Sieminski. The U.S. has net product exports of about 2
million barrels a day. So the gross amount of imports and
exports are different than that. We are exporting it. We are
now kind of getting up to close to 4 million barrels a day of
exports, but we are also importing, especially gasoline into
the east and west coast. So when you net it out, it ends up
being about 2 million barrels a day.
Back to Congressman Green's comments, a lot of that
exported product is coming from the Gulf Coast region of the
U.S. It is going to countries in Latin America and Europe. The
gasoline--one of the better exports that we have is gasoline
and the reason for that is we just don't need it here in the
U.S., and it is needed in places in Latin America.
Mr. Latta. Thank you.
And if I could turn to Mr. Pugliaresi--I hope I pronounced
your name properly--as we look across what has happened and we
have seen the increase here, are there any regulatory or market
barriers preventing our refiners out there right now from doing
anything else to adapt to these new surges that we are having?
Mr. Pugliaresi. Well, I do think the refining industry is a
lot of our downstream processing sectors do face a pretty
formidable regulatory environment. They also face fuel
constraints in like the renewable fuel standard. I think--it is
not that ethanol, for example, is a bad thing. We think ethanol
is very useful to the American transportation field sector. It
is the mandates that give you all these problems, because as
demand shifts radically or the supply side shifts radically,
the refiners are unable to adjust in a cost-effective way.
So I think as we go forward with this, and look at crude
exports, we don't want to unnecessarily harm these high-value-
added downstream processing centers. They add a lot to the
economy as well. So we are not in favor of protection, but we
are in favor taking a hard look at the trade adjustments you
need to do when you move into an export mode.
Mr. Latta. Thank you very much.
Again, I thank our panelists.
And, Mr. Chairman, I yield back.
Mr. Whitfield. At this time I recognize the gentleman from
California, Mr. McNerney, for 5 minutes.
Mr. McNerney. Thank you, Mr. Chairman.
Suppose that the U.S. becomes a reliable and consistent
exporter of natural gas and crude oil. How much impact will our
natural gas exports have on the geopolitical issues relative to
how much impact our diplomatic and military policies have on
those geopolitical issues? Does anyone care to take that?
Ms. Gordon. I could just say that because these oils within
relative bounds kind of trade as like types of oil, as I have
been talking about, you do have to look at the geopolitics and
the kinds of oil that we would be exporting.
So the light tight oil, as I mentioned earlier, has backed
Nigerian imports out of the U.S. As we produce more of that
oil, we are importing now no oil from Nigeria. We are importing
oil, but it is just not from Nigeria. Well, that has a
geopolitical impact, say, on Nigeria.
I think even though oil is not being used at all as a
weapon, it ends up being something that can counteract the
peacekeeping and the other efforts that we have in these very
fragile nations around the world. Venezuela was mentioned.
Mr. McNerney. I am thinking in particular of Russia and Mr.
Putin. Will our exports have more impact on his behavior than
our military or diplomatic activities?
Ms. Gordon. It is a really good question, but I do think
that Russia is reeling from the price of oil. It is not our
exports that are really changing what is going on in Russia
right now. It is $60 a barrel oil that is changing what is
going on in Russia now, which is a much bigger demand question.
That is not about our exports.
Mr. Ebinger. If I could weigh in on that. The problem we
have is twofold. We have had a lot of very, you know, I think
impassioned proposals to do something to help Ukraine with the
Russian crisis and other geopolitical events. But the reality
is, of course, that our oil and gas are owned by private
companies, and they are likely to ship the oil or gas--oil if
we allowed it--to where the market gives them the greatest
profit.
Right now, although it is changing before us as I speak, it
has always been assumed that the market for LNG primarily would
be in the Far East, because the premiums there have been much
higher than those in Europe. Although, now we have LNG prices
crashing in Asia down to very low levels where it is even
questionable whether we can deliver LNG into some of those
markets competitively. By the time we actually have LNG people
ready to go, outside contracts have already been signed.
Geopolitically, I think the issue of exports is extremely
important. Our allies in Korea and Japan and Taiwan are very
desirous to have energy from the United States because they see
an increasing bellicose China, threatening sea lanes on which
all of their energy imports come from, not only oil and gas but
also coal. So they are delighted. And I think it does improve
our diplomatic status to the extent that we send energy there,
but again, these are going to be commercial choices made by the
companies that own that oil and gas.
Mr. McNerney. It is clearly a complicated question.
Mr. Ebinger. It is very complicated.
Mr. McNerney. Well, whoever can answer this, how much do
you see oil exports increase--how do you see oil exports
increasing over time if we were to repeal the Energy Policy and
Conservation Act? Do we see a large bump, or do we see a slow
increase? How do we see that playing out?
Mr. Sieminski. Well, we do tend to look at those in our
annual energy outlooks, which we do every year. We will have
that one out we hope some time in late February or March. The
answer to that I think probably lies more towards the lower end
rather than the upper end. The reason I say that is that the
kind of oil that we have in surplus here is light sweet crude.
The market for that is not unlimited, so the question is how
much of that could be put out on to the global markets before
you have saturated the global markets? Something on the order
of a million or a million and a half barrels a day might be the
number that would be exported.
