 Okay. Well, in the interest of time, I think we're going to get started. I'll wait for the folks outside still sort of grabbing their desserts. But my name is Sarah Ladisla. I'm the co-director and senior fellow here in the Energy and National Security Program at CSIS. And we're going to have the second panel now on some of the policy implications of the unconventional oil and gas developments that you've seen in the first panel discussion, which really was a wonderfully rich discussion about what's actually happening out in the market and how transformational that's been from a North American perspective. As Dave and Frank both noted, this is something we spent a lot of the last year focusing on here in the energy program. And really, one of the things we wanted to do today was to tee up a discussion about the ways in which those market-based changes and this unconventional energy revolution in the United States has been altering some of the policy artifacts or sort of the policies we've got in place in the oil and gas sector here in the United States. We don't have enough time to cover all of them. So we picked two that we thought were particularly important, crude oil exports or molecule laws, as Rusty has just now returned to them for us, and management of the Strategic Botroleum Reserve. And I think one of the things that we're trying to do for this panel is Rusty had very aptly said he's not a policy guy. So we picked some of our favorite kinds of policy people, which are people who used to do this and now don't. And we think it's wonderful because they had the responsibility, they have the breadth and the depth of the knowledge that goes with having that kind of responsibility. But now they do it from the outside so they can say way more interesting things. So without further ado, we're going to have presentations from each and then a bit of a discussion. And today joining me is Ted Castinger, who's a partner at O'Milvaney-Meyers LLP, which is a law firm here in Washington. Used to be General Counsel and then Deputy Secretary at the Department of Commerce here and has a very good oversight on sort of the origins of those funny little molecule laws that we were talking about before, especially on the crude oil side. And then also John Stegas, who's the President of Strategic Petroleum Consulting and used to be the Deputy Assistant Secretary of the Petroleum Reserve and knows more about the Strategic Petroleum Reserve than anybody I've ever met. So we'll start with a presentation on each and then take some questions from the audience. I think we're going to start with Ted. Thank you. Well, Sarah, thank you and thank you all for joining us today. This is an incredibly rich subject in more ways than one. And it is intimidating to follow Frank and Rusty and that team. And unfortunately, I don't have any moving parts on my slides. And that's consistent with the fact that Rusty's view of the world's molecule laws. Unfortunately, I am a lawyer, so it's a much more boring recitation of what's out there actually in the statute that is so convoluted as a prior panelist, so aptly put it. But is what policy makers, lawmakers will be looking at as this debate unfolds over 2014 as it will. With that, let me just start with what's out there. Well, there are quite a number of laws going back a long way that limit exports of crude oil. Probably the core, the central piece of this puzzle is the Energy Policy and Conservation Act 1975 enacted in response to the Arab oil embargo. It is the anchor of the 40-year policy we have that establishes a fundamental prohibition on exports of crude oil except in defined circumstances. And we'll talk about those in a minute. There are, however, quite a number of other statutes that come into play that in one way or the other contain similar structures of a prohibition with limited ability to export for certain policy reasons. The Mineral Leasing Act applies to crude oil transported in pipelines over federal rights of way. Export Administration Act of 1979 is the basic export control and licensing framework administered by the Commerce Department. The Outer Continental Shelf Lands Act, the Naval Petroleum Reserves Production Act apply to crude oil produced in particular places. There's only one statutory exception, and that is crude oil produced on Alaska's North Slope, transported through the TAPS pipeline. It may be exported unless the President finds that the exportation of oil is not in the national interest. So it's kind of the reverse presumption of all the other statutes. Again, the combination of all these effectively make U.S. policy and law that you cannot export crude oil, including lease contentsates, although most petroleum products are exportable without restriction. Oops, got through the presentation faster than I expected. So again, the Energy Policy Conservation Act, 1975. Let's focus on that for a minute. This is the statutory language. EPCA requires the President to exercise the authority to promulgate a rule prohibiting the export of crude oil and natural gas produced in the United States. No ifs, ands, or buts about that. The President may exempt from that prohibition such crude oil or natural gas exports, which he determines to be consistent with the national interest and purposes of this chapter. So the one sort of carve out that you look at is a national interest determination. I think it's important to note, and as we'll see here in a minute, as how the rule has been implemented, or the exception has been implemented, that this is a national interest determination. And one of the questions I think that's very important that will be incorporated into the debate as we go forward is, is the national interest only looking at 50 states or even the lower 48 plus Alaska, assuming Hawaii doesn't strike crude oil anytime soon, or really should we be looking at this as a North American platform, Canada, the U.S., and Mexico as what infuses our national interest in this kind of integrated industry and so well portrayed in the slides by the participants earlier, panelists earlier. But the statute says national interest. So the President can exempt in the national interest consistent with congressional purposes. Well, what are those purposes? They're right there in the statute. Congress intended to decrease dependence upon foreign imports, enhance national security, achieve the efficient utilization