[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]




 
  ENERGY AND THE RURAL ECONOMY: THE ECONOMIC IMPACT OF EXPORTING CRUDE
                                  OIL

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

                                HEARING

                               BEFORE THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              JULY 8, 2015

                               __________

                           Serial No. 114-20
                           
                           
                           
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                          
                           
                           
                           


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                        COMMITTEE ON AGRICULTURE

                  K. MICHAEL CONAWAY, Texas, Chairman

RANDY NEUGEBAUER, Texas,             COLLIN C. PETERSON, Minnesota, 
    Vice Chairman                    Ranking Minority Member
BOB GOODLATTE, Virginia              DAVID SCOTT, Georgia
FRANK D. LUCAS, Oklahoma             JIM COSTA, California
STEVE KING, Iowa                     TIMOTHY J. WALZ, Minnesota
MIKE ROGERS, Alabama                 MARCIA L. FUDGE, Ohio
GLENN THOMPSON, Pennsylvania         JAMES P. McGOVERN, Massachusetts
BOB GIBBS, Ohio                      SUZAN K. DelBENE, Washington
AUSTIN SCOTT, Georgia                FILEMON VELA, Texas
ERIC A. ``RICK'' CRAWFORD, Arkansas  MICHELLE LUJAN GRISHAM, New Mexico
SCOTT DesJARLAIS, Tennessee          ANN M. KUSTER, New Hampshire
CHRISTOPHER P. GIBSON, New York      RICHARD M. NOLAN, Minnesota
VICKY HARTZLER, Missouri             CHERI BUSTOS, Illinois
DAN BENISHEK, Michigan               SEAN PATRICK MALONEY, New York
JEFF DENHAM, California              ANN KIRKPATRICK, Arizona
DOUG LaMALFA, California             PETE AGUILAR, California
RODNEY DAVIS, Illinois               STACEY E. PLASKETT, Virgin Islands
TED S. YOHO, Florida                 ALMA S. ADAMS, North Carolina
JACKIE WALORSKI, Indiana             GWEN GRAHAM, Florida
RICK W. ALLEN, Georgia               BRAD ASHFORD, Nebraska
MIKE BOST, Illinois
DAVID ROUZER, North Carolina
RALPH LEE ABRAHAM, Louisiana
JOHN R. MOOLENAAR, Michigan
DAN NEWHOUSE, Washington
TRENT KELLY, Mississippi

                                 ______

                    Scott C. Graves, Staff Director

                Robert L. Larew, Minority Staff Director

                                  (ii)
                                  
                                  
                                  
                                  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Conaway, Hon. K. Michael, a Representative in Congress from 
  Texas, opening statement.......................................     1
    Prepared statement...........................................     3
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, opening statement...................................     3

                               Witnesses

Porter, Hon. David J., Chairman, Texas Railroad Commission, 
  Austin, TX.....................................................     5
    Prepared statement...........................................     6
Hamm, Harold, Founder, Chairman, and Chief Executive Officer, 
  Continental Energy, Oklahoma City, OK..........................     8
    Prepared statement...........................................     9
Duffy, Hon. Terrence A., Executive Chairman and President, CME 
  Group, Chicago, IL.............................................    18
    Prepared statement...........................................    19
Cutting, Kari Bjerke, Vice President, North Dakota Petroleum 
  Council, Bismarck, ND..........................................    20
    Prepared statement...........................................    22
Webster, Jamie, Senior Director, IHS, Washington, D.C............    26
    Prepared statement...........................................    28
Rusco, Ph.D., Frank, Director, Natural Resources and Environment, 
  U.S. Government Accountability Office, Washington, D.C.........    30
    Prepared statement...........................................    32


  ENERGY AND THE RURAL ECONOMY: THE ECONOMIC IMPACT OF EXPORTING CRUDE

                                  OIL

                              ----------  
                              


                        WEDNESDAY, JULY 8, 2015

                          House of Representatives,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 10:00 a.m., in Room 
1300, Longworth House Office Building, Hon. K. Michael Conaway 
[Chairman of the Committee] presiding.
    Members present: Representatives Conaway, Goodlatte, Lucas, 
King, Thompson, Gibbs, Austin Scott of Georgia, Crawford, 
Gibson, Hartzler, Benishek, Denham, LaMalfa, Davis, Yoho, 
Walorski, Allen, Bost, Rouzer, Abraham, Emmer, Moolenaar, 
Newhouse, Kelly, Peterson, David Scott of Georgia, Costa, Walz, 
McGovern, DelBene, Vela, Lujan Grisham, Kuster, Nolan, Bustos, 
Kirkpatrick, Aguilar, Plaskett, Adams, Graham, and Ashford.
    Staff present: Carly Reedholm, Haley Graves, Jessica 
Carter, Josh Maxwell, Mollie Wilken, Paul Balzano, Scott C. 
Graves, John Konya, Anne Simmons, Evan Jurkovich, Liz 
Friedlander, and Nicole Scott.

OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE 
                     IN CONGRESS FROM TEXAS

    The Chairman. Good morning, everyone. We will call this 
full Committee hearing to order. I have asked Ted Yoho to offer 
up the opening prayer.
    Ted.
    Mr. Yoho. Thank you, Mr. Chairman.
    If everybody would bow their heads.
    Dear Heavenly Father, we ask you to grant us the wisdom and 
the knowledge, and we thank you for the many blessings that you 
have given us in this great country of ours. Along with that 
wisdom and knowledge, we ask you to give us the courage to act 
on that, to do what is right for this country in your name. And 
we say these things in our Lord's name, Jesus Christ, amen.
    The Chairman. Thank you, Ted.
    Good morning everyone, and welcome to today's full 
Committee hearing on Energy and the Rural Economy: the Economic 
Impact of Exporting Crude Oil.
    The ban on crude oil exports was a 1970s effort to protect 
the U.S. economy and U.S. consumers, but over the past 40 years 
has achieved the opposite result. While it may have been well-
intentioned at the time of enactment, the ban on crude oil 
exports is an antiquated relic and it is disrupting global 
energy markets, reducing domestic employment, and slowing 
economic growth throughout our country.
    We have heard repeatedly in this Committee about the 
importance of agricultural exports to the rural economy. The 
same logic applies when it comes to exporting crude oil.
    After the ban was first imposed, its impact was muted by 
declining domestic production throughout the 1980s and 1990s, 
but today it is no longer a benign Washington regulation. With 
the revolution in shale oil production, the ban has grown 
teeth, and those teeth have taken a bite out of our economy, 
particularly our rural economy.
    The majority of all development takes place in rural areas 
like my district, and when development slows or prices swing 
wildly, the health of those rural communities suffers.
    Job growth and wage increases are obvious benefits of 
expanding activity in the oil industry, but rural communities 
also benefit in indirect ways as well: landowners receive lease 
payments, residents have more disposable income to spend at 
stores and restaurants, and local governments see increases in 
sales, property, and income tax revenues.
    In fact, if the ban were lifted today, we would see close 
to a million jobs created over the next few years. Texas alone 
would see $5.21 billion in income contribution by 2020, helping 
to propel our economy forward.
    We often hear about the strain on Americans caused by high 
energy prices. Nowhere is that more the case than with our 
farms and ranches where energy is often a very significant 
input cost, both in terms of fuel and in costs of inputs like 
fertilizer.
    While the agricultural economy has dropped energy 
consumption nearly 30 percent since the 1970s due to innovation 
and improved production practices, the industry still spends 
nearly 18 percent of total farm income on energy inputs. 
Compared to their urban neighbors, rural households spend 58 
percent more on fuel for transportation as a percentage of 
their income. Testimony we will hear today will shed light on 
how lifting the oil export ban will both lower and stabilize 
fuel cost.
    The Texas Legislature recently passed with overwhelming 
bipartisan support Senate Concurrent Resolution 13, Urging the 
United States Congress to end the ban on crude oil exports. As 
many as 11 governors have written the Administration calling 
for an end to the ban as well. In response, I have introduced a 
bill to address this issue, H.R. 2369, the Energy Supply and 
Distribution Act of 2015.
    Lifting the oil ban will grow our economy, it will also 
improve our geopolitical position, and it will lower gas 
prices. The oil export ban is a relic of the 1970s and should 
be eliminated.
    We have a panel of distinguished witnesses who will share 
their expertise on this issue. I want to thank each of you for 
taking your time out of your schedules to be with us today, and 
I look forward to hearing your testimony.
    I would also like to recognize a new Member of the 
Committee, Congressman Trent Kelly, who is joining us for his 
first full Committee hearing. Trent is down in front. Trent 
represents the First District of Mississippi.
    Trent, welcome to the team. We are glad to have you with 
us.
    [The prepared statement of Mr. Conaway follows:]

  Prepared Statement of Hon. K. Michael Conaway, a Representative in 
                          Congress from Texas
    Good morning and welcome to today's full Committee hearing, Energy 
and the Rural Economy: the Economic Impact of Exporting Crude Oil.
    The ban on crude oil exports was a 1970s effort to protect the U.S. 
economy and U.S. consumers, but over the past 40 years it has achieved 
the opposite result. While it may have been well-intentioned at the 
time of enactment, the ban on crude oil exports is an antiquated relic 
and it is disrupting global energy markets, reducing domestic 
employment, and slowing economic growth throughout our country. We have 
heard repeatedly in this Committee about the importance of agricultural 
exports to the rural economy. The same logic applies when it comes to 
exporting crude oil.
    After the ban was first imposed, its impact was muted by declining 
domestic production throughout the 1980s and 1990s. But today, it is no 
longer a benign Washington regulation. With the revolution in shale oil 
production, the ban has grown teeth and those teeth are taking a bite 
out of our economy, particularly our rural economy.
    The majority of oil development takes place in rural areas like my 
district, and when development slows or prices swing wildly, the health 
of those rural communities suffers.
    Job growth and wage increases are obvious benefits of expanding 
activity in the oil industry. But, rural communities also benefit in 
indirect ways, as well--landowners receive lease payments, residents 
have more disposable income to spend at stores and restaurants, and 
local governments see increases in sales, property, and income tax 
revenue.
    In fact, if the ban were lifted today, we would see close to a 
million jobs created over the next few years. My home State of Texas 
alone would see $5.21 billion in income contribution by 2020, helping 
to propel our economy forward.
    We often hear about the strain on Americans caused by high energy 
prices. Nowhere is that more the case than on our farms and ranches 
where energy is often a very significant input cost, both in terms of 
fuel and in the cost of inputs like fertilizer. While the agriculture 
industry has dropped energy consumption nearly 30% since the 1970s due 
to innovation and improved production practices, the industry still 
spends nearly 18% of total farm income on energy inputs. Compared to 
their urban neighbors, rural households spend 58% more on fuel for 
transportation as a percentage of their income. Testimony we will hear 
today will shed light on how lifting the oil export ban will both lower 
and stabilize fuel costs.
    The Texas Legislature recently passed with overwhelming bipartisan 
support, Senate Concurrent Resolution 13, ``Urging the U.S. Congress to 
end the ban on crude oil exports''. As many as eleven governors have 
written the Administration calling for an end to the ban. In response, 
I have introduced a bill to address this issue, H.R. 2369, the Energy 
Supply and Distribution Act of 2015.
    Lifting the oil export ban will grow our economy, it will also 
improve our geopolitical position and it will lower gas prices. The oil 
export ban is a relic of the 1970s and should be eliminated.
    We have a panel of distinguished witnesses who will share their 
expertise on this issue. I thank each of you for taking time out of 
your schedules to be here with us today and I look forward to hearing 
each of your testimony.
    I also would like to recognize a new Member of the Committee, 
Congressman Trent Kelly, who is joining us for his first hearing today. 
Mr. Kelly represents the First District of Mississippi.

    The Chairman. With that, I yield any time the Ranking 
Member would like to use.

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE 
                   IN CONGRESS FROM MINNESOTA

    Mr. Peterson. Thank you, Mr. Chairman.
    I support removing restrictions on the export of crude oil 
from the United States, and I am a cosponsor of H.R. 702, which 
would do just that. This simply makes sense as current export 
laws are outdated and we are in a world market.
    In the nearly 40 years since laws governing the export of 
crude oil were last visited in the United States, we have 
significantly increased domestic oil production, and we are now 
the world's largest oil producer. Studies have shown that 
lifting the current ban on crude oil exports would create jobs, 
many in rural areas.
    The Agriculture Committee does not have jurisdiction over 
oil exports, but programs such as USDA's rural development 
program could help rural areas face challenges with population 
fluctuations and increased strain on rural resources that come 
from increased oil production.
    I look forward to hearing from today's witnesses about the 
opportunities crude oil exports could provide to rural 
communities, and I hope that we will also be able to discuss 
some of the infrastructure issues that we see come up in areas 
like North Dakota, near my district, where they have seen a 
dramatic increase in oil production.
    Again, I thank the chair for holding today's hearing and 
welcome to our witnesses.
    The Chairman. I thank the Ranking Member.
    The chair requests that other Members submit their opening 
statements for the record so that our witnesses may begin their 
testimony and to ensure there is ample time for questions.
    I would like to welcome our witnesses at the table today, 
the Honorable David J. Porter, Chairman, Texas Railroad 
Commission of Austin, Texas. Actually Midland, Texas, but state 
law requires him to live there. David is a CPA like Collin and 
me.
    I appreciate you being here this morning, David.
    We also have Mr. Harold Hamm, founder, Chairman, and Chief 
Executive Officer of the Continental Resources, Inc., Oklahoma 
City.
    Mr. Hamm, thank you.
    We have Mr. Terry Duffy, Executive Chairman and President 
of CME Group of Chicago. This is the first time ever for Terry 
to appear before us. That is a joke. Terry is a regular visitor 
to this witness table.
    We have Ms. Kari Cutting, Vice President, North Dakota 
Petroleum Council, from Bismark, North Dakota.
    Kari, good to have you here this morning.
    We have Mr. Jamie Webster, Senior Director, IHS, here in 
Washington, DC.
    Jamie, thank you for coming.
    And Dr. Frank Rusco, Director, Natural Resources and 
Environment, U.S. Government Accountability Office here in 
Washington, DC.
    Dr. Rusco, thank you for being here as well.
    David, begin your 5 minutes, and we look forward to hearing 
your testimony.

  STATEMENT OF HON. DAVID J. PORTER, CHAIRMAN, TEXAS RAILROAD 
                     COMMISSION, AUSTIN, TX

    Mr. Porter. Chairman Conaway, Ranking Member Peterson, and 
Members of the Committee, for the record, I am David Porter, 
Chairman of the Texas Railroad Commission.
    For those of you who aren't familiar with the Texas 
Railroad Commission, we are the state's chief energy regulator. 
I am one of the three statewide elected Commissioners, and we 
oversee everything from oil and gas to pipeline, uranium 
surface exploration, coal mining, natural gas, local 
distribution companies, and alternative gas fuels.
    Thank you for holding this hearing and for the opportunity 
to testify today about the immediate need for Congress to lift 
the crude oil export ban. Crude oil exports would stir new 
American energy production, foster economic growth, and provide 
direct benefits to rural America and our nation as a whole.
    The U.S. crude oil export ban is a leftover relic from 
another period of time. Forty years ago, the United States was 
in the midst of the Arab oil embargo and faced gasoline 
shortages across the country. Development of our shale 
resources has been a game-changer and presents the U.S. with 
the opportunity to be the world's largest producer of both oil 
and natural gas. The export ban is more than just an outdated 
policy. Keeping it in place is actually harming our economy.
    In Texas, we understand and experience firsthand the link 
between U.S. oil and gas production and the strength of the 
economy. The two are inexorably linked. When oil prices 
recently dropped, we felt the harsh economic impacts at home. 
We saw thousands of hard-working men and women put out of work 
and rigs idled.
    To put this in perspective, according to recent studies 
from the University of Houston and Rice University, each 
drilling rig represents a total of 224 jobs. These are jobs on 
the rigs themselves and across the supply chain and in the 
broader economy. With the loss of 1,072 rigs through June, you 
can do the math. That loss comes to roughly 240,000 jobs.
    The ban is also responsible for the disparity between the 
U.S. pricing benchmark for crude, known as WTI, and the 
international benchmark, Brent. The majority of the new oil 
being produced from our shale formations is light sweet crude, 
and the U.S. refining capacity is not designated to 
economically handle the increased volumes of this type of 
crude. As a result, our oil is essentially trapped in the U.S., 
creating a supply glut that is driving down the price of U.S. 
oil. This represents billions of dollars of lost revenue that 
could be pumped back into the U.S. economy.
    The best way to put people back to work and address the 
glut of light sweet crude is to allow it to be exported to the 
world market. Earlier this year, the Texas State Legislature 
passed and Governor Abbott signed a resolution asking Congress 
to lift the ban on crude oil. It notes the multiple benefits it 
would bring to Texas and the U.S.
    First, lifting the export ban would increase production 
here at home, resulting in new American job creation, economic 
growth, and increased state and Federal revenue.
    Second, lifting the export ban would help consumers save 
money at the pump. Domestic gas prices are based on the 
international price of oil. Lower fuel prices would be 
especially beneficial to farmers and rural Americans. As you 
are aware, agriculture is an energy-intensive industry, and 
rural Americans spend more money on fuel as a percentage of 
their income than urban residents. Lower gasoline prices will 
provide a significant economic boom for many of these families 
and small businesses.
    Third, lifting the ban will enhance free trade and lower 
the U.S. trade deficit. The U.S. exports all types of goods and 
commodities. In addition, the Federal Government also allows 
for unlimited exports of refined products. Why should U.S. 
crude oil be treated any differently?
    Finally, lifting the crude oil export ban will strengthen 
our national security and help our global allies. The increase 
in U.S. energy production has helped make the international 
sanctions against Iran successful. A recent report by Senator 
Murkowski points out that the U.S. Government has placed de 
facto sanctions on U.S. oil producers, and if the sanctions 
against Iran were lifted, Iranian oil would reach global 
markets that U.S. production is prohibited from accessing. 
Chairman Murkowski concluded: ``Any deal that lifts sanctions 
on Iranian oil will disadvantage American companies unless we 
lift the antiquated ban on our own exports.''
    Allowing the free trade of oil would make the U.S. a true 
global energy leader and superpower, it would mean hundreds of 
thousands new jobs for Americans, thriving communities with 
vibrant economies, and families saving money every time they 
fill up the car. This is the world I want to live in and the 
world we can live in if Congress and the President take 
immediate action to lift the crude oil export ban.
    Thank you again for the opportunity to speak, and I would 
be happy to answer any questions at the appropriate time.
    [The prepared statement of Mr. Porter follows:]

 Prepared Statement of Hon. David J. Porter, Chairman, Texas Railroad 
                         Commission, Austin, TX
    Chairman Conaway, Ranking Member Peterson, and Members of the 
Committee:

    For the record, I am David Porter, Chairman of the Texas Railroad 
Commission.
    For those of you who aren't familiar with the Texas Railroad 
Commission, we are the state's chief energy regulator. I am one of 
three statewide elected Commissioners, and we oversee everything from 
oil and gas to pipelines, uranium exploration, surface coal mining, 
natural gas local distribution companies and alternative natural gas 
fuels.
    Thank you for holding this hearing and for the opportunity to 
testify today about the immediate need for Congress to lift the crude 
oil export ban. Crude oil exports would spur new American energy 
production, foster economic growth and provide direct benefits to rural 
America and our nation as a whole.
    The U.S. crude oil export ban is a left-over relic from another 
period of time. Forty years ago the United States was in the midst of 
the Arab oil embargo and faced gasoline shortages across the country. 
The crude export ban was put in place out of fear of increased 
dependence on foreign oil and the need to protect our dwindling 
domestic oil supply. The world today is a much different place and the 
circumstances we faced in the 1970s are no longer relevant or true 
today.
    Technological advancements have allowed U.S. producers to tap new 
sources of oil and natural gas from shale formations, including from 
the Permian Basin and Eagle Ford in Texas. Development of our shale 
resources has been a game-changer and presents the U.S. with the 
opportunity to be the world's largest producer of both oil and natural 
gas.
    The export ban is more than just an outdated policy. Keeping it in 
place is actually harming our economy.
    In Texas, we understand and experience firsthand the link between 
U.S. oil and natural gas production and the strength of the economy. 
The two are inextricably linked. When oil prices recently dropped, we 
felt the harsh economic impacts at home. We saw thousands of 
hardworking men and women put out of work and rigs idled. We saw state 
revenues--used to support schools and infrastructure investments--
decline. This impacted our state budget and the State Comptroller noted 
that the slowdown in oil and gas production ``will dampen overall 
economic growth in Texas.''
    At the Texas Railroad Commission, we saw the number of drilling 
permits issued dramatically drop. In May of 2014, we issued 2,389 
permits. This past May we issued only 916. This decline in wells 
drilled will harm our economy and the livelihood of all Texans.
    To put this in perspective, according to recent studies from the 
University of Houston (http://www.bauer.uh.edu/centers/irf/houston-
updates.php) and Rice University, each drilling rig represents a total 
of 224 jobs. These are jobs on the rig itself and those across the 
supply chain and in the broader economy. With the loss of 1072 rigs 
through June, you can do the math to see just how devastating the 
recent downturn in development has been for oil and natural gas 
producing states. It comes to roughly 240,000 jobs. While repealing the 
ban will not bring back these jobs oversight, it will certainly get 
some of these men and women back to work in the near term.
    The ban is also responsible for the disparity between the U.S. 
pricing benchmark for crude known as WTI, and the international 
benchmark, Brent. The majority of the new oil being produced from our 
shale formations is light sweet crude and the U.S. refining capacity is 
not designed to economically handle the increased volumes of this type 
of crude. As a result, our oil is essentially trapped in the U.S., 
creating a supply glut that is driving down the price of U.S. oil. This 
represents billions of dollars of lost revenue that could be pumped 
back into the U.S. economy.
    The best way to put people back to work and address the glut of 
light sweet crude oil is to allow it to be exported to the world 
market. Earlier this year, the Texas State Legislature passed and 
Governor Abbott signed a resolution asking Congress to lift the ban on 
crude exports. It notes the multiple benefits it would bring to Texas 
and the U.S.
    First, lifting the export ban would increase production here at 
home, resulting in new American job creation, economic growth and 
increased state and Federal revenue. According to a study by ICF 
International, it's estimated that U.S. GDP would increase by $38.1 
billion in 2020 if expanded crude exports were allowed. The same study 
also noted that U.S. Federal, state, and local tax receipts 
attributable to this GDP increase could reach $13.5 billion in 2020.
    While large producing states like Texas would immediately feel the 
job-creating benefits, studies show that nearly every state and 
Congressional district would also benefit from increased oil production 
due to the expansive supply chain it supports. According to IHS Energy, 
for every energy job created in oil production, three jobs are created 
in the supply chain and six more in the broader economy.
    Second, lifting the export ban would help consumers save money at 
the pump. Domestic gasoline prices are based on the international price 
of oil. Therefore, increasing the global supply of oil would lower 
international oil prices and ultimately help lower the price of 
domestic gasoline. According to Columbia University, domestic gasoline 
prices could be reduced by up to 12 a gallon if the ban were lifted.
    Lower fuel prices would be especially beneficial to farmers and 
rural Americans. As you are aware, agriculture is an energy-intensive 
industry and rural Americans spend more money on fuel as a percentage 
of their income than urban residents. Lower gasoline prices would 
provide a significant economic boost for many of these families and 
small businesses.
    Third, lifting the ban will enhance free trade and lower the U.S. 
trade deficit. The U.S. exports all types of goods and commodities, 
from fruits and vegetables, to cars, to computer software. In addition, 
the Federal Government also allows for unlimited exports of refined 
products, such as gasoline, diesel fuel and jet fuel. Why should U.S. 
crude oil be treated any differently? A study by Columbia University 
rightly noted that ``crude export restrictions are inconsistent with 
the U.S. enjoying the benefits of petroleum trade and the U.S. 
commitment to free and open markets.'' Allowing U.S. crude oil exports 
will also help lower crude oil imports, thereby lowering the trade 
deficit. According to ICF International, crude oil exports could narrow 
the U.S. trade deficit by $22.3 billion in 2020.
    Finally, lifting the crude oil export ban will strengthen our 
national security and help our global allies. While I'm not a foreign 
policy expert, I will take the advice of those who are and encourage 
others to do the same. Former Defense Secretary Leon Panetta, former 
Defense Secretary William Cohen and former National Security Advisor 
Stephen Hadley all agree that our security interests around the world 
would be strengthened by allowing U.S. crude oil exports. The U.S. can 
become a stable supply source for our allies, help prevent market 
distortions and lower the influence of OPEC.
    The Center for a New American Security (CNAS), issued a report in 
May on the multiple ways lifting the ban would enhance our national 
security, one of which is the ability it would give the U.S. to sustain 
and expand energy sanctions: ``The United States will be in a stronger 
position to impose future energy sanctions, if necessary, if it 
promotes free trade in energy. In so doing, policymakers would make it 
possible for U.S. producers to expand production more easily to 
substitute for global supplies unavailable due to sanctions.''
    Indeed, the increase in U.S. energy production has helped make the 
international sanctions against Iran successful. A recent report by 
U.S. Senator Lisa Murkowski's Majority staff on the Senate Energy and 
Natural Resources Committee points out that the U.S. Government has 
placed de facto sanctions on U.S. oil producers and if the sanctions 
against Iran are lifted, Iranian oil would reach global markets that 
U.S. production is prohibited from accessing. Chairman Murkowski 
concluded, ``Any deal that lifts sanctions on Iranian oil will 
disadvantage American companies unless we lift the antiquated ban on 
our own oil exports.'' I agree.
    Allowing the free trade of oil would make the U.S. a true global 
energy leader and super power. It would mean hundreds of thousands of 
new jobs for Americans, thriving communities with vibrant economies, 
and families saving money every time they fill up their cars. This is 
the world I want to live in, and the world we can live in if Congress 
and the President take immediate action to lift the crude oil export 
ban.
    Thank you again for the opportunity to speak and I'd be happy to 
answer any questions regarding my testimony.