Mr. McNerney. Thank you, Mr. Chairman.
I yield back.
Mr. Whitfield. At this time, I recognize the gentleman from
West Virginia, Mr. McKinley, for 5 minutes.
Mr. McKinley. Thank you, Mr. Chairman.
And I thank you for the panel. This is very interesting at
the end of session. This would have been more interesting
perhaps a little earlier, because some of the subjects we have
gotten into have been particularly beneficial.
I have a series of questions. After waiting an hour and a
half, my question was just asked by my predecessor, because I
wanted to get at the geopolitical aspect of it. I think you
have answered it in some respects. Perhaps we need to get into
that a little bit deeper. One of the questions I would ask you
is, who is asking for this ban to be lifted?
Mr. Sieminski. Well, the first groups are producers that
have wanted to see the ban removed or those who are producing
the lightest of the crude oil, because that is being discounted
the most, and the attractiveness of exporting that into the
global markets is high. And so we have seen that coming from
some of the independent producers in Texas.
Mr. McKinley. I am also curious before I get to my last--I
have got three or four questions here, but one would be is back
towards the tail end of the Bush administration, gas was
selling at $1.85 a gallon. Then we went up to $3.50, $3.85,
almost $4 for regular. Is there an impact here? What caused
that? Why did it go from--doubled in price?
Mr. Sieminski. Say that again, Congressman.
Mr. McKinley. When gasoline prices were $1.85 under the
Bush administration, what happened to take them up to double?
Mr. Sieminski. The biggest thing--the overwhelmingly most
important factor in gasoline pricing is what the price of crude
oil is in the global markets. The next biggest thing after that
is probably the different levels of taxation in different
States.
Mr. McKinley. That hasn't changed much; taxes haven't
changed much.
Mr. Sieminski. The crude oil prices go up and down.
Mr. McKinley. The crude is down now--what--$63 or something
like this, OPEC?
Mr. Sieminski. Yes.
Mr. McKinley. Where was it?
Mr. Sieminski. It had been on average up over $100 a
barrel.
Mr. McKinley. I understand, but I haven't seen the price
get back to $1.85 yet. What is it going to take to get to
$1.85?
Mr. Sieminski. Well, it might have been $1.85 when prices
were a lot lower, and when we had $40 oil----
Mr. McKinley. That is what your answer is, we need crude to
get to about $40.
Mr. Ebinger. There is one other issue that I think is
controversial, but I think if you look at it, you will find
that the mandates for biofuels being mixed with gasoline, we
have seen ethanol prices go up very high in some of those
markets. That has been a major contributor to the price of
gasoline.
Mr. McKinley. My last question, I have less than 2 minutes.
I have a small boutique refinery in West Virginia, Ergon. It
fills a niche in the marketplace. What could be the impact if
the export ban were lifted, what would be the impact on Ergon?
22,000 barrels a day.
Mr. Sieminski. In your area, probably very little.
Mr. McKinley. Because?
Mr. Sieminski. Those refiners out in the mid-continent
where they have access to discounted WTI, benchmark crude,
would see their costs go up.
Mr. McKinley. I think they are starting to tap into the
Utica Shale gas now--well, shale gas and then the Utica is what
is providing the petroleum, the crude that they are going to be
able to tap into. So you are thinking Ergon would be not
affected?
Mr. Sieminski. In your State, sir.
Mr. McKinley. Well, they ship all over the country.
Mr. Sieminski. Right, but the question is what would the
cost of feed stocks into the refinery in West Virginia be, and
I would suspect that it won't change very much.
Mr. McKinley. Thank you very much.
I yield back the balance of my time.
Mr. Whitfield. At this time, I recognize the gentleman from
Texas, Mr. Green, for 5 minutes.
Mr. Green. Thank you, Mr. Chairman.
Let me get back to some of the issues.
Well, first, Mr. Chairman, I would ask unanimous consent to
place a statement into the record.
Mr. Whitfield. Without objection.
[The information follows:]
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Mr. Green. And I think it is no doubt that, in fact, the
CBO report that was just released talked about a policy shift
in exporting crude would pinch refiners' profit margins but
also harm foreign oil producers.
But let me go down the list about we are exporting oil now,
but it fits the definition of a condensate, that there actually
is a mechanism where you get that lighter sweet out of the
ground, you run it through what I would call a very limited
refining process, but it fits the definition that we can export
right now. How does EIA classify lease condensate, is that
exporting?
Mr. Sieminski. Mr. Green, there are at least four big ways
of trying to define condensate. The way EIA has historically
done this is literally based on the location. If it is produced
on an oil lease and is mixed back into the crude oil stream, we
counted it as lease condensate and measured it in barrels.
Mr. Green. Is that the same definition as the Department of
Commerce for export?
Mr. Sieminski. The Department of Commerce is looking at it
from a different standpoint. And reportedly, the Commerce
Department is now through letters to the individuals who asked
for a ruling on it, allowing processed condensate. So. if you
take this very light crude oil, process it through a
distillation tower, it would qualify as a product, and products
under U.S. law right now can be exported.
Mr. Green. OK. Would it help to have a uniform definition
for Government agencies, particularly if lawmakers wanted to
craft better regulation or legislation, to have one definition
for condensate?
