Crude Oil Export Legislation Necessary to Resolve U.S. Refining Shortage
U.S. Energy Renaissance Endangered
Domestic Energy Producers Alliance
December 8, 2015
What is the Domestic Energy Producers Alliance?
1.
DEPA is an alliance of:
 U.S. independent producers, royalty owners, and oilfield service companies
 20 state and national oil and natural gas associations representing the interests of:
• 2.6 million American oil and gas workers
• 10 million American royalty owners
2.
DEPA supports lifting the outdated ban on U.S. crude oil exports
• Imposed in 1975 during Nixon Era of Scarcity
3.
There is no organized opposition to lifting the ban
 U.S. crude oil exports are supported by:
• 100% of the U.S. oil and natural gas exploration and production industry
• 94% of the U.S. refining industry
2
From Scarcity to Energy Abundance in America
U.S. crude oil production, imports and exports vs. net imports of crude and products
20,000
Projected 20 MMBpd
18,000
16,000
thousand bpd
14,000
2005 Net liquid imports
12.6 MMBpd
~ 60% of U.S. consumption
12,000
10,000
9,184
8,000
7,356
U.S Crude & Petroleum
Products Net Imports
6,000
4,595
4,000
1Q15 Net liquid imports
4.9 MMBpd
~ 25% of U.S. consumption
U.S Crude Imports
2,000
U.S Crude Exports
475
‐
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
U.S. Field Production of Crude Oil
U.S. Imports of Crude Oil
U.S. Exports of Crude Oil
U.S. Net Imports of Crude Oil and Petroleum Products
Source: EIA. October-November 2015 data calculated as averages of weekly data.
3
World Petroleum and Other Liquids Production
MMBpd
“The Wedge”
N. Am. production
growth
2014
6.0 MMBpd
70% light
sweet oil
North America
Non-OPEC Other
OPEC
Source: U.S. Energy Information Administration, March 2015 Short Term Energy Outlook
4
“Cowboyistan”
Bakken + Eagle Ford + “New” Permian
70% of U.S production growth is from these three plays
50% of world production growth is from these three plays
Only in America is land ownership in fee simple title.
 3 key elements for success*:
Rigs
Rednecks Royalties
 Most unconventional plays are natural gas
* “Hat tip” to author Robert Bryce, whose latest is, “Smaller Lighter Faster Denser Cheaper: How Innovation Keeps Proving the Catastrophists Wrong”
5
“Cowboyistan”
Bakken + Eagle Ford + “New” Permian
MMBPD
World Production
16
Cowboyistan = World’s #7 Liquids Producer
14
Total Recoverable Reserves Estimates Cowboyistan vs. World Proved Reserves
12
10
8
6
#7
4
2
0
  

 