    The Chairman. Thank you, David.
    Mr. Hamm, 5 minutes.

    STATEMENT OF HAROLD HAMM, FOUNDER, CHAIRMAN, AND CHIEF 
             EXECUTIVE OFFICER, CONTINENTAL ENERGY,
                       OKLAHOMA CITY, OK

    Mr. Hamm. Chairman Conaway, Ranking Member Peterson, and 
Members of the Committee, my name is Harold Hamm. I serve as 
Chairman and Chief Executive Officer of Continental Resources, 
an Oklahoma City-based independent oil and gas exploration and 
production company. It is an honor to address you today on the 
critical subject of crude oil exports.
    As Chairman of the Domestic Energy Producers Alliance and 
as CEO of the company that co-developed the first field ever 
drilled exclusively with horizontal drilling and a company that 
is the largest leaseholder and most active driller in the 
Bakken Play, I was in a unique position to be one of the first 
to see the American energy renaissance on the horizon a decade 
ago and accurately predicted we could become energy independent 
by 2020 in the U.S.
    And as technology continues to advance and new supplies of 
crude oil are discovered, today I see firsthand what is 
necessary to continue all the economic benefits that come with 
it for our nation, for consumers, and across every sector of 
society, including rural America.
    The American energy renaissance is the single most defining 
aspect on this planet today that will shape the next 50 years 
for America. This renaissance in energy is brought to you by 
the new technology, horizontal drilling. Thanks to the genius 
of America's independent oil and natural gas producers, the 
world is moving from a concept of resource scarcity toward 
resource abundance.
    This is the modern miracle of American oil and natural gas. 
It is a miracle that has particularly impacted rural 
communities from New England to North Dakota to Nebraska. 
Royalty payments to more than ten million American landowners 
across this country have contributed greatly to the support of 
family farms and ranches and a way of life.
    Since 2008, America has doubled its production of crude oil 
and natural gas liquids, and it was on track to do this again 
by 2025 except for one glitch that we see today, and that is 
the refining situation in America. It is done only in America. 
It wasn't OPEC growth or non-OPEC growth. It is only in North 
America due to horizontal drilling and the new technology that 
has come with it.
    Today we are producing light sweet crude, which just 
doesn't work with the refining complex that we have. This has 
been complicated over the last many years, since 1988 to today, 
with the foreign ownership buy-in of the refining that began 
with Venezuela, Mexico, Canada, Saudi Arabia, and other 
countries that bought into the refining complex and owns about 
28 percent of our refineries today. So we are down to a point 
with imports that we have reached a practical limit. We can't 
get lower than where we are at. Those folks can bring their oil 
here. There is not anything that we can do about that in the 
future.
    So what we have wound up with is a refinery complex today 
that is \2/3\ heavy sour that just won't handle the oil that we 
are producing in the field today. So only \1/3\, or about six 
million barrels a day, six of the 18, is for light sweet crude 
that we produce. So we have had to try to get oil into that 
market, and basically it has been at a huge discount. In fact, 
that discount today, between WTI and Brent pricing, has 
amounted to $125 billion since 2011. So it is very drastic.
    And in the meantime, of course, we are seeing exports, the 
refinery exports go out of this country ramping up to about 4.7 
million barrels today currently that is being shipped out. And 
you can tell by the refinery crack spread that has gone up 500 
percent that it is not being passed onto consumers today. It is 
not reflected, that discount in gasoline prices that is out 
there.
    And the decline in our industry, of course, has been very 
drastic, lost over 1,000 rigs, and we estimate, direct and 
indirect jobs, something close to 500,000 jobs have been lost 
in this industry, and basically that has been since 
Thanksgiving. So it has been very drastic.
    So we can turn it around. It has been estimated that 
lifting the ban will add one percent GDP growth. We only have 
two. It can add one percent. Eliminate the trade deficit, of 
course, de-intensify the Middle East situation we have over 
there, and OPEC dominance of foreign oil once and for all, 
reduce our European allies' dependence on Russia, and put 
everybody back to work. Thank you very much.
    [The prepared statement of Mr. Hamm follows:]

    Prepared Statement of Harold Hamm, Founder, Chairman, and Chief 
        Executive Officer, Continental Energy, Oklahoma City, OK
    Chairman Conaway, Ranking Member Peterson, and Members of the 
Committee, my name is Harold Hamm. I serve as Chairman and Chief 
Executive Officer of Continental Resources, an Oklahoma City-based 
independent oil and gas exploration and production company. It's an 
honor to address you today on the critical subject of crude oil 
exports. As Chairman of the Domestic Energy Producers Alliance and as 
CEO of the company that co-developed the first field ever drilled 
exclusively with horizontal drilling, and the company that is the 
largest leaseholder and most active driller in the Bakken Play, I was 
in the unique position to be one of the first to see the American 
Energy Renaissance on the horizon a decade ago. And as technology 
continues to advance and new supplies of U.S. crude oil are discovered, 
today I see first-hand what's necessary to continue all the economic 
benefits that come with it--for our nation, for consumers, and across 
every sector of society, including rural America.
    The American Energy Renaissance is the single-most defining aspect 
on this planet today that will shape the next 50 years. This 
renaissance in energy is brought to you by the new technology of 
horizontal drilling. Thanks to the genius of America's independent oil 
and natural gas producers, the world is moving from a concept of 
``resource scarcity'' toward ``resource abundance.'' This is the modern 
miracle of American oil and natural gas. It's a miracle that has 
particularly impacted rural communities from New England to North 
Dakota to Nebraska.
    Growing up as one of 13 children born to sharecroppers in 
Lexington, Oklahoma, I understand the impact of oil and natural gas on 
rural communities. In fact, oil helped me break the cycle of poverty my 
family had been caught up since the Great Depression. Oil has also 
helped today's rural families thrive during and after the Great 
Recession. Royalty payments to more than ten million landowners across 
America have contributed greatly to the support of the family farms and 
ranches and the rural way of life.
    Continental's oil and natural gas activity is concentrated in rural 
areas across North Dakota and Oklahoma--both states that have 
historically lost their brightest young residents to jobs elsewhere. 
However, since the American Energy Renaissance took off in 2008, North 
Dakota has experienced the lowest unemployment rate and fastest growing 
economy in the nation. At the same time, Oklahoma has been named the 
second best state in the nation for recent graduates and one of the 
nation's top five fastest growing economies.
    The benefits of the American Energy Renaissance aren't just limited 
to oil and gas producing states--they reach every individual American. 
Due to lower gasoline, home heating oil and diesel prices, 
unconventional energy increased annual U.S. household disposable income 
by $1,200 in 2012. That same year, unconventional energy contributed 
nearly $284 billion to GDP and more than $74 billion in government 
revenues.
    To continue and expand all these benefits, we must change our 
nation's mindset from energy scarcity to abundance and end the outdated 
ban on U.S. crude oil exports. The Federal laws passed in the 1970s 
artificially controlled the supply, demand, and price of U.S. energy 
and brought about unintended consequences. For example, one law even 
banned the use of natural gas as a boiler fuel and mandated U.S. power 
plants switch to a less environmentally friendly alternative, coal.\1\ 
Today America is still struggling to rectify the aftermath of this rash 
regulation.
---------------------------------------------------------------------------
    \1\ Powerplant and Industrial Fuel Use Act of 1978 (Repealed in 
1987) http://www.eia.gov/oil_gas/natural_gas/analysis_publications/
ngmajorleg/repeal.html.
---------------------------------------------------------------------------
    In the years since the enactment of these laws, our elected 
officials have recognized our global energy industry has changed 
dramatically. Thankfully, in response to these changes, legislators 
have repealed or let expire nearly all post-embargo regulations save 
two: the Energy Policy and Conservation Act of 1975 and the Export 
Administration Act of 1979, which together essentially ban crude oil 
exports.
    Today, this ban is serving as a loophole for foreign producers to 
maintain their grip on America even as abundant new domestic oil 
supplies have been discovered. Now the American Energy Renaissance is 
at risk due to two things--OPEC oil price manipulation and foreign 
conversion of U.S. refining capacity.
    Thanks to OPEC's predatory pricing, more than 130,000 oil and gas 
workers have lost their jobs and up to 500,000 jobs have been lost in 
supporting industries since Thanksgiving. In addition, \1/3\ of U.S. 
refining capacity is owned by foreign entities and nearly all of it is 
configured to refine their low-quality heavy sour oil. Two-thirds of 
total U.S. refinery capacity has been converted to process heavy sour 
crude from Canada, Venezuela, Mexico and Saudi Arabia instead of the 
premium quality light sweet crude being produced right here in the U.S. 
We have been forced to discount our oil into this limited domestic 
market, at times exceeding 20%, while the refiners sell at world market 
prices. As a result, refiner profits have soared 500% at no benefit to 
U.S. consumers or employment. In fact, America has lost $125 billion in 
revenue so far.
    As the world has changed and other similar, post-embargo 
legislation has been phased out, the question has to be asked, ``Why 
does the United States, a nation historically very supportive of free 
trade, continue to impose export barriers for domestic crude oil?'' 
Some--mostly self-serving refiners--have said crude oil exports would 
raise gasoline prices. Curiously, the ban did not affect refined 
products such as gasoline and diesel, which consumers depend on. In 
fact, the U.S. currently exports 4.7 million barrels of refined 
products a day at world market prices. Because refined petroleum 
products are based on world prices, not domestic prices, U.S. oil 
exports would actually lower domestic gasoline prices, according to 
studies by 12 government institutions and universities including the 
Congressional Budget Office, Energy Information Administration and 
Harvard Business School.
    In addition to lowering fuel prices, ending America's antiquated 
policies would also provide opportunities to fund infrastructure 
projects across rural America. The Strategic Petroleum Reserve's stock 
levels are currently four times greater than required. If we allow 
exports and sell excess SPR oil inventory, America could easily fund 
the Highway Bill and build desperately needed rural roads and bridges.
    Congress must lift the ban on U.S. oil exports. The ban is a 
terrible relic of the Nixon era that today actually harms the American 
economy and makes domestic gasoline and diesel prices higher than they 
should be. The situation is now urgent. If we do not lift the ban, 
gasoline and diesel prices will go up and job losses will double. 
According to a report released just last week, Oklahoma alone could 
lose another 11,000 jobs by the end of the year.
    The energy renaissance is the best thing that ever happened to 
America. As vast new supplies have been discovered, we must ask 
ourselves, ``What can energy mean as America changes from a mindset of 
scarcity to abundance?'' It means foreign oil producers and dictatorial 
regimes have had the edge in the past. Lifting the ban on U.S. oil 
exports would give that edge to U.S. consumers. Exports would also 
create 400,000 American jobs per year and increase GDP by 1% per year. 
As such, America has an opportunity to once again be the growth engine 
of the world as we were post-WWII.
    In conclusion, world energy markets have drastically changed since 
the 1970s. But due to the hard work and ingenuity of men and women in 
this country, our nation has recovered from those dark times. Now we 
need to focus our efforts on doing away with the reactionary crude 
export ban that was enacted during that era, a ban that was largely 
symbolic in the first place, as we had no oil to export. American 
consumers will benefit from lower gasoline prices at the pump, lower 
heating oil bills at home, and lower diesel prices for agricultural 
communities across the nation.
                        PowerPoint Presentation
From Scarcity to Energy Abundance in America
U.S. Crude Oil Production, Imports and Exports vs. Net Imports of Crude 
        and Products
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
          Source: EIA. Mar.-May 2015 data calculated as averages of 
        weekly data.
World Petroleum and Other Liquids Production
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

          Source: U.S. Energy Information Administration, March 2015 
        Short Term Energy Outlook.
Foreign Countries Buying Into U.S. Refining Capacity
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

          Source: EIA foreign capacity weighted by percent ownership.
Calculated Conversion of U.S. Sweet Refineries by Canadian Heavy Sour 
        Developers w/Preferential Processing Rights to the Exclusion of 
        Indigenous U.S. Crude
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
          Husky Energy Investor Presentation--March 2015.
28% of U.S. Refining Capacity is Foreign-Owned
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Most Light Sweet Refining Capacity Is Located Outside of the U.S. as a 
        Result of Foreign Refinery Conversions
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
          Source: Oil & Gas Journal 2014 Refinery Survey (2013 
        numbers).
          Nelson Complexity Index (NCI) is the industry standard for 
        measuring the relative cost of constructing the components that 
        make up a petroleum refinery. The index can range from 1 (most 
        simple) to over 15 (most complex).
U.S. Exports of Petroleum and Refined Products
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

          * Source: EIA.
WTI vs. Brent Oil Price History Since 2005
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

          * Source: EIA.
          ** Represents the largest policy-driven wealth transfer in 
        U.S. industry history.
Refiner Crack Spread History Since 1990
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

          ``Crack spread'' is the difference between price of a barrel 
        of unrefined crude oil vs. the total value of refined products 
        from that barrel (after ``cracking''), as reported on a daily 
        basis. Crack spreads reported daily via OPIS (Oil Price 
        Information Service), Platts McGraw Hill Financial, and Argus 
        Media Limited.
U.S. Gasoline Prices are Set in Global Product Market, So U.S. Price 
        Does Not Pass Through to Consumers
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
          Source: EIA, Bloomberg.
Rapid Decline of U.S. Rig Count


          * DEPA jobs estimate; rig counts from Baker-Hughes.
Re-Asserting America's Energy Leadership with Crude Oil Exports
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Lower Gasoline Prices
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

Consumer Stability
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    The Chairman. Mr. Hamm, thank you.
    Mr. Duffy, 5 minutes.

  STATEMENT OF HON. TERRENCE A. DUFFY, EXECUTIVE CHAIRMAN AND 
               PRESIDENT, CME GROUP, CHICAGO, IL

    Mr. Duffy. Thank you, Chairman Conaway, Ranking Member 
Peterson, and Members of the Committee. As the Chairman said, I 
am Executive Chairman Terry Duffy. I am the President of CME 
Group. I want to thank you for holding this hearing today.
    This policy that is preventing the U.S. economy from 
reaping the full benefits of the country's boom in oil 
production, is a ban on oil exports. My perspective will be a 
little bit different than the previous two testimonies. Mine 
will be more on the pricing of the product.
    In the 1970s, the U.S. Government banned crude oil export 
in reaction to OPEC-driven oil prices, mile-long gas lines, 
rising inflation, the depreciating dollar, and growing trade 
imbalances. From the start, the ban does not appear to have 
provided any benefits for the rural or agricultural sector. 
Instead, the export ban distorted the allocation of capital 
between the U.S. and non-U.S. production.
    Today, the factors that drove the ban have evaporated. The 
U.S. has experienced a resurgence in oil and natural gas 
production. Today, OPEC has little power to raise oil prices. 
Inflation is very low and has been stable for over 20 years. 
The interest rates are also at extreme lows. The U.S. still is 
a net importer of oil and refined products, but exports of 
refined products have been rising with the oil production boom 
while imports of crude oil have been falling.
    During this new era of expanded U.S. oil production, the 
ban has led to price spreads between U.S. crude oil and other 
worldwide sources. Nevertheless, as pipelines were 
reconfigured, new ones built, and rail capacity expanded, the 
U.S. oil markets have managed to become more aligned with 
global prices. But eliminating the ban would allow prices to 
more reliably reflect global oil supply and demand.
    There are two key benefits to the seamless integration 
between the U.S. and the global energy markets. First, 
segregating U.S. crude from the world market punishes the U.S. 
economy with price distortions. In order to encourage companies 
to invest in the production of crude oil here in the U.S., our 
domestic crude should be able to participate in the global 
market for oil.
    Second, the U.S. is the global leader in financial markets. 
Prices for global commodities such as crude oil and refined 
products are discovered in the United States futures markets. 
Commodity markets perform best when there is a clear, 
transparent, and readily available supply that is used to price 
markets. Moreover, the U.S. is in the place where producers 
come to manage energy price risk. But under the oil export ban, 
our domestic crude oil markets have been needlessly affected.
    In summary, in the U.S. we have a robust physical delivered 
market in West Texas Intermediate, and that should be opened up 
freely to the world. The export ban was protectionist when it 
was put into place 40 years ago. Its actual impact has been 
harmful to the efficiency of the markets and the price 
discovery process in the energy sector. Now is the time for the 
U.S. to repeal the ban and reassert its energy leadership 
through sensible policies that support our leading position in 
energy and financial markets.
    We at the CME Group are greatly encouraged by the growing 
bipartisan support for bringing our energy policy up to date 
and place the U.S. at the center of the global crude oil trade. 
I urge Congress and the Administration to repeal the ban on 
crude oil exports and let the markets trade freely.
    I want to thank you for the opportunity to appear before 
you today, and I look forward to answering your questions. 
Thank you.
    [The prepared statement of Mr. Duffy follows:]

 Prepared Statement of Hon. Terrence A. Duffy, Executive Chairman and 
                   President, CME Group, Chicago, IL
    Thank you, Chairman Conaway and Ranking Member Peterson, for 
holding this hearing today on a policy that is preventing the U.S. 
economy from reaping the full benefits of the country's boom in oil 
production: the ban on oil exports.
    In the 1970s, the U.S. Government banned crude oil export products 
in reaction to OPEC driven oil prices, mile long gas lines, rising 
inflation, a depreciating dollar and growing trade imbalances. From the 
start, the ban does not appear to have provided any benefits for the 
rural or agricultural sector. Instead, the ban distorted the allocation 
of capital between U.S. and non-U.S. production.
    Some 4 decades after the ban was imposed, the economic context is 
totally different. The U.S. has experienced resurgence in oil and 
natural gas production. OPEC has little to no power to raise oil 
prices. Indeed, oil prices have dropped sharply. Inflation is very low 
and has been stable for over twenty years. Interest rates are extremely 
low. The U.S. still is a net importer of oil and refined product, but 
exports of refined product have been rising with the oil production 
boom while imports of crude oil have been falling.
    Prior to the commencement of the recent oil production boom, global 
oil markets had reached a balance in which there was little price 
difference between U.S. oil (West Texas Intermediate--WTI) and European 
oil (from the North Sea--Brent). Then, the rapid rise in U.S. 
production out-paced the ability of pipelines and railroads to get the 
oil to refiners and to end users. The result was a temporary widening 
of price spreads between U.S. and overseas oil, with the U.S. having 
cheaper oil. As pipelines were reconfigured, new ones built, and rail 
capacity expanded, over the last few years the U.S. oil markets have 
largely reconnected with overseas markets sufficiently to narrow price 
spreads and come back into a globally balanced position.
    Today, the U.S. is the undisputed global leader in energy 
technology (exploration, extraction, etc.) and a major exporter of 
refined product. This has been achieved despite the imposition of 
inefficiencies onto the U.S. economy directly as a result of the ban. 
These inefficiencies include distortions in refining, including 
investment, by preventing crude production from sometimes reaching its 
most efficient processor, which could be outside the U.S.; distortions 
in logistics, including investment, by causing excessive storage and 
transport; and distortions in production, including investment, because 
crude cannot be marketed to its highest value use.
    While the market for crude oil is globally integrated, the export 
ban segregates U.S. crude from the world market, which punishes the 
U.S. economy with price distortions. In order to encourage companies to 
invest in the production of crude oil here in the U.S., our domestic 
crude should be able to participate in the global free market for oil.
    We support unfettered markets that can allow the U.S. more 
influence over the global price setting process. While the U.S. has 
reconnected with global markets, there are still considerable price 
differences between U.S. and European oil. Partly due to the export ban 
condition, the world today uses the European Brent benchmark that is in 
declining production. Here in the U.S., we have a robust physical 
delivered market in West Texas Intermediate (WTI), and if opened up 
freely to the world, it would be an even more robust tool for pricing 
global crude oil. Commodity markets perform better when there is a 
clear, transparent and readily available supply that is used to price 
markets. This suggests that lifting the ban on crude oil exports would 
enhance the use of U.S. markets for energy risk management.
    Stated another way, the U.S. is the global leader in financial 
markets--prices for global commodities, such as crude oil and refined 
products, are discovered in U.S. futures markets. And the U.S. is the 
place where producers come to manage energy price risk. The U.S. has 
managed to maintain this leadership role in spite of the distortions 
governing the market for the product whose price U.S. markets help 
discover. Lifting the crude oil export ban will remove an impediment to 
the integrity of the price discovery process in U.S. markets. In 
addition, a well-balanced global market of exports and imports has the 
potential to reduce the impact of any one region, especially unstable 
ones, on the global price of oil, to the benefit of the U.S. economy 
and the world as well.
    In conclusion, the export ban was ``protectionist'' in nature and 
intent when it was put into place over 40 years ago. Its actual impact 
has been harmful to the efficiency of markets and to the price 
discovery process in the energy sector. Moreover, energy markets have 
transformed significantly over the last 4 decades and, now, even the 
original intent of the crude oil ban no longer makes sense.

