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[Senate Hearing 113-355]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 113-355

                           CRUDE OIL EXPORTS

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                                   TO

EXPLORE OPPORTUNITIES AND CHALLENGES ASSOCIATED WITH LIFTING THE BAN ON 
                         U.S. CRUDE OIL EXPORTS

                               __________

                            JANUARY 30, 2014

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                       Printed for the use of the
               Committee on Energy and Natural Resources
                               __________

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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                      RON WYDEN, Oregon, Chairman

TIM JOHNSON, South Dakota            LISA MURKOWSKI, Alaska
MARY L. LANDRIEU, Louisiana          JOHN BARRASSO, Wyoming
MARIA CANTWELL, Washington           JAMES E. RISCH, Idaho
BERNARD SANDERS, Vermont             MIKE LEE, Utah
DEBBIE STABENOW, Michigan            DEAN HELLER, Nevada
MARK UDALL, Colorado                 JEFF FLAKE, Arizona
AL FRANKEN, Minnesota                TIM SCOTT, South Carolina
JOE MANCHIN, III, West Virginia      LAMAR ALEXANDER, Tennessee
BRIAN SCHATZ, Hawaii                 ROB PORTMAN, Ohio
MARTIN HEINRICH, New Mexico          JOHN HOEVEN, North Dakota
TAMMY BALDWIN, Wisconsin

                    Joshua Sheinkman, Staff Director
                      Sam E. Fowler, Chief Counsel
              Karen K. Billups, Republican Staff Director
           Patrick J. McCormick III, Republican Chief Counsel

                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Baldwin, Hon. Tammy, U.S. Senator From Wisconsin.................    12
Barrasso, Hon. John, U.S. Senator From Wyoming...................     9
Burnett, Graeme, Senior Vice President, Delta Air Lines, Atlanta, 
  GA.............................................................    17
Cantwell, Hon. Maria, U.S. Senator From Washington...............     9
Franken, Hon. Al, U.S. Senator From Minnesota....................     5
Hamm, Harold, Chairman and Chief Executive Officer, Continental 
  Resources, Inc., Oklahoma City, OK.............................    13
Heinrich, Hon. Martin, U.S. Senator From New Mexico..............    11
Hoeven, Hon. John, U.S. Senator From North Dakota................     6
Jaffe, Amy Myers, Executive Director, Energy and Sustainability, 
  Institute of Transportation Studies, Graduate School of 
  Management, University of California, Davis, CA................    20
Landrieu, Hon. Mary L., U.S. Senator From Louisiana..............     6
Manchin, Hon. Joe, III, U.S. Senator From West Virginia..........     7
Murkowski, Hon. Lisa, U.S. Senator From Alaska...................     3
Portman, Hon. Rob, U.S. Senator From Ohio........................    10
Scott, Hon. Tim, U.S. Senator From South Carolina................    11
Weiss, Daniel J., Senior Fellow and Director of Climate Strategy, 
  Center for American Progress...................................    27
Wyden, Hon. Ron, U.S. Senator From Oregon........................     1

                                APPENDIX

Responses to additional questions................................    47

 
                           CRUDE OIL EXPORTS

                              ----------                              

                       THURSDAY, JANUARY 30, 2014

                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:40 a.m. in room 
SD-366, Dirksen Senate Office Building, Hon. Ron Wyden, 
chairman, presiding.

 OPENING STATEMENT OF HON. RON WYDEN, U.S. SENATOR FROM OREGON

    The Chairman. The Senate Committee on Energy and Natural 
Resources will come to order.
    We are going to have a very busy morning today. But I want 
to start with some particularly exciting news. Senator Landrieu 
will be having her first grandchild in a few hours.
    [Applause.]
    The Chairman. She has been up most of the night. We will 
give her a round of applause. I'm not sure I would have even 
been conscious this morning. But Senator Landrieu, with her 
inimitable energy, is with us. We are glad that she is.
    Senator Murkowski and I wanted, particularly, to have this 
hearing because America's energy renaissance has sparked a 
conversation on whether exporting crude oil is in the national 
interest. I think it is fair to say that this conversation is 
not going to be resolved any time over the next few weeks. 
Certainly there is a lot of interest here in the Congress on 
this subject and that is why we thought it was important to 
hold this hearing to begin a real conversation on a very 
important issue.
    Personally I believe deeply in expanded trade. In my State 
one out of 6 jobs depends on international trade. Trade jobs 
often pay better than the non-trade jobs because they reflect a 
higher level of productivity which is often required to get 
American goods and services into international markets. When 
I'm asked to summarize my economic views I often say that one 
of my principle goals is to help make things in America, grow 
things in America, add value to them in America and then ship 
them somewhere. I have promoted that philosophy as Chairman of 
the Finance Subcommittee on International Trade.
    That is why today's debate is especially important.
    The fact is energy is not the same thing as blueberries and 
accordingly it is treated differently under Federal law. The 
Energy Policy and Conservation Act allows for the export of 
crude oil only when doing so is in the national interest. There 
simply isn't that kind of requirement for blueberries or other 
commodities. National security, of course, is involved when 
Americans talk about exporting energy.
    Right now there are several armed conflicts around the 
world, in South Sudan, Libya, Mozambique and elsewhere that are 
certainly being inflamed by fights to control oil. Now I'll put 
Oregon blueberries up against just about anything. But the last 
time I looked, nobody is fighting a war over blueberries.
    It's hard to believe that only a few years after campaigns 
for America's energy independence, having been dominated by 
slogans such as ``drill, baby, drill,'' our country now finds 
itself having a serious discussion on whether it should export 
crude oil. Energy independence has been a well-worn staple of 
virtually every politician's energy speech for decades. Now our 
country is in the enviable position of having choices about our 
energy future.
    In other words the question becomes how can this energy 
boon create the greatest benefit for America?
    Can energy help grow our economy and create jobs?
    The answer is, of course.
    Can this new production ease the pain at the pump for 
hardworking, middle class families?
    Of course.
    Can our country reduce its dependence on fuel from 
countries that do not always have our best interest in mind?
    Again, of course.
    Those are the easy questions.
    The harder question is how can you come up with a policy 
where America can have it all?
    Can our country get both the domestic benefits from exports 
and still retain a cost advantage for domestic consumers, both 
businesses and families?
    That is certainly my goal. But in an effort to keep today's 
hearing under 7 or 8 hours, we're obviously going to have to 
have a focus. I want it understood for this hearing I have a 
particular interest in focusing on the consumer.
    In any energy debate it's never very hard to find a voice 
for the various regions of America, for various industries in 
America and for various ideological points of view in America. 
Consumers, however, often don't have one. I just want it 
understood that on my watch, the consumer is not going to get 
short shrift.
    Now it looks like a number of influential voices want to 
start exporting oil. I just want to hammer home the point this 
morning that, for me, the litmus test is how middle class 
families are going to be affected by changing our country's 
policy on oil exports. It is not enough to say some algorithm 
determines exports are good for the Gross Domestic Product or 
some other abstract concept.
    American families and American businesses deserve to know 
what exports would mean for their specific needs when they fill 
up at the pump or get their delivery of heating oil. Simply 
charging forward and hoping for the best is not the way you get 
the best policy decisions. The responsibility of our committee, 
and we have always worked on these issues in a bipartisan way, 
is to make sure consumers are not going to get hammered by the 
cost of gas going up because of some theory that everything is 
just going to turn out hunky dory in the end.
    I'll wrap up by saying that I think there are important 
issues with respect to timing. There may be a time when crude 
oil exports are appropriate. One of the questions we're going 
to have to explore is whether that time is now.
    When a conversation has begun on exporting crude oil, I am 
not hearing a similar conversation on ending imports. Our 
country is still importing about 40 percent of our crude oil, 
including from those places that do not have our best interests 
in mind. Every member of this committee understands the debate 
about energy as a global commodity.
    We've all heard about how it's a global price. I'm sure 
we're going to hear that again today. But a global price does 
not automatically mean a stable price. If oil stops flowing 
from Saudi Arabia next week, American consumers and businesses 
would feel it in a hurry.
    So the question is, does real energy security mean having 
the ability to be energy independent even if we never actually 
do it?
    I think most Americans think our government would choose 
not to import oil and provide funding to regimes unfriendly to 
the United States if given the option.
    All that said, we're going to listen to the arguments pro 
and con. I personally need to hear more. I will not be making 
any judgments today.
    I look forward to working with Senator Murkowski, all of 
our colleagues, so that our country can maximize, I think, what 
we all would say is a historic set of circumstances that we 
want to think through carefully about how to tap the potential 
of.
    Senator Murkowski.

        STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. Thank you, Mr. Chairman.
    I appreciate your considered remarks and the opportunity to 
bring up this issue before the committee. As you and I have 
both noted over the past year we haven't shown any reticence in 
taking up the difficult issues that face this Nation when it 
comes to energy, energy production, the issues of export 
whether it's natural gas or now oil. This is what people expect 
us to do is take up the hard issues, have considered, 
thoughtful debate, dialog and then where and when appropriate, 
to act on that.
    My hope is that today's discussion is the beginning of many 
very considered and thoughtful discussions on what is certainly 
a very timely issue given the position that this country is in 
when it comes to our dramatically increased oil production.
    So again, I appreciate the opportunity to discuss this 
today. I would note that it has generated a fair amount of 
discussion. We haven't seen a full hearing room in a while. 
We've got good representation here on the committee. So I'm 
pleased to see that.
    Mr. Chairman, you will recall that you and I were speaking 
together at the Center for Strategic and International Studies 
on unconventional natural gas production. It was last year, 
just about this time, I think, maybe a week or so off. But 
during the Q and A after our presentation one of the attendees 
asked us about the ban on crude oil exports from the United 
States.
    You proceeded to answer the question in a very thoughtful 
manner. When it came time for my response I said isn't it 
amazing that you're able to ask that question and not be 
laughed out of the room because a year prior to that it would 
not have even been possible to have that discussion. So where 
we have come in just a year in recognizing, again, that as a 
Nation when it comes to our energy production on several 
different fronts, the landscape has changed dramatically.
    Thanks to my colleague at the end here what we're seeing 
coming out of North Dakota has really changed the dynamic from 
an energy perspective. It has helped with, clearly, with our 
jobs and our opportunities. But it's not just North Dakota. 
It's what we're seeing in Texas. It's what we're seeing in 
California.
    Unfortunately we're not seeing it in Alaska. I regret to 
inform my colleagues that we're not going to see the 
opportunity for exploration up in the Beaufort or the Chukchi 
this year. Shell has just announced that they are not going to 
be moving forward in 2014 because of the recent decision by the 
ninth circuit and the lack of certainty from a regulatory and a 
permitting perspective from this Administration. Very troubling 
to me.
    But let me get back to where I think we want to take the 
conversation here this morning.
    Just a couple weeks ago I addressed the Brookings 
Institution. I presented a white paper on the energy trade. I 
called, at that time, for ending the prohibition on crude on 
condensate exports.
    I will tell you I have been really gratified by the 
thoughtful responses. It hasn't been a knee jerk, oh my gosh, 
we can't do it. The sky is falling. It is much more considered 
and much more thoughtful. I think that's where we need to be 
with these discussions.
    I want to prompt further discussion and debate on the 
issue. The analytical and the trade winds are blowing fiercely. 
It's not just the polar vortex. It's this discussion on a very 
important issue.
    The architecture of U.S. energy exports must be renovated 
if our Nation is to lead the world on issues of trade, the 
environment and energy. The highest profile example is the 
outdated de facto prohibition on crude oil and condensate 
exports. This ban threatens record breaking U.S. oil production 
and American jobs by creating inefficiencies, gluts and other 
distortions.
    It is my hope and expectation that this hearing continues 
the conversation that began at Brookings, raising all the 
issues, considering all sides and most important, reaching 
conclusions so that we can move forward rather than let the 
global energy markets developing around the world pass us by 
and having said that, I don't expect that we're going to either 
see the Administration moving forward with a decision next week 
or legislation coming from--forward from me or from other 
members of the Energy Committee here.
    What I am hoping is that we can advance this discussion so 
that it is clearly understood that from the consumer's 
perspective it is understood and appreciated why exports would 
make sense. Is the timeliness issue that you bring up, Mr. 
Chairman, is critically important because timing is key here. 
The impact on American consumers is critical.
    I happen to believe that opening up world markets to U.S. 
crude oil will lower the global price which will in turn lower 
the global prices for petroleum products. All things equal, the 
American consumer will benefit from this interaction as will 
those Americans that are employed directly and indirectly as a 
result.
    Geopolitical impacts are also noteworthy here. The 
international trade dimension, given the ongoing trade talks 
with Europe and Asia, is just beginning to be understood. From 
today's vantage point I believe that national security will 
also be enhanced by our strengthened posture on energy trade.
    We cannot let short term thinking distract us from the long 
haul. Gasoline prices will fluctuate. We know that. We see it 
every year.
    There will be variations across different regions of the 
United States. This is due to a constellation of variables 
including infrastructure challenges, differing tax structures 
across states, various economic inefficiencies and other 
aspects of the Nation's refining and distribution system. 
Regional variations and prices are still, ultimately, 
variations on global prices.
    Lifting the ban is about production. It's about jobs. The 
International Energy Agency, IEA, has warned that maintaining 
the ban may actually result in decelerating or shut in 
production which would be to the detriment of the Nation's 
livelihood.
    So many things to chew on this morning, many things to 
carry forward in further discussions, but we've got a panel in 
front of us, Mr. Chairman, that I think is clearly 
knowledgeable, poised, to speak to these issues. I think we 
will gain from their input this morning. I thank them for being 
here and thank you for allowing us to have this opportunity on 
this important discussion.
    The Chairman. Senator Murkowski, thank you for a thoughtful 
statement.
    Without the committee being hit by one of those politi-
facts, I'm told by our committee historians that this is the 
first hearing in the Congress in 25 years on this topic. So 
given that and the fact we have more than 10 percent of the 
Senate here, a number of Senators have indicated that they'd 
like to make a short statement.
    Senator Franken did. Senator Landrieu.

          STATEMENT OF HON. AL FRANKEN, U.S. SENATOR 
                         FROM MINNESOTA

    Senator Franken. Yes, I didn't want to interrupt the 
Ranking Member, but when she was talking about our--where we've 
come in the last few years in oil production and thanked my 
esteemed colleague from North Dakota, Senator Hoeven.
    I just wanted to point out that while as Governor he did 
all kinds of things to make sure that the Bakken was developed 
there. He did not discover the oil there.
    [Laughter.]
    Senator Franken. I just wanted to point that out. But, if 
you would please discover some oil in Minnesota it would be 
most welcome.
    [Laughter.]
    Senator Hoeven. You need to talk to our guest, Harold Hamm. 
He may do that yet.
    Senator Franken. OK.
    The Chairman. We're clearly going to have a rollicking 
morning.
    [Laughter.]
    The Chairman. Let me just go back and forth.
    Is there a colleague on the other side who would like to 
make a quick comment?
    Senator Landrieu would like to have one. I just know that a 
lot of you are under a time crunch.
    Is there a colleague on the other side who just wanted a 
minute or two or we'll go to Senator Landrieu?
    Senator Hoeven.

 STATEMENT OF HON. JOHN HOEVEN, U.S. SENATOR FROM NORTH DAKOTA

    Senator Hoeven. Thank you, Mr. Chairman.
    I'd just like to welcome Harold Hamm today. He really has 
been a pioneer in the Bakken. Senator Franken is not too far 
off when he talks about discovering oil.
    He didn't discover the oil, but he certainly was a pioneer 
in discovering the methods including hydraulic fracturing and 
directional drilling and developing those methods in a way that 
made that oil recoverable in the billions of barrels. It is 
absolute leading an energy renaissance in this country.
    So by way of introduction, I'm very pleased to welcome and 
introduce Harold Hamm this morning.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Hoeven.
    I very much enjoyed my visit to North Dakota as well and 
appreciate your giving that opportunity.
    Senator Landrieu.

       STATEMENT OF HON. MARY L. LANDRIEU, U.S. SENATOR 
                         FROM LOUISIANA

    Senator Landrieu. Mr. Chairman, I think for your purposes 
we have an excellent panel this morning. I want to thank both 
you and Senator Murkowski for such a thoughtful opening 
statement.
    I'm going to submit my statement for the record.
    But I do want to say that we are witnessing an energy 
revolution in the country today producing more energy at home 
here than we have in decades and to translate that into 
numbers. The EIA predicts this year the U.S. will average 8.5 
million barrels a day in production, one million per day more 
than the average in 2013 and most importantly very near the 
record of 9.6 million barrels a day last achieved in 1970. 
That's why we're having this hearing today.
    I think the testimony that Mr. Hamm and others will provide 
is that this number could be increased substantially based on 
new technologies, new opportunities which will benefit not just 
the exploration and production companies of which many hail 
from Louisiana and we're proud. But also the landowners, also 
the oil supply and gas suppliers, also the general 
manufacturers that make products completely unrelated to oil 
and gas, but that employ a great deal of Americans that are 
experiencing the excitement about additional supply and 
potentially stable prices and reasonable prices.
    So I'm going to put the rest of my statement in the record.
    Most importantly I think for our refineries we do need to 
get on the record what our refineries in the country are 
positioned to process today and the kind of crude that's being 
produced and the mismatch that's there. We have to be very 
aware and sensitive of the investments that have been made by 
our refineries. So I think we're going to hear some of that 
today. I'm really looking forward to the testimony, 
particularly the users of it like Delta Airlines that uses a 
tremendous amount of fuel and has an important perspective for 
us to consider.
    So thank you, Mr. Chairman. I'll submit the rest of my 
statement for the record.
    [The prepared statement of Senator Landrieu follows:]

    Prepared Statement of Hon. Mary L. Landrieu, U.S. Senator From 
                               Louisiana
    I would like to begin today by thanking Chairman Wyden and Ranking 
Member Murkowski for convening a hearing on this incredibly timely and 
vital topic.
    The U.S., as every witness has noted, is in the midst of an energy 
revolution, producing more energy here at home than we have in decades 
and reaping the incredible economic benefit that has come with it.
    To put this into numbers, the EIA predicts that this year the U.S. 
will average 8.5 million barrels per day of production, 1 million 
barrels per day more than the average in 2013 and very nearly the 
record of 9.6 million barrels per day, last achieved in 1970.
    This revolution is driven in large part by increased unconventional 
production, which has grown from nearly nothing 10 years ago to 
represent 1/3 of our current domestic production.
    This is expected to rise, with EIA predicting that new 
unconventional production in the Bakken, Eagle Ford and Permian basin 
will drive the U.S. to match its record high domestic oil production 
level of 9.6 million barrels per day by 2016.
    However, a barrel of oil produced in these unconventional plays is 
not the same as a barrel produced in Canada or elsewhere. We produce 
light to intermediate sweet crude-very high quality crude, but one that 
almost half of the 115 refineries in the U.S. are not designed to 
efficiently handle.
    This mismatch, combined with decreasing demand for refined products 
such as gasoline, could lead to a surplus of supply without a readily 
available way to use it, barring retooling a large number of U.S. 
refineries or moving the crude elsewhere.
    This raises the question we have arrived at today-what to do with 
this new wealth of supply? It is apparent from your testimonies that 
there are widely varying opinions on this matter, and I believe that 
discussions like this one are essential to creating a consensus.
    I believe that this discussion, and the one ones certain to follow, 
hold exciting promise for our nation, and I look forward to working 
with my colleagues to develop a strong, fact-based policy.

    The Chairman. Thank you, Senator Landrieu.
    Let's go to the other side. Is there anyone on the other 
side who wanted to make a brief comment?
    Senator Manchin I know was interested.
    Senator Manchin.

       STATEMENT OF HON. JOE MANCHIN, III, U.S. SENATOR 
                       FROM WEST VIRGINIA

    Senator Manchin. Thank you, Mr. Chairman.
    I want to thank both you and Senator Murkowski for holding 
this historic hearing today. But I just can't help but think 
that where we are today and we're thinking about this which 
would have never had this discussion a year, 2 years, 5 years 
ago. It really speaks of the innovation and the changes that 
you all have been able to develop for our country to make us 
much more secure.
    I can only think about the LNG discussions we're having 
now, LNG exports, where we were going to import a couple years 
ago. So that's part of this too will play into it.
    I think, Senator Wyden, you've put it so succinctly that 
basically that sweet spot. I can only think about 100 to 150 
years ago the coal industry. What the coal industry did coming 
from my little State of West Virginia, the best coking coal in 
the world, making the steel that built the ships and built the 
industrial revolution as we have it, gave us the life that we 
have today that so many people have forgotten about and what 
they're still depending from our little State and where we 
would be if we would have sent that product out of the 
marketplace.
    There's a balance to be had. I think that we're able to 
find that sweet spot, Mr. Chairman. I'm also going to introduce 
my statement for the record in more detail.
    But I'm most interested in this topic and this discussion 
not just for us, but for our children and grandchildren and 
basically for the security of our Nation.
    So I thank all of you for what you've done and what you've 
contributed.
    The Chairman. Thank you, Senator Manchin.
    [The prepared statement of Senator Manchin follows:]

  Prepared Statement of Hon. Joe Manchin, III, U.S. Senator From West 
                                Virginia
    Thank you, Chairman Wyden and Ranking Member Murkowski for holding 
this very timely hearing. I know that this whole issue of whether to 
lift the oil export ban is a very new one--so much so that the Energy 
Information Agency, universities, and think tanks are still in the 
process of doing basic research into what lifting this longstanding ban 
would do. I truly appreciate having this opportunity to hear from our 
witnesses, who I understand have differing opinions on this topic. I am 
also eager to hear from my colleagues on this Committee regarding their 
views.
    Personally, as we talk about the oil export issue, I can't help but 
think of the ongoing debate about LNG/natural gas exports. Just a few 
years ago, we were so short on natural gas here in the U.S. that we 
were building import terminals to bring it in from the Middle East and 
elsewhere. Then the shale boom happened. My home state of West Virginia 
is one of the places blessed to have a huge shale reserve, in the 
Marcellus and Utica shale plays. But we need to be very thoughtful and 
deliberate in how we choose to use these resources.
    A hundred and fifty years ago, if the U.S. had exported our coal as 
a raw commodity, we would not have had the industrial revolution that 
made us a world economic power, creating buildings, ships, bridges, and 
rail lines out of the steel forged using that coal.
    We need to find the right balance, where we are able to meet our 
domestic energy needs--for things like rebuilding our manufacturing 
base--while still allowing for some level of exports. I agree with 
Chairman Wyden, who refers to this as the ``sweet spot'' when we are 
talking about finding that level for natural gas.
    I am interested to hear from our witnesses today about whether they 
view oil exports in the same way they would view gas exports, and if 
not, why not. And whether, in both cases, they think allowing wholesale 
export of crude oil is good for our economy and national security.
    Thank you.

    Senator Barrasso.

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

    Senator Barrasso. Yes, thank you, Mr. Chairman, for holding 
this important meeting.
    I read a book this past weekend called Break Out. There's a 
whole section on what Mr. Hamm has been able to accomplish. 
It's about pioneers of the future. He truly is one. It goes 
into the epic battle that is going to decide America's fate. A 
lot of it has to do with our energy resources, the 
availability, the production and the new technology that's made 
it possible.
    So I want to thank you, Mr. Chairman, for your leadership 
and bringing this group together.
    Thank you.
    The Chairman. Thank you, Senator Barrasso.
    Senator Cantwell.

        STATEMENT OF HON. MARIA CANTWELL, U.S. SENATOR 
                        FROM WASHINGTON

    Senator Cantwell. Thank you, Mr. Chairman. Thank you for 
the indulgence of statement. I'll try to be as brief as 
possible.
    I guess there are two issues that I want to make sure are 
addressed. I don't know if they're going to be addressed at 
this morning's discussion. But those are the issues of safety 
and price.
    I'm not saying you can't have oil transported safely. But 
we had a huge fire at our Tesoro Anacortes refinery that killed 
seven people, and a report is being released today about what 
happened. Certainly we've also had smaller incidents.
    Now oil. If you think of the North Dakota and export 
opportunities, where is that going to go? On rail. So what are 
the safety issues? How do we address them?
    So to me that's a very important issue.
    Second, this issue of price.
    I certainly believe that it's a global market and a global 
price. I definitely think we could do more to continue to 
police those markets to make sure that manipulation of oil 
futures doesn't affect the day to day price of oil which isn't 
really part of today's discussion either or part of the oil 
industry, but a little bit more about the banking industry. How 
many people have their fingers in the oil futures pot when they 
really aren't taking delivery for an end user.
    But my point is is that this price issue, for us in the 
Pacific Northwest, given the world market and yet still being 
an isolated market, we've had some of the highest gas prices in 
the Nation constantly. So it affects us. So we're going to pay 
attention to that.
    When the Congressional Research Service gave an informal, 
back of the envelope, estimate about this particular issue on 
exports, it's saying that some consumers could pay as much as 5 
to 10 cents more per gallon if the ban is lifted. Now that's an 
informal discussion. I know the Chairman and the Ranking Member 
will get back to this at some point in time.
    But to me, this is the issue. We know that oil markets and 
energy supplies are going to be tight in the future. How do we 
best police them so they're functioning like true markets? How 
do we protect consumers in delivering the most cost effective 
resources so that our economy can continue to grow?
    So I thank the Chairman for this indulgence today. It's a 
historic occasion. You're letting us have historic input before 
the witnesses. So thank you for that.
    The Chairman. Thank you, Senator Cantwell.
    Any colleagues on the other side?
    Senator Portman.

