Senate Holds First Congressional Hearing in 25 Years on Crude Oil Export Ban

Yesterday the Senate Energy and Natural Resources Committee held the first hearing in 25 years to “explore opportunities and challenges associated with lifting the ban on U.S. crude oil exports.”

Sen. Lisa Murkowski (R-Alaska) reiterated her call for President Obama to end the prohibition against exporting crude oil produced in the United States. “The prohibition on crude oil and condensate exports threatens record-breaking U.S. oil production and American jobs by creating inefficiencies, gluts, and other dislocations,” Murkowski said in her opening statement.

Lifting the ban would “send a powerful signal to the world that the United States is ready to reassert its role as a leader on energy,” Murkowski stated. In addition, she argued, opening up global markets to U.S. producers would spur production, contributing to an overall expansion in global petroleum supply, which in turn would lower the price of petroleum products.

All things equal, the American consumer will benefit from this interaction, as will those Americans employed directly and indirectly as a result.

Chairman Ron Wyden (D-Oregon), who once opposed U.S. exports of petroleum products made from imported Canadian crude oil, took no position for or against lifting the crude oil export ban, stating he wanted to hear the arguments pro and con and would “not be making any judgments today.”

Sen. Murkowski agreed that no decisions would be reached in the Senate or the administration in the next few weeks. But, noting that congressional debate on the ban would have been unthinkable only two years ago, she said the hearing should advance the conversation on how to renovate America’s “antiquated energy trade architecture.”

In a comedic moment indicating just how far the conversation has come, Sen. Al Franken (D-Minn.) made a plea to Sen. John Hoeven, Republican of North Dakota, home of the Bakken shale boom, to “please discover some oil in Minnesota.”

As discussed previously, Sen. Murkowski recently released a white paper, A Signal to the World: Renovating the Architecture of U.S. Energy Exports. On visiting her Committee Web page today, I found that she has commissioned 11 studies from the Congressional Research Service (CRS) on various energy export issues. In short, she is providing intellectual leadership and serious legislative deliberation on these important issues. Brava!

I may review other testimonies in a later post. Here I’ll provide highlights from the testimony of Harold Hamm, Chairman and CEO of Continental Resources, Inc., “the company that co-developed the first field ever drilled exclusively with horizontal drilling and the company that is the largest leaseholder and most active driller in the Bakken Play.”

The U.S. is already a major exporter of petroleum products (top ranking category in both 2011 and 2012, and 3rd ranking category behind autos and chemicals in 2013). A policy that deems some petroleum exports good and others bad is incoherent:

The popular belief is that we’re not exporting petroleum. Nothing could be further from the truth. Major oil companies are exporting refined petroleum products like gasoline and diesel with no limitations. Why shouldn’t independent producers be allowed to do the same? Are we to be their subjugate milk cows, just like being able to export flour, but not wheat? No one will go for that.

Bottling up U.S. crude oil benefits big refiners, not U.S. consumers:

Over the years, some have argued granting U.S. crude oil producers free access to world markets would drive up the cost of gasoline and other petroleum products for American consumers. The opposite is actually true. By imposing trade restrictions on a single segment of the energy industry, namely domestically produced crude, our government is arbitrarily subsidizing some U.S. refineries – many of which are foreign-owned – by giving them the ability to source American oil at prices well below the world market price, while at the same time giving them the “green light” to sell petroleum products into higher-priced international markets.

Keeping U.S. sweet, light crude out of the global marketplace limits the global supply of petroleum products, which in turn increases consumer prices:

Many refineries overseas designed to only process light, sweet crude similar to U.S. grades find it difficult to compete profitably with U.S. refiners with access to domestic crude at artificially low prices, forcing many to close and thereby reducing supplies of refined products on the global market. . . .And, when supplies of gasoline and diesel fuel are restricted in the global market, the global demand for U.S. gasoline and diesel increases, thereby driving up the price U.S. consumers must pay at the pump.

Lifting the export ban will increase competition between U.S. and overseas refiners. When refiners compete, consumers win:

The true benefit to the American consumer will be competition for the refining of gasoline. Indeed, crude oil is no different than any other commodity, product, or service demanded by consumers. Lower prices are only brought about by increased supply, greater competition amongst sellers, weaker demand, or improved efficiency in the manufacturing and distribution process.

Lifting the ban will strengthen one of the few bright spots in the U.S. economy — the unconventional oil and gas industry:

America is at a crossroads. Do we cap oil production or allow exports? Lifting export restrictions will strengthen our domestic oil industry, a critical component of our economy whose impact reaches far beyond the American consumer. At a time when unemployment sits at nearly 7% and, more importantly, U.S. labor force participation has fallen to just 63%, the energy sector has added jobs for millions of Americans – both directly and indirectly through energy service and equipment companies. It has also served as a job multiplier for our nation’s growing chemical and manufacturing industries.