   Now is the best time for the U.S. to reassert its energy 
        leadership.

   The way to do that is for us to have sensible policies in 
        place that support the U.S.'s leadership position in energy 
        technology and financial markets.

   There will be numerous benefits for the U.S. to be at the 
        center of the global crude oil trade. And the U.S. should be 
        allowed to participate in the global market for physical crude 
        in order to benefit from our technology and financial 
        leadership.

    We at CME Group are greatly encouraged by the growing bipartisan 
support to update our energy policy to repeal this outdated ban. I 
applaud your leadership on this issue, Chairman Conaway and Ranking 
Member Peterson, and urge Congress and the Administration to repeal the 
ban on crude oil exports and let the market trade freely.

    The Chairman. Mr. Duffy, the chair recognizes you gave us 
1\1/2\ minutes back. Thank you very much.
    Ms. Cutting, thank you. Your 5 minutes.

STATEMENT OF KARI BJERKE CUTTING, VICE PRESIDENT, NORTH DAKOTA 
                PETROLEUM COUNCIL, BISMARCK, ND

    Ms. Cutting. Chairman Conaway and Ranking Member Peterson, 
and Members of the Committee, thank you for the opportunity to 
testify today on the impact that lifting the export ban on 
crude oil would have on rural North Dakota, particularly the 
agricultural community.
    The North Dakota Petroleum Council represents more than 500 
member companies engaged in oil and gas activities in North 
Dakota, South Dakota, and the Rocky Mountain region. Our 
members produce 98 percent of the oil and gas produced in North 
Dakota, and North Dakota's largest industries are agriculture 
and energy.
    North Dakota is the second-largest oil-producing state in 
the nation, reaching one million barrels of daily production in 
May of 2014, up from 100,000 barrels per day in 2007. Since 
2005, the oil and gas industry has grown from a $3 billion 
industry supporting 5,000 jobs in North Dakota to a $43 billion 
industry supporting 65,000 direct jobs.
    These benefits extend well beyond North Dakota and into our 
neighboring States of Minnesota, South Dakota, Montana, and 
even further. A recent study by Harvard Business School 
indicates that between 2011 and 2014 many states saw a triple-
digit increase in job postings related to unconventional oil 
development, including North Dakota at 286 percent, Montana at 
198 percent, and Minnesota at 193 percent. For every dollar 
spent on oil and gas development in North Dakota, another $1.50 
in additional business activity is generated, sending ripple 
effects through our state and national economies.
    If we turn back the clock a dozen years, rural North Dakota 
towns were shrinking and some had become ghost towns. Many 
businesses closed, schools consolidated, and farm auctions were 
very frequent. North Dakota's young people, educated in some of 
the finest primary, secondary, and post-secondary schools in 
the country were North Dakota's finest export. The cost of 
living, along with low commodity prices, forced most farm 
families to supplement their income with a second full-time job 
at local businesses. Their greatest fear was that they would be 
the generation who could no longer hang on to the land that 
previous generations worked so hard to keep in the family.
    In 2006, horizontal drilling technology unlocked the 
Bakken, resulting in a surge in oil and gas production, making 
North Dakota equivalent to the 19th largest oil producing 
country, and with that development came a rural renaissance for 
our state. Once dying towns were blossoming and the state's 
population grew 23 percent since 2000.
    Oil development has also helped supplement the income of 
many local farmers and ranchers who receive checks for pipeline 
right-of-ways or mineral royalties. Some landowners have sold 
sand and gravel from pits on their land to the industry to 
build well pads and to maintain the roads. The influx of money 
allowed them to purchase bigger and newer equipment to enhance 
their farming and ranching operations. Some for the first time 
could plan to pass the family farm or ranch on to the next 
generation.
    The state also benefited from capital improvements and 
infrastructure projects. Burlington Northern Santa Fe Railway, 
the largest railroad in North Dakota, has invested hundreds of 
millions of dollars to improve the transportation 
infrastructure that not only benefits oil and gas, but also the 
movement of agricultural products to market and fertilizers to 
be made available at the local elevators. Some rural elevators 
had not had rail service for years. This investment would never 
have occurred without oil and gas development.
    Additionally, value-added projects such as fertilizer 
plants are now being constructed or planned and will soon 
benefit North Dakota agricultural producers. U.S. farmers rely 
heavily on costly imports for fertilizer supplies. We now have 
an opportunity to produce more fertilizers locally, close to 
the farms in North Dakota.
    The first refinery to be built in the U.S. in 4 decades 
recently began operating in North Dakota. This refinery, a 
small refinery, targeted to the agricultural market in North 
Dakota produces 7,000 barrels per day of diesel fuel. There has 
not been a harvest in the near past where there has not been a 
diesel shortage for the farmers in our state.
    These are just a few of the examples of how agriculture and 
oil can partner for rural growth, but this rural renaissance is 
being threatened by foreign entities and by restrictions 
imposed on the sale of oil abroad.
    I would just add in my last few seconds that in North 
Dakota we have lost about 20,000 oil and gas jobs. We have over 
100 drilling rigs that have been idled. And as a previous 
speaker had mentioned, that represents a significant number of 
job opportunities, businesses, and economic growth in our 
state.
    I would like to say thank you. I don't want to go over 
time. So I appreciate the opportunity to testify.
    [The prepared statement of Ms. Cutting follows:]

Prepared Statement of Kari Bjerke Cutting, Vice President, North Dakota 
                    Petroleum Council, Bismarck, ND
    Chairman Conaway, Ranking Member Peterson, and Members of the 
Committee, thank you for the opportunity to testify today on the impact 
that lifting the export ban on crude oil would have on rural North 
Dakota, particularly the agricultural community.
    The North Dakota Petroleum Council (NDPC) represents more than 500 
companies engaged in all aspects of oil and gas activities in North 
Dakota, South Dakota, and the Rocky Mountain region. NDPC members 
produce 98 percent of all oil and gas in North Dakota. North Dakota's 
two largest industries are agriculture and energy.
    North Dakota is the second largest oil-producing state in the 
nation, reaching 1.0 million barrels of daily production in May 2014, 
up from 100,000 barrels per day in 2007. Since 2005, the oil and gas 
industry had grown from a $3 billion industry supporting 5,000 jobs to 
a $43 billion industry with 65,000 direct jobs. Today, the industry in 
North Dakota has more than 12,000 producing oil wells, and contributes 
$8-$9 million per day in oil production taxes to the state and 
political subdivisions.
Supporting Jobs and Economic Growth



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

          * According to 2013 Job Service ND report.

    These benefits extend well beyond North Dakota and into our 
neighboring states of Minnesota, South Dakota, Montana, and even 
farther. In fact, according to a recent study by Harvard Business 
School, between 2011 and 2014, many states saw a triple digit increase 
in job postings related to unconventional oil development, including 
North Dakota at 286 percent, Montana at 198 percent, and Minnesota at 
193 percent. For every dollar spent on oil and gas development in North 
Dakota, another $1.50 in additional business activity is generated, 
sending ripple effects through our state and national economies.
    Turning back the clock a dozen years, rural North Dakota towns were 
shrinking and some had become ghost towns. Many businesses closed, 
schools consolidated and farm auctions were frequent. North Dakota's 
young people, educated in some of the finest primary, secondary and 
post-secondary schools in the country, were North Dakota's most 
valuable export because suitable employment was not available at home. 
The cost of living, along with low commodity prices, forced most farm 
families to supplement their income with a second full-time job at a 
local business, coal mine or power plant. Their greatest fear was that 
they would be the generation who could no longer hang onto the land 
that previous generations worked so hard to keep in the family.
    In 2006, horizontal drilling technology unlocked the Bakken, 
resulting in a surge of oil and gas production, making North Dakota 
equivalent to the nineteenth largest oil producing country and with 
development came a rural renaissance for our state. The oil and gas 
industry, as well as service companies, engineers, geologists and all 
the manufacturing and logistics that must accompany the industry 
brought jobs, new business opportunities, and royalties to land and 
mineral owners. Once dying towns blossomed and the state's population 
grew 23 percent since 2000. North Dakota has been ranked as one of the 
best states for young people because of the abundant job opportunities. 
This has attracted new people to the state and brought many back home 
to live closer to family.
    Oil development has also helped supplement the incomes for many 
local farmers and ranchers who receive checks for pipeline right of 
ways or mineral royalties. Some landowners sold sand and gravel from 
pits on their land to the industry to build well pads and maintain 
roads. The influx of money allowed them to purchase bigger and newer 
equipment to enhance their farming and ranching operations. Some for 
the first time could plan to pass the family farm or ranch on to the 
next generation.
    The state also benefited from capital improvements and 
infrastructure projects brought about by the oil industry. Burlington 
Northern Santa Fe railway, the largest railroad in North Dakota has 
invested hundreds of millions of dollars to improve the transportation 
infrastructure that not only benefits oil and gas, but also the 
movement of agricultural products to market and fertilizers to the 
local elevators. Some rural elevators had not had rail service in 
years. This investment would never have occurred without oil and gas 
development.
    Additionally, value-added projects such as fertilizer plants are 
being constructed or planned, and will soon benefit North Dakota 
agricultural producers. U.S. farmers rely heavily on costly imports for 
fertilizer supplies. We now have an opportunity to produce more 
fertilizers close to the farms in North Dakota.
    The first refinery to be built in 4 decades recently began 
operating in North Dakota. This small topping plant will process 20,000 
barrels of Bakken crude per day to produce about 7,000 barrels per day 
of diesel fuel. There has not been a recent harvest where we haven't 
experienced a shortage of diesel fuel. This refinery is just one step 
forward in helping agriculture get the energy resources they need to 
harvest their crops. These are just a few examples of how agriculture 
and oil can partner for rural growth.
    This rural renaissance is being threatened by foreign entities not 
always friendly to the United States and by restrictions imposed on the 
sale of oil abroad. The recent collapse of the price of oil was 
precipitated by OPEC's decision protect its market share by driving 
prices down and attempting to put American producers out of business. 
This tactic by our foreign oil competitors has had an impact on the 
U.S. industry. In North Dakota alone, 15,000-20,000 direct oil and gas, 
as well as many indirect employment opportunities have been lost. 
Across the nation this number is closer to 500,000 lost job 
opportunities. More than 100 drilling rigs are now sitting idle in 
North Dakota and production in the state has been flat for the past 
several months. Mineral owners are receiving smaller royalty checks, 
and the state of North Dakota and its citizens are receiving lower oil 
and gas tax revenues that fund schools, roads and infrastructure across 
our state.
    The U.S. oil and gas industry can rise to meet many challenges 
through innovation and hard work, but facing export restrictions at 
home, places the industry at an extreme competitive disadvantage. The 
U.S. Government should lift the ban on crude oil exports and allow oil 
produced here at home, in places like North Dakota, to reach global 
markets. The U.S. energy industry deserves the opportunity to compete 
globally; lifting the ban on crude oil exports would immediately 
restore our competitiveness and revive the renaissance in rural 
America. Not only would rural America prosper, but all U.S. citizens 
would benefit from lifting the ban.
U.S. Oil Exports Would Boost Production, Lower Consumer Costs

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Repealing the ban would create jobs, grow our economy, help 
decrease gasoline prices, and improve our energy security. The Domestic 
Energy Producers Alliance reports that lifting the ban will add one 
percent to gross domestic product growth, drastically reducing the U.S. 
trade deficit and putting Americans back to work. A recent study by IHS 
found that job creation from lifting the ban would average almost 
400,000 jobs in the first year and peak in 2018 at nearly one million 
new jobs. The Brookings Institute concluded U.S. households will 
benefit from lifting the export ban through higher incomes and wages 
and lower gasoline prices.
    Economists and experts all agree that lifting the export ban will 
put downward pressure on U.S. gasoline prices. In a report titled 
``What Drives U.S. Gasoline Prices?'' the U.S. Energy Information 
Administration (EIA) found that our gasoline prices are tied to the 
international price of oil, also known as Brent. Allowing U.S. oil 
exports would add to global supply and put downward pressure on 
international prices, which are precisely what determines our price at 
the pump. A study by Columbia University found that lifting the ban 
could reduce our gasoline prices by up to 12 per gallon. Others 
studies say American consumers could save up to $5.8 billion annually 
each year from 2015 to 2035.

                        Every Major Study Agrees
     Oil Exports Would Put Downward Pressure on U.S. Gasoline Prices
------------------------------------------------------------------------
                                     Estimated Decline in U.S. Price per
 Summary of Major Economic Studies          Gallon of Motor Fuels
------------------------------------------------------------------------
Resources for the Future             1.7 to 4.5
IHS                                  8 average
ICF                                  Up to 3.8 (2.3 average)
Brookings & Nera                     Up to 12 (9 average)
Aspen & MAPI                         Up to 9
GAO                                  1.5 to 13
Columbia University                  Up to 12
CBO                                  5 to 10
------------------------------------------------------------------------
U.S. Crude Oil Export Decision: Assessing the Impact of the Export Ban
  and Free Trade on the U.S. Economy (IHS, May 2014).

    Transportation fuels, gasoline and diesel fuel represent major 
fixed costs in any farming and ranching operation. Lower prices would 
benefit all of rural America and all American drivers. The Center for 
New American Security stated that new U.S. oil supplies have already 
helped to cap price spikes caused by global supply disruptions and to 
moderate oil prices for consumers.

          What are the Economic Benefits of U.S. Crude Exports?
                  By ICF International and EnSys Energy
  ``The Impacts of U.S. Crude Oil Exports on Domestic Crude Production,
              GDP, Employment, Trade, and Consumer Costs''
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Up to $5.8 billion_Estimated         Up to 300,000 potential job_gains
 reduced consumer fuel costs year     in 2020
 2015-2035
    U.S. weighted average petroleum      The U.S. economy could gain up
 product prices are expected to       to 300,000 additional jobs in 2020
 decline as much as 2.3 per gallon   when crude exports are allowed.
 2015-2035 when U.S. crude exports    Consumer products and services and
 are allowed. The greatest            hydrocarbon production sectors
 potential annual decline is 3.8     would see the largest gains.
 per gallon in 2017. These price
 decreases for gasoline, heating
 oil and diesel could save American
 consumers up to $5.8 billion per
 year, on average, over the 2015-
 2035 period.
------------------------------------------------------------------------
Up to $70 billion_More investment    $13.5 billion_Estimated government
 by 2020                              revenues increase in 2020
    An expansion of crude exports        U.S. Federal, state, and local
 could result in $15-$70 billion of   tax receipts attributable to GDP
 additional investment in U.S.        increases from expanding crude oil
 exploration, development and         exports could increase up to $13.5
 production of crude oil between      billion in 2020.
 2015 and 2020.
------------------------------------------------------------------------
Up to 500,000 Barrels per            $22 billion_Estimated reduction of
 day_Increase in domestic crude oil   trade deficit in 2020
 production by 2020
                                         Lifting crude oil export
                                      restrictions contributes to
                                      expanded U.S. exports. This could
                                      narrow the U.S. trade deficit by
                                      $22 billion in 2020 through
                                      increased international trade of
                                      U.S. crude oil.
------------------------------------------------------------------------

    Energy abundance and domestic energy Independence are terms that 
are difficult to grasp after decades of discussions on peak oil and 
energy scarcity. Two generations of Americans have been taught to 
believe that the United States has no choice but to be reliant on 
foreign energy supplies, particularly those from the Middle East. Many 
Americans have been indoctrinated with an energy scarcity mentality. 
Ken Hersch, CEO of NBP Energy Capital Management said ``the 
ramifications of the U.S. moving from being primarily an oil consumer 
to being both a producer and consumer of oil, will shape global events 
for the next fifty years as oil scarcity gives way to oil abundance.''
    Thanks to advances in technology U.S. energy potential has been 
unlocked and has given this nation the key to break open abundant 
energy reserves, lower the price of transportation fuels, create jobs 
and generate a robust U.S. economy.
    It is time for a paradigm shift in mindset from energy scarcity to 
one of energy abundance that includes lifting the ban on crude oil 
exports. As the Harvard Business School so aptly stated in their study, 
unconventional energy development is ``perhaps the largest single 
opportunity to change America's competitiveness and economic 
trajectory, as well as our geopolitical standing.'' We must seize this 
opportunity, and the first steps is lifting this antiquated export ban.
OPEC Dominance of Global Oil
   Time Magazine: ``OPEC says that demand for oil--its oil--
        with rise during 2015 because the cartel is winning its price 
        war against U.S. shale producers by driving them out of 
        business.''

   OPEC Chief, Reuters: ``Maybe we will go to $200/barrel if 
        there is a shortage of supply due to lack of investment.''

          North Dakota Petroleum Council.

    The story of North Dakota oil and gas development and its impact on 
agriculture in our state is an amazing American story, one that is 
being discussed all over the world. Exporting crude oil will have a 
dramatic effect on our state's ability to fully develop the Bakken and 
realize its full benefits. Now is the time to follow North Dakota's 
lead and let our nation be the energy leader for the world.
    Mr. Chairman, and Members of the Committee, you have before you a 
once in a generation opportunity to impact the economy of the United 
States, provide lower transportation costs to rural America and make 
the U.S. the global energy market leader.
Resources
    1. The Impacts of U.S. Crude Oil Exports on Domestic Crude 
Production, GDP, Employment, Trade, and Consumer Costs--ICF 
International and EnSys Energy, http://bit.ly/1o0fUF3 (http://
www.api.org//media/Files/Policy/LNG-Exports/LNG-primer/API-Crude-
Exports-Study-by-ICF-3-31-2014.pdf).
    2. U.S. Crude Oil Export Decision: Assessing the impact of the 
export ban and free trade on the U.S. economy--IHS, http://bit.ly/
1pDU3WD (https://www.ihs.com/info/0514/crude-
oil.html?ocid=coe:pressrls:01).
    3. The Impacts of U.S. Crude Oil Exports on Domestic Crude 
Production, GDP, Employment, Trade, and Consumer Costs Supplement: 
State-Level Economic and Employment Impacts--ICF International and 
EnSys Energy, http://bit.ly/1o0ggLO (http://www.api.org/news-and-media/
news/newsitems/2014/may-2014//media/Files/Policy/Exports/ICF-State-
Economic-Impacts-Supplement.pdf).
    4. Crude Behavior: How Lifting the Export Ban Reduces Gasoline 
Prices in the United States--Resources For the Future, http://bit.ly/
1o0h2Ze (http://www.rff.org/RFF/Documents/RFF-IB-14-03-REV.pdf).
    5. A Signal to The World: Renovating The Architecture Of U.S. 
Energy Exports--U.S. Senator Lisa Murkowski, http://1.usa.gov/1o0jb78 
(http://www.energy.senate.gov/public/index.cfm/files/
serve?Fileid=546d56f0-05b6-41e6-84c1-b4c4c5efa372).
    6. US Crude Oil Export Decision: Assessing the impact of the export 
ban and free trade on the U.S. economy, http://bit.ly/1iwp2h2 (https://
www.ihs.com/info/0514/crude-oil.html?ocid=coe:pressrls:01).
    7. Lift the Ban on U.S. Oil Exports, Brookings Institution, http://
bit.ly/1pDRMe8 (http://www.brookings.edu/research/papers/2014/01/lift-
ban-us-oil-exports-boersma-ebinger).
    8. IHS: http://press.ihs.com/press-release/energy-power/lifting-
export-restrictions-us-crude-oil-would-lower-gasolineprices-an-0.
    9. ICF: http://www.api.org/news-and-media/news/newsitems/2014/mar-
2014/study-crude-exports-an-economic-win-for-us-consumers-workers.
    10. Lifting The Crude Oil Export Ban: The Impact on U.S. 
Manufacturing, Aspen Institute, http://bit.ly/1vLyOSh (http://
www.aspeninstitute.org/sites/default/files/content/upload/
FINAL_Lifting_Crude_Oil_Export_Ban_0.pdf).
    11. Changing Markets Economic Opportunities from Lifting the U.S. 
Ban on Crude Oil Exports, Brookings Energy Security Initiative, http://
bit.ly/1vLzur1 (http://www.brookings.edu//media/research/files/
reports/2014/09/09%208%20facts%20
about%20crude%20oil%20production/crude%20oil%20exports%20web.pdf).
    12. What Drives U.S. Gasoline Prices?, U.S. Energy Information 
Administration, http://1.usa.gov/1pnLTVb (http://www.eia.gov/analysis/
studies/gasoline/pdf/gasolinepricestudy.pdf).
    13. Changing Crude Oil Markets: Allowing Exports Could Reduce 
Consumer Fuel Prices, and the Size of the Strategic Reserves Should Be 
Reexamined, http://1.usa.gov/1pnM6I8 (http://www.gao.gov/products/GAO-
14-807).
    14. Navigating the U.S. Oil Export Debate--ColumbiaDSIPA, http://
energypolicy.columbia.edu/sites/default/files/energy/
Navigating%20the%20US
%20Oil%20Export%20Debate_January%202015.pdf.

    The Chairman. Thank you, Ms. Cutting. I appreciate you 
being here.
    Mr. Webster, 5 minutes.

 STATEMENT OF JAMIE WEBSTER, SENIOR DIRECTOR, IHS, WASHINGTON, 
                              D.C.