          STATEMENT OF HON. ROB PORTMAN, U.S. SENATOR 
                           FROM OHIO

    Senator Portman. Thank you, Mr. Chairman.
    I hadn't expected to have this opportunity either. But I 
appreciate your holding the hearing. You're right, it is 
historic that we're talking about this. Since 1975 we really 
haven't had a discussion because we haven't had a reason to and 
now we do thanks to hydraulic fracking and horizontal drilling 
and the technologies and the shale finds.
    LNG exports issue is, I would think, more controversial a 
year ago than it is now. It's because we have found ourselves 
in a situation where, based on the economic analysis, it looks 
like we can afford to export. Still help our manufacturers in 
places like Ohio achieve what is happening which is 
unbelievable.
    It is a revolution in the sense that we're finding more 
natural gas and oil and prices are low. But it's much more as 
to the impact on jobs in my State and other states where 
manufacturers are coming back. They're adding jobs because 
they're seeing that there will be a long term and stable price 
for energy which is an important input, particularly in some of 
the energy intensive industries in my State.
    On the issue of oil, the one thing I'd love to hear today, 
Mr. Chairman, is whether the price at the pump is determined 
through the global market because I appreciate what Senator 
Cantwell said. She made some good points. We also hear that in 
effect what happens at the pump in Ohio and around the country 
is affected by the global marketplace, predominately.
    We see that, you know, when there's an issue overseas where 
there is no disruption of supply but the potential for it we 
see the prices go up. So I would like to hear more about that, 
understanding how this differs from natural gas in terms of the 
market and ultimately what it can mean for our consumers.
    Finally, since Senator Manchin talked about the sweet spot 
I'd love to hear a little more about what could be done in 
terms of maybe a swap specifically with Mexico that's been 
suggested by some folks where we would be exporting light, 
sweet crude in exchange for heavy crude and whether that makes 
sense. So it may not be a wholesale lifting of the export ban 
at this point, but it might be some opportunities for us to 
actually enhance our competitiveness in this country and be 
sure we have the right balance of energy resources in the 
context of again, this revolution that's really put the United 
States in a position to be more competitive across the board.
    So those are things I'd love to hear, Mr. Chairman, today 
in the conversation. Again, really appreciate the witnesses 
being here. We've got a great panel.
    The Chairman. Thank you, Senator Portman.
    Senator Heinrich.

        STATEMENT OF HON. MARTIN HEINRICH, U.S. SENATOR 
                        FROM NEW MEXICO

    Senator Heinrich. We're going on a long time here so I'll 
try to be brief.
    But----
    The Chairman. It's been 25 years.
    Senator Heinrich. That's a good point.
    [Laughter.]
    Senator Heinrich. Yes, there's a lot of bottled up ideas 
here.
    The Chairman. Ah, yup.
    Senator Heinrich. But I just want to remind my colleagues 
that one of the reasons why we're having this conversation, one 
of the reasons why the market has changed so much, is because 
of this technology that's been developed, as you said, 
horizontal drilling, but also hydraulic fracturing. Much of the 
basic research for that came out of our national laboratories 
including Sandia National Labs in New Mexico. My point is only 
that after several years of declining budgets and sequestration 
I think it's incredibly important for us to realize that things 
that we consider mature and industries that have been around a 
long time can be radically changed by our investments in basic 
research.
    We need to continue to make sure that we don't lose sight 
of that.
    The Chairman. Very good.
    Other colleagues?
    Senator Scott.

           STATEMENT OF HON. TIM SCOTT, U.S. SENATOR 
                      FROM SOUTH CAROLINA

    Senator Scott. I'd feel left out if I didn't say something.
    The Chairman. Alright.
    Senator Scott. So I'll say something.
    [Laughter.]
    The Chairman. Not on our watch you won't be left out.
    Senator Scott. Thank you, Mr. Chairman. You are always so 
kind and gracious.
    Having the opportunity to go to Midland, Texas recently and 
see the results and the impact of hydraulic fracturing as well 
as horizontal drilling. It's quite remarkable where we find 
ourselves today especially when you look back over the history, 
2004, 2005, 2006 that we were at a plateau. The end was coming 
very soon.
    The reality of it is because of yourself, sir and I think 
it was George Mitchell, perhaps, that invested a lot of 
resource and took amazing risks to get us, as a country, into a 
position where we should have a larger conversation at some 
point in the near future about the impact of these export 
opportunities on our national security. One of the things that 
we recognize is that as we become more aggressive with our oil 
production and our oil, hopefully, exporting I think it puts 
our Middle East competitors in a very unique position to take a 
serious look at their own budgets, their own revenues. 
Certainly as I look in our future, ours is pretty positive. But 
I think it does more for our national security that we've 
really articulated in the last several years.
    The Chairman. Thank you, Senator Scott.
    Any others?
    Senator Baldwin.

         STATEMENT OF HON. TAMMY BALDWIN, U.S. SENATOR 
                         FROM WISCONSIN

    Senator Baldwin. Thank you, Mr. Chairman.
    I wanted to talk a little bit about the context in which 
I'm going to be listening to the testimony and thinking about 
this input. I mentioned it actually at our hearing quite 
recently because this winter in Wisconsin families and business 
owners have had one issue on their minds. That's the cost and 
availability of propane.
    It's an especially cold winter in Wisconsin this year. For 
many people who have for years relied on a steady propane 
supply, this year they're unable to find fuel to fill their 
tanks. At the same time regional suppliers have been depleted. 
Prices have risen from about $2.20/gallon to over $6.00/gallon. 
It's risen in just 3 weeks.
    This is really devastating and very frightening for 
thousands of families across Wisconsin. I'm hopeful that the 
committee will take a close look at how we can solve this 
problem and figure out how we can prevent it from ever 
happening again.
    But in addition to very tight domestic supplies this season 
we've also witnessed a dramatic, a fairly dramatic, increase in 
propane exports. In fact in the last 3 months at the very same 
time that Midwestern supplies were dwindling the export 
industry nearly tripled exports. The propane supply crisis 
should give us pause and should inform the larger discussion 
about another fuel that is also critical to our economy. 
Consumer supply protections are a central part of any serious 
debate about the future of crude oil exports.
    Let me just add one other issue. I don't know if I'm going 
to get a chance to stay long enough to ask questions, so maybe 
I'll just suggest one area of interest. One of the major causes 
of the propane shortage in the Midwest has been as a result of 
infrastructure changes. Pipelines that have served the region 
for decades are being repurposed to serve new oil fields. As 
oil production increases these infrastructure pressures, I 
think, will only increase.
    So all part of what I'll be--the context in which I'll be 
viewing today's discussion.
    Again, Mr. Chairman and Ranking Member Murkowski, I very 
much appreciate our chance to hear the testimony today.
    The Chairman. Thank you.
    I think we're ready to go to our witnesses and our guests.
    Any other comments from the other side?
    Alright, let's go forward then.
    Mr. Harold Hamm, Chairman and Chief Executive Officer, 
Continental Resources in Oklahoma City.
    Mr. Graeme Burnett, Senior Vice President of Fuel 
Optimization for Delta.
    Ms. Amy Myers Jaffe, Executive Director of Energy and 
Sustainability at the Graduate School of Management in the 
Transportation Studies area at the University of California at 
Davis.
    Mr. Daniel Weiss, Senior Fellow and the Director of Climate 
Strategy at the Center for American Progress.
    We welcome all of you.
    We'll make your prepared statements a part of the record. I 
think the 4 of you could see that there is great interest among 
the Senators. You will have plenty of questions.
    Mr. Hamm, welcome.

STATEMENT OF HAROLD HAMM, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, 
         CONTINENTAL RESOURCES, INC., OKLAHOMA CITY, OK

    Good morning, Chairman Wyden, Ranking Member Murkowski and 
members of the committee. My name is Harold Hamm. I serve as 
Chairman and Chief Executive Officer at Continental Resources, 
an Oklahoma City based independent oil and gas exploration and 
production company. We do not have refineries.
    It's an honor to address you today on this critical subject 
of crude oil exports. Whether blueberries or barrels of oil 
restrictions hamper growth in the market and the same is with 
this critical product that we're talking about, crude oil 
because we need to lift this restriction sooner than later.
    As Chairman of Domestic Energy Producers Alliance and as 
CEO of the company that co-developed the first field ever 
drilled exclusively with horizontal drilling, no fracks and a 
company that has the largest lease holder and most active 
driller in the Bakken Play in North Dakota is in a unique 
position to be one of the first to see American energy 
independence on the horizon 3 years ago. As technology 
continues to advance and new supplies of premium crude oil are 
discovered, today I see firsthand what's necessary to continue 
this American oil and gas renaissance and achieve energy 
independence for our country.
    I appreciate you inviting me to share my experience and 
insight with you here today.
    In October 2011 DEPA put a stake in the ground and 
predicted American energy independence by 2020. America's 
independent oil and gas producers have unlocked the technology 
and resources that made this a reality, not the majors. As a 
result we can today mark the recent 40th anniversary of the 
OPEC oil embargo by ending their oil scarcity in America and 
along with it ending the last short sighted regulation passed 
during that same period.
    The laws passed in the 70s artificially controlled the 
supply, demand and price of U.S. energy and brought about 
unintended consequences. One law even banned the use of natural 
gas as a boiler fuel and mandated U.S. power plants to switch 
to less friendly alternative, coal. We understand what's 
happened.
    Thankfully in response to dramatic changes in our global 
energy industry legislators have repealed or let expire nearly 
all post embargo regulations save two, the Energy Policy and 
Conservation Act of 1975 and the Export Administration Act of 
1979 which essentially banned crude oil exports. The scarcity 
mentality that originally led to the creation of these export 
restrictions no longer reflects the economic reality of the 
global energy marketplace that we have today.
    We are entering a new era of energy abundance in America 
and the world. Heretofore we have only been able to extract 
hydrocarbons from reservoir quality rock primarily through 
vertical wells. But through technological breakthroughs in 
horizontal drilling we can develop resources previously thought 
to be unattainable by drilling two and 3 mile along laterals.
    America now counts their natural gas supplies in centuries. 
Experts agree we'll be energy independent in terms of crude oil 
within this decade. This phenomenon was brought about by a 
group of independent American producers and missed by the 
general consensus of the industry. It was in complete contrast 
to the popular belief that the United States would be running 
out of oil and gas at the turn of the 21st century.
    Today we must correct another popular misconception that 
we're not exporting petroleum. Nothing could be further from 
the truth. Major oil companies are exporting refined petroleum 
products without any limitations. Why should an independent 
producer be allowed to do the same?
    Are we going to be their milk cows forever?
    Over the years some have argued granting U.S. crude oil 
producers free access to world markets would drive up the cost 
of gasoline. The opposite is actually true. Unlike the exports 
of crude oil, exports of gasoline and other refined products 
are not restricted. Under current law our government has 
arbitrarily subsidized in some U.S. refineries, many of which 
are foreign owned, by giving them the ability to buy American 
oil at artificially low prices yet sell petroleum products in 
the higher priced global markets.
    The true benefits of exports to the American consumer will 
be competition for the refining of gasoline. Indeed crude oil 
is no different than any other commodity demanded by consumers. 
The lower prices are only brought about by increased supply, 
greater competition, weaker demand or improved efficiency in 
the market. When governments attempt to legislate lower prices, 
it don't matter how well meaning the laws may be, market 
restrictions, market distortions and unintended consequences 
inevitably result. Supply and competition fall short of 
potential and the consumer ends up paying higher prices.
    Over the past 18 months consumer prices for both gasoline 
and diesel have been reduced almost 20 percent due to the 
American energy renaissance brought about by horizontal 
drilling. A recent, released only yesterday, a report by ICF 
International states American consumers cost for these 
commodities can be reduced another $6.6 billion per year if the 
export ban is removed.
    We find ourselves at a crossroad. Do we cap oil production 
or modernize Federal rules and regulations to reflect the 
reality of today? Lifting export restrictions will strengthen 
our domestic oil industry, a critical component of our economy 
whose impact reaches far beyond the American consumer.
    The energy sector has added jobs for millions of Americans 
and has also served as a job multiplier for our Nation's 
growing chemical and manufacturing industries.
    Energy independence doesn't mean being isolationist. As 
we've seen in Cuba, Venezuela, North Korea, closed societies 
don't work. Energy independence means energy security.
    In conclusion, the world has drastically changed since the 
OPEC oil embargo and reactionary enactment of Federal 
regulations in the 1970s. Even then that ban was symbolic, as 
we had no oil to export. Americans and consumers of all nations 
would benefit from the lifting of these restrictions that 
inhibit the export of crude oil produced in the U.S.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Hamm follows:]

    Prepared Statement of Harold Hamm, Chairman and Chief Executive 
        Officer, Continental Resources, Inc., Oklahoma City, OK
    Chairman Wyden, Ranking Member Murkowski and Members of the 
Committee, my name is Harold Hamm. I serve as Chairman and Chief 
Executive Officer of Continental Resources, an Oklahoma City-based 
independent oil and gas exploration and production company. It's an 
honor to address you today on the critical subject of crude oil 
exports. As Chairman of the Domestic Energy Producers Alliance and as 
CEO of the company that co-developed the first field ever drilled 
exclusively with horizontal drilling and the company that is the 
largest leaseholder and most active driller in the Bakken Play, I was 
in the unique position to be one of the first to see American energy 
independence on the horizon three years ago. And as technology 
continues to advance and new supplies of premium crude oil are 
discovered, today I see first-hand what's necessary to continue this 
American oil and gas renaissance and ultimately achieve energy 
independence for our country. I appreciate you inviting me to share my 
experience and insight with you here today.
    In October 2011, DEPA put a stake in the ground and predicted 
American energy independence by 2020.\1\ America's independent oil and 
gas producers have unlocked the technology and resources that make this 
a reality. As a result, we can today mark the recent 40th anniversary 
of the OPEC oil embargo by ending the era of oil scarcity in America 
and, along with it, ending the last of shortsighted regulations passed 
during that period.
---------------------------------------------------------------------------
    \1\ Stephen Moore, ``How North Dakota Became Saudi Arabia,'' Wall 
Street Journal (October 1, 2011)
---------------------------------------------------------------------------
    The federal laws passed in the 1970s artificially controlled the 
supply, demand, and price of U.S. energy and brought about unintended 
consequences. For example, one law even banned the use of natural gas 
as a boiler fuel and mandated U.S. power plants switch to a less 
environmentally friendly alternative, coal.\2\ Today America is still 
struggling to rectify the aftermath of this rash regulation.
---------------------------------------------------------------------------
    \2\ Powerplant and Industrial Fuel Use Act of 1978 (Repealed in 
1987) http://www.eia.gov/oil_gas/natural_gas/analysis_publications/
ngmajorleg/repeal.html
---------------------------------------------------------------------------
    In the years since the enactment of these laws, our elected 
officials have recognized our global energy industry has changed 
dramatically. Thankfully, in response to these changes, legislators 
have repealed or let expire nearly all post-embargo regulations save 
two: the Energy Policy and Conservation Act of 1975 and the Export 
Administration Act of 1979, which together essentially ban crude oil 
exports.
    As the world has changed and other similar, post-embargo 
legislation has been phased out, the question has to be asked, ``Why 
does the United States, a nation historically very supportive of free 
trade, continue to impose export barriers for domestic crude oil?'' The 
fact is the supply and demand factors and ``scarcity mentality'' that 
originally led to the creation of these export restrictions in no way 
reflect the economic reality of the global energy marketplace of today.
    We are entering a new era of energy abundance in America and the 
world. Heretofore, we have only been able to extract hydrocarbons from 
reservoir-quality rock, primarily through vertical wells. But through 
technological breakthroughs in precision horizontal drilling, we can 
develop resources previously thought to be unattainable. America now 
counts our natural gas supply in centuries, and experts including 
Raymond James,\3\ Citi\4\ and the International Energy Agency\5\ all 
agree we will be energy independent in terms of crude oil within a 
decade or two. In comparison, this offsets a 2005 high of 60% crude oil 
imports.
---------------------------------------------------------------------------
    \3\ Raymond James ``Yes, Mr. President, We Believe We Can Drill Our 
Way Out of This Problem'' April 2, 2012, Accessed January 27, 2014
    \4\ Citi GPS ``Energy 2020 North America, the New Middle East?'' 
March 20, 2012, Accessed January 27, 2014
    \5\ International Energy Agency ``World Energy Outlook 2013'' 
November 12, 2012, Accessed January 27, 2014
---------------------------------------------------------------------------
    This phenomenon was brought about by a group of independent 
American producers and missed by the general consensus of the industry. 
The American oil and gas renaissance was in complete contrast to the 
popular belief that the United States was running out of oil and gas at 
the turn of the 21st century. In fact, under expectations of a far 
different domestic production outlook only a decade ago, the U.S. 
refining industry invested many tens of billions of dollars to retool 
refineries to process heavy, high-sulfur bitumen and tar sands from 
South America, Canada and Saudi Arabia.
    Not only has horizontal drilling increased America's supply of 
crude oil, but also it has improved the quality. Primarily the oil 
produced through horizontal drilling is light, tight, low-sulfur crude, 
making it the best quality in the world. It's environmentally friendly, 
it promotes jobs, it's fueling a manufacturing and petrochemical 
industry comeback in America, and we need to make sure we don't 
disadvantage this high quality oil with refining capacity, wherever it 
may be located in the world.
    The popular belief is that we're not exporting petroleum. Nothing 
could be further from the truth. Major oil companies are exporting 
refined petroleum products like gasoline and diesel with no 
limitations.\6\ Why shouldn't independent producers be allowed to do 
the same? Are we to be their subjugate milk cows, just like being able 
to export flour, but not wheat? No one will go for that.
---------------------------------------------------------------------------
    \6\ Exports of petroleum products have nearly quadrupled from 870 
thousand bpd in 2006 to nearly 3.6 million bpd in 2014, making the U.S. 
a net exporter of finished productshttp://www.eia.gov/dnav/pet/
pet_move_wkly_dc_NUS-Z00_mbblpd_whtm
---------------------------------------------------------------------------
    Over the years, some have argued granting U.S. crude oil producers 
free access to world markets would drive up the cost of gasoline and 
other petroleum products for American consumers. The opposite is 
actually true. By imposing trade restrictions on a single segment of 
the energy industry, namely domestically produced crude, our government 
is arbitrarily subsidizing some U.S. refineries--many of which are 
foreign-owned--by giving them the ability to source American oil at 
prices well below the world market price, while at the same time giving 
them the ``green light'' to sell petroleum products into higher-priced 
international markets.
    Energy independence is working--U.S. gasoline and diesel prices are 
down 20%. But America's oil and gas renaissance is in jeopardy. These 
outdated crude export restrictions have prevented domestic oil 
exploration and production from achieving its full potential--slowing 
potential job growth, restricting supply, and negatively affecting 
global refined product balances, which sends the wrong message to our 
trading partners around the world. Many refineries overseas designed to 
only process light, sweet crude similar to U.S. grades find it 
difficult to compete profitably with U.S. refiners with access to 
domestic crude at artificially low prices, forcing many to close and 
thereby reducing supplies of refined products on the global market.\7\ 
This effectively raises prices for consumers in the U.S. and all around 
the world. Many refineries in the Caribbean, Europe, India and South 
America are closing or operating at sub-optimal levels as they cannot 
compete with U.S. refiners running on discounted domestic crude oil. 
And, when supplies of gasoline and diesel fuel are restricted in the 
global market, the global demand for U.S. gasoline and diesel 
increases, thereby driving up the price U.S. consumers must pay at the 
pump.
---------------------------------------------------------------------------
    \7\ Valero Investor Presentation November 12, 2013 http://
www.valero.com/InvestorRelations/Pages/EventsPresentations.aspx, 
Accessed January 27, 2014
---------------------------------------------------------------------------
    The true benefit to the American consumer will be competition for 
the refining of gasoline. Indeed, crude oil is no different than any 
other commodity, product, or service demanded by consumers. Lower 
prices are only brought about by increased supply, greater competition 
amongst sellers, weaker demand, or improved efficiency in the 
manufacturing and distribution process. When governments attempt to 
legislate lower prices through regulations, no matter how well-meaning 
the laws may be when introduced, market distortions and unintended 
consequences inevitably result; supply and competition among producers 
is rendered short of potential, and the consumer ends up paying higher 
prices at the gas pump and in their monthly energy bills.
    America is at a crossroads. Do we cap oil production or allow 
exports? Lifting export restrictions will strengthen our domestic oil 
industry, a critical component of our economy whose impact reaches far 
beyond the American consumer. At a time when unemployment sits at 
nearly 7% and, more importantly, U.S. labor force participation has 
fallen to just 63%,\8\ the energy sector has added jobs for millions of 
Americans--both directly and indirectly through energy service and 
equipment companies. It has also served as a job multiplier for our 
nation's growing chemical and manufacturing industries. To this point, 
a recent IHS\9\ report issued in September 2013 on unconventional oil 
and gas--or oil and gas produced by horizontal drilling--found that:
---------------------------------------------------------------------------
    \8\ Bureau of Labor Statistics. http://data.bls.gov/timeseries/
LNS11300000. As of December 2013.
    \9\ IHS ``U.S. Unconventional Oil and Gas Revolution to Increase 
Disposable Income by More than $2,700 per Household and Boost U.S. 
Trade Position by More than $164 billion in 2020, New IHS Study Says,'' 
September 4, 2013. http://press.ihs.com/press-release/economics/us-
unconventional-oil-and-gas-revolution-increase-disposable-income-more-
270. Accessed September 24, 2013.

   Employment attributed to unconventional oil and gas and 
        petrochemical activity currently supports more than 2.1 million 
        jobs. IHS projects it to grow to 3.3 million jobs by 2020 and 
        3.9 million jobs by 2025.
   In 2012, the unconventional oil and gas and petrochemical 
        industries contributed nearly $284 billion to GDP. IHS projects 
        this to grow to $468 billion in 2020 and $533 billion by 2025.
   Unconventional energy increased U.S. household disposable 
        income by $1,200 in 2012. IHS projects the contribution to 
        increase to $2,000 per household in 2015 and $3,500 per 
        household in 2025.
   Unconventional energy activity and employment contributed 
        more than $74 billion in government revenues in 2012 and is 
        projected to increase to $138 billion per year in 2025.

    By supporting the export of domestically produced crude, U.S. 
lawmakers can add to these totals in the form of increased jobs, GDP 
and tax revenues.
    Beyond its economic benefits, supporting domestic oil production is 
vital for our national security. Indeed, the growth in domestic oil 
production over the past several years has contributed to a significant 
drop in U.S. reliance on imported oil.\10\ But national security and 
oil exports are not mutually exclusive; in fact, they go hand-in-hand. 
The authorization of oil exports promotes investment in additional 
energy resource and infrastructure development at home, enabling our 
nation to better control its own destiny.
---------------------------------------------------------------------------
    \10\ Bureau of Economic Analysis, ``U.S. Trade in Goods (IDS-
0182).'' Accessed July 12, 2013.
---------------------------------------------------------------------------
    But energy independence doesn't mean being isolationist. As we've 
seen in Cuba, Venezuela and North Korea, closed societies don't work. 
Energy independence means energy security. It means a chance for 
America to step back into a global leadership role by creating a world 
of balanced interdependency as opposed to dysfunctional 
interdependency. And it means no one can choke off supply, turn on the 
tap, or otherwise distort the market.
    In conclusion, the world has drastically changed since the OPEC oil 
embargo and reactionary enactment of federal regulations in the 1970s. 
Even then the ban was symbolic, as we had no oil to export. Americans 
and consumers of all nations would benefit from the immediate lifting 
of restrictions that inhibit the export of crude oil produced in the 
U.S. The net result of taking this timely action would be:

          1. Lowering fuel costs to American consumers and businesses 
        by matching light, tight, low-sulfur domestic oil with refining 
        capacity designed to efficiently process this type of premium 
        quality crude.
          2. Promoting job growth in the domestic energy sector by 
        encouraging tight oil production.
          3. Raising tax revenue at the local, state and federal level 
        through GDP growth.
          4. Advancing America's march to energy independence.

    The Chairman. Thank you very much, Mr. Hamm.
    Mr. Burnett.

