[Senate Hearing 114-763]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 114-763
 
    AMERICAN ENERGY EXPORTS: OPPORTUNITIES FOR U.S. ALLIES AND U.S. 
                           NATIONAL SECURITY

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

                                HEARING

                               BEFORE THE

                      SUBCOMMITTEE ON MULTILATERAL
                INTERNATIONAL DEVELOPMENT, MUTILATERAL,
               INSTITUTIONS, AND INTERNATIONAL ECONOMIC,
                    ENERGY, AND ENVIRONMENTAL POLICY

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 23, 2015

                               __________

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                COMMITTEE ON FOREIGN RELATIONS         

                BOB CORKER, TENNESSEE, Chairman        
JAMES E. RISCH, Idaho                BENJAMIN L. CARDIN, Maryland
MARCO RUBIO, Florida                 BARBARA BOXER, California
RON JOHNSON, Wisconsin               ROBERT MENENDEZ, New Jersey
JEFF FLAKE, Arizona                  JEANNE SHAHEEN, New Hampshire
CORY GARDNER, Colorado               CHRISTOPHER A. COONS, Delaware
DAVID PERDUE, Georgia                TOM UDALL, New Mexico
JOHNNY ISAKSON, Georgia              CHRISTOPHER MURPHY, Connecticut
RAND PAUL, Kentucky                  TIM KAINE, Virginia
JOHN BARRASSO, Wyoming               EDWARD J. MARKEY, Massachusetts


                 Lester Munson, Staff Director        
           Jodi B. Herman, Democratic Staff Director        
                    John Dutton, Chief Clerk        

                         ------------          

           SUBCOMMITTEE ON MULTILATERAL INTERNATIONAL        
            DEVELOPMENT, MULTILATERAL INSTITUTIONS,        
            AND INTERNATIONAL ECONOMIC, ENERGY, AND        
                      ENVIRONMENTAL POLICY        

                JOHN BARRASSO, Wyoming, Chairman        

DAVID PERDUE, Georgia                TOM UDALL, New Mexico
JAMES E. RISCH, Idaho                BARBARA BOXER, California
JEFF FLAKE, Arizona                  JEANNE SHAHEEN, New Hampshire
CORY GARDNER, Colorado               EDWARD J. MARKEY, Massachusetts

                              (ii)        

  


                            C O N T E N T S

                              ----------                              
                                                                   Page

Hon. John Barrasso, U.S. Senator From Wyoming....................     1
Hon. Tom Udall, U.S. Senator From New Mexico.....................     2
Robert McNally, President, The Rapidan Group, LLC, Bethesda, MD..     4
    Prepared Statement...........................................     6
David Gordon, Ph.D., Senior Advisor, Eurasia Group, Adjunct 
  Senior Fellow, Center for a New American Security, Washington, 
  DC.............................................................    13
    Prepared Statement...........................................    15
Jamie Webster, Senior Director, IHS Energy, IHS, Washington, DC..    18
    Prepared Statement...........................................    19
CDR Kirk S. Lippold, USN (Ret.), President, Lippold Strategies, 
  LLC, 
  Alexandria, VA.................................................    22
    Prepared Statement...........................................    24

              Additional Material Submitted for the Record

    The Oil-Export Ban Harms National Security...................    43
    William S. Cohen: Why President Obama Should Export Crude Oil    44

                                 (iii)

  


    AMERICAN ENERGY EXPORTS: OPPORTUNITIES FOR U.S. ALLIES AND U.S. 
                           NATIONAL SECURITY

                              ----------                              


                         TUESDAY, JUNE 23, 2015

        U.S. Senate, Subcommittee on Multilateral 
            International Development, Multilateral 
            Institutions, and International Economic, 
            Energy, and Environmental Policy, Committee on 
            Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:47 p.m., in 
room SD-419, Dirksen Senate Office Building, Hon. John Barrasso 
(chairman of the subcommittee) presiding.
    Present: Senators Barrasso, Gardner, Udall, Shaheen, and 
Markey.

           OPENING STATEMENT OF HON. JOHN BARRASSO, 
                   U.S. SENATOR FROM WYOMING

    Senator Barrasso. Good afternoon. I would like to call 
order this hearing of the subcommittee of the Senate Foreign 
Relations Committee. Our hearing this afternoon is titled 
``American Energy Exports: Opportunities for U.S. Allies and 
U.S. National Security.''
    During my time in the Senate, I have focused on improving 
energy security of our Nation as well as our allies across the 
world. The United States recently became the world's largest 
oil and natural gas producer. As a result, the United States 
has a rare opportunity to simultaneously support our allies, 
reduce our trade deficit, and create much-needed jobs here at 
home. It can all be done through American energy exports.
    U.S. exports of our natural gas, our oil, and our coal 
provide opportunities to advance our foreign policy objectives 
and strengthen our national security. Our Nation can help 
countries diversify their energy imports away from countries 
like Iran, Russia, and Venezuela. The administration and 
Congress need to focus on energy and take the steps required to 
eliminate barriers for exports of American natural gas, oil, 
and coal.
    One good example of how the United States can assist our 
allies and partners through U.S. energy resources is the 
current situation in Europe. Many of our European allies import 
more than 80 percent of their natural gas from Russia, with 
some importing as much as 100 percent. While in the past Russia 
controlled the nations of Eastern Europe through military 
force, Russia now seeks to control them economically. Russia is 
able to use its energy resources to manipulate and threaten 
countries in Eastern Europe because of their dependency on 
Russia's natural gas. Countries are asking America to increase 
exports in order to help reduce the threat Russia proposes to 
Europe by offering an alternative source of natural gas. Every 
molecule of American natural gas that makes it into the world's 
market is going to be a molecule that cannot be used by Russia 
to hold countries in Europe hostage.
    In July 2014, Ukrainian President Poroshenko wrote an 
article in the Washington Post asking for the United States to 
help Ukraine and respond to Russia. He said, ``We need U.S. 
natural gas to shore up our energy supplies so that we cannot 
be blackmailed by Moscow. We need a reliable partner and ally 
to help fuel our nation.''
    Four of our allies in Europe--Hungary, Poland, Slovakia, 
and the Czech Republic--have asked the United States to 
increase exports to help blunt Moscow's influence. These 
countries know what Russia aggression looks like, and they are 
asking for our help. It is time for the United States to take 
the needed steps to help expedite U.S. natural resources.
    The geopolitical benefits of U.S. energy exports are not 
limited to Europe. Whether we talk about the United States 
being an alternative to Iran's crude oil exports for countries 
like China, India, Japan, or South Korea, which would help cut 
off a vital supply of funding to the Iranian regime, or the 
United States supplying natural gas to help boost economic 
development for countries in the Western Hemisphere dealing 
with the uncertainty of Venezuela's energy exports and 
subsidies, or the United States strengthening engagement in 
trade with East Asian nations, U.S. energy exports can provide 
important national security benefits and strengthen America's 
foreign policy leadership across the globe.
    Over the last several years, I have introduced legislative 
initiatives aimed at making it easier to export American 
natural gas to our allies overseas. Earlier this year, I 
introduced S. 33, the LNG Permitting Certainty and Transparency 
Act. This bipartisan bill expedites the permitting process for 
LNG exports by requiring the Secretary of Energy to make a 
final decision on an export application within 45 days after 
the Federal Energy Regulatory Commission completes the 
environmental review process. I am also cosponsor of S. 1312, 
introduced by Senator Murkowski, to repeal the ban on exports 
of domestic crude oil. Through these efforts and many others, I 
continue to work to remove barriers and increase exports of 
American natural gas, oil, and coal.
    I will now turn to the ranking member, Senator Udall, so he 
can offer his opening remarks.

             OPENING STATEMENT OF HON. TOM UDALL, 
                  U.S. SENATOR FROM NEW MEXICO

    Senator Udall. Thank you very much, Chairman Barrasso, and 
thank you for scheduling this hearing.
    I would like to add a few thoughts about the importance of 
this hearing. This is a very timely topic, and one where I 
think members with varying views will benefit from our panel 
today.
    Making a decision about increasing exports of liquified 
natural gas and crude is not as simple as it sounds. Ten years 
ago, Congress was holding hearings about the need for the 
United States to import natural gas. And our oil dependence 
seemed hopeless. Now we face an abundance of natural gas and 
growing domestic oil production, both nationwide and in my home 
State of New Mexico. Energy exports could lead to more jobs and 
revenue for States like New Mexico and Wyoming. For natural 
gas, we are now projected to have enough supplies to meet 
domestic needs for a century, and there is a great demand for 
LNG from our allies, such as Japan and Europe. If we are going 
to break the Russian stranglehold on energy in Eastern Europe, 
then we should seriously consider taking the steps to export 
LNG. I do not claim it is a quick and easy solution, but I do 
believe it is a valuable tool.
    For these reasons, I am pleased to join our subcommittee 
chairman on this legislation to improve the DOE permit process 
for LNG exports, to avoid unnecessary delays for LNG export 
applications at facilities that have already received 
environmental approvals.
    But, the resources we have--the resources we may export are 
also important for the United States and our ability to grow 
our economy and maintain our energy security. Keeping prices 
stable enables middle-class Americans to not only fill the tank 
and balance their budgets, but enables American manufacturing 
and ensures that our military can respond anywhere in the world 
to protect our national interests. With ongoing turmoil and war 
in the Middle East going back many decades, we must understand 
that there is a direct link between our energy policy and our 
national security. Before we make changes, especially with 
regards to crude oil, we should understand how proposed changes 
may impact our national security interests.
    Today, the United States Armed Forces--in particular, the 
Navy--are always on patrol to prevent disruptions in our global 
energy supply chain. We must be cognizant that our 
servicemembers are in harm's way overseas as we make decision 
whether to permit the export of crude oil. Today, the United 
States can already export refined oil products, such as 
gasoline, diesel, and other oil products. However, because of 
increased crude production in the United States and a refining 
capacity that is not currently designed to support all the 
types of domestic crude entering the market, there is an 
economic question of whether this crude should be allowed to be 
exported. I believe there are strong arguments on each side 
regarding the question of crude exports, and I hope to learn 
more throughout the hearing.
    Some of the questions I hope might be addressed include how 
this decision will impact U.S. national security. Who has the 
refining capacity for our crude exports? How will this decision 
impact States and communities who extract oil? Are our 
refineries beginning the process of investing in infrastructure 
to refine more of this crude oil here in the United States?
    In addition, I think we also need to take a hard look at 
how our energy policies interact with our environmental 
policies and impact our ability to limit global climate change. 
Climate change is real, and it is already beginning to have 
national security implications across the globe. In fact, there 
has been--a fact that has been confirmed by the Pentagon and 
stressed in numerous policy studies, including the Quadrennial 
Defense Review. Climate impacts the countries and people who 
have the least resources, threatening the very fabric of 
society in many developing countries. So, we should also 
consider whether policies to encourage or allow U.S. LNG or 
crude exports are likely to improve or worsen global emissions. 
LNG is likely to displace coal or oil use for power generation 
when exported, but the question on crude is more uncertain.
    With that, Chairman Barrasso, I am eager to hear from all 
our witnesses today. They are an expert and distinguished 
panel.
    I would like to thank Commander Lippold for being able to 
join us on relatively short notice.
    And I am looking forward to a good hearing.
    Senator Barrasso. Thank you very much, Senator Udall.
    At this point, I would like to welcome all of our 
witnesses. I know you have very busy schedules. I appreciate 
all of you being with us today to share your thoughts on 
American energy exports.
    Joining us this afternoon on this panel is Robert McNally, 
the president of The Rapidan Group; Mr. David Gordon, senior 
advisor of the Eurasia Group and adjunct senior fellow for the 
Center for a New American Security; Mr. Jamie Webster, the 
senior director of IHS Energy; and Commander Lippold, president 
of Lippold Strategies.
    So, I want to thank you again for making time to share your 
thoughts and your insights. Your full statement will be entered 
into the record without objection, and I would ask you to 
summarize it, if you could, in 5 minutes in order for the 
members to have an opportunity to ask questions.
    Mr. McNally, we would like to start with you.

            STATEMENT OF ROBERT McNALLY, PRESIDENT, 
              THE RAPIDAN GROUP, LLC, BETHESDA, MD

    Mr. McNally. Chairman Barrasso, Ranking Member Udall, 
members of the committee, my name is Robert McNally, and I head 
The Rapidan Group, an independent energy consulting firm based 
in Bethesda, MD. It is an honor to share my personal views with 
you today about the role of U.S. energy exports and 
strengthening our foreign policy and national security.
    As a former practitioner of energy security policy while on 
the White House National Security Council and with nearly two 
and a half decades analyzing energy markets and policy, may I 
express my appreciation to you and your colleagues in Congress, 
of both parties, for your work in recent years in energy 
exports. Exports like the gas boom itself appeared to come 
quickly and out of nowhere. Congress has showed leadership and 
alacrity in ensuring the boom serves our foreign policy 
objectives.
    We have some good history here. We were as much an arsenal 
of energy as an arsenal of democracy during World War II, 
supplying 6 out of the 7 billion barrels used by the allies to 
prevail in that conflict. And, even after our net crude oil 
imports started rising after the 1950s, we made extra supplies 
available to allies when Middle East conflicts in 1956 and 1967 
triggered disruptions.
    Everything changed for the worst in the 1970s, when we lost 
control of the global oil market and reeled from soaring 
imports and prices. For the next 40 years, our energy and 
national security policy stemmed largely from fears of major 
supply interruptions to ourselves and our allies. But, thanks 
to American ingenuity, sweat, and risk-taking, those days are 
over. Twelve years ago, we all thought LNG imports would be 
soaring like crude oil, but, after the shale gas revolution 
raised proved reserves by 77 percent, we are now on track to 
become a net gas exporter by 2017.
    Meanwhile, crude oil production in the United States rose 
from 5 million barrels a day in 2006 to 9.4 million barrels a 
day in the first quarter of this year. Our import dependence is 
down from 60 to 24 percent. We are the world's largest liquids 
producer.
    The economic benefits of our--for our consumers, 
businesses, and public sector are well analyzed and extolled by 
a broad spectrum of officials, experts, think tanks, and 
leading journals. Your subject today, Mr. Chairman, and the 
focus of my remarks, concerns national security.
    The shale gas boom directly help our European allies by 
giving them bargaining leverage with their main supplier, 
Russia. We first helped by backing out imports of LNG that we 
no longer needed, making them available for Europe. Then, with 
congressional encouragement, the Department of Energy 
streamlined and accelerated the process of approving LNG 
facilities for non-FTA countries like our strong ally, Japan. 
As a result, without having yet exported one molecule of LNG, 
our allies in Europe and Japan have already enjoyed much 
greater bargaining power when they face Russia. Just having the 
option to buy U.S. gas strengthens the bargaining power of our 
allies when they negotiate. For example, last December, 
Lithuania brought on a new terminal, LNG import terminal, the 
Independence. Gazprom has to lower its prices by 20 percent.
    Turning to oil, current policy allows the unrestricted 
export of refined products like gasoline, diesel, and liquid 
petroleum gas, but restricts crude oil exports to Canada and a 
few other limited circumstances. Amidst the panic 40 years ago, 
policymakers had imposed price controls and complemented them 
with a ban on crude oil and refined products. We did not want 
our controlled crude and products running away abroad to escape 
the price controls. But, the price controls were lifted in 
1981. Someone forgot to lift the crude oil ban. No one paid 
attention, because, until recently, we had no reason to export 
crude.
    Today, the crude oil ban is not just an anachronism, it is 
a threat to the boom, itself, due to a mismatch between the 
quality of crudes we produce and refine. It discriminates 
against U.S. oil producers, thereby threatening continued 
investment and production.
    In recent months, the industry has laid down rigs, let go 
workers, and cut investment spending in response to the 
collapse in global crude oil prices. The global oil market is 
not for the timid, and producers must roll with the punches. 
But, the last thing our producers need or deserve is regulatory 
discrimination that, if it had any valid purpose 40 years ago, 
no longer does today. Many studies and experts concluded 
consumers would benefit from lifting the crude oil ban. With 
regard to foreign policy, I would name a few of the benefits we 
would expect to derive:
    One, preserve and protect supply diversity. The oil market 
is global. A supply disruption anywhere transmits a price shock 
everywhere, including here. Unfortunately, two-thirds of the 
global proven reserves lie in the Middle East. Forty percent of 
oil flows through the Strait of Hormuz--traded oil--flows 
through the Strait of Hormuz. The more we can get from outside, 
the better.
    Second, reduce oil price volatility and, thereby, protect 
economic stability at home and abroad.
    Third, practice what we preach on free trade. We are the 
only advanced country that bans crude oil exports. The ban 
contradicts our attempt to promote free trade and open markets, 
especially in energy and strategic commodities that are 
produced and sourced globally.
    Fourth, finally, help achieve national security priorities, 
especially regarding Iran's nuclear ambitions. Without our oil 
boom, disruptions in recent years would have caused oil prices 
to skyrocket, making sanctions against Iran's crude oil exports 
difficult, if not impossible. Looking ahead, if a deal is 
struck, Tehran would resume export of oils while our producers 
remained shackled. As Senator Murkowski said in April, ``We 
should not lift sanctions on Iranian oil while keeping 
sanctions on American oil. It makes no sense.'' If nuclear 
talks fail or Iran cheats, we may ask for continued or further 
import cuts from our allies in Europe and Asia, whose 
refineries are well suited to our oil. It would be neither fair 
nor responsible to do so without offering them access to our 
supply.
    In conclusion, Mr. Chairman, Congress and the 
administration have worked successfully so far to leverage our 
natural gas boom to aid our allies and promote U.S. foreign 
policy. I urge you to continue to complete the job with regard 
to crude oil so that the blessings of our energy boom can 
extend from our consumers and economy to our allies and foreign 
policy interests around the globe.
    Thank you, sir.
    [The prepared statement of Mr. McNally follows:]