    Mr. Webster. Thank you, Chairman Conaway, Ranking Member 
Peterson, Members of the Committee. I appreciate the 
opportunity to testify before you on the immense changes in the 
energy market, its impacts on the rural economy, and the 
importance of crude oil exports to maximize these benefits. I 
am Jamie Webster, and I appear before you in my capacity as 
Senior Director for IHS, where I lead the company's short-term 
crude oil markets team. My work through IHS has involved me in 
two landmark studies on crude oil exports. We are a global 
consultancy that specializes in energy, capital-intensive 
industries, data, and analysis.
    Today I want to address the recent changes in the market, 
North America's critical place in it, and what it means for our 
rural areas. I will also address the importance of eliminating 
the crude export ban to fully maximize what the U.S. oil boom 
can offer.
    The catalyst for the oil price decline that started last 
summer was actuality the partial return of Libyan production, 
but it was the underlying growth in homegrown American 
companies, such as Mr. Hamm's, that brought U.S. oil production 
from 5.6 million barrels a day in 2011 to over 9.5 million 
barrels today that really sustained this price drop. OPEC's 
decision on Thanksgiving of last year to forego any sort of 
production cut really highlighted the big change that had 
happened in the market. It also, with the price decline, 
extended the benefits beyond just those that were receiving 
jobs in North Dakota and other places in the United States as 
well as the supply chain, but also extended these benefits with 
lower gasoline prices across the United States. Actually 
allowing the exportation of oil would actually continue this 
trend.
    The U.S. has a liberal trade policy currently for natural 
gas, coal, refined products, and processed condensate. It also 
allows oil exports to other countries in certain very specific 
areas. Now, some have said and Senator Markey has recently put 
out a letter that stated his concerns that we would be 
exporting a valuable product at a time when we are importing 
it. But if you look at the top ten exports of the United 
States, you will see that we also import large values of those 
goods as well. America is a trading country, and you don't need 
to move down to zero imports before you decide to make the 
decision to start exporting it.
    Allowing this to be exported will keep downward pressure on 
global prices and keep the laboratory of U.S. shale technology 
and production fully open for business, while supporting job 
growth across many industries and in places far from the oil 
fields. It will also help to lower the price of Brent, the 
benchmark price for global oil, as much as the increase in 
production already has.
    Lowering the Brent price is the access point to lower 
gasoline prices, as U.S. gasoline prices are linked to the 
Brent world price because you can export gasoline and so it is 
a global fuel versus the WTI price, which is very much a 
domestic issue.
    Currently, refiners are investing quite a bit to try to 
take advantage of this crude oil boom. However, as Mr. Hamm 
suggested, there is a real mismatch that those refineries have 
spent over $85 billion in the last 25 years to upgrade to be 
able to take heavy sour crude oil where we are now producing 
light sweet crude oil. So while they are working to reorient 
themselves and they will continue to do so even if we allow the 
exportation of crude oil, this is not something that is going 
to completely undermine their business.
    Our report, Unleashing the Supply Chain, fully documents 
these benefits, and these include an additional $86 billion in 
GDP, about another 400,000 jobs annually. These are jobs that 
on average pay about 25 percent higher than the national 
average and $1.3 trillion in Federal, state, and municipal 
revenue from corporate and personal taxes.
    This touches states beyond just Texas and North Dakota. It 
also touches states like Minnesota, New York, and Massachusetts 
and Michigan, while also benefiting across economic activity 
and jobs, it is due to the interconnected nature of the U.S. 
supply chain.
    With that, I appreciate your time, Mr. Chairman, your 
leadership and that of the Committee to address this critical 
issue. And thank you for the opportunity, and I welcome your 
questions at the appropriate time.
    [The prepared statement of Mr. Webster follows:]

Prepared Statement of Jamie Webster, Senior Director, IHS, Washington, 
                                  D.C.
    Chairman Conaway, Ranking Member Peterson, and Members of the 
Committee, I appreciate the opportunity to testify before you on the 
immense changes in the energy market, its impacts on the rural economy, 
and the importance of crude exports to maximize these benefits.
    I appear before you in my capacity as Senior Director for IHS where 
I lead the company's short term crude oil markets team. My work through 
IHS has involved me in two landmark studies on crude oil 
exports.\1\-\2\ IHS is a global consultancy that specializes 
in energy, capital-intensive industries, data and analysis with a 
worldwide presence.
    Today I want to address the recent changes in the global oil 
market, North America's critical place in it, and what it means for our 
rural areas. I will also address the importance of the crude export 
issue to fully maximize what the U.S. oil boom can offer. particularly 
to rural economies.
    The catalyst for the oil price decline that started last summer was 
the partial (and temporary) return of Libyan production. But it was the 
underlying growth in U.S. oil production from 5.6 million barrels a day 
(MMb/d) in 2011 to the current 9.2 MMb/d that sustained this price 
drop. OPEC's decision last November 27 to not cut production in the 
face of growing volumes, not just from United States shale oil, but 
also the Gulf of Mexico as well as Canada further hastened the price 
decline. OPEC's decision, reaffirmed again in June, appears to have 
marked the beginnings of a serious shift in how supply and demand is 
balanced in the global market.
    The boom in U.S. production has the potential to upend the need for 
a formal market balancer, leading to lower oil prices for consumers, 
while increasing energy security for not just the U.S. but the world. 
This is possible not only because of the large production volumes that 
U.S. producers have brought to the market, but because of the character 
of those flows. Conventional production projects can take years to 
finance, plan and bring to the market. U.S. shale producers can do it 
in 4 months. Globally, conventional production has a decline rate of 5-
6%, meaning a project will be producing that much less each year. U.S. 
shale production has an initial decline rate of about 50%. These two 
factors allow the U.S. shale system to react quickly to market signals 
to bring more oil onto the market, and a lack of investment when prices 
turn downward can quickly reduce supply. This shift from OPEC to the 
market-driven forces of shale oil is far from certain and far from 
complete and it could be reversed.
    The U.S. has a liberal trade policy for natural gas, coal, refined 
products and processed condensate. It also allows oil exports to other 
countries in certain, very specific cases. Allowing U.S. producers to 
seek out international markets for their product will allow them to 
receive global prices, keeping the ``laboratory'' of U.S. shale 
technology and production fully open for business, while supporting job 
growth across many industries and in places far from the oil fields. It 
will also help to lower the price of Brent, the benchmark price for 
global oil, much as the increase in production already has. Lowering 
the Brent price is the access point to lower U.S. gasoline prices as 
U.S. gasoline prices are linked to the Brent world price, not the 
domestic WTI price.
    To fully maximize U.S. savings at the pump, exports should be 
liberalized to ensure this dated policy does not cause an unnecessary 
drag on American productivity, while hampering our ability to exploit 
fully the national security benefits from this energy resurgence. The 
reasons are intertwined with the nature of the American refinery system 
and the price discounts that American oil producers must frequently 
take in order to sell their products competitively to refineries, 
particularly along the Gulf Coast, which holds over half of the 
nation's total refining capacity. Over $85 billion has been spent in 
the past quarter century to reconfigure these refineries to process 
heavy oil imported from countries like Venezuela, Mexico and Canada. 
The United States contains the largest refining capacity of any country 
in the world, with 139 operating refineries with a combined crude oil 
distillation capacity of about 18 million B/D. The U.S. refining system 
is characterized not only by the number and size of refineries but also 
by a high number of world-class, high-complexity, full conversion 
refineries with a substantial degree of petrochemical and specialty 
products integration.
    In this complex refining system, if the crude quality varies 
enough, the refineries cannot run optimally within their designed 
operating parameters. In the Gulf region, most refineries are 
configured to process heavy crude oil. When using light tight oil, Gulf 
refineries operate inefficiently. Refineries are now working to re-
orient to take advantage of this new domestic crude, investments that 
will largely continue even if the export ban was lifted.
    Unfinished products are the result of the current crude mismatch, 
which have a lower value because they require further processing to be 
upgraded into gasoline, jet and diesel fuels. In some cases the crude 
quality mismatch is large enough that a refinery will have to reduce 
the crude oil throughput to process additional volumes of light tight 
oil. As a result, there are limits to how much of the new, domestically 
produced light tight oil the refining system can efficiently and 
effectively process. To fully use light tight oil, many Gulf Coast 
refiners often require a price discount. Allowing crude oil exports 
would allow light tight oil (i.e., WTI) to sell at higher world prices. 
In U.S. Crude Oil Export Decision, IHS estimates that eliminating the 
WTI discount would incentivize nearly $750 billion more in investment 
from 2016 to 2030--and increase oil production by 1.2 million B/D.
    The IHS report, Unleashing the Supply Chain,\1\ fully documents the 
benefits across the economy from 2016-2030, and I recommend it to the 
Committee Members and their staff to fully understand the benefits to 
your districts. For the entire U.S. the increase is stunning:

   $86 billion in additional GDP,

   about 400,000 new jobs annually, many of them in rural areas

   25% higher pay for workers in the energy industry supply 
        chain--an additional $158 per household, and

   $1.3 trillion in Federal, state and municipal revenue from 
        corporate and personal taxes.

    The benefits accrue across most of the United States, not just oil 
producing states like Texas. It also touches states like Minnesota, New 
York, and Massachusetts, and Michigan--with little or no oil 
production--also benefit substantially in terms of economic activity 
and jobs, owing to the interconnected nature of U.S. supply chains. The 
report affirms earlier research that eliminating the export ban would 
provide significant benefits while reducing gasoline prices by 8 per 
gallon.
    Eliminating the crude oil ban proves even more important when oil 
prices are low and companies are laying off workers which slows the 
benefits to the interconnected supply chain. For example, if Brent 
crude (the international standard) trades in the range of $55/barrel 
and WTI trades in the United States at around $45/barrel, many 
companies will be on the margins of their new well investment breakeven 
point. In such a case, a small price change can have a major impact on 
supply because it can make or break the profitability of a significant 
share of tight oil producers and because it may determine whether an 
investment decision is made or not. Crude oil production thus drops 
even more sharply when prices are low and producers must take further 
price cuts to sell to domestic refiners if they cannot export. A $3 per 
barrel change in a $50 per barrel price environment can have the same 
effect as a $10 change in a $100 per barrel environment.
    Energy flows into and out of the United States have already 
provided significant benefits to the region and the world. In July 
2010, the United States imported 1.1 MMb/d of oil from Nigeria. Because 
of U.S. supply, this has shrunk to nearly nothing, while at the same 
time we are providing a large share of its refined products (diesel, 
gasoline, etc.) from the United States. The change in refined product 
flows to Nigeria reflects a broader change in U.S. flow patterns for 
gasoline, diesel and other important consumer fuels. Ten years ago this 
month, the United States net imports of refined products was over two 
million barrels per day. This has now reversed direction and the U.S. 
net export balance is over two million barrels per day of exports. U.S. 
refiners are some of the most advanced in the world, and with low cost 
inputs they have been able to further exert their global standing, 
providing not just U.S. consumers with valuable fuels, but consumers 
around the world.
    So why do we have the ban, and is there any reason to modify it? 
Its existence is due to an anachronism that grew out of a period of 
scarcity in the 1970s when the United States imposed price controls on 
oil and banned the export of oil in order to support the price 
controls. In the wake of the 1973 Arab oil embargo, the Emergency 
Petroleum Allocation Act of 1973 allowed President Nixon to set price 
controls and allocate oil to end users in the United States. The Energy 
Policy and Conservation Act of 1975 prohibited the export of crude oil 
and natural gas produced in the United States, with some exceptions. 
The U.S. system of price controls on oil was abolished in 1981, as was, 
a few months later, the ban on the export of oil products. However, 
illogically, the ban on crude oil exports was retained even though the 
rationale provided by price controls had disappeared. The United States 
now has the fastest growing oil production in the world. Since 2008, 
American entrepreneurship has increased U.S. crude oil output by 81%--
4.4 million B/D principally of light tight oil, such as Eagle Ford in 
south Texas, Bakken in North Dakota and West Texas Intermediate (WTI). 
This increase is the fastest in U.S. history and exceeds the combined 
production gains from the rest of the world. The commercial and 
technical reasons for this increase in production are well documented, 
including the May 2014 IHS report, called U.S. Crude Oil Export 
Decision.\1\ The conditions that justified the crude oil export ban in 
1973 no longer apply.
    I appreciate, Mr. Chairman, your leadership and that of this 
Committee to address these critical issues for U.S., regional and 
global energy security. Thank you for this opportunity to testify 
before your Committee. I welcome the chance to respond to your 
questions.
Endnotes
    \1\ U.S. Crude Oil Export Decision: https://www.ihs.com/Info/0514/
crude-oil.html.
    \2\ Unleashing the Supply Chain: https://www.ihs.com/Info/0315/
crude-oil-supply-chain.html.
          * * * * *
About IHS (www.ihs.com)
    IHS (NYSE: IHS) is the leading source of insight, analytics and 
expertise in critical areas that shape today's business landscape. 
Businesses and governments in more than 150 countries around the globe 
rely on the comprehensive content, expert independent analysis and 
flexible delivery methods of IHS to make high-impact decisions and 
develop strategies with speed and confidence. IHS has been in business 
since 1959 and became a publicly traded company on the New York Stock 
Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS 
employs almost 9000 people in 32 countries around the world.

    The Chairman. Mr. Webster, thank you.
    Dr. Rusco, 5 minutes.

           STATEMENT OF FRANK RUSCO, Ph.D., DIRECTOR,
            NATURAL RESOURCES AND ENVIRONMENT, U.S.
       GOVERNMENT ACCOUNTABILITY OFFICE, WASHINGTON, D.C.

    Dr. Rusco. Thank you. Chairman Conaway, Ranking Member 
Peterson, and Members of the Committee. I am pleased to be here 
today to discuss GAO's report on the implications of lifting 
the restrictions on crude oil exports.
    In a report issued September 30, 2014, we found that 
allowing crude oil exports from the United States could reduce 
consumer fuel prices and enhance energy security by increasing 
our strategic petroleum reserves relative to our net imports of 
foreign crude oil. It could also improve the U.S. balance of 
payments.
    Specifically, according to the major empirical studies that 
we found and evaluated, allowing crude oil exports would remove 
a price penalty that some U.S. crude oils has been suffering 
and stimulate the production of additional oil in the United 
States.
    Because the resulting increase in U.S. oil production would 
reduce global crude oil prices, most studies also predicted 
that consumer petroleum product prices would fall because the 
price of crude oil is the largest cost component in producing 
these products.
    In addition, because producing oil is a complex industrial 
process that inherently poses some risk to worker safety and 
the environment, the increase in oil production activity 
encouraged by removing export restrictions could also lead to 
incrementally more worker injuries or environmental damages 
such as spills as a result of rail or truck accidents.
    Much of the increase in U.S. oil production has come from 
shale deposits and is light and sweet in nature. This has 
created a mismatch in the quality of oil in the United States 
that we produce and the heavier sour types of oil that our Gulf 
Coast refiners are configured to refine. Lifting the export ban 
should allow excess barrels of lighter oil to be exported at 
global prices and remove the mismatch between the quality of 
oil produced and the quality refiners are set up to handle.
    As oil production in the United States has increased in 
recent years, it has created a lot of economic activity in oil-
producing regions, many of these in rural America. 
Specifically, the largest shale oil formations cover areas 
including the Bakken in northwest North Dakota and eastern 
Montana, the Permian Basin and Eagle Ford in west and south-
central Texas, respectively, Haynesville in east Texas and west 
Arkansas, the Niobrara in parts of Colorado, Utah, Wyoming, 
Kansas, and Nebraska, the Marcellus in West Virginia and west 
and central Pennsylvania, and the Utica in east Ohio.
    Oil production is an industrial process that requires the 
application of complex technologies and skilled labor in the 
oil field and also a broad array of supporting services, 
including oil drilling services, pipeline operations, 
railroads, trucking, and housing, to name just a few.
    The removal of oil export restrictions has precedent in the 
lifting of an export restriction on Alaskan North Slope oil in 
the mid-1990s. GAO issued a report in 1999 that found that 
lifting the export restrictions had caused North Slope oil 
prices to rise to parity with global prices. When that export 
ban was lifted, very little oil was actually shipped abroad, 
but it was enough to cause the price of North Slope oil to rise 
by about $1 per barrel. However, there was no discernible 
effect on consumer prices of petroleum products in the West 
Coast because the marginal barrels of those products were 
already imported from foreign sources and valued at global 
prices.
    This increase in North Slope oil prices also made 
additional reserves economic to produce, so it had similar 
effects as are predicted in the studies we reviewed in our most 
recent report.
    In conclusion, allowing exports of oil from the United 
States makes sense from the standpoint of economic efficiency. 
It allows the price of oil to be set by market forces and 
allows the efficient running of U.S. refining operations. It 
will likely cause consumer prices to fall or remain unchanged. 
And it should stimulate economic activity, particularly in the 
rural areas in which shale oil reserves exist.
    This ends my opening statement. I am happy to answer any 
questions you may have. Thank you.
    [The prepared statement of Dr. Rusco follows:]

 Prepared Statement of Frank Rusco, Ph.D., Director, Natural Resources 
  and Environment, U.S. Government Accountability Office, Washington, 
                                  D.C.
Crude Oil Export Restrictions_Studies Suggest Allowing Exports Could 
        Reduce Consumer Fuel Prices
GAO Highlights
    Highlights of GAO-15-745T (http://www.gao.gov/products/GAO-15-
745T), a testimony before the Committee on Agriculture, House of 
Representatives.
Why GAO Did This Study
    After decades of generally falling U.S. crude oil production, 
technological advances in the extraction of crude oil from shale 
formations have contributed to increases in U.S. production. In 
response to these and other market developments, some have proposed 
removing the 4 decade old restrictions on crude oil exports, 
underscoring the need to understand how allowing crude oil exports 
could affect crude oil prices, and the prices of consumer fuels refined 
from crude oil, such as gasoline and diesel.
    This testimony discusses what is known about the pricing and other 
key potential implications of removing crude oil export restrictions. 
It is based on GAO's September 2014 report (GAO-14-807) (http://
www.gao.gov/products/GAO-14-807), and information on crude oil 
production and prices updated in June 2015. For that report, GAO 
reviewed four studies issued in 2014 on crude oil exports; including 
two sponsored by industry and conducted by consultants, one sponsored 
by a research organization and conducted by consultants, and one 
conducted at a research organization. Market conditions have changed 
since these studies were conducted, underscoring some uncertainties 
surrounding estimates of potential implications of removing crude oil 
export restrictions. For its 2014 report, GAO also summarized the views 
of a nongeneralizable sample of 17 stakeholders including 
representatives of companies and interest groups with a stake in the 
outcome of decisions regarding crude oil export restrictions, as well 
as academic, industry, and other experts.
    View GAO-15-745T (http://www.gao.gov/products/GAO-15-745T). For 
more information, contact Frank Rusco at (202) 512-3841 or 
[email protected].
What GAO Found
    In September 2014, GAO reported that according to studies it 
reviewed and stakeholders it interviewed, removing crude oil export 
restrictions would likely increase domestic crude oil prices, but could 
decrease consumer fuel prices, although the extent of price changes are 
uncertain and may vary by region. The studies identified the following 
implications for U.S. crude oil and consumer fuel prices:

   Crude oil prices. The four studies GAO reviewed estimated 
        that if crude oil export restrictions were removed, U.S. crude 
        oil prices would increase by about $2 to $8 per barrel--
        bringing them closer to international prices. Prices for some 
        U.S. crude oils have been lower than international prices--for 
        example, one benchmark U.S. crude oil averaged $52 per barrel 
        from January through May 2015, while a comparable international 
        crude oil averaged $57. In addition, one study found that, when 
        assuming low future crude oil prices overall, removing export 
        restrictions would have no measurable effect on U.S. crude oil 
        prices.

   Consumer fuel prices. The four studies suggested that U.S. 
        prices for gasoline, diesel, and other consumer fuels follow 
        international prices. If domestic crude oil exports caused 
        international crude oil prices to decrease, consumer fuel 
        prices could decrease as well. Estimates of the consumer fuel 
        price implications in the four studies GAO reviewed ranged from 
        a decrease of 1.5 to 13 per gallon. In addition, one study 
        found that, when assuming low future crude oil prices, removing 
        export restrictions would have no measurable effect on consumer 
        fuel prices.

    Some stakeholders cautioned that estimates of the price 
implications of removing export restrictions are subject to several 
uncertainties, such as the extent of U.S. crude oil production 
increases, and how readily U.S. refiners are able to absorb such 
increases. Some stakeholders further told GAO that there could be 
important regional differences in the price implications of removing 
export restrictions.
    The studies GAO reviewed and the stakeholders it interviewed 
generally suggested that removing crude oil export restrictions may 
also have the following implications:

   Crude oil production. Removing export restrictions may 
        increase domestic production--8 million barrels per day in 
        April 2014--because of increasing domestic crude oil prices. 
        Estimates ranged from an additional 130,000 to 3.3 million 
        barrels per day on average from 2015 through 2035.

   Environment. Additional crude oil production may pose risks 
        to the quality and quantity of surface groundwater sources; 
        increase greenhouse gas and other emissions; and increase the 
        risk of spills from crude oil transportation.

   The economy. Three of the studies projected that removing 
        export restrictions would lead to additional investment in 
        crude oil production and increases in employment. This growth 
        in the oil sector would--in turn--have additional positive 
        effects in the rest of the economy, including for employment 
        and government revenues.

    Chairman Conaway, Ranking Member Peterson, and Members of the 
Committee:

    Thank you for the opportunity to discuss our work on the 
implications of removing crude oil export restrictions. After decades 
of generally falling U.S. crude oil production, technological advances 
in the extraction of crude oil from shale formations have contributed 
to increases in U.S. production. Crude oil production increased by 
about 74 percent from 2008 through 2014 to reach over eight million 
barrels per day in 2014, and production increases in 2012, 2013, and 
2014 were the largest annual increases since the beginning of U.S. 
commercial crude oil production in 1859, according to the Energy 
Information Administration (EIA).\1\ More recently, however, crude oil 
prices have declined by 40 percent, from about $100 per barrel in the 
summer of 2014, to about $60 in May 2015. In response to these and 
other market developments, some have proposed removing the 4 decade old 
restrictions on crude oil exports, underscoring the need to understand 
how allowing crude oil to be exported could affect crude oil prices, 
and the prices of consumer fuels refined from crude oil, such as 
gasoline and diesel.
---------------------------------------------------------------------------
    \1\ EIA is a statistical agency within the Department of Energy 
that collects, analyzes, and disseminates independent information on 
energy issues.
---------------------------------------------------------------------------
    My testimony discusses what is known about the pricing and other 
key implications of removing crude oil export restrictions. It is based 
on our September 2014 report that examined these and other issues,\2\ 
and information on crude oil prices and production updated in June 
2015. For the 2014 report, we reviewed four studies issued in 2014 on 
crude oil exports; including two sponsored by industry and conducted by 
consultants, one sponsored by a research organization and conducted by 
consultants, and one conducted at a research organization.\3\ Market 
conditions have changed since these studies were conducted, 
underscoring some uncertainties surrounding estimates of potential 
implications of removing crude oil export restrictions. For our 2014 
report, we also summarized the views of a nongeneralizable sample of 17 
stakeholders including representatives of companies and interest groups 
with a stake in the outcome of decisions regarding crude oil export 
restrictions, as well as academic, industry, and other experts. 
Although not generalizable to all potential stakeholders, these views 
provide illustrative examples. More details on our scope and 
methodology for that work can be found in the issued report. We 
conducted the work on which this statement is based in accordance with 
generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our findings and conclusions 
based on our audit objectives.
---------------------------------------------------------------------------
    \2\ GAO, Changing Crude Oil Markets: Allowing Exports Could Reduce 
Consumer Fuel Prices, and the Size of the Strategic Reserves Should Be 
Reexamined, GAO-14-807 (http://www.gao.gov/products/GAO-14-807) 
(Washington, D.C.: Sept. 30, 2014).
    \3\ Resources for the Future, Crude Behavior: How Lifting the 
Export Ban Reduces Gasoline Prices in the United States (Washington, 
D.C.: Resources for the Future, February 2014, revised March 2014); ICF 
International and EnSys Energy (ICF International), The Impacts of U.S. 
Crude Oil Exports on Domestic Crude Production, GDP, Employment, Trade, 
and Consumer Costs (Washington, D.C.: ICF Resources, Mar. 31, 2014); 
IHS, U.S. Crude Oil Export Decision: Assessing the Impact of the Export 
Ban and Free Trade on the U.S. Economy (Englewood, CO: IHS, 2014); NERA 
Economic Consulting, Economic Benefits of Lifting the Crude Oil Export 
Ban (Washington, D.C.: NERA Economic Consulting, Sept. 9, 2014).
---------------------------------------------------------------------------
Background
    The export of domestically produced crude oil has generally been 
restricted since the 1970s. In particular, the Energy Policy and 
Conservation Act of 1975 (EPCA) led the Department of Commerce's Bureau 
of Industry and Security (BIS) to promulgate regulations that require 
crude oil exporters to obtain a license.\4\ These regulations provide 
that BIS will issue licenses for the following crude oil exports:
---------------------------------------------------------------------------
    \4\ 15 CFR  754.2(a).

---------------------------------------------------------------------------
   exports from Alaska's Cook Inlet,

   exports to Canada for consumption or use therein,

   exports in connection with refining or exchange of SPR crude 
        oil,

   exports of certain California crude oil up to twenty-five 
        thousand barrels per day,

   exports consistent with certain international energy supply 
        agreements,

   exports consistent with findings made by the President under 
        certain statutes, and

   exports of foreign origin crude oil that has not been 
        commingled with crude oil of U.S. origin.

