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S. HRG. 114–763 

AMERICAN ENERGY EXPORTS: OPPORTUNITIES 

FOR U.S. ALLIES AND U.S. NATIONAL SECURITY 

HEARING 

BEFORE THE

SUBCOMMITTEE ON MULTILATERAL 

INTERNATIONAL DEVELOPMENT, MUTILATERAL, 

INSTITUTIONS, AND INTERNATIONAL ECONOMIC, 

ENERGY, AND ENVIRONMENTAL POLICY 

OF THE

COMMITTEE ON FOREIGN RELATIONS 

UNITED STATES SENATE 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

JUNE 23, 2015 

Printed for the use of the Committee on Foreign Relations 

( 

Available via the World Wide Web: http://www.gpo.gov/fdsys/ 

FOREI-MBP-19 with DISTILLER

COMMITTEE ON FOREIGN RELATIONS

BOB CORKER, TENNESSEE, Chairman

JAMES E. RISCH, Idaho 

MARCO RUBIO, Florida 

RON JOHNSON, Wisconsin 

JEFF FLAKE, Arizona 

CORY GARDNER, Colorado 

DAVID PERDUE, Georgia 

JOHNNY ISAKSON, Georgia 

RAND PAUL, Kentucky 

JOHN BARRASSO, Wyoming 

BENJAMIN L. CARDIN, Maryland 

BARBARA BOXER, California 

ROBERT MENENDEZ, New Jersey 

JEANNE SHAHEEN, New Hampshire 

CHRISTOPHER A. COONS, Delaware 

TOM UDALL, New Mexico 

CHRISTOPHER MURPHY, Connecticut 

TIM KAINE, Virginia 

EDWARD J. MARKEY, Massachusetts 

LESTER MUNSON, Staff Director

JODI B. HERMAN, Democratic Staff Director

JOHN DUTTON, Chief Clerk

——————

SUBCOMMITTEE ON MULTILATERAL INTERNATIONAL

DEVELOPMENT, MULTILATERAL INSTITUTIONS,

AND INTERNATIONAL ECONOMIC, ENERGY, AND

ENVIRONMENTAL POLICY

JOHN BARRASSO, Wyoming, Chairman

DAVID PERDUE, Georgia 

JAMES E. RISCH, Idaho 

JEFF FLAKE, Arizona 

CORY GARDNER, Colorado 

TOM UDALL, New Mexico 

BARBARA BOXER, California 

JEANNE SHAHEEN, New Hampshire 

EDWARD J. MARKEY, Massachusetts 

(II)

FOREI-MBP-19 with DISTILLER

C O N T E N T S 

Page 

Hon. John Barrasso, U.S. Senator From Wyoming .............................................. 1 

Hon. Tom Udall, U.S. Senator From New Mexico ................................................ 2 

Robert McNally, President, The Rapidan Group, LLC, Bethesda, MD ............... 4 

Prepared Statement ......................................................................................... 6 

David Gordon, Ph.D., Senior Advisor, Eurasia Group, Adjunct Senior Fellow, 

Center for a New American Security, Washington, DC .................................... 13 

Prepared Statement ......................................................................................... 15 

Jamie Webster, Senior Director, IHS Energy, IHS, Washington, DC ................. 18 

Prepared Statement ......................................................................................... 19 

CDR Kirk S. Lippold, USN (Ret.), President, Lippold Strategies, LLC, 

Alexandria, VA ..................................................................................................... 22 

Prepared Statement ......................................................................................... 24 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

The Oil-Export Ban Harms National Security ............................................... 43 

William S. Cohen: Why President Obama Should Export Crude Oil .......... 44 

(III)

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FOREI-MBP-19 with DISTILLER

(1) 

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

SECURITY 

TUESDAY, JUNE 23, 2015 

U.S. SENATE, SUBCOMMITTEE ON MULTILATERAL INTERNATIONAL DEVELOPMENT, MULTILATERAL INSTITUTIONS, AND INTERNATIONAL ECONOMIC, ENERGY, AND

ENVIRONMENTAL POLICY, COMMITTEE ON FOREIGN

RELATIONS, 

Washington, DC. 

The subcommittee met, pursuant to notice, at 2:47 p.m., in room 

SD–419, Dirksen Senate Office Building, Hon. John Barrasso 

(chairman of the subcommittee) presiding. 

Present: Senators Barrasso, Gardner, Udall, Shaheen, and 

Markey. 

OPENING STATEMENT OF HON. JOHN BARRASSO, 

U.S. SENATOR FROM WYOMING 

Senator BARRASSO. Good afternoon. I would like to call order this 

hearing of the subcommittee of the Senate Foreign Relations Committee. Our hearing this afternoon is titled ‘‘American Energy Exports: Opportunities for U.S. Allies and U.S. National Security.’’ 

During my time in the Senate, I have focused on improving energy security of our Nation as well as our allies across the world. 

The United States recently became the world’s largest oil and natural gas producer. As a result, the United States has a rare opportunity to simultaneously support our allies, reduce our trade deficit, and create much-needed jobs here at home. It can all be done 

through American energy exports. 

U.S. exports of our natural gas, our oil, and our coal provide opportunities to advance our foreign policy objectives and strengthen 

our national security. Our Nation can help countries diversify their 

energy imports away from countries like Iran, Russia, and Venezuela. The administration and Congress need to focus on energy 

and take the steps required to eliminate barriers for exports of 

American natural gas, oil, and coal. 

One good example of how the United States can assist our allies 

and partners through U.S. energy resources is the current situation 

in Europe. Many of our European allies import more than 80 percent of their natural gas from Russia, with some importing as 

much as 100 percent. While in the past Russia controlled the nations of Eastern Europe through military force, Russia now seeks 

to control them economically. Russia is able to use its energy reFOREI-MBP-19 with DISTILLER

2 

sources to manipulate and threaten countries in Eastern Europe 

because of their dependency on Russia’s natural gas. Countries are 

asking America to increase exports in order to help reduce the 

threat Russia proposes to Europe by offering an alternative source 

of natural gas. Every molecule of American natural gas that makes 

it into the world’s market is going to be a molecule that cannot be 

used by Russia to hold countries in Europe hostage. 

In July 2014, Ukrainian President Poroshenko wrote an article 

in the Washington Post asking for the United States to help 

Ukraine and respond to Russia. He said, ‘‘We need U.S. natural gas 

to shore up our energy supplies so that we cannot be blackmailed 

by Moscow. We need a reliable partner and ally to help fuel our 

nation.’’ 

Four of our allies in Europe—Hungary, Poland, Slovakia, and the 

Czech Republic—have asked the United States to increase exports 

to help blunt Moscow’s influence. These countries know what Russia aggression looks like, and they are asking for our help. It is 

time for the United States to take the needed steps to help expedite U.S. natural resources. 

The geopolitical benefits of U.S. energy exports are not limited 

to Europe. Whether we talk about the United States being an alternative to Iran’s crude oil exports for countries like China, India, 

Japan, or South Korea, which would help cut off a vital supply of 

funding to the Iranian regime, or the United States supplying natural gas to help boost economic development for countries in the 

Western Hemisphere dealing with the uncertainty of Venezuela’s 

energy exports and subsidies, or the United States strengthening 

engagement in trade with East Asian nations, U.S. energy exports 

can provide important national security benefits and strengthen 

America’s foreign policy leadership across the globe. 

Over the last several years, I have introduced legislative initiatives aimed at making it easier to export American natural gas to 

our allies overseas. Earlier this year, I introduced S. 33, the LNG 

Permitting Certainty and Transparency Act. This bipartisan bill 

expedites the permitting process for LNG exports by requiring the 

Secretary of Energy to make a final decision on an export application within 45 days after the Federal Energy Regulatory Commission completes the environmental review process. I am also cosponsor of S. 1312, introduced by Senator Murkowski, to repeal the ban 

on exports of domestic crude oil. Through these efforts and many 

others, I continue to work to remove barriers and increase exports 

of American natural gas, oil, and coal. 

I will now turn to the ranking member, Senator Udall, so he can 

offer his opening remarks. 

OPENING STATEMENT OF HON. TOM UDALL, 

U.S. SENATOR FROM NEW MEXICO 

Senator UDALL. Thank you very much, Chairman Barrasso, and 

thank you for scheduling this hearing. 

I would like to add a few thoughts about the importance of this 

hearing. This is a very timely topic, and one where I think members with varying views will benefit from our panel today. 

Making a decision about increasing exports of liquified natural 

gas and crude is not as simple as it sounds. Ten years ago, ConFOREI-MBP-19 with DISTILLER

3 

gress was holding hearings about the need for the United States 

to import natural gas. And our oil dependence seemed hopeless. 

Now we face an abundance of natural gas and growing domestic oil 

production, both nationwide and in my home State of New Mexico. 

Energy exports could lead to more jobs and revenue for States like 

New Mexico and Wyoming. For natural gas, we are now projected 

to have enough supplies to meet domestic needs for a century, and 

there is a great demand for LNG from our allies, such as Japan 

and Europe. If we are going to break the Russian stranglehold on 

energy in Eastern Europe, then we should seriously consider taking 

the steps to export LNG. I do not claim it is a quick and easy solution, but I do believe it is a valuable tool. 

For these reasons, I am pleased to join our subcommittee chairman on this legislation to improve the DOE permit process for 

LNG exports, to avoid unnecessary delays for LNG export applications at facilities that have already received environmental approvals. 

But, the resources we have—the resources we may export are 

also important for the United States and our ability to grow our 

economy and maintain our energy security. Keeping prices stable 

enables middle-class Americans to not only fill the tank and balance their budgets, but enables American manufacturing and ensures that our military can respond anywhere in the world to protect our national interests. With ongoing turmoil and war in the 

Middle East going back many decades, we must understand that 

there is a direct link between our energy policy and our national 

security. Before we make changes, especially with regards to crude 

oil, we should understand how proposed changes may impact our 

national security interests. 

Today, the United States Armed Forces—in particular, the 

Navy—are always on patrol to prevent disruptions in our global energy supply chain. We must be cognizant that our servicemembers 

are in harm’s way overseas as we make decision whether to permit 

the export of crude oil. Today, the United States can already export 

refined oil products, such as gasoline, diesel, and other oil products. 

However, because of increased crude production in the United 

States and a refining capacity that is not currently designed to support all the types of domestic crude entering the market, there is 

an economic question of whether this crude should be allowed to 

be exported. I believe there are strong arguments on each side regarding the question of crude exports, and I hope to learn more 

throughout the hearing. 

Some of the questions I hope might be addressed include how 

this decision will impact U.S. national security. Who has the refining capacity for our crude exports? How will this decision impact 

States and communities who extract oil? Are our refineries beginning the process of investing in infrastructure to refine more of this 

crude oil here in the United States? 

In addition, I think we also need to take a hard look at how our 

energy policies interact with our environmental policies and impact 

our ability to limit global climate change. Climate change is real, 

and it is already beginning to have national security implications 

across the globe. In fact, there has been—a fact that has been confirmed by the Pentagon and stressed in numerous policy studies, 

FOREI-MBP-19 with DISTILLER

4 

including the Quadrennial Defense Review. Climate impacts the 

countries and people who have the least resources, threatening the 

very fabric of society in many developing countries. So, we should 

also consider whether policies to encourage or allow U.S. LNG or 

crude exports are likely to improve or worsen global emissions. 

LNG is likely to displace coal or oil use for power generation when 

exported, but the question on crude is more uncertain. 

With that, Chairman Barrasso, I am eager to hear from all our 

witnesses today. They are an expert and distinguished panel. 

I would like to thank Commander Lippold for being able to join 

us on relatively short notice. 

And I am looking forward to a good hearing. 

Senator BARRASSO. Thank you very much, Senator Udall. 

At this point, I would like to welcome all of our witnesses. I know 

you have very busy schedules. I appreciate all of you being with us 

today to share your thoughts on American energy exports. 

Joining us this afternoon on this panel is Robert McNally, the 

president of The Rapidan Group; Mr. David Gordon, senior advisor 

of the Eurasia Group and adjunct senior fellow for the Center for 

a New American Security; Mr. Jamie Webster, the senior director 

of IHS Energy; and Commander Lippold, president of Lippold 

Strategies. 

So, I want to thank you again for making time to share your 

thoughts and your insights. Your full statement will be entered 

into the record without objection, and I would ask you to summarize it, if you could, in 5 minutes in order for the members to have 

an opportunity to ask questions. 

Mr. McNally, we would like to start with you. 

STATEMENT OF ROBERT MCNALLY, PRESIDENT, 

THE RAPIDAN GROUP, LLC, BETHESDA, MD 

Mr. MCNALLY. Chairman Barrasso, Ranking Member Udall, 

members of the committee, my name is Robert McNally, and I head 

The Rapidan Group, an independent energy consulting firm based 

in Bethesda, MD. It is an honor to share my personal views with 

you today about the role of U.S. energy exports and strengthening 

our foreign policy and national security. 

As a former practitioner of energy security policy while on the 

White House National Security Council and with nearly two and a 

half decades analyzing energy markets and policy, may I express 

my appreciation to you and your colleagues in Congress, of both 

parties, for your work in recent years in energy exports. Exports 

like the gas boom itself appeared to come quickly and out of nowhere. Congress has showed leadership and alacrity in ensuring 

the boom serves our foreign policy objectives. 

We have some good history here. We were as much an arsenal 

of energy as an arsenal of democracy during World War II, supplying 6 out of the 7 billion barrels used by the allies to prevail in 

that conflict. And, even after our net crude oil imports started rising after the 1950s, we made extra supplies available to allies 

when Middle East conflicts in 1956 and 1967 triggered disruptions. 

Everything changed for the worst in the 1970s, when we lost control of the global oil market and reeled from soaring imports and 

prices. For the next 40 years, our energy and national security polFOREI-MBP-19 with DISTILLER

5 

icy stemmed largely from fears of major supply interruptions to 

ourselves and our allies. But, thanks to American ingenuity, sweat, 

and risk-taking, those days are over. Twelve years ago, we all 

thought LNG imports would be soaring like crude oil, but, after the 

shale gas revolution raised proved reserves by 77 percent, we are 

now on track to become a net gas exporter by 2017. 

Meanwhile, crude oil production in the United States rose from 

5 million barrels a day in 2006 to 9.4 million barrels a day in the 

first quarter of this year. Our import dependence is down from 60 

to 24 percent. We are the world’s largest liquids producer. 

The economic benefits of our—for our consumers, businesses, and 

public sector are well analyzed and extolled by a broad spectrum 

of officials, experts, think tanks, and leading journals. Your subject 

today, Mr. Chairman, and the focus of my remarks, concerns national security. 

The shale gas boom directly help our European allies by giving 

them bargaining leverage with their main supplier, Russia. We 

first helped by backing out imports of LNG that we no longer needed, making them available for Europe. Then, with congressional encouragement, the Department of Energy streamlined and accelerated the process of approving LNG facilities for non-FTA countries 

like our strong ally, Japan. As a result, without having yet exported one molecule of LNG, our allies in Europe and Japan have 

already enjoyed much greater bargaining power when they face 

Russia. Just having the option to buy U.S. gas strengthens the bargaining power of our allies when they negotiate. For example, last 

December, Lithuania brought on a new terminal, LNG import terminal, the Independence. Gazprom has to lower its prices by 20 

percent. 

Turning to oil, current policy allows the unrestricted export of refined products like gasoline, diesel, and liquid petroleum gas, but 

restricts crude oil exports to Canada and a few other limited circumstances. Amidst the panic 40 years ago, policymakers had imposed price controls and complemented them with a ban on crude 

oil and refined products. We did not want our controlled crude and 

products running away abroad to escape the price controls. But, the 

price controls were lifted in 1981. Someone forgot to lift the crude 

oil ban. No one paid attention, because, until recently, we had no 

reason to export crude. 

Today, the crude oil ban is not just an anachronism, it is a threat 

to the boom, itself, due to a mismatch between the quality of 

crudes we produce and refine. It discriminates against U.S. oil producers, thereby threatening continued investment and production. 

In recent months, the industry has laid down rigs, let go workers, and cut investment spending in response to the collapse in 

global crude oil prices. The global oil market is not for the timid, 

and producers must roll with the punches. But, the last thing our 

producers need or deserve is regulatory discrimination that, if it 

had any valid purpose 40 years ago, no longer does today. Many 

studies and experts concluded consumers would benefit from lifting 

the crude oil ban. With regard to foreign policy, I would name a 

few of the benefits we would expect to derive: 

One, preserve and protect supply diversity. The oil market is 

global. A supply disruption anywhere transmits a price shock evFOREI-MBP-19 with DISTILLER

6 

erywhere, including here. Unfortunately, two-thirds of the global 

proven reserves lie in the Middle East. Forty percent of oil flows 

through the Strait of Hormuz—traded oil—flows through the Strait 

of Hormuz. The more we can get from outside, the better. 

Second, reduce oil price volatility and, thereby, protect economic 

stability at home and abroad. 

Third, practice what we preach on free trade. We are the only advanced country that bans crude oil exports. The ban contradicts our 

attempt to promote free trade and open markets, especially in energy and strategic commodities that are produced and sourced globally. 

Fourth, finally, help achieve national security priorities, especially regarding Iran’s nuclear ambitions. Without our oil boom, 

disruptions in recent years would have caused oil prices to skyrocket, making sanctions against Iran’s crude oil exports difficult, 

if not impossible. Looking ahead, if a deal is struck, Tehran would 

resume export of oils while our producers remained shackled. As 

Senator Murkowski said in April, ‘‘We should not lift sanctions on 

Iranian oil while keeping sanctions on American oil. It makes no 

sense.’’ If nuclear talks fail or Iran cheats, we may ask for continued or further import cuts from our allies in Europe and Asia, 

whose refineries are well suited to our oil. It would be neither fair 

nor responsible to do so without offering them access to our supply. 

