[House Hearing, 113 Congress]
[From the U.S. Government Printing Office]

                           THE CRUDE TRUTH: 



                               BEFORE THE


                                 OF THE

                      COMMITTEE ON FOREIGN AFFAIRS
                        HOUSE OF REPRESENTATIVES


                             SECOND SESSION


                             APRIL 2, 2014


                           Serial No. 113-131


        Printed for the use of the Committee on Foreign Affairs

Available via the World Wide Web: http://www.foreignaffairs.house.gov/ 


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                      COMMITTEE ON FOREIGN AFFAIRS

                 EDWARD R. ROYCE, California, Chairman
DANA ROHRABACHER, California           Samoa
STEVE CHABOT, Ohio                   BRAD SHERMAN, California
JOE WILSON, South Carolina           GREGORY W. MEEKS, New York
MICHAEL T. McCAUL, Texas             ALBIO SIRES, New Jersey
TED POE, Texas                       GERALD E. CONNOLLY, Virginia
MATT SALMON, Arizona                 THEODORE E. DEUTCH, Florida
TOM MARINO, Pennsylvania             BRIAN HIGGINS, New York
JEFF DUNCAN, South Carolina          KAREN BASS, California
ADAM KINZINGER, Illinois             WILLIAM KEATING, Massachusetts
MO BROOKS, Alabama                   DAVID CICILLINE, Rhode Island
TOM COTTON, Arkansas                 ALAN GRAYSON, Florida
PAUL COOK, California                JUAN VARGAS, California
GEORGE HOLDING, North Carolina       BRADLEY S. SCHNEIDER, Illinois
SCOTT PERRY, Pennsylvania              Massachusetts
STEVE STOCKMAN, Texas                AMI BERA, California
RON DeSANTIS, Florida                ALAN S. LOWENTHAL, California
DOUG COLLINS, Georgia                GRACE MENG, New York
MARK MEADOWS, North Carolina         LOIS FRANKEL, Florida
TED S. YOHO, Florida                 TULSI GABBARD, Hawaii
LUKE MESSER, Indiana                 JOAQUIN CASTRO, Texas

     Amy Porter, Chief of Staff      Thomas Sheehy, Staff Director
               Jason Steinbaum, Democratic Staff Director

         Subcommittee on Terrorism, Nonproliferation, and Trade

                        TED POE, Texas, Chairman
JOE WILSON, South Carolina           BRAD SHERMAN, California
ADAM KINZINGER, Illinois             ALAN S. LOWENTHAL, California
MO BROOKS, Alabama                   JOAQUIN CASTRO, Texas
TOM COTTON, Arkansas                 JUAN VARGAS, California
PAUL COOK, California                BRADLEY S. SCHNEIDER, Illinois
SCOTT PERRY, Pennsylvania            JOSEPH P. KENNEDY III, 
TED S. YOHO, Florida                   Massachusetts

                            C O N T E N T S



The Honorable Lisa Murkowski, United States Senate...............     6
Mr. Michael Jennings, chief executive officer and president, 
  HollyFrontier Corporation......................................    11
Mr. Erik Milito, director, Upstream and Industry Operations, 
  American Petroleum Institute...................................    20
Kenneth B. Medlock III, Ph.D., senior director, Center for Energy 
  Studies, James A Baker III Institute for Public Policy.........    26
Ms. Deborah Gordon, senior associate, Energy and Climate Program, 
  Carnegie Endowment for International Peace.....................    40


The Honorable Lisa Murkowski: Prepared statement.................     8
Mr. Michael Jennings: Prepared statement.........................    14
Mr. Erik Milito: Prepared statement..............................    22
Kenneth B. Medlock III, Ph.D.: Prepared statement................    28
Ms. Deborah Gordon: Prepared statement...........................    42


Hearing notice...................................................    62
Hearing minutes..................................................    63

                           THE CRUDE TRUTH: 


                        WEDNESDAY, APRIL 2, 2014

                     House of Representatives,    

        Subcommittee on Terrorism, Nonproliferation, and Trade,

                     Committee on Foreign Affairs,

                            Washington, DC.

    The committee met, pursuant to notice, at 2 o'clock p.m., 
in room 2172 Rayburn House Office Building, Hon. Ted Poe 
(chairman of the subcommittee) presiding.
    Mr. Poe. Subcommittee will come to order. Without 
objection, all members may have 5 days to submit statements, 
questions and extraneous materials for the record subject to 
the length limitation in the rules.
    Until recently, United States crude production had been on 
a steady decline. In 1970, domestic production peaked at 9.6 
million barrels a day. By 2008, we were producing almost half. 
Only 5 million barrels were being pumped per day.
    Then America did what America does best, and innovated. New 
technologies of horizontal drilling and hydraulic fracturing 
ushered in an American energy revolution. Because of drilling 
in places like the Bakken and Eagle Ford, U.S. crude production 
has increased 56 percent since 2008.
    Some experts even believe that the United States will 
become the largest crude producer in the world by next year. 
But not all is good news. The oil being found in these places 
is light sweet crude.
    Unfortunately, the majority of the refineries connected to 
the production sites are built to handle heavy sour crude. We 
need new refineries, new pipelines to be built to process the 
light crude but, of course, that will take years.
    In the meantime, we should sell our light crude abroad to 
those who want to buy it. That would bring billions of dollars 
and thousands of jobs into the economy of the United States. It 
is an obvious solution for a simple problem.
    Unfortunately, the Federal Government seems to be in the 
way again. In 1975, the Energy Policy and Conservation Act was 
passed, making it illegal to export United States crude. It was 
at the height of the Arab oil embargo.
    Congress wanted to insulate Americans from global price 
shocks and conserve domestic oil reserves. In reality, this ban 
achieved neither of those goals. The ban has not insulated 
United States consumers from the world market.
    Domestic gasoline prices are largely set by the global 
crude price, not domestic price, since crude is a globally 
traded commodity. The United States still has to import about 
46 percent of our crude.
    These imports face market uncertainty just like every other 
traded good. Lifting the ban is what would actually protect 
domestic consumers. U.S. crude on the world market decreases 
the market share of bad actors like Iran and unstable countries 
like Algeria.
    U.S. crude exports could also lower the price at the pump. 
More supply with the same amount of demand means a lower price. 
A recent study by ICF International found that lifting the ban 
would lower gas prices 2.3 cents per gallon.
    That may not sound like a lot but remember Americans 
consume 133 billion gallons a year. So put it all together and 
Americans would save about $3 billion a year. Banning crude 
exports has not protected domestic reserves. It has stifled 
    For producers to want to drill they have to have a profit 
or make a profit. The crude export ban has driven the domestic 
price of crude so low that producers will not be able to make 
money off the drilling.
    If something isn't done, economists predict the drilling 
will slow in the next 18 to 36 months. Perfectly good oil will 
sit in the ground because the government restrictions are in 
the way.
    If domestic production companies are forced to cut back on 
drilling they are going to also be forced to lay off American 
    On the other hand, if we promote a smart energy policy we 
will increase production and grow these valuable jobs. So today 
we are going to examine the crude oil export ban and its 
implications for the United States economy, and the real 
question before us is will lifting the ban, one, help the 
United States economy, two, lower gasoline prices, three, have 
a positive impact on American consumers.
    We have differences of opinion on the answers to these 
questions and that is why we are having the hearing. So I now 
recognize our ranking member from California, Mr. Sherman, for 
5 minutes.
    Mr. Sherman. Thank you, Mr. Chairman, for having these 
hearings. We have had several hearings on the export of natural 
gas both in the subcommittee and at the full committee. I 
believe this is the first to focus on the export of petroleum.
    These are dramatically different economic situations. That 
is because you can ship a barrel of oil most of the way around 
the world for maybe 1 percent of its value whereas natural gas, 
to liquefy, transport and then regasify you are talking about 
40 percent of its value.
    There are some bottlenecks because every barrel of oil 
produced in the United States with the exception of some on the 
Alaska North Slope and 25,000 barrels of heavy crude oil from 
California has to find its way to the U.S. market and so there 
could be problems of a short-term nature and you could see 1 
percent wasted effort as we transport Alaskan crude to U.S. 
markets when it might be more efficient to transport Alaskan 
crude to Asian markets and import more from Africa or the 
Middle East.
    As we focus on the possibility of exports, I think a number 
of questions arise. First, what it will do to jobs, 
particularly in the shipping industry. We now have a 
requirement that domestically shipped oil has to be shipped on 
U.S. flagged, U.S. crewed--that is to say U.S. staffed ships 
but not necessarily ships built in the United States.
    Do we want to go further and require that the ships be 
built here and how important is that for our national security 
to have the infrastructure of U.S. shipbuilding and a merchant 
marine? We also have to look at whether we can require U.S. 
ships be used for the export of oil to Asian markets. Another 
issue that comes up is the federal--is the possibility of free 
trade agreements.
    We already see that free trade agreements with regard to 
natural gas indicate that it is automatically considered in the 
national interest to allow exports of natural gas to countries 
that we have free trade agreements with. Will the same apply to 
    Will the same apply to the Trans Pacific Partnership 
currently under negotiation? And under those trade agreements 
will we be able to require U.S. flagged ships, ships with U.S. 
crews, and U.S.-built ships?
    To me, the most important thing in allowing export is what 
will happen if there is a worldwide shortage or a market 
disruption. Why do we ban the export of U.S. crude? We did it 
in 1975 because we lived through 1973, and I think that we want 
to be in a situation where it is both legal and practical to 
require that U.S. crude be used only in the United States 
during a period that resembles 1973--when there is a shortage, 
a market disruption, a boycott or gas lines from some other 
    We can put that in law so it is legal and if the President 
declares a disruption of world petroleum markets but it also 
has to be practical. What will be the effect on our foreign 
relationships if in the middle of a worldwide shortage we stop 
oil tankers in the middle of the Pacific and require them to 
return to U.S. ports?
    What will be the practical effect of bringing that oil 
back, knowing that we will have built infrastructure on the 
idea that the U.S. will both export and import petroleum and 
now all of a sudden we are hoarding our own production for our 
own purposes?
    So I look forward to trying to resolve these problems 
because it is bad for our economy and bad for the environment 
to transport oil further than it would otherwise need to go or 
to mismatch produced oil with the refinery capacity, and I 
think it is in the interests of the environment not to have to 
transport oil further than it would otherwise have to go. Every 
ship is producing greenhouse gases.
    So I look forward to learning, especially from the U.S. 
Senator who has come to educate us, and look forward to the 
opening statements of others.
    Mr. Poe. I will now turn to the chairman of the full 
committee, Mr. Royce from California, for his opening comments.
    Mr. Royce. Well, thank you, Chairman Poe.
    I think you are holding a very important hearing at a very 
important time here as we start to think strategically about 
what it means in a world in which the United States 
increasingly has the capacity to ship oil to allies that are 
really under a great deal of pressure and how that could be 
used as part of our diplomatic efforts. As part of our efforts, 
for example, with Iran to maintain sanctions.
    One of the things that I think should give us pause is that 
in our efforts to deny the regime in Tehran nuclear weapons 
capability the United States and our European allies levied 
devastating sanctions against Iran by doing one thing primarily 
in the original bill and that was targeting their ability to 
export oil and that severely limited their crude oil sales and 
denied them the ability to repatriate hard currency from those 
    Now, the sanctions against Iranian crude are often 
described as Iran's Achilles heel, yet we are imposing the same 
kinds of sanctions on our own country if you--if you think 
through what we have done because we are--we are basically at a 
point where without the crude export relief valve oil companies 
will pull back on what will be increasingly uneconomic 
    And the relief valve here is one that we could have used 
more effectively with respect to our allies because there were 
five of our allies that were still taking oil shipments from 
Iran. We could have supplied that differential.
    We could have brought additional pressure to bear, and 
should again this situation in Iran not be--not be solved in 
ensuing months or years, my hope is that we will have the 
capacity to think about what we could do in order to step in.
    The same time--at the same time, the Russian annexation of 
the Crimean Peninsula was made easier by its energy grip over 
Eastern Europe and especially over Ukraine.
    Russia has large oil and gas reserves, not as large as 
ours. They don't produce as much as we do but they do--but 
almost as much, and it accounts for 70 percent of their trade 
and 52 percent of the budget for Russia that goes to support 
their military and their government.
    The crisis in Crimea has done little to dampen Russian oil 
sales and Putin is freely selling oil and gas around the world 
and especially in Eastern Europe at monopoly prices and thus 
has unfortunately a tremendous amount of influence there.
    As we look at our strategies for the future, and I am going 
to quote General Martin Dempsey here, Chairman of the Joint 
Chiefs of Staff, he says,