    Other than for these exceptions, BIS considers export license 
applications for exchanges involving crude oil on a case-by-case basis, 
and BIS can approve them if it determines that the proposed export is 
consistent with the national interest and purposes of EPCA.\5\ In 
addition to BIS's export controls, other statutes control the export of 
domestically produced crude oil, depending on where it was produced and 
how it is transported.\6\ In these cases, BIS can approve exports only 
if the President makes the necessary findings under applicable laws.\7\ 
Some of the authorized exceptions, outlined above, are the result of 
such Presidential findings.
---------------------------------------------------------------------------
    \5\ 15 CFR  754.2(b)(2).
    \6\ For example, the Mineral Leasing Act of 1920 restricts exports 
of domestically produced crude oil transported by pipeline over certain 
rights-of-way (30 U.S.C.  185(u)); the Outer Continental Shelf Lands 
Act restricts exports of crude oil from the outer continental shelf (29 
U.S.C.  1354); the Naval Petroleum Reserves Production Act restricts 
the export of crude oil produced from the Naval Petroleum Reserves (10 
U.S.C.  7430) and Section 201 of Pub. L. No. 104-58, ``Exports of 
Alaskan North Slope Oil,'' provides for exports of domestically 
produced crude oil transported by pipeline over rights-of-way granted 
pursuant to section 203 of the Trans-Alaska Pipeline Authorization Act 
(30 U.S.C.  185(s)).
    \7\ 15 CFR  754.2(c).
---------------------------------------------------------------------------
    As we previously found, recent increases in U.S. crude oil 
production have lowered the cost of some domestic crude oils.\8\ For 
example, prices for West Texas Intermediate (WTI) crude oil--a domestic 
crude oil used as a benchmark for pricing--were historically about the 
same price as Brent, an international benchmark crude oil from the 
North Sea between Great Britain and the European continent.\9\ However, 
from 2011 through 2014, the price of WTI averaged $12 per barrel lower 
than Brent (see Fig. 1). In 2014, prices for these benchmark crude oils 
narrowed as global oil prices declined, and WTI averaged $52 from 
January through May 2015, while Brent averaged $57. The development of 
U.S. crude oil production has created some challenges for crude oil 
transportation infrastructure because some production has been in areas 
with limited linkages to refining centers. According to EIA, these 
infrastructure constraints have contributed to discounted prices for 
some domestic crude oils.
---------------------------------------------------------------------------
    \8\ GAO, Petroleum Refining: Industry's Outlook Depends on Market 
Changes and Key Environmental Regulations, GAO-14-249 (http://
www.gao.gov/products/GAO-14-249) (Washington, D.C.: Mar. 14, 2014).
    \9\ Because of the large number of grades of crude oils, buyers and 
sellers use benchmark crude oils as a reference in pricing crude oil. A 
benchmark crude oil is typically an abundantly produced and frequently 
traded crude oil. For example, crude oils produced in North and South 
America are typically priced in reference to WTI.
---------------------------------------------------------------------------
Figure 1: Monthly West Texas Intermediate and Brent Crude Oil Prices, 
        2009--May 2015
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
          Source: GAO analysis of Energy Information Administration 
        data.  GAO-15-745T.
          Note: West Texas Intermediate is a domestic crude oil used as 
        a benchmark for pricing, and Brent is an international 
        benchmark from the North Sea between Great Britain and the 
        European continent.

    Much of the crude oil currently produced in the United States has 
characteristics that differ from historic domestic production. Crude 
oil is generally classified according to two parameters: density and 
sulfur content. Less dense crude oils are known as ``light,'' and 
denser crude oils are known as ``heavy.'' Crude oils with relatively 
low sulfur content are known as ``sweet,'' and crude oils with higher 
sulfur content are known as ``sour.'' As shown in Figure 2, according 
to EIA, most domestic crude oil produced over the last 5 years has 
tended to be light oil. Specifically, according to EIA estimates, about 
all of the 1.8 million barrels per day increase in production from 2011 
to 2013 consisted of lighter sweet crude oils.\10\
---------------------------------------------------------------------------
    \10\ The density, or gravity of a crude oil is specified using the 
American Petroleum Institute (API) gravity standard, which measures the 
weight of crude oil in relation to water, which has an API gravity of 
10. For the purposes of this estimate, we considered light oils as 
those with an API gravity of 35 or above. See: Energy Information 
Administration, U.S. Crude Oil Production Forecast--Analysis of Crude 
Types (Washington, D.C.: May 29, 2014).
---------------------------------------------------------------------------
Figure 2: U.S. Crude Oil Production and Energy Information 
        Administration Forecast of Production by Crude Oil Type, 2011-
        2015
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
        
          Source: GAO analysis of Energy Information Administration 
        data.  GAO-15-745T.
          Note: The density, or gravity, of a crude oil is specified 
        using the American Petroleum Institute (API) gravity standard, 
        which measures the weight of crude oil in relation to water, 
        which has an API gravity of 10. Heavy crude oils include those 
        with an API gravity of less than 27; medium includes crude oil 
        with an API from 27 to 35; and light includes crude oil with 
        API gravities of 35 and above.

    Light crude oil differs from the crude oil that many U.S. 
refineries are designed to process. Refineries are configured to 
produce transportation fuels and other products (e.g., gasoline, 
diesel, jet fuel, and kerosene) from specific types of crude oil. 
Refineries use a distillation process that separates crude oil into 
different fractions, or interim products, based on their boiling 
points, which can then be further processed into final products. Many 
refineries in the United States are configured to refine heavier crude 
oils and have therefore been able to take advantage of historically 
lower prices of heavier crude oils.\11\ For example, in 2013, the 
average density of crude oil used at domestic refineries was 30.8, 
while nearly all of the increase in production in recent years has been 
lighter crude oil with a density of 35 or above.
---------------------------------------------------------------------------
    \11\ In general, heavier crude oils require more complex and 
expensive refineries to process the crude oil into usable products but 
have been less expensive to purchase than lighter crude oils.
---------------------------------------------------------------------------
    According to EIA, additional production of light crude oil over the 
past several years has been absorbed into the market through several 
mechanisms, but the capacity of these mechanisms to absorb further 
increases in light crude oil production may be limited in the future 
for the following reasons:

   Reduced imports of similar grade crude oils: According to 
        EIA, additional production of light oil in the past several 
        years has primarily been absorbed by reducing imports of 
        similar grade crude oils. Light crude oil imports fell from 1.7 
        million barrels per day in 2011 to one million barrels per day 
        in 2013. As a result, there may be dwindling amounts of light 
        crude oil imports that can be reduced in the future, according 
        to EIA.

   Increased crude oil exports: Crude oil exports have 
        increased recently, from less than thirty thousand barrels per 
        day in 2008 to 396 thousand barrels per day in June 2014. 
        Continued increases in crude oil exports will depend, in part, 
        on the extent of any relaxation of current export restrictions, 
        according to EIA.

   Increased use of light crude oils at domestic refineries: 
        Domestic refineries have increased the average gravity of crude 
        oils that they refine. The average American Petroleum Institute 
        (API) gravity of crude oil used in U.S. refineries increased 
        from 30.2 in 2008 to 30.8 in 2013, according to EIA. 
        Continued shifts to use additional lighter crude oils at 
        domestic refineries can be enabled by investments to relieve 
        constraints associated with refining lighter crude oils at 
        refineries that were optimized to refine heavier crude oils, 
        according to EIA.

   Increased use of domestic refineries: In recent years, 
        domestic refineries have been run more intensively, allowing 
        the use of more domestic crude oils. Utilization--a measure of 
        how intensively refineries are used that is calculated by 
        dividing total crude oil and other inputs used at refineries by 
        the amount refineries can process under usual operating 
        conditions--increased from 86 percent in 2011 to 88 percent in 
        2013. There may be limits to further increases in utilization 
        of refineries that are already running at high rates, according 
        to EIA.
Removing Crude Oil Export Restrictions Is Expected to Increase Domestic 
        Crude Oil Prices and Could Decrease Consumer Fuel Prices
    In our September 2014 report, we reported that according to the 
studies we reviewed and the stakeholders we interviewed, removing crude 
oil export restrictions would likely increase some domestic crude oil 
prices, but could decrease consumer fuel prices, although the extent of 
consumer fuel price changes are uncertain and may vary by region. As 
discussed earlier, increasing domestic crude oil production has 
resulted in lower prices of some domestic crude oils compared with 
international benchmark crude oils. Three of the studies we reviewed 
also concluded that, absent changes in crude oil export restrictions, 
the expected growth in crude oil production may not be fully absorbed 
by domestic refineries or through exports (where allowed), contributing 
to even wider differences in prices between some domestic and 
international crude oils. According to these studies, by removing the 
export restrictions, these domestic crude oils could be sold at prices 
closer to international prices, reducing the price differential and 
aligning the price of domestic crude oil with international benchmarks.
    While the studies we reviewed and most of the stakeholders we 
interviewed agreed that domestic crude oil prices would increase if 
crude oil export restrictions were removed, stakeholders highlighted 
several uncertainties that could affect the extent of price increases. 
The studies we reviewed made assumptions about these uncertainties, and 
actual price implications of removing crude oil export restrictions may 
differ from those estimated in these studies depending on how export 
restrictions and market conditions evolve. Specifically, stakeholders 
raised the following three key uncertainties:

   Extent of future increases in crude oil production. 
        According to two stakeholders, in the absence of exports, 
        higher production of domestic light sweet crude oil would tend 
        to increase the mismatch between such crude oils and the 
        refining industry. This was corroborated by two of the studies. 
        As a result, one study indicated that a greater increase in 
        production would increase the price effects of removing crude 
        oil export restrictions. On the other hand, lower than 
        anticipated production of such crude oil would lower potential 
        price effects as the additional crude oil could more easily be 
        absorbed domestically.

   Extent to which crude oil production increases can be 
        absorbed. The domestic refining industry and exports to Canada 
        have absorbed the increases in domestic crude oil production 
        thus far, and one stakeholder told us the domestic refining 
        industry could provide sufficient capacity to absorb additional 
        future crude oil production. On the other hand, some 
        stakeholders suggested that the U.S. refining industry will not 
        be able to keep pace with increasing U.S. light crude oil 
        production. For example, IHS stated that refinery investments 
        to process additional light crude oil face significant risks in 
        the form of potentially stranded investments if export 
        restrictions were to change, and this could result in 
        investments not being made as quickly as anticipated.\12\
---------------------------------------------------------------------------
    \12\ IHS is a firm that provides comprehensive economic and 
financial information on countries, regions, and industries.

   Extent to which export restrictions change. Aspects of the 
        export restrictions could be further defined or interpreted in 
        ways that could change the pricing dynamics of domestic crude 
        oil markets. In 2014, for example, the Department of Commerce 
        provided clarifications that condensate--a type of light crude 
        oil \13\--that has been processed through a distillation tower 
        is not considered crude oil and so not subject to export 
        restrictions.\14\ One stakeholder stated that this may lead to 
        more condensate exports than expected.\15\
---------------------------------------------------------------------------
    \13\ Specifically, the Department of Commerce's definition of crude 
oil includes condensates, which are light liquid hydrocarbons recovered 
primarily from natural gas wells.
    \14\ Specifically, companies often process condensate through 
stabilization units to reduce their volatility and prepare the 
condensate for transport to markets. Some stabilization units include 
distillation towers. In March and May 2014, the Department of Commerce 
issued commodity classifications to two companies that determined that 
condensates processed through a crude oil distillation tower, as 
described by the two companies requesting clarification, did not meet 
the definition of crude oil in BIS's regulations and thus were not 
subject to the export prohibitions applicable to U.S. produced crude 
oil. The Department of Commerce clarified the factors it will consider 
in determining whether a product has been ``processed through a crude 
oil distillation tower'' in December 2014.
    \15\ This clarification provided by the Department of Commerce 
occurred after the publication of the Resources for the Future, ICF 
International, and IHS studies and thus this was not taken into 
consideration in the studies. NERA Economic Consulting also did not 
consider the potential effect of the clarification in its study.

    Within the context of these uncertainties, estimates of potential 
price effects vary in the four studies we reviewed, as shown in Table 
1. Specifically, estimates in these studies of the increase in domestic 
crude oil prices due to removing crude oil export restrictions ranged 
from about $2 to $8 per barrel.\16\ For comparison, at the beginning of 
June 2014, WTI was $103 per barrel, and these estimates represented two 
to eight percent of that price. In addition, NERA Economic Consulting 
found that removing export restrictions would have no measurable effect 
in a case that assumes a low future international oil price of $70 per 
barrel in 2015 rising to less than $75 by 2035.\17\ According to the 
NERA Economic Consulting study, current production costs are close to 
these values, so that removing export restrictions would provide little 
incentive to produce more light crude oil.
---------------------------------------------------------------------------
    \16\ Unless otherwise noted, dollar estimates in the rest of this 
report have been converted to 2014 year dollars. These are average 
price effects over the study time frames, and some cases in some 
studies projected larger price effects in the near term that declined 
over time.
    \17\ NERA Economic Consulting is a global firm of experts dedicated 
to applying economic, finance, and quantitative principles to complex 
business and legal challenges.

   Table 1: Crude Oil Price Implications of Removing Crude Oil Export
              Restrictions from Four Studies Issued in 2014
------------------------------------------------------------------------
                 Resources for                             NERA Economic
                   the Future   ICF International    IHS     Consulting
------------------------------------------------------------------------
U.S. crude oil   Midwest        West Texas         Prices  Prices
 price            refiner        Intermediate       incre   increase
                  acquisition    crude oil prices   ase     $1.74 per
                  costs          increase $2.35     $7.89   barrel in
                  increase       to $4.19 per       per     the
                  $6.68 per      barrel on          barre   reference
                  barrel.a       average from       l on    case and
                                 2015-2035.         avera   $5.95 per
                                                    ge      barrel in
                                                    from    the high
                                                    2016-   case on
                                                    2030.   average from
                                                            2015-2035.b
------------------------------------------------------------------------
Sources: GAO analysis of Resources for the Future, ICF International,
  IHS, and NERA Economic Consulting studies.  GAO-15-745T
Note: Estimates are in 2014 year dollars.
a Refiner acquisition costs are the costs of crude oil including
  transportation and other fees paid by the refiner. Such costs may be
  closely related to the prices of crude oil.
b Implications refer to the difference between the reference case and
  its baseline with export restrictions in place, and also the
  difference between the high oil and gas recovery case and its
  corresponding baseline. NERA Economic Consulting also found that
  removing crude oil export restrictions would have no measurable effect
  in the low world oil price case.

    Regarding consumer fuel prices, such as gasoline, diesel, and jet 
fuel, the studies we reviewed and most of the stakeholders we 
interviewed suggested that consumer fuel prices could decrease as a 
result of removing crude oil export restrictions. A decrease in 
consumer fuel prices could occur because such prices tend to follow 
international crude oil prices rather than domestic crude oil prices, 
according to the studies reviewed and most of the stakeholders 
interviewed. If domestic crude oil exports caused international crude 
oil prices to decrease, consumer fuel prices could decrease as 
well.\18\ Table 2 shows that the estimates of the price effects on 
consumer fuels varied in the four studies we reviewed. Price estimates 
ranged from a decrease of 1.5 to 13 per gallon. These estimates 
represented 0.4 to 3.4 percent of the average U.S. retail gasoline 
price at the beginning of June 2014. In addition, NERA Economic 
Consulting found that removing export restrictions would have no 
measurable effect on consumer fuel prices when assuming a low future 
world crude oil price.
---------------------------------------------------------------------------
    \18\ Resources for the Future also estimates a decrease in consumer 
fuel prices but this decrease is as a result of increased refinery 
efficiency (even with an estimated slight increase in the international 
crude oil price).

 Table 2: Consumer Fuel Price Implications of Removing Crude Oil Export
              Restrictions from Four Studies Issued in 2014
------------------------------------------------------------------------
                   Resources
                    for the           ICF          IHS    NERA Economic
                    Future       International             Consulting a
------------------------------------------------------------------------
U.S. consumer    Gasoline      Petroleum         Gasoli  Petroleum
 fuel prices      prices        product prices    ne      product prices
                  would         would decline     price   would decline
                  decline by    by 1.5 to 2.4   s       by 3 per
                  1.8 to       per gallon on     would   gallon on
                  4.6 per      average from      decli   average from
                  gallon on     2015-2035.        ne by   2015-2035 in
                  average.                        9 to   the reference
                                                  13     case and 11
                                                  per     per gallon in
                                                  gallo   the high case.
                                                  n on    Gasoline
                                                  avera   prices would
                                                  ge      decline by 3
                                                  from    per gallon in
                                                  2016-   the reference
                                                  2030.   case and 10
                                                          per gallon in
                                                          the high case.
                                                          Fuel prices
                                                          would not be
                                                          affected in a
                                                          low world oil
                                                          price case.
------------------------------------------------------------------------
Sources: GAO analysis of Resources for the Future, ICF International,
  IHS, and NERA Economic Consulting studies.  GAO-15-745T
Note: Dollar estimates are in 2014 year dollars.
a Implications refer to the difference between the reference case and
  its baseline with export restrictions in place, and the difference
  between the high oil and gas recovery case and its corresponding
  baseline.


 
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Price Effects of Allowing Alaskan North Slope Crude Oil Exports
 
    In 1995, Congress removed the restrictions on the export of Alaskan
 North Slope crude oil. From the time the restrictions were removed
 until 2004, about 2.7 percent of Alaskan North Slope crude oil was
 exported; however, no Alaskan North Slope crude oil has been exported
 since 2004.The experience of allowing Alaskan North Slope crude oil
 exports may illustrate some of the potential effects of removing crude
 oil export restrictions nationally. In 1999, we reviewed the effects of
 allowing Alaskan North Slope crude oil exports and concluded that: a
 
       lifting the export ban raised the relative prices of
     Alaskan North Slope and comparable California crude oils by between
     $0.98 and $1.30 per barrel; b
 
       some refiners' costs increased commensurate with the
     increase in crude oil prices; and
 
       consumer fuel prices for gasoline, diesel, and jet fuel
     did not increase.
 
    The effect of removing the export restrictions for Alaskan North
 Slope oil is not completely understood due to data limitations and the
 difficulty of separating the effects of removing the export
 restrictions from other market changes that occurred at the same time.
 
    Source: GAO.  GAO-15-745T.
    a GAO, Alaskan North Slope Oil: Limited Effects of Lifting Export
 Ban on Oil and Shipping Industries and Consumers, GAO/RCED-99-191
 (http://www.gao.gov/products/GAO/RCED-99-191) (Washington, D.C., July
 1, 1999).
    b These estimates have not been adjusted for inflation.
------------------------------------------------------------------------

    The effect of removing crude oil export restrictions on domestic 
consumer fuel prices depends on several uncertainties, as we discussed 
in our September 2014 report.\19\ First, it would depend on the extent 
to which domestic versus international crude oil prices determine the 
domestic price of consumer fuels. A 2014 research study examining the 
relationship between domestic crude oil and gasoline prices concluded 
that low domestic crude oil prices in the Midwest during 2011 did not 
result in lower gasoline prices in that region.\20\ This research 
supports the assumption made in the four studies we reviewed that to 
some extent higher prices of some domestic crude oils as a result of 
removing crude oil export restrictions would not be passed on to 
consumer fuel prices. However, some stakeholders told us that this may 
not always be the case and that more recent or detailed data could show 
that lower prices for some domestic crude oils have influenced consumer 
fuel prices.
---------------------------------------------------------------------------
    \19\ GAO-14-807 (http://www.gao.gov/products/GAO-14-807).
    \20\ See Severin Borenstein and Ryan Kellogg, ``The Incidence of an 
Oil Glut: Who Benefits from Cheap Crude Oil in the Midwest?'' The 
Energy Journal 35, no. 1 (2014).
---------------------------------------------------------------------------
    Second, two of the stakeholders we interviewed suggested that there 
could be important regional differences in consumer fuel price 
implications and that prices could increase in some regions--
particularly the Midwest and the Northeast--due to changing 
transportation costs and potential refinery closures. For example, 
these two stakeholders told us that because of requirements to use more 
expensive U.S.-built, -owned, and -operated ships to move crude oil 
between U.S. ports, allowing exports could enable some domestic crude 
oil producers to ship U.S. crude oil for less cost to refineries in 
foreign countries.\21\ Specifically, representatives of one refiner 
told us that, if export restrictions were removed, they could ship oil 
to their refineries in Europe at a lower cost than delivering the same 
oil to a refinery on the U.S. East Coast. According to another 
stakeholder, this could negatively affect the ability of some domestic 
refineries to compete with foreign refineries. Additionally, because 
refineries are currently benefiting from low domestic crude oil prices, 
some studies and stakeholders noted that refinery margins could be 
reduced if removing export restrictions increased domestic crude oil 
prices. As a result, some refineries could face an increased risk of 
closure, especially those located in the Northeast. However, according 
to one stakeholder, domestic refiners still have a significant cost 
advantage in the form of less expensive natural gas, which is an 
important energy source for many refineries. For this and other 
reasons, one stakeholder told us they did not anticipate refinery 
closures as a result of removing export restrictions.
---------------------------------------------------------------------------
    \21\ The Merchant Marine Act of 1920, also known as the Jones Act, 
in general, requires that any vessel (including barges) operating 
between two U.S. ports be U.S.-built, -owned, and -operated.
---------------------------------------------------------------------------
Removing Crude Oil Export Restrictions Is Expected To Increase Domestic 
        Production and Have Other Implications
    The studies we reviewed for our September 2014 report,\22\ 
generally suggested that removing crude oil export restrictions may 
increase domestic crude oil production and may affect the environment 
and the economy:
---------------------------------------------------------------------------
    \22\ GAO-14-807 (http://www.gao.gov/products/GAO-14-807).

   Crude oil production. Removing crude oil export restrictions 
        may increase domestic crude oil production. Even with current 
        crude oil export restrictions, given various scenarios, EIA 
        projected that domestic production will continue to increase 
        through 2020.\23\ If export restrictions were removed, 
        according to the four studies we reviewed, the increased prices 
        of domestic crude oil are projected to lead to further 
        increases in crude oil production. Projections of this increase 
        varied in the studies we reviewed--from a low of an additional 
        130,000 barrels per day on average from 2015 through 2035, 
        according to the ICF International study, to a high of an 
        additional 3.3 million barrels per day on average from 2015 
        through 2035 in NERA Economic Consulting's study.\24\ This is 
        equivalent to 1.5 percent to almost 40 percent of production in 
        April 2014.
---------------------------------------------------------------------------
    \23\ See EIA, Annual Energy Outlook 2015, DOE/EIA-0383 (2015) 
(Washington, D.C.: April 2015).
    \24\ In addition, Resources for the Future estimated that oil 
production in Canada and in the Midwest United States would gradually 
increase if the restrictions were lifted by about 84,000 barrels per 
day. Resources for the Future estimated production elsewhere in the 
United States and the rest of the world would increase by 54,000 
barrels per day for a total increase in world production of 138,000 
additional barrels per day. IHS projected an additional 1.2 to 2.3 
million barrels per day of crude oil production from 2016 through 2030.