Mr. Sieminski. At EIA, we have been trying to understand
the different definitions. And I suspect that a one-size-fits-
all might not actually work perfectly. At EIA, for example, we
would want to make sure that we are able to count this process
condensate so that we don't double count how much of the
material is in the system. And that is a complication of the
existing rules.
Mr. Green. Does EIA track exports of condensate production
now--or production and exports, do you track any of that
production?
Mr. Sieminski. The export data is provided to EIA by the
Customs people, so we do not have that. We do our own survey of
imports. Interestingly, you think about all of the history that
has been brought up here today. We wanted to do our own survey
of imports, because that was what was really big and that was
what was supposed to grow, and we don't have a survey of
exports.
Mr. Green. How readily available is that information?
Mr. Sieminski. That information actually is available from
the Customs people, and we have been working with them on
speeding up EIA's ability to get that data.
Mr. Green. Dr. Ebinger, I know your testimony in your
briefing book ``Big Bets and Black Swans'' in early 2014, you
authored a section to lift the ban on U.S. oil exports. You
state that unrestricted exports, in combination with increased
investment in infrastructure, are expected to generate income,
jobs, and taxes through the production change.
Do you think domestic transportation of oil is a major
factor facing our energy sector? A good example, limitations of
pipelines.
Mr. Ebinger. Yes, sir, I do. I think the fact that we have
not built some major pipelines, Keystone being one of them, has
certainly led to a more dangerous transportation system, by
rail particularly, but also by truck and barge. A more
expensive transportation system than would be needed if we
built some pipelines.
So I think if as a Nation we are going to accept
unconventional oil and gas drilling, which I certainly do, then
we need to build the intended infrastructure as cost-
effectively as possible to get that to market.
Mr. Green. Mr. Chairman, thank you.
Mr. Whitfield. At this time, I recognize the gentleman from
Kansas, Mr. Pompeo, for 5 minutes.
Mr. Pompeo. I thank you, Mr. Chairman.
I did a little work in the run up to this hearing to see
which of you had predicted $63 oil on December 11th, 2014. None
of you did. You should know you should count yourself among the
many. I couldn't find anyone who did. I saw a few traders who
make a claim that they were in the market and the right place;
they were on the short side and got to the right spot. And I
mention that only because as I hear you talking about more data
and more information in the hands of Government and all that, I
think if we unleash markets, glorious things will happen.
So I have heard multiple things today. I have heard folks
talk about an export ban lifting, which seems right to me as a
good direction. I have heard folks talk about the Jones Act. We
have imposed enormous costs on our refiners with their
renewable fuel standards, and we have seen a Government agency
totally incapable of dealing with the transition of what
happened in the marketplace there. Can't get a set of rules out
to deal and tell folks what to build, I mean, based on some
prediction that Congress set, some levels Congress set. As we
all as policymakers think about how we are going to handle
this, we should not be at all certain that $63 is here for
tomorrow, let alone for 2 months or 3 months. No one mentioned
the greenhouse gas rules that are about to hit. America--no one
mentioned CAFE standards that have had such a dramatic impact
on our transportation and the uses for them.
You mentioned natural gas transportation, Mr. Ebinger, you
said, Gosh, if we could get there--I don't know what is
standing between us and then. I couldn't tell you--natural gas
prices are at prices that you think, gosh, folks would go and
want to invest. But the truth is you have markets operating in
a state of uncertainty trying to get to the right outcome. We
should not have a hubris to think that we have any possibility
of getting in front of that place.
As you think about this export ban, I think it is
incredibly important that we don't lift an export ban in base
because, gosh, today we have certain oil prices that are
sitting in the low 60s range. I think we made a mistake putting
it in place in the 1970s. I think that is the kind of thing
that policymakers should all consider.
I want to ask you, Mr. Sieminski, you did a report a month
ago on what impacts gasoline prices. The Saudis changed the
world here in the last quarter. Does that change how you think
about the study that you put out in any material way?
Mr. Sieminski. No, I believe that that study would probably
be still valid in terms of trying to understand what it is that
relates the price of gasoline in the U.S. to the global markets
for either crude oil or gasoline. Mr. Pompeo, I think that your
comment about, did EIA predict $63 oil, no we didn't. I would
like to say in my defense that we----
Mr. Pompeo. No defense required.
Mr. Sieminski [continuing]. That we talk--every month, we
publish something that is actually worth thinking about for
everybody here. We use the options market for crude oil to work
backwards to what the confidence interval is on forecasts for
crude oil prices, and 6 months ago, that confidence interval
got down to the low 60s.
So we have hit the bottom of the 95 percent confidence
range. And for the committee here today, I just looked at some
numbers. For West Texas Intermediate, the 95 percent confidence
range--you know, will it fall in there?--for April of the
coming year is $50 to the low side and about $90 to the high
side. And that is telling you that the people who are in those
markets, they are not really sure, either.
Mr. Pompeo. Yes, yes. Folks with real capital at risk. I
will ask anyone who may want to answer this, I have read lots
of articles just recently--they are pop news more than anything
else--about whether OPEC still exists. It is still the same
force that when I was a little bit younger could impact markets
in material ways. We talked about how these markets have
changed. Does anybody care--today want to say today that OPEC
is dead?