 STATEMENT OF GRAEME BURNETT, SENIOR VICE PRESIDENT, DELTA AIR 
                       LINES, ATLANTA, GA

    Mr. Burnett. Chairman Wyden, Ranking Member Murkowski and 
members of the committee, thank you for inviting me to testify 
before you today. I'd ask that my full remarks be included in 
the record.
    My name is Graeme Burnett. I'm the Senior Vice President 
for Fuel Optimization at Delta Airlines. In this position I 
manage Delta's jet fuel supply as well as serve as Chairman of 
the Board of Monroe Energy, the company that owns and operates 
Delta's refinery in Pennsylvania.
    Behind the U.S. military Delta is the largest user of jet 
fuel in the world and jet fuel is our largest expense. Because 
of this we are uniquely situated both as an end user of crude 
oil and as a refiner to comment on the crude oil export ban and 
the current debate over whether to lift it. We believe strongly 
that the ban on U.S. crude oil exports is good policy and that 
lifting export limits now would come at the expense at the 
American consumer, who would pay more for gasoline, more for 
heating oil and more for the price of an airline ticket.
    Today the going price for a barrel of U.S. crude is $11 
less than a barrel sold in Europe. This price differential can 
be easily explained. The U.S. crude market is a competitive one 
with price determined by supply and demand. Once the U.S. 
domestic market incorporated the increased supply of crude from 
places like North Dakota, the price of a domestic barrel of oil 
came down.
    In contrast the global market is influenced by a cartel 
where OPEC countries control production in order to set prices. 
If we lift the export ban we would, in essence, be allowing the 
transport of crude out of a competitive market in this country 
and into a less competitive global one controlled by a few oil 
producing states.
    The results would be easy to predict. U.S. crude would flow 
out of this country and onto the world market. OPEC would 
reduce supply to maintain high global prices. The United States 
use of home grown oil would diminish and prices here at home 
would rise to match the higher global price for a barrel of 
crude.
    As one commentator put it, allowing for the export of home 
grown U.S. crude would do nothing more than import higher OPEC 
prices into the U.S. market.
    It's clear who gains from this scenario. The oil 
exploration and production companies, many of which are foreign 
owned. With the increased supply of U.S. crude helping to push 
prices down these companies want to sell U.S. crude on the 
global market at higher prices largely determined by OPEC. It's 
equally apparent who would lose, the American consumer, who 
will see prices rise for gasoline, for petroleum products and 
for most consumer goods that rely on fuel to get to market.
    Our country's refinery workers also stand to lose from 
lifting export limits. Some recent history can help explain 
why. Before the shale oil boom there was too much capacity in 
the refineries in the Northeast, along the Gulf Coast and many 
were closing. In fact Delta purchased its Pennsylvania refinery 
in 2012 from ConocoPhilips after their facility had been closed 
nearly 1 year. The shale oil revolution breathed new life into 
U.S. refineries and created jobs for thousands of refinery 
workers.
    In thinking about the merits of the export ban we should 
also consider one of its goals which was to help achieve energy 
independence. By independence I mean the ability to meet our 
energy needs from sources within North America.
    Notwithstanding the upswing in domestic production this 
country still imports around 33 percent of its daily crude oil 
needs from outside of North America. That's why exporting U.S. 
crude makes little sense. If we allow for the export of U.S. 
crude we'll have to import more oil from overseas and subject 
ourselves once again to an increasing degree of price 
volatility and higher global prices.
    In sum, the export ban works. It may have taken a bit 
longer than we anticipated in the 1970s but we're now seeing 
its benefit, lower prices for crude in this country compared to 
global markets and an increase in home grown energy. The ban 
may be unnecessary at some point in the future, but we still 
have a long way to go to protect against oil market volatility 
and achieve true energy independence. That's why and I'll close 
with a sports metaphor here, lifting the ban now would be like 
ending the game after the first quarter.
    Thank you, Mr. Chairman. I look forward to answering any 
questions that you and other members of this committee may 
have.
    [The prepared statement of Mr. Burnett follows:]

Prepared Statement of Graeme Burnett, Senior Vice President, Delta Air 
                           Lines, Atlanta, GA
    Good morning. Chairman Wyden, Ranking Member Murkowski, and Members 
of the Committee: Thank you for inviting me to testify before you 
today.
    My name is Graeme Burnett. I am the Senior Vice President for Fuel 
Optimization at Delta Air Lines. In this position I manage Delta's jet 
fuel supply as well as serve as Chairman of the Board of Monroe Energy, 
the company that owns and operates Delta's refinery in Trainer, 
Pennsylvania. I have over 30 years experience in the petrochemical and 
refining sectors of the energy industry and, before coming to Delta, I 
worked in various capacities in Texas and across the globe for one of 
the top five oil companies.
    Delta Air Lines is the largest non-military user of jet fuel in the 
world and, like all airlines, we participate in oil markets on a daily 
basis. Jet fuel after all is our largest expense. It contributes to the 
price of an airplane ticket, influences the types of aircraft we 
purchase, and helps determine whether we serve certain routes. Because 
of all this, we are uniquely situated--both as an end user of crude oil 
and as a refiner--to comment on the crude oil export ban and the 
current debate over whether to lift it. We believe strongly that the 
ban on U.S. crude oil exports is good policy. It is good for American 
consumers. And it is good for the airline industry and our passengers.
    As we all know, the ban dates back to the 1973 oil embargo. With 
gas prices then soaring, Congress established a crude oil export ban to 
limit our nation's reliance on foreign oil and minimize the impact of 
volatile global oil markets on domestic gas prices.
    While U.S. oil imports did drop in the 1970s and early 1980s, the 
ban did not--as critics will point out--insulate the country from 
foreign oil. In the years after the ban was created, this country 
remained vulnerable to volatility in oil markets and the price of a U.S 
barrel of crude--known in the industry as West Texas Intermediate or 
WTI--tracked the price of a barrel of crude that traded on the global 
markets.
    All that changed a just a few years ago. Beginning in 2011, when 
the country began to feel the impact of the domestic shale oil boom, a 
barrel of U.S. produced crude became cheaper than a barrel of crude 
trading on the global markets. See Attachment 1.* And today the going 
price for a barrel of U.S. crude is $96. That's about $11 less than a 
barrel sold in Europe.
---------------------------------------------------------------------------
    * Attachment has been retained in committee files.
---------------------------------------------------------------------------
    This price differential can be easily explained. The U.S. crude 
market is a competitive one with price determined by supply and demand. 
Once the U.S. domestic market incorporated the increased supply of 
crude from places like North Dakota's Bakken formation, the price of a 
domestic barrel of oil came down. In contrast, the global market is 
influenced by an oligopoly where OPEC countries control production in 
order to set prices.
    If we lift the export ban we would in essence be allowing the 
transport of crude out of a competitive market in this country and into 
a less competitive global one controlled by a few oil?producing states. 
The results would be easy to predict: U.S. crude would flow out of this 
country and onto the world market. OPEC would reduce supply to maintain 
high global prices. The United States' use of homegrown oil would 
diminish and prices here at home would rise to match the higher global 
price for a barrel of crude. As one commentator put it, allowing for 
the export of homegrown U.S. crude would do nothing more than import 
higher OPEC prices into the U.S. market.
    It's clear who gains from this scenario: The oil exploration and 
production companies, many of which are foreign owned. With all the 
crude coming out of North Dakota, Wyoming, Texas, Pennsylvania and 
other states helping to push prices down, these companies want to lift 
the ban and sell U.S. crude on the global market at higher prices 
largely determined by OPEC. And it's equally apparent who would lose: 
The American consumer, who would pay more for gasoline, more for 
heating oil and more for the price of an airline ticket. In fact, 
according to Barclays PLC, lifting the export ban would stop the 
decline in U.S. crude prices and cost American motorists as much as $10 
billion a year in higher prices at the pump.
    Our country's refinery workers also stand to lose from lifting 
export limits. Some recent history can help explain why. Before the 
shale oil boom, there was too much capacity in refineries in the 
Northeast and along the Gulf Coast and many were closing. In fact, 
Delta purchased its Pennsylvania refinery in 2012 from ConocoPhillips 
after that facility had been closed for nearly one year.
    The shale oil revolution breathed new life into these refineries 
and created jobs for thousands of refinery workers. By lifting the 
export ban and sending our crude overseas, we would reverse that trend. 
Refineries in Europe--where there is currently excess refining 
capacity--would be more than happy to refine our oil using European 
workers to do so. Put simply, lifting the ban will benefit European 
refinery workers at the expense of thousands of American jobs.
    Furthermore, in thinking about the merits of the export ban, we 
should consider one of its goals: To help this country achieve energy 
independence; and by ``independence,'' I mean the ability to meet our 
energy needs from sources within North America.
    This country has benefited tremendously from increased domestic 
energy production in recent years. The shale boom and advances in 
production and extraction technology have helped us create jobs and 
reduce our dependence on foreign oil--and foreign regimes. 
Notwithstanding the upswing in domestic production, this country still 
imports around 33% of its daily crude oil needs from outside of North 
America. That's why exporting U.S. crude makes little sense. If we 
allow for the export of U.S. crude, we'll have to import more oil from 
overseas and subject ourselves, once again, to an increasing degree of 
price volatility and higher global prices.
    In sum, the export ban works. It may have taken a bit longer than 
we anticipated in the 1970s, but we're now seeing its benefits: lower 
prices for crude in this country compared to global markets and an 
increase in homegrown energy. The ban may be unnecessary at some point 
in the future. But we still have a long way to go to protect against 
oil market volatility and achieve true energy independence. That's 
why--and I'll close with a sport's metaphor here--lifting the ban now 
would be like ending the game after the first quarter.
    Thank you Mr. Chairman. I look forward to answering the questions 
that you and other Members of this Committee may have.

    The Chairman. Thank you very much, Mr. Burnett.
    Ms. Jaffe, welcome.

STATEMENT OF AMY MYERS JAFFE, EXECUTIVE DIRECTOR OF ENERGY AND 
 SUSTAINABILITY, INSTITUTE OF TRANSPORTATION STUDIES, GRADUATE 
   SCHOOL OF MANAGEMENT, UNIVERSITY OF CALIFORNIA, DAVIS, CA

    Ms. Jaffe. Thank you very much, Chairman Wyden and thank 
you to Ranking Member Murkowski and the members of the 
committee for this opportunity to talk to you about this 
important subject.
    I have been writing about the influence of OPEC on our 
country since I was a junior in high school, believe it or not. 
I won a term paper contest in the State of Massachusetts with 
an essay on that topic. I'm so glad to be here to be able to, 
for the first time in 25 years, talk about the fact that we 
might get the goal post to take a sports analogy, get the ball 
through the goal post.
    So the United States is a leading global power and economy. 
We promote open markets and free trade. We have for the last 30 
years spent a tremendous amount of diplomatic effort to promote 
open markets and free trade in energy. That is a vital interest 
of the United States.
    I appreciate the thoughtful comments of the committee in 
terms of stimulating full debate on this subject. We do not 
want to take policies or actions that enhance rather than 
weaken the monopoly power of OPEC or Russia to use energy as a 
weapon or a tool of stay craft. We want to lead from the front 
not from behind.
    It is important for us to have this thoughtful debate and 
reevaluation of our current export policy. In doing so we need 
to consider how to avoid creating market distortions whether 
they temporarily benefit some consumers in a particular region 
or some industry we want to make sure that we are doing things 
that are more helpful than damaging. We need to consider the 
following things.
    No. 1, we actually export our new oil and gas. We export 
our oil in the form of refined products directly so we don't 
have an export ban on gasoline or diesel fuel or propane. So 
therefore we're exporting that instead of exporting the crude 
oil.
    So what we're really discussing is No. 1, what is the best 
way to organize free markets and to eliminate distortions and 
who gets the profit from the exports. Will the refining 
industry get the profits from the export or the upstream oil 
and gas industry get the profits from the export or will other 
industries get the profits from the exports because we're not 
in here to discuss banning all energy exports from the United 
States. We need to keep that in mind.
    Because we have physical bottlenecks that prevent us from 
exporting our surplus of natural gas we are currently exporting 
coal. We need to understand that when you block, like the 
little boy with the finger in the dike, when you block a hole 
in one point of the dike, water pressure comes to another point 
in the dike and something will be exported that's a different 
thing. I think the natural gas example is the best example 
because nobody expected the United States, with its best, new 
abundance of natural gas and the industry and lower electricity 
prices that it is promoting, nobody expected the result of that 
to be the export of coal to Europe.
    I'm just returning from the World Economic Forum in Davos. 
I can tell you that the entire discussion focused around 
Europe's need to reevaluate their entire energy policies 
because they are importing coal. Their emissions are going up. 
They are not drilling for natural gas. They realized that they 
have these huge distortions that have created a great economic 
advantage for the U.S. economy and a great disadvantage for the 
European economic system.
    So we want to make sure that the policies that we promote 
here in our country will continue to allow us to achieve the 
advantages that we have.
    I want to address for one moment the issue of gasoline 
price volatility because that is of such great concern. The 
solution to gasoline or any kind of consumer volatility in 
prices is to mandate minimintory, minimal standards for 
inventory. That is what happens in Europe. That is what they do 
in Japan and in South Korea. That is how industrialized, full 
economies protect consumers against sudden disruptions like a 
refinery fire or a sudden cold snap in the winter. Inventory 
levels are the critical issue to tide markets under--through 
temporary swings that come for this week or that week or a 
month or a period of time.
    I just in closing my remarks, I want to remind the 
committee and our public that when we had a temporary 
disruption gas land supply during Hurricane Rita and Katrina as 
Senator Landrieu might remember, Europe loaned us gasoline 
supplies from their mandatory strategic stocks that they 
require industry to hold. That is how we weathered through our 
crisis. We need to consider our relationship with our allies 
like Europe when we think about our future export policies.
    [The prepared statement of Ms. Jaffe follows:]

Prepared Statement of Amy Myers Jaffe, Executive Director of Energy and 
Sustainability, Institute of Transportation Studies, Graduate School of 
            Management, University of California, Davis, CA
    The rapid growth of oil and natural gas production from 
unconventional shale resources in the United States has reopened debate 
on the question of U.S. oil and natural gas export policy. Foreign 
policy considerations should be central to the discussion of this 
issue. To date, the debate in the United States has focused mainly on 
domestic economic aspects and the possible benefits of actively 
promoting artificially low domestic prices through barriers to trade. 
Today, I will discuss the risks inherent the continued promotion of 
logistical bottlenecks, even in the face of rising domestic production. 
I will also elaborate on the national security and foreign policy 
benefits that the United States can reap by promoting an open energy 
trade policy that permits exports of natural gas, condensate, refined 
petroleum products and crude oil.
    The United States has for many decades been the leading nation in 
championing open markets and free trade in energy. Open trade and 
investment in energy is important to U.S. vital interests for many 
reasons. First and foremost, artificial restrictions on energy flows 
can be a source of international conflict and, in fact, has been a 
factor contributing to armed conflict in modern history. Moreover, the 
United States, by virtue of both its superpower role and its position 
as the largest oil consuming country, has a direct interest in 
preventing energy supply from being used as a strategic weapon. 
Finally, barriers to foreign investment in energy resources in key 
countries generally contribute to supply constraints, leading to rises 
global prices and potentially harming economic growth in major oil 
consuming countries such as the United States and its key 
industrialized trading partners. For these three reasons, the United 
States should continue to actively support open markets and free trade 
in energy and to do so, it cannot restrict its own energy exports. By 
leading the charge on new energy technologies and exports, the United 
States now has the ability to fashion a global energy world more to its 
liking where petro-powers can no longer hold American drivers hostage 
or turn off the heat and lights to millions of consumers in the United 
States or allied countries to further geopolitical ends.
    Beyond these core American values and interests, it is important 
for the United States to conduct a thoughtful debate and re-evaluation 
of current export policy to avoid creating market distortions that, 
while temporarily benefiting some consumers in particular U.S. regions, 
may create more questionable medium to longer-term trends that could 
turn out to be more damaging than helpful. Our history of energy policy 
is replete with such negative examples, such as President Nixon's 
inflation-targeted price controls on natural gas which ultimately 
caused a long lasting shortage of natural gas supply in the United 
States and a two-tiered system of oil pricing that ultimately, in 
practice, incentivized imports of foreign oil.
    An evaluation of export policy needs to consider the following key 
variables:

          1) Long term geopolitical considerations are likely more 
        important to our nation than the expediency of any short term 
        commercial gain to a particular set of vested industry 
        interests.
          2) Transportation and supply bottlenecks can create 
        distortions that can become very costly in economic terms over 
        time even if they bring some short term benefits to consumers.
          3) The United States participates in international trade and 
        thus, blocking exports of one or more particular commodities or 
        manufactured products cannot ``protect'' U.S. consumers from 
        international prices. Ultimately, the discussion of banning 
        some exports and not others is a question of who in the United 
        States economy gets the profits from tapping the arbitrage of 
        higher international prices. So for example, if gasoline prices 
        are higher in the international market than in the United 
        States, refiners will have a financial incentive to export 
        gasoline until that arbitrage window closes. These U.S. 
        gasoline exports will eventually produce the same boost in 
        retail prices to U.S. consumers as crude oil exports.\1\ That 
        is because rising exports of U.S. gasoline to international 
        markets will eventually erode profit margins for European, 
        Asian and Latin American refiners, causing them to reduce their 
        own refinery throughputs, lowering demand for crude oil and 
        thereby weakening international crude oil price levels. In this 
        way, rising U.S. crude oil production impacts global crude oil 
        markets through displacement via U.S. refined product exports. 
        Thus, it is not correct to say that the United States, by 
        continuing to ban U.S. crude oil exports, can isolate American 
        consumers from global prices. The often cited figures in 
        Barclay's assessment of the financial savings resulting from 
        the export ban oversimplifies the mechanisms and correlations 
        of the interactions of U.S. and global gasoline pricing. 
        Differences in elasticity of gasoline demand in the United 
        States and Europe over different time periods (ie consumer 
        responsiveness to price changes), differing refinery 
        configurations and costs, weather trends, and local inventory 
        levels all influence the differences between gasoline prices in 
        the U.S. and Europe in 2008-2010 vs today, not just changes in 
        the price of U.S. midcontinent crude oil relative to UK 
        benchmark Brent crude.
---------------------------------------------------------------------------
    \1\ In the case of gasoline exports, refining companies like Valero 
get a larger share of the profits. In the case of direct crude oil 
exports, oil exploration and production companies get the bigger piece 
of the pie.
---------------------------------------------------------------------------
          4) The ``tyranny of distance'' for oil, refined products and 
        natural gas trade flows will in most circumstances guarantee 
        U.S. users a continuing energy cost advantage over foreign 
        competitors even if export bans are lifted due to the generally 
        lower cost of transportation within the United States compared 
        to long distance, waterborne exports. This transportation cost 
        advantage is, in many cases, of significant size and will 
        ensure that U.S. energy prices are lower than those of 
        countries that would buy U.S. oil and gas ex-ship. U.S. oil and 
        gas short haul exports to Mexico and Canada are already 
        protected by the NAFTA free trade agreement.
          5) The best way to protect U.S. consumers from sudden price 
        movements in gasoline, heating oil or natural gas from 
        unexpected supply disruptions or weather related events is to 
        ensure that adequate inventories are on hand in regional 
        markets. To protect U.S. consumers against volatility in fuel 
        pricing due to shifting levels of global demand for refined 
        petroleum product and/or natural gas exports, the United States 
        should require U.S. producers and refiners to hold reasonable 
        minimum inventories to guard against temporary domestic 
        shortfalls of supply or seasonal volatility. Such minimum 
        product inventory standards are already used successfully in 
        Europe and Japan to enhance energy security and protect 
        domestic markets in the event of an unusual event such as the 
        Fukushima nuclear accident. In fact, the United States was able 
        to weather Hurricane Rita and Katrina partly by borrowing 
        gasoline from these mandated European minimum inventory 
        stockpiles. As the United States shifts to a lower percentage 
        of crude oil imports, it may want to consider holding a higher 
        proportion of strategic stocks in the form of mandated 
        commercially held stocks of refined products, rather than 
        publicly held crude oil stores.
          6) Crude oils and condensates from different geologic basins 
        have different properties and are not fully fungible when it 
        comes to refining them into usable fuels by various refineries. 
        In particular, the light field condensate being produced in the 
        United States from tight formations and shales require 
        different forms of refinery distillation and other secondary 
        processing than heavy oil production from offshore U.S. Gulf of 
        Mexico, Canada, and Mexico. Top specialized analysts such as 
        Alan Troner of Asia Pacific Consulting are forecasting that a 
        large overhang of unusable condensate will emerge in the U.S. 
        market by 2016 due to limitations on U.S. refiners' ability to 
        process this particular quality of liquids. Relaxation of 
        export rules for this class of associated liquids production 
        would be desirable to maintain growth in production of natural 
        gas and crude oil wells that also produce high levels of 
        associated condensate. Asia Pacific Consulting estimates that 
        as much as 500,000 b/d of the 3.5 million b/d to 4 million b/d 
        of U.S. condensate production in the United States would not be 
        easily absorbed into the U.S. refining and processing system by 
        2016 and might have to be simply shut-in until refiners can 
        make investments to expand new units to handle such supplies, 
        depriving the U.S. of export revenues and related trade and 
        fiscal benefits (see appendix for more details).
                         geopolitical benefits
    Energy trade can be used to strengthen our ties to important allies 
and trading partners and thereby enhance American power and influence. 
For example, U.S. LNG exports from the Gulf coast could be an important 
strategic back-up role to shaky Russian or Middle East gas supplies, 
for example, much the way the US served as an oil swing producer back 
in the 1960s, rendering an Arab oil boycott during the 1967 Arab-
Israeli war infeasible. US Asian allies Japan and South Korea are 
seeking flexible US Gulf coast LNG contracts for reasons of economic 
and geopolitical leverage. Our ability to serve as a source for 
critical swing energy supplies enhances our importance to our energy 
trading partners in other geopolitical and economic spheres and allows 
us to help our allies in times of market instability.\2\ It would, for 
example, constrain Russia's ability to use its energy supplier role as 
a wedge between the United States and its European allies.
---------------------------------------------------------------------------
    \2\ It is easy to imagine the expansion of American power if its 
natural gas companies could gear up to supply LNG to a European country 
cut off by Russia, such as happened in the winter of 2006. If the US 
can become an energy supplier of last resort, its geopolitical 
importance will rise significantly along with its diplomatic freedom of 
movement.
---------------------------------------------------------------------------
    As American shale production expands from natural gas to oil, the 
geopolitical benefits will mushroom both by improving U.S. financial 
strength and by eliminating U.S. vulnerability to economic blackmail. 
The upshot of shale oil will be to reverse the course of history and 
roll back the clock to pre-1973. Oil producing states will no longer be 
able to use the lever of a possible energy supply cut-off to America to 
pressure Washington to adjust its foreign policy. If domestic shale oil 
abundance someday more closely matches shale gas abundance and the US 
has no imports to replace, then we will have more discretion on when 
and how to use the Strategic Petroleum Reserve. In such circumstances, 
a President could consider using the SPR to either loan oil to other 
countries for geopolitical aims (for example, to counter the economic 
blackmail of the ``oil weapon'' against an allied country) or to 
provide extra oil into the market to head off attempts by coalitions of 
other energy producers to create artificial rises in global prices, 
should such oil price spikes start to cause financial or economic harm 
to the global economy.
    In this regard, U.S. energy exports will weaken some of our 
adversaries such as Iran and Russia. US shale gas has already played a 
key role in weakening Russia's ability to wield an energy weapon over 
its European customers by displacement. By significantly reducing US 
requirements for imported liquefied natural gas (LNG), rising US shale 
gas production has increased alternative LNG supplies to Europe in the 
form of LNG displaced from the US market, limiting some of Russia's 
power. It has also already curbed Iran's ability to tap energy 
diplomacy as a means to strengthen its regional power or to buttress 
its nuclear aspirations by eliminating the need for Iranian natural gas 
to potential importing customers by creating surpluses of alternative 
supplies. This remarkable development, by allowing the U.S. to impose 
tighter sanctions, has brought Iran to the negotiating table on 
limiting its nuclear program.
    Energy exports also improve our balance of trade. The health of the 
US economy and fate of the US dollar come under pressure when rising 
oil prices raised our massive oil import bill, worsening the US trade 
deficit.\3\ Such economic pressures are multiplied when we are forced 
by oil dependence to deepen our military commitments in the Middle 
East, thereby similarly adding to the US deficit. All this weakens the 
United States relative to China, which holds a large chunk of US 
indebtedness and free rides off expensive US naval activities to 
guarantee the free flow of oil from the Persian Gulf. Over time, shale 
development will reverse this strategic and economic disadvantage. As 
the years pass, it will be the Chinese economy that is more exposed 
than the United States to Middle East developments. Citibank estimates 
that rising domestic shale oil and gas production, by reducing oil 
imports and keeping ``petro-dollars'' inside the U.S. economy, will 
reduce the U.S. current account deficit by 1.2 to 2.4 percent of gross 
domestic product (GDP) from the current value of 3 percent of GDP. 
Energy exports would enhance this trend by adding gains to the balance 
of trade. As energy exports improve our global financial footing, it 
will not only give us an upper hand with China, which will still be 
highly dependent on foreign oil imports, but it could even allow the 
United States the luxury to regain its strong influence as a donor to 
global institutions such as the World Bank and United Nations, again 
enhancing our national power and influence.
---------------------------------------------------------------------------
    \3\ For a detailed discussion of the link between the US dollar and 
oil prices, see Amy Myers Jaffe and Mahmoud El-Gamal, Oil, Dollars, 
Debt and Crises: The Global Curse of Black Gold, Cambridge, UK: 
Cambridge University Press, 2010
---------------------------------------------------------------------------
    Finally, energy exports are already an important part of our free 
trade obligations to important neighbors such as Mexico and Canada as 
well as more distant long-standing allies such as South Korea. U.S. law 
requires the U.S. Department of Energy (DOE) to review and approve any 
natural gas exports to countries with which the United States does not 
have a free trade agreement. Current rule making requires that exports 
to our free trade partner countries be approved expeditiously. For 
nations not covered by applicable free trade agreements, the review is 
supposed to lead to approval unless the project is determined to ``not 
be consistent with the public interest.'' As a practical matter, the 
United States is already an exporter of domestic natural gas. The U.S. 
exported a total of 436.3 bcf of natural gas in the first quarter of 
2013, mainly to Canada and Mexico. Canada has also been a major buyer 
of U.S. condensate. U.S. pipeline gas exports to Mexico are important 
to Mexico's economic health and to border relations and therefore it is 
unlikely the United States would ever consider cutting off Mexico's gas 
trade with us. South Korea now holds a Free Trade Agreement (FTA) with 
the United States. South Korea has indicated its desire to import U.S. 
Gulf coast LNG. Under normal economic conditions, it would not be in 
the U.S. economic and foreign policy interest to fail to honor our free 
trade obligations to South Korea while continuing to honor our 
obligations to Mexico. By extension, the United States, as an 
established exporter of natural gas, should not be turning away close 
allies like Japan and Europe. Since U.S. trade with Asia is important 
to our economic health, on balance it would not be in the U.S. interest 
to turn down Asian trading partners wanting to expand already massive 
trade to include natural gas, especially given that a preponderance of 
analysts have concluded that U.S. shale resources are large enough to 
minimize the pricing impact of LNG exports from the United States. This 
logic could also apply to refined petroleum products and condensates, 
which are already an important part of our current foreign trade.
    Thus, I would argue that these many foreign policy considerations 
must be taken into account in any review on the question of the 
advisability of U.S. crude oil and condensate exports. We must consider 
all aspects of the implications of the energy export question on our 
national security and foreign policy interests. To focus only on the 
uncertain impact that exports might have on the U.S. industrial sector 
or gasoline prices in a specific region of the United States is 
foolhardy, given the complexity of interactive forces that will 
influence prices in the long run. Rather than second guessing price 
impacts which remain highly uncertain, we should widen the export 
debate to consider U.S. global priorities as well as domestic economic 
concerns.
    In theory, the United States could behave like Russia and members 
of the Organization of Petroleum Exporting Countries (OPEC) and 
restrict hydrocarbon exports in general or to particular countries for 
political or nationalistic reasons. But we need to resist this 
temptation. Flows of U.S. oil and gas should follow profit incentives 
and market signals. The participation of American suppliers to the 
global market and foreign oil companies in the U.S. market extends the 
reach of U.S. anti-trust restrictions beyond our borders. It is true in 
general that foreign demand for American oil and gas can, all things 
being equal, put upward pressure on prices. But removing bottlenecks 
can smooth the functioning of markets, allowing arbitrage to promote 
flows to and from the most efficient geographic supply sources, 
eliminating localized volatility and easing sharp localized price 
movements during times of disruptions or unexpected events.
    Efforts to engineer particular market responses on a local level 
can have unintended consequences. Greater U.S. cooperation on the 
global climate change agenda is of critical importance. Climate 
protection advocates worry that increased natural gas exports will lead 
to even greater use of natural gas instead of renewable sources. But 
bottlenecks preventing the free export of U.S. natural gas have, for 
example, led to the unintended consequences of increased exports of 
cheap displaced U.S. coal to Europe, unwittingly raising Europe's 
carbon emissions despite strong EU clean energy directives. Efforts to 
stop the construction of the Keystone XL Pipeline to ship Canadian oil 
sands has led to an increase in rail traffic of crude oil around the 
U.S., again with unintended environmental and safety consequences.
    The more oil supplies there are and the more liquid those supplies 
are, the more the global market will mirror the competitive U.S. 
market. Supply bottlenecks are what aggravate price volatility to begin 
with, as any Bostonian can attest this time of year. New England's 
historical lack of local storage and limited pipeline deliverability 
has over the years produced sudden price climbs in cold winters. Had 
new pipelines like the Rex Express, which connects Colorado and Ohio, 
not been in place this year, recent winter price swings would be even 
higher and more prolonged. It is the same with the disruptions of light 
crude from Libya and elsewhere around the world this past year; but for 
U.S. products exports and the lower requirement for light crude imports 
to the United States, global crude price levels would be far higher.
    As U.S. domestic production levels rise, the United States will 
have to think carefully about the kind of exporter it wants to be and 
how to promote the ideal level of free trade and energy investment 
wherever possible. The United States needs to consider the usefulness 
of past experiences when we counted on our European allies to provide 
us with badly needed gasoline from Europe's strategic stocks during our 
difficulties with the U.S. fuel manufacturing and distribution systems 
during Hurricane Rita and Katrina. And we need to think carefully about 
what our global economic and security obligations might be, should an 
oil supply crisis of major proportions emanate sooner rather than later 
out of the Middle East--both before, and even after, the U.S. gets 
closer to being energy self-sufficient. The mindset of husbanding 
resources out of fear of shortages has never served major producing 
countries like the United States well. In the crisis years of the 
1970s, such hoarding behavior worsened the dislocations, not eased 
them. By contrast, in more recent years, we have fashioned an 
international emergency oil supply response system that protected the 
global economy in the aftermath of Saddam Hussein's invasion of Kuwait, 
and would be important should a similar or even worse kind of conflict 
were to arise again in an important oil producing area of the Middle 
East or West Africa. I am not saying that President Obama should turn 
open the spigot on willy-nilly, given the current instability in the 
Middle East. But clearly the circumstances of our energy situation is 
changing and we should not cling to historical policies because they 
are familiar and thereby politically comfortable. What is required is a 
thoughtful policy that is grounded in the realities of how energy 
markets operate and taking into account what is best for the economy as 
a whole, and not specific consumers or industries.
      appendix.--further thoughts on mid-continent gasoline prices
    The chart below, compiled with data from the U.S. Energy 
Information Administration (EIA) highlights that Midwest gasoline 
consumers are not, as has been reported in the media, reaping huge 
benefits from the crude oil discounts enjoyed by Midwest (PADD II) 
refiners compared to Gulf Coast (PADD III) refiners. The crude oil 
feedstock discounts enjoyed by refiners with access to mid-continent 
landlocked U.S. production (as illustrated by the blue line which shows 
the value difference in the crack spread between Midwest and Gulf coast 
refiners) did not lower the wholesale price of Midwest petroleum 
products compared to prices linked more closely to international 
markets, nor did they lower the retail prices of gasoline or diesel 
fuel prices in the Midwest markets served by PADD II refiners relative 
to the markets served by coastal refiners that do not enjoy these 
discounts. Since petroleum products are freely traded in a global 
market, U.S. petroleum product prices reflect international crude 
prices, not lower-priced domestic crude.
        the special circumstances of u.s. condensate production
    Liquid hydrocarbons suspended as particles in natural gas (under 
subterranean pressure and temperature) are called natural gas liquids 
or NGLs. Many tight oil and shale gas fields also produce NGLs, most 
commonly LPGs such as propane, butane, and iso-butane and condensate. 
Condensate typically remains liquid without special containment. It can 
be used as a petrochemical feedstock, a blending component, boiler 
feed, or as a diluent for the transport of heavy crude oil. It can also 
be processed directly in a splitter (special distillation tower design 
only for manufacture of light products) to produce lighter end refined 
products. Condensate is similar to ultra light, low sulfur crude oil 
and therefore is currently is being blended in with the rising tight 
oil production stream. For some previously marginal Midwest refineries 
that lacked sophisticated secondary refining equipment, the increase of 
light tight oil and condensate blend has been a godsend, raising 
profits by substituting away from scarce foreign imported feedstocks. 
But for the more sophisticated refineries on the U.S. Gulf coast, 
rising supplies of condensate produce greater challenges. These 
refineries need a sufficient volume of heavier fuel oil or heavy gasoil 
(VGO) as their feedstock to yield the optimum levels of gasoline, jet 
fuel and diesel production given the range of equipment in their 
facilities. Thus, there is a physical limit to how much condensate 
spiked crude oil they can use and still benefit from expensive coking 
units and to optimize the full scale of their distillation towers and 
facilities to produce the most valued combination of refined products. 
To some extent, refiners can blend some tight oil/condensate into 
heavier crude to add marginal volume use and tap the opportunity of the 
domestic production surge, but eventually to absorb all the condensate 
that is being produced, refineries will have to make large capital 
investment in new distillation tower capacity. Condensate's high 
naphtha yield reduces the working capacity of the tower. Valero is 
reconfiguring its existing tower at its Houston plant to be able to 
accommodate more condensate as is Marathon in Ohio and Kentucky 
facilities. Kinder Morgan is also commissioning a new splitting 
facility in Houston. But a lot of the rising U.S. condensate production 
is currently being sold to Canada for use as a diluent. By 2016-2017, 
the increase in condensate production is projected to exceed U.S. 
refiners and Canada's ability to absorb flows easily. As a result, the 
United States may need to relax restrictions for the export of field 
condensate or much of the incremental oil output from shale development 
will become increasingly physically unusable except outside the United 
States. In this case, lack of a clear export policy would lead to a 
reduction in further production increases of natural gas and tight oil.