                  Prepared Statement of Robert McNally

    Chairman Barrasso, Ranking Member Udall, and members of the 
committee, my name is Robert McNally and I am the president and founder 
of The Rapidan Group, an independent energy market, policy, and 
geopolitical consulting firm based in Bethesda, MD. It is an honor to 
speak with you today about the role of U.S. energy exports in 
strengthening our foreign policy and national security, particularly by 
assisting our allies, many of whom contend with much more challenging 
energy security situations than ours.
    Oil and natural gas are the lifeblood of modern civilization. Their 
abundance and affordability are prerequisites for thriving economic 
growth, high living standards, and ample employment. They are also an 
essential requirement for our national security. U.S. foreign policy 
has historically benefited from our strong position as a producer and 
exporter of energy. While we were known as the ``Arsenal of Democracy'' 
during World War II, we were equally an ``Arsenal of Energy,'' 
supplying nearly six out of seven barrels consumed by the allies.\1\ 
Even after net crude imports began rising steadily after the war, our 
control of spare production capacity enabled us to supply our allies 
and prevent economically damaging price spikes that would have resulted 
due to oil supply disruptions associated with Middle East conflicts in 
1956 and 1967.
    But after the energy, geopolitical, and economic convulsions of the 
1970s, our confidence in our domestic abundance and control shifted to 
apprehension about dependence and vulnerability. For the past 40 years 
our foreign and national security policy planning has prioritized 
preparing against supply interruptions and price spikes, protecting 
Middle East oil fields from hostile control, and protecting the supply 
lines between the region and global markets.
    In this respect, the tremendous and unexpected boom in domestic oil 
and gas production in recent years is an enormous blessing for our 
country. In the last 10 years, our net oil imports fell from 12.5 mb/d 
to 5 mb/d (in the first quarter of 2015) or from 60 percent to 24 
percent of supply.\2\ For the first time since the 1950s, most official 
projections see U.S. net energy imports, which includes all fuels, 
declining and eventually ending.\3\ Our newfound abundance does not 
mean we can ignore the Middle East, which holds nearly half of the 
world's proven oil reserves and supplies one-third of global 
production. That region will remain a source of potential price and 
supply shocks, and its stability will therefore remain a vital national 
interest. But our domestic boom does confer enormous benefits and 
requires that we change our thinking about energy.
    The economic benefits of our energy boom to our consumers, 
businesses, and public sector have been extensively analyzed and 
extolled by a broad spectrum of officials, experts, think tanks and 
leading journals. They include higher domestic supply, lower gasoline 
prices, and stronger GDP growth and are summarized in the appendix 
below from Columbia University's Center on Global Energy Policy, where 
I am a nonresident fellow.
    Your subject today, and the focus of my remarks, concerns the 
national security benefits of U.S. energy exports. To summarize at the 
outset, those include:

    1. Strengthening our influence and leadership position with allies 
and our leverage vis-a-vis adversaries by reducing our dependence on 
energy imports and enhancing our national economic and geopolitical 
vitality.
    2. Adding a new, stable, and relatively flexible source to the 
global supply pool, which reduces price volatility and thereby supports 
our own economic growth and that of our allies.
    3. Offering allies and friends alternative supplies and the 
economic leverage it affords them in their negotiations with energy 
exporters like Russia.
    4. Supporting our top foreign policy goals such as enabling oil 
export sanctions against Iran to be implemented without triggering 
economically harmful price increases.
    5. Bolstering U.S. leadership in the cause of free and open 
markets.
                              natural gas
    While much attention is paid to the spectacular turnaround in our 
oil supply and imports, it is worth remembering our need for imported 
liquefied natural gas (LNG) underwent a similar and surprising 
transition. Between 2002 and 2007 our LNG imports had more than 
tripled, and officials were expecting another doubling. We were 
building terminals to import from suppliers like Qatar and Russia. But 
after the shale gas revolution increased proven reserves by 77 percent 
from 200 billion cubic feet (bcf) in 2004 to 354 bcf last year, we are 
now on track to become a net natural gas exporter by 2017, according to 
EIA.
    The U.S. shale gas boom directly helped our European allies by 
giving them bargaining leverage with their main supplier, Russia. We 
helped first by backing out LNG imports, making them available for our 
allies, particularly in Europe. Then, as we began approving and 
reconfiguring facilities to export LNG, Moscow was forced to accept 
lower and more flexible prices on its sales to European customers.
    The foreign policy benefits of LNG exports quickly became apparent 
to our leaders. In early 2013, then National Security Advisor Tom 
Donilon said the U.S. has ``a strong interest in a world natural gas 
market that is well supplied, diverse, and efficiently priced. 
Increased U.S. and global natural gas production can enhance diversity 
of supply, help delink gas prices from expensive oil indexed contracts, 
weaken control by traditional dominant natural gas suppliers, and 
encourage fuel switching from oil and coal to natural gas.'' \4\
    Foreign policy was a factor in DOE's consideration of LNG export 
facilities for non-FTA countries. Last April, shortly after Russia's 
aggression against Ukraine, then DOE Principal Deputy Assistant 
Secretary for Fossil Energy Chris Smith testified to the House Foreign 
Affairs Committee that his agency considers international factors as 
part of the public interest determination, among many other domestic 
factors, noting ``of course, we are monitoring the situation in Europe 
very closely, and we certainly take energy security of our allies very 
seriously. We have taken recent global events into account in making 
decisions in recent applications.'' \5\
    It is important to realize that we need not export large quantities 
of gas to benefit from a foreign policy standpoint. Just having the 
option to buy from the U.S. strengthens the bargaining power of our 
allies when they negotiate long-term contract prices with suppliers 
like Russia. Last December, Lithuania opened a costly LNG import 
terminal, an example of an ally willing to pay a security premium for 
diversified source of supply. Lithuania's new terminal forced Gazprom 
to drop its prices to Lithuania, reportedly by 20 percent.\6\
    Our willingness to export LNG also reduces future uncertainty and 
enhances contingency planning. It is impossible to predict every future 
economic and security challenge our allies or we will face, but knowing 
that trade links remain open constitutes a substantial source of 
support to planners and decisionmakers when unforeseen challenges and 
crises occur.
    The U.S. policy of exporting natural gas also helps allies 
contending with challenges that are foreseeable. For example, longer 
term, experts believe Europe's ability to significantly wean itself 
from very high dependence on Russian pipeline gas, particularly highly 
dependent Baltic and southeast European states, will rely largely on 
LNG providers (including the U.S.) and to a lesser extent new pipeline 
gas from Azerbaijan.\7\ For those countries renegotiating long-term 
contracts with Russia and constructing LNG import facilities, continued 
willingness by the U.S. to export LNG is paramount. Russia will always 
be a major gas supplier to Europe, but Moscow's ability to dictate 
prices will erode as the market becomes more diverse and liquid, partly 
due to our ability and willingness to export LNG.
    For these reasons, our allies asked for access to our natural gas. 
Former Obama administration National Security Advisor, Tom Donilon, 
noted in 2013 ``[m]any of our allies have expressed interest in the 
potential of the United States as a global natural gas supplier'' and 
the leaders of Japan and India have requested access to U.S. LNG 
supplies during their visits to Washington.\8\ In the case of Japan, 
our willingness to build and construct LNG export facilities provided 
substantial moral support and leverage during a time when the country 
was reeling from the consequences of the March 2011 Fukushima disaster, 
which led to a shutdown of the nation's nuclear plants and triggered 
large increases in LNG imports. EIA reported Japan is currently able to 
supply only 9 percent of its total energy needs from domestic sources, 
down from 20 percent before the Fukushima disaster. Japan is the 
world's largest LNG importer, second-largest coal importer, and third-
largest net importer of crude and products. With more than 30 percent 
of the world's LNG passing through the Strait of Hormuz, Japan is 
naturally anxious to diversify its imports of LNG, and over the medium 
to long term will add supplies from the U.S. So far, the U.S. 
Department of Energy has granted final approval to 7 LNG export 
projects for non-FTA countries such as Japan.\9\
                               crude oil
    Since 1975, U.S. law has prohibited the export of domestic crude 
oil, except to Canada and in other limited circumstances. The crude oil 
export ban was enacted just after we lost control of the oil market and 
were reeling from soaring oil prices and mounting import dependence. 
Policymakers had imposed domestic price controls and complemented them 
with an export ban on crude and refined products to prevent the loss of 
domestic supply to uncontrolled markets abroad. While price controls 
and the export ban on refined products were lifted in 1981, the crude 
oil ban oddly remained in place. But until the recent shale oil boom, 
the need to export oil never arose, so few paid much attention to the 
ban.
    As with natural gas, our oil circumstance has changed for the 
better. Once again the U.S. oil industry delivered a pleasant surprise 
by applying multistage hydraulic fracturing and horizontal drilling to 
unlock enormous new amounts of domestic energy. Thanks to American 
ingenuity, sweat, and risk-taking, U.S. crude oil production rose from 
5 million barrels per day (mb/d) in late 2006 to 9.4 mb/d in the first 
quarter of 2015. Total petroleum and other liquids production are now 
14.8 
mb/d, making the U.S. the largest liquids supplier in the world.
    The United States is and will remain a substantial crude importer. 
We import mainly heavy or dense crudes because our refineries were 
designed to process them. Half of our crude imports come from our 
friendly neighbors Canada and Mexico.\10\ But the shale oil boom has 
unlocked crudes of a lighter variety that are more suitable to 
refineries abroad. So it makes economic sense for the United States to 
export some of its light crude while continuing to import heavy crude. 
The fact that we import crude oil does not mean we should keep the ban 
in place. If we banned the export of commodities or goods that we also 
import, we would not allow the export of cars, food, steel, medical 
equipment, and many others.
    As noted above, and illustrated in the appendix below, many studies 
and experts have analyzed and discussed the economic benefits of 
lifting the ban. Our consum- 
ers would benefit from slightly lower pump prices, stronger economic 
growth, and higher employment. With regard to foreign policy, lifting 
the ban would confer the following benefits:

    1. Increase and diversify oil supply, thereby reassuring our allies 
about supply security. The oil market is global; a supply disruption 
anywhere transmits a price increase everywhere, including here. 
Unfortunately, as noted above, the lion's share of global proven oil 
reserves is located in the unstable Middle East. Some 40 percent of 
traded oil flows through the Strait of Hormuz. Therefore, every barrel 
we can source from elsewhere adds more than just 42 gallons of new 
liquid to the global pool, it also enhances security by diversifying 
supply.
    If the crude oil ban were lifted, the amount and destination of 
exports would depend on market factors. Like with natural gas, we need 
not physically export a lot of oil to derive benefits from being open 
to exports. In foreign policy, symbolism and signaling matter.\11\ 
``Many U.S. allies and trading partners are interested in purchasing 
American oil to diversify away from Russia, Iran, and other problematic 
sources,'' Senator Murkowski noted on June 9, adding: ``Allowing such 
shipments would send a powerful signal of support and reliability at a 
time of heightened geopolitical tensions in much of the world. The mere 
option to purchase U.S. oil would enhance the energy security of 
countries such as Poland, Belgium, the Netherlands, India, Japan, and 
South Korea, even if physical shipments did not occur.'' \12\ The EU 
depends on Russia for 28 percent of its crude and the Middle East for 
another 14 percent. Iran, which had lost the 500-600 kb/d it used to 
supply to Europe due to sanctions, will likely try to recapture that 
market share after sanctions are lifted. Japan relies on the Middle 
East for over 80 percent of its crude imports.\13\ Japan has cut the 
share of oil it imports from Iran in half from 2012 to 2014, from about 
10 percent to 5 percent.\14\
    2. Reduce oil price volatility and thereby protect economic 
stability at home and abroad. U.S. shale oil supply is more responsive 
to price swings than most other oil production, such as ultra-deep 
water or oil sands. Due to relatively high decline rates and capital 
intensity, shale oil production responds to price changes in months to 
quarters whereas other supply takes several years or more. The 
increased flexibility lowers the volatility of oil prices and thereby 
promotes economic stability. The U.S. will not replace OPEC spare 
capacity, which consists of supply available within 30 days.\15\ But 
shale oil does increase the flexibility of the supply system.
    3. Strengthen U.S. influence and leverage internationally, 
especially in the case of Iran. Ambassador Carlos Pascual, who until 
recently was the Obama administration's lead international energy 
policy negotiator, testified to your committee that from his experience 
he had ``seen that lifting the export ban would increase U.S. leverage 
in convincing international partners to adopt policies that mirror U.S. 
interests on Iran, Russia, free trade, and even the environment.'' \16\
    Iran constitutes a good recent example of how the U.S. oil boom has 
contributed to our energy security while also spotlighting the need to 
remove the export ban. The unexpected increase in U.S. oil production 
by some 3.7 mb/d between 2008 and 2014 was fortuitously timed. It 
coincided with the loss of roughly 3 mb/d of disrupted global supply, 
particularly from Libya due to civil war in 2011. The U.S. oil boom 
reduced our imports, freeing up barrels that could flow elsewhere, 
keeping a lid on oil prices everywhere. Without the U.S. supply surge, 
much higher oil prices would have resulted, dampening support for 
sanctioning Iran's oil exports.
    However, as the Iran nuclear issue proceeds it would be in our 
interest to remove the crude oil ban. If a nuclear deal with Iran is 
struck, the U.S. and EU will lift restrictions on Iran's ability to 
export oil. Meanwhile, the crude oil ban U.S. producers face will 
remain in place. While not intentional, an absurd juxtaposition would 
result. As Senator Murkowski said in April, ``We should not lift 
sanctions on Iranian oil while keeping sanctions on American oil. It 
makes no sense.'' \17\
    If nuclear talks fail or Iran cheats, sanctions on Iran's oil 
exports may remain in place or be strengthened. We may ask the EU to 
retain its total embargo on Iranian imports, while asking the six 
remaining importers--including allies South Korea and Japan--to further 
reduce their purchases. These countries have refineries that are better 
suited to shale oil and would likely bid on U.S. crudes depending on 
market conditions. How could we ask our allies to further cut oil 
imports from Iran without making our own supplies available to them?
    4. Replace resource nationalism with free trade. We are the only 
advanced country that bans crude oil exports. Canada, the U.K., and 
Australia allow both crude imports and exports. The crude oil ban 
contradicts our attempt to promote free trade and open markets, 
especially in energy and other strategic commodities 
that are produced and sourced globally. To cite Ambassador Pascual 
again: ``[M]aintaining the ban increasingly undercuts U.S. credibility 
in its three-decades endeavor to persuade other nations to permit free 
flows of energy trade and not constrain trade in strategic commodities 
with political restrictions and resource nationalism. The United 
States, for instance, has launched numerous complaints under the WTO 
against China exactly because of these kinds of restrictions on natural 
resources that China imposes.'' \18\
                              conclusions
    The U.S. energy boom is a national security and foreign policy 
blessing. Our ability and will to export energy strengthens our global 
influence; reassures allies while giving them leverage with major 
producers like Russia; bolsters free trade, especially for strategic 
commodities; and reinforces efforts to dissuade Tehran from developing 
a nuclear weapons capability. As our energy circumstances have changed, 
so too should our energy policy. We benefit from free trade in natural 
gas and would do so from crude oil as well. Seizing the foreign policy 
benefits of energy exports is one of the few major issues today that 
enjoys bipartisan support, as exemplified by former Bush National 
Security Advisor Stephen Hadley and former Obama administration Defense 
Secretary Leon Panetta, who wrote: ``Too often foreign-policy debates 
in America focus on issues such as how much military power should be 
deployed to the Middle East, whether the U.S. should provide arms to 
the Ukrainians, or what tougher economic sanctions should be imposed on 
Iran. Ignored is a powerful, nonlethal tool: America's abundance of oil 
and natural gas. The U.S. remains the great arsenal of democracy. It 
should also be the great arsenal of energy.'' \19\