   Environment. Two of the studies we reviewed stated that the 
        increased crude oil production that could result from removing 
        the restrictions on crude oil exports may affect the 
        environment. Most stakeholders we interviewed echoed this 
        statement. This is consistent with what we found in a September 
        2012 report.\25\ In that 2012 report we found that crude oil 
        development may pose certain inherent environmental and public 
        health risks. However, the extent of the risk is unknown, in 
        part, because the severity of adverse effects depends on 
        various location- and process-specific factors, including the 
        location of future shale oil and gas development and the rate 
        at which it occurs. It also depends on geology, climate, 
        business practices, and regulatory and enforcement activities. 
        The stakeholders who raised concerns about the effect of 
        removing the restrictions on crude oil exports on the 
        environment identified risks including those related to the 
        quality and quantity of surface and groundwater sources; 
        increases in greenhouse gas and other air emissions, and 
        increases in the risk of spills from crude oil transportation.
---------------------------------------------------------------------------
    \25\ GAO, Oil and Gas: Information on Shale Resources, Development, 
and Environmental and Public Health Risks, GAO-12-732 (http://
www.gao.gov/products/GAO-12-732) (Washington, D.C.: Sept. 5, 2012).

   The economy. The four studies we reviewed suggested that 
        removing crude oil export restrictions would increase the size 
        of the economy. Three of the studies projected that removing 
        export restrictions would lead to additional investment in 
        crude oil production and increases in employment. This growth 
        in the oil sector would--in turn--have additional positive 
        effects in the rest of the economy.\26\ For example, NERA 
        Economic Consulting's study projected an average of 230,000 to 
        380,000 workers would be removed from unemployment through 2020 
        if export restrictions were eliminated in 2015.\27\ These 
        employment benefits would largely disappear if export 
        restrictions were not removed until 2020 because by then the 
        economy would have returned to full employment. Two of the 
        studies we reviewed suggested that removing export restrictions 
        would increase government revenues, although the estimates of 
        the increase vary. One study estimated that total government 
        revenue would increase by a combined $1.4 trillion in 
        additional revenue from 2016 through 2030, and another study 
        estimated that U.S. Federal, state, and local tax receipts 
        combined with royalties from drilling on Federal lands could 
        increase by an annual average of $3.9 to $5.7 billion from 2015 
        through 2035.
---------------------------------------------------------------------------
    \26\ Growth in one sector of the economy can result in economy-wide 
growth through follow-on effects. For example, researchers at the 
Federal Reserve Bank of Dallas found that oil development in the Eagle 
Ford region of South Texas has had profound effects on jobs, income, 
and spending in the region with effects beyond those in the oil sector 
alone. See: Gilmer, Robert W., Raul Hernandez, and Keith Phillips, 
``Oil Boom in Eagle Ford Shale Brings New Wealth to South Texas,'' 
Southwest Economy (Federal Reserve Bank of Dallas: Second Quarter, 
2012).
    \27\ According to the NERA study, because of the increase in 
economic growth triggered by investment in more production capacity and 
infrastructure, there will be a corresponding acceleration of the rate 
at which the economy moves toward full employment.

    Chairman Conaway, Ranking Member Peterson, and Members of the 
Committee, this completes my prepared statement. I would be pleased to 
answer any questions that you may have at this time.
GAO Contact and Staff Acknowledgments
    If you or your staff members have any questions concerning this 
testimony, please contact me at (202) 512-3841 or [email protected]. 
Contact points for our Offices of Congressional Relations and Public 
Affairs may be found on the last page of this statement. Other 
individuals who made key contributions include Christine Kehr 
(Assistant Director), Quindi Franco, Alison O'Neill, and Kiki 
Theodoropoulos.