In conclusion, Mr. Chairman, Congress and the administration 

have worked successfully so far to leverage our natural gas boom 

to aid our allies and promote U.S. foreign policy. I urge you to continue to complete the job with regard to crude oil so that the blessings of our energy boom can extend from our consumers and economy to our allies and foreign policy interests around the globe. 

Thank you, sir. 

[The prepared statement of Mr. McNally follows:] 

PREPARED STATEMENT OF ROBERT MCNALLY

Chairman Barrasso, Ranking Member Udall, and members of the committee, my 

name is Robert McNally and I am the president and founder of The Rapidan Group, 

an independent energy market, policy, and geopolitical consulting firm based in 

Bethesda, MD. It is an honor to speak with you today about the role of U.S. energy 

exports in strengthening our foreign policy and national security, particularly by 

assisting our allies, many of whom contend with much more challenging energy 

security situations than ours. 

Oil and natural gas are the lifeblood of modern civilization. Their abundance and 

affordability are prerequisites for thriving economic growth, high living standards, 

and ample employment. They are also an essential requirement for our national 

security. U.S. foreign policy has historically benefited from our strong position as 

a producer and exporter of energy. While we were known as the ‘‘Arsenal of Democracy’’ during World War II, we were equally an ‘‘Arsenal of Energy,’’ supplying 

nearly six out of seven barrels consumed by the allies.1 Even after net crude imports 

began rising steadily after the war, our control of spare production capacity enabled 

us to supply our allies and prevent economically damaging price spikes that would 

have resulted due to oil supply disruptions associated with Middle East conflicts in 

1956 and 1967. 

But after the energy, geopolitical, and economic convulsions of the 1970s, our confidence in our domestic abundance and control shifted to apprehension about 

dependence and vulnerability. For the past 40 years our foreign and national security policy planning has prioritized preparing against supply interruptions and price 

spikes, protecting Middle East oil fields from hostile control, and protecting the supply lines between the region and global markets. 

In this respect, the tremendous and unexpected boom in domestic oil and gas production in recent years is an enormous blessing for our country. In the last 10 years, 

FOREI-MBP-19 with DISTILLER

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our net oil imports fell from 12.5 mb/d to 5 mb/d (in the first quarter of 2015) or 

from 60 percent to 24 percent of supply.2 For the first time since the 1950s, most 

official projections see U.S. net energy imports, which includes all fuels, declining 

and eventually ending.3 Our newfound abundance does not mean we can ignore the 

Middle East, which holds nearly half of the world’s proven oil reserves and supplies 

one-third of global production. That region will remain a source of potential price 

and supply shocks, and its stability will therefore remain a vital national interest. 

But our domestic boom does confer enormous benefits and requires that we change 

our thinking about energy. 

The economic benefits of our energy boom to our consumers, businesses, and public sector have been extensively analyzed and extolled by a broad spectrum of officials, experts, think tanks and leading journals. They include higher domestic supply, lower gasoline prices, and stronger GDP growth and are summarized in the 

appendix below from Columbia University’s Center on Global Energy Policy, where 

I am a nonresident fellow. 

Your subject today, and the focus of my remarks, concerns the national security 

benefits of U.S. energy exports. To summarize at the outset, those include: 

1. Strengthening our influence and leadership position with allies and our leverage vis-a-vis adversaries by reducing our dependence on energy imports and enhancing our national economic and geopolitical vitality. 

2. Adding a new, stable, and relatively flexible source to the global supply pool, 

which reduces price volatility and thereby supports our own economic growth and 

that of our allies. 

3. Offering allies and friends alternative supplies and the economic leverage it 

affords them in their negotiations with energy exporters like Russia. 

4. Supporting our top foreign policy goals such as enabling oil export sanctions 

against Iran to be implemented without triggering economically harmful price 

increases. 

5. Bolstering U.S. leadership in the cause of free and open markets. 

NATURAL GAS

While much attention is paid to the spectacular turnaround in our oil supply and 

imports, it is worth remembering our need for imported liquefied natural gas (LNG) 

underwent a similar and surprising transition. Between 2002 and 2007 our LNG imports had more than tripled, and officials were expecting another doubling. We were 

building terminals to import from suppliers like Qatar and Russia. But after the 

shale gas revolution increased proven reserves by 77 percent from 200 billion cubic 

feet (bcf) in 2004 to 354 bcf last year, we are now on track to become a net natural 

gas exporter by 2017, according to EIA. 

The U.S. shale gas boom directly helped our European allies by giving them bargaining leverage with their main supplier, Russia. We helped first by backing out 

LNG imports, making them available for our allies, particularly in Europe. Then, 

as we began approving and reconfiguring facilities to export LNG, Moscow was 

forced to accept lower and more flexible prices on its sales to European customers. 

The foreign policy benefits of LNG exports quickly became apparent to our leaders. In early 2013, then National Security Advisor Tom Donilon said the U.S. has 

‘‘a strong interest in a world natural gas market that is well supplied, diverse, and 

efficiently priced. Increased U.S. and global natural gas production can enhance 

diversity of supply, help delink gas prices from expensive oil indexed contracts, 

weaken control by traditional dominant natural gas suppliers, and encourage fuel 

switching from oil and coal to natural gas.’’ 4

Foreign policy was a factor in DOE’s consideration of LNG export facilities for 

non-FTA countries. Last April, shortly after Russia’s aggression against Ukraine, 

then DOE Principal Deputy Assistant Secretary for Fossil Energy Chris Smith testified to the House Foreign Affairs Committee that his agency considers international 

factors as part of the public interest determination, among many other domestic factors, noting ‘‘of course, we are monitoring the situation in Europe very closely, and 

we certainly take energy security of our allies very seriously. We have taken recent 

global events into account in making decisions in recent applications.’’ 5

It is important to realize that we need not export large quantities of gas to benefit 

from a foreign policy standpoint. Just having the option to buy from the U.S. 

strengthens the bargaining power of our allies when they negotiate long-term contract prices with suppliers like Russia. Last December, Lithuania opened a costly 

LNG import terminal, an example of an ally willing to pay a security premium for 

diversified source of supply. Lithuania’s new terminal forced Gazprom to drop its 

prices to Lithuania, reportedly by 20 percent.6

FOREI-MBP-19 with DISTILLER

8 

Our willingness to export LNG also reduces future uncertainty and enhances contingency planning. It is impossible to predict every future economic and security 

challenge our allies or we will face, but knowing that trade links remain open constitutes a substantial source of support to planners and decisionmakers when unforeseen challenges and crises occur. 

The U.S. policy of exporting natural gas also helps allies contending with challenges that are foreseeable. For example, longer term, experts believe Europe’s 

ability to significantly wean itself from very high dependence on Russian pipeline 

gas, particularly highly dependent Baltic and southeast European states, will rely 

largely on LNG providers (including the U.S.) and to a lesser extent new pipeline 

gas from Azerbaijan.7 For those countries renegotiating long-term contracts with 

Russia and constructing LNG import facilities, continued willingness by the U.S. to 

export LNG is paramount. Russia will always be a major gas supplier to Europe, 

but Moscow’s ability to dictate prices will erode as the market becomes more diverse 

and liquid, partly due to our ability and willingness to export LNG. 

For these reasons, our allies asked for access to our natural gas. Former Obama 

administration National Security Advisor, Tom Donilon, noted in 2013 ‘‘[m]any of 

our allies have expressed interest in the potential of the United States as a global 

natural gas supplier’’ and the leaders of Japan and India have requested access to 

U.S. LNG supplies during their visits to Washington.8 In the case of Japan, our willingness to build and construct LNG export facilities provided substantial moral support and leverage during a time when the country was reeling from the consequences of the March 2011 Fukushima disaster, which led to a shutdown of the 

nation’s nuclear plants and triggered large increases in LNG imports. EIA reported 

Japan is currently able to supply only 9 percent of its total energy needs from 

domestic sources, down from 20 percent before the Fukushima disaster. Japan is the 

world’s largest LNG importer, second-largest coal importer, and third-largest net 

importer of crude and products. With more than 30 percent of the world’s LNG passing through the Strait of Hormuz, Japan is naturally anxious to diversify its imports 

of LNG, and over the medium to long term will add supplies from the U.S. So far, 

the U.S. Department of Energy has granted final approval to 7 LNG export projects 

for non-FTA countries such as Japan.9

CRUDE OIL

Since 1975, U.S. law has prohibited the export of domestic crude oil, except to 

Canada and in other limited circumstances. The crude oil export ban was enacted 

just after we lost control of the oil market and were reeling from soaring oil prices 

and mounting import dependence. Policymakers had imposed domestic price controls 

and complemented them with an export ban on crude and refined products to prevent the loss of domestic supply to uncontrolled markets abroad. While price controls and the export ban on refined products were lifted in 1981, the crude oil ban 

oddly remained in place. But until the recent shale oil boom, the need to export oil 

never arose, so few paid much attention to the ban. 

As with natural gas, our oil circumstance has changed for the better. Once again 

the U.S. oil industry delivered a pleasant surprise by applying multistage hydraulic 

fracturing and horizontal drilling to unlock enormous new amounts of domestic 

energy. Thanks to American ingenuity, sweat, and risk-taking, U.S. crude oil production rose from 5 million barrels per day (mb/d) in late 2006 to 9.4 mb/d in the 

first quarter of 2015. Total petroleum and other liquids production are now 14.8 

mb/d, making the U.S. the largest liquids supplier in the world. 

The United States is and will remain a substantial crude importer. We import 

mainly heavy or dense crudes because our refineries were designed to process them. 

Half of our crude imports come from our friendly neighbors Canada and Mexico.10

But the shale oil boom has unlocked crudes of a lighter variety that are more suitable to refineries abroad. So it makes economic sense for the United States to export 

some of its light crude while continuing to import heavy crude. The fact that we 

import crude oil does not mean we should keep the ban in place. If we banned the 

export of commodities or goods that we also import, we would not allow the export 

of cars, food, steel, medical equipment, and many others. 

As noted above, and illustrated in the appendix below, many studies and experts 

have analyzed and discussed the economic benefits of lifting the ban. Our consumers would benefit from slightly lower pump prices, stronger economic growth, and 

higher employment. With regard to foreign policy, lifting the ban would confer the 

following benefits: 

1. Increase and diversify oil supply, thereby reassuring our allies about supply 

security. The oil market is global; a supply disruption anywhere transmits a price 

increase everywhere, including here. Unfortunately, as noted above, the lion’s share 

FOREI-MBP-19 with DISTILLER

9 

of global proven oil reserves is located in the unstable Middle East. Some 40 percent 

of traded oil flows through the Strait of Hormuz. Therefore, every barrel we can 

source from elsewhere adds more than just 42 gallons of new liquid to the global 

pool, it also enhances security by diversifying supply. 

If the crude oil ban were lifted, the amount and destination of exports would 

depend on market factors. Like with natural gas, we need not physically export a 

lot of oil to derive benefits from being open to exports. In foreign policy, symbolism 

and signaling matter.11 ‘‘Many U.S. allies and trading partners are interested in 

purchasing American oil to diversify away from Russia, Iran, and other problematic 

sources,’’ Senator Murkowski noted on June 9, adding: ‘‘Allowing such shipments 

would send a powerful signal of support and reliability at a time of heightened geopolitical tensions in much of the world. The mere option to purchase U.S. oil would 

enhance the energy security of countries such as Poland, Belgium, the Netherlands, 

India, Japan, and South Korea, even if physical shipments did not occur.’’ 12 The EU 

depends on Russia for 28 percent of its crude and the Middle East for another 14 

percent. Iran, which had lost the 500–600 kb/d it used to supply to Europe due to 

sanctions, will likely try to recapture that market share after sanctions are lifted. 

Japan relies on the Middle East for over 80 percent of its crude imports.13 Japan 

has cut the share of oil it imports from Iran in half from 2012 to 2014, from about 

10 percent to 5 percent.14

2. Reduce oil price volatility and thereby protect economic stability at home and 

abroad. U.S. shale oil supply is more responsive to price swings than most other oil 

production, such as ultra-deep water or oil sands. Due to relatively high decline 

rates and capital intensity, shale oil production responds to price changes in months 

to quarters whereas other supply takes several years or more. The increased flexibility lowers the volatility of oil prices and thereby promotes economic stability. The 

U.S. will not replace OPEC spare capacity, which consists of supply available within 

30 days.15 But shale oil does increase the flexibility of the supply system. 

3. Strengthen U.S. influence and leverage internationally, especially in the case 

of Iran. Ambassador Carlos Pascual, who until recently was the Obama administration’s lead international energy policy negotiator, testified to your committee that 

from his experience he had ‘‘seen that lifting the export ban would increase U.S. 

leverage in convincing international partners to adopt policies that mirror U.S. interests on Iran, Russia, free trade, and even the environment.’’ 16

Iran constitutes a good recent example of how the U.S. oil boom has contributed 

to our energy security while also spotlighting the need to remove the export ban. 

The unexpected increase in U.S. oil production by some 3.7 mb/d between 2008 and 

2014 was fortuitously timed. It coincided with the loss of roughly 3 mb/d of disrupted global supply, particularly from Libya due to civil war in 2011. The U.S. oil 

boom reduced our imports, freeing up barrels that could flow elsewhere, keeping a 

lid on oil prices everywhere. Without the U.S. supply surge, much higher oil prices 

would have resulted, dampening support for sanctioning Iran’s oil exports. 

However, as the Iran nuclear issue proceeds it would be in our interest to remove 

the crude oil ban. If a nuclear deal with Iran is struck, the U.S. and EU will lift 

restrictions on Iran’s ability to export oil. Meanwhile, the crude oil ban U.S. producers face will remain in place. While not intentional, an absurd juxtaposition 

would result. As Senator Murkowski said in April, ‘‘We should not lift sanctions on 

Iranian oil while keeping sanctions on American oil. It makes no sense.’’ 17

If nuclear talks fail or Iran cheats, sanctions on Iran’s oil exports may remain in 

place or be strengthened. We may ask the EU to retain its total embargo on Iranian 

imports, while asking the six remaining importers—including allies South Korea 

and Japan—to further reduce their purchases. These countries have refineries that 

are better suited to shale oil and would likely bid on U.S. crudes depending on market conditions. How could we ask our allies to further cut oil imports from Iran 

without making our own supplies available to them? 

4. Replace resource nationalism with free trade. We are the only advanced country that bans crude oil exports. Canada, the U.K., and Australia allow both crude 

imports and exports. The crude oil ban contradicts our attempt to promote free 

trade and open markets, especially in energy and other strategic commodities 

that are produced and sourced globally. To cite Ambassador Pascual again: 

‘‘[M]aintaining the ban increasingly undercuts U.S. credibility in its three-decades 

endeavor to persuade other nations to permit free flows of energy trade and not constrain trade in strategic commodities with political restrictions and resource nationalism. The United States, for instance, has launched numerous complaints under 

the WTO against China exactly because of these kinds of restrictions on natural 

resources that China imposes.’’ 18

FOREI-MBP-19 with DISTILLER

10 

CONCLUSIONS

The U.S. energy boom is a national security and foreign policy blessing. Our ability and will to export energy strengthens our global influence; reassures allies while 

giving them leverage with major producers like Russia; bolsters free trade, especially for strategic commodities; and reinforces efforts to dissuade Tehran from 

developing a nuclear weapons capability. As our energy circumstances have 

changed, so too should our energy policy. We benefit from free trade in natural gas 

and would do so from crude oil as well. Seizing the foreign policy benefits of energy 

exports is one of the few major issues today that enjoys bipartisan support, as exemplified by former Bush National Security Advisor Stephen Hadley and former 

Obama administration Defense Secretary Leon Panetta, who wrote: ‘‘Too often foreign-policy debates in America focus on issues such as how much military power 

should be deployed to the Middle East, whether the U.S. should provide arms to the 

Ukrainians, or what tougher economic sanctions should be imposed on Iran. Ignored 

is a powerful, nonlethal tool: America’s abundance of oil and natural gas. The U.S. 

remains the great arsenal of democracy. It should also be the great arsenal of 

energy.’’ 19

———————— 

End Notes 

1 ‘‘A History of the Petroleum Administration for War,’’ 1946, p. 1. 

2 June 2015 Short Term Energy Outlook, Table 4a. For historical data, see EIA. In 2005, total 

product supplied was 20.8 mb/d and net imports were 12.5 mb/d. 3http://www.eia.gov/pressroom/presentations/gruenspechtl06092015.pdf, slide 2. 4 April 24, 2013. https://www.whitehouse.gov/the-press-office/2013/04/24/remarks-tom-donilonnational-security-advisor-president-launch-columbia. 5http://www.gpo.gov/fdsys/pkg/CHRG-113hhrg88088/html/CHRG-113hhrg88088.htm. 

6http://mobile.reuters.com/article/idUSL5N0XA2YY20150413. 

7See graphic in the Appendix illustrating EU energy dependence on Russia. Reducing European Dependence on Russian Gas: Distinguishing natural gas security from geopolitics, Oxford 

Institute of Energy Studies, October, 2014. 8Tom Donilon’s speech at the Columbia Center on Global Energy Policy, April 24, 2013. 