          ``As we look at our strategies for the future I think 
        we have got to pay more and particular attention to 
        energy as an instrument of national power, and I think 
        that has to be factored in to the equation here.
          ``If we increase our supply of oil, especially into 
        Eastern Europe, we will dent Russia's leverage on other 
        countries and reduce the revenues that fund Russia's 

    So, in addition, I think there is another point here and it 
is a wider point and it has to do with our domestic 
manufacturing and making certain that when practical we take 
oil from our allies such as Canada because we are less--we are 
less susceptible to risk--political risk--than to the extent 
that we are reliant upon others.
    That is reason one, and reason two is because if we don't 
have that pipeline built from Canada that pipeline will be 
built but it will be built west to Vancouver and that oil will 
be shipped to our economic competitor.
    So I believe the President should also stop blocking that 
long-delayed Keystone XL pipeline which would create, I think 
all of us agree, at least 20,000 direct jobs. There may be a 
disagreement on the number of indirect jobs.
    We think it is several hundred thousand. And it would 
enhance our energy security and partnership with Canada, our 
closest ally, one of our most reliable allies, and this is an 
opportunity not to be missed--an opportunity to reduce our 
vulnerability to political decisions and events in unfriendly 
countries that are also unstable.
    Yet, our Secretary of State is conducting yet another 
review and this one on the national security impacts of the 
pipeline, which will only further delay the project. So the 
time is now to end our self-imposed sanctions on energy exports 
to our allies.
    America leads the world with our dynamic and innovative 
energy sector. It is time we let it benefit our economy and our 
global security interests and, frankly, do something to benefit 
our--decrease our deficits and, frankly, increase the Russian 
deficit right now.
    So thank you.
    Mr. Poe. I thank the chairman.
    The chair recognizes Mr. Vargas from California for 1 
minute in his opening statement.
    Mr. Vargas. Thank you very much, your Honor. I appreciate 
the opportunity to speak.
    My question really is how does this affect the consumers in 
the United States. My understanding is that we have about, I 
believe, 17 million barrels a day in refining capacity. 
Obviously, we are not producing that much oil.
    There is a difference between sweet and the stuff you get 
here and from other places. But why can't we figure out a way 
to refine that here? That is my question.
    I did read the information here and it seems to--some say 
that if we do ship a lot of this oil abroad that our prices 
will go up and, obviously, that will affect our consumers.
    But I think that the general question is, you know, we are 
producing it here. Why can't we refine it here? I mean, we 
figured out how to get it out of the ground. Isn't there a 
simple way to refine this stuff?
    Those are my questions. Thank you, Mr. Chair.
    Mr. Poe. I thank the gentleman.
    Without objection, all of the witnesses' prepared 
statements will be made part of the record. I ask that all of 
the witnesses keep their presentation to no more than 5 
    Senator Lisa Murkowski is Alaska's senior senator. Elected 
to the Senate in 2002, she is now the senior Republican member 
of the Senate Energy and Natural Resources Committee and also 
serves on the Senate Appropriations Committee where she is the 
ranking Republican of the Interior and Environment 
    Senator Murkowski, thank you for being with us today. We 
know you have a busy schedule and as soon as you have finished 
your statements there will be no questions from members of the 
panel, and thank you for being with us.
    We will hear what you have to say.


