WASHINGTON — The quickest way for the United States to weaken Russia’s influence and help allies abroad is by exporting its crude oil — not its gas, Continental Resources CEO Harold Hamm told lawmakers on Wednesday.
Sending natural gas overseas requires the construction of multibillion-dollar facilities capable of transforming it into a liquid by chilling it to -240 degrees. And while one such liquefied natural gas export terminal exists in Alaska and another is being constructed in Louisiana, it could be years before others are online.
By contrast, liquid crude oil can be immediately dumped into tankers and transported around the globe, Hamm said in testimony to the House Foreign Affairs Committee.
“Making America a world leader in LNG exports is a worthy goal, but . . . if we want to have an overnight impact on today’s global events, we can immediately begin exporting crude oil, which does not have the same infrastructure constraints,” Hamm said. “Crude oil exports are possible immediately and may be used as a diplomatic tool to weaken the influence of our geopolitical adversaries.”
Current U.S. law imposed after the 1973 OPEC oil embargo bars crude exports, though refiners can sell gasoline, diesel and other refined fuels overseas. Natural gas exports to countries that have free-trade agreements with the United States are allowed, and those proposed to non-free-trade partners require only that the Energy Department affirm they are in the “public interest.”
But natural gas producers and their allies on Capitol Hill have seized on the Ukraine crisis to urge the Obama administration to speed up approvals of some two dozen natural gas export applications waiting in line for review.
Michael Levi, an energy expert at the Council on Foreign Relations, made a free-trade argument for unleashing U.S. oil and gas on the global market, but he stressed the bounds of America’s energy power.
“The United States should allow exports but be modest about what they can accomplish,” he said. “While the prospect of U.S. energy exports could usefully reduce Russian energy export revenues, U.S. exports will not displace Russia from its dominant position in the European market.”
The surge in domestic oil and gas production — driven by the use of hydraulic fracturing and horizontal drilling to unlock the hydrocarbons from dense rock formations — is feeding hopes of U.S. energy independence. Even the title of Wednesday’s House hearing — “the geopolitical potential of the U.S. energy boom” — illustrated policymakers’ bullishness.
But Levi warned against “overstating the benefits of the boom.” There are environmental risks to the drilling that is yielding U.S. oil and gas, and “we still won’t be energy independent” in any meaningful way, Levi said.
Crude export debate
There are clear economic benefits to exporting crude for Hamm, who heads the Domestic Energy Producers Alliance and Oklahoma City-based oil producer Continental Resources. He likened current limits on raw crude exports amid virtually unchecked gasoline sales overseas to “telling American farmers they can’t export wheat, yet allowing Pillsbury to export all the flour they want.”
“We’re exporting refined product to the tune of 4 million barrels a day,” Hamm said. “And we’re exporting the very thing that’s important to the consumer: diesel, gasoline, propane.”
Hamm has made this pitch to Congress before, part of a broad campaign by oil producers to upend the 39-year-old export ban.
But some independent refiners are fighting back with their own campaign aimed at preserving current policy. Widely exporting U.S. oil and gas could hike domestic prices, squeezing refiners’ margins.
That surfaced in Wednesday’s hearing, as Rep. Eliot Engel, D-N.Y., suggested that checkbook issues should be factored into the geopolitical energy discussion.
Americans “care about what happens to Ukraine,” he said, “but the bottom line is how much they are paying out of their pocketbook.”
Rep. Thomas Marino, a Republican from the drilling hotbed of Pennsylvania, had similar concerns. “I don’t want to see the people of Pennsylvania pay a higher price for gas — which is their gas — because it can be sold for a higher price overseas,” Marino said.
Several private and public institutions are studying the economics of oil and gas exports, including the government’s Energy Information Administration, Columbia University, Rice University and the Brookings Institution.