9 Current status of project approvals by DOE is available at http://energy.gov/sites/prod/files/ 

2015/05/f22/Summary%20of%20LNG%20Export%20Applications.pdf. EIA noted: ‘‘Japan’s Chubu 

Electric and Osaka Gas signed preliminary agreements to import more than 100 Bcf/y each for 

20 years from Freeport LNG starting 2017, marking a potential reduction in the high LNG 

prices (cont.) that Japan currently pays. The companies also plan to acquire half of the assets 

of Freeport LNG’s first train. Sumitomo, Japan’s third-largest trading house, holds an agreement to buy 110 Bcf/y for 20 years from Cove Point LNG located on the U.S. East Coast and 

which received approval to export to non-FTA countries in September 2013. Sumitomo intends 

to sell the cargoes to Japanese utilities Tokyo Gas and Kansai Electric. In May 2013, Mitsubishi 

and Mitsui, Japan’s two largest trading companies, first ventured into the U.S. shale gas export 

market by purchasing a combined 33 percent equity share in the Cameron LNG project located 

in the Gulf of Mexico. The companies have agreements to purchase 384 Bcf/y, or two-thirds of 

the terminal’s export capacity that is expected to come online by 2017. Altogether, Japanese 

companies have secured about 1,000 Bcf/y in long-term volumes from the new U.S. terminals 

coming online by 2020.’’ 10 EIA data show the U.S. imported 7.3 mb/d of crude in 2014. Of the total, Canada supplied 

2.9 mb/d and Mexico 0.8 mb/d. 11http://ec.europa.eu/energy/sites/ener/files/documents/crude-oil-imports2014.zip. 12http://www.energy.senate.gov/public/index.cfm/files/serve?Filelid=86561761-6237-45a3- 

b41b-fe0bb976c32.2 13http://www.paj.gr.jp/english/statis/data/04/paj-4El201506.xls. 14 Ibid and http://www.bbc.com/news/world-asia-16523422. 15 IEA recently redefined spare capacity to include supply available within 90 days. EIA retains a 30 day definition. By historical standards, OPEC spare capacity—held almost entirely 

by Saudi Arabia—are low. While shale oil can reduce oil price volatility, it cannot eliminate it. 16http://www.energy.senate.gov/public/index.cfm/files/serve?Filelid=4c054551-8357-46fd-95e3- 

1eee2686aee1. 17http://www.energy.senate.gov/public/index.cfm/2015/4/sen-murkowski-calls-for-lifting-prohibition-on-crude-oil-exports. 18See footnote 8. 19http://www.wsj.com/articles/the-oil-export-ban-harms-national-security-1432076440. 

FOREI-MBP-19 with DISTILLER

11 

APPENDIX SUBMITTED WITH PREPARED STATEMENT 

FOREI-MBP-19 with DISTILLER


TI1e source for the following three figures is Columbia University Center for Global Energy Policy's 

January 20 15 study entitled "Navigating the U.S. Oil Export Debate," by Jason BordoiTand Trevor 

Houser. http:l/energypolicy.columbia.edu!on-the-record/navigating-us-oil-export-debate 

Figun: 15: lncn:ase in US crude production from lifting expor1 restrictions, 2015- 2025 

Million bld 

4A 

3~ ICF IHS NERA MAP I 

3J 2.5 

25 

~0 1.9 

GS' 

1.7 

15 1.3 u 1.0 _I u 

05 0.1 

0.4 

~ j OJ 

I I I I i J i .. .. ! § § t J J § 

t 

Source:: ICF, J HS, NERA. A.s)Kn lns itu ~. Goldm:m ~chs. :md Rhodium Group estimates. 

"2020 only. 

i 

t 

Figun: 15: lncn:asc in US crude production from lifting cxporl restriction•, 2015-2025 

Million b/d 

4J 

35 ICF IHS NERA MAP I 

3.0 2.5 

2.5 

2.0 

1J 

u 

05 0.1 

OJ 

J J .. .. .§ :ti> 

:r 

Source: ICF, IHS, NERA. A<p<n Institute. Goldm>n S.chs, and Rhodium Group estimates. 

"2020 only. 

! 

! 

£ 

GS" 
12 

FOREI-MBP-19 with DISTILLER


How Much Europe Depends on Russian Energy 

Current European tlnion sanctions ban the sale of certain oil industry technologies to Russia. But 

the situation is complicated by the union's reliance on imported Russian oil, which has not yet been 

restricted. UPOAT£0 Stp<tmbtr 2, ZOIJ RELATtD ARTICLE 

Square saze represe-nts. the total energy Imports 

into e3Cll eounby (excludin& intra·E.U. trade). 

' 

Blaekarea 

BRITAIN 

f!WlCE 

SP.\IN 

. 

.. SWEDEN II 

ESTONIA . 

69"" LATVIA DEtn.'.ARK • n-. - 10'\. • UTI<UAHIA · ·-

JUISlRIA 

9 % 

SlOVENIA -

24'- -

CROAT\\ 

34 .. -

ITALV SS2t>;Uoon 

• . CZECH REPUBLIC 

II SLOVAKIA 

S7.6 .,_ 

ROMANIA 

HU"GARY lim~ 

BULGARIA II 

GREECE 

.. POR~ l ..... -

Note: Luxembourg's Imports are too small to shOw. 

MALTA 

2% 

Source: Eurostat as published by Global Trade Information Services 

Prinled in The New York Times. September 2, 2014 

CVPRUS 

3'1. -
13 

Senator BARRASSO. Thank you very much, Mr. McNally. 

Mr. Gordon. 

STATEMENT OF DAVID GORDON, PH.D., SENIOR ADVISOR, 

EURASIA GROUP, ADJUNCT SENIOR FELLOW, CENTER FOR A 

NEW AMERICAN SECURITY, WASHINGTON, DC 

Dr. GORDON. Thank you very much, Mr. Chairman. I want to 

thank you and Senator Udall and members of the committee for 

the opportunity to testify before you today on how increased energy 

exports can advance U.S. foreign policy goals, assist our most important allies, and strengthen U.S. national security. I commend 

your initiative in holding this hearing on a very important opportunity that the United States has to enhance a new tool in our foreign policy arsenal. 

In a domestic market awash with oil and gas, keeping export restrictions in place discriminates against U.S. producers and threatens investment in new supply, thereby jeopardizing economic security and trade gains from the energy boom. Policymakers should 

streamline and speed up the process of licensing natural gas export 

projects and begin to lift the oil export ban to bring export policy 

in line with present market circumstances. 

The restrictions on U.S. energy exports were the outcome of bipartisan efforts and have been sustained over many decades by 

both Democratic and Republican administrations. It is not surprising, therefore, that calls for modernizing our export policies 

have also been bipartisan. 

President Obama’s Chief of Energy Diplomacy in the State Department, Carlos Pascual, who has recently left government, is now 

a leading proponent of lifting the restrictions on U.S. energy exports. Last month, writing in the Wall Street Journal, Obama’s 

former CIA Director and Secretary of Defense, Leon Panetta, and 

FOREI-MBP-19 with DISTILLER

14 

President Bush’s National Security Advisor, Steve Hadley, highlighted that, while the United States has broken free of its dependence on energy from unstable sources, our friends and allies, ‘‘do 

not enjoy the same degree of independence. The moment has 

come,’’ they write, ‘‘for the U.S. to deploy its oil and gas in support 

of its security interests around the world.’’ 

I want to spend the time allotted to me to explain how enhanced 

energy exports would support United States foreign policy goals in 

regards to Russia, East Asia, and Iran. 

A fundamental pillar in the current United States policy toward 

Russia is to degrade their ability to compete in the global energy 

markets. Liberalizing United States exports will constitute an important strategic act of support for our allies in Europe who are 

more threatened by Russian regional destabilization and have paid 

a much bigger economic cost by imposing sanctions on Russia than 

has the United States. Such a move would materially enhance the 

prospects for sustaining the transatlantic stance in support of continuing sanctions against Russia. 

Is this going to change Russia’s behavior quickly? No. Can it 

have an important impact over the long time? Absolutely. 

For East Asian consumer countries, more United States supply 

in the market would give them new opportunities to diversify away 

from increasingly unstable gulf and Russian oil and gas supplies. 

This will be true for all East Asian nations, including both our 

treaty allies in Northeast Asia and China. 

Energy security is one of the major drivers of China’s regional 

assertiveness. Policies that confer mutual benefit on the United 

States and the group of East Asian nations facing off as regional 

competitors should be priorities for the United States. This may 

help to weaken strategic intraregional competition by increasing 

the shared incentives for stable, efficient market activity. Enhancing stability in this neighborhood is directly in line with U.S. policy 

of rebalancing to Asia, will benefit our country, our allies, and all 

others who see their own stability tied to the future of this burgeoning region. Making China view the United States as an increasingly attractive economic partner is an important complement 

to our policy of sustaining our military strength in the Western Pacific. 

Finally, looking at Iran. One of the most important security benefits of the unconventional energy revolution what was its enabling 

of crippling oil sanctions against Iran without which Iran would 

not have come to the negotiating table over their nuclear program. 

While the outlines of a potential final agreement between Iran and 

the P5+1 are emerging, it is too early to assume success. U.S. policymakers need to enhance their ability to impose tough additional 

energy sanctions in the future. To prepare for the potential future 

imposition of sanctions, stimulating alternative oil supplies are 

going to be absolutely critical. If adversaries do not believe that the 

United States and its allies have the economic and political tolerance to cope with a self-imposed oil price increase which could 

occur if more sanctions pull more oil off the market, those adversaries may call our bluff. Furthermore, allies of the United States, 

many of whom have reluctantly gone along with energy sanctions 

in the past, may prove unwilling to participate in further energy 

FOREI-MBP-19 with DISTILLER

15 

sanctions unless the United States makes a serious effort to stimulate alternative oil supplies. Should the oil—should the P5+1 talks 

conclude successfully and oil sanctions on Iran are lifted, it is very 

much in the United States interest to minimize the benefit that 

this accrues to Iran. American producers want to compete with 

Iran. They should be allowed to do so. 

In conclusion, in a time when many questions about the role of 

the United States as a global energy player and a world leader are 

being heard, Washington has a unique opportunity to strengthen 

domestic economic growth, energy market stability, U.S. global 

leadership, and open trade relations. Removing the outdated and 

detrimental limits on the export of U.S. natural gas and crude oil 

will advance these goals. It will deepen our trading ties with strategic allies. It will improve the economic position and energy market stability of our Nation and partners abroad. Our closest allies 

in Europe and Asia have asked for greater access to U.S. oil and 

gas. Policymakers should embrace these benefits for our allies and 

ourselves, and liberalize our energy export rules. 

Thank you very, very much. 

[The prepared statement of Mr. Gordon follows:] 

PREPARED STATEMENT OF DAVID F. GORDON

Chairman Barrasso, Senator Udall, and members of the committee. Thank you 

very much for the opportunity to testify before you today on how increased energy 

exports can advance U.S. foreign policy goals, assist our most important allies, and 

strengthen U.S. national security. I commend your initiative in holding this hearing 

on a very important opportunity that the United States has to enhance a new tool 

in our foreign policy arsenal. 

The unconventional energy revolution in the United States is bringing about a 

new era of energy abundance and is reshaping our gas and oil industries, stimulating industrial output, and has the potential to dramatically enhance many of our 

global trading relationships. The energy revolution has powered our recent economic 

recovery, dramatically lowered our dependence on imported oil and gas, and reinforced the continued global primacy of the U.S. dollar. Additionally, it has helped 

to stabilize the global energy market during a period of record, sustained supply disruptions in the Middle East and elsewhere. By strengthening our global trading 

position and our economy—the engine of our national security—the energy revolution already has meaningfully advanced our security and the ability of the United 

States to lead on foreign affairs. 

Going forward, our remarkably productive, innovative, and resilient energy sector 

can deliver even further benefits to U.S. foreign policy and national security. However, these benefits will be limited if policymakers do not change antiquated export 

policies that limit U.S. energy resources from moving to markets overseas. 

In a domestic market awash with oil and gas, keeping export restrictions in place 

discriminates against U.S. producers and threatens investment in new supply, 

thereby jeopardizing economic, security, and trade gains from the energy boom. 

Policymakers should streamline and speed up the process of licensing natural gas 

export projects and begin to lift the oil export ban to bring export policy in line with 

present market circumstances. This will promote free trade and responsible growth 

in the sector, and enable the United States to reap the geopolitical advantages of 

having a larger and more flexible role in the global oil market that will directly support U.S. allies. 

The restrictions on U.S. energy exports was the outcome of a bipartisan effort, 

and has been sustained and supported by both Democratic and Republican administrations. However, it today’s abundant energy market supply conditions, these rules 

no longer make sense. And it is not surprising that calls for modernizing our export 

policies also have been bipartisan. Under President Obama, the State Department 

upgraded its energy diplomacy mission and tapped Carlos Pascual, former U.S. 

Ambassador to Ukraine and Mexico, to lead these efforts. Now out of government, 

Pascual is a leading proponent of lifting the restrictions on U.S. energy exports. 

Last month, writing in the Wall Street Journal, Obama’s former CIA Director and 

Secretary of Defense Leon Panetta and President Bush’s National Security Advisor 

FOREI-MBP-19 with DISTILLER

16 

Steve Hadley highlighted that while the United States has broken free of its 

dependence on energy from unstable sources, our friends and allies ‘‘do not enjoy 

the same degree of independence. The moment has come,’’ they write ‘‘for the U.S. 

to deploy its oil and gas in support of its security interests around the world.’’ 

NATIONAL SECURITY BENEFITS FROM ENERGY EXPORTS

Strengthening our Economy 

Expanding our energy exports will further strengthen the U.S. trade account, 

reduce our international indebtedness, and thus enhance the stature and ability of 

the United States to lead on international economic, strategic and defense matters. 

In an era of budget austerity, war fatigue, proliferating security challenges, and the 

expanding use of economic sanctions, a strong U.S. economy expands policy options 

beyond the more conventional diplomatic and military choices. It creates an opportunity to hone smarter and more creative tools to advance our national interests in 

the international arena. Additionally, a more favorable trade balance liberates the 

United States to consider international trade policies and international lending that 

could be constrained, including by some of our key economic partners, such as 

China, in a scenario of greater U.S. indebtedness. 

Increasing U.S. Attractiveness as a Trading Partner 

In addition to providing an economic boost at home, lifting the oil ban will accrue 

economic yields to our foreign trading partners. A U.S. energy export policy that 

allows the free flow of all energy commodities—including crude oil and not just condensate and refined products—will enable the United States and our trading partners to optimize trade in various kinds of energy commodities, depending on seasonal and regional demands. The greater diversity in energy commodity trading 

relationships will support greater energy market efficiencies, lower costs for consumers, limit risks from supply disruptions, and promote greater economic growth. 

These factors can make the United States a more important trading partner for 

more energy consumers abroad, a circumstance which will expand the soft power 

leverage of the United States in international strategic relationships. 

Promoting Open Markets 

Lifting the restrictions on export of domestic crude will allow the United States 

to more credibly promote antiprotectionist policies on trade in the international 

arena. At a dynamic time in global energy trade and a critical moment in the evolution of U.S. trade relations with partners across the Atlantic and the Pacific, U.S. 

policy leaders have a unique opportunity to send a strong message on a commitment 

to open markets by lifting restrictions on oil export. Making a firm commitment to 

open energy trade will help the United States to influence trading policy priorities 

in other countries, such as those in East Asia. In that region, key decisions will be 

made over the coming years about the nature of international energy commodity 

market participation that will have a direct bearing on the U.S. economy. Having 

more open energy trade will be indispensable in winning potential future natural 

resources trading disputes that may arise. 

Enhancing Market Stability 

Encouraging the expanded production of U.S. oil and gas will mean a result 

greater flow of energy from a reliable, secure producer to the global market. When 

more of the supply pool comes from producers that are not at risk from political 

instability or imminent danger to critical energy infrastructure or supply lanes, the 

overall market is more stable. Additionally, U.S. exports do not need to travel 

through maritime hotspots such as the Strait of Hormuz to reach most foreign consumers. Major consumers in East Asia, for example, are highly vulnerable to supply 

disruptions coming from destabilizing conflict in the Middle East, from which a 

majority of their oil imports derive. Providing U.S. producers with the unrestricted 

ability to export will make them more responsive to market signals, and better able 

to quickly adapt to the needs of consumers, contributing to more stable market conditions and making it harder for some producing countries to use oil and gas as a 

strategic weapon. 

U.S. ENERGY EXPORTS AND REGIONAL GEO-POLITICS

For our European allies, the presence of more U.S. energy in the market will offer 

more supply options, over time helping European countries to lower their dependence on Russia, which has a history of coercive energy supply policies. When Russia 

has more competition for supplying European demand it will have to work harder 

to play a role in the market. A fundamental pillar in the current U.S. policy is to 

degrade Russia’s ability to compete in the global energy markets. Liberalizing U.S. 

FOREI-MBP-19 with DISTILLER

17 

export policy will have the effect of reinforcing the pressure on Russia’s energy sector and is thus in line with key U.S. national security goals. It will also constitute 

an important strategic act of support for allies in Europe, who are more threatened 

by Russian regional destabilization and have paid a bigger economic cost by imposing sanctions on Russia than has the United States. Such a move would materially 

enhance the prospects for sustaining the trans-Atlantic stance in support of continuing sanctions. When our closest allies are stronger, the United States is more 

secure and better able to bolster and lead multilateral security initiatives. 