    The Chairman. Ms. Jaffe, thank you.
    Mr. Weiss.

  STATEMENT OF DANIEL J. WEISS, SENIOR FELLOW AND DIRECTOR OF 
         CLIMATE STRATEGY, CENTER FOR AMERICAN PROGRESS

    Mr. Weiss. Chairman Wyden, Ranking Member Murkowski and 
Senators of the Energy Committee, thank you for the opportunity 
to testify about whether to lift the crude oil export ban.
    Since 2008 the United States has produced more and used 
less oil due to advances in drilling technology, innovatingly 
employed by Mr. Hamm and his company and due to more efficient 
vehicles. This reduced oil imports and lowered our 
vulnerability to a foreign oil supply disruption that could 
cause a gasoline price spike. Lifting the ban on crude oil 
exports could squander this recently improved energy security 
and price stability.
    To maintain these benefits we urge you to defend the 
existing domestic crude oil export ban.
    When Congress passed it in 1975 the U.S. produced 64 
percent of its oil and liquid fuels while importing only 36 
percent. In 2013 we produced and imported nearly the same 
proportions of petroleum. The only experience we've had in the 
United States of lifting an oil export prohibition occurred 
following the 1996 removal of a ban on Alaska oil exports. 
During the ban much Alaskan oil was shipped to the West Coast.
    A Congressional Research Service analysis found that 
lifting the oil ban tripled the already existing price 
difference between West Coast and national gasoline prices. CRS 
concluded that ``when Alaskan oil exports ceased, the gasoline 
price differential between the West Coast and the national 
average did decline.'' Lifting the nationwide crude oil export 
ban could similarly raise gasoline prices.
    The analysts Barclays Plc. predicts that lifting the export 
ban could add $10 billion a year to consumers' fuel bills. 
Without the ban oil companies could sell their oil at the 
higher world market price which the Energy Information 
Administration projects will average $9 per barrel higher this 
year. In fact yesterday the foreign domestic price spread for 
oil was $10 a barrel.
    Although domestic production has significantly grown over 
the past 5 years, thanks to Mr. Hamm and many of his 
colleagues, the Energy Information Administration projects that 
crude oil, I'm sorry, that crude oil production will peak in 
2019 and begin a steady decline after that. This energy 
abundance could be a temporary phenomenon.
    The EIA also predicts that in 2014 the U.S. will consume 5 
million barrels per day more of oil and liquids than we 
produce. This gap between demand and supply will continue at 
least through 2040 growing by 13 percent. I'd advise you to 
look at the chart that the clerk has. Thank you.
    This is hardly energy independence. Gesundheit. Any 
domestic oil sold overseas, my mother raised a polite son.
    [Laughter.]
    Mr. Weiss. Any domestic oil sold overseas must be replaced 
by more expensive imported oil which could raise gasoline 
prices. The replacement oil would likely be heavy crude 
imported from Venezuela and Canada. As you know Venezuela is 
not very friendly to the United States. Although Canada is our 
closest ally, its heavy tar sands oil produces nearly double 
the carbon pollution responsible for climate change compared to 
conventional U.S. oil as measured from well to tank by the 
National Energy Technology Lab. Neither of these are good 
options.
    The U.S. imports more oil from the Organization of 
Petroleum Exporting Countries or OPEC than any other single 
source. OPEC oil is vulnerable to supply disruptions. EIA found 
recently that interruptions ``may occur frequently for a 
variety of reasons including conflicts and natural disasters.'' 
Oil produced in the United States is significantly less 
vulnerable to supply disruptions and therefore provides more 
energy security.
    As Mr. Hamm and Ms. Jaffe both noted, the U.S. is exporting 
3 million barrels per day of refined petroleum products. So we 
are exporting oil already, but as a finished product made by 
American workers. That explains why AFL/CIO President Richard 
Trumka opposes the export of crude oil. He would rather see 
that oil kept here and made into a product by American workers 
rather than shipped as a raw feed stock to be made into a 
product by foreign workers.
    Now oil companies are doing quite well. They're already 
making huge profits even with the export ban. The 5 largest oil 
companies, BP, Chevron, ConocoPhillips, ExxonMobil and Shell, 
made a combined total profit of over one trillion dollars in 
the last decade and that figure is based on their quarterly 
reports.
    Our transportation system is almost entirely powered by oil 
which makes crude oil different from many other commodities. 
American families, the economy and our energy security are 
vulnerable to sudden foreign oil supply disruptions and price 
spikes. We must invest in alternative, non-petroleum 
transportation power including electric vehicles, advanced 
clean biofuels and public transit to reduce this exposure of 
relying on only a single fuel for such an important part of our 
economy.
    Now there's no independent evidence that energy security or 
fuel prices will remain unchanged after the removal of the 
crude oil export ban. President Obama and Congress should 
maintain our recent gasoline price stability and energy 
security by defending the ban on crude oil exports.
    Thank you for having me and happy to answer any questions.
    [The prepared statement of Mr. Weiss follows:]

 Prepared Statement of Daniel J. Weiss, Senior Fellow and Director of 
             Climate Strategy, Center for American Progress
    Chairman Wyden, Ranking Member Murkowski, thank you for the 
opportunity to testify about whether to lift the crude oil export ban.
    Since 2008, the United States produced more and used less oil due 
to advances in drilling technology and more efficient vehicles. This 
reduced oil imports and lowered our vulnerability to a foreign oil 
supply disruption that could cause a gasoline price spike. However, the 
Energy Information Administration predicts that the growth in oil 
production will peak in 2019, and domestic production will slowly 
decline after that.
    Lifting the ban on crude oil exports could squander this new energy 
security and price stability. To maintain these benefits, we urge you 
to defend the domestic crude oil export ban.
    After the 1973 Arab oil embargo, Congress enacted the Energy Policy 
and Conservation Act, which banned nearly all exports of domestically 
produced crude oil to keep this precious commodity at home and insulate 
drivers from price shocks.\1\ At the time of the ban, the U.S. produced 
64 percent of its oil and liquid fuels, while importing only 36 
percent.\2\ In 2013, we produced and imported nearly the same 
proportions of petroleum.
---------------------------------------------------------------------------
    \1\ Energy Policy and Conservation Act, Public Law 94-163, 94th 
Cong., 1st sess. (December 22, 1975), available at http://
thomas.loc.gov/cgi-bin/bdquery/z?d094:SN00622:@@@L&summ2=m&.
    \2\ Energy Information Administration, AEO2014 Early Release 
Overview (U.S. Department of Energy, 2014), Figure 12, available at 
http://www.eia.gov/forecasts/aeo/er/early_production.cfm.
---------------------------------------------------------------------------
    The only real-world experience of lifting an oil export prohibition 
occurred following the 1996 removal of a ban on Alaska oil exports.\3\ 
During the ban, much Alaskan oil was shipped to the West Coast. A 
Congressional Research Service analysis found that lifting the oil ban 
exacerbated the existing price differential between West Coast and 
national gasoline.
---------------------------------------------------------------------------
    \3\ Lawrence Kumins, ``West Coast and Alaska Oil Exports'' 
(Washington: Congressional Research Service, 2013) available at http://
assets.opencrs.com/rpts/RS22142_20060525.pdf.

          In 1995, West Coast pump prices [were] only 5 cents per 
        gallon above the national average. But by 1999 West Coast 
        gasoline was 15 cents per gallon higher. When crude exports 
        stopped in 2000, the average [difference]. . .was 12 cents; it 
        [later] narrowed further to 7 cents. . . . When Alaskan oil 
        exports ceased, the gasoline price differential between the 
        West Coast and the national average did decline.\4\
---------------------------------------------------------------------------
    \4\ Ibid.

    This experience suggests that lifting the nationwide crude oil 
export ban could similarly raise gasoline prices. Barclays Plc. 
predicts that lifting the export ban could increase total spending on 
motor vehicle fuel by $10 billion a year.\5\ Sandy Fielden, director of 
energy analytics at RBN Energy, told Bloomberg that if there are more 
oil exports ``The most obvious thing that's going to happen is that 
crude prices will go up and so will gasoline.''\6\
---------------------------------------------------------------------------
    \5\ Bradley Olson and Dan Murtaugh, ``Falling Gasoline Hurts Exxon 
Plea for U.S. Crude Exports,'' Bloomberg Business Week, January 28, 
2014, available at http://www.bloomberg.com/news/2014-01-28/falling-
gasoline-hurts-exxon-plea-for-u-s-crude-exports-energy.html.
    \6\ Ibid.
---------------------------------------------------------------------------
    If the ban is lifted, oil companies could sell some of their oil at 
the higher world market price, which the Energy Information 
Administration projects will average $9 per barrel more in 2014 for 
some domestic oil.\7\
---------------------------------------------------------------------------
    \7\ Energy Information Administration, ``Light Louisiana Sweet 
(LLS) crude oil now sells at a historically large discount to Brent,'' 
This Week in Petroleum, December 11, 2013, available at http://
www.eia.gov/oog/info/twip/twiparch/2013/131211/twipprint.html.
---------------------------------------------------------------------------
    The Energy Information Administration predicts that in 2014 the 
U.S. will consume 5 million barrels per day (mbd) of oil and liquids 
more than we produce. This gap between demand and supply will continue 
at least through 2040, ultimately growing by 13 percent. Domestic oil 
sold overseas must be replaced by more expensive imported oil. This 
higher price could be reflected in higher gasoline prices.
    The U.S. imports more oil from the Organization of Petroleum 
Exporting Countries (OPEC) than from any other single source. OPEC oil 
is very vulnerable to supply disruptions.\8\ EIA found that 
interruptions
---------------------------------------------------------------------------
    \8\ Energy Information Administration, ``U.S. Imports by Country of 
Origin,'' available at http://www.eia.gov/dnav/pet/
pet_move_impcus_a2_nus_ep00_im0_mbblpd_a.htm (last accessed January 
2014).

          May occur frequently . . . for a variety of reasons, 
        including conflicts [and] natural disasters . . . Total outages 
        among the Organization of the Petroleum Exporting Countries 
        (OPEC) producers recently rose to historically high levels.\9\
---------------------------------------------------------------------------
    \9\ Energy Information Administration, Short-Term Energy Outlook 
Supplement: EIA Estimates of Crude Oil and Liquid Fuels Supply 
Disruptions (U.S. Department of Energy, 2013), available at http://
www.eia.gov/forecasts/steo/special/pdf/2013_sp_05.pdf.

    A commission of retired senior U.S. military officers recently 
noted that ``No matter how close the country comes to oil self-
sufficiency, volatility in the global oil market will remain a serious 
concern.''\10\
---------------------------------------------------------------------------
    \10\ 10Commission on Energy and Geopolitics, ``Oil Security 2025: 
U.S. National Security Policy in an Era of Domestic Oil Abundance'' 
(2014), available at http://secureenergy.org/sites/default/files/
Oil_Security_2025_0.pdf.
---------------------------------------------------------------------------
    Oil produced in the United States is significantly less vulnerable 
to supply disruptions and therefore provides more energy security.
    There is little benefit to Americans from lifting the ban, 
particularly since oil companies are already making huge profits even 
with it. The five largest oil companies--BP, Chevron, ConocoPhillips, 
ExxonMobil, and Shell--made a combined total profit of $1 trillion over 
the last decade, based on their quarterly financial reports.\11\
---------------------------------------------------------------------------
    \11\ Daniel J. Weiss, ``Big Oil's Lust for Tax Loopholes: Oil 
Prices and Profits Rise While Big Oil Defends Its Tax Loopholes,'' 
Center for American Progress, January 31, 2011, available at http://
www.americanprogress.org/issues/green/news/2011/01/31/8951/big-oils-
lust-for-tax-loopholes/.
---------------------------------------------------------------------------
    In 2013, the United States exported an average of nearly 1.5 mbd of 
diesel fuel and finished motor gasoline.\12\ The sale of finished 
products enables American workers to provide added value to the crude 
oil. AFL-CIO President Richard Trumka opposes lifting the oil export 
ban because he believes that American workers should make crude oil 
into refined products here, rather than export it and refine it 
overseas.\13\
---------------------------------------------------------------------------
    \12\ Energy Information Administration, ``Exports,'' available at 
http://www.eia.gov/dnav/pet/pet_move_exp_dc_NUS-Z00_mbbl_m.htm (last 
accessed January 2014).
    \13\ Clare Foran, ``AFL-CIO President Opposes Lifting Ban on Crude-
Oil Exports,'' National Journal, January 14, 2014, available at http://
www.nationaljournal.com/energy/afl-cio-president-opposes-lifting-ban-
on-crude-oil-exports-20140114.
---------------------------------------------------------------------------
    Our transportation system is almost entirely powered by oil and 
liquid fuels.\14\ Since we continue to import one-third of our oil, 
American families, the economy, and our energy security remain 
vulnerable to sudden supply disruptions and price spikes. We must 
invest in alternative, non-petroleum transportation fuels, including 
electric vehicles, advanced clean biofuels, and public transit to 
reduce our dependence on vulnerable oil supplies. These investments 
would also reduce carbon pollution responsible for climate change.
---------------------------------------------------------------------------
    \14\ Energy Information Administration, ``Energy Consumption by 
Sector and Source, United States, Reference Case,'' available at http:/
/www.eia.gov/oiaf/aeo/tablebrowser/#release=AEO2013&subject=2-
AEO2013&table=2-AEO2013®ion=1-0&cases=ref2013-d102312a (last 
accessed January 2014).
---------------------------------------------------------------------------
    Currently, there is no independent analysis that predicts that 
energy security and fuel prices would remain unchanged after the 
removal of the crude oil export ban. President Obama and Congress 
should not trade away our enhanced gasoline price stability and energy 
security. Instead, you should join together to defend the ban on crude 
oil exports.

