```

[Senate Hearing 114-17]
[From the U.S. Government Publishing Office]

                                                     S. Hrg. 114-17

                      U.S. CRUDE OIL EXPORT POLICY

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

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                              
                      ENERGY AND NATURAL RESOURCES
                      
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 19, 2015

                               __________

                       Printed for the use of the
                       
               Committee on Energy and Natural Resources
               
               
                                  _____
                                 
                     U.S. GOVERNMENT PUBLISHING OFFICE 

94-051 PDF                     WASHINGTON : 2015 
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                          Washington, DC 20402-0001              
               
               
               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                    LISA MURKOWSKI, Alaska, Chairman
JOHN BARRASSO, Wyoming               MARIA CANTWELL, Washington
JAMES E. RISCH, Idaho                RON WYDEN, Oregon
MIKE LEE, Utah                       BERNARD SANDERS, Vermont
JEFF FLAKE, Arizona                  DEBBIE STABENOW, Michigan
STEVE DAINES, Montana                AL FRANKEN, Minnesota
BILL CASSIDY, Louisiana              JOE MANCHIN III, West Virginia
CORY GARDNER, Colorado               MARTIN HEINRICH, New Mexico
ROB PORTMAN, Ohio                    MAZIE K. HIRONO, Hawaii
JOHN HOEVEN, North Dakota            ANGUS S. KING, Jr., Maine
LAMAR ALEXANDER, Tennessee           ELIZABETH WARREN, Massachusetts
SHELLEY MOORE CAPITO, West Virginia

                    Karen K. Billups, Staff Director
                Patrick J. McCormick III, Chief Counsel
                Tristan Abbey, Professional Staff Member
           Angela Becker-Dippmann, Democratic Staff Director
                Sam E. Fowler, Democratic Chief Counsel
     Tara Billingsley, Democratic Senior Professional Staff Member
     
     
                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Murkowski, Hon. Lisa, Chairman, and a U.S. Senator from Alaska...     1
Cantwell, Hon. Maria, Ranking Member, and a U.S. Senator from
  Washington.....................................................     7

                               WITNESSES

Pascual, Carlos, Fellow, Center on Global Energy Policy, Columbia 
  University and Senior Vice President, IHS......................     9
Lance, Ryan, Chairman and Chief Executive Officer, ConocoPhillips    22
Rosenberg, Elizabeth, Senior Fellow and Director, Energy, 
  Economics and Security Program, Center for a New American 
  Security.......................................................    41
Drevna, Charles T., President, American Fuel & Petrochemical 
  Manufacturers..................................................    51
Warmann, Jeffrey, Chief Executive Officer, Monroe Energy Inc.....   101

          ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

Association of American Railroads:
    Statement for the Record.....................................   142
Cantwell, Hon. Maria
    Opening Statement............................................     7
Drevna, Charles T.
    Opening Statement............................................    51
    Written Testimony............................................    53
Flournoy, Michele
    Statement for the Record.....................................     3
Lance, Ryan
    Opening Statement............................................    22
    Written Testimony............................................    24
Murkowski, Hon. Lisa
    Opening Statement............................................     1
Pascual, Carlos
    Opening Statement............................................     9
    Written Testimony............................................    13
    Responses to Questions for the Record........................   136
Rosenberg, Elizabeth
    Opening Statement............................................    41
    Written Testimony............................................    43
Warmann, Jeffrey
    Opening Statement............................................   101
    Written Testimony............................................   103
    Responses to Questions for the Record........................   138
National Stripper Well Association:
    Statement for the Record.....................................   145

 
                      U.S. CRUDE OIL EXPORT POLICY

                              ----------                              

                        Thursday, March 19, 2015

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:06 a.m. in 
room SD-366, Dirksen Senate Office Building, Hon. Lisa 
Murkowski, chairman of the Committee, presiding.

               Opening Statement of Hon. Lisa Murkowski, 
                        U.S. Senator From Alaska

    The Chairman. Calling to order the Energy Committee meeting 
this morning. Welcome to members of the Committee. Welcome to 
our panelists and to those who have come to listen and hear the 
discussion on U.S. crude oil export policy.
    It's good to have the discussion in front of this 
Committee. Clearly a very timely topic.
    More than a year has passed since January of '14 when this 
Committee, then under Chairman Wyden, held its first hearing in 
over a full decade on crude oil exports. Since then the 
Congress has held an additional five hearings. That's moving 
right along here which is good to know.
    Our hearing this morning is the seventh now that we have 
held in just over a year. This represents substantial progress 
on the education front. When I first had an opportunity to 
bring up the issue of oil exports and the need to reexamine our 
policy here in this country with the current export ban, it 
felt like I was a pretty lonely voice out in the wilderness. 
But I made a very clear effort, initially, to say that this was 
going to be about education. This was not about moving a 
legislation through that was not thoughtful and considered, but 
really this was about an education and an awareness effort. And 
we've seen just that.
    We've seen analysis from the Government Accountability 
Office, from the Brookings Institution, the Heritage 
Foundation, the Council on Foreign Relations, the Center for 
Strategic and International Studies, the Cato Institute, the 
Aspen Institute, the Center for American Progress, the 
Congressional Budget Office, Columbia University Center on 
Global Energy Policy, Resources for the Future, Center for a 
New American Security, Peterson Institute for International 
Economics, ICF International, IHS, NEARA and even more beyond 
that.
    The vast majority of this analysis ends up in the same 
place, and I think it's important that we understand that. But 
we hear the other side.
    The U.S. Energy Information Administration has also 
published three reports as part of the ``dynamic and ongoing 
analysis'' that I requested last year and is due to release 
some final pieces very soon.
    When I mentioned last year that 2014 would be the year of 
the report, it seems clear to me that it was exactly that. That 
these various institutions, these thought leaders engaged in 
that willingly and with a certain amount of energy which was 
good.
    But the year of the report is coming to an end. While I 
continue to believe that the Administration retains extensive 
authority explicitly delegated to it by previous Congresses in 
statute, it is also appropriate for us to consider our 
legislative options. So just stay tuned here.
    Before I turn to Ranking Member Cantwell, I would like to 
introduce into the record a statement that we received from 
Michele Flournoy, who is the former Under Secretary for Policy 
at the Department of Defense under President Obama from 2009 to 
2012. Our schedule, unfortunately, did not permit her 
attendance, but there is one brief quotation from what, I 
think, is a very important statement. She states the following, 
``Lifting oil export restrictions will yield a variety of 
security dividends to the United States. Market conditions 
merit such a step and security dividends will not be fully 
realized without it.'' She goes further into her statement to 
speak about the significant security benefits associated with 
lifting oil export restrictions and our flexibility then as a 
nation to impose energy sanctions into the future.
    Again, I will submit her statement in full as part of this 
Committee record.
    [The information referred to follows:]
    
    [GRAPHIC] [TIFF OMITTED] 
    
    The Chairman. The national security side of the equation 
will be, I think, a very extremely important part of this 
conversation going forward. I look forward to comments from our 
witnesses as you present this morning, not only in this area, 
but on other aspects of this policy consideration that we have 
in front of us.
    Again, I thank you all for being here. I look forward to 
your testimony.
    I will turn to Ranking Member Cantwell and then we'll have 
an opportunity for each of you to present your statements and 
we will turn to questions for each of you.
    With that, Senator Cantwell.

                   Statement of Hon. Maria Cantwell, 
                      U.S. Senator From Washington

    Senator Cantwell. Thank you, Madam Chair. I too, want to 
welcome the witnesses and thank you for holding this hearing.
    This Committee last held a hearing on crude oil exports 14 
months ago. At that hearing many of my colleagues noted the 
historic nature of the subject.
    The U.S. Congress banned the export of crude oil in 1975 
after oil exporting nations had used their export capacity as 
an economic weapon which caused serious damage to the U.S. and 
to the global economy.
    Since that time there has never been a reason to revisit 
the ban. For decades we, in Congress, have debated the best 
ways to deal with our country's ever increasing dependence on 
imported foreign oil. Within the last decade we actually 
started to see that situation reverse as we started consuming 
less, producing more and importing less.
    Three major policy changes came together to change the U.S. 
Energy Security paradigm. We started using our transportation 
fuel more efficiently by increasing fuel efficiency 
requirements. We started to break the oil sector's monopoly on 
gas tanks by replacing ten percent of our transportation fuel 
with ethanol and bio diesel and promoting electrification of 
vehicles. And our long term investments in the government-
funded basic research on oil and gas production started to pay 
off.
    It's the combination of all three of these policy measures 
that has brought us here today because not only are we now 
producing more oil than we ever anticipated, thanks to the good 
work of the Department of Energy and Sandia National Laboratory 
and the public and private sector partnerships it has created, 
but we've also stopped consuming more and more oil every year.
    Between 1982 and 2007 gasoline consumption in the United 
States grew every single year. It appears now that 2007 was the 
peak year for gasoline consumption. In 2007 we used 391,000,000 
gallons of gasoline in this country. In 2014 we used only 
374,000,000.
    If you count every year from 2008 through 2014 Americans 
have saved 119,000,000 gallons compared to 2007.
    Assuming three dollars per gallon, that's $356 million that 
Americans spent on something other than gasoline between 2008 
and 2014.
    I think it's important for us to recognize that we have had 
success on both the supply side and the demand side of the 
equation in terms of reducing our dependence on imported oil. 
Now the oil industry is asking to repeal the export ban.
    As our oil industry producers produce more at home but our 
consumption stays relatively flat, our industry wants to sell 
American oil into the foreign markets where it can get a higher 
price. But let's be clear about this. The United States is and 
will remain a net oil importer.
    As we talk about whether we should export oil, we need to 
keep in mind that for every barrel of oil we export we will be 
importing even more.
    The question before us today is whether this policy change 
will be in the interest of the American people. As policy 
makers our obligation is not to any particular industry nor to 
any particular economic theory. Our responsibility is to decide 
what policies provide the greatest good to the greatest number 
of people.
    As we consider these questions of whether this export ban 
is still the right policy for America, I think we should think 
about three variables.
    First, price. Economic effects of oil and gas prices ripple 
through our economy. Lower oil prices act like a tax cut for 
the vast majority of Americans. No one wants to see the price 
at the pump go up, not in my State of Washington or I'm sure 
throughout the country.
    In a published poll this week by Allstate in the National 
Journal Heartland Monitor, 79 percent of Americans said the 
current price drop has made a difference in their financial 
situation. The same percentage of respondents said they are 
using what they save at the pump daily for other necessities or 
paying down debt.
    I would rather have Americans get their own fiscal house in 
order verses more at the pump for their transportation needs.
    Second, safety. The oil is moving around our country in 
ways that we never anticipated, even just five years ago. Oil 
production has increased faster than the infrastructure needed 
to transport it in the safest ways.
    My state currently has tens of thousands of barreled oil 
traveling through every major population center of our state. 
And I want to be clear about this. We currently do not have the 
regulations on the books to safely transport this product. I am 
going to be working for further measures to make sure that we 
do get those standards in place.
    Third, energy security. No one consumes oil. We consume 
gasoline, diesel and other products that are made from oil. If 
we are sending oil abroad while some regions of our country 
then have to import gasoline, diesel and home heating oil, that 
were refined someplace else are we exporting our energy 
security and that we've all worked so hard on?
    These are some of the issues that I think we need to 
consider today.
    In a poll conducted in 2014 Hart Research found that 69 
percent of Americans are opposed to lifting the export ban. 
Other polls find that the public is largely opposed. Labor 
unions, including the AFL-CIO and steel workers, are opposed. 
And I guarantee you if we start talking about lifting the Jones 
Act as a requirement there will be many more that are opposed.
    In addition, my home state independent refiner, U.S. Oil in 
Tacoma, is also against lifting the ban.
    So we have a variety of opinions from people, public 
opinion, as well as from a variety of sources.
    I will just leave us with one quote that, I think, is a 
reminder about this debate from Teddy Roosevelt in his 
Administration Papers on Conservation of Minerals in 1909. 
Teddy Roosevelt's Administration found, ``The greatest waste of 
petroleum has been in exporting crude petroleum and petroleum 
products to foreign countries. The necessity for it has been 
due to the sudden increase of production due to the discovery 
and immediate development of large fields and only by this 
means has it been possible for the producers to continue to 
obtain a constant market for petroleum where ever produced. 
This immediate purchase of product has meant a gain of millions 
of dollars to the producers.''
    I think the same observation is relevant today, and I hope 
that as we're considering this we'll take into consideration 
the policy impacts to all of our economy.
    Again, I thank the witnesses for being here today, and 
thank you, Madam Chair, for calling this hearing.
    The Chairman. Thank you, Senator Cantwell.
    We will now go to our panelists. I will introduce each of 
you. We will start from my right here and go down the line.
    We first have Mr. Carlos Pascual, who is a Fellow at the 
Center on Global Energy Policy at Columbia University and the 
Senior Vice President at IHS. Welcome to the Committee.
    Following Mr. Pascual this morning will be Mr. Ryan Lance. 