For East Asian consumer countries, more U.S. supply in the market would give 

them new opportunities to diversify away from increasingly unstable Gulf and Russian oil and gas supplies. In addition to boosting supply security, such diversification will yield greater market efficiencies and will contribute to lower prices. This 

will be true for all Asian nations, including both our treaty allies in Northeast Asia 

and China. Energy insecurity is one of the major drivers of China’s regional assertiveness. Policies that confer mutual benefit on the United States and the group of 

East Asian nations facing off as regional competitors should be priorities for the 

United States. They may help to deter strategic intraregional competition by increasing the shared incentives for stable, efficient market activity. Enhancing stability in this neighborhood is directly in line with the United States policy of rebalance to Asia, and will benefit our country and all others that see their own stability 

tied to stability of this burgeoning region. Putting in place policies that can contribute, even if modestly, to enhancing regional stability will cultivate the influence 

of the United States in Asia and beyond. 

One of the most important security benefits of the unconventional energy revolution was its enabling of crippling oil sanctions against Iran. Iran’s oil exports 

decreased by almost 60 percent from approximately 2.5 million barrels per day in 

2012 to 1.1 million barrels per day. There is little doubt that absent this pressure, 

Iran would not have come to the negotiating table over its nuclear program. Particularly in light of historically high oil supply disruptions globally, the international 

community would not have been able to sustain these sanctions, and cope with the 

oil price increases they would have caused, were it not for massive increases in 

alternative oil supplies. The United States added about 1 million barrels per day 

annually over the last several years, and Saudi Arabia also turned up production 

to balance the market. 

Lifting the crude oil export ban will provide critical additional flexibility and 

leverage to the United States to sustain and expand energy sanctions—should they 

be needed—in the future. While the outlines of a potential final agreement between 

Iran and the P5+1 that would relieve many sanctions on Iran is taking shape, it 

is too early to assume success. U.S. policymakers will need to enhance their ability 

to impose tough additional energy sanctions in the future. This is critical as an element of contingency planning on Iran policy and to provide a credible threat that 

more oil sanctions on Iran are possible if Tehran does not cooperate with the international community. 

The failure to prepare for the potential future imposition of more energy sanctions 

by stimulating alternative oil supplies may render the threat of new sanctions hollow. If adversaries do not believe that the United States and its allies have the economic and political tolerance to cope with a self-imposed oil price increase, which 

could occur if more sanctions pull more oil off the market, these adversaries may 

call a bluff. Furthermore, allies of the United States, many of whom have reluctantly gone along with energy sanctions in the past, may prove unwilling to participate in further energy sanctions unless the United States makes a serious effort to 

stimulate alternative oil supplies. Lifting the U.S. oil export ban will bring online 

additional U.S. production, and would constitute an important signal to allies, 

adversaries, and market participants alike, that the United States is serious about 

the threat, or actual use, of forceful energy sanctions. 

CONCLUSION

In a period of tremendous geopolitical uncertainty, and when many questions 

exist about the future role of the United States as a global energy player and world 

leader, Washington has a unique window of opportunity to strengthen domestic economic growth, energy market stability, U.S. global leadership and open trade relations. At a time of lower prices, we need to stop discriminating against U.S. producers. Removing the outdated and detrimental limits on the export of U.S. natural 

gas and crude oil will advance these goals. It will deepen trading ties with strategic 

allies, including those in Europe and Northeast Asia. It will improve the economic 

position and energy market stability of our nation and partners abroad, and allow 

the United States to more effectively spur and lead multilateral action to counter 

FOREI-MBP-19 with DISTILLER

18 

international security threats. Our closest allies in Europe and Asia have asked for 

greater access to U.S. oil and gas. Policymakers should embrace these multitude of 

benefits for allies and ourselves and liberalize our energy export rules. Market conditions merit such a step, and national security dividends from the unconventional 

energy revolution will not be fully realized without it. 

Senator BARRASSO. Thank you, Mr. Gordon. I appreciate your 

comments. 

And Mr. Webster. 

STATEMENT OF JAMIE WEBSTER, SENIOR DIRECTOR, 

IHS ENERGY, IHS, WASHINGTON, DC 

Mr. WEBSTER. Chairman Barrasso, Ranking Member Udall, and 

members of the committee, I appreciate you calling this hearing 

today to talk about this important topic. And I appreciate the opportunity to testify before you on the immense changes in the energy market, how it has already impacted the United States, its allies and partners, and the importance of a liberal energy export 

policy and free markets to fully maximize its positive impact. 

I appear before you in my capacity as Senior Director for IHS, 

where I lead the company’s short-term crude oil markets team. In 

that role, I travel regularly, meeting global exporters and importers, participating in policy discussions here in D.C. as well as 

OPEC meetings. This provides me with a perspective on North 

America’s changing role in energy and its global context. 

Today, I want to address how free trade has already changed the 

flow of oil and petroleum products, and how allowing crude oil to 

join gasoline, diesel, natural gas, electricity, and coal as a fuel that 

can be readily exported and would benefit U.S. interests and consumers. 

One of the key policy changes needed to help support this shift 

is the liberalization of U.S. oil exports. Energy flows into and out 

of the United States have already provided partial benefits to the 

region and the world. In July 2010, the United States imported 1.1 

million barrels a day from Nigeria, an OPEC member. Because of 

U.S. supply, this has shrunk to nearly nothing, while, at the same 

time, we are now exporting to Nigeria a large share if its refined 

products, such as diesel and gasoline. This change in refined product flows to Nigeria reflects a broader change in U.S. flow patterns 

for all of the refined product fuels. 

Ten years ago this month, the United States was importing, on 

a net basis, 2 million barrels per day of refined products. This has 

now reversed direction, and the United States is now exporting 

more than 2 million barrels a day, on a net basis, to countries 

around the world. 

U.S. refiners are some of the most advanced in the world, and, 

with these low-cost inputs, they have been able to further exert 

their global standing, providing not just U.S. consumers with valuable fuels, but consumers around the world, while improving our 

own position. 

The United States has a liberal trade policy for natural gas, coal, 

refined products, processed condensate. It also allows oil exports to 

other countries, in certain very specific cases. Allowing U.S. producers to seek out international markets for their product will 

allow them to receive global prices, keeping the laboratory of U.S. 

shale technology and production fully open for business, allowing it 

FOREI-MBP-19 with DISTILLER

19 

to support our allies around the world. It also supports job growth 

across many industries and in places far from the oil fields here in 

the United States. It will also help to lower the price of Brent oil, 

the benchmark price for global oil, much as the increase in production already has. Lowering the Brent price is the access point to 

lower gasoline prices, as U.S. gasoline prices are linked to the 

Brent price and not to the WTI price that we have here in the 

United States. 

This ban hurts American consumers, causes an unnecessary drag 

on American productivity, and does not let the United States exploit fully the national security benefits from our energy resurgence. The reasons are intertwined with the nature of the American refinery system, and the price discounts that American producers at times have had to take in order to sell their products 

competitively to refineries, particularly along the gulf coast, which 

holds over half of the Nation’s total refining capacity. Over $85 billion has already been spent in the past quarter century to reconfigure these refineries to process heavy oil imported from countries 

such as Venezuela, while also making them available to take the 

heavy oil from Canada. 

The United States contains the largest refining capacity of any 

country in the world, with 140 operating refineries with a combined 

crude oil distillation capacity of about 18 million barrels a day. 

This system is characterized not only by the number and size of refineries, but also by the number of world-class, high-complexity, 

full-conversion refineries with a substantial degree of petrochemical and specialty products. In this complex refining system, 

if the crude quality varies enough, the refineries cannot run optimally with their designated operating parameters. In the gulf region, most refineries are configured, as I said, to process this heavy 

crude oil. Unfinished products are the result of this crude mismatch, which then have a lower value because they require further 

processing to be further upgraded into the fuels that consumers 

like. In many cases, this mismatch is large enough that a refinery 

will have to reduce the crude oil throughput to process additional 

volumes. As a result, there are limits to how much volume can be 

processed in these refineries. To fully use this amount, this often 

requires a price discount, limiting the full impact for U.S. producers. 

I look forward to your questions and appreciate your time. 

[The prepared statement of Mr. Webster follows:] 

PREPARED STATEMENT OF JAMIE WEBSTER

Chairman Barrasso, Ranking Member Udall, and members of the committee, I 

appreciate the opportunity to testify before you on the immense changes in the 

energy market, how it has already impacted the United States, its allies and partners, and the importance of a liberal crude export policy and free markets to fully 

maximize its positive impact, regardless of the global price of oil. 

I appear before you in my capacity as Senior Director for IHS where I lead the 

company’s short-term crude oil markets team. In that role I travel regularly, meeting global exporters and importers, plus participating in policy discussions in Washington, as well as OPEC meetings. This provides me with a perspective on North 

America’s changing role in energy and its global context. IHS is a global research 

and consultancy firm, with 9,000 employees around the world, that specializes in 

energy, capital-intensive industries, data and analysis with a worldwide presence. 

My work through IHS has involved me in two landmark studies on crude oil exports 

(‘‘U.S. Crude Oil Export Decision’’ and ‘‘Unleashing the Supply Chain.’’) 

FOREI-MBP-19 with DISTILLER

20 

Today I want to address how free trade has already changed the flow of oil and 

petroleum products, and how allowing crude oil to join gasoline, diesel, natural gas, 

electricity, and coal as a fuel that can be readily exported would benefit U.S. interests and consumers. 

The catalyst for the oil price decline that started last summer was the partial 

(and temporary) return of Libyan production. But it was the underlying growth in 

U.S. oil production from 5.6 million barrels a day (MMb/d) in 2011 to the current 

9.5 MMb/d that sustained this price drop. OPEC’s decision last November 27 to not 

cut production in the face of growing volumes, not just from United States shale oil, 

but also the Gulf of Mexico as well as Canada further hastened the price decline. 

It seems unlikely that OPEC will reverse itself in its upcoming Ministerial meeting 

on June 5. OPECs decision, reaffirmed on June 5, appears to have marked the beginnings of a serious shift in how supply and demand is balanced in the global market, potentially allowing the oil market to be a market-based system rather than 

relying on a balancer as has often been the case in the past. The balancer as defined 

here is that group, regulatory body or other organization that is willing and able 

to quickly reduce or increase oil supply in an attempt to keep the market balanced. 

The boom in U.S. production has the potential to upend the need for a formal 

market balancer, leading to lower oil prices for consumers, while increasing energy 

security for not just the United States but the world. This is possible not only because of the large production volumes that U.S. producers have brought to the market, but because of the character of those flows. Conventional production projects 

can take years to finance, plan, and bring to the market. U.S. shale producers can 

do it in 4 months. Globally, conventional production has a decline rate of 5–6 percent, meaning a project will be producing that much less each year. U.S. shale production has an initial decline rate of about 50 percent. These two factors allow the 

U.S. shale system to react quickly to market signals to bring more oil onto the market, and a lack of investment when prices turn downward can quickly reduce supply. This shift from OPEC to the market-driven forces of shale oil is far from certain 

and far from complete and it could be reversed. 

One of the key policy changes needed to help support this shift is the liberalization of U.S. oil exports. Energy flows into and out of the United States have already 

provided partial benefits to the region and the world. In July 2010, the United 

States imported 1.1 MMb/d of oil from Nigeria. Because of U.S. supply, this has 

shrunk to nearly nothing, while at the same time we are exporting a large share 

of its refined products (diesel, gasoline, etc). The change in refined product flows to 

Nigeria reflects a broader change in U.S. flow patterns for gasoline, diesel, and 

other important consumer fuels. Ten years ago this month, the U.S. net imports of 

refined products was over 2 million barrels per day. This has now reversed direction 

and the U.S. net export balance is over 2 million barrels per day of exports. U.S. 

refiners are some of the most advanced in the world, and with low cost inputs they 

have been able to further exert their global standing, providing not just U.S. consumers with valuable fuels, but consumers around the world. 

The United States has a liberal trade policy for natural gas, coal, refined products 

and processed condensate. It also allows oil exports to other countries in certain, 

very specific cases. Allowing U.S. producers to seek out international markets for 

their product will allow them to receive global prices, keeping the ‘‘laboratory’’ of 

U.S. shale technology and production fully open for business, while supporting job 

growth across many industries and in places far from the oil fields. It will also help 

to lower the price of Brent, the benchmark price for global oil, much as the increase 

in production already has. Lowering the Brent price is the access point to lower U.S. 

gasoline prices because U.S. gasoline prices are linked to the Brent world price, not 

the domestic WTI price. 

Moreover, maintaining the ban increasingly undercuts U.S. credibility in its threedecades endeavor to persuade other nations to permit free flows of energy trade and 

not constrain trade in strategic commodities with political restrictions and resource 

nationalism. The United States, for instance, has launched numerous complaints 

under the WTO against China exactly because of these kinds of restrictions on natural resources that China imposes. 

The IHS report, ‘‘Unleashing the Supply Chain,’’ documents the benefits across 

the economy from 2016–2030: 

• $86 billion in additional GDP; 

• About 400,000 new jobs annually; 

• 25 percent higher pay for workers in the energy industry supply chain—an additional $158 per household; and 

• $1.3 trillion in federal, state, and municipal revenue from corporate and personal taxes. 

FOREI-MBP-19 with DISTILLER

21 

The benefits accrue across most of the United States, not just oil producing states. 

States like Illinois, Washington State, Massachusetts, and Michigan—with little or 

no oil production—also benefit substantially in terms of economic activity and jobs, 

owing to the interconnected nature of U.S. supply chains. The report affirms earlier 

research that eliminating the export ban would reduce gasoline prices by 8 cents 

per gallon. 

Eliminating the crude oil export ban proves even more important when oil prices 

are low. For example, if Brent crude (the international standard) trades in the range 

of $55/barrel and WTI trades in the United States at around $45/barrel, many companies will be on the margins of their new well investment breakeven point. In such 

a case, a small price change can have a major impact on supply because it can make 

or break the profitability of a significant share of tight oil producers and because 

it may determine whether an investment decision is made or not. Crude oil production thus drops even more sharply when prices are low and producers must take 

further price cuts to sell to domestic refiners if they cannot export. A $3 per barrel 

change in a $50-per-barrel price environment can have the same effect as a $10 

change in a $100-per-barrel environment. 

Liberalization of the U.S. crude export policy could potentially mitigate this risk, 

though this option would depend (as do refineries, pumping stations, etc.) on ready 

access to electricity—a key reason the 2008 disruption was so acute. 

So why do we have the ban, and given the current tight spread between Brent 

and WTI is there any reason to modify it? Its existence is due to an anachronism 

that grew out of a period of scarcity in the 1970s when the United States imposed 

price controls on oil and banned the export of oil in order to support the price controls. In the wake of the 1973 Arab oil embargo, the Emergency Petroleum Allocation Act of 1973 allowed President Nixon to set price controls and allocate oil to end 

users in the United States. The Energy Policy and Conservation Act of 1975 prohibited the export of crude oil and natural gas produced in the United States, with 

some exceptions. The U.S. system of price controls on oil was abolished in 1981, as 

was, a few months later, the ban on the export of oil products. However, illogically, 

the ban on crude oil exports was retained even though the rationale provided by 

price controls had disappeared. The United States now has the fastest growing oil 

production in the world. Since 2008, American entrepreneurship has increased U.S. 

crude oil output by ∼ 81 percent—4.4 million B/D principally of light tight oil, such 

as Eagle Ford in south Texas, Bakken in North Dakota and West Texas Intermediate (WTI). This increase is the fastest in U.S. history and exceeds the combined 

production gains from the rest of the world. The commercial and technical reasons 

for this increase in production are well documented, including the May 2014 IHS 

report, called ‘‘U.S. Crude Oil Export Decision.’’ The conditions that justified the 

crude oil export ban in 1973 no longer apply. 

More importantly, continuation of this ban hurts American consumers, causes an 

unnecessary drag on American productivity, and does not let the United States exploit fully the national security benefits from our energy resurgence. The reasons 

are intertwined with the nature of the American refinery system and the price discounts that American producers must take in order to sell their products competitively to refineries, particularly along the Gulf Coast, which holds over half of the 

nation’s total refining capacity. Over $85 billion has been spent in the past quarter 

century to reconfigure these refineries to process heavy oil imported from countries 

like Venezuela, Mexico, and Canada. The United States contains the largest refining 

capacity of any country in the world, with 140 operating refineries with a combined 

crude oil distillation capacity of about 18 million B/D. The U.S. refining system is 

characterized not only by the number and size of refineries but also by a high number of world-class, high-complexity, full conversion refineries with a substantial degree of petrochemical and specialty products integration. 

In this complex refining system, if the crude quality varies enough, the refineries 

cannot run optimally within their designed operating parameters. In the Gulf 

region, most refineries are configured to process heavy crude oil. When using light 

tight oil, Gulf refineries operate inefficiently. 

Unfinished products are the result of this crude mismatch, which have a lower 

value because they require further processing to be upgraded into gasoline, jet, and 

diesel fuels. In some cases the crude quality mismatch is large enough that a refinery will have to reduce the crude oil throughput to process additional volumes of 

light tight oil. As a result, there are limits to how much of the new, domestically 

produced light tight oil the refining system can efficiently and effectively process. 

To fully use light tight oil, many Gulf Coast refiners often require a price discount. 

Allowing crude oil exports would allow light tight oil (i.e., WTI) to sell at higher 

world prices. In ‘‘U.S. Crude Oil Export Decision,’’ IHS estimates that eliminating 

FOREI-MBP-19 with DISTILLER

22 

the WTI discount would incentivize nearly $750 billion more in investment from 

2016 to 2030—and increase oil production by 1.2 million B/D. 