    Ms. Murkowski. Thank you, Mr. Chairman. Thank you for the 
opportunity to be with you today as you develop the record on 
an issue that I think is extraordinarily timely for our nation 
and that is the issue of energy exports.
    And today, my comments will focus specifically on the 
export of oil--of crude. Again, I appreciate the invitation to 
kind of walk across the lawn here and share my perspective.
    I think it is fitting for both our chambers to be working 
together on issues, particularly issues such as energy exports 
that are so important to our nation and increasingly the world.
    I noted to you, Mr. Chairman, that in the Energy Committee 
we held a hearing on this issue several weeks ago. It was the 
first time in 25 years that there has been a hearing in the 
United States Senate on the issue of oil export.
    And put that into perspective. We haven't had the 
opportunity to talk about it because we have been evaluating 
our energy portfolio truly from one of scarcity rather than one 
of abundance and how the landscape has changed.
    So this debate--this dialogue that you are beginning here 
in your committee is greatly appreciated and, again, very, very 
timely. Let there be no mistake that today's issue--the ban on 
crude oil exports--is truly one in the national interest.
    In an area of doubt--of debt and deficits, the North 
American energy renaissance presents us with an opportunity to 
strengthen our position and resolve on the global stage while 
generating wealth, creating jobs, reducing our deficits and 
enhancing our national security.
    Lifting the ban will boost U.S. production and open our 
nation to global markets. The American consumer, the American 
people are the ones that will ultimately benefit and I 
appreciate Mr. Vargas' comment on the sensitivity to price.
    I come from a state where while we are producers we also 
face some of the highest energy costs to consumers in the 
country. I have no interest in doing anything that will 
increase the price that Alaskans and others around the country 
    So I have been looking at this issue very, very critically. 
Existing regulations provide us some possibilities here. For 
example, a swap program with Canada was instituted by the Ford 
administration, continued by President Carter and carried 
through to completion by President Reagan.
    There has been some discussion about similar opportunities 
with Mexico. That is something that I could support. But I 
think we have recognized that it is a somewhat cumbersome 
vehicle. So how would you deal with that?
    Last month, I proposed a roadmap for the way forward. I 
introduced a white paper on the broader issue of energy 
exports. I outlined in that white paper, as well is a speech to 
CERAWeek, how I think we might be able to advance.
    First, I believe that the Commerce Department retains the 
authority to modernize its regulations and update its 30-year-
old definition of crude oil in such a way as to facilitate the 
export of condensate.
    Commerce has taken similar measures in the past. My 
committee staff has sketched out a report released earlier this 
week and I would like to be able to provide that to the 
committee, if I may.
    Among the many examples let me highlight a couple here. 
During the era of price and allocation controls, California 
started to shut in production for a variety of competitive and 
regulatory reasons.
    Commerce authorized a temporary export program of residual 
fuel oil to protect the production.
    So when you had an oversupply of butane, a glut was 
effectively created in the Gulf Coast. Additional exports were 
authorized by Commerce.
    So we do have in place existing authorities. Now, I have 
asked the Energy Information Administration--the EIA--to 
conduct an ongoing dynamic analysis of the crude oil export 
    What I don't want to see is a standalone static study that 
would be out of date by the time that it is published. I 
suggested in my speech in Houston that this might be the year 
of the reports. 2014 would be the year that we do this 
assessment, the analysis, the real in-depth--get an in-depth 
understanding as to where we are with oil exports.
    Finally, Mr. Chairman, the President retains the authority 
to approve limited crude oil exports. We know this because 
Presidents from both parties have done so in the past. Now, one 
objection I have heard is that this approach cedes too much 
authority to the President.
    How, it is asked, can one both criticize the administration 
for misusing executive power in some areas but ask it to take 
action here. The answer is pretty simple. The answer is that 
Congress has already given explicit authority to the President 
to address oil exports for the national interests.
    So at the end of the day, I am prepared to introduce 
legislation if necessary, but because legislation takes time 
that we may not need to spend I am hopeful that we may have a 
willing partner within the administration.
    I thank you, Mr. Chairman, I have exceeded my time. I do 
have, again, information that my staff on the Energy Committee 
has gone into great detail in laying out what we think might be 
a reasonable path forward. It also outlines the authorities 
that are currently in law for the administration.
    But I do think it is part of the initial discussion as we 
take on this very important and very timely issue.
    [The prepared statement of Ms. Murkowski follows:]


    Mr. Poe. Thank you, Senator, and we will make the 
information you give to the subcommittee a part of the record.
    Ms. Murkowski. I appreciate it, and I appreciate the 
opportunity to be with you today. Thank you.
    Mr. Poe. Thank you.
    We will have our next panel seated at the table.
    Mr. Poe. I want to welcome our second panel to this 
hearing. I will give an introduction of each of you and then 
you will be given 5 minutes. We have your written statements as 
part of the record so don't exceed 5 minutes or I will gavel 
    Mr. Mike Jennings is chairman and president chief executive 
officer of HollyFrontier Corporation, a major U.S. refinery. He 
is also director of HollyFrontier and Holly Logistics Services.
    Mr. Jennings served as chairman, president and chief 
executive officer of Frontier Oil Corporation until its merger 
with Holly Corporation in 2011. From 2005 to 2009, he was 
executive vice president and chief financial officer at 
Frontier Oil.
    Mr. Erik Milito is the director of Upstream and Industry 
Operations for the American Petroleum Institute, a national 
trade association representing more than 500 companies involved 
in all aspects of the oil and gas industry.
    Prior to his current position, he served as managing 
counsel for API and he has testified before the House and the 
Senate multiple times.
    Dr. Kenneth Medlock III is the James A. Baker and Susan G. 
Baker fellow in energy and resource economics at Rice 
University. He is also the senior director of the Center for 
Energy Studies, adjunct professor and lecturer in the 
department of economics. He is also vice president for the 
Conferences for the United States Association for Energy 
    Ms. Deborah Gordon is senior associate at the Carnegie 
Endowment for International Peace in their energy and climate 
program. Her policy research focuses on oil, climate change, 
energy and transportation issues in North America and globally.
    Previously, she managed an active energy and environment 
consulting practice and served as co-director of the Yale 
School of Forestry in environmental studies, transportation and 
environment programs from 1996 to 2000.
    I want to welcome all of you here. Mr. Jennings, you have 5 


    Mr. Jennings. Thank you, Mr. Chairman.
    I would like to introduce myself. My name is Mike Jennings 
and I represent HollyFrontier Corporation. We are a domestic 
independent refining company. We operate five petroleum 
refineries in the Central and Rocky Mountain states.
    We employ about 2,600 people directly and indirectly, a 
number that is probably 10 times that many associated with our 
contracted maintenance work. Our company is a merchant refining 
company. That means that we buy crude oil from those that 
produce it.
    We also have a wholesale marketing strategy so our products 
are distributed through convenience stores and big box 
retailers, none of which bear our name. But our products go out 
to a market that is in the center of the United States. We 
produce about 2.5 percent of the nation's gasoline, diesel and 
related petroleum products through our plants each day.
    As a merchant refiner, the key messages that I hope to 
convey to the committee today are as follows. Crude oil exports 
by the United States are likely to raise domestic crude prices 
and increase retail gasoline prices in the markets that our 
company serves by an estimated 10 to 15 cents per gallon of 
    Crude exports on the part of a country that imports nearly 
half of its crude oil requirements are, in our view, very 
unlikely to improve energy security or advance national 
interest as we will simply make ourselves more dependent upon 
crude oil imports as we export our own crude, and we need to be 
thoughtful about the nations from whom we would be importing 
that crude. Those with surplus are the OPEC producers and 
    Third, the U.S. refining and petrochemical sector is a 
major employer and is making hundreds of billions of dollars of 
new investments over the next 10 years to increase 
manufacturing processing capacity along the Gulf Coast and in 
other places in order to manufacture and convert this wealth of 
new raw material that is being produced in the upstream.
    And finally, there are many elements of the U.S. energy 
policy that conflict with free trade objectives including the 
renewable fuel standard, presidential approvals for key import 
infrastructure, the Jones Act shipping requirements and 
particularly the RFS.
    These should be considered alongside any consideration of 
opening trade to crude oil exports in an effort to make free 
trade more possible within the U.S. petroleum and product 
sector. As a merchant refiner, we are intensely aware of the 
impact of increased production of crude in the United States.
    We believe that this expanded production has helped in 
terms of our nation's energy security. But though great strides 
have been made, the United States remains very dependent upon 
imported crude. This is not my opinion or the opinion of our 
company, simply a statement of the facts.
    Current refining requirements are approximately 17 million 
barrels a day while domestic crude production was about 7.5 
million barrels per day in 2013. That is projected to increase 
by a million barrels per day in 2014 but we are still importing 
at about 50 percent of our requirements.
    Supporters of lifting the ban on the crude exports argue 
that such a decision would make a move toward a freer global 
supply function, and certainly our company supports the 
development of freer energy markets.
    However, we have to be conscious of the fact that the 
global crude market is not occupied by free trade. It is 
dominated by OPEC, which is a cartel, and the country of 
Russia. Neither of these entities have free trade at their 
hearts. They are protecting their own domestic interests in 
cartel-setting volume requirements and other behavior.
    So though American crude production has increased 
dramatically, it has not yet matured to the point where we 
believe it would significantly impact the global price of crude 
were it to be available to be exported.
    In addition, the non-free trade elements of renewable fuel 
standards, the Jones Act and other limitations on import 
infrastructure are still very significant impediments to free 
trade within the energy sector.
    I spoke earlier about the impact of pricing on U.S. 
gasoline in the face of potential crude oil exports, and our 
company's view of that is there is probably a 10 to 20 cent per 
gallon uplift in the cost of gasoline, again, in the markets 
that we serve which would result from this policy decision.
    We take that by observing markets that are served by 
waterborne crude, principally New York Harbor, southern 
California and northwest Europe, and if we look at those 
gasoline prices wholesale pretaxed against the prices that are 
traded in our markets supplied by domestic crude, we are seeing 
a 10 to 20 cent differential, with customers in Kansas, 
Oklahoma and Texas paying the lower number. We think that is 
something that the committee should take into consideration.
    I have exceeded my time and I appreciate the opportunity to 
speak to your committee. Thank you.
    [The prepared statement of Mr. Jennings follows:]


    Mr. Poe. Thank you, Mr. Jennings.
    Mr. Milito, you have 5 minutes.