    The Chairman. I thank the witnesses for their testimony 
this morning. I have a couple of things to do before we get 
started on questions.
    Representative Joe Barton just stopped by. Joe has long 
championed lifting the oil export ban and is one of those 
strong voices. He stopped by to say thank you for having this 
hearing and highlighting that.
    I would be remiss if I didn't call the audience's attention 
to the portrait behind me. We have had a shifting of the 
portraits. The former Chairman, Frank Lucas, is now ensconced 
looking over our shoulder, and we have Mr. Goodlatte looking 
over the shoulders of the Democrats to make sure they keep 
things going on. But anyway, we did shift the portraits around, 
and Frank's 6 years as the Chairman is recognized as such.
    The chair will remind Members that they will be recognized 
for questioning in the order of seniority for Members who were 
here at the start of the hearing. After that, Members will be 
recognized in order of arrival. I appreciate Members' 
understanding. I recognize myself for 5 minutes.
    Mr. Porter, Mr. Hamm, would you talk to us a bit about why 
it is important to continue to drill? Even though we have 
production levels to a certain level, why is it that we need 
new production, we need new drilling in order to both maintain 
and increase production levels? Either one.
    Mr. Porter?
    Mr. Porter. Well, as you are well aware, Mr. Chairman, an 
oil well is a naturally depleting asset. As time goes by, you 
produce less and have less oil. So we must continue to drill to 
keep the supply up there at a level, as well as increase it. 
Also, if you don't have the activity, you start losing the 
infrastructure, the talented people and the infrastructure that 
is needed to keep the industry healthy.
    The Chairman. Mr. Hamm, any other comments about the need 
to continue to drill?
    Mr. Hamm. Yes. I agree that basically it comes down to one 
thing, that we can't export, we can't develop the resource here 
in America, and that is kind of where, in a nutshell, that we 
have gotten to. Certainly, if we lift this ban on exports and 
we are able to export this material to refineries that need it, 
there is estimated to be about 3.2 million barrels of refining 
capacity that severely needs this product that we have in 
America today.
    The Chairman. Mr. Hamm, would you talk to us about the 
actual roughnecks and pulling unit hands and roustabouts, can 
you give us kind of a brief description of the education levels 
and kind of the salaries and compensation they get when they 
are fully employed?
    Mr. Hamm. Well, it is good. We call them middle class jobs, 
but it is certainly upper middle class jobs.
    Historically, we thought kind of roughnecks as being tough 
people out there, but a lot of these jobs today, with the 
technology that we have, we have people doing the directional 
work, running computers, everything, these are very high-paid, 
good jobs that draw $150,000 a year working out there, truck 
drivers in North Dakota, $80,000 to $100,000. So they are good 
middle class, upper middle class jobs.
    The Chairman. Ms. Cutting, can you talk to us a bit about 
both the impact that the rapid increase in the employment had 
in North Dakota, and also what has happened with school 
districts that had plans on trying to rebuild schools and 
making other improvements, but with this whipsaw in oil prices, 
what has the impact been on local communities? How are they 
dealing with the rapid change?
    Ms. Cutting. Certainly. The oil and gas industry in North 
Dakota provides $8 million to $9 million per day in oil 
production and extraction taxes to the State of North Dakota 
and political subdivisions. And of course this money is used to 
build schools and roads and infrastructure. That is a very big 
impact in that regard.
    Population-wise, we have seen a lot of our young people 
that were previously exported because there were no jobs to 
come back home and be close to their family. Population growth 
in North Dakota, the 2000 Census had North Dakota population 
around 600,000; 23 percent growth puts us at about 730,000 to 
740,000 citizens. So that is a pretty significant influx of 
population on our state.
    Of course, that led to housing infrastructure being built, 
restaurant infrastructure, every sort of service that that type 
of population increase leads to. So you saw a lot of growth in 
every type of company and business opportunity across the 
state, as well as manufacturing, transportation.
    The Chairman. All right. Thank you.
    Mr. Peterson, for 5 minutes.
    Mr. Peterson. Thank you, Mr. Chairman.
    I guess I am trying to understand here a little better. 
Maybe, Mr. Hamm, you could explain. I understand what OPEC is 
doing. They are trying to run you guys out of business with 
their cartel. I get that. But this foreign conversion of 
refining, how long has that been going on? When did that start?
    Mr. Hamm. Yes, this began when Venezuela came in and bought 
CITGO, which was a division of Cities Service Oil Company 
headquartered in Tulsa, Oklahoma. And they had heavy sour crude 
out of the Orinoco Belt that they wanted to put in this market.
    And so they came in, bought CITGO and the retail outlets 
that went with it, and basically changed the refinery, 
transformed it to handle the heavy sour crude from what was 
indigenous sweet here in America, change it over to heavy sour, 
started bringing the oil in, and basically claimed that market 
through those retail outlets.
    And that worked well for them. And so Pemex had the same 
thing going on with Mayan crude, came into Deer Park, bought a 
refinery there in Houston, changed that over, did the same 
thing. So that business plan took off----
    Mr. Peterson. When did this happen? What is the timeframe?
    Mr. Hamm. The timeframe, that was 1988 when CITGO was sold 
to Venezuela. And so it has come forward from then, but really, 
really got going strong here after 2000.
    Mr. Peterson. I think North Dakota is building a refinery 
now or bought one.
    Mr. Hamm. Yes. It is the first little refinery built up 
there. We call them topping plants, 20,000 barrel a day, 
basically taking diesel out of the crude stream.
    Mr. Peterson. So the oil out of the Bakken, or this light 
sweet, where is that going to go? If we lifted the ban, where 
would it go? Where would it be refined?
    Mr. Hamm. Well, it certainly would have to go to those 
refineries that could handle it. For instance, South Korea. 
That is a partner of ours, our company. We have a joint venture 
with them, a natural gas operation in western Oklahoma. But I 
can't sell them oil. The closest movement would be to the West 
Coast and on to South Korea. But they have to buy their oil 
from Iran and Russia due to this ban.
    Mr. Peterson. So we have been having trouble, as you know. 
Minnesota has been causing trouble on getting this pipeline 
built out in North Dakota to Lake Superior. How much of an 
issue is that, the bottleneck of not getting the pipelines in 
place and overloading the train system and so forth, how much 
of a problem is that in this whole situation?
    Mr. Hamm. Well, the delay in building XL really caused a 
huge problem, just the fact that it was on the books and it 
stalled a lot of other people from building pipelines because 
they thought that was coming, and with that one on the books 
it----
    Mr. Peterson. The Bakken wasn't going to go on the XL 
anyway, though, was it?
    Mr. Hamm. It was. We have a ramp, on-ramp to XL for 335,000 
barrels agreed to with them, with TransCanada, as they came by 
the Bakken.
    Mr. Peterson. Wouldn't the majority of it go on the 
Embridge Line if that got built?
    Mr. Hamm. Yes.
    Mr. Peterson. Yes.
    Mr. Hamm. A lot of it would go on the Embridge Line, yes.
    Mr. Peterson. I don't understand why it is so difficult to 
build a refinery, and why can't the Bakken oil get to a 
refinery? What is the issue with people not building refineries 
to do your----
    Mr. Hamm. Well, the last one that was tried, the people 
gave up after 7 years of permitting. It is just almost 
impossible through EPA to build one. Like I say, the last guy 
gave up after 7 years: 1975 was the last refinery built in 
America.
    Mr. Peterson. And so it is not a lack of demand. It is a 
lack of just not being able to get through the bureaucracy. 
That is the problem.
    Mr. Hamm. Yes. Grassroots refinery would be very difficult.
    Mr. Peterson. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Mr. Chairman.
    Mr. Lucas, for 5 minutes, Chairman Lucas.
    Mr. Lucas. Thank you, Mr. Chairman. And thank you for the 
kind words earlier. I do live, in spite of the appearance on 
the wall there, absolutely.
    Mr. Hamm, for 25+ years you and I have worked the hallways 
together either here or at the state capital back home, so we 
go back a long ways. Let's touch for just a moment the direct 
impact that your industry has, because you are the producer guy 
at the table, on farmers and ranchers out there.
    Number one, if you think there is potential, you will go 
into the field and do a seismograph. You will pay a surface 
owner for the right to take a look. If something viable is 
there, then you will come back and you will pay the mineral 
owners for the leasing privileges of potentially drilling, 
correct?
    Mr. Hamm. That is correct.
    Mr. Lucas. If you determine that you proceed forward, you 
will hire a drilling contractor to actually drill the well, 
surface damages will be paid to the landowner, water will be 
purchased.
    If it is successful, then you will hire a completion 
company to come in and do the things that are necessary to make 
the well produce. You will then turn around and hire a pipeline 
company, if it is successful, to pay the surface owner right-
of-way for a pipeline to be laid, hopefully made out of steel 
from the United States.
    At every step of the way, as a private industry, you are 
not a part of the government, you are paying everyone for the 
privilege of enabling them to receive their royalty payments 
and consumers to receive their products. So you are adding to 
the economy in every step of the way, correct, sir?
    Mr. Hamm. Yes. Yes, every step.
    Mr. Lucas. Now, that said, several comments here about the 
nature of the oil market. We on this Agriculture Committee, of 
course, represent an industry where day-to-day production 
agriculture, since the founding of the country, we have never 
been able to consume everything we have produced. We have 
always had to sell into the world markets. If we couldn't sell, 
then we couldn't function.
    But prior to 1960, approximately, and basically from this 
stage forward, isn't the energy industry kind of like 
agriculture, we can't consume everything we can produce at 
home?
    Mr. Hamm. Yes, we are just like agriculture. We call our 
self farmers, in fact, and developers. So we are just like 
agriculture. This export ban would be just like your wheat that 
you are growing out there. If you couldn't export that wheat, 
say there was a ban on export and only flour could be exported, 
you would have a middleman that would take a big chunk out.
    Mr. Lucas. So isn't it fair to say, Harold, that many of 
your, ``competitors,'' from a production perspective, are 
foreign companies that are government-owned, that take 
advantage of every policy mistake we have in this country to 
their own gain?
    Mr. Hamm. Yes.
    Mr. Lucas. The political ban on exports in the 1970s being 
a policy mistake, I would opine.
    Mr. Hamm. Yes.
    Mr. Lucas. So this is really a big issue that affects not 
just your industry, but every consumer here at home, and for 
that matter around the world.
    Mr. Hamm. This ban made us especially vulnerable when OPEC 
decided to open the valves and flood the market here, glut the 
market again. But we were especially vulnerable because of this 
export ban.
    Mr. Lucas. Mr. Duffy, you are part of an industry that 
becomes ever more competitive, ever more international in 
nature by the moment. Discuss for a moment, if we were to do 
what I would define as the rational thing and drop this ban 
from the 1970s, how long would it take for the markets to 
readjust and what would you believe the net effect to be?
    Mr. Duffy. As it relates to the pricing of the product, how 
long it would take?
    Mr. Lucas. Yes.
    Mr. Duffy. I think we would get an immediate reaction if in 
fact this ban was lifted. The markets always like to anticipate 
down the road anyway, so they will look at this, try to look at 
the supply numbers, and then everybody always tries to figure 
out what is the demand, which is the $60 billion question. We 
don't know what demand is going to be.
    What is completely interesting here is that if this really 
adds one percent to the GDP the way Mr. Hamm said, that is the 
most compelling thing that this Congress should understand, and 
you should echo that through the halls of Congress, because 
that is really compelling.
    But as far as the pricing of the product, sir, it would 
absolutely be a greater sample. It goes to the products that we 
trade, which are agriculture and energy and metals and 
everything else. But when we watch our farmers export the grain 
products they do today, if they did not do so, I assure you 
they would not be able to put a crop in the field because they 
would be upside down with their input cost each and every year 
if they didn't have the ability to export. That is what is 
critically important. Oil is no different.
    Mr. Lucas. Is it fair to say, Harold, that if we don't get 
our act together, the trends since the 1970s of more and more 
of the world production and refining capacity going into 
foreign hands, is that just going to continue?
    Mr. Hamm. It is. And one thing I would like to add to that 
last question there on how long it would take to change it 
around. We exported till 1975. The infrastructure is there. You 
don't have to build a lot. The ships are there, the market is 
there, the ship channels are there, the pipelines are there. So 
you just go to work with it. It is almost instantaneous putting 
this country back to work. It can happen really quickly.
    Mr. Lucas. My time has expired. Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Mr. Aguilar, 5 minutes.
    Mr. Aguilar. Thank you, Mr. Chairman.
    Mr. Webster, you talked a little bit about the supply chain 
within this discussion, and that is what Mr. Peterson was also 
discussing. In Quebec and in North Dakota, we have experienced 
derailments in transporting oil from Bakken. Many were forced 
to evacuate their homes for safety purposes, and in Quebec, 
people died. Some argued that the explosions were due to the 
unstable nature of the oil extracted.
    Can you talk about the risks both to the environment and 
the communities, both rural and urban, through which the oil is 
transported in difference to--and maybe Chairman Porter can 
talk about this--the system that is in place in Texas and 
Oklahoma from an infrastructure perspective that is very 
different?
    Mr. Webster. Thank you for your question, Congressman. I 
will try to answer that, but I am a oil markets guy, not an 
environmental risk guy.
    One, I would say, and I imagine Mr. Hamm would agree with 
me, is that it is better to move by pipeline. It is usually a 
little bit cheaper. It doesn't give you as much flexibility. 
There have been accidents, but as you can see, there are 
actually a number of accidents that do take place on rail, not 
just on the oil side.
    But, if you look in terms of what the benefits are for the 
supply chain, it extends well beyond just where the rail is. So 
you have companies that produce tubulars, materials, frack 
sand, all of these sorts of things that are moved around the 
U.S. quite a bit. So I know I didn't quite answer your 
question, but, yes.
    Dr. Rusco.
    Dr. Rusco. Yes, as with any industrial process, there are 
environmental and safety risks. And so we have seen that as the 
shale revolution has occurred, you will see incidents of that 
sort of thing. There are regulations in place to monitor and 
evaluate that and mitigate those, but those sort of things are 
inevitable with industrial processes.
    The one thing that I will say in relation to lifting the 
export ban, it removes a piece of uncertainty that could allow 
the building of additional infrastructure that might mitigate 
this further in terms of pipeline development.
    The other thing that I will say about that is that the 
Department of Transportation has currently reevaluated sort of 
rail safety and is requiring changes to both the treatment of 
the oil, which is more volatile, the shale oil is more volatile 
than some of the heavier oils that are produced elsewhere in 
the country, and they are taking steps to require different 
railcars that can handle that kind of volatility. And also some 
of the higher ends of that are being pulled off before 
shipment.
    Mr. Aguilar. Thank you.
    Thank you, Mr. Chairman. I yield back.
    The Chairman. The gentleman yields back.
    Mr. Gibbs, for 5 minutes.
    Mr. Gibbs. Thank you, Mr. Chairman. Thank you for holding 
this very timely and important hearing. I think it is very 
interesting, listening to the testimony about the impact, the 
economic impact, the positive impact, job creation. We have 
seen that in Ohio at the Utica shale play. It has just been 
tremendous, just like it has been in the Bakkens and Eagle 
Fork.
    And I personally want to thank Mr. Hamm for his innovation 
and developing the horizontal drilling technology, because that 
is what has brought this all about. And it is this sector, this 
energy sector that has actually helped this economy recover 
from 2008-2009, in spite of all the bad policies coming out of 
this town where we are choking a lot of businesses with all the 
heavy-handed regulations and other policies. But it is this 
sector and it is horizontal drilling that has done that.
    But I want to talk a little bit about the price 
differential between the WTI and the Brent. I have been looking 
at the contract. It is $6 to $10 a barrel, which at some points 
can be, what, more than ten percent, depending on the price of 
oil.
    What do you see--maybe Mr. Webster might want to respond or 
Mr. Hamm--the ban is lifted, the impact of oil being exported 
from the United States, how many barrels that is, how many X 
amount number of barrels that is on that $6 to $10 
differential, how much do you think that the spread narrows on 
a barrel price?
    Mr. Webster. Thank you for your question. So our view is 
that the spread would narrow to the point where it took care of 
normal transportation and quality differences. So you are 
talking about $3 to $4.
    That differential that you have seen in the last couple of 
years, that tends to be quite volatile because it depends on 
when refineries go into turnaround or maintenance season, which 
is when they are not taking the crude quite as much, and that 
is when you start to see that quite wide discount and the 
higher stocks that you have, going forward.
    So while there would still be a discount, it is a, normal 
discount that you would expect because you have still got to 
ship it all the way down to the Gulf Coast.
    Mr. Gibbs. I have one--I won't mention a name--but I have 
one American refiner that is against lifting the ban, and they 
are making investments to handle the light-type shale oil. And, 
obviously, I thought it was interesting to hear your testimony 
about how price of refined products is based on the world 
market price, that is helpful.
    But do you see an impact? Because they seem to think that 
they are going to be impacted and they won't be able to 
continue their investment that they are making if the ban is 
lifted.
    Mr. Webster. We have looked at this, and there is no 
question that refiners are making quite substantial 
investments. Our estimate is if you don't lift the ban, between 
now and 2030, you would see an additional $3 billion in 
investment in the United States due to the refining. But that 
is at the expense of $746 billion that you would get from the 
upstream and from the supply chain.
    So while there is a benefit on the refining side, it is 
much more substantial in terms of both, across a greater swath 
of the U.S. The refiners will still have an advantage because 
relative to the rest of the world, they are still a world class 
refining system. They are still going to be able to take in 
natural gas as one of their feedstock, so they have an 
advantage over a lot of other refiners around the world. So 
maybe that advantage will shrink if you no longer get our 
discounted crude, but it is still a substantial----
    Mr. Gibbs. Go ahead, Mr. Duffy.
    Mr. Duffy. Can I just add to that? Because, from a market 
perspective, that is a really interesting question. So if you 
look at the price of oil in its peak, when it hit roughly 
$134.50 a barrel, the spread between West Texas and Brent was 
at its widest. When the recent downturn in the market as U.S. 
explorers went in and got more oil out of the ground, like Mr. 
Hamm and his folks have done, you started to see that spread 
narrow. That spread is about $3.50 today, or as of last night. 
So as the market continues to go down from pressure from more 
production, and hence if you were to export this product, I 
believe that spread could actually go inverted. And that would 
be a big plus for this country. And so that is why when we see 
the demand--with China slowing down right now, we are not 
seeing quite the demand we had--the FT article yesterday put 
out that there are less people producing. Of course, there are 
less people producing because the input costs are much lower 
now than they were before.
    Mr. Gibbs. Mr. Webster, our local refineries would also 
pick up some benefit on transportation costs getting the oil 
here from over. The impact is just tremendous by lifting the 
ban, as has been stated today. It is something that needs to 
get done. And everybody will benefit in the long run.
    So I yield back my time. Thank you, Mr. Chairman.
    The Chairman. The gentleman yields back.
    Ms. Plaskett, 5 minutes.
    Ms. Plaskett. Thank you, Mr. Chairman. Good morning, 
everyone. Thank you so much for your testimony and this 
information. This is actually a very important topic for the 
district that I represent, the U.S. Virgin Islands, which at 
one point had one of the largest oil refineries in the Western 
Hemisphere.
    However, Mr. Hamm, when you talked about a refinery and oil 
being a lifter of an economy, particularly in a rural area, I 
understand that. And I understand how people can have jobs that 
they didn't normally have, and families can enter the middle 
class and become stronger.
    And Ms. Cutting, you talked about the drain and the leaving 
that occurs when these jobs are lost. In our own economy, we 
had on the island of St. Croix, where the refinery was, a 
population of about no more than 60,000 people, the direct job 
loss of 2,000 individuals when a refinery that was partly owned 
by Hovensa and the Venezuelan Government, of course, decided 
that it would close because the Venezuelan Government would not 
reduce the cost of the crude that was being refined on the 
island. And it didn't become economically viable anymore to 
refine that type of crude. On our economy, we lost about 20 
percent of our revenues in the territories in that timeframe. 
And that will continue on our islands until something occurs to 
bring this production or something like it back on.
    The thing that is important to me is, Mr. Webster, when you 
talk about retrofitting and the cost of retrofitting. It would 
be an important thing for our economy and for the territory to 
be able to move on to a different type of crude, to possibly be 
able to refine the light sweet crude that you are discussing. 
But could you explain to us what some of the costs of 
retrofitting would be from a territory such as ours and a rural 
community that is not able to give the incentives to a private 
company that owns that to be able to do it?
    Mr. Webster. Certainly. Thank you for your question, 
Congresswoman. It obviously depends on the size of the refinery 
and all that. But I would say in the range of a couple of 
hundred million dollars would be what would be required. The 
problem is that often once you have already made the 
investments to be able to take on heavy sour crude, there are 
elements of that that essentially end up becoming kind of 
stranded capital. So even if you retool, you will still always 
have that capacity that is there that is kind of sitting idle.
    Ms. Plaskett. So a refinery that was probably one of the 
largest in the Western Hemisphere, you are talking maybe 
several hundred million dollars?
    Mr. Webster. Yes.
    Ms. Plaskett. To be able to retrofit that to come back on 
line? And that is the issue that we have, that we own the 
submerged lands, but we have land that is owned by private 
companies and particularly the Venezuelan Government that is 
not even willing to come to the table at times to talk to 
producers about coming back. And plus, as was already mentioned 
already, we have the specter of EPA hanging over us in the 
territory. Because although we want to maintain our greatest 
resource, which is our Sun and our sand, we also want to be 
able to have people be able to eat and to have employment. And 
so that balance is something that we are fighting against, 
which our neighbors in the other Caribbean don't have to follow 
the rules of EPA and can do things in Trinidad, and some of the 
other places where this is being refined don't have the 
restrictions that we have on our island. So for rural areas 
that the retrofitting becomes too costly, what is the next best 
thing for those economies to do when you have this type of 
infrastructure sitting in an area?
    Mr. Webster, do you have any idea or examples of what has 
been done?
    Mr. Webster. That is a very tough question because if you 
have a refiner that is geared for heavy sour crude and is not 
viable at this point, you can shift it to light sweet to try to 
take in some of that from the U.S., but it is a difficult 
question.
    Ms. Plaskett. Well, I guess my warning to everyone is 
beware having an economy that is based on one industry.
    Thank you, Mr. Chairman.
    The Chairman. The gentlelady yields back.
    Mr. Austin Scott, for 5 minutes.
    Mr. Austin Scott of Georgia. Thank you, Mr. Chairman.
    And I want to talk about the benefits of this to other 
parts of the country as well as those that would traditionally 
think of it. I represent the Eighth District in Georgia. And we 
have the Kaolin Belt. And we through the Kaolin that we mine 
are an important part of this because the ceramic beads that 
come out of that Kaolin Belt are used to produce the proppants 
for fracking. And we have significant industries in my district 
specifically that benefit from this.
    And, Ms. Cutting, you talked a little bit about the other 
industries outside of what we would naturally think of as the 
oil and gas companies. Could you speak a little further to how 
lifting this crude oil ban would help industries throughout the 
country that maybe people might not realize where those 
materials come from?
    Ms. Cutting. Absolutely. There are many places in the 
country where proppant is brought in, sand, gravel. We know 
there is sand and gravel that come from Minnesota, very many 
places in North Dakota. But there isn't enough sand and gravel 
in North Dakota to get the job done. So that is being imported 
in our state from surrounding states. Manufacturing, pipelines, 
tanks, all of the equipment that goes into a well site and all 
of the parts of processing of the crude oil and the natural 
gas, I mean, this is just a huge amount of work and 
manufacturing and jobs that are created across the country.
    I think that there are some studies--I am not sure which 
gentleman here from the analytical groups could address this--
but I know that there are studies out there that talk about the 
impact on all 50 states from conventional and unconventional 
oil and gas. And so Mr. Webster perhaps might be able to 
address that with more detail or Mr. Hamm.
    Mr. Austin Scott of Georgia. Mr. Webster was next in line. 
And if he could just explain also how other states tend to 
benefit substantially in terms of jobs from this potential 
legislation.
    Mr. Webster. Certainly. Thanks for the question, 
Congressman. Our analysis, and we did, as I stated, we did a 
report, Unleashing the Supply Chain, which actually delves into 
what the impact is not just at the state level but also at the 
Congressional level. And what we found is that this boom in 
unconventional production, both oil and gas, one, Federal 
Reserve Chairman, former Federal Reserve Chairman Ben Bernanke 
at our CERA Week last year stated that this is one of the most 
beneficial developments that happened since the Great 
Recession. And while 50 states benefit from this and almost 
every Congressional district ends up getting some benefit from 
this, even places that don't necessarily want to allow 
fracking. And these are jobs that pay, on average, 25 percent 
more than the average job out there.
    Mr. Austin Scott of Georgia. Mr. Hamm, you said that it has 
been 40 years since a refinery was built in the United States. 
Is that right?
    Mr. Hamm. Yes. The last one was built in 1975, 1976.
    Mr. Austin Scott of Georgia. And Gerald Ford was President 
then. That has been a long time. And if we could get through 
the permitting process, if we could give refiners the ability 
to--or investors the ability to build refineries in the United 
States, how many additional refineries would you estimate would 
be built?
    Mr. Hamm. Well, there have been several expansions of 
existing refineries over time. A lot of the upgrades that have 
gone on to handle all this heavy sour have been like $85 
billion put in in the last 20 years. So there has been a lot of 
expansion of existing refineries. To answer your question how 
much additional would be built, obviously, we need sweet crude 
refineries built. But the time to build one, permit and build 
it, I mean we are talking 10 year timeframe or something close 
to that probably. So it is difficult to estimate when that 
could be done and how it could be done. But it would definitely 
help. Lifting those regs would certainly open the door.
    Mr. Austin Scott of Georgia. It seems to me from a 
strategic standpoint it would be good also to build refineries 
in different locations, the East Coast, for example, so that 
when we get these big storms in the Gulf of Mexico and certain 
other areas where so much of our petroleum is refined, and 
those refineries have to shut down because of those storms, 
that if we had refineries in other areas that might not be 
impacted by that same weather event, that that might help the 
United States.
    With that, Mr. Chairman, I am over my time so I don't yield 
anything back.
    The Chairman. The gentleman's time has expired.
    Mr. David Scott, for 5 minutes.
    Mr. David Scott of Georgia. Thank you, Mr. Chairman.
    First of all, let me say that I support lifting the ban on 
crude oil exports. And it is for this reason: Our nation is at 
a very, very critical time. And it is very important for us to 
be the leader, the leader of the world, maintain that position. 
And in order to do that, we have to be number one, have the 
strongest financial and economic system. We have to have the 
strongest and number one agriculture and energy system, and we 
have to have the strongest number one military and national 
security system. And this issue we are faced with today 
dovetails and intersects with all three of these, our national 
security, our agriculture and energy, and our financial and 
economic system, the hundreds of thousands of jobs that this 
will bring too.
    But it is our leadership in the world that is on issue 
today with this issue. Now, Mr. Duffy, you touched upon that 
issue of leadership. If I read your testimony, you said that 
there is a critical need to manage energy price risk. And you 
said that the United States is the leader for which producers 
come to manage their risk. And I thought that to be a very, 
very meaningful, profound statement that goes to the heart of 
my concern. But I want to ask you, how has the United States 
been able to be the leader, given the current ban? I think that 
requires an answer. How have we been able to do that if we have 
had the ban?
    Mr. Duffy. Mr. Scott, thank you for the question. I think 
it is very important. One of the greatest assets this country 
has is its financial services system. The world sugar that is 
produced today is not grown in the United States of America; it 
is grown outside the United States of America. Yet the price of 
the world's sugar is discovered in New York City, not in 
Brazil. That goes to show you the power of the financial 
services industry that we have here in the United States. Other 
products, like grains and that, we set the prices for the world 
products for so many different asset classes, especially in 
energy, which are critical to the people of the United States 
and the rest of the world. If you can then do the same thing 
for oil, we are already setting the price for it today, but we 
are not getting the sample because, as has been said earlier, 
we are paying for it at the pump without using our oil. And I 
think that is very damaging to our society.
    So if we could have our oil be part of the refined products 
and be reflected in the price that the people are paying at the 
gas pumps, it is no different than what they do at the grocery 
line. So that is a very important part. And, again, it is the 
strong financial services system that we have, hence what is 
going on in Greece, hence what is going on in China right now. 
It is not happening in the United States because of the system 
that we have built here over hundreds of years.
    Mr. David Scott of Georgia. So we are the leader with the 
ban.
    Mr. Duffy. We are, no question, the leader in financial 
services and in setting of price.
    Mr. David Scott of Georgia. Okay. So how different would 
our markets look if the ban is lifted? What would that do in 
sustaining our world leadership?
    Mr. Duffy. I think what it would do, it would create 
investment into these refined products that Mr. Hamm was 
talking about earlier, which is critically important. If we 
haven't built a refinery in 40 years because of EPA rules or 
whatever, but because they are set up for other grades, if we 
can have people invest in this, knowing that they can export 
this product outside the United States and not invest in 
something that is land locked within the 50 states of the 
United States, it is a very intriguing investment. That is the 
leadership role that I am speaking about. That is what we need 
to do. Just like we do with every other product that we have in 
our country today.
    Mr. David Scott of Georgia. Okay. Now, given the fact also, 
and I looked at some statistics here, and we had the ban in, 
but in the 1980s, we still exported 287 barrels of crude oil 
per day, and today we are importing 401,000 barrels of crude 
oil per day. So I guess my point is that we have a ban, and we 
don't have a ban. I mean, we are doing that now. And there are 
those that don't want to lift this ban, and they could very 
well use this argument that, hey, with the ban they are still 
producing 400,000 barrels a day.
    Mr. Duffy. We are producing 9.4 million barrels a day. Our 
current consumption today is around 19.4 million barrels a day. 
I think those numbers are relatively accurate. And no one is 
saying that if you are producing nine million barrels a day, 
you export nine million barrels a day. No different than we 
export all of our wheat, corn, or soybeans. We are part of the 
world market; be a part of the world price. That is the 
argument that we are saying.
    The problem the refiners are saying is they are set up to 
refine a different crude, and they don't want to have the 
expense of going in to refining their own product that is 
produced right here in the United States of America.
    Mr. David Scott of Georgia. Thank you, Mr. Chairman.
    The Chairman. The gentleman's time has expired.
    Mr. Crawford, of Arkansas, for 5 minutes.
    Mr. Crawford. Thank you, Mr. Chairman.
    I have a big steel industry in my district. And a lot of 
that is dedicated OCTG products.
    Ms. Cutting, you are shaking your head. And what has taken 
place in North Dakota has impacted our steel industry as the 
downturn took place. I also have the dumping issues, where we 
see other products entering the market dumped onto the market. 
So that is having a negative impact at home. And I represent 
one of the counties in my district is the number two steel 
producing county in the nation.
    So, Mr. Webster, if you could, do you have any data that 
sort of shows the relationship between the steel industry and 
the oil industry and what some of those ancillary effects are 
to an industry like the steel industry?
    Mr. Webster. I apologize, Congressman, I don't have that 
right in front of me. But our report does dig into and has a 
fact sheet actually specifically on the steel industry. And you 
are exactly right, which is this is something that has 
benefited around not just your district but every place that 
steel is manufactured as it goes across the United States in 
order for it to be used in a variety of different ways across 
the supply chain. One thing I would say is that allowing the 
repeal of the ban, what it does is it eliminates this policy 
discount.
    It won't necessarily--it is not going to bring us back to 
$100 oil, which I would say anybody on the consumer side 
doesn't necessarily want, but it does eliminate that ban to 
benefit people in your district to the maximum extent that you 
can from your seat.
    Mr. Crawford. Thank you. I have heard several different 
comments about how fast the industry can respond if, for 
example, if the ban were lifted.
    Mr. Hamm, in your estimation, if the ban was lifted 
tomorrow, number one, how fast could the industry respond, and 
how fast would we see the benefits accrue in terms of job 
creation and economic impact, particularly in rural economies?
    Mr. Hamm. It would be very quick. We have customers for our 
oil abroad that their refineries are suited for it. There are a 
lot of refineries today at risk because they can't get light 
crude, sweet crude. That is what they are fitted for, and there 
are refineries that are partially shut down in the Atlantic 
basin, about 2.6 million barrels in the Atlantic basin alone, 
that need this oil. So it could happen quickly, very quickly.
    Mr. Crawford. My colleague from the Virgin Islands kind of 
referred to this a little bit as the EPA issue. If the ban were 
lifted tomorrow, do we still have significant work to do in 
terms of EPA restrictions that would impede the investment to 
allow for the expansion to address that market demand, or would 
we just immediately see the flow of product?
    Mr. Hamm. Well, lifting the ban would certainly help very 
quickly turn that around. As far as working with the regs, EPA 
to build new refineries, that needs to be done. So, going 
forward, certainly that would be very helpful.
    Mr. Crawford. I support lifting the ban. I mean, we have 
heard a lot of testimony that indicates that is probably the 
right move. We have heard commentary and questions from my 
colleagues. My concern, though, as she referred to, the costs 
of retrofitting on top of the regulatory regime that you are 
facing, how big of an obstacle is that going to be for us to 
play in the global market in a significant role? Besides just 