----------------
End Notes

    \1\ ``A History of the Petroleum Administration for War,'' 1946, p. 
1.
    \2\ June 2015 Short Term Energy Outlook, Table 4a. For historical 
data, see EIA. In 2005, total product supplied was 20.8 mb/d and net 
imports were 12.5 mb/d.
    \3\ http://www.eia.gov/pressroom/presentations/
gruenspecht_06092015.pdf, slide 2.
    \4\ April 24, 2013. https://www.whitehouse.gov/the-press-office/
2013/04/24/remarks-tom-donilon-national-security-advisor-president-
launch-columbia.
    \5\ http://www.gpo.gov/fdsys/pkg/CHRG-113hhrg88088/html/CHRG-
113hhrg88088.htm.
    \6\ http://mobile.reuters.com/article/idUSL5N0XA2YY20150413.
    \7\ See graphic in the Appendix illustrating EU energy dependence 
on Russia. Reducing European Dependence on Russian Gas: Distinguishing 
natural gas security from geopolitics, Oxford Institute of Energy 
Studies, October, 2014.
    \8\ Tom Donilon's speech at the Columbia Center on Global Energy 
Policy, April 24, 2013.
    \9\ Current status of project approvals by DOE is available at 
http://energy.gov/sites/prod/files/2015/05/f22/
Summary%20of%20LNG%20Export%20Applications.pdf. EIA noted: ``Japan's 
Chubu Electric and Osaka Gas signed preliminary agreements to import 
more than 100 Bcf/y each for 20 years from Freeport LNG starting 2017, 
marking a potential reduction in the high LNG prices (cont.) that Japan 
currently pays. The companies also plan to acquire half of the assets 
of Freeport LNG's first train. Sumitomo, Japan's third-largest trading 
house, holds an agreement to buy 110 Bcf/y for 20 years from Cove Point 
LNG located on the U.S. East Coast and which received approval to 
export to non-FTA countries in September 2013. Sumitomo intends to sell 
the cargoes to Japanese utilities Tokyo Gas and Kansai Electric. In May 
2013, Mitsubishi and Mitsui, Japan's two largest trading companies, 
first ventured into the U.S. shale gas export market by purchasing a 
combined 33 percent equity share in the Cameron LNG project located in 
the Gulf of Mexico. The companies have agreements to purchase 384 Bcf/
y, or two-thirds of the terminal's export capacity that is expected to 
come online by 2017. Altogether, Japanese companies have secured about 
1,000 Bcf/y in long-term volumes from the new U.S. terminals coming 
online by 2020.''
    \10\ EIA data show the U.S. imported 7.3 mb/d of crude in 2014. Of 
the total, Canada supplied 2.9 mb/d and Mexico 0.8 mb/d.
    \11\ http://ec.europa.eu/energy/sites/ener/files/documents/crude-
oil-imports2014.zip.
    \12\ http://www.energy.senate.gov/public/index.cfm/files/
serve?File_id=86561761-6237-45a3-b41b-fe0bb976c32.2
    \13\ http://www.paj.gr.jp/english/statis/data/04/paj-4E_201506.xls.
    \14\ Ibid and http://www.bbc.com/news/world-asia-16523422.
    \15\ IEA recently redefined spare capacity to include supply 
available within 90 days. EIA retains a 30 day definition. By 
historical standards, OPEC spare capacity--held almost entirely by 
Saudi Arabia--are low. While shale oil can reduce oil price volatility, 
it cannot eliminate it.
    \16\ http://www.energy.senate.gov/public/index.cfm/files/
serve?File_id=4c054551-8357-46fd-95e3-1eee2686aee1.
    \17\ http://www.energy.senate.gov/public/index.cfm/2015/4/sen-
murkowski-calls-for-lifting-prohibition-on-crude-oil-exports.
    \18\ See footnote 8.
    \19\ http://www.wsj.com/articles/the-oil-export-ban-harms-national-
security-1432076440.

               APPENDIX SUBMITTED WITH PREPARED STATEMENT
               
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Senator Barrasso. Thank you very much, Mr. McNally.
    Mr. Gordon.

   STATEMENT OF DAVID GORDON, PH.D., SENIOR ADVISOR, EURASIA 
    GROUP, ADJUNCT SENIOR FELLOW, CENTER FOR A NEW AMERICAN 
                    SECURITY, WASHINGTON, DC

    Dr. Gordon. Thank you very much, Mr. Chairman. I want to 
thank you and Senator Udall and members of the committee for 
the opportunity to testify before you today on how increased 
energy exports can advance U.S. foreign policy goals, assist 
our most important allies, and strengthen U.S. national 
security. I commend your initiative in holding this hearing on 
a very important opportunity that the United States has to 
enhance a new tool in our foreign policy arsenal.
    In a domestic market awash with oil and gas, keeping export 
restrictions in place discriminates against U.S. producers and 
threatens investment in new supply, thereby jeopardizing 
economic security and trade gains from the energy boom. 
Policymakers should streamline and speed up the process of 
licensing natural gas export projects and begin to lift the oil 
export ban to bring export policy in line with present market 
circumstances.
    The restrictions on U.S. energy exports were the outcome of 
bipartisan efforts and have been sustained over many decades by 
both Democratic and Republican administrations. It is not 
surprising, therefore, that calls for modernizing our export 
policies have also been bipartisan.
    President Obama's Chief of Energy Diplomacy in the State 
Department, Carlos Pascual, who has recently left government, 
is now a leading proponent of lifting the restrictions on U.S. 
energy exports. Last month, writing in the Wall Street Journal, 
Obama's former CIA Director and Secretary of Defense, Leon 
Panetta, and President Bush's National Security Advisor, Steve 
Hadley, highlighted that, while the United States has broken 
free of its dependence on energy from unstable sources, our 
friends and allies, ``do not enjoy the same degree of 
independence. The moment has come,'' they write, ``for the U.S. 
to deploy its oil and gas in support of its security interests 
around the world.''
    I want to spend the time allotted to me to explain how 
enhanced energy exports would support United States foreign 
policy goals in regards to Russia, East Asia, and Iran.
    A fundamental pillar in the current United States policy 
toward Russia is to degrade their ability to compete in the 
global energy markets. Liberalizing United States exports will 
constitute an important strategic act of support for our allies 
in Europe who are more threatened by Russian regional 
destabilization and have paid a much bigger economic cost by 
imposing sanctions on Russia than has the United States. Such a 
move would materially enhance the prospects for sustaining the 
transatlantic stance in support of continuing sanctions against 
Russia.
    Is this going to change Russia's behavior quickly? No. Can 
it have an important impact over the long time? Absolutely.
    For East Asian consumer countries, more United States 
supply in the market would give them new opportunities to 
diversify away from increasingly unstable gulf and Russian oil 
and gas supplies. This will be true for all East Asian nations, 
including both our treaty allies in Northeast Asia and China.
    Energy security is one of the major drivers of China's 
regional assertiveness. Policies that confer mutual benefit on 
the United States and the group of East Asian nations facing 
off as regional competitors should be priorities for the United 
States. This may help to weaken strategic intraregional 
competition by increasing the shared incentives for stable, 
efficient market activity. Enhancing stability in this 
neighborhood is directly in line with U.S. policy of 
rebalancing to Asia, will benefit our country, our allies, and 
all others who see their own stability tied to the future of 
this burgeoning region. Making China view the United States as 
an increasingly attractive economic partner is an important 
complement to our policy of sustaining our military strength in 
the Western Pacific.
    Finally, looking at Iran. One of the most important 
security benefits of the unconventional energy revolution what 
was its enabling of crippling oil sanctions against Iran 
without which Iran would not have come to the negotiating table 
over their nuclear program. While the outlines of a potential 
final agreement between Iran and the P5+1 are emerging, it is 
too early to assume success. U.S. policymakers need to enhance 
their ability to impose tough additional energy sanctions in 
the future. To prepare for the potential future imposition of 
sanctions, stimulating alternative oil supplies are going to be 
absolutely critical. If adversaries do not believe that the 
United States and its allies have the economic and political 
tolerance to cope with a self-imposed oil price increase which 
could occur if more sanctions pull more oil off the market, 
those adversaries may call our bluff. Furthermore, allies of 
the United States, many of whom have reluctantly gone along 
with energy sanctions in the past, may prove unwilling to 
participate in further energy sanctions unless the United 
States makes a serious effort to stimulate alternative oil 
supplies. Should the oil--should the P5+1 talks conclude 
successfully and oil sanctions on Iran are lifted, it is very 
much in the United States interest to minimize the benefit that 
this accrues to Iran. American producers want to compete with 
Iran. They should be allowed to do so.
    In conclusion, in a time when many questions about the role 
of the United States as a global energy player and a world 
leader are being heard, Washington has a unique opportunity to 
strengthen domestic economic growth, energy market stability, 
U.S. global leadership, and open trade relations. Removing the 
outdated and detrimental limits on the export of U.S. natural 
gas and crude oil will advance these goals. It will deepen our 
trading ties with strategic allies. It will improve the 
economic position and energy market stability of our Nation and 
partners abroad. Our closest allies in Europe and Asia have 
asked for greater access to U.S. oil and gas. Policymakers 
should embrace these benefits for our allies and ourselves, and 
liberalize our energy export rules.
    Thank you very, very much.
    [The prepared statement of Mr. Gordon follows:]

                 Prepared Statement of David F. Gordon

    Chairman Barrasso, Senator Udall, and members of the committee. 
Thank you very much for the opportunity to testify before you today on 
how increased energy exports can advance U.S. foreign policy goals, 
assist our most important allies, and strengthen U.S. national 
security. I commend your initiative in holding this hearing on a very 
important opportunity that the United States has to enhance a new tool 
in our foreign policy arsenal.
    The unconventional energy revolution in the United States is 
bringing about a new era of energy abundance and is reshaping our gas 
and oil industries, stimulating industrial output, and has the 
potential to dramatically enhance many of our global trading 
relationships. The energy revolution has powered our recent economic 
recovery, dramatically lowered our dependence on imported oil and gas, 
and reinforced the continued global primacy of the U.S. dollar. 
Additionally, it has helped to stabilize the global energy market 
during a period of record, sustained supply disruptions in the Middle 
East and elsewhere. By strengthening our global trading position and 
our economy--the engine of our national security--the energy revolution 
already has meaningfully advanced our security and the ability of the 
United States to lead on foreign affairs.
    Going forward, our remarkably productive, innovative, and resilient 
energy sector can deliver even further benefits to U.S. foreign policy 
and national security. However, these benefits will be limited if 
policymakers do not change antiquated export policies that limit U.S. 
energy resources from moving to markets overseas.
    In a domestic market awash with oil and gas, keeping export 
restrictions in place discriminates against U.S. producers and 
threatens investment in new supply, thereby jeopardizing economic, 
security, and trade gains from the energy boom. Policymakers should 
streamline and speed up the process of licensing natural gas export 
projects and begin to lift the oil export ban to bring export policy in 
line with present market circumstances. This will promote free trade 
and responsible growth in the sector, and enable the United States to 
reap the geopolitical advantages of having a larger and more flexible 
role in the global oil market that will directly support U.S. allies.
    The restrictions on U.S. energy exports was the outcome of a 
bipartisan effort, and has been sustained and supported by both 
Democratic and Republican administrations. However, it today's abundant 
energy market supply conditions, these rules no longer make sense. And 
it is not surprising that calls for modernizing our export policies 
also have been bipartisan. Under President Obama, the State Department 
upgraded its energy diplomacy mission and tapped Carlos Pascual, former 
U.S. Ambassador to Ukraine and Mexico, to lead these efforts. Now out 
of government, Pascual is a leading proponent of lifting the 
restrictions on U.S. energy exports. Last month, writing in the Wall 
Street Journal, Obama's former CIA Director and Secretary of Defense 
Leon Panetta and President Bush's National Security Advisor Steve 
Hadley highlighted that while the United States has broken free of its 
dependence on energy from unstable sources, our friends and allies ``do 
not enjoy the same degree of independence. The moment has come,'' they 
write ``for the U.S. to deploy its oil and gas in support of its 
security interests around the world.''
             national security benefits from energy exports
Strengthening our Economy
    Expanding our energy exports will further strengthen the U.S. trade 
account, reduce our international indebtedness, and thus enhance the 
stature and ability of the United States to lead on international 
economic, strategic and defense matters. In an era of budget austerity, 
war fatigue, proliferating security challenges, and the expanding use 
of economic sanctions, a strong U.S. economy expands policy options 
beyond the more conventional diplomatic and military choices. It 
creates an opportunity to hone smarter and more creative tools to 
advance our national interests in the international arena. 
Additionally, a more favorable trade balance liberates the United 
States to consider international trade policies and international 
lending that could be constrained, including by some of our key 
economic partners, such as China, in a scenario of greater U.S. 
indebtedness.
Increasing U.S. Attractiveness as a Trading Partner
    In addition to providing an economic boost at home, lifting the oil 
ban will accrue economic yields to our foreign trading partners. A U.S. 
energy export policy that allows the free flow of all energy 
commodities--including crude oil and not just condensate and refined 
products--will enable the United States and our trading partners to 
optimize trade in various kinds of energy commodities, depending on 
seasonal and regional demands. The greater diversity in energy 
commodity trading relationships will support greater energy market 
efficiencies, lower costs for consumers, limit risks from supply 
disruptions, and promote greater economic growth. These factors can 
make the United States a more important trading partner for more energy 
consumers abroad, a circumstance which will expand the soft power 
leverage of the United States in international strategic relationships.
Promoting Open Markets
    Lifting the restrictions on export of domestic crude will allow the 
United States to more credibly promote antiprotectionist policies on 
trade in the international arena. At a dynamic time in global energy 
trade and a critical moment in the evolution of U.S. trade relations 
with partners across the Atlantic and the Pacific, U.S. policy leaders 
have a unique opportunity to send a strong message on a commitment to 
open markets by lifting restrictions on oil export. Making a firm 
commitment to open energy trade will help the United States to 
influence trading policy priorities in other countries, such as those 
in East Asia. In that region, key decisions will be made over the 
coming years about the nature of international energy commodity market 
participation that will have a direct bearing on the U.S. economy. 
Having more open energy trade will be indispensable in winning 
potential future natural resources trading disputes that may arise.
Enhancing Market Stability
    Encouraging the expanded production of U.S. oil and gas will mean a 
result greater flow of energy from a reliable, secure producer to the 
global market. When more of the supply pool comes from producers that 
are not at risk from political instability or imminent danger to 
critical energy infrastructure or supply lanes, the overall market is 
more stable. Additionally, U.S. exports do not need to travel through 
maritime hotspots such as the Strait of Hormuz to reach most foreign 
consumers. Major consumers in East Asia, for example, are highly 
vulnerable to supply disruptions coming from destabilizing conflict in 
the Middle East, from which a majority of their oil imports derive. 
Providing U.S. producers with the unrestricted ability to export will 
make them more responsive to market signals, and better able to quickly 
adapt to the needs of consumers, contributing to more stable market 
conditions and making it harder for some producing countries to use oil 
and gas as a strategic weapon.
             u.s. energy exports and regional geo-politics
    For our European allies, the presence of more U.S. energy in the 
market will offer more supply options, over time helping European 
countries to lower their dependence on Russia, which has a history of 
coercive energy supply policies. When Russia has more competition for 
supplying European demand it will have to work harder to play a role in 
the market. A fundamental pillar in the current U.S. policy is to 
degrade Russia's ability to compete in the global energy markets. 
Liberalizing U.S. export policy will have the effect of reinforcing the 
pressure on Russia's energy sector and is thus in line with key U.S. 
national security goals. It will also constitute an important strategic 
act of support for allies in Europe, who are more threatened by Russian 
regional destabilization and have paid a bigger economic cost by 
imposing sanctions on Russia than has the United States. Such a move 
would materially enhance the prospects for sustaining the trans-
Atlantic stance in support of continuing sanctions. When our closest 
allies are stronger, the United States is more secure and better able 
to bolster and lead multilateral security initiatives.
    For East Asian consumer countries, more U.S. supply in the market 
would give them new opportunities to diversify away from increasingly 
unstable Gulf and Russian oil and gas supplies. In addition to boosting 
supply security, such diversification will yield greater market 
efficiencies and will contribute to lower prices. This will be true for 
all Asian nations, including both our treaty allies in Northeast Asia 
and China. Energy insecurity is one of the major drivers of China's 
regional assertiveness. Policies that confer mutual benefit on the 
United States and the group of East Asian nations facing off as 
regional competitors should be priorities for the United States. They 
may help to deter strategic intraregional competition by increasing the 
shared incentives for stable, efficient market activity. Enhancing 
stability in this neighborhood is directly in line with the United 
States policy of rebalance to Asia, and will benefit our country and 
all others that see their own stability tied to stability of this 
burgeoning region. Putting in place policies that can contribute, even 
if modestly, to enhancing regional stability will cultivate the 
influence of the United States in Asia and beyond.
    One of the most important security benefits of the unconventional 
energy revolution was its enabling of crippling oil sanctions against 
Iran. Iran's oil exports decreased by almost 60 percent from 
approximately 2.5 million barrels per day in 2012 to 1.1 million 
barrels per day. There is little doubt that absent this pressure, Iran 
would not have come to the negotiating table over its nuclear program. 
Particularly in light of historically high oil supply disruptions 
globally, the international community would not have been able to 
sustain these sanctions, and cope with the oil price increases they 
would have caused, were it not for massive increases in alternative oil 
supplies. The United States added about 1 million barrels per day 
annually over the last several years, and Saudi Arabia also turned up 
production to balance the market.
    Lifting the crude oil export ban will provide critical additional 
flexibility and leverage to the United States to sustain and expand 
energy sanctions--should they be needed--in the future. While the 
outlines of a potential final agreement between Iran and the P5+1 that 
would relieve many sanctions on Iran is taking shape, it is too early 
to assume success. U.S. policymakers will need to enhance their ability 
to impose tough additional energy sanctions in the future. This is 
critical as an element of contingency planning on Iran policy and to 
provide a credible threat that more oil sanctions on Iran are possible 
if Tehran does not cooperate with the international community.
    The failure to prepare for the potential future imposition of more 
energy sanctions by stimulating alternative oil supplies may render the 
threat of new sanctions hollow. If adversaries do not believe that the 
United States and its allies have the economic and political tolerance 
to cope with a self-imposed oil price increase, which could occur if 
more sanctions pull more oil off the market, these adversaries may call 
a bluff. Furthermore, allies of the United States, many of whom have 
reluctantly gone along with energy sanctions in the past, may prove 
unwilling to participate in further energy sanctions unless the United 
States makes a serious effort to stimulate alternative oil supplies. 
Lifting the U.S. oil export ban will bring online additional U.S. 
production, and would constitute an important signal to allies, 
adversaries, and market participants alike, that the United States is 
serious about the threat, or actual use, of forceful energy sanctions.
                               conclusion
    In a period of tremendous geopolitical uncertainty, and when many 
questions exist about the future role of the United States as a global 
energy player and world leader, Washington has a unique window of 
opportunity to strengthen domestic economic growth, energy market 
stability, U.S. global leadership and open trade relations. At a time 
of lower prices, we need to stop discriminating against U.S. producers. 
Removing the outdated and detrimental limits on the export of U.S. 
natural gas and crude oil will advance these goals. It will deepen 
trading ties with strategic allies, including those in Europe and 
Northeast Asia. It will improve the economic position and energy market 
stability of our nation and partners abroad, and allow the United 
States to more effectively spur and lead multilateral action to counter 
international security threats. Our closest allies in Europe and Asia 
have asked for greater access to U.S. oil and gas. Policymakers should 
embrace these multitude of benefits for allies and ourselves and 
liberalize our energy export rules. Market conditions merit such a 
step, and national security dividends from the unconventional energy 
revolution will not be fully realized without it.

