House Ag Committee weighs rural benefits of lifting crude oil export ban

By Sarah Gonzalez

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WASHINGTON, July 8, 2015 - The House Agriculture Committee heard testimony Wednesday that lifting the ban on U.S. crude oil exports would benefit rural areas, including creating more jobs and potentially lowering gasoline prices.

Congress passed legislation restricting crude oil exports in 1975 in response to the Arab oil embargo and the recession it triggered. Technological advances in recent years, however, have contributed to increasing U.S. production, allowing a possible surplus for export.

“With the revolution in shale oil production, the ban has grown teeth and those teeth are taking a bite out of our economy, particularly our rural economy,” said Chairman Mike Conaway, R-Texas, whose district holds large areas of oil production. He added that some studies estimate if the ban were lifted today, “we would see close to a million new jobs nationwide in just a few years.”

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In May, Conaway and Rep. Henry Cuellar, D-Texas, introduced the Energy Supply and Distribution Act (H.R. 2369), which would lift the ban. The measure is a companion bill to legislation introduced by Lisa Murkowski, R-Alaska, in the Senate.

At today's House hearing, Kari Cutting, vice president of the North Dakota Petroleum Council, said that in her state, the oil and gas industry now is worth $43 billion and supports 65,000 jobs directly, up from $3 billion and 5,000 jobs in 2005. However, “this rural renaissance is being threatened by foreign entities not always friendly to the United States and restrictions imposed on the sale of oil abroad,” she said.

The recent fall in oil prices, caused in part by higher production from OPEC [Organization of Petroleum Exporting Countries], has resulted in 130,000 lost job opportunities nationwide, Cutting said. “More than 100 drilling rigs are now sitting idle in North Dakota and production in the state has been flat for the past several months.”

According to a Government Accountability Office (GAO) report published in September, removing export restrictions would increase domestic production - which was 8 million barrels per day in April 2014 - because of increasing domestic crude oil prices. Estimates range from an additional 130,000 to 3.3 million barrels per day on average from 2015 through 2035, GAO stated.

During Wednesday's hearing, Harold Hamm, founder of Oklahoma-based Continental Energy, said the ban is “a terrible relic of the Nixon era that today actually harms the American economy and makes domestic gasoline and diesel prices higher than they should be.”

Conaway noted lower energy prices are particularly important for the agriculture industry and rural America. “Compared to their urban neighbors, rural households spend 58 percent more on fuel for transportation as a percentage of their income,” he said.

Terrence Duffy, president of the CME Group in Chicago, said the ban no longer makes sense after the transformation of energy markets over the past few decades. He noted that the U.S. is the world's leader in financial markets, and prices for global commodities, such as crude oil and refined products, are discovered in the U.S. futures market.

“The U.S. has managed to maintain this leadership role in spite of the distortions governing the market for the product whose price U.S. markets help discover,” he said. “Lifting the ban will remove an impediment to the integrity of the price discovery process in U.S. markets.”

The export ban segregates U.S. crude from the world market, “which punishes the U.S. economy with price distortions,” he explained. “In order to encourage companies to invest in the production of crude oil here in the U.S., our domestic crude should be able to participate in the global free market for oil.”

David Porter, chairman of the Texas Railroad Commission, testified on the national security benefits of lifting the export ban. He said the U.S. can become a stable supply source for its allies, as well as “help prevent market distortions and lower the influence of OPEC” if it is allowed to export crude oil.

The Center for a New American Security (CNAS) issued a report in May that stated:

“The United States will be in a stronger position to impose future energy sanctions, if necessary, if it promotes free trade in energy. In so doing, policymakers would make it possible for U.S. producers to expand production more easily to substitute for global supplies unavailable due to sanctions.”

Rep. Collin Peterson, D-Minn., the committee's ranking member is co-sponsoring a separate bill (H.R. 702) that would lift export restrictions. He noted that the Agriculture Committee does not have jurisdiction over oil exports, but he said programs administered by USDA Rural Development “could help rural areas face challenges with population fluctuations and increased strain on rural resources that come from increased production.”

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