    Mr. Milito. Good afternoon, Chairman Poe, Ranking Member 
Sherman and members of the committee. I am Erik Milito, 
Upstream director at the American Petroleum Institute.
    API has 600 members at this point. You mentioned 500 and 
got news today that we are now over 600. We represent the full 
supply chain from exploration and production to pipeline and 
midstream as well as the refining sector.
    Today, America is producing nearly 50 percent more oil than 
we did in 2008. By 2015, the International Energy Agency 
predicts the U.S. will surpass Saudi Arabia and Russia to be 
the world's top crude oil producer.
    Development of resources from unconventional formations 
through the use of hydraulic fracturing now supports more than 
2 million jobs, and this is projected to rise to nearly 4 
million jobs by 2025.
    This is, clearly, a new era for American energy but our 
energy trade policies are stuck in the 1970s. It is time to 
unlock the benefits of trade for U.S. consumers and further 
strengthen our position as a global energy superpower.
    This week, API released a new study, submitted for the 
record today, on the economic implications of lifting the trade 
restrictions that prevent exports of U.S. crude oil to global 
markets. This is the most detailed analysis on a wide range of 
economic benefits and it paints a compelling picture.
    Consumers are among the first to benefit from free trade 
and crude oil is no exception. Gasoline costs are tied to a 
global market and this study shows that additional exports 
could help increase supplies, put downward pressure on the 
prices at the pump here in the U.S. and bring more jobs to 
    The ICF analysis reaches several key conclusions, which are 
important to understanding the benefits that lifting the 
restrictions on crude exports will have on our nation. Among 
other things, the cost of gasoline, heating oil and diesel fuel 
is projected to fall, saving American consumers up to $5.8 
billion per year on average between 2015 and 2035.
    The U.S. economy could gain up to 300,000 additional jobs 
in 2020. U.S. oil production could increase by as much as 
500,000 barrels per day in 2020 and U.S. refiners could process 
on average an additional 100,000 barrels of oil per day due to 
more efficient distribution of heavy and light crudes over the 
2015 to 2035 period.
    Harnessing these benefits, however, will require lawmakers 
and regulators to reexamine policies that were enacted long 
before the U.S. transition from a period of energy scarcity to 
our current position--one of energy abundance.
    Our industry also believes it is important that we work 
holistically to modernize America's energy infrastructure and 
facilitate the efficient flow of resources from producer to 
refiner and to customer.
    This study corrects some of the misperceptions about the 
energy market that are often repeated by critics of free trade. 
Chief among those is the impact on consumers. Consumers don't 
buy crude oil. They buy fuel, and the prices of refined 
products like gasoline are set by a global market.
    A temporary glut of oil in one region doesn't significantly 
lower consumer costs because gasoline is eligible for trade 
after the oil is refined. If oil can flow to the global market 
this study shows, then you begin to see higher global supplies, 
more production and consumer level benefits as well as more 
American jobs.
    Of course, there are also the strategic reasons to increase 
U.S. energy exports. Mr. Royce alluded to this quote but I 
think it is worth repeating. It is from General Martin Dempsey, 
chairman of the Joint Chiefs of Staff, when he recently said,

        ``An energy independent and net exporter of energy as a 
        nation has the potential to change the security 
        environment around the world, notably in Europe and in 
        the Middle East. And so, as we look at our strategies 
        for the future, I think we have got to pay more and 
        particular attention to energy as an instrument of 
        national power.''

    General Dempsey then added that energy could become one of 
our more prominent tools for national security. If we grow as 
an exporter, U.S. energy leadership has the potential to 
bolster America's allies, expand our geopolitical influence and 
strengthen the global energy market against future disruptions.
    However, the first step is lifting our own self-imposed 
restrictions and, as we can see in today's study, the benefits 
will flow to consumers and workers here in the U.S. where the 
argument in favor of free trade is undeniable.
    Thank you again to the chairman and to the committee. I 
look forward to your questions.
    [The prepared statement of Mr. Milito follows:]


    Mr. Poe. Thank you.
    Dr. Medlock, 5 minutes.

                         PUBLIC POLICY

    Mr. Medlock. Thank you, Mr. Chairman.
    Well, a lot of what Mr. Milito said is actually supported 
to a certain extent by some work that we have been involved 
with. We recently launched a study looking at the broader 
impacts of allowing oil exports from the United States and that 
is actually a smaller part of a broader study that we are 
looking at to evaluate North American energy security 
    So this is the idea of, you know, regional trade being 
allowed to flow freely between the U.S., Mexico and Canada and 
what sort of benefits that could actually convey.
    In general, when you look at commodity trade, you are 
talking about--when you talk about oil in particular and this 
will address gasoline prices, a market between oil and gasoline 
that is vertically integrated, effectively.
    We use oil to produce gasoline so if you pinch one market 
or constrain one market the arbitrage opportunity moves 
downstream to the next one. And so what this means is if you 
constrain the flow of exports of crude oil what we will see is 
a discount domestically and that is exactly what we have seen.
    But as long as the product price is arbitraged 
internationally then you will see that price fluctuate 
according to international supply-demand fundamentals. That is 
exactly what we have seen. If you look at PADD level data for 
gasoline prices in the United States and other petroleum 
product prices, you do see that disconnect is not transmitted. 
Now insomuch as we have seen, for example, an inability to move 
crude away from WTI and, of course, historically over the last 
few years this has not been an export-driven issue. This has 
been an infrastructure-driven issue.
    But that disconnect nevertheless has led to a discount of 
WTI relative to Brent, and you do not see that disconnect or 
that discount being conveyed from WTI into product prices. And 
so what that means is the product prices are not falling, 
coincidentally, with WTI.
    So what that tells you is that refiners in fact are not 
passing the price discount along. Now, that sounds like a 
really sort of almost negative statement but in point of fact 
what we are talking about is we have a downstream market that 
is internationally fungible and that is a really critical 
    What that means is that the price movements internationally 
will affect the product price movements here, not the domestic 
crude price. And, again, this is just a, you know, standard 
sort of protocol when you start to look at how commodity prices 
are influenced by different market behaviors and market 
    Now, when we move beyond understanding what might happen to 
gasoline prices and, importantly, it is, you know, it is sort 
of logical to follow with the next step; well, what happens if 
we lift the ban on crude oil exports, and the next logical step 
would be what? You are actually pushing more light tight or 
light sweet crude into the global marketplace and presumably 
that could actually put downward pressure on the price of light 
sweet crude, which is, you know, the--that is the barrel at the 
    So that is the barrel that is helping determine the price 
of products. The problem with making a just sort of grand 
statement like that is that while that is true, quantitatively 
it is difficult to assess because there will be market 
responses by the participants. In particular, you can't predict 
exactly what OPEC will do.
    The one thing we can say for certain, though, because there 
really is no paradigm in any sort of economic principles or 
economic framework that I can think of in which allowing 
exports of crude oil in the international market will actually 
raise the price of crude oil. That simply won't happen. But 
pulling estimates on declines, that is a difficult thing to do.
    With regard to energy security, because this is another 
really major sort of broader issue that kind of fits into the 
overall context of something I mentioned a minute ago about 
North American energy security, it is--you know, go back to the 
    You mentioned in your opening statements about the acts 
that were actually passed to sort of ban the export of crude 
oil. Well, when you do this you quickly begin to realize that, 
you know, while well intentioned, those policies didn't 
necessarily convey the benefits that they were meant to convey.
    In particular, when you look at a very deep literature on 
this issue and why we think about energy security in the 
context of oil prices, well, because every recession except for 
one since World War II has been preceded by a run-up in the 
price of crude oil.
    It is just a very standard simple correlation. Now, it 
doesn't convey causation but the idea is you want to shield 
consumers domestically from macro economic shocks that would be 
related to run-ups in the price of crude.
    Well, one of the things that actually falls out of the 
literature is a number of different potential channels through 
which prices transmit to the macroeconomy and one of these is 
through trade balance.
    And so if you actually allow for exports of light sweet 
crude, which is a higher valued crude than the heavy sours that 
we typically import into the Gulf Coast, for example, you are 
actually giving a net positive benefit to the trade balance and 
actually conveys an energy security benefit, not necessarily an 
energy security cost.
    So these sorts of things have to be brought into the 
discussion. These are the kinds of things that we are actually 
actively looking at right now in order to try to really 
understand what changing the existing paradigm, or the status 
quo, will mean longer term not only for gasoline prices but 
more broadly for U.S. energy security.
    Thank you.
    [The prepared statement of Mr. Medlock follows:]


    Mr. Poe. Thank you, Mr. Medlock.
    Ms. Gordon.