of scarce resources, and guarantee the availability of domestic energy supplies that prices consumers can afford. And the President must be vigilant to assure that exemptions do not result in greater reliance on imports. The theme here, very much in 1975 mindset, is we've got to reduce reliance on imports and keep that crude oil that we have at home. And then other things, good things will happen, including lower prices for consumers. All of these things will be called into question as a policy debate given the realities of the market as we go forward. But this is the framework. This is what Congress establishes the purposes and exemptions are supposed to be consistent with those purposes. So as noted earlier, the Commerce Department is the agency that licenses exports of crude oil. This is done under the framework of the Export Administration Regulations, also known as the EAR. Within the EAR, there's a section on called short supply controls. These are controls placed on exports for reasons of short supply, meaning it's thought that the product produced in the United States is literally not available in enough quantities to satisfy U.S. needs. There are not many things in the EAR that are restricted for export for reasons of short supply. In fact, there are only really two, one of which is Western Red Cedar and the other is Carriage of Horses by Sea. So crude oil, Horses by Sea and Western Red Cedar are the things the United States believes are in short supply and for which you need an export license. Now, the short supply category is relevant in international trade terms because under the WTO World Trade Organization agreements or bilateral free trade agreements and others, there generally is an exception for emergency actions taken for reasons of short supply. This is the historic base. I think in the United States it's seen as more of a national security exception to trade. But the framework is it's a short supply control. The next piece of the framework is all exports have to be licensed. You have to go to the Commerce Department and get a license. However, the department has articulated in its rules a number of circumstances in which it has what's called a favorable licensing policy. That is, if you fit in one of these boxes, you will get a license. If you export crude oil from Alaska's Cook Inlet, Canada to Canada for consumption or use in Canada. In other words, you're not supposed to pass it through Canada, continue the export to Europe or elsewhere. It needs to be refined. You see listed, I'm sorry, the other exceptions that are S-submit circumstances from the SPR. California heavy crude, that's L-kills basically or around there. Foreign origin crude oil where you can demonstrate that the oil is not of U.S. origin and has not been commingled. So query can you bring heavy crude from Alberta to the Gulf Coast in a pipeline and then ship it right on through export. If you can show it's not commingled, then you can get a license to do that. Or the last consistent with findings made by the president under an applicable statute. This is North Slope. There is a applicable statute enacted in 1995, 1996. President Clinton made the requisite findings, so that oil can be exported. In addition, the Commerce Department rule says, commerce will consider other applications on a case-by-case basis. Proposed transactions must be consistent with the national interest and purposes of the statute. So this is right out of the statute. Again, national interest purposes of law. We then give one example of the kind of case-by-case transaction they would consider. It's a SWAP transaction, but you can see it is so circumscribed that it's not necessarily very easy to meet the criteria here. But with the changing markets, it will become very interesting to think about some of these three criteria. The first is, the transaction would result in an export that corresponds directly to import of equal or greater quantity, inadvertently omitted, and equal or better quality. So important to think about, as the earlier panelists pointed out, we need, as we go forward, to be, in effect, shipping out light crew, bringing in heavy crew to meet the refinery imbalance. But that's, you know, you've got to, under the current rule, you've got to be quantity and quality. Second criterion, pretty straightforward, you know, the contract would provide for it to be terminated if an emergency. And the third is the license applicant must demonstrate that there are compelling economic or technological reasons beyond its control that the crew cannot reasonably be marketed in the United States. Obviously a very high hurdle, except that maybe, maybe, the market conditions are so changing that we will get to a point before long where a lot of that West Texas-like crude, for example, or from the Bakken literally cannot reasonably be marketed in the United States. There's too much of it, the refineries can't take it. So interesting again going forward, this rule was put into place with the expectation, I think there would be very few license applications that would meet the criteria, maybe that won't be true going forward. So what is crude oil? You've got a much better explanation from Rusty earlier. We should be thinking about this in, you know, molecule terms, chemical terms. Unfortunately, we have statutory language to deal with. And this is only part of the definition, but it's the first part that is relevant. A mixture of hydrocarbons goes on and on. The point here is passing through surface separating facilities, not been processed through a crude oil distillation tower, included as reconstituted crude petroleum, lease condensate. Very, very important issue as Rusty and Frank described earlier. What is lease condensate? What can be done through a processing process that turns what is coming out of these wells into something that is not within this definition? That is, it is inexplicable really to draw the line the way it is today. This is the statute, if what you're producing is crude oil or lease condensate, and when you go to the, you want to export it, you have to file a, you know, forms with the custom service, shippers export declaration, and you have to say what it is and where it fits on the, what number it fits. Under the harmonized tariff system or the export commodity classification numbers. And there's long lists of those, and you have to declare. And so