This brings me to Mexico. That country is eager to extend its imports of U.S. natural gas to include oil. For now, Mexican oil production is in decline and gaining 

access to U.S. light tight oil will help boost those refineries supply options, particularly as they are now best suited to use American light tight oil instead of its own 

heavier Maya oil. Mexico could enter into a ‘‘swap’’ arrangement, exporting its own 

oil in exchange for American light tight oil. However the constraints of the crude 

export policy as well as the commercial requirements to put in this specific swap 

are causing difficulties in effecting a trade that would benefit both countries. Liberalizing U.S. oil exports would allow a more simple transaction, while retaining all 

the benefits. 

While we are now contending with an oversupplied global oil market, additional 

volumes from countries like Mexico and Canada will continue to be important in the 

coming years particularly with supply from these nations potentially being heavier 

than U.S. supply allowing it to be complementary to U.S. production growth. 

I appreciate, Mr. Chairman, your leadership and that of this committee to address 

these critical issues for U.S., regional and global energy security.Thank you for this 

opportunity to testify before your committee. I welcome the chance to respond to 

your questions. 

Senator BARRASSO. Thank you very much, Mr. Webster. 

Commander Lippold. 

STATEMENT OF CDR KIRK S. LIPPOLD, USN (RET.), 

PRESIDENT, LIPPOLD STRATEGIES, LLC, ALEXANDRIA, VA 

Commander LIPPOLD. Mr. Chairman, Ranking Member Udall, 

my name is Commander Kirk Lippold, and I greatly appreciate the 

opportunity to testify before the subcommittee, especially in the 

perspective of national security. 

In my 26-year career in the Navy, I was a surface warfare officer 

serving on five different ships, including guided missile cruisers 

and destroyers, to protect U.S. national security interests across 

the globe. Foremost among those missions was to safeguard the 

sea-lanes of communications, or SLOCs, that facilitate the global 

economy, including oil imports to the United States. 

I have experienced firsthand, particularly during my command of 

the USS Cole, when it was attacked by al-Qaeda terrorists during 

a routine refueling stop, the devastating effects of reliance on imported oil when our forward-deployed assets are placed in harm’s 

way. 

The U.S. Navy has a unique role in the world, in cooperation 

with our allies, to ensure the safe conduct of trade, including oil. 

Since the 1970s, we have had policies in place to encourage energy 

independence that include investment in energy research and efficiency, diversity of fuel inputs, and the strict regulation of oil exports. 

Before we drastically alter these long-standing and successful 

policies, we should proceed with great caution to evaluate the realworld consequences. Despite the recent impressive boom in domestic crude oil production, the fact is, the United States remains overly dependent on oil imports. In fact, the volume of oil that the 

United States imports is not altogether different from import levels 

at the time the Energy Policy and Conservation Act was enacted 

in the 1970s. While increased domestic production has reduced the 

total amount of oil that the United States imports from abroad to 

meet its domestic needs, we still import a staggering amount of oil. 

According to the U.S. Energy Information Administration, imports 

in 2014 totaled more than 2.6 billion barrels, or around 30 percent 

FOREI-MBP-19 with DISTILLER

23 

of supply. By all accounts, domestic consumption will continue to 

outpace domestic production for the foreseeable future. 

As numerous national security experts and U.S. Presidents have 

observed over the course of decades, there are significant national 

security benefits to decreasing our reliance on imported oil supplies. Decreasing that reliance on unfriendly or dangerous regimes 

has the effect of removing a significant obstacle to achieving our 

foreign policy and national security objectives. At its most basic, 

relative energy independence leaves the United States and its leaders with more workable options when dealing with other countries. 

The original purpose of export regulations was to bolster national 

security by furthering energy independence. That purpose still 

holds true. Lifting export regulations may have the unintended 

consequence of undermining our national security goal of energy 

independence. 

Precipitously lifting the regulation of exports would not confer 

equal strategic benefits. Advocates of lifting the export ban frequently point to Russia’s aggressive invasion in Ukraine as a ready 

opportunity for the use of energy diplomacy. That notion makes little sense. 

As an initial matter, all credible economic studies on the subject 

project that the vast majority of U.S. crude oil exports purchased 

on world oil markets would make their way to Asia, not Europe. 

Indeed, the number one beneficiary of lifting the ban is likely to 

be China, a nation whose recent activities in the Pacific and South 

China Sea reflect more the actions of a rival hegemon for security 

dominance in the transpacific region than a responsible international partner. 

The United States does not need to export crude oil to influence 

international markets. Other countries are better off because the 

United States is producing more of its own supply. With strict export regulations in place, the United States gets the dual national 

security benefits of ample supply and leverage on the international 

stage. Attempting to alter the market forces that influence the distribution of power across the world stage is always risky business, 

so it is important to consider the potential downside risks to any 

dramatic realignment. 

We must also consider the second-order effects such a change 

would have on United States allies whose economies rely on crude 

oil production to survive, such as Nigeria or Azerbaijan. Nigeria 

produces nearly the same type of crude oil as the United States 

and, therefore, is a country most likely to suffer if significant U.S. 

crude oil exports materialize. Nigeria’s economy is, to put it mildly, 

extremely dependent on oil. As I am sure every Senator on the subcommittee is aware, the terrorist group Boko Haram retains control 

over large parts of the country and threatens to turn Nigeria into 

a failed state. If the Nigerian economy falls into a tailspin, the consequences for international security would be dire. The safety of 

American civilians and military personnel across North Africa 

would be placed at risk. 

Military assets mobilize on petroleum products like gasoline, diesel, and jet fuel. They do not run on crude. So, a change in export 

policy that would undermine our robust refining base directly constrains the operational flexibility we have in rapid mobilization 

FOREI-MBP-19 with DISTILLER

24 

necessary for modern force projection. While tempting from the perspective of gaining a commercial foothold in a new market arena 

at this time, the national security implications of changing the existing policy regulating the export of crude oil is rife with unknown 

and probably unintended consequences that must be fully considered and addressed. Too many times in my career I have experienced the stark reality of not thinking through the impact of 

changes in international and domestic policy. 

Today, we are in the midst of impressive new domestic production and discovery of untapped reserves. However, we continue to 

import virtually the same volume as—foreign oil as when regulations passed into law. The day may come when the United States 

is no longer overly dependent on oil imports, and then we may be 

in a position to change our export policy. But, for the sake of our 

national security, that day is not today. 

[The prepared statement of Commander Lippold follows:] 

PREPARED STATEMENT OF CDR (RET.) KIRK LIPPOLD, USN 

I. INTRODUCTION

Mr. Chairman, Senator Udall, my name is CDM Kirk Lippold. I appreciate the 

opportunity to testify before the subcommittee. In my 26-year career in the Navy, 

I was a surface warfare officer serving on five different ships, including guided missile cruisers and destroyers to protect U.S. national security interests across the 

globe. Foremost among those missions was to safeguard the sea-lanes of communications, or SLOCs, that facilitate the global economy, including oil imports to the 

United States. I have experienced firsthand—particularly during my command of 

the USS Cole when it was attacked by al-Qaeda terrorists—the devastating effects 

of reliance on imported oil when our forward-deployed assets are placed in harm’s 

way. The U.S. Navy has a unique role in the world in cooperation with our allies 

to ensure the safe conduct of trade, including in oil. Stemming from concerns born 

out of the oil embargo of the 1970s, we have had policies in place to encourage 

energy independence that include investment in energy research and efficiency, 

diversity of fuel inputs, and the strict regulation of oil exports. Before we drastically 

alter these longstanding and successful policies, we should proceed with great caution to evaluate the real-world consequences. 

II. THE UNITED STATES IS STILL IMPORT DEPENDENT DESPITE SIGNIFICANT

GAINS IN DOMESTIC ENERGY PRODUCTION

Despite the recent impressive boom in domestic crude oil production, the fact is 

that the United States remains overly dependent on oil imports. In fact, the volume 

of oil that the United States imports is not altogether different from the import levels at the time the Energy Policy and Conservation Act was enacted in the 1970s. 

While increased domestic production has reduced the total amount of oil that the 

United States imports from abroad to meet its domestic needs, we still import a 

staggering amount of oil. According to the U.S. Energy Information Administration 

(EIA), imports in 2014 totaled more than 2.6 billion barrels, or around 30 percent 

of supply. By all accounts, domestic consumption will continue to outpace domestic 

production for the foreseeable future. In its 2015 Annual Energy Outlook, EIA estimates that total imports will not fall another 10 percent until 2040. 

At this point, lifting crude export regulations would likely dampen the predicted 

decline in imports. As U.S. supplies are exposed to a growing demand on international markets, the price discount that the United States has been enjoying for 

several years will dissipate. Imports will be relatively more competitive with domestic supplies. The likely result: greater reliance on imports than would otherwise 

have taken place. Independent of any specific price trajectory, the option of distributing crude oil to international buyers will eliminate discounts in shale prices that 

have benefited the U.S. market by encouraging reliance on domestic resources. To 

an appreciable extent, the ‘‘discounted’’ price of Bakken shale (located in the northern United States and Alberta, Canada) is a result of infrastructure challenges in 

delivering oil to markets. Access to overseas markets would provide producers with 

a workable alternative, allowing them to increase their prices. 

FOREI-MBP-19 with DISTILLER

25 

As numerous national security experts and U.S. Presidents have observed over 

the course of decades, there are significant national security benefits to decreasing 

our reliance on imported oil supplies. Decreasing our reliance on unfriendly or dangerous regimes has the effect of removing a significant obstacle to achieving our 

foreign policy and national security objectives. At its most basic, relative energy 

independence leaves the United States and its leaders more workable options when 

dealing with other countries. The original purpose of export regulations was to bolster national security by furthering energy independence; that purpose still holds 

true. Lifting export regulations may have the unintended consequence of undermining our national security goal of energy independence. 

III. SECURITY BENEFITS TO CHANGING EXPORT REGULATIONS ARE

UNLIKELY TO MATERIALIZE AT THIS POINT

Precipitously lifting the regulation of exports would not confer equal strategic benefits. Advocates of lifting the export ban frequently point to Russia’s aggressive invasion in Ukraine as a ready opportunity for the use of energy diplomacy. This 

notion makes little sense. As an initial matter, all credible economic studies on the 

subject project that the vast majority of U.S. crude oil exports purchased on world 

oil markets would make their way to Asia, not Europe. Indeed, the number one beneficiary of lifting the ban is likely to be China, a nation whose recent activities in 

the Pacific and South China Sea reflect more the actions of a rival hegemon for 

security dominance in the transpacific region than a responsible international 

partner. 

U.S. exports would be a drop in the bucket of global crude supplies. Moreover, 

European refineries, especially those in Eastern Europe, are currently configured to 

process Russia’s medium sour crude. Reconfiguring those facilities to handle American light sweet crude would be an expensive, long-term proposition. Eastern Europe 

also lacks the infrastructure to access U.S. crude imports. Constructing the needed 

European pipelines would take a great deal of time and money. Whether any U.S. 

oil actually reaches Eastern Europe and ‘‘displaces’’ Russian supplies would depend 

on market factors largely unrelated to U.S. exports. 

Assuming for a moment that lifting the export ban would dramatically undercut 

Russia’s crude exports to Europe, it is far from clear that the result would be a more 

moderate and amiable Russian Government. First, the Russian Government has 

taken greater control of their oil companies in preparation for using that resource 

as a crude weapon on economic influence. Second, Russian oil companies would be 

able to lower their prices and find alternative markets, most prominently in Asia. 

Third, President Putin has proven time and again that his first response to economic hardship at home is to engage in aggression abroad to stoke feelings of 

nationalism among his supporters. And lastly, there are a variety of ways the 

United States can marginalize Russian oil companies and curtail their diplomatic 

reach without resorting to a ‘‘price shock’’ strategy. A good example of one workable 

alternative is a set of carefully crafted economic sanctions, which Congress passed 

and President Obama implemented in 2014 with notable results. Unlike the crude 

export ban, these measures can be altered rapidly in response to events and do not 

put our allies at risk. 

Fortunately, the United States does not have to choose between participating in 

the international marketplace for petroleum products and lifting crude export regulations. Current law already allows American companies to export refined products 

overseas. Likewise, the federal government has the flexibility to waive regulations 

for crude in the form of condensates. In fact, exports of finished petroleum products 

have risen from 1 million barrels per day in 2005 to 2.7 million barrels per day in 

2014. In particular, a robust transatlantic trade in refined products allows our European allies to reap the benefits of our high-tech, efficient refineries at a competitive 

price. It allows us to satisfy our own security concerns and also address our allies’ 

needs with the products actually needed for strategic and economic concerns abroad. 

Finally, the United States does not need to export crude oil to influence international markets. Because increased domestic production results in reduced dependence on imports, overseas crude is then ‘‘freed up’’ to be bought and sold in other 

markets. This market shift has the second-order effect of increasing the supply of 

crude outside the United States, reducing prices and alleviating bottlenecks. Other 

countries are better off because the United States is producing more of its own supply. With strict export regulations in place, the United States gets the dual national 

security benefits of ample supply and leverage on the international stage. 

FOREI-MBP-19 with DISTILLER

26 

IV. DEREGULATION OF OIL EXPORTS NOW CAN HAVE ADVERSE

CONSEQUENCES FOR SECURITY

Attempting to alter the market forces that influence the distribution of power 

across the world stage is always risky business, so it is important to consider the 

potential downside risks to any dramatic realignment. Let us assume for the sake 

of argument that advocates of lifting crude export regulations are correct, and that 

lifting the ban would result in large volumes of U.S. crude being sent overseas to 

the detriment of other producers like Russia. We must also consider the secondorder effects such a change would have on U.S. allies whose economies rely on crude 

oil production to survive, such as Nigeria or Azerbaijan. 

Nigeria produces nearly the same type of crude oil as the United States. Therefore, Nigeria is the country most likely to suffer if significant U.S. crude oil exports 

materialize. Nigeria’s economy is, to put it mildly, extremely dependent on oil. Thus, 

it should come as no surprise that the sharp decline in the price of oil that took 

place in 2014 is having a dramatic impact on Nigeria’s economic vitality. Their currency is appreciating, inflation is rising, and international investors are leaving. The 

lower oil price also cuts into government revenues, which are a critical source of 

basic services for the Nigerian population. Amidst this growing state of economic 

turmoil, security risks abound. As I’m sure every Senator on the committee is 

aware, the terrorist group Boko Haram retains control over large parts of the country and threatens to turn Nigeria into a failed state. Should the Nigerian economy 

fall into a tailspin, the consequences for international security would be dire. Boko 

Haram could grow in influence and manpower, filling the vacuum created by potential economic collapse. Nigeria would present a fertile training ground for extremists 

preparing to launch attacks against the U.S. mainland. The safety of American civilians and military personnel across northern Africa would be placed at risk. 

As one of Nigeria’s closest allies and its biggest trading partner, the United States 

has a tremendous interest in forestalling these outcomes. Lifting the crude export 

ban in an attempt to reengineer global oil markets is more likely to exacerbate 

instability than it is to increase our bargaining power with Russia. 

In addition, the crude export ban improves the competitiveness of U.S. refineries. 

When refiners have access to reliable domestic oil supplies, significant cost-savings 

translate into a more favorable price outlook for both refiners and U.S. consumers. 

This situation is a desirable one. A strong domestic refining base provides the 

United States with significant and underappreciated national security benefits. Lifting the crude export ban would expose one of America’s most important industries 

to the unpredictable vagaries of international markets and international politics. It 

is axiomatic that military assets mobilize on petroleum products, like gasoline, diesel, and jet fuel. They do not run on crude. So, a change in export policy that could 

undermine our robust refining base directly constrains the operational flexibility we 

have in rapid mobilization necessary for modern projection of force. 

V. CONCLUSION

While tempting from the perspective of gaining a commercial foothold in a new 

market arena at this time, the national security implications of changing the existing policy regulating the export of crude oil is rife with unknown and probably unintended consequences that must be fully considered and addressed. Too many times 

in my career, I have experienced the stark reality of not thinking through the 

impact of changes in international and domestic policy. We cannot afford to just 

wave-off these potential consequences as inconsequential under the guise of market 

principles. The regulation of crude oil exports was put in place with a long-term of 

objective of decreasing U.S. reliance on foreign sources of energy, specifically oil. 

Over the past three-plus decades, progress has waxed and waned. Today, we are in 

the midst of impressive new domestic production and discovery of untapped 

reserves. However, we continue to import virtually the same volume of foreign oil 

as when the regulations were passed into law. 

The day may come when the United States is no longer overly dependent on oil 

imports and we may be in a position to change our export policy but that day is 

not today. 

Senator BARRASSO. Thank you so much for your testimony. 

We will start with 7-minute rounds of questions, go back and 

forth, if it is agreeable to the members of the committee. And I will 

start. 

Mr. McNally, in terms of lifting sanctions on Iran’s oil exports, 

Iran receives a tremendous amount of its revenue from oil exports. 

FOREI-MBP-19 with DISTILLER

27 

Over the years, Congress put in place sanctions on Iran’s energy 

sector. The administration is currently working toward a deal on 

Iran’s nuclear weapon program which will likely remove sanctions 

on Iran oil exports. And the economists had it at up to 800,000 barrels a day. In 2014, the largest purchasers of Iranian crude oil and 

condensate were China, India, Japan, South Korea, Turkey. The 

United States currently has a de facto ban on U.S. exports of crude 

oil to these same markets. Do you believe the United States should 

allow Iran to increase exports of oil while prohibiting the United 

States companies and producers from accessing these same markets? 

