[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
H.R. 702, LEGISLATION TO PROHIBIT RESTRICTIONS ON THE EXPORT OF CRUDE
OIL
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ENERGY AND POWER
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
JULY 9, 2015
__________
Serial No. 114-64
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
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COMMITTEE ON ENERGY AND COMMERCE
FRED UPTON, Michigan
Chairman
JOE BARTON, Texas FRANK PALLONE, Jr., New Jersey
Chairman Emeritus Ranking Member
ED WHITFIELD, Kentucky BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois ANNA G. ESHOO, California
JOSEPH R. PITTS, Pennsylvania ELIOT L. ENGEL, New York
GREG WALDEN, Oregon GENE GREEN, Texas
TIM MURPHY, Pennsylvania DIANA DeGETTE, Colorado
MICHAEL C. BURGESS, Texas LOIS CAPPS, California
MARSHA BLACKBURN, Tennessee MICHAEL F. DOYLE, Pennsylvania
Vice Chairman JANICE D. SCHAKOWSKY, Illinois
STEVE SCALISE, Louisiana G.K. BUTTERFIELD, North Carolina
ROBERT E. LATTA, Ohio DORIS O. MATSUI, California
CATHY McMORRIS RODGERS, Washington KATHY CASTOR, Florida
GREGG HARPER, Mississippi JOHN P. SARBANES, Maryland
LEONARD LANCE, New Jersey JERRY McNERNEY, California
BRETT GUTHRIE, Kentucky PETER WELCH, Vermont
PETE OLSON, Texas BEN RAY LUJAN, New Mexico
DAVID B. McKINLEY, West Virginia PAUL TONKO, New York
MIKE POMPEO, Kansas JOHN A. YARMUTH, Kentucky
ADAM KINZINGER, Illinois YVETTE D. CLARKE, New York
H. MORGAN GRIFFITH, Virginia DAVID LOEBSACK, Iowa
GUS M. BILIRAKIS, Florida KURT SCHRADER, Oregon
BILL JOHNSON, Ohio JOSEPH P. KENNEDY, III,
BILLY LONG, Missouri Massachusetts
RENEE L. ELLMERS, North Carolina TONY CARDENAS, California
LARRY BUCSHON, Indiana
BILL FLORES, Texas
SUSAN W. BROOKS, Indiana
MARKWAYNE MULLIN, Oklahoma
RICHARD HUDSON, North Carolina
CHRIS COLLINS, New York
KEVIN CRAMER, North Dakota
Subcommittee on Energy and Power
ED WHITFIELD, Kentucky
Chairman
PETE OLSON, Texas BOBBY L. RUSH, Illinois
Vice Chairman Ranking Member
JOHN SHIMKUS, Illinois JERRY McNERNEY, California
JOSEPH R. PITTS, Pennsylvania PAUL TONKO, New York
ROBERT E. LATTA, Ohio ELIOT L. ENGEL, New York
GREGG HARPER, Vice Chairman GENE GREEN, Texas
DAVID B. McKINLEY, West Virginia LOIS CAPPS, California
MIKE POMPEO, Kansas MICHAEL F. DOYLE, Pennsylvania
ADAM KINZINGER, Illinois KATHY CASTOR, Florida
H. MORGAN GRIFFITH, Virginia JOHN P. SARBANES, Maryland
BILL JOHNSON, Ohio PETER WELCH, Vermont
BILLY LONG, Missouri JOHN A. YARMUTH, Kentucky
RENEE L. ELLMERS, North Carolina DAVID LOEBSACK, Iowa
BILL FLORES, Texas FRANK PALLONE, Jr., New Jersey (ex
MARKWAYNE MULLIN, Oklahoma officio)
RICHARD HUDSON, North Carolina
JOE BARTON, Texas
FRED UPTON, Michigan (ex officio)
C O N T E N T S
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Page
Hon. Ed Whitfield, a Representative in Congress from the
Commonwealth of Kentucky, opening statement.................... 5
Prepared statement........................................... 6
Hon. Bobby L. Rush, a Representative in Congress from the State
of Illinois, opening statement................................. 7
Hon. Fred Upton, a Representative in Congress from the State of
Michigan, opening statement.................................... 8
Prepared statement........................................... 8
Hon. Joe Barton, a Representative in Congress from the State of
Texas, prepared statement...................................... 9
Witnesses
Petr Gandalovic, Ambassador to the United States, Czech Republic. 10
Prepared statement........................................... 13
Commander Kirk Lippold, President, Lippold Strategies............ 17
Prepared statement........................................... 19
W. David Montgomery, Senior Vice President, NERA Economic
Consulting..................................................... 25
Prepared statement........................................... 27
Mark Kreinbihl, Group President, The Gorman-Rupp Company......... 38
Prepared statement........................................... 40
Submitted Material
H.R. 702......................................................... 2
Statement of the Energy Equipment and Infrastructure Alliance.... 81
Statement of the Chamber of Commerce of the United States........ 85
Statement of America's Natural Gas Alliance...................... 87
Statement of Americans for Tax Reform............................ 88
Statement of United States refineries............................ 89
H.R. 702, LEGISLATION TO PROHIBIT RESTRICTIONS ON THE EXPORT OF CRUDE
OIL
----------
THURSDAY, JULY 9, 2015
House of Representatives,
Subcommittee on Energy and Power,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:02 a.m., in
room 2123 of the Rayburn House Office Building, Hon. Ed
Whitfield (chairman of the subcommittee) presiding.
Members present: Representatives Whitfield, Olson, Barton,
Shimkus, Pitts, Latta, Harper, McKinley, Pompeo, Kinzinger,
Griffith, Johnson, Long, Ellmers, Flores, Mullin, Hudson, Upton
(ex officio), Rush, McNerney, Tonko, Engel, Green, Doyle,
Castor, Sarbanes, Welch, Loebsack, and Pallone (ex officio).
Also present: Representative Cramer.
Staff present: Nick Abraham, Legislative Associate, Energy
and Power; Will Batson, Legislative Clerk; Leighton Brown,
Press Assistant; Allison Busbee, Policy Coordinator, Energy and
Power; Tom Hassenboehler, Chief Counsel, Energy and Power; A.
T. Johnston, Senior Policy Advisor; Brandon Mooney,
Professional Staff Member, Energy and Power; Dan Schneider,
Press Secretary; Christine Brennan, Democratic Press Secretary;
Jeff Carroll, Democratic Staff Director; Michael Goo, Chief
Counsel, Energy and Environment; Caitlin Haberman, Democratic
Professional Staff Member; Rick Kessler, Democratic Senior
Advisor and Staff Director, Energy and Environment; John
Marshall, Democratic Policy Coordinator; and Alexander Ratner,
Democratic Policy Analyst.
Mr. Whitfield. I would like to call the hearing to order
this morning, and today's hearing is on H.R. 702, Legislation
to Prohibit Restrictions on the Export of Crude Oil.
[H.R. 702 follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF KENTUCKY
Mr. Whitfield. We have one panel of witnesses this morning,
and I will introduce each of you individually right before you
give your opening statement. But we are very excited about this
panel of witnesses because they have a great deal of expertise
and can give us some insights into the positive and any
negative impacts that might occur if we lift the restrictions
on export of crude oil. And I would like to recognize myself
for 5 minutes for an opening statement.
I want to thank, first of all, Congressman Joe Barton of
Texas, Chairman Emeritus of this committee, for introducing
this bill. He has bipartisan support on this bill, and it
certainly raises an issue that there is more and more
discussion about it around the country and around the world.
Americans believe in free trade, and our Nation has greatly
benefited from policies that allow us to export our products
around the world. Everyone from farmers to automakers enjoy the
advantages of a global economic and customer base. However, oil
does remain basically an exception to the rule. 1970s-era
restrictions still prohibit most exports of American crude.
But as we all know, the reasons for these restrictions are
certainly different than they were in the '70s. Most
significantly, we have gone from a Nation with dwindling
petroleum output to the world's number one producer of liquid
hydrocarbons. In fact, American production growth has been so
robust that the domestic supply of oil is now outstripping
demand. This is especially true for the lighter grades of crude
not suitable for most domestic refiners but still very much in
demand around the world. Allowing American companies to serve
this global market would provide substantial economic as well
as geopolitical benefits, and that is what H.R. 702 seeks to
remedy.
There has been tremendous job growth associated with
increased oil and gas production over the last decade, and it
should be noted that this includes many jobs far away from the
Nation's oil fields, such as those manufacturing the equipment
used by these energy companies. Unfortunately, we have seen the
loss of thousands of direct and indirect oil jobs over the past
year as supplies have exceeded demand and prices have dropped.
New production is being cut back, not because of a shortage of
places to drill but because of a shortage of customers.
Lifting the export restrictions and allowing the market for
American oil to extend beyond our own borders could create
nearly a million additional jobs, according to an estimate from
a lot of different groups. Put another way, these are jobs that
would already exist today if the export ban was not in place.
The pro-exports consensus is a broad one, including groups
across the political spectrum, from the Brookings Institute to
the Bipartisan Policy Center to the Heritage Foundation. It
also includes numerous high-ranking Obama and Clinton
Administration officials as well as many who served under both
Bush Administrations.
Of course, one of the concerns that we always hear about is
we want to be sure to keep gasoline as affordable as possible,
and would this have an impact on gasoline prices? I think most
people would agree that this would certainly not cause gasoline
prices to increase, but that is an area that when we get into
questions, I am sure we will be asking some of our witnesses
about. I might also say that the Energy Information
Administration, Government Accountability Office, and the
Congressional Budget Office predict that oil exports would
actually help lower the prices at the pump, just one more
benefit of oil exports.
So we look forward to a great hearing this morning. Many
members are open to the discussion, have not made any kind of
decision about this, but as I have said in the beginning, there
is more and more discussion about this issue around the
country, and we do look forward to the testimony of our so-
called experts this morning.
[The prepared statement of Mr. Whitfield follows:]
Prepared statement of Hon. Ed Whitfield
This morning, we will be discussing H.R. 702, a bipartisan
bill introduced by Joe Barton that would lift the restrictions
on the export of oil produced in the U.S.
Americans believe in free trade, and we as a nation have
greatly benefitted from policies that allow us to export our
products around the world. Everyone from farmers to automakers
enjoys the advantages of a global customer base. However, oil
remains an exception to the rule. 1970s-era restrictions still
prohibit most exports of American crude.
But as we all know, the reasons for these restrictions are
no longer true. Most significantly, we have gone from a nation
with dwindling petroleum output to the world's number one
producer of liquid hydrocarbons. In fact, American production
growth has been so robust that the domestic supply of oil is
now outstripping demand. This is especially true for the
lighter grades of crude not suitable for most domestic refiners
but very much in demand around the world. Allowing American
companies to serve this global market would provide substantial
economic as well as geopolitical benefits, and that is what
H.R. 702 seeks to unleash.
There has been tremendous job growth associated with
increased oil and gas production over the last decade, and it
should be noted that this includes many jobs far away from the
nation's oil fields, such as those manufacturing the equipment
used by energy companies. Unfortunately, we have seen the loss
of thousands of direct and indirect oil jobs over the past year
as supplies have exceeded demand and prices have dropped. New
production is being cut back, not because of a shortage of
places to drill, but because of a shortage of customers.
Lifting the export restrictions and allowing the market for
American oil to extend beyond our own borders could create
nearly a million additional jobs, according to an estimate from
IHS. Put another way, these are jobs that would already exist
today if the export ban was not in place.
The pro-exports consensus is a broad one, including groups
across the political spectrum, from the Brookings Institution
to the Bipartisan Policy Center to the Heritage Foundation. It
also includes numerous high ranking Obama and Clinton
Administration officials as well as many who served under both
Bush Administrations.
Of course, we are always concerned about keeping gasoline
as affordable as possible, and some critics of oil exports have
raised fears of price spikes. However, reports from the Energy
Information Administration, Government Accountability Office,
Congressional Budget Office and others predict that oil exports
would help lower the price at the pump--just one more benefit
of oil exports.
The economic arguments alone make oil exports worth
pursuing, but as with LNG exports the foreign policy benefits
are also very important. Our allies around the world have made
clear that they would rather get their oil from America than
from unfriendly and unreliable suppliers. Every barrel of U.S.
oil on the world market is one less barrel that can be sold by
oil-rich states like Russia and OPEC members. And to the extent
we would be supplanting their oil exports, we would also be
supplanting their influence.
Oil exports have the potential to be a jobs success story
and a foreign policy success story, and H.R. 702 comes at a
time when we can use a whole lot more of both.
Mr. Whitfield. With that, I would like to recognize the
gentleman from Illinois, Mr. Rush for a 5 minute opening
statement.
OPENING STATEMENT OF HON. BOBBY L. RUSH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Rush. Thank you, Mr. Chairman, for holding this
important hearing today on H.R. 702, Legislation to Prohibit
Restrictions on the Export of Crude Oil which was introduced by
my good friend and colleague, the Chairman Emeritus of this
Full Committee, on the Full Committee, Mr. Joe Barton of Texas.
Mr. Chairman, as we enter into the era of new American
energy renaissance, I think that it is entirely appropriate for
this subcommittee to revisit the Energy Policy and Conservation
Act of 1975. This policy, which restricts the export on
domestically produced crude oil, may in fact be outdated as
conditions today have shifted dramatically from the 1970s when
the bill was first enacted.
While I come to this issue, Mr. Chairman, of crude oil
exports with an open mind, I believe that there are a variety
of ways that this issue could be structured. I look forward to
engaging the witnesses on the questions of lifting the ban
entirely as H.R. 702 would or with conditions to protect the
American consumer against unforeseen consequences.
Another option, Mr. Chairman, which we should consider is
exporting crude oil regionally to targeted areas in order to
maximize American diplomacy and leverage. In fact, Mr.
Chairman, I am currently working on a bill that would remove
limitations on the export of energy resources to Cuba. My bill
would promote market access for the efficient exploration,
production, storage, supply, and distribution of energy
resources to our neighbor 30 miles off the coast of Florida.
This would include the exportation of crude oil as well as
American technology and technical assistance in developing
Cuba's clean and renewable energy sectors.
Mr. Chairman, I think it is very important to look at what
the effect of displacing oil from our foreign competitors and
opponents and whether it be Russia or Venezuela and replacing
it with U.S. energy resources, what the effect might have on
our overall national security and diplomatic objectives.
So Mr. Chairman, I look forward to hearing from today's
panel of witnesses on how lifting this ban might impact the
American economy in terms of manufacturing, employment,
gasoline prices, and imports. Mr. Chairman, in addition to
examining the lasting impacts of lifting the ban, it is also
important to look at the impacts to our national security and
our overall global diplomacy objectives.
So Mr. Chairman, as we move forward on the path to enacting
an American energy strategy for the 21st century, it is vital
that we examine policies that may have run their course in
light of the new realities of our time. I think today's hearing
is most timely and essential to examining some of these
critical and important issues, and I look forward to engaging
today's witnesses. With that, I yield back the balance of my
time.
Mr. Whitfield. Thank you, Mr. Rush. At this time I would
like to recognize the Chairman of the Full Committee, Mr. Upton
of Michigan, for 5 minutes.
OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Upton. Thank you, Mr. Chairman. America's energy
picture has changed dramatically, and this committee has been
working hard to keep pace. Clearly times have changed since the
1970s when the oil export ban was put into place. Few back then
could have imagined a domestic oil glut that jeopardizes new
drilling and the jobs that will go with it, but that is the
situation that many experts say that we face today.
The energy sector has been the Nation's most significant
jobs creator over the past decade, but the recent drop in oil
prices, as many as 100,000 energy industry jobs, in fact, have
been lost.
Proponents of the legislation that we are considering today
argue that allowing American oil on the global market would
boost production and bring back those lost jobs and, in fact,
add quite a few more. And the demand for American oil is there,
especially from our allies who want to reduce their dependence
on a market dominated by unfriendly and unstable nations.
As I stated in a previous hearing with Secretary Moniz, we
need to get this policy right. Yes, we do. We need to be
certain that any actions taken don't have unintended
consequences that negate the benefits. The question of what to
do with our incredible resource abundance is a great kind of
problem to have, and I look forward to working with my
colleagues on both sides of the aisle on that issue.
