The Fuse

Senator Heitkamp on Crude Oil Exports, Biofuels, and American Soft Power

by Leslie Hayward | May 30, 2015

Senator Heitkamp is a U.S Senator from North Dakota and a member of the Democratic Party. She took the time to speak with us about how the oil production boom has impacted her home state, as well as discuss energy policy at the state and national level.

Starting out very generally, what does energy security mean to you and your constituents in North Dakota? What policies do you support?

Just like national security and food security, energy security is absolutely critical to the economic growth and wellbeing of this country. We are in the midst of an energy renaissance, watching the production boom move through North Dakota, Pennsylvania, Ohio, Colorado, and New Mexico, which is showing us that the United States of America is a place where we can use energy to grow our economy. The fact that we are producing so much energy right here is absolutely critical to America’s global competitiveness.

On the economic side, advanced manufacturing is coming back to the United States because of the advantage of low cost natural gas. On the national security side, when you look at how our energy abundance is enhancing our ability to use soft power, it is a true game changer. In fact, the opportunities that have come with the production boom are a game changer for the American economy.

Let’s zoom in on your home state of North Dakota, arguably the heart of the production boom, and more specifically the Bakken oil patch. How has the collapse in oil prices that began last October impacted the people in your home state? 

The amount of drilling activity is down substantially. And even though we’re drilling wells, we’re not completing wells, thus many wells are being drilled but are not being fracked. In the long term, this means we have to change our forecasts, since we were projected to produce two million barrels per day (in North Dakota alone) if we continued on the same growth trajectory when oil prices were roughly $100 per barrel. At the current price point, production levels are stabilizing, or there are slight declines in the volume of oil produced.

That’s the reality on the ground: less drilling, less production, and Bakken shale wells tend to have fairly steep decline curves, meaning that we may see a decline in production occur more quickly than would be the case in conventional wells. When it comes to North Dakota’s economy, we continue to have a worker shortage and many jobs are going unfilled. But there’s still a slowdown, so the current moment is an opportunity to catch up on building out oil transportation infrastructure and pipelines, because we believe this slowdown is short-term.

A lot of production that has continued until now, even six months after the price collapse, was hedged.

However, I will say that we may be lulled into some complacency. A lot of production that has continued until now, even six months after the price collapse, was hedged. That means that oil producers had already sold the oil, and knew the price that they were going to get for it. But those hedges don’t last forever, and as they start to come off, I think we’re going to see a net step down in activity.

There’s also good news. Oil prices haven’t stabilized in the $45 price range; they are back in the $50-$60 range, and possibly even rising. That being said, as we push towards greater efficiency in our production operations, wells in North Dakota can become efficient at the current price point. If we see a double dip in oil prices, there might be a more dramatic reaction, but at this point everyone is encouraged by a domestic oil price above $55 a barrel.

Speaking towards that point, that a $10 price increase can make a big difference, would you like to discuss your position on lifting the ban on crude oil exports?

My number one concern is that we don’t have a market for all the light oil we are producing in this country. We’re putting a lot of oil in storage, which creates uncertainty in the long-term for oil prices. Producers need to be able to move this oil to market, and the crude oil export ban prevents them from doing that.

This isn’t a new issue for me. I’ve been working on reversing the ban since I was elected, even when prices were high. Exports matter when prices are high, but they are even more critical now when prices are low. Ultimately, this is an issue of equity—an issue of fairness, and an issue of trade. Right now, we have an antiquated policy that goes back to price controls from the 1970s. It has no logic in today’s world. I think it has driven gasoline prices up, not down. It has restricted our ability to supply energy to our friends, allowing them to be bullied by our enemies. I think banning oil exports is a policy that’s wrong, very wrong, in so many ways.

To remedy that, I’ve been repeatedly calling for a lifting of the ban in numerous calls and meetings since I took office, and publicly since I successfully invited Energy Secretary Ernest Moniz to host one of his agency’s Quadrennial Energy Review meetings in Bismarck last August. Since then, I’ve been working with my colleagues on both sides of the aisle to drum up support to lift the ban on exporting U.S. oil.

This month, Republican Senator Lisa Murkowski of Alaska and I introduced complimentary bills to formally lift the ban. Senator Murkowski’s bill is a blanket legislation to lift the ban that is intended to be heard though the Senate Energy Committee, and my bill addresses some of the specific legal barriers to lifting the ban. As a ranking member on a subcommittee on the Senate Banking Committee, my bill is crafted to be referred to the Banking Committee with the intent of being merged with Sen. Murkowski’s legislation. We’ll keep working together to build support for these bills and pass them.

At CERAWeek last month, Senator Murkowski argued that President Obama should immediately issue a waiver on allowing crude oil exports to U.S. allies, finding that such exports are in the country’s interests. Do you agree with this interim approach, or is the Senate already close enough to lifting the ban that it’s not necessary?

While I agree with Senator Murkowski that the President probably has the authority to issue a waiver and should remove the ban unilaterally, legislation would provide more certainty and show bipartisan support for ending the ban.

Do you see yourself, and other pro-production Democrats, as having a deal-broker role in the Senate, to support oil exports and other policies?

I come from the state with the second-highest oil production in the country, and I believe myself to be the most knowledgeable Democrat on oil exports in the Senate.

I come from the state with the second-highest oil production in the country, and I believe myself to be the most knowledgeable Democrat on oil exports in the Senate. It is my hope that my fellow Democrats will look to me for leadership on this issue. Right now, I’m working hard to find 6-8 democrats who will support lifting the ban, so we can reach that magic number of 60 votes. It might take some negotiating, but we certainly hope people will understand the folly of this outdated policy position.

Oil security is a critical issue if we want to generally improve the stability of the international community and the global economy. We have a massive supply of light-sweet crude here in the U.S. and we don’t have the refining capacity to support it, but it’s locked in here, even though our allies would like it. It’s very important for me to educate my colleagues in the Senate on this issue.

As I’ve been working with Senator Murkowski on our path to lift the ban on crude oil exports, I made sure to specifically talk with my Democratic colleagues in the Senate so we would be crafting a piece of legislation many of them could eventually support—and you can see that those efforts have been successful because we were able to add Sen. Manchin as an original co-sponsor to my bill. It’s my hope that in the coming months, we will be able to garner more Democratic support.

How close are you to that magic number of 60, to lift the oil export ban and introduce other energy reforms?

I think that there are enough Democrats on board that, with a reasonable legislative package, we would be able to lift the ban. We already have the vast majority of Republican votes, so I’m optimistic that if we can’t lift the ban outright, we can certainly make a deal.

Shifting away from exports and supply towards some demand-side issues, let’s discuss alternative fuel vehicles. While oil prices are low, is it still a priority to encourage the adoption of electric vehicles, natural gas trucks, and efficiency standards?

It’s always a priority to lower our oil demand and save energy—conservation is never a bad policy for anyone. There’s enough demand for oil out there in the world, especially from India and China, that we don’t need to waste fuel.

Could you expand on that? Which specific policies do you support?

I strongly believe in a comprehensive and true all-of-the-above energy strategy that expands our infrastructure, increases development of all of our energy resources, and makes our country more energy secure and independent. Our American energy policy is stronger when we don’t put all of our eggs in one basket. Part of employing that strategy means diversifying our fuel resources and capabilities while continuing to work on fuel efficiency initiatives and technologies. Diversification and efficiency will deliver fuel savings across the board while also allowing us to avoid fuel-specific volatility and shortages.

I’ve long advocated for more federal support for our biofuels, and have worked to press the EPA for strong, reliable renewable fuel volume levels to be set on an annual basis. I’ve also pushed for continued research, development, and implementation of other alternative fuel sources like compressed natural gas, coal-to-liquids technologies, and hydrogen technologies.

Developing an all-of-the-above energy strategy isn’t just important to our energy security here at home. It also is a form of soft power that helps our military become more resourceful by reducing the energy supply chain when our troops are in more remote areas with limited access to oil and gas—developing drop-in fuel capability and fuel diversity for our military should be a priority for this country and would further our goal of making our military more efficient, adaptable, and mobile. We can vastly increase our energy supply by varying and widening our strategy, and I’m a big believer that both sides of the aisle can come together on commonsense policies to get us there.

Given the current partisan gridlock in Washington, what is your strategy to achieve substantive energy reform? Are you focused on passing a number of smaller bills to establish trust, working up to a bigger bill, or are you pushing for a single, comprehensive bill.

If I could get a standalone bill to lift the export ban passed tomorrow, I would do everything I could to get it to the floor.

I’ve had many conversations with Senator Lisa Murkowski (R-AK) on this issue, and I think everyone is going to take their lead from the chairwoman. If I could get a standalone bill to lift the export ban passed tomorrow, I would do everything I could to get it to the floor. There’s always the idea that we can do so many things, but we shouldn’t let the perfect be the enemy of the good—we have to focus on what’s possible. However, that may not ultimately be my call to make.

Finally, going back to your home state of North Dakota, some of the oil producers in the Bakken have been criticized for flaring significant amounts of natural gas, amounting to hundreds of millions of dollars of waste over the years. What’s your opinion on this issue that is affecting your home state, and what can regulators and producers do to solve it?

I don’t think anyone, whether they are in the industry or not, should think it’s OK to flare a single Mcf of gas unless it’s absolutely necessary for safety purposes.

I think North Dakota has finally taken steps to get flaring under control. One of the challenges is that we’ve been working hard to build the infrastructure so that refiners can crack it and the liquids can be sent for refining, while the dry gas can be flowed into the dry gas stream on the northern border. The dry gas can also be used for electricity generation on site. There’s a lot of good ideas about potential uses for the gas that is currently being flared.

Personally, I don’t think anyone, whether they are in the industry or not, should think it’s OK to flare a single Mcf of gas unless it’s absolutely necessary for safety purposes. When I was on the Industrial Commission, which regulated oil and gas, we had a grandfathered policy where you could flare gas until a hookup was installed. They are realizing now that this has to stop. As we look at the air quality in the region, we must minimize air pollution to the most practical extent possible, so that we can continue expanding this critical economic opportunity.