Mr. MCNALLY. Mr. Chairman, until and unless there is a good 

nuclear deal with Iran, my view has been—and I actually wrote an 

op-ed in 2006 calling for quarantining Iranians’ oil exports—I do 

not think we should allow Iran to sell any crude at all. But, as you 

mentioned, under the current sanctions regime—and there are two 

parts. One is the United States, which has required Iran’s importers to significantly reduce their oil imports, and now, under the interim deal, the remaining six importers are supposed to hold 

steady, even though we have seen a steady creep-up in the amount 

of Iran’s oil exports to 1.4 million barrels a day, I believe, according 

to the IEA in its most recent report. Also, importantly, Iran is exploiting a loophole in the United States sanctions regime through 

which it exports condensates, which is a light form of crude oil, and 

it is doing quite well, quite a brisk business with condensates. As 

my colleague mentioned, while some condensates of the United 

States are allowed to be exported, those require permitting and so 

forth, and some are not. So, we restrict our own condensates. 

The major restraint on Iran’s oil exports, however, is the EU oil 

embargo. That caused Iran’s oil exports to drop by about 5- to 

600,000 barrels a day, which is what Iran used to send to Europe. 

My understanding is, if there is a deal, United States sanctions 

would lift quite quickly, so the existing six, including China, South 

Korea, and Japan, could buy more Iranian crude oil, but that the 

Europeans will take several months—many months, perhaps—before they lift the oil embargo. But, over time, Iran will be allowed 

back. I was at international meetings with Iranian officials who 

made very clear they are coming back hard onto the market, they 

are going to recapture their oil market share that they have lost. 

Meanwhile, as I mentioned in my testimony, U.S. exporters will remain shackled. 

Senator BARRASSO. So, why is it also important, then, that U.S. 

national security, in our national security interests, to allow our allies and partners to purchase American oil to diversify away from 

Iran? 

Mr. MCNALLY. Well, it is important for several reasons. One, it 

is important because if this deal—if we strike a deal and it fails, 

or if Iran cheats, we are going to go back and ask the Europeans 

to continue to extend their embargo. And they are not enjoying it. 

A lot of Mediterranean—weaker Mediterranean European countries 

imported a lot of Iranian oil, and they want to get back into that 

market. And they are refraining. We will ask them to continue 

that. We will also go back to our friends, especially South Korea 

and Japan, which have significantly reduced their imports from 

FOREI-MBP-19 with DISTILLER

28 

Iran, and ask them to reduce even more. I believe the Senate was 

looking at legislation in the spring that would close the condensate 

loophole, as well. 

So, in a snap-back of sanctions or a tightening-of-sanctions scenario, we would be asking more Iran’s importers, and I think it 

would only be fair and reasonable, and we ought to expect to be 

asked, to make our oil available to them in return. 

Senator BARRASSO. Okay. 

Mr. Gordon, in your testimony, you talked about, ‘‘When our closest allies are stronger, the United States is more secure, better able 

to bolster and lead multilateral security initiatives.’’ In what ways 

has the dependence of our allies on Russian energy resources impacted the ability of the United States to bolster and lead multilateral security initiatives? 

Dr. GORDON. Well, I think that European dependence on Russian 

gas sources has been a major source of the failure of Europe to 

come up with a coordinated gas strategy that the United States has 

been urging on the Europeans for a very long time. And again, here 

I think that, while I agree with Commander Lippold that there is 

not a short-term solution to the Ukraine crisis from U.S. gas that, 

I think, adding U.S. gas exports to the broader mix from which European allies can choose gives them a lot more flexibility vis-a-vis 

Russia. It is already actually leading to a strengthening of those 

forces in Europe who want to have a more coordinated policy. And 

I think a loosening up of our restrictions would definitively help 

support the continuation of sanctions by the Europeans on Russia, 

which is, frankly, at risk. 

Senator BARRASSO. Yes. I mean, that was my concern, as well. 

I was in Ukraine, in eastern Ukraine, on Friday. On Saturday— 

I was with the President, as well as with the Prime Minister on 

Saturday, and the mayor of Kiev. That is exactly what I am hearing from them. And then I think it would allow others, as you say, 

willing to participate in additional energy sanctions against countries like Iran and Russia if the United States were able to lift 

that. 

Mr. Gordon, also, in terms of Asia, in your testimony, you said, 

‘‘Energy insecurity is one of the major drivers of China’s regional 

assertiveness.’’ You went on to note, ‘‘Policies that confer mutual 

benefit on the United States and a group of Eastern Asian nations 

facing off as regional competitors should be priorities for the 

United States,’’ that ‘‘they may help to deter strategic intraregional 

competition,’’ you say, ‘‘by increasing the shared incentives for stable, efficient market activity.’’ 

How could U.S. energy exports help our East Asian allies and 

promote stability in that region? 

Dr. GORDON. Well, the lead demand of our East Asian allies on 

the economic and security arenas have to do with the Transpacific 

Partnership, which I am optimistic is going to move forward, and 

to—for the United States to unshackle the export of energy across 

the Pacific. I think our Asian allies see two benefits to this. One 

is, they see a direct benefit in their own energy security from a stable source of supply that makes them less dependent on the Middle 

East. But, secondly, I think they are all interested in anything that 

boosts the overall resilience of the global energy markets that may 

FOREI-MBP-19 with DISTILLER

29 

lead, over time, to China becoming less assertive in buying up oil 

and in their efforts to create maritime facts on the ground in the 

South China Sea. A China that is increasingly dependent upon 

United States energy exports is more likely to think twice about its 

assertive stance. Again, this is not something that changes quickly, 

but, over time, I think it is a very important complement to our 

strategy of military strength in the Western Pacific. 

Senator BARRASSO. Thank you very much. 

Senator Udall. 

Senator UDALL. Thank you, Chairman Barrasso. 

Mr. Webster and anybody else on the panel who would like to answer this question, my understanding is that the Congressional Research Service, in 2013, concluded, and I quote, ‘‘If all the proposed 

U.S. LNG export projects were operational today, the United States 

would rank first in the world for global export capacity.’’ And that 

is the end of their quote there. Do you agree with this conclusion? 

And what would this mean for industry states, such as New Mexico, where companies are waiting for the right demand signals to 

begin accessing reserves of natural gas? 

Mr. WEBSTER. Thank you for your question, Ranking Member. 

I would agree with the statement from the Congressional Research Service that, if everything that was on the table in 2013 

was now operational today, that we would easily eclipse Qatar and 

anybody else that happened to try. The one caveat to that is, of 

course, there is a real difference between those that put in an application and those that are able to actually get through the process. But, even if you limit it to that smaller scope, it is still a substantial amount that would rival Qatar. 

In terms of the State of New Mexico and getting the sort of signals that those producers would want, which is essentially a higher 

price, as we have been dealing with very, very low prices that, for 

many producers, just do not make sense, it is actually an assortment of not just exports, but also increased use from power demand, from petrochemical projects, and a number of different solutions that will just help this country, both use its own natural gas 

more effectively, but also export it more to our allies. 

Senator UDALL. Any of the other panelists want to jump in on 

that? Okay. 

Mr. Webster, if the United States continues its ban on exports 

of crude oil, what are the ramifications, economically, in States 

that are now extracting light, tight oil? And why should we be worried about oversupply in the short term? 

Mr. WEBSTER. That is a interesting question, in that, if you do 

not allow the export of crude oil, the economic implications actually 

extend well beyond just those States that are extracting crude oil. 

We did a—I just conducted a study that went State by State and 

congressional district by congressional district, and you can see 

that, you know, the change in a crude export stance has huge ramifications across the United States, even for States that do not necessarily allow the use of fracking. So, I think that, right now, is a 

significant hamper on some additional jobs. If you allowed crude oil 

exports, you would see an addition of about 400,000 jobs a year; 2- 

to 3,000 of those jobs would be in your own State. 

FOREI-MBP-19 with DISTILLER

30 

The second part of that, in terms of the oversupply—the oversupply is where you are talking about it from just the United 

States standpoint, where they are not able to get their crude oil 

out, and you start to have the sort of discounts that we have seen 

in the last couple of years at various points. When that happens, 

that ends up creating a policy discount for these producers, and 

they are just not able to produce as much because they are not able 

to make the sort of investments they would have been able to make 

otherwise. 

Senator UDALL. Commander Lippold, you have been at the tip of 

the spear of the complex global energy system. Based on your experience, do you believe that U.S. troops are at risk of increased 

harm as a result of increased U.S. dependence on foreign crude? If 

Congress were to remove the export ban, in which regions could we 

see increased risk as a—risk to our forces as a result? 

Commander LIPPOLD. Thank you, Senator. 

Yes, those forces are going to be at greater risk. I believe that 

if you look at today, we are still dependent, at 7 million barrels a 

day being imported into our Nation. That is a huge amount; almost 

30 percent. And if you continue to be dependent, getting into a position where you are now trying to export it when we have not even 

created an overarching national security policy that deals with energy production across the board, not just crude, but in other ways, 

in fact, could adversely affect it; because, while the Navy goes out 

and does, in fact, protect the sea-lanes of communication as a matter of making sure that the economies of the world can operate 

freely on the high seas, it is when you start affecting the oil supply 

through world chokepoints that you really are putting the troops 

at a higher risk and into areas, especially when you look at the 

Strait of Hormuz, the Strait of Malacca—China is obviously going 

to be affecting things in the South China Sea. So, as those supplies 

tighten, they would be done. However, you have to look at it from 

the perspective: U.S. national security interests have to come first. 

And until we develop that overarching energy policy and we get 

much less dependence than we have today, the ban really does 

need to stay in place. 

Senator UDALL. Commander Lippold and others on the panel, because there is no ban on the export of refined oil products, some 

believe that refiners will eventually reinvest in their facilities so 

they can make use of more domestic crude. What would the economic and security impacts be if the United States were to continue with the current status quo, where crude exports are banned, 

but refined products are not? 

Commander LIPPOLD. Senator, I think that the fact that we can 

take refined product today and use that to bolster our allies—first 

and foremost, if you look at Europe, the fact that the militaries of 

the world and economies run on refined product, they do not run 

on crude—and when you look at all the different types of crude 

that are produced by various nations around the world, each of 

their refining capacities or refining capabilities have to be adjusted 

to adapt to the different types. So, you are asking for some countries that may have been working with one type—say, mediumsour—now having to shift to that light-sweet that we produce, the 

light-tight oil. Then it makes a drastic difference. 

FOREI-MBP-19 with DISTILLER

31 

And so, I think that in the—at the end of the day, the fact that 

we are able to have a capacity and capability to get an export— 

refine products to respond much quicker than we could with crude 

to bolster our allies in Europe or in the Pacific rim—is far more 

of a greater leverage for us, from a national security perspective, 

than it is to be able to lift an export crude ban. 

Senator UDALL. Yes, please, Mr. McNally. 

Mr. MCNALLY. Mr.—Senator, it—to answer your question, if we 

leave the crude oil ban in place, what every study has shown is 

that eventually, as my colleague Mr. Webster said, the amount of 

oil that we are now newly producing as light, tight oil is going to 

overwhelm the capacity of our existing refineries to process it. We 

built our refineries, if you will, to process coffee grounds, really 

heavy, gunky oil from Mexico and Canada. And, by the way, half 

of our oil imports come from our neighbors and friends, Mexico and 

Canada. The surprise was, the kind of oil we found is sort of like 

champagne, and our refineries are built to run coffee grounds. And 

so, if we keep on producing champagne, eventually those coffeeground refineries, they may decide to invest in new equipment. 

But, to do so, they are going to require a discount, they are going 

to drive a low price from those producers. And that is where the 

risk to our boom comes. It is bad enough that we live at the whims 

of OPEC and global supply/demand that sends the price of oil to— 

from $110 to $42 in 6 months. That is bad enough. But, when, on 

top of that, our producers have to face an eventual discount from 

the coffee-ground refineries, we are going to drive prices down further. It risks killing the goose that is laying the golden eggs. 

Senator UDALL. Thank you. 

Senator BARRASSO. Thank you, Senator Udall. 

Senator Gardner. 

Senator GARDNER. Thank you, Mr. Chairman. 

And thank you, to the witnesses, for testifying today. 

Commander, thank you for your service. 

Last year, I carried H.R. 6 in the House of Representatives. It 

was our bill to expedite the permit approval process for LNG exports. We had variety of witnesses testify before the committee, 

just like we have this year. To a person, they have talked about 

how important it is, the people supporting this effort, to allow the 

United States to move forward on exports like LNG and what it 

meant for their national security. Counterarguments were made, 

saying, ‘‘Hey, look, there would not be a single molecule that you 

could actually ship here, so it would not really do anything.’’ The 

response of the people in that country, indeed, were, ‘‘Yes, it would. 

It would immediately give us more leverage and more negotiating 

power, and it would send a signal to the world that the United 

States is serious about providing and equipping its allies with energy security.’’ 

And, as my work on the East Asia Subcommittee has shown, 

every meeting that I go into that starts with an Ambassador from 

Singapore or beyond talk about the importance of U.S. energy security and our ability to export energy, and what it would mean to 

their security. We are talking, right now, about the Trade Promotion Authority, we are talking about TPP, we are talking about 

trade issues. We talk about it from an economic standpoint, we talk 

FOREI-MBP-19 with DISTILLER

32 

about it from a security standpoint. And if you look at this energy 

debate, every single one of them understands that, as the United 

States economy has improved because of this incredible revolution 

in energy production that we have gone through, they realize that 

that same benefit could extend to them through energy security. 

No longer would they have to be beholden only to one provider or 

a pipeline that could be shut off in the middle of winter if the 

United States was serious about providing and extending its security umbrella through energy development to our allies around the 

globe. 

One of the interesting dynamics, of course, of the House vote last 

year—and again, this is on the LNG side—were people who represented States that had enacted moratoriums on hydraulic fracturing. Perhaps these States had outright banned hydraulic fracturing. But, they acknowledged that the only reason we are in a 

position to be able to export an abundance of energy is because of 

hydraulic fracturing, coupled with new technologies like horizontal 

drilling. And there were many people who represent those States 

that had moratoriums in place that actually supported the LNG— 

the expedited LNG permitting bill because they recognized the security that it could provide to our allies. 

And so, while their State has banned or imposed moratoriums on 

hydraulic fracturing, they understand that the only reason we have 

enough to export is because of hydraulic fracturing, and they understand that, because of that increase in supply, it actually provides additional security to our allies. 

And so, I think this argument over exporting really does need to 

finally be more than just talking and actually have actions put in 

place by Congress and this administration to allow it to move forward and to happen. 

In the Commander’s testimony, he stated this, and I wanted to 

follow up, because, I think, Mr. McNally, you were talking about 

this. It said, ‘‘It is axiomatic that military assets mobilize on petroleum products like gasoline, diesel, and jet fuel. They do not run 

on crude.’’ 

Mr. McNally, we are not exporting crude, correct? That is what 

this debate is about. Do we export gasoline, diesel, and jet fuel, or 

could we? 

Mr. MCNALLY. Senator Gardner, we certainly do. As my colleague pointed out, we used to be a net—10 years or so ago—importer of refined product—gasoline, distillate, liquified petroleum 

gas, et cetera. Now we are a net exporter. We send China liquified 

petroleum gas. So, it is a free and open market in the export of refined product. It is just crude oil that is restricted. 

Senator GARDNER. Mr. Webster, a question for you on impact of 

continued development. And if we have an excess supply in this 

country, what happens to production in this country? 

Mr. WEBSTER. Thank you for your question, Senator. 

If we have an excess of production, meaning that the prices is 

going down, one, the first thing that you see is, you see it start filling up in stocks, and you start seeing significant discounts at refineries, which you have seen at various points in the past. And then, 

the second order of effects is the sort of things we have already 

started to see. Companies start laying down rigs, they start laying 

FOREI-MBP-19 with DISTILLER

33 

off workers, they start slowing that production down. And, because 

of the extreme decline rates, which is the lower production you get 

out of a well after a period of time, you actually start seeing a slowdown in U.S. production. And so, you know, to echo Mr. McNally’s 

statement, you start to kill off the goose that laid the golden egg. 

There is no question that, globally, we are in a lower price environment, and a policy change is not going to change that. But, a 

policy change can impact that policy discount that we have seen at 

various points to at least provide U.S. producers the opportunity to 

compete on a global level. 

Senator GARDNER. And what happens, then, with a slowdown in 

production, economically? 

Mr. WEBSTER. So, economically, with a slowdown in production, 

you end up having a reduction in GDP within the United States, 

you end up having reduction in revenues to State, Federal, and 

local governments, and you end up having to eventually start to 

again start importing oil again and reducing our energy security. 

Senator GARDNER. And what happens to the price with a decrease in production? 

Mr. WEBSTER. With the decrease in production, longer term, we end up going back to the sort of prices that you saw in 2008, $147. 

Senator GARDNER. And what would the economic impact of 

400,000 new jobs a year be, that you mentioned in one of your responses to a question? 

Mr. WEBSTER. Sure. So, what that ends up doing is, you end up having—let me just get the figure real quickly here—about $86 billion in additional GDP between now and the next couple of decades. So, it is quite significant. 

Senator GARDNER. Thank you. 

And I will yield back my time to the chairman, but I do just want 

to say, again, I think there are people throughout this chamber in 

the Senate and the House, who recognize the importance of moving 

forward on our export potential, and that this presents our allies 

with one of the most innovative ways of helping themselves provide 

security for their people, their country, simply through the incredible production of the American worker. 

Thank you, Mr. Chairman. 

Senator BARRASSO. Thank you, Senator Gardner. 

Senator Markey. 

Senator MARKEY. Thank you, Mr. Chairman, very much. 

I have long warned this committee about the consequences for 

American consumers and our economy of large-scale exports of 

American natural gas. 

The Department of Energy—our Department of Energy—has 

said that exporting less than half of the volumes of LNG already 

approved could increase U.S. prices for American consumers by up 

to 54 percent. That could translate into a de facto energy tax on 

American consumers, businesses, and our economy of up to $62 billion a year, a regressive energy tax on American consumers if we 

export LNG in the amounts that are only half of the level already 

approved. 

And we cannot even be sure that the exports are going to go to 

the Ukraine, because we believe in capitalism. We are not a staterun oil industry. We cannot control where this oil or natural gas 

FOREI-MBP-19 with DISTILLER

34 

is going to go. We are a system that allows the—Rex Tillerson to 

have his hand on the tiller at ExxonMobil to direct where oil and 

natural gas goes. And that is toward the highest price. 

Now, right now—and I am just going to focus on oil—consumers 

are saving at the pump because U.S. oil prices are lower than the 

international benchmark price. A recent Barclays report found that 

U.S. consumers saved $11 billion at the pump last year because of 

lower U.S. oil prices, and will potentially save up to $10 billion this 

year. We change policies, energy tax on ordinary Americans, which, 

from my perspective, is regressive and it is wrong. 

We are having a refining and shipbuilding boom in our country 

because of the increased production, coupled with the export ban. 

There are more than 800,000 barrels per day of refining capacity 

additions or upgrades that are in the works in the United States, 

according to industry analysts. Many of those refinery upgrades involve investments of $300 million or more. The private sector in 

the United States refining sector is responding to this crude oil. 

They are building and expanding the refining capacity with American jobs here, right now, and that is why the United States steelworkers and the AFL–CIO are opposed to lifting the oil ban, because we, otherwise, will not create those jobs. 

Now, U.S. shipbuilders have orders to expand our domestic tanker fleet capable of transporting crude oil by nearly 40 percent. Each 

tanker can represent an investment of $100-to-$200 million. Five 

years ago, there were zero orders for new domestic oil tankers. One 

company, Aker ASA in Pennsylvania, right now has nearly a $1- 

billion/4-year order backlog and has tripled employment over the 

last 3 years. American companies responding here by creating new 

jobs in already existing industries that otherwise were going away 

under this export policy. Shipbuilding, refining—gone, overseas. 

That is this plan. That is the heart of it. 

When we still import nearly 5 million barrels of oil every day, 

that would harm our national security. We are neck and neck with 

China as the world’s largest exporter—importer. The Department 

of Energy forecasts that we will continue to import millions of barrels of oil a day for the foreseeable future. When we are still importing 5 millions barrels of oil a day, every barrel that we would 

send to one of our allies means an additional barrel that we are 

going to have to import from a potentially unstable region of hostile 

countries. And, mind you, we are still exporting young men and 

women in uniform over to the Middle East to protect those ships 

bringing in oil from unstable parts of the country. How can we export our oil when we are still importing 5 million barrels a day? 

That is just wrong. And it is wrong especially to those young men 

and women in uniform. We should be creating energy independence 

here in the United States of America. 

Oil and natural gas are not like any other commodity, they are 

not like widgets, they are not like iPhones. This is the central commodity. You look at ISIS, you look at the Shiites, the Sunnis. 

Where are they going? For the oil-producing regions. Whether it be 

Yemen, whether it be Iraq, whether it be Syria, they are going for 

the oil. They are not going for the widgets, they are not going for 

the iPhones. Oil, gas, national security, that is what it is all about. 

FOREI-MBP-19 with DISTILLER

35 

It is not like any other product. It is the heart and soul of our national security. 

So, let me ask you this, Commander Lippold. We do not have 

state-owned oil companies in the United States. We cannot direct 

ExxonMobil to send oil exports to specific countries. They will be 

making decisions about where any crude oil exports would go based 

on the market and what is best for their bottom line, not on what 

might be best for U.S. foreign policy. Is that not correct? 

Commander LIPPOLD That is correct. If we start to export oil, we 

have no control on where it will go. And it is not a free market that 

is out there. When you look at the vast majority of oil controlled 

by either national oil companies or cartels like OPEC, we are not 

entering into a free market system, by any stretch. 

Senator MARKEY. Commander Lippold, according to the Department of Energy, lifting the crude export ban would reduce the investment in the U.S. refining sector by nearly $9 billion over the 

next decade, and could mean 1.6 billion barrels a day less of domestic refining capacity in our own country. Refineries on the East 

Coast and other parts of our country could potentially close. Is that 

not a national security concern if we do not have sufficient domestic refining capacity and are reliant on foreign nations to provide 

us with critical fuels like gasoline, diesel, and jet fuel? 

Commander LIPPOLD Yes, Senator, it is. 

Senator MARKEY. Let me ask you this. According to Mr. Webster 

at IHS, the number one destination for export of U.S. light, sweet 

crude oil would be China. Is that correct, that the bulk of the 

United States exports would likely go to China and Asia, Mr. Webster? 

Mr. WEBSTER. Thank you for your question, Senator. 

Yes, actually you would see a great deal of volumes go to China, 

as well as some of the technology that would be there, as well. 

However, it is incorrect to state that the ‘‘bulk’’ would go to China. 

China would be just one potential market buyer of this crude. And 

I would also agree with you that you—if you do not change the export ban, you absolutely will continue to have significant refinery 

investments of about $3 billion. However, on the production side, 

you are missing out on around $756 billion in investments. 

Senator MARKEY. So, even as we are trying to pass a free trade 

bill so that we set the rules, not China—we dictate, not China— 

we are simultaneously talking about exporting the most precious of 

all raw products, and it will go to China because they will be the 

high bidder, sending back finished product for us to purchase in 

the United States of America. 

So, I guess what I would say is, let us build the ships here, let 

us build the refining capacity here, let us drill here, let us have 

consumers in America get the benefits here, let us have the petrochemical industry here get the benefits, let us have an economy 

that is robust using this incredible bonanza of energy that we now 

have, and lowering our unemployment rate, and showing what the 

real might of our country is. That is what I would do, rather than 

exporting this oil and gas so that China and other countries then 

take our most precious resource and undermine our ability to be 

able to protect our own citizens. That stops in its tracks if we lift 

this export ban. 

FOREI-MBP-19 with DISTILLER

36 

I thank you, Mr. Chairman, very much. 

Senator BARRASSO. Thank you, Senator Markey. 

Senator Shaheen. 

Senator SHAHEEN. Thank you, Mr. Chairman. 

Thank you all very much for being here today. I am sorry I 

missed your testimony because I was at another commitment. 

But, I returned, last weekend, a week ago, from a conference in 

Poland that was focused on Eastern Europe. And one of the major 

issues there was Russia and Putin’s aggression in Eastern Europe, 

and Ukraine, and what could be done to address that. And obviously, one of the big concerns that I heard from the countries 

whose representatives I met with from Eastern Europe was concerned about their dependence on Russian energy and what could 

be done to address that. 

Now, one of the people I met with was an official from Ukraine 

who talked about—one of the efforts that they are looking at is how 

to reduce their dependence on that Russian energy through energy 

efficiency. And I know that your testimony is focused on exports of 

oil and gas, but is there not also a role for export of our technology 

around efficiencies that we ought to be looking at as we are thinking about what opportunities we have to influence the global market around energy? 

Anybody. 

Dr. GORDON. Thank you, Senator Shaheen. 

I think, absolutely, that export of energy-saving technologies has 

to be an important piece of what we are doing. We do not have restrictions on that. So, the issue here is that we have a set of restrictions on the very things that our most important allies are 

calling for us to lift, both in Asia, in Europe, especially in Eastern 

Europe. So, I think that the theme that we are focusing in on here 

is the national security implications of beginning to loosen that up, 

and to do so in a way that can both secure our economy at home 

while responding to these challenges abroad. 

Senator SHAHEEN. And I appreciate that. I am suggesting, 

though, that maybe we are thinking too narrowly about how we are 

thinking about this issue, and that we ought to be thinking broader 

about what other exports of energy—energy technologies that we 

can provide that is part of a comprehensive national security energy policy that will help us address the energy challenges that we 

are facing around the world, and that efficiency technologies ought 

to be a piece of that. 

So, let me go from that to asking you, Commander Lippold. You 

testified that a day may come when the United States should alter 

our export policy, but today is not that day. So, what conditions do 

you think would have to be met for us to proceed with changing 

our export policy around oil? 

Commander LIPPOLD First, I would think that we would need a 

significant reduction in the amount of oil that the United States is 

currently importing to make our economy run. And the second 

thing would be development of an overarching strategy, which you 

suggested, to say, ‘‘We need a comprehensive energy policy that is 

folded in and a component of our entire national security strategy 

in foreign policy.’’ Because, until then, we are just going to be 

nitpicking and solving little symptoms right here, when we are not 

FOREI-MBP-19 with DISTILLER

37 

getting to the crux of the problem, which is developing that national security strategy of which energy independence is a component, and how we are going to achieve that, and what we are going 

to work with. 

I have not advocated that the ban should remain in place forever, 

but I have said now is not the time. When you are at 30 percent, 

you do not want to be in a position where we are saying, ‘‘Congratulations, you have completed 8 of your 12-step program. Let us 

go celebrate with our friends and have a round.’’ Now is not the 

time, because of our dependence that we currently have. And I 

think that we need to develop that overarching strategy, reduce dependence, and take a look at that ban in the context of a larger 

discussion. 

Senator SHAHEEN. And so, are there positions between totally 

ending the export ban and staying where we are that we should 

be looking at that might be reasonable? Should we be thinking 

about a phased approach to addressing this that goes on over a period of time? And when we reach certain goals, in terms of reducing 

our dependence on imports, that we can then look at opening the 

market a certain amount and—thinking about it in those terms? Is 

that a reasonable place to be thinking about this so that we are 

not talking about either opening—ending the ban tomorrow or 

leaving it in place for the next 10 years, but we are looking at some 

phased approach that might make sense? At—— 

Commander LIPPOLD Yes. Thank you, Senator. That is a—— 

Senator SHAHEEN [continuing]. At you or anybody else. 

Commander LIPPOLD [continuing]. That is a great question, and 

really does go to the core, because we cannot answer that question 

right now. Without this overarching strategy for the United States 

to be able to approach how we are going to work toward energy 

independence while we are going at it piecemeal until we have that 

strategy in place, we really cannot set the benchmarks and say, 

‘‘Well, when we are down to 10 percent, we can open it up and export X-number, or, when we get to 5 percent, we can export X-number.’’ I think we need to look at it. And it may end up being on a 

sliding scale. It may be that, when we hit a certain amount, we can 

say, ‘‘We have reached a point, combined with other resources that 

we are exporting, like LNG, that we have—in fact, have influence 

to where it is affecting foreign policy and our national security objectives are being done.’’ Plus, we have to see what the state of the 

world is. We are not an independent actor. It is also going to depend on the security conditions for our allies, not only in Europe, 

but in the Pacific rim and, quite fundamentally, in the Middle 

East. 

Senator SHAHEEN. Mr. McNally. 

Mr. MCNALLY. Thank you, Senator Shaheen. 

I would start by observing that—just that the great majority, if 

not totality, of bipartisan energy and foreign policy experts regard 

the crude oil ban as, at best, an anachronism, and, at worst, a direct threat to our oil boom and a problem in our foreign policy. If 

it served some purpose, then we might want to debate balancing 

that public purpose against the benefit of lifting it. But, it serves 

no public purpose. It just threatens the goose. 

FOREI-MBP-19 with DISTILLER

38 

So, in an ideal world, I would think, respectfully, we would just 

get rid of it right away. However, in a less-than-ideal world, perhaps we would look at options such as allowing treaty allies or 

free-trade-agreement countries or countries that continue to respect 

sanctions against Iran to have access to our oil. That, perhaps, 

would be half-a-loaf approach. But, fundamentally, since there is 

no public justification for the ban, there really is no reason not to 

just strike it entirely. 

Senator SHAHEEN. Other views? Mr. Webster? Mr. Gordon? 

Mr. WEBSTER. Yes, I would agree with Mr. McNally. I mean, it 

is—and I am—as a markets guy, I would be very hesitant, you 

know, putting in, ‘‘If we hit this, then you will allow this.’’ Realize 

that this is a market thing. So, if you had allowed crude exports 

in 1981, as you allowed petroleum product exports, you would have 

not seen any real crude exports in significant volumes until late 

2013. And today, you probably would not see many volumes, as 

well; but, probably later this year, you would see volumes. It is— 

part of it is a—is, over time, you will see it as a seasonal thing; 

and then, over time, as the U.S. production continues to grow, because it is given this full global price, then you will start seeing 

more and more volumes. 

But, if the price does not make sense, in terms of an arbitrage, 

those volumes are not going to go there, so the market, itself, will 

kind of solve that issue that you are looking at. 

Dr. GORDON. Senator Shaheen, I think that the way to address 

this is to address what are the pressing national security concerns 

here, and who do you put in the category. And again, here I think 

that the trio really is treaty allies, it is participants in FTAs, and 

then it also has to do with using this as a tool to encourage the 

retention of the capability to sustain sanctions on Iran, or to put 

them back into place. 

Senator SHAHEEN. Thank you, Mr. Chairman. My time is up. 

Senator BARRASSO. Thank you very much, Senator Shaheen. You 

know, I mean, it is interesting that you said you were in Poland. 

Over the recent recess, I was in Slovakia—I am sorry, I was in Slovakia over the weekend, but, over the last recess, Estonia, Romania, the Czech Republic. And what I am hearing, in terms of the 

use of the technology, is that Vladimir Putin is supporting funding 

green groups—extreme green groups to then get in—politically involved in the home countries to prevent the use of this technology, 

not because of a change in his position on the use of fossil fuels, 

but as an effort to keep them from not producing their own and 

taking it and making them continue to be dependent upon Russian 

energy. So, it is—I mean, it is a very interesting interplay of the 

way that Putin plays this game. 

Mr. McNally, the Wall Street Journal, on May 20, ‘‘Leon Panetta, 

Stephen Hadley: The Oil Export Ban Harms National Security.’’ I 

think you have seen the article. It states that, ‘‘The moment has 

come for the U.S. to deploy its oil and gas in support of its security 

interests around the world.’’ They say, ‘‘Too often, foreign policy debates in America focus on issues such as how much military power 

should be deployed in the Middle East, whether the U.S. should 

provide arms to the Ukrainians, or what tough economic sanctions 

should be imposed on Iran.’’ The article concludes, ‘‘Ignored is a 

FOREI-MBP-19 with DISTILLER

39 

powerful nonlethal tool, America’s abundance of oil and natural 

gas. The U.S. remains the great arsenal of democracy. It should be 

the great arsenal of energy.’’ 

So, I am going to have this article put in the record. 

Senator BARRASSO. Less than a month ago, William Cohen, 

former Secretary of Defense, wrote an article in Time magazine titled ‘‘Why President Obama Should Export Crude Oil.’’ He talks 

about the strategic benefits of lifting the ban. 

And I am going to have that article also submitted to the record. 

[EDITOR’S NOTE.—The two articles mentioned above can be found in 

the ‘‘Additional Material Submitted for the Record’’ section at the 

end of this hearing.] 

Senator BARRASSO. Mr. McNally, you served as a senior director 

of International Energy on the National Security Council for President George W. Bush’s administration. You have extensive experience evaluating the national-security/foreign-policy matters facing 

our Nation. Do you agree with these former Defense Secretaries, 

Panetta and Cohen, about the benefits of crude oil exports and U.S. 

security? 

Mr. MCNALLY. Thank you, Chairman Barrasso. 

I certainly do. And again, as I said in my prepared testimony, it 

harkens back to a time in our country when there was confidence 

in bipartisan support in our energy position globally. And again, 

when we were an arsenal of energy, when we did step up and backstop our allies with energy supplies. Now, in today’s world, we are 

not as powerful and big in the oil markets as we used to be. But, 

as we have discussed this afternoon, it does not take a lot of oil 

or gas to be exported to have real impacts. Matter of fact, you do 

not have to export any, just the—offering the option of exports 

helps. So, I certainly do agree that. 

I will say, Mr. Chairman, what I pleasantly discovered during 

my White House experience—and my only prior government experience was in the Peace Corps, sir, so this is my first time—was 

how, when it came to serious energy issues, there was bipartisanship. Democrats and Republicans, when it comes to the serious, 

hard energy policy questions, more often than not saw things similarly, and there was this commonality that I think you see now 

with the crude oil export debate and that you have seen in the past 

in our country’s history. 

Senator BARRASSO. Great. 

Mr. Gordon, let us see, you authored a ‘‘Crude Oil Export and 

U.S. National Security.’’ It was a very good piece—I am going to 

ask that this also be put in the record. 

Dr. GORDON. Thank you. 

[EDITOR’S NOTE.—The article mentioned above was too voluminous 

to include in the printed hearing. It will be retained in the permanent record of the committee.] 

Senator BARRASSO. It is interesting, when you get to page 16, 

some of the things I have underlined, address public concerns. It 

says, ‘‘Acknowledge and address public concerns regarding perceived negative effects on gasoline prices of exporting oil.’’ I mean, 

FOREI-MBP-19 with DISTILLER

40 

it almost sounded, from some of the questioning by some of the 

members—— 

Dr. GORDON. Yes. 

Senator BARRASSO [continuing]. That they think that we burn 

crude, when, in fact, we actually burn gasoline. And could you kind 

of help talk us through that a little bit? 