    Ms. Gordon. Chairman Poe, Ranking Member Sherman and 
distinguished members of the subcommittee, thank you so much 
for allowing me to testify today.
    In my remarks, I want to talk about three key points--the 
changing conditions influencing today's oil market, the divide 
among stakeholders on whether to export crude or whether the 
ban should be lifted, and the need to deal with environmental 
consequences from oil exports.
    I explore these issues in greater detail in my written 
comments submitted for the record.
    The bottom line is that managing the U.S.' newfound oil 
abundance will require careful analysis and strategy. Many 
opportunities and challenges lay ahead. As U.S. oil production 
ramps up to peaks not seen since 1970, the key policy question 
is whether to reverse a 40-year oil decision to ban U.S. crude 
oil exports.
    In my judgment, the right answer is not yes or no. The 
situation is far more complex than those in favor or those 
against lifting the U.S. crude oil ban suggest, and as policy 
makers debate this ban and whether it should be lifted it is 
important to address three questions.
    The first question is given that the U.S. can already 
export unlimited volumes of petroleum products, under what 
condition should it also be allowed to export crude oil? Over 
the past 8 years, U.S. petroleum product exports have increased 
fourfold. Last year in 2013, the U.S. exported about $150 
billion in petroleum products, scoring the largest gain for any 
commodity in the U.S. economy.
    Reversing the crude oil export ban could significantly 
increase rising U.S. oil exports. A go-slow policy on oil 
exports is needed to allow the U.S. and other nations to adjust 
to North America's increased oil capacity.
    Those oil-rich nations that have built their economies 
around oil revenue are increasingly vulnerable to disruption. 
It is unclear how the oil value chain will adjust in response 
to changes in upstream production and downstream refining 
    Fostering market stability should be a primary 
consideration in deciding what conditions should apply to the 
U.S. in terms of future crude and petroleum product exports.
    Question two--who would benefit most from reversing the 
U.S. oil export ban? The oil value chain is made up of an 
increasingly diverse array of players, processes, oils and 
products, and public information is lacking to independently 
assess the situation.
    As such, determining who benefits from exporting crude oil 
is not simple. Opinions vary widely and may not align with U.S. 
policy makers' overall goals. For example, oil producers and 
lease holders strongly advocate lifting the ban. Refiners are 
split as to whether or not to lift the ban depending on 
numerous operational and geographic factors that determine 
their bottom lines.
    Manufacturers do not yet appear to have a unified position. 
American consumers are most concerned about prices at the gas 
pump, and industry analysts like Woodmac argue that crude 
markets are complicated and relaxing the oil export ban could 
invite cost-cutting arbitrage of U.S. and international crudes 
with unpredictable outcomes.
    Question three--could unconditional exporting of U.S. 
crudes have unintended environmental consequences? How the U.S. 
and global oils are managed through imperfect markets and 
various policy directives create significant uncertainties.
    As the U.S. debates lifting its crude oil export ban, 
carbon emissions are already flowing throughout the marketplace 
in a highly fluid fashion. The energy sector will have to adapt 
to climate change both in the resilience of its existing assets 
and also in terms of the durability of its investments.
    The situation the U.S. is confronting on how to manage 
North American oil boom raises serious climate questions for 
America as to its: (1) climate responsibility as both a 
producer and a consumer; (2) its capacity, our capacity, to 
create market transparency on a growing array of oils--and I 
cannot stress enough how different these oils are from one 
another; and (3) policy leadership to efficiently cut carbon 
out of the oil value chain.
    In sum, the right question is not whether or not to 
eliminate the U.S. crude oil ban. Exporting U.S. oil is part of 
a much larger and more important picture. The burning question 
is whether America can manage the economic, security and 
climate impacts of its new oil bounty.
    As one of the world's fastest growing oil producers, the 
U.S. has the opportunity and responsibility to be a global 
leader in the energy sector. A strong balanced energy policy is 
needed to guide energy decision making in ways that satisfy the 
energy needs of consumers, strengthen the U.S. economy, protect 
the climate and enhance national and global energy security.
    Guided by congressional leadership, a comprehensive policy 
framework is needed to deliver on a promise of America's new 
energy abundance.
    Thank you.
    [The prepared statement of Ms. Gordon follows:]