if you say it's lease condensate, you can't export it unless you go to the Commerce Department and get a license. But if it's, you know, a NGL, then you can export it without a license. This is the definition, this is what people will be very focused on in an arbitrage kind of context, as Rusty was mentioning, just in other contexts trying to figure out what to do with this immense amount of product that's showing up on the Gulf Coast and elsewhere. Just to note, I think many of you are very familiar with the policy debate and the changes that went into place over the last three years in the LNG context. The law, the fundamental law is the same. It's the Energy Policy Conservation Act in 1975. You'll recall it prohibits exports of crude oil and natural gas without the requisite terminations. The process for licensing is quite different. First of all, it's a different agency. The Department of Energy handles export licenses for natural gas, Commerce Department for crude oil. A very different process. At the Energy Department, as you saw in the LNG context, generally a public process, notice and comment period. You get project-based licenses. You have a separate administrative proceedings through FERC for site licensing. At the Commerce Department, generally you're talking about a transaction-by-transaction licensing process, cargo-by-cargo. It's a confidential process. You know, you don't, if, you know, Shell or Exxon or someone wanted to export a cargo of crude oil, it wouldn't be put out for notice and public comment. You just apply for a license and it would be considered by the Commerce Department. One fundamental difference was that in 1992, Congress deemed that applications to export LNG from or to nations with which the United States has a free trade agreement are in the public interest and must be granted without modification. So again, the framework under the EPCA was the President must make a national interest determination in order to permit exports. Congress stepped in and said, well, there's one category of natural gas, slides says LNG, but it's natural gas as well as LNG form of natural gas, which we will deem to be in the public interest, and that is if you're shipping to an FTA country. So for example, the first two LNG terminal license applications that went through Cheneer and Preport, I can't remember any of that, they were limited to FTA country exports. The Energy Department didn't even go through its normal notice and public comment period. It simply said, it made a public notice. We got the license application and we will grant this in 30 days because Congress has said it is in the public interest, read that national interest. But for other applications where the applicants were seeking to export to more than FTA countries, they went through a very prolonged notice of public comment process. That's very, very different than the crude oil situation at Commerce. Frank Sir had asked me to say, well, if this issue develops as we think it will over 2014, what will policymakers, what will Congress be looking at as options for change? There are many possibilities, you would think, beginning with repeal of the 1975 Act that may not be in the cards. But you could take the North Slope approach, just make it more broad. That is, reverse the presumption, say the president is authorized to permit exports of crude oil. But he's not required to prohibit those in the national interest. So he could find that generally there would be a favorable licensing policy unless for circumstances associated with a particular transaction or economic circumstances, the president of the Commerce Department makes a decision that it's not in the national interest to permit a particular export. There is the LNG natural gas approach, again, you could by legislation create an exception for exports to free trade agreement partners, other trade context or national security allies. We don't have a free trade agreement with Japan, for example, at the moment. But that may be a very important market, not only commercially but for national security energy policy reasons to permit exports. We don't have a free trade agreement with Europe either. But of course the NATO countries, Australia and the museum, there are a lot of ways you can think about at least beginning to carve out situations where exports would be permitted as a favorable licensing matter. It's not necessary to have legislation to do this, that's the next and most important point. This can be done administratively. The authority is there, the president can make determinations in the national interest to permit exports in a variety of circumstances if there is a political will to do so. So you could take the same approach free trade agreement partners, national security allies, swaps with Mexico. You can conjure up quite a range of possibilities for policy determinations. I just wanted to finish off with a couple of slides to raise a question I'll get to on the second of these two. So this shows crude oil exports before EPCA was enacted in 1975 and after. The statistics, and I haven't tried to scrub them in detail at all. But I can tell you they're misleading because the export data includes exports to the Virgin Islands, US Virgin Islands from the United States. And what happened after EPCA was enacted in 1975 was that North Slope crude started being produced and it was being sent to the Virgin Islands, the refinery there. And so exports, it looks like exports leaped hugely despite the fact, Congress passed a law saying there could not be any exports of crude oil. So very misleading in that sense. This may be a little more meaningful. And the point I wanted to show here first was 1995, you see the exception for North Slope exports was enacted. President Clinton made the determination, exports were permitted. And for a couple of years, exports went up. And then they fell off the table. And then in the last few years started going back up again. But I think going to the point of, I think there's a difference between a policy determination that sounds very momentous that we're going to permit crude oil exports despite 40 years of policy of the country and what the commercial markets actually will, how they'll react. And it could be, as I understand the situation happened in after 2000, the transportation costs, for example, from Alaska to Japan and South Korea just make it uneconomic in the