[The prepared statement of Mr. Upton follows:]
Prepared statement of Hon. Fred Upton
America's energy picture has changed dramatically and this
committee has been working hard to keep pace. Clearly times
have changed since the 1970s when the oil export ban was put in
place. Few back then could have imagined a domestic oil glut
that jeopardizes new drilling and the jobs that go with it, but
that is the situation many experts say we face today.
The energy sector has been the nation's most significant
jobs creator over the past decade, but with the recent drop in
oil prices, as many as 100,000 energy industry jobs have been
lost. Proponents of the legislation we are considering today
argue that allowing American oil on the global market would
boost production and bring back those lost jobs and add many
new ones.
And the demand for American oil is there, especially from
our allies who want to reduce their dependence on a market
dominated by unfriendly and unstable nations.
As I stated in a previous hearing with Secretary Moniz, we
need to get this policy right. We need to be certain that any
actions taken don't have unintended consequences that negate
the benefits.
The question of what to do with our incredible resource
abundance is a great kind of problem to have, and I look
forward to working with my colleagues on this issue.
Mr. Upton. And I would yield to other members wishing time.
Mr. Barton, I yield time.
Mr. Barton. Well, first of all, Mr. Chairman, thank you for
yielding, and I want to thank Subcommittee Chairman Whitfield
for hosting this hearing. I want to thank the Ranking Member
Mr. Rush for the open mind that he expressed in his opening
statement. This is an important issue for me obviously. The
other subcommittee chairmen here, Mr. Pitts, and Mr. Shimkus,
can testify that I don't show up on time to many hearings in
the morning, but I am here for this one because it is a big
deal.
The issue that we are debating today is the last remnant of
the Carter scarcity of energy policy of the 1970s. We have a
former Assistant Secretary of Energy out in the audience, Mr.
Jan Mares, who was in the Reagan Department of Energy in the
early '80s, and when the Reagan administration came into
office, you had in place an energy policy that said America was
running out of energy. And we had restricted the use of natural
gas. We had put price controls on natural gas. We had done all
kinds of things because we thought America was out of energy
and America could not compete in energy policies.
Beginning with President Reagan and continuing through
President Clinton and President Bush, we have repealed every
bit of that policy except one thing that is this, the issue
that America cannot export crude oil. We can export everything
else in America, but we can't export crude oil. We can export
refined products, but we can't export crude oil.
We have had hearings on this in the Ag Committee, the
Foreign Affairs Committee, the Small Business Committee, but
until today, we have not held a hearing in the committee of
jurisdiction which is our committee. I think if you listen to
the witnesses, especially my good friend, Ambassador Gandalovic
from the Czech Republic, you will see the absolute positivism
of repealing this ban. America is number one in energy
production. It is number one in oil production. If we can use
our energy resources strategically, it will help us in that
area, but it will also help us economically as Chairman Upton
has just pointed out.
So thank you, Mr. Chairman, Mr. Chairman, Mr. Rush, for
agreeing to have this hearing and thank the witnesses.
[The prepared statement of Mr. Barton follows:]
Prepared statement of Hon. Joe Barton
Thank you Mr. Chairman----
I am so pleased that this committee is having this hearing.
Our friends on the House Foreign Affairs Committee held a
hearing in April. Our friends on the House Small Business
Committee held a hearing in June. Our friends on the House
Agriculture Committee held a hearing just yesterday.
Last year when I brought up this issue I was told to go out
and educate my colleagues and garner support for my bill. Well,
I've done that. And I will continue to do this until this bill
is on the House floor.
As of this morning, H.R. 702 had 77 cosponsors. But what is
more interesting is that those cosponsors hail from 30 states.
Because as folks look at the issue and read the supply chain
study by IHS, they quickly realize that this is not an oil
patch issue, it is an American issue.
One point that I want to make is America is a trading
county. We don't need to or should we get to zero imports
before we export. Just yesterday, GAO testified that whether
prices fall or stay the same, the lifting of the ban on crude
oil exports will stimulate economic activity.
This ban is the last remnant of Carter's scarcity policy
from the 1970s. And it just makes no sense for us to even
consider allowing Iran to export crude oil while not allowing
ourselves the ability to. This bill is good policy for both
economic and strategic reasons.
At last count there were more than 16 major studies just
since March of last year on why lifting the crude oil ban was
in the best interest of America. This bill will create jobs,
lower gas prices, and stabilize world energy markets.
I've said it before and I'll say it again--momentum is on
our side and the facts are on our side.
Mr. Barton. And with that, I am willing to yield another
minute to anybody on our side that wishes. Mr. Mullin of
Oklahoma.
Mr. Mullin. Thank you and I want to just reiterate what my
friend from Texas was saying and also point out the fact that
this is about bringing stability to a market. In Oklahoma
alone, we have lost 20,000 jobs since January, and you know, an
entrepreneur that is able to understand what the sacrifices
means is with us today sitting over there in the corner, Harold
Hamm, an individual that started with absolutely nothing and
was able to achieve the successes because of barriers that were
lifted and taken out of place. But today we are limiting
entrepreneurs like him, and this is something that we need to
have an open conversation about, and I thank the chairman for
bringing this to our attention. I yield back.
Mr. Whitfield. The gentleman's time has expired. At this
time Mr. Pallone was going to make an opening statement, but I
think he has been delayed. So is there anyone----
Mr. Rush. Mr. Chairman, we want to reserve Mr. Pallone's
time----
Mr. Whitfield. OK. All right.
Mr. Rush [continuing]. Until he arrives.
Mr. Whitfield. OK. We will reserve Mr. Pallone's time when
he arrives. He can give his opening statement. At this time I
would like to introduce our witnesses and recognize each one of
them for 5 minutes for their opening statement.
Our first witness is Mr. Petr Gandalovic, who is the
Ambassador to the United States for the Czech Republic. I am
just going to introduce you individually before you give your
opening statement. Mr. Ambassador, we are delighted you are
with us this morning, and you are recognized for 5 minutes for
an opening statement.
STATEMENTS OF PETR GANDALOVIC, AMBASSADOR TO THE UNITED STATES,
CZECH REPUBLIC; COMMANDER KIRK LIPPOLD, PRESIDENT, LIPPOLD
STRATEGIES; W. DAVID MONTGOMERY, SENIOR VICE PRESIDENT, NERA
ECONOMIC CONSULTING; AND MARK KREINBIHL, GROUP PRESIDENT, THE
GORMAN-RUPP COMPANY
STATEMENT OF PETR GANDALOVIC
Ambassador Gandalovic. Thank you Subcommittee Chairman
Whitfield, Ranking Member Rush, and members of the
subcommittee. I appreciate the opportunity to be here today to
provide my perspective on the utmost importance of the
strategic energy alliance between the United States and Europe
as energy exports from democratic countries like the United
States enhance the energy security of the Czech Republic and
the European Union.
Since 1989 when we reestablished our independence, we have
always known that we cannot achieve true state sovereignty
without having energy sovereignty. Bearing this in mind, one of
the first steps of our revived independent diplomacy was to
start negotiations with Germany on the building of a new
transit oil pipeline that would connect us with the Western
markets and diminish our previous 100 percent dependence on oil
supplies from the East, namely Russia.
This truly strategic decision was successfully materialized
in the IKL. It means Ingolstadt Kralupy Litvinov pipeline,
which has connected us via Germany with the Italian seaport of
Trieste, at the Adriatic Coast. The existence of that oil
pipeline has given us the opportunity to import oil from
international markets.
Nowadays, we import around one half of our oil consumption
through this pipeline. It is interesting that most of this oil
comes from Azerbaijan which flows via Georgia to the Turkish
port of Ceyhan on the coast of Mediterranean Sea, then onto the
port of Trieste in Italy and then through the Alps to Germany
and finally via this IKL pipeline to the Czech Republic, or oil
from Kazakhstan that follows a similar route.
What is crucial for our energy security is that the
capacity of this IKL pipeline is large enough that in case of
emergency we can practically cover our oil needs from other
than Russia territory and potentially also from the United
States.
Moreover, we have also done our homework in the area of
natural gas. In the '90s, we signed a contract with Norway that
diminished our 100 percent dependence on deliveries from the
East. We also built the so-called Gazelle pipeline that has
interconnected us, our gas transit network with the German one.
Thanks to this interconnection, we have been significantly
integrated with the German and European gas market, and as a
result, we also buy natural gas on spot markets in Western
Europe. This interconnection with Germany also provides us with
an alternative supply route in case of extraordinary supply
disruptions from the East.
Apart from the diversification of transit routes, we have
always given particular importance to diversification of energy
sources. Therefore, our energy mix has been based on nuclear
energy, coal, oil, gas, hydro, and renewables.
I mentioned that energy security has always been a priority
to the Czech Republic. Since 2004, we have been trying hard to
emphasize the issue of energy security within the European
Union in general. We made energy security one of the official
priorities during our presidency in 2009. We led the
negotiations during this gas crisis between Russia and Ukraine,
finalized the Third EU energy package, which is the crucial
component of the European energy legislation and organized the
so-called Southern Corridor Summit.
Energy security has always been on top of the so-called
Visegrad Group, V4, so-called. It is the grouping of countries,
Czech Republic, Hungary, Slovakia, and Poland, and it is one of
the official priorities of its current Czech presidency. The V4
group strives for energy sources diversification and, with its
demand reaching 42 cubic meters of natural gas per year and
almost 40 million tons of oil per year, accounts for an
important European regional market.
As I mentioned earlier, we always keep in mind that we have
to do our homework. Thanks to this approach, I am glad to be
able to say that the energy security of the Czech Republic has
reached a very good level. It is important to stress that our
energy security is based on the assumption that access to the
global markets means access to oil and gas exported by
countries that see energy as business and not as a political
tool. Hence, I would like to reiterate the crucial statement:
The larger the number of stable democracies among the world
energy exporters, the more robust the energy security of the
Czech Republic and the European Union will be. Moreover, U.S.
energy exports would send a strong signal to the world
community that democracies stick together.
Mr. Chairman, Mr. Ranking Member, members, thank you for
your attention.
[The prepared statement of Mr. Gandalovic follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Whitfield. Mr. Ambassador, thanks for that opening
statement. And our next witness is Commander Kirk Lippold who
is retired from the U.S. Navy and is now President of Lippold
Strategies, and we are delighted you are with us this morning.
You are recognized for 5 minutes.
STATEMENT OF KIRK LIPPOLD
Mr. Lippold. Thank you, Mr. Chairman. Mr. Chairman, Ranking
Member Rush, my name is Commander Kirk Lippold. I appreciate
the opportunity to testify before the subcommittee. While I may
disagree with this bill, I would like to personally thank
Representative Joe Barton for his dedicated support to our
Armed Forces, specifically our veterans. Sir, you have made
service to our Nation a source of pride for our citizens.
In my 26-year career in the Navy, I was a surface warfare
officer serving on five different ships, including guided
missile cruisers and destroyers to protect U.S. national
security interests across the globe. Foremost among those
missions was to safeguard the sea lanes of communications, or
SLOCs, that facilitate the global economy, including oil
imports to the United States. I have experienced firsthand,
particularly in my command of the USS Cole when it was attacked
by Al Qaeda terrorists during a routine refueling stop, the
devastating effects of reliance on imported oil when the men
and women who serve our country are placed in harm's way.
The U.S. Navy has a unique role in the world in cooperation
with our allies to ensure the safe conduct of trade including
in oil. Since the 1970s, we have had policies in place to
encourage energy independence that include investment in energy
research and efficiency, diversity of fuel inputs, and the
strict regulation of oil exports. At its heart, the legislation
being contemplated before this committee will have far-reaching
national security implications. Before we drastically alter the
law and these longstanding and successful policies, we should
proceed with great caution to evaluate their real-world
consequences.
The United States is still import dependent despite
significant gains in domestic energy production. While the
United States has experienced an impressive boom in domestic
crude oil production, a blunt fact persists: The United States
remains overly dependent on those oil imports. We still import
a staggering amount of oil. According to the U.S. Energy
Information Administration, the U.S. imports in 2014 totaled
more than 2.6 billion barrels or around 30 percent of supply.
Another key point is that domestic consumption will outpace
domestic production for the foreseeable future. There are
significant national security benefits to decreasing our
reliance on imported oil supplies. It keeps the nation focused
and working toward achieving energy independence. It markedly
decreases our reliance on unfriendly or dangerous regimes that
do not share our interests or values. Lastly and most
importantly, energy independence leaves the United States and
its leaders with more workable options in achieving our foreign
policy and national security objectives.
History, as always, is instructive. The original purpose of
the export regulations was to bolster national security by
furthering energy independence. That purpose still holds true.
Lifting export regulations may have the unintended consequence
of undermining our national security goal of energy
independence. Given the current strategic environment,
precipitously lifting the regulation of exports would not
confer equal strategic benefits. Advocates of lifting the
export ban frequently point to Russia's aggressive invasion in
Ukraine as a ready opportunity for the use of energy diplomacy.
That notion makes little sense. As an initial matter, all
credible economic studies on the subject project that the vast
majority of U.S. crude oil purchased on world markets would
make their way to Asia, not Europe. Indeed, the number one
beneficiary of lifting the ban is likely to be China, a nation
whose recent activities in the Pacific and South China Sea
reflect more the actions of a rival hegemon for security
dominance in the transpacific region than a responsible
international partner.
The United States does not need to export crude oil to
influence international markets. With strict export regulations
in place, other countries are better off because the United
States is producing more of its own supply which increases the
supply of crude outside the United States, thereby reducing
prices and alleviating bottlenecks. With the export ban staying
in place, the United States gets the dual national security
benefits of ample supply and leverage on the international
stage.
Another key consideration is the need to maintain the
strong domestic refining base that provides the United States
with significant and under-appreciated national security
benefits. Lifting the crude export ban would expose one of
America's most important industries to the unpredictable
vagaries of international markets and international politics.
Military assets mobilize on petroleum products, like gasoline,
diesel, and jet fuel. They do not run on crude. Maintaining and
expanding our robust refining base directly improves the
operational flexibility the United States requires for rapid
mobilization necessary for modern force projection.
While tempting, from the perspective of gaining a
commercial foothold in a new market arena at this time, too
many times in my career I have experienced the stark reality of
our national leaders not thinking through the impact of changes
in international and domestic policy. We cannot afford to wave
off these potential consequences as inconsequential under the
guise of market principles. The regulation of crude oil exports
was put in place with the long-term objective of decreasing
U.S. reliance on foreign sources of energy, specifically oil.
The day may come when the United States is no longer overly
dependent on oil imports and we may be in a position to change
our export laws, but for the sake of national security, that
day is not today.
[The prepared statement of Mr. Lippold follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Whitfield. Thank you, Commander. And our next witness
is Dr. David Montgomery who is Senior Vice President for NERA
Economic Consulting Group, and thanks for being with us. You
are recognized for 5 minutes.
STATEMENT OF W. DAVID MONTGOMERY
Mr. Montgomery. Thank you, Mr. Chairman and Ranking Member
Rush. It is a privilege to appear before you today and I very
much appreciate your invitation.
I have retired as Senior Vice President of NERA Economic
Consulting, though I continue to work with my team there and on
other things that are interesting. I found that is a great
benefit of retirement.
What I would like to do in my 4 minutes and 40 seconds is
give a quick overview of the major conclusions of my testimony
and then just touch on a few elementary points in a little more
detail.
My conclusion, and I think the conclusion of every
independent study that has tried to quantify the effects of
crude oil export ban, is that restrictions on crude oil exports
pose a cost on the economy in several forms. They cause us to
lose domestic production of crude oil that we would otherwise
be able to produce. They cause a loss in investment and
corresponding economic growth. They have done so for the past
several years and will continue to do so.
Oil export restrictions actually lead to higher gasoline
prices than we would have had in the recent past and going
forward. And finally, it is my conclusion that restrictions on
crude oil exports actually decrease our energy security, and I
would amplify a bit on each of those points.