    Mr. Poe. I want to thank all our panelists. I will yield 5 
minutes to myself for questions.
    Mr. Medlock, Mr. Jennings on your far right there runs a 
refinery. He says it is going to cost him 10 to 15 cents more 
to refine gasoline if we lift the ban. What do you think about 
    Mr. Medlock. Well, I think undoubtedly if we lift the ban 
domestic price of crude will go up and so that will actually 
affect the bottom line at any refinery, particularly those that 
are processing light sweet crude.
    So the cost to refine crude will certainly rise but the 
price of the finished products themselves are still going to be 
determined in the international marketplace that is fully 
fungible because there are no barriers to trade there.
    Mr. Poe. All right. Let me be more specific. He said 
gasoline prices at his refinery would go up 10 to 15 cents if 
we lift the ban.
    Mr. Medlock. I disagree.
    Mr. Poe. And he would lay off I forget how many workers. He 
mentioned a lot of workers. So weigh in on that, and keep it 
simple, Mr. Medlock. Your testimony is complicated. Keep it 
    Mr. Medlock. Fair enough. Fair enough.
    The issue, in all fairness though, is not quite so simple. 
But in point of fact, we export products today and we see 
healthier margins today at refineries because not only do we 
have cheap crude domestically because of the onset of 
production that we have seen in the last 4 to 5 years but we 
also have cheap natural gas which actually helps the bottom 
line of refineries, and we also have an excess of refining 
capacity relative to what we consume because demand today is 
lower than it was in 2006, 2007 and 2008.
    All three of those things, coupled with the closure of 
refineries overseas, have really helped propel the U.S. 
refining industry into a sort of new paradigm, one in which we 
are actually exporting as much finished product today as we did 
just back in 2006 in terms of what we imported in 2006.
    So when you look at that and you combine all those factors 
together, yes, exporting crude oil will raise the price of 
crude oil to refineries but those other benefits are still 
    So it is not clear to me that refineries will actually be 
forced to shut down. Their bottom lines will be affected. But 
whether or not they close and end up laying people off is a 
completely different issue.
    Mr. Poe. Mr. Milito, I have a couple of questions for you. 
The chairman mentioned the Keystone XL pipeline and the glut of 
crude oil coming in to the United States. How would that affect 
any of this, if it would?
    Mr. Milito. It is huge. We are looking to have a market in 
North America that works efficiently together and a lot of the 
refiners, particularly in the Gulf Coast, have reconfigured and 
made upgrades to take on heavier crudes. That would naturally 
come through the Keystone XL pipeline from our friendly trading 
partner to the north.
    So infrastructure is a very important component of this 
whole debate and we need to make sure we are moving forward in 
a way to capitalize on these infrastructure opportunities 
because they alone create a lot of jobs.
    Our country is projected over the next 12 or 13 years to 
put more than $1 trillion into infrastructure projects because 
of this oil and gas renaissance. So we shouldn't turn our eye 
to that opportunity.
    Mr. Poe. The Keystone XL pipeline is supposed to come down 
to Port Arthur, Texas. I used to represent all those 
refineries. Mr. Weber now represents them all.
    Mr. Weber. Amen.
    Mr. Poe. But let me ask you another question about the 
Middle East, kind of a policy, and anybody can weigh in on 
    So we lift the ban, so to speak. How does that affect us 
energy wise and politically with the Middle East? Because that 
is--you know, when we talk about the Middle East everybody 
talks about making them irrelevant, you know, because of their 
situation. But they hold a lot of the crude oil we get. 
Politically and economically would this affect our relationship 
with the Middle East? Anybody can weigh on this.
    Mr. Milito. Well, I am sure Dr. Medlock has some input on 
that. But one thing I would point to is the need for us as a 
nation to look at energy security and link it to foreign 
policy. Those two need to be addressed holistically and from, 
you know, just a fundamental standpoint.
    If we are taking down the walls that we have that are right 
now up along our coast to exports whether it is LNG, crude oil, 
we are sending a pretty strong signal to those around the world 
that we are going to play as an energy superpower like we 
    So we are sending a signal and we are also putting more 
supplies into the marketplace and creating a better scenario. 
The production we have had and this huge increase where we have 
gone from 5 to 8 million barrels a day has allowed the global 
market to be able to absorb and have a greater cushion when you 
are looking at things like Iran sanctions and things like that.
    So it is a huge benefit to energy security when we are able 
to push more supplies into the global market. But, like I said, 
I think Dr. Medlock probably has a lot smarter answer than 
    Mr. Poe. And also, Dr. Medlock, while you are answering 
that question I have always thought that the United States, 
Canada and Mexico, we ought to work together on energy issues, 
energy independence, energy security, economically. Are we 
doing that any better than we have in the past? Make it quick, 
if you can, please.
    Mr. Medlock. Yes. Great question. On the--on the issue of 
the Middle East, they will never be irrelevant. It is too large 
an energy exporter into the global marketplace and we are not 
the only consumer in the world. So when you talk about a 
globally interconnected marketplace they are going to matter no 
matter what we do.
    With regard to U.S., Canada and Mexico, I would say we are 
not actually optimizing the relationships that we have with 
Canadians and the Mexicans, and we are presented with some 
actually new real opportunities and one of those north of the 
border would be with regard to the development of the oil sands 
production opportunities and moving that oil via pipeline 
instead of by rail or somewhere else where it is actually going 
to be at a cost disadvantage relative to moving it here. So it 
is going to be more polluting which, ironically, is exactly 
what is trying to be prevented.
    So with regard to Mexico in terms of what is happening with 
energy reform there, there is tremendous opportunity to deepen 
the energy trade relationship with that country, particularly 
as it begins to open up their upstream sector to foreign 
    Mr. Poe. Thank you.
    I will yield 5 minutes to the ranking member.
    Mr. Sherman. A number of our witnesses talk about energy 
abundance, quote General Dempsey about how we are going to have 
world power by being a net energy exporter.
    I think we are getting a little carried away. It is nice to 
be producing more but the chances that we export more petroleum 
than we import are roughly the same as Vladimir Putin winning a 
Nobel Peace Prize.
    We are talking here about a country that is going to be 
importing more than it exports for a long, long time to come. I 
am going to pose one question for the record just because I 
don't know if you have come here prepared to answer it, and 
that is we could export a billion barrels and import a billion 
barrels and maybe that--and say hey, that is about the same. 
Except it offers an opportunity to play tax shenanigans with 
both the billion coming in and the billion going out.
    So what are the opportunities for U.S. energy producers to 
classify their income as earned in the Cayman Islands or 
Switzerland on these exports and could this be a game where we 
are just kind of moving things around--it doesn't have much 
effect except we lose an awful lot of tax revenue. I am also 
going to be posing that question to people who are tax experts 
as well.
    But if the major effect of this is to introduce tax 
shenanigans into moving a billion barrels from here to there 
and from there to here, I think we ought to be very wary of 
that. Now, it is my understanding that we can export refined 
petroleum products without legal restriction.
    Is that correct? I am seeing nodding. Most natural resource 
producers in the world say we don't want to just have you come 
here and take our potash. We don't want to just have you come 
here and mine this or that.
    We want the manufacturing or at least the processing jobs. 
Why can we not achieve what we want to achieve just by keeping 
the refinery creation and operation jobs here and exporting the 
refined product? Why do we need to be exporting the petroleum? 
Ms. Gordon.
    Ms. Gordon. So about 10 years ago, 8 years ago, before 
light tight oil was really on anyone's radar screen and even 
EIA missed it--everyone missed it, and there are reasons why 
separately I can discuss--but the move was made to change the 
entire refining sector to deal with what oil we thought was 
going to be the last oil on earth, this heavier barrel.
    And so now we have a situation where billions have been put 
into U.S. refineries up and down the Mississippi and into the 
Gulf that handle selective oils best--they are complex 
refineries and they handle the extra heavy oil. There are----
    Mr. Sherman. So we would want to somehow acquire heavy oil 
for those refineries?
    Ms. Gordon. Yes, and the prospects for Canada----
    Mr. Sherman. And whether we burn that ourselves or whether 
we export the refined product we want to keep those special 
refineries refining what they were built for.
    Ms. Gordon. And those refineries make diesel. They make 
more diesel, and diesel goes to your question--has a very high 
export value. We are exporting a tremendous amount of diesel.
    The light tight oils that now we found out we have and we 
don't really yet have the refining capacity for make, 
preferentially, gasoline, which is the product we use, so you 
can imagine ships crossing in the night, you know, with all of 
this global trade where oil would go one way. It will get 
refined someplace else. The product will come back.
    Mr. Sherman. How dangerous is it to transport refined 
petroleum products?
    Ms. Gordon. I think it is just more a matter of what you 
were saying before--economic value. There is always a risk 
whenever you are putting things----
    Mr. Sherman. But it is no more dangerous than--I mean, we 
know unrefined petroleum can stain beaches. I assume that the 
refined petroleum is not explosive.
    Ms. Gordon. No. It would be the same contamination you 
would have if it opened up on--although the extra heavy oil 
might be very different. When it spilled into the Mississippi, 
you know, the extra heavy oil sinks so it is a little bit 
    Mr. Medlock. We will work with you on that. The recent 
incident in Galveston in the Houston ship channel was related 
to a fuel oil spill. That was a refined product spill. So and 
in terms of the, you know, cost of transporting of products it 
is different because the flash points are different for refined 
products than they are for raw crudes. And so, you know, this 
goes back to the point about, you remember, the train incident 
that happened.
    Mr. Sherman. But are we talking about $1 a barrel 
difference or $20 a barrel difference?
    Mr. Medlock. Oh, it is not huge.
    Mr. Sherman. Okay.
    Mr. Medlock. The biggest cost is----
    Mr. Sherman. The cost is small compared to the value of----
    Mr. Medlock. Yes. The biggest cost that Ms. Gordon was 
talking about was really related to stranded cost that refiners 
would be forced to deal with if they are forced to actually go 
and to reconfigure to handle the crudes that are being produced 
    Mr. Sherman. Okay. My time has expired.
    Mr. Poe. I thank the ranking member.
    I will to turn to Mr. Perry from Pennsylvania for 5 