    The Chairman. Mr. Weiss, thank you.
    Thank all of you. It's been very helpful.
    I'm just going to ask one question to start this off and 
particularly about what jumped out at me.
    Mr. Hamm and Mr. Burnett have different views. Mr. Hamm is 
for lifting the restriction on oil exports and Mr. Burnett is 
not. But both believe the same benefits and potential pitfalls 
exist for their preferred policy position. Lower prices, if the 
Senate follows their advice, higher prices if we don't.
    So the question then becomes for me how can this be?
    We've got two very thoughtful individuals here and they 
have diametrically opposed views. They think the same benefits 
and same pitfalls will ensue for their position.
    So is this a lack of knowledge on the effects of the 
policy?
    Is it possible, as Ms. Jaffe alluded to in her written 
testimony, that different regions of the country would be 
affected in different ways and is the question if export 
restrictions are lifted is it possible that America would see 
prices go up in some parts of the country and down in others?
    So let me just zip down the row and hear the 4 of you weigh 
in on that.
    Mr. Hamm.
    Mr. Hamm. Thank you, Chairman Wyden.
    I think it comes down to one example I can give. Recently 
Bill Day, spokesman for Valero Energy, the largest oil refinery 
in the United States, they used to talk about the nationwide 
export ban. He said it insulated American consumers from 
geopolitical price shocks.
    But in reality he told the market recently and these graphs 
that he handed out was that it provided a particular unfair 
advantage, if you will, in the market to Valero because they 
were seeing pressure on refineries outside of the U.S. and 
closures occurring. In fact this year projected about a million 
barrels a day refinery closures, last year about a half million 
barrels and 1.6 million barrels per day the previous year.
    Now I think we all realize that refinery closures is not 
good for consumer prices anywhere that they're occurring. 
They're not good for my business. We need refineries that we 
can get oil to. If we're forcing the refineries out of business 
with an unfair advantage that they have, that they've been 
given, that's not good for anyone.
    So the difference between me as the producer without a 
refinery and this gentleman with a refinery is considerate.
    The Chairman. Same question, Mr. Burnett.
    Mr. Burnett. I think the fundamental difference in our 
position is whether U.S. oil prices would go up or go down as a 
result of exports. It's my position that if the U.S. begins 
exporting crude oil the OPEC producing countries in Saudi 
Arabia in particular will act to maintain crude oil price by 
reducing their output. So my logic is based on the fact that 
crude oil prices will rise to an international level will not 
decrease.
    The net result of that would be increased feed stock cost 
to our refineries and the closure of refining capacity in the 
United States, particularly in the Northeast. The consequences 
of that is less supply of gasoline and other fuels and higher 
costs.
    Thank you.
    The Chairman. Alright.
    Ms. Jaffe, you sort of started this by the allusion that 
there may be regional differences. So let me let you take a 
crack at this.
    Ms. Jaffe. So first I have to talk about how the 
international oil market works because sometimes people are 
unclear. When we export refined products globally it means that 
refiners in Europe have bought those products and they have cut 
their refinery runs. So therefore OPEC is already affected 
because they cannot sell more of their crude oil to Europe 
because those refinery runs are shut and our gasoline exports 
are already hurting OPEC.
    Whatever OPEC policies they will take, they will take 
whether we export the products or whether we export the crude 
oil. So that is not the issue. Right?
    The issue is the oil market. We have a slogan in the oil 
market. We call it the Tyranny of Geography.
    The Tyranny of Geography means that whether I'm selling 
refined products or whether Mr. Hamm is selling his crude oil, 
he wants to sell it to the closest possible refiner because 
that is how he makes the highest amount of money because the 
transportation cost eats into his profits. That means that even 
if we were to lift the export ban the crude oil would first and 
foremost look for a buyer inside the United States because that 
is how it would be most profitable, because that would be the 
cheapest transportation.
    Now if it happened that there was a refinery in Mexico or 
Canada that would benefit, actually most of our condensate 
today is going to Canada for use as a diluent for the 
transportation of heavy crude. The oil will flow to the best 
possible use.
    Now what that can mean in when we have bottlenecks whether 
that's a pipeline bottleneck or we have some kind of a 
transportation bottleneck or we have some kind of regulatory 
bottleneck is that those bottlenecks create some distortions 
that might artificially lower prices in one particular 
geography for a particular time until that bottleneck is 
removed.
    The Chairman. I'm over my 5 minutes.
    Mr. Weiss, quickly.
    Mr. Weiss. I'll be very quick, thank you.
    It's important to note that we really don't export very 
much gasoline right now, a little bit less than 400,000 barrels 
a day. The primary product we export, particularly in Europe is 
low sulfur diesel. That's about a million point two barrels per 
day.
    So I don't see that as being a real challenge.
    I would agree with Mr. Burnett that it's tough to try and 
lower the price when the price of the commodity is controlled 
by a cartel that is committed to having at least $100 barrel 
oil. So I would see that it would not lower prices at all to 
allow exports of gasoline, sorry, exports of oil.
    The Chairman. Alright.
    We'll continue this discussion. Just know that the Pacific 
Northwest has a history of some of the highest gasoline prices 
in the country. So if there are issues relating to the Tyranny 
of Geography in some way, you can be sure that the people that 
I represent are going to be very interested in that issue and 
steps taken to protect them and their well being.
    Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman.
    Mr. Weiss, you had made reference to the Alaska export 
issue. There was also an essay that was recently released from 
the Center for American Progress. I guess it was published this 
week that also made some claims about Alaska and crude oil 
exports.
    Mr. Chairman, I want to insert into the record a 1999 
study* from the GAO that examined the impacts of lifting the 
ban on crude oil exports from Alaska. In that report they state 
despite higher crude oil prices for some refiners no observed 
increases occurred in the prices of 3 important petroleum 
products used by consumers on the West Coast, gasoline, diesel 
and jet fuel. This wasn't cited in the essay. I'd also like to 
submit for the record a report** from CRS back in 2006 which 
was also cited in this essay.
---------------------------------------------------------------------------
    * Study has been retained in committee files.
    ** Report has been retained in committee files.
---------------------------------------------------------------------------
    The Chairman. Without objection, that's ordered.
    Senator Murkowski. It's important that we make sure that 
we've got the full quotes in context there. So I wanted to make 
sure that we included that.
    Ms. Jaffe, you mentioned the Tyranny of Geography. I was 
just reading an article reported yesterday where because of the 
glut of the oil coming from the North, in North Dakota, into 
the Gulf refineries that Texas is actually looking to move 
their crude through the Panama Canal up to the refineries in 
California. It speaks to the issue of alignment that Senator 
Landrieu mentioned that we get to a point where we're going to 
have a mismatch between what we are producing domestically and 
our ability to meet the needs, the capacity, within our 
refineries.
    So just understanding and appreciating that it's getting to 
the point now where we've reconfigured as many refineries as we 
can. Maybe there's a little more room there. We're looking to 
some pretty significant decisions when you're moving crude from 
Texas through the Panama Canal to come up to the West Coast 
refineries and still hoping to make a profit there. We're 
looking for some solutions.
    But this issue of timeliness is one that I have been trying 
to track. In EIA's latest oil market report they say the 
growing volumes of light, tight oil that cannot leave North 
America are increasingly posing a challenge to industry, 
putting the spotlight, of course, on where we are today which 
is the oil export ban. So this timeline comes up a lot in 
discussion.
    I'm not asking Mr. Hamm or Ms. Jaffe for a date certain. 
But really what is your general sense on when these initiatives 
collide, if you will, with production? When do we hit that 
misalignment or that mismatch that could then cause some real 
disruption? Again, something, I think, we all tried to avoid.
    I'll start with you, Mr. Hamm and then Ms. Jaffe.
    Mr. Hamm. OK. Thank you, Senator.
    I think the mismatch is beginning to happen already. You 
know, so many refineries were outbidded and they're refitted, 
you know, for heavier crude when it didn't look like supplies 
would be here domestically. That most of what they'd be 
refining would be the tar sand, the bitumen oil.
    So without those retrofits the sweet crude doesn't fit very 
well with some of them. So, but you need to move that then to 
the more efficient ones that could handle this light, sweet, 
low sulfur, premium crude oil that we're producing in North 
Dakota and other places in the U.S. now.
    So the mismatch is beginning to occur. A lot of people 
expected it to occur almost as quickly as the oversupply of 
natural gas. But there, supply and demand was equal. Price had 
been elevated a little bit with projections of shortage in the 
future, but with oil we've come from a 60 percent deficit with 
the oil in the U.S. or imports being 60 percent and reduced 
that half way to about 32 percent in 9 years. That's a really 
good move and a historic first.
    Senator Murkowski. Let's go to Ms. Jaffe. Mr. Hamm says 
it's coming soon. When are we going to see a mismatch?
    Ms. Jaffe. When you look at the sort of specialized models 
for the trading of products and crude oil people anticipate 
that by 2016 our condensate flows will be so high that mixing 
them into the crude stream exports to Canada, use in 
petrochemicals, use in refining, will max out for our physical 
facilities unless there's some giant upsurge in investment for 
specialized equipment which is not on the horizon right now. In 
2016 we would face a situation where companies like Continental 
Resources might actually have to stop drilling because there 
would be a containment problem. We would not be able to find a 
place to store all of this condensate if we can't produce it 
and export it.
    Senator Murkowski. We haven't seen a new refinery since in 
25 years?
    Ms. Jaffe. We have seen two companies that I know of, 
Marathon and Valero. Valero has put in--expanded a distillation 
tower in such a way to use more condensate. Marathon has made 
an investment in Ohio.
    But, you know, these kinds of investments take time. So, 
you know, if we don't have a giant amount of investments 
announced in the next year or so then I think that it will be 
very difficult to absorb the condensate flows.
    Senator Murkowski. I am well over my time. I know that Mr. 
Weiss is sitting----
    The Chairman. Without prejudicing any Senator's time, if 
you could quickly offer your view?
    Mr. Weiss. Yes, thanks.
    The Energy Information Administration has documented that 
the refining capacity in the last dozen years, since the year 
2000, has increased by about two and a half million barrels per 
day even though we haven't opened a new refinery. That 
utilization rate is at about 87 percent. So, and third, there 
are numerous refineries that are going to be expanding over the 
coming years in North Dakota and Texas.
    The Chairman. Senator Manchin is next and then Senator 
Hoeven.
    Senator Manchin. Thank you very much, Mr. Chairman.
    This will be a simple yes or no. Then if the answer would 
be no, if you could briefly explain why you would be no on this 
question.
    Do you all believe that the XL pipeline, Keystone pipeline, 
would be a strategic advantage to the United States of America?
    Mr. Hamm.
    Mr. Hamm. Yes, I have certainly been in that camp, remain 
in that camp. You know, the thing that really hurt everybody up 
there is this delay that's going on with it.
    Senator Manchin. So you're in favor of it? You're a yes on 
that?
    Mr. Burnett.
    Yes on that, Mr. Burnett.
    Ms. Jaffe.
    Ms. Jaffe. Yes, I think the only way to keep the Canadian 
oil sands in the ground is to lower demand.
    Senator Manchin. But you're in favor of the pipeline?
    Ms. Jaffe. I think if we have the demand for the oil we 
need to transport the oil by pipeline and not in other ways.
    Senator Manchin. Gotcha.
    Mr. Weiss.
    Mr. Weiss. No, I'm not because of the huge increase in 
carbon pollution that would occur and because most of the oil 
would be refined into other products and exported overseas. So 
we get to keep the pollution. Other countries will get the 
petroleum products.
    Senator Manchin. Gotcha.
    My next question would be for those of us who do and in 
especially, you know, all of our states, but in West Virginia 
we don't understand. We keep talking about energy independence. 
We're having so much more and actually we're still paying high 
prices at the pump.
    Can you explain, Mrs. Jaffe, but briefly, the OPEC's 
position? Are they always going to maintain that, the cartel, 
maintain that, the oil cartel and be able to control the 
pricing, world pricing, since we have such a large find, if you 
will? It looks like we're going to be in this position for 
quite some time.
    Can that ever change to where we, in America, can benefit 
from the price?
    Ms. Jaffe. So the past literature shows that the higher 
OPEC's market share, the more monopoly power they have to 
control the price. So as the United States becomes a bigger 
producer and let me say that the EIA projections are just based 
on current knowledge. We're having a total paradigm shift in 
the way we look for and produce oil, not only in the United 
States, but probably eventually around the world.
    So these temporary projections about the peak, in my 
opinion, will turn out to be incorrect.
    Senator Manchin. The difference of price.
    Ms. Jaffe. Will be incorrect.
    Senator Manchin. The difference, yes.
    Ms. Jaffe. So the point is----
    Senator Manchin. Yes.
    Ms. Jaffe. As the United States and North America and 
Mexico and other countries produce more oil from unconventional 
resources. OPEC will have a smaller and smaller share of the 
market and therefore their producer power will be reduced over 
time to the extent that the United States exports LNG and 
exports crude oil at free market prices and countries that are 
in Europe and countries in Asia are able to buy spot market, 
incentive oil and gas at market competitive prices where we 
control anti-trust laws for the companies that sell and buy it. 
Right?
    Then OPEC's power will be reduced dramatically over time.
    Mr. Weiss. Senator Manchin, can I just?
    Senator Manchin. The other person I wanted to ask you, but 
I'm going to ask Mr. Weiss to just comment.
    Mr. Weiss. Just quickly. Three years ago the Saudi Oil 
Minister said that they wanted to have oil at $100 a barrel, 
the world price. That's about what it's been with some 
exceptions, went up to $125.
    Senator Manchin. Sure.
    Mr. Weiss. They are a cartel. They control about 40 percent 
of the oil that's produced. It's very easy for them, as Mr. 
Burnett was saying, to turn the spigot one way or another to 
get the price they want. That's how cartels work.
    It's hard to see the United States increase in production 
at a million barrels a year, two, here/there, being able to 
really challenge that power.
    Senator Manchin. The other thing would be the pricing, the 
way the pricing on crude or oil verses the pricing on natural 
gas. Why is there such a difference there? I mean we're not on 
the world market with gas and we have a lot more flexibility on 
gas, Mr. Weiss?
    Mr. Weiss. There is not a worldwide market in natural gas 
in the way there is in oil. Gas, that's $5 a million BTU here, 
is $15 or so in Japan. It's because it's transportation is 
harder and because the supply is much more----
    Senator Manchin. Finally, very quickly, for either Mr. Hamm 
or Mr. Burnett.
    Do you all see feasibility for us bringing the price of 
gasoline at the pump down for the people, especially in West 
Virginia and all over the country? Are they ever going to see 
any relief at all?
    Mr. Hamm. We've seen a decrease of about 20 percent with 
both diesel and gasoline over the past 18 months. I think 
everybody has realized that from California.
    Senator Manchin. They haven't seen a 20 percent decrease in 
the price at the pump. I mean, we're still at $3.30, $3.50, 
$3.60 in that neighborhood there.
    Mr. Hamm. In some you'll see that. In Oklahoma City we're 
about $2.85, $2.90. It's down about 60 cents a gallon.
    With diesel we run it close to $5.00.
    Senator Manchin. If someone would help me explain why West 
Virginia is still paying such high prices.
    Mr. Burnett, very quickly and my time is up.
    Mr. Burnett. Seventy-two percent of the price of gasoline 
in the pump is due to crude oil price. When you lower crude oil 
price the gasoline will come down.
    Senator Manchin. I'm sorry, Mr. Chairman.
    The Chairman. To our guests we're going to have to call a 
little bit of an audible here because we've been told that 
there are going to be 4 votes on the Senate Floor at 11:15. So 
by my calculation each of the remaining Senators can have their 
5 minutes. That will be good.
    Senator Hoeven.
    Senator Hoeven. Thank you, Mr. Chairman.
    First, Mr. Burnett, I want to commend Delta for buying a 
refinery in Pennsylvania and operating it. I think that's very 
good and particularly for using Bakken crude from North Dakota 
in that refinery. We appreciate that.
    Also, Andi Newman, who is here with you today, is an 
outstanding individual and does a great job in government 
relations. I want to commend you on her as well. Thank you very 
much.
    Mr. Burnett. Thank you very much.
    Senator Hoeven. My questions are for Mr. Hamm.
    I think the No. 1 priority for Americans when you talk 
energy is they want what they call energy independence. I know 
you would refer to it as energy security because it's a global 
market, but essentially producing more energy than we consume.
    I can't think of anybody that's done more to help us 
achieve that. We're not there yet. But I can't think of anybody 
that's done more to help us move in that direction than 
yourself.
    So my first question for you is what can the Federal 
Government do to help us produce more energy in this country, 
but specifically more crude because that's what you do? What 
can the Federal Government do to help us continue to increase 
our crude production?
    I look at this graph and that doesn't show us producing 
more than we consume. So how do we get there? What can we do?
    Mr. Hamm. First of all we need to change some rules that 
are totally archaic like the FCC rule today that limit what we 
can put on the books to 5 years. A lot of these resource plays, 
your Bakken for instance, it's going to take the next 15, 20 
years to develop it. Yet I can't put those on my books. EIA 
doesn't get the numbers. So those numbers are totally 
distorted.
    We had to teach them how to count. At one time they was 
only taking the crude oil numbers and not putting any of the 
natural gas to liquids in. Once they did that they finally 
realized that we're up about 12.6 million barrels a day 
production in this country.
    So that's the first thing. We've got to get the numbers 
right. Those numbers are totally pessimistic.
    The next thing, do no harm. You know, we're going down the 
right path. If we don't have a lot of tax changes and things 
like that. If we can get this export ban lifted where people 
can go ahead with their business, we can get there.
    I don't know who you got it from. I'm jaundiced so I look 
at the rocks. But really what we produced in the past in this 
country for the past 160 years is basically what leaped off of 
these source rock beds. Now we can produce those source rocks 
effectively with horizontal drilling.
    We're on our way to get there both with gas and with oil. 
All we need to do is basically do no harm.
    Senator Hoeven. My second question goes to transportation.
    Recently they had accidents with rail moving crude. Of 
course, we need to address that and you know that. Tell me what 
we can do, what we should do, what you're doing, so that we can 
make transportation of crude by rail safer?
    Mr. Hamm. Rail has come a long ways, you know, since 
basically it was deregulated. The regulations that put it out 
of business, as we all know, is deregulated. It's come back. 
It's doing a good job. We're seeing a lot of rail companies 
that are doing tremendous.
    I think there's 3 things.
    First of all in the oil field, safety is ultimate. So 
prevention of accidents, preparation, everybody is working on 
that.
    So rerouting trains effectively, they're doing that. Twice 
the rail inspections, they're going to two a month at least on 
everything. Anything that's congested they're trying to handle 
it as quickly as they can.
    So this is a new thing. It's come out there since 
standardization needs to be done. The rails are into it. 
They're working on it. Safety is of utmost importance to them. 
They're certainly doing their job.
    Senator Hoeven. As we develop more energy we need 
infrastructure. That means both pipelines and rail. Would you 
agree with that?
    Mr. Hamm. I do and certainly pipelines, you know, rail 
costs more. It will put the oil to the places you need it, like 
his refinery and do it quickly. But pipelines eventually will 
take the place of it.
    Senator Hoeven. Just concluding question.
    How do we both expand and develop more refineries? We're 
building a refinery in North Dakota. I think the first one in 
25 years or something, Greenfield. But how do we get more 
refinery expansion and development in this country?
    Mr. Hamm. The gentleman is right. There have been some 
capacity added to existing refineries over the years because 
you couldn't start one from scratch. There's so much Federal 
regulation you just couldn't start one. So basically expansion 
and add new tires and stuff has been done by the refining 
industry.
    You know, I think that overall, you know, looking at the 
regulations that hinder them from building new ones that are 
more efficient and better certainly needs to be looked at as we 
go forward.
    Senator Hoeven. Yes, Mr. Burnett? It's got to be quick. I'm 
tight on time here.
    Mr. Burnett. My position is that there is sufficient 
capacity in the United States today in refining to be able to 
absorb all of the title that's being produced. The issue is 
infrastructure in getting the oil to the refineries.
    We at Trainer Refinery started taking some Bakken. We would 
certainly like to take more, but the infrastructure isn't there 
yet. But these projects are all in progress. So it's just a lag 
effect from the fact the oil is there. It's being produced. 
There's a lag in the infrastructure, but it will come.
    Senator Hoeven. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    We have 15 minutes for 3 Senators.
    Senator Heinrich.
    Senator Heinrich. Thank you, Chairman.
    I want to go back to Ms. Jaffe on something that you 
touched on and then would like to get everyone's thoughts on 
it. It's one of my concerns here is just the potential lost 
opportunity cost in terms of are we exporting crude or are we 
exporting those refined petroleum products. It seems to me that 
we create more jobs by exporting refined petroleum products 
than by exporting crude.
    Can you expand on that and then if any of you disagrees 
with that position, explain to me how we create more jobs by 
exporting crude oil than exporting refined petroleum products 
because when I was a kid, you know, my mom sewed Levis. We had 
a textile industry here. Now we just export wool and we export 
cotton. We don't make it into products here and those jobs have 
gone away.
    Give me your thoughts on that.
    Ms. Jaffe. I have an opinion on that. You know, when you're 
doing complex trading it's kind of hard to say. But what I 
would say generally speaking is that the experience in the 
industry is that companies like Continental Resources when they 
have better cash-flows they invest more of those cash-flows 
into drilling. Therefore we have even more oil in this country. 
Right? That drilling creates a lot of jobs.
    When a refinery raises its through put rate to 90 percent 
versus 80 percent that probably doesn't create very many jobs 
at all. Refining is a very job--not a very job intensive 
industry. That's part of the reason why Saudi Arabia has so 
much trouble creating jobs inside the country because refining 
and petrochemical is not a labor intensive industry the way 
textiles is. So I would say on balance if your goal was just 
100 percent jobs you would create more jobs having more cash-
flow through the upstream side of the oil industry than the 
downstream side.
    Senator Heinrich. Mr. Weiss.
    Mr. Weiss. Very quickly. Sorry.
    The University of Massachusetts did a study several years 
ago that found that investments in oil production create one 
third the number of jobs compared to investments in wind, solar 
and other forms of clean energy. So if jobs in energy is what 
you're interested in, than investments in renewables has a much 
bigger payoff than investment in petroleum. In any aspect 
petroleum is very capital intensive, not as labor intensive.
    Senator Heinrich. Mr. Hamm and then we'll get to you, Mr. 
Burnett too.
    Mr. Hamm. Yeah, I agree with Ms. Jaffe. Escort it where you 
want those jobs. There have been more jobs created in the 
upstream sector than anywhere else over the last 10 years.
    So refineries, I used to work in one. It's not very 
intensive from a man power standpoint whether you're running 80 
or 95 percent capacity it's about the same. So, but in our 
business we've created a lot of jobs.
    Senator Heinrich. Mr. Burnett?
    Mr. Burnett. One thing I want to emphasize is that the 
export of products is into a free and competitive market. 
Exported crude is not into a free market. It's controlled by 
OPEC.
    I believe it's better for the United States to keep the 
added value in country. If you look at the producing countries 
around the world they are all building refineries, mega 
refineries, because they want the added value to stay in 
country too.
    Thank you.
    Senator Heinrich. Great.
    In the interest of getting to Senator Baldwin I'll--and 
Senator Scott, I'll yield back the last of my time.
    The Chairman. Thank you. Gracious, as always.
    Senator Scott.
    Senator Scott. Thank you, sir.
    Dr. Jaffe, I believe that our trade deficit is one of the 
biggest threats to our national security. In your testimony you 
touched on how lifting the export ban on crude oil could help 
improve our trade deficit.
    Could you expand a little bit on how exactly lifting the 
ban will improve our trade balance, particularly in regards to 
China?
    Ms. Jaffe. Yes. So we're going to be, hopefully, in the 
unique position where our imports of crude oil which are a huge 
part of our trade deficit are going to go down over time. We're 
already seeing that.
    We're going to have a situation where China is going in the 
opposite direction. They're going to have a higher and higher, 
rising amount of their trade is going to be for importing crude 
oil.
    So as we move forward they will be increasing in their debt 
and their vulnerability to the international oil market. We 
will be able to strengthen our economy through these 
improvements in our trade balance.
    I think that one of the things that China does from my 
travels there and discussions with them over geopolitics is 
they have us in a great cycle. They support Iran. They support 
other players in the Middle East that cause disruptions and 
instability. We have to spend our tax dollars sending our 
military out there and our young men to try to help with those 
troubles. That makes us more indebted to China because they're 
buying our treasury bills and bonds and so forth.
    So, you know, when we can get out of that pattern we are 
not having this constant burden of rising prices and it's a 
burden on our trade balance. China is the one that feels the 
pain of all the instability in the Middle East. I think we'll 
find it easier to bring China to the table to negotiate with us 
about stability internationally.
    Senator Scott. Thank you.
    Before I hear Mr. Weiss, I wanted to get one more question 
in and then give you the balance of my time.
    Mr. Hamm, you've been one of the best guys at this 
unconventional business, so to speak. When I read through your 
testimony you said that by 2025 we could see another million 
jobs or so coming out of the oil and gas industry. When you 
think about not lifting the export, the crude oil export cap, 
what does that do to our economy?
    I know in North Texas we've seen the tremendous surge, 
North Dakota as well. Would this have a major impact on the 
jobs that could be created if we don't lift our ban?
    Mr. Hamm. It could, particularly as Ms. Jaffe talked, you 
know, with some of the transitional plays such as in Texas with 
Alford. It produced a lot of condensate, per se, you don't have 
anywhere to go with them. It can certainly put a cap and 
stagnate what we're doing in the future.
    So it's not a good thing if we're going to keep this 
industry going and get to where we're energy independent and 
cause OPEC to have a severe step back, then we need to follow 
through with this.
    Senator Scott. Thank you, sir.
    Mr. Weiss, do you want to comment on?
    Mr. Weiss. Thank you, Senator Scott.
    As long as we have the difference between consumption and 
supply here we're going to have a trade deficit on oil whether 
we export or not because if we export more oil the light, sweet 
crude we're going to have to import more import to make up for 
that gap. If one is concerned about reducing our oil trade 
deficit the No. 1 thing we could do is dramatically reduce 
consumption. We have new fuel economy standards that will get 
us to 54.5 miles per gallon by 2025 for the average car.
    We could go beyond that after 2025. That's how we would 
reduce our trade deficit by dramatically reducing our 
consumption.
    Senator Scott. Two things. I saw you shaking your head, 
Ma'am, Dr. Jaffe. Before you comment I would say that we could 
very quickly solve the problem of our deficit by allowing us to 
get on our Federal lands where we have hundreds of years of 
resources.
    But, Dr. Jaffe.
    Ms. Jaffe. Yes, I just want to point out every refinery in 
this country has a different configuration of what kind of 
crude oil it can or can't refine. Whether we export or don't 
export we're not going to physically change that except over a 
10-year period, maybe over time. Right?
    Because of the Tyranny of Distance refiners will invest 
regardless of whether we're exporting or not. If we have an 
imbalance in quality, right, we're either going to leave it in 
the ground or we're going to export it. If we're having an 
imbalance on what kind of quality of crude we can refine in 
this country and what kind of quality of crude we can't.
    There may be a time when we could produce as much light 
crude in this country as could be physically, you know, by 
barrels that we need. But we're still going to need heavy crude 
because there's just going to be some refineries that already 
exist in the Gulf Coast that have certain configurations. 
There's just only so much light crude they can put through the 
system.
    Senator Scott. Right.
    Ms. Jaffe. We're always going to have to import heavy 
crude.
    Senator Scott. Thank you.
    I yield back the balance of my time.
    The Chairman. Thank you.
    Senator Scott. Which is a negative 16 seconds.
    [Laughter.]
    The Chairman. Thank you, Senator Scott.
    Senator Baldwin.
    Senator Baldwin. Thank you, Mr. Chairman.
    As I mentioned earlier Wisconsin is experiencing a propane 
crisis right now, very short supplies, increasing prices. So 
I'm very interested in the subject matter of this hearing from 
a perspective of how it will affect propane.
    I have two questions for you, Mr. Burnett.
    I mentioned earlier that one of the major components of our 
propane shortage in the Midwest has been the result of 
significant infrastructure changes. Pipelines that have served 
the region for decades are being repurposed to serve new oil 
fields. We understand that one pipeline, Cochin, in April will 
be repurposed, but has traditionally supplied propane to our 
area.
    As oil production increases I think these infrastructure 
pressures will only increase. If more American infrastructure 
is dedicated to oil that's heading overseas is there adequate 
remaining infrastructure in the United States to ensure that 
other essential fuels like propane continue to flow to 
Americans?
    Mr. Burnett. Whether the crude oil is refined domestically 
or exported the logistics problems will remain the same. 
Historically in the United States crude oil arrived in the Gulf 
Coast and all of the movement was from south to north. Since 
the advent of shale oil the movement has reversed and is moving 
from north to south and repurposing pipelines to get more and 
more shale oil to where it needs to go into the refineries.
    So I don't know if that answers your question, but I think 
that it's going to continue.
    Senator Baldwin. No.
    Mr. Burnett. But I think it's also a very good argument for 
Keystone XL as well.
    Senator Baldwin. Do we know what impact the export of crude 
oil will have on the prices and the availability of propane and 
other critical fuels that are used in everyday life to heat 
homes and power tractors and do all sorts of other things?
    Mr. Burnett. I'm afraid I don't know the answer to that 
question on that.
    Mr. Weiss. Senator? Oh, sorry.
    Senator Baldwin. Mr. Hamm and then we'll work down.
    Mr. Hamm. OK. The export of crude oil won't affect propane 
in your State. You know, basically that's from the liquids out 
of natural gas production and so whether we export crude oil or 
not is not going to matter.
    These infrastructure problems, hopefully, we can get to 
where we can build new pipelines in this country, quickly and, 
you know, so people have to realize that this is going to go 
forward as far as the energy renaissance. It will put money 
back into infrastructure that's necessary.
    Senator Baldwin. I've been trying to school myself on the 
production of propane because of the crisis that Wisconsin is 
facing. Crude oil has historically been a component of 
production. It is also producible from natural gas.
    Mr. Hamm. It is primarily from natural gas.
    Ms. Jaffe. Can I?
    Senator Baldwin. Anyways.
    Ms. Jaffe. Also, yes, elaborate?
    So I talked about the condensate export. So when you 
produce both natural gas in some fields and also crude oil 
natural gas liquids can be a byproduct. Propane is one of the 
things that gets stripped out of natural gas liquids.
    So the export of crude oil to the extent that it stimulates 
more production in the United States or the export of natural 
gas to the extent that it stimulates more production in the 
United States, it will produce more and more propane over time. 
So people are expecting actually a giant surplus of propane 
over time.
    But when you have this extreme weather event, no matter how 
much natural gas we're going to produce in this country, no 
matter how many refineries we have and how much surplus of oil 
there is in the global market, you know, Tyranny of Distance. 
If you have a particular unique market that uses a particular 
fuel, you're always going to have weather related bottlenecks.
    Senator Baldwin. There were a number of other contributing 
factors, a harvest that used an exceptional amount of propane 
preceding it, so the supplies were low going into the extreme 
weather events that our State has been experiencing, pipeline 
disruption for maintenance. So, you know, complicating factors. 
The weather event alone didn't cause the shortages, but----
    Ms. Jaffe. The solution to that is regulated inventory 
requirement.
    Senator Baldwin. I'm hoping to get back to you if I can 
give Mr. Weiss the chance to answer the question. I do want to 
follow up on that, if not at this hearing, afterwards.
    Mr. Weiss. Thank you, Senator Baldwin. I'll be very brief.
    There has not been an independent analysis to try and 
predict the impact of lifting the crude oil ban on the price of 
gasoline and other refined products. One thing this committee 
could do would be to ask the Energy Information Administration 
to conduct such an analysis.
    Unfortunately due to sequestration and other budget cuts, 
EIA is having to scale back the amount of work it does. But I 
think that's probably for another hearing.
    Senator Baldwin. I have run out of time. But I did want to 
follow up with you, Ms. Jaffe, about that. I certainly heard 
that in your testimony at the end. It's something that we 
certainly need to be looking at, not only in Wisconsin, but 
other states impacted by the propane shortage.
    The Chairman. You all may be experiencing another first 
here in the Senate because you're about to get what amounts to 
a joint question from myself and Senator Murkowski because we 
were both wrestling with the definition of energy independence. 
I probably frame it as how you go about defining energy 
security and then I'm going to yield to Senator Murkowski, who 
would also like to be part of the discussion.
    So when I contemplate energy security I ask myself, does 
this mean no more imports, or does it mean the capacity for no 
more imports, or does it mean more exports than imports? I 
think this whole question of what constitutes energy security, 
you may want to characterize it as energy independence. I want 
to let my colleague weigh in on this because you are seeing our 
bipartisan efforts perhaps in one of our--we always try to find 
new ways to demonstrate it. We've never asked a joint question 
to my knowledge.
    [Laughter.]
    The Chairman. But there's always a first time here. Let me 
let Senator Murkowski be part of this. This will be the last 
question for the morning then we have the vote.
    Senator Murkowski.
    Senator Murkowski. It's such an easy question here. But I'm 
just joking. I said we're starting to act like an old married 
couple. We're thinking the same way. Pretty soon we're going to 
be finishing one another's thoughts.
    [Laughter.]
    Senator Murkowski. So I hope you'll let me finish the 
thoughts on oil exports.
    The Chairman. You're on.
    Senator Murkowski. But I too have been thinking about how 
we define energy independence. We've got a couple ends of the 
spectrum here. We can either be very insular as a Nation and 
try to do it all ourselves and basically thumb our nose at the 
rest of the world, kind of difficult in most areas or we can do 
as Senator Wyden has suggested in one of his alternatives where 
we allow for greater flow of exports and opportunities across 
our borders and insulate ourselves from the shocks of world 
prices.
    When I think about energy independence, energy security, it 
goes to things like economic security. How do we ensure that as 
we deal with our energy needs we have also helped our economy 
become stronger? We have also worked to create greater jobs and 
opportunities. But I don't view energy security to be a 
situation where we kind of close in on ourselves but rather 
that we are--we open up to a greater extent, but by doing so we 
become less vulnerable to the impacts of other, of actions of 
others.
    So I do appreciate my colleague letting me join in on this. 
I said, no, you can't ask that question. I'm going to ask it.
    I think it's important as the Ranking and the Chair on this 
committee to kind of wrap up this very important hearing, to 
take us back up to 30,000 feet. What are we really talking 
about here because I think it truly does go to the whole issue 
of, not only oil export, but export of our energy that we're 
successfully able to produce in this country?
    So, I thank the Chairman.
    The Chairman. The vote is on. So if each of you take about 
a minute we can still make the vote.
    Mr. Hamm.
    Mr. Hamm. Yes, I think it's plural instead of singular. You 
never get rid of it. I heard here earlier that the upstream 
producers were foreign owned. I would assure you that if more 
foreign owned refineries, Motiva, at least owned 50 percent by 
the Saudis. Venezuela owns their own refineries. So you never 
stop them from being able to ship their oil in.
    I take it that we're energy independent when we're 
exporting less or more than they're bringing in.
    So that's what you have to look at, the balance of the two. 
So I would suggest that we look at it overall, not being 
inclusive of just who we are and what our needs are.
    The Chairman. Mr. Burnett.
    Mr. Burnett. First well let me define what I mean by energy 
independence. That includes crude condensates, gas, coal and 
alternative energies. It's all energies. I think you also need 
to define it as energy independence for North America, not the 
United States. It has to include Canada.
    If you include Canada it's feasible for North America to be 
energy independent by a mile before 2030. What that means is 
that there will still be crude imports. There's a quality 
arbitrage, as was mentioned earlier.
    But it would mean an increase in product exports and 
probably exports of coal and other energies as well.
    The Chairman. Ms. Jaffe.
    Ms. Jaffe. So I would say I agree with that given my slogan 
the Tyranny of Geography. There will always be balancing for 
quality and other reasons between different kinds of energy 
sources in and outside our borders. We have a free trade 
agreement with Mexico and Canada.
    But I do want to end with the following two points.
    No. 1, supply of bottlenecks, no matter how they're created 
are the things that make volatility intense as we heard about 
propane.
    The second thing is that Senator Murkowski is correct. A 
secure global market is what's going to bring American 
consumers the lowest price and the most consistent stability in 
fuel prices. That is what the U.S. should seek to do to be a 
responsible participant in making sure we have a secure global 
market.
    The Chairman. Mr. Weiss.
    Mr. Weiss. Thank you. I appreciate the joint question. I'm 
sorry we we're not able to give you a joint answer.
    I think all discussion about energy independence or almost 
all of it is focused on supply. That is something we control 
some of and some we don't. My view is we need to focus on 
reducing our demand because that is something we do have 
control over. It will help save consumers money. It will help 
reduce the carbon pollution that will cause extreme weather, 
that will disrupt our energy production and transportation 
system.
    So I think we need to really focus on reducing demand. 
Particularly when it comes to transportation which is fueled 
over 90 percent by oil, we need to invest in alternatives to 
oil whether it's electric vehicles, whether it is natural gas 
fueled trucks, whether it is public transportation, advanced 
biofuels. All of those things will give consumer choices so we 
are not solely dependent on this one fuel to run, essentially 
run, our economy because as long as we are we'll still be here 
having discussions about energy security and energy 
independence.
    Thank you for having me.
    The Chairman. Mr. Weiss, thank you.
    Suffice it to say, this is the first hearing apparently on 
this topic. It will not be the last.
    I knew it would be a piece of cake to find common ground on 
this question. This is going to be in the ``to be continued'' 
department.
    So we thank you all. We thank you for your patience. The 
committee is adjourned.
    [Whereupon, at 11:23 a.m. the hearing was adjourned.]
                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