OPEC member
SOURCE: EIA SEPTEMBER SHORT‐TERM ENERGY OUTLOOK
http://www.eia.gov/naturalgas/crudeoilreserves/ for proved reserves. DEPA estimates for Cowboyistan potential.
6
U.S. Energy Renaissance Endangered By 2 Key Factors
1. OPEC manipulation by predatory pricing practices to drive U.S. producers out of business
2. The combination of restricted U.S. refining capacity and an archaic export ban on U.S. crude oil
TIME Magazine, April 20, 2015
“OPEC says the demand for oil – its oil – will rise during 2015 because the cartel is winning its price war against U.S. shale producers by driving them out of business.”
The Wall Street Journal, April 16, 2015
“The boom in U.S. oil supplies will end in 2015, the Organization of Petroleum Exporting Countries said…”
The Wall Street Journal, March 8, 2015
“OPEC’s top official said that the cartel’s decision to continue pumping crude in the face of collapsing prices is hurting the U.S. shale‐oil industry and that a global pullback on investment could lead to a shortage that will push the market upward again.”
OPEC Chief, The Wall Street Journal, March 8, 2015
“Projects are being canceled. Investments are being revised. Costs are being squeezed… When OPEC didn’t reduce its production, everything collapsed for the U.S. shale‐oil‐rig market.” OPEC Chief, Reuters, January 26, 2015 “Maybe we will go to $200 if there is a real shortage of supply because of the lack of investment.”
7
The Saudis openly brag
about their actions to harm U.S. producers. Financial Times, May 14, 2015
8
Foreign Control Seized Through Acquisitions of Strategic U.S. Oil Infrastructure
to Refine Their Oil at the Exclusion of U.S. Producers Where was the U.S. government during the sale of these strategic assets?
9
28% of U.S. Refining Capacity is Foreign‐Owned
Source: EIA foreign capacity weighted by percent ownership.
10
Calculated Conversion of U.S. Sweet Refineries by Canadian Heavy Sour Developers w/Preferential Processing Rights to the Exclusion of U.S. Crude
Example: Husky Oil Purchase of the Lima, Ohio Refinery
Downstream
In Downstream, the Company worked to better position its assets with a number of cost‐
efficient initiatives. These included significant investments at the Lima Refinery to process heavier feedstock as the Company prepares to bring on more heavy oil thermal projects in Western Canada. Husky Energy Investor Presentation - March 2015
11
Canadian‐Owned Companies Converting U.S. Refineries to Run Canadian Heavy Sour/Bitumen
Encana/Conoco ‐‐
(Calgary) Established JV in 2007 in which Encana received 50% ownership in two
ConocoPhillips refineries in exchange for COP joint ownership of oil sands projects. Announced plan to invest $5.3B to expand Wood River, IL (306,000 Bpd) and Borger, TX (146,000 Bpd) refineries’ bitumen processing
capacity from 30,000 Bpd to 275,000 Bpd. Both conversion projects were in service by 2011.
Suncor Energy ‐‐
(Calgary) Paid $150MM in 2003 to purchase ConocoPhillips’ Rocky Mountain assets
including a 60,500 Bpd refinery in Denver, and $30MM in 2005 to buy Valero’s adjacent refinery. Spent $445MM to expand the plant to 103,000 Bpd capacity and upgrade the facility to “handle a wider range of [Canadian] oil sands.”
12
Most Light Sweet Refining Capacity Is Located Outside of the U.S. as a Result of Foreign Refinery Conversions
$85 billion has been spent since
1990 to reconfigure U.S. refineries
to run heavy sour oil. Much of this
investment was made by foreign
countries with exclusive
agreements to process their crude
even at the exclusion of U.S.produced crude oil.
30.0
World Light Sweet Refining Capacity
25.0
Heavy Sour
Light Sweet 5 MMbpd
Heavy sour
20.0
15.0
10.0
12 MMbpd
Heavy sour
5.0
64 MMbpd
Light sweet
‐
6 MMbpd
Light sweet
U.S. Refining
World (Non‐U.S.)
Source: Oil & Gas Journal 2014 Refinery Survey (2013 numbers)
Nelson Complexity Index (NCI) is the industry standard for measuring the relative cost of constructing the components
that make up a petroleum refinery. The index can range from 1 (most simple) to over 15 (most complex).
Source: Oil and Gas Journal’s “Worldwide Refining Survey, 2014.”
13
U.S. Light Sweet Oil: The Environmental Solution
U.S. Light Sweet Oil
vs.
Foreign Heavy Sour Oil
The Environmental Benefits of
U.S. Light Sweet Oil 1. Requires 20% less energy to transport
2. Reduces refinery emissions by 60%
3. Contains essentially no sulfur
4. Eliminates bottom of barrel coke residue
14
Global Light Sweet Refineries In Jeopardy: U.S. Crude Export Opportunities by Country
Australia
Japan
South Korea
Taiwan
Lithuania
Germany
Greece
Ireland
Italy
Sweden
Switzerland
UK
Caltex AUS, Kurnell
Caltex AUS, Lytton
BP, Bulwer Island
Cosmo Oil, Chiba
JX Nippon, Muroran
Kyokuto, Ichihara, Chiba
Cosmo Oil, Yokkaichi
Idemitsu Kosan, Shunan, Yamaguchi
Nansei Sekiyu, Okinawa
SK Innovation, Inchon
Chinese Petro, Kaohsiung
AB Mazeikiu, Mazeikiu Deutsche Shell, Harburg
Holborn Europa, Harburg
Hellenic Petro, Thessaloniki
Phillips 66, Whitegate
Api Raffineria, Falconara, Marittima
Italiana Energia, Mantova
Shell Raffinaderi, Gothenburg
Tamoil SA, Collombey
Murco Petroleum, Milford Haven
Essar UK, Stanlow
Total SA, Killingholme S. Humberside
TOTAL CAPACITY AT RISK
135,000
108,600
96,850
228,000
180,000
171,500
147,250
114,000
100,000
275,000
270,000
190,000
107,000
78,000
66,500
71,000
82,900
69,420
80,000
72,000
105,682
272,000
206,705
Closed
Closed, partially
Closed to re‐open, new owner
For sale/under review
China is just too far away
3,227,407
Operating Status Change since OGJ 2014 Worldwide Refinery Survey; Industry, consultant and industry reports.
15
WTI vs. Brent Oil Price History Since 2005
March 4, 2013 DEPA media dinner in D.C. on exports –
Brent/WTI spread $20
140
120
$134 Billion
100
$/bbl
80
60
Total Discount to Date: $134 Billion**
Average $11 differential (Brent higher)
40
$2.73 differential
(WTI higher)
20
West Texas Intermediate
Bakken Production
Ramp Up
Brent (World Price)
Jun‐15
Dec‐14
Jun‐14
Dec‐13
Jun‐13
Dec‐12
Jun‐12
Dec‐11
Jun‐11
Dec‐10
Jun‐10
Dec‐09
Jun‐09
Dec‐08
Jun‐08
Dec‐07
Jun‐07
Dec‐06
Jun‐06
Dec‐05
Jun‐05
Dec‐04
‐
*Source: EIA
** Represents the largest policy-driven wealth transfer in U.S. industry history
16
Refiner Crack Spread History Since 1990
Historical Average
$5.00
“Crack spread” is the difference between price of a barrel of unrefined crude oil vs. the total value of refined products from that barrel (after “cracking”), as reported on a daily basis. Crack spreads reported daily via OPIS (Oil Price Information Service), Platts McGraw Hill Financial, Argus Media Limited and Bloomberg.
17
West Coast Refiners Making Record Profits
18
U.S. Gasoline Prices are Set in Global Product Market, So U.S. Price Does Not Pass Through to Consumers
19
U.S. Exports of Petroleum and Refined Products
5.0
4.5
4.7 4.0
Million bpd
3.5
4.7 MILLION BARRELS PER
DAY EXPORTS
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2000
2001
2002
2003
2004
Crude Oil
2005
NGLs
2006
2007
Other Liquids
2008
2009
2010
2011
2012
2013
2014
2015
Finished Products (i.e. gasoline)
Source: EIA
20
No organized opposition to lifting the ban
We do not oppose lifting the existing restrictions on U.S. crude oil exports, Congress should pursue U.S. policies that promote a free marketplace for all competitors. In favor of lifting the ban:
Chevron, Royal Dutch Shell, Exxon-Mobil,
Marathon Oil, ConocoPhillips, Tesoro
“It is time to let American oil trade freely on the global
market, just as other U.S. energy commodities are traded
in the global economy.” Ryan Lance, Chairman and
CEO, ConocoPhillips
Charles T. Drevna, President, American Fuel & Pertrochemical Manufacturers
"We fully support the elimination of the ban on crude
exports. We believe the long-term interests of the U.S. are
best served by exports.” Rhonda I. Zygocki - Executive
Vice President, Policy and Planning, Chevron
"In the current debates about LNG and crude oil exports,
economists and leaders from across the political
spectrum, from all sides, agree that free trade would lead
to increased investment, more jobs and, importantly,
increased production.“ Rex Tillerson - Chairman and
Chief Executive Officer, Exxon-Mobil
Only a few companies oppose lifting the ban on exports!
94%
“Tesoro supports free trade and free markets. As such,
Tesoro supports legislation to relax the current restrictions
on the export of American petroleum.”
Tesoro, Export of US Crude Oil Policy Statement
 C.R.U.D.E.* Lobbying Group
 Alon, Delta, PBF, PES
Philadelphia Energy Solutions IPO filing –
“Upon our formation, we believed that rapid growth in the production of light, sweet domestic crude oil from developing shale formations such as the Bakken, Eagle Ford and Permian… would create "Policy makers here in the US should embrace a truly
liberalized diverse and global energy market ... [US oil
and natural gas exports] would reinforce the long term
future of North American energy production ... and help to
make the global energy system much more stable."
Ben van Beurden - Chief Executive Officer, Royal
Dutch Shell
"[Allowing oil exports] will encourage further investments
in oil and gas exploration and production, create more
jobs, (and) improve the balance of trade."
Lee Warren - Manager - Internal & External
Communications, Marathon Oil Corporation
Opposed:
6%
opportunities to secure domestic crude oil at advantaged prices relative to other sources of crude oil.”
Refiners are pocketing $22 billion a year at no benefit to American consumers.
Source: U.S. Energy Information Administration
“Consumers and Refiners United for Domestic Energy.” Members make up only 6% of U.S. refining capacity. Source: EIA Refinery Capacity and Utilization Report – January 2015.
21
Refiner Letter Supporting Crude Oil Exports
July 20, 2015
The Honorable Fred Upton The Honorable Frank Pallone, Jr.
Chairman Ranking Member
Committee on Energy and Commerce Committee on Energy and Commerce
Dear Chairman Upton and Ranking Member Pallone:
As representatives of U.S. refineries, we would like to express our support for ending the 30-year old ban on U.S. crude oil exports. The U.S. is about to become the world’s
largest crude oil producer, due partly to the shale revolution. Allowing U.S. crude oil access to world markets will help expand American exports in general, create benefits for our
economy and U.S. consumers, and promote a more resilient global oil market.
In the 1970s, the U.S. faced a scarcity of domestic oil production and was heavily reliant on crude oil imports from other parts of the world. Much has changed in the past 30
years. Innovation and technology has spurred a new era of abundance in the U.S., allowing for a dramatic increase in crude oil production and a precipitous reduction in our
crude oil imports. Withholding U.S. crude oil from the global market has created market distortions and inefficiency. Repealing the outdated ban on U.S crude oil exports would
resolve these flaws.
Crude oil is the feedstock refiners are reliant upon to produce clean gasoline, diesel and home heating oil for American consumers and the global market. Allowing the export of
U.S. crude oil will promote increased investment in domestic crude production and greater domestic supply for U.S. refiners. Further, it will allow for a healthy and vibrant global
oil market which will not only benefit our refining sector but aid our economy, keep our skilled workers going strong and add to our tax revenues. Repealing the current artificial
market constraints will have long term economic and energy security benefits.
Additionally, American consumers would benefit from the export of crude oil, according to studies by the Government Accountability Office (GAO) and Brookings Institution. The
GAO found U.S. consumer fuel prices could fall if exports were permitted because the expanded outlet for oil would boost investments and global supplies. Brookings Institution
found that allowing U.S. crude exports would increase domestic oil production, resulting in better job opportunities and greater economic benefits for the country.
U.S. crude oil in storage is near record high levels. By allowing producers to ship the excess overseas to meet global demand, American consumers can benefit from more
intense competition among oil suppliers.
We urge policy makers to consider our views as refiners and consumers of crude oil, and take action to enable the export of domestic crude oil. Ending the outdated ban on
crude exports is needed to ensure that investment in this country continues to grow and boost domestic production to provide Americans with greater job opportunities and
economic benefits.
Sincerely,
Jerry Wascom
President
ExxonMobil Refining & Supply
Company
Gary Yesavage
President
Chevron Manufacturing
Douglas Sparkman
Chief Operating Officer
BP Fuels North America
Lori Ryerkerk
Executive Vice President, Global
Manufacturing
Shell
22
Rapid Decline of U.S. Rig Count
U.S. rig count has declined by 1,192 rigs, or 62% since mid-November*. One rig laydown
equals the loss of 120 direct and indirect jobs.
*DEPA jobs estimate; rig counts from Baker-Hughes
23
Current Response of U.S. Producers to OPEC Manipulation of Oil Prices
2014‐2015 Capex Reduction
90%
80%
 Drop drilling rigs
70%
 Defer well completions –
saves 60% of CWC
• Avoid selling flush oil and gas production in a poor market
• Wait for service costs to fall before completing wells
60%
50%
40%
30%
20%
10%
0%
 Shut in high‐cost stripper wells temporarily
 Shut in production – some operators don’t have to sell
Mid‐point
49%
Emerald
MEG Energy
MagHunt
Halcon
Northern
Swift
Rosetta
Triangle
Goodrich
Apache
Resolute
Linn
Approach
Rex
Eclipse
Oasis
SandRidge
Laredo
Comstock
Penn VA
Whiting
WPX
Stone
Gulfport
Conoco
Denbury
Murphy
Pioneer
Marathon
Cimarex
QEP
Range
Gulfport
Bill Barrett
Antero
Continental
EOG
Newfield
Noble
Cabot
Matador
SM Energy
Southwestern
Carrizo
Chesapeake
Anadarko
Oxy
Chesapeake
Bonanza
Concho
Devon
Hess
Sanchez
 Capex cut by as much as 81% (Emerald)
• $61.2B in capital expenditure reductions already
announced for 2015*
• 230,931 direct industry layoffs*
• ~693,000 to 924,000 indirect industry jobs lost**
*Source: Company announcements as of July 10, 2015
**Based on Goldman Sachs conclusion that “each oil‐sector job lost is associated with three to four fewer non‐energy jobs.”
The Effect of Slowing Energy Sector Activity on Non‐Energy Payrolls, April 8, 2015
24
Cowboyistan, Industry 50% Cut Case
Industry production, excluding legacy Permian production
DEC 2014
Assumes 50% Rig Reduction by June 30, 2015
1.55 MMBpd
Rig Count
~700,000
bbl/day
New Permian
Bakken
Eagle Ford
EIA projects U.S.
crude oil production
will drop 1.1 million
barrels per day by
September 2016 from
peak.*
Note: Assumes an 8% increase in productivity due to high grading
Source: EIA Short Term Energy Outlook, September 9, 2015
25
Crude Oil Exports Will Elevate GDP
“More broadly, the revolution in the production of “unconventional” oil and gas has been one of the major contributors to the U.S. economic recovery, estimated by IHS to have added nearly 1% to U.S. GDP annually, on average, over the past six years – accounting for nearly 40% of overall GDP growth in that time. …It is rare that policy options arise in the energy world that offer such overwhelming, unmitigated benefits as allowing American producers to export crude oil to international markets. The recently released IHS report, Unleashing the Supply Chain, documents the benefits across the economy from 2016‐2030:  $86 billion in additional GDP,  about 400,000 new jobs annually,  25% 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.” Carlos Pascual, Senior Vice President, IHS Testimony to the U.S. Senate Committee on Energy and Natural Resources March 19, 2015
“CBO estimates that the development of shale resources will increase GDP by about two‐thirds of 1 percent in 2020 and about 1 percent in 2040; the increases in GDP will lead to slightly larger percentage increases in federal revenues... Increases in oil and gas production resulting from shale development have boosted U.S. economic output and federal receipts and will continue to do so. The further increases in production that would result from the changes in export policies considered here would also have positive economic and budgetary effects...”
Congressional Budget Office
The Economic and Budgetary Effects of Production Oil and Natural Gas From Shale
December 9, 2014
26
U.S. Oil Revolution is Shaping World Events*
Ken Hersh, CEO of NGP Energy Capital Management:

“The impact of the Lower 48 oil and gas revolution is, and will be, the single‐most defining aspect on this planet today that will shape the next 50 years.”

The ramifications of the U.S. moving from being primarily an oil consumer to being both a producer and consumer of oil, will shape global events for the next 50 years as oil scarcity gives way to oil abundance.

Hersh describes the transition as a “paradigm shift.” 
World politics were now re‐orienting away from a concept of “resource scarcity” and toward “resource abundance.”

The U.S. is living in the past with our export restrictions….that’s a holdover from our scarce mentality...”
*Oil and Gas Investor, May 2015
27
Re‐Asserting America’s Energy Leadership with Crude Oil Exports

Gets us off foreign oil!

Adds 1% to GDP growth.

Eliminates/drastically reduces the U.S. trade deficit.

De‐intensifies the Middle East’s strategic importance, especially Iran.

Ends OPEC dominance once and for all.

Reduces our European allies’ dependence on Russia.

Jobs – puts Americans back to work here.

Lowers and stabilizes gasoline prices for U.S. consumers.

Fair, free trade is consistent with American principles.

American producers have been forced to take on the role of the world’s swing producer, but we are cut off from exporting oil to world markets, making it impossible to accomplish.

The U.S. energy renaissance is pro‐environment, producing premium quality oil vs. heavy sour.

Provides U.S. energy independence by 2020.

America can once again be the growth engine of the world for the next 50 years as we were post‐WWII.

Saves American lives!
28
Lower Gasoline Prices

Most recent U.S. Energy Information Administration study published September 1, 2015: Petroleum product prices in the United States, including gasoline prices, would be either unchanged or slightly reduced by the removal of current restrictions on crude oil exports. (September 2015, EIA, Effects of Removing Restrictions on U.S. Crude Oil Exports)

IHS Energy: Since US gasoline is priced off global gasoline prices, not domestic crude prices, the reduction will flow back into lower prices at the pump – reducing the gasoline price 8 cents a gallon. The savings for motorists is $265 billion over the 2016 – 2030 period. (December 2, 2014, PACE, The ABC’s of the Crude Oil Export Ban and Gasoline Prices)

Allowing U.S. exports actually corrects a market distortion. Correcting the distortion, in turn, ultimately lowers the price of global oil. (December 2, 2014, PACE, The ABC’s of the Crude Oil Export Ban and Gasoline Prices)

The Congressional Budget Office, IHS Energy, ICF International, Columbia University and The Brookings Institution, among others,
have all concluded through their own independent analyses that removing the current ban on U.S. crude oil exports would result in lower gasoline prices here at home. (January 22, 2015, PACE, Fact Check: Sens. Menendez and Markey Letter to Commerce Dept.)

Lifting the ban could result in an equally large reduction in refined product prices [including gasoline] due to a more relaxed OPEC response, up to 12 cents per gallon in our analysis. (January 20, 2015, Columbia University, Navigating the Crude Oil Export Debate).

Resources for the Future: Gasoline prices decline by 1.8 to 4.6 cents per gallon on average if the crude oil export restrictions are removed. (October 20, 2014, U.S. Government Accountability Office, Changing Crude Oil Markets)

ICF International: Petroleum product prices decline by 1.5 to 2.4 cents per gallon on average from 2015 – 2035 if restrictions are removed. (September 9, 2014, Brookings Institution, Changing Markets Economic Opportunities from Lifting the US Ban on Crude Oil Exports)

NERA: Petroleum product prices decline by 3 cents per gallon on average from 2015 ‐ 2035 if restrictions are lifted. (September 9, 2014, Brookings Institution, Changing Markets Economic Opportunities from Lifting the US Ban on Crude Oil Exports)

Rice University: “We also find empirical support… that lifting the ban on crude oil exports would not raise gasoline prices in the US. Since refined products, such as gasoline, can be freely traded in the international market, the prices of refined products sold in the US are in parity relationship with international prices…. Thus, the discounted prices of oil produced in the US are not reflected in US gasoline and refined product prices.” (Baker Institute for Public Policy, March 27, 2015)

Harvard Business School: Instead of raising domestic prices, then, the overall effect of lifting the oil export ban could actually reduce global prices for gasoline by increasing the global availability of crude oil. (June 2015, America’s Unconventional Energy Opportunity.)
29
Consumer Stability

ICF International: Lower gasoline prices as a result of ending the crude export ban could save American consumers up to $5.8 billion per year, on average, over the 2015 – 2035 period. (December 15, 2014, PACE, Ten Key Questions about the Crude Oil Export Ban)

IHS Energy: Lifting restrictions on crude oil exports will increase real household disposable income in the forecast due to an investment‐led expansion in economic activity and a lower unemployment rate. (November 2014, PACE, Lifting the Crude Oil Export Ban Benefits US Consumers)

ICF International: Given the international nature of US petroleum product movements, 2013 US petroleum product prices were between $.29 and $.94 per gallon lower than they would have otherwise been without horizontal multi‐stage hydraulic fracturing. This reduction saved US consumers an estimated $63 to $248 billion in 2013 and estimated cumulative saving of between $165 and $624 billion from 2008 to 2013. (November 2014, PACE, Lifting the Crude Oil Export Ban Benefits US Consumers)

Brookings Institution: The welfare benefits to US households derive from higher real incomes from higher wages and lower gasoline prices. (November 2014, PACE, Lifting the Crude Oil Export Ban Benefits US Consumers)

Lifting the ban will have a .4 percent change in welfare (the broadest measure of net economic benefits to US residents) inciting a positive change in the US economy across all scenarios. (September 9, 2014, Brookings Institution, Changing Markets Economic Opportunities from Lifting the US Ban on Crude Oil Exports)

Removing the crude oil export restrictions is likely to increase domestic crude oil prices but decrease consumer fuel prices. (October 20, 2014, U.S. Government Accountability Office, Changing Crude Oil Markets)

Repealing the ban will have a positive effect on the consumer and the economy – including a reduction in the price at the pump for consumers; expanded public finances through generation of additional tax revenue; a reduction in trade deficit; as well as increased GDP, job creation and overall investment. (October 20, 2014, U.S. Government Accountability Office, Changing Crude Oil Markets)

Harvard Business School: Export bans are also inconsistent with longstanding U.S. trade policy and undermine U.S. efforts in opening markets generally, which benefits U.S. producers and consumers across all industries. (June 2015, America’s Unconventional Energy Opportunity.)
30
Impact of Decision Not to Eliminate Crude Oil Export Ban
 Effectively eliminates American oil and gas development
 Drives oil and gas development overseas
 Eradicates high‐paying, middle class U.S. jobs
 Ends the American energy renaissance
 We will not achieve energy independence in America
 Creates and perpetuates the short‐supply cycle in America
 Drives gasoline prices up
 Insures OPEC dominance and the power of hostile nations
 Funds terrorism
 Continues to fund Iranian aggression in the Middle East
31
The IRANIAN DEAL
Iranian Crude Oil and Condensate Output
History and Forecast
Iranian light oil competes
head to head with U.S. light sweet oil
Already, 231,000 oil and gas workers have lost their jobs. Iran will soon be EXPORTING 1 million barrels per day additional oil while the American Energy Renaissance is being held hostage by our own domestic sanctions banning oil exports. With America’s oil and natural gas industry already in a downturn, this will be another disaster for American jobs and the stability of U.S. consumer gasoline prices.
Iran Oil Minister Bijan Namdar Zanganeh: Production can increase by 500,000 barrels a day within a week after sanctions end and by 1 million barrels a day within a month following that. – Bloomberg Source: Financial Times, “Assessing OPEC’s oil market strategy,” June 12, 2015.
32
Independent Studies Agree: Exports Would Lower Gasoline Prices













U.S. Energy Information Administration, September 2015
U.S. Energy Information Administration, October 2014
U.S. Government Accountability Office
Congressional Budget Office
Center for New American Security
Brookings Institution
Aspen Institute
Harvard Business School
Columbia University
Rice University
ICF International
IHS, Unleashing the Supply Chain
IHS, U.S. Crude Oil Export Decision
33
The Case Has Been Made Public Support Has Been Established
American Council of Engineering Companies
America’s Natural Gas Alliance American Fuel and Petrochemical Manufacturers American Petroleum Institute American Pipeline Contractors Association
American Rental Association
American Road and Transportation Builders Association
American Supply Association
Arkansas Independent Producers and Royalty Owners
Associated Equipment Distributors
Association of Equipment Manufacturers
BP
California Independent Petroleum Association
Chevron Colorado Oil and Gas Association
Council For A Secure America
34
The Case Has Been Made
Public Support Has Been Established
Distribution Contractors Association
Domestic Energy Producers Alliance
Energy Equipment and Infrastructure Alliance
Exxon
Illinois Oil and Gas Association
Independent Petroleum Association of America
Industrial Minerals Association North America
International Union of Operating Engineers
Kansas Independent Oil and Gas Association
Kentucky Oil and Gas Association
Laborers’ International Union of North America
Material Handling Equipment Distributors Association
Metals Service Center Institute
35
The Case Has Been Made
Public Support Has Been Established
Michigan Oil and Gas Association
National Association of Manufacturers
National Association of Royalty Owners
National Electrical Contractors Association
National Industrial Sand Association
National Ready Mixed Concrete Association
National Stone, Sand and Gravel Association
National Stripper Well Association
National Tank Truck Carriers
National Utility Contractors Association
North Dakota Petroleum Council
Northern Montana Oil and Gas Association
Ohio Oil and Gas Association
Oklahoma Independent Petroleum Association
36
The Case Has Been Made
Public Support Has Been Established
Permian Basin Petroleum Association
Petroleum Equipment and Services Association
Plastics Pipe Institute Portland Cement Association Producers for American Crude Oil Exports
Regulation Alert
Shell
Texas Alliance of Energy Producers
The Associated General Contractors of America
The INGAA Foundation, Inc.
U.S. Chamber of Commerce
West Virginia Independent Oil and Gas Association
Western Energy Alliance
37
Source: PACE
38
Editorials In Support of Lifting the Ban
“Imagine there were a simple policy that would spur economic growth, lower gas prices and please international allies. This policy exists: removing the United States’ irrational and outdated ban on exporting domestically produced crude oil.” – The Washington Post
Lifting the export ban on crude oil would be a boon to the U.S. economy
August 2, 2015
“The Washington news isn’t all bad these days: Republicans and some Democrats are working hard to gather enough votes to repeal the 40‐year ban on exporting crude oil. With gasoline prices hitting new lows, now is the right political moment to do something right for the economy and national security.” – The Wall Street Journal
Oil Export Momentum: Support is growing to repeal a Nixon‐era ban that Iran and Russia love
July 29, 2015
“By continuing to restrict exports, the US is therefore undermining its own production and helping competitors such as Russia and Saudi Arabia to increase their share of world markets… In the global oil price war, the US is battling with one hand tied behind its back. It is time to abandon an outdated policy and make it a fair fight.”
– Financial Times US makes a strategic error in the oil price war
March 9, 2015
39
Op‐Eds In Support of Lifting the Ban
“The moment has come for the U.S. to deploy its oil and gas in support of its security interests around the world.” – Leon Panetta Former U.S. Secretary of Defense in the Obama Administration
“By allowing the U.S. to become a stable source of supply to global energy markets, counteracting supply disruptions that will inevitably affect other energy‐rich regions, President Obama and Congress can double down on promoting long‐term economic growth and reinforcing U.S. foreign policy leadership.” – William Cohen
Former U.S. Secretary of Defense in the Clinton Administration
“Let’s hope the export ban is lifted with broad bipartisan support. The result will increase U.S. jobs and increase the country’s influence in world oil markets.”
– John Deutch MIT Chemistry Professor and Former Undersecretary of Energy in the Carter Administration
“America is living in the past with our export restrictions. Congress should lift the ban on U.S. crude oil exports and give our nation the extraordinary opportunity to complete the transition from an energy poor country to an energy superpower.”
– Ken Hersh Refiner and CEO of NGP Energy Capital Management
40
National Public Education Campaign
•
•
•
•
7‐figure, multi‐state education campaign Raising awareness about lifting the oil export ban
Launched in August with TV, radio, online and social media ads
• First ad focused on American jobs, gasoline prices and national security
• Second ad focused on the Iranian Deal
www.LiftTheExportBan.com
41
Appendix
42
State Tax Revenue Lost
(Brent – WTI) Differential
Lost Revenue by Year and State ($ million)
4,500
$3,900 4,000
Est. Revenue Loss ($ million)
3,500
3,000
$1,940.5 2,500
2,000
$364.1 1,500
1,000
500
‐
588.0 $1,595.2 447.8 387.3 109.6 82.5 282.5 496.5 378.9 340.1 58.7 289.5 2011
2012
2013
2014
85.5 ND
OK
177.2 27.9 147.9 2015
Total
TX
2015 data through June.
Note: Assumes lost revenue = Brent - WTI
Note: assumes revenue loss = crude oil production volume * (Brent – WTI) differential * tax rate.
Sources: EIA, Bloomberg, state tax data.
43
Total Lost Revenue
(Brent – WTI) Differential
Lost Gross Revenue by Year and State ($bn)
160.0
$134 Gross Revenue Loss ($bn)
140.0
120.0
100.0
80.0
60.0
40.0
$32 $42 $29 $20 20.0
‐
$10 2011
2012
2013
2014
2015
Total
TX
8.4
12.8
9.7
7.4
3.9
42.2
ND
2.5
4.3
3.3
2.5
1.3
13.9
CA
3.1
3.5
2.1
1.3
0.6
10.6
OK
1.2
1.5
1.2
0.8
0.4
5.1
NM
1.1
1.5
1.1
0.8
0.5
4.9
LA
1.1
1.2
0.8
0.4
0.2
3.7
Other States
7.3
8.4
5.5
3.7
1.8
26.6
Federal
7.8
8.5
5.2
3.4
1.6
26.4
Total
32
42
29
20
10
134
2015 data through June.
Note: assumes gross revenue loss = crude oil production volume * (Brent – WTI) differential.
Sources: EIA, Bloomberg.
44
Unintended Consequence of Outdated U.S. Crude Export Policy: Domestic Oil Producers Forced to Subsidize North American Refiners  Captured domestic crude production trades at a discount to oil of similar quality in the world market
 The U.S. consumer does not benefit from artificially low domestic crude prices as refiners sell domestic and exported product at world prices  The smartest minds agree: Overturning the U.S. crude export ban will not raise prices for consumers
1. U.S. Energy Information Administration (EIA) – Adam Sieminski
2. Congressional Budget Office (CBO)
3. The Center on Global Energy Policy ‐ Jason Bordoff
4. Brookings Institution – Larry Summers
5. IHS – Daniel Yergin
6. Aspen Institute – Tom Duesterberg
7. Baker Institute for Public Policy, Rice University – Ken Medlock
8. Center for a New American Security 9. Harvard Business School 45
What the Analysts are Saying…….