Mr. Lance, thank you for agreeing to be before the Committee. 
He is the Chairman and the CEO of ConocoPhillips. Welcome.
    Next to Mr. Lance is Elizabeth Rosenberg, the Senior Fellow 
and Director for Energy, Economics and American Security at the 
Center for a New American Security. Thank you, and welcome back 
to the Committee.
    And Mr. Charles Drevna, we have opportunity to see Mr. 
Drevna before the Committee every now and again. He is the 
President of the American Fuel and Petrochemical Manufacturers. 
Good to have you back.
    At the end we have Mr. Jeff Warmann, who is the CEO of 
Monroe Energy. Welcome also to the Committee.
    With that, Mr. Pascual, if you would like to lead off with 
your five minutes. Your full testimony will be incorporated as 
part of the record. We'd ask you to try to adhere to the five 
minutes so we all have an opportunity to ask questions of you 
as well.
    Proceed.

 Statement of Carlos Pascual, Fellow, Center on Global Energy Policy, 
            Columbia University, Senior Vice President, IHS

    Mr. Pascual. Thank you very much, Chairman Murkowski, 
Ranking Member Cantwell and members of the Committee. I 
appreciate the opportunity to testify before you on the topic 
of crude oil exports from the United States.
    I want to address why eliminating the export ban on crude 
oil will create jobs, raise incomes, stimulate economic growth, 
lower gasoline prices and strengthen our national security and 
American influence in the world.
    I appear before you in my capacity as Senior Vice President 
for IHS. Just this week IHS issued an exhaustive new study on 
crude oil exports. I previously served as the Coordinator for 
International Energy Affairs and Special Envoy on Energy at the 
State Department. I'm associated with Columbia University as a 
Fellow at the Center on Global Energy Policy.
    Over the past year as Energy Envoy for the United States, I 
engaged in some of the toughest challenges at the intersection 
of energy and geopolitics from negotiating the implementation 
of energy sanctions of Iran to addressing the energy risks to 
Ukraine and Europe from Russia's violation of Ukraine's 
national sovereignty. From my experience I have seen that 
lifting the export ban would increase U.S. credibility and 
leverage in convincing international partners to adopt policies 
that mirror U.S. interests on Iran, Russia, free trade and even 
the environment.
    The ban on crude oil exports is an anachronism that grew 
out of a period of scarcity in the 1970s. The United States now 
has the fastest growing oil economy in the world. Since 2008 
the U.S. crude oil output increased by 81 percent. This 
increase exceeds the combined production gains from the rest of 
the world. The conditions that justify the crude oil export ban 
in 1973 no longer apply.
    This new crude production, however, does not consistently 
match the processing capabilities of Gulf Coast refineries. Not 
all products can be produced to a finished state for sale. In 
some cases refinery capacity is reduced. To use light, tight 
oil many Gulf Coast refiners require a price discount that 
deters investment and oil production.
    The dramatic fall in oil prices since November makes this 
issue even more urgent. Over the past 30 days U.S. light crude 
oil has sold in the range of $45 a barrel compared to about $55 
a barrel for the global price of Brent. That $10 difference 
will be crucial in determining the viability or not of many new 
investments in U.S. oil and gas production. The effects will be 
felt on jobs, the budgets of many states and in the supply 
chains that traverse non oil producing states as well.
    IHS estimated in 2014 that eliminating this price discount 
through exports would incentivize nearly $750 billion more in 
investment from 2016 to 2030, an increase in oil production by 
1.2 million barrels a day.
    The IHS report released this week, ``Unleashing the Supply 
Chain,'' documents these benefits across the economy from 2016 
to 2030. $86 billion in additional GDP. About 400,000 new jobs 
annually. 25 percent higher pay for workers in the energy 
industry supply chain. An additional $158 per household and 
$1.3 trillion in federal, state and municipal revenue from 
corporate and personal taxes.
    These benefits include sectors that cut across 
transportation, steel, professional and financial services 
across most of the United States.
    The diesel engines, for example, driving the drilling rigs 
and hydraulic fracturing equipment are largely manufactured in 
the industrial heartland of Illinois, Indiana, Wisconsin and 
Michigan.
    Oil development in North Dakota relies on companies that 
provide banking and financial and insurance services in 
Chicago, New York, Dallas, San Francisco and Boston.
    Ohio, Michigan and Pennsylvania have large capital 
equipment manufacturing sectors which are supported by local 
materials and component suppliers.
    In Washington State the technology and manufacturing 
sectors are expected to grow rapidly.
    Perhaps surprisingly for some, the benefits also extend to 
lower gasoline prices allowing the export of U.S. light--tight, 
light oil would increase the supply of light crudes that 
establish the international Brent price benchmark pushing U.S. 
gasoline prices down by eight cents per gallon under our 
conservative assumptions between 2016 and 2030.
    The benefits for national security are extensive as well 
and let me cite a few examples.
    First, maintaining the export ban increasingly undercuts 
U.S. credibility and its three decades endeavor to persuade 
other nations to permit free flows of energy trade and not 
constrain trade in strategic commodities with political 
restrictions and resource nationalism.
    The United States, for instance, has launched numerous 
complaints in the GATT and WTO against China exactly because of 
these kinds of restrictions on natural resources. It would be 
against our interest to see Russia use such precedence today to 
curtail gas supplies to Europe.
    Second, the United States and all energy consumers benefit 
most when energy supply is diversified. As the U.S. has 
increased natural gas production by 35 percent since 2009, we 
have reduced our imports allowing about 75 billion cubic meters 
of gas once intended for the United States to be redirected 
globally, especially to Europe. Those changes created 
competition with Russia's Gazprom to lower natural gas prices 
and create an internal gas market in Europe that has supplied 
gas to Ukraine through those flows. If we eliminate the crude 
oil export ban, the United States would similarly signal that 
it is committed to a globally competitive oil market that 
reduces and neutralizes regional dominance.
    Third, there are times when energy must be used as an 
instrument in foreign policy. In 2012 the United States and 
Europe imposed sanctions on Iran's oil exports, and we asked 
China, India, Turkey, Japan, Korea and other major importers to 
act with us. As the person coordinating these negotiations I 
can assure the Committee, as a lead U.S. negotiator, that the 
U.S. negotiating position would have been far stronger if we 
were not protecting U.S. oil export restrictions when we are 
asking others to risk higher oil prices for international 
security.
    Finally, resource nationalism will be front and center.
    The Chairman. Mr. Pascual, we're going to have to ask you 
to tie it up, please. Thank you.
    Mr. Pascual. Okay. Will be front and center in debate over 
climate change where again, one of the critical issues will be 
what kind of sacrifices our country is willing to make to 
reduce carbon emissions. We will have much greater credibility 
if we are able to say that we do not have our own restrictions.
    With free trade, the U.S. benefits from higher prices for 
light tight oil, stronger domestic production incentives and 
the stream of economic and national security benefits are 
outlined in the testimony. Still Gulf Coast refiners can import 
and refine heavier crudes with stronger commercial results.
    I appreciate, Madam Chairman, your leadership and that of 
this Committee to assess this issue. The benefits that come 
with ending the crude oil export ban justify your efforts.
    Thank you for this opportunity to testify before your 
Committee, and I welcome the opportunity to respond to your 
questions.
    [The prepared statement of Mr. Pascual follows:]
    
    [GRAPHIC] [TIFF OMITTED] 
    
    The Chairman. Thank you, Mr. Pascual. Mr. Lance.

       Statement of Ryan Lance, Chairman and CEO, ConocoPhillips

    Mr. Lance. Thank you, Madam Chairman Murkowski, Ranking 
Member Cantwell and Committee members. I appreciate the 
opportunity to give you my perspectives on the need for oil 
exports. These perspectives are based on 35 years of experience 
in the industry.
    I started working in the drilling rigs in Montana. My 
family owned a wheat farm there. I put myself through college 
and obtained a petroleum engineering degree.
    When I graduated I went to work on Alaska's North Slope, 
for 14 years. I'd like to think I made sour dough status, but 
it depends on who you ask. Then from there to California and 
since then throughout the U.S. and around the world.
    I've seen industry booms and busts. I've seen projects that 
worked and ones that didn't, but I've never seen anything quite 
like this energy renaissance we're going through today.
    Today our country has access to a vast oil and gas resource 
base. Production and reserves are rising from unconventional 
sources like shale, and they're exceeding our expectations.
    Consumers are saving at the utility meter and also at the 
gas pump.
    Oil and gas now supports 9.8 million U.S. jobs, and 40 
percent of the U.S. GDP growth in recent years came from our 
industry.
    After decades of declining production our national fortunes 
are truly changing. This energy renaissance has benefitted our 
country both domestically and geopolitically. We really have 
shifted the oil market's center of gravity away from unstable 
sources. Even as President Obama said, ``America is number one 
in oil and gas.''
    We have a bright energy future. That's a new concept for 
us. We did it through American-made technology and ingenuity, 
but there is a problem. We're producing more oil than our 
refineries can process economically.
    With any other energy commodity we just export some to the 
global markets. We do that with refined products today 
including gasoline. In fact we had record exports of U.S. 
refined products last year. But crude oil is the only energy 
product banned for export and that needs to change.
    Most production from unconventional sources is tight oil. 
It doesn't match our refineries that were built for heavy oil. 
To take more light oil the refineries have to run inefficiently 
or at lower rates.
    They could install new condensate splitters to process more 
light oil, but that could cost, on average, $400 million per 
refinery. Getting air permits, we think, is a problem. 
Meanwhile, refineries already face big investments to meet 
tougher gasoline standards. So they probably can't expand as 
much as is needed. Instead to protect their economics refiners 
generally pay less for the oil.
    The world oil futures today sells around $53 a barrel, with 
American oil selling for $43. That's a $9 to $10 discount, and 
that's been typically running $5 to $10. This is having an 
impact on American producers, particularly in this low price 
environment we find ourselves today.
    It disadvantages us against our competitor overseas, and 
every dollar discount is a dollar less invested in American 
production. Also, some of these light oil projects are 
uneconomic at prices below $70 a barrel and most of them are 
uneconomic at $40 a barrel.
    But we expect our light oil production to continue growing. 
And by 2020 our output capacity could be two million barrels a 
day over the capacity to refine it. Either that or our projects 
will be uneconomic due to low prices.
    So we need oil exports. Exports could incentivize three 
million barrels a day of new production, on average 400,000 to 
800,000 new jobs per year. We'd gain $86 to $170 billion in 
annual GDP. The trade balance would improve by $67 million 
annually, and as Carlos has said government would gain $1.3 
trillion of additional royalty and tax revenue through 2030. 
And consumers will gain lower gasoline prices.
    Our exports would expand world oil supplies. That would 
drive gasoline prices down and the savings would be at least 7 
to 12 cents per gallon. But even with exports U.S. refiners 
will still have all the light oil they need. They will still 
have an advantage over our competitors elsewhere, and that's 
due to shipping costs.
    So in closing, nature has blessed America with a huge new 
resource. Let's make the most of it. We need crude oil exports.
    Thank you, and I'll look forward to your questions.
    [The prepared statement of Mr. Lance follows:]
    
    [GRAPHIC] [TIFF OMITTED] 
    
    The Chairman. Thank you, Mr. Lance. We appreciate you being 
here. Ms. Rosenberg, welcome.

 Statement of Elizabeth Rosenberg, Senior Fellow and Director, Energy, 
   Economics and Security Program, Center for a New American Security

    Ms. Rosenberg. Thank you. Chair Murkowski, Ranking Member 
Cantwell and members of the Committee, thank you for the 
opportunity to testify today on the issue of U.S. crude oil 
export policy.
    Recent dramatic increases in U.S. energy production have 
reshaped our oil industry in some of the ways that my fellow 
panelists have just described, our industrial output and many 
of our global trading relationships. This oil boom has improved 
our GDP and our balance of trade, and it has meaningfully 
advanced our energy and national security. These benefits, 
however, will be clipped if policy makers do not change the 
1970s era crude export policies that prevent U.S. oil from 
moving to markets overseas.
    In today's abundant oil market supply conditions with a 
problematic mismatch between the increasing new volumes of 
domestic light oil and a refining industry geared towards 
heavier oil. Export restrictions don't make sense. They prevent 
U.S. producers from accessing international buyers able to 
process more light crude and who will pay international 
benchmark prices. This depresses domestic prices and distorts 
the market and in turn, this constraints the growth potential 
for domestic producers and the domestic economy more broadly.
    Only a subset of American refiners benefit from the 
depressed domestic oil prices, and these refiners do not pass 
on cost savings to consumers as gasoline prices are largely 
determined by global Brent benchmarks. Removing the oil exports 
ban will alleviate market distortions and it will improve 
productivity, efficiency and economic growth.
    One of the key economic benefits associated with lifting 
the ban is the stimulus this will provide for energy production 
growth which a variety of studies suggest will decrease 
domestic refined product prices and expand the GDP, 
strengthening our economy. The engine of our national security 
strengthens the United States to lead on international, 
economic, strategic and defense matters.