How is it that production is reduced? The evidence that
production is reduced by restrictions on crude oil exports is
the differential that we see in the market between the price of
the light tight oil that is what the boom in oil production in
the United States has produced. The boom in oil production has
come about because we have discovered ways, the oil industry
discovered ways, to produce oil from tight formations that were
not previously possible to produce. That oil is light oil
because that is what the production technology is able to
extract, and that is what is there. The light oil is coming
from Texas, from Oklahoma, from New Mexico, from North Dakota,
the major sources, huge amounts of that oil, growing rapidly
over the last few years. The problem is the U.S. refining
sector is set up to process heavy oil, and it can't simply swap
one for the other. So since the oil can't be exported, it has
been stuck in the United States and its price has been
depressed.
When we did our study at NERA 1 \1/2\ years or so ago, the
price of oil produced in North Dakota where the famous Bakken
field is was selling at about the same discount from
international market crudes as it is today. That means that
there is a disincentive for production, and we are losing
production. That is what leads in large part to the negative
effects on the economy which are taking the form of less
investment, less growth in the oil and gas sector. And just let
me remind you that over the past couple of years the oil and
gas sector has been the primary source behind economic growth
overall. It has been the major growing sector in the economy.
So we would lose that stimulus.
Let me turn then to the effect on consumers, gasoline
prices. It only takes one sentence to raise the fear that
gasoline prices will go up. It takes about four to explain why
they will go down. But the key factor here is that it is net
imports that matter. It is net imports that matter for the
effect of the United States on world oil markets and mid-
imports that matter for national security. Net imports are
basically the difference between how much crude oil we produce
in the United States and how much oil we consume in the United
States.
Since it would take massive refinery investments to be able
to use the light oil that we are now producing in the Bakken
and other places in U.S. refineries, it is much more economic
to export that oil than it is to expend all that money to
refine the products domestically. But it makes absolutely no
difference to our total call on oil markets because that is
determined by how much hydrocarbon we are producing in liquid
form and how much hydrocarbon we are consuming in liquid form.
All the change in oil exports does is it allows us to avoid
wasteful investments in refineries domestically, to use the oil
here, to export that oil and actually increase the world's
total oil supply. That is the important part. By removing the
restrictions on crude oil exports, we will increase the world's
oil supply. That will tend to drive down the price of oil on
world markets of crude oil.
Now, the price of refined products is based on the price of
crude oil in the world market. U.S. refineries are already
exposed. They export 4 million barrels per day of products.
They see prices go up and down all the time. The price of
gasoline in the United States is determined by that world
market. If we soften the price of crude oil in the world
market, we reduce gasoline prices in the United States.
And the same thing is true of energy security. Even if we
take Commander Lippold's definition of energy security--and I
agree with everything else he said--we differ on the issue of
whether it is imports to the United States or net imports that
matter. I think it is far worse than what Commander Lippold
described. The world oil market is one market. We can't just
defend ships going to United States and ships coming from the
United States. We are affected by the world oil price, and we
will be forever because even EIA sees no prospect of oil
independence in the United States. That means if there is a
supply disruption anywhere, it is going to affect the United
States. If there are military interventions, we are going to
have to defend everybody's ships, not just ours.
But if we increase our oil exports, one of the likely
consequences is Persian Gulf countries will cut back their
production, and that removes a major source of risk.
I conclude my testimony at this point. Thank you.
[The prepared statement of Mr. Montgomery follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Whitfield. Thank you, Dr. Montgomery. And our next
witness is Mr. Mark Kreinbihl, who is the Group President of
The Gorman-Rupp Company, and we appreciate your being with us.
You are recognized for 5 minutes.
STATEMENT OF MARK KREINBIHL
Mr. Kreinbihl. Thank you, Chairman Whitfield and committee
members for this invitation to testify in support of lifting
the ban on U.S. crude oil exports. Gorman-Rupp started in 1933
by two entrepreneurs, J.C. Gorman and H.E. Rupp in Mansfield,
Ohio. Currently Jeff Gorman is our CEO and third generation. We
design, manufacture, and sell pumps in the many different
markets. The oil and gas market uses our equipment in several
different areas, primarily for water transfer and wastewater
transfer, directly or indirectly related to the energy
industry.
In October of 2014, we started our planning process for our
2015 forecast budget. 2014 was a good year, and the outlook for
2015 was looking to be even better. We planned on a 12 \1/2\
percent increase in sales with a corresponding operating
budget. I have provided in my testimony a chart that correlates
the number of gas and oil rigs to our incoming orders. When the
price of oil went down and the number of drilling rigs were
reduced, our business was impacted. A distributor in Texas was
planning a major expansion until drilling activity reduced. A
Canadian distributor anticipated levels of business that ended
up being cut back significantly.
The combination of just these two distributors accounts for
$4 million of cancelled orders on our books. The impact of our
business has been a surplus of inventory and a reduction in
workload. That has required the elimination of all but
essential overtime. Thirteen temporary employees were
terminated. These traditionally have been temp to full-time
employees. We have implemented voluntary unpaid leave of
absences. Wage increases were postponed due to business
conditions. All hiring is scrutinized. There are 21 retirements
of which only a portion will be replaced. Our full-time
employees is 25 less than the end of last year. We have not
hired summer help. Traditionally we hire college students bound
for college of the Gorman-Rupp employees. Capital expenditures
have been postponed on items that are not essential to the
operation.
I put my company example forward as typical of what is
happening in tens of thousands of energy supply chain companies
throughout the United States. While my numbers might not make
the news, the aggregate of all similar stories throughout the
country has a profound impact on American workers and the total
U.S. jobs and growth picture. Lifting the ban will help turn
this around.
Here are several important reasons why. It would remove the
competitive disadvantage and allow the United States to compete
in the worldwide battle for energy market share. New production
will drive substantial additional investment in products and
services from crude oil supply chain, generating up to $63
billion of supply chain economic output nationally. This
investment would create up to 440,000 new supply chain jobs
nationally by 2018.
These export-dependent jobs and GDP growth would be widely
spread throughout the American economy. They would exist in all
50 states and throughout 60 different industry sectors. Of the
national supply chain gains, 10 of the top 15 states gaining
jobs are non-producing states. By GDP growth, 11 of the 15
states are non-producing states.
The Energy Equipment and Infrastructure Alliance, of which
my company is a member, estimate there is at least 120,000
supply chain businesses and 615,000 workers supporting American
oil and natural gas production, 100,000 of which are small
businesses.
The U.S. energy sector has been a leader in developing new
technologies for energy exploration and extraction. Taking
advantage of those technological advances before competitors do
would give the U.S. energy industry incentives to innovate and
become even better at finding and extracting oil and natural
gas in an efficient and safe manner. Lifting the oil ban on
crude oil exports is a step that could yield almost immediate
results at a time when the United States continues to see
sluggish growth in the kind of good jobs the energy sector
provides.
Thank you again, Mr. Chairman, for inviting me to address
your committee.
[The prepared statement of Mr. Kreinbihl follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Whitfield. Well, thank you for your opening statement.
And Mr. Pallone has arrived, and he is the ranking member of
our Full Committee, and I would like to recognize him for 5
minutes for his opening statement.
Mr. Pallone. Thank you. Thank you, Chairman, for bearing
with me. Today we have been working on the 21st Century Cures
and bringing it to the floor on a bipartisan basis, so I
appreciate the opportunity.
I also wanted to thank Commander Lippold for your service
to our country. As I have said before, it is not a bad idea to
reconsider the merits of a policy enacted in the wake of the
1973 oil embargo. The world is very different than it was 40
years ago, and our energy picture is evolving rapidly. Domestic
oil production has increased dramatically in recent years, and
demand growth has slowed noticeably. The current relatively low
price of oil and the increase in domestic production benefit us
all. Low oil prices boost our GDP and decrease the amount
Americans spend at the pump. However, there is no guarantee
that these conditions will last. We still import much of our
oil, and while oil prices might remain where they are, gasoline
prices have already risen significantly since our March hearing
on this issue.
Many factors could change the future energy picture,
including geopolitical instability and international domestic
market forces. These are important issues to consider before
shipping the oil we produce here to countries around the world.
And that is why we need to better understand where exported oil
will go, whether it be to Asia, Europe, or other locations. I
welcome the Czech Ambassador, and I am interested to hear about
what type of U.S. oil could benefit his country as he spoke.
I believe that we need to answer a host of complicated
questions before considering a wholesale dismantling of our
Nation's ability to restrict oil exports as proposed in H.R.
702. First, how would lifting the ban affect the price of crude
oil and therefore the price of gasoline? I don't think there is
a consensus on that point, though I think my constituents would
all agree the prices at the pump are still far too high.
Exports may help oil companies, but will they really benefit
consumers?
Second, how would such a change affect both our refinery
capacity and associated jobs? How would exporting crude oil
instead of finished petroleum products affect job growth in the
years ahead? Some, like the steelworkers want to keep and grow
those jobs in the United States. Exporting the oil could mean
exporting those jobs and paying a higher price for gasoline.
Third, if we are going to export crude oil, shouldn't the
American people receive some direct benefit in the form of
increased revenues? Shouldn't we consider a fee on exports to
ensure all Americans benefit from the exploitation and
exporting of the natural resources?
And fourth, what are the environmental and climate impacts
of lifting the export ban? Are we still going to put our
beaches and oceans at risk just to add oil to the world market?
Increasing crude exports means increasing impacts on climate
change, public health and safety, property owners, and our
water supplies. And we have to choose the cleanest and most
sustainable path forward.
Finally, Mr. Chairman, are we really ready to treat oil as
just another commodity like peanuts or grain? Because if oil is
no longer something to be restricted, then isn't it also time
to remove the many subsidies we have given to oil over the
years in the name of national security? I never thought those
subsidies were good policy. But if oil is no different than
peanuts, why should it enjoy special liability exemptions under
Superfund and other statutes? Why should we subsidize oil
production on federal lands?
These are only some of the issues that I believe we have to
address before completely doing away with the ban on exports.
We shouldn't embrace short-term gains without understanding the
long-term costs of our decisions because we can't afford to get
it wrong.
And to that end, maybe it would be wiser to explore some
smaller intermediate steps first such as easing restrictions on
crude exports to our neighbors in Mexico before abruptly
eliminating all our national security protections for this
critical energy source.
And again, I want to thank you, Mr. Chairman, Mr. Barton,
for sponsoring the bill and helping begin this discussion, and
I do apologize for interrupting now the questions. But I know
we are doing a lot now to get the votes for our 21st Century
Cures bill, but I wanted to have the opportunity to speak on
this. Thank you.
Mr. Whitfield. Thank you, Mr. Pallone, and that concludes
our opening statements. And once again, thank you, panel
members, for coming and for your statements. At this time I
would like to recognize myself for 5 minutes of questions, and
then we will give other members of the committee that
opportunity as well.
Generally speaking, when we do consider the export of
products from America, I mean, we have been quite successful,
and it is quite difficult to understand how, as Mr. Barton
said, we can export almost anything, but we can't export crude
oil. And from my discussions with people about this issue, the
two primary reasons that you hear about are, number one, oh,
this is going to increase gasoline prices. And then the second
reason that I have heard that some refiners have already made
adjustments so that they can refine light, sweet oil that is
coming primarily out of our domestic production now, and
originally they were doing heavy crude and heavy, sour, and
they have made these investments so they can do it. Now other
refiners have not made that investment, and they are
complaining that it would put them at a disadvantage.
But Dr. Montgomery, you had indicated and I have heard
others say this and I would see what Commander Lippold says
about it, but gasoline prices are determined by the world
market price. And if more oil is being produced into the world
market, you would think that that would reduce gasoline prices,
and that is what EIA has said and other groups. Do you agree
with that, Dr. Montgomery?
Mr. Montgomery. [Audio malfunction in hearing room.]
Mr. Whitfield. OK. And Commander Lippold, do you have a
comment on this?
Mr. Lippold. Mr. Chairman, I am not an economist, so I
couldn't really judge the prices. But what I can say is that
obviously if you are introducing more oil onto the world
market, that creates a cushion and a degree of stability from a
national security perspective is obviously good because it
gives the ability for nations to now take in the oil----
Mr. Whitfield. Right.
Mr. Lippold [continuing]. And produce it. But when you are
looking at our country, it is the fact that we have still got
that 30 percent and we are trying to export that concerns me.
Mr. Whitfield. Yes. I mean, one of the arguments that you
made, which I think is a little bit of a stretch myself, but
you were saying that because if we put more oil into the
market, the world market, you are saying that would be a
disadvantage. Explain that to me once again.
Mr. Lippold. Well, right now when you look at the oil that
we are producing which is the light tight or light crude----
Mr. Whitfield. Right.
Mr. Lippold [continuing]. In discussion, the refineries
right now say that they have the excess capacity to be able to
produce that which creates the refined product which goes out
onto the market and therefore, the more you have in the market,
just common sense says it is going to bring that price down. By
keeping it here at home, we are able to adjust and be able to
react more because we are not as dependent on other nations. It
also gives us the flexibility that if we need to export refined
product around the world and we are exercising that capacity
within our refineries, it gives us the capability to get that
product where it needs to go for any kind of an emergency for
any countries, whether it is in the Pacific rim, whether it is
in Eastern Europe, because if you can deliver refined product
right off the bat, that is what they are going to need to make
their economies and militaries be able to protect their
nations.
Mr. Whitfield. Mr. Ambassador, all of us on this committee
have had representatives from all over Europe talk about the
importance of doing this for the benefit of their countries,
and you are being here today to explain those benefits is
particularly helpful.
Right now, how much oil is the Czech Republic consuming a
day? Do you know the answer to that question? In barrels. I
think you all talk about it in tons, right?
Ambassador Gandalovic. Our total consumption is 195,000
barrels a day----
Mr. Whitfield. One hundred ninety-five thousand barrels a
day?
Ambassador Gandalovic [continuing]. Which goes, as I said,
about 50 percent from Russia and another 50 percent is combined
from Azerbaijan, Kazakhstan, and other smaller suppliers.
Mr. Whitfield. But in your discussions with other European
leaders, on this issue I am assuming that the majority of them
would support our efforts to lift this restriction on the
export of crude oil.
Ambassador Gandalovic. Well, of course, as ambassador of
the Czech Republic, I cannot represent or speak on behalf of
other countries, but just from the perspective of the Visegrad
Group, as I said, is Hungary, Poland, Slovakia, and the Czech
Republic, there are members of this grouping whose dependence
on Russia is almost 100 percent.
So in this respect, they would probably need to adjust
their refineries and make some homework in interconnectors to
be able to import other than Russian crude oil.
Mr. Whitfield. Right.
Ambassador Gandalovic. So then of course U.S. opportunity
would be welcome I guess.
Mr. Whitfield. OK. Well, my time is expired, so Mr. Rush, I
will recognize you for 5 minutes.
Mr. Rush. I want to thank you, Mr. Chairman, and I also
want to again thank the witnesses. I have a question for
Commander Lippold. Commander, in your testimony you say that
security benefits to changing export regulations are unlikely
to materialize in the near future. Do you see any benefits to
national security and our diplomacy efforts if we were to
export crude oil among other energy resources to our neighbor,
Cuba? Could U.S. imports to Cuba displace Venezuelan or Russian
imports? And if so, what implications might that have in the
region for us politically and diplomatically?
Mr. Lippold. So the question that I would look, or the
answer that I would give to that is going to be if we are going
to be exporting it to countries to try and displace, once again
we are getting into the issue, we are beginning to parse out
who we want that oil to go to, and from a national security
perspective, I think most people here on the committee would
agree that the number one people that we need to take care of
first is going to be here in the United States. If we are
dependent on oil, all we are doing is while we may be giving
our oil to one person as one type, we are still going to be
taking in more amounts of oil to make up for the total quantity
that has to be consumed within the United States.
So I don't see an immediate advantage in taking our oil and
then saying, well, we will export it. We do already export
through licenses a certain degree of that oil under the
existing law to Canada, and we have just prevented it from
going to other nations. But if we drop the thing wholesale and
decide we are going to be able to export it to everyone, the
ramifications in second- and third-order effects on national
security and stability have not been thought through yet.
Mr. Rush. Dr. Montgomery, I was just handed a study by the
Chairman Emeritus of the Full Committee, and it is an IHS
study. Are you familiar with that, IHS study that was released
in March 2015?
Mr. Montgomery. I am familiar with some IHS studies. You
will have to describe this one a little bit more for me I am
afraid.