    Senator Barrasso. Thank you, Mr. Gordon. I appreciate your 
comments.
    And Mr. Webster.

         STATEMENT OF JAMIE WEBSTER, SENIOR DIRECTOR, 
                IHS ENERGY, IHS, WASHINGTON, DC

    Mr. Webster. Chairman Barrasso, Ranking Member Udall, and 
members of the committee, I appreciate you calling this hearing 
today to talk about this important topic. And I appreciate the 
opportunity to testify before you on the immense changes in the 
energy market, how it has already impacted the United States, 
its allies and partners, and the importance of a liberal energy 
export policy and free markets to fully maximize its positive 
impact.
    I appear before you in my capacity as Senior Director for 
IHS, where I lead the company's short-term crude oil markets 
team. In that role, I travel regularly, meeting global 
exporters and importers, participating in policy discussions 
here in D.C. as well as OPEC meetings. This provides me with a 
perspective on North America's changing role in energy and its 
global context.
    Today, I want to address how free trade has already changed 
the flow of oil and petroleum products, and how allowing crude 
oil to join gasoline, diesel, natural gas, electricity, and 
coal as a fuel that can be readily exported and would benefit 
U.S. interests and consumers.
    One of the key policy changes needed to help support this 
shift is the liberalization of U.S. oil exports. Energy flows 
into and out of the United States have already provided partial 
benefits to the region and the world. In July 2010, the United 
States imported 1.1 million barrels a day from Nigeria, an OPEC 
member. Because of U.S. supply, this has shrunk to nearly 
nothing, while, at the same time, we are now exporting to 
Nigeria a large share if its refined products, such as diesel 
and gasoline. This change in refined product flows to Nigeria 
reflects a broader change in U.S. flow patterns for all of the 
refined product fuels.
    Ten years ago this month, the United States was importing, 
on a net basis, 2 million barrels per day of refined products. 
This has now reversed direction, and the United States is now 
exporting more than 2 million barrels a day, on a net basis, to 
countries around the world.
    U.S. refiners are some of the most advanced in the world, 
and, with these low-cost inputs, they have been able to further 
exert their global standing, providing not just U.S. consumers 
with valuable fuels, but consumers around the world, while 
improving our own position.
    The United States has a liberal trade policy for natural 
gas, coal, refined products, processed condensate. It also 
allows oil exports to other countries, in certain very specific 
cases. Allowing U.S. producers to seek out international 
markets for their product will allow them to receive global 
prices, keeping the laboratory of U.S. shale technology and 
production fully open for business, allowing it to support our 
allies around the world. It also supports job growth across 
many industries and in places far from the oil fields here in 
the United States. It will also help to lower the price of 
Brent oil, the benchmark price for global oil, much as the 
increase in production already has. Lowering the Brent price is 
the access point to lower gasoline prices, as U.S. gasoline 
prices are linked to the Brent price and not to the WTI price 
that we have here in the United States.
    This ban hurts American consumers, causes an unnecessary 
drag on American productivity, and does not let the United 
States exploit fully the national security benefits from our 
energy resurgence. The reasons are intertwined with the nature 
of the American refinery system, and the price discounts that 
American producers at times have had to take in order to sell 
their products competitively to refineries, particularly along 
the gulf coast, which holds over half of the Nation's total 
refining capacity. Over $85 billion has already been spent in 
the past quarter century to reconfigure these refineries to 
process heavy oil imported from countries such as Venezuela, 
while also making them available to take the heavy oil from 
Canada.
    The United States contains the largest refining capacity of 
any country in the world, with 140 operating refineries with a 
combined crude oil distillation capacity of about 18 million 
barrels a day. This system is characterized not only by the 
number and size of refineries, but also by the number of world-
class, high-complexity, full-conversion refineries with a 
substantial degree of petrochemical and specialty products. In 
this complex refining system, if the crude quality varies 
enough, the refineries cannot run optimally with their 
designated operating parameters. In the gulf region, most 
refineries are configured, as I said, to process this heavy 
crude oil. Unfinished products are the result of this crude 
mismatch, which then have a lower value because they require 
further processing to be further upgraded into the fuels that 
consumers like. In many cases, this mismatch is large enough 
that a refinery will have to reduce the crude oil throughput to 
process additional volumes. As a result, there are limits to 
how much volume can be processed in these refineries. To fully 
use this amount, this often requires a price discount, limiting 
the full impact for U.S. producers.
    I look forward to your questions and appreciate your time.
    [The prepared statement of Mr. Webster follows:]

                  Prepared Statement of Jamie Webster

    Chairman Barrasso, Ranking Member Udall, and members of the 
committee, I appreciate the opportunity to testify before you on the 
immense changes in the energy market, how it has already impacted the 
United States, its allies and partners, and the importance of a liberal 
crude export policy and free markets to fully maximize its positive 
impact, regardless of the global price of oil.
    I appear before you in my capacity as Senior Director for IHS where 
I lead the company's short-term crude oil markets team. In that role I 
travel regularly, meeting global exporters and importers, plus 
participating in policy discussions in Washington, as well as OPEC 
meetings. This provides me with a perspective on North America's 
changing role in energy and its global context. IHS is a global 
research and consultancy firm, with 9,000 employees around the world, 
that specializes in energy, capital-intensive industries, data and 
analysis with a worldwide presence. My work through IHS has involved me 
in two landmark studies on crude oil exports (``U.S. Crude Oil Export 
Decision'' and ``Unleashing the Supply Chain.'')
    Today I want to address how free trade has already changed the flow 
of oil and petroleum products, and how allowing crude oil to join 
gasoline, diesel, natural gas, electricity, and coal as a fuel that can 
be readily exported would benefit U.S. interests and consumers.
    The catalyst for the oil price decline that started last summer was 
the partial (and temporary) return of Libyan production. But it was the 
underlying growth in U.S. oil production from 5.6 million barrels a day 
(MMb/d) in 2011 to the current 9.5 MMb/d that sustained this price 
drop. OPEC's decision last November 27 to not cut production in the 
face of growing volumes, not just from United States shale oil, but 
also the Gulf of Mexico as well as Canada further hastened the price 
decline. It seems unlikely that OPEC will reverse itself in its 
upcoming Ministerial meeting on June 5. OPECs decision, reaffirmed on 
June 5, appears to have marked the beginnings of a serious shift in how 
supply and demand is balanced in the global market, potentially 
allowing the oil market to be a market-based system rather than relying 
on a balancer as has often been the case in the past. The balancer as 
defined here is that group, regulatory body or other organization that 
is willing and able to quickly reduce or increase oil supply in an 
attempt to keep the market balanced.
    The boom in U.S. production has the potential to upend the need for 
a formal market balancer, leading to lower oil prices for consumers, 
while increasing energy security for not just the United States but the 
world. This is possible not only because of the large production 
volumes that U.S. producers have brought to the market, but because of 
the character of those flows. Conventional production projects can take 
years to finance, plan, and bring to the market. U.S. shale producers 
can do it in 4 months. Globally, conventional production has a decline 
rate of 5-6 percent, meaning a project will be producing that much less 
each year. U.S. shale production has an initial decline rate of about 
50 percent. These two factors allow the U.S. shale system to react 
quickly to market signals to bring more oil onto the market, and a lack 
of investment when prices turn downward can quickly reduce supply. This 
shift from OPEC to the market-driven forces of shale oil is far from 
certain and far from complete and it could be reversed.
    One of the key policy changes needed to help support this shift is 
the liberalization of U.S. oil exports. Energy flows into and out of 
the United States have already provided partial benefits to the region 
and the world. In July 2010, the United States imported 1.1 MMb/d of 
oil from Nigeria. Because of U.S. supply, this has shrunk to nearly 
nothing, while at the same time we are exporting a large share of its 
refined products (diesel, gasoline, etc). The change in refined product 
flows to Nigeria reflects a broader change in U.S. flow patterns for 
gasoline, diesel, and other important consumer fuels. Ten years ago 
this month, the U.S. net imports of refined products was over 2 million 
barrels per day. This has now reversed direction and the U.S. net 
export balance is over 2 million barrels per day of exports. U.S. 
refiners are some of the most advanced in the world, and with low cost 
inputs they have been able to further exert their global standing, 
providing not just U.S. consumers with valuable fuels, but consumers 
around the world.
    The United States has a liberal trade policy for natural gas, coal, 
refined products and processed condensate. It also allows oil exports 
to other countries in certain, very specific cases. Allowing U.S. 
producers to seek out international markets for their product will 
allow them to receive global prices, keeping the ``laboratory'' of U.S. 
shale technology and production fully open for business, while 
supporting job growth across many industries and in places far from the 
oil fields. It will also help to lower the price of Brent, the 
benchmark price for global oil, much as the increase in production 
already has. Lowering the Brent price is the access point to lower U.S. 
gasoline prices because U.S. gasoline prices are linked to the Brent 
world price, not the domestic WTI price.
    Moreover, maintaining the ban increasingly undercuts U.S. 
credibility in its three-decades endeavor to persuade other nations to 
permit free flows of energy trade and not constrain trade in strategic 
commodities with political restrictions and resource nationalism. The 
United States, for instance, has launched numerous complaints under the 
WTO against China exactly because of these kinds of restrictions on 
natural resources that China imposes.
    The IHS report, ``Unleashing the Supply Chain,'' documents the 
benefits across the economy from 2016-2030:

   $86 billion in additional GDP;
   About 400,000 new jobs annually;
   25 percent higher pay for workers in the energy industry 
        supply chain--an additional $158 per household; and
   $1.3 trillion in federal, state, and municipal revenue from 
        corporate and personal taxes.

    The benefits accrue across most of the United States, not just oil 
producing states. States like Illinois, Washington State, 
Massachusetts, and Michigan--with little or no oil production--also 
benefit substantially in terms of economic activity and jobs, owing to 
the interconnected nature of U.S. supply chains. The report affirms 
earlier research that eliminating the export ban would reduce gasoline 
prices by 8 cents per gallon.
    Eliminating the crude oil export ban proves even more important 
when oil prices are low. For example, if Brent crude (the international 
standard) trades in the range of $55/barrel and WTI trades in the 
United States at around $45/barrel, many companies will be on the 
margins of their new well investment breakeven point. In such a case, a 
small price change can have a major impact on supply because it can 
make or break the profitability of a significant share of tight oil 
producers and because it may determine whether an investment decision 
is made or not. Crude oil production thus drops even more sharply when 
prices are low and producers must take further price cuts to sell to 
domestic refiners if they cannot export. A $3 per barrel change in a 
$50-per-barrel price environment can have the same effect as a $10 
change in a $100-per-barrel environment.
    Liberalization of the U.S. crude export policy could potentially 
mitigate this risk, though this option would depend (as do refineries, 
pumping stations, etc.) on ready access to electricity--a key reason 
the 2008 disruption was so acute.
    So why do we have the ban, and given the current tight spread 
between Brent and WTI is there any reason to modify it? Its existence 
is due to an anachronism that grew out of a period of scarcity in the 
1970s when the United States imposed price controls on oil and banned 
the export of oil in order to support the price controls. In the wake 
of the 1973 Arab oil embargo, the Emergency Petroleum Allocation Act of 
1973 allowed President Nixon to set price controls and allocate oil to 
end users in the United States. The Energy Policy and Conservation Act 
of 1975 prohibited the export of crude oil and natural gas produced in 
the United States, with some exceptions. The U.S. system of price 
controls on oil was abolished in 1981, as was, a few months later, the 
ban on the export of oil products. However, illogically, the ban on 
crude oil exports was retained even though the rationale provided by 
price controls had disappeared. The United States now has the fastest 
growing oil production in the world. Since 2008, American 
entrepreneurship has increased U.S. crude oil output by  81 percent--
4.4 million B/D principally of light tight oil, such as Eagle Ford in 
south Texas, Bakken in North Dakota and West Texas Intermediate (WTI). 
This increase is the fastest in U.S. history and exceeds the combined 
production gains from the rest of the world. The commercial and 
technical reasons for this increase in production are well documented, 
including the May 2014 IHS report, called ``U.S. Crude Oil Export 
Decision.'' The conditions that justified the crude oil export ban in 
1973 no longer apply.
    More importantly, continuation of this ban hurts American 
consumers, causes an unnecessary drag on American productivity, and 
does not let the United States exploit fully the national security 
benefits from our energy resurgence. The reasons are intertwined with 
the nature of the American refinery system and the price discounts that 
American producers must take in order to sell their products 
competitively to refineries, particularly along the Gulf Coast, which 
holds over half of the nation's total refining capacity. Over $85 
billion has been spent in the past quarter century to reconfigure these 
refineries to process heavy oil imported from countries like Venezuela, 
Mexico, and Canada. The United States contains the largest refining 
capacity of any country in the world, with 140 operating refineries 
with a combined crude oil distillation capacity of about 18 million B/
D. The U.S. refining system is characterized not only by the number and 
size of refineries but also by a high number of world-class, high-
complexity, full conversion refineries with a substantial degree of 
petrochemical and specialty products integration.
    In this complex refining system, if the crude quality varies 
enough, the refineries cannot run optimally within their designed 
operating parameters. In the Gulf region, most refineries are 
configured to process heavy crude oil. When using light tight oil, Gulf 
refineries operate inefficiently.
    Unfinished products are the result of this crude mismatch, which 
have a lower value because they require further processing to be 
upgraded into gasoline, jet, and diesel fuels. In some cases the crude 
quality mismatch is large enough that a refinery will have to reduce 
the crude oil throughput to process additional volumes of light tight 
oil. As a result, there are limits to how much of the new, domestically 
produced light tight oil the refining system can efficiently and 
effectively process. To fully use light tight oil, many Gulf Coast 
refiners often require a price discount. Allowing crude oil exports 
would allow light tight oil (i.e., WTI) to sell at higher world prices. 
In ``U.S. Crude Oil Export Decision,'' IHS estimates that eliminating 
the WTI discount would incentivize nearly $750 billion more in 
investment from 2016 to 2030--and increase oil production by 1.2 
million B/D.
    This brings me to Mexico. That country is eager to extend its 
imports of U.S. natural gas to include oil. For now, Mexican oil 
production is in decline and gaining access to U.S. light tight oil 
will help boost those refineries supply options, particularly as they 
are now best suited to use American light tight oil instead of its own 
heavier Maya oil. Mexico could enter into a ``swap'' arrangement, 
exporting its own oil in exchange for American light tight oil. However 
the constraints of the crude export policy as well as the commercial 
requirements to put in this specific swap are causing difficulties in 
effecting a trade that would benefit both countries. Liberalizing U.S. 
oil exports would allow a more simple transaction, while retaining all 
the benefits.
    While we are now contending with an oversupplied global oil market, 
additional volumes from countries like Mexico and Canada will continue 
to be important in the coming years particularly with supply from these 
nations potentially being heavier than U.S. supply allowing it to be 
complementary to U.S. production growth.
    I appreciate, Mr. Chairman, your leadership and that of this 
committee to address these critical issues for U.S., regional and 
global energy security.Thank you for this opportunity to testify before 
your committee. I welcome the chance to respond to your questions.