         Response of Harold Hamm to Question From Senator Wyden
    Question 1. I know from your testimony and your background that you 
are a tireless advocate for domestic energy and domestic energy 
producers. You were predicting American energy independence when few 
others thought it could happen. Some may find that difficult to square 
with your passionate advocacy for opening up crude oil exports. My 
question to you is: how do you define energy independence? Does it mean 
no more imports or imports only from allies or friendly nations? Or 
does it mean having the ability to be self-sufficient, even if we 
decide it's not necessary to do so?
    Answer. Energy independence means energy security. It means 
maximizing American oil and natural gas production and reducing the 
leverage of hostile or unstable foreign oil suppliers. In other words, 
it means America is no longer held hostage and neither are our friends.
      Responses of Harold Hamm to Questions From Senator Murkowski
    Question 1. Much attention has been paid in recent years to the oil 
production increases in North Dakota and Texas. Is this the full extent 
of the tight oil renaissance or do other regions hold particular 
promise?
    Answer. Other regions hold promise on a significant but smaller 
scale, but there is not likely another Bakken.
    Question 2. Generally speaking, where are the potential export 
markets for U.S. crude oil and condensate?
    Answer. While we already have the ability to export condensate, 
potential markets for U.S. crude oil are Asia, Europe, Latin America 
and any other place with light oil refining capacity.
       Response of Harold Hamm to Question From Senator Landrieu
    Question 1. Mr. Hamm, you make the argument in your testimony that 
a failure to lift the ban on crude export will result in a contraction 
of the growth we have seen and expect to see continue in the 
unconventional oil and gas industry. You reference an IHS global 
insight study that predicts 3.3 million jobs and $468 billion in 
economic activity will be supported by the unconventional oil and gas 
industry by 2020, and argue that a failure to allow export would stifle 
this growth. It would seem that you are not alone, as just today, 
preliminary data from an ICF International study was announced that 
indicates exports could result in $70 billion in new U.S. upstream 
investment by 2020.

          a. With EIA currently predicting increased oil production 
        until 2019, followed by a flattening of production, do you 
        believe that additional investment driven by export would 
        create enough additional production to drive further increases 
        beyond the point at with EIA predicts increases will flatten?

    Answer. Yes, EIA estimates are based on current technology that is 
light years ahead of where it was just a decade ago. When you consider 
that technology continues to advance and that today we are only 
recovering 5 to 10 percent of oil in place in these resource plays, the 
future looks incredibly bright if investment is encouraged.

          b. Do you view export as essential to your future business 
        strategy for the U.S.-that is, do you predict that you will 
        enter into new investment if ban on crude export continues?

    Answer. Free markets are essential to fully developing any 
opportunity. The question is, do we want to maximize all the benefits 
of America's oil and natural gas renaissance (jobs, GDP, national 
security) or only partially realize them?
       Response of Harold Hamm to Question From Senator Barrasso
    Question 1. In your testimony, you say that ``America's oil and gas 
renaissance is in jeopardy.'' You state that the ban on crude oil 
exports has: ``prevented domestic oil exploration and production from 
achieving its full potential.'' Last week, the Wall Street Journal 
published an article entitled: ``IEA Warns U.S. Oil Output Growth Could 
Hit a Wall.'' The first line of the article reads that: ``Surging U.S. 
oil production could hit a wall in the coming years if the country 
maintains its ban on crude exports, the International Energy Agency 
(IEA) said.'' As you know, the IEA works on behalf of its 28 member 
countries, including the United States. Do you agree with the IEA that 
U.S. crude oil production could hit a wall due to the ban on crude oil 
exports? Would you say that the growth in U.S. crude oil production has 
already begun to hit that wall?
    Answer. Again, free markets are essential to fully developing any 
opportunity. Indeed, crude oil is no different than any other commodity 
demanded by consumers. When governments attempt to control supply or 
demand, no matter how well-meaning the laws may be, market distortions 
and unintended consequences inevitably result; supply and competition 
falls short of potential, and the consumer ends up paying higher 
prices.
                                 ______
                                 
      Responses of Amy Myers Jaffe to Questions From Senator Wyden
    Question 1. In your testimony you say, ``it is important for the 
United States to conduct a thoughtful debate and re-evaluation of 
current export policy to avoid creating market distortions that, while 
temporarily benefiting some consumers in particular U.S. regions, may 
create more questionable medium to long-term trends that would be more 
damaging than helpful.'' Keeping this in mind can you tell what if any 
comprehensive studies have been done on the effect of the repealing the 
crude export ban on American consumers?
    Answer. I am not aware of a comprehensive study that has been done 
to date on the subject of the effect on American consumers of repealing 
the crude oil export ban under today's market conditions. Past studies 
about limited exports from Alaska or pipeline shipments to Canada are 
outdated and do not take into account the new conditions of global 
markets and the changed U. S. profile as a rising producer of oil and 
gas with extensive unconventional resources. In addition, any such 
study would have to compare the differences in effects between 
exporting oil in the form of refined products such as gasoline and 
diesel and the effects of exporting crude oil. I am not aware of any 
adequate studies that have been undertaken on this comparison. Limited 
statistical correlations that have been published by investment banks 
do not provide the proper intellectual framework to have predictive 
power and can be misleading by providing comparisons of regional prices 
that are subject to differing interpretations on cause and effect. Any 
comprehensive study would have to take into account not only global 
trade flows of oil and refined products and the impact of changes in 
those flows on oil prices but also the reaction of the Organization of 
Petroleum Exporting Countries (OPEC) or other major oil producers to 
the addition of extra crude oil from the United States to global 
markets. Changes in the price differential between light sweet crude 
oil and heavy sour crude oil would also have to be assessed as part of 
the exercise since U.S. exports are most likely to be of the former 
quality while many U.S. refiners seek feedstocks of the latter quality. 
It may be that light sweet crude oil of certain qualities and 
quantities would have to be shut-in if they could not be exported 
because there would be no market for them inside the U.S. refining 
system.
    Question 2. Given the size and scope of the global crude market and 
the multitude of factors that can affect price, do you believe a 
comprehensive study could ever be done? If we can't be certain, what do 
we need to know in order to feel comfortable about lifting this ban?
    Answer. Creating an accurate economic trade flow model that would 
be able to take into account refined product in flows and out flows and 
crude oil exports from the United States and their impact on global 
prices and localized US gasoline prices would be highly difficult. To 
be comprehensive, such a model would have to specify future quality of 
crude oil streams coming into production in the United States and 
abroad as well as detailed refinery configurations in major refining 
centers, making the simulation solution harder to program than 
successful models that have been made of the global natural gas market. 
Also, global crude oil markets are highly influenced by market 
psychology and temporary geopolitical factors that are hard to separate 
from fundamental supply and demand.
    However, there are concrete lessons from modern American history 
that are instructive about the distortionary effects of US restrictions 
on market clearing for crude oil. In 1958, President Dwight Eisenhower 
a system of mandatory crude oil import controls to protect domestic 
production from cheap foreign imports which were limited to 9% of 
domestic demand. As a result, a distortionary market for oil import 
tickets developed. The system did hold up U.S. domestic prices and 
stimulate more drilling for a while but eventually, the U.S. depleted 
its easy to produce oil and foreign import rates rose anyway. The 
import control system also led to the development of a refining 
industry in Puerto Rico and the Virgin Islands where the cheap foreign 
oil was allowed to be refined without the import restrictions and then 
the refined products shipped back into the United States. The program 
also encouraged American oil companies to invest in refining and 
marketing in foreign countries instead of inside the United States so 
that they would have a market into which to sell their foreign oil 
production that could not be brought back to facilities in the United 
States. The Nixon era oil price controls were similarly distortionary 
and created secondary markets in entitlements to oil that cost the tax 
payer billions of dollars to administrate and transferred revenues to 
parties able to game the system.
    The United States has many goals in its policies towards energy 
markets and all of these considerations need to be given weight. As I 
stated in my testimony, we know concretely from detailed economic 
studies and practical knowledge that resource nationalism and 
artificial barriers to the free flow of oil and investment capital 
created by the Organization of Petroleum Exporting Countries (OPEC) and 
Russia have hurt global economic growth and been a root cause to 
financial crises in the past. The United States cannot be effective in 
eliminating this threat to the US economy, US consumers and our 
national security if we promote artificial barriers to open trade and 
investment in our oil industry.
    We also know that many factors influence US gasoline price trends. 
The price of crude oil feedstock is the major long term variable in 
determining the level of US gasoline prices. Additionally, the level of 
regional inventories is also a critical input into gasoline price 
volatility. Thus, we know that if concerns exist about gasoline price 
volatility, those concerns could be better addressed by having a more 
effective policy regulating minimum gasoline inventory standards in 
light of the trend towards US exports of either refined products or 
crude oil.
     Response of Amy Myers Jaffe to Question From Senator Murkowski
    Question 1. Canada and Norway are major hydrocarbon producers and 
exporters. Can the U.S. learn from their experience as it relates to 
our own debates over hydrocarbon export?
    Answer. In times of past oil supply crises, neither Canada nor 
Norway were forced to suspend their crude oil exports to ameliorate 
fuel shortages in their own countries, nor did national surpluses in 
crude oil production (as compared to domestic demand) spur those 
countries to use trade policy to artificially shield themselves from 
global price trends. Rather, Canadian supplies in times of disruption 
continued to flow to the United States as usual and American consumers 
benefited from this policy. The Canadian and Norwegian economy saw 
financial gains from their hydrocarbon exports and these benefits were 
passed along to consumers in the form of 1) a more stable currency 
(Canada), 2) relatively smaller national budgetary problems, 3) a 
greater ability to fund social services such as health care and 
education, and 4) the creation of a sovereign wealth fund (Norway) to 
smooth out government revenues for future generations, among other 
benefits such as employment and technology innovation and knowledge 
that could be applied in non-oil sectors.
    Responses of Amy Myers Jaffe to Questions From Senator Landrieu
    Question 1. Ms. Myers Jaffe, would you expand on your note at the 
end of your testimony arguing that wholesale gas prices for areas in 
the U.S. with direct access to low cost light sweet crude production do 
not differ greatly from areas more dependent on the world price-
specifically, how does gasoline and diesel's status as freely traded 
international commodities drive their wholesale price, and how would 
the export of U.S. crude affect this wholesale price-both here and 
abroad?
    Answer. Since petroleum products such as gasoline and diesel fuel, 
including U.S. produced gasoline and diesel fuel, are freely traded in 
a global market, U.S. petroleum product prices reflect international 
crude prices, not necessarily U.S. domestic crude prices. If European 
or Asian or Latin American gasoline or diesel prices are higher than 
those in the United States, U.S. refiners will sell their gasoline and 
diesel in these more lucrative foreign markets until the price of 
gasoline and diesel rises sufficiently to equilibrate and eliminate the 
profitability of continuing to ship product overseas (ie closing the 
arbitrage window for exporting). Through this process of exporting 
refined products, U.S. prices will rise to international levels even if 
a surplus of domestic crude oil continues to weigh on domestic crude 
oil prices. Refiners will either make their profits made by refining 
U.S. domestic crude oil into products to be sold abroad or to be sold 
in the United States at prices equivalent to international levels 
(adjusted for differences in transportation costs). Eventually, if 
investors find that they can make more money by shifting exploration 
dollars to foreign countries instead of investing in oil and gas fields 
in the United States, the U.S. will lose the benefits of rising oil 
production and become more dependent on foreign imports again.
    Question 2. On that line of questioning, could you expand on your 
concern that the Barclays study cited today does not accurately reflect 
the interplay of U.S. and global gas prices?
    Answer. The often cited figures in Barclay's assessment of the 
financial savings resulting from the export ban oversimplifies the 
mechanisms and correlations of the interactions of U.S. and global 
gasoline pricing. There are many variables that influence U.S. gasoline 
prices to vary from global levels. For example, differences in 
elasticity of gasoline demand in the United States and Europe over 
different time periods can influence the relative price changes in each 
respective market. American consumer responsiveness to price changes 
tend to differ from that of Europeans, leading to variations in price 
trends on either side of the Atlantic. Differing refinery 
configurations and costs can also account for price disparities between 
U.S. and European fuel markets as can weather trends and differences in 
economic growth patterns. Finally, local inventory levels influenced 
the differences between gasoline prices in the U.S. and Europe in 2008-
2010 vs today, not just changes in the price of U.S. midcontinent crude 
oil relative to UK benchmark Brent crude.
    Question 3. You make a case for crude oil export as tool of 
geopolitics, similar to the way that a growing global LNG market has 
lessened the stranglehold that Russian gas suppliers have kept on 
Eastern Europe. What specific benefit do you see in allowing the export 
of U.S. crude?
    Answer. By allowing the exports of U.S. crude oil, the United 
States can weaken the ability of foreign oil exporters to create 
artificial barriers to global oil trade that drive up prices and give 
oil producers political leverage over countries that are its major 
customers. While the U.S. government itself will not be an oil seller 
(except in the unusual circumstances of a strategic stocks release), 
the availability of U.S. crude oil to international markets creates a 
more competitive market that is harder to manipulate for geopolitical 
ends, limiting the power of Russia and other major oil producing states 
who might use energy to blackmail allies and other major economies to 
accept geopolitical actions or to support military or other actions 
inimical to U.S. interests. Energy trade strengthens our trade ties to 
important allies and trading partners and thereby enhance American 
power and influence. It would also improve our balance of trade with 
countries such as China, reducing imbalances in financial flows and 
thereby strengthening the U.S. economic power relative to Chinese 
economic power. Our ability to serve as a source for critical swing 
energy supplies enhances our importance to our energy trading partners 
in other geopolitical and economic spheres.
    Responses of Amy Myers Jaffe to Questions From Senator Barrasso
    Question 1. In your testimony, you explain that the United States: 
``participates in international trade and thus, blocking exports of. . 
.commodities. . .cannot `protect' U.S. consumers from international 
prices.'' You specifically address crude oil exports and explain that: 
``it is not correct to say that the United States, by continuing to ban 
U.S. crude oil exports, can isolate American consumers from global 
prices.'' You note that any benefits from keeping the export ban in 
place would be: ``artificial[ ],'' ``short term,'' and ``temporar[y].'' 
Finally, you explain that policies, such as the export ban, can become: 
``very costly. . .over time'' and ``create. . .medium to longer-term 
trends that could. . .be more damaging than helpful.'' Would you 
elaborate on how the ban on crude oil exports, will not result, over 
time, in lower prices for American consumers, and that the ban may 
actually hurt American consumers in the long run? In the alternative, 
do you believe there is any downside to American consumers if the ban 
is lifted?
    Answer. Since petroleum products such as gasoline and diesel fuel, 
including U.S. produced gasoline and diesel fuel, are freely traded in 
a global market, U.S. petroleum product prices reflect international 
crude prices, not necessarily U.S. domestic crude prices. If European 
or Asian or Latin American gasoline or diesel prices are higher than 
those in the United States, U.S. refiners will sell their gasoline and 
diesel in these more lucrative foreign markets until the price of 
gasoline and diesel rises sufficiently to equilibrate and eliminate the 
profitability of continuing to ship product overseas (ie closing the 
arbitrage window for exporting). Through this process of exporting 
refined products, U.S. prices will rise to international levels even if 
a surplus of domestic crude oil continues to weigh on domestic crude 
oil prices. Refiners will either make their profits made by refining 
U.S. domestic crude oil into products to be sold abroad or to be sold 
in the United States at prices equivalent to international levels 
(adjusted for differences in transportation costs). Eventually, if 
investors find that they can make more money by shifting exploration 
dollars to foreign countries instead of investing in oil and gas fields 
in the United States, the U.S. will lose the benefits of rising oil 
production and become more dependent on foreign imports again.
    Over time, allowing U.S. exports may facilitate a slightly higher 
U.S. oil production rate and this could mean that depletion of U.S. 
resources will take place faster than it might otherwise have 
transpired. Moreover, there are negative environmental impacts that are 
associated with the production and use of oil and thus, to the extent 
that U.S. exports entail higher oil production and use, there will be a 
downside to the lifting of the U.S. export ban. However, the best way 
to reduce the environmental impacts of producing and using oil are to 
enact measures that lower the demand for oil, such as energy efficiency 
standards, placing a cost on greenhouse gas emissions, and funding for 
public transportation. These would be more effective ways to reduce the 
negative environmental impacts of oil production and use than banning 
U.S. exports since if demand for oil exists in the U.S. or globally, it 
will be met by one supply source or another regardless if the U.S. 
exports its oil in the form of refined products or the form of crude 
oil.
    Question 2. In your testimony, you state that ``[o]ur history of 
energy policy is replete'' with examples where the Federal government 
did more harm than good. You cite ``President Nixon's. . .price 
controls on natural gas which ultimately caused a long lasting shortage 
of natural gas supply.'' You also cite the ``two-tiered system of oil 
pricing that ultimately. . .incentivized imports of foreign oil.'' 
Would you expand upon the lessons to be learned from the Federal 
government's past mistakes in setting energy policy?
    Answer. One of the things that differentiates the United States 
from China and Russia is our reliance on free markets to set prices 
based on supply and demand. Market related pricing ensures that capital 
is deployed efficiently, ultimately lowering costs of goods and 
promoting productivity and economic benefit. In our history, the United 
States has experimented with price and market controls in energy, often 
resulting in creation of shortages and the stifling of optimum levels 
of investment.
    However, there are concrete lessons from modern American history 
that are instructive about the distortionary effects of US restrictions 
on market clearing for crude oil. In 1958, President Dwight Eisenhower 
a system of mandatory crude oil import controls to protect domestic 
production from cheap foreign imports which were limited to 9% of 
domestic demand. As a result, a distortionary market for oil import 
tickets developed. The system did hold up U.S. domestic prices and 
stimulate more drilling for a while but eventually, the U.S. depleted 
its easy to produce oil and foreign import rates rose anyway. The 
import control system also led to the development of a refining 
industry in Puerto Rico and the Virgin Islands where the cheap foreign 
oil was allowed to be refined without the import restrictions and then 
the refined products shipped back into the United States. The program 
also encouraged American oil companies to invest in refining and 
marketing in foreign countries instead of inside the United States so 
that they would have a market into which to sell their foreign oil 
production that could not be brought back to facilities in the United 
States. The Nixon era oil price controls were similarly distortionary 
and created secondary markets in entitlements to oil that cost the tax 
payer billions of dollars to administrate and transferred revenues to 
parties able to game the system.
    Question 3. In your testimony, you encourage Congress to consider 
America's ``global priorities'' as we debate the crude oil export ban. 
Specifically, you state that: ``Long term geopolitical considerations 
are. . .more important to our nation than the. . .short term commercial 
gain to. . .vested industry interests.'' You explain that energy 
exports would: ``strengthen our ties to important allies and trading 
partners and thereby enhance American power and influence.''
    You also say that energy exports: ``will weaken. . .our adversaries 
such as Iran and Russia,'' ``give us an upper hand with China''; and 
``improve our balance of trade.'' Would you expand upon the 
geopolitical benefits that America will experience if we lift the ban 
on crude oil exports?
    Answer. By allowing the exports of U.S. crude oil, the United 
States can weaken the ability of foreign oil exporters to create 
artificial barriers to global oil trade that drive up prices and give 
oil producers political leverage over countries that are its major 
customers. While the U.S. government itself will not be an oil seller 
(except in the unusual circumstances of a strategic stocks release), 
the availability of U.S. crude oil to international markets creates a 
more competitive market that is harder to manipulate for geopolitical 
ends, limiting the power of Russia and other major oil producing states 
who might use energy to blackmail allies and other major economies to 
accept geopolitical actions or to support military or other actions 
inimical to U.S. interests. Energy trade strengthens our trade ties to 
important allies and trading partners and thereby enhance American 
power and influence. It would also improve our balance of trade with 
countries such as China, reducing imbalances in financial flows and 
thereby strengthening the U.S. economic power relative to Chinese 
economic power. Our ability to serve as a source for critical swing 
energy supplies enhances our importance to our energy trading partners 
in other geopolitical and economic spheres.
    Question 4. In your testimony, you explain that: ``The United 
States has for many decades been the leading nation in championing open 
markets and free trade in energy.'' You also state that: ``the United 
States should continue to actively support open markets and free trade 
in energy and to do so, it cannot restrict its own energy exports.'' 
Would you say that our own restrictions on crude oil exports and 
liquefied natural gas exports undermine our nation's credibility when 
advocating for open markets and free trade in energy?
    Answer. There can be no question that the United States loses its 
credibility when advocating for open markets and free trade in energy 
when we ban free trade in our own crude oil and natural gas production. 
We cannot simultaneously call on other countries to freely export their 
oil and gas and vote to restrict our own energy trade. Removing 
bottlenecks and trade barriers can smooth the functioning of markets, 
allowing arbitrage to promote flows to and from the most efficient 
geographic supply sources, eliminating localized volatility and easing 
sharp localized price movements during times of disruptions or 
unexpected events.
    The United States needs to consider the usefulness of past 
experiences when we counted on our European allies to provide us with 
badly needed gasoline from Europe's strategic stocks during our 
difficulties with the U.S. fuel manufacturing and distribution systems 
during Hurricane Rita and Katrina. And we need to think carefully about 
what our global economic and security obligations might be, should an 
oil supply crisis of major proportions emanate sooner rather than later 
out of the Middle East--both before, and even after, the U.S. gets 
closer to being energy self-sufficient. The mindset of husbanding 
resources out of fear of shortages has never served major producing 
countries like the United States well. In the crisis years of the 
1970s, such hoarding behavior worsened the dislocations, not eased 
them. By contrast, in more recent years, we have fashioned an 
international emergency oil supply response system that protected the 
global economy in the aftermath of Saddam Hussein's invasion of Kuwait, 
and would be important should a similar or even worse kind of conflict 
were to arise again in an important oil producing area of the Middle 
East or Russia.
    Question 5. In your testimony, you discuss the ``tyranny of 
distance.'' You explain that the costs to ship crude oil, natural gas, 
and refined products overseas: ``will in most circumstances guarantee 
U.S. users a continuing energy cost advantage over foreign competitors 
even if export bans are lifted.'' You explain that this cost advantage: 
``is, in many cases, of significant size and will ensure that U.S. 
energy prices are lower than those of countries that would buy U.S. oil 
and gas.'' Would you elaborate on this cost advantage as it relates to 
(1) crude oil and (2) liquefied natural gas exports?
    Answer. The costs for shipping oil and refined products to Europe, 
Asia and Latin America vary with the level of market rates for 
chartering a tanker and the exact distance for the journey. In the case 
of crude oil, these costs can range roughly from 50 cents a barrel to 
several dollars, depending on demand for tankers and distance. For 
liquefied natural gas, the costs for regasification and shipment to 
Asia will be roughly $4.50 per mcf to Asia and $3.50 to $4.00 to 
Europe. Generally speaking, these transportation costs must be covered 
by higher landed oil or natural gas prices in Europe or Asia to have 
the arbitrage window encourage exports from the United States. In other 
words, U.S. prices have to be lower by the amount related to shipping 
costs than the international price to stimulate the international 
trade.
    Responses of Amy Myers Jaffe to Questions From Senator Cantwell
    Question 1. Ms. Jaffe, I am interested in your suggestion that 
keeping a strategic cushion of refined products could help protect 
consumers from sudden supply and/or price shocks. You might be aware 
that this Committee attempted to address this concern by passing out of 
Committee S. 967, the Strategic Petroleum Reserve Modernization Act of 
2009. Considering that this bill was passed on a party line vote, with 
heavy criticism from Republican Committee Members and the oil industry, 
it strikes me as unlikely that such an idea could be put into practice 
in the near future. Does your opinion regarding the desirability of 
U.S. crude oil exports change, assuming that the U.S. Government will 
take no additional action to safeguard consumers from supply shocks?
    Answer. US consumers will be subject to supply shocks from global 
markets irrespective of whether we export oil in the form of refined 
products or in the form of crude oil because the international price is 
transmitted into our markets via whatever exports and imports we 
participate in. The American public should be outraged that elected 
officials are entertaining accommodations to the US refining industry 
without regard to the low historical inventory levels carried by that 
industry and the impact of those low inventories on exposing gasoline 
prices to upward volatility. US refining companies are presently 
exporting gasoline to foreign markets without ensuring that adequate 
inventory levels are present to protect their local American customers. 
Inventories are a critical tool to smooth out the supply dislocations 
that come about from localized refinery accidents, severe weather, and 
international disruptions. Since the US refining industry and their 
supporters in Congress are not calling for a ban on US gasoline 
exports, I don't see how the ban on US crude oil exports is in any way 
useful to protect US consumers from the effects of global prices.
    Moreover, the point needs to be made that US exports of any oil 
commodity, whether it is gasoline or crude oil, eventually contributes 
to lower global oil prices overall. The global oil market is like a 
bathtub and the more water one puts in the tub in any location, the 
more water is available in all locations. By analogy, it doesn't matter 
if that water comes directly from the bathtub tap or is heated first on 
the stove and then put in the tub (refinery processing). Adding a cup 
of water--whether from the tap or from the tea kettle--in any location 
raises the level of water in the tub. The more fluid is put in the tub 
(ie global marketplace) the lower the prices will be for all users of 
the water (oil). Additionally, if water is taken out of the right side 
of the tub, it affects the water level on the left side of the tub 
equally. There is no way to protect the water level in one particular 
location of the tub from the sudden removal of water from a different 
location.
    Question 2. In your testimony and comments, you focused largely on 
the national and global implications of the export ban. Could you 
comment on what likely regional impacts would result from lifting the 
ban? It strikes me that Washington State is a natural export point for 
railed crude bound for Asian markets, and that my constituents would 
face increased rail traffic, with associated safety risks and 
congestion. However, I do not see how they get any benefit from this 
increased traffic, in terms of relief in the prices that they pay at 
the pump. Could lifting the ban directly benefit Washington State 
consumers in any way?
    Answer. Washington consumers would benefit like all Americans from 
the benefits from U.S. crude oil exports. But there are associated 
risks that would accompany rail traffic of volatile materials and 
Washington state will have to assess those risks and whether it wants 
to continue to participate in the transport and shipping of good 
overseas including goods that pose greater safety risks than others. It 
will be important to mitigate such risks if condensate and very light 
crude oil is going to be transported through Washington state by 
ensuring proper equipment and safety procedures are in place.
      Responses of Amy Myers Jaffe to Questions From Senator Flake
    Question 1. This hearing produced much discussion about the 
existence of a global price for crude oil and refined petroleum 
products such as gasoline. To that point, the Energy Information 
Administration (EIA) has suggested that the price for these products is 
``driven by the international market'' subject to short term 
fluctuations in the supply chain, including regional price adjustments. 
Do you believe that the price for crude oil and refined products such 
as gasoline is set by the global markets? Please include an explanation 
of the support for your position.
    Answer. The notion that the price of crude oil and refined products 
such as gasoline is set by the global market is well established in the 
scholarly energy economics literature and has been statistically 
verified by studying the co-movements of prices of different kinds of 
crude oils. I refer the committee to the writings of Maurice Adelman 
(``Is the World Oil Market One Great Pool'' The Energy Journal, 13(1); 
Bentzen, J. ``Does OPEC influence crude oil prices? Testing for co-
movements and causality between regional crude oil prices, Applied 
Economics 29: 1375-1385)
    Question 2. If you believe, those prices are set by global markets, 
does that mean that the ``domestic'' crude oil discount (i.e., the 
lower input cost for refiners using domestic crude) that some have 
suggested has been retained by the refiners, as opposed to being passed 
along to consumers? Or, do you believe that the purported domestic 
crude oil discount is reflected in current domestic gasoline prices?
    Answer. As I mentioned in my testimony, there is little statistical 
evidence that consumers are receiving benefit from the lower feedstock 
costs for refiners in the US Midcontinent where U.S. domestic crude oil 
is plentiful. The crude oil feedstock discounts enjoyed by refiners 
with access to mid-continent landlocked U.S. production have not 
lowered the wholesale price of Midwest petroleum products compared to 
prices linked more closely to international markets, nor did they lower 
the retail prices of gasoline or diesel fuel prices in the Midwest 
markets served by PADD II refiners relative to the markets served by 
coastal refiners that do not enjoy these discounts. Since petroleum 
products are freely traded in a global market, U.S. petroleum product 
prices reflect international crude prices, not lower-priced domestic 
crude.
    Question 3. There has been some discussion about the use of crude 
oil swaps to alleviate some of the anticipated excess production of 
domestic light sweet crude. Do you see that as a viable option? What 
role, if any, would you foresee Congress playing in facilitating crude 
oil swaps?
    Answer. Swaps take place in the marketplace from time to time and 
could be an alternative to outright crude oil exports but one has to 
ask why the Congress would require a refiner to buy unneeded U.S. light 
crude oil as a means to purchase the heavy sour crude it requires from 
abroad to fill adequately its refinery processing slate. Since the 
crude oil market is a global one and the United States cannot cut 
itself off from global market pricing trends, it is unclear what 
benefit is derived from requiring swaps instead of outright exports. 
Swaps is a second best option.
    Question 4. During the hearing, you mentioned that one way to 
protect ourselves from domestic energy emergencies is through minimum 
inventory standards. Can you elaborate on that more? Do you, for 
example, envision something in addition to the strategic petroleum 
reserve, such as minimum commercial reserve requirements, as you 
briefly discussed in your testimony?
    Answer. There is no question given the high level of refined 
product exports departing the United States and the sensitivity of 
wholesale gasoline prices to market disruptions and sudden changes in 
supply or demand that minimum commercial inventory standards for U.S. 
refiners would help reduce temporary price spikes in gasoline prices. 
As I discussed during my testimony, such policies exist in Europe and 
Asia. The best way to protect U.S. consumers from sudden price 
movements in gasoline, heating oil or natural gas from unexpected 
supply disruptions or weather related events is to ensure that adequate 
inventories are on hand in regional markets. To protect U.S. consumers 
against volatility in fuel pricing due to shifting levels of global 
demand for refined petroleum product and/or natural gas exports, the 
United States should require U.S. producers and refiners to hold 
reasonable minimum inventories to guard against temporary domestic 
shortfalls of supply or seasonal volatility. Such minimum product 
inventory standards are already used successfully in Europe and Japan 
to enhance energy security and protect domestic markets in the event of 
an unusual event such as the Fukushima nuclear accident. In fact, the 
United States was able to weather Hurricane Rita and Katrina partly by 
borrowing gasoline from these mandated European minimum inventory 
stockpiles. As the United States shifts to a lower percentage of crude 
oil imports, it may want to consider holding a higher proportion of 
strategic stocks in the form of mandated commercially held stocks of 
refined products, rather than publicly held crude oil stores. I refer 
the committee to my article ``The Role of Inventories in Oil Market 
Stability'' published in The Quarterly Review of Economics and Finance 
42 (2002) 401-415.
                                 ______
                                 