Dr. GORDON. Yes. So, I think that the public that we really need 

a public engagement process, because I think—I mean, while I do 

not agree with Senator Markey’s views that—there is no question 

that his views represent how a lot of people think about this. And 

so, it is a absolutely legitimate issue that he raises, and I think 

that is the key for addressing this. And I mean, I think that the— 

to my mind, the unconventional energy revolution is one of the 

most significant contributors to enhancing U.S. power and potential in the world that we have seen in recent decades, and that— 

I think that the risk of killing that golden goose are very, very profound, and it would really seriously undermine the United States. 

That means that we need to have a very big debate about the 

issues that Senator Markey raised, because the American public 

and, indeed, lots of Members of Congress are worried that it really 

is a zero-sum game here. I will defer to Mr. Webster and Mr. 

McNally to talk about some of the arguments. I am not an energy 

economist, I am a foreign policy analyst. But, I very much am of 

the view that the pathway for getting from here to there lies 

through a public debate that addresses these very, very real and 

critical issues that Senator Markey was talking about. 

Senator BARRASSO. Well, and I appreciate that, because, as one 

of our colleagues—not on this committee, but in the Senate—said 

to me—he invited me to come to one of his townhall meetings, and 

he said, ‘‘I want you to stand up there and explain to the people 

in my hometown why exporting crude is actually going to help 

lower the cost of gasoline at the pump.’’ Because, as you say, it is 

not. So, I am going to take you along with us if we go, thank you. 

[Laughter.] 

Mr. Webster, in terms of the OPEC decisions on crude oil, there 

has been a lot of speculation about the decision of OPEC to not cut 

oil production. Some individuals believe that Saudi Arabia and 

other OPEC members are trying to put pressure on Iran and its 

nuclear ambitions. People feel that OPEC is trying to encourage 

Vladimir Putin to abandon his support for the Assad regime. I 

mean, you can read a lot out there. Other folks say OPEC is trying 

to undermine America’s crude oil production. 

Given our interest in deterring Iran and Russia, do you believe 

it is a good time to lift the ban on exporting crude from the United 

States? 

Mr. WEBSTER. Thank you, Chairman. 

Yes, I was at the OPEC meeting, both on November 27 and just 

earlier in June, where they made that decision and continued that 

decision, partly, in fact, because of what is going on with U.S. production, recognizing that they were in a difficult spot to be able to 

push against it. 

Right now, to me, I—and I understand some of the concerns that 

people have that exporting crude oil is going to raise gasoline 

prices. It has not. Actually, the—right now, this boom in U.S. proFOREI-MBP-19 with DISTILLER

41 

duction kept us from very, very high prices before 2014 because of 

all of the outages we had from Iran and other places. And allowing 

continued oil production to the maximum extent allowed under a 

global oil price is only going to increase both U.S. energy security, 

but also global energy security. I am—often been quoted as saying 

that a—you know, a free barrel of oil anywhere increases energy 

security everywhere. And being able to bring all of those barrels to 

the fore both to supply U.S. refiners and U.S. consumers, but also 

global refiners, as well, is the sort of move that we need to make 

now that is going to allow us to continue to push back and continue 

to force OPEC to make these sorts of decisions and essentially become a free-market group. 

Senator BARRASSO. Thank you. 

And, Mr. McNally, in terms of natural gas, February this year, 

President Obama’s Council on Economic Advisors, they issued an 

economic report for the President, said, ‘‘An increase in U.S. exports and natural gas, and the resulting price changes, would have 

a number of mostly beneficial effects on natural gas producers, on 

employment, on U.S. geopolitical security and the environment.’’ 

The report explains that more U.S. natural gas exports would result in—as they say—an increase in GDP ranging from .05 percent 

to .17 percent in different export scenarios. It says that the U.S. 

natural gas exports of 6 billion cubic feet per day could support as 

many as 65,000 jobs. In addition, the report found that more U.S. 

natural gas exports would have, ‘‘a positive geopolitical impact for 

the United States. Specifically’’—and this is, again, the President’s 

Council on Economic Advisors—‘‘Specifically, it explains that the 

U.S. natural gas exports,’’ they say, ‘‘builds liquidity in the global 

natural gas market, reduces European dependence on the current 

primary suppliers, Russia and Iran.’’ 

And I see, Mr. Gordon you are shaking your hand up and down 

in agreement, as well. So, do you agree with the economic report 

of the President, that increasing U.S. exports of natural gas will result in increased GDP and create new jobs, have a positive geopolitical impact on the Nation? 

Dr. GORDON. Chairman Barrasso, I certainly do. And I think that 

report just repeats many private-sector studies that were done by 

Mr. Webster’s organization and others and the Department of Energy, frankly, which, when it considered its policy on export facilities. Had it believed Senator Markey’s scenario of 54 percent price 

increases, I am sure the Secretary of Energy and President Obama 

would never have accelerated and streamlined the export approvals. The—that was a—that was an extreme case. That was not the 

reference-based case. So, I think it is been well understood in this 

country for several years. And again, as I said in the outset, to 

your credit and your colleagues’ credit, that this gas boom, in particular, offers enormous economic and national security benefits. 

We saw that with Japan after the Fukushima disaster. That came 

clear to us during Russia’s aggression last year. It is something 

that is real—that has resulted in clear, tangible benefits in which 

the President, to his credit, and his advisors, has acknowledged. 

Thank you. 

Senator BARRASSO. Yes. 

FOREI-MBP-19 with DISTILLER

42 

And a final question, Mr. McNally. In case—I am trying to decide 

if I want to take you along with me with Dr. Gordon, here, when 

we go to this townhall meeting in a State that is not my own. 

Would you explain how expanding crude oil—exporting crude oil 

would lower gasoline prices at home in the United States? 

Mr. MCNALLY. Sure. I would be happy to join you, Senator. And 

that is a sincere promise. I would be happy to go and do that. And 

I will admit it is somewhat counterintuitive, because we associate 

gasoline price increases from the 1970s like a nightmare with the 

rise in oil imports back then. But, the way it works in the oil market, it is a global pool. And we—our gasoline prices are set by the 

price of crude oil in the global pool. So, what matters is how much 

oil is going into the pool and coming out of the pool. 

And, as Mr. Webster said, the more oil—crude oil—we can add 

to the world, the lower will be the price of crude oil globally and, 

therefore, the price of gasoline here. We need the crude oil export 

ban, or we need the option to export some types of our oil, in order 

to sustain production to keep our production high and the global 

price low. 

So, bottom line, get rid of the ban, which is not helping consumers right now. I want to be very clear. The Barclay study that 

Senator Markey mentioned has been widely discredited. That was 

written by equity analysts cherrypicking data from 2000—2008 and 

2009. The truth is, an EIA and other government agencies have 

also found, as have private-sector organizations, that the gasoline 

prices in the United States are not set by WTI, the U.S. price. The 

discount that U.S. producers have been forced to accept is not helping consumers. It is only helping some refiners, who are earning 

very—even fatter margins than they are already. 

And so, net-net, sir, get rid of the ban. We will have more supply. 

If we have more supply, the price will go down for everybody. 

I will be happy to join you, sir. 

Senator BARRASSO. Well, and finally, Mr. McNally, I understand 

that the Congressional Budget Office, the Government Accountability Office, and the Federal Reserve Bank of Dallas, as well as 

the Energy Infrastructure—Information Administration, has made 

the same findings. 

Mr. MCNALLY. Yes, sir. And, if I may, in a spirit of bipartisanship, I think the most passionate and articulate encapsulation of 

this argument was made by Mr. Summers, the former Treasury 

Secretary of President Obama. And I think that he clearly said 

that—what we all know, really—that Economics 101 works, sir. 

And if we add to global supply, we will have lower prices for everybody. It is just that simple. More supply, lower prices. 

Thank you, sir. 

Senator BARRASSO. Well, I want to thank each of you for being 

here today. 

The record will remain open for a period of time. There may be 

some submitted questions. I hope you get those answers back to us 

promptly. 

This was very informative. We had good bipartisan participation. 

So, thanks so much for your testimony. 

The meeting is adjourned. 

FOREI-MBP-19 with DISTILLER

43 

[Whereupon, at 4:20 p.m., the hearing was adjourned.] 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

[FROM THE WALL STREET JOURNAL, MAY 19, 2015] 

THE OIL-EXPORT BAN HARMS NATIONAL SECURITY

The U.S. is willfully denying itself a tool that could prove vital in dealing with 

threats from Russia, Iran and others. 

(BY LEON E. PANETTA AND STEPHEN J. HADLEY) 

The United States faces a startling array of global security threats, demanding 

national resolve and the resolve of our closest allies in Europe and Asia. Iran’s 

moves to become a regional hegemon, Russia’s aggression in Ukraine, and conflicts 

driven by Islamic terrorism throughout the Middle East and North Africa are a few 

of the challenges calling for steadfast commitment to American democratic principles and military readiness. The pathway to achieving U.S. goals also can be economic—as simple as ensuring that allies and friends have access to secure supplies 

of energy. 

Blocking access to these supplies is the ban on exporting U.S. crude oil that was 

enacted, along with domestic price controls, after the 1973 Arab oil embargo. The 

price controls ended in 1981 but the export ban lives on, though America is awash 

in oil. 

The U.S. has broken free of its dependence on energy from unstable sources. Only 

27% of the petroleum consumed here last year was imported, the lowest level in 30 

years. Nearly half of those imports came from Canada and Mexico. But our friends 

and allies, particularly in Europe, do not enjoy the same degree of independence. 

The moment has come for the U.S. to deploy its oil and gas in support of its security 

interests around the world. 

Consider Iran. Multilateral sanctions, including a cap on its oil exports, brought 

Tehran to the negotiating table. Those sanctions would have proved hollow without 

the surge in domestic U.S. crude oil production that displaced imports. Much of that 

foreign oil in turn found a home in European countries, which then reduced their 

imports of Iranian oil to zero. 

The prospect of a nuclear agreement with Iran does not permit the U.S. to stand 

still. Once world economic growth increases the demand for oil, Iran is poised to 

ramp up its exports rapidly to nations whose reduced Iranian imports were critical 

to the sanctions’ success, including Japan, South Korea, Taiwan, Turkey, India and 

China. U.S. exports would help those countries diversify their sources and avoid 

returning to their former level of dependence on Iran. 

More critically, if negotiations fail, or if Tehran fails to comply with its commitments, the sanctions should snap back into place, with an even tighter embargo on 

Iranian oil exports. It will be much harder to insist that other countries limit 

Iranian imports if the U.S. refuses to sell them its oil. 

There are other threats arising from global oil suppliers that the U.S. cannot 

afford to ignore. Libya is racked by civil war and attacks by the Islamic State. Venezuela’s mismanaged economy is near collapse. 

Most ominous is Russia’s energy stranglehold on Europe. Fourteen NATO countries buy 15% or more of their oil from Russia, with several countries in Eastern 

and Central Europe exceeding 50%. Russia is the sole or predominant source of natural gas for several European countries including Finland, Slovakia, Bulgaria and 

the Baltic States. Europe as a whole relies on Russia for more than a quarter of 

its natural gas. 

This situation leaves Europe vulnerable to Kremlin coercion. In January 2009, 

Russia cut off natural gas to Ukraine, and several European countries completely 

lost their gas supply. A recent EU ‘‘stress test’’ showed that a prolonged Russian 

supply disruption would result in several countries losing 60% of their gas supplies. 

Further, revenue from sales to Europe provides Russia with considerable financial 

resources to fund its aggression in Ukraine. That conflict could conceivably spread 

through Central Europe toward the Baltic States. So far, the trans-Atlantic alliance 

has held firm, but the trajectory of this conflict is unpredictable. The U.S. can provide friends and allies with a stable alternative to threats of supply disruption. This 

is a strategic imperative as well as a matter of economic self-interest. 

The domestic shale energy boom has supported an estimated 2.1 million U.S. jobs, 

according to a 2013 IHS study, but the recent downturn in oil prices has led to masFOREI-MBP-19 with DISTILLER

44 

sive cuts in capital spending for exploration and production. Layoffs in the oil patch 

have spread outward, notably to the steel industry. Lifting the export ban would put 

some of these workers back on the job and boost the U.S. economy. 

Why, then, does the ban endure? Habit and myth have something to do with it. 

U.S. energy policy remains rooted in the scarcity mentality that took hold in the 

1970s. Even now, public perception has yet to catch up to the reality that America 

has surpassed both Russia and Saudi Arabia as the world’s largest producer of liquid petroleum (exceeding 11 million barrels a day). The U.S. became the largest natural gas producer in 2010, and the federal government will now license exports of 

liquefied natural gas. 

The fear that exporting U.S. oil would cause domestic gasoline prices to rise is 

misplaced. The U.S. already exports refined petroleum, including 875,000 barrels a 

day of gasoline in December 2014. The result is that U.S. gasoline prices approximate the world price. Several recent studies, including by the Brookings Institution, 

Resources for the Future and Rice University’s Center for Energy Studies, demonstrate that crude oil exports would actually put downward pressure on U.S. gasoline prices, as more oil supply hits the global market and lowers global prices. 

Too often foreign-policy debates in America focus on issues such as how much 

military power should be deployed to the Middle East, whether the U.S. should provide arms to the Ukrainians, or what tougher economic sanctions should be imposed 

on Iran. Ignored is a powerful, nonlethal tool: America’s abundance of oil and natural gas. The U.S. remains the great arsenal of democracy. It should also be the 

great arsenal of energy. 

[FROM TIME MAGAZINE, MAY 27, 2015] 

WILLIAM S. COHEN: WHY PRESIDENT OBAMA SHOULD EXPORT CRUDE OIL

‘‘The core of our strength overseas is economic strength at home’’ 

As the battle wages on in Congress over President Barack Obama’s signature 

trade agreements and the needed fast-track trade promotion authority (TPA), the 

President would be wise to consider alternatives that would enhance his trade legacy and also further our strategic priorities overseas. While energy is not included 

in the Trans-Pacific Partnership (TPP) or Transatlantic Trade and Investment Partnership (T–TIP) negotiations, many of the same Asian, European, and Latin American partners are calling for greater partnership with the United States on energy 

issues. By allowing the U.S. to become a stable source of supply to global energy 

markets, counteracting supply disruptions that will inevitably affect other energyrich regions, President Obama and Congress can double down on promoting longterm economic growth and reinforcing U.S. foreign policy leadership. 

The U.S. can do more with its energy resources to support this strategic vision. 

A direct way of leveraging this opportunity is to lift the ban on the export of crude 

oil and accelerate approvals for the export of liquefied natural gas (LNG). A series 

of policies and laws in the 1970s banned exports of U.S. crude oil with only limited 

exceptions. This ban is a relic from an age of energy scarcity and should be adjusted 

to reflect present realities. By working with Congress, and via Executive order, the 

President can start taking steps today to boost U.S. exports. 

There would be four strategic benefits to doing so. 

First, energy exports would strengthen NATO and our broader transatlantic relationship at a time of increased Russian aggression. The European Union has 

responded to Russia’s energy stranglehold by proposing policies designed to avoid 

future crises of supply and promote self-sufficiency. The E.U. antitrust case against 

Russian energy company Gazprom is important. But more can and should be done 

to build a strategic U.S.-European relationship on energy security. Working with 

our allies and partners, a joint effort to reduce Europe’s vulnerability to Russian 

energy coercion would be an important legacy for President Obama and send a 

signal to President Vladimir Putin that as long as he chooses to use energy as a 

weapon, the West will defend itself. While it will take years to build the necessary 

infrastructure to receive more LNG, enhance transport pipelines, and otherwise 

increase Europe’s energy resilience, there is no better time to start than now. 

Second, increased energy trade with our Asian partners would add substance to 

the U.S. rebalance to Asia, serving to bolster the region’s energy security and promote the continued economic vitality of allies such as Japan and South Korea, while 

also offering new areas for possible collaboration with China, India, and ASEAN 

members. 

Third, energy exports could open up a new era of collaboration in our own hemisphere. As Venezuela scales back its energy exports in response to domestic chalFOREI-MBP-19 with DISTILLER

45 

lenges, this presents a strategic opportunity for the U.S. to fill the energy void with 

the 17 Central American and Caribbean nations that have depended on Venezuelan 

energy subsidies. Moreover, increased energy integration among NAFTA members 

would create a North American energy powerhouse that will reinforce the above 

objectives. 

Finally, the core of our strength overseas is economic strength at home. The 

‘‘shale revolution’’ has created thousands of jobs, revitalized and expanded the 

domestic energy industry, spurred breakthrough technology with a global impact, 

and significantly improved the U.S. trade balance. The U.S. has tripled its exports 

of refined oil products over the last decade as a consequence of the recent energy 

boom. American primary energy firms, however, have been unable to capture higher 

gas and oil prices on the global market. A prudent way to support the continued 

expansion of the U.S. energy sector and our domestic energy security is to level the 

playing field by relaxing restrictions on American crude oil and LNG exports. Legislation such as the bipartisan LNG Permitting Certainty and Transparency Act 

introduced by Senators John Barrasso, a Republican from Wyoming, and Martin 

Heinrich, a Democrat from New Mexico, and supported by the Energy Department 

provide a good foundation to build on. 

For the first time in a half century, President Obama has the opportunity to rewrite the energy balance of power in our favor and solidify his legacy on trade. 

President Obama is the only U.S. president in decades who has had the tool of 

energy abundance at his disposal; he should use it. 

Æ 

FOREI-MBP-19 with DISTILLER