    Senator Barrasso. Thank you very much, Mr. Webster.
    Commander Lippold.

   STATEMENT OF CDR KIRK S. LIPPOLD, USN (RET.), PRESIDENT, 
            LIPPOLD STRATEGIES, LLC, ALEXANDRIA, VA

    Commander Lippold. Mr. Chairman, Ranking Member Udall, my 
name is Commander Kirk Lippold, and I greatly appreciate the 
opportunity to testify before the subcommittee, especially in 
the perspective of national security.
    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 during 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 our forward-deployed 
assets 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 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.
    Before we drastically alter these long-standing and 
successful policies, we should proceed with great caution to 
evaluate the real-world consequences. Despite the recent 
impressive boom in domestic crude oil production, the fact is, 
the United States remains overly dependent on oil imports. In 
fact, the volume of oil that the United States imports is not 
altogether different from import levels at the time the Energy 
Policy and Conservation Act was enacted in the 1970s. While 
increased domestic production has reduced the total amount of 
oil that the United States imports from abroad to meet its 
domestic needs, we still import a staggering amount of oil. 
According to the U.S. Energy Information Administration, 
imports in 2014 totaled more than 2.6 billion barrels, or 
around 30 percent of supply. By all accounts, domestic 
consumption will continue to outpace domestic production for 
the foreseeable future.
    As numerous national security experts and U.S. Presidents 
have observed over the course of decades, there are significant 
national security benefits to decreasing our reliance on 
imported oil supplies. Decreasing that reliance on unfriendly 
or dangerous regimes has the effect of removing a significant 
obstacle to achieving our foreign policy and national security 
objectives. At its most basic, relative energy independence 
leaves the United States and its leaders with more workable 
options when dealing with other countries.
    The original purpose of 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.
    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 
exports purchased on world oil 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. Other countries are better off 
because the United States is producing more of its own supply. 
With strict export regulations in place, the United States gets 
the dual national security benefits of ample supply and 
leverage on the international stage. Attempting to alter the 
market forces that influence the distribution of power across 
the world stage is always risky business, so it is important to 
consider the potential downside risks to any dramatic 
realignment.
    We must also consider the second-order effects such a 
change would have on United States allies whose economies rely 
on crude oil production to survive, such as Nigeria or 
Azerbaijan. Nigeria produces nearly the same type of crude oil 
as the United States and, therefore, is a country most likely 
to suffer if significant U.S. crude oil exports materialize. 
Nigeria's economy is, to put it mildly, extremely dependent on 
oil. As I am sure every Senator on the subcommittee is aware, 
the terrorist group Boko Haram retains control over large parts 
of the country and threatens to turn Nigeria into a failed 
state. If the Nigerian economy falls into a tailspin, the 
consequences for international security would be dire. The 
safety of American civilians and military personnel across 
North Africa would be placed at risk.
    Military assets mobilize on petroleum products like 
gasoline, diesel, and jet fuel. They do not run on crude. So, a 
change in export policy that would undermine our robust 
refining base directly constrains the operational flexibility 
we have in 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, 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. Too many times in my career I have experienced 
the stark reality of not thinking through the impact of changes 
in international and domestic policy.
    Today, we are in the midst of impressive new domestic 
production and discovery of untapped reserves. However, we 
continue to import virtually the same volume as--foreign oil as 
when regulations passed into law. The day may come when the 
United States is no longer overly dependent on oil imports, and 
then we may be in a position to change our export policy. But, 
for the sake of our national security, that day is not today.
    [The prepared statement of Commander Lippold follows:]

           Prepared Statement of CDR (Ret.) Kirk Lippold, USN

                            i. introduction
    Mr. Chairman, Senator Udall, my name is CDM Kirk Lippold. I 
appreciate the opportunity to testify before the subcommittee. 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 during my 
command of the USS Cole when it was attacked by al-Qaeda terrorists--
the devastating effects of reliance on imported oil when our forward-
deployed assets 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. Stemming from concerns born out of 
the oil embargo of 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. Before we drastically alter these 
longstanding and successful policies, we should proceed with great 
caution to evaluate the real-world consequences.
  ii. the united states is still import dependent despite significant 
                  gains in domestic energy production
    Despite the recent impressive boom in domestic crude oil 
production, the fact is that the United States remains overly dependent 
on oil imports. In fact, the volume of oil that the United States 
imports is not altogether different from the import levels at the time 
the Energy Policy and Conservation Act was enacted in the 1970s.
    While increased domestic production has reduced the total amount of 
oil that the United States imports from abroad to meet its domestic 
needs, we still import a staggering amount of oil. According to the 
U.S. Energy Information Administration (EIA), imports in 2014 totaled 
more than 2.6 billion barrels, or around 30 percent of supply. By all 
accounts, domestic consumption will continue to outpace domestic 
production for the foreseeable future. In its 2015 Annual Energy 
Outlook, EIA estimates that total imports will not fall another 10 
percent until 2040.
    At this point, lifting crude export regulations would likely dampen 
the predicted decline in imports. As U.S. supplies are exposed to a 
growing demand on international markets, the price discount that the 
United States has been enjoying for several years will dissipate. 
Imports will be relatively more competitive with domestic supplies. The 
likely result: greater reliance on imports than would otherwise have 
taken place. Independent of any specific price trajectory, the option 
of distributing crude oil to international buyers will eliminate 
discounts in shale prices that have benefited the U.S. market by 
encouraging reliance on domestic resources. To an appreciable extent, 
the ``discounted'' price of Bakken shale (located in the northern 
United States and Alberta, Canada) is a result of infrastructure 
challenges in delivering oil to markets. Access to overseas markets 
would provide producers with a workable alternative, allowing them to 
increase their prices.
    As numerous national security experts and U.S. Presidents have 
observed over the course of decades, there are significant national 
security benefits to decreasing our reliance on imported oil supplies. 
Decreasing our reliance on unfriendly or dangerous regimes has the 
effect of removing a significant obstacle to achieving our foreign 
policy and national security objectives. At its most basic, relative 
energy independence leaves the United States and its leaders more 
workable options when dealing with other countries. The original 
purpose of 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.
       iii. security benefits to changing export regulations are 
                 unlikely to materialize at this point
    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. This 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 exports 
purchased on world oil 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.
    U.S. exports would be a drop in the bucket of global crude 
supplies. Moreover, European refineries, especially those in Eastern 
Europe, are currently configured to process Russia's medium sour crude. 
Reconfiguring those facilities to handle American light sweet crude 
would be an expensive, long-term proposition. Eastern Europe also lacks 
the infrastructure to access U.S. crude imports. Constructing the 
needed European pipelines would take a great deal of time and money. 
Whether any U.S. oil actually reaches Eastern Europe and ``displaces'' 
Russian supplies would depend on market factors largely unrelated to 
U.S. exports.
    Assuming for a moment that lifting the export ban would 
dramatically undercut Russia's crude exports to Europe, it is far from 
clear that the result would be a more moderate and amiable Russian 
Government. First, the Russian Government has taken greater control of 
their oil companies in preparation for using that resource as a crude 
weapon on economic influence. Second, Russian oil companies would be 
able to lower their prices and find alternative markets, most 
prominently in Asia. Third, President Putin has proven time and again 
that his first response to economic hardship at home is to engage in 
aggression abroad to stoke feelings of nationalism among his 
supporters. And lastly, there are a variety of ways the United States 
can marginalize Russian oil companies and curtail their diplomatic 
reach without resorting to a ``price shock'' strategy. A good example 
of one workable alternative is a set of carefully crafted economic 
sanctions, which Congress passed and President Obama implemented in 
2014 with notable results. Unlike the crude export ban, these measures 
can be altered rapidly in response to events and do not put our allies 
at risk.
    Fortunately, the United States does not have to choose between 
participating in the international marketplace for petroleum products 
and lifting crude export regulations. Current law already allows 
American companies to export refined products overseas. Likewise, the 
federal government has the flexibility to waive regulations for crude 
in the form of condensates. In fact, exports of finished petroleum 
products have risen from 1 million barrels per day in 2005 to 2.7 
million barrels per day in 2014. In particular, a robust transatlantic 
trade in refined products allows our European allies to reap the 
benefits of our high-tech, efficient refineries at a competitive price. 
It allows us to satisfy our own security concerns and also address our 
allies' needs with the products actually needed for strategic and 
economic concerns abroad.
    Finally, the United States does not need to export crude oil to 
influence international markets. Because increased domestic production 
results in reduced dependence on imports, overseas crude is then 
``freed up'' to be bought and sold in other markets. This market shift 
has the second-order effect of increasing the supply of crude outside 
the United States, reducing prices and alleviating bottlenecks. Other 
countries are better off because the United States is producing more of 
its own supply. With strict export regulations in place, the United 
States gets the dual national security benefits of ample supply and 
leverage on the international stage.
         iv. deregulation of oil exports now can have adverse 
                       consequences for security
    Attempting to alter the market forces that influence the 
distribution of power across the world stage is always risky business, 
so it is important to consider the potential downside risks to any 
dramatic realignment. Let us assume for the sake of argument that 
advocates of lifting crude export regulations are correct, and that 
lifting the ban would result in large volumes of U.S. crude being sent 
overseas to the detriment of other producers like Russia. We must also 
consider the second-order effects such a change would have on U.S. 
allies whose economies rely on crude oil production to survive, such as 
Nigeria or Azerbaijan.
    Nigeria produces nearly the same type of crude oil as the United 
States. Therefore, Nigeria is the country most likely to suffer if 
significant U.S. crude oil exports materialize. Nigeria's economy is, 
to put it mildly, extremely dependent on oil. Thus, it should come as 
no surprise that the sharp decline in the price of oil that took place 
in 2014 is having a dramatic impact on Nigeria's economic vitality. 
Their currency is appreciating, inflation is rising, and international 
investors are leaving. The lower oil price also cuts into government 
revenues, which are a critical source of basic services for the 
Nigerian population. Amidst this growing state of economic turmoil, 
security risks abound. As I'm sure every Senator on the committee is 
aware, the terrorist group Boko Haram retains control over large parts 
of the country and threatens to turn Nigeria into a failed state. 
Should the Nigerian economy fall into a tailspin, the consequences for 
international security would be dire. Boko Haram could grow in 
influence and manpower, filling the vacuum created by potential 
economic collapse. Nigeria would present a fertile training ground for 
extremists preparing to launch attacks against the U.S. mainland. The 
safety of American civilians and military personnel across northern 
Africa would be placed at risk.
    As one of Nigeria's closest allies and its biggest trading partner, 
the United States has a tremendous interest in forestalling these 
outcomes. Lifting the crude export ban in an attempt to reengineer 
global oil markets is more likely to exacerbate instability than it is 
to increase our bargaining power with Russia.
    In addition, the crude export ban improves the competitiveness of 
U.S. refineries. When refiners have access to reliable domestic oil 
supplies, significant cost-savings translate into a more favorable 
price outlook for both refiners and U.S. consumers. This situation is a 
desirable one. A strong domestic refining base provides the United 
States with significant and underappreciated 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. It is axiomatic that 
military assets mobilize on petroleum products, like gasoline, diesel, 
and jet fuel. They do not run on crude. So, a change in export policy 
that could undermine our robust refining base directly constrains the 
operational flexibility we have in rapid mobilization necessary for 
modern projection of force.
                             v. conclusion
    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. Too many times in my 
career, I have experienced the stark reality of not thinking through 
the impact of changes in international and domestic policy. We cannot 
afford to just wave-off these potential consequences as inconsequential 
under the guise of market principles. The regulation of crude oil 
exports was put in place with a long-term of objective of decreasing 
U.S. reliance on foreign sources of energy, specifically oil. Over the 
past three-plus decades, progress has waxed and waned. Today, we are in 
the midst of impressive new domestic production and discovery of 
untapped reserves. However, we continue to import virtually the same 
volume of foreign oil as when the regulations were passed into law.
    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 policy but that day is not today.