market to export, even if we were free to do so. So there are a lot of factors that will affect whether or not exports actually occur, even if we change the policy. And just to give you a sense, almost all exports, they've been going up, but they're almost all to Canada. There's one little shipment there in 2013. It shows a little exports to China that got a lot in use last January. It seems to be from news reports that there was simply a cargo of crude oil that was foreign origin, came into U.S. port and was re-exported, Canada's a U.S. export. It was not U.S. origin crude oil. So exports are rising, but it's all to Canada right now. So bottom line is we have a policy that's very ingrained, very complex, convoluted, been in place for 40 years, a lot of political sensitivity around the idea of changing it, but there is no doubt, given the way the market conditions are shifting, that that debate will be joined over the next year. Thank you. And I think in the interest of time and having our discussion together, I'm going to go and move to John's presentation. How do I advance it? Okay, great. It's a pleasure to be here today. I didn't know whether to stand on the left side of the podium and say, this time everything's going to be different. We're on the right side and say, no matter how much things change, everything's going to be the same. There's one thing that's sure in my mind, that is the Strategic Petroleum Reserve is an amazingly powerful tool. It always has been, and I think it will be for a very long time. Ted kind of teed things up by spending a lot of time on the Energy Policy and Conservation Act, which was passed in 1975, and that's where the SPR came from, as we all know, is a reaction to the oil embargoes. And so there are a whole bunch of things that are addressed in that law, and here are some of the issues. They're all still issues today. And of course, you've heard an awful lot earlier this afternoon about why things are changing, but these things are all still issues, and they will be for a while. Now, EPCA, Ted listed a few of the things that are in EPCA. When Congress wrote it, there were eight purposes at the start. The two first purposes are granting authority to deal with the International Energy Program and creation of an SPR. I've highlighted the word impact. The reason I did that is because Congress sometimes does things that are brilliant, but they may not know it. EPCA's been around for a long time. It's very, very hard to amend. I brought a copy. It's a really thick, thick set of laws. And if you want to change it, even though part of it's crazy, it's hard to do because there's some other part of it that you can't change because once you open the floodgates, everybody wants to amend 99 aspects of EPCA. So it doesn't get amended very, very often. So some things are kind of in there for very, very long periods of time. So when immediately after telling you the purposes, they lay out the policy and they say the policy is substantial quantities, may reduce the vulnerability, and therefore create a reserve of up to one billion barrels. And there are lots and lots of things in there about what that should look like, but there are two important parts. One was flexibility. I said write a plan, submit it to Congress as to what this is going to look like. And then two, which I want to address because it's kind of a hot issue right now, is regional refined petroleum product reserves. And what that law said was you will have these things unless you have various reasons not to do it. And those reasons were you can substitute crude oil for refined products, even though it's called for, if it can be justified on cost. And you will have regional reserves, but you can substitute, you can put those things into central storage if you can say we can actually get the things to where they're needed. So right after the law was passed, which was December 1975, they entered into an amazingly large and complicated process of developing this plan. And the plan essentially came out after studying it like crazy said, central and make it all crude oil. And the reasons are that we have an amazingly robust system, pipelines, shipping, and consequently we can get the refined products to where they need to be in the event of an emergency. And secondly, when you start comparing things, there's no comparison between building surface storage, steel tanks for putting refined products, which is what you have to do in the northeast and up in the Gulf Coast, and developing salt-dome storage down in the Gulf Coast. I'm not going to address the technology of actually storing crude oil. I think most of you know a little bit about it, but the costs are unbelievable because the size of the caverns that you build inside salt-dome is so large that the incremental costs get very, very low. Just to illustrate that, if you go and you look at the budget for next year, and of course there are about 700 million barrels of oil in the reserve, you go and look at the budget request for maintaining that. It works out to a little less than 30 cents a barrel for oil actually in the ground. There's also one million barrel, what they call a northeast home heating oil reserve, which is actually ultra-low sulfur diesel. The budget request for that is $8 million. So you're talking about $8 for the one versus less than 30 cents for the other. And that is pretty consistent around the world. And a lot of countries that have surface storage, even in very large quantities, pay these astronomical amounts. So that's why back in 76 when they were doing this and they came up with the plan, they said, forget that, and that's the way we went. So you ended up with these, what today is four immense sites down on the Gulf Coast. And they have 700 million barrels roughly in there. But there have always been the idea of competing priorities. EPCA has been amended and various bits of EPCA in effect were amended within appropriations acts because they said SPR must do this or must not do that. And there are the few that are really constantly competing or energy security. When you read EPCA at the beginning, it's very clear. Everybody has 1973, 74 embargoes on their minds. We're talking about physical oil. You've got to be able to get it to places. And then they talk about market impacts. And at some points they say, well, we don't want to have an impact. In other points we say we do