The crude oil export ban: Helpful or hurtful 2015 House hearing

House 114-22. April 14, 2015. The Crude oil export ban: Helpful or hurtful? House of Representatives.

[ Excerpts from the 73-page transcript of the hearing follow ]

Ted Poe, Texas. The United States is now the largest crude oil producer in the world. We have more oil than we can refine or store. The majority of U.S. refineries were built to handle heavy, sour crude, but oil production is light, sweet crude. The United States’ refineries cannot keep up with the new production. Normally producers would simply pump oil into storage containers, but experts say those storage tanks could fill up by the end of this month. Instead of exporting excess oil like producers get to do in other nations, the ban is already forcing U.S. oil producers to leave oil in the ground and lay off workers. About 50% of the working rigs in my home state of Texas have had to shut down in just the last 6 months, and 70,000 oil workers have been laid off since Thanksgiving. The solution is clear: Export crude oil; have the ban lifted so that it can be exported. Critics of lifting the ban are afraid the United States’ oil exports will lead to higher domestic gas prices, but many studies have debunked this myth. Gas prices are more closely linked to the international market, or Brent Price, than the domestic price of crude because refined products like gasoline are traded freely on the international market. So the more crude oil we have, the more we can put on the international market, and the lower the international price of crude. The lower the international price of crude the lower the price of gas for America.

Lifting the ban will also lead to more jobs and higher GDP. An IHS study predicts crude oil exports would support nearly 300,000 jobs by 2018. Removing the export ban would add 26 billion to the GDP per year and improve labor income about $158 per year on average.

Europe gets 40% of its oil from Russia. Exporting crude oil would give the Europeans an alternative to having to depend on Russia. It would also increase our influence in Asia. Japan and South Korea partly rely on crude oil from Iran to satisfy the growing energy consumption. U.S. exports can help diminish that reliance. It is ironic to me, with the so-called deal with the Iranians, that it is now the U.S. Government’s long-term policy to allow Iran to export crude oil and inject billions of dollars in their own economy. At the same time, it is still the U.S. Government’s policy to prohibit American producers from doing the same. It seems to me what is good for the Iranian oil exports, should be the same deal that the United States’ oil producers get. U.S. exports offer a stable energy to our allies and decrease their reliance on dictators and state sponsors of terror. Lifting the ban shows the U.S. is serious about supporting free markets around the world. We criticize China for not exporting rare earth materials and yet we are not exporting crude oil. Removing the ban will give us more credibility when we criticize export bans in other nations. All in all, it is time we remove the crude oil export ban. Exporting crude oil will lower gas prices, increase American jobs and strengthen our national security. And that is just the way it is, to coin a phrase.

Jason Grumet, founder & President, Bipartisan policy center. In the broadest sense, this ban is a 40-year-old anachronism. It was passed at a moment of significant national weakness. The irony is that this policy is now inhibiting one of our nation’s greatest strengths. Our energy abundance has profound potential to continue to accelerate our economic recovery, to strengthen our interests internationally, and we do believe it is time for it to be reconsidered and lifted. Left unaddressed, the policy will undermine domestic production and it will weaken our recovery.

Elizabeth Rosenberg, Director, Energy, Economics & Security program, Center for a New American Security. Recent dramatic increases in U.S. energy production have reshaped our oil industry, our industrial output and many of our global trading relationships. The oil boom has improved our GDP and balance of trade and meaningfully advanced our energy and national security. These benefits however will be clipped if policymakers do not change 1970s era crude export policies that prevent U.S. oil from moving to markets overseas.

Another important benefit of lifting the oil export ban is the contribution it will make to energy security. When more of the oil supply pool comes from stable producers such as producers in the United States, the overall market is more stable. U.S. crude will be shipped by fewer maritime hot spots and choke points such as the Straits of Hormuz and the South and East China Seas.

Jason Bordoff, Founding Director, Center on Global Energy Policy, Columbia University.

The oil export ban was originally adopted in the 1970s in response to concerns not only about oil scarcity after the Arab oil embargo, but also to prevent producers from getting around domestic price controls by exporting their oil into the global market where they could fetch a higher price. Price controls were eliminated 30 years ago, but the export restrictions remain. U.S. oil production, as we all know, has boomed and imports have plummeted as a result. We are still going to be an importer of oil for as far as the eye can see, so why are we even talking about exports? The concern is the ability of domestic refiners to absorb the kind of oil that we are producing in the U.S.