    Senator Barrasso. Thank you so much for your testimony.
    We will start with 7-minute rounds of questions, go back 
and forth, if it is agreeable to the members of the committee. 
And I will start.
    Mr. McNally, in terms of lifting sanctions on Iran's oil 
exports, Iran receives a tremendous amount of its revenue from 
oil exports. Over the years, Congress put in place sanctions on 
Iran's energy sector. The administration is currently working 
toward a deal on Iran's nuclear weapon program which will 
likely remove sanctions on Iran oil exports. And the economists 
had it at up to 800,000 barrels a day. In 2014, the largest 
purchasers of Iranian crude oil and condensate were China, 
India, Japan, South Korea, Turkey. The United States currently 
has a de facto ban on U.S. exports of crude oil to these same 
markets. Do you believe the United States should allow Iran to 
increase exports of oil while prohibiting the United States 
companies and producers from accessing these same markets?
    Mr. McNally. Mr. Chairman, until and unless there is a good 
nuclear deal with Iran, my view has been--and I actually wrote 
an op-ed in 2006 calling for quarantining Iranians' oil 
exports--I do not think we should allow Iran to sell any crude 
at all. But, as you mentioned, under the current sanctions 
regime--and there are two parts. One is the United States, 
which has required Iran's importers to significantly reduce 
their oil imports, and now, under the interim deal, the 
remaining six importers are supposed to hold steady, even 
though we have seen a steady creep-up in the amount of Iran's 
oil exports to 1.4 million barrels a day, I believe, according 
to the IEA in its most recent report. Also, importantly, Iran 
is exploiting a loophole in the United States sanctions regime 
through which it exports condensates, which is a light form of 
crude oil, and it is doing quite well, quite a brisk business 
with condensates. As my colleague mentioned, while some 
condensates of the United States are allowed to be exported, 
those require permitting and so forth, and some are not. So, we 
restrict our own condensates.
    The major restraint on Iran's oil exports, however, is the 
EU oil embargo. That caused Iran's oil exports to drop by about 
5- to 600,000 barrels a day, which is what Iran used to send to 
Europe. My understanding is, if there is a deal, United States 
sanctions would lift quite quickly, so the existing six, 
including China, South Korea, and Japan, could buy more Iranian 
crude oil, but that the Europeans will take several months--
many months, perhaps--before they lift the oil embargo. But, 
over time, Iran will be allowed back. I was at international 
meetings with Iranian officials who made very clear they are 
coming back hard onto the market, they are going to recapture 
their oil market share that they have lost. Meanwhile, as I 
mentioned in my testimony, U.S. exporters will remain shackled.
    Senator Barrasso. So, why is it also important, then, that 
U.S. national security, in our national security interests, to 
allow our allies and partners to purchase American oil to 
diversify away from Iran?
    Mr. McNally. Well, it is important for several reasons. 
One, it is important because if this deal--if we strike a deal 
and it fails, or if Iran cheats, we are going to go back and 
ask the Europeans to continue to extend their embargo. And they 
are not enjoying it. A lot of Mediterranean--weaker 
Mediterranean European countries imported a lot of Iranian oil, 
and they want to get back into that market. And they are 
refraining. We will ask them to continue that. We will also go 
back to our friends, especially South Korea and Japan, which 
have significantly reduced their imports from Iran, and ask 
them to reduce even more. I believe the Senate was looking at 
legislation in the spring that would close the condensate 
loophole, as well.
    So, in a snap-back of sanctions or a tightening-of-
sanctions scenario, we would be asking more Iran's importers, 
and I think it would only be fair and reasonable, and we ought 
to expect to be asked, to make our oil available to them in 
return.
    Senator Barrasso. Okay.
    Mr. Gordon, in your testimony, you talked about, ``When our 
closest allies are stronger, the United States is more secure, 
better able to bolster and lead multilateral security 
initiatives.'' In what ways has the dependence of our allies on 
Russian energy resources impacted the ability of the United 
States to bolster and lead multilateral security initiatives?
    Dr. Gordon. Well, I think that European dependence on 
Russian gas sources has been a major source of the failure of 
Europe to come up with a coordinated gas strategy that the 
United States has been urging on the Europeans for a very long 
time. And again, here I think that, while I agree with 
Commander Lippold that there is not a short-term solution to 
the Ukraine crisis from U.S. gas that, I think, adding U.S. gas 
exports to the broader mix from which European allies can 
choose gives them a lot more flexibility vis-a-vis Russia. It 
is already actually leading to a strengthening of those forces 
in Europe who want to have a more coordinated policy. And I 
think a loosening up of our restrictions would definitively 
help support the continuation of sanctions by the Europeans on 
Russia, which is, frankly, at risk.
    Senator Barrasso. Yes. I mean, that was my concern, as 
well. I was in Ukraine, in eastern Ukraine, on Friday. On 
Saturday--I was with the President, as well as with the Prime 
Minister on Saturday, and the mayor of Kiev. That is exactly 
what I am hearing from them. And then I think it would allow 
others, as you say, willing to participate in additional energy 
sanctions against countries like Iran and Russia if the United 
States were able to lift that.
    Mr. Gordon, also, in terms of Asia, in your testimony, you 
said, ``Energy insecurity is one of the major drivers of 
China's regional assertiveness.'' You went on to note, 
``Policies that confer mutual benefit on the United States and 
a group of Eastern Asian nations facing off as regional 
competitors should be priorities for the United States,'' that 
``they may help to deter strategic intraregional competition,'' 
you say, ``by increasing the shared incentives for stable, 
efficient market activity.''
    How could U.S. energy exports help our East Asian allies 
and promote stability in that region?
    Dr. Gordon. Well, the lead demand of our East Asian allies 
on the economic and security arenas have to do with the 
Transpacific Partnership, which I am optimistic is going to 
move forward, and to--for the United States to unshackle the 
export of energy across the Pacific. I think our Asian allies 
see two benefits to this. One is, they see a direct benefit in 
their own energy security from a stable source of supply that 
makes them less dependent on the Middle East. But, secondly, I 
think they are all interested in anything that boosts the 
overall resilience of the global energy markets that may lead, 
over time, to China becoming less assertive in buying up oil 
and in their efforts to create maritime facts on the ground in 
the South China Sea. A China that is increasingly dependent 
upon United States energy exports is more likely to think twice 
about its assertive stance. Again, this is not something that 
changes quickly, but, over time, I think it is a very important 
complement to our strategy of military strength in the Western 
Pacific.
    Senator Barrasso. Thank you very much.
    Senator Udall.
    Senator Udall. Thank you, Chairman Barrasso.
    Mr. Webster and anybody else on the panel who would like to 
answer this question, my understanding is that the 
Congressional Research Service, in 2013, concluded, and I 
quote, ``If all the proposed U.S. LNG export projects were 
operational today, the United States would rank first in the 
world for global export capacity.'' And that is the end of 
their quote there. Do you agree with this conclusion? And what 
would this mean for industry states, such as New Mexico, where 
companies are waiting for the right demand signals to begin 
accessing reserves of natural gas?
    Mr. Webster. Thank you for your question, Ranking Member.
    I would agree with the statement from the Congressional 
Research Service that, if everything that was on the table in 
2013 was now operational today, that we would easily eclipse 
Qatar and anybody else that happened to try. The one caveat to 
that is, of course, there is a real difference between those 
that put in an application and those that are able to actually 
get through the process. But, even if you limit it to that 
smaller scope, it is still a substantial amount that would 
rival Qatar.
    In terms of the State of New Mexico and getting the sort of 
signals that those producers would want, which is essentially a 
higher price, as we have been dealing with very, very low 
prices that, for many producers, just do not make sense, it is 
actually an assortment of not just exports, but also increased 
use from power demand, from petrochemical projects, and a 
number of different solutions that will just help this country, 
both use its own natural gas more effectively, but also export 
it more to our allies.
    Senator Udall. Any of the other panelists want to jump in 
on that? Okay.
    Mr. Webster, if the United States continues its ban on 
exports of crude oil, what are the ramifications, economically, 
in States that are now extracting light, tight oil? And why 
should we be worried about oversupply in the short term?
    Mr. Webster. That is a interesting question, in that, if 
you do not allow the export of crude oil, the economic 
implications actually extend well beyond just those States that 
are extracting crude oil. We did a--I just conducted a study 
that went State by State and congressional district by 
congressional district, and you can see that, you know, the 
change in a crude export stance has huge ramifications across 
the United States, even for States that do not necessarily 
allow the use of fracking. So, I think that, right now, is a 
significant hamper on some additional jobs. If you allowed 
crude oil exports, you would see an addition of about 400,000 
jobs a year; 2- to 3,000 of those jobs would be in your own 
State.
    The second part of that, in terms of the oversupply--the 
oversupply is where you are talking about it from just the 
United States standpoint, where they are not able to get their 
crude oil out, and you start to have the sort of discounts that 
we have seen in the last couple of years at various points. 
When that happens, that ends up creating a policy discount for 
these producers, and they are just not able to produce as much 
because they are not able to make the sort of investments they 
would have been able to make otherwise.
    Senator Udall. Commander Lippold, you have been at the tip 
of the spear of the complex global energy system. Based on your 
experience, do you believe that U.S. troops are at risk of 
increased harm as a result of increased U.S. dependence on 
foreign crude? If Congress were to remove the export ban, in 
which regions could we see increased risk as a--risk to our 
forces as a result?
    Commander Lippold. Thank you, Senator.
    Yes, those forces are going to be at greater risk. I 
believe that if you look at today, we are still dependent, at 7 
million barrels a day being imported into our Nation. That is a 
huge amount; almost 30 percent. And if you continue to be 
dependent, getting into a position where you are now trying to 
export it when we have not even created an overarching national 
security policy that deals with energy production across the 
board, not just crude, but in other ways, in fact, could 
adversely affect it; because, while the Navy goes out and does, 
in fact, protect the sea-lanes of communication as a matter of 
making sure that the economies of the world can operate freely 
on the high seas, it is when you start affecting the oil supply 
through world chokepoints that you really are putting the 
troops at a higher risk and into areas, especially when you 
look at the Strait of Hormuz, the Strait of Malacca--China is 
obviously going to be affecting things in the South China Sea. 
So, as those supplies tighten, they would be done. However, you 
have to look at it from the perspective: U.S. national security 
interests have to come first. And until we develop that 
overarching energy policy and we get much less dependence than 
we have today, the ban really does need to stay in place.
    Senator Udall. Commander Lippold and others on the panel, 
because there is no ban on the export of refined oil products, 
some believe that refiners will eventually reinvest in their 
facilities so they can make use of more domestic crude. What 
would the economic and security impacts be if the United States 
were to continue with the current status quo, where crude 
exports are banned, but refined products are not?
    Commander Lippold. Senator, I think that the fact that we 
can take refined product today and use that to bolster our 
allies--first and foremost, if you look at Europe, the fact 
that the militaries of the world and economies run on refined 
product, they do not run on crude--and when you look at all the 
different types of crude that are produced by various nations 
around the world, each of their refining capacities or refining 
capabilities have to be adjusted to adapt to the different 
types. So, you are asking for some countries that may have been 
working with one type--say, medium-sour--now having to shift to 
that light-sweet that we produce, the light-tight oil. Then it 
makes a drastic difference.
    And so, I think that in the--at the end of the day, the 
fact that we are able to have a capacity and capability to get 
an export--refine products to respond much quicker than we 
could with crude to bolster our allies in Europe or in the 
Pacific rim--is far more of a greater leverage for us, from a 
national security perspective, than it is to be able to lift an 
export crude ban.
    Senator Udall. Yes, please, Mr. McNally.
    Mr. McNally. Mr.--Senator, it--to answer your question, if 
we leave the crude oil ban in place, what every study has shown 
is that eventually, as my colleague Mr. Webster said, the 
amount of oil that we are now newly producing as light, tight 
oil is going to overwhelm the capacity of our existing 
refineries to process it. We built our refineries, if you will, 
to process coffee grounds, really heavy, gunky oil from Mexico 
and Canada. And, by the way, half of our oil imports come from 
our neighbors and friends, Mexico and Canada. The surprise was, 
the kind of oil we found is sort of like champagne, and our 
refineries are built to run coffee grounds. And so, if we keep 
on producing champagne, eventually those coffee-ground 
refineries, they may decide to invest in new equipment. But, to 
do so, they are going to require a discount, they are going to 
drive a low price from those producers. And that is where the 
risk to our boom comes. It is bad enough that we live at the 
whims of OPEC and global supply/demand that sends the price of 
oil to--from $110 to $42 in 6 months. That is bad enough. But, 
when, on top of that, our producers have to face an eventual 
discount from the coffee-ground refineries, we are going to 
drive prices down further. It risks killing the goose that is 
laying the golden eggs.
    Senator Udall. Thank you.
    Senator Barrasso. Thank you, Senator Udall.
    Senator Gardner.
    Senator Gardner. Thank you, Mr. Chairman.
    And thank you, to the witnesses, for testifying today.
    Commander, thank you for your service.
    Last year, I carried H.R. 6 in the House of 
Representatives. It was our bill to expedite the permit 
approval process for LNG exports. We had variety of witnesses 
testify before the committee, just like we have this year. To a 
person, they have talked about how important it is, the people 
supporting this effort, to allow the United States to move 
forward on exports like LNG and what it meant for their 
national security. Counterarguments were made, saying, ``Hey, 
look, there would not be a single molecule that you could 
actually ship here, so it would not really do anything.'' The 
response of the people in that country, indeed, were, ``Yes, it 
would. It would immediately give us more leverage and more 
negotiating power, and it would send a signal to the world that 
the United States is serious about providing and equipping its 
allies with energy security.''
    And, as my work on the East Asia Subcommittee has shown, 
every meeting that I go into that starts with an Ambassador 
from Singapore or beyond talk about the importance of U.S. 
energy security and our ability to export energy, and what it 
would mean to their security. We are talking, right now, about 
the Trade Promotion Authority, we are talking about TPP, we are 
talking about trade issues. We talk about it from an economic 
standpoint, we talk about it from a security standpoint. And if 
you look at this energy debate, every single one of them 
understands that, as the United States economy has improved 
because of this incredible revolution in energy production that 
we have gone through, they realize that that same benefit could 
extend to them through energy security. No longer would they 
have to be beholden only to one provider or a pipeline that 
could be shut off in the middle of winter if the United States 
was serious about providing and extending its security umbrella 
through energy development to our allies around the globe.
    One of the interesting dynamics, of course, of the House 
vote last year--and again, this is on the LNG side--were people 
who represented States that had enacted moratoriums on 
hydraulic fracturing. Perhaps these States had outright banned 
hydraulic fracturing. But, they acknowledged that the only 
reason we are in a position to be able to export an abundance 
of energy is because of hydraulic fracturing, coupled with new 
technologies like horizontal drilling. And there were many 
people who represent those States that had moratoriums in place 
that actually supported the LNG--the expedited LNG permitting 
bill because they recognized the security that it could provide 
to our allies.
    And so, while their State has banned or imposed moratoriums 
on hydraulic fracturing, they understand that the only reason 
we have enough to export is because of hydraulic fracturing, 
and they understand that, because of that increase in supply, 
it actually provides additional security to our allies.
    And so, I think this argument over exporting really does 
need to finally be more than just talking and actually have 
actions put in place by Congress and this administration to 
allow it to move forward and to happen.
    In the Commander's testimony, he stated this, and I wanted 
to follow up, because, I think, Mr. McNally, you were talking 
about this. It said, ``It is axiomatic that military assets 
mobilize on petroleum products like gasoline, diesel, and jet 
fuel. They do not run on crude.''
    Mr. McNally, we are not exporting crude, correct? That is 
what this debate is about. Do we export gasoline, diesel, and 
jet fuel, or could we?
    Mr. McNally. Senator Gardner, we certainly do. As my 
colleague pointed out, we used to be a net--10 years or so 
ago--importer of refined product--gasoline, distillate, 
liquified petroleum gas, et cetera. Now we are a net exporter. 
We send China liquified petroleum gas. So, it is a free and 
open market in the export of refined product. It is just crude 
oil that is restricted.
    Senator Gardner. Mr. Webster, a question for you on impact 
of continued development. And if we have an excess supply in 
this country, what happens to production in this country?
    Mr. Webster. Thank you for your question, Senator.
    If we have an excess of production, meaning that the prices 
is going down, one, the first thing that you see is, you see it 
start filling up in stocks, and you start seeing significant 
discounts at refineries, which you have seen at various points 
in the past. And then, the second order of effects is the sort 
of things we have already started to see. Companies start 
laying down rigs, they start laying off workers, they start 
slowing that production down. And, because of the extreme 
decline rates, which is the lower production you get out of a 
well after a period of time, you actually start seeing a 
slowdown in U.S. production. And so, you know, to echo Mr. 
McNally's statement, you start to kill off the goose that laid 
the golden egg.
    There is no question that, globally, we are in a lower 
price environment, and a policy change is not going to change 
that. But, a policy change can impact that policy discount that 
we have seen at various points to at least provide U.S. 
producers the opportunity to compete on a global level.
    Senator Gardner. And what happens, then, with a slowdown in 
production, economically?
    Mr. Webster. So, economically, with a slowdown in 
production, you end up having a reduction in GDP within the 
United States, you end up having reduction in revenues to 
State, Federal, and local governments, and you end up having to 
eventually start to again start importing oil again and 
reducing our energy security.
    Senator Gardner. And what happens to the price with a 
decrease in production?
    Mr. Webster. With the decrease in production, longer term, 
we end up going back to the sort of prices that you saw in 
2008, $147.
    Senator Gardner. And what would the economic impact of 
400,000 new jobs a year be, that you mentioned in one of your 
responses to a question?
    Mr. Webster. Sure. So, what that ends up doing is, you end 
up having--let me just get the figure real quickly here--about 
$86 billion in additional GDP between now and the next couple 
of decades. So, it is quite significant.
    Senator Gardner. Thank you.
    And I will yield back my time to the chairman, but I do 
just want to say, again, I think there are people throughout 
this chamber in the Senate and the House, who recognize the 
importance of moving forward on our export potential, and that 
this presents our allies with one of the most innovative ways 
of helping themselves provide security for their people, their 
country, simply through the incredible production of the 
American worker.
    Thank you, Mr. Chairman.
    Senator Barrasso. Thank you, Senator Gardner.
    Senator Markey.
    Senator Markey. Thank you, Mr. Chairman, very much.
    I have long warned this committee about the consequences 
for American consumers and our economy of large-scale exports 
of American natural gas.
    The Department of Energy--our Department of Energy--has 
said that exporting less than half of the volumes of LNG 
already approved could increase U.S. prices for American 
consumers by up to 54 percent. That could translate into a de 
facto energy tax on American consumers, businesses, and our 
economy of up to $62 billion a year, a regressive energy tax on 
American consumers if we export LNG in the amounts that are 
only half of the level already approved.
    And we cannot even be sure that the exports are going to go 
to the Ukraine, because we believe in capitalism. We are not a 
state-run oil industry. We cannot control where this oil or 
natural gas is going to go. We are a system that allows the--
Rex Tillerson to have his hand on the tiller at ExxonMobil to 
direct where oil and natural gas goes. And that is toward the 
highest price.
    Now, right now--and I am just going to focus on oil--
consumers are saving at the pump because U.S. oil prices are 
lower than the international benchmark price. A recent Barclays 
report found that U.S. consumers saved $11 billion at the pump 
last year because of lower U.S. oil prices, and will 
potentially save up to $10 billion this year. We change 
policies, energy tax on ordinary Americans, which, from my 
perspective, is regressive and it is wrong.
    We are having a refining and shipbuilding boom in our 
country because of the increased production, coupled with the 
export ban. There are more than 800,000 barrels per day of 
refining capacity additions or upgrades that are in the works 
in the United States, according to industry analysts. Many of 
those refinery upgrades involve investments of $300 million or 
more. The private sector in the United States refining sector 
is responding to this crude oil. They are building and 
expanding the refining capacity with American jobs here, right 
now, and that is why the United States steelworkers and the 
AFL-CIO are opposed to lifting the oil ban, because we, 
otherwise, will not create those jobs.
    Now, U.S. shipbuilders have orders to expand our domestic 
tanker fleet capable of transporting crude oil by nearly 40 
percent. Each tanker can represent an investment of $100-to-
$200 million. Five years ago, there were zero orders for new 
domestic oil tankers. One company, Aker ASA in Pennsylvania, 
right now has nearly a $1-billion/4-year order backlog and has 
tripled employment over the last 3 years. American companies 
responding here by creating new jobs in already existing 
industries that otherwise were going away under this export 
policy. Shipbuilding, refining--gone, overseas. That is this 
plan. That is the heart of it.
    When we still import nearly 5 million barrels of oil every 
day, that would harm our national security. We are neck and 
neck with China as the world's largest exporter--importer. The 
Department of Energy forecasts that we will continue to import 
millions of barrels of oil a day for the foreseeable future. 
When we are still importing 5 millions barrels of oil a day, 
every barrel that we would send to one of our allies means an 
additional barrel that we are going to have to import from a 
potentially unstable region of hostile countries. And, mind 
you, we are still exporting young men and women in uniform over 
to the Middle East to protect those ships bringing in oil from 
unstable parts of the country. How can we export our oil when 
we are still importing 5 million barrels a day? That is just 
wrong. And it is wrong especially to those young men and women 
in uniform. We should be creating energy independence here in 
the United States of America.
    Oil and natural gas are not like any other commodity, they 
are not like widgets, they are not like iPhones. This is the 
central commodity. You look at ISIS, you look at the Shiites, 
the Sunnis. Where are they going? For the oil-producing 
regions. Whether it be Yemen, whether it be Iraq, whether it be 
Syria, they are going for the oil. They are not going for the 
widgets, they are not going for the iPhones. Oil, gas, national 
security, that is what it is all about. It is not like any 
other product. It is the heart and soul of our national 
security.
    So, let me ask you this, Commander Lippold. We do not have 
state-owned oil companies in the United States. We cannot 
direct ExxonMobil to send oil exports to specific countries. 
They will be making decisions about where any crude oil exports 
would go based on the market and what is best for their bottom 
line, not on what might be best for U.S. foreign policy. Is 
that not correct?
    Commander Lippold That is correct. If we start to export 
oil, we have no control on where it will go. And it is not a 
free market that is out there. When you look at the vast 
majority of oil controlled by either national oil companies or 
cartels like OPEC, we are not entering into a free market 
system, by any stretch.
    Senator Markey. Commander Lippold, according to the 
Department of Energy, lifting the crude export ban would reduce 
the investment in the U.S. refining sector by nearly $9 billion 
over the next decade, and could mean 1.6 billion barrels a day 
less of domestic refining capacity in our own country. 
Refineries on the East Coast and other parts of our country 
could potentially close. Is that not a national security 
concern if we do not have sufficient domestic refining capacity 
and are reliant on foreign nations to provide us with critical 
fuels like gasoline, diesel, and jet fuel?
    Commander Lippold Yes, Senator, it is.
    Senator Markey. Let me ask you this. According to Mr. 
Webster at IHS, the number one destination for export of U.S. 
light, sweet crude oil would be China. Is that correct, that 
the bulk of the United States exports would likely go to China 
and Asia, Mr. Webster?
    Mr. Webster. Thank you for your question, Senator.
    Yes, actually you would see a great deal of volumes go to 
China, as well as some of the technology that would be there, 
as well. However, it is incorrect to state that the ``bulk'' 
would go to China. China would be just one potential market 
buyer of this crude. And I would also agree with you that you--
if you do not change the export ban, you absolutely will 
continue to have significant refinery investments of about $3 
billion. However, on the production side, you are missing out 
on around $756 billion in investments.
    Senator Markey. So, even as we are trying to pass a free 
trade bill so that we set the rules, not China--we dictate, not 
China--we are simultaneously talking about exporting the most 
precious of all raw products, and it will go to China because 
they will be the high bidder, sending back finished product for 
us to purchase in the United States of America.
    So, I guess what I would say is, let us build the ships 
here, let us build the refining capacity here, let us drill 
here, let us have consumers in America get the benefits here, 
let us have the petrochemical industry here get the benefits, 
let us have an economy that is robust using this incredible 
bonanza of energy that we now have, and lowering our 
unemployment rate, and showing what the real might of our 
country is. That is what I would do, rather than exporting this 
oil and gas so that China and other countries then take our 
most precious resource and undermine our ability to be able to 
protect our own citizens. That stops in its tracks if we lift 
this export ban.
    I thank you, Mr. Chairman, very much.
    Senator Barrasso. Thank you, Senator Markey.
    Senator Shaheen.
    Senator Shaheen. Thank you, Mr. Chairman.
    Thank you all very much for being here today. I am sorry I 
missed your testimony because I was at another commitment.
    But, I returned, last weekend, a week ago, from a 
conference in Poland that was focused on Eastern Europe. And 
one of the major issues there was Russia and Putin's aggression 
in Eastern Europe, and Ukraine, and what could be done to 
address that. And obviously, one of the big concerns that I 
heard from the countries whose representatives I met with from 
Eastern Europe was concerned about their dependence on Russian 
energy and what could be done to address that.
    Now, one of the people I met with was an official from 
Ukraine who talked about--one of the efforts that they are 
looking at is how to reduce their dependence on that Russian 
energy through energy efficiency. And I know that your 
testimony is focused on exports of oil and gas, but is there 
not also a role for export of our technology around 
efficiencies that we ought to be looking at as we are thinking 
about what opportunities we have to influence the global market 
around energy?
    Anybody.
    Dr. Gordon. Thank you, Senator Shaheen.
    I think, absolutely, that export of energy-saving 
technologies has to be an important piece of what we are doing. 
We do not have restrictions on that. So, the issue here is that 
we have a set of restrictions on the very things that our most 
important allies are calling for us to lift, both in Asia, in 
Europe, especially in Eastern Europe. So, I think that the 
theme that we are focusing in on here is the national security 
implications of beginning to loosen that up, and to do so in a 
way that can both secure our economy at home while responding 
to these challenges abroad.
    Senator Shaheen. And I appreciate that. I am suggesting, 
though, that maybe we are thinking too narrowly about how we 
are thinking about this issue, and that we ought to be thinking 
broader about what other exports of energy--energy technologies 
that we can provide that is part of a comprehensive national 
security energy policy that will help us address the energy 
challenges that we are facing around the world, and that 
efficiency technologies ought to be a piece of that.
    So, let me go from that to asking you, Commander Lippold. 
You testified that a day may come when the United States should 
alter our export policy, but today is not that day. So, what 
conditions do you think would have to be met for us to proceed 
with changing our export policy around oil?
    Commander Lippold First, I would think that we would need a 
significant reduction in the amount of oil that the United 
States is currently importing to make our economy run. And the 
second thing would be development of an overarching strategy, 
which you suggested, to say, ``We need a comprehensive energy 
policy that is folded in and a component of our entire national 
security strategy in foreign policy.'' Because, until then, we 
are just going to be nitpicking and solving little symptoms 
right here, when we are not getting to the crux of the problem, 
which is developing that national security strategy of which 
energy independence is a component, and how we are going to 
achieve that, and what we are going to work with.
    I have not advocated that the ban should remain in place 
forever, but I have said now is not the time. When you are at 
30 percent, you do not want to be in a position where we are 
saying, ``Congratulations, you have completed 8 of your 12-step 
program. Let us go celebrate with our friends and have a 
round.'' Now is not the time, because of our dependence that we 
currently have. And I think that we need to develop that 
overarching strategy, reduce dependence, and take a look at 
that ban in the context of a larger discussion.
    Senator Shaheen. And so, are there positions between 
totally ending the export ban and staying where we are that we 
should be looking at that might be reasonable? Should we be 
thinking about a phased approach to addressing this that goes 
on over a period of time? And when we reach certain goals, in 
terms of reducing our dependence on imports, that we can then 
look at opening the market a certain amount and--thinking about 
it in those terms? Is that a reasonable place to be thinking 
about this so that we are not talking about either opening--
ending the ban tomorrow or leaving it in place for the next 10 
years, but we are looking at some phased approach that might 
make sense? At----
    Commander Lippold Yes. Thank you, Senator. That is a----
    Senator Shaheen [continuing]. At you or anybody else.
    Commander Lippold [continuing]. That is a great question, 
and really does go to the core, because we cannot answer that 
question right now. Without this overarching strategy for the 
United States to be able to approach how we are going to work 
toward energy independence while we are going at it piecemeal 
until we have that strategy in place, we really cannot set the 
benchmarks and say, ``Well, when we are down to 10 percent, we 
can open it up and export X-number, or, when we get to 5 
percent, we can export X-number.'' I think we need to look at 
it. And it may end up being on a sliding scale. It may be that, 
when we hit a certain amount, we can say, ``We have reached a 
point, combined with other resources that we are exporting, 
like LNG, that we have--in fact, have influence to where it is 
affecting foreign policy and our national security objectives 
are being done.'' Plus, we have to see what the state of the 
world is. We are not an independent actor. It is also going to 
depend on the security conditions for our allies, not only in 
Europe, but in the Pacific rim and, quite fundamentally, in the 
Middle East.
    Senator Shaheen. Mr. McNally.
    Mr. McNally. Thank you, Senator Shaheen.
    I would start by observing that--just that the great 
majority, if not totality, of bipartisan energy and foreign 
policy experts regard the crude oil ban as, at best, an 
anachronism, and, at worst, a direct threat to our oil boom and 
a problem in our foreign policy. If it served some purpose, 
then we might want to debate balancing that public purpose 
against the benefit of lifting it. But, it serves no public 
purpose. It just threatens the goose.
    So, in an ideal world, I would think, respectfully, we 
would just get rid of it right away. However, in a less-than-
ideal world, perhaps we would look at options such as allowing 
treaty allies or free-trade-agreement countries or countries 
that continue to respect sanctions against Iran to have access 
to our oil. That, perhaps, would be half-a-loaf approach. But, 
fundamentally, since there is no public justification for the 
ban, there really is no reason not to just strike it entirely.
    Senator Shaheen. Other views? Mr. Webster? Mr. Gordon?
    Mr. Webster. Yes, I would agree with Mr. McNally. I mean, 
it is--and I am--as a markets guy, I would be very hesitant, 
you know, putting in, ``If we hit this, then you will allow 
this.'' Realize that this is a market thing. So, if you had 
allowed crude exports in 1981, as you allowed petroleum product 
exports, you would have not seen any real crude exports in 
significant volumes until late 2013. And today, you probably 
would not see many volumes, as well; but, probably later this 
year, you would see volumes. It is--part of it is a--is, over 
time, you will see it as a seasonal thing; and then, over time, 
as the U.S. production continues to grow, because it is given 
this full global price, then you will start seeing more and 
more volumes.
    But, if the price does not make sense, in terms of an 
arbitrage, those volumes are not going to go there, so the 
market, itself, will kind of solve that issue that you are 
looking at.
    Dr. Gordon. Senator Shaheen, I think that the way to 
address this is to address what are the pressing national 
security concerns here, and who do you put in the category. And 
again, here I think that the trio really is treaty allies, it 
is participants in FTAs, and then it also has to do with using 
this as a tool to encourage the retention of the capability to 
sustain sanctions on Iran, or to put them back into place.
    Senator Shaheen. Thank you, Mr. Chairman. My time is up.
    Senator Barrasso. Thank you very much, Senator Shaheen. You 
know, I mean, it is interesting that you said you were in 
Poland. Over the recent recess, I was in Slovakia--I am sorry, 
I was in Slovakia over the weekend, but, over the last recess, 
Estonia, Romania, the Czech Republic. And what I am hearing, in 
terms of the use of the technology, is that Vladimir Putin is 
supporting funding green groups--extreme green groups to then 
get in--politically involved in the home countries to prevent 
the use of this technology, not because of a change in his 
position on the use of fossil fuels, but as an effort to keep 
them from not producing their own and taking it and making them 
continue to be dependent upon Russian energy. So, it is--I 
mean, it is a very interesting interplay of the way that Putin 
plays this game.
    Mr. McNally, the Wall Street Journal, on May 20, ``Leon 
Panetta, Stephen Hadley: The Oil Export Ban Harms National 
Security.'' I think you have seen the article. It states that, 
``The moment has come for the U.S. to deploy its oil and gas in 
support of its security interests around the world.'' They say, 
``Too often, foreign policy debates in America focus on issues 
such as how much military power should be deployed in the 
Middle East, whether the U.S. should provide arms to the 
Ukrainians, or what tough economic sanctions should be imposed 
on Iran.'' The article concludes, ``Ignored is a powerful 
nonlethal tool, America's abundance of oil and natural gas. The 
U.S. remains the great arsenal of democracy. It should be the 
great arsenal of energy.''
    So, I am going to have this article put in the record.
    Senator Barrasso. Less than a month ago, William Cohen, 
former Secretary of Defense, wrote an article in Time magazine 
titled ``Why President Obama Should Export Crude Oil.'' He 
talks about the strategic benefits of lifting the ban.
    And I am going to have that article also submitted to the 
record.