Mr. Pugliaresi. I think market power by some big producers
waxes and wanes, but if you have enough production outside of
these other low-cost, high-volume producers, their market power
gets reduced, and that is what you are seeing now. The
distribution of crude oil outside of these few players, which
North America is a big force today, is undermining the capacity
of other folks to constrain output and charge higher prices.
That is just the reality of it. That is the one--that is a huge
benefit of this North American platform, that is why we ought
to pay attention to how it performs. Make sure we have a
regulatory environment that doesn't hurt it.
Mr. Pompeo. Thank you.
My time has expired. Thank you, Mr. Chairman.
Mr. Whitfield. At this time, I recognize the gentleman New
York, Mr. Engel, for 5 minutes.
Mr. Engel. Thank you very much, Mr. Chairman.
You know, last week, I moved my office. We hadn't moved in
10 years, and so we were throwing out all kinds of things. And
there was this huge chart which said, ``The World According to
Oil.'' And it either shrank or increased the map of different
countries based on the powerhouse of oil. And it is interesting
because that was probably about 15 to 20 years old. The United
States was very, very tiny. Saudi Arabia and Venezuela were
very, very big. I couldn't help but thinking that, if we did
that map today, how different it would be. And I think that is
a good thing.
Mr. McNerney asked about the geopolitical impact of it. And
as the ranking member of the Foreign Affairs Committee, which I
am, I care very much about the geopolitical aspects of it.
I like the idea of countering Mr. Putin. European countries
are reluctant to stand up to him, because they need his oil.
They could buy our oil. They might actually develop a backbone.
So I have looked at this in a totally different approach than I
looked at before. But everything, of course, is still a
balancing act. I care about the environment. We want to make
sure that we can continue to export and increase the export,
but I think it is a balance.
So I want to say, Dr. Ebinger, I read the findings in your
report, which finds that lifting the ban on crude oil would
boost U.S. economic growth and put downward pressure on world
oil prices. Larry Summers also called for lifting the ban.
Let me ask a few questions to anyone who cares to answer:
Department of Commerce has granted licenses during the past
year to a few oil companies to export a relatively small amount
of an ultralight crude--as Mr. Green mentioned, it is
condensate. I believe condensate comes from shale plays. So,
please, correct me if I am wrong. And so, therefore, increased
production of condensate would mean more fracking, would it
not?
Mr. Ebinger. Yes, sir, it would.
Mr. Engel. It would. Among the companies exporting
condensate are Pioneer Natural Resources and Enterprise
Products Partners. Which shale plays are they getting their
condensate from, do we know?
Mr. Sieminski. The Eagle Ford, Texas.
Mr. Engel. OK. And where did it go? Are there existing
refineries in friendly parts of the world that would take and
refine this additional crude?
Mr. Pugliaresi. I can answer. I think most of the shipments
went into the Far East, probably Korea, maybe the Singapore
market. I don't actually have the--the Department of Commerce
has a much different policy towards handling data than EIA.
This is considered proprietary information so I don't think it
is publicly available yet.
Ms. Gordon. I would just add, it is petrochemical feedstock
that condensates largely so it is going to--it is not going to
refining. It is going to making petrochemicals so the Far East
makes sense.
Mr. Engel. Thank you. I am asking these questions because,
obviously, in addition to economics, there are environmental
conditions, and geopolitical factors that merit consideration
and I really think the whole thing--I think there is a balance.
But I do think that this is something that we should look at
very seriously. It makes sense to me, again, because I think
the United States obviously being a world power has to be
concerned with the geopolitics of it. I know that when we are
trying to get some of our allies in Europe, Germany and some of
the other countries to stand up to Putin and his aggression to
Ukraine, there was some reluctance there because they rely on
Russia for their energy resources. I can't help but thinking if
they relied on us or if we were available, we could exert more
pressure. And I think that would be an important policy goal of
the United States. Again, I think it has to be balanced with
environmental concerns and other concerns as well.
Thank you all. Thank you, Mr. Chairman.
Mr. Whitfield. The gentleman yields back.
At this time, I recognize the gentleman from Nebraska, Mr.
Terry, for 5 minutes.
Mr. Terry. Thank you. So one of the reasons I ran for
Congress 16 years ago was the high level of reliance on foreign
fuel to full our economy and wanted to change that. So I am
pleased to see that we are down to 33 percent. We are only 33
percent of our fuel needs of oil is imported now. So, in a
geopolitical sense, why do we still have 33 percent import of
oil into our country? And I will start with Mr. Sieminski.
Mr. Sieminski. Mr. Terry, what we are talking about mostly
here today is oil, but within a year and a half, the U.S. is
likely to be a net exporter of natural gas. We are already a
net exporter of coal. We don't really import very much
electricity. A little bit of that comes from Quebec, and
Canada, and from Saskatchewan. So, on the oil side, we are a
net exporter of oil products. The only thing that we are still
importing is crude oil. Those numbers----
Mr. Terry. Right.
Mr. Sieminski [continuing]. Will come down. But if you say,
well, do you want that to go to zero, the answer would be,
well, not necessarily because----
Mr. Terry. Well, that's the ultimate question, is can we
and should we----
Mr. Sieminski [continuing]. Those refineries import oil and
sell product.