Mr. Rush. Well, let me just quote from it. It says in
states with a diverse and mature set of supplier industries,
the supply chain can account for half of the value added from
lifting the export ban. Illinois, an oil-producing state with
diverse supplier industries, would derive 58 percent and 54
percent of the total GDP impacts from its supply chain.
Illinois consistently stands to gain from lifting the ban in
all supply chain sectors examined in the IHS study.
Do you have any commentary on that which I have quoted?
Mr. Montgomery. Yes. I think it is first missing the point
that one of the primary benefits that comes from increasing
crude oil production in the United States and oil exports is a
reduction in gasoline prices which accrues to everyone in the
U.S. economy. It is directly beneficial to consumers. It is
money in their pockets, and it in turn provides additional
income for them to spend locally in their own economies. So
that is one point.
The second point though is that this emphasis on value-
added I think is a misconception and is bad economics because
it is mistaking costs for benefits. High value-added in the
refining sector is actually means it takes more capital
investment, more workers in order to produce the same amount of
hydrocarbons or the same number of BTUs. And I actually think
Mr. Kreinbihl used a great phrase which I am going to copy
frequently. What we are really seeing here is a situation in
which we can compete more effectively internationally as crude
oil producers than as refiners because what we are looking at
is the prospect for producing several hundred thousand barrels
per day in addition to what we are producing today. Nothing is
being taken away from U.S. refiners. It is true. They are
already using all the light tight oil we produce today. The
opportunity with removing the export ban is we can produce more
crude oil which we can export which will help our balance of
trade.
Now some refiners say we want that oil for ourselves. But
they have to make additional investments in order to use it,
which means that it costs more to export a barrel of product
than it does to export a barrel of crude. So the economy
benefits more from exporting the crude because we don't have to
make this wasteful investment in refining. We can invest in
something else, improved agricultural productivity, for
something we have a comparative advantage in.
Mr. Rush. Thank you. I yield back, Mr. Chairman.
Mr. Whitfield. At this time I recognize the gentleman from
Texas, Mr. Barton, for 5 minutes.
Mr. Barton. Thank you. I want to build on what Mr. Rush
just asked Dr. Montgomery, but I am going to ask the question
to Mr. Kreinbihl. I have studied that study that Congressman
Rush referred to, and my understanding is that what it means
for a state like Illinois, if you have a manufacturing base
that supplies oil field equipment and supplies pipeline
equipment and supplies electrical equipment. In other words, if
you have a manufacturing base and distribution base, that even
though you are not producing the oil, you benefit from it. That
is the kind of company and business that you are in, is that
not correct, Mr. Kreinbihl?
Mr. Kreinbihl. That is correct, and I think as I have
pointed out, I did provide a chart in my testimony showing the
correlation between the number of drilling rigs and our
incoming orders.
As I tried to mention in my testimony before, what really
happens for us is it is not just the oil and gas or the crude
that is exported. It is all the ancillary things that happen.
They need pumps to build the hotels and dewater the
construction site for that. They need pumps for transferring
just water to and from the sites. And I am speaking of pumps
because that is my background. But I think you can take that
and use it throughout the manufacturing industry. Everybody
seems to benefit from an increase in the economy and the
activity that the oil----
Mr. Barton. So a state like Illinois, which again has some
oil production but is centrally located, has a manufacturing
base, those small businesses and some large businesses would
benefit because they would send equipment to the Bakken in
North Dakota, over into Pennsylvania, even down into Oklahoma
because if the drilling rigs went back into production, their
business would increase. Is that not a fair assessment of what
that study indicates?
Mr. Kreinbihl. That is very correct.
Mr. Barton. OK. I want to go to Ambassador Gandalovic.
Commander Lippold indicated that if we lift the ban, most of
the oil production that we would export would go to Asia, and
certainly Asia would be a good market. I would point out that
under current law, oil that goes through the Trans-Alaska
Pipeline can go to Asia right now.
You represent a part of the world that we would say would
be Central Europe or Eastern Europe, and you indicated that
your country specifically and the countries around you that you
have economic relationships with, would want to import some of
this oil. So what is your assessment of what Commander Lippold
said about the benefits primarily going to Asia as compared to
your part of the world?
Ambassador Gandalovic. Well, again, I just want to speak on
behalf of the Czech Republic only, first, and second, I have to
explain to you the structure, the ownership structure of the
oil distribution and refinery sector in the Czech Republic.
Simply said, the pipelines and storage capacities are owned
by the state while refineries and of course distribution of
product is private. So we don't have, as a state, any influence
on whose oil these refineries are going to buy. As a state, we
have actually put in place such a system that there is more
opportunities from both ends, for these refineries. So it gives
us energy security to certain level that even if there is a
disruption of supply from one end, there is an alternative.
So I cannot assure you that even if you pass this bill,
there will be a direct purchase from our refineries, I mean
from refineries that operate in the Czech Republic of the U.S.
crude oil. I cannot assure and predict. I can predict that if
there is an alternative coming from the United States as
democratic state that doesn't use exports of natural resources
as a political tool, the world itself will be a more safer
place.
Mr. Barton. My time has expired, Mr. Chairman. Thank you.
Mr. Whitfield. At this time I recognize Mr. Pallone, the
gentleman from New Jersey, for 5 minutes.
Mr. Pallone. Thank you, Mr. Chairman. The initial purpose
of the export regulation was to protect the United States from
state-owned oil actors organized through OPEC, and the oil
market was not and is not today truly a free market. Oil is a
commodity unlike any other, and our Nation is
disproportionately impacted by oil imports.
Secretary Moniz recently expressed doubt about the wisdom
and timing of lifting the crude export ban when we still import
7 million barrels of crude oil per day. And some of those
barrels come from Canada and Mexico, but others come from
Venezuela, Saudi Arabia, and Iraq.
So Commander Lippold, my questions are all for you. Is it
in the best interest of the U.S. national security to continue
relying on potentially volatile regions and nations for our oil
consumption? And could lifting the export ban result in a
decrease of lower priced domestic crude oil for refineries in
the Northeast?
Mr. Lippold. Not being an economist, I wouldn't know how it
is exactly going to ripple through and affect the markets. But
I can tell you from a national security perspective, the fact
that we are still as dependent as we are on imported oil does
have an effect on our ability to act independently on the world
stage.
Mr. Pallone. And could lifting the export ban result in
further imports from the Middle East?
Mr. Lippold. I don't know if we exactly know that. One of
the problems is if we lift the export ban and we introduce
crude onto the market, every study that is out there indicates
that the vast majority of it will go to the highest bidder. Oil
will always follow the path of greatest financial gain. Right
now that is going to be to Asia, and that is going to have a
ripple effect that goes through every part of our economy,
including Gorman-Rupp. I mean the previous testimony. A few
years ago, their president said that the Chinese were copying
their pumps, building what they are doing, and yet we are going
to be now providing them, if we export it, fuel that is going
to be taking on those very industries that undermine our
industrial base. That is not something we want to do.
Mr. Pallone. I want to ask you something about refining
capacity. We have heard suggestions that there is insufficient
refining capacity for the light tight oils that are being
produced today and that therefore we have a surplus of oil that
must be exported. But do you believe that that is the case?
Mr. Lippold. No, I do not. The refineries right now are
indicating that they do have the excess capacity and capability
to take the light tight oil and refine it for distribution.
Mr. Pallone. So if refiners are incapable or unwilling to
process this oil, then our discussion today would be different.
However, in a recent survey of a majority of the American Fuel
and Petrochemical Manufacturers Association's membership
indicated that construction is already underway on additional
refining capacity that will be able to process an additional
720,000 barrels of new light sweet crude a day. The new
capacity is on track to be operational in 2016 when this
outpaces EIA's oil production forecast.
So Commander, does this match your understanding of U.S.
refiners' ability to handle or process our domestic light sweet
crude?
Mr. Lippold. It does, but I would also add onto that to say
not only are they working to be able to take on more capacity
by building onto the refineries that exist, but one of the key
things we also have to do is look at the refining industry that
goes also with the production industry as well and the amount
of regulation that is imposed on them today and figure out how
can that process be best streamlined so that we can in fact
increase capacity on both sides to be able to make us toward
that long-term goal of energy independence. Everyone talks
about it, we aim toward it, and now we need to start putting
some of the pieces in place because as the Czech Ambassador
very well said, if you have energy sovereignty, you are going
to have national sovereignty. We do not have that energy
independence and sovereignty right now. We are still overly
dependent on foreign oil from countries that clearly we have
seen, especially over the last 15 years, do not represent our
interests and values. The more we can disconnect from that, the
better off our Nation will be in the long run.
Mr. Pallone. Well, let me just ask you about the Czech
Republic. I notice that the ambassador didn't clearly indicate
that U.S. oil would displace Russian or European crude. If we
lift the export ban, does U.S. oil flow to the Czech Republic
and how would the Czech Republic benefit if at all?
Mr. Lippold. I think one of the greatest problems that you
would have is that they are geared to take certain amounts and
types of oil and refine it. If you only have--given 195,000
barrels a day, I don't know and perhaps the ambassador could
enlighten and say this is how much it is able to process the
Russian crude which is medium sour versus the light tight oil
that the U.S. would be sending them.
So again, one of the great capabilities that we have in our
country is in our refining capacity in that we don't have to
lift the export ban if we have a refined product available that
if energy is used as a weapon somewhere in the world, we can
turn around and export refined product to give them immediate,
tangible benefit that is going to help us and give us
flexibility.
Mr. Pallone. All right. Thank you. Thank you, Mr. Chairman.
Mr. Whitfield. Mr. Ambassador, do you want to respond to
that?
Ambassador Gandalovic. I just wish to say that it is a
well-known fact that even in Europe there is an access capacity
of refineries. So we talk of a broader picture that U.S. oil
could be possibly refined in some other European refineries,
not speaking of a rather small Czech market only.
Mr. Whitfield. At this time I recognize the gentleman from
Texas, Mr. Olson, for 5 minutes.
Mr. Olson. I thank the chair. Welcome, Dr. Montgomery and
Mr. Kreinbihl. Warm greetings to our NATO ally, Ambassador
Gandalovic, and a special shipmate-to-shipmate welcome to
Skipper Lippold.
October 12th of 2000 at 11:18 in the morning, you took the
biggest hit Al Qaida could muster. Their bombs killed 17 of
your sailors and wounded 39 more. Your leadership kept the Cole
afloat, and you brought her home. As we say in the Navy, Bravo
Zulu, Skipper. Bravo Zulu.
Now to the matter at hand, exports of American crude oil.
This debate was started in 1975 by a law that is way out of
touch with 2015. I believe that American free trade is the most
powerful force for freedom in the whole world, and I do see
value in ending 1975's ban. I know some refiners will feel some
pain if we end the ban and stop distortions of the market
caused by government mandates. But once we have moved through
this debate, Mr. Chairman, I hope we can take a look at other
distortions of the market caused by outdated government
mandates like the broken ethanol mandate. These are not linked,
exports and ethanol, but they have a common problem: DC in the
market.
Skipper Lippold and Dr. Montgomery, I have noticed that you
all have very different opinions about crude exports causing
more imports of foreign crude. You each have 1 minute to make
your case. Skipper, you have the con.
Mr. Lippold. Thank you, Congressman. I think when you look
at the imports that we have today, when we are still importing
30 percent of our oil and the fact that it is not controlled in
an open, free market, there are entities out there, whether it
is OPEC or other nations that are acting as cartels that are
influencing that market and will continue to have an undue
influence on them, they will directly affect our national
security should they choose like they did in 1973 or '73, '74,
following the Yom Kippur War, to squeeze the oil supply and
force an embargo and put things on us.
What we need to do is create the capacity and capability in
this Nation using the oil that we have at hand to refine it
here at home so that we don't remain dependent. One of the
greatest concerns that I have right now is that being 30
percent, that is like saying, hey, you have completed 8 steps
of a 12-step program on your recovery from addiction to oil.
Mr. Olson. Skipper, I have to take----
Mr. Lippold. And now is not the time to go to the bar and
celebrate.
Mr. Olson [continuing]. The con back. I am sorry, sir, but
you are relieved. Dr. Montgomery, you are up, sir. Your
response?
Mr. Montgomery. Yes. I think that the first thing to
remember is that removing the restrictions on crude oil exports
will lead to an increase in U.S. production of crude oil. It is
that increased production that would be exported. It is not a
question of production being constant and oil being taken away
from U.S. refineries to be shipped overseas. Instead, the
problem is that we are seeing a big price differential
indicating that U.S. oil is backed up in those fields and not
being produced. If it can be exported, that is a net addition
to the world's oil supply, and it is a net subtraction from the
total call that the United States is making on the world
market. And it is those net imports that matter for everything,
as I said before, but in particular for national security
because by reducing our net call on world oil markets, we don't
help Venezuela and----
Mr. Olson. And Dr. Montgomery, I am sorry. I have run out
of time. I ask that both of you submit for the record any
documents or reports that justify your position.
My final questions are for you, Ambassador Gandalovic. I
doubt Mr. Putin would be very happy about America ending its
ban on crude exports. How will his displeasure affect the Czech
Republic?
Ambassador Gandalovic. Congressman, with all due respect, I
would rather not comment on other nations' leaders.
Mr. Olson. Mr. Montgomery, do you care if the comment about
Mr. Putin's impact and maybe OPEC's impact if we export crude?
Mr. Montgomery. Yes. I think I should have included Russia
in my litany of those who will not be helped by lower world oil
prices. Russia is currently dependent on its hydrocarbon
exports for foreign exchange and for keeping its economy going,
and both allowing unlimited LNG exports from the United States
as well as removing restrictions on crude oil would take away
from his economic power.
Mr. Olson. Thank you. Go Navy, beat Army.
Mr. Whitfield. At this time I recognize the gentleman from
California, Mr. McNerney for 5 minutes.
Mr. McNerney. Thank you, Mr. Chairman. I thank Mr. Barton
for bringing this issue up, and I thank the panelists for an
interesting discussion this morning.
It looks like there are about three issues that are
involved here: the impact on domestic prices, the impact on
national security, and the environmental impact. So the first
two sort of go hand in hand. Dr. Montgomery, I believe you
stated that it is all about imports, net imports and net
exports so that if we export more crude than we import refined
product, we are on the winning side of this thing. Is that what
I understood you to say?
Mr. Montgomery. No. Our increased exports of crude oil
would not be offset by increased imports of refined products.
Unless people start consuming more gasoline because the price
of gasoline has dropped, there is going to be no change in our
product consumption. So it would be a net so that--to a first
approximate, back of the envelope, the amount of additional oil
that we produce and export is a net change. It is not going to
be balanced by increased import, by increased product.
Mr. McNerney. Well, I didn't mean that we were going to
import more. I meant that if we export more than we import,
then we are on the winning side of this thing. That is what I
understood you to say. But my problem with that is that if we
depend more on imported refined product, then we have to secure
our sea lanes which has a very high cost that the consumers
aren't going to pay at the pump but they are going to pay
through our National Defense Authorization. Would you agree
with that, Commander?
Mr. Lippold. I think that there is going to be a certain
amount of some cost that is going into any safeguarding of the
sea lanes of communication for the global economy. The issue is
that if you begin to increase more coming to the United States,
obviously that lifeline is going to become more important for
us, and yes, we would have to develop more assets to put out
there. And while there may be a cost, I am certainly not going
to turn down any opportunity to have more ships built to do
that.
Mr. McNerney. Thank you. The environmental impact is also
at surface here. I think the increased production has been very
good for our economy, but my concern is that the technology
that we need to keep production clean--by clean I mean carbon,
greenhouse gas emissions from production, greenhouse gas
emissions in transportation--that they are not there to keep up
with the demand that would increase if we lifted the export
ban. Did I make that clear? So I guess I am concerned about the
environmental impact of increased emissions, increased
groundwater contamination, especially in California, if we lift
this ban, you know, precipitously. Would you agree with that,
Dr. Montgomery?
Mr. Montgomery. Not entirely. I mean, yes, the increased
activity in producing oil will produce somewhat--well, the
activity of producing oil itself is not going to increase
greenhouse gas emissions. Let me stop there. It is only if that
increased production of crude oil does in fact reduce gasoline
prices.