[Editor's note.--The two articles mentioned above can be found 
in the ``Additional Material Submitted for the Record'' section 
at the end of this hearing.]

    Senator Barrasso. Mr. McNally, you served as a senior 
director of International Energy on the National Security 
Council for President George W. Bush's administration. You have 
extensive experience evaluating the national-security/foreign-
policy matters facing our Nation. Do you agree with these 
former Defense Secretaries, Panetta and Cohen, about the 
benefits of crude oil exports and U.S. security?
    Mr. McNally. Thank you, Chairman Barrasso.
    I certainly do. And again, as I said in my prepared 
testimony, it harkens back to a time in our country when there 
was confidence in bipartisan support in our energy position 
globally. And again, when we were an arsenal of energy, when we 
did step up and backstop our allies with energy supplies. Now, 
in today's world, we are not as powerful and big in the oil 
markets as we used to be. But, as we have discussed this 
afternoon, it does not take a lot of oil or gas to be exported 
to have real impacts. Matter of fact, you do not have to export 
any, just the--offering the option of exports helps. So, I 
certainly do agree that.
    I will say, Mr. Chairman, what I pleasantly discovered 
during my White House experience--and my only prior government 
experience was in the Peace Corps, sir, so this is my first 
time--was how, when it came to serious energy issues, there was 
bipartisanship. Democrats and Republicans, when it comes to the 
serious, hard energy policy questions, more often than not saw 
things similarly, and there was this commonality that I think 
you see now with the crude oil export debate and that you have 
seen in the past in our country's history.
    Senator Barrasso. Great.
    Mr. Gordon, let us see, you authored a ``Crude Oil Export 
and U.S. National Security.'' It was a very good piece--I am 
going to ask that this also be put in the record.
    Dr. Gordon. Thank you.

[Editor's note.--The article mentioned above was too voluminous 
to include in the printed hearing. It will be retained in the 
permanent record of the committee.]