U.S. shale oil is very light oil, while many of our refineries have invested billions to handle heavy sour oil. You can run light oil through those refineries but it becomes increasingly economically challenging. So the price of U.S. oil may become discounted relative to the world price to incentivize domestic refiners to take it.

To date, U.S. refiners have made low cost adjustments where they can. We have backed out mostly the import of light oil, and we have also exported what is allowed. Exports after all are not completely banned. They are restricted. Exports are allowed, for example, to Canada, and our exports there have surged, to almost 1/2 million barrels a day. And we have also had a surge in the export, as you heard, of refined petroleum, which is also allowed.

As U.S. production grows, however, at some point you run out of these low cost options. The oil price crash means that the pace of U.S. supply growth is slowing down. The Energy Information Administration said yesterday production will probably decline next month, the first decline in U.S. shale oil output in 4 years. Storage is at an 85-year high.

We also want U.S. supply to respond to global circumstances. Consider how OPEC decided in November to let oil prices fall, forcing higher cost producers like the U.S. to cut production instead. We know shale oil can go off line very quickly compared to conventional oil, but it can also bounce back quickly too. And if the world price were to rise again to the $70s or $80s or $90s, U.S. oil supply could rebound quickly to slow that price rise to temper the impact on consumers at the pump. But that U.S. supply response may be impeded if we have to sell our crude at a discounted price.

Stephen Kretzmann, Founder & Executive director, Oil Change International . Oil Change International believes the crude oil export ban should not be lifted and that maintaining the ban would be helpful from the perspectives of community safety and climate protection.

The crude oil export ban was certainly not designed to play a role in climate change mitigation or to reduce the likelihood of a mile-long freight train full of crude oil destroying a community in America’s heartland, however, it plays an important role in regulating an industry that currently has few limits placed upon it. More broadly, this issue points to the urgent need to harmonize energy policy with climate policy. We cannot drill our way out of the climate crisis, and arguments to that effect are nothing short of climate denial.

Oil Change International conducted an analysis of the impact of lifting the crude oil export ban on U.S. oil production. We estimated a projected production increase of more than 476,000 barrels per day by 2020, which incidentally is very similar to the estimate that was arrived at by the American Petroleum Institute of 500,000 barrels per day. The critical question to consider is what will oil producers do when confronted by this additional U.S. supply? The conventional wisdom had been that OPEC would counter new supply by reducing production to support higher oil prices.

This conventional wisdom has been proven completely wrong over the last year. In the past 9 months it has become increasingly clear that Saudi Arabia is determined to maintain market share rather than cut production to support higher prices.

Lifting the crude oil export ban will likely increase crude by rail traffic putting 25 million Americans at greater risk of disaster. Since 2005, the amount of tank cars on U.S. railways has increased over 4,000 percent. At any given time there are about 135 100-car trains carrying a total of 9 million barrels of crude oil through American communities. If all of the projected increase in U.S. production were to go by rail, crude by rail traffic would see a 50% increase. If increased production were to reach the top end of the CGEP analysis, some 1.2 barrels of oil per day, this could more than double crude by rail traffic from today’s levels.

Of the terminals on the Gulf Coast, at least 4 on the East Coast and at least 6 planned terminals on the West Coast, have facilities or will be designed with facilities for unloading crude oil from trains and loading it onto tankers for export. Lifting the crude oil export ban would put hundreds of communities and the lives of 25 million Americans at increased risk of an oil train disaster such as the one in Lac-Megantic, Canada, last year where 47 people perished because an oil train derailed and exploded. It seems only a matter of luck that the incidents to date have not caused further loss of life. Crude oil trains pass through more than 400 counties including major metropolitan areas such as Philadelphia, Seattle, Chicago, Newark, Richmond and dozens of other cities.

As President Obama noted in June 2013 in regards to the Keystone XL pipeline, our national interest will be served only if this project does not significantly exacerbate the problem of carbon pollution. This climate test should be applied to all policy decisions as well as the permitting of infrastructure to extract, transport and process fossil fuels. The lifting of the crude oil export ban almost certainly fails this test. Our communities and climate in short are worth more than so-called free trade and the profits of the oil industry.

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