Mr. Terry. And particularly Venezuelan oil bothers me, but
do we have a geopolitical responsibility to allow some
importation of Venezuelan oil?
Mr. Sieminski. I will stay away from the policy decision of
what we would want to do with Venezuela or not. But I would say
that Venezuela is at the top of EIA's list of what could go
wrong in the global markets. It could push prices up. You have
got Iranian sanctions issues. You have the ISIS problems in
Iraq. Maybe OPEC will at some point decide to reduce
production. You can have difficulties in Russia even.
There are lots of things that could make prices go up.
Prices could come down, too. What really triggered prices
coming down I believe over the course of the last few months
was the combination of the unexpected recovery of oil
production in Libya, at the same time that the economy in China
was slowing down and demand forecasts began to recede.
And in that background of increasing U.S. oil production,
the combination of all of those things, I think, was just was a
tipping point and changed everybody's mind about what the
future looked like.
Mr. Terry. Mr. Pugliaresi.
Mr. Pugliaresi. I guess one of the things I would encourage
the members to is to look at this through North American lens.
When you put Canada in the mix----
Mr. Terry. Absolutely.
Mr. Pugliaresi [continuing]. We really don't like the self-
sufficiency approach to thinking about energy security. We
really say, look, we want this platform to be productive, U.S.,
Canada, large continental lands.
Mr. Terry. And Mexico. Let's think of it as North American
independence.
Mr. Pugliaresi. There may be efficient solutions for the
platform which allows both exports and imports, because
refining configurations are all different kinds. We have a lot
of very capital invested in processing heavy crude. And so that
heavy crude ought to come from Canada and get processed where--
that is where it is most valuable.
Mr. Terry. And that makes sense to me. So, in our refining
capacity in the United States--I will follow up on your comment
here, do--are we ready to be able to expand or do we need to
expand refining capabilities in the United States if we are
going to have a mix of more sweet and then the heavier crude
from Canada? Who wants to go with that one?
Mr. Sieminski. Well, it is difficult to convince refiners
to expand capacity when the demand here in the U.S. is going
down. Typically refineries are built closer to where consumers
are. But we have got a terrific advantage in both technology
and low natural gas prices--natural gas is used as the refinery
fuel--that make our refineries the best in the world. And
taking advantage of those situations I think is what the
refiners are doing exporting products into the global market.
Mr. Terry. Ms. Gordon.
Ms. Gordon. Yes, I would just say that in terms of the--as
I said earlier, the global production has become very--it is
not site specific anymore. It is happening all over. But this
is also going to happen in refining. The country that added
more refining capacity to the world market than any other last
year was Saudi Arabia. So we are seeing China adding refining
capacity, Saudi Arabia adding refining capacity. And demand, as
we have just said, is really in the developing world. So to
move that demand closer, refine products closer to people that
will consume--we are talking Latin America, the Middle East,
Africa--that is where future demand growth is, throughout Asia.
So the whole market is really shifting somewhat. I don't think
you can really draw a circle around North America very easily
in this market.
Mr. Terry. Although I want to.
Ms. Gordon. I know.
Mr. Terry. Thank you.
Mr. Whitfield. At this time I recognize the gentleman from
New York, Mr. Tonko, for 5 minutes.
Mr. Tonko. Thank you, Mr. Chair.
In a number of the hearings I have attended, I have noticed
that where the subject is an environmental public health or
consumer regulatory issue, there are a number of questions
about the estimates of the cost and benefits of the policy in
question, and that is fine.
Those questions explore the assumptions made in the
analyses, the relative uncertainty or certainty of the
estimates, and how sensitive the results are to changes in the
assumptions, initial conditions, or data that go into the
model.
Frankly, this is a major focus of most of our conversations
about the projections on climate change, with much emphasis on
the uncertainties and what we don't know and little emphasis on
all the things that we have learned and the generally robust
conclusions of climate models.
Economic forecasts don't receive the same scrutiny and,
frankly, they often miss very significant changes. We have
spilled blood and treasure over this commodity. As we all know,
it still plays a major role in fueling our economy. We need to
understand fully the implications before we make this change.
I note in Administrator Sieminski's testimony, when he
provides the results of the EIA's latest short-term energy
outlook, that he includes the disclaimer, ``Of course, the
recent dramatic declines in crude prices may affect our outlook
in the coming months.''
So I would like to better understand how robust these
benefits--benefit estimates provided in the studies refer to
are likely to be.
Dr. Ebinger paints a very positive picture resulting from
lifting the crude oil export ban, reporting a gain in GDP over
the next 25 years of $600 billion or--billion to 1.8 trillion.
That range is dependent upon which EIA scenario is used. These
are model results based on other model results, EIA's model
results.
What are the assumptions, I would ask the panel, about the
world price of oil in the underlying EIA scenarios? And how
would changes in that world price impact those given estimates?
Honorable Sieminski, if you could, please.
Mr. Sieminski. Congressman, we will be looking at this and
will have a lot more to say, I think, when we publish the
annual energy outlook early next year. I think what I could say
is that lower oil prices, if they were to remain, will slow
down this growth in U.S. oil production. I mean, that is
supply-and-demand pricing.