    Senator Barrasso. It is interesting, when you get to page 
16, some of the things I have underlined, address public 
concerns. It says, ``Acknowledge and address public concerns 
regarding perceived negative effects on gasoline prices of 
exporting oil.'' I mean, it almost sounded, from some of the 
questioning by some of the members----
    Dr. Gordon. Yes.
    Senator Barrasso [continuing]. That they think that we burn 
crude, when, in fact, we actually burn gasoline. And could you 
kind of help talk us through that a little bit?
    Dr. Gordon. Yes. So, I think that the public that we really 
need a public engagement process, because I think--I mean, 
while I do not agree with Senator Markey's views that--there is 
no question that his views represent how a lot of people think 
about this. And so, it is a absolutely legitimate issue that he 
raises, and I think that is the key for addressing this. And I 
mean, I think that the--to my mind, the unconventional energy 
revolution is one of the most significant contributors to 
enhancing U.S. power and potential in the world that we have 
seen in recent decades, and that--I think that the risk of 
killing that golden goose are very, very profound, and it would 
really seriously undermine the United States. That means that 
we need to have a very big debate about the issues that Senator 
Markey raised, because the American public and, indeed, lots of 
Members of Congress are worried that it really is a zero-sum 
game here. I will defer to Mr. Webster and Mr. McNally to talk 
about some of the arguments. I am not an energy economist, I am 
a foreign policy analyst. But, I very much am of the view that 
the pathway for getting from here to there lies through a 
public debate that addresses these very, very real and critical 
issues that Senator Markey was talking about.
    Senator Barrasso. Well, and I appreciate that, because, as 
one of our colleagues--not on this committee, but in the 
Senate--said to me--he invited me to come to one of his 
townhall meetings, and he said, ``I want you to stand up there 
and explain to the people in my hometown why exporting crude is 
actually going to help lower the cost of gasoline at the 
pump.'' Because, as you say, it is not. So, I am going to take 
you along with us if we go, thank you. [Laughter.]
    Mr. Webster, in terms of the OPEC decisions on crude oil, 
there has been a lot of speculation about the decision of OPEC 
to not cut oil production. Some individuals believe that Saudi 
Arabia and other OPEC members are trying to put pressure on 
Iran and its nuclear ambitions. People feel that OPEC is trying 
to encourage Vladimir Putin to abandon his support for the 
Assad regime. I mean, you can read a lot out there. Other folks 
say OPEC is trying to undermine America's crude oil production.
    Given our interest in deterring Iran and Russia, do you 
believe it is a good time to lift the ban on exporting crude 
from the United States?
    Mr. Webster. Thank you, Chairman.
    Yes, I was at the OPEC meeting, both on November 27 and 
just earlier in June, where they made that decision and 
continued that decision, partly, in fact, because of what is 
going on with U.S. production, recognizing that they were in a 
difficult spot to be able to push against it.
    Right now, to me, I--and I understand some of the concerns 
that people have that exporting crude oil is going to raise 
gasoline prices. It has not. Actually, the--right now, this 
boom in U.S. production kept us from very, very high prices 
before 2014 because of all of the outages we had from Iran and 
other places. And allowing continued oil production to the 
maximum extent allowed under a global oil price is only going 
to increase both U.S. energy security, but also global energy 
security. I am--often been quoted as saying that a--you know, a 
free barrel of oil anywhere increases energy security 
everywhere. And being able to bring all of those barrels to the 
fore both to supply U.S. refiners and U.S. consumers, but also 
global refiners, as well, is the sort of move that we need to 
make now that is going to allow us to continue to push back and 
continue to force OPEC to make these sorts of decisions and 
essentially become a free-market group.
    Senator Barrasso. Thank you.
    And, Mr. McNally, in terms of natural gas, February this 
year, President Obama's Council on Economic Advisors, they 
issued an economic report for the President, said, ``An 
increase in U.S. exports and natural gas, and the resulting 
price changes, would have a number of mostly beneficial effects 
on natural gas producers, on employment, on U.S. geopolitical 
security and the environment.'' The report explains that more 
U.S. natural gas exports would result in--as they say--an 
increase in GDP ranging from .05 percent to .17 percent in 
different export scenarios. It says that the U.S. natural gas 
exports of 6 billion cubic feet per day could support as many 
as 65,000 jobs. In addition, the report found that more U.S. 
natural gas exports would have, ``a positive geopolitical 
impact for the United States. Specifically''--and this is, 
again, the President's Council on Economic Advisors--
``Specifically, it explains that the U.S. natural gas 
exports,'' they say, ``builds liquidity in the global natural 
gas market, reduces European dependence on the current primary 
suppliers, Russia and Iran.''
    And I see, Mr. Gordon you are shaking your hand up and down 
in agreement, as well. So, do you agree with the economic 
report of the President, that increasing U.S. exports of 
natural gas will result in increased GDP and create new jobs, 
have a positive geopolitical impact on the Nation?
    Dr. Gordon. Chairman Barrasso, I certainly do. And I think 
that report just repeats many private-sector studies that were 
done by Mr. Webster's organization and others and the 
Department of Energy, frankly, which, when it considered its 
policy on export facilities. Had it believed Senator Markey's 
scenario of 54 percent price increases, I am sure the Secretary 
of Energy and President Obama would never have accelerated and 
streamlined the export approvals. The--that was a--that was an 
extreme case. That was not the reference-based case. So, I 
think it is been well understood in this country for several 
years. And again, as I said in the outset, to your credit and 
your colleagues' credit, that this gas boom, in particular, 
offers enormous economic and national security benefits. We saw 
that with Japan after the Fukushima disaster. That came clear 
to us during Russia's aggression last year. It is something 
that is real--that has resulted in clear, tangible benefits in 
which the President, to his credit, and his advisors, has 
acknowledged.
    Thank you.
    Senator Barrasso. Yes.
    And a final question, Mr. McNally. In case--I am trying to 
decide if I want to take you along with me with Dr. Gordon, 
here, when we go to this townhall meeting in a State that is 
not my own. Would you explain how expanding crude oil--
exporting crude oil would lower gasoline prices at home in the 
United States?
    Mr. McNally. Sure. I would be happy to join you, Senator. 
And that is a sincere promise. I would be happy to go and do 
that. And I will admit it is somewhat counterintuitive, because 
we associate gasoline price increases from the 1970s like a 
nightmare with the rise in oil imports back then. But, the way 
it works in the oil market, it is a global pool. And we--our 
gasoline prices are set by the price of crude oil in the global 
pool. So, what matters is how much oil is going into the pool 
and coming out of the pool.
    And, as Mr. Webster said, the more oil--crude oil--we can 
add to the world, the lower will be the price of crude oil 
globally and, therefore, the price of gasoline here. We need 
the crude oil export ban, or we need the option to export some 
types of our oil, in order to sustain production to keep our 
production high and the global price low.
    So, bottom line, get rid of the ban, which is not helping 
consumers right now. I want to be very clear. The Barclay study 
that Senator Markey mentioned has been widely discredited. That 
was written by equity analysts cherrypicking data from 2000--
2008 and 2009. The truth is, an EIA and other government 
agencies have also found, as have private-sector organizations, 
that the gasoline prices in the United States are not set by 
WTI, the U.S. price. The discount that U.S. producers have been 
forced to accept is not helping consumers. It is only helping 
some refiners, who are earning very--even fatter margins than 
they are already.
    And so, net-net, sir, get rid of the ban. We will have more 
supply. If we have more supply, the price will go down for 
everybody.
    I will be happy to join you, sir.
    Senator Barrasso. Well, and finally, Mr. McNally, I 
understand that the Congressional Budget Office, the Government 
Accountability Office, and the Federal Reserve Bank of Dallas, 
as well as the Energy Infrastructure--Information 
Administration, has made the same findings.
    Mr. McNally. Yes, sir. And, if I may, in a spirit of 
bipartisanship, I think the most passionate and articulate 
encapsulation of this argument was made by Mr. Summers, the 
former Treasury Secretary of President Obama. And I think that 
he clearly said that--what we all know, really--that Economics 
101 works, sir. And if we add to global supply, we will have 
lower prices for everybody. It is just that simple. More 
supply, lower prices.
    Thank you, sir.
    Senator Barrasso. Well, I want to thank each of you for 
being here today.
    The record will remain open for a period of time. There may 
be some submitted questions. I hope you get those answers back 
to us promptly.
    This was very informative. We had good bipartisan 
participation. So, thanks so much for your testimony.
    The meeting is adjourned.
    [Whereupon, at 4:20 p.m., the hearing was adjourned.]
                              ----------                              


              Additional Material Submitted for the Record

              [From the Wall Street Journal, May 19, 2015]

               The Oil-Export Ban Harms National Security

The U.S. is willfully denying itself a tool that could prove vital in 
        dealing with threats from Russia, Iran and others.
               (By Leon E. Panetta and Stephen J. Hadley)
    The United States faces a startling array of global security 
threats, demanding national resolve and the resolve of our closest 
allies in Europe and Asia. Iran's moves to become a regional hegemon, 
Russia's aggression in Ukraine, and conflicts driven by Islamic 
terrorism throughout the Middle East and North Africa are a few of the 
challenges calling for steadfast commitment to American democratic 
principles and military readiness. The pathway to achieving U.S. goals 
also can be economic--as simple as ensuring that allies and friends 
have access to secure supplies of energy.
    Blocking access to these supplies is the ban on exporting U.S. 
crude oil that was enacted, along with domestic price controls, after 
the 1973 Arab oil embargo. The price controls ended in 1981 but the 
export ban lives on, though America is awash in oil.
    The U.S. has broken free of its dependence on energy from unstable 
sources. Only 27% of the petroleum consumed here last year was 
imported, the lowest level in 30 years. Nearly half of those imports 
came from Canada and Mexico. But our friends and allies, particularly 
in Europe, do not enjoy the same degree of independence. The moment has 
come for the U.S. to deploy its oil and gas in support of its security 
interests around the world.
    Consider Iran. Multilateral sanctions, including a cap on its oil 
exports, brought Tehran to the negotiating table. Those sanctions would 
have proved hollow without the surge in domestic U.S. crude oil 
production that displaced imports. Much of that foreign oil in turn 
found a home in European countries, which then reduced their imports of 
Iranian oil to zero.
    The prospect of a nuclear agreement with Iran does not permit the 
U.S. to stand still. Once world economic growth increases the demand 
for oil, Iran is poised to ramp up its exports rapidly to nations whose 
reduced Iranian imports were critical to the sanctions' success, 
including Japan, South Korea, Taiwan, Turkey, India and China. U.S. 
exports would help those countries diversify their sources and avoid 
returning to their former level of dependence on Iran.
    More critically, if negotiations fail, or if Tehran fails to comply 
with its commitments, the sanctions should snap back into place, with 
an even tighter embargo on Iranian oil exports. It will be much harder 
to insist that other countries limit Iranian imports if the U.S. 
refuses to sell them its oil.
    There are other threats arising from global oil suppliers that the 
U.S. cannot afford to ignore. Libya is racked by civil war and attacks 
by the Islamic State. Venezuela's mismanaged economy is near collapse.
    Most ominous is Russia's energy stranglehold on Europe. Fourteen 
NATO countries buy 15% or more of their oil from Russia, with several 
countries in Eastern and Central Europe exceeding 50%. Russia is the 
sole or predominant source of natural gas for several European 
countries including Finland, Slovakia, Bulgaria and the Baltic States. 
Europe as a whole relies on Russia for more than a quarter of its 
natural gas.
    This situation leaves Europe vulnerable to Kremlin coercion. In 
January 2009, Russia cut off natural gas to Ukraine, and several 
European countries completely lost their gas supply. A recent EU 
``stress test'' showed that a prolonged Russian supply disruption would 
result in several countries losing 60% of their gas supplies.
    Further, revenue from sales to Europe provides Russia with 
considerable financial resources to fund its aggression in Ukraine. 
That conflict could conceivably spread through Central Europe toward 
the Baltic States. So far, the trans-Atlantic alliance has held firm, 
but the trajectory of this conflict is unpredictable. The U.S. can 
provide friends and allies with a stable alternative to threats of 
supply disruption. This is a strategic imperative as well as a matter 
of economic self-interest.
    The domestic shale energy boom has supported an estimated 2.1 
million U.S. jobs, according to a 2013 IHS study, but the recent 
downturn in oil prices has led to massive cuts in capital spending for 
exploration and production. Layoffs in the oil patch have spread 
outward, notably to the steel industry. Lifting the export ban would 
put some of these workers back on the job and boost the U.S. economy.
    Why, then, does the ban endure? Habit and myth have something to do 
with it. U.S. energy policy remains rooted in the scarcity mentality 
that took hold in the 1970s. Even now, public perception has yet to 
catch up to the reality that America has surpassed both Russia and 
Saudi Arabia as the world's largest producer of liquid petroleum 
(exceeding 11 million barrels a day). The U.S. became the largest 
natural gas producer in 2010, and the federal government will now 
license exports of liquefied natural gas.
    The fear that exporting U.S. oil would cause domestic gasoline 
prices to rise is misplaced. The U.S. already exports refined 
petroleum, including 875,000 barrels a day of gasoline in December 
2014. The result is that U.S. gasoline prices approximate the world 
price. Several recent studies, including by the Brookings Institution, 
Resources for the Future and Rice University's Center for Energy 
Studies, demonstrate that crude oil exports would actually put downward 
pressure on U.S. gasoline prices, as more oil supply hits the global 
market and lowers global prices.
    Too often foreign-policy debates in America focus on issues such as 
how much military power should be deployed to the Middle East, whether 
the U.S. should provide arms to the Ukrainians, or what tougher 
economic sanctions should be imposed on Iran. Ignored is a powerful, 
nonlethal tool: America's abundance of oil and natural gas. The U.S. 
remains the great arsenal of democracy. It should also be the great 
arsenal of energy.
                                 ______
                                 
                   [From Time Magazine, May 27, 2015]

     William S. Cohen: Why President Obama Should Export Crude Oil

``The core of our strength overseas is economic strength at home''
    As the battle wages on in Congress over President Barack Obama's 
signature trade agreements and the needed fast-track trade promotion 
authority (TPA), the President would be wise to consider alternatives 
that would enhance his trade legacy and also further our strategic 
priorities overseas. While energy is not included in the Trans-Pacific 
Partnership (TPP) or Transatlantic Trade and Investment Partnership (T-
TIP) negotiations, many of the same Asian, European, and Latin American 
partners are calling for greater partnership with the United States on 
energy issues. By allowing the U.S. to become a stable source of supply 
to global energy markets, counteracting supply disruptions that will 
inevitably affect other energy-rich regions, President Obama and 
Congress can double down on promoting long-term economic growth and 
reinforcing U.S. foreign policy leadership.
    The U.S. can do more with its energy resources to support this 
strategic vision. A direct way of leveraging this opportunity is to 
lift the ban on the export of crude oil and accelerate approvals for 
the export of liquefied natural gas (LNG). A series of policies and 
laws in the 1970s banned exports of U.S. crude oil with only limited 
exceptions. This ban is a relic from an age of energy scarcity and 
should be adjusted to reflect present realities. By working with 
Congress, and via Executive order, the President can start taking steps 
today to boost U.S. exports.
    There would be four strategic benefits to doing so.
    First, energy exports would strengthen NATO and our broader 
transatlantic relationship at a time of increased Russian aggression. 
The European Union has responded to Russia's energy stranglehold by 
proposing policies designed to avoid future crises of supply and 
promote self-sufficiency. The E.U. antitrust case against Russian 
energy company Gazprom is important. But more can and should be done to 
build a strategic U.S.-European relationship on energy security. 
Working with our allies and partners, a joint effort to reduce Europe's 
vulnerability to Russian energy coercion would be an important legacy 
for President Obama and send a signal to President Vladimir Putin that 
as long as he chooses to use energy as a weapon, the West will defend 
itself. While it will take years to build the necessary infrastructure 
to receive more LNG, enhance transport pipelines, and otherwise 
increase Europe's energy resilience, there is no better time to start 
than now.
    Second, increased energy trade with our Asian partners would add 
substance to the U.S. rebalance to Asia, serving to bolster the 
region's energy security and promote the continued economic vitality of 
allies such as Japan and South Korea, while also offering new areas for 
possible collaboration with China, India, and ASEAN members.
    Third, energy exports could open up a new era of collaboration in 
our own hemisphere. As Venezuela scales back its energy exports in 
response to domestic challenges, this presents a strategic opportunity 
for the U.S. to fill the energy void with the 17 Central American and 
Caribbean nations that have depended on Venezuelan energy subsidies. 
Moreover, increased energy integration among NAFTA members would create 
a North American energy powerhouse that will reinforce the above 
objectives.
    Finally, the core of our strength overseas is economic strength at 
home. The ``shale revolution'' has created thousands of jobs, 
revitalized and expanded the domestic energy industry, spurred 
breakthrough technology with a global impact, and significantly 
improved the U.S. trade balance. The U.S. has tripled its exports of 
refined oil products over the last decade as a consequence of the 
recent energy boom. American primary energy firms, however, have been 
unable to capture higher gas and oil prices on the global market. A 
prudent way to support the continued expansion of the U.S. energy 
sector and our domestic energy security is to level the playing field 
by relaxing restrictions on American crude oil and LNG exports. 
Legislation such as the bipartisan LNG Permitting Certainty and 
Transparency Act introduced by Senators John Barrasso, a Republican 
from Wyoming, and Martin Heinrich, a Democrat from New Mexico, and 
supported by the Energy Department provide a good foundation to build 
on.
    For the first time in a half century, President Obama has the 
opportunity to re-write the energy balance of power in our favor and 
solidify his legacy on trade. President Obama is the only U.S. 
president in decades who has had the tool of energy abundance at his 
disposal; he should use it.