price discovery, which, Mr. Duffy, you mentioned how important 
that is. But beyond that, to be a significant player as we are 
in other things, like agriculture, how much of an impediment 
are those regulations going to be and retrofitting costs and so 
on?
    Mr. Hamm. Well, I see lifting the ban will let us go back 
to work to develop the resource here in America, which is quite 
significant. We don't have the infrastructure needs in our 
industry that you might expect because everything is pretty 
much in place. Other than with refineries, there are a lot of--
you have to look at motive here with a lot of these refiners. 
If they are bringing their oil out of the tar sands of Canada 
here within this market, they don't have any desire to do 
anything, change those refineries to help us refine our 
product. If they are bringing their oil from Venezuela, they 
don't have any desire to do that. So you have to look at the 
foreign ownership, the amount of it, almost \1/3\ is foreign 
owned. Plus they have a lot of joint venture arrangements made 
that they get their oil processed through these refineries. So 
you have to overcome a lot of that before--they don't have any 
incentive to retool those.
    Mr. Crawford. Mr. Duffy?
    Mr. Duffy. Can I just make one quick comment? What is 
important to note here is when you look at the American farmers 
and ranchers, what they have had to go through over the last 10 
to 20 years to retrofit in order to produce the food that they 
have done and make the investment they have made, they have 
made it because in the long run, it is in their best interests. 
So Mr. Hamm is right, why would they want to do it? But at the 
same time, it is the right thing for the future, and other 
people have done it in the agribusinesses for many, many years.
    Mr. Crawford. Thank you. I appreciate it.
    My time has expired.
    The Chairman. The gentleman's time has expired.
    Ms. Lujan Grisham, for 5 minutes.
    Ms. Lujan Grisham. Thank you, Mr. Chairman.
    And I want to thank the panel too.
    I am going to take a similar approach that my colleague 
from the Virgin Islands, Congresswoman Plaskett, because while 
I represent a district and a state, really, that has a 
significant productive reliance on local oil and gas industries 
that, quite frankly, provide the revenue and the required 
resources for most of New Mexico's infrastructure investment 
and certainly investments in our public schools, and without 
which we could not make those investments at all. And so I 
would really identify that effort and that work as bread and 
butter work for the state. And it is valuable, and it is 
important.
    And, Ms. Cutting, I am drawn to the statements that you 
have made about seeing ghost towns literally come back. And 
representing such a rural and frontier state, particularly a 
state that also has families that quite literally have lived 
there for hundreds of years in these small communities, we do 
see that when we have the industry doing well, that those 
communities do well.
    And New Mexico is another state, a situation where we have 
had one of the worst job recoveries in the country since the 
recession. So these are all very positive aspects when you 
talked about the benefits about lifting the ban. The downside, 
which I just want to explore and see if folks have ideas, is 
that when there is a boom, and today actually in several of 
those communities, particularly two, Hobbs and Carlsbad--they 
are not in my district; they are in the southeastern part of 
the state--what happened is school teachers can't afford to 
live there anymore. And we have one of the highest vacancy 
rates for public schools. And retirees, who I spent my career 
working for before coming to Congress largely advocating and 
supporting seniors--and again, these are families that have 
lived there for generations. And to your points, the panel's 
points, and Mr. Duffy about farmers and ranchers and the 
benefits. The impact that it has not only on the state but on 
what we offer and produce for the rest of the country is 
valuable and important. These people can't stay. They can't 
afford those farms. They can't afford those ranches.
    And as my colleague identified, when things don't go well 
and everybody leaves, and with the oil and gas prices 
currently, we had sort of a boom, and then we have had 
producers move out. And then we have a huge gap. And those gaps 
are very difficult to recover from. Are there ideas, have you 
seen efforts in your experience where those communities have 
looked at ways to mitigate those production impacts by growing 
the economy so quick so fast that the local folks can't afford 
to stay there and live there? Any strategies that you would 
recommend that we undertake and look at in a state like mine?
    Ms. Cutting. Well, certainly. And, obviously, it is a 
difficult situation and requires some significant out-of-the-
box thinking. Any small community that is impacted with an 
influx of population is all of a sudden going to find itself in 
a supply and demand problem with housing.
    The State of North Dakota established a housing incentive 
fund, which allows corporations and individuals to put money 
into this fund that is then used for building houses that have 
a rent cap. And those are specifically for policemen and 
teachers and those who require a continual price cap on their 
rent. So you are putting a hold on rent escalation.
    Ms. Lujan Grisham. Is there something to promote--and I 
didn't mean to interrupt you--that's helpful--home ownership, 
which is something in a state that is also looking at stability 
and poverty and trying to create independence for these 
families so that they could also own these homes in addition to 
being able to afford them over the long haul?
    Ms. Cutting. This particular fund provides those who donate 
to this fund essentially have tax credits on their North Dakota 
State taxes. So that is a win for the individual or the 
corporation that puts money in that fund. At the same time, 
those funds are distributed to developers, and the developer 
will get a reduction in the capital that is required to build 
that housing development. But then he has to put aside so many 
units for the individuals that we are talking about that 
struggle in a rent escalation period. But, again, as supply and 
demand, any time you have demand in a community----
    Ms. Lujan Grisham. I am going to reclaim my time. That idea 
is helpful, but the folks that I am in addition worried about--
Mr. Chairman, and I will yield back--are those folks that are 
in their homes and on their property and can't afford to stay 
there because the property taxes have gone up, and they can't 
stay. But I would like to explore that further.
    Thank you, Mr. Chairman.
    The Chairman. The gentlelady yields back.
    Mr. Davis, for 5 minutes.
    Mr. Davis. Thank you, Mr. Chairman. I too want to thank you 
for calling this hearing today on a very important issue. And I 
agree, it is critical that we look at this issue as American 
oil producers look for ways to access the global market. And 
additionally a Member who also understands the leadership roles 
that our futures market plays in this particular issue.
    I am glad to be joined by my friend, Mr. Duffy, and I want 
to start with a question for you, sir. It has been suggested by 
some that CME's oil futures, your oil futures contract would 
benefit from lifting the crude oil export ban. But based on the 
testimony that I have heard and your testimony, it seems to me 
that there would be a much more broader and more significant 
benefits for market participants and the market as a whole. Can 
you maybe expand on some of those benefits and address some of 
these issues that have been brought forth?
    Mr. Duffy. From our perspective, on the business side, our 
oil business has been up 10 to 12 percent year over year for 
the last 15 years. So we have had great growth, as I said to 
Mr. Scott earlier, from people managing their risk from all 
over the world coming to the markets in New York and Chicago.
    I thank you for your leadership that you are doing in 
Illinois, sir.
    But this is really an important point here because the CME 
won't benefit by that change if the oil ban was lifted by doing 
more business. So that won't be the case.
    And the second part of your question was?
    Mr. Davis. Can you expand on some the benefits of what we 
are looking to do by opening up more opportunities for crude 
exports? And what does that mean to the futures markets and 
those who utilize futures?
    Mr. Duffy. What it means is it gives us a greater sample 
from around the world in order to price the product. So the 
panel has done a really good job up here explaining how what is 
really important here is when we go pump gas at the pump for 
our cars. That is really what we are talking about here. And 
that refined product is not West Texas Intermediate. And if you 
can get West Texas into the flow of the world oil market, it 
gives a greater sample of what the gasoline that we are pumping 
into our cars is.
    So if OPEC decides that they want to raise prices, we have 
explorers that, Mr. Hamm and other folks, that can come back in 
if they want to do that because the input costs are there to 
drive them back down. It is critically important from a 
standpoint to have a greater sample of the world market that 
impacts the price of gasoline because that is really what we 
are talking about is going to the pump once a week and filling 
up, no different than going to the grocery store.
    Mr. Davis. I agree with you, Mr. Duffy, it is about the 
consumer and how do we lower prices so Americans can afford to 
continue to do what they need to do on a regular basis. It is 
interesting when we hear about the ability to export crude oil, 
I have seen some statistics that show that Illinois would be a 
prime beneficiary of a more robust export market for crude. 
Well, I am here to represent my constituents. Job creation, 
economic growth in Illinois, I don't think is a bad thing. So 
if this is a benefit to my home state, similarly to what we are 
hearing from Ms. Cutting in North Dakota, I would encourage 
more towns that I represent that would love economic 
development that North Dakota is experiencing.
    And I know my colleague Ms. Lujan Grisham brought up some 
concerns about what economic growth may mean to a local 
property tax base. But I also want to ask you, Ms. Cutting, 
what is the average wage for somebody going into maybe the 
retail industry in your communities because of the growth in 
the energy sector in North Dakota?
    Ms. Cutting. Well, the wages, of course, in oil and gas are 
much higher than the average wage. We have all heard about the 
stories of McDonald's in Williston and the kind of wages they 
provided. So definitely higher cost of living, but also higher 
wages are available for businesses in North Dakota and the 
impacted cities. I would also like to add that one of the 
things I was moving into with the Congresswoman's question was 
that because of the oil and gas tax revenue that the North 
Dakota State has experienced, they have been able to reduce 
income taxes; they have been able to significantly reduce 
property taxes. That, coupled with having other sources of 
income for rural communities, has certainly helped maintain a 
cost of living that people can still exist in these smaller 
communities.
    Mr. Davis. And you didn't need government to set those 
wages?
    Ms. Cutting. No.
    Mr. Davis. Shocking.
    Well, with that, I will yield back the last 10 seconds of 
my time, Mr. Chairman.
    Mr. Thompson [presiding.] The gentleman yields back.
    I am now pleased to recognize Mr. Ashford, for 5 minutes of 
questioning.
    Mr. Ashford. Thank you. I am from Nebraska. And I served in 
the Nebraska Legislature for a number of years. And we spent 
the entire year working on the TransCanada pipeline issue. And 
we successfully came up with legislation, with the help of 
everyone, moving that pipeline somewhat from the original route 
to protect the Ogallala Aquifer. We thought that was good work. 
It still hasn't been built. But Nebraska legislature almost 
voted unanimously--only one or two votes against--to proceed 
with the pipeline.
    Anyway, there were three issues that came up in the 
discussion on the floor of the legislature. We had at least one 
major special session dealing with this very issue. And one was 
the issue of none of this product is going to stay in the 
United States; it is going to be exported to China. That was 
the opposition. It is all going to China. Every drop is going 
to China. So this has been asked and answered. But if someone 
could just answer that for my constituents.
    Mr. Hamm, if you would comment on that.
    Mr. Hamm. Well, I commented earlier that we had 
arrangements for an on-ramp for Bakken oil into the pipeline. 
Of course, that couldn't be exported. So that would have been 
here in the U.S., certainly refined here and whatever.
    Mr. Ashford. The second concern was that this is not 
going--if this pipeline were built--and obviously this issue is 
much grander than the TransCanada pipeline, but it is endemic 
of what we are dealing with here--is that the price of gas--and 
this has been mentioned many times and answered adequately--is 
that the gas prices would tend to go up. And all the research I 
have done and the answers to the questions today would indicate 
that is not correct, that gas prices will not go up with the 
lifting of the ban. And I think that has been answered. I don't 
know if anybody has any other comments. So I will just leave 
that the way it is. The third----
    Mr. Duffy. Can I comment on that?
    Mr. Ashford. Yes, sir.
    Mr. Duffy. Because I don't want to have a misdirect here. 
Because gas prices could go up with the lift of the ban if 
demand was to increase. That is really something that we cannot 
ever----
    Mr. Ashford. Sure. But it doesn't automatically.
    Mr. Duffy. Correct.
    Mr. Ashford. It is market driven, as has been suggested.
    So the third opportunity, and Congressman Davis really 
landed on it, in rural Nebraska, for example small town of 
Trenton, Nebraska, out in western Nebraska, has free and 
reduced lunch, 70 percent of the kids are on free and reduced 
lunch. Crete, Nebraska, over by Lincoln, has 50 percent free 
and reduced lunch. We need opportunity in rural Nebraska for 
well-paying jobs. It is not just about my district, Omaha, and 
Sarpy County; it is about my entire state. And so this idea of 
building a diesel refinery or refining into diesel product is 
compelling. And it would create jobs in Nebraska if we could do 
something like that in our state.
    And Mr. Webster, you were talking about diesel conversion, 
or were you? Or someone was. And I would like to hear maybe a 
little bit more about that because certainly we need diesel at 
a reasonable price in Nebraska for our ag economy. We could do 
refineries in Nebraska. How difficult is that to do? And what 
opportunities are there?
    Mr. Webster. Well, actually, it was Mr. Hamm who was 
talking about the refineries that were splitting off the 
diesel.
    Mr. Ashford. Sorry.
    Mr. Hamm. That is what has been built recently in North 
Dakota, was what we call a topping unit. And basically, on a 
pipeline stream, take product off, and particularly the 
distillates diesel and other products, and about 20,000 barrels 
a day. So you don't go through the same process for permitting 
that you would on a huge refinery. It is a lot simpler.
    Mr. Ashford. It seems to me that Nebraska would benefit 
significantly from lifting the ban, first of all, and 
secondarily from exploring economic opportunities like this so 
towns like Trenton can get more economic development. I just 
feel strongly about this for our state. We are a small state 
population-wise but a big geographic state. And I see just 
nothing but positive. Yes, we have to think through the 
technologies. And even, I know at the UP Railroad where the 
railroad is--the railroad is headquartered in Omaha--doing a 
lot of work on technology to deal with some of the issues of 
transporting oil and gas.
    So thank you, Mr. Chairman. I yield back.
    The Chairman [presiding.] The gentleman yields back.
    Mr. Yoho, for 5 minutes.
    Mr. Yoho. Thank you, Mr. Chairman.
    Gentlemen, I appreciate it. Ms. Cutting, I appreciate you 
being here. And looking back over the years, I look at the 
panel, and everybody remembers the oil embargo, except you, Ms. 
Cutting, of the 1970s, when we had to wait in line for our gas, 
and we were indebted to foreign nations for our oil. I never 
want to go back to that. In fact, when I came up here, I heard 
somebody say that we don't even need a farm bill; we should 
import our food. And it reminded me of the oil situation. And 
like I said, I never want to be back into that. So what I see 
is getting rid of the ban will increase our exports. Increasing 
our exports is going to increase our production. Increased 
production, as Mr. Davis brought up, will bring down the price. 
We are all in favor of that. But, more importantly, it is the 
stability in the price that brings certainty to the economic 
market. Because I remember, in 2005--I am a veterinarian by 
trade, and I had three trucks on the road at the time, and they 
are diesel.
    And every time you went to fill up, it was $200 at the 
pump. And that was three times a week per truck. And I remember 
the economic impact, not just on me but on our staff, coming 
into work. And so at the bottom line, at the end of the month, 
there was less discretionary income to spend when that husband 
and wife or the single mom or dad were sitting at the end of 
the month to write their bills, they didn't have the 
discretionary money. And so by bringing the stability to the 
market would help not just rural America, but all of America.
    And the Lord has blessed this country with so many great 
resources that it would be foolish for us not to take advantage 
of those resources.
    And, Mr. Hamm, I wanted to ask something of you. You were 
saying that the current situation with the foreign ownership of 
our refineries is roughly 28 to 30 percent. Are we at refinery 
capacity in this country?
    Mr. Hamm. We are not. Refinery capacity right now, 
refineries have been running about 94 percent over the last 
month. Of course, this is driving season and all of that. But 
about 94 percent. But the foreign ownership, direct foreign 
ownership is about 28 percent exactly. But there is a lot of 
throughput arrangements that have been made on top of that for 
upgrades to handle heavy sour crude that other countries have 
made as well.
    Mr. Yoho. Would there be a need to increase the refinery 
capacity? Because if we had more production, I assume most of 
that is going out of the country, or is that being refined 
here?
    Mr. Hamm. Well, as we go forward, we see the possibility to 
double production again by 2025 in this country would put 
America way out front in leadership.
    Mr. Yoho. And there would be a need to go ahead and 
increase refinery capacity here?
    Mr. Hamm. We would need to, yes.
    Mr. Yoho. And on the Keystone pipeline, would any of this 
oil from North Dakota transit that in the Keystone pipeline if 
that were to be built?
    Mr. Hamm. Well, yes. If it were to be built, there would be 
shipments on the pipeline yet. We have commitments and a lot of 
other companies have commitments yet.
    Mr. Yoho. Do you have a feel for what percent of that oil 
coming through the Keystone pipeline would stay here in America 
domestically?
    Mr. Hamm. Well, right now if everything would--under the 
ban, certainly it would. But, yes, there would be a good bit of 
it staying here I am sure.
    Mr. Yoho. I sit on the Foreign Affairs Committee, and it 
came up that 70 percent of that oil would stay here 
domestically because there was a controversy that most of that 
would go outside. And I find that is not the truth.
    Is there any downside of not lifting the ban in anybody's 
opinion?
    Mr. Hamm. No, it is certainly a bipartisan thing. It is an 
American thing. I have not run across anybody. The refiners 
themselves agree, they were the first ones that actually asked 
Commerce for the ability to move oil to other refineries that 
they owned that was tooled for it outside the country. They 
were the first ones that made application.
    Mr. Yoho. Does anybody else see a downside of lifting this 
ban? Nobody? We, as people in government--because again 
government is a nonentity; it is the people in it--we should do 
everything from a Federal standpoint to make this country 
stronger, more competitive. It is time that we go to the EPA 
and just say, ``No, we need this refinery capacity. We need to 
waive some rules. Let's make America strong, and put that 
investment in America.''
    And, with that, Mr. Chairman, I am going to yield back. 
Thank you.
    The Chairman. The gentleman yields back.
    Mr. Costa, for 5 minutes.
    Mr. Costa. Thank you very much, Mr. Chairman.
    I know the subject of the hearing is about energy and rural 
economy and the impacts of lifting the ban on export of oil in 
America. But I would submit that in my view, the same arguments 
that have been made and the same merits that are involved would 
apply to natural gas, frankly. And it is something that also 
would have benefits to not only rural America but also the 
geopolitics, frankly, of dealing with Mr. Putin, who is using 
natural gas, but also other fossil fuels as political leverage 
is something that goes into the factor. And to the degree that 
we have solid markets in Europe, it helps--and Asia and 
elsewhere--it helps American agriculture sell our products. 
California exported $174 billion of product last year, and 
$19.4 billion of it was agricultural products.
    Dr. Rusco, I have a question to you. Are you aware of any 
studies that have been done regarding the impact of lifting of 
the export ban on rail infrastructure or impacts on rail 
customers? Because we export a lot of our ag products on rail, 
and sometimes we have issues or challenges there.
    Dr. Rusco. I am not aware of any specific studies on that. 
It is likely that some of the rail--some of the oil that is 
shipped by rail now could still be shipped by rail to port for 
export or could continue since that infrastructure is there. 
But to the extent that there is additional pipelines built, it 
is usually cheaper to ship by pipeline.
    Mr. Costa. Okay. Dr. Rusco, are there any examples of 
specific port locations where the Jones Act would be a factor 
or where light crude could be shipped from?
    Dr. Rusco. Well, currently, most of the crude oil that is 
shipped around the country is either by rail or by pipeline, 
not very much by ship from port to port.
    Mr. Costa. Anecdotally, you hear that it would be cheaper 
to export the product to Europe rather than to East Coast 
refineries. I don't know if there is any basis of fact on that 
or not.
    Dr. Rusco. Yes, that is true. Shipping on Jones Act ships 
is more costly than on international tankers.
    Mr. Costa. Mr. Duffy and maybe Dr. Rusco and any other 
witnesses--by the way, Mr. Duffy, you have excellent 
representation here in Washington. Do you know or do you have 
any other opinions or options available to find workarounds as 
we talk about the question of exporting crude oil? And would 
that play a role while Congress is considering legislation on 
lifting the ban? What I am trying to figure out is, is there 
any non-legislative options that you folks are looking at?
    Mr. Duffy. No, there is not any non-legislative options 
that we are looking at on the ban of oil. We think that we have 
to lift the one from 40 years ago.
    Mr. Costa. The Jones Act. Ms. Cutting, there are a lot of 
ramifications in terms of the economic marketplace working when 
we are talking about lifting the ban as it applies to rural 
America. But are there any areas specifically that have not 
been mentioned this morning during the hearing that you would 
like to put on the table?
    Ms. Cutting. I would just like to comment that this is all 
about markets. And whenever you have a commodity that doesn't 
have sufficient markets and then markets become available, for 
example crude oil to Europe, then you go from establishing the 
market to then determining how to transport that product to 
that market. Immediately, it has supply and demand implications 
and price implications. Lifting the ban is about having crude 
oil in this country and natural gas in this country that need 
additional markets.
    Mr. Costa. That is why I say, at least from my perspective, 
it is also applicable as it relates to the incredible gas 
production and potential with the Marcellus Shale, the Monterey 
Formation, and the Bakken. I mean, there are a lot of 
opportunities there. Would you agree, Mr. Hamm?
    Mr. Hamm. Yes, I would.
    Mr. Costa. Nice succinct, short answer.
    Mr. Costa. All right.
    The Chairman. The gentleman's time has expired.
    Mr. Abraham, for 5 minutes.
    Mr. Abraham. I thank you, Mr. Chairman.
    I thank the panel for being here. I am from northeast 
Louisiana. Certainly we have the Haynesville shale, but that is 
mostly natural gas at this point. But we have thousands upon 
thousands of workers that go to North Dakota, Texas, wherever 
you can find the production.
    And, Mr. Hamm, we will call it the new roughneck. It is 
certainly a very highly technical job that I could not do with 
my educational background, very high-paying job.
    And, Ms. Cutting, even our welders from Louisiana are 
making a little over a $100,000 in your good state. So when you 
shutter a well, if it is a 224 average person, as Louisianans, 
we want those jobs back. And certainly being in Louisiana, our 
ports, if we do lift the ban, would certainly be a recipient of 
some of that wonderful light crude going overseas. So, to 
Louisiana, it is a huge thing.
    Ponying up on Mr. Scott's comments a little bit, it 
certainly to me is a national security issue. I don't want 
Iranian oil sold anywhere that American oil can be sold. I 
don't want the ban on Iranian oil lifted. So if we can 
stabilize national security and world markets, well, that is a 
twofer on anybody's game. I guess the question, Dr. Rusco, I 
will go to you first, I read your testimony last night, and it 
said that if we do lift the ban, that the revenue for the 
government would go up $1.4 trillion was the figure, if I 
remember right. Walk me through that. Just briefly, how much--
that is a lot of money. How will we get to that point?
    Dr. Rusco. So some revenue, some oil is produced on Federal 
lands, and so the Federal Government collects royalties and 
rent and also leasing payments for those properties. So to the 
extent there is an increase in production and some of that is 
on Federal lands, that will increase revenue. And then if the 
price goes up, the royalties on the value of the oil produced, 
and so that would also affect revenues.
    Mr. Abraham. Okay. Mr. Webster, you had in your testimony 
somewhat of the disparity between trade policy of crude, 
natural gas, coal, those type--gasoline and those type of 
products. Would you expound a little bit on that for me, 
please, as far as the disparity issue?
    Mr. Webster. Certainly. As an oil market or energy analyst 
you look and see what is allowed to be exported out this 
country in terms of an energy base. It is essentially 
everything except for crude oil. And that is due to an 
anachronistic law that was put in place back when we were 
concerned about that. For the last several decades, if you had 
allowed the export of crude oil, you really wouldn't have seen 
it at all until probably the fall of 2013, when the price 
spread blew out to as much as $15. It is hard as an analyst to 
try to figure out why it is okay to export everything, to 
include gasoline and diesel, but that we don't on crude.
    Mr. Abraham. Thank you.
    Mr. Chairman, I yield back.
    The Chairman. The gentleman yields back.
    Mr. Allen, for 5 minutes.
    Mr. Allen. Thank you, Mr. Chairman.
    And thanks to the panel for being here. I too am a small 
business owner, a previous owner. And one of the things that--I 
am new here--and I promised folks that I was going to do 
everything I could to get folks back to work in this country. I 
think that is priority one. And I really appreciate what you 
are proposing here to get folks back to work. A couple concerns 
that I have is that one of the other things that was discussed, 
particularly in my district and throughout this country, is a 
long-term vision for this country to become energy independent.
    In fact, it is almost unconscionable that we have a country 
in South America who is in charge of a number of these 
refineries which is not a friend to this country. And so what 
is our long-term strategy to get this country energy 
independent? Sure, we are ready to go; this is a short-term 
fix. But then would you agree that we need a long-term strategy 
to get this country energy independent? And I would ask any of 
the members of the panel to comment on that.
    Mr. Hamm. I think it comes about naturally. The 
entrepreneurship in America is just so strong. Nobody thought 
we could ever do what we have done with this energy 
renaissance, yet we did. We brought about horizontal drilling. 
We have a completely new reservoir that we are working with 
actual source beds themselves to get here. It will occur. I 
predicted, DEPA predicted that we would see energy independence 
in this country if we had been unfettered--with this old ban, 
if it hadn't come into place, and refinery situation that we 
have, it would have happened--been on track, we had been on 
track to do it by 2020. By 2025, we can again double production 
here in America. If we are left alone and government does no 
harm, this will happen with or without a policy in Washington.
    Mr. Allen. The country I was referring to is Venezuela. 
And, of course, our relationship with that country has been--
and, of course, we buy a lot of oil from other countries that 
fund organizations that are a security risk to this country. 
And in looking at, say, where we would send immediately this 
sweet crude to, what nations would be refining this oil? And is 
it possible if we send the oil there to be refined, that we 
could actually buy it back and use our own oil in this country? 
I mean, what are the possibilities of that?
    Mr. Hamm. Well, it is a fungible product. We don't need to 
have direct ownership or whatever. It is fungible in trade, as 
Mr. Duffy has explained. So we don't have to have our hands on 
it, so to speak. Our allies need this product. Atlantic basin 
and Europe, Eastern and Western Europe, and South Korea are 
forced to buy from Iran.
    Mr. Allen. Obviously, we want to get folks back to work, 
obviously, you have to look after your bottom line. But at the 
same time, we need to be patriotic, and we need to be careful 
about who we are dealing with around the world as far as our 
oil and gas reserves. I mean, it is unconscionable to me that 
Venezuela has been able to get this foothold in this country in 
our oil industry.
    And, with that, Mr. Chairman, I will yield back the 
remainder of my time.
    The Chairman. The gentleman yields back.
    Mr. Goodlatte, 5 minutes.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    I appreciate your holding this hearing.
    And, gentlemen, let me start with you, Mr. Hamm. I will 
follow up with some of the questions that Mr. Allen asked. I am 
interested in knowing what the plan of the industry, if you 
will, is if this law were to be changed. And, first, as a start 
question, does this law restrict already refined gasoline right 
now, or can you export it now if it is refined?
    Mr. Hamm. Yes, you can export refined products.
    Mr. Goodlatte. It is just crude oil, petroleum products, 
and natural gas liquids that are restricted right now?
    Mr. Hamm. Right now you can export refined products. And 
crude oil, some crude oil has been exported to Canada. But if 
it is exported to Canada, you have to get refined products 
back.
    Mr. Goodlatte. Where do you anticipate most of the crude 
oil that might be exported would go to?
    Mr. Hamm. Where would I expect that most of the crude oil 
if this ban is lifted----
    Mr. Goodlatte. Yes.
    Mr. Hamm.--would go to? Obviously, with our allies, South 
Korea, people we trade with and have a great relationship with, 
Western Europe, South America, Eastern Europe.
    Mr. Goodlatte. What about China?
    Mr. Hamm. Canada?
    Mr. Goodlatte. China?
    Mr. Hamm. China? I don't see a lot of that trade happening. 
But, there shouldn't be any restriction on it I don't believe.
    Mr. Goodlatte. And with regard to the use of oil in the 
United States, what is the long-term trend for that right now? 
Is it going up at paces like it did 20 or 30 years ago, or my 
understanding is it has sort of leveled off because of more 
fuel-efficient vehicles, because natural gas has replaced the 
use of oil in some circumstances. What is the domestic market 
looking like for oil heading down the road?
    Mr. Hamm. I don't see it changing a great deal. We have 
seen estimates out to 2040. Mr. Webster might be able to 
address this better than myself, but right now about 90 percent 
or 95 percent of our oil is used for transportation.
    Mr. Goodlatte. Right.
    Mr. Hamm. Gasoline, diesel, jet fuel, whatever.
    Mr. Goodlatte. Do you see electric vehicles depleting the 
demand in the United States for petroleum products, or do you 
think that is not going to develop in the numbers that some 
people think it will?
    Mr. Hamm. We have seen demand in the U.S. kind of flatten. 
And it has flattened.
    Mr. Goodlatte. But it would actually go down if everybody 
switched over to electric vehicles. We would have to figure out 
how to generate a lot more electricity, but that would probably 
not come from petroleum.
    Mr. Hamm. Well, we have actually seen a lot more, of 
course, power plants going to natural gas----
    Mr. Goodlatte. Right.
    Mr. Hamm.--in the last few years.
    Mr. Goodlatte. But not crude oil.
    Mr. Hamm. Not crude oil, yes.
    Mr. Goodlatte. Mr. Webster, you have been referred to, do 
you want to add anything to that?
    Mr. Webster. Sure. I mean, we have seen U.S. demand for 
gasoline and other refined products has gone up. Partly this is 
driven by the lower gasoline prices. So AAA expected this past 
weekend to be the biggest driving weekend for the Fourth of 
July that we have had in 8 years. And part of that is 
attributable to the lower gasoline price, and part of that is 
attributable to the economic growth that we have seen here. 
Long term, even with the lower gasoline price, you have 
vehicles that are more efficient. You have a number of 
millennials now that don't drive cars. So you have this kind of 
trend to where it is going to offset each other. And so while 
we do still expect some slight growth in U.S. demand, it is not 
going to be the big game changer. It is not going to be the 
sort of thing that on its own is going to be able to handle the 
sort of scale of production that we think companies like 
Continental Resources and others could end up bringing out in 
the next several years.
    Mr. Goodlatte. And very quickly, Mr. Duffy, welcome. It is 
good to see you back as well. As a manager of a major market 
for the transactions related to sale of various sources of 
energy, what do you see as the trend?
    Mr. Duffy. I see what we are already seeing today, which is 
people are managing risk from all over the world on our 
products in the United States. So that won't change. What will 
change is that we can cap the upside of this market 
dramatically by lifting this ban. If you get the oil--and I am 
not an expert like these two are, but I have talked to many 
experts in the field--if you get the cost of oil--and we don't 
want it to go there--but at $80 a barrel, you get a lot of 
people back in the exploration business that will create 
probably up to 18, 19 million barrels by 2020 or 2018, as 
projected by. So there are a lot of benefits to it. But what is 
most important is to get a pure sample of what the product is 
worth. One of the big arguments Congress has always had is we 
have a glut of oil, but the price is going up, so it must be 
the speculators, except nobody said that when oil went from $92 
a barrel to $45 a barrel, it was the speculators. It was a 
supply-demand equation. So I do think that goes to show you the 
bigger the supply or the bigger the sample you have the price 
on, the better it is for the American consumer.
    Mr. Goodlatte. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. The gentleman's time has expired.
    I want to thank our witnesses today. This has been a 
terrific hearing. It was very informative. Crude oil is the 
only commodity America produces that we can't export, and yet 
we import unlimited quantities. I don't know of another 
commodity where we have unlimited imports. We use sanctions on 
Iran's production of crude oil and exporting crude oil as a 
punishment. It seems odd to me that we would continue to punish 
domestic producers the same way we punish Iran with respect to 
being able to sell their product where we want to sell it.
    Lifting this crude oil ban is important. The President 
could lift it today with an Executive Order, and we are going 
to pursue it legislatively. A couple of our colleagues 
mentioned the geopolitical aspects. I was in a conversation 
with the Prime Minister of Ukraine in April and asked him flat 
out: If you could buy crude oil directly from the United 
States, would that improve your negotiating position vis-a-vis 
Putin? He lit up like a Christmas tree and said: ``Absolutely, 
yes, we would love to buy your crude oil and your natural gas 
to offset the direct negative influence Vladimir Putin has with 
respect to all of Eastern Europe.''
    Markets work best when they are efficient. Mr. Duffy knows 
this best of anybody at the witness table. Artificial 
inefficiencies built into any market cause consumers to 
ultimately pay more than they would have otherwise. Artificial 
restraints, like a crude oil export ban, create inefficiencies 
that some folks take advantage of, to the detriment of the 
overall market. Eliminating these artificial inefficiencies 
that we are baking into our system is, in my view, something 
that we ought to do.
    The problem we have is that there are several Members who 
don't represent districts that produce crude oil. Their natural 
reaction is, when you first mention lifting the ban, is it 
somehow would increase gasoline or diesel prices, and every 
district has someone who buys gasoline and diesel every day. We 
have to convince them that that is not the case. All the 
empirical evidence shows fuel prices would actually decrease 
and become more stable. Getting the 218+ votes needed to move 
legislation to lift this ban is important on every level. I 
don't see any down side to having that happen.
    It creates the kind of efficiencies that we need. It also 
leads to better decisions made by those trying to invest, 
whether it is in crude oil or refineries, to make better and 
confident decisions that the risks they are taking relate just 
to supply and demand, and not to some sort of an artificial 
thing that we have going on at the Federal Government.
    Again, I thank our witnesses for being here today.
    Under the rules of the Committee, the record of today's 
hearing will remain open for 10 calendar days to receive 
additional material and supplementary written responses from 
the witnesses to any question posed by a Member.
    This hearing of the Committee on Agriculture is now 
adjourned. Thank you all.
    [Whereupon, at 12:03 p.m., the Committee was adjourned.]