    In addition to benefitting U.S. interests at home, lifting 
the ban will support our foreign partners and our interests 
abroad. More U.S. crude shipped overseas will diversify the 
global supply pool and allow our trading counterparts abroad to 
achieve a more optimized mix of imported energy commodities. 
This will enhance their market efficiencies, lower costs for 
consumers and enhance economic growth. These factors make the 
United States a more important trading partner for economies 
abroad which will in turn expand U.S. soft power leverage in 
the conduct of our foreign affairs.
    Additionally, lifting the export restrictions will set the 
right anti-protectionist tone on trade. At a dynamic time in 
global energy markets and at a critical point in trade 
negotiations with our Atlantic and Pacific partners, the United 
States should affirm a commitment to free trade in energy and 
the expectation that trading partners will similarly adopt 
similar commitments.
    Additionally, open energy trade is in line with our WTO 
commitments and will be indispensible in winning potential 
future natural resource trading disputes.
    Another important benefit of lifting the oil export ban is 
the contribution it will make to U.S. and international energy 
security. When more of the global oil supply pool comes from 
stable producers, the overall market is more stable. U.S. crude 
will be shipped via fewer maritime hot spots or choke points 
such as the Straits of Malacca and Hormuz and the South and 
East China Seas.
    Particularly in times of market crisis the unrestricted 
ability of U.S. producers to export will make them more 
responsive to market signals and better able to quickly adapt. 
This contributes to market conditions that can quickly resolve 
and possibly even deter actions by foreign producers to use oil 
as a strategic weapon. Lifting the export ban will also give 
the United States more flexibility to sustain and expand energy 
sanctions in the future.
    Allies of the United States, many of whom reluctantly 
participated in energy sanctions in the past, may prove 
unwilling to participate in further sanctions unless the United 
States makes a serious proactive effort to stimulate 
alternative oil supplies which will help to keep the market 
balanced and minimize price spikes. If the United States cannot 
convince allies to join on energy sanctions against adversaries 
in the future, the threat of new sanctions will not be credible 
and their effect will not be forceful.
    Washington has a unique window of opportunity to harvest 
dividends from abundant domestic energy. Policy makers should 
lift the oil export ban to promote economic growth and allow 
the United States to reap the geopolitical advantages of having 
a larger and more flexible role in the global oil market.
    Thank you and I look forward to your questions.
    [The prepared statement of Ms. Rosenberg follows:]
    
    [GRAPHIC] [TIFF OMITTED] 
    
    The Chairman. Thank you. Mr. Drevna, welcome.

     Statement of Charles T. Drevna, President, American Fuel and 
                      Petrochemical Manufacturers

    Mr. Drevna. Madam Chair, Ranking Member Cantwell and 
members of the Committee, thank you for the opportunity for us 
to present AFPM's views on the crude export ban.
    At the outset I'd like to underscore a couple of items.
    First, AFPM does not necessarily oppose the lifting of the 
crude export ban. We do represent more than 95 percent of the 
refining capacity here in the country; however, we do believe 
the free markets allow companies to compete and provide the 
highest quality goods at the lowest price.
    So it's important to frame this discussion in two ways.
    First, please, Congress should not narrowly limit the scope 
of this debate to one issue.
    We've been lurching from energy crisis to energy crisis for 
as long as most of us can probably remember. Now we have an 
opportunity to change crisis into opportunity. And as a result 
there are a number of other free market, anti-free market, 
policies that if left unaddressed, when, if and when, the U.S. 
lifts the ban on exports, will make U.S. refineries less 
competitive than our global competitors.
    For instance, if we lift the oil export ban without 
addressing that famous Jones Act it will become more cost 
effective for a barrel of crude oil to be shipped from Houston 
to Europe, refined and shipped back to the U.S. East Coast as 
gasoline than it would be just to ship that barrel of crude 
from Houston to Philadelphia. This makes no sense and I would 
love to be at the next town hall where elected officials try to 
explain that we're selling oil to our competitors cheaper than 
we sell it to ourselves.
    Surely if we're discussing the shedding of the vestiges of 
the 1970s energy policy we can discuss the shedding of the 
vestiges of a 1920 shipping policy.
    Second, this debate should be grounded in fact. To that 
point I'd like to describe a survey we released yesterday 
detailing the dynamic nature of the refining industry and the 
investments we're making to absorb more light, sweet crude. 
There have been several studies of the benefits of allowing 
crude exports, you mentioned a lot of them, that perpetuate a 
tremendous understanding about U.S. refiner's ability to keep 
up with increasingly amounts of very light crude oil is being 
produced.
    These studies focused on one part, the supply chain, of the 
supply chain crude production. And seemed to assume the rest of 
the chain distribution storage and refining has no dynamic 
response. We took another route.
    We simply asked our members what they are doing and what 
their plans are in the near term to deal with this new light 
crude oil. In other words, this survey is not based on modeling 
or hypothetical scenarios, but on actual refiner's plans.
    Bottom line. The refiners plan to increase their use of 
their light, sweet crude by over 730,000 barrels a day from 
2014 through '16. This is more than EIA's projected increase 
for that time frame.
    The survey also pointed out the importance of being able to 
access the new production. For the refiners getting the crude 
has been much more of a bigger issue than refining it. If 
logistics were not an issue, respondents could process 1.5 
billion barrels a day more crude in 2016 than they did in 2014 
without any further investments than they already have in the 
works today.
    From 2013 through '16 the respondents are investing over $5 
billion to use more light, sweet crude. Now to put this is some 
sort of context. We, the refining sector, do it by $10 billion 
of capital investment each year. So in one year you can see 
that, $10 billion. In $5 billion over four years is perhaps 
about ten percent of their capital program.
    The survey asked about the logistic activities to get new 
production to refineries. Most crude delivery was actually from 
the Bakken region where, in North Dakota, not surprising since 
this was a new region never connected to the refining system. 
But old regions in the Permian and the Eagle Ford areas in 
Texas also had significant crude delivery activities.
    While these old regions had some delivery infrastructure 
problems, or infrastructure in place I should say, the 
reinvigorated production required some more infrastructure to 
get it to refiners. These results underscore, once again, that 
policies facilitating infrastructure development are vitally 
important.
    Now let me be again clear. We do not--we support free 
market, and we do not oppose the export, the lifting of the 
export ban. But let's not be fooled into thinking that the 
restriction on crude exports is the only barrier to a free 
market.
    Refiners currently struggle with a number of barriers 
including the Jones Act and that infamous RFS that inhibit an 
energy policy that is based on truly, on a free market. The 
debate can't happen in silos. We must take a holistic approach 
because you can't change one policy without understanding the 
other, that it will impact other policies. We must consider the 
unintended consequences.
    Thank you very much. And I look forward to your questions.
    [The prepared statement of Mr. Drevna follows:]
    
    [GRAPHIC] [TIFF OMITTED] 
    
    The Chairman. Thank you, Mr. Drevna. And let's finally hear 
from Mr. Warmann, welcome.

 Statement of Jeffrey Warmann, Chief Executive Officer, Monroe Energy 
                                  Inc.

    Mr. Warmann. Thank you, Chairman Murkowski, Ranking Member 
Cantwell and the members of the Committee. Thank you for 
inviting me to testify.
    My name is Jeff Warmann. I'm the CEO and President of 
Monroe Energy. We own and operate a refinery in Trainer, 
Pennsylvania. I have 30 years of experience in the petroleum 
industry. I'm here to testify on behalf of Monroe Energy and 
the Crude Coalition.
    Current restrictions on exports of U.S. crude oil provide 
real economic benefit to U.S. consumers, businesses and protect 
our national energy's independence and security. The repeal of 
this law would do great harm and lasting damage to these vital 
interests.
    I want to make five points this morning, very quickly.
    First, the export law benefits U.S. consumers and 
businesses. The impact of lower fuel costs to U.S. household 
income and consumer confidence can't be understated. It's 
dramatic. It's measureable. It's broad based and it's real.
    The new Allstate national journal poll has confirmed that 
lower gasoline prices have made a huge difference in American 
families' lives allowing them to spend more of their savings 
and money in ways that ripple throughout our economy. An 
average family saves over a thousand dollars from lower fuel 
prices right now. Do we really want consumers to lose this 
savings?
    Lower fuel prices also reduce the cost of doing business, 
especially in transportation, petrochemical, agricultural and 
manufacturing sectors.
    Second, there is no free trade in the international crude 
market.
    Let me be crystal clear about this point. I strongly 
support free trade, but the global crude market is neither open 
nor is it free.
    There is no inconsistency for free trade and against crude 
exports. Lifting our export restrictions would allow the 
transportation of U.S. crude outside of competitive American 
market into a less competitive global one that's controlled by 
OPEC. OPEC is a cartel in every sense of the word and will 
continue to manipulate the world's oil market to its desires.
    Third, removing the export restrictions would raise crude 
oil prices and cost American jobs.
    The shale oil revolution breathes new life into close 
refineries. We created thousands of refinery jobs for workers 
as well as supporting tens of thousands of additional jobs 
throughout the nation. Refining jobs have a huge multiplier 
effect.
    A study commissioned by the Commonwealth of Pennsylvania 
found that for each local refinery job it supports 61 jobs 
nationwide. That means one refinery employing a thousand 
workers supports 61,000 jobs nationwide. Repealing this law 
would benefit foreign refinery workers at the expense of all 
these thousands of American jobs. Our refineries would lie 
dormant again.
    Fourth, the U.S. refineries have plenty of capacity to 
process light crude, and I defer to the AFPM studies as well as 
the Baker O'Brien studies. Every one of the opposing studies, 
like my colleague here Charles Drevna has said, look at it in a 
very static mood, not a dynamic mood--mode and we can 
accommodate the light, tight oil produced even under the most 
optimistic scenarios by the EIA.
    Fifth, the purpose the export law is as important today as 
when it was enacted. Despite the production renaissance of 
recent years our country still imports 35 percent of our total 
crude oil needs from OPEC countries, over three million barrels 
a day and three times as much oil from Saudi Arabia as we did 
at the time that the export law was put in place.
    Exporting U.S. crude means importing more oil from overseas 
and subjecting ourselves to the whims and the uncertainty of 
OPEC regimes. We are on the cusp of developing true energy 
independence where we can produce, refine and domestic oil 
virtually filling every petroleum need here at home. Allowing 
exports of American crude sabotages this goal which has been an 
important policy objective for over a generation.
    The issues surrounding exports of American crude oil are 
very complex. My company and my fellow crude coalition members 
strongly believe that allowing exports of crude will harm 
American households and businesses, the U.S. refining sectors 
and our nation's energy security and independence. Prudence 
dictates that Congress refrain from making such drastic change 
to this long standing pillar of our energy policy and our 
national security.
    Thank you very much, and I look forward to answering any 
questions you may have.
    [The prepared statement of Mr. Warmann follows:]
    
    [GRAPHIC] [TIFF OMITTED] 
    
    The Chairman. Thank you, Mr. Warmann. I appreciate the 
testimony from each of you this morning. Now let's begin our 
questions.
    I want to start with what Americans are talking about when 
they're thinking about whether or not we should change a policy 
to allow for exports. I think you can tell from my opening 
statement and from comments that I've made over the past year 
that I think it is time to look at this policy and to repeal it 
for a lot of, what I consider to be, substantive policy 
reasons. But at the end of the day, the people I work for 
really don't give a hoot about what the policy is. What they 
want to know is, is it going to cost me more money when I'm 
filling up, whether it's filling up my car or my snow machine 
or my boat or home heating fuel?
    So the question that I would ask of you, Mr. Pascual and 
Ms. Rosenberg, you are the folks that are looking at these 
studies that are out there and the analysis and the critique as 
to what lifting the export ban would actually reveal in terms 
of pricing. Can you speak directly to that? And either one of 
you proceed. Mr. Pascual.
    Mr. Pascual. Thank you, Madam Chairman. I think you're 
absolutely right. The critical focus on the part of Americans, 
and Senator Cantwell has indicated this as well, is that the 
critical issue is price. Every single study that has been done 
by a major institution has gotten to the same conclusion, 
lifting the export ban will reduce the price of gasoline in the 
United States.
    The reason for this is that the price of gasoline is tied 
to the Brent crude international benchmark price, not to WTI 
which is the benchmark price in the United States. If we are 
able to export light, tight oil from the United States, we add 
to the global supplies that contribute to that Brent crude 
benchmark. As a result of that we help drive down the 
international oil price that is fundamentally tied to the price 
of gasoline in the United States and around the world.
    If you look at the trends over time, if you look at it 
across the world, the same issue is true in every single 
market. The price of gasoline is linked and tied when there are 
open markets to the price of Brent crude.
    So the ability to export actually drives up international 
supply for the crude oil that's necessary. It drives down the 
price of gasoline. And in addition to that it has a number of 
other benefits that we've laid out on this panel of increasing 
jobs, of increasing revenues to states, of increasing Gross 
Domestic Product and the product of individual states as well.
    The Chairman. Thank you. Ms. Rosenberg, do you care to add 
anything?
