House panel’s crude export ban hearing weighs urgency against caution

A US House Energy and Commerce subcommittee hearing on legislation to repeal the ban on exporting US-produced crude oil quickly broke along party lines. Energy and Power Subcommittee Republicans argued the recent crude price decline could jeopardize future production growth if the ban stays in place. Democrats responded that removing it could have far-reaching consequences which should be considered first.

“Thousands of direct and indirect oil jobs have been lost over the past year as supplies have exceeded demand and prices have dropped,” Subcommittee Chairman Ed Whitfield (R-Ky.) said in his opening statement. “New production is being cut back, not because of a shortage of place to drill, but because of a shortage of customers.”

Citing a recent IHS study, he said lifting the crude export ban could create nearly 1 million more jobs. “Put another way, these are jobs that would already exist today if the export ban was not in place,” Whitfield said at the July 9 hearing on HR 702, which would end the prohibition.

Frank Pallone Jr. (D-NJ), the full committee’s ranking minority member, said several questions should be answered first, including possible effects on retail gasoline prices and domestic job growth, if crude exports could be taxed to produce immediate broader economic benefits, and whether the oil industry still needs favorable federal tax provisions if it’s simply a commodity comparable to cotton and peanuts.

“It might be more beneficial to take smaller steps first, such as easing restrictions on exports to our neighbors in Mexico,” he suggested.

Other subcommittee Democrats raised similar questions. “I would say to my Pennsylvania colleagues to consider what this would do to our Philadelphia area refineries, particularly in light of ramifications under the Jones Act,” said Michael F. Doyle (D-Pa.). “Our job is not to try to make a quick buck on oil. Our job is to look after our country’s security.”

‘Generate headwinds’

One witness expressed similar concerns. Kirk Lippold, a retired US Navy commander who is a strategic planning consultant, said the country still imports large amounts of crude despite significant domestic production gains. “At this point, lifting crude export regulations will generate headwinds that would likely dampen the predicted decline in imports,” he warned.

Precipitously ending regulation of crude exports would not confer equal strategic benefits, he said. “As an initial matter, all credible economic studies on the subject project that the vast majority of US crude exports purchased on world oil markets would make their way to Asia, not Europe,” Lippold said. “Indeed, the number one beneficiary of lifting the ban is likely to be China.”

Three other witnesses said removing limits on crude exports generally would be beneficial. Mark Krienbihl, group president at Gorman-Rupp Co. in Mansfield, Ohio, said IHS Economics estimates that lifting the ban would increase US crude production by up to an average 2.3 million b/d between 2016 and 2030.

“This new production will drive substantial additional investment in products and services from the crude oil supply chain, generating up to $63 billion of economic output nationally, creating up to 440,000 new jobs nationally,” he told the subcommittee. Krienbihl said the Energy Equipment and Infrastructure Alliance, to which Gorman-Rupp belongs, estimates there are at least 120,000 supply chain companies, of which at least 100,000 are small businesses, and 615,000 workers supporting US oil and gas production.

Peter Gandalovic, the Czech Republic’s Ambassador to the US, said Europe’s overall energy security assumes that access to global and oil and gas markets means access to exports which see energy as a business instead of a political tool.

‘Send a strong signal’

“The larger the number of stable democracies among the world energy exporters, the more robust the energy security of the Czech Republic and the European Union will be,” he declared. “Moreover, US energy exports would send a strong signal to the world community that democracies stick together.”

W. David Montgomery, who recently retired as a senior vice-president at NERA Economic Consulting, said US economic losses from continuing crude export restrictions could lead to heavier production investment reductions than the drop in world oil prices caused. “At the same time, consumers lose because the effect of putting more crude oil into world markets is to drive down world crude oil prices which determine US gasoline and heating oil prices,” he told the subcommittee.

Crude export restrictions also will lead to economic waste if refiners incur higher operating costs and make additional investments in order to use light tight oil, even though refined products could be imported at lower costs, Montgomery said.

“If, instead of making these wasteful expenditures, we export light tight oil and import refined products, at least as much gasoline and heating oil would be supplied to consumers,” he said. “The savings from avoiding unnecessary refinery costs and investment would be used for productive investments that produce additional goods and services for consumers.”

Officials from two Washington organizations separately expressed hope that the hearing was a signal that Congress was ready to repeal the ban. “Crude exports could generate immediate and long-lasting benefits for US workers, for US consumers and families, and for our allies abroad,” American Petroleum Institute Executive Vice-Pres. Louis Finkel said. “Bipartisan momentum is stronger than ever, and lawmakers should seize this opportunity to cement America’s role as a global energy superpower.”

“Numerous studies over the past year have exhaustively detailed the substantial economic and national security benefits crude exports will bring to this country—from growing our economy to providing jobs to strengthening ties with our trading partners,” said Margo Thorning, vice-president and chief economist at the American Council for Capital Formation. “It is clear the original rationale for this policy no longer applies to today's energy reality in which the US is a global energy production leader.”

Contact Nick Snow at nicks@pennwell.com.

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