“Low Prices Are Dramatically Slowing Near‐term US Production Growth.”
‐ RBC Capital Markets, 4/16/15

“A decline in production is expected.” ‐ Raymond James Equity Research, 4/15/15

“We are expecting growth to turn negative in 2H15.” – RBC Capital Markets, 4/15/15

“We’re going off an inevitable cliff because of the shrinking rig counts.” ‐ Carl Larry, head of oil and gas for Frost & Sullivan LP, 4/13/15

“Advances in oil‐drilling technologies are no longer enough to offset the rigs being idled by U.S. producers.” ‐ Paul Horsnell, global head of commodities research at Standard Chartered Plc in London, 4/13/15 Research Note

“Growth could go to zero on a month‐over‐month basis as soon as May.” ‐ Richard Hastings, macroeconomic strategist at Global Hunter Securities

Deutsche Bank, Goldman Sachs and IHS have projected that U.S. oil production growth will end, at least temporarily, with futures near a six‐year low.

“Output from the prolific tight rock formations, such as North Dakota’s Bakken Shale, will decline 57,000 barrels a day in May.” ‐ EIA, 4/13/15
46
U.S. Energy Renaissance at Risk ‐ Background
1.
Post‐1970s consensus: America was running out of oil and natural gas, and imports would increase unabated into the future. To combat this threat:

President Nixon imposed price controls after the 1973 Arab oil embargo.

U.S. later banned oil exports as an enforcement tool of this policy.
2.
Given that gas production was declining, facilities were built in Texas, Louisiana, Maryland and California to import LNG from abroad. 3.
A calculated conversion of $85B spent over 25 years* of US sweet refinery assets to process heavy crude from Mexico, Venezuela and Canada to provide those countries downstream outlets for their current heavy sour crude production and future tar‐sand development needs.
4.
However, we, the small U.S. Independents, developed new horizontal technologies in the 1990s and used them to discover a vast new supply of natural gas in tight rock reservoirs – 100+ years of new supply* – a real game‐changer!
5.
These same technologies led to the discovery of the three new crude oil resource plays, the Bakken, Eagle Ford and “new” Permian unconventional, which have generated 50% of the world’s oil production growth since 2008. The U.S. accounts for 75% of world oil production growth since 2005, and these resource plays represent ~40+ years of new light sweet crude oil supply. 6.
Due to the conversion of US sweet crude refineries, we are unable to obtain domestic refinery space for this premium‐grade product and must seek international sweet crude refinery space.
*Sources: Aspen Institute and USGS
47
U.S. Energy Renaissance at Risk
Currently
1. LNG import facilities are now being retrofitted to EXPORT LNG abroad. U.S. has assured long‐term self‐sufficiency in natural gas.
2. Net imports of petroleum liquids have fallen to 25% of U.S. consumption, near the limit that will be difficult to exceed because 25% of U.S. refinery capacity is foreign‐owned.
3. Compounding this problem, since 2010 many U.S. light sweet oil refineries have been reconfigured by their foreign owners to process heavy sour/bitumen. Result: Light oil refining capacity is severely limited in the U.S.
4. The U.S. is within 5 MMBpd of being entirely self‐sufficient in crude oil, which is equal to the daily capacity of foreign‐owned refineries in the U.S. 5. Since 2008 the domestic energy renaissance has been the leading provider of jobs and strength to the U.S. economy.
6. A continued ban on the fair trade of domestic oil could push the country back into recession, due to mounting job losses, higher gasoline prices and reduced capital spending.
48
28% of U.S. Refining Capacity is Foreign‐Owned
 Foreign entities have acquired significant U.S. refinery assets since the 1980s
 Foreign‐owned refineries have financial agreements that allow them to exclude domestic‐sourced crude
 Foreign‐owned refineries currently import 1.1 MMBpd of oil from their own country (i.e., Saudi’s Motiva importing Saudi crude)
 Foreign‐owned refineries could source ~4.9 MMBpd of foreign crude imports, putting U.S. producers at an even greater disadvantage
4.9
MMBpd
1.1
MMBpd
3.8
MMBpd
The mismatch in sour vs. sweet refining capacity and the
disadvantage of U.S. export laws allows foreign refiners to import
their own crude, process it in U.S. refineries, and then ship
refined product overseas at no advantage to U.S. consumers.
49
Refining Capacity in the World
The U.S. has the world’s second highest capacity…
MMBpd
30.0
Total Capacity
And by far the most heavy sour capacity…
30.0
But only a miniscule amount of light sweet capacity.
30.0
Heavy Sour Capacity
Light Sweet Capacity
25.0
25.0
25.0
20.0
20.0
20.0
15.0
15.0
15.0
10.0
10.0
10.0
5.0
5.0
5.0
‐
‐
‐
Source: Oil and Gas Journal’s “Worldwide Refining Survey, 2014.”
50
Oil and Gas Has Driven U.S. Jobs Growth
Energy production in Texas and North Dakota helped pull the U.S. out of the Great Recession. “Since Dec. 2007, Texas + ND ("Cowboyistan") created 6 jobs for every 1 job created in the other 48 states and DC.”
Dr. Mark Perry, University of Michigan at Flint What Was
What Is
Cumulative Employment Decline Based on
Announced Layoffs
0
‐20,000
‐40,000
‐60,000
‐80,000
‐100,000
‐120,000
‐140,000
Courtesy of Dr. Mark Perry, University of Michigan at Flint, 3/9/15. Percentages relate to total TX+ND
jobs vs. total jobs in the other 48 states.
51
Trade Deficit Reduction since 2005
What happened?
U.S. Net Imports of Petroleum Liquids
MMBpd
Crude oil exports are expected to eliminate much of the remaining deficit over the next five years.
2008-09 recession
2013-14 avg. deficit
$41B per month…
a gain of $20B per
month!
2005-06 avg. deficit
$61B per month
US Refined Petroleum Exports and Other
MMBpd
“Record imports swell US trade deficit” – BBC, 8/5/15
In June 2015, the U.S. petroleum trade deficit widened by $1.5B, a 27% increase over
the prior month as a result of declining U.S. oil production in the face of predatory OPEC
policy and the U.S. crude oil export ban. (Source: U.S. Census Bureau)
52
What the U.S. Refiners are Telling Investors About Captive Light Sweet Crude
Favorable price dislocations between North American crude and rest of world…
~2.6 million bpd of refining capacity has been or is scheduled to be rationalized
in the Atlantic Basin
IPO Filing Feb. 17, 2015 – “Upon our formation, we believed that rapid growth in the
production of light, sweet domestic crude oil from developing shale formations such
as the Bakken, Eagle Ford and Permian…would create opportunities to secure
domestic crude oil at advantaged prices relative to other sources of crude oil.”
We see plentiful supplies of light sweet crude available at attractive prices
53