       Response of Daniel J. Weiss to Question From Senator Wyden
    Question 1. In your testimony you speak about the volatility of 
energy markets, particularly oil, as it relates to energy security you 
said, ``OPEC oil is very vulnerable to supply disruptions.'' Do you 
believe this volatility will continue, and if so, do you believe the US 
will be more dependent on OPEC oil if we allow exports?
    Answer. The Energy Information Administration (EIA) recently found 
that Organization of the Petroleum Exporting Countries (OPEC) supply 
disruptions in 2013 reduced the anticipated growth in world global 
fuels supply. EIA reported this finding in the just published ``Short-
Term Energy Outlook Supplement: Uncertainties in the Short-Term Global 
Petroleum and Other Liquids Supply Forecast.''\1\ EIA determined that
---------------------------------------------------------------------------
    \1\ Energy Information Administration, Short-Term Energy Outlook 
Supplement: Uncertainties in the Short-Term Global Petroleum and Other 
Liquids Supply Forecast (U.S. Department of Energy, 2014), available at 
http://www.eia.gov/forecasts/steo/special/pdf/2014_sp_01.pdf.

          In January 2013, EIA's Short-Term Energy Outlook (STEO) 
        projected that global liquid fuels supply growth would average 
        1.0 million bbl/d in 2013, but EIA's latest estimate shows that 
        global supply grew by about 0.6 million bbl/d in 2013. The 
        difference mainly reflects higher-than-expected unplanned 
        supply disruptions among OPEC producers.\2\
---------------------------------------------------------------------------
    \2\ Ibid

---------------------------------------------------------------------------
    This same analysis found that

          OPEC disruptions increased in the second half of 2013, 
        reaching 2.6 million bbl/d by the end of the year because of 
        increased disruptions in Libya. The issues underpinning the 
        outages in these countries are unresolved, resulting in 
        uncertain oil production outlooks for these countries.\3\ 
        (Emphasis added)
---------------------------------------------------------------------------
    \3\ Ibid

    As the production of U.S. oil has grown, the importation of foreign 
oil has declined from 57 percent in 2008 to 40 percent in 2013.\4\ This 
includes a 35 percent reduction in crude oil imports from OPEC since 
2008, which was the second largest amount of imports since 1973.\5\ As 
U.S. domestic production continues to grow, EIA projects OPEC crude oil 
imports will decline by 47 percent between 2013 and 2020.\6\
---------------------------------------------------------------------------
    \4\ Energy Information Administration, AEO2014 Early Release 
Overview (U.S. Department of Energy, 2013), available at http://
www.eia.gov/forecasts/aeo/er/pdf/0383er%282014%29.pdf.
    \5\ Energy Information Administration, ``U.S. Imports from OPEC 
Countries of Crude Oil,'' available at http://www.eia.gov/dnav/pet/
hist/LeafHandler.ashx?n=pet&s=mcrimxx2&f=a (last accessed February 
2014).
    \6\ Energy Information Administration, ``Imported Liquids by 
Source, Reference case,'' available at http://www.eia.gov/oiaf/aeo/
tablebrowser/#release=AEO2014ER&subject=8-AEO2014ER&table=101-
AEO2014ER®ion=0-0&cases=ref2014er-d102413a (last accessed February 
2014).
---------------------------------------------------------------------------
    Despite the important growth in domestic oil production, the U.S. 
will consume over 5 million barrels of oil and liquids per day in 2014 
compared to the amount it produces.\7\ Unless there are large 
reductions in demand, the demand-supply gap will grow if the U.S. 
exports crude oil and liquids. This gap could be filled by oil from 
both OPEC and non-OPEC nations. If the U.S. begins to export 
significantly more oil than it did in 2013, it would have to import oil 
to offset the exports.
---------------------------------------------------------------------------
    \7\ Energy Information Administration, AEO2014 Early Release 
Overview (U.S. Department of Energy, 2014), Figure 12, available at 
http://www.eia.gov/forecasts/aeo/er/early_production.cfm?src=Petroleum-
b2.
---------------------------------------------------------------------------
    Oil companies would like to export ``lighter'' crude oil because 
there has been a slight increase in light oil production in the U.S. 
over the past few years.\8\ \9\ In 2013, EIA reported that domestic 
crude oil was light, with an average API gravity of 35.3. Imported oil 
was intermediate, with an average API gravity of 28.\10\
---------------------------------------------------------------------------
    \8\ Energy Information Administration, Annual Energy Outlook 2013 
(U.S. Department of Energy, 2013), Figure 98, available at http://
www.eia.gov/forecasts/aeo/MT_liquidfuels.cfm.
    \9\ Crude oil with an API gravity greater than 35.0 is ``light,'' 
while oil with an API gravity less than 25.0 is ``heavy.'' In 2013, EIA 
reported that domestic crude oil was light, with an API of 35.3. 
Imported oil was intermediate, with an API of 28.
    \10\ Energy Information Administration, Annual Energy Outlook 2013, 
Figure 98.
---------------------------------------------------------------------------
    EIA projects that the increase in domestic production will 
``replace imports of medium and heavy crude.''\11\ If exports were 
allowed, refiners could import slightly heavier oil as they were before 
the domestic production increase began in 2009. The three largest 
importers of heavy oil are Canada, Mexico, and Venezuela, with average 
imports of 2.6 million barrels per day (mbd), 1.0 mbd, and .8 mbd, 
respectively, during the first 11 months of 2013.\12\ Presumably, some 
of the increase in heavier crude oil to offset any domestic exports 
will come from Venezuela, which is a member of OPEC. I am not aware of 
any projections of changes in future oil imports from these three 
nations if the crude oil export ban is lifted.
---------------------------------------------------------------------------
    \11\ Energy Information Administration, ``WTI-Brent Spread 
Projected to Average $11 per barrel in 2014,'' This Week in Petroleum, 
February 12, 2014, available at http://www.eia.gov/oog/info/twip/
twip.asp.
    \12\ Energy Information Administration, ``U.S. Imports by Country 
of Origin,'' available at http://www.eia.gov/dnav/pet/
pet_move_impcus_a2_nus_epc0_im0_mbblpd_m.htm (last accessed February 
2014).
---------------------------------------------------------------------------
    Responses of Daniel J. Weiss to Questions From Senator Murkowski
    Question 1. The International Energy Agency states in its January 
2014 Oil Market Report: ``The growing volumes of light tight oil that 
cannot leave North America are increasingly posing a challenge to 
industry, putting the spotlight on the US crude oil export ban.'' Last 
year, the head of the IEA--Maria van der Hoeven--warned that the ban 
threatens production. Where, in as much detail as possible, do you 
believe the IEA's analysis is incorrect?
    Answer. The International Energy Agency (IEA) ``Oil Market Report'' 
is not incorrect, but it is incomplete. It is simply a snapshot of U.S. 
crude oil production in 2013 and 2014, and not a projection of future 
production. The EIA reference case projects that U.S. crude oil 
production will peak in 2019, and then began a slow but inexorable 
decline through 2040, when production will be less than it was in 
2013.\13\ (See graph below)*
---------------------------------------------------------------------------
    \13\ Energy Information Administration, ``Petroleum and Other 
Liquids Supply and Disposition, Reference case,'' available at http://
www.eia.gov/oiaf/aeo/tablebrowser/#release=AEO2014ER&subject=8-
AEO2014ER&table=11-AEO2014ER®ion=0-0&cases=ref2014er-d102413a (last 
accessed February 2014).
    * Graph has been retained in committee files.
---------------------------------------------------------------------------
    The IEA notes that the U.S. oil industry has adjusted well to the 
significant increase in domestic production. It has

          Demonstrated the capacity of the US oil industry and markets 
        to seize new opportunities and adjust on their own to changing 
        realities.
          Although US production growth in 2013 far surpassed our 
        projections, the industry met the challenge of extra supply in 
        its stride. The accommodation of the additional production was 
        possible because of refinery, pipeline and crude rail capacity 
        expansions, allowing the Midwestern crudes to reach the Gulf 
        Coast and East and West Coast refineries.\14\
---------------------------------------------------------------------------
    \14\ International Energy Agency, Oil Market Report, (International 
Energy Agency, 2014) available at http://omrpublic.iea.org/
currentissues/fullpub.pdf.

    This seems to obviate the need to allow crude oil exports at this 
time.
    Question 2. Do you believe American consumers (e.g., motorists) 
have benefited from the record increases in oil production 
domestically?
    Answer. The IEA ``Oil Market Report'' noted that U.S. drivers have 
not appreciably benefited from the increase in U.S. production.

          Remarkably, surging US supply and runs have not markedly 
        lowered product prices for consumers. Rising global demand and 
        supply shortfalls elsewhere--with twice as much annual growth 
        in global demand as in world supply last year--have kept OECD 
        [Organization of Economic Co-operation and Development] stocks 
        tight and oil prices generally high.\15\
---------------------------------------------------------------------------
    \15\ Ibid

    In 2013, inflation adjusted gasoline prices were the sixth highest 
in the past 37 years, at $3.54 per gallon, according to EIA.\16\ This 
occurred even though the U.S. had its highest domestic oil production 
since 1988.\17\
---------------------------------------------------------------------------
    \16\ Energy Information Administration, ``Regular Gasoline Retail 
Prices,'' available at http://www.eia.gov/forecasts/steo/realprices/ 
(last accessed February 2014).
    \17\ International Energy Agency, Oil Market Report.
---------------------------------------------------------------------------
    In 2012, the Associated Press conducted an analysis of the 
relationship between domestic oil production and gasoline prices, but 
found no correlation between the two.

          A statistical analysis of 36 years of monthly, inflation-
        adjusted gasoline prices and U.S. domestic oil production by 
        The Associated Press shows no statistical correlation between 
        how much oil comes out of U.S. wells and the price at the 
        pump.\18\
---------------------------------------------------------------------------
    \18\ Seth Borenstein and Jack Gillum, ``Fact Check: More US 
drilling didn't drop gas prices,'' Bloomberg Businessweek, March 21, 
2012, available at http://www.businessweek.com/ap/2012-03/
D9TL1BO00.htm.

    EIA reports that the price of crude oil is responsible for 71 
percent of the price of a gallon of gasoline.\19\ As long as the price 
of oil is set on the world market controlled by the OPEC cartel, then 
it will be very difficult for U.S. production to significantly affect 
the price of gasoline.
---------------------------------------------------------------------------
    \19\ Energy Information Administration, ``What do I pay for in a 
gallon of regular gasoline?'' available at http://www.eia.gov/tools/
faqs/faq.cfm?id=22&t=10 (last accessed February 2014).
---------------------------------------------------------------------------
    The most effective way to help consumers is to produce cars that 
use significantly less gasoline. For instance, the 2025 fuel economy 
standard for passenger and light duty vehicles will save drivers an 
estimated average fuel savings of $8,000 over the life of a new 
car.\20\ This is equivalent to lowering the price of gasoline by $1 per 
gallon.\21\
---------------------------------------------------------------------------
    \20\ The White House, ``Obama Administration Finalizes Historic 
54.5 MPG Fuel Efficiency Standards,'' Office of the Press Secretary, 
August 28, 2012, available at http://www.whitehouse.gov/the-press-
office/2012/08/28/obama-administration-finalizes-historic-545-mpg-fuel-
efficiency-standard.
    \21\ Ibid
---------------------------------------------------------------------------
    Investments in alternatives to gasoline would also help drivers 
spend less on transportation. This could include the construction of 
public recharging infrastructure for electric vehicles, the commercial 
production of cellulosic (non-crop) advanced biofuels, and investments 
in public transportation. All of these could provide cleaner, cost 
effective alternatives to gasoline.
     Response of Daniel J. Weiss to Question From Senator Landrieu
    Question 1. Mr. Weiss, you use a very specific example to prove the 
link between U.S. crude export and increased price. You cite a CRS 
report on the period of 1995-2000, when exports of crude produced in 
Alaska and refined on the West Coast were accompanied by shifts in 
price. You contend that the increase from West Coast prices being 5 
cents above the national average in 1995 to being 12 cents in 2000, the 
year exports stopped. However, this same CRS report makes the point 
that West Coast gasoline prices, as evidenced by their starting point 
above the national average, are subject to influences beyond price 
increases-additional environmental regulations and constricted refining 
capacity are cited specifically. The CRS report goes on to state that 
these factors could also explain the price differences seen in the West 
Coast market-the CRS report states that in fact they would have had 
``significant bearing, even during the years of crude exports.''

          a. Do you contend that the price differences seen in this 
        instance are still related directly to exports, or do you agree 
        with the CRS report that external factors could also have 
        driven this price difference?