want to have an impact. Then you've got, of course, the question of how much is it going to cost? And do you have, is it important whether it costs? And that changes constantly. Sometimes it's important, sometimes it isn't. So I'm going to spend most of my time dealing with this and the next graph. So essentially it boils down to three different things. You had Congress authorizing legislation or authorizing various reserve sizes by amendments to EPCA and by changes to the SPR plan, which I mentioned earlier. So originally the first plan said go to 500 million barrels and then we'll figure out what to do, later 750 and then later to a billion. Now, of course everybody was in a real, real, real rush. Let's get this going. Let's build the facilities as fast as we can, acquire existing facilities from the private sector and start filling. So you can see the incredible ramping up that occurred right beginning in 1977 as soon as we acquired existing facilities from private sector. Once we got going, you can see that we were filling just as fast as we could develop facilities. And then we went into a period where we didn't fill at all. I'm going to change to the next slide because this is the really, really interesting part where this tug of war goes on between the various priorities. So you go back to the beginning. We're talking 1977, 78. And so what you've got, you've got the Carter administration. And the Carter administration has just been handed off this thing and say, let's go. Let's start filling. And so you get a pretty good fill rate, over 150,000 barrels a day. And then bam, you know, you get hit with the Iranian situation. So prices go crazy. And the administration says, well, cut back. In addition to that, you've got a problem of international affairs which comes creeping in because the Saudis weren't real wild about this existing. So there's pressure on the administration not to do it. So things got scaled back pretty dramatically during the Iranian situation. So now you come up to 1981, the Reagan administration comes in. Still 180 degree. Reagan administration says, this is not only energy security. This is national security. We don't care what it costs, fill it. So all of a sudden you can see the bar charts beginning there in 1981. And oh yeah, we had a little conflict with budget because of course the idea is, you know, we don't want to drive the budget up. So there was a guy, some of you may remember, a certain age, David Stockman. And he was over at OMB at the time. He said, well, how can we come up with all the money to do that? And at the same time, not send up big budget deficits. Well, easy. Let's say what we're doing is acquiring resources. Let's take this whole thing off budget. So for a period of time, every budget that went up simply said, we want a bunch of money, but it doesn't show as part of the budget. So we were appropriating billions and billions and billions of dollars, but it didn't show up as part of the budget, although naturally it did add to the deficit. So if you look at the totals, and I'm going to go back just one slide, and you can see that most of the oil that we have in the Strategic Petroleum Reserve today went into that reserve during the first five years of the Reagan administration. So back. So that went on for a period of about five years. And then they said, whoa, the deficit's really, really, really getting out of control here. So maybe we should cut back. So they started cutting back. And it slowed down a little bit. And then along comes the Bush administration. And, you know, they get hit pretty early on with the Iraq invasion, which they call for. So what do they do? They say, well, obviously you're not going to till, you know, we got this problem, but did they draw down? No, they didn't draw down right away. Well, why didn't they draw down right away? Well, there's a lot of nail biting going on because maybe we don't have enough. This thing could get a lot worse when they attack the Saudis. We may need all we can get. So let's not draw down right away. No, they don't draw down right away. And then January comes along and we invade Iraq. Well, we had an agreement with the IEA that we're going to draw down. So we all draw down. Well, first day the war is over. Well, what do we do? Well, we drew down anyway. Well, why did we draw down? Well, because there was a lot of concern that since there was an international agreement, we needed to draw down because otherwise the IEA would fall apart. So we sold a bunch of oil. Even though the price we sold it at was less than we just paid for the oil that we'd been buying willy-nilly regardless of price the previous five years. But that's okay. So we had a few conflicts going on there and it changed all the time. So you go through the Bush administration and now you come along to Clinton. Well, Clinton's administration at the beginning, they could care less. We're not dealing with fossil energy anymore. We're going into the new future, renewables, blah, blah, blah, blah. So nothing happens for a few years. But then we needed some extra money. We were going to decommission weak silent. So I said, man, our priority is balancing the budget. How are we going to do that? So what do they say is sell $100 million worth of oil to decommission weak silent. So you can see on there that we sold 100 million barrels of oil. And all of a sudden people said, whoa, this stuff is fungible. We can turn it into money. So then we had three more appropriations bills that said sell oil just for budget balancing purposes. We gave some money to the Department of Education. So all of a sudden, why have we got this thing? Well, it's to balance the budget. But then what happened? Oh, 1997, 1998, 1999 come along. You got the Asian financial collapse. So they'd already passed appropriations bills saying, let's sell a bunch of oil to raise money. Well, but guess what happened? The price of oil went, boom, went down to $10 a barrel. And you've got a whole bunch of stripper well people saying, man, we're dying here. We can't come up with a marginal value of our barrel to repair the pumps that's bringing out our stripper well oil. And you guys are selling oil. So Congress rushes and they pass an emergency supplemental appropriation bill to say to the president, you don't have to sell the oil. We commanded you to sell as part of the appropriations bill. That was kind of