    Ms. Rosenberg. I'd agree with everything that Carlos just 
said. I'll just add that these studies that we're talking 
about, they're not only independent studies, some of them are 
industry sponsored, but also studies by the EIA, as you 
mentioned originally in your opening statement, have also made 
this point that the prices for gasoline for our consumers here 
in the United States are largely tied to the international 
benchmark price, to the Brent price.
    The Chairman. Let me ask a question to reinforce a point, 
and I think both of you spoke to it. The suggestion has been 
made that the reason we would even consider lifting this export 
ban is because this is something that the industry wants.
    So I'm not going to ask Mr. Lance this because, as the CEO 
of ConocoPhillips, people would say, well, of course 
ConocoPhillips would like to see the export ban lifted.
    But what I think is important to understand, a little more 
clearly, is why it is important to other sectors. I think, Mr. 
Pascual, you mentioned it in the manufacturing sector, the 
banking sector, the financial sector, the benefits that we see 
when we allow for increased production.
    Ms. Rosenberg, you were focusing more on the benefits from 
a national security perspective.
    We have seen domestic production rising for years. We're 
backing out imports there which, ultimately, have the same 
effect, pushing more oil out into the global market, to the 
extent that lifting the ban would boost production even further 
then. Have we seen national security benefits already because 
of what we have put out on that global market?
    Ms. Rosenberg. I think we have, and there are a couple of 
key ones that we should bear in mind.
    The first is the economic benefit that this energy, larger 
energy production, has given to our country. And when our 
economy is stronger when we are less indebted which shows up in 
our balance of trade.
    When we capture more of the rents of our oil consumption 
here at home instead of sending those revenues to producers 
abroad that emboldens the United States. It gives it a stronger 
position to lead internationally. It makes us a stronger, more 
important trading partner and a strategic leader on 
international security issues.
    We've mentioned the significance for the United States in 
being able to move forward with tough energy sanctions on Iran, 
in particular, and also when thinking about Russia as well with 
our European counterparts coming from a position of strength as 
an energy producer and a strong economic base gives the United 
States that ability to lead forcefully on such international 
security issues.
    The Chairman. I'd like to ask you more on the sanctions 
piece of it and particularly with Russia, but I'm going to turn 
to my colleague and Ranking Member.
    Senator Cantwell. Thank you, Madam Chair. I love this 
discussion about price since you and I are probably from the 
states with some of the highest gas prices or consistently 
highest gas prices. So, at least from my perspective, I'm 
always interested in learning how we're going to lower gas 
prices.
    I love the confidence, Mr. Pascual, with which you predict 
that lifting this export ban will lower gas prices. I've spent 
much of my career trying to make sure that we protect consumers 
from high prices and enforce federal laws on price 
manipulation.
    For us on the West Coast, the question is how many trains a 
day are we going to have through our state, or is the oil just 
going to bypass us all together? How do we get gas lower 
prices? And that juxtaposed to the rest of the nation 
constantly eludes us.
    So I want to turn to the safety question for a second and 
Mr. Drevna or Mr. Warmann, about this issue of volatility. In 
fact, I even saw on one site somebody suggested we might be 
willing to do something about the volatility of the Bakken 
crude if we could just export it. Do we need to be shipping 
this much natural gas in the product and isn't there something 
that needs to be done about stabilizing that?
    Mr. Drevna. Well, let me take it here first. Well, first of 
all we are really, as the industry, looking forward to the 
final rule coming out from DOT. My industry has spent over $4 
billion investing in new tank cars, and we understand that's 
not going to be enough.
    We understand that the new cars are going to come out, I 
mean, the new specs are going to come out on cars whether they 
are existing or new. We're going to have to refurbish. We're 
going to have to buy new.
    That being said, the cars on the tracks today, they are 
well, well, within the limits of the volatility of the crude. 
The problem, Senator, is not the cargo. The cargo can be 
shipped safely.
    There's very little difference between 13.9 psi and 13.7 
psi when you're looking at shipping crude, and that's the 
difference in the Bakken verses some others. The problem is 
that have we got so cavalier in this nation that it's okay to 
have two to three derailments a day no matter what the 
commodity is?
    So when we're looking at the PHMSA and the DOT proposal 
it's fully, in our opinion, it's fully focused on the tank 
cars. And we, as the industry, are going to be right in line 
supporting and getting those cars up to specification.
    But to cavalierly say we'll accept two to three derailments 
because the railroads have done----
    Senator Cantwell. Just to be clear. I'm not----
    Mr. Drevna. I know, I know.
    Senator Cantwell. I'm not going to accept that, and I'm 
calling for higher standards. I'd like for Mr. Warmann to also 
weigh in on this because I'm pretty sure your refiners don't 
really want all that natural gas in the product.
    So why are we shipping this? I see headlines about bomb 
trains, and I'm not being cavalier about it. I'm calling for a 
higher standard. In fact, I want them to implement a rule at 
PHMSA to limit crude oil volatility in rail cars. Mr. Warmann.
    Mr. Warmann. Yes, Senator, you're correct. The refineries 
would like to have lower rvp crude oil. However transporting 
higher rvp materials we do every day.
    It can be done safely. I think Mr. Drevna in a recent 
statement said that there was 1,861 derailments, of which six 
were crude in 2014. So it's a more complex and holistic 
solution that we need to look at.
    The industry is looking at reducing the rvp doing some more 
stabilization of the product. We're looking at reinforced rail 
cars. We don't want the rail. We want crude in our refineries.
    Senator Cantwell. Why does Eagle Ford come out more 
volatile and we make them reduce it, and then yet Bakken comes 
out and we don't make them reduce it? So now every major 
metropolitan area across the country has to worry about this.
    Mr. Warmann. There's markets and there's places to put the 
lighter ends in the Gulf Coast rather than in the Bakken. 
That's one of the problems is the alternative is to flare it 
which there are flaring regulations that prevent you from 
flaring certain quantities, and that that forces us to try to 
deal with a commodity that we're trying to logistically move 
somehow.
    One of the things that I would take a look at though as 
we're looking at this regulation is the condition and the 
inspection of the railroads. The industry is moving to much 
more sophisticated and robust rail cars, but there's been 
nothing put onto the railroads for increased inspections, 
increased inspection of equipment, the condition of their 
tracks or anything else.
    So I think it's a more holistic view that we have to take 
of this whole transportation situation.
    Senator Cantwell. My time has expired, Madam Chair. But 
just to make a point, I believe in the holistic approach and 
the Reid vapor pressure should be examined as well and PHMSA 
should act on it. So thank you.
    The Chairman. Senator Cassidy.
    Senator Cassidy. Mr. Drevna, I enjoyed your testimony, but 
let's explore it a little bit.
    Now if there is currently capacity to take all this light, 
sweet or all this crude that's domestically being produced, 
theoretically there would be no discount relative to Brent. The 
fact that there is discount, obviously, could be different 
factors. If we had the Keystone XL pipeline taking it out of 
the Bakken, obviously we would save lives and lower the cost.
    But if I look at Louisiana sweet, and we're right there, my 
Gosh, in refinery heaven. I think I've got it right now. It's 
almost too much to believe, an $11 discount relative to Brent.
    So if there was current capacity, why would there be any 
discount relative to Brent?
    Mr. Drevna. Well, you know, Senator Cassidy, you're right. 
But let's not take a snap shot in time as we sometimes do and 
say, okay, now we've got to make our decisions right today on 
what's happening.
    You know, over the past years, months, you're seeing that 
Brent WTI discount shrink. As a matter of fact well not too 
long ago Brent was selling a little bit less than WTI in 
certain areas. So what we're saying is that all we want you to 
do is make sure you understand.
    Senator Cassidy. No, I'm sorry, let me just finish though.
    Mr. Drevna. Yeah.
    Senator Cassidy. Let's explore this a little bit more.
    Mr. Drevna. Yeah.
    Senator Cassidy. Your survey on your members----
    Mr. Drevna. Right.
    Senator Cassidy. And frankly it is in the interest of your 
members to reply that they have increased capacity. They know 
this debate is taking place, and they'd like to indicate that 
they can absorb the capacity and that shipping overseas is not 
required.
    Mr. Drevna. Correct.
    Senator Cassidy. So when you surveyed them did you get some 
sort of documentation of the amount of money that they are 
currently investing to expand capacity? Did they send you a 
list of the bonds that they put out, etcetera?
    Mr. Drevna. We--as my testimony says, we--they are putting, 
you know, $5 billion into----
    Senator Cassidy. I accept that that is what they said. I've 
learned in this job to say what I've been told, not what I 
know.
    Mr. Drevna. Well----
    Senator Cassidy. The reason I say that is because, again, 
we have this discount. Bakken you could explain because we 
can't get the Keystone passed. But when I look at the refinery 
capacity in the Midwest on oil, for example, which I think is 
the only place that can take that easily right now through 
pipeline, there's still a discount there.
    Mr. Drevna. Well, Senator, what's happened though is you 
had that bottleneck over the past years right there at Cushing. 
We've got the southern leg though. You're seeing day by day 
that bottleneck is----
    Senator Cassidy. That's why I wanted to look at Louisiana 
light and Louisiana light in next to all those refineries still 
is selling at a discount relative to Brent.
    So that seems that that's not so much infrastructure 
because we've got pipelines in Louisiana. I'll stop there.
    Mr. Drevna. Well, first of all I want to go back. You 
mentioned that the refiners who responded to the survey don't 
want the crude export. That's not correct, sir. The AFPM, all 
we're saying is we don't oppose it, understand all the 
parameters and----
    Senator Cassidy. I only have a little bit of time, I'm 
sorry.
    Ms. Rosenberg, I enjoyed your testimony. I saw Larry 
Summers and I'm saying this off the top of my head, but Larry 
Summers gave a talk where I think he said that we would 
increase GDP by one percent. So we have this anemic 2 point--
your CBO is estimating that our GDP is going to grow by two 
percent over the next five or six years. It's awful. Under 
Clinton and Reagan it grew by three and a half and under this 
it's been two percent. But we can increase it by one percent 
just by allowing exports. Now I know there's people in 
Louisiana that travel to North Dakota to work in the Bakken 
because there's such a demand for labor, folks make good money 
by traveling there.
    Any thoughts upon Summers' estimate of one percent growth 
in GDP by allowing exports, what that would mean in terms of 
jobs for working families because right now that's what we're 
struggling to create?
    Ms. Rosenberg. I certainly think of his remarks as 
authoritative on such issues. There are other people who've 
made other particular estimates for the amount of increase that 
allowing crude exports would give to our GDP. There's a range 
of estimates.
    But broadly there's a belief amongst independent analysts 
and many stakeholders in this industry that, in fact, there 
would be quite a significant GDP bump associated with lifting 
the ban and therefore stimulating growth in the industry.
    Senator Cassidy. I'm out of time. I'll just say that, 
again, as far as principle challenge right now is creating jobs 
for blue collar workers because no industry better for creating 
blue collar jobs than that for the exploration and production 
of fossil fuels and is, by definition, domestic. So it cannot 
be shipped overseas although the product can.
    I would just say anything that could increase GDP by one 
percent is certainly something we should explore, because 
there's some family out there whose livelihood depends upon us 
making a wise decision and the wiser the better in terms of 
domestic job growth.
    Madam Chair, I yield back.
    The Chairman. Senator Cassidy, thank you. Senator Manchin.
    Senator Manchin. Thank you, Madam Chairman. Thank you for 
this hearing, and thank all of you for being here.
    Let me just say for those of us who can remember the 1974 
embargo, we had to wait in line and then we had to have certain 
numbers on our license plates when we could go get gas, 
alternate. We remember those days. We don't want those to 
happen again.
    And I think some decisions were made back because of that 
is where we are today.
    With that being said, in West Virginia, it would be hard 
for me to explain to the people to grasp the whole world 
market, if you will. But if we start unfettered export it would 
reduce the price of their gas. That's a hard one.
    And if we did do that and the prices didn't go down or 
would go up, we'd all be chastised for it.
    On the other hand, if it was tied to our foreign relations 
policy and I mean that, tied to the foreign relations policy 
and there would be a trigger on when we could export based on 
production, U.S. production. And that trigger would be based on 
do we have ample production if production decreased? And if it 
does--somehow there's got to be a way that I can go home and 
explain to West Virginia, this is good for our country.
    We are defending our country. We are making our country 
more solid. We're not buying and we're not being drug into wars 
we shouldn't be drug into. We're helping prop up our native 
neighbors by having access to our abundance right now.
    I just think there's a win/win here. We just got to find 
it, but there's a win/win for all of us.
    We can protect the market. We can make it stronger 
overseas. We can protect our NATO allies, and it looks like 
we're all going in two different directions, either we unfetter 
or nothing.
    Mr. Lance, you might want to comment on this even though 
you would be expected to be a self interest from Conoco, you're 
still an American that cares about or the family cares about 
what we do.
    Mr. Lance. Yeah, I do, Senator. Thank you.
    I think it is an important--the energy in the United States 
is at the juxtaposition of many issues, climate, energy 
security, and national security as well. So I take your point.
    I think I'm here to assure the group that from the ENP side 
from the independent producer side, this revolution is real. 