    Answer. I noted in my testimony that

          ``The only real-world experience of lifting an oil export 
        prohibition occurred following the 1996 removal of a ban on 
        Alaska oil exports. During the ban, much Alaskan oil was 
        shipped to the West Coast. A Congressional Research Service 
        analysis found that lifting the oil ban exacerbated the 
        existing price differential between West Coast and national 
        gasoline.

                  In 1995 . . . West Coast pump prices [were] only 5 
                cents per gallon above the national average. But by 
                1999 West Coast gasoline was 15 cents per gallon 
                higher. When crude exports stopped in 2000, the average 
                [difference] . . . was 12 cents; it [later] narrowed 
                further to 7 cents. . . . When Alaskan oil exports 
                ceased, the gasoline price differential between the 
                West Coast and the national average did decline.

          ``This experience suggests that lifting the nationwide crude 
        oil export ban could similarly raise gasoline prices. Barclays 
        Plc. predicts that lifting the export ban could increase total 
        spending on motor vehicle fuel by $10 billion per year. Sandy 
        Fielden, director of energy analytics at RBN Energy, told 
        Bloomberg that if there are more oil exports, `The most obvious 
        thing that's going to happen is that crude prices will go up 
        and so will gasoline.'''\22\
---------------------------------------------------------------------------
    \22\ Daniel J. Weiss, Testimony before the U.S. Senate Committee on 
Energy and Natural Resources, ``U.S. Crude Oil Exports: Opportunities 
and Challenges,'' January 30, 2014, available at http://
www.americanprogress.org/issues/green/report/2014/02/05/83559/u-s-
crude-oil-exports-opportunities-and-challenges/.

    The CRS report strongly suggests, but does not prove, that the 
elimination of the Alaska oil exports contributed to the increase in 
West Coast gasoline prices between 1996 and 2000. I noted in a response 
to a question that there has not been an independent assessment of the 
impact of lifting the crude oil export ban on domestic gasoline prices. 
In response to a question during the hearing, I urged the Senate Energy 
Committee to seek such an analysis from the Energy Information 
Administration. As you know, Senators Ron Wyden and Maria Cantwell 
recently sent a letter to EIA requesting such an analysis.\23\
---------------------------------------------------------------------------
    \23\ Letter from Sen. Wyden and Sen. Cantwell to Administrator 
Sieminski, February 3, 2014, available at http://www.energy.senate.gov/
public/index.cfm/democratic-news?ID=4dd7893d-d472-425a-81f0-
197e5fdf46b7.

          b. You also quote the Commission on Energy Security as saying 
        that ``volatility in the global oil market will remain a 
        serious concern.'' What is your opinion of Ms. Myers Jaffe's 
        argument that U.S. crude exports, used as a tool of 
        geopolitics, may have the effect of reducing volatility in the 
        global oil market, much of which is driven by geopolitical 
---------------------------------------------------------------------------
        conflicts?

    Answer. As you note, much of the price volatility in the global oil 
market ``is driven by geopolitical conflicts.'' I am not an expert in 
the regional conflicts in the Middle East, Africa, or other oil 
producing regions. However, even from my lay person's perspective it 
seems that ancient sectarian disagreements, government repression, 
joblessness, and vast disparities of wealth in these nations are a 
major part of many of these conflicts. It is difficult to imagine, for 
instance, that the export of one million barrels of oil per day from 
the U.S. would have much impact on these factors.
      Responses of Daniel J. Weiss to Questions From Senator Flake
    Question 1. This hearing produced much discussion about the 
existence of a global price for crude oil and refined petroleum 
products such as gasoline. To that point, the Energy Information 
Administration (EIA) has suggested that the price for these products is 
``driven by the international market'' subject to short term 
fluctuations in the supply chain, including regional price adjustments. 
Do you believe that the price for crude oil and refined products such 
as gasoline is set by the global markets? Please include an explanation 
of the support for your position.
    Answer. There is ample analysis that reinforces the idea that there 
is a global market price for oil, set by the OPEC cartel that produces 
40 percent of the world's oil.\24\ For instance, EIA explains that
---------------------------------------------------------------------------
    \24\ Energy Information Administration, Short-Term Energy Outlook, 
(U.S. Department of Energy, 2014), available at http://www.eia.gov/
forecasts/steo/report/global_oil.cfm.

          Crude oil prices are determined by worldwide supply and 
        demand.
          One of the major factors on the supply side is the 
        Organization of the Petroleum Exporting Countries (OPEC), which 
        can have significant influence on prices by setting production 
        limits on its members, who together produce more than 40% of 
        the world's crude oil. OPEC countries have essentially all of 
        the world's spare oil production capacity, and possess about 
        two-thirds of the world's estimated crude oil reserves.\25\
---------------------------------------------------------------------------
    \25\ Energy Information Administration, ``Oil Crude and Petroleum 
Products Explained,'' available at http://www.eia.gov/energyexplained/
index.cfm?page=oil_prices (last accessed February 2014).

    OPEC meets regularly to assess the benchmark price for crude oil. 
---------------------------------------------------------------------------
At its meeting in December 2013, it was reported that

          Saudi Arabia and other OPEC members argue that benchmark 
        crude oil prices, currently averaging $100 per barrel, provide 
        acceptable income for producers without weighing too heavily on 
        consumers.\26\
---------------------------------------------------------------------------
    \26\ ``Opec keeps production ceiling,'' AFP, December 5, 2013, 
available at http://thepeninsulaqatar.com/business/qatar-business/
263469/opec-keeps-production-ceiling.

    An analysis of oil prices by the Associated Press noted that ``oil 
is a global commodity and U.S. production has only a tiny influence on 
supply. Factors far beyond the control of a nation or a president 
dictate the price of gasoline.''\27\
---------------------------------------------------------------------------
    \27\ Borenstein and Gillum, ``Fact Check: More US drilling didn't 
drop gas prices''.
---------------------------------------------------------------------------
    While there is a world market price for oil, gasoline prices 
mostly, but not solely, depend on the world oil price, and can vary 
widely by country, and by region within the U.S. This is due to 
different capacity and efficiency levels at refineries, transportation 
costs, taxes, and other factors. In February, a gallon of gasoline 
ranged from 40 cents per gallon in Iran to $3.32 per gallon in the U.S. 
to $10.74 per gallon in Norway.\28\
---------------------------------------------------------------------------
    \28\ ``Petrol prices around the world, February 2014,'' 
MyTravelCost.com, available at http://www.mytravelcost.com/petrol-
prices/ (last accessed February 2014).
---------------------------------------------------------------------------
    There was much less variation in the U.S., but there were still 
regional differences in gasoline prices. EIA reports that for February 
10, 2014, gasoline prices ranged from $3.09 per gallon in the Gulf 
Coast to $3.52 in the West Coast--14 percent higher.\29\
---------------------------------------------------------------------------
    \29\ Energy Information Administration, ``Gasoline and Diesel Fuel 
Update,'' available at http://www.eia.gov/petroleum/gasdiesel/
gas_geographies.cfm#pricesbyregion (last accessed February 2014).
---------------------------------------------------------------------------
    Question 2. If you believe, those prices are set by global markets, 
does that mean that the ``domestic'' crude oil discount (i.e., the 
lower input cost for refiners using domestic crude) that some have 
suggested has been retained by the refiners, as opposed to being passed 
along to consumers? Or, do you believe that the purported domestic 
crude oil discount is reflected in current domestic gasoline prices?
    Answer. The impact on consumers from the recent increase in some 
domestic crude oils is unclear. Nationwide, the average refiner crude 
oil acquisition cost increased in 2013 to $102.90 per barrel from 
$100.71 and $100.72 in 2011 and 2012, respectively.\30\ This higher 
price could limit the benefit of higher production to drivers. EIA 
speculates that
---------------------------------------------------------------------------
    \30\ Energy Information Administration, ``U.S. Crude Oil Domestic 
Acquisition Cost by Refiners,'' available at http://www.eia.gov/dnav/
pet/hist/LeafHandler.ashx?n=pet&s=r1200__3&f=m (last accessed February 
2014).

          Larger price discounts for U.S. crude oil production versus 
        alternate world crudes, such as greater WTI and LLS discounts 
        to Brent, may be needed to encourage Gulf Coast refiners to 
        process the increased supplies.\31\
---------------------------------------------------------------------------
    \31\ Energy Information Administration, ``WTI-Brent Spread 
Projected to Average $11 per barrel in 2014,''

    In other words, the price discount is not yet sufficient to 
increase gasoline production enough to affect prices.
    On the other hand, there may be regional impacts that benefit some 
drivers. On February 6th, 24/7 Wall St., a website for investors, 
reported that ``AAA also expects regional variation in gasoline prices, 
largely the result of access to cheaper North American crude oil.''\32\ 
24/7 Wall St. reported in January that
---------------------------------------------------------------------------
    \32\ Paul Ausick, ``Price of Gasoline Will Rise: AAA'' 24/7 Wall 
St., February 6, 2014, available at http://247wallst.com/energy-
economy/2014/02/06/price-of-gasoline-will-rise-aaa/#ixzz2tdFMyWQr.

          Refining companies with the majority of their operations on 
        the Gulf Coast of the United States have been in the driver's 
        seat for profits during the past several months of 2013. Access 
        to cheaper U.S. crudes has lifted some refiners' margins.\33\
---------------------------------------------------------------------------
    \33\ Paul Ausick, ``Oil Refiners: Is There a Value Play?'' 24/7 
Wall St, January 2, 2014, available at http://247wallst.com/energy-
business/2014/01/02/oil-refiners-is-there-a-value-play/

    Question 3. There has been some discussion about the use of crude 
oil swaps to alleviate some of the anticipated excess production of 
domestic light sweet crude. Do you see that as a viable option? What 
role, if any, would you foresee Congress playing in facilitating crude 
oil swaps?
    Answer. Crude oil swaps could address some of the excess production 
of domestic light sweet crude, but several potential impacts should be 
evaluated to before allowing such swaps. What impact will swaps have on 
domestic gasoline and diesel prices? Will the swaps increase our 
dependence on oil from allies or other nations? Will the swaps 
encourage the production of oil with more well-to-tank carbon 
pollution? Until EIA or some other independent bodies analyze these and 
related questions, swaps should not go forward beyond what can occur 
under existing law.
    If such an analysis demonstrates that swaps would not harm drivers, 
increase dependence on oil from non-allies, boost the production of tar 
sands or other dirty oils, then the Commerce Department has the 
authority to approve export applications to facilitate the swaps. There 
is no need for Congressional involvement.
    Question 4. During the hearing, you mentioned that one way to 
protect ourselves from domestic energy emergencies is through minimum 
inventory standards. Can you elaborate on that more? Do you, for 
example, envision something in addition to the strategic petroleum 
reserve, such as minimum commercial reserve requirements, as you 
briefly discussed in your testimony?
    Answer. In October, New York became the first state to establish a 
``strategic gasoline reserve'' to prevent serious supply disruptions 
during extreme weather events or other emergencies.\34\ New York plans 
to store up to 3 million gallons of gasoline for first responders and 
other motorists. Establishment of additional reserves could supply 
gasoline in other states in the event of future supply disruptions. 
Because of technical limitations on storing significant amounts of 
gasoline for long periods of time, there would probably have to be 
multiple smaller reserves rather than several large reserves, as with 
the Strategic Petroleum Reserve. The Senate Energy Committee should 
explore the need for such gasoline reserves, as well as the technical 
and economic feasibility of building and maintaining them.
---------------------------------------------------------------------------
    \34\ Andrew M. Cuomo, ``Governor Cuomo Launches First-Ever 
Strategic Reserve to Prevent Supply Gaps During Emergencies,'' 
Governor's Press Office, October 26, 2013, available at http://
www.governor.ny.gov/press/10262013Strategic-Gasoline-Reserve.
---------------------------------------------------------------------------
    Amy Myers Jaffe, another witness at the January 30th hearing, 
recently promoted a mandate to ensure a certain amount of refined 
product inventories. She wrote:

          Regulators [should] mandate a minimum level of mandatory 
        refined product inventories in the United States. Such a system 
        exists in Europe and Japan and allowed Europe the flexibility 
        to provide gasoline to the United States during the production 
        shortfalls that occurred following Katrina and Rita, preventing 
        worse dislocations. The system helped Japan in the aftermath of 
        the Fukushima crisis.
          A US government program reserving the right to use for 
        strategic national emergency releases a portion of this 
        mandated minimum supplementary industry refined product stocks 
        of 5% or 10% of each refining company's average customer demand 
        would ensure that needed supplies of gasoline or heating oil in 
        inventory to ease the impact of sudden weather related demand 
        surges or accidental disruption of consumer supplies.\35\
---------------------------------------------------------------------------
    \35\ Amy Myers Jaffe, ``Washington Needs to Embrace the New 
American Century: More Thoughts on US Exports,'' The Energy Collective, 
February 17, 2014, available at http://theenergycollective.com/amjaffe/
341836/washington-needs-embrace-new-american-century-more-thoughts-us-
exports?utm_source=hootsuite&utm_medium=twitter&utm_campaign=hootsuite_t
weets.

    I believe that this proposal would help address future extreme 
weather or other unforeseen events that cause gasoline supply 
disruptions.
                                 ______
                                 
       Response of Graeme Burnett to Question From Senator Wyden
    Question 1. I understand that Delta is concerned about exports 
increasing domestic fuel prices and those higher fuel prices hurting 
Delta's bottom line.

   Can you quantify the impact that exports could have on your 
        costs?

    Answer. As outlined in our prepared testimony, we believe that 
lifting the export ban would harm refineries in the U.S. and benefit 
refineries in Europe, where there is currently excess refining 
capacity. In particular, if we export crude oil, we believe many of our 
refineries, particularly in the Northeast, will close. This will reduce 
our domestic supply of jet fuel and have a similar impact on prices as 
have recent, temporary supply interruptions in New York Harbor. Those 
interruptions impacted the jet crack, sometimes by 2 cpg ($0.84/bbl) of 
jet fuel. Assuming the same level of supply interruption, Delta's 
Trainer facility would be subject to an additional cost of $61 million 
per year. Other data, such as the data included in the Barclays study 
on crude exports, indicates the impact of a more permanent supply 
disruption to be closer to 7 cpg ($3/bbl), which would increase the 
negative impact on Delta to over $200 million per year.

   Is Delta at all concerned that domestic oil production will 
        exceed US demand and that producers will cut production if they 
        do not have access to all possible markets for their product?

    Answer. If the transportation infrastructure is in place, crude can 
get to the right refiner and there should be sufficient capacity within 
the US to absorb domestic oil production. To date, all the oil 
production coming out of Bakken and elsewhere has not been able to get 
to the appropriate refining centers, hence a dislocation in price. This 
is the result of an infrastructure problem, not a demand problem. In 
any case, multiple infrastructure projects are currently in progress 
and are due to come on line over the next two years, allowing the free 
flow of crude to the centers that can process it. Crude quality has 
been raised as an issue, but provided the economic driver (i.e. price) 
is there, the refineries can quickly adapt to handle this crude oil, 
and in fact many such projects are already in progress. Data shows 
there is an additional 425kbpd refining capacity being added, as well 
as more than 350 kbpd of condensate splitting capacity.
    Furthermore, production capacity will not be reduced while crude 
oil remains above $80/bbl. This is supported by a range of estimates 
available in the public domain for the break-even economics on US shale 
oil production. For instance:

    --$45-70/bbl--A Myers Jaffe, UC Davis, Jan 15, 2014
    --$60-80/bbl--T Kartevold, Statoil, Feb 2013

   It would seem that much like we have seen in the natural gas 
        sector, at some point, prices could drop to a level where it is 
        not in the producer's interest to continue drilling new wells. 
        Does Delta foresee such a scenario in its long term projections 
        or do you see oil prices remaining high enough to make it 
        profitable for producers to continue producing?

    Answer. The long term outlook for Brent crude oil price appears to 
be stable in the $100-$110/bbl range, with WTI some $8--$12/bbl below 
that. These ranges are in line with EIA's Energy Outlook forecasts. As 
stated above, domestic oil production will continue while WTI crude 
prices remain above $80/bbl. Moreover, the crude oil situation cannot 
be compared to the natural gas market, as we can produce more gas than 
we can consume domestically, whereas we are still a major importer of 
crude oil.
    Until exports were permitted, gas production simply matched 
consumption. Exporting natural gas was determined to be in the public 
interest as it was foreseen that exports would raise the cost of gas 
closer to levels sufficient to justify renewed production from ``dry'' 
gas wells (i.e. those that do not have associated NGL's) that were 
closed down due to the very low market price (at the time, around $3per 
mmBTU).
    This logic in fact supports our contention that crude exports will 
increase prices domestically, not reduce them. Unlike gas, US crude 
oil:

    --Is insufficient to meet total US demand
    --Can displace imports of foreign waterborne crude
    --Is an unfinished product which can be upgraded to high-value 
            exportable finished products by US refineries, supporting 
            high paying jobs.
     Response of Graeme Burnett to Question From Senator Murkowski
    Question 1. The International Energy Agency states in its January 
2014 Oil Market Report: ``The growing volumes of light tight oil that 
cannot leave North America are increasingly posing a challenge to 
industry, putting the spotlight on the US crude oil export ban.'' Last 
year, the head of the IEA--Maria van der Hoeven--warned that the ban 
threatens production. Where, in as much detail as possible, do you 
believe the IEA's analysis is incorrect?
    Answer. The IEA report states that the ``Crude Wall'' can be 
avoided by, among other items, ``expansion of pipeline capacity, 
continued increases in refinery throughput and a change of refinery 
crude slates.'' While we believe their estimates of new refinery 
capacity are too low, we are in agreement with their overall logic. In 
addition, we believe that refinery feedstock conversion can happen 
relatively quickly with the right price driver, and that exports will 
be unnecessary to alleviate the Crude Wall. The following tables* 
indicate that capacity is being added, and more will follow.
---------------------------------------------------------------------------
    * Tables have been retained in committee files.
---------------------------------------------------------------------------
      Response of Graeme Burnett to Question From Senator Landrieu
    Question 1. Mr. Burnett, your company is in the unique position of 
being not only a purchaser and refiner of crude, but also a consumer-in 
essence; you represent the entirety of the lifecycle of crude past the 
upstream. In your testimony, you make the case that the current low 
price of U.S. produced light sweet crude allows your refinery, one of 
the roughly half in the country configured for that type of crude, to 
operate at a cost that allows Delta to procure jet fuel at a discount 
when compared to its competitors. You go on to argue that U.S. 
consumers benefit similarly, and point to a Barclays study that 
indicates lifting the ban could cost the U.S. billions. You also argue 
that this low cost light sweet crude is essential to keeping some 
refineries open, which I am sensitive to as it is also a major concern 
for Alon, an independent refinery in my state.

          a. Do you foresee a way in which U.S. refiners such as 
        yourself could remain competitive if crude exports are allowed?

    Answer. Merchant refiners that are not part of an integrated supply 
chain such as Trainer/Delta will not be sustainable if the ban is 
lifted and domestic crude prices approach international crude prices. A 
narrowing of the WTI-Brent spread by $4/bbl will threaten approximately 
1 million barrels of US refining capacity with closure, with the 
resulting loss of jobs and economic fallout for the neighborhoods in 
which they are located.

          b. Is there a divide between smaller and larger refiners that 
        determines who is able to remain competitive in a market with 
        U.S. export by virtue of either greater volume or more 
        efficient production?

    Answer. There are two factors for viability--one is economy of 
scale (size), the other is location (proximity to the feedstock). As 
you can see from the net cash margin curve above, most of PADD I (East 
Coast) refineries are less competitive due to both location and 
complexity. Some PADD III (Gulf Coast) refineries are also threatened; 
assuming these Gulf Coast refineries are well located for supply, the 
threat comes from lack of economy of scale/complexity.

          c. While it does not directly apply to your refinery in the 
        Northeast, Ms. Myers Jaffe points out in her testimony that 
        wholesale gas prices in the Midwest, an area with refineries 
        with direct access to U.S. light sweet crude, did not vary 
        greatly from wholesale gas prices in the Gulf Coast, an area 
        that is much more closely tied to global oil prices. This seems 
        to indicate that because gasoline and refined products are 
        freely traded on the global market, unlike U.S. crude, they are 
        much more closely related to global oil prices. Do you see this 
        same interplay at your Monroe facility-that is; do you sell 
        refined products into the open market at wholesale rates close 
        to the world average, or at a reduced rate?

    Answer. There are indeed links between product prices in the US and 
global oil prices, but there is further complexity. Refined product 
price drivers include:

          1. Crude oil prices
          2. Crude oil transportation infrastructure and cost
          3. Product specifications
          4. Product transportation infrastructure and cost
          5. Balance between product supply and demand, impacted by

                  a. Global refinery utilization
                  b. Product inventory levels

    Product prices in the New York Harbor market (where Trainer sells 
its products) follow the price drivers listed above, and are linked to 
the international market, either by import parity or export parity, 
depending on the arbitrage at any point in time. Marine logistics 
costs, duties and taxes also have to be taken into account of course, 
when comparing product prices from one region to another.

          d. Additionally, you contend that U.S. refineries depend on 
        this price spread to remain open-and again, I am certainly 
        sensitive to that. However, with such a large amount of light 
        sweet crude being produced, it would seem unlikely that a 
        shortage is your concern; rather, your concern is that prices 
        could increase to match the world market, undoing an important 
        advantage. Do you believe that the ``tyranny of distance'' that 
        Ms. Myers Jaffe references-simply, the cost benefit to being 
        close to the production you draw from-could provide these 
        refineries with the competitive edge they require to remain 
        profitable?

    Answer. If exports are allowed, crude oil prices will rise to 
international levels. Domestic barrels would be priced at export parity 
rather than import parity, so there will still be a differential 
between domestic and imported barrels due to geography, but greatly 
reduced from current levels. Refineries operate on slim margins, and if 
the crude price differential were to narrow from $11/bbl (stated in my 
testimony) to say $5/bbl, approximately 1 to 1.5 million barrels of 
refining capacity would close in the US. Typically, those most 
threatened would be the smaller, less complex refineries, predominantly 
in the Northeast where logistics costs are higher.
      Response of Graeme Burnett to Question From Senator Barrasso
    Question 1. In your testimony, you state that Delta Air Lines: 
``believe[s] strongly that the ban on U.S. crude oil exports is good 
policy.'' However, I also understand that Delta supports continued 
growth in U.S. crude oil production. Last week, the International 
Energy Agency (IEA) warned that the ban on crude oil exports could slow 
the growth in U.S. crude oil production. As you know, the IEA is an 
independent organization that works on behalf of 28 oil-consuming 
nations, including the United States.

          A. Do you agree with the IEA's assessment made in the January 
        2014 Oil Market Report?

    Answer. The IEA assessment correctly identified certain elements 
that need to be in place in order not to hinder oil production, the 
most important being infrastructure. The lack of infrastructure has 
caused a price dislocation that wouldn't change with or without 
exports, as the crude cannot get to market. However, this situation is 
being rapidly addressed, and bottlenecks will be eliminated within two 
years. Once the infrastructure is fully in place, there is sufficient 
refining capacity within the US to handle the crude, although some 
investment may be needed in heavy crude refineries to maximize light 
crude capability. These modifications are also in progress, as the 
price driver is sufficient to encourage US refiners to process domestic 
crude.

          B. Would Delta support lifting the ban on crude oil exports 
        if the ban slows the growth in U.S. crude oil production?

    Answer. Delta does not believe that the ban will slow production at 
current crude pricing levels.
      Responses of Graeme Burnett to Questions From Senator Flake
    Question 1. This hearing produced much discussion about the 
existence of a global price for crude oil and refined petroleum 
products such as gasoline. To that point, the Energy Information 
Administration (EIA) has suggested that the price for these products is 
``driven by the international market'' subject to short term 
fluctuations in the supply chain, including regional price adjustments. 
Do you believe that the price for crude oil and refined products such 
as gasoline is set by the global markets? Please include an explanation 
of the support for your position.
    Answer. The price for crude oil is not set by global markets. OPEC 
has the ability to modify the supply side of the equation to raise 
prices. See the chart below.* It is a cartel, and its sole raison 
d'etre is to control crude oil prices and preserve their own domestic 
economies.
---------------------------------------------------------------------------
    * Graphic has been retained in committee files.
---------------------------------------------------------------------------
    OPEC controls 40% of the market. Most Middle East producing 
countries require a crude price of $100/bbl or higher to balance their 
fiscal and current account budgets, as shown in the IMF table below.*
    Question 2. If you believe, those prices are set by global markets, 
does that mean that the ``domestic'' crude oil discount (i.e., the 
lower input cost for refiners using domestic crude) that you suggested 
during the hearing has been retained by the refiners, as opposed to 
being passed along to consumers? Or, do you believe that the purported 
domestic crude oil discount, which you estimated as an $11 cost 
advantage to U.S. consumers, is reflected in current domestic gasoline 
prices?
    Answer. The price differential, estimated at $11/bbl, is absorbed 
by different players in the value chain. The lions share $6-7/bbl 
currently goes to the mid stream companies and railroads that have the 
logistics to transport the crude. Approximately $1-2/bbl goes to the US 
domestic refining industry, and the remainder is passed on to the 
consumer. Barclays estimated the consumer discount at $3/bbl ( 7 cpg)

                                  [all]
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