interesting. So we stopped. And now what happens is we're still in the crunch. Oil prices are horrible and industry is getting crushed. An energy security issue. So Secretary Richardson, he formed an emergency oil task force. And what was it all about? It was how can we help the industry? How can we stop shutting in large reserves of oil? And the answer was, well, Jesus, we just sold 28 million barrels of oil to raise money. Let's put 28 million barrels of oil back in. We can create some artificial demand. So all of a sudden it changed from the budget is the most important thing to energy security is the most important thing. It took us a while. But the reason we had a royalty and kind program out of the Department of the Interior is because we pushed hard enough for it to come up with the ability to transfer oil from Interior's royalty oil to the Department of Energy without affecting the budget request. So again, a change, you know, this, that tug of war. So, and then of course, the Quinn administration kind of got focused on it and said, what can we do? And you had a very large real market intervention in 2000. And you can see that it was 30 million barrels of oil. It was an exchange, though. It wasn't a sale. It was an exchange. And without getting into the details of that, it was for one purpose, drive down the price of crude oil. Why? To make it even more profitable for refiners at the time to keep up the utilization rate to create, to increase the volume of heating oil in the market. And that was a reaction to a shortage of heating oil in early 2000. So all of a sudden you're going another different direction. Incredible flexibility in a tool for which Congress way back in 1975 just thought energy security molecules or international obligations. So that, that administration ends and you come in and you get the Reagan administration. Yes, I'm sorry, the Reagan administration. So back to, I'm sorry, Bush administration. Bush administration gets confronted with September 11th. So what do they say? Man, we're back to the Reagan years. This thing is national security and energy security. Fill it. Budget be damned. So we're off to the races again. And you can see what's going on there. And that was an amazing period of time because you actually had for the first time in my recollection people in the Congress and the administration on opposite sides of this thing because it becomes clear to them what's going on. So when it gets to 2008, we're still filling. The administration's position was we're not going to do things because of price. So we're going to keep filling. Well, we're into a recession. The price of oil is going to $147 a barrel and we're still filling. And the Congress comes along and says, you guys are nuts. You're affecting the economy. So they passed a legislation that said unless you go, you will not fill anymore unless the price of crude oil goes to below $75 a barrel. So one side is saying money, effect on the economy. The other side is saying national security. And it goes on and on and on like that. And of course, then you get to the current administration, which is until very recently not focused on fossil energy at all. Anything that's being treated as a negative. And so it just wasn't an issue. But we know because you've got a new secretary over there earning monies who understands the SPR and his head of policy, Melanie kind of dying. They're pushing for and there's going to be a quadrennial energy review in which this type of stuff is going to get looked at. And so we'll see what happens. But that's kind of the idea is this thing is flexible. It can be used for whatever an administration wants or whatever a Congress wants. And well, I'll save that for a month. So now just done with that. But one of the key things that everybody focuses on, and this is a crappy metric, absolutely terrible, but it's 90 days of imports. And the reason everybody looks at 90 days of imports is because it's part of the IEA charter. Every member will have 90 days of imports. And so right from the start, you know, we were trying for that. And never really had it until now. And 2012, we were right at 90. And I showed 2013 on here, but that's year to date. But we're well above, you know, we're looking at 105 days. So the International Energy Agency is fine. You know, we've got that covered. Question is, is it meaningful? And my argument will always be no, not terribly meaningful. Oh, I don't know what happened. But okay, so and well, and the reason, well, let me just stay with that for one second. And the reason it's not terribly meaningful is because what this program is really morphed into is protection of the economy. It's not actual barrels. It's not molecules. The question is, if you have a huge price spike, will you be able to suppress it enough to keep the economy going? And on the flip side, if you have a tremendous crash in the oil price, can you buy oil and fill the reserve fast enough to prevent your energy security in terms of domestic production from going away? And that's the last one. Now this, unfortunately, I don't know why it didn't show up. But anyway, those spots show where oil was exported from. Now, in 2011, we had a drawdown for the Libyan situation. It was 30 million barrels. And because of everything you heard earlier in the afternoon, you can't move oil up the pipelines the way you used to. So a big, big chunk of that oil went over the water to various places. And what this is showing is where the oil left, how it left the three major spots, West Hackbury, Big Hill, and Bryan Mound, was put on tankers or barges and moved around to the rest of the sites or other points of use on the Gulf Coast and then all the way around to New England. And I think we'll have some questions about that. So I won't dwell on it for very long. But that is really the future. If the pipelines aren't available to take this oil inland anymore, the future is going to mean putting that oil on the water. And so the question is, and this was raised by Ed Morris for those of you who found him, can you move this amount of oil? And this was done, again, this is a DOE graphic. And the question is, yeah, it depends. It depends on the situation. And essentially what this boils down to is it's a huge, huge world disruption. Then, yeah, you're going to get shorted enough oil that's going to be coming over the water anyway that you can feed it into the