So first of all we have to all agree that allowing exports
of crude oil would cause gasoline prices to fall. If we all
agree on that, then yes, there would be some increase in
consumption of gasoline in the United States. We actually
calculated this in the study we----
Mr. McNerney. I am not talking about consumption. I am
talking about fugitive gas emissions in the production process,
fugitive gas emissions in the transportation process.
Mr. Montgomery. Those----
Mr. McNerney. But I don't think our technology is there yet
to make sure that that increased production in the United
States and increased transportation in the United States and
overseas is going to be carefully done. I just don't believe
that we are there.
Mr. Montgomery. I believe it is. I have been watching this
industry for 40 years. There are occasional accidents----
Mr. McNerney. Well, if that is the case, then why----
Mr. Montgomery. They operate safely.
Mr. McNerney. Let me regain my time. Why are they burning
off so much gas in the production process?
Mr. Montgomery. In the Bakken it is being burned off
because they can't build the infrastructure fast enough----
Mr. McNerney. Well, that is my point.
Mr. Montgomery [continuing]. To move the gas out.
Mr. McNerney. They don't have the infrastructure there
yet----
Mr. Montgomery. But that is not----
Mr. McNerney [continuing]. To affect the production that is
already being done. So if we increase production, then we are
going to get more of that.
Mr. Montgomery. We actually----
Mr. McNerney. And I would like to fall back on what the
Commander's observation was that the U.S. dependence on 30
percent of imported oil, we really aren't in a position to
precipitously lift the ban. I think we can do it in steps, and
it would make sense to increase production in exports in steps
but not precipitously. We are not there yet. I will yield back.
Mr. Whitfield. The gentleman yields back. At this time I
recognize the gentleman from Illinois, Mr. Shimkus, for 5
minutes.
Mr. Shimkus. Thank you, Mr. Chairman. This is a great
hearing, and I appreciate those who are here. The Ranking
Member Mr. Pallone really said an interesting statement. At the
time that--and he is still here so hopefully I get it right.
The restriction, the current restriction was based upon our
desire to protect our economy against state oil interest,
state-owned oil interest. That is why we did it in the '70s.
The international security debate today is now we need to
export oil to protect our allies against state-owned oil
interest.
We are in a different era. We are in a different age.
Commander, when you sailed the seven seas, I was on the West
German border. My defensive position was across the border from
a country that was called Czechoslovakia at that time. That
country no longer exists. You have the Slovak Republic and the
Czech Republic, and they are our allies. And I spent a lot of
time in Eastern European issues. Just returned with the Speaker
from Lithuania, Finland, Poland, and Ireland, and they want to
free themselves from the grip of oil extortion by Russia.
So the world has changed, and I also take issue with the
flexibility debate that you have about why we shouldn't export
because you have more flexibility to respond if you have more
crude oil on the world market. Recovering crude oil is not
something you can do overnight. It is a time-consumed process
of investigation, drilling for discovery and then drilling for
recovery, and it takes a long process.
So right now the United States, we export refined product.
Why do we export refined product? Does anyone know? Because we
produce more than we consume. So Commander, you wouldn't ask
the United States to not export refined product when we produce
more than we consume, would you?
Mr. Lippold. No.
Mr. Shimkus. OK. And so the debate on our refining
capacity, and we have it, too. I have got both sides on the
aisle who are trying to make this argument. But the idea is we
want more crude oil on the world market. Economics 101, supply
and demand. You don't have to be an economist to understand
that if demand remains the same and supply increases, the price
goes down. The only political fear is there are some unplanned
disruption in our refinery, a fire, that there is a price
spike. Then everybody gets caught by that.
So I only have 2 minutes left. I want to cover, one,
Eastern European national security relies on expanded exports.
Whether it is LNG or crude oil, they are begging the United
States to be involved in this market for their own security.
The second thing is the economic argument for pricing is sound.
More crude oil on the market, demand remains the same, prices
go down. And the third thing, Mr. Kreinbihl, you mentioned it,
and it is true. Chairman Emeritus Barton and Mr. Rush were
talking about jobs related, and we were talking about the State
of Illinois. Well, Southern Illinois is exhibit number one. We
are ready. We have marginal wells. We were prepared for using
the new technology. Prices went down, and there is a halt in
any activity of recovering from the Illinois Basin which is
probably going to be one of the most productive basins in the
country because now the pricing is just not there. So the local
schools have lost revenue. The local counties have lost
revenue. The job creators, the haulers, the steel mills have
all lost the ability to create jobs because of a policy that
was designed, and I will just end on this, a policy that was
designed to protect us against state oil interests. Well, we
don't have to fear state oil interests anymore. They have to
fear us as we put our crude on the world market. So with that,
Mr. Chairman, not many questions, but a statement of listening
to the testimony. I yield back.
Mr. Whitfield. Great opening statement there. This time I
would like to recognize the gentleman from Texas, Mr. Green,
for 5 minutes.
Mr. Green. Thank you, Mr. Chairman, and I would like to ask
my full statement be placed in the record.
Most of you know and maybe not the panel but I represent a
district in East Houston that at any given time over the last
20 years, I have had all five of our refineries in the Houston
ship channel in our district. And I can tell you growing up
there, this is the best time to be in the refining business in
Texas that I have ever seen. And I know the issue is that most
of those refineries were retooled in the '90s to handle our
overseas crude, Venezuela, you name it, heavier crude because
that is all we could get.
But now we are seeing some of those refineries actually
retooling to take our lighter sweet that we are getting. Now it
is millions of dollars of investment. It was millions of
dollars to turn those refineries around from lighter crude in
the '90s to heavier crude, so it is going to be that. So our
engineering companies are doing very well right now.
But Mr. Montgomery, you mentioned massive refinery
investment would be required in the United States. Do you know
if that is occurring to handle the lighter sweet?
Mr. Montgomery. Some is occurring, but not the amount it
would--but my understanding when I look at studies that were
done by Baker & O'Brien for EIA----
Mr. Green. So there is some.
Mr. Montgomery. But not----
Mr. Green. I only have 5 minutes and I need to get to
another panel.
Mr. Montgomery. Got it. Got it. Yes, there is some taking
place but not enough to use all of the light tight oil that
could be produced if we knocked out the differential.
Mr. Green. My response to that, not everybody switched over
to heavier crude at the same time in the mid-'90s, either.
Mr. Ambassador, when you talked about the refining capacity
in the Czech Republic, and I know Europe has a lot of other
refinery capabilities, but you said that to handle the lighter
sweet from the United States that your refineries would also be
retooled to handle that lighter sweet. Is that true for Europe
in general or is it just for the Czech Republic?
Ambassador Gandalovic. I think and I am not an expert in
this field that taking about 50 percent of non-Russian crude
oil, the capacity is there to handle the light sweet.
Mr. Green. OK. Well, maybe I misunderstood earlier. You
said that there would have to be investment to retool those
refineries to handle the lighter sweet.
Ambassador Gandalovic. Yes, there might be disruption of
deliveries from the East. Further retooling might be necessary.
Mr. Green. Well, again, as a policymaker in our country, I
would much rather we have that investment in our refineries and
even though I want to help Europe both with LNG, but right now
we are doing very well sending low-sulfur diesel from Texas
over to Europe. And those are the jobs that we have in my East
Harris County. They are very high-paying jobs at those five
refineries, and there are refineries in my area who are
retooling to handle that lighter sweet to make sure we can do
it because you can't move a ship very quickly, and you can't
move a refining industry very quickly because of the high cost
of the investment. But now we know there is enough lighter
sweet coming out of the Eagle Ford in Texas and even in West
Texas where we thought Midland-Odessa was dead for production.
But now we are seeing just amazing production out of that, and
I think you will see a lot of our refiners doing like they are
doing in my own district along the coast of Texas. It is
starting now, and we will see it. So if we start exporting it,
we will lose some of that incentive to have these downstream
jobs.
I have a district where I have a lot of folks who produce
oil, too. I represent a lot of service companies, and I want
them to be working in the field. But I also want to see that we
have that industrial capacity in our country, like the admiral
said--or Commander. I am sorry. I promoted you. You should be
an admiral. But I like your testimony. We need those downstream
jobs to make sure we have that industrial capacity.
My colleague from Pennsylvania has steel plants. We used to
have them, but now we buy so much of our steel from everywhere
else in the world. But I lost those jobs. I don't want to lose
our refining capacity jobs. And again, I only have a few
seconds. I support exporting LNG because we have a process for
it. And granted, the Department of Energy, and this committee
has looked at it, has been too slow in deciding their national
interest. But I have talked to my colleague, Mr. Barton. If we
want to create a system like where we don't price ourselves out
of the market on exporting crude oil, like I would worry about
chemical industry, we are not going to see that because we are
going to make sure that exporting is in our national interest
for LNG. And I think we could do the same thing for crude oil.
But again, thank you, Mr. Chairman.
Mr. Whitfield. At this time----
Mr. Green. I could spend all day with the panel.
Mr. Whitfield. Yes. At this time I recognize the gentleman
from Pennsylvania, Mr. Pitts, for 5 minutes.
Mr. Pitts. Thank you, Mr. Chairman. Mr. Ambassador, how has
the use of energy, you know, by regional players, shaped the
Czech energy policy and planning?
Ambassador Gandalovic. How has the use of----
Mr. Pitts. Energy diplomacy or energy as a political
weapon. I don't know, however you want to categorize it. How
has that shaped Czech energy policy and planning?
Ambassador Gandalovic. Our main policy is diversification.
So we do not want to rely on one energy resource
technologically and geographically or I would say in terms of
foreign supplies. It applies on our domestic energy policy is
so as I mentioned before in my testimony, we wish to develop
both nuclear as well as conventional energy sources. Also we
put a lot of emphasis on renewables. But we do not exaggerate
their importance. So mix and diversity is our policy.
And the same thing applies on resources of energy that we
do not have in our country, oil and gas. Speaking of gas, you
may also have noticed that Visegrad Group countries, the four
countries I mentioned, about 1 \1/2\ years ago turned a letter
to Speaker Boehner to initiate relaxation of U.S. strict export
policies on gas export. So the same logic that applies to gas
exports, I believe would apply on our position and position of
other Visegrad Group countries on the U.S. policy of limitation
of crude oil exports.
Mr. Pitts. Thank you. Commander Lippold, would you explain
again your assertion that lifting the export ban would increase
reliance on foreign imports? The Energy Information
Administration, leading experts, academics in the energy field
all seem to agree that removing the U.S. crude export ban would
likely increase U.S. production an reduce imports. What is the
basis of your assertion?
Mr. Lippold. When you produce more oil and you put it on
the world market, that oil is going to go wherever the highest
bidder is going to take it. So we can't control where it is
going to go, whether it is to Eastern Europe and our partner
allies over there that may need it because of energy weapon--
being used as a weapon. For example, Russia. Every study that I
have read says that the majority of that oil is going to go to
the highest bidder. Right now that is going to be China.
Obviously, that has huge national security implications. When I
look at the oil that would be produced and the fact that we
have it, necessity is going to be the motherhood of invention.
We are going to be able, whether it is through fracking or
other things--I have never said don't ever lift this ban. What
I am saying is if you just immediately drop it, we have not
thought through those national security effects.
Right now one of the things that I worry about is that I
think everyone on the committee would agree. We would like to
have a national energy policy that is dovetailed and marries in
with a national security strategy protected with a national
military strategy. But when you look at if we were to just open
it and do it, all we have are studies. There have been
conflicting studies on what that effect would be. There have
been conflicting studies on the price impact it would have.
What it doesn't do is that when you are still 30 percent
dependent on oil to begin to start exporting that oil overseas
when we have not even solved our energy independence here at
home, it doesn't make common sense.
Mr. Pitts. Thank you. Dr. Montgomery, you discussed the
cost and investments domestic refiners must make relative to
costs associated with exporting crude. In short, can you tell
us what would make the U.S. economy more efficient, refining
more crude or allowing for exports?
Mr. Montgomery. Unquestionably allowing for exports.
Essentially what we are doing with the crude oil export
restrictions is raising gasoline prices in order to subsidize a
select group of refiners. In essence, the crude oil export
restrictions are price controls. They are price controls on a
particular kind of oil. The refiners I think can see that they
are benefiting from that because otherwise they wouldn't have
any reason to oppose lifting the export restrictions.
So I think we will have some refinery investment which will
take up some light tight oil, but it is still going to strand a
great deal of oil that could otherwise be produced because
without those price controls and without those subsidies, U.S.
refiners can't compete selling all of the light tight oil in
the world market without a subsidy.
Mr. Pitts. Thank you. My time has expired.
Mr. Whitfield. At this time I recognize the gentleman from
Pennsylvania, Mr. Doyle, for 5 minutes.
Mr. Doyle. Thank you, Mr. Chairman, and thanks for holding
this hearing. I find it very interesting and fascinating.
You know, I have been in Congress 21 years, and I have
heard colleagues on both sides of the aisle constantly talk
about the goal of making our country energy independent so that
we could free ourselves from having to import oil from the
Middle East and Venezuela. And the reason we don't export oil
is because we were importing so much. It seems kind of crazy,
at least in Pittsburgh, that you would talk about exporting
something that you are still importing.
And I want to say another thing, too. There is no urgency
to do this. I would like to put into the record an article that
appeared in the Financial Times just 2 days ago entitled Oil
Market Throws Cold Water on U.S. Export Ban Push.
When we talk about letting the market work, this is very
interesting. It says the oil market has thrown cold water on
the push to repeal the ban. The price of U.S. crude has been
remarkably strong against global grades, undermining the
contention that export restrictions have imprisoned domestic
supplies and forced producers to sell at deep discounts.
Last week the spot price of light Louisiana sweet crude on
the U.S. Gulf of Mexico Coast was $61 per barrel, more than the
price of $59.09 for Dated Brent from the North Sea.
The article concludes by saying, in an analyst from
Citigroup, if the U.S. crude export ban is removed and light
sweet crude starts to flow out of the U.S. Gulf Coast, it would
struggle to find a home in the well-supplied European market.
It would only add to the oversupply in the Atlantic Basin and
could hurt Brent more than it helps WTI. It could well be an
instance where U.S. upstream players should be careful for what
they wish for.
So Mr. Chairman, I think that we can slow this process
down. There is no urgency to do this and start to consider some
of the ramifications if we just simply open up, lift this ban
which will never be put back in place again. I would say to my
Pennsylvania colleagues, by the way, to be careful what this
does to our refineries in Philadelphia because it damages them
greatly, and a lot of that has to do a little bit with the
Jones Act which I will get into later. But I think we ought to
slow this process down.
Why wouldn't we be talking about taking this excess light
sweet crude and tooling up our refinery capacity to keep it
here in the United States and eventually over time become the
energy independent country that we keep telling our
constituents we want to be? I mean, this doesn't make a lick of
sense to me as policymakers who are supposed to be thinking 20,
30, 40 years down the road for the next generation, not how can
we make a quick buck on the disparity in oil prices. I mean,
that is not our job. Our job is to look after the future of our
country, not to look after how people need to make some more
money in the oil industry.
I have a couple questions. Did I go over my whole 5 minutes
or has that clock been running? There is no way I spoke 8
minutes and 50 seconds, Mr. Chairman so----
Mr. Whitfield. I think you have spoken too long, Mr. Doyle.
Mr. Doyle. I mean, were you just so enraptured with my
speech that you forgot to put the clock on. I think the only--
--
Mr. Whitfield. Let me just say, you were mesmerizing.
Mr. Doyle. I think I only used a couple seconds. Let me ask
the panelists. The Energy Information Administration reference
case from 2014 projects that U.S. tight oil production, which
is the type of oil largely responsible for this oil boom, is
going to increase in the coming years and peak at about 4.8
million barrels a day in 2021. This was up from 3.5 million
barrels a day in 2013, and it has been a huge increase from
where we were in the year 2000. However, except in the high
resource case, production then begins to decline.
Commander Lippold, are you concerned that this legislation
essentially permanently lifts the ban, even though we may start
to see a decrease in oil production as early as the 2020s?