This revolution is long lasting. It's going to create a 
dramatic surplus in light, sweet crude that the refiners cannot 
take.
    They are making investments. We will be sending crude to 
the refiners that have/make those investments to go do that, 
but we're going to greatly exceed their capacity to take this 
crude.
    So we have to ship it overseas. We have to get it into the 
open market. When we do that, as others have testified, the 
global supply will increase. We'll reduce the volatility. We'll 
decrease the amount of gas price.
    We'll be seeing this and there's fact points today that's 
going on today. The consumers are not winning from the fact 
that we have world oil prices exceeding U.S. prices.
    Senator Manchin. As you all have observed sometimes we're 
not always on the same page here as far as elected officials. 
We're trying to get on the same page, a page that we can all 
work off of.
    Mr. Warmann, could you all accept a trigger? Basically if 
production was at a certain level, we had the excess and 
they're producing and then the refiners. But that would give us 
the green light to go ahead and export.
    Mr. Warmann. Senator, I would definitely say, I would focus 
more on what we're importing. We're still importing, you know, 
six, seven million barrels a day, two and a half million 
barrels of light crude a day. Basically, if you export the 
light crude we're just going to bring in more light crude.
    And two, you're offsetting points, it's a matter of 
transportation. I can tell you specifically in Trainer, 
Pennsylvania, you have a benchmark of WTI crude in Cushing and 
it takes me $3 by pipeline and $5.50 by ship to get it to 
Trainer. So that's WTI plus $8.50.
    Brent is in the North Sea. It takes $2 to get it to me. So 
if you take those there should be a $6.50 discount to WTI 
verses Brent just on a transportation basis.
    And of course, that floats with transportation variables as 
well as the availability barriers.
    Senator Manchin. Can anybody on the other side here explain 
why we're still importing so much and how we would go home and 
explain to well, now we have to export? If we export why would 
we be importing if we can export now? Mr. Pascual.
    Mr. Pascual. Senator, thank you. I'd be glad to. One of the 
advantages that we have with our refinery system, and it is an 
advanced and sophisticated refinery system, is that it was 
focused and tooled on processing heavy crude oil. As a result 
of the efforts that we have made in the refinement of that 
system, we're able to get the maximum number of products out of 
heavy crude oil and use them within the United States.
    The light, tight oil that is being produced now in the 
United States does not match the refinery configurations, and 
as a result of that you don't get the maximum level of 
production.
    And I think Americans can understand that if you have one 
kind of product that has a higher international price, you sell 
that product.
    Senator Manchin. Are we bringing light in or bringing heavy 
in?
    Mr. Pascual. We're bringing heavy in.
    Senator Manchin. Well I thought Venezuela was light?
    Mr. Pascual. No, Venezuela is heavy crude. And----
    Senator Manchin. So we're bringing both in, a little.
    Mr. Pascual. Right. We're bringing in principally heavy. 
And one of the things that's happened as a result of the 
production of light, tight oil in the United States is that 
we've radically reduced our imports of light, tight oil from 
both the Middle East and from Africa. The role that OPEC plays 
in exports to the United States is radically collapsed. Our 
imports have gone from 60 percent of our consumption to 27 
percent of our consumption in just the last five years.
    That is a massive national security benefit, and the way to 
keep it is to maximize the incentive to producers to maintain 
and sustain our productive capacity.
    And the best way to do that, I think we've heard from 
everybody on the panel, is to give American producers the 
widest market to be able to export their product.
    That's what maximizes competition. That's what brings the 
best prices back to the United States. That's what generates 
jobs as a result of the supply chain. That's what has the 
massive impact that we've documented in our study of 400,000 
new jobs, economy wide, an increase of $86 billion annually in 
our GDP.
    Senator Manchin. Madam Chair, I'm sorry, but if we could 
have the Committee on both the Ranking side and the Majority 
side to work on getting us the facts, all members, the facts of 
what we're importing, the amount that we're importing, the type 
we would be exporting and if there's a trigger mechanism on 
production.
    Because if there's a trigger mechanism then the domestic 
retailers, the domestic customer, you and I, can still benefit 
from a lower price because of the heavy production.
    If the production drops and we're still exporting, we're 
going to pay a heavier price for that. Supply and demand.
    So if we could get that from our Committee.
    The Chairman. I appreciate the comments from the Senator 
from West Virginia. I think it should be pretty easy to get a 
better understanding.
    Senator Manchin. One is shaking their head no and the other 
is saying yes.
    The Chairman. Well, no, in terms of collecting the 
information that you're requesting in terms of what we import, 
where we import, what type whether it's heavy or light? We can 
make sure that we have that at our disposal. That's why we have 
the benefit of a hearing like this is to educate one another.
    Let's go to Senator Daines.
    Senator Daines. Thank you, Madam Chair, and I'm glad that 
we're having this thoughtful conversation. I look at this in 
the backdrop of we're addressing a policy that's 40 years old. 
I was a little kid then. I'm not sure Cory Gardner was even 
around during the oil crisis of '73. And I remember the 55 mile 
an hour speed limit. [Laughter.]
    I set you up there, Cory.
    I remember the 55 mile an hour speed limit in Montana, you 
know, big, wide, open roads there and having to set that thing 
at double nickels and then followed by the oil export ban of 
'75.
    For me, I think, the thoughtful conversation needs to 
revolve around what's going to happen 30 to 40 years from now 
based on policy decisions that we make today. We've moved 
clearly from a scarcity type of environment to now one of 
abundance. And I think that's why I'm glad to have this 
conversation today as we thoughtfully consider this policy.
    I too, am concerned about what's going on on the national 
security on the challenge we face overseas. Looking around the 
world from Russia to Iran, many of the world's energy resources 
are in unstable regions. They're in oppressive dictatorships. I 
look at the top ten oil producers in the world, I should say, 
oil and liquids producers. It is great news that the U.S. is 
now number one surpassing Russia and Saudi Arabia. But you look 
at the list of the top ten, Russia, China, Iran, Iraq, then 
Saudi Arabia, UAE, Kuwait. These are in unstable parts of the 
world. Some of these are run by dictators.
    I do believe the world should rely more on American-made 
energy instead of Russia and the Middle East.
    Ms. Rosenberg, a question for you. How will increasing 
flexibility for crude oil exports strengthen our position on 
the Iran sanctions?
    Ms. Rosenberg. Well, thanks for the question.
    So, right now we're actually at a critical moment in the 
negotiations, the P5+1 negotiations, with Iran and I believe 
some of your colleagues have heard testimony from 
Administration witnesses this morning in the Senate Foreign 
Relations Committee about the negotiations and the Iran 
sanctions.
    Being able to make sure that the oil market is well 
supplied gives the United States the leverage to be able to 
impose sanctions on Iran, energy sanctions on Iran, with our 
allies which remove their oil from the market. The energy 
sanctions that the United States and our European allies 
imposed in 2012, that Carlos mentioned, took about a million 
and a half barrels of Iranian oil off the market.
    The reason why that did not spike prices and politically 
and economically, the United States, our consumers and 
consumers globally and in our partner ally country nations were 
able to manage that was because the United States and Saudi 
Arabia as well were able to make a huge contribution in 
additional supply in order to keep the market relatively 
balanced at a period when there was really, historically high, 
and unprecedented levels of supply disruption in the market.
    If there is a political instance where there is a need to 
impose further sanctions on Iran then being able to make a 
credible threat that the United States and its allies can 
impose further sanctions then the United States will need to be 
in a position of stoking or stimulating supply to the market. 
Lifting the crude export ban will help to do that.
    Senator Daines. Thank you. And, you know, it is a gift 
we're leaving for our children, grandchildren right now, I 
think, is this ability for the U.S. to move to the top of that 
producing list for oil and liquids here in the world. This, I 
think, truly will contribute not only to our own national 
security but to the stability and security of the entire world.
    And it wasn't because of Washington, DC policies. It's the 
innovation. It's the power of the free markets that now we are 
in this position and why we're seeing gas at a lower level, 
saving the American average household $750 a year which I know 
a lot of Montanans are thankful for.
    Mr. Lance, I'm happy to hear about your Montana roots. It's 
good to have another--you're a petroleum engineer. I was a 
chemical engineer. You're a Montana Tech. I'm an MSU Bobcat and 
thankful for your leadership on this important issue.
    I also think we need to have the humility here in Congress 
that we don't understand all of the complexities of the supply 
chain, the light verses heavy, the production, the logistics in 
the delivery system as well as refining capacity. It's a 
complex equation that, I think, none of us up here would think 
we can manage that from DC. But the free markets will figure 
that out with an abundance of oil.
    I'd like to ask you how will increasing crude oil exports 
create more good paying jobs and decrease gas prices?
    Mr. Lance. Yes, again, Senator, you know, it's the basic 
premise that getting more crude oil into the open market will 
decrease the price of gasoline for our consumers.
    One just brief, fact point that--proof point, that 
describes that.
    Six weeks ago, many have said, and I think Mr. Drevna said 
that WTI and Brent were trading at the same price. I was buying 
gasoline in Houston for $1.80 a gallon. Since that time WTI 
price has increased $10 over U.S. prices. U.S. prices stayed 
the same, and now I'm paying $2.20 a gallon for gasoline in 
Houston, Texas.
    So the fact is the consumer didn't win. The consumer saw 
the price of worldwide crude go up $10, and U.S. crude stayed 
exactly the same. You would have thought gasoline prices--if it 
was tied to U.S. prices would have stayed the same. They did 
not. Gasoline prices went up.
    You just have to look at the market today and understand 
you see it happening in the market today for the consumer. This 
export ban, lifting that export ban, is a pro consumer policy 
for the United States. And that's how it reduces the gasoline 
price. And it's happening today. It can happen today if we were 
to export crude.
    Senator Daines. Right. thanks, Mr. Lance. I'm out of time.
    The Chairman. Thank you, Senator Daines.
    Senator Barrasso.
    Senator Barrasso. Thank you, Madam Chairman.
    Mr. Lance, just following up on that because in your 
testimony you're calling on all policymakers to lift the ban on 
exporting crude oil from the United States. Since the export 
ban was established, Democrats and Republican Administrations 
have taken steps to ease the export ban.
    I think in the 1980s Ronald Reagan issued determinations 
that crude oil exports to Canada for consumption in Canada are 
in our national interest. More recently the Obama 
Administration issued guidance that process condensate may be 
exported without a license. And last month, I along with 
Chairman Murkowski and others, called on the Administration to 
issue a determination that crude oil exports to Mexico for 
consumption in Mexico are in the national interest.
    So I question, what other steps can the Administration take 
to relax the ban on crude oil exports?
    Mr. Lance. Yeah, thank you, Senator. I think, you know, 
certainly the Administration and the President could issue a 
national interest determination and eliminate the export ban 
for all of the domestic crude that we're producing in the 
United States. And as you quote, there's been recent examples 
of that, more recently President Clinton, who lifted the ban in 
Alaska.
    GAO has studied that over the last four to five years and 
have indicated there was no change in pricing of gasoline on 
the West Coast, the primary market for Alaskan crude.
    So yes, the Administration could do something to offset 
that.
    You mentioned a few things that are helping. Lifting--
allowing some of the condensates to be produced, but that's a 
very small step in a large step that's needed to take to fix 
the problem we see coming.
    Senator Barrasso. So is there anything preventing the 
Administration from taking these steps today?
    Mr. Lance. Not that I'm aware of.
    Senator Barrasso. You were just talking a little bit with 
the previous question in terms of jobs and the economy. What 
kind of job losses would you expect to see if the 
Administration actually chooses to not act?
    Mr. Lance. Well, today I'd say for our company and for our 
industry you just have to look at what's happened since 
November as the price has fallen over 58, 60 percent. And it's 
exasperated by the fact that WTI is trading or U.S. crude is 
trading below global crude prices.
    We've lost a thousand rigs in this business in the matter 
of three to four months. Each one of those rigs employs 150 to 
180 people. And I think Senator Cassidy represented, you know, 
these are blue collar jobs. These are people coming out of high 
school that can get a $100,000 a year job. These are twice--
they pay twice the average that the national--that the 
government looks at when they quote job figures.
    So it's been real. It's happening today, and it's magnified 
by the fact that we can't export crude today.
    Senator Barrasso. Thanks.
    Ms. Rosenberg, in your testimony you just visited about it 
or talked a bit about Iran. I was just going to go in the same 
area. You had said that U.S. crude exports will have the effect 
of reinforcing pressure on Russia's energy security, and it's 
certainly in line with key U.S. national security goals.
    You go on to say that crude oil exports will also 
constitute an important strategic act of support for our allies 
in Europe who are more threatened by Russia and regional 
destabilization.
    So could you expand a bit on your comments for the 
Committee specifically in regard to that part of the world?
    Ms. Rosenberg. Sure, thank you for the question. So if the 
United States is able to--policy makers lift the ban and the 
upstream industry produces more it claims a greater portion of 
the supply pool for the United States globally and will, as 
we've discussed, have an effect on pushing down the Brent 
price.