U.S. economy. If the disruption is small, you can't do it. And you can see how this is no revelation. If you go back and you look at the drawdown that occurred in 2011 because of the Libyan situation, there was no need for that oil into the U.S. market. And they had a hard time selling it. And in fact, a lot of other times, we've had a lot of hard time selling the oil. Even in the case of Katrina, there was no, in 2005, there was no need at all because all the refineries were knocked out practically under water. So we drew down oil anyway because it was a quid pro quo to get the Europeans to release their stocks of refined products, which then came pouring into our east coast. So this is not a new thing. And whether we adjust to it or not is going to be a major policy issue. So I think that's it. Well, thank you both for those fantastic presentations. Good news is we have a good bit of time for questions. I'm going to start off while the audience sort of thinks about some of their questions because one of the things that's interesting about policy is that it usually has something to do with politics. And so I, both of your presentations were very heavy on, John, I think you certainly focused on some of the political dynamics around the use of the SPR. But Ted, I thought maybe I might try and sort of get your thoughts on what is the political nature of crude oil exports? Because I think we've been privy to a bunch of discussions that say, yes, it is very political or no, it is not very political. And certainly what we've seen with the natural gas export discussion that has been a hyper political discussion, but its nature is a little bit more public. So could you talk a little bit about the politics of the crude oil exports? Sure, Sarah. I think the first observation I make is it's not a political party issue. I think there are two components to the crude oil debate that have been there for a long time and we'll see for going forward. The first is the national security debate and it's deeply embedded in the experience of the Arab oil embargo. And there are people who will think and do think that the energy renaissance is a fantastic thing in the United States and why don't we keep it all? So it is very hard, I think, for a lot of people to see beyond the fact that we have this wonderful wealth of resources to the point that actually it may make most sense, as it often does, to have a free market in the product to balance the various needs of the economy in the best way. So for example, to get the refinery balance you need to actually encourage production to sustain the security point. So I think there's a national security side that's deeply embedded. The other is the most prosaic and historic of issues and that is gasoline prices. What are consumers going to pay? So the LNG debate is very different. That has been controversial in large part to the extent there has been controversy driven by industrial users of gas and the argument that we should be maximizing the accessibility of that gas at home to continue to foster the manufacturing renaissance in the United States, which is a very important issue but whether you need to restrict exports is a different question. Crude oil is not particularly used in terms of refining on the manufacturing side. It is direct relationship to gasoline prices. I think what you'll find most economists saying is that the exports of crude oil will have no impact or very little on domestic gasoline prices, which are set by the price of Brent. It's a world market in gasoline and so we export more or less. It's not going to affect prices at the pump but there's a deep fear that that will occur. And just to follow up on that, you would mention sort of the confidential nature of the licensing process that happens at commerce. Why is that process confidential? And for example, the export permit process at the Department of Energy public. Good question. The historic root of the Commerce Department Export Regulations is a transaction by transaction permitting process. It is regarded as a confidential business matter. And so that's the whole framework of the commerce licensing process. The gas has been a DOE issue. And again, you're talking about large projects and what was a fundamental national interest determination of broad scope. Even in the crude oil side, the President has published determinations, for example, on cook inlet oil or nor slope. Not with a particular, you know, notice and public comment process, but at least the overall policy decision was published. But what will be happening and what is happening at commerce on the exports to Canada is people go in transaction by transaction. And, you know, it's confidential business information. They've got a deal. They want a license. And that's not, you know, that's just not been subject to public scrutiny. If there is a larger national interest determination to broaden the scope of exemptions under the commerce rules, we may well see a notice of public comment process. I think the debate is going to be joined. And, you know, we may sort of get there falling backwards. They'll be as indicated by earlier panels today. There's going to be so much crude out there looking for a home. People will start looking for ways to export. You know, we are, by the way, we are exporting crude today, right? It's just in the form of refined products. So you just kind of move up the chain. What's least kind of say what's not, you'll start getting a lot of those. And at some point I think the administration or Congress will square up to the issue that we need to have a consistent policy and that probably will, the debate will be joined. John, just quickly for you. There's one sort of a more glib question and then another a little bit more technical. But should I take from your history of how we've used the SPR, which you've rightly sort of accounted as a wonderful and amazing tool, as Democrats like money, Republicans like security? And if that is true, do you think that that sort of binary dynamic will hold going forward? And then I think the second one is you ended on a point where I think a lot of people access this conversation these days, which is the physical infrastructure in the United States and maybe the refining complex itself is changing. And so does that fundamentally change the utility of the SPR in any way because of our inability to use it the way that we