The other possible effect it could have is to make it less
profitable for companies to export natural gas in the form of
LNG from the United States, and the reason for that is exports
of LNG from the U.S. generally are predicated on selling into a
market where that gas in Europe or Asia is priced at an oil
equivalent. And with lower oil prices, the spread or
profitability of exporting U.S. LNG into the global markets
would be reduced. And so that might change those dynamics a
little bit.
So there are going to be a lot of places, you know, in our
forecast, I think, where building in a possibility that lower
prices could stay for a while would have an impact, and we will
have plenty to say about that in the coming months.
Mr. Tonko. Thank you.
Ms. Gordon, do you have anything to add to that?
Mr. Ebinger. If I could add, sir, if we look at past
situations where we have had precipitous price declines, I
think you can look internationally and say that the price
declines at some point become the engines of renewed growth
because the Chinas and Indias and Brazils of the world, all of
a sudden, if they start seeing $50 oil, they start saying,
``Let's rejuvenate some of our economies and rev up projects
that didn't make sense at $100 oil.''
And remember that--I think it was in 1998--that the price
of oil fell, I think, from 117, 118, something like that, down
to $38 in 7 months, but it came rapidly back up. I believe, if
I remember correctly, at least into the 70s and then worked its
way up to where it was before the current price drop.
So, you know, low oil prices for those countries that are
huge oil importers and fast-growing populations we have talked
about in Asia--low oil prices are a boom, and, at some point,
it will rejuvenate the Chinese and Indian economies and bring,
hopefully, the rest of the world along with it as demand for
good and services, once again, intensify.
Mr. Tonko. Mr. Chair, I yield back. My time is up.
Mr. Whitfield. The time is up.
At this time recognize the gentleman from Virginia, Mr.
Griffith, for 5 minutes.
Mr. Griffith. Thank you, Mr. Chairman. I appreciate that.
Petroleum coke. I always love coming to these hearings and
listening because I learn all kinds of things.
Ms. Gordon, tell me about petroleum coke. And you said
earlier in your testimony that it was worse than coal. I am
assuming that means from a pollution standpoint.
Can you explain that to me, please.
Ms. Gordon. So petroleum coke is the bottom of the barrel.
It is when you wring all of the liquids out of the heavy oil.
It comes out of every refining process, but in very small
amounts.
But with heavy oils, you have a lot of these high-carbon
bottom-of-the-barrel. And so, when you put in coking capacity
that actually cleaves these molecules, you get more liquids
out, which is good, but then you get more solid out of your
refinery.
Petroleum coke is a solid fuel. If it is a very, very high-
quality petroleum coke, which doesn't come out of refineries,
it goes into steel and glass and ceramic manufacture.
If it is low-quality coke, high in sulfur, high in heavy
metals--this is what comes out of the oil production process--
that goes into power production and steam, and then you are
basically burning coal.
It has about 10 percent higher greenhouse gas emissions
than coal and higher nickel, vanadium, sulfur, than some of the
worst coals, and it runs a bit counter to coal.
So when coal is priced high, as it had been recently and
before we were exporting a lot of our coal, China was wanting
the petroleum coke because it was an economic benefit for them
to burn coke instead of coal. Now prices of coal are low. And
so coke is a little bit out of favor.
And, if you remember, there was a news release last year
about--it was in Detroit. There was a pile of petroleum coke
that got a lot of attention in the press. It is very--it is
black. It is voluminous. They are spreading in Alberta.
It has spread for miles because they haven't--it is
landlocked. They can't really export it. So it ends up being a
problem. They are going to want to send us the heavy oil so
that we export the petroleum coke because we are closer to
ports of call.
Mr. Griffith. OK. Now, let me go back on your testimony
just a little bit in there.
You said that it is now cheaper or more expensive than----
Ms. Gordon. Than coal.
Mr. Griffith [continuing]. The coal product.
Ms. Gordon. Coal prices have come down. So petcoke is
more--it is really priced to sell. It is very hard to get data
on petcoke, actually. It is not traded. It is traded, you know,
in the trade--with traders. It is very person to person,
company to company.
But because it is a byproduct of refining and no one really
wants to make this petcoke, it builds up and you have to get
rid of it. So, of course, you know, refiners want to get a lot
of money for it. But, if they can't, they still have to put it
into the market. So the price is relatively volatile.
Mr. Griffith. OK. So from an environmental standpoint, we
would be better off exporting low-sulfur coal from the United
States, say, Central Appalachia, that I happen to represent and
Mr. McKinley represents, than we would be flooding the market
in China with this petcoke. Am I correct?
Ms. Gordon. Petcoke's worse.
Mr. Griffith. I appreciate that very much.
Pipelines were brought up earlier, about whether or not we
should be building them and the safety of bringing the oil.
And I think I understood from the comments--just from the
tenor of the comments that the consensus or the general
understanding was that the oil is going to find a way to the
United States coming out of Canada whether it is by pipeline or
by truck or by train. Is that a fair assessment?
And each one of you can answer that.
Mr. Pugliaresi. Yes. I think it will. The question is cost.
Right. The reason the pipelines--I mean, there is a real value
to rail. There is a lot of optionality where the markets are
not settled. But, you know, when capital gets deployed, it is
quite interesting.
If you want to build a major transloading facility--rail
transloading facility, you just get a local permit. You don't
have a NEPA review. If you want to build a pipeline, you are
going to cross Federal land or you are going to do some action
that is going to trigger a NEPA review.
So we have a regulatory program that is somewhat
unbalanced. You can put a rail facility and move things out
pretty quickly. You want to build a pipeline, you have got a
mountain of paperwork and intervenors before you.
Mr. Griffith. Yes. I appreciate that.
I was--there was one of these questions that I don't think
has been asked in relationship to the international situation,
and that deals with the U.S. recently won a trade case against
China over their export ban on rare earth.
How does that case then appear, at least from a public
perception standpoint, when we are banning the export of our
oil products?
And does that weaken the President's hand in these
discussions with other countries about exporting rare earth and
the U.S.'s position on oil?
Anybody want to take that one?
Mr. Ebinger. It has been raised by a number of people, at
least in the think tank community, as an issue. And I know a
number of international trade lawyers that think it is quite
possible that someone might bring an action against the United
States for the continued ban on crude oil exports on the same
premise, that it is an unfair barrier to trade.
Mr. Griffith. All right.
Ms. Gordon. I would just add that, because China's oil
tends to be heavier, their refining capacity isn't really well-
suited to our light tight oil. And because we can export
product--a lot of product and there is no ban on that,
substantively----
Mr. Griffith. You do not see China bringing an action, but
in the think tank world, at least, there is some concern that
somebody else might bring an action.
Mr. Ebinger. It may not be China, but it may be someone
else.
Mr. Griffith. May be someone else. I appreciate that.
And my time is up. And I yield back, Mr. Chairman.
Mr. Whitfield. Thank you, Mr. Griffith.
That concludes the questions.
And did you want to ask some additional questions, Mr.
Green?
Mr. Green. Mr. Chairman, I would just like to follow up
with Ms. Gordon on the----
Mr. Whitfield. I will recognize you for 5 minutes.
Mr. Green. Oh. Well, thank you.
The Energy Policy and Conservation Act of 1975 you
discussed, importantly, EPCA also addressed vehicle standards,
energy efficiency, conservation, and created a Strategic
Petroleum Reserve.
If the next Congress addresses the export issue, should
there be an effort to address the other sections like the
Strategic Petroleum Reserve?
Ms. Gordon. I think we are in a transition when it comes to
oil, and that has been very obvious. And so oil policy, energy
policy, is going to be an important new chapter that follows
that.
Mr. Green. OK. Well, most of that Strategic Petroleum
Reserve actually is just east of where I live in southeast
Texas, and it is important.
But, again, if we are producing what we are--although we
are still not producing enough oil for our own consumption
mainly because of the types of oil we have.
And, like I said earlier, the refineries that I have
represented over the years have been retooled to do the heavier
crude, and it would take, you know, billions of dollars to go
back to do the lighter sweet. And just like--I mean, it is an
investment decision if that happens.
In your testimony, you discuss environmental risk and that,
stated earlier, you have seen conflicting climate articles
discussing U.S. refined products, exports.
Is the U.S. refined product better or worse than the
product currently consumed in other parts of the world? Do we
produce gasoline or diesel better than India or China, for
example? And I know we compete with Europe on the product, too.
Ms. Gordon. Well, from a climate perspective, it is carbon.
It would be similar. From an air quality perspective, it
depends on the refining specifications.
And they are, you know, lower in Europe than the
specifications might be lower in Asia. But from a climate
perspective, I don't think there is a difference between our
products and theirs.
Mr. Green. And I know that, if there is a ton of carbon
going up in China, that is the same as a ton of carbon going up
in east Harris County. And that is why some of us would like to
see some kind of national agreement so we don't compete with
one hand behind our back.
As the U.S. produces more light sweet crude and exports
condensate, the ultralow-sulfur diesel. And I mentioned it
earlier, but I just want--that is benefiting some of our
trading partners in Latin America, particularly, and, I assume,
Europe because we have low-sulfur diesel. And I know it went--
the refining industry went through some problems through it. So
they are actually doing very well in exporting it.
Does that help the climate, at least the pollution issues
in other countries?
Ms. Gordon. Not climate, but air pollution.
Mr. Green. Not climate, but air pollution.
Ms. Gordon. Yes. Sulfates that are in the air. So it would
be much more of a respiratory issue and not climate.
Mr. Green. Well, that is probably more immediate than rise
in the sea level and things like that. So--but it does have a
benefit for those countries.
Now, let me talk about petroleum coke for the last minute.
The highest point in my district is either a landfill or
the tons of petroleum coke, and it is shipped out.
And in the 2005 energy bill where we set up loan guarantees
through Department of Energy for a number of things, including
wind and solar--and my colleague Joe Barton is not here--we put
in there for research and what we could utilize petroleum coke
for other than just shipping it to China and India to burn,
which, again, puts carbon in the air, but also the local.
Is--is there any support for trying to use something
alternative?
I got involved with coal ash because it was used for
roadbeds. Is there anything else we could use for--petroleum
coke for? Because it is--we can't burn it here because it is so
bad.
Ms. Gordon. Exactly.
You know, it is a matter of taking the bottom of the barrel
where there is no economics left and putting more money into
it.
There are definitely things you could do with that
petroleum coke, the fuel-grade petroleum coke. You could take
heavy metals and the sulfur out and make it actually a
beneficial industrial byproduct, but it is going to cost money
to do that.
Mr. Green. Yes. So it is not economical.
Ms. Gordon. It is not economical.
Mr. Green. It is much cheaper to put it on----
Ms. Gordon. Not if no one will take it.
Mr. Green [continuing]. A ship and send it to someone else
to burn it?
Ms. Gordon. Uh-huh.
Mr. Green. OK.
Mr. Pugliaresi. You know, Mr. Green, I am only going to say
one thing about the SPR, the Strategic Petroleum Reserve.
I think it is important to remember this is a strategic
asset. We are still connected to the world oil market. We might
have to change the way we distribute the SPR because of the
huge flow of crude oil into the Gulf Coast, but I don't think--
I think we should--you know, and I am sure we are going to
study this carefully.
But, you know, things can change in the world. We are not
going to get rid of the 82nd Airborne and we are not--and I
think we ought to look at the SPR that way. The world could
change and we may need that. Even if we are relatively
independent, a price spike in the world oil market for some
catastrophe somewhere could do a lot of damage to the American
economy. We will want that asset at that time.
Mr. Green. And that is correct.
And where I come from, the goal of that was to buy that oil
and put it in that when it was low. And then when we release it
because--when oil goes up because of embargo or whatever else
it does.
But Mr. Chairman, you have been more than kind today. Thank
you.
Mr. Whitfield. I also want to mention Bill Flores is here,
a member from Texas who was recently elected chairman of the
Republican Study Group. He is going to be a member of the
Energy and Commerce Committee in the 114th Congress and a
member of this subcommittee.
And since, Bill, you sat there so patiently for all these
hours, do you want to ask a few questions before we get out of
here?
Mr. Flores. Well, I think that I just heard the voting
buzzer go off. So I will, first of all, thank you for
recognizing me and thank you for allowing me to have the time.
I will keep my comments short.
One of you--well, more than one of you on the panel talked
about the cumbersomeness of having Federal policy trying to
interfere with free markets. And I think that is something that
we on this side of the room need to always remember, that
anytime that we try to violate the laws of economics, it is
like violating the laws of physics.
And you can think about gravity as an example. The more you
violate the laws of gravity, the harder the impact at the end.
And that was one of the first things that my economics
instructor taught me back when I was in college.
And so I think that we on our side, again, need to be
constantly reminded that the free market works best when it
lets the--when the Federal Government doesn't have too heavy a
hand.
There was some conversation here about the transparency
related to the oil markets, and I would vigorously disagree
with those comments because of this.
If you say there is no transparency, that means that the
buyers and sellers that are out there taking this oil and
refining it know nothing about it, and that is not the case.
That oil is being moved around. It is being trans--I mean,
it is being bought and sold and refined and put into finished
product and being sold to an end user and being consumed.
And so to say that there is no transparency in the market
is just false because buyers and sellers are out there. They
are happy with the level of information that they have.
If they weren't, then there would be no trading. There
would be no commerce in those products. And so I would not like
the panel to get too affixed to those comments because they
just are not true.
And, with that, I yield back, Mr. Chairman. And thank you.
I hope everybody has happy holidays and Merry Christmas.
Mr. Rush. Mr. Chairman, I would really ask for unanimous
consent to allow Ms. Gordon to respond to that because----
Mr. Whitfield. Without objection, go ahead.
Ms. Gordon. There is certainly some transparency in the
market. I mean, it is working. But I think the best example of
why there isn't enough information in the market is the
explosiveness of the rail cars taking Bakken oil.
The market really didn't know the composition of that oil,
and the equipment wasn't really designed to deal with that oil.
So I think that we are seeing physical manifestations of
the fact that there isn't enough transparency in this market.
Mr. Whitfield. Did you want to ask for unanimous consent?
Mr. Rush. Mr. Chairman, I also want to ask for unanimous
consent that this report from the--ostensibly, from the United
Steelworkers--that it be included into the record.
And, also, I have here an article from a Mr. Mason Inman
entitled, ``The Fracking Fallacy.'' I would like for that to be
included into the record.
Mr. Whitfield. These will be included in the record.
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Mr. Whitfield. And then, also, I would like to put into the
record letters from the American Petroleum Institute, the
American Fuel and Petrochemical Manufacturers, and the Diesel
Technology Forum. Without objection.
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Mr. Whitfield. So that concludes today's hearing.
I want to thank you once again for your testimony and for
your patience and responding to our questions.
And we are going to have more hearings on this when we
reconvene for the 114th Congress. And the record will remain
open for 10 days for additional materials.
So that concludes this.
Mr. Rush. Mr. Chairman, I want you to join with me in
wishing everybody happy holidays.
Mr. Whitfield. You think we should?
Mr. Rush. I think we should.
Mr. Whitfield. Merry Christmas. Happy holidays. And enjoy
the break.
That concludes today's hearing.
[Whereupon, at 11:50 a.m., the subcommittee was adjourned.]
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