Mr. Lippold. Sir, that would clearly be one of the
considerations that needs to be taken into place as the long-
term predictions on what our oil production capacity is going
to be and the fact that if you lift this ban precipitously and
take it off, that the ramifications that it would have exactly
on the point you made--what is our national security impact
going to be 20 to 30 years from now--needs to be thought
through. That is why I say let's take a longer, slow down the
approach, and take a look at either a phased-in or a more
thought-out process.
Mr. Doyle. Yes, I mean, do you think there is a more
responsible way to allow for some of this oil to be exported? I
mean, is there a different mechanism that we could do this for?
And do you think we should just keep the ban in place?
Mr. Lippold. I think one of the great things about our
Nation is that we in fact have the capacity that we are
developing this oil, that it is going to be out there, and that
we are now going to have a greater degree of flexibility of
aiming and working toward that energy independent country that
we want to be. But I think that we shouldn't lift it
immediately. Could it be lifted at some point, absolutely yes.
Should we lift it at some point? Absolutely. Less regulation is
better for the country as a whole.
Mr. Doyle. Thank you. We saw changes to refineries in the
1970s to process new types of oil, and I know that some of the
refineries in my home State of Pennsylvania have made those
structural changes to process the new oil we are benefiting
from today. I have read that a large number of refineries will
follow suit to benefit from the oil boom. I think many
refineries are going to start to make these structural changes
in the coming years.
Commander Lippold, I am a strong supporter of Americans
working and of organized labor, and I would like if you would
comment on how the Jones Act plays in this? Because I have
talked to my refineries up in Philadelphia in my State, and
there is some concern that because of, you know, U.S. flag
ships, the Jones Act, it may actually cost more money to take
that light sweet crude up to our refineries in Pennsylvania
than it would be to send them over to Europe. And that is going
to cost a lot of high-paying union jobs that we sustain
families on that we are very proud of in Western Pennsylvania.
And I want to know the effect of that because I have got
colleagues on this committee from Pennsylvania, two
Pennsylvanians on the other side of the aisle, that I think
want to hear what the effect this is to Pennsylvania
refineries.
Mr. Lippold. I have not studied, Congressman, the effect of
what the Jones Act would have knowing that that oil be
transported. I haven't run the analysis to find out what the
economic costs would be to ship that oil overseas versus
keeping it in the United States to a certain degree because if
you look at it, if we were to start pushing, though, one of the
things you have to consider if we do drop the Jones Act or we
impact in some way or if we change the export, lift the export
ban, is obviously it is going to have an impact on the American
shipbuilding industry as well. That is one of those
ramifications or ripple effects that we need to think through
and----
Mr. Doyle. Dr. Montgomery, how about your analysis of how
the Jones Act plays in this?
Mr. Montgomery. We did actually look at that, and on that I
agree with you completely. If the Jones Act were even lifted
for shipments of crude oil between U.S. ports, a great deal
more of the oil that we could produce--a great deal more of the
light tight oil would go to U.S. refineries in the Mid-Atlantic
than it will with the Jones Act in place. So yes, the Jones Act
is clearly hurting the refineries in Pennsylvania, and lifting
the Jones Act, along with removing the export restrictions,
would keep a lot more of that crude----
Mr. Doyle. Well, let me make it clear. We have no intention
of lifting the Jones Act in the United States Congress, just so
that that is clear. That is not going to happen. But it is
going to negatively impact our refineries in Pennsylvania.
Mr. Chairman, I would just end by asking that we put this
article from the Financial Times into the record and to say
that the studies I have seen of the refineries in Europe is
that they are actually designed to process medium sour oil, not
light sweet crude. I don't think most of Europe is going to
benefit from this at all. Thank you.
Mr. Whitfield. We would like to get a copy of that, without
objection.
I might also say that the record is going to be open for 10
days, and we are also working for an accumulation. There have
been so many articles written on this issue, and we are going
to enter all of those into the record because we want a full
record. And our staff is working with some groups to compile
that list of articles now. So thank you.
Mr. Doyle. Thank you.
Mr. Whitfield. At this time I would like to recognize the
gentleman from Ohio, Mr. Latta, for 5 minutes.
Mr. Latta. Well, thank you, Mr. Chairman, and thanks very
much for the panel. It has been a very interesting discussion
today, and we appreciate your patience for taking our questions
and listening to us. But if I could start, Dr. Montgomery, with
a couple of questions for you, I just want to just double-check
some facts here. We were talking right now, fortunately the
numbers are coming down, that we are at about 27 percent of our
oil is being imported in this country. Is that correct?
Mr. Montgomery. Yes.
Mr. Latta. And I think if my quick check here is that that
is back to the lowest number that we have done since 1965. And
is it correct that we are using about 18.7, 18.9 million
barrels of oil a day in the United States?
Mr. Montgomery. It sounds like the right number, yes.
Mr. Latta. OK. Well, we will assume that is correct.
Mr. Montgomery. Yes.
Mr. Latta. OK. And if you take that 27 percent of the oil
that we are importing, you know--another quick number, is it
correct hat Canada is our largest supplier of imported oil?
Mr. Montgomery. Yes.
Mr. Latta. OK. And then would Mexico, where would they
fall? Are they close to second? Third? Somewhere in that?
Mr. Montgomery. Mexico has trouble with production
sometimes, but yes. And basically, Western Hemisphere sources
aside from Venezuela are where we get most of our oil.
Mr. Latta. OK. So we have been very fortunate in the last
few years that we have weaned ourselves really off of the
imported oil from maybe more from the Middle East. We are
looking at the Canadian and Mexican oil being really pretty
much our main area, probably over 50 percent then. We are close
to it today. Would you calculate that number at that?
Mr. Montgomery. Yes. Yes. We get only occasional shipments
from the Middle East at this point.
Mr. Latta. OK. Thank you very much. Mr. Kreinbihl, we are
almost neighbors. I am from Wood County, and you are from down
in Mansfield, Richland County. And in my district in Northwest
Ohio, I have got 60,000 manufacturing jobs. And we have had a
boom in the State of Ohio because of the Utica shale. Now, I
don't think that Utica has quite made it into Richland County
or they have found the discoveries there yet. But I know that
there have been questions that came to you a little bit
earlier. But could you go back into it a little bit because
again, when you look at the jobs that are produced, especially
the jobs in your industry, could you get into that a little bit
more about what the Utica has meant in the production in the
State of Ohio and also with the shale development over in
Pennsylvania with the Marcellus, how that has helped your
business?
Mr. Kreinbihl. There has been quite a bit of activity in
both of those, the Utica and the Marcellus. I guess what I
would point out to answer that question is the chart that the
Energy Equipment and Infrastructure Alliance provided, and it
really shows the number of different manufacturers and
suppliers that are involved in this industry. And being in
Ohio, I have seen some of the growth. As a matter of fact, as I
drove over here yesterday, I was in traffic with some of the
equipment that was being moved through the State. So it has an
effect that as there is more activity going on, whether it is
pumps or something else, there is just a lot of activity all
over from a manufacturing and supply standpoint. Does that
answer your question?
Mr. Latta. And because also, and off the top of my head I
can't think of it, but like in unemployment numbers in the last
several years, how is Richland County doing in the Mansfield
area?
Mr. Kreinbihl. Richland County, we have lost a General
Motors plant here recently. So Richland County has been really
suffering with unemployment. I will tell you that a college
roommate of mine lives over in Caroline County or Caroline,
Ohio, and there is a lot of activity over there and it was
really booming until the price of oil went down.
Mr. Latta. Well, thank you very much. Mr. Ambassador, if I
could, in my remaining time, just ask a couple of quick
questions. You know, some of us on the committee have been
privileged to be able to meet with a lot of, especially Eastern
and Central European, leaders, and the discussion you had about
the diversification that your country is looking at, why do you
think--and we have heard this and we have had certain members
like Mr. Shimkus and some others bring this up. Why is it that
Europe is looking to the United States for energy needs into
their future?
Ambassador Gandalovic. Well, as I said, the more resources
of energy that are coming from stable democracies in this
matter from the United States as an ally moreover, the better
for us countries that are relying on supplies from the outside.
Mr. Latta. Thank you very much. Mr. Chairman, my time has
expired, and I yield back.
Mr. Barton [presiding]. We thank the gentleman from Ohio. I
now recognize the gentlelady from Florida for 5 minutes.
Ms. Castor. Well, thank you, Mr. Chairman, and welcome to
the witnesses. Thank you for your testimony today. My
overriding concern is with the American consumer and with
America's national security, and it doesn't make a lot of sense
to me to export American crude oil to the People's Republic of
China while increasing costs to American consumers and
refiners.
Commander Lippold, first of all thank you for your service
to our country. You have a very distinguished record of
service, and I heard you loud and clear that you pointed out
that the United States still imports a staggering amount of
oil, and you have urged us to be cautious, to consider the
real-world consequences. You say, while tempting from the
perspective of gaining a commercial foothold in a new market
arena at this time, the national security implications of
changing the existing policy, regulating the export of crude
oil is rife with unknown and probably unintended consequences.
That must be fully considered and addressed. Now, you have
spent a lot of your career on international security concerns.
Can you talk to us a little bit about what is happening in
China, they are increasing cyber security attacks, whether
state-sponsored or not, what is going on in the South China
Sea, especially their reclamation of islands and lands to
seemingly want greater control over the shipping channels. What
is happening with China's military strategy?
Mr. Lippold. What you are seeing in China today is a
country who has taken their economic power and wealth and is
beginning to expand it on a, first, regional basis to gain
greater influence over the countries that are around there.
China has always viewed the South China Sea as their lake. They
view that as entirely their territory. They tend to ignore the
territorial limits at 12 miles or the exclusive economic zone
that goes out to 200 miles. They say that they can expand it if
it is disputed. They are the big guy on the block, so they will
do what they want. And that is what you are seeing with the
building of the islands there today.
While we have tried to engage with the Chinese, and I think
we should continue to engage with them on a very positive basis
where and when possible, clearly they have taken actions
recently that are not in accordance with our interests or
values, whether that has been in cyber warfare, how they are
dealing with things regionally, how they have dealt with us
economically, and obviously Gorman-Rupp has unfortunately been
a beneficiary of their trademark violations and in stealing our
equipment and knowhow, American knowhow.
So on a variety of fronts we just need to engage with them
positively where we can and punish them where we have to in
order to make sure that they behave responsibly in the
international community.
Ms. Castor. I mean their international strategic plans have
been quite interesting. I can't help but think back to when I
traveled to Afghanistan, and all of the American money, the
treasure, the lives that we poured into that country and then
it was pointed out that it was China that was exploiting their
minerals. The same is happening all across the globe, where the
Chinese reach is just enormous, into Africa, into South
America. And I don't know why the United States of America
would be party to supplying China, the largest importer of
petroleum across the globe, why we would help them gain that
strategic foothold. I take your advice very seriously, and I
think it should give this committee something to think about.
Thank you, and I yield back the balance of my time.
Mr. Barton. The gentlelady yields back. We now go to the
gentleman from Mississippi, Mr. Harper.
Mr. Harper. Thank you, Mr. Chairman. If I could start with
Dr. Montgomery? Dr. Montgomery, there was a moment in
questioning earlier ago that you were trying to answer about
the flaring excess at production and the impact increases in
production might have, and I don't think you got a chance to
finish that. Did you care to comment on that further?
Mr. Montgomery. I did. Thank you very much. What I wanted
to say was that we looked at this and did some computations in
the study that we did at NERA, and what we found is that using
an oil export ban to try to limit field emissions or greenhouse
gas emissions associated with fuel consumption is about the
worst possible climate policy you could think of.
The administration just announced that it thinks that a ton
of CO2 does $36 worth of damage. Well, we calculated
that the economic benefits of oil exports that you would lose
through the ban amount to several hundred dollars per ton for
every ton of CO2 emissions that you could avoid that
way. There are so many other ways to reduce greenhouse gas
emissions and to deal with the problems of appropriate
regulation at the field that the oil export ban should be at
the bottom of anybody's list as a tool for environmental
policy.
Mr. Harper. Let me ask you this. Are oil export
restrictions one of the main reasons why West Texas
Intermediate Crude trades about $5 less per barrel than its
international competitor, Brent?
Mr. Montgomery. For a time there was a problem with
pipeline capacity for moving it. At this point, I think that is
exactly the reason. The same thing is true of Bakken in North
Dakota trading below Brent. It is because the only--and in
fact, in the last couple of weeks, well, in the last day or two
Bakken has actually popped up to being pretty much equivalent
to Brent and what the news reports were saying was that priced
U.S. refiners out of the market.
So the fact is that, yes, it is the fact that it is not
economical to be used in the United States that drives that
price----
Mr. Harper. In my home State of Mississippi, we have the
Tuscaloosa Marine Shale that was really beginning to take off.
The cost per well was going down, and then of course, the price
drops out and production stops. And that has been an issue. But
I have seen estimates that show that eliminating the discount
that we just talked about would incentivize a significant
amount of investment in the United States. IHS estimates
perhaps as much as $750 billion over the next 10 to 15 years.
What impact would that have on the U.S. economy broadly and who
would benefit?
Mr. Montgomery. That kind of investment is basically a
driver for economic growth. The slow growth that we have had in
the past few years has almost--we wouldn't have even have had
that were it not for the investment that was going on in the
oil and gas industry, and as Mr. Kreinbihl has described, that
investment produced stimulates activity throughout the economy,
not just people working on drilling in the oil fields. It
provides us with lower cost energy, and it is a driver of
economic growth.
So that investment, as long as it is driven by the market
and is not driven by government subsidies to refiners through
effective price controls.
Mr. Harper. Thank you.
Mr. Montgomery. So all investment is not the same. The
market-driven investment that we have seen because of a
technological revolution in the oil and gas industry, that
clearly drives the economy forward. Taking money out of
consumers' pockets to subsidize a set of refiners doesn't.
Mr. Harper. Thank you, Dr. Montgomery. Mr. Kreinbihl, if I
could ask you a question? If the export ban were to be lifted,
how would you change your business plan to adjust for the more
positive outlook?
Mr. Kreinbihl. We have our business plan already in place
for--as I mentioned, last year when we looked at our business
plan for this year and we have to look at, OK, if things
increase a certain percentage or decrease a certain
percentage----
Mr. Harper. Sure.
Mr. Kreinbihl [continuing]. What do we do? What it would
mean for us is making sure that we hire the people that can
create the product----
Mr. Harper. Let me ask this because----
Mr. Kreinbihl [continuing]. Supply the market----
Mr. Harper [continuing]. My time is almost up. How quickly
would you see that positive impact? How quickly?
Mr. Kreinbihl. I don't know that I can comment on that. It
depends on how quickly the oil rigs get back into when the
demand increases.
Mr. Harper. OK.
Mr. Kreinbihl. There is quite a bit of supply now.
Mr. Harper. My time has expired. I yield back.
Mr. Barton. The gentleman's time has expired. We now
recognize the distinguished gentleman from Iowa for 5 minutes.
Mr. Loebsack. Thank you, Mr. Chairman. This has been a
very, very wonderful hearing. I think we have all learned quite
a bit, and I want to thank all the panelists. Although my
colleague from Texas is no longer here, Mr. Olson, one thing we
can agree on, and I have expressed this concern directly to
General Dempsey when I was on the Armed Services Committee as a
proud father of a stepson and daughter-in-law, both Naval
Academy grads, although they are in the Marine Corps now, but
go Navy nonetheless, Commander.
Also, Ambassador Gandalovic, good to see you as always. For
8 years I have proudly represented Cedar Rapids, Iowa. No
longer, but they have a wonderful, of course as you know, the
National Czech and Slovak Museum there. So thank you for being
here today as well. I do want to start out with you,
Ambassador. If you could, because I realize a lot of what is
going on here, the proposal to lift the ban on crude oil
exports is based on a concern for our national security, for
the national security of the countries where hopefully the oil
would be going. Whether it would or not is not a question. Can
you talk a little bit about the national security interests at
stake here for the Czech Republic when it comes to where you
get your oil, where it might come from if this ban were to be
lifted?
Ambassador Gandalovic. Well, again, since the changes in
1989, we saw energy delivery and energy sovereignty as a part
of our national security, and this is why we put such an
emphasis on diversification. And so in my whole testimony, it
is of course representing a country that has done all possible
measures to enlarge opportunities and diversify resources of
energy. It is not my role here to tell you, the United States,
what you do with your national security, but I am representing
a country that is prepared to accept deliveries, even from the
United States, as or when or if the ban is lifted, and it is
actually convinced that those deliveries would benefit to our
national security as it is coming from an ally.
