[House Report 114-267]
[From the U.S. Government Publishing Office]
114th Congress } { Rept. 114-267
HOUSE OF REPRESENTATIVES
1st Session } { Part 1
======================================================================
TO ADAPT TO CHANGING CRUDE OIL MARKET CONDITIONS
_______
September 25, 2015.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Upton, from the Committee on Energy and Commerce, submitted the
following
R E P O R T
together with
DISSENTING VIEWS
[To accompany H.R. 702]
[Including cost estimate of the Congressional Budget Office]
The Committee on Energy and Commerce, to whom was referred
the bill (H.R. 702) to adapt to changing crude oil market
conditions, having considered the same, report favorably
thereon with an amendment and recommend that the bill as
amended do pass.
CONTENTS
Page
Purpose and Summary.............................................. 2
Background and Need for Legislation.............................. 2
Hearings......................................................... 9
Committee Consideration.......................................... 10
Committee Votes.................................................. 10
Committee Oversight Findings..................................... 12
Statement of General Performance Goals and Objectives............ 12
New Budget Authority, Entitlement Authority, and Tax Expenditures 12
Earmark, Limited Tax Benefits, and Limited Tariff Benefits....... 12
Committee Cost Estimate.......................................... 12
Congressional Budget Office Estimate............................. 12
Federal Mandates Statement....................................... 12
Duplication of Federal Programs.................................. 12
Disclosure of Directed Rule Makings.............................. 12
Advisory Committee Statement..................................... 13
Applicability to Legislative Branch.............................. 13
Section-by-Section Analysis of the Legislation................... 13
Changes in Existing Law Made by the Bill, as Reported............ 13
Dissenting Views................................................. 16
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. FINDINGS.
The Congress finds that--
(1) the United States has enjoyed a renaissance in energy
production, establishing the United States as the world's
leading oil producer;
(2) the United States upholds a commitment to free trade and
open markets and has consistently opposed attempts by other
nations to restrict the free flow of energy; and
(3) the United States should remove all restrictions on the
export of crude oil, which will provide domestic economic
benefits, enhanced energy security, and flexibility in foreign
diplomacy.
SEC. 2. REPEAL.
Section 103 of the Energy Policy and Conservation Act (42 U.S.C.
6212) and the item relating thereto in the table of contents of that
Act are repealed.
SEC. 3. NATIONAL POLICY ON OIL EXPORT RESTRICTION.
Notwithstanding any other provision of law, to promote the efficient
exploration, production, storage, supply, marketing, pricing, and
regulation of energy resources, including fossil fuels, no official of
the Federal Government shall impose or enforce any restriction on the
export of crude oil.
SEC. 4. STUDY AND RECOMMENDATIONS.
Not later than 120 days after the date of enactment of this Act, the
Secretary of Energy shall conduct a study and transmit to the Committee
on Energy and Commerce of the House of Representatives and the
Committee on Energy and Natural Resources of the Senate recommendations
on the appropriate size, composition, and purpose of the Strategic
Petroleum Reserve.
SEC. 5. SAVINGS CLAUSE.
Nothing in this Act limits the authority of the President under the
Constitution, the International Emergency Economic Powers Act (50
U.S.C. 1701 et seq.), the National Emergencies Act (50 U.S.C. 1601 et
seq.), or part B of title II of the Energy Policy and Conservation Act
(42 U.S.C. 6271 et seq.) to prohibit exports.
Purpose and Summary
H.R. 702, to adapt to changing crude oil market conditions,
was introduced by Representative Joe Barton (R-TX) on February
4, 2015. The legislation would repeal section 103 of the Energy
Policy and Conservation Act of 1975 and prohibit any
restriction on the export of crude oil, except under emergency
authority of the President. The legislation also would require
the Secretary of Energy to conduct a study and make
recommendations on the appropriate size, composition, and
purpose of the Strategic Petroleum Reserve (SPR).
Background and Need for Legislation
Forty years ago, Congress passed legislation in response to
the Arab oil embargo restricting oil exports and establishing
the Strategic Petroleum Reserve to release oil in response to
energy supply interruptions. Today's energy security situation
is much improved from that of the 1970's. Domestic energy
production is nearing record levels, while import dependence
and consumption are declining. The Committee believes that
removing oil export restrictions likely would encourage
additional domestic production and contribute to further
reducing the nation's import dependence.
The United States is the world's number one producer of
petroleum liquids, yet it maintains restrictions on the export
of crude oil. Crude oil export restrictions run counter to the
national interest and deny substantial benefits to the U.S. and
its allies and trading partners. While restrictions on the
export of refined petroleum products have been lifted entirely,
the export of crude oil remains generally prohibited, though
some exceptions have been made through Executive Orders and
Acts of Congress. For example, in certain circumstances, a
Federal license can be obtained to export crude oil to Canada
or to exchange crude oil with another country for an equal
amount of petroleum products.
Restrictions on crude oil exports are a vestige of the
past, originally intended to compliment a complicated system of
oil price controls that were repealed decades ago. History has
shown that attempts to control prices through government
regulation generally have failed. In 1981, President Reagan
eliminated the price controls program through Executive Order
12287, stating:
For more than 9 years, restrictive price controls
have held U.S. oil production below its potential,
artificially boosted energy consumption, aggravated our
balance of payments problems, and stifled technological
breakthroughs. Price controls have also made us more
energy-dependent on OPEC nations [(Organization of
Petroleum Exporting Countries)], a development that has
jeopardized our economic security and undermined price
stability at home.\1\
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\1\See Weekly Compilation of Presidential Documents, vol. 17, no. 4
(January 28, 1981).
The Committee believes that crude oil export restrictions
are detrimental to the national interest. Export restrictions
impose costs on the economy, discourage additional domestic
crude oil production, result in higher gasoline prices for
consumers, and reduce competition in world oil markets.
Lifting all restrictions on crude oil exports would benefit
the U.S. in many ways. Allowing crude oil exports would
encourage continued growth and investment in our nation's oil
production capacity, potentially creating thousands of new jobs
and new supplies of stable energy, a reassuring symbol to our
allies and trading partners. Crude oil exports also would
improve the nation's balance of trade and reduce OPEC's
monopoly power, significantly improving U.S. energy security
and national security.
HISTORY OF CRUDE OIL EXPORT RESTRICTIONS
The U.S. has a long history of ill-conceived and abandoned
attempts to control energy markets through government
regulation. Throughout the last several decades, many of the
policies enacted in an attempt to control the price and supply
of energy commodities have been repealed. The existing
restrictions on U.S. crude oil exports were conceived in the
1970's, an era of energy scarcity when the U.S. was faced with
projections of rising fuel demand, falling crude oil
production, and increasing reliance on imports. When the Arab
members of OPEC imposed an oil embargo from October 1973 to
March 1974, it exposed the nation's vulnerability, resulting in
fuel shortages and price spikes.
Congress responded to the embargo with new laws attempting
to control the price and supply of crude oil. The Emergency
Petroleum Allocation Act of 1973, and later the Energy Policy
and Conservation Act of 1975 (EPCA), led to price controls on
domestic crude oil, tariffs on imported crude oil, and
restrictions on petroleum exports.\2\ The lessons learned from
these failed energy policy initiatives were explored during the
Subcommittee on Energy and Power's December 11, 2014 hearing
entitled ``The Energy Policy and Conservation Act of 1975: Are
We Positioning America for Success in an Era of Energy
Abundance?'' In his testimony, Dr. Charles Ebinger, Senior
Fellow at the Brookings Institution, testified that ``in
reviewing the history of U.S. energy policy since the early
1970's, it is apparent that whenever the U.S. government has
tried to favor a particular fuel absent market realities there
have been unintended consequences which have been deleterious
to the U.S. economy and U.S. energy security.''
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\2\See P.L. 93-159 and P.L. 94-163.
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Mr. Lucian Pugliaresi, President of the Energy Policy
Research Foundation, agreed with Dr. Ebinger, explaining that
``[o]ften these policies, in an attempt to either promote the
development of alternatives to petroleum or to insulate
consumers from price volatility, prevented more productive
responses from both consumers and producers.''
CURRENT LAW AFFECTING CRUDE OIL EXPORTS AND LICENSING PROCEDURES
Section 103 of EPCA authorizes the President to restrict
exports of coal; petroleum products; natural gas; petrochemical
feedstocks; and supplies of material or equipment determined
necessary to maintain further exploration, production, refining
or transportation of energy supplies, or for the construction
or maintenance of energy facilities within the U.S.\3\ Through
modifications to EPCA, current U.S. policy allows unrestricted
exports of coal, petroleum products, petrochemical feedstocks,
and related supplies and materials. Exports of natural gas are
permitted on a case-by-case basis. Today, only crude oil
exports are restricted under the authority provided in section
103 of EPCA.
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\3\See 42 U.S.C. Sec. 6212.
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Under section 103 of EPCA, the President is provided with
the authority to promulgate rules to prohibit the export of
crude oil, with exceptions where the President determines such
exports to be ``consistent with the national interest.''\4\ The
Department of Commerce implements crude oil export restrictions
and requires a license to export crude oil to all destinations,
including Canada.\5\ The licensing procedures allow for exports
of crude oil from Alaska's Cook inlet, exports of oil to Canada
for consumption or use therein, exports in connection with
refining or exchange of strategic petroleum reserve oil,
exports of certain California heavy crude oil, exports
consistent with certain international agreements, exports
consistent with Presidential findings, and exports of foreign
origin crude oil not comingled with domestic crude. While the
U.S. is exporting more crude oil than ever before, exports
amounted to only about four percent of total U.S. production in
2014.\6\
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\4\See 42 U.S.C. Sec. 6212(b)(1).
\5\See 15 C.F.R. Sec. 754.2.
\6\See U.S. Energy Information Administration, U.S. Exports of
Crude Oil. U.S. exports averaged 351,000 bbl/d in 2014. See also U.S.
Energy Information Administration, U.S. Field Production of Crude Oil.
U.S. field production of crude oil averaged 8,719,000 bbl/d in 2014.
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TRENDS IN U.S. CRUDE OIL SUPPLY AND DISPOSITION
Crude oil production in the U.S. has been growing rapidly
in recent years. According to the U.S. Energy Information
Administration (EIA), crude oil production exceeded 9.6 million
barrels per day (bbl/d) in April 2015, nearly doubling the
amount produced in 2008 and setting a record dating back to
1971.\7\ At the same time, imports have fallen dramatically.
Approximately twenty-seven percent of the petroleum consumed in
the U.S. was imported, the lowest annual average since 1985.
Last year, the U.S. exported about four million barrels per day
of crude oil and petroleum products, resulting in net imports
of about five million bbl/d.\8\
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\7\See U.S. Energy Information Administration, U.S. Field
Production of Crude Oil. U.S. field production of crude oil averaged
9,612,000 bbl/d in April of 2015, an amount not recorded since May of
1971; production averaged 5,001,000 bbl/d in 2008.
\8\See U.S. Energy Information Administration, U.S. Net Imports by
Country. U.S. net imports of crude oil and petroleum products averaged
5,065,000 bbl/d in 2014. See also U.S. Energy Information
Administration, Exports. Total exports of crude oil and petroleum
products averaged 4,176,000 bbl/d in 2014; of that, finished petroleum
products averaged 2,717,000 bbl/d and crude oil averaged 351,000 bbl/d.
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With no export restrictions in place, the U.S. is the
world's leading exporter of refined petroleum products. There
are 137 refineries in the U.S. with a total operable capacity
of about eighteen million barrels per day of petroleum.\9\ Each
refinery has its own unique configuration designed to
economically optimize the use of certain crude oil blends. Many
of the refineries in the U.S. are optimized to process heavier
oils than most of the shale oil produced in the U.S., although
today, they are running at record level to accommodate the
increasing production.\10\ However, transportation bottlenecks
and limited refinery demand have placed downward pressure on
domestic crude oil prices.
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\9\See U.S. Energy Information Administration, Number and Capacity
of Petroleum Refineries.
\10\ See U.S. Energy Information Administration, Refinery
Utilization and Capacity. In 2014, an average of 90.4% of operable
capacity at U.S. refineries was utilized; gross inputs to refineries
averaged 16,156,000 bbl/d in the same period.
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CHANGING DYNAMICS OF WORLD ENERGY MARKETS AND THE DOMESTIC CRUDE OIL
PRICE DISCOUNT
Historically, U.S. oil prices have been in line with
international prices. However, in recent years, U.S. crude oil
has sold at a substantially lower price than international
levels, in part because of crude oil export restrictions. The
Brent-WTI spread, the difference between the prices of Brent
crude from the North Sea (international benchmark) and West
Texas Intermediate crude (WTI) (domestic benchmark) is expected
to remain around $6/bbl into the foreseeable future.\11\
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\11\See U.S. Energy Information Administration, Annual Energy
Outlook 2015.
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These changing market dynamics were addressed in testimony
before the Subcommittee on Energy and Power on March 3, 2015.
For example, Mr. Scott Sheffield, Chairman and Chief Executive
Officer of Pioneer Natural Resources Company remarked:
Prices for U.S. crude oil continue to weaken,
compared to international prices. A massive buildup of
oil is occurring in the United States, surpassing the
volumes that domestic refineries are interested in
buying. Storage of domestic crude oil is at an 80-year
seasonal high--over 434 million barrels--and storage
capacity is running out. This is symptomatic of the
combination of the export ban and the limited appetite
for light tight oil among the only customers we can
access. Absent the ban, U.S. producers could be selling
their crude oil abroad and driving global crude oil
prices lower by increasing global supply.
The substantial increase in U.S. crude oil production has
spurred questions about how the new supplies will be absorbed.
In his testimony on March 3, 2015, Mr. Charles Drevna,
President of the American Fuel and Petrochemical Manufacturers
observed that ``[r]efiners have already started to adapt to
increased domestic production by reducing imports, increasing
utilization, changing the crude mix, and investing in
additional refinery changes. The U.S. has reduced crude oil
imports from outside North America from 46 percent in 2007 to
23 percent in 2014.''
Mr. Drevna testified further that ``[t]he enormous growth
in U.S. crude oil production has naturally led to questions
about whether it is time for the U.S. to address the crude oil
export ban. AFPM believes that the free market should drive all
energy policy and does not oppose lifting the ban.''
The price differential between domestic crude oil and the
international crude oil benchmarks also was discussed in the
Subcommittee on Energy and Power's July 9, 2015 hearing. Dr.
David Montgomery, an economist testifying on behalf of NERA
Economic Consulting, stated:
The clearest evidence that restrictions on exports
are still limiting oil production is the price of light
oil produced from the Bakken and other tight formations
continues to be depressed below comparable crudes on
the world market. This type of oil needs to be
exported, because refineries in the U.S. were not
designed to use the quantities of light crude that we
now produce without costly changes in operation or
equipment.
Dr. Montgomery testified further:
The ``actual prices available at the wellhead'' that
concern EIA are still being depressed by export
restrictions, which as a result continue to hold down
U.S. production.
The differential between prices of Bakken oil in
North Dakota and prices that are indicative of
international oil prices gives an indication of how
much oil export restrictions are depressing prices and
production. That differential would be reduced if
restrictions were lifted, providing the needed
incentive for production to increase.
BENEFITS OF REMOVING U.S. CRUDE OIL EXPORT RESTRICTIONS
Lifting all restrictions and allowing U.S. exports to reach
global oil markets would strengthen the U.S. economy, improve
the nation's energy security, and enhance national security.
This consensus is supported by several studies from government,
academic, and private sector experts, which were submitted for
the record during the Subcommittee on Energy and Power's July
9, 2015 hearing.\12\ The Subcommittee also received testimony
with supporting examples where lifting the restrictions on
exports was shown to be in the national interest.
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\12\See, e.g. U.S. Government Accountability Office, ``Crude Oil
Export Restrictions, Studies Suggest Allowing Exports Could Reduce
Consumer Fuel Prices,'' July 8, 2015; Energy Information
Administration, ``What Drives U.S. Gasoline Prices,'' October, 30,
2014; The Brookings Institution, ``Changing Markets: Economic
Opportunities from Lifting the U.S. Ban on Crude Oil Exports,''
September 2014; Heritage Foundation, ``Time to Lift the Ban on Crude
Oil Exports,'' May 15, 2014; Council on Foreign Relations, ``The Case
for Allowing U.S. Crude Oil Exports,'' July 2013; Center for Strategic
& International Studies, ``Delivering the Goods: Making the Most of
North America's Evolving Oil Infrastructure,'' February 2015; Cato
Institute; ``License to Drill: The Case for Modernizing America's Crude
Oil and Natural Gas Export Licensing Systems,'' February 21, 2013;
Aspen Institute, ``Lifting the Crude Oil Export Ban: The Impact on U.S.
Manufacturing,'' October 2014; Center for New American Security,
``Energy Rush: Shale Production and U.S. National Security,'' February
2014; Resources for the Future, ``Lifting the Oil Export Ban: What
Would it Mean for U.S. Gasoline Prices?'' April 11, 2014; Peterson
Institute for International Economics, ``U.S. Policies toward Liquefied
Natural Gas and Oil Exports: An Update,'' July 2014; ICF International,
``The Impacts of U.S. Oil Export on Domestic Crude Production, GDP,
Employment, Trade, and Consumer Costs,'' March 31, 2014; IHS, ``U.S.
Crude Oil Export Decision,'' 2014 and ``Crude Oil Supply Chain,'' 2015;
NERA Economic Consulting, ``Economic Benefits of Lifting the Crude Oil
Export Ban,'' September 2014; Harvard Business School, ``America's
Unconventional Opportunity,'' 2015; Rice University Baker Institute for
Public Policy, ``To Lift or Not to Lift'' The U.S. Crude Oil Export
Ban: Implication for Price and Energy Security,'' June 18, 2015; and
Columbia University SIPA Center on Global Energy Policy, ``Navigating
the U.S. Oil Export Debate,'' January 2015.
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Economic benefits oil exports
The Committee believes that allowing crude oil produced in
the U.S. to reach a global customer base would provide broad
economic benefits to the U.S. Unrestricted U.S. exports of
crude oil would incentivize domestic production, which would
spur economic investment and create jobs, benefitting
communities across the country. The increased production likely
would lower gasoline prices for consumers while improving our
balance of trade and providing steady tax revenue to State and
local governments.
Reports by the U.S. Government Accountability Office (GAO)
indicate that removing export restrictions would increase
domestic production up to 3.3 million barrels per day on
average from 2015 through 2035, and lower consumer fuel prices
from 1.5-13 cents per gallon. GAO reports also suggest that
removing restrictions is expected to increase the size of the
economy, with implications for employment, investment, public
revenue, and trade.\13\
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\13\See U.S. Government Accountability Office, ``Changing Crude Oil
Markets: Allowing Exports Could Reduce Consumer Fuel Prices, and the
Size of the Strategic Reserves Should Be Reexamined,'' October 20,
2014. See also U.S. Government Accountability Office, ``Crude Oil
Export Restrictions: Studies Suggest Allowing Exports Could Reduce
Consumer Fuel Prices,'' July 8, 2015.
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EIA's examination of the implications of removing
restrictions on U.S. crude oil exports supports the findings by
GAO and those that emerged in the Subcommittee's hearing
record. In a summary report following a series of studies, EIA
stated that ``petroleum prices in the United States, including
gasoline prices, would be either unchanged or slightly reduced
by the removal of current restrictions on crude oil
exports.''\14\
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\14\See U.S. Energy Information Administration, ``Effects of
Removing Restrictions on U.S. Crude Oil Exports,'' September 1, 2015.
See also ``What Drives Gasoline Prices,'' October 2014; and
``Implications of Increasing Light Oil Production for U.S. Refining,''
May 2015.
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During the Subcommittee on Energy and Power's July 9, 2015
hearing, Dr. David Montgomery, Senior Vice President at NERA
Economic Consulting, summarized the effects of U.S. oil export
restrictions in terms of the harm it imposes on the U.S.
economy. Dr. Montgomery testified that ``[t]he NERA study found
that across all the scenarios we examined, restrictions on oil
exports reduce U.S. GDP, slow down job growth and recovery from
the recession, and cause higher gasoline prices.''
Dr. Montgomery testified further that ``I still conclude
that restrictions on U.S. crude oil exports impose those costs
on the U.S. economy, lead to less crude oil production in the
U.S. and cause higher gasoline prices for consumers than there
would be if these restriction were lifted.''
Energy security benefits of oil exports
Lifting restrictions on U.S. crude oil exports has been
found by GAO and others to improve the U.S. balance of trade
and reduce reliance on imports.\15\ Witnesses during the
Subcommittee on Energy and Power's July 7, 2015 hearing agreed.
Dr. David Montgomery explained the relationship between crude
export restrictions and import dependence:
\15\See U.S. Government Accountability Office, ``Changing Crude Oil
Markets: Allowing Exports Could Reduce Consumer Fuel Prices, and the
Size of the Strategic Reserves Should Be Reexamined,'' October 20,
2014.
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Removing restrictions on oil exports would improve
our balance of trade and reduce import dependence . . .
Our balance of trade and import dependence are
functions of net imports, that is the difference
between the amount exported and the amount imported . .
. Thus, unless refined product consumption increases,
any increase in crude production reduces net imports.
National security benefits of oil exports
The U.S. should lead by example when it comes to energy.
Removing restrictions on oil exports likely would result in
increased domestic production, which would, in turn, add supply
to the market and reduce global price volatility. U.S. oil
exports also would allow U.S. allies in Europe and Asia to
diversify their crude oil supply away from OPEC and Russia.
Allowing U.S. oil exports also would strengthen America's
economic power, furthering our global influence.
The impact of lifting crude oil export restrictions on
national security and energy diplomacy were examined in the
Subcommittee on Energy and Power's March 3, 2015 hearing. For
example, Ms. Amy Jaffe testified that ``[i]n the global
context, hoarding energy supplies inside our borders sends the
message to other countries that they too should be hoarding
their energy. Such attitudes were precisely what worsened the
economic damage to the global economy during the 1979 oil
crisis.''
During the Subcommittee on Energy and Power hearing on July
9, 2015, Ambassador Petr Gandalovic, Ambassador of the Czech
Republic to the United States, gave his nation's perspective as
a U.S. ally:
The larger the number of stable democracies among the world
energy exporters, the more robust the energy security of the
Czech Republic and the European Union will be.
U.S. energy exports would send a strong signal to the world
community that democracies stick together.
EXCEPTIONS WARRANTING EXPORT RESTRICTIONS
The Committee believes that the U.S. should adhere to a
general policy allowing for unrestricted crude oil exports in
order to promote the efficient exploration, production,
storage, supply, marketing, pricing, and regulation of energy
resources. The Committee recognizes that export restrictions
may be warranted in special circumstances for reasons of
national security. H.R. 702 is not intended to limit the
authority of the President to prohibit exports in such
circumstances.
STRATEGIC PETROLEUM RESERVE
The Strategic Petroleum Reserve was authorized by EPCA to
provide strategic and economic security against a supply
interruption and fulfill U.S. obligations under the
International Energy Program.\16\ The SPR is a network of
underground storage caverns at four sites in Louisiana and
Texas. The SPR currently holds about 695 million barrels of
oil, representing the largest stockpile of petroleum in the
world. The SPR holds the equivalent of 137 days of import
protection based on 2014 net petroleum imports, while the U.S.
commitment to the International Energy Agency is ninety days of
import protection.
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\16\ See 42 U.S.C. Sec. 6234
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The infrastructure and equipment to support a drawdown
across the SPR is both large and complex. Given the changes in
U.S. and international energy markets, and the fact that many
of the SPR's facilities are reaching the end of their design
life, the comprehensive review directed by H.R. 702 is
warranted. The state of the SPR was a focus of the Subcommittee
on Energy and Power's April 30, 2015 hearing. Assistant
Secretary Christopher Smith, Department of Energy, testified in
support of such a study, stating:
The global environment in which [the SPR] operates
has changed markedly since its creation in the 1970's.
At that time, the mission of the SPR was to avoid
``national energy supply shortages'' (i.e. a loss of
supply to U.S. refineries). Today, the impacts of an
overall supply disruption of global oil markets would
have the same effect on domestic petroleum prices,
regardless of U.S. oil import levels or whether or not
U.S. refineries import crude oil from disrupted
countries.
In response to these changing dynamics, the
Department has initiated work on a comprehensive long-
term strategic review of the SPR. The SPR will examine
future SPR requirements regarding the size,
composition, and geographic location of the Reserve;
and determine the impact of these requirements on
future SPR surface, below-ground, and distribution
infrastructure.
Hearings
The Subcommittee on Energy and Power held a legislative
hearing on H.R. 702 on July 9, 2015, and prior hearings
examining crude oil export restrictions and the Strategic
Petroleum Reserve. The hearings and witnesses included the
following:
On July 9, 2015, the Subcommittee held a hearing entitled
``H.R. 702, Legislation to Prohibit Restrictions on the Export
of Crude Oil'' and received testimony from:
Peter Gandalovic, Ambassador to the United
States, Czech Republic;
Mark Kreinbihl, Group President, The Gorman-
Rupp Company;
Kirk Lippold, Commander, USN (Ret.),
President, Lippold Strategies; and
David Montgomery, Ph.D., Senior Vice
President, NERA Economic Consulting.
On April 30, 2015, the Subcommittee on Energy and Power
held a hearing entitled ``Strategic Petroleum Reserve
Discussion Draft and Title IV Energy Efficiency'' and received
testimony from:
The Honorable Christopher A. Smith,
Assistant Secretary for Fossil Energy, U.S. Department
of Energy.
On March 3, 2015, the Subcommittee held a hearing entitled
``21st Century Energy Markets: How the Changing Dynamics of
World Energy Markets Impact our Economy and Energy Security''
and received testimony from:
The Honorable Adam Sieminski, Administrator,
U.S. Energy Information Administration;
John Kingston, President, McGraw Hill
Financial Global Institute;
Amy Jaffe, Executive Director, Energy and
Sustainability, University of California, Davis;
Scott Sheffield, Chairman and Chief
Executive Officer, Pioneer Natural Resources;
Charles Drevna, President, American Fuel &
Petrochemical Manufacturers; and
Graeme Burnett, Senior Vice President for
Fuel Optimization, Delta Airlines.
On December 11, 2014, the Subcommittee on Energy and Power
held a hearing entitled ``The Energy Policy and Conservation
Act of 1975: Are We Positioning America for Success in an Era
of Energy Abundance?'' and received testimony from:
The Honorable Adam Sieminski, Administrator,
U.S. Energy Information Administration;
Lucian Pugliaresi, President, Energy Policy
Research Foundation, Inc.;
Charles Ebinger, Ph.D., Senior Fellow,
Energy Security Initiative, The Brookings Institution;
and
Deborah Gordon, Director, Energy and Climate
Program, Carnegie Endowment for International Peace.
Committee Consideration
On September 10, 2015, the Subcommittee on Energy and Power
met in open markup session to consider H.R. 702, and forwarded
the bill to the full Committee, without amendment, by a voice
vote. On September 17, 2015, Committee on Energy and Commerce
met in open markup session and ordered H.R. 702 reported to the
House, as amended, by a record vote of 31 yeas and 19 nays.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. The
following reflects the record votes taken during the Committee
consideration:
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee held hearings and made
findings that are reflected in this report.
Statement of General Performance Goals and Objectives
The goal of H.R. 702 is to amend the Energy and Policy
Conservation Act to prohibit the Federal Government from
imposing or enforcing any restriction on the export of crude
oil.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee finds that H.R.
702, would result in no new or increased budget authority,
entitlement authority, or tax expenditures or revenues.
Earmark, Limited Tax Benefits, and Limited Tariff Benefits
In compliance with clause 9(e), 9(f), and 9(g) of rule XXI
of the Rules of the House of Representatives, the Committee
finds that H.R. 702 contains no earmarks, limited tax benefits,
or limited tariff benefits.
Committee Cost Estimate
The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974. At the
time this report was filed, the estimate was not available.
Congressional Budget Office Estimate
At the time this report was filed, the cost estimate
prepared by the Director of the Congressional Budget Office
pursuant to section 402 of the Congressional Budget Act of 1974
was not available.
Federal Mandates Statement
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act.
Duplication of Federal Programs
No provision of H.R. 702 establishes or reauthorizes a
program of the Federal Government known to be duplicative of
another Federal program, a program that was included in any
report from the Government Accountability Office to Congress
pursuant to section 21 of Public Law 111-139, or a program
related to a program identified in the most recent Catalog of
Federal Domestic Assistance.
Disclosure of Directed Rule Makings
The Committee estimates that enacting H.R. 702 specifically
directs to be completed no rule makings within the meaning of 5
U.S.C. 551.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
Section-by-Section Analysis of the Legislation
Section 1. Findings
Section 1 would include findings that the United States:
Has enjoyed a renaissance in energy
production, establishing the United States as the
world's leading oil producer;
Upholds a commitment to free trade and open
markets and has consistently opposed attempts by other
nations to restrict the free flow of energy; and
Should remove all restrictions on the export
of crude oil, which will provide domestic economic
benefits, enhanced energy security, and flexibility in
foreign diplomacy.
Section 2. Repeal
Section 2 would repeal section 103 of the Energy Policy and
Conservation Act of 1975, relating to the authority of the
President to restrict the export of coal, petroleum products,
natural gas, or petrochemical feedstocks.
Section 3. National policy on oil export restriction
Section 3 would provide that, notwithstanding any other
provision of law, to promote the efficient exploration,
production, storage, supply, marketing, pricing, and regulation
of energy resources, including fossil fuels, no official of the
Federal Government shall impose or enforce any restriction on
the export of crude oil.
Section 4. Study and recommendations
Section 4 would direct the Secretary of Energy to conduct a
study on the appropriate size, composition, and purpose of the
Strategic Petroleum Reserve.
Section 5. Savings clause
Section 5 states that nothing in this Act limits the
authority of the President under the Constitution, the
International Emergency Economic Powers Act, the National
Emergencies Act, or Part B of title II of the Energy Policy and
Conservation Act to prohibit exports.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets and
existing law in which no change is proposed is shown in roman):
ENERGY POLICY AND CONSERVATION ACT
* * * * * * *
TABLE OF CONTENTS
* * * * * * *
TITLE I--MATTERS RELATED TO DOMESTIC SUPPLY AVAILABILITY
Part A--Domestic Supply
Sec. 101. Coal conversion.
[Sec. 103. Domestic use of energy supplies and related materials and
equipment.]
* * * * * * *
TITLE I--MATTERS RELATED TO DOMESTIC SUPPLY AVAILABILITY
Part A--Domestic Supply
* * * * * * *
[domestic use of energy supplies and related materials and equipment
[Sec. 103. (a) The President may, by rule, under such terms
and conditions as he determines to be appropriate and necessary
to carry out the purposes of this Act, restrict exports of--
[(1) coal, petroleum products, natural gas, or
petrochemical feedstocks, and
[(2) supplies of materials or equipment which he
determines to be necessary (A) to maintain or further
exploration, production, refining, or transportation of
energy supplies, or (B) for the construction or
maintenance of energy facilities within the United
States.
[(b)(1) The President shall exercise the authority provided
for in subsection (a) to promulgate a rule prohibiting the
export of crude oil and natural gas produced in the United
States, except that the President may, pursuant to paragraph
(2), exempt from such prohibition such crude oil or natural gas
exports which he determines to be consistent with the national
interest and the purposes of this Act.
[(2) Exemptions from any rule prohibiting crude oil or
natural gas exports shall be included in such rule or provided
for in an amendment thereto and may be based on the purpose for
export, class of seller or purchaser, country of destination,
or any other reasonable classification or basis as the
President determines to be appropriate and consistent with the
national interest and the purposes of this Act.
[(c) In order to implement any rule promulgated under
subsection (a) of this section, the President may request and,
if so, the Secretary of Commerce shall, pursuant to the
procedures established by the Export Administration Act of 1979
(but without regard to the phrase ``and to reduce the serious
inflationary impact of foreign demand'' in section 3(2)(C) of
such Act), impose such restrictions as specified in any rule
under subsection (a) on exports of coal, petroleum products,
natural gas, or petrochemical feedstocks, and such supplies of
materials and equipment.
[(d) Any finding by the President pursuant to subsection (a)
or (b) and any action taken by the Secretary of Commerce
pursuant thereto shall take into account the national interest
as related to the need to leave uninterrupted or unimpaired--
[(1) exchanges in similar quantity for convenience or
increased efficiency of transportation with persons or
the government of a foreign state,
[(2) temporary exports for convenience or increased
efficiency of transportation across parts of an
adjacent foreign state which exports reenter the United
States, and
[(3) the historical trading relations of the United
States with Canada and Mexico.
[(e)(1) The provisions of subchapter II of chapter 5 of title
5, United States Code, shall apply with respect to the
promulgation of any rule pursuant to this section, except that
the President may waive the requirement pertaining to the
notice of proposed rulemaking or period for comment only if he
finds that compliance with such requirements may seriously
impair his ability to impose effective and timely prohibitions
on exports.
[(2) In the event such notice and comment period are waived
with respect to a rule promulgated under this section, the
President shall afford interested persons an opportunity to
comment on any such rule at the earliest practicable date
thereafter.
[(3) If the President determines to request the Secretary of
Commerce to impose specified restrictions as provided for in
subsection (c), the enforcement and penalty provisions of the
Export Administration Act of 1969 shall apply, in lieu of this
Act, to any violation of such restrictions.
[(f) The President shall submit quarterly reports to the
Congress concerning the administration of this section and any
findings made pursuant to subsection (a) or (b).]
* * * * * * *
DISSENTING VIEWS
H.R. 702, a bill ``to adapt to changing crude oil market
conditions'' was introduced in light of the growing interest in
lifting the long-standing prohibition on the export of crude
oil from the U.S., due to growing domestic supply and declining
prices for producers. The extreme approach taken by this bill
not only repeals current crude export restrictions, but also
ensures that no export restrictions--for any reason--could be
implemented or enforced in the future. Beyond incentivizing a
major increase in domestic oil production, the vaguely drafted
provisions of the bill could have potentially vast consequences
for consumers, the environment and climate change, and national
security.
BACKGROUND
The Energy Policy and Conservation Act of 1975 (EPCA) is
the primary statute restricting the export of domestically
produced crude oil. EPCA was enacted in the wake of the 1973
embargo of crude oil deliveries to the U.S. by the Organization
of Arab Petroleum Exporting Countries (OPEC). The embargo
resulted in rapid increases in the price of imported crude oil,
raising concerns about the scarcity of domestic oil resources
and the U.S. reliance on foreign oil.\1\
---------------------------------------------------------------------------
\1\Congressional Research Service, The Strategic Petroleum Reserve:
Authorization, Operation, and Drawdown Policy (Aug. 27, 2013) (R42460)
(online at www.crs.gov/pdfloader/R42460). The price of imported crude
oil rose from roughly $4 per barrel in the last quarter of 1973 to an
average price of $12.50 per barrel in 1974.
---------------------------------------------------------------------------
EPCA includes several provisions intended to mitigate the
impact of disruptions in the supply of petroleum products on
the U.S. The law directs the President to prohibit the export
of crude oil and natural gas produced in the United States,
unless doing so is determined to be in the national interest
and consistent with the purposes of EPCA. The law also
authorizes the Strategic Petroleum Reserve (SPR) for the
storage of up to 1 billion barrels of petroleum products.\2\
---------------------------------------------------------------------------
\2\Congressional Research Service, The Strategic Petroleum Reserve:
Authorization, Operation, and Drawdown Policy (Aug. 27, 2013) (R42460)
(online at www.crs.gov/pdfloader/R42460).
---------------------------------------------------------------------------
The Department of Commerce's Bureau of Industry and
Security (BIS) is responsible for regulating crude oil exports
by issuing licenses to interested companies.\3\ In accordance
with EPCA's general prohibition on crude oil exports and
regulations issued pursuant to the 1979 Export Administration
Act, BIS will only approve export licenses for the following
transactions:
---------------------------------------------------------------------------
\3\Congressional Research Service, U.S. Oil Imports and Exports
(Apr. 4, 2012) (R42465) (online at www.crs.gov/pdfloader/R42465).
---------------------------------------------------------------------------
Exports from Alaska's Cook Inlet;
Exports to Canada for consumption or use
therein;
Exports in connection with refining or
exchange of SPR oil;
Exports of heavy California crude oil up to
an average of 25,000 barrels per day (b/d);
Exports that are consistent with
international agreements;
Exports that are consistent with findings
made by the President; and
Exports of foreign-origin crude that has not
been commingled with U.S. crude oil.\4\
---------------------------------------------------------------------------
\4\15 CFR Sec. 754.2(b)(1).
---------------------------------------------------------------------------
BIS also considers export license applications for
exchanges involving crude oil on a case-by-case basis. BIS
typically approves these export licenses only if the exchange
is temporary, or under specific exceptional circumstances.\5\
---------------------------------------------------------------------------
\5\Id. at (b)(2).
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Over the past several years, the number of approved
applications and the level of crude oil exports have steadily
increased. The number of approved crude oil license
applications grew from 31 approved applications in FY 2008 to
189 approved applications in FY 2014.\6\ In the first five
months of 2015 crude exports have averaged 491,000 b/d, going
primarily to Canada.\7\
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\6\Congressional Research Service, U.S. Crude Oil Export Policy:
Background and Considerations, at 10 (Dec. 31, 2014) (R43442) (online
at www.crs.gov/pdfloader/R43442).
\7\U.S. Energy Information Administration, Effects of Removing
Restrictions on U.S. Crude Oil Exports (Sept. 2, 2015) (online at
www.eia.gov/analysis/requests/crude-exports/pdf/fullreport.pdf); U.S.
Energy Information Administration, Exports by Destination (online at
www.eia.gov/dnav/pet/PET_MOVE_EXPC_A_EPC0_EEX_MBBLPD_M.htm).
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A. Crude oil production
Domestic crude oil production has increased significantly
over the past few years, reversing a decline that began in
1986. According to the U.S. Energy Information Administration
(EIA) U.S. crude oil production increased from 5.1 million b/d
in 2007 to an estimated 9.4 million b/d in the first half of
2015.\8\ EIA currently projects crude oil production to average
9.2 million b/d in 2015, and then drop to 8.8 million b/d in
2016.\9\ EIA also notes that tight oil development is still at
an early stage, and that changes in U.S. crude oil production
can be affected by technological advances which allow
production to occur in potentially high-yielding tight
formations.
---------------------------------------------------------------------------
\8\U.S. Energy Information Administration, Short-Term Energy
Outlook September 2015, at 7 (Sept. 9, 2015) (online at www.eia.gov/
forecasts/steo/pdf/steo_full.pdf).
\9\Id. at 6.
---------------------------------------------------------------------------
However, EIA projections suggest that the recent gains in
tight oil production may be temporary. EIA projects that
domestic production slows after 2015, and expects that ``after
2020, tight oil production declines, as drilling moves into
less productive areas.''\10\
---------------------------------------------------------------------------
\10\U.S. Energy Information Administration, U.S. Crude Oil
Production to 2025: Updated Projection of Crude Types, at 1 (May 29,
2015) (online at www.eia.gov/analysis/petroleum/crudetypes/pdf/
crudetypes.pdf).
---------------------------------------------------------------------------
In its 2015 Annual Energy Outlook Reference Case, EIA
projects all domestic crude production to peak at 10.6 million
b/d in 2020.\11\ If the price of oil remains well below $100
per barrel, EIA projects domestic production to only reach 10
million b/d in the same year.\12\ Should domestic production
significantly expand like in the ``High Oil and Gas Resource''
case, production could continue to climb to a high of 16.6
million b/d in 2040.\13\
---------------------------------------------------------------------------
\11\U.S. Energy Information Administration, Annual Energy Outlook
2015, at 18 (Apr. 2015) (online at www.eia.gov/forecasts/aeo/pdf/
0383(2015).pdf).
\12\Id.
\13\Id. at ES-4.
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B. U.S. refining capacity
As of January 1, 2015, the United States had 140 operating
refineries with a total crude oil processing capacity of
roughly 18 million b/d.\14\ Each refinery has its own unique
configuration that is generally designed to economically
optimize the use of a certain crude oil blend and the
production of oil products that will maximize profit
margins.\15\ More than 50% of the refining capacity in the U.S.
is located in the Gulf Coast region, where the refineries are
configured to process heavy crude. Refining of light sweet
crude is concentrated primarily on the east coast.\16\
---------------------------------------------------------------------------
\14\U.S. Energy Information Administration, Refinery Capacity
Report (Jun. 18, 2015) (online at www.eia.gov/petroleum/
refinerycapacity/refcap15.pdf).
\15\Congressional Research Service, U.S. Crude Oil Export Policy:
Background and Considerations (Dec. 31, 2014) (R43442) (online at
www.crs.gov/pdfloader/R43442).
\16\U.S. Energy Information Administration, This Week in Petroleum:
Regional refinery trends continue to evolve (Jan. 7, 2015) (online at
www.eia.gov/petroleum/weekly/archive/2015/150107/includes/
analysis_print.cfm).
---------------------------------------------------------------------------
C. Imports of crude oil
Despite increased production, the U.S. remains heavily
dependent on imports of crude oil. In June 2015, the U.S.
imported an average of 6.9 million b/d of crude oil.\17\ In
2014, U.S. imports declined to an estimated 26% of the
petroleum it consumed.\18\ This is the result of a variety of
factors, including a rise in domestic oil production and a
decreased demand for petroleum products--due to increased
alternative fuel use, higher fuel efficiency standards and the
overall economic downturn. EIA projects that net U.S. petroleum
imports will fall to 21% of consumption in 2016, which would be
the lowest level since 1969.\19\
---------------------------------------------------------------------------
\17\U.S. Energy Information Administration, U.S. Net Imports of
Crude Oil (Aug. 31, 2015) (online at www.eia.gov/dnav/pet/hist/
LeafHandler.ashx?n=PET&s =MCRNTUS2&f=M).
\18\U.S. Energy Information Administration, Monthly Energy Review
August 2015 (Aug. 26, 2015) (online at www.eia.gov/totalenergy/data/
monthly/). In 2005, U.S. imports made up 60% of consumption.
\19\U.S. Energy Information Administration, Short Term Energy
Outlook June 2015 (June 9, 2015) (online at www.eia.gov/forecasts/steo/
archives/Jun15.pdf).
---------------------------------------------------------------------------
Nearly the entire recent decline in crude oil imports has
occurred in light sweet crude which fell roughly 85% between
2010 and June 2015.\20\ Imports of light sweet crude to the
U.S. Gulf Coast have been virtually eliminated.\21\
---------------------------------------------------------------------------
\20\U.S. Energy Information Administration, Crude Imports, Imports
of lights sweet from World to Total U.S. (accessed Sept. 8, 2015)
(online at www.eia.gov/beta/petroleum/imports/ browser/#/
?chartindexed=1&e=201504&f=m&g=g&s=201001&v=l&vs=PET_IMPORTSWORLD-US-
G.M).
\21\U.S. Energy Information Administration, EIA tracking tool shows
light-sweet crude oil imports to Gulf Coast virtually eliminated (Feb.
10, 2015) (online at www.eia.gov/todayinenergy/detail.cfm?id=19931).
---------------------------------------------------------------------------
D. Volatility in global oil market
Starting in the second half of 2014 the price of a barrel
of oil fell rapidly. The price of futures contracts for West
Texas Intermediate crude oil (WTI), the main U.S. benchmark oil
price, fell from approximately $100 per barrel in July 2014, to
the current price of around $46 per barrel.\22\
---------------------------------------------------------------------------
\22\U.S. Energy Information Administration, Cushing, OK Crude Oil
Future Contract 1 (Sept. 24, 2015) (online at www.eia.gov/dnav/pet/
hist/LeafHandler.ashx?n=pet&s=rclc1&f=d).
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Analysts have identified several factors contributing to
the recent fall in global oil prices, including: decreased
demand in Europe and Asia; significantly increased production
by the world's major oil producers; and OPEC's decision to
maintain current production levels in order to secure their
share of the global market.\23\ In fact, a recent analysis
estimates that oil prices could fall as low as $20 per barrel
due to oversupply, and that U.S. production is ``the likely
near-term source of supply adjustment'' since OPEC has
maintained its market share by producing ``above its 30-
million-barrel-a-day quota for the past 15 months.''\24\
---------------------------------------------------------------------------
\23\Congressional Research Service, Lower Oil Prices 2015 (Jan. 6,
2015); A Simple Guide to the Sudden Collapse in Oil Prices, Washington
Post (Dec. 1, 2014) (online at www.washingtonpost.com/blogs/wonkblog/
wp/2014/11/28/a-simple-guide-to-the-sudden-collapse-in-oil-prices/)
\24\How Low Can Oil Go? Goldman Says $20 a Barrel Is a Possibility,
Bloomberg Business (Sept. 11, 2015) (online at www.bloomberg.com/news/
articles/2015-09-11/-20-oil-possible-for-goldman-as-forecasts-cut-on-
growing-glut).
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ANALYSIS OF H.R. 702, A BILL ``TO ADAPT TO CHANGING CRUDE OIL MARKET
CONDITIONS''
The following is a brief summary and analysis of the
legislation.
A. Summary of H.R. 702
H.R. 702 lifts the ban on crude exports by repealing the
Presidential authority to restrict exports of coal, petroleum
products, natural gas, or petrochemical feedstocks under
section 103 of Energy Policy and Conservation Act of 1975
(EPCA).\25\ Section 3 of the bill also establishes a national
policy on oil export restriction, preventing any official of
the federal government from imposing or enforcing any
restriction on the export of crude oil.\26\
---------------------------------------------------------------------------
\25\H.R. 702, a bill to adapt to changing crude oil market
conditions Sec. 2; Pub. L. No. 94-163 (1975).
\26\H.R. 702 Sec. 3.
---------------------------------------------------------------------------
Section 4 requires the Secretary of Energy to conduct a
study and develop recommendations on the ``appropriate size,
composition, and purpose of the Strategic Petroleum Reserve.''
The study and its accompanying recommendations would be due to
the House Committee on Energy and Commerce and Senate Committee
on Energy and Natural Resources within 120 days of
enactment.\27\
---------------------------------------------------------------------------
\27\Id. at Sec. 4.
---------------------------------------------------------------------------
Section 5 is a savings clause which aims to preserve some
of the President's authority to restrict exports for reasons of
national security. This section was added during the Full
Committee markup by an amendment offered by Rep. Green.
B. Issues raised by the Bill
The boom in domestic crude oil production and anticipation
of continued growth has led to increased calls to lift the
limitations on crude oil exports. As described in a recent
analysis by the Center for American Progress, ``the economic,
national security, and environmental impacts of changing long-
standing U.S. crude oil policy are neither well-documented nor
well-understood.''\28\
---------------------------------------------------------------------------
\28\Center for American Progress, The Environmental Impacts of
Exporting More American Crude Oil (Aug. 21, 2015) (online at
www.americanprogress.org/issues/green/news/2015/08/21/119756/the-
environmental-impacts-of-exporting-more-american-crude-oil/).
---------------------------------------------------------------------------
1. Economic Impacts
The economic impact of lifting the crude export ban is an
area of considerable uncertainty and disagreement.\29\
Proponents of lifting the current export restrictions,
including major oil producers, have argued that significant
increases in production for purposes of export would result in
lower oil and gasoline prices.\30\ But according to a recent
study by EIA, the anticipated price of oil and gasoline would
be virtually unchanged by an easing of export restrictions:
``[w]hile removing restrictions on U.S. crude oil exports
either leaves global prices unchanged or lowers them modestly,
global price drivers unrelated to U.S. crude oil export policy
will affect growth in U.S. crude oil production and exports of
crude oil and products whether or not current export
restrictions are removed.''\31\
---------------------------------------------------------------------------
\29\U.S. Energy Information Administration, What Drives U.S.
Gasoline Prices? (Oct. 30, 2014) (online at www.eia.gov/analysis/
studies/gasoline/pdf/gasolinepricestudy.pdf).
\30\ According to two commonly cited studies by IHS and ICF
International, reductions in oil prices would be anywhere from $0.25 to
$5 per barrel (Brent prices), and lower gasoline prices would range
from $0.014 to $0.12 per gallon. See IHS, U.S. Crude Oil Export
Decision: Assessing the Impact of the Export Ban and Free Trade on the
U.S. Economy (May 29, 2014); ICF International, for the American
Petroleum Institute, The Impacts of U.S. Crude Oil Exports on Domestic
Crude Production, GDP, Employment, Trade, and Consumer Costs (Mar. 31,
2014).
\31\U.S. Energy Information Administration, Effects of Removing
Restrictions on U.S. Crude Oil Exports, at x (Sept. 2, 2015) (online at
www.eia.gov/analysis/requests/crude-exports/pdf/fullreport.pdf).
---------------------------------------------------------------------------
Further, U.S. consumers have actually enjoyed significant
discounts on gasoline thanks to the combination of increased
domestic production, decreased fuel demand, and export
restrictions. A recent study found that annually, consumers in
the Midwest, Gulf Coast and East Coast have saved approximately
$6.1 billion, $6.7 billion, and $2.9 billion respectively.\32\
And Barclays estimates that ``the annual economic benefit of
crude discounts to U.S. consumers is potentially greater than
$10.2 billion.''\33\
---------------------------------------------------------------------------
\32\Baker & O'Brien Inc., An Analysis of the Relationship Between
U.S. Gasoline Prices and Crude Oil Prices (Sept. 2, 2015) (online at
crudecoalition.org/app/uploads/2015/09/Baker-OBrien-report-09-01-
2015.pdf).
\33\Barclays Equity Research, Crude Export Ban: Impact on Gasoline
Prices, 2015 Edition (May 13, 2015) (online at crudecoalition.org/app/
uploads/2015/02/ENERGY_CRUDE_EXPORT_BAN_1035047681.pdf).
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Another argument commonly used in favor of lifting export
restrictions is that an oversupply of light crude in the U.S.
has emerged due to a mismatch between the light sweet oil being
produced and configurations of the U.S. refining capacity, much
of which is optimized to run heavy sour crude. Opponents of
lifting crude export restrictions, including many independent
refiners, have challenged this premise of U.S. market and
refining system oversaturation. During a March 3, 2015 hearing,
a representative of the domestic refining industry noted that
``U.S. refiners have plenty of room to accommodate new,
domestic supplies of light crude oil, with additional capacity
to further grow U.S. production. The refining industry is
constantly shifting crude slates to maximize efficiency and to
meet consumer demand.''\34\
---------------------------------------------------------------------------
\34\House Committee on Energy and commerce, Subcommittee on Energy
and Power, Testimony of Charles Drevna, President of the American Fuel
& Petrochemical Manufacturers, Hearing on 21st Century Energy Markets:
How the Changing Dynamics of World Energy Markets Impact our Economy
and Energy Security, 114th Cong. (Mar. 3, 2015).
---------------------------------------------------------------------------
The primary beneficiary of a shift in crude export policy
would likely be domestic oil producers. EIA notes that the
easing of crude export restrictions would likely result in a
$29.7 billion increase in gross revenue for oil producers in
2025.\35\ Further, ``allowing more crude oil exports could
result in $8.7 billion less investment in U.S. refining
capacity over the next 10 years.''\36\ CBO estimates that if
the restrictions on crude oil exports are lifted, ``the prices
of domestic light crude oils seen by some U.S. crude oil
producers and petroleum refiners would rise.''\37\ These price
increases would be seen primarily by refineries already
configured for processing light sweet crude, like those on the
east coast.\38\
---------------------------------------------------------------------------
\35\U.S. Energy Information Administration, Effects of Removing
Restrictions on U.S. Crude Oil Exports, at 23 (Sept. 2, 2015) (online
at www.eia.gov/analysis/requests/crude-exports/pdf/fullreport.pdf).
\36\Center for American Progress, The Environmental Impacts of
Exporting More American Crude Oil (Aug. 21, 2015) (online at
www.americanprogress.org/issues/green/news/2015/08/21/119756/the-
environmental-impacts-of-exporting-more-american-crude-oil/).
\37\Congressional Budget Office, The Economic and Budgetary Effects
of Producing Oil and Natural Gas From Shale (Dec. 7, 2014) (online at
www.cbo.gov/sites/default/files/cbofiles/attachments/49815-
Effects_of_Shale_Production.pdf).
\38\U.S. Energy Information Administration, This Week in Petroleum:
Regional refinery trends continue to evolve (Jan. 7, 2015) (online at
www.eia.gov/petroleum/weekly/archive/2015/150107/includes/
analysis_print.cfm).
---------------------------------------------------------------------------
2. Climate and environmental impacts
Maximizing U.S. oil production would exacerbate climate
change and increase the risks to the land, water and air.
According to a recent study, approximately one third of the
world's remaining oil reserves and half of the remaining gas
reserves should remain untouched over the next 40 years in
order to prevent the global average temperature from rising
more than 2+ C.\39\ An increase in oil production, consistent
with unrestricted crude exports, would run counter to U.S. and
global efforts to limit greenhouse gas emissions and prevent
catastrophic climate change.
---------------------------------------------------------------------------
\39\The geographical distribution of fossil fuels unused when
limiting global warming to 2+ C, Nature (Jan. 7, 2015) (online at
www.nature.com/nature/journal/v517/n7533/full/nature14016.html).
---------------------------------------------------------------------------
Further, the drilling boom has outpaced the building of
infrastructure necessary to control methane leaks from oil and
gas wells leading to increased emissions of this potent
greenhouse gas. The energy sector--including sources like
natural gas and petroleum systems--is the largest source of
U.S. methane emissions, accounting for 263.5 million metric
tons of CO2 equivalent in 2013.\40\ The lack of
infrastructure to capture the co-produced methane, combined
with low natural gas prices, often makes it cheaper for
industry to burn the gas rather than capture and process
it.\41\ So an increase in oil production--for purposes of
exportation--would likely result in significant increases in
uncontrolled greenhouse gas emissions.
---------------------------------------------------------------------------
\40\U.S. Environmental Protection Agency, Inventory of U.S.
Greenhouse Gas Emissions and Sinks: 1990-2013 (April 2015) (online at
http://epa.gov/climatechange/Downloads/ghgemissions/US-GHG-Inventory-
2015-Chapter-3-Energy.pdf).
\41\Gas flaring permits surge in Texas, Fuelfix.com (Apr. 9, 2012)
(online at fuelfix.com/blog/2012/04/09/gas-flaring-permits-surge-in-
texas/).
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3. National security impacts
Lifting the ban on crude exports would dramatically alter
decades of U.S. policies put in place to encourage energy
independence and security. This is particularly concerning in
light of section 3 of the bill, which prevents any future
restriction on the export of crude oil. As noted above, imports
of crude oil still represent over a quarter of the nation's
annual oil consumption.\42\ Even with continued production and
decreased demand, EIA estimates that total imports will only
drop to 17% in 2040 with current regulations in place.\43\
Lifting the ban on crude exports would hinder the predicted
decline in imports and leave the U.S. dependent on foreign
countries for more than a quarter of its oil for decades.
---------------------------------------------------------------------------
\42\U.S. Energy Information Administration, Monthly Energy Review
August 2015 (Aug. 25, 2015) (online at www.eia.gov/totalenergy/data/
monthly/pdf/mer.pdf).
\43\U.S. Energy Information Administration, Annual Energy Outlook
2015, at ES-4 (Apr. 2015) (online at www.eia.gov/forecasts/aeo/pdf/
0383(2015).pdf).
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Critics of the ban on crude oil exports contend that access
to U.S. crude would decrease Europe's reliance on Russian oil
and free them from ``coercive energy supply policies''.\44\
This scenario is far from guaranteed. According to CRS, ``the
decision to export crude oil will be based on commercial and
economic considerations, not directed and controlled by the
federal government,'' therefore, ``predicting and quantifying
physical crude oil flows to a particular region in the world
under a non-restricted export scenario is difficult and is
subject to several assumptions that may or may not be
realized.''\45\ European refineries are currently configured to
process Russia's medium sour crude and would need significant
time and capital to handle American light sweet crude.\46\ East
Asian markets are the most likely beneficiaries of American
crude oil exports, with China set up to be the top
purchaser.\47\
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\44\Senate Oil Export Hearing Panelists Debate National Security
and Limited Refinery Capacity, Breaking Energy (Mar. 30, 2015) (online
at breakingenergy.com/2015/03/30/senate-oil-export-hearing-panelists-
debate-national-security-and-limited-refinery-capacity/).
\45\Congressional Research Service, Potential Market Effects of
Removing Crude Oil Export Restrictions: Eastern Europe (May 29, 2015).
\46\Senate Committee on Foreign Relations, Hearing on American
Energy Exports: Opportunities For U.S. Allies and U.S. National
Security, 114th Cong. (Jun. 23, 2015).
\47\Id.
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C. H.R. 702 Is not necessary
As noted above, the President currently has the authority
to permit crude oil exports under certain circumstances and
where appropriate. In fact, the Administration has already
taken a number of steps to do so on a gradual basis.
In 2014, BIS issued two private rulings to allow, without
license, the export of condensate.\48\ Until recently,
condensate was treated exclusively as a crude oil and subject
to export restrictions. When asked to clarify its decisions,
BIS stated, ``lease condensate that has been processed through
a crude oil distillation tower is not crude oil but a petroleum
product.''\49\ Some have questioned the Commerce Department's
process and legal rationale behind these private rulings,
highlighting the potential easing of restrictions on crude
exports.\50\ Despite the uncertainty surrounding the commodity
classification of condensate, refiners have already started
making significant investments in condensate splitters
(distillation towers) in order to extract and export the
resulting components without restriction.\51\ According to EIA,
an average of 84,000 b/d of condensate was exported during the
first five months of 2015.\52\
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\48\Condensate is the lightest form of hydrocarbons classified as
crude oil, and refers to very light hydrocarbons that exist as a gas
underground but condense to a liquid after reaching the pressure and
temperature at the earth's surface. Some tight oil deposits have very
high condensate content, for instance as much as half of all oil
production in the Eagle Ford Shale is believed to fall into the
condensate category. See e.g. Oil Change International, Should It Stay
or Should It Go? The Case Against U.S. Crude Oil Exports (Oct. 11,
2013) (online at priceofoil.org/content/uploads/2013/10/
OCI_Stay_or_Go_FINAL.pdf); What is Condensate? Introducing America's
New Oil Export, Wall Street Journal (June 25, 2014) (online at
blogs.wsj.com/corporate-intelligence/2014/06/25/what-is-condensate-
introducing-americas-new-oil-export/).
\49\U.S. Department of Commerce, Bureau of Industry and Security,
FAQs--Crude Oil and Petroleum Products (Dec. 30, 2014) (online at
www.bis.doc.gov/index.php/licensing/embassy-faq).
\50\Letter to Secretary Penny Pritzker, from Senators Edward J.
Markey and Robert Menendez (July 2, 2014) (online at
www.markey.senate.gov/imo/media/doc/2014-06-
25_Commerce_Condensate.pdf).
\51\U.S. Energy Information Administration, Presentation by Adam
Sieminski on the Effects of Low Oil Prices (Feb. 12, 2015) (online at
www.eia.gov/pressroom/presentations/sieminski_02122015.pdf);
Congressional Research Service, U.S. Crude Oil Export Policy:
Background and Considerations (Dec. 31, 2014) (R43442) (online at
www.crs.gov/pdfloader/R43442).
\52\U.S. Energy Information Administration, Effects of Removing
Restrictions on U.S. Crude Oil Exports, at vii (Sept. 2, 2015) (online
at www.eia.gov/analysis/requests/crude-exports/pdf/fullreport.pdf).
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On August 14, 2015, the Obama Administration approved
several applications for the exchange of U.S. crude oil for
similar quantities of oil from Mexico. The approval of these
crude oil ``swaps'' was widely interpreted to signal another
step by the Administration toward liberalizing restrictive U.S.
policy toward exports of domestic crude oil.\53\
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\53\See, e.g., U.S. approves landmark crude oil export swaps with
Mexico, Reuters (Aug. 14, 2015) (online at www.reuters.com/article/
2015/08/14/us-usa-oil-exports-exclusive-idUSKCN0QJ1RI20150814).
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When asked about the Administration's receptivity to H.R.
702, the White House Press Secretary replied: ``this is a
policy decision made over at the Commerce Department, and for
that reason we wouldn't support legislation like the one that
has been put forward by Republicans.''\54\
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\54\Vote Near to Repeal Ban on Oil Exports, House Leader Says, New
York Times (Sept. 15, 2015).
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D. H.R. 702 Is an extreme approach
H.R. 702 is a blunt instrument that not only does away with
the President's authority to restrict exports of crude oil, but
also prevents the federal government from imposing or enforcing
any restriction on the export of crude oil under any other
authority.
Section 2 of the bill repeals the President's ability to
restrict the export of domestic crude under section 103 of
EPCA. But section 103 authorizes restrictions not only on crude
oil exports, but all on exports of coal, natural gas, petroleum
products, and petrochemical feedstocks. Repealing this section,
as the underlying bill proposes to do, would eliminate the
authority to restrict any of these exports even for national
security reasons--such as an embargo.
Further, EPCA section 103 is the central authority for the
current exemptions to the crude oil ban. Its repeal could
undermine the criteria for export under statutes like the
Mineral Leasing Act, the Outer Continental Shelf Lands Act, and
the Trans-Alaska Pipeline Authorization Act.
Section 3 of the bill prohibits any federal official from
imposing or enforcing any restriction on the export of crude
oil. That would include BIS, which is tasked with issuing
export licenses for crude under certain circumstances. Under
section 3 of the bill, BIS could be prevented from ever denying
an export license.
Such heavy handed drafting also appears to impact far more
than just the export of crude. Since the term ``restriction''
is undefined, any federal action that could potentially impede
the ``efficient exploration, production, storage, supply,
marketing, pricing, and regulation of energy resources,
including fossil fuels'' could be considered a restriction. For
example, EPA's proposed measures to cut methane and volatile
organic chemical emissions from the oil and gas sector could be
considered a restriction. So could an order to shut down a
pipeline that the Secretary of Transportation has determined to
be a hazard to public safety and the environment under the
Pipeline Safety Act.
For the reasons stated above, specifically the potentially
vast adverse consequences this flawed legislation holds for
consumers, the environment and climate change, and national
security, I dissent from the views contained in the Committee's
report.
Frank Pallone, Jr.
[all]