    That will force--that will cause greater competition in 
Europe, for example. Russia, that is to say, Russia will have 
to compete a little harder in Europe in order to sell its crude 
there. It sells quite a lot of crude there and will therefore 
collect somewhat less revenue. So that's the revenue impact for 
them.
    It's--I don't want to over sell this. I think it is modest, 
but it is strategically quite meaningful. And it looks to 
Europe and to Russia and to the international community like a 
show of support for our key allies in Europe that feel very 
threatened and very vulnerable towards--in their position at 
the receiving end of energy from Russia that has proved in the 
past to be a coercive supplier.
    Senator Barrasso. Mr. Pascual, would you like to weigh in 
on this at all?
    Mr. Pascual. Yes, thank you, Senator.
    When we saw each other at the Munich Security Conference a 
couple of years ago one of the big issues that was the focus of 
attention there was competition in energy and in particular, 
natural gas.
    And the same analogy applies to crude oil. One of the most 
important things to eliminate regional monopolies and regional 
dominance is to give the assurance that consumers in any 
particular part of the world have access to global supplies and 
a competitive global market.
    We've made progress in that in oil, but we have a situation 
right now where ironically the United States is the major 
producer that claims an exception to participating freely in 
those global markets. If we signal that we will participate by 
putting our crude oil onto that global market as we have been 
with natural gas, we're sending the signal to our allies, to 
our friends, to our customers, that we're going to compete to 
support a competitive environment that gives consumers maximum 
choice that allows them to diversify their resources and 
eliminates the dominance that any one particular supplier can 
have because of a regional position that it has with its 
neighbors.
    Senator Barrasso. Thank you. Thank you, Madam Chairman.
    The Chairman. Thank you, Senator Barrasso. Very 
interesting. Let's see. Senator Gardner.
    Senator Gardner. Thank you, Madam Chair for holding the 
hearing. Thanks to the witnesses for being here today.
    I think it's important that we talk about the impact that 
this incredible energy revolution has had on our country. In 
Colorado alone that's more than 200,000 jobs have been created 
that's resulted in new roads and new schools. 30 percent of 
downtown Denver's office space is a building that's either 
owned or occupied or leased to by an energy company. And that's 
an incredible, incredible opportunity that we've had 
economically in this recent energy boon.
    And so today's questions, very basic questions of supply 
and demand. What happens when you have too much supply? What 
happens when you have decreasing demand or not enough demand to 
drive investments in those increases of supply?
    Those are all important economic questions. And I think 
Senator Daines said it well. Having to understand how that 
impacts our consumers is important.
    I guess this hearing and this debate boils down to a very 
simple question. Learning today and going forward, will 
allowing oil exports further increase our national security and 
increase the economic benefits to our communities? It's a very 
simple question that we can boil this down to. Does it increase 
jobs both on and off the oil field? Does it impact price on and 
out of the oil industry? To consumers, what does it mean? And 
so it's important.
    When we talk about increasing the Gross Domestic Product by 
one percent that's an incredible opportunity for this country, 
one percent according to the President's past budget documents, 
according to budget experts here in the Senate, a one percent 
increase in Gross Domestic Product could create one million 
jobs. That's putting one million people to work. That is an 
amazing economic growth engine that we have to consider.
    Secretary Moniz talked about, ``There are a lot issues in 
the energy space that deserve some new analysis and examination 
in the context of what is now an energy world that is no longer 
like the 1970s.'' That's a quote from Secretary Moniz.
    So a very important issue. And we've talked a lot about the 
benefits of what could happen with exporting. We've talked 
about concerns with exporting.
    But to Mr. Pascual, I guess the question I would have is 
what happens if we don't change this policy of the 1970s? What 
happens to jobs? What happens to the economy? What happens to 
both industry and non industry if we don't lift the policy?
    Mr. Pascual. Senator, thank you. As a company that is 
headquartered in Denver, a company you visited, you've come to 
understand, I think and know the independence of our analysis 
and the scrutiny that we give to the work that we do. I think 
this brings us down to a very fundamental point. If we do not 
eliminate these variables, we give up opportunities and job 
creation and income creation. And the figures are quite 
startling.
    In terms of the supply chain itself, under a very 
conservative base case analysis, the implication is that we 
lose 124,000 jobs in the supply chain.
    If we look at economy wide what are the impacts that we 
would see, again, under a conservative scenario, 400,000 jobs 
economy wide.
    If we look at the impact on GDP, the loss that we would see 
is $86 billion.
    If we look at revenue to federal, state and local level 
taxes, the loss that we would see, the opportunity we are 
missing, is $1.3 trillion over the period of 2016 to 2030.
    These are things that we have documented exhaustively. We 
were able to do it because we were also able to analyze, in 
detail, the productive capacity that's created by relaxing 
prices or giving a greater price boost as a result of exports.
    We have the data that has allowed us to look at individual 
wells throughout the country to look at what the productive 
effect is. And just as importantly we have the input/output 
models that allows us to look at the entire impact through the 
supply chain.
    I think a critical thing for Americans to understand and to 
recognize is that this isn't just about oil. It's looking at 
the entire service sector and equipment sector. Who produces 
the engines? Who produces the steel? Where does the concrete 
come from? Who are the workers that are involved in that 
process?
    And that is not just an oil production issue. It's 
something that cuts across the entire United States. I think 
it's important that we have the opportunity to highlight that. 
So thank you for the opportunity to do so.
    Senator Gardner. Thank you, Mr. Pascual.
    To Ms. Rosenberg, I think last year sitting on the House 
Energy and Commerce Committee we had testimony from one of Mr. 
Pascual's colleagues at IHS, Daniel Yergin, a Nobel prize 
winning economist, excuse me, a Pulitzer prize winning 
economist. He talked about how the fact that oil production in 
the United States had kept the Iranian sanctions from failing, 
and that's probably something that could be said of other 
instances. In your testimony you talked about our foreign 
policy, how this could help our foreign policies. So I guess 
what I'm asking is this. We have been pushing forward on LNG 
export, expedited LNG export permits here. A lot of the 
significant reason behind that is to give our allies a chance 
to have an alternative to LNG other than Russian monopolies. 
Could the same be said of our petroleum exports?
    Ms. Rosenberg. Thank you for the question.
    I----
    Senator Gardner. Crude oil, excuse me, crude oil exports.
    Ms. Rosenberg. Right. I think it's an analogous situation. 
They're different markets. They're of different sizes, 
different liquidity. They're supplied in different ways, 
pipeline versus other--ship, waterborne transport, et cetera.
    But I think the analogy is right which is to say that the 
United States taking a greater share of the global supply pool, 
becoming a bigger exporter and also being a more important 
trading partner is beneficial for the markets, for efficiency, 
for pricing and also in sending a message of support on the 
importance of free trade and also the significance of our 
trading relationships, strategically with our partners, and 
what that means for our adversaries.
    Senator Gardner. Thank you. Thank you, Madam Chair.
    The Chairman. Thank you, Senator Gardner. Senator Hoeven.
    Senator Hoeven. Thank you, Madam Chairman.
    We're in a global battle for market share as to who 
produces oil and gas in this country, and we're duking it out 
with OPEC. And we're duking it out with Russia and Venezuela 
and other parts of the world.
    We're in that competition right now when the world 
benchmark price for oil is Brent crude and that's $10 higher 
than the West Texas benchmark. So we, in essence, are fighting 
for market share here in America at a $10 disadvantage to our 
competitors. Anybody in any business could tell you that's a 
real problem.
    And so, we're at risk for growing our oil and gas industry, 
our energy industry, in this country versus having it shrink if 
we don't address this oil export problem and soon.
    So, Mr. Lance, I'd like you to address that issue in terms 
of jobs and energy production and economic growth here at home.
    Mr.--could you pronounce your last name? I----
    Mr. Pascual. Pascual.
    Senator Hoeven. Mr. Pascual, could you talk about it in 
terms of the importance to consumers because we have to inform 
consumers that this is something that is important for their 
benefit.
    And then I'm going to turn to Mr.--and again I'm going to 
have to ask for pronunciation. Drevna?
    Mr. Drevna. Yes, sir.
    Senator Hoeven. What can we do, on the refining side, to 
better match up our domestic production of light and heavy so 
that you can process both and it works well for us in this 
country?
    So those would be my three questions starting with Mr. 
Lance.
    Mr. Lance. Thank you, Senator. Yes, your basic premise 
around the competitive nature of the investment in this 
industry, given the fact that there today is a $10 differential 
between U.S. crude prices and global. It is correct. We are at 
a competitive disadvantage to our overseas competitors who are 
developing around the world at higher prices than what we're 
getting for the product, that is of similar quality around the 
world, here in the U.S.
    It's an interesting fact, you know, five years ago most of 
the investment in cash flow off our companies was going to 
investment in international growth. In the last five years 
that's completely turned around. Most of the investment in cash 
flow from international opportunities are coming back here to 
North America, back home for investment.
    And--but it's being compounded by the fact that we have 
this differential and this competitive disadvantage with 
respect to the crude price that we're getting for U.S. crude.
    The jobs that we will create, you've heard a number of 
quotes. I can give you one real quick, for every dollar 
difference we would reinvest that dollar back into this 
business. That dollar is about, you know, for an individual 
company, $100, $150 million. That's one rig. That's 180 to 200 
jobs, just direct jobs.
    Carlos has talked about what the indirect benefit that has. 
It is significant. And again, I point out that these are blue 
collar jobs that are very high paying in our industry. We offer 
benefits, both health and welfare benefits, along with 
retirement benefits that are really leading in this business. 
It has a significant impact.
    Senator Hoeven. So this is a major issue determining 
whether energy companies will invest billions here at home or 
overseas. Is that accurate?
    Mr. Lance. That's correct. If the difference continues 
you'll want to make Brent-based investments rather than WTI 
investments.
    You're seeing that today with the dropoff in the rates of 
the investment contraction that this industry has had over the 
last year.
    Senator Hoeven. Mr. Pascual, our best case to the consumer 
why this is important and benefits the consumer?
    Mr. Pascual. Senator, I think it's important to keep going 
after this issue as you're doing. It's been a consistent theme 
throughout this hearing, and the point that it fundamentally 
comes back to and the Chairman and Senator Cantwell put this on 
the table from the outset, is in the end consumers want to know 
what's going to happen at the pump.
    At times it may seem counterintuitive that if you export a 
particular product it could actually contribute to a lower 
price of gasoline, but we've seen consistently that that's the 
case. And the reason that that's the case is the tie between 
international oil markets and how gasoline prices are 
determined. The key index is in the Brent crude price.
    Mr. Lance gave an excellent example of how, just recently, 
we saw a virtual equivalence of U.S. benchmark prices and 
international prices. Since then we've seen an increase of the 
international price by about $10 a barrel. U.S. prices for 
gasoline have increased as a result of that even though the 
U.S. benchmark price has stayed low.
    It's a lesson that has taken us time to learn, but we have 
a particular opportunity now with the abundance in capacity 
that we have in the United States to take advantage of this 
moment, to be able to liberalize the export of that product.
    I would just say one final thing. If we look from the 
perspective of what sustains the benefits that we've had in the 
United States from this energy abundance, and the reason we got 
here is because of investment, it's that investment that 
created jobs. It's that investment that created production.
    And if we want to get back to that investment as quickly as 
possible, especially at a time when capital expenditures in the 
United States energy industry have been cut by 35 percent, the 
best signal you can give is to those producers and those who 
are financing energy that the capacity to export is to the 
widest, most competitive market possible. That's when it's 
going to give them the best long term return. That's what's 
going to get the American energy industry back to the 
innovation and productivity the fastest possible, and that's 
what's also going to maintain our energy security over time.
    Senator Hoeven. Thank you, Mr. Pascual. I'd like to commend 
you on your study. I think that was very helpful bringing this 
information out. But it is basic supply and demand, isn't it?
    More investment generates more supply. More supply helps 
bring down Brent crude benchmark which is the world price. And 
again, that benefits our consumers.
    Mr. Pascual. The basic principles of supply and demand 
hold. And earlier the question was raised as what is the best 
thing that we can do for future policy?
    Well, we've learned over time. And here we have now 
hundreds of years of experience is that competition and markets 
is the best bet for our economic policy. It stimulates 
innovation. It stimulates productivity. It stimulates jobs.
    But it's also the best thing for our national security 
because when you have companies in countries competing you 
avoid the kind of dominance that single players in that market 
can take.
    And we have a special opportunity today. OPEC has gone into 
hibernation. We saw that on November 27th of last year. OPEC 
essentially said, we can't influence the international price of 
oil.
    We have a chance now out of the United States and if we 
look at what's happening in Canada and the potential out of 
energy reform in Mexico, to see a North America that becomes a 
foundation for energy stability, globally. We have not had that 
opportunity. It is a historic moment that we have.
    Senator Hoeven. Thank you, Mr. Pascual.
    I do have other questions, but I can come back, Madam 
Chairman, however you'd like to do it.
    The Chairman. We're going to have one more quick round.
    Senator Hoeven. Okay.
    The Chairman. So if you'd like to come back or stick around 
we'll go for round two. I really appreciate the discussion that 
we're having, particularly on the focus on national security. I 
think we all recognize that the world is a very, very volatile 
place right now. There is a lot of focus here in the Capitol on 
what is happening in Iran, and we've heard the discussion about 
the added oomph that sanctions are able to play when we've got 
more flexibility here.
    I had a meeting yesterday with General Breedlove, who is 
head of the European Command, and it was a discussion about 
Arctic issues and the role that my state plays in that from a 
military perspective. It was an interesting discussion in 
talking with him. We had a map that was entitled, Russia's 
Arctic Push. It details from a military perspective what we're 
seeing coming out of Russia.
    And the conversation turned to some of the comments that 
have been coming out of late in Armed Services and Defense 
Appropriations about where the threats are right now. General 
Dempsey suggests that perhaps the biggest threat in front of us 
right now is not what we're seeing out of Iran, but what is 
potentially coming from Russia with a threat to European 
security.
    It does cause us, I think, to look again, very critically, 
at how we deal with Mr. Putin. How we deal with these national 
security threats. We don't have the resources, the men and 
women, to put the boots on the ground to be able to do what we 
would like to do from a defense perspective, so we have to look 
to what other tools we have.
    One of the tools that we have, clearly, is our resources. 
Our oil resources--it is such an important part of this 
discussion here. So again, I appreciate what we have heard 
there.
    Mr. Pascual, I want to ask you a question and this will 
probably take you back to your time when you were with the 
Energy Envoy and there at the State Department with the Bureau 
of Energy Resources. The question to you is whether or not you 
heard from other nations, requests to the United States to open 
up our oil markets to them? The reason I ask is there wasn't 
too many years ago when we here in this country were crying 
foul when China was withholding critical minerals, rare Earth 
elements, that Japan, very desperately, wanted. And China in 
very much a power play said no, we're not going to be sending 
anything your way.
    It causes me to wonder if other nations are viewing us that 
way that well, you're okay in encouraging us to get our oil 
from a coercive supplier, like Russia, but why wouldn't you be 
willing to help us out, United States? Can you lend me your 
experience in the position you were in whether you had any of 
those discussions with other countries?
    Mr. Pascual. Chairman, thank you.
    It was an issue that arose constantly. I'll give you a 
couple of examples.
    In India when we were negotiating with India to diversify 
its energy resources to reduce its imports from Iran, one of 
the first questions they asked was where do I get the 
alternative supply? Where can I go? And why will not the United 
States put more oil on the international market and give us the 
opportunity to benefit from that? Or even if they aren't 
importing oil from the United States directly, to have the 
supply impact that we might have had through our exports so 
that they might be able to buy more cheaply, oil more cheaply, 
elsewhere.
    In Turkey, again, very similar issues came up with the 
refiners. One of the questions they asked was where do we go 
for the alternative supply, and why are you putting us in a 
situation where we're going to have to become more dependent on 
Russian oil?
    In Europe the issue consistently came up of why will not 
the United States open up its market for export and indeed it 
has become a central issue in the TTIP negotiations.
    With China, again, another major question and there was a 
certain irony here. Here the United States over three decades 
had been after China to eliminate its restrictions on the 
export of resources including rare Earths and when they were 
looking for more supplies internationally we had to say, we had 
restrictions on critical commodities in the United States.
    It's those kinds of restrictions that, in the end, affect 
American credibility, and in the moment when we have to put 
through an important policy makes it much more difficult to 
negotiate.
    We're able to succeed in these cases because there was an 
opportunity to show countries why diversification of their 
imports away from Iran was in their national security interest. 
It was not an easy negotiation. We would have served our 
interest by having much more flexibility.
    The Chairman. Thank you. I appreciate the explanation 
there. Senator Cantwell.
    Senator Cantwell. Thank you, Madam Chair.
    Let's start with you, Mr. Warmann. As we discuss and look 
at oil exports I start thinking about how different parts of 
the country might be affected and whether the Pacific Northwest 
or New England, might become more dependent on imported oil or 
gasoline diesel or home heating oil if the exports were legal. 
Do you see that kind of shift?
    Mr. Warmann. You do see some sort of shift. One of the 
questions that we come back to is the form of export. You can 
exert the same efforts and give the people what they want if 
you do it in a form of products, gasoline and diesel. If you do 
it in the form of the raw product you don't capture that GDP, 
the jobs and the other things within America that we're 
perfectly capable of.
    So you have the same leverage over the countries, and 
Europe needs the refined products. Other people need refined 
products.
    If you just export the crude, you lose all that value in 
the value chain. You lose those jobs. It goes overseas, and 
we're talking about OPEC. The exports go into a market that is 
controlled by OPEC, and I disagree that OPEC is in hibernation. 
It's their choice to open up the production. It's their choice 
to lower their contract price in order to put pressure on 
Russia to bring other OPEC cheaters in line and you also have 
to pull in--put some rationalization on the unconventional 
exploration going on within the U.S. That is a choice they are 
making. That is the control they're exerting on the market, and 
they continue to do that.
    Coming back to some of these issues about the pricing. One 
of the things that is depressing the spot price right now, 
making such a difference, is there's a cotangoed plan of 
market. It's a trader. You know, traders manipulate the market, 
to a certain extent.
    The price of oil in the futures market is higher than it is 
now. Even us, we have rented storage and are storing oil. With 
all this--oil the current spot price will go--is going down 
because of the amounts of oil.
    But if you look at the future, the Brent, WTI tightens back 
up to about $6, $7, and that is all in transportation. And it 
comes back to what you're saying, location differential.
    The benchmark of WTI is in the middle of the continent. The 
benchmark of Brent is in the North Sea. You have transportation 
differentials so it means different things to different people.
    On the East Coast there should be a six and a half cent--
dollar per barrel differential. On the West Coast it has 
everything to do with being able to bring in foreign material 
verses the real cost from the Bakken and tying that together. 
And the thing about products is you actually are in a free 
market that's not controlled by OPEC. It's not controlled by 
anybody, and we can be more open to exert our influence in that 
form.
    Senator Cantwell. I think we have three New Englanders on 
this Committee. We already know they pay outrageous home 
heating oil prices, so if we got into this situation where one 
part of the United States basically had to rely more on imports 
and the other part of the United States had that capacity to 
benefit, as you were saying, from the Gulf, then we would be in 
two different scenarios here. So I think it's something to 
think about as we think about this policy.
    Thank you, Madam Chair.
    The Chairman. Senator Daines.
    Senator Daines. Thank you, Madam Chair.
    Once upon a time I was a manufacturing guy. I ran 
operations for 12 years for Proctor and Gamble. There was an 
Israeli physicist named Eliyahu Moshe Goldratt who wrote a book 
called, ``The Goal, Looking at the Theory of Constraints.'' I 
think as we look at this very complicated equation from 
production to delivery, refining, and ultimately to the gas 
pump is something that probably none of us are qualified to 
probably make an assessment. None of us saw 40 years ago when 
these policies were put in place what would happen with this 
renaissance and revolution, certainly in the petroleum 
production industry.
    With that as a backdrop I want to look at this constraint 
right now on refining, and perhaps Mr. Drevna, looking at some 
of these regulations, for example, from the EPA. How are the 
EPA ozone national ambient air quality standards impacting your 
ability to expand capacity and/or operate?
    Mr. Drevna. Well Senator, if you look at the proposal that 
EPA has out and the one we just commented on yesterday, I think 
it was yesterday we submitted our comments. If the current 
standard of 0.75 goes down to 0.6 or up to 0.7 what they were 
talking, what the proposals are. A lot of this conversation 
you're hearing here today is moot because you're not going to 
be able to burn it here. You're not going to be able to develop 
it here. You're not going to be able to transport it here. 
You're not going to be able to fly an airplane out of a single 
engine fuel somewhere in Montana or Wyoming or North Dakota, 
because they're going to be in non attainment.
    So if we want to talk about energy and national security 
and that's a great thing, I can agree with about 75 percent of 
what Pascual has said. You've got to look at all the parameters 
that are involved in energy development and energy use and 
energy security.
    So, yes, the regulate--we have a built in regulatory kind 
of skein that we work with with the new system, we're lowering 
sulfur and gasoline. We're lowering this. We're lowering that. 
We're lowering CO2 emissions.
    Pretty soon we keep lowering it and there's going to be 
nothing left to lower.
    Senator Daines. Well, project this for a moment. These 
regulations go in place. We continue this amazing renaissance 
revolution of American oil production. The world's leading oil 
and liquids producer now in the world.
    We keep moving this up what happens now in this overall 
equation to refining capacity with these regulations? And what 
does that mean for the consumer?
    Mr. Drevna. You know, we are right now one of--very 
globally competitive in the U.S. refining sector. We are the 
most sophisticated, advanced refinery system in the world. 
We're able to take, you know, to do it very efficiently, do it 
very effectively with a lot of blue collar jobs that both 
Pascual and Jeff have talked about.
    It will put a grinding halt to it. We might as well export 
it because we can't be--we won't be able to use it here.
    And so it's--this is what I said in my opening statement 
and our testimony. Can we, for once, look back at the 70s and 
say, okay? What was happening there? And what did we do to 
respond?
    You know, we took an Arab oil embargo which really, in 
essence, could have been just a nuisance. And what did we do, 
we put price controls on. We limited production, and we turned 
a nuisance into a dog gone near catastrophe.
    So then we, our energy policy was, the next time around, 
well oh, synthetic fuels corporation and don't stock those 
Christmas lights up.
    For crying out loud, can we get an energy policy based upon 
the abundance that we have now but take in all the parameters 
whether it's our environmental regulations, the Jones Act, 
renewable fuel standard? Look at them holistically and come up 
with something that makes sense, not only for the upstream 
producers----
    Senator Daines. Yeah----
    Mr. Drevna. But for the economy and for consumers.
    Senator Daines. Again, we're debating a policy that's four 
decades old. Going forward 40 years, that's what, ten 
Presidential elections away, 40 years from now what will we 
have to look at here as we look at this very complex supply 
chain? And you know, Washington DC is trying to figure out a 
way to manage that.
    Mr. Drevna. Well, we----
    Senator Daines. I'll put my bet on the free markets.
    Mr. Drevna. That's exactly my point.
    Senator Daines. Yeah.
    Mr. Drevna. Let's look at the total free market.
    Senator Daines. Right.
    Mr. Drevna. And just not look at silos. We're going to do a 
free market here, but we're not going to do it over here.
    Senator Daines. Well, one more question for Mr. Warmann. 
Does Monroe Energy plan to invest to expand your refinery to 
process more crude?
    Mr. Warmann. We have been. We have invested well over $100 
million in being able to take in light oil as well as partnered 
with a group that has invested almost $200 million in getting 
the rail cars and unloading them.
    And I agree, the transportation is one thing that we need 
to improve upon. Pipelines, things along those lines definitely 
make markets more efficient and take some of this discrepancy 
between pricing out and make heating, home heating oil, in one 
area more similarly priced to another.
    Right now we are trying to, whether we export it or whether 
we use it in refineries which is preferable. You still have 
some antiquated transportation systems that need improvement, 
and that goes back to what Mr. Drevna is saying, you have to 
look at the whole thing, holistically, the transportation, the 
supply, the displacements, where is the demand for it, the 
environmental regulations that go with it.
    One thing that keeps us from running the stabilizers with 
the producers, and Mr. Lance can speak to this. One thing that 
keeps us from running those stabilizers to reduce the rvp so 
much is there's no place to go with that particular natural gas 
or product. There's no way to export it so you have to burn it, 
but there's limits on what you can burn.
    So you're sitting here balanced trying to get production 
up, trying to get the rvp lower. But you're also limited on 
this side by how much you can burn. So what do you do with 
that? What do you do with that product?
    You've got to get it out of there somehow, so you either 
have to transport it via railcar or you have to burn it and 
you're limited on burnings. So we're----
    Senator Daines. Thank you. Thanks, Madam Chair.
    Mr. Warmann. Yeah.
    The Chairman. Thank you, Senator Daines. Senator Hirono.
    Senator Hirono. Thank you, Madam Chair.
    I wanted to refer to some testimony that was provided to 
the Armed Services Committee just today by General Paul Selva, 
United States Air Force, who is the Commander of the United 
States Transportation Command, wherein he acknowledged once 
again the importance of the Jones Act.
    It is very clear as a member of the Armed Services 
Committee that keeping our ship building capacity strong is 
very important to our national security. That's what it comes 
down to. So Mr. Devon, Devra?
    Mr. Drevna. Drevna.
    Senator Hirono. Drevna, sorry. You raised some concerns in 
your testimony about the Jones Act containing that it raises 
the price of shipping. But of course we all know that the Jones 
Act requires these U.S. ships to comply with safety, 
environmental and minimum wage rules that other countries do 
not impose.
    Knowing how our military views the Jones Act as part and 
parcel of keeping a strong shipbuilding capacity and industrial 
base and that arena and how important that is, I'd like to just 
ask if any of the rest of the panel members disagree with 
General Paul Selva's statement wherein he said, ``Without the 
contribution that the Jones Act brings to the support of our 
industry there is a direct threat to national defense.'' Do any 
of you disagree with that statement?