used to? And how seriously do you take those conversations? Well, let me deal with the libeline first. That's easier, I guess. The answer is no, I think everybody wants energy security. There's no question at all about that. It's just a slightly different perspective. And so, you know, if you talk, if you go down and you talk with the various people in different parts of DOE these days, you know, you have two, comes out, I analogize them to rapturous, you know, things are going to happen. So I'm going to send it to heaven so I can sell my house and give away the money. And so you can go and find people who say the electric car is coming. There's no question at all between electric cars and plug-in hybrids and super high mileage cars coming out of cafe standards. Oil days are numbered, you know, forget oil, you know, so you got that. And also, we're going to go and put all the money, we're going to take the money and put it into renewables. So oil can go away. We want energy security, but we've got the roadmap. You don't need that stuff anymore. Some of us tend to say, well, let's not sell the house and give away the money until it actually happens. And it's cheap insurance. And on that side, but on the other side, the Republicans tend to have said, yeah, you know, we really like that security, but in order to get the benefits of it, you have to actually use it. So the Bush administration was sort of of two minds. They really, really, really wanted a larger reserve. They wanted to fill what we had. They wanted to go to a billion barrels, actually very little remembered, but they actually wanted it at the end. They put out a policy statement saying go to a billion and a half. And so they really, really, really wanted that. But it was hellacious trying to get them to use it. And so you had a lot and, you know, you had situations where the, like in Venezuela, you had the Venezuela strike. And we were really getting tight. You had a lot of people on the Gulf Coast saying, since it's in our backyard, this is ours. You didn't have that release. And also you had the, you know, again, the 2008 situation where it was pretty clear to me that if you look at the economics, the recession that was going on, you really should be doing something about $147 oil, because it was creating a tremendous headwind for the economy. But instead of actually drawing down, which I would have done just for price purposes at the time, we were filling. And the thought was, we don't do things for price purposes, so we're not going to stop filling. But that's not in my mind energy security, because if you devastate the economy, that's not what it's all about. So on that side. Now the infrastructure issues are extremely interesting. Yeah, I think several things ought to be done. I think some sort of provision ought to be made at this point for refined products. Because the Hurricane Katrina thing showed that certain segments of the country really, really had a problem. If you look at the area around Atlanta, nothing has changed. They're pretty much dependent on one pipeline bringing all of their stuff. They almost ran out of fuel in Atlanta in 2005. It didn't make any difference that we had refineries that were under water. The pipelines didn't have electricity. They had an electricity failure to the pipeline, so it just didn't make any difference where it was. So I think you need it. You have to have it out of reach of the hurricanes that are most likely going to be hitting heavy. So you have that. Then the question of how to distribute comes down again to Ted's area of expertise. In my mind, if we know where we're going to be, if Congress debates this, leaves the law the same thing, you're not going to be able to export crude, then you better make some other changes, because more and more of the oil from the SPR, when it's caught, was going to have to go over the water. You have to go up the pipelines, because the pipelines are all being reversed, and they're all going down to the Gulf. So something needs to be done, and of course there will be more docks for exporting, but the Jones Act will get in the way, and so you need to deal with those kinds of things to make it work. But essentially, the problems are more policy problems than they are physical problems, because I do think there will be a lot of dockage built to handle all these exports that we're talking about. We'll take some questions now from the audience. We've got one over there. Michael Leahy with the Energy Information Administration. Ted, I wanted to ask you, as you've discussed, that U.S. refiners are exporting record levels of products because they can't export the crude, and the U.S. can't export crude. And I'm wondering, under the WTO, as you talked about, one of the effects of U.S. exports has been European refiners getting hit rather hard, because they can't compete on price. And as they start to close, there's been some rumblings about bringing a WTO case against the U.S. because of artificially priced crude. Is that something that you think legally they would have a case, and how might that play out? That's a great question. So just a framework on that. The WTO agreements generally tend to foster free trade, and there are exceptions. And there are exceptions that countries can call on to justify derogations from their obligations. One is short supply. Another is national security. So historically the U.S. has relied on the short supply exemption, and as the world's largest importer, not very hard to do, and given the percent of consumption. And that's still true today. So how would it play out? A little hard to see European countries initiating a complaint on the WTO against the U.S. for this reason. If it happened, it would take years to play out. I can't imagine that any administration would not defend the U.S. position in a dispute of that kind. It raises all kinds of domestic trade policy issues that are totally aside from the crude oil debate, but the role of Congress, the primary constitutional authority over international trade, and the way that executive and congressional branches interact with one another on trade issues, the notion that somehow the U.S. has given away this 40-year-old embedded policy under trade agreements. I just think there would be a tremendous domestic political reaction against just kind of throwing up our hands and saying, oh, yes, it's not in short supply anