[Senate Hearing 114-17]
[From the U.S. Government Publishing Office]
S. Hrg. 114-17
U.S. CRUDE OIL EXPORT POLICY
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
MARCH 19, 2015
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Committee on Energy and Natural Resources
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
LISA MURKOWSKI, Alaska, Chairman
JOHN BARRASSO, Wyoming MARIA CANTWELL, Washington
JAMES E. RISCH, Idaho RON WYDEN, Oregon
MIKE LEE, Utah BERNARD SANDERS, Vermont
JEFF FLAKE, Arizona DEBBIE STABENOW, Michigan
STEVE DAINES, Montana AL FRANKEN, Minnesota
BILL CASSIDY, Louisiana JOE MANCHIN III, West Virginia
CORY GARDNER, Colorado MARTIN HEINRICH, New Mexico
ROB PORTMAN, Ohio MAZIE K. HIRONO, Hawaii
JOHN HOEVEN, North Dakota ANGUS S. KING, Jr., Maine
LAMAR ALEXANDER, Tennessee ELIZABETH WARREN, Massachusetts
SHELLEY MOORE CAPITO, West Virginia
Karen K. Billups, Staff Director
Patrick J. McCormick III, Chief Counsel
Tristan Abbey, Professional Staff Member
Angela Becker-Dippmann, Democratic Staff Director
Sam E. Fowler, Democratic Chief Counsel
Tara Billingsley, Democratic Senior Professional Staff Member
C O N T E N T S
Murkowski, Hon. Lisa, Chairman, and a U.S. Senator from Alaska... 1
Cantwell, Hon. Maria, Ranking Member, and a U.S. Senator from
Pascual, Carlos, Fellow, Center on Global Energy Policy, Columbia
University and Senior Vice President, IHS...................... 9
Lance, Ryan, Chairman and Chief Executive Officer, ConocoPhillips 22
Rosenberg, Elizabeth, Senior Fellow and Director, Energy,
Economics and Security Program, Center for a New American
Drevna, Charles T., President, American Fuel & Petrochemical
Warmann, Jeffrey, Chief Executive Officer, Monroe Energy Inc..... 101
ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED
Association of American Railroads:
Statement for the Record..................................... 142
Cantwell, Hon. Maria
Opening Statement............................................ 7
Drevna, Charles T.
Opening Statement............................................ 51
Written Testimony............................................ 53
Statement for the Record..................................... 3
Opening Statement............................................ 22
Written Testimony............................................ 24
Murkowski, Hon. Lisa
Opening Statement............................................ 1
Opening Statement............................................ 9
Written Testimony............................................ 13
Responses to Questions for the Record........................ 136
Opening Statement............................................ 41
Written Testimony............................................ 43
Opening Statement............................................ 101
Written Testimony............................................ 103
Responses to Questions for the Record........................ 138
National Stripper Well Association:
Statement for the Record..................................... 145
U.S. CRUDE OIL EXPORT POLICY
Thursday, March 19, 2015
Committee on Energy and Natural Resources,
The Committee met, pursuant to notice, at 10:06 a.m. in
room SD-366, Dirksen Senate Office Building, Hon. Lisa
Murkowski, chairman of the Committee, presiding.
Opening Statement of Hon. Lisa Murkowski,
U.S. Senator From Alaska
The Chairman. Calling to order the Energy Committee meeting
this morning. Welcome to members of the Committee. Welcome to
our panelists and to those who have come to listen and hear the
discussion on U.S. crude oil export policy.
It's good to have the discussion in front of this
Committee. Clearly a very timely topic.
More than a year has passed since January of '14 when this
Committee, then under Chairman Wyden, held its first hearing in
over a full decade on crude oil exports. Since then the
Congress has held an additional five hearings. That's moving
right along here which is good to know.
Our hearing this morning is the seventh now that we have
held in just over a year. This represents substantial progress
on the education front. When I first had an opportunity to
bring up the issue of oil exports and the need to reexamine our
policy here in this country with the current export ban, it
felt like I was a pretty lonely voice out in the wilderness.
But I made a very clear effort, initially, to say that this was
going to be about education. This was not about moving a
legislation through that was not thoughtful and considered, but
really this was about an education and an awareness effort. And
we've seen just that.
We've seen analysis from the Government Accountability
Office, from the Brookings Institution, the Heritage
Foundation, the Council on Foreign Relations, the Center for
Strategic and International Studies, the Cato Institute, the
Aspen Institute, the Center for American Progress, the
Congressional Budget Office, Columbia University Center on
Global Energy Policy, Resources for the Future, Center for a
New American Security, Peterson Institute for International
Economics, ICF International, IHS, NEARA and even more beyond
The vast majority of this analysis ends up in the same
place, and I think it's important that we understand that. But
we hear the other side.
The U.S. Energy Information Administration has also
published three reports as part of the ``dynamic and ongoing
analysis'' that I requested last year and is due to release
some final pieces very soon.
When I mentioned last year that 2014 would be the year of
the report, it seems clear to me that it was exactly that. That
these various institutions, these thought leaders engaged in
that willingly and with a certain amount of energy which was
But the year of the report is coming to an end. While I
continue to believe that the Administration retains extensive
authority explicitly delegated to it by previous Congresses in
statute, it is also appropriate for us to consider our
legislative options. So just stay tuned here.
Before I turn to Ranking Member Cantwell, I would like to
introduce into the record a statement that we received from
Michele Flournoy, who is the former Under Secretary for Policy
at the Department of Defense under President Obama from 2009 to
2012. Our schedule, unfortunately, did not permit her
attendance, but there is one brief quotation from what, I
think, is a very important statement. She states the following,
``Lifting oil export restrictions will yield a variety of
security dividends to the United States. Market conditions
merit such a step and security dividends will not be fully
realized without it.'' She goes further into her statement to
speak about the significant security benefits associated with
lifting oil export restrictions and our flexibility then as a
nation to impose energy sanctions into the future.
Again, I will submit her statement in full as part of this
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED]
The Chairman. The national security side of the equation
will be, I think, a very extremely important part of this
conversation going forward. I look forward to comments from our
witnesses as you present this morning, not only in this area,
but on other aspects of this policy consideration that we have
in front of us.
Again, I thank you all for being here. I look forward to
I will turn to Ranking Member Cantwell and then we'll have
an opportunity for each of you to present your statements and
we will turn to questions for each of you.
With that, Senator Cantwell.
Statement of Hon. Maria Cantwell,
U.S. Senator From Washington
Senator Cantwell. Thank you, Madam Chair. I too, want to
welcome the witnesses and thank you for holding this hearing.
This Committee last held a hearing on crude oil exports 14
months ago. At that hearing many of my colleagues noted the
historic nature of the subject.
The U.S. Congress banned the export of crude oil in 1975
after oil exporting nations had used their export capacity as
an economic weapon which caused serious damage to the U.S. and
to the global economy.
Since that time there has never been a reason to revisit
the ban. For decades we, in Congress, have debated the best
ways to deal with our country's ever increasing dependence on
imported foreign oil. Within the last decade we actually
started to see that situation reverse as we started consuming
less, producing more and importing less.
Three major policy changes came together to change the U.S.
Energy Security paradigm. We started using our transportation
fuel more efficiently by increasing fuel efficiency
requirements. We started to break the oil sector's monopoly on
gas tanks by replacing ten percent of our transportation fuel
with ethanol and bio diesel and promoting electrification of
vehicles. And our long term investments in the government-
funded basic research on oil and gas production started to pay
It's the combination of all three of these policy measures
that has brought us here today because not only are we now
producing more oil than we ever anticipated, thanks to the good
work of the Department of Energy and Sandia National Laboratory
and the public and private sector partnerships it has created,
but we've also stopped consuming more and more oil every year.
Between 1982 and 2007 gasoline consumption in the United
States grew every single year. It appears now that 2007 was the
peak year for gasoline consumption. In 2007 we used 391,000,000
gallons of gasoline in this country. In 2014 we used only
If you count every year from 2008 through 2014 Americans
have saved 119,000,000 gallons compared to 2007.
Assuming three dollars per gallon, that's $356 million that
Americans spent on something other than gasoline between 2008
I think it's important for us to recognize that we have had
success on both the supply side and the demand side of the
equation in terms of reducing our dependence on imported oil.
Now the oil industry is asking to repeal the export ban.
As our oil industry producers produce more at home but our
consumption stays relatively flat, our industry wants to sell
American oil into the foreign markets where it can get a higher
price. But let's be clear about this. The United States is and
will remain a net oil importer.
As we talk about whether we should export oil, we need to
keep in mind that for every barrel of oil we export we will be
importing even more.
The question before us today is whether this policy change
will be in the interest of the American people. As policy
makers our obligation is not to any particular industry nor to
any particular economic theory. Our responsibility is to decide
what policies provide the greatest good to the greatest number
As we consider these questions of whether this export ban
is still the right policy for America, I think we should think
about three variables.
First, price. Economic effects of oil and gas prices ripple
through our economy. Lower oil prices act like a tax cut for
the vast majority of Americans. No one wants to see the price
at the pump go up, not in my State of Washington or I'm sure
throughout the country.
In a published poll this week by Allstate in the National
Journal Heartland Monitor, 79 percent of Americans said the
current price drop has made a difference in their financial
situation. The same percentage of respondents said they are
using what they save at the pump daily for other necessities or
paying down debt.
I would rather have Americans get their own fiscal house in
order verses more at the pump for their transportation needs.
Second, safety. The oil is moving around our country in
ways that we never anticipated, even just five years ago. Oil
production has increased faster than the infrastructure needed
to transport it in the safest ways.
My state currently has tens of thousands of barreled oil
traveling through every major population center of our state.
And I want to be clear about this. We currently do not have the
regulations on the books to safely transport this product. I am
going to be working for further measures to make sure that we
do get those standards in place.
Third, energy security. No one consumes oil. We consume
gasoline, diesel and other products that are made from oil. If
we are sending oil abroad while some regions of our country
then have to import gasoline, diesel and home heating oil, that
were refined someplace else are we exporting our energy
security and that we've all worked so hard on?
These are some of the issues that I think we need to
In a poll conducted in 2014 Hart Research found that 69
percent of Americans are opposed to lifting the export ban.
Other polls find that the public is largely opposed. Labor
unions, including the AFL-CIO and steel workers, are opposed.
And I guarantee you if we start talking about lifting the Jones
Act as a requirement there will be many more that are opposed.
In addition, my home state independent refiner, U.S. Oil in
Tacoma, is also against lifting the ban.
So we have a variety of opinions from people, public
opinion, as well as from a variety of sources.
I will just leave us with one quote that, I think, is a
reminder about this debate from Teddy Roosevelt in his
Administration Papers on Conservation of Minerals in 1909.
Teddy Roosevelt's Administration found, ``The greatest waste of
petroleum has been in exporting crude petroleum and petroleum
products to foreign countries. The necessity for it has been
due to the sudden increase of production due to the discovery
and immediate development of large fields and only by this
means has it been possible for the producers to continue to
obtain a constant market for petroleum where ever produced.
This immediate purchase of product has meant a gain of millions
of dollars to the producers.''
I think the same observation is relevant today, and I hope
that as we're considering this we'll take into consideration
the policy impacts to all of our economy.
Again, I thank the witnesses for being here today, and
thank you, Madam Chair, for calling this hearing.
The Chairman. Thank you, Senator Cantwell.
We will now go to our panelists. I will introduce each of
you. We will start from my right here and go down the line.
We first have Mr. Carlos Pascual, who is a Fellow at the
Center on Global Energy Policy at Columbia University and the
Senior Vice President at IHS. Welcome to the Committee.
Following Mr. Pascual this morning will be Mr. Ryan Lance.
Mr. Lance, thank you for agreeing to be before the Committee.
He is the Chairman and the CEO of ConocoPhillips. Welcome.
Next to Mr. Lance is Elizabeth Rosenberg, the Senior Fellow
and Director for Energy, Economics and American Security at the
Center for a New American Security. Thank you, and welcome back
to the Committee.
And Mr. Charles Drevna, we have opportunity to see Mr.
Drevna before the Committee every now and again. He is the
President of the American Fuel and Petrochemical Manufacturers.
Good to have you back.
At the end we have Mr. Jeff Warmann, who is the CEO of
Monroe Energy. Welcome also to the Committee.
With that, Mr. Pascual, if you would like to lead off with
your five minutes. Your full testimony will be incorporated as
part of the record. We'd ask you to try to adhere to the five
minutes so we all have an opportunity to ask questions of you
Statement of Carlos Pascual, Fellow, Center on Global Energy Policy,
Columbia University, Senior Vice President, IHS
Mr. Pascual. Thank you very much, Chairman Murkowski,
Ranking Member Cantwell and members of the Committee. I
appreciate the opportunity to testify before you on the topic
of crude oil exports from the United States.
I want to address why eliminating the export ban on crude
oil will create jobs, raise incomes, stimulate economic growth,
lower gasoline prices and strengthen our national security and
American influence in the world.
I appear before you in my capacity as Senior Vice President
for IHS. Just this week IHS issued an exhaustive new study on
crude oil exports. I previously served as the Coordinator for
International Energy Affairs and Special Envoy on Energy at the
State Department. I'm associated with Columbia University as a
Fellow at the Center on Global Energy Policy.
Over the past year as Energy Envoy for the United States, I
engaged in some of the toughest challenges at the intersection
of energy and geopolitics from negotiating the implementation
of energy sanctions of Iran to addressing the energy risks to
Ukraine and Europe from Russia's violation of Ukraine's
national sovereignty. From my experience I have seen that
lifting the export ban would increase U.S. credibility and
leverage in convincing international partners to adopt policies
that mirror U.S. interests on Iran, Russia, free trade and even
The ban on crude oil exports is an anachronism that grew
out of a period of scarcity in the 1970s. The United States now
has the fastest growing oil economy in the world. Since 2008
the U.S. crude oil output increased by 81 percent. This
increase exceeds the combined production gains from the rest of
the world. The conditions that justify the crude oil export ban
in 1973 no longer apply.
This new crude production, however, does not consistently
match the processing capabilities of Gulf Coast refineries. Not
all products can be produced to a finished state for sale. In
some cases refinery capacity is reduced. To use light, tight
oil many Gulf Coast refiners require a price discount that
deters investment and oil production.
The dramatic fall in oil prices since November makes this
issue even more urgent. Over the past 30 days U.S. light crude
oil has sold in the range of $45 a barrel compared to about $55
a barrel for the global price of Brent. That $10 difference
will be crucial in determining the viability or not of many new
investments in U.S. oil and gas production. The effects will be
felt on jobs, the budgets of many states and in the supply
chains that traverse non oil producing states as well.
IHS estimated in 2014 that eliminating this price discount
through exports would incentivize nearly $750 billion more in
investment from 2016 to 2030, an increase in oil production by
1.2 million barrels a day.
The IHS report released this week, ``Unleashing the Supply
Chain,'' documents these benefits across the economy from 2016
to 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.
These benefits include sectors that cut across
transportation, steel, professional and financial services
across most of the United States.
The diesel engines, for example, driving the drilling rigs
and hydraulic fracturing equipment are largely manufactured in
the industrial heartland of Illinois, Indiana, Wisconsin and
Oil development in North Dakota relies on companies that
provide banking and financial and insurance services in
Chicago, New York, Dallas, San Francisco and Boston.
Ohio, Michigan and Pennsylvania have large capital
equipment manufacturing sectors which are supported by local
materials and component suppliers.
In Washington State the technology and manufacturing
sectors are expected to grow rapidly.
Perhaps surprisingly for some, the benefits also extend to
lower gasoline prices allowing the export of U.S. light--tight,
light oil would increase the supply of light crudes that
establish the international Brent price benchmark pushing U.S.
gasoline prices down by eight cents per gallon under our
conservative assumptions between 2016 and 2030.
The benefits for national security are extensive as well
and let me cite a few examples.
First, maintaining the export ban increasingly undercuts
U.S. credibility and 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 in the GATT and WTO against China exactly because of
these kinds of restrictions on natural resources. It would be
against our interest to see Russia use such precedence today to
curtail gas supplies to Europe.
Second, the United States and all energy consumers benefit
most when energy supply is diversified. As the U.S. has
increased natural gas production by 35 percent since 2009, we
have reduced our imports allowing about 75 billion cubic meters
of gas once intended for the United States to be redirected
globally, especially to Europe. Those changes created
competition with Russia's Gazprom to lower natural gas prices
and create an internal gas market in Europe that has supplied
gas to Ukraine through those flows. If we eliminate the crude
oil export ban, the United States would similarly signal that
it is committed to a globally competitive oil market that
reduces and neutralizes regional dominance.
Third, there are times when energy must be used as an
instrument in foreign policy. In 2012 the United States and
Europe imposed sanctions on Iran's oil exports, and we asked
China, India, Turkey, Japan, Korea and other major importers to
act with us. As the person coordinating these negotiations I
can assure the Committee, as a lead U.S. negotiator, that the
U.S. negotiating position would have been far stronger if we
were not protecting U.S. oil export restrictions when we are
asking others to risk higher oil prices for international
Finally, resource nationalism will be front and center.
The Chairman. Mr. Pascual, we're going to have to ask you
to tie it up, please. Thank you.
Mr. Pascual. Okay. Will be front and center in debate over
climate change where again, one of the critical issues will be
what kind of sacrifices our country is willing to make to
reduce carbon emissions. We will have much greater credibility
if we are able to say that we do not have our own restrictions.
With free trade, the U.S. benefits from higher prices for
light tight oil, stronger domestic production incentives and
the stream of economic and national security benefits are
outlined in the testimony. Still Gulf Coast refiners can import
and refine heavier crudes with stronger commercial results.
I appreciate, Madam Chairman, your leadership and that of
this Committee to assess this issue. The benefits that come
with ending the crude oil export ban justify your efforts.
Thank you for this opportunity to testify before your
Committee, and I welcome the opportunity to respond to your
[The prepared statement of Mr. Pascual follows:]
[GRAPHIC] [TIFF OMITTED]
The Chairman. Thank you, Mr. Pascual. Mr. Lance.
Statement of Ryan Lance, Chairman and CEO, ConocoPhillips
Mr. Lance. Thank you, Madam Chairman Murkowski, Ranking
Member Cantwell and Committee members. I appreciate the
opportunity to give you my perspectives on the need for oil
exports. These perspectives are based on 35 years of experience
in the industry.
I started working in the drilling rigs in Montana. My
family owned a wheat farm there. I put myself through college
and obtained a petroleum engineering degree.
When I graduated I went to work on Alaska's North Slope,
for 14 years. I'd like to think I made sour dough status, but
it depends on who you ask. Then from there to California and
since then throughout the U.S. and around the world.
I've seen industry booms and busts. I've seen projects that
worked and ones that didn't, but I've never seen anything quite
like this energy renaissance we're going through today.
Today our country has access to a vast oil and gas resource
base. Production and reserves are rising from unconventional
sources like shale, and they're exceeding our expectations.
Consumers are saving at the utility meter and also at the
Oil and gas now supports 9.8 million U.S. jobs, and 40
percent of the U.S. GDP growth in recent years came from our
After decades of declining production our national fortunes
are truly changing. This energy renaissance has benefitted our
country both domestically and geopolitically. We really have
shifted the oil market's center of gravity away from unstable
sources. Even as President Obama said, ``America is number one
in oil and gas.''
We have a bright energy future. That's a new concept for
us. We did it through American-made technology and ingenuity,
but there is a problem. We're producing more oil than our
refineries can process economically.
With any other energy commodity we just export some to the
global markets. We do that with refined products today
including gasoline. In fact we had record exports of U.S.
refined products last year. But crude oil is the only energy
product banned for export and that needs to change.
Most production from unconventional sources is tight oil.
It doesn't match our refineries that were built for heavy oil.
To take more light oil the refineries have to run inefficiently
or at lower rates.
They could install new condensate splitters to process more
light oil, but that could cost, on average, $400 million per
refinery. Getting air permits, we think, is a problem.
Meanwhile, refineries already face big investments to meet
tougher gasoline standards. So they probably can't expand as
much as is needed. Instead to protect their economics refiners
generally pay less for the oil.
The world oil futures today sells around $53 a barrel, with
American oil selling for $43. That's a $9 to $10 discount, and
that's been typically running $5 to $10. This is having an
impact on American producers, particularly in this low price
environment we find ourselves today.
It disadvantages us against our competitor overseas, and
every dollar discount is a dollar less invested in American
production. Also, some of these light oil projects are
uneconomic at prices below $70 a barrel and most of them are
uneconomic at $40 a barrel.
But we expect our light oil production to continue growing.
And by 2020 our output capacity could be two million barrels a
day over the capacity to refine it. Either that or our projects
will be uneconomic due to low prices.
So we need oil exports. Exports could incentivize three
million barrels a day of new production, on average 400,000 to
800,000 new jobs per year. We'd gain $86 to $170 billion in
annual GDP. The trade balance would improve by $67 million
annually, and as Carlos has said government would gain $1.3
trillion of additional royalty and tax revenue through 2030.
And consumers will gain lower gasoline prices.
Our exports would expand world oil supplies. That would
drive gasoline prices down and the savings would be at least 7
to 12 cents per gallon. But even with exports U.S. refiners
will still have all the light oil they need. They will still
have an advantage over our competitors elsewhere, and that's
due to shipping costs.
So in closing, nature has blessed America with a huge new
resource. Let's make the most of it. We need crude oil exports.
Thank you, and I'll look forward to your questions.
[The prepared statement of Mr. Lance follows:]
[GRAPHIC] [TIFF OMITTED]
The Chairman. Thank you, Mr. Lance. We appreciate you being
here. Ms. Rosenberg, welcome.
Statement of Elizabeth Rosenberg, Senior Fellow and Director, Energy,
Economics and Security Program, Center for a New American Security
Ms. Rosenberg. Thank you. Chair Murkowski, Ranking Member
Cantwell and members of the Committee, thank you for the
opportunity to testify today on the issue of U.S. crude oil
Recent dramatic increases in U.S. energy production have
reshaped our oil industry in some of the ways that my fellow
panelists have just described, our industrial output and many
of our global trading relationships. This oil boom has improved
our GDP and our balance of trade, and it has meaningfully
advanced our energy and national security. These benefits,
however, will be clipped if policy makers do not change the
1970s era crude export policies that prevent U.S. oil from
moving to markets overseas.
In today's abundant oil market supply conditions with a
problematic mismatch between the increasing new volumes of
domestic light oil and a refining industry geared towards
heavier oil. Export restrictions don't make sense. They prevent
U.S. producers from accessing international buyers able to
process more light crude and who will pay international
benchmark prices. This depresses domestic prices and distorts
the market and in turn, this constraints the growth potential
for domestic producers and the domestic economy more broadly.
Only a subset of American refiners benefit from the
depressed domestic oil prices, and these refiners do not pass
on cost savings to consumers as gasoline prices are largely
determined by global Brent benchmarks. Removing the oil exports
ban will alleviate market distortions and it will improve
productivity, efficiency and economic growth.
One of the key economic benefits associated with lifting
the ban is the stimulus this will provide for energy production
growth which a variety of studies suggest will decrease
domestic refined product prices and expand the GDP,
strengthening our economy. The engine of our national security
strengthens the United States to lead on international,
economic, strategic and defense matters.
In addition to benefitting U.S. interests at home, lifting
the ban will support our foreign partners and our interests
abroad. More U.S. crude shipped overseas will diversify the
global supply pool and allow our trading counterparts abroad to
achieve a more optimized mix of imported energy commodities.
This will enhance their market efficiencies, lower costs for
consumers and enhance economic growth. These factors make the
United States a more important trading partner for economies
abroad which will in turn expand U.S. soft power leverage in
the conduct of our foreign affairs.
Additionally, lifting the export restrictions will set the
right anti-protectionist tone on trade. At a dynamic time in
global energy markets and at a critical point in trade
negotiations with our Atlantic and Pacific partners, the United
States should affirm a commitment to free trade in energy and
the expectation that trading partners will similarly adopt
Additionally, open energy trade is in line with our WTO
commitments and will be indispensible in winning potential
future natural resource trading disputes.
Another important benefit of lifting the oil export ban is
the contribution it will make to U.S. and international energy
security. When more of the global oil supply pool comes from
stable producers, the overall market is more stable. U.S. crude
will be shipped via fewer maritime hot spots or choke points
such as the Straits of Malacca and Hormuz and the South and
East China Seas.
Particularly in times of market crisis the unrestricted
ability of U.S. producers to export will make them more
responsive to market signals and better able to quickly adapt.
This contributes to market conditions that can quickly resolve
and possibly even deter actions by foreign producers to use oil
as a strategic weapon. Lifting the export ban will also give
the United States more flexibility to sustain and expand energy
sanctions in the future.
Allies of the United States, many of whom reluctantly
participated in energy sanctions in the past, may prove
unwilling to participate in further sanctions unless the United
States makes a serious proactive effort to stimulate
alternative oil supplies which will help to keep the market
balanced and minimize price spikes. If the United States cannot
convince allies to join on energy sanctions against adversaries
in the future, the threat of new sanctions will not be credible
and their effect will not be forceful.
Washington has a unique window of opportunity to harvest
dividends from abundant domestic energy. Policy makers should
lift the oil export ban to promote economic growth and allow
the United States to reap the geopolitical advantages of having
a larger and more flexible role in the global oil market.
Thank you and I look forward to your questions.
[The prepared statement of Ms. Rosenberg follows:]
[GRAPHIC] [TIFF OMITTED]
The Chairman. Thank you. Mr. Drevna, welcome.
Statement of Charles T. Drevna, President, American Fuel and
Mr. Drevna. Madam Chair, Ranking Member Cantwell and
members of the Committee, thank you for the opportunity for us
to present AFPM's views on the crude export ban.
At the outset I'd like to underscore a couple of items.
First, AFPM does not necessarily oppose the lifting of the
crude export ban. We do represent more than 95 percent of the
refining capacity here in the country; however, we do believe
the free markets allow companies to compete and provide the
highest quality goods at the lowest price.
So it's important to frame this discussion in two ways.
First, please, Congress should not narrowly limit the scope
of this debate to one issue.
We've been lurching from energy crisis to energy crisis for
as long as most of us can probably remember. Now we have an
opportunity to change crisis into opportunity. And as a result
there are a number of other free market, anti-free market,
policies that if left unaddressed, when, if and when, the U.S.
lifts the ban on exports, will make U.S. refineries less
competitive than our global competitors.
For instance, if we lift the oil export ban without
addressing that famous Jones Act it will become more cost
effective for a barrel of crude oil to be shipped from Houston
to Europe, refined and shipped back to the U.S. East Coast as
gasoline than it would be just to ship that barrel of crude
from Houston to Philadelphia. This makes no sense and I would
love to be at the next town hall where elected officials try to
explain that we're selling oil to our competitors cheaper than
we sell it to ourselves.
Surely if we're discussing the shedding of the vestiges of
the 1970s energy policy we can discuss the shedding of the
vestiges of a 1920 shipping policy.
Second, this debate should be grounded in fact. To that
point I'd like to describe a survey we released yesterday
detailing the dynamic nature of the refining industry and the
investments we're making to absorb more light, sweet crude.
There have been several studies of the benefits of allowing
crude exports, you mentioned a lot of them, that perpetuate a
tremendous understanding about U.S. refiner's ability to keep
up with increasingly amounts of very light crude oil is being
These studies focused on one part, the supply chain, of the
supply chain crude production. And seemed to assume the rest of
the chain distribution storage and refining has no dynamic
response. We took another route.
We simply asked our members what they are doing and what
their plans are in the near term to deal with this new light
crude oil. In other words, this survey is not based on modeling
or hypothetical scenarios, but on actual refiner's plans.
Bottom line. The refiners plan to increase their use of
their light, sweet crude by over 730,000 barrels a day from
2014 through '16. This is more than EIA's projected increase
for that time frame.
The survey also pointed out the importance of being able to
access the new production. For the refiners getting the crude
has been much more of a bigger issue than refining it. If
logistics were not an issue, respondents could process 1.5
billion barrels a day more crude in 2016 than they did in 2014
without any further investments than they already have in the
From 2013 through '16 the respondents are investing over $5
billion to use more light, sweet crude. Now to put this is some
sort of context. We, the refining sector, do it by $10 billion
of capital investment each year. So in one year you can see
that, $10 billion. In $5 billion over four years is perhaps
about ten percent of their capital program.
The survey asked about the logistic activities to get new
production to refineries. Most crude delivery was actually from
the Bakken region where, in North Dakota, not surprising since
this was a new region never connected to the refining system.
But old regions in the Permian and the Eagle Ford areas in
Texas also had significant crude delivery activities.
While these old regions had some delivery infrastructure
problems, or infrastructure in place I should say, the
reinvigorated production required some more infrastructure to
get it to refiners. These results underscore, once again, that
policies facilitating infrastructure development are vitally
Now let me be again clear. We do not--we support free
market, and we do not oppose the export, the lifting of the
export ban. But let's not be fooled into thinking that the
restriction on crude exports is the only barrier to a free
Refiners currently struggle with a number of barriers
including the Jones Act and that infamous RFS that inhibit an
energy policy that is based on truly, on a free market. The
debate can't happen in silos. We must take a holistic approach
because you can't change one policy without understanding the
other, that it will impact other policies. We must consider the
Thank you very much. And I look forward to your questions.
[The prepared statement of Mr. Drevna follows:]
[GRAPHIC] [TIFF OMITTED]
The Chairman. Thank you, Mr. Drevna. And let's finally hear
from Mr. Warmann, welcome.
Statement of Jeffrey Warmann, Chief Executive Officer, Monroe Energy
Mr. Warmann. Thank you, Chairman Murkowski, Ranking Member
Cantwell and the members of the Committee. Thank you for
inviting me to testify.
My name is Jeff Warmann. I'm the CEO and President of
Monroe Energy. We own and operate a refinery in Trainer,
Pennsylvania. I have 30 years of experience in the petroleum
industry. I'm here to testify on behalf of Monroe Energy and
the Crude Coalition.
Current restrictions on exports of U.S. crude oil provide
real economic benefit to U.S. consumers, businesses and protect
our national energy's independence and security. The repeal of
this law would do great harm and lasting damage to these vital
I want to make five points this morning, very quickly.
First, the export law benefits U.S. consumers and
businesses. The impact of lower fuel costs to U.S. household
income and consumer confidence can't be understated. It's
dramatic. It's measureable. It's broad based and it's real.
The new Allstate national journal poll has confirmed that
lower gasoline prices have made a huge difference in American
families' lives allowing them to spend more of their savings
and money in ways that ripple throughout our economy. An
average family saves over a thousand dollars from lower fuel
prices right now. Do we really want consumers to lose this
Lower fuel prices also reduce the cost of doing business,
especially in transportation, petrochemical, agricultural and
Second, there is no free trade in the international crude
Let me be crystal clear about this point. I strongly
support free trade, but the global crude market is neither open
nor is it free.
There is no inconsistency for free trade and against crude
exports. Lifting our export restrictions would allow the
transportation of U.S. crude outside of competitive American
market into a less competitive global one that's controlled by
OPEC. OPEC is a cartel in every sense of the word and will
continue to manipulate the world's oil market to its desires.
Third, removing the export restrictions would raise crude
oil prices and cost American jobs.
The shale oil revolution breathes new life into close
refineries. We created thousands of refinery jobs for workers
as well as supporting tens of thousands of additional jobs
throughout the nation. Refining jobs have a huge multiplier
A study commissioned by the Commonwealth of Pennsylvania
found that for each local refinery job it supports 61 jobs
nationwide. That means one refinery employing a thousand
workers supports 61,000 jobs nationwide. Repealing this law
would benefit foreign refinery workers at the expense of all
these thousands of American jobs. Our refineries would lie
Fourth, the U.S. refineries have plenty of capacity to
process light crude, and I defer to the AFPM studies as well as
the Baker O'Brien studies. Every one of the opposing studies,
like my colleague here Charles Drevna has said, look at it in a
very static mood, not a dynamic mood--mode and we can
accommodate the light, tight oil produced even under the most
optimistic scenarios by the EIA.
Fifth, the purpose the export law is as important today as
when it was enacted. Despite the production renaissance of
recent years our country still imports 35 percent of our total
crude oil needs from OPEC countries, over three million barrels
a day and three times as much oil from Saudi Arabia as we did
at the time that the export law was put in place.
Exporting U.S. crude means importing more oil from overseas
and subjecting ourselves to the whims and the uncertainty of
OPEC regimes. We are on the cusp of developing true energy
independence where we can produce, refine and domestic oil
virtually filling every petroleum need here at home. Allowing
exports of American crude sabotages this goal which has been an
important policy objective for over a generation.
The issues surrounding exports of American crude oil are
very complex. My company and my fellow crude coalition members
strongly believe that allowing exports of crude will harm
American households and businesses, the U.S. refining sectors
and our nation's energy security and independence. Prudence
dictates that Congress refrain from making such drastic change
to this long standing pillar of our energy policy and our
Thank you very much, and I look forward to answering any
questions you may have.
[The prepared statement of Mr. Warmann follows:]
[GRAPHIC] [TIFF OMITTED]
The Chairman. Thank you, Mr. Warmann. I appreciate the
testimony from each of you this morning. Now let's begin our
I want to start with what Americans are talking about when
they're thinking about whether or not we should change a policy
to allow for exports. I think you can tell from my opening
statement and from comments that I've made over the past year
that I think it is time to look at this policy and to repeal it
for a lot of, what I consider to be, substantive policy
reasons. But at the end of the day, the people I work for
really don't give a hoot about what the policy is. What they
want to know is, is it going to cost me more money when I'm
filling up, whether it's filling up my car or my snow machine
or my boat or home heating fuel?
So the question that I would ask of you, Mr. Pascual and
Ms. Rosenberg, you are the folks that are looking at these
studies that are out there and the analysis and the critique as
to what lifting the export ban would actually reveal in terms
of pricing. Can you speak directly to that? And either one of
you proceed. Mr. Pascual.
Mr. Pascual. Thank you, Madam Chairman. I think you're
absolutely right. The critical focus on the part of Americans,
and Senator Cantwell has indicated this as well, is that the
critical issue is price. Every single study that has been done
by a major institution has gotten to the same conclusion,
lifting the export ban will reduce the price of gasoline in the
The reason for this is that the price of gasoline is tied
to the Brent crude international benchmark price, not to WTI
which is the benchmark price in the United States. If we are
able to export light, tight oil from the United States, we add
to the global supplies that contribute to that Brent crude
benchmark. As a result of that we help drive down the
international oil price that is fundamentally tied to the price
of gasoline in the United States and around the world.
If you look at the trends over time, if you look at it
across the world, the same issue is true in every single
market. The price of gasoline is linked and tied when there are
open markets to the price of Brent crude.
So the ability to export actually drives up international
supply for the crude oil that's necessary. It drives down the
price of gasoline. And in addition to that it has a number of
other benefits that we've laid out on this panel of increasing
jobs, of increasing revenues to states, of increasing Gross
Domestic Product and the product of individual states as well.
The Chairman. Thank you. Ms. Rosenberg, do you care to add
Ms. Rosenberg. I'd agree with everything that Carlos just
said. I'll just add that these studies that we're talking
about, they're not only independent studies, some of them are
industry sponsored, but also studies by the EIA, as you
mentioned originally in your opening statement, have also made
this point that the prices for gasoline for our consumers here
in the United States are largely tied to the international
benchmark price, to the Brent price.
The Chairman. Let me ask a question to reinforce a point,
and I think both of you spoke to it. The suggestion has been
made that the reason we would even consider lifting this export
ban is because this is something that the industry wants.
So I'm not going to ask Mr. Lance this because, as the CEO
of ConocoPhillips, people would say, well, of course
ConocoPhillips would like to see the export ban lifted.
But what I think is important to understand, a little more
clearly, is why it is important to other sectors. I think, Mr.
Pascual, you mentioned it in the manufacturing sector, the
banking sector, the financial sector, the benefits that we see
when we allow for increased production.
Ms. Rosenberg, you were focusing more on the benefits from
a national security perspective.
We have seen domestic production rising for years. We're
backing out imports there which, ultimately, have the same
effect, pushing more oil out into the global market, to the
extent that lifting the ban would boost production even further
then. Have we seen national security benefits already because
of what we have put out on that global market?
Ms. Rosenberg. I think we have, and there are a couple of
key ones that we should bear in mind.
The first is the economic benefit that this energy, larger
energy production, has given to our country. And when our
economy is stronger when we are less indebted which shows up in
our balance of trade.
When we capture more of the rents of our oil consumption
here at home instead of sending those revenues to producers
abroad that emboldens the United States. It gives it a stronger
position to lead internationally. It makes us a stronger, more
important trading partner and a strategic leader on
international security issues.
We've mentioned the significance for the United States in
being able to move forward with tough energy sanctions on Iran,
in particular, and also when thinking about Russia as well with
our European counterparts coming from a position of strength as
an energy producer and a strong economic base gives the United
States that ability to lead forcefully on such international
The Chairman. I'd like to ask you more on the sanctions
piece of it and particularly with Russia, but I'm going to turn
to my colleague and Ranking Member.
Senator Cantwell. Thank you, Madam Chair. I love this
discussion about price since you and I are probably from the
states with some of the highest gas prices or consistently
highest gas prices. So, at least from my perspective, I'm
always interested in learning how we're going to lower gas
I love the confidence, Mr. Pascual, with which you predict
that lifting this export ban will lower gas prices. I've spent
much of my career trying to make sure that we protect consumers
from high prices and enforce federal laws on price
For us on the West Coast, the question is how many trains a
day are we going to have through our state, or is the oil just
going to bypass us all together? How do we get gas lower
prices? And that juxtaposed to the rest of the nation
constantly eludes us.
So I want to turn to the safety question for a second and
Mr. Drevna or Mr. Warmann, about this issue of volatility. In
fact, I even saw on one site somebody suggested we might be
willing to do something about the volatility of the Bakken
crude if we could just export it. Do we need to be shipping
this much natural gas in the product and isn't there something
that needs to be done about stabilizing that?
Mr. Drevna. Well, let me take it here first. Well, first of
all we are really, as the industry, looking forward to the
final rule coming out from DOT. My industry has spent over $4
billion investing in new tank cars, and we understand that's
not going to be enough.
We understand that the new cars are going to come out, I
mean, the new specs are going to come out on cars whether they
are existing or new. We're going to have to refurbish. We're
going to have to buy new.
That being said, the cars on the tracks today, they are
well, well, within the limits of the volatility of the crude.
The problem, Senator, is not the cargo. The cargo can be
There's very little difference between 13.9 psi and 13.7
psi when you're looking at shipping crude, and that's the
difference in the Bakken verses some others. The problem is
that have we got so cavalier in this nation that it's okay to
have two to three derailments a day no matter what the
So when we're looking at the PHMSA and the DOT proposal
it's fully, in our opinion, it's fully focused on the tank
cars. And we, as the industry, are going to be right in line
supporting and getting those cars up to specification.
But to cavalierly say we'll accept two to three derailments
because the railroads have done----
Senator Cantwell. Just to be clear. I'm not----
Mr. Drevna. I know, I know.
Senator Cantwell. I'm not going to accept that, and I'm
calling for higher standards. I'd like for Mr. Warmann to also
weigh in on this because I'm pretty sure your refiners don't
really want all that natural gas in the product.
So why are we shipping this? I see headlines about bomb
trains, and I'm not being cavalier about it. I'm calling for a
higher standard. In fact, I want them to implement a rule at
PHMSA to limit crude oil volatility in rail cars. Mr. Warmann.
Mr. Warmann. Yes, Senator, you're correct. The refineries
would like to have lower rvp crude oil. However transporting
higher rvp materials we do every day.
It can be done safely. I think Mr. Drevna in a recent
statement said that there was 1,861 derailments, of which six
were crude in 2014. So it's a more complex and holistic
solution that we need to look at.
The industry is looking at reducing the rvp doing some more
stabilization of the product. We're looking at reinforced rail
cars. We don't want the rail. We want crude in our refineries.
Senator Cantwell. Why does Eagle Ford come out more
volatile and we make them reduce it, and then yet Bakken comes
out and we don't make them reduce it? So now every major
metropolitan area across the country has to worry about this.
Mr. Warmann. There's markets and there's places to put the
lighter ends in the Gulf Coast rather than in the Bakken.
That's one of the problems is the alternative is to flare it
which there are flaring regulations that prevent you from
flaring certain quantities, and that that forces us to try to
deal with a commodity that we're trying to logistically move
One of the things that I would take a look at though as
we're looking at this regulation is the condition and the
inspection of the railroads. The industry is moving to much
more sophisticated and robust rail cars, but there's been
nothing put onto the railroads for increased inspections,
increased inspection of equipment, the condition of their
tracks or anything else.
So I think it's a more holistic view that we have to take
of this whole transportation situation.
Senator Cantwell. My time has expired, Madam Chair. But
just to make a point, I believe in the holistic approach and
the Reid vapor pressure should be examined as well and PHMSA
should act on it. So thank you.
The Chairman. Senator Cassidy.
Senator Cassidy. Mr. Drevna, I enjoyed your testimony, but
let's explore it a little bit.
Now if there is currently capacity to take all this light,
sweet or all this crude that's domestically being produced,
theoretically there would be no discount relative to Brent. The
fact that there is discount, obviously, could be different
factors. If we had the Keystone XL pipeline taking it out of
the Bakken, obviously we would save lives and lower the cost.
But if I look at Louisiana sweet, and we're right there, my
Gosh, in refinery heaven. I think I've got it right now. It's
almost too much to believe, an $11 discount relative to Brent.
So if there was current capacity, why would there be any
discount relative to Brent?
Mr. Drevna. Well, you know, Senator Cassidy, you're right.
But let's not take a snap shot in time as we sometimes do and
say, okay, now we've got to make our decisions right today on
You know, over the past years, months, you're seeing that
Brent WTI discount shrink. As a matter of fact well not too
long ago Brent was selling a little bit less than WTI in
certain areas. So what we're saying is that all we want you to
do is make sure you understand.
Senator Cassidy. No, I'm sorry, let me just finish though.
Mr. Drevna. Yeah.
Senator Cassidy. Let's explore this a little bit more.
Mr. Drevna. Yeah.
Senator Cassidy. Your survey on your members----
Mr. Drevna. Right.
Senator Cassidy. And frankly it is in the interest of your
members to reply that they have increased capacity. They know
this debate is taking place, and they'd like to indicate that
they can absorb the capacity and that shipping overseas is not
Mr. Drevna. Correct.
Senator Cassidy. So when you surveyed them did you get some
sort of documentation of the amount of money that they are
currently investing to expand capacity? Did they send you a
list of the bonds that they put out, etcetera?
Mr. Drevna. We--as my testimony says, we--they are putting,
you know, $5 billion into----
Senator Cassidy. I accept that that is what they said. I've
learned in this job to say what I've been told, not what I
Mr. Drevna. Well----
Senator Cassidy. The reason I say that is because, again,
we have this discount. Bakken you could explain because we
can't get the Keystone passed. But when I look at the refinery
capacity in the Midwest on oil, for example, which I think is
the only place that can take that easily right now through
pipeline, there's still a discount there.
Mr. Drevna. Well, Senator, what's happened though is you
had that bottleneck over the past years right there at Cushing.
We've got the southern leg though. You're seeing day by day
that bottleneck is----
Senator Cassidy. That's why I wanted to look at Louisiana
light and Louisiana light in next to all those refineries still
is selling at a discount relative to Brent.
So that seems that that's not so much infrastructure
because we've got pipelines in Louisiana. I'll stop there.
Mr. Drevna. Well, first of all I want to go back. You
mentioned that the refiners who responded to the survey don't
want the crude export. That's not correct, sir. The AFPM, all
we're saying is we don't oppose it, understand all the
Senator Cassidy. I only have a little bit of time, I'm
Ms. Rosenberg, I enjoyed your testimony. I saw Larry
Summers and I'm saying this off the top of my head, but Larry
Summers gave a talk where I think he said that we would
increase GDP by one percent. So we have this anemic 2 point--
your CBO is estimating that our GDP is going to grow by two
percent over the next five or six years. It's awful. Under
Clinton and Reagan it grew by three and a half and under this
it's been two percent. But we can increase it by one percent
just by allowing exports. Now I know there's people in
Louisiana that travel to North Dakota to work in the Bakken
because there's such a demand for labor, folks make good money
by traveling there.
Any thoughts upon Summers' estimate of one percent growth
in GDP by allowing exports, what that would mean in terms of
jobs for working families because right now that's what we're
struggling to create?
Ms. Rosenberg. I certainly think of his remarks as
authoritative on such issues. There are other people who've
made other particular estimates for the amount of increase that
allowing crude exports would give to our GDP. There's a range
But broadly there's a belief amongst independent analysts
and many stakeholders in this industry that, in fact, there
would be quite a significant GDP bump associated with lifting
the ban and therefore stimulating growth in the industry.
Senator Cassidy. I'm out of time. I'll just say that,
again, as far as principle challenge right now is creating jobs
for blue collar workers because no industry better for creating
blue collar jobs than that for the exploration and production
of fossil fuels and is, by definition, domestic. So it cannot
be shipped overseas although the product can.
I would just say anything that could increase GDP by one
percent is certainly something we should explore, because
there's some family out there whose livelihood depends upon us
making a wise decision and the wiser the better in terms of
domestic job growth.
Madam Chair, I yield back.
The Chairman. Senator Cassidy, thank you. Senator Manchin.
Senator Manchin. Thank you, Madam Chairman. Thank you for
this hearing, and thank all of you for being here.
Let me just say for those of us who can remember the 1974
embargo, we had to wait in line and then we had to have certain
numbers on our license plates when we could go get gas,
alternate. We remember those days. We don't want those to
And I think some decisions were made back because of that
is where we are today.
With that being said, in West Virginia, it would be hard
for me to explain to the people to grasp the whole world
market, if you will. But if we start unfettered export it would
reduce the price of their gas. That's a hard one.
And if we did do that and the prices didn't go down or
would go up, we'd all be chastised for it.
On the other hand, if it was tied to our foreign relations
policy and I mean that, tied to the foreign relations policy
and there would be a trigger on when we could export based on
production, U.S. production. And that trigger would be based on
do we have ample production if production decreased? And if it
does--somehow there's got to be a way that I can go home and
explain to West Virginia, this is good for our country.
We are defending our country. We are making our country
more solid. We're not buying and we're not being drug into wars
we shouldn't be drug into. We're helping prop up our native
neighbors by having access to our abundance right now.
I just think there's a win/win here. We just got to find
it, but there's a win/win for all of us.
We can protect the market. We can make it stronger
overseas. We can protect our NATO allies, and it looks like
we're all going in two different directions, either we unfetter
Mr. Lance, you might want to comment on this even though
you would be expected to be a self interest from Conoco, you're
still an American that cares about or the family cares about
what we do.
Mr. Lance. Yeah, I do, Senator. Thank you.
I think it is an important--the energy in the United States
is at the juxtaposition of many issues, climate, energy
security, and national security as well. So I take your point.
I think I'm here to assure the group that from the ENP side
from the independent producer side, this revolution is real.
This revolution is long lasting. It's going to create a
dramatic surplus in light, sweet crude that the refiners cannot
They are making investments. We will be sending crude to
the refiners that have/make those investments to go do that,
but we're going to greatly exceed their capacity to take this
So we have to ship it overseas. We have to get it into the
open market. When we do that, as others have testified, the
global supply will increase. We'll reduce the volatility. We'll
decrease the amount of gas price.
We'll be seeing this and there's fact points today that's
going on today. The consumers are not winning from the fact
that we have world oil prices exceeding U.S. prices.
Senator Manchin. As you all have observed sometimes we're
not always on the same page here as far as elected officials.
We're trying to get on the same page, a page that we can all
work off of.
Mr. Warmann, could you all accept a trigger? Basically if
production was at a certain level, we had the excess and
they're producing and then the refiners. But that would give us
the green light to go ahead and export.
Mr. Warmann. Senator, I would definitely say, I would focus
more on what we're importing. We're still importing, you know,
six, seven million barrels a day, two and a half million
barrels of light crude a day. Basically, if you export the
light crude we're just going to bring in more light crude.
And two, you're offsetting points, it's a matter of
transportation. I can tell you specifically in Trainer,
Pennsylvania, you have a benchmark of WTI crude in Cushing and
it takes me $3 by pipeline and $5.50 by ship to get it to
Trainer. So that's WTI plus $8.50.
Brent is in the North Sea. It takes $2 to get it to me. So
if you take those there should be a $6.50 discount to WTI
verses Brent just on a transportation basis.
And of course, that floats with transportation variables as
well as the availability barriers.
Senator Manchin. Can anybody on the other side here explain
why we're still importing so much and how we would go home and
explain to well, now we have to export? If we export why would
we be importing if we can export now? Mr. Pascual.
Mr. Pascual. Senator, thank you. I'd be glad to. One of the
advantages that we have with our refinery system, and it is an
advanced and sophisticated refinery system, is that it was
focused and tooled on processing heavy crude oil. As a result
of the efforts that we have made in the refinement of that
system, we're able to get the maximum number of products out of
heavy crude oil and use them within the United States.
The light, tight oil that is being produced now in the
United States does not match the refinery configurations, and
as a result of that you don't get the maximum level of
And I think Americans can understand that if you have one
kind of product that has a higher international price, you sell
Senator Manchin. Are we bringing light in or bringing heavy
Mr. Pascual. We're bringing heavy in.
Senator Manchin. Well I thought Venezuela was light?
Mr. Pascual. No, Venezuela is heavy crude. And----
Senator Manchin. So we're bringing both in, a little.
Mr. Pascual. Right. We're bringing in principally heavy.
And one of the things that's happened as a result of the
production of light, tight oil in the United States is that
we've radically reduced our imports of light, tight oil from
both the Middle East and from Africa. The role that OPEC plays
in exports to the United States is radically collapsed. Our
imports have gone from 60 percent of our consumption to 27
percent of our consumption in just the last five years.
That is a massive national security benefit, and the way to
keep it is to maximize the incentive to producers to maintain
and sustain our productive capacity.
And the best way to do that, I think we've heard from
everybody on the panel, is to give American producers the
widest market to be able to export their product.
That's what maximizes competition. That's what brings the
best prices back to the United States. That's what generates
jobs as a result of the supply chain. That's what has the
massive impact that we've documented in our study of 400,000
new jobs, economy wide, an increase of $86 billion annually in
Senator Manchin. Madam Chair, I'm sorry, but if we could
have the Committee on both the Ranking side and the Majority
side to work on getting us the facts, all members, the facts of
what we're importing, the amount that we're importing, the type
we would be exporting and if there's a trigger mechanism on
Because if there's a trigger mechanism then the domestic
retailers, the domestic customer, you and I, can still benefit
from a lower price because of the heavy production.
If the production drops and we're still exporting, we're
going to pay a heavier price for that. Supply and demand.
So if we could get that from our Committee.
The Chairman. I appreciate the comments from the Senator
from West Virginia. I think it should be pretty easy to get a
Senator Manchin. One is shaking their head no and the other
is saying yes.
The Chairman. Well, no, in terms of collecting the
information that you're requesting in terms of what we import,
where we import, what type whether it's heavy or light? We can
make sure that we have that at our disposal. That's why we have
the benefit of a hearing like this is to educate one another.
Let's go to Senator Daines.
Senator Daines. Thank you, Madam Chair, and I'm glad that
we're having this thoughtful conversation. I look at this in
the backdrop of we're addressing a policy that's 40 years old.
I was a little kid then. I'm not sure Cory Gardner was even
around during the oil crisis of '73. And I remember the 55 mile
an hour speed limit. [Laughter.]
I set you up there, Cory.
I remember the 55 mile an hour speed limit in Montana, you
know, big, wide, open roads there and having to set that thing
at double nickels and then followed by the oil export ban of
For me, I think, the thoughtful conversation needs to
revolve around what's going to happen 30 to 40 years from now
based on policy decisions that we make today. We've moved
clearly from a scarcity type of environment to now one of
abundance. And I think that's why I'm glad to have this
conversation today as we thoughtfully consider this policy.
I too, am concerned about what's going on on the national
security on the challenge we face overseas. Looking around the
world from Russia to Iran, many of the world's energy resources
are in unstable regions. They're in oppressive dictatorships. I
look at the top ten oil producers in the world, I should say,
oil and liquids producers. It is great news that the U.S. is
now number one surpassing Russia and Saudi Arabia. But you look
at the list of the top ten, Russia, China, Iran, Iraq, then
Saudi Arabia, UAE, Kuwait. These are in unstable parts of the
world. Some of these are run by dictators.
I do believe the world should rely more on American-made
energy instead of Russia and the Middle East.
Ms. Rosenberg, a question for you. How will increasing
flexibility for crude oil exports strengthen our position on
the Iran sanctions?
Ms. Rosenberg. Well, thanks for the question.
So, right now we're actually at a critical moment in the
negotiations, the P5+1 negotiations, with Iran and I believe
some of your colleagues have heard testimony from
Administration witnesses this morning in the Senate Foreign
Relations Committee about the negotiations and the Iran
Being able to make sure that the oil market is well
supplied gives the United States the leverage to be able to
impose sanctions on Iran, energy sanctions on Iran, with our
allies which remove their oil from the market. The energy
sanctions that the United States and our European allies
imposed in 2012, that Carlos mentioned, took about a million
and a half barrels of Iranian oil off the market.
The reason why that did not spike prices and politically
and economically, the United States, our consumers and
consumers globally and in our partner ally country nations were
able to manage that was because the United States and Saudi
Arabia as well were able to make a huge contribution in
additional supply in order to keep the market relatively
balanced at a period when there was really, historically high,
and unprecedented levels of supply disruption in the market.
If there is a political instance where there is a need to
impose further sanctions on Iran then being able to make a
credible threat that the United States and its allies can
impose further sanctions then the United States will need to be
in a position of stoking or stimulating supply to the market.
Lifting the crude export ban will help to do that.
Senator Daines. Thank you. And, you know, it is a gift
we're leaving for our children, grandchildren right now, I
think, is this ability for the U.S. to move to the top of that
producing list for oil and liquids here in the world. This, I
think, truly will contribute not only to our own national
security but to the stability and security of the entire world.
And it wasn't because of Washington, DC policies. It's the
innovation. It's the power of the free markets that now we are
in this position and why we're seeing gas at a lower level,
saving the American average household $750 a year which I know
a lot of Montanans are thankful for.
Mr. Lance, I'm happy to hear about your Montana roots. It's
good to have another--you're a petroleum engineer. I was a
chemical engineer. You're a Montana Tech. I'm an MSU Bobcat and
thankful for your leadership on this important issue.
I also think we need to have the humility here in Congress
that we don't understand all of the complexities of the supply
chain, the light verses heavy, the production, the logistics in
the delivery system as well as refining capacity. It's a
complex equation that, I think, none of us up here would think
we can manage that from DC. But the free markets will figure
that out with an abundance of oil.
I'd like to ask you how will increasing crude oil exports
create more good paying jobs and decrease gas prices?
Mr. Lance. Yes, again, Senator, you know, it's the basic
premise that getting more crude oil into the open market will
decrease the price of gasoline for our consumers.
One just brief, fact point that--proof point, that
Six weeks ago, many have said, and I think Mr. Drevna said
that WTI and Brent were trading at the same price. I was buying
gasoline in Houston for $1.80 a gallon. Since that time WTI
price has increased $10 over U.S. prices. U.S. prices stayed
the same, and now I'm paying $2.20 a gallon for gasoline in
So the fact is the consumer didn't win. The consumer saw
the price of worldwide crude go up $10, and U.S. crude stayed
exactly the same. You would have thought gasoline prices--if it
was tied to U.S. prices would have stayed the same. They did
not. Gasoline prices went up.
You just have to look at the market today and understand
you see it happening in the market today for the consumer. This
export ban, lifting that export ban, is a pro consumer policy
for the United States. And that's how it reduces the gasoline
price. And it's happening today. It can happen today if we were
to export crude.
Senator Daines. Right. thanks, Mr. Lance. I'm out of time.
The Chairman. Thank you, Senator Daines.
Senator Barrasso. Thank you, Madam Chairman.
Mr. Lance, just following up on that because in your
testimony you're calling on all policymakers to lift the ban on
exporting crude oil from the United States. Since the export
ban was established, Democrats and Republican Administrations
have taken steps to ease the export ban.
I think in the 1980s Ronald Reagan issued determinations
that crude oil exports to Canada for consumption in Canada are
in our national interest. More recently the Obama
Administration issued guidance that process condensate may be
exported without a license. And last month, I along with
Chairman Murkowski and others, called on the Administration to
issue a determination that crude oil exports to Mexico for
consumption in Mexico are in the national interest.
So I question, what other steps can the Administration take
to relax the ban on crude oil exports?
Mr. Lance. Yeah, thank you, Senator. I think, you know,
certainly the Administration and the President could issue a
national interest determination and eliminate the export ban
for all of the domestic crude that we're producing in the
United States. And as you quote, there's been recent examples
of that, more recently President Clinton, who lifted the ban in
GAO has studied that over the last four to five years and
have indicated there was no change in pricing of gasoline on
the West Coast, the primary market for Alaskan crude.
So yes, the Administration could do something to offset
You mentioned a few things that are helping. Lifting--
allowing some of the condensates to be produced, but that's a
very small step in a large step that's needed to take to fix
the problem we see coming.
Senator Barrasso. So is there anything preventing the
Administration from taking these steps today?
Mr. Lance. Not that I'm aware of.
Senator Barrasso. You were just talking a little bit with
the previous question in terms of jobs and the economy. What
kind of job losses would you expect to see if the
Administration actually chooses to not act?
Mr. Lance. Well, today I'd say for our company and for our
industry you just have to look at what's happened since
November as the price has fallen over 58, 60 percent. And it's
exasperated by the fact that WTI is trading or U.S. crude is
trading below global crude prices.
We've lost a thousand rigs in this business in the matter
of three to four months. Each one of those rigs employs 150 to
180 people. And I think Senator Cassidy represented, you know,
these are blue collar jobs. These are people coming out of high
school that can get a $100,000 a year job. These are twice--
they pay twice the average that the national--that the
government looks at when they quote job figures.
So it's been real. It's happening today, and it's magnified
by the fact that we can't export crude today.
Senator Barrasso. Thanks.
Ms. Rosenberg, in your testimony you just visited about it
or talked a bit about Iran. I was just going to go in the same
area. You had said that U.S. crude exports will have the effect
of reinforcing pressure on Russia's energy security, and it's
certainly in line with key U.S. national security goals.
You go on to say that crude oil exports will also
constitute an important strategic act of support for our allies
in Europe who are more threatened by Russia and regional
So could you expand a bit on your comments for the
Committee specifically in regard to that part of the world?
Ms. Rosenberg. Sure, thank you for the question. So if the
United States is able to--policy makers lift the ban and the
upstream industry produces more it claims a greater portion of
the supply pool for the United States globally and will, as
we've discussed, have an effect on pushing down the Brent
That will force--that will cause greater competition in
Europe, for example. Russia, that is to say, Russia will have
to compete a little harder in Europe in order to sell its crude
there. It sells quite a lot of crude there and will therefore
collect somewhat less revenue. So that's the revenue impact for
It's--I don't want to over sell this. I think it is modest,
but it is strategically quite meaningful. And it looks to
Europe and to Russia and to the international community like a
show of support for our key allies in Europe that feel very
threatened and very vulnerable towards--in their position at
the receiving end of energy from Russia that has proved in the
past to be a coercive supplier.
Senator Barrasso. Mr. Pascual, would you like to weigh in
on this at all?
Mr. Pascual. Yes, thank you, Senator.
When we saw each other at the Munich Security Conference a
couple of years ago one of the big issues that was the focus of
attention there was competition in energy and in particular,
And the same analogy applies to crude oil. One of the most
important things to eliminate regional monopolies and regional
dominance is to give the assurance that consumers in any
particular part of the world have access to global supplies and
a competitive global market.
We've made progress in that in oil, but we have a situation
right now where ironically the United States is the major
producer that claims an exception to participating freely in
those global markets. If we signal that we will participate by
putting our crude oil onto that global market as we have been
with natural gas, we're sending the signal to our allies, to
our friends, to our customers, that we're going to compete to
support a competitive environment that gives consumers maximum
choice that allows them to diversify their resources and
eliminates the dominance that any one particular supplier can
have because of a regional position that it has with its
Senator Barrasso. Thank you. Thank you, Madam Chairman.
The Chairman. Thank you, Senator Barrasso. Very
interesting. Let's see. Senator Gardner.
Senator Gardner. Thank you, Madam Chair for holding the
hearing. Thanks to the witnesses for being here today.
I think it's important that we talk about the impact that
this incredible energy revolution has had on our country. In
Colorado alone that's more than 200,000 jobs have been created
that's resulted in new roads and new schools. 30 percent of
downtown Denver's office space is a building that's either
owned or occupied or leased to by an energy company. And that's
an incredible, incredible opportunity that we've had
economically in this recent energy boon.
And so today's questions, very basic questions of supply
and demand. What happens when you have too much supply? What
happens when you have decreasing demand or not enough demand to
drive investments in those increases of supply?
Those are all important economic questions. And I think
Senator Daines said it well. Having to understand how that
impacts our consumers is important.
I guess this hearing and this debate boils down to a very
simple question. Learning today and going forward, will
allowing oil exports further increase our national security and
increase the economic benefits to our communities? It's a very
simple question that we can boil this down to. Does it increase
jobs both on and off the oil field? Does it impact price on and
out of the oil industry? To consumers, what does it mean? And
so it's important.
When we talk about increasing the Gross Domestic Product by
one percent that's an incredible opportunity for this country,
one percent according to the President's past budget documents,
according to budget experts here in the Senate, a one percent
increase in Gross Domestic Product could create one million
jobs. That's putting one million people to work. That is an
amazing economic growth engine that we have to consider.
Secretary Moniz talked about, ``There are a lot issues in
the energy space that deserve some new analysis and examination
in the context of what is now an energy world that is no longer
like the 1970s.'' That's a quote from Secretary Moniz.
So a very important issue. And we've talked a lot about the
benefits of what could happen with exporting. We've talked
about concerns with exporting.
But to Mr. Pascual, I guess the question I would have is
what happens if we don't change this policy of the 1970s? What
happens to jobs? What happens to the economy? What happens to
both industry and non industry if we don't lift the policy?
Mr. Pascual. Senator, thank you. As a company that is
headquartered in Denver, a company you visited, you've come to
understand, I think and know the independence of our analysis
and the scrutiny that we give to the work that we do. I think
this brings us down to a very fundamental point. If we do not
eliminate these variables, we give up opportunities and job
creation and income creation. And the figures are quite
In terms of the supply chain itself, under a very
conservative base case analysis, the implication is that we
lose 124,000 jobs in the supply chain.
If we look at economy wide what are the impacts that we
would see, again, under a conservative scenario, 400,000 jobs
If we look at the impact on GDP, the loss that we would see
is $86 billion.
If we look at revenue to federal, state and local level
taxes, the loss that we would see, the opportunity we are
missing, is $1.3 trillion over the period of 2016 to 2030.
These are things that we have documented exhaustively. We
were able to do it because we were also able to analyze, in
detail, the productive capacity that's created by relaxing
prices or giving a greater price boost as a result of exports.
We have the data that has allowed us to look at individual
wells throughout the country to look at what the productive
effect is. And just as importantly we have the input/output
models that allows us to look at the entire impact through the
I think a critical thing for Americans to understand and to
recognize is that this isn't just about oil. It's looking at
the entire service sector and equipment sector. Who produces
the engines? Who produces the steel? Where does the concrete
come from? Who are the workers that are involved in that
And that is not just an oil production issue. It's
something that cuts across the entire United States. I think
it's important that we have the opportunity to highlight that.
So thank you for the opportunity to do so.
Senator Gardner. Thank you, Mr. Pascual.
To Ms. Rosenberg, I think last year sitting on the House
Energy and Commerce Committee we had testimony from one of Mr.
Pascual's colleagues at IHS, Daniel Yergin, a Nobel prize
winning economist, excuse me, a Pulitzer prize winning
economist. He talked about how the fact that oil production in
the United States had kept the Iranian sanctions from failing,
and that's probably something that could be said of other
instances. In your testimony you talked about our foreign
policy, how this could help our foreign policies. So I guess
what I'm asking is this. We have been pushing forward on LNG
export, expedited LNG export permits here. A lot of the
significant reason behind that is to give our allies a chance
to have an alternative to LNG other than Russian monopolies.
Could the same be said of our petroleum exports?
Ms. Rosenberg. Thank you for the question.
Senator Gardner. Crude oil, excuse me, crude oil exports.
Ms. Rosenberg. Right. I think it's an analogous situation.
They're different markets. They're of different sizes,
different liquidity. They're supplied in different ways,
pipeline versus other--ship, waterborne transport, et cetera.
But I think the analogy is right which is to say that the
United States taking a greater share of the global supply pool,
becoming a bigger exporter and also being a more important
trading partner is beneficial for the markets, for efficiency,
for pricing and also in sending a message of support on the
importance of free trade and also the significance of our
trading relationships, strategically with our partners, and
what that means for our adversaries.
Senator Gardner. Thank you. Thank you, Madam Chair.
The Chairman. Thank you, Senator Gardner. Senator Hoeven.
Senator Hoeven. Thank you, Madam Chairman.
We're in a global battle for market share as to who
produces oil and gas in this country, and we're duking it out
with OPEC. And we're duking it out with Russia and Venezuela
and other parts of the world.
We're in that competition right now when the world
benchmark price for oil is Brent crude and that's $10 higher
than the West Texas benchmark. So we, in essence, are fighting
for market share here in America at a $10 disadvantage to our
competitors. Anybody in any business could tell you that's a
And so, we're at risk for growing our oil and gas industry,
our energy industry, in this country versus having it shrink if
we don't address this oil export problem and soon.
So, Mr. Lance, I'd like you to address that issue in terms
of jobs and energy production and economic growth here at home.
Mr.--could you pronounce your last name? I----
Mr. Pascual. Pascual.
Senator Hoeven. Mr. Pascual, could you talk about it in
terms of the importance to consumers because we have to inform
consumers that this is something that is important for their
And then I'm going to turn to Mr.--and again I'm going to
have to ask for pronunciation. Drevna?
Mr. Drevna. Yes, sir.
Senator Hoeven. What can we do, on the refining side, to
better match up our domestic production of light and heavy so
that you can process both and it works well for us in this
So those would be my three questions starting with Mr.
Mr. Lance. Thank you, Senator. Yes, your basic premise
around the competitive nature of the investment in this
industry, given the fact that there today is a $10 differential
between U.S. crude prices and global. It is correct. We are at
a competitive disadvantage to our overseas competitors who are
developing around the world at higher prices than what we're
getting for the product, that is of similar quality around the
world, here in the U.S.
It's an interesting fact, you know, five years ago most of
the investment in cash flow off our companies was going to
investment in international growth. In the last five years
that's completely turned around. Most of the investment in cash
flow from international opportunities are coming back here to
North America, back home for investment.
And--but it's being compounded by the fact that we have
this differential and this competitive disadvantage with
respect to the crude price that we're getting for U.S. crude.
The jobs that we will create, you've heard a number of
quotes. I can give you one real quick, for every dollar
difference we would reinvest that dollar back into this
business. That dollar is about, you know, for an individual
company, $100, $150 million. That's one rig. That's 180 to 200
jobs, just direct jobs.
Carlos has talked about what the indirect benefit that has.
It is significant. And again, I point out that these are blue
collar jobs that are very high paying in our industry. We offer
benefits, both health and welfare benefits, along with
retirement benefits that are really leading in this business.
It has a significant impact.
Senator Hoeven. So this is a major issue determining
whether energy companies will invest billions here at home or
overseas. Is that accurate?
Mr. Lance. That's correct. If the difference continues
you'll want to make Brent-based investments rather than WTI
You're seeing that today with the dropoff in the rates of
the investment contraction that this industry has had over the
Senator Hoeven. Mr. Pascual, our best case to the consumer
why this is important and benefits the consumer?
Mr. Pascual. Senator, I think it's important to keep going
after this issue as you're doing. It's been a consistent theme
throughout this hearing, and the point that it fundamentally
comes back to and the Chairman and Senator Cantwell put this on
the table from the outset, is in the end consumers want to know
what's going to happen at the pump.
At times it may seem counterintuitive that if you export a
particular product it could actually contribute to a lower
price of gasoline, but we've seen consistently that that's the
case. And the reason that that's the case is the tie between
international oil markets and how gasoline prices are
determined. The key index is in the Brent crude price.
Mr. Lance gave an excellent example of how, just recently,
we saw a virtual equivalence of U.S. benchmark prices and
international prices. Since then we've seen an increase of the
international price by about $10 a barrel. U.S. prices for
gasoline have increased as a result of that even though the
U.S. benchmark price has stayed low.
It's a lesson that has taken us time to learn, but we have
a particular opportunity now with the abundance in capacity
that we have in the United States to take advantage of this
moment, to be able to liberalize the export of that product.
I would just say one final thing. If we look from the
perspective of what sustains the benefits that we've had in the
United States from this energy abundance, and the reason we got
here is because of investment, it's that investment that
created jobs. It's that investment that created production.
And if we want to get back to that investment as quickly as
possible, especially at a time when capital expenditures in the
United States energy industry have been cut by 35 percent, the
best signal you can give is to those producers and those who
are financing energy that the capacity to export is to the
widest, most competitive market possible. That's when it's
going to give them the best long term return. That's what's
going to get the American energy industry back to the
innovation and productivity the fastest possible, and that's
what's also going to maintain our energy security over time.
Senator Hoeven. Thank you, Mr. Pascual. I'd like to commend
you on your study. I think that was very helpful bringing this
information out. But it is basic supply and demand, isn't it?
More investment generates more supply. More supply helps
bring down Brent crude benchmark which is the world price. And
again, that benefits our consumers.
Mr. Pascual. The basic principles of supply and demand
hold. And earlier the question was raised as what is the best
thing that we can do for future policy?
Well, we've learned over time. And here we have now
hundreds of years of experience is that competition and markets
is the best bet for our economic policy. It stimulates
innovation. It stimulates productivity. It stimulates jobs.
But it's also the best thing for our national security
because when you have companies in countries competing you
avoid the kind of dominance that single players in that market
And we have a special opportunity today. OPEC has gone into
hibernation. We saw that on November 27th of last year. OPEC
essentially said, we can't influence the international price of
We have a chance now out of the United States and if we
look at what's happening in Canada and the potential out of
energy reform in Mexico, to see a North America that becomes a
foundation for energy stability, globally. We have not had that
opportunity. It is a historic moment that we have.
Senator Hoeven. Thank you, Mr. Pascual.
I do have other questions, but I can come back, Madam
Chairman, however you'd like to do it.
The Chairman. We're going to have one more quick round.
Senator Hoeven. Okay.
The Chairman. So if you'd like to come back or stick around
we'll go for round two. I really appreciate the discussion that
we're having, particularly on the focus on national security. I
think we all recognize that the world is a very, very volatile
place right now. There is a lot of focus here in the Capitol on
what is happening in Iran, and we've heard the discussion about
the added oomph that sanctions are able to play when we've got
more flexibility here.
I had a meeting yesterday with General Breedlove, who is
head of the European Command, and it was a discussion about
Arctic issues and the role that my state plays in that from a
military perspective. It was an interesting discussion in
talking with him. We had a map that was entitled, Russia's
Arctic Push. It details from a military perspective what we're
seeing coming out of Russia.
And the conversation turned to some of the comments that
have been coming out of late in Armed Services and Defense
Appropriations about where the threats are right now. General
Dempsey suggests that perhaps the biggest threat in front of us
right now is not what we're seeing out of Iran, but what is
potentially coming from Russia with a threat to European
It does cause us, I think, to look again, very critically,
at how we deal with Mr. Putin. How we deal with these national
security threats. We don't have the resources, the men and
women, to put the boots on the ground to be able to do what we
would like to do from a defense perspective, so we have to look
to what other tools we have.
One of the tools that we have, clearly, is our resources.
Our oil resources--it is such an important part of this
discussion here. So again, I appreciate what we have heard
Mr. Pascual, I want to ask you a question and this will
probably take you back to your time when you were with the
Energy Envoy and there at the State Department with the Bureau
of Energy Resources. The question to you is whether or not you
heard from other nations, requests to the United States to open
up our oil markets to them? The reason I ask is there wasn't
too many years ago when we here in this country were crying
foul when China was withholding critical minerals, rare Earth
elements, that Japan, very desperately, wanted. And China in
very much a power play said no, we're not going to be sending
anything your way.
It causes me to wonder if other nations are viewing us that
way that well, you're okay in encouraging us to get our oil
from a coercive supplier, like Russia, but why wouldn't you be
willing to help us out, United States? Can you lend me your
experience in the position you were in whether you had any of
those discussions with other countries?
Mr. Pascual. Chairman, thank you.
It was an issue that arose constantly. I'll give you a
couple of examples.
In India when we were negotiating with India to diversify
its energy resources to reduce its imports from Iran, one of
the first questions they asked was where do I get the
alternative supply? Where can I go? And why will not the United
States put more oil on the international market and give us the
opportunity to benefit from that? Or even if they aren't
importing oil from the United States directly, to have the
supply impact that we might have had through our exports so
that they might be able to buy more cheaply, oil more cheaply,
In Turkey, again, very similar issues came up with the
refiners. One of the questions they asked was where do we go
for the alternative supply, and why are you putting us in a
situation where we're going to have to become more dependent on
In Europe the issue consistently came up of why will not
the United States open up its market for export and indeed it
has become a central issue in the TTIP negotiations.
With China, again, another major question and there was a
certain irony here. Here the United States over three decades
had been after China to eliminate its restrictions on the
export of resources including rare Earths and when they were
looking for more supplies internationally we had to say, we had
restrictions on critical commodities in the United States.
It's those kinds of restrictions that, in the end, affect
American credibility, and in the moment when we have to put
through an important policy makes it much more difficult to
We're able to succeed in these cases because there was an
opportunity to show countries why diversification of their
imports away from Iran was in their national security interest.
It was not an easy negotiation. We would have served our
interest by having much more flexibility.
The Chairman. Thank you. I appreciate the explanation
there. Senator Cantwell.
Senator Cantwell. Thank you, Madam Chair.
Let's start with you, Mr. Warmann. As we discuss and look
at oil exports I start thinking about how different parts of
the country might be affected and whether the Pacific Northwest
or New England, might become more dependent on imported oil or
gasoline diesel or home heating oil if the exports were legal.
Do you see that kind of shift?
Mr. Warmann. You do see some sort of shift. One of the
questions that we come back to is the form of export. You can
exert the same efforts and give the people what they want if
you do it in a form of products, gasoline and diesel. If you do
it in the form of the raw product you don't capture that GDP,
the jobs and the other things within America that we're
perfectly capable of.
So you have the same leverage over the countries, and
Europe needs the refined products. Other people need refined
If you just export the crude, you lose all that value in
the value chain. You lose those jobs. It goes overseas, and
we're talking about OPEC. The exports go into a market that is
controlled by OPEC, and I disagree that OPEC is in hibernation.
It's their choice to open up the production. It's their choice
to lower their contract price in order to put pressure on
Russia to bring other OPEC cheaters in line and you also have
to pull in--put some rationalization on the unconventional
exploration going on within the U.S. That is a choice they are
making. That is the control they're exerting on the market, and
they continue to do that.
Coming back to some of these issues about the pricing. One
of the things that is depressing the spot price right now,
making such a difference, is there's a cotangoed plan of
market. It's a trader. You know, traders manipulate the market,
to a certain extent.
The price of oil in the futures market is higher than it is
now. Even us, we have rented storage and are storing oil. With
all this--oil the current spot price will go--is going down
because of the amounts of oil.
But if you look at the future, the Brent, WTI tightens back
up to about $6, $7, and that is all in transportation. And it
comes back to what you're saying, location differential.
The benchmark of WTI is in the middle of the continent. The
benchmark of Brent is in the North Sea. You have transportation
differentials so it means different things to different people.
On the East Coast there should be a six and a half cent--
dollar per barrel differential. On the West Coast it has
everything to do with being able to bring in foreign material
verses the real cost from the Bakken and tying that together.
And the thing about products is you actually are in a free
market that's not controlled by OPEC. It's not controlled by
anybody, and we can be more open to exert our influence in that
Senator Cantwell. I think we have three New Englanders on
this Committee. We already know they pay outrageous home
heating oil prices, so if we got into this situation where one
part of the United States basically had to rely more on imports
and the other part of the United States had that capacity to
benefit, as you were saying, from the Gulf, then we would be in
two different scenarios here. So I think it's something to
think about as we think about this policy.
Thank you, Madam Chair.
The Chairman. Senator Daines.
Senator Daines. Thank you, Madam Chair.
Once upon a time I was a manufacturing guy. I ran
operations for 12 years for Proctor and Gamble. There was an
Israeli physicist named Eliyahu Moshe Goldratt who wrote a book
called, ``The Goal, Looking at the Theory of Constraints.'' I
think as we look at this very complicated equation from
production to delivery, refining, and ultimately to the gas
pump is something that probably none of us are qualified to
probably make an assessment. None of us saw 40 years ago when
these policies were put in place what would happen with this
renaissance and revolution, certainly in the petroleum
With that as a backdrop I want to look at this constraint
right now on refining, and perhaps Mr. Drevna, looking at some
of these regulations, for example, from the EPA. How are the
EPA ozone national ambient air quality standards impacting your
ability to expand capacity and/or operate?
Mr. Drevna. Well Senator, if you look at the proposal that
EPA has out and the one we just commented on yesterday, I think
it was yesterday we submitted our comments. If the current
standard of 0.75 goes down to 0.6 or up to 0.7 what they were
talking, what the proposals are. A lot of this conversation
you're hearing here today is moot because you're not going to
be able to burn it here. You're not going to be able to develop
it here. You're not going to be able to transport it here.
You're not going to be able to fly an airplane out of a single
engine fuel somewhere in Montana or Wyoming or North Dakota,
because they're going to be in non attainment.
So if we want to talk about energy and national security
and that's a great thing, I can agree with about 75 percent of
what Pascual has said. You've got to look at all the parameters
that are involved in energy development and energy use and
So, yes, the regulate--we have a built in regulatory kind
of skein that we work with with the new system, we're lowering
sulfur and gasoline. We're lowering this. We're lowering that.
We're lowering CO2 emissions.
Pretty soon we keep lowering it and there's going to be
nothing left to lower.
Senator Daines. Well, project this for a moment. These
regulations go in place. We continue this amazing renaissance
revolution of American oil production. The world's leading oil
and liquids producer now in the world.
We keep moving this up what happens now in this overall
equation to refining capacity with these regulations? And what
does that mean for the consumer?
Mr. Drevna. You know, we are right now one of--very
globally competitive in the U.S. refining sector. We are the
most sophisticated, advanced refinery system in the world.
We're able to take, you know, to do it very efficiently, do it
very effectively with a lot of blue collar jobs that both
Pascual and Jeff have talked about.
It will put a grinding halt to it. We might as well export
it because we can't be--we won't be able to use it here.
And so it's--this is what I said in my opening statement
and our testimony. Can we, for once, look back at the 70s and
say, okay? What was happening there? And what did we do to
You know, we took an Arab oil embargo which really, in
essence, could have been just a nuisance. And what did we do,
we put price controls on. We limited production, and we turned
a nuisance into a dog gone near catastrophe.
So then we, our energy policy was, the next time around,
well oh, synthetic fuels corporation and don't stock those
Christmas lights up.
For crying out loud, can we get an energy policy based upon
the abundance that we have now but take in all the parameters
whether it's our environmental regulations, the Jones Act,
renewable fuel standard? Look at them holistically and come up
with something that makes sense, not only for the upstream
Senator Daines. Yeah----
Mr. Drevna. But for the economy and for consumers.
Senator Daines. Again, we're debating a policy that's four
decades old. Going forward 40 years, that's what, ten
Presidential elections away, 40 years from now what will we
have to look at here as we look at this very complex supply
chain? And you know, Washington DC is trying to figure out a
way to manage that.
Mr. Drevna. Well, we----
Senator Daines. I'll put my bet on the free markets.
Mr. Drevna. That's exactly my point.
Senator Daines. Yeah.
Mr. Drevna. Let's look at the total free market.
Senator Daines. Right.
Mr. Drevna. And just not look at silos. We're going to do a
free market here, but we're not going to do it over here.
Senator Daines. Well, one more question for Mr. Warmann.
Does Monroe Energy plan to invest to expand your refinery to
process more crude?
Mr. Warmann. We have been. We have invested well over $100
million in being able to take in light oil as well as partnered
with a group that has invested almost $200 million in getting
the rail cars and unloading them.
And I agree, the transportation is one thing that we need
to improve upon. Pipelines, things along those lines definitely
make markets more efficient and take some of this discrepancy
between pricing out and make heating, home heating oil, in one
area more similarly priced to another.
Right now we are trying to, whether we export it or whether
we use it in refineries which is preferable. You still have
some antiquated transportation systems that need improvement,
and that goes back to what Mr. Drevna is saying, you have to
look at the whole thing, holistically, the transportation, the
supply, the displacements, where is the demand for it, the
environmental regulations that go with it.
One thing that keeps us from running the stabilizers with
the producers, and Mr. Lance can speak to this. One thing that
keeps us from running those stabilizers to reduce the rvp so
much is there's no place to go with that particular natural gas
or product. There's no way to export it so you have to burn it,
but there's limits on what you can burn.
So you're sitting here balanced trying to get production
up, trying to get the rvp lower. But you're also limited on
this side by how much you can burn. So what do you do with
that? What do you do with that product?
You've got to get it out of there somehow, so you either
have to transport it via railcar or you have to burn it and
you're limited on burnings. So we're----
Senator Daines. Thank you. Thanks, Madam Chair.
Mr. Warmann. Yeah.
The Chairman. Thank you, Senator Daines. Senator Hirono.
Senator Hirono. Thank you, Madam Chair.
I wanted to refer to some testimony that was provided to
the Armed Services Committee just today by General Paul Selva,
United States Air Force, who is the Commander of the United
States Transportation Command, wherein he acknowledged once
again the importance of the Jones Act.
It is very clear as a member of the Armed Services
Committee that keeping our ship building capacity strong is
very important to our national security. That's what it comes
down to. So Mr. Devon, Devra?
Mr. Drevna. Drevna.
Senator Hirono. Drevna, sorry. You raised some concerns in
your testimony about the Jones Act containing that it raises
the price of shipping. But of course we all know that the Jones
Act requires these U.S. ships to comply with safety,
environmental and minimum wage rules that other countries do
Knowing how our military views the Jones Act as part and
parcel of keeping a strong shipbuilding capacity and industrial
base and that arena and how important that is, I'd like to just
ask if any of the rest of the panel members disagree with
General Paul Selva's statement wherein he said, ``Without the
contribution that the Jones Act brings to the support of our
industry there is a direct threat to national defense.'' Do any
of you disagree with that statement?
Mr. Drevna. I'm looking at the Jones Act in commerce, and
we're talking about national security. Here we're talking about
shipping product to foreign nations so they can be nationally
We, you know, I'm not going to disagree with the view of
the military on what they believe they need, but there's a
major difference between the military and commerce. And in
commerce, as the Chair person said earlier, we want to make
sure and the Ranking Member. We want to make sure that what we
do here, what you do here in the Senate and anywhere else,
doesn't negatively impact the consumer. I don't think it has to
be an all or nothing.
You mentioned the fact that or you mentioned that we have
strict shipping standards. Well, the U.S. Coast Guard is not
about to let any ship come in from a foreign port that doesn't
meet our standards or leave our country shipping out oil but
going to a foreign port that doesn't meet our standards.
So again, let's look at the barriers to free trade. What we
need to do for energy and national security. And it's not ever,
Senator, an either or an or. I think there's enough of a, you
know, there's wiggle room in between the two and you can make
policies that keep the policy, that keep the country safe, to
keep the country strong and yet, doesn't penalize the consumer
or put refineries, some refineries out of business.
Senator Hirono. Well, I understand the argument that you're
making, but I represent a state that is 90 percent dependent on
shipping and the Jones Act does provide us with that reliable
service, not to mention that it is the Jones Act that makes
sure that in times of national need that there are ships that
are available to that, to meet that contingency. So I don't
think it's that easy to separate out the commerce side and
You do mention you believe the Jones Act does result in
higher, probably result, in higher costs, and I would like to
see some of the factual evidence of that because I do have
familiarity with the arguments that the Jones Act makes
consumer prices higher, and that has generally been not
supported by evidence.
Do any of the rest of you want to weigh in at all? I know
that Mr. Drevna has concerns about the Jones Act, and I'm
wondering whether the rest of you also see a connection between
exporting crude oil and the Jones Act?
Mr. Warmann. I can tell you, Senator, from direct
experience. When we receive a foreign cargo we have to have
Homeland Security. It's a point of import. We have to allow the
foreign workers to offload.
The other thing is if it's from Africa I now have to put in
medical protocols to prevent things like Ebola and other things
from importing into the ports.
So there's a lot of effort that we have to go through in
handling foreign ships verses American ships, and it comes back
to American jobs. And I can personally tell you, having been in
Philadelphia, the Philadelphia port was a ghost town until this
renaissance. And now they have backlogs in supplies and jobs
and demand for steel and everything else that--for years. They
have five, six years of backlog as well as San Diego. You see
ports in Mississippi and Alabama increasing their capacity as
well as their backlogs. This is all American jobs all driven
from this renaissance.
And another transportation issue that needs to collectively
be looked at from a holistic standpoint when we look at energy
policy. I totally agree with you. I think that the Jones Act
provides us a lot of security benefits.
I would hate to think of an Iranian ship that has LNG
that's sitting in the middle of St. Louis' port, the port
harbor there. The things that could be done with that are
astronomical. To me, that should cause a great amount of
national security issues. So that's just some of the things
that you can imagine.
Senator Hirono. Thank you, Madam Chair.
The Chairman. Thank you. Senator Hoeven.
Senator Hoeven. Mr. Lance, would you like to respond to
that last question?
Mr. Lance. I would, just quickly. We're a large Jones Act
shipper, so our Alaskan trade, our polar tanker trade, is a
Jones Act shippers that goes to the West Coast and do supply
your state in Hawaii with crude from Alaska. So we found that
to be a very effective tool to continue to do that.
And some of Senator Cantwell's earlier concerns, when
President Clinton lifted the export ban from Alaska, we were
able to ship and the GAO has looked at that repeatedly and
there has been no impact to West Coast gas prices, California,
Washington and Oregon as we were shipping crude to other places
outside of the United States. Another proof point relative to
exporting does not increase gasoline prices for the consumer.
We have a living example of that that's been occurring since
the 80s in the Alaskan trade.
Senator Hoeven. Thank you, Mr. Lance.
Mr. Drevna, would you agree it's better that we produce
more energy in this country rather than less? It's three
questions for you. Would you agree that it's better to produce
more energy here at home rather than less? Would you agree that
we have an imbalance between the amount of light and heavy
crude that we produce and the amount of light and heavy our
refineries can actually refine, refining capacity? And if you
agree with both of those, which I think you probably will, but
you can certainly say what you think. What can we do to match
up our refining capacity? How can we help refiners better match
the mix of light and heavy we produce here at home?
What can we do to help you? I mean, regulation,
transportation, investment incentives, what helps?
Mr. Drevna. Well the answer to your first question is an
Senator Hoeven. Good.
Mr. Drevna. Absolutely. To answer your second question is
between, as I said in my written and oral statement, between
now and 2016 we, as refiners, can handle that additional 730
barrels a day with investments already being made and will have
Going forward, and again, as I said we're not opposed as an
association and as a total industry, we're not opposed to the
lifting of the ban.
What can you do post say '16? We've got a fairly good
transportation delivery system going north/south in the
country. We don't have that good of a transportation system
going east/west. This is why the advent of the Bakken crude and
shipping it via rail. But even going north/south----
Senator Hoeven. So you're saying we need pipelines?
Mr. Drevna. Yes, sir.
Senator Hoeven. And transportation.
Mr. Drevna. Yes, sir.
Senator Hoeven. I just want to make sure. More pipelines?
Mr. Drevna. Well, it's the Keystone XL pipeline that has
sort of become a metaphor for what we don't have in this
Senator Hoeven. But would you say part of producing more
energy in this country means we have to have the energy
infrastructure to move it safely and dependably, meaning the
right mix of pipeline, rail and roads?
Mr. Drevna. Absolutely, Senator, and that is something if
you look at the vast increase in production that ConocoPhillips
and others have done. It's been done by American ingenuity. It
hasn't been done by government Fiat.
Senator Hoeven. Private investment.
Mr. Drevna. Turn us loose. Let us do the job
environmentally safe and safety in all around. Just turn us
Senator Hoeven. It sounds to me like you're right on this,
but what can we do to help the refineries do more in terms of
investment at the refineries so they can process light or
Mr. Drevna. They're doing it. They're doing it. Again, it's
the free market, but we have to, again, I don't want to be----
Senator Hoeven. Well, you're starting to get at it with the
regulation. I'm just looking for any specifics that we can look
at in terms of legislation, just like we're working on oil
Are there other specifics that we should be looking at in
Mr. Drevna. Well----
Senator Hoeven. Transportation, obviously.
Mr. Drevna. Transportation is the big one. We've got to get
rid of these bottlenecks. You've got to get these pipelines
You've got, I mean, there's a lot going on out there that
folks don't really understand or know about, about how the
pipelines have done some great things over the past three,
four, five years. We need to do more. We need to get the
permitting done. We need access.
If you want to increase energy security we need access on
federal lands. Gee, think about what would have happened over
the past four or five years if all of this stuff that we've
been producing would have been on federal lands. We wouldn't be
producing it. We wouldn't even be having this conversation.
We'd be still worried about 1975.
Senator Hoeven. Thank you, Mr. Drevna. I really appreciate
And of course, you remember, I'm sure of his association,
Mr. Warmann, but I guess if there's something else you'd want
to add I should give you the chance.
Mr. Warmann. We are strangle held by the amount of
transportation we're currently trying to build out.
Transportation projects usually take several years.
We currently run about 60 percent domestic. We'd like to
increase that even more so. The balance coming from some of our
neighbors to the north and the south, but that transportation
is an issue both in the current reliability of the existing
systems as well as the permitting of new systems.
So that is one thing from a holistic standpoint we need to
look at, and if in the national interest we need to put in
pipelines, we need to put in pipelines. Everybody has a two
inch pipeline hooked to their house if they have natural gas.
There should be no problem just hold us accountable. We will
build it. We will maintain it. There's no incentive for us not
to do it responsibly.
The last thing I want to do is lose product out of a
pipeline or out of my refinery. That's lost profit. That's lost
money to me, and we're working on very slim margins, a tenth of
what our upstream friends are doing on a per barrel basis. So
every little drop means everything to us.
There's no incentive for us to do anything other than what
is perfectly, environmentally compliant and friendly and get
the product from one place to another effectively.
Senator Hoeven. Thank you. I'd like to thank all of you,
and I appreciate your responses.
The Chairman. Thank you, Senator Hoeven.
We have a vote that has been called. So you are spared from
I'm going to ask one quick follow up question because I've
seen this back and forth here where it's been stated by the
folks at this end of the table that we've got more oil than our
refineries can accommodate, and this end of the table says, we
can handle all of the capacity.
So to you, Mr. Lance, I'm not going to ask for confidential
business information here, but just generally as a producer,
have you been in a situation where you've tried to sell light
crude to a refiner and basically been turned away?
Mr. Lance. Yes, Senator. In fact just in the last month
we've tendered cargoes to even Monroe Energy and have been told
not only can we not take it, we're unwilling to take it. We
cannot take it. We cannot process the crude that you've put
into the marketplace.
So that's happening today, and so I would dispute the fact
that maybe the refineries will, over time, be able to make the
investments to take this crude. The sure fact that we're
trading at a $10 discount today demonstrates the fact that they
cannot. Now they're in refineries. They're in turn around
The Chairman. Right.
Mr. Lance. They're doing some things today. This occurred
before the contango in the curve started, so Cushing
inventories were building before the traders got involved with
the contango. This was an issue that started in the last part
of last year. It has continued on through the first part of
this year and has exaggerated the drop in the oil price.
So yes, it's happening today. Refineries cannot take the
produce that we're producing today, and in fact my company has
tendered that and been told no. Not even will we take it at a
steep discount, we are unable to take it completely.
The Chairman. Well and I think this is where we sit with
this conversation about alignment, and got into a lot of
discussion when we had the Keystone XL pipeline in front of us.
The reason why it was necessary to have this pipeline coming
down and just the alignment or misalignment of where we are
right now with the product coming out of different parts of the
country that is effectively different in terms of what our
refineries can handle.
So again, this has been a great conversation. I could spend
the rest of the afternoon with you, but again, you've been
saved by the vote.
In addition to thanking you all for giving us your time
here this morning, I want to thank you for continuing this
conversation with us because I think, as a Committee, we are
engaged to do just that.
I thought that Senator Gardner summed it up in a pretty
tight manner when he said what we're trying to do here as a
Committee is to focus on this as a policy and assess from a
national security perspective which, I believe, is critical but
at the same time making sure that we're looking out for the
economic well being of the people around the country. The
economic well being is making sure that this resource is
available to them at an affordable price, that the jobs that
come with it across the country are there and recognized.
But again, what we've heard today I think has been good. I
think it's been constructive and know that we will continue
this discussion further.
And with that I'd like to give my colleague the final word.
Senator Cantwell. I know we have a vote, so I'll just be
short. I would just sum up my thoughts on the last set of
comments. If you want a pipeline, play by the rules. That is,
adhere to the environmental laws that are on the books and
don't try to skirt around them.
If you want to transport this on oil trains, make sure it's
The issue about whether they have a place to strip out
natural gas is not my problem. My obligation to the people in
the State of Washington is to make sure they are safe and
secure, and right now we don't have enough standards in place
to make sure that is happening.
So if we want to continue this discussion of more oil
trains than it better be about standards. I'll look forward to
my colleagues joining me on the Floor when they have a chance
to vote for that kind of standard and see if they want to make
trains more secure or not.
Third, I think we probably will, at some point in time, get
into the discussion about federal lands. I know, Mr. Drevna,
you were saying let's let them go and drill more on federal
The resource extraction from our federal lands is not
paying their fair share to the American taxpayer, and you will
hear more from us on that in the future.
So, thank you, Madam Chair, and I do appreciate the broad
discussion. I think it's going to be great to have this debate,
not just in this Committee, but on the Floor of the United
States Senate. Thank you.
The Chairman. I look forward to it. Thank you all.
We stand adjourned.
[Whereupon, at 12:13 p.m., the hearing was adjourned.]
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