    Mr. Drevna. I'm looking at the Jones Act in commerce, and 
we're talking about national security. Here we're talking about 
shipping product to foreign nations so they can be nationally 
secure.
    We, you know, I'm not going to disagree with the view of 
the military on what they believe they need, but there's a 
major difference between the military and commerce. And in 
commerce, as the Chair person said earlier, we want to make 
sure and the Ranking Member. We want to make sure that what we 
do here, what you do here in the Senate and anywhere else, 
doesn't negatively impact the consumer. I don't think it has to 
be an all or nothing.
    You mentioned the fact that or you mentioned that we have 
strict shipping standards. Well, the U.S. Coast Guard is not 
about to let any ship come in from a foreign port that doesn't 
meet our standards or leave our country shipping out oil but 
going to a foreign port that doesn't meet our standards.
    So again, let's look at the barriers to free trade. What we 
need to do for energy and national security. And it's not ever, 
Senator, an either or an or. I think there's enough of a, you 
know, there's wiggle room in between the two and you can make 
policies that keep the policy, that keep the country safe, to 
keep the country strong and yet, doesn't penalize the consumer 
or put refineries, some refineries out of business.
    Senator Hirono. Well, I understand the argument that you're 
making, but I represent a state that is 90 percent dependent on 
shipping and the Jones Act does provide us with that reliable 
service, not to mention that it is the Jones Act that makes 
sure that in times of national need that there are ships that 
are available to that, to meet that contingency. So I don't 
think it's that easy to separate out the commerce side and 
Jones Act.
    You do mention you believe the Jones Act does result in 
higher, probably result, in higher costs, and I would like to 
see some of the factual evidence of that because I do have 
familiarity with the arguments that the Jones Act makes 
consumer prices higher, and that has generally been not 
supported by evidence.
    Do any of the rest of you want to weigh in at all? I know 
that Mr. Drevna has concerns about the Jones Act, and I'm 
wondering whether the rest of you also see a connection between 
exporting crude oil and the Jones Act?
    Mr. Warmann. I can tell you, Senator, from direct 
experience. When we receive a foreign cargo we have to have 
Homeland Security. It's a point of import. We have to allow the 
foreign workers to offload.
    The other thing is if it's from Africa I now have to put in 
medical protocols to prevent things like Ebola and other things 
from importing into the ports.
    So there's a lot of effort that we have to go through in 
handling foreign ships verses American ships, and it comes back 
to American jobs. And I can personally tell you, having been in 
Philadelphia, the Philadelphia port was a ghost town until this 
renaissance. And now they have backlogs in supplies and jobs 
and demand for steel and everything else that--for years. They 
have five, six years of backlog as well as San Diego. You see 
ports in Mississippi and Alabama increasing their capacity as 
well as their backlogs. This is all American jobs all driven 
from this renaissance.
    And another transportation issue that needs to collectively 
be looked at from a holistic standpoint when we look at energy 
policy. I totally agree with you. I think that the Jones Act 
provides us a lot of security benefits.
    I would hate to think of an Iranian ship that has LNG 
that's sitting in the middle of St. Louis' port, the port 
harbor there. The things that could be done with that are 
astronomical. To me, that should cause a great amount of 
national security issues. So that's just some of the things 
that you can imagine.
    Senator Hirono. Thank you, Madam Chair.
    The Chairman. Thank you. Senator Hoeven.
    Senator Hoeven. Mr. Lance, would you like to respond to 
that last question?
    Mr. Lance. I would, just quickly. We're a large Jones Act 
shipper, so our Alaskan trade, our polar tanker trade, is a 
Jones Act shippers that goes to the West Coast and do supply 
your state in Hawaii with crude from Alaska. So we found that 
to be a very effective tool to continue to do that.
    And some of Senator Cantwell's earlier concerns, when 
President Clinton lifted the export ban from Alaska, we were 
able to ship and the GAO has looked at that repeatedly and 
there has been no impact to West Coast gas prices, California, 
Washington and Oregon as we were shipping crude to other places 
outside of the United States. Another proof point relative to 
exporting does not increase gasoline prices for the consumer. 
We have a living example of that that's been occurring since 
the 80s in the Alaskan trade.
    Senator Hoeven. Thank you, Mr. Lance.
    Mr. Drevna, would you agree it's better that we produce 
more energy in this country rather than less? It's three 
questions for you. Would you agree that it's better to produce 
more energy here at home rather than less? Would you agree that 
we have an imbalance between the amount of light and heavy 
crude that we produce and the amount of light and heavy our 
refineries can actually refine, refining capacity? And if you 
agree with both of those, which I think you probably will, but 
you can certainly say what you think. What can we do to match 
up our refining capacity? How can we help refiners better match 
the mix of light and heavy we produce here at home?
    What can we do to help you? I mean, regulation, 
transportation, investment incentives, what helps?
    Mr. Drevna. Well the answer to your first question is an 
unequivocal, yes.
    Senator Hoeven. Good.
    Mr. Drevna. Absolutely. To answer your second question is 
between, as I said in my written and oral statement, between 
now and 2016 we, as refiners, can handle that additional 730 
barrels a day with investments already being made and will have 
been made.
    Going forward, and again, as I said we're not opposed as an 
association and as a total industry, we're not opposed to the 
lifting of the ban.
    What can you do post say '16? We've got a fairly good 
transportation delivery system going north/south in the 
country. We don't have that good of a transportation system 
going east/west. This is why the advent of the Bakken crude and 
shipping it via rail. But even going north/south----
    Senator Hoeven. So you're saying we need pipelines?
    Mr. Drevna. Yes, sir.
    Senator Hoeven. And transportation.
    Mr. Drevna. Yes, sir.
    Senator Hoeven. I just want to make sure. More pipelines?
    Mr. Drevna. Well, it's the Keystone XL pipeline that has 
sort of become a metaphor for what we don't have in this 
country.
    Senator Hoeven. But would you say part of producing more 
energy in this country means we have to have the energy 
infrastructure to move it safely and dependably, meaning the 
right mix of pipeline, rail and roads?
    Mr. Drevna. Absolutely, Senator, and that is something if 
you look at the vast increase in production that ConocoPhillips 
and others have done. It's been done by American ingenuity. It 
hasn't been done by government Fiat.
    Senator Hoeven. Private investment.
    Mr. Drevna. Turn us loose. Let us do the job 
environmentally safe and safety in all around. Just turn us 
loose.
    Senator Hoeven. It sounds to me like you're right on this, 
but what can we do to help the refineries do more in terms of 
investment at the refineries so they can process light or 
heavy?
    Mr. Drevna. They're doing it. They're doing it. Again, it's 
the free market, but we have to, again, I don't want to be----
    Senator Hoeven. Well, you're starting to get at it with the 
regulation. I'm just looking for any specifics that we can look 
at in terms of legislation, just like we're working on oil 
export.
    Are there other specifics that we should be looking at in 
legislation?
    Mr. Drevna. Well----
    Senator Hoeven. Transportation, obviously.
    Mr. Drevna. Transportation is the big one. We've got to get 
rid of these bottlenecks. You've got to get these pipelines 
permitted.
    You've got, I mean, there's a lot going on out there that 
folks don't really understand or know about, about how the 
pipelines have done some great things over the past three, 
four, five years. We need to do more. We need to get the 
permitting done. We need access.
    If you want to increase energy security we need access on 
federal lands. Gee, think about what would have happened over 
the past four or five years if all of this stuff that we've 
been producing would have been on federal lands. We wouldn't be 
producing it. We wouldn't even be having this conversation. 
We'd be still worried about 1975.
    Senator Hoeven. Thank you, Mr. Drevna. I really appreciate 
it.
    And of course, you remember, I'm sure of his association, 
Mr. Warmann, but I guess if there's something else you'd want 
to add I should give you the chance.
    Mr. Warmann. We are strangle held by the amount of 
transportation we're currently trying to build out. 
Transportation projects usually take several years.
    We currently run about 60 percent domestic. We'd like to 
increase that even more so. The balance coming from some of our 
neighbors to the north and the south, but that transportation 
is an issue both in the current reliability of the existing 
systems as well as the permitting of new systems.
    So that is one thing from a holistic standpoint we need to 
look at, and if in the national interest we need to put in 
pipelines, we need to put in pipelines. Everybody has a two 
inch pipeline hooked to their house if they have natural gas. 
There should be no problem just hold us accountable. We will 
build it. We will maintain it. There's no incentive for us not 
to do it responsibly.
    The last thing I want to do is lose product out of a 
pipeline or out of my refinery. That's lost profit. That's lost 
money to me, and we're working on very slim margins, a tenth of 
what our upstream friends are doing on a per barrel basis. So 
every little drop means everything to us.
    There's no incentive for us to do anything other than what 
is perfectly, environmentally compliant and friendly and get 
the product from one place to another effectively.
    Senator Hoeven. Thank you. I'd like to thank all of you, 
and I appreciate your responses.
    The Chairman. Thank you, Senator Hoeven.
    We have a vote that has been called. So you are spared from 
subsequent rounds.
    I'm going to ask one quick follow up question because I've 
seen this back and forth here where it's been stated by the 
folks at this end of the table that we've got more oil than our 
refineries can accommodate, and this end of the table says, we 
can handle all of the capacity.
    So to you, Mr. Lance, I'm not going to ask for confidential 
business information here, but just generally as a producer, 
have you been in a situation where you've tried to sell light 
crude to a refiner and basically been turned away?
    Mr. Lance. Yes, Senator. In fact just in the last month 
we've tendered cargoes to even Monroe Energy and have been told 
not only can we not take it, we're unwilling to take it. We 
cannot take it. We cannot process the crude that you've put 
into the marketplace.
    So that's happening today, and so I would dispute the fact 
that maybe the refineries will, over time, be able to make the 
investments to take this crude. The sure fact that we're 
trading at a $10 discount today demonstrates the fact that they 
cannot. Now they're in refineries. They're in turn around 
season.
    The Chairman. Right.
    Mr. Lance. They're doing some things today. This occurred 
before the contango in the curve started, so Cushing 
inventories were building before the traders got involved with 
the contango. This was an issue that started in the last part 
of last year. It has continued on through the first part of 
this year and has exaggerated the drop in the oil price.
    So yes, it's happening today. Refineries cannot take the 
produce that we're producing today, and in fact my company has 
tendered that and been told no. Not even will we take it at a 
steep discount, we are unable to take it completely.
    The Chairman. Well and I think this is where we sit with 
this conversation about alignment, and got into a lot of 
discussion when we had the Keystone XL pipeline in front of us. 
The reason why it was necessary to have this pipeline coming 
down and just the alignment or misalignment of where we are 
right now with the product coming out of different parts of the 
country that is effectively different in terms of what our 
refineries can handle.
    So again, this has been a great conversation. I could spend 
the rest of the afternoon with you, but again, you've been 
saved by the vote.
    In addition to thanking you all for giving us your time 
here this morning, I want to thank you for continuing this 
conversation with us because I think, as a Committee, we are 
engaged to do just that.
    I thought that Senator Gardner summed it up in a pretty 
tight manner when he said what we're trying to do here as a 
Committee is to focus on this as a policy and assess from a 
national security perspective which, I believe, is critical but 
at the same time making sure that we're looking out for the 
economic well being of the people around the country. The 
economic well being is making sure that this resource is 
available to them at an affordable price, that the jobs that 
come with it across the country are there and recognized.
    But again, what we've heard today I think has been good. I 
think it's been constructive and know that we will continue 
this discussion further.
    And with that I'd like to give my colleague the final word.
    Senator Cantwell. I know we have a vote, so I'll just be 
short. I would just sum up my thoughts on the last set of 
comments. If you want a pipeline, play by the rules. That is, 
adhere to the environmental laws that are on the books and 
don't try to skirt around them.
    If you want to transport this on oil trains, make sure it's 
safe.
    The issue about whether they have a place to strip out 
natural gas is not my problem. My obligation to the people in 
the State of Washington is to make sure they are safe and 
secure, and right now we don't have enough standards in place 
to make sure that is happening.
    So if we want to continue this discussion of more oil 
trains than it better be about standards. I'll look forward to 
my colleagues joining me on the Floor when they have a chance 
to vote for that kind of standard and see if they want to make 
trains more secure or not.
    Third, I think we probably will, at some point in time, get 
into the discussion about federal lands. I know, Mr. Drevna, 
you were saying let's let them go and drill more on federal 
lands.
    The resource extraction from our federal lands is not 
paying their fair share to the American taxpayer, and you will 
hear more from us on that in the future.
    So, thank you, Madam Chair, and I do appreciate the broad 
discussion. I think it's going to be great to have this debate, 
not just in this Committee, but on the Floor of the United 
States Senate. Thank you.
    The Chairman. I look forward to it. Thank you all.
    We stand adjourned.
    
    [Whereupon, at 12:13 p.m., the hearing was adjourned.]
    
    [GRAPHIC] [TIFF OMITTED]
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