Mr. Loebsack. Thank you. And again, I feel for you as the
ambassador. You are not a politician, yet you have been kind of
put in the middle of this here today, and I thought you have
done a very good job representing your country and serving as
the ambassador and not a politician today. So thank you very
much for what you have done today as far as your testimony is
concerned.
Look, we had another hearing on this issue a while back,
not on this particular bill but on the issue of lifting the ban
on export. And I stated at the time that my biggest concern,
not unlike others up here today, is our national security, U.S.
national security. Everyone here knows that prior to 1973
America had essentially a drain America first oil policy. I
think we can all acknowledge that, driven by the Seven Sisters,
driven by domestic interests here in the United States and
pursued by Congress and pursued by the various administrations
up to that point. So I have a real concern myself about lifting
this ban from that standpoint given that we still import 30
percent of our oil, given all the other considerations. I
understand the economic arguments. I get all that, markets are
going to drive prices, all those things. But at the same time,
I just think we have to be very careful that we don't do
something in the short term which, while it may benefit certain
actors in the United States, private industry, in particular in
the oil industry, that we, not as my colleague from
Pennsylvania expressed his concern on this same issue, that we
look down the road, that we don't do something now in the short
term that is going to have a very, very negative effect on our
national security, on our economic security, on the security of
the United States. That is why I do appreciate your testimony,
Commander. And again, I appreciate the testimony of everybody
here because you are all coming at this from different
perspectives, and we have to take into account all those
perspectives. There is no question about that.
But I do have a question as to--and I stated this question
when we had the previous hearing similar to this, is there any
guarantee if we lift this ban that the oil is going to go where
we might want it to go from our national interests perspective?
And Mr. Chair, I see I am at the end of my time or near the end
of my time, so if I don't get to an answer, I would like to
request answers in writing from the panelists.
Mr. Barton. Without objection.
Mr. Loebsack. Commander? I am sorry.
Mr. Barton. Without objection.
Mr. Loebsack. OK. Thank you.
Mr. Barton. Are you yielding back now?
Mr. Loebsack. If you need me to I will.
Mr. Barton. Well, your time has expired.
Mr. Loebsack. OK. I yield back. Thank you, Mr. Chair. Thank
you. Thank you for your help.
Mr. Barton. I am a little rusty at this, see, but we are
only supposed to get 5 minutes. The gentleman from West
Virginia is recognized for 5 minutes.
Mr. McKinley. Thank you, Mr. Chairman. And thank you for
your patience, the panel. Almost 2 hours ago there was a remark
that was made, and I have heard it over the last few years that
if we are going to have exports, we ought to at least tax it or
get some kind of fee on that export. And all I can say is, with
all due respect to those that want to tax our exports, that
will require a Constitutional amendment because there is a
prohibition under Article 1, Section 9, paragraph 5 in the
Constitution that says no tax or duty shall be laid on articles
exported from any state. So I just want everyone to understand.
As much as some people might want to take advantage, you just
can't do that.
So some of my questioning is looking for consistency. We
seem to be here in Congress often picking winners and losers. I
don't like that, and in this consistency we--I come from a coal
state. We export a lot of coal, and now we are in the process--
and actually, if I can stay on coal just for a minute. With
this increasing demand for coal around the world, we haven't
seen a rise in the price of coal. Coal has been a very stable
marketplace to have that product. So I reject some of that
notion that if we export it, we are going to see a rise in
price because I haven't seen that with coal. And now we have
got the argument that seems to be moving on LNG, that we are
finally, finally, going to start exporting our natural gas,
both for diplomatic purposes and economically. What is the
consistency here that if we say it is all right to export coal
and natural gas but we have made--the government is going to
get involved here and say we are not going to export oil, is
that consistent? So Commander, I am just curious because you
seem to be the designated contrarian for this panel. Do you
support the export of coal?
Mr. Lippold. I think you have to look at it in the total
context of energy security and what we are capable of producing
and what nations need around the world. Right now, we are still
importing 30 percent of our oil, and until we reach that
point----
Mr. McKinley. Just on coal. Just on coal. Do you support
the exporting of coal?
Mr. Lippold. I will be honest, sir. I am not familiar with
coal----
Mr. McKinley. OK.
Mr. Lippold [continuing]. And the industry.
Mr. McKinley. We export----
Mr. Lippold. So it would be----
Mr. McKinley [continuing]. About----
Mr. Lippold [continuing]. Inappropriate for me to comment.
Mr. McKinley. We export about 15 percent of what we produce
in coal because obviously this administration doesn't like us
burning coal in America. So we have found we have got markets
overseas to produce that.
What about LNG? Is your view consistent that you would also
pose exporting LNG?
Mr. Lippold. Again, I have not gotten into LNG, although I
will look at it and having studied it to a small degree, when
you look at our ability to export and have an immediate impact
especially on the Eastern European countries that are overly
dependent on Russian gas, that is a critical national security
issue that we are contributing positively toward and should
continue to work for us, especially as we develop more fields
and have that excess capability in our system where we are
taking not only of our needs that are being met but now can
give it to other nations as well.
Mr. McKinley. I appreciate it. I know we have been running
over here long so I yield back the balance of my time.
Mr. Barton. The gentleman yields back. We now go to Mr.
Tonko for 5 minutes.
Mr. Tonko. Thank you, Mr. Chair. And I would like to see us
become less dependent on oil, imported or domestic, but that
has not yet been achieved. Until it is, I think we need to
proceed cautiously. This is not just another commodity. It has
one we have paid a high price for in blood, treasure, and other
environmental and social costs.
So Commander Lippold, I appreciate your testimony and your
perspective on this important issue. As I understand it,
Venezuela and Saudi Arabia have the largest proven reserves of
oil, more than 250 billion barrels and that Saudi Arabia's oil
has production costs that are lower than ours, among the lowest
globally. And given that situation, it seems difficult to
assess much about the overall direction for the price of oil
without a sense of what the Saudis plan to do.
I also imagine that since a number of countries rely on oil
revenues to meet their obligations, they will continue to
produce and sell into the market, even if that means they may
be selling below their production costs. So I don't see how
increasing exports of the U.S.-produced crude is going to have
much impact on the global price of oil. And given that during
that period, the period that our crude oil export ban has been
in place, we have seen significant increases and decreases in
prices at the pump. I doubt consumers will see a net benefit
from lifting the export ban.
I can see that this change could alter decisions about
whether to continue investing in domestic refining capacity. I
can see that it can alter decisions about whether to drill
additional domestic wells, and I think it will also influence
decisions about investments in oil pipeline or oil-transporting
rail cars.
So Commander Lippold, in his testimony, Dr. Montgomery
refers to the prospect that the refiners would make additional
investments to refine more light oil as economic waste. But
those investments create domestic construction and related
manufacturing jobs and maintain or create domestic jobs in the
refining industry. My question to you is, is there strategic
value in keeping a strong domestic refining industry?
Mr. Lippold. Absolutely, yes.
Mr. Tonko. And you indicated in your testimony that you
believe lifting the export ban would lessen the trend to
declining imports. Would you expand upon that a bit?
Mr. Lippold. If you look at if we were to increase the
capacity of the refiners here in the United States, while they
have some excess capacity right now to take in the light tight
oil that is being produced here in the United States, if we
create the conditions and they expand that capacity going from
the heavy sour to the light sweet, that is going to give us an
ability to refine it here in the United States which is going
to lessen the dependence on oil that we have to import in order
to meet U.S. domestic needs.
Mr. Tonko. Thank you. And if drilling slows down, we may
reduce the immediate benefits to some in the oil sector, but it
may give us a chance to catch up on other things we need to do
to better adapt to the new production areas, for example in the
areas of transportation and pipeline safety. The oil isn't
going anywhere. If it is still in the ground, it is still
available for our use. In a sense, it maintains another form of
strategic reserves. Would you agree with that?
Mr. Lippold. I would agree to that with a caveat and that
is while it may be there, just as with any industry, you are
now asking industries like Gorman-Rupp to be able to keep a
capacity available so that if we decided we needed to exercise
use of that strategic reserve that they could immediately tool
up and be able to expand it. That is a consideration you have
to look at is do we have the capability and capacity in the
industrial base to maintain that in addition to keeping those
strategic reserves in the ground. That has to be thought
through, and again, this goes back to the point of my argument
which is before we lift that ban, this is one of those second-
and third-order effects that we need to look at is how do we
maintain that industrial capacity that if we have to exercise
use of that strategic reserve, can we and how quickly can we
get our industrial base to tool up to be able to do that?
Mr. Tonko. Yes. Well, lifting the export ban clearly would
benefit the oil production sector by drilling and other
ancillary services. It would maintain or expand growth in
pipeline investments and rail investments. These sectors have
done very well, and the boom has spurred tremendous growth. But
it has come at a cost. My constituents, for example, are very
alarmed at the rapid rise in the number of oil trains rolling
through our region. They do not believe that investments in
safer rail cars and contingency plans for dealing with
accidents have kept pace with the increase in oil production.
If now we are incurring these costs only to export the oil,
support for expanded domestic production will be even less
popular than it is already in non-oil producing areas of the
country.
And so I just share these concerns with the committee and
here at this hearing because they are real and they are lived
through each and every day. And with that, Mr. Chair, I yield
back.
Mr. Barton. The gentleman yields back. Mr. Cramer, who has
been here the whole time, is not a member of the subcommittee.
So he is going to have to wait until the two other members of
the subcommittee ask their questions. We now go to Mr.
Markwayne Mullin of Oklahoma.
Mr. Mullin. Thank you, Chairman, and thank you for having
this very important hearing. As I alluded to earlier, Oklahoma
has lost 20,000 jobs since January. Obviously we are a rich
state in our fossil fuels, and it is very important. It drives
our economy. And to have this conversation to me, as a business
owner, I am just sitting there scratching my head. And
Commander, I hear what you are saying, and I understand your
point of view. But strategically speaking, when we start
talking about our allies, I mean, we are forcing South Korea
right now who we are still heavily invested in to buy oil from
countries that aren't exactly friendly to us right now. How is
that possibly a good idea? How is it that if we can't at least,
at least, export crude oil to our allies, don't we weaken their
hand when we make them dependent on those that don't' exactly
have our country's best interests in mind?
Mr. Lippold. Well, if you are to use that as the bottom
line, we would be in trouble in a number of areas in what we--
--
Mr. Mullin. Well, it is not the bottom line, sir. It is
where we are at. It is the point. I am not talking about
everything. We are talking about export of oil, of a commodity
that we have an abundance amount of right now and a commodity
that honestly, we are running out of storage in the United
States. We are at record-level storages, and we are holding
onto it. We have plays that we haven't even started in. We
without doubt could be the number one producer, not because of
government intervention. In fact, they are choking us because
of the entrepreneurial spirit. We have the ability to
strengthen the hand of our allies and strengthen our
relationship with our allies across the country for providing
them a commodity that they are in desperate need of. We have
got the Czech sitting right beside you. Is that not an
opportunity to strengthen their hand by taking them off the
dependent of an unstable and unreliable Russia right now?
Mr. Lippold. I think one of the concerns goes back, sir, to
the fact that, once again, if we don't look out for our
interests first, while our allies may be important, at the end
of the day, we are the ones that are still going to be
vulnerable and dependent, and we have seen that with exactly
the impact that has affected your state.
When you look at a country, or not a country but a cartel,
principally driven by Saudi Arabia that can influence the world
oil market in the way they do by depressing prices, by putting
more on there, not reducing their production quotas, and
allowing that to happen, even if we put our oil on the market--
--
Mr. Mullin. Commander, you are----
Mr. Lippold [continuing]. They still have the capacity to
lower that down and----
Mr. Mullin. Well, Commander, you are making my point----
Mr. Lippold [continuing]. Make those prices depressed.
Mr. Mullin [continuing]. Because as a business owner, to
stabilize the market, you put more players in it. Competition
strengthens the sword of an entrepreneur. We allow them to
control it because they are the only player on the market. We
have reserves. We have the ability to go out there and not
compete but beat. You are talking about our economy and our
security of our Nation? Unemployment brings insecurity.
Security is when we have a strong financial stability inside
our country. We have lost 20,000 jobs and yet we have it
underneath our feet, and we can't get it because we don't have
a place to take it to. We are putting it in storage as I
alluded to earlier. We put it in storage which we are running
out of storage capacity.
It is absolutely crazy to think that we limit the ability
of entrepreneurs. That is the only thing driving our economy at
the so-called recovery we are having. We are limiting their
ability. We are not talking about the '70s anymore. We are not
talking about running rogue on stuff that--depleting our oil.
The technology has changed. The world has changed, and the
world is in desperate need of another player in the world
market so we are not held by the cartel of the Middle East.
Right now our refineries, 30 percent of our refineries in
the United States are owned by foreign entities, and they can
bring their oil to us? They can buy our refineries? They can
refine their oil? They have a place to bring it to and yet we
limit ourselves. From a strategic point of view, sir, I find it
very hard to buy into your argument when we are not able to
shore up our own allies at this time, at this critical time. We
have an opportunity to become a world leader. All we have to do
is loosen the rope just a little.
Thank you for being here, and I yield back.
Mr. Barton. We thank the gentleman. I apologize to Mr.
Johnson. I thought Mr. Mullin was here before. So I erroneously
allowed him to go first. But we now recognize the distinguished
gentleman from the great State of Ohio and a catcher on the
Congressional Baseball Team.
Mr. Johnson. Go Bucks, who got no playing time in this
month's game by the way. We can talk about that next time.
Mr. Barton. Obviously a managerial mistake.
Mr. Johnson. Thank you, Mr. Chairman. I appreciate the
time. I want to take just a minute to talk about the incredible
journey these past few years have meant for the folks I
represent in Eastern and Southeastern Ohio where the vast
majority of the exploration and production of shale development
have been occurring in the State.
Thanks largely to the oil and gas industry, unemployment in
shale counties has fallen some 66 percent since 2010. Counties
in my district which have historically seen higher unemployment
rates than both the State or the national average are now
driving down the State's overall unemployment rate. But certain
challenges are now coming into play, challenges that have
recently caused about 1,000 rigs to be laid down across the
United States resulting in an estimated 150,000 layoffs.
That said, we have an opportunity to address these
challenges, and I believe it starts by looking at our outdated
energy policies, many of which were crafted when America's
energy resources were considered scarce. That is why
legislation like the LNG Permitting Certainty and Transparency
Act that passed the House back in January which helps America
harness our natural energy abundance by requiring DOE by law to
act on pending LNG export applications in a timely fashion is
so very much needed and important.
This legislation would stop Washington from further
delaying job creation at home and will help positively
influence global politics abroad. And after much thought, I
believe the current crude oil exports restrictions are also
standing in the way of real economic and geopolitical benefits.
As you all well know, GAO recently testified that removing
these restrictions could increase domestic production to an
additional 130,000 to 3.3 million barrels per day from 2015 to
2025 while decreasing consumer fuel prices. Lifting the ban
would also create American jobs, and like the LNG Permitting
Certainty and Transparency Act, it would strengthen America's
geopolitical hand globally.
So while I understand that lifting these restrictions will
cause some bumps in the road, it is hard to ignore the numbers
contained in the GAO's report along with other recent reports,
and I think if we go about this the right way, we can smooth
out those bumps in the road so that everybody in America wins
and we take our rightful place as the world's leader in energy
exports.
And so with that, Mr. Barton, even though you didn't play
me in the game, I am going to forgive you for that. I would be
happy to lend my name to H.R. 702----
Mr. Barton. Well, thank you.
Mr. Johnson [continuing]. To support your bill.
Mr. Barton. We will have to rectify managerial mistake.
Mr. Johnson. All right. We will work on that. We will work
on that next year.
Mr. Barton. All right.
Mr. Johnson. I will be back. Now, onto a few questions. Mr.
Kreinbihl, in your testimony--and I know you have got a
business in Mansfield, right?
Mr. Kreinbihl. Yes.
Mr. Johnson. And you have got a friend who owns a business
I think in Carroll County as well?
Mr. Kreinbihl. Yes.
Mr. Johnson. In your testimony, you touched on many of the
harmful impacts that the export ban has had on your business
such as laying off workers and wage stagnation. Do you know of
other companies who have been similarly affected by the export
ban, and what do they have to say about it?
Mr. Kreinbihl. I think there are many suppliers in the
industry that are affected by it. A lot of the suppliers to us
are affected by how our business is and whether they are
supplying us castings or any of the raw materials that we buy,
it is affecting them also.
Mr. Johnson. OK. Would you expect these negative impacts on
your business to continue getting worse if the ban is not
lifted?
Mr. Kreinbihl. It seems like as the number of rig counts go
down that our business is directly correlated to that, yes.
Mr. Johnson. OK. Well, to the extent that you can, and I
understand that it may be hard to quantify, can you give us
some idea to what extent the export ban has hurt your business,
your ability to expand and invest?
Mr. Kreinbihl. I think if we lifted the ban we would create
the marketplace for then the economy to pick up and generate
business and the need for supplying that market with our
equipment and equipment like ours.
Mr. Johnson. OK. So basically, your sales would go up you
think as the market expands I guess?
Mr. Kreinbihl. Yes, and again, our sales are very much
correlated to the number of rigs and the activity out there.
Mr. Johnson. OK. All right. Well, thank you very much,
gentlemen. And Mr. Chairman, I yield back.
Mr. Barton. We thank the gentleman from Ohio. We are now
going to turn to the gentleman from New York City, the Big
Apple, the late-arriving but always welcome, Mr. Engel, 5
minutes.
Mr. Engel. Thank you very much, Mr. Chairman, and thank you
for always being concerned with this important issue. So I want
to thank the chairman, ranking member, for holding this
important hearing on the current ban against crude oil exports.
Let me first of all say the United States has more
influence over global energy production today than we have had
in generations, and that is a terrific thing. It is certainly
vital that we pursue a smart and responsible course for energy
production distribution. If we develop our energy resources
while vigorously protecting the health and safety of all
Americans, our Nation can realize enormous economic and energy
security benefits.
Mr. Barton knows, because he and I have discussed this,
that I have been interested and continue to be interested in
the geopolitical aspects of this, the fact--and our ambassador
can attest to the fact that Europe is so dependent on Russian
oil, and that if the United States were to lift a ban, it might
make Russia less important. And I think that is a good thing,
given the way they have acted in Ukraine and in Eastern Europe.
And so I think that to help wean Europe off of Russian energy,
this might be a good thing.
So I am particularly interested in the global ramifications
of lifting our crude oil ban and the impacts it would have on
jobs and the economy in the United States.
Now, since we held the hearing on this issue last December,
I note that two unions, the Laborers International Union of
North America and the International Union of Operating
Engineers, split from the AFL-CIO position and now support
lifting the crude oil import ban, export ban. Mr. Barton and I
have had discussions about this.
So we heard as testimony today that if we lift the ban on
crude exports, then the vast majority of U.S. crude purchased
on world market would make its way to Asia, not Europe. I also
read a Wood Mackenzie report from March of this year that
concludes the same thing. So let me ask you, Dr. Montgomery, do
you agree with the conclusion that if we lift the ban, the vast
majority of our crude oil exports would go to Asia? And if you
do, does it matter?
Mr. Montgomery. Yes and no. I am sorry, but yes. Asia is a
large market, but it is not one we are particularly well set up
to serve. I mean we would be moved if the refining is taking
place in the Gulf Coast and Mid-Atlantic. That is a long way to
get to Asian markets. So basically I think it is extremely hard
to predict exactly where a physical barrel of oil is going to
move mainly because it is irrelevant in thinking about the
global market. Whether we load a ship in the United States and
follow that ship around Cape Horn or the Cape of Good Hope or
the Suez Canal to get it to Asia or whether that oil goes to
Czechoslovakia freeing up some oil that Czechoslovakia might
have purchased from Russia to move to Asia, it is all going to
have exactly the same effect. It is not where the barrels go.
It is how much there is in the total world market.
Mr. Engel. So let me ask Commander Lippold. I think he will
disagree, but let me hear your disagreement. Commander, do you
agree with Dr. Montgomery?
Mr. Lippold. There are certain----
Mr. Barton. You have got to put your microphone--you have
got to push the button.
Mr. Lippold. Yes. Sorry, sir. I would say yes and no. While
the oil goes in there and we can't trace where that barrel of
oil would go, clearly you put more oil onto the world market,
the highest bidder is going to get that oil, and transportation
costs will be absorbed in that total thing. Right now the
majority of that oil is predicted to go to Asia and studies
indicate that.
Mr. Engel. So let me ask about imports. Despite the recent
increase in domestic crude oil production, the volume of oil of
the U.S. imports is not drastically different from the time the
ban was put into place in the 1970s. The U.S. Information
Administration, according to them, imports in 2014 totaled more
than 2.6 billion barrels or around 30 percent of supply. So
testimony today, we have heard that lifting the crude oil
export ban would result in a greater reliance on imports than
would otherwise have taken place. So I would like to ask Dr.
Montgomery and Commander Lippold, do you agree? Dr. Montgomery?
Mr. Montgomery. No, I do not believe that--I mean, I do not
believe that lifting the export ban would lead to an increase
in imports. I look at net imports. The additional production
that we would be exporting will be far larger than any
conceivable increase that we might have in refined product
imports.
So on balance, we are going to reduce--our import position
is going to improve if we export the crude oil.
Mr. Engel. Commander?
Mr. Lippold. I believe that if you are going to start
exporting and you are still importing 30 percent, that fact
isn't changing. It still affects our national security in a
negative way because we are not achieving that goal of energy
independence.
Mr. Engel. Ambassador, may I ask you one quick question? Do
you agree with my premise that if the United States exported
more oil, it would help to wean Europe off of Russian energy?
Ambassador Gandalovic. Congressman, I cannot assure you
that in the Czech Republic refineries would start buying
American crude oil once you possibly lift the ban, but the mere
possibility that there is an alternative from the deliveries
from the East would definitely strengthen our security and not
only the Czech Republic but the entire Europe.
Mr. Engel. I know other countries agree with you and the
Czech Republic about these things. Mr. Barton, we will continue
to have conversation. Thank you.
Mr. Barton. We appreciate your testimony and your
attendance. Last but not least, the longsuffering gentleman
from North Dakota, Mr. Cramer, is recognized for 5 minutes.
Mr. Cramer. Thank you, Mr. Chairman, and thank you for
introducing the bill and thanks to all of you for your patience
because you have been here and you haven't even left. And I
have been able to go up and get out a couple of times.
I want to hone in on this issue of the impact of a free
market on everybody because we sort of pick where we want to
pick and pick situations. I mean for one of the examples,
Commander, you have referenced Asia a number of times. It might
surprise people to know that in 2013 the United States exported
nearly 50 million barrels of refined petroleum products to
China. I don't find that offensive any more than I would find
selling oil to China offensive.
But my understanding of a free and open market and its
impact on security in the world is you have used the word--
Commander, you have used the word energy independence many
times in the context of national security. I frankly think that
that is only half of the formula. I think energy security is
different than energy independence.
For example, and Mr. Mullin raised the point, I think we
have established that we import roughly 27 percent of the oil
that we refine in the United States. He raised the point that
30 percent of our refining capacity is foreign owned, largely
by the people that are exporting or we are importing the oil
from. I don't see a lot of incentive for them to change their
refining and retooling their refining to take our oil when the
whole reason they own those refineries is to import their own
oil.
So we export a lot of things out on the Atlantic Ocean that
we import back on the Pacific Ocean other than oil. We do that
regularly in agriculture products. We have pasta plants in
North Dakota that buy low-cost durum from Canada, and our
farmers sell higher-priced durum to producers in Minnesota. I
mean, that is how a free market works to the benefit of
everybody, and I think we are missing some of that.
I would be interested to know--perhaps Mr. Montgomery, you
can start--this issue of the 30 percent ownership, foreign
ownership of our refineries, whether you find it offensive or
not offensive. That is relevant, is it not, in the context of
this discussion of energy security and energy independence?
Mr. Montgomery. To me the importance of that is that those
foreign owners are actually benefitting economically from
having access to the U.S. market and are richer than they would
be, and I think that if our enemies are poorer, that is better
for the United States.
But those assets are still in the United States. The fact
that they might be owned by LUKOIL or by Venezuela doesn't make
them not available to us should there be a national emergency
or should we--if we went to war with Venezuela. It wouldn't
change the operation of their refineries if we had to take the
bullet.
Mr. Cramer. And I would agree. I don't mean to imply that I
am offended by it. I am not offended by it, but in the context
of this discussion. Anybody else on that topic including you,
Commander, since I am sort of jabbing you a little bit on the
issue?
Mr. Lippold. Well, yes. Thank you. It goes actually to the
heart of what I have talked about which is when you look at
energy independence and we look at developing as part of a
national security strategy and having an energy policy, when
you look at those refineries and 30 percent being owned by
foreign interests, when you look at 30 percent of our oil or 27
being imported into the United States, if you want to look at
it at a free-market perspective, we don't have a free market.
There are always going to be a certain degree of regulations on
what we control, goes where, to whom, and under what
conditions. That is part of what government's function is, to
ensure that there is a certain degree of level playing field
not only internally to the United States but externally to the
United States.
So I would look at it and I wouldn't necessarily be
concerned about that 30 percent ownership and what they are
doing. It is what is going to be available and what conditions
are we creating for our people in the United States to perhaps
push that 30 percent out and create those jobs for the United
States and for the money to end up here in the United States--
--
Mr. Cramer. But I guess I see in this case the regulation
creating an uneven playing field to the disadvantage of the
American producer. And that is sort of the whole point in the
whole issue.
I want to ask, Mr. Ambassador, you have said a couple times
or referenced this. I want to ask it in a real specific
question. Do you believe, representing just your country, that
the world would be safer if the United States was a force or a
player in the global marketplace, being the stable, reliable
provider of crude oil?
Ambassador Gandalovic. Yes, I do believe that, and I have
tried to prove that in my testimony.
Mr. Cramer. You have done very well. Let me ask quickly,
Commander, since I have a couple seconds. Do you think that
displacing heavy sour crude from Venezuela with heavy sour
crude from Alberta, Canada, would be better and more in the
national interest than--would it make it safer?
Mr. Lippold. If importing it----
Mr. Cramer. From Canada rather than Venezuela?
Mr. Lippold. I think any time we are taking something not
from Venezuela it is for our best interests.
Mr. Cramer. Thank you. I appreciate your support for the
Keystone Pipeline. With that, I yield back, Mr. Barton.
Mr. Barton. The gentleman's time has expired. That is all
the members. No other members present to ask questions. We will
keep the record open for the requisite number of days----
Mr. Rush. Mr. Chairman, if you would, Mr. Chairman, before
we----
Mr. Barton. The gentleman from Illinois.
Mr. Rush [continuing]. Conclude, the question that--I do
have a question.
Mr. Barton. Well, then we will recognize----
Mr. Rush. One final question because I am interested in
Commander Lippold's reference in his written statement where he
said that Nigeria and the impact that lifting the ban would
have on the Nigerian government and its fight against
extremists. The impact, this impact on Nigeria, can you be more
explicit about that? That is of concern to me.
Mr. Lippold. Yes. What you are referring to is the fact
that Nigeria produces, along with Azerbaijan, the same type of
light sweet crude that we do. If the export ban is lifted, one
of the second-order effects you will have is you are now
introducing a larger quantity of that oil onto the world market
that is going to affect their market share, potentially
depressing prices. Clearly, Nigeria being as overly dependent
upon oil to support their economy, it is going to have a ripple
effect. If the price goes down, they are not going to be able
to maintain the type of economy that they need to keep their
nation functioning. They are clearly faced with a clear and
present danger with the terrorist group Boko Haram. They would
take advantage of potential economic instability to try and
destabilize if not topple that government which would have
ramifications. And this again, sir, goes back to the core of my
argument. This is one of those second- and third-order effects.
Before we precipitously just lift the ban and move forward, it
has to be thought through.
A point that was made a few minutes ago was that, let's
lift the ban and we will deal with the bumps in the road. I
too, many times in my military career, lived through the
consequences of that happening with national leadership making
those kinds of decisions. We need to be not reactive but
instead plan ahead for what we are going to do. If we think
through what the ban is going to do, there hopefully will come
a day where we can lift it and do that. But today is not the
day because we have not thought through those effects.
Mr. Rush. Dr. Montgomery, do you have a counter to that
argument? And Mr. Chairman, I want to thank you so much for
your liberalism.
Mr. Barton. Be careful how you use that word. But we will
let Dr. Montgomery answer that question.
Mr. Montgomery. Thank you, Mr. Rush. Two brief comments.
One, to paraphrase, no economic plan survives contact with the
market, and this notion that we can plan out all the
consequences of a change in policy I think is a fantasy. What
we have to do is look at the basic principles of free trade and
the way in which our ability to buy and sell goods
internationally has benefitted the economy for hundreds of
years.
As far as Nigeria goes, again, there are unintended
consequences in every direction. We have frequently analyzed
the consequence of lower world oil prices on different regions
of the world. The fact is, most countries in Africa are oil
importers rather than oil exporters. They are the poorest
countries in the world. Anything that we do to reduce the world
price of oil is going to benefit those poorest countries in the
world because they need it and they will pay less for it if we
put more oil on the market and make it cheaper.
Mr. Rush. Thank you, Mr. Chairman.
Mr. Barton. Thank you. I am so tempted using the power of
the chair, which I currently have, to say that a quorum is
present. I ask unanimous consent to move the bill as is, call
for the ayes, the ayes have it, and the bill is reported out.
But that would not be proper form.
Mr. Rush. It sure wouldn't be, Mr. Chairman.
Mr. Barton. I won't do that. I do want to first--I have
some business. We would ask that three letters from the Energy
Equipment and Infrastructure Alliance, the U.S. Chamber of
Commerce, and America's Natural Gas Alliance be put into the
record, without objection.
Mr. Rush. No objection.
Mr. Barton. OK.
[The information appears at the conclusion of the hearing.]
Mr. Barton. I would also ask to thank our panelists. And
before we close this hearing, just put a little bit more
context on this, we have had a good discussion today. We talked
a lot about exports and imports. I want to put some information
in the record from the Energy Information Agency, and we import
about 9 million barrels of petroleum products a day, but we
export about 4 million. So on a net basis, it is about 5
million barrels per day of imports. Of those 5 million barrels,
about 3.5 million come from Canada and Mexico who are
geographically adjacent to the United States. In fact, Canada
is the number one source of our oil imports. Number two is
Saudi Arabia. It is a little over a million barrels a day. Last
year, U.S. production increased over a million barrels a day,
and if we were to repeal the ban on crude oil exports--now this
is an opinion. This is not a fact. I believe that we could
easily increase domestic production another million to 2
million barrels a day in the next year or 2 years.
So if you really think about it, we do have the ability to
move from a time in the 1970s when we had to import oil from
overseas. We have been as high as 74 percent of our oil coming
from overseas. We now have the capability that the only oil we
import is not by necessity but because of economic
availability. That is a real possibility. That is not fantasy.
And removing the ban on crude oil exports puts the market in
play. I don't discount what Commander Lippold has said, but I
do believe if you let markets operate and let the world's
largest producer, which is the United States of America, let
our producers have the choice to sell domestically to domestic
refiners or to sell on the world market. They are going to
produce more. And if they produce more, there is going to be
more competition, there is going to be more stability, there is
going to be less reliance on unstable sources or sources that
are in unstable parts of the region.
So we talk about imports and the Commander's facts are
correct, but if you look at it from a net import basis and
given the capability of our domestic producers to produce, we
for all intents and purposes have the capability to be energy
independent in the real near-term. And I think that is
important in the debate.
Chairman Whitfield has asked me to indicate and so has
Chairman Upton that this is an issue that has got a real chance
to be marked up. No decisions have been made yet obviously, but
it is something that is under active consideration.
With that, again, I want to thank the panelists, and this
hearing is adjourned.
[Whereupon, at 12:45 p.m., the subcommittee was adjourned.]
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