    Mr. Perry. Thank you, Mr. Chairman, and thank you, ladies 
and gentlemen.
    Just a myriad of questions here. I just want to maybe go 
back to this last question about refined as opposed to 
unrefined. It seems to me that the refined product would be 
more dangerous maybe to the environment if it would spill as 
opposed to crude oil that comes from the ground--comes from the 
    But if I am wrong--am I wrong or--makes no difference 
whatsoever. We don't care whether we spill gasoline or oil or 
crude. It is all the same?
    Ms. Gordon. Well, it is all hydrocarbon.
    Mr. Jennings. The refined product will evaporate if spilled 
and crude oil will not. So there is a difference.
    Mr. Perry. But which one is worse?
    Mr. Jennings. Well, worse to the water would be the crude 
oil, which would be residual in the water, where as to the air 
would be----
    Mr. Perry. Doesn't it come out of the ground on the 
California coast--the crude oil? Doesn't it bubble up out of 
the surface of the ocean? So----
    Mr. Medlock. But there is a difference between a naturally 
occurring seep and a spill. A naturally occurring seep is 
actually part of the local ecosystem that has evolved over 
thousands of years typically, whereas when you talk about a 
spill it is an introduction of a raw crude into an area that is 
not equipped to cope with it. So it is different.
    Mr. Perry. Okay.
    Ms. Gordon. And I just wanted to add, because oils are now 
so different from each other--we still talk about it as oil 
coming out of the grounds--but the light tight oils, some of 
them, especially coming out of the Eagle Ford in Texas, are so 
light they are condensate and that is what Senator Murkowski 
was talking about maybe trying to change the definition of oil, 
and some of the oils coming out of the ground in Venezuela and 
Canada are so heavy they are on their way to coal.
    So we are talking about the definition of oil, 
hydrocarbons, really changing where it is not necessarily one 
thing anymore. It is a collective of a lot of different 
hydrocarbon arrangements.
    Mr. Perry. Okay. Can anybody talk to the questions 
regarding some of the boutique fuels that the Federal 
Government requires refiners to make? Is there any difference 
or anything--any considerations in that regarding exporting, 
importing, light crude, heavy, sour, sweet and our refining 
capacity in the United States?
    Mr. Jennings. The refining system in the United States is, 
obviously, capable of making the different boutique fuels that 
are required in different markets throughout the country. They 
relate principally to vapor pressure, how volatile the material 
is, octane and now sulphur content is a big focus.
    The international standard often requires the tighter end 
of those specifications and so the export barrels typically 
will be those that would qualify for the most stringent U.S. 
markets as well.
    Mr. Perry. At what point in this discussion are producers 
going to leave the oil in the ground? Are we already doing that 
because refining capacity doesn't exist? Is that already 
occurring now and if it isn't at what point would that occur or 
will it never occur?
    Mr. Medlock. It will certainly occur if the discounts 
actually gets to be sufficient enough. I mean, currently--and 
there are a couple different things that are working against 
this. It is not just an export issue.
    It is also an infrastructure issue because currently in the 
Bakken, for example, in North Dakota we move a lot of that 
crude by rail, which is an order of magnitude more expensive 
than moving it by pipeline. And this goes back to, you know, 
getting the appropriate infrastructure in place and there is, 
obviously, a policy overlay here.
    But if you were to actually have the pipeline 
infrastructure in place to move that crude effectively, the 
netback to the wellhead would be priced $18 to $20 higher. And 
so that buys a lot more activity in the field.
    So it is, you know, I hate to focus this only on the export 
issue because it is broader than that. It actually is--it 
matriculates down in the infrastructure to move away from the 
wellhead. And moving crude by rail is a lot more expensive than 
moving it by pipe.
    Ms. Gordon. I was just going to add because it came up, 
the, you know, consumers and the economy, of course, with oil 
and gasoline comes up all the time. These oils, if they are 
stranded in the ground, it will be because the price is too 
    It will--it will take a much higher price. So we are 
talking about more abundance at a high price. This is so 
different than the 1970s where we were talking very low prices 
and then supply was getting stuck.
    This is a lot of capacity--physical capacity of 
hydrocarbons in the earth that can get out of the ground if the 
price gets really high. So we are not really--we will see 
volatility in the market but it is going to have to trend 
upward to get these oils into the market and move them around 
and refine them.
    Mr. Milito. And if I could add, you know, looking at the 
study we have it shows that with the lifting of the crude 
export restrictions we could see additional production of up to 
500,000 barrels.
    So just put two and two together. That is because there is 
now an opportunity because you have a new market to take that 
product to. At the same time, that impact on production is 
pretty significant.
    You would see those jobs going to places like Pennsylvania, 
California, Texas, that are heavy in manufacturing and 
production. Not just production of oil but actually on the 
manufacturing side.
    Mr. Perry. So we have got a couple of refineries down in 
the Philadelphia area, Marcus Hook, that were--that were 
imperiled just a year or two ago. If refineries like the ones 
that you are familiar with and those in particular in 
Pennsylvania had to change around what would be the time frame 
to change around to refine the oil that we are talking about 
coming out of the United States?
    Mr. Jennings. Those refineries are very well suited to the 
light U.S. crudes that are being produced in the Bakken and 
other places--the condensates from the Marcellus and Utica 
shales. They are at risk in the advent of crude exports and the 
reason being if it can go to the East Coast by rail or 
otherwise and load on to a ship at the Brent price they are 
going to lose access to that advantaged barrel of crude oil.
    So they are sort of a poster child for reasons to retain 
that domestic U.S. manufacturing capacity and the security of 
being able to produce our own refined products versus export 
    Ms. Gordon. You know, and this is a very innovative 
industry, as we know, and that is a fantastic thing, actually. 
So these constraints lead to changes. BP is building the first 
splitter refinery in Houston that is going to be able to handle 
light tight oils and extra heavy oils.
    Exxon is building a refinery--a petrochemical refinery in 
Indonesia that is going to be able to handle the gamut of these 
oils. So somehow we are going to have to figure out how to 
manage all of these oils and not just kind of split up or I 
would argue against changing the definition of oil because you 
are going to have to deal with the whole array of hydrocarbons 
in the future.
    Mr. Perry. Thanks, Mr. Chairman. I yield.
    Mr. Poe. All right. The chair recognizes the gentleman from 
Florida, Mr. Yoho, for 5 minutes.
    Mr. Yoho. Thank you, Mr. Chairman. I thank the panel. 
Appreciate your testimony.
    Mr. Jennings, you were saying oil price is dictated by 
OPEC. Is that correct? The OPEC market.
    Mr. Jennings. It is significantly induced.
    Mr. Yoho. Is it possible for the U.S. to produce enough oil 
with our allies to set the world oil prices, breaking OPEC's 
    Mr. Jennings. I think that would take many years. The U.S. 
still imports 6 to 7 million barrels per day.
    Mr. Yoho. All right. But if we increased our production 
along with our allies it is possible, right?
    Mr. Jennings. It is possible, yes.
    Mr. Yoho. Would breaking the OPEC's monopoly stabilize the 
sharp spikes we see, especially in the Middle East when you 
have a ruler or a dictator, they get an upset stomach or gas 
and they threaten to close one of the straits there? I mean, 
would that stabilize the price of oil?
    Mr. Jennings. The Middle East is still producing and 
exporting 10 to 15 million barrels per day of oil. Even with 
what we and our North American allies could do, I don't believe 
in the near future in our lifetimes we are going to offset that 
    Mr. Yoho. But it is possible. And if we don't prepare--if I 
look back to when Bill Clinton was in office and he had the 
opportunity to build that pipeline but he said that would take 
10 years, wouldn't help us--that 10 years has come and gone by 
a factor of about two and a half to three--we would have had 
that extra stability in a supply that we do not have today. So 
if we prepare today it would be possible in the future, 
    Mr. Jennings. Absolutely. The infrastructure and the 
production capacity is critical. I mean, if you take the other 
end of the spectrum, the Canadians are going to solve their own 
problem and they will go east to New Brunswick and off on a 
boat or west to British Columbia to China.
    Mr. Yoho. And we don't want that.
    Mr. Jennings. And we don't want that. None of us want that.
    Mr. Yoho. We don't want that. We can't use oil or the 
petroleum products as a strategic diplomatic tool if we do not 
update our export oil policies and I for one will support the 
repeal of this policy to increase the ability for us to export 
so that we can use that as a bargaining chip.
    Mr. Milito and Dr. Medlock, do you feel it is possible for 
us to achieve energy security in the U.S.?
    Mr. Milito. I think we are doing that right now with this 
tremendous advance in production that we are seeing. Going from 
5 million barrels a day to 10 million barrels a day in just a 
few years is incredible.
    Nobody would ever have imagined that. Same on the natural 
gas side. We are expected to import $100 billion a year in 
natural gas and now we are looking to export. So----
    Mr. Yoho. Well, I mean, that is just it. I mean, 10 years 
ago we were going to have to export all this but through 
technology and better techniques we are going to be a net 
exporter. Do you feel that we could be a net exporter on 
petroleum products too?
    Mr. Milito. We are on our way there as well if you look 
    Mr. Yoho. That is what I----
    Mr. Milito. The volume of a petroleum refined product that 
we are moving now that alone is having a huge dent on our trade 
deficit. So the refineries are performing at a high level, high 
capacity and are helping us on the energy security front.
    Mr. Yoho. All right. And moving crude by pipeline is more 
economical. It is more efficient. That is what you were saying, 
    Mr. Medlock. Yes.
    Mr. Yoho. Versus rail or truck?
    Mr. Medlock. It is much less expensive.
    Mr. Yoho. And if we moved it that way it would be better 
for the environment so we are not driving trains and trucks 
around, correct?
    Mr. Medlock. That is correct.
    Mr. Yoho. So do you see any reason not to build the 
    Mr. Medlock. No.
    Mr. Yoho. Thank you.
    Dr. Gordon, you said we should go slow at not upsetting the 
world producers, to give them time to adjust. Would an increase 
in the supply stabilize the price, in your opinion? Microphone, 
    Ms. Gordon. Sorry. What is happening in the U.S. is we are 
the biggest cosumer and now we are becoming a very big 
producer. So we are in the position of being the only nation on 
earth that is almost equal parts producer and consumer, which 
puts us in a very unusual situation compared to everyone else 
around the globe, which is either more--much more producer or 
much more consumer--you know, China, Saudi Arabia. So us--we 
just have--the go-slow is to figure out what this means at 
home, you know, for us.
    Mr. Yoho. I think what it means to me is I sleep better at 
night knowing that we can produce our needs and where we are 
not dependent as much on foreign oil. And so I think the more 
we can do that it would increase our security in the nation, 
stabilize our markets because what I see is I come from a 
strong agricultural background.
    Every time the price of oil goes up, and I remember when we 
were buying diesel for $5 a gallon in my truck, the price of 
everything went up immediately, and the sharp spikes are what 
disrupted the economy.
    If we can stabilize that with a steady supply from our 
allies to the north and maybe Mexico and we can stabilize that 
here it will stabilize our economy and if we have a stabilized 
economy we have an economic engine that we need to protect.
    Oil will be shipped where it is needed from countries that 
produce to those where the market is needed and if that is--I 
mean, if that is the case, I say if we have the market and we 
have the supply I think we need to ship it because it will 
create tax revenues for this country and I think America can do 
it better than anybody else.
    I yield back, Mr. Chairman. Thank you
    Mr. Poe. I thank the gentleman. The chair recognizes the 
gentleman from Arkansas, Mr. Cotton.
    Without objection, the chair recognizes the gentleman from 
Texas, Mr. Weber, for 5 minutes.
    Mr. Weber. Thank you. Wow. Do any of you all know what the 
percentage of plants--there is about 130, 140 refineries across 
the country. Does that sound about right?
    What percentage of those refineries were set to do light 
crude and what percentage are set to do just heavy crude and 
then what percentage are set to do both?
    Mr. Jennings. First, I want to dispel the myth that it is 
just light or just heavy. Inside every heavy refinery is a 
light plant where you are going to not use the full kit. So 
these plants can refine light crude but not on an optimized 
basis. They don't fully use all the capital.
    Probably half to five-eighths of our country's refining 
capacity has capability to cut deeper into the heavy and sour 
barrel and make gasoline and diesel out of it and the remaining 
30, 40 percent doesn't have that capacity.
    What I would say, though, is that this is a snapshot at a 
point in time. There is a lot of investment being made--
condensate splitters, and other things that refining plants are 
doing. We had one in Cheyenne, Wyoming, that was almost 100 
percent running heavy Canadian. Now we run 50 percent Canadian, 
50 percent light Bakken.
    So I hope I answered your question quantitatively but I 
want to leave you with the impression that things are changing 
because investments are being made toward the new light crude 
    Mr. Weber. Right. Right. Anybody else want to weigh in on 
that? Yes, ma'am.
    Ms. Gordon. There is a new CRS report that just came out 
last week that actually has the map of the--map of the country 
broken down. It is very different by PADD. You know, some 
districts are much better suited to, you know, the different 
types of refineries. But I have that. I could show it to you 
after, if you want to see it.
    Mr. Weber. Okay. And is that--that was my next question. 
You are reading my notes up here, I guess. I hope that person 
is okay.
    It shows the map of the United States by location. Of 
course, I am from the Texas Gulf coast, as Judge Poe was 
saying, and the Keystone pipeline does come into my district, 
and the discussion you are hearing is exactly correct.
    We can move oil safer--99 percent safety rating via the 
pipeline industry and we can produce it in Texas and export it 
should the need arise.
    It is going to impact some of the refineries, Mr. Jennings. 
I get that. And I am interested in that percentage and, of 
course, I am interested in, you know, what is in Texas and 
specifically what is in my district.
    One of you said we have excess refining capacity and my 
question is how much.
    Mr. Jennings. Currently, the United States is exporting 
about a million and a half barrels per day on a net basis of 
refined petroleum products.
    Mr. Weber. We are exporting a million and a half but how 
much refining capacity does that give us? I am not following.
    Mr. Jennings. Refineries are running in the low 90s in 
terms of their capacity utilization. They might be able to eke 
out 2 percent additional so that would be another 300,000 or 
400,000 barrels a day. What I would tell you is the refining 
system is fully utilized but we are excessing about a million 
and a half barrels a day to export markets for refined 
    Mr. Weber. Does that also include the pipeline? I know that 
we changed--we move product back and forth. If we get the 
Keystone pipeline approved does that increase our capacity?
    Mr. Jennings. That allows us to run different crude oil. It 
is a crude pipeline as opposed to a refined product pipeline.
    Mr. Weber. I gotcha. And when we are running those 
pipelines what we are seeing with the natural gas boom, if you 
will, we are getting a lot of liquids. You talked about 
dehygeneration or what is the word? Hydration--thank you. And 
so we are seeing ethanes and methanes.
    We are seeing propanes and butanes and a lot of that is 
being able to be taken out. So we also get a side market. It is 
not just--this is not just about the crude, per se, and if we 
think that--is this--I mean, am I correct in saying that had we 
been able to have all these pipelines in place in supplying 
propane, for example, to the northeast more so this past winter 
that they would have had a bit more of a comfortable heating 
season, economically speaking? Is that fair to say?
    Mr. Medlock. Well, I would be cautious about that because 
typically you don't build pipelines to peak because then you 
have got unutilized infrastructure 90 percent of the time. 
Propane historically has been distributed by truck, not by 
    Mr. Weber. Well, I know they have got to get it close so 
that they can distribute it. But that would have helped.
    Mr. Medlock. But the issue this winter was it was a record 
cold winter. I mean, that has to be recognized somewhere in the 
context of this.
    Mr. Weber. Right. Well, there are those who will tell you 
that the climate is changing and I agree with that. I think it 
changes four times a year. But nonetheless, and so you wouldn't 
argue with the fact that people over in Ukraine would rather be 
buying our natural gas and, conceivably, our oil than they 
would be getting energy from Russia, right?
    Mr. Medlock. At the moment, yes, but I think in general 
they would just be happy buying something that was low cost and 
    Mr. Weber. As would Japan and some of the others. So all 
right. Well, I will yield back, Mr. Chairman. Thank you.
    Mr. Poe. The chair recognizes the ranking member.
    Mr. Sherman. I don't know if we are planning to do another 
round but I just got a question or two.
    I would point out on the idea of Ukraine they can't afford 
to pay Russia $10 a unit. Japan pays us or is paying $16 so if 
we were exporting natural gas the Japanese would be offering 
far more than the Ukrainians could afford to pay unless we want 
to tax the American people more so that we can provide $6 a 
    I have one or two questions for Ms. Gordon. The first is 
let us say we go ahead and we export everything without limits. 
Then there is another 1973 and we want to hoard what we have 
    Will we have the infrastructure to process the oil we 
produce and use it ourselves if we spend a decade exporting 
what we export--what the market says to export, importing what 
the market says to import?
    Ms. Gordon. You know, that is a really good question 
because the more that we--the market--is constrained here with 
these different and new oils coming out of the ground, the more 
we are going to think about infrastructure solutions for those 
    If it is more profitable to just offshore them then Saudi 
Arabia is going to build the refining infrastructure capacity, 
which is what they are trying to do. The Middle East is getting 
into refining big time.
    So, you know, in a way it is price too. Of course, it is 
economic to unload it as a producer but there is price here in 
terms of figuring out how to do it, and that is a question. We 
will lose that ground when we export.
    Mr. Sherman. I am going to prevail on the chairman to let 
me ask you just one question. The dream of the--of 
environmentalists I know is that the tar sands of Canada are 
never exploited. There are those who say they will build the 
pipeline--the Keystone. The environmentalists think they can 
stop that.
    There are those who say the Canadians will go east or west. 
There are Canadian environmentalists who are in touch with my 
California environmentalists who think they can stop that. How 
uneconomic is it to put that Canadian oil into tanker cars, 
take it on railroads to a U.S. domestic pipeline and then have 
it proceed?
    In other words, if we--if the environmentalists stop the 
Keystone--stop any pipeline--any Canadian pipeline and they 
stop any international-U.S. pipeline, can domestic U.S. 
pipelines bring that oil to the market economically although at 
lower profits to those who own the tar sands?
    Ms. Gordon. Well, it is pretty powerful. You know, the 
investments up there, at least for the mined bitumen, which has 
all been invested, it wants to get out and it will do so at a 
lower profit if it means, you know, mothballing everything that 
is ready to get out there.
    So right now, it is moving by rail. There is--I think it is 
Valero, can't remember who--someone has put in a variance 
actually that would take rail bit, which is the diluted--
slightly diluted bitumen that you put on rail and then it would 
just put it right onto a tanker so it would come through--the 
question would be, is this even U.S. oil? I mean, are we just 
exporting foreign oil out of Texas by putting Canadian oil on 
    Mr. Sherman. So bottom line, that Canadian oil--those tar 
sands will be exploited. If it is inefficiently on tanker cars 
it is still more economic than leaving that tar sand in the 
ground and--do I have that right?
    Ms. Gordon. Yes, for the mined bitumen, which is about 20 
percent of the resource, because all of that investment has 
been made. Big question mark for the in situ, the really deep 
bitumen that they have to heat out of the ground.
    It might be that investments aren't made if it is difficult 
to move it to market. And then the big question about the oil 
sands is what do you do with the bottom of the barrel.
    If we could think of a way to get rid of that pet coke--the 
bottom of the barrel--they really wouldn't be that different 
from any other oil. It is just that they have a very large 
bottom of the barrel.
    Mr. Sherman. The environmentalists I know are opposed to 
    Mr. Medlock. Well, I will just add a comment to that, that, 
you know, as the debate about Keystone has raged, oil sands 
production has increased.
    Mr. Jennings. The difference in price to ship crude by rail 
versus pipeline from Canada to the Gulf of Mexico is only about 
$6 a barrel--$5 or $6 a barrel. That isn't going to go into the 
producer's decision making of whether or not to develop 
incremental oil sands capacity.
    Mr. Sherman. Thank you.
    Mr. Poe. The gentleman yields back his time.
    I want to thank our four witnesses.
    Mr. Weber. Mr. Chairman, can I follow that up?
    Mr. Poe. No. You are not recognized.
    The chair appreciates all four of you being here and 
working with you, and I want to thank the staff on both sides 
too for getting us excellent expert witnesses on this issue and 
look forward to talking to you as we progress on legislation, 
if any.
    Committee is adjourned.
    [Whereupon, at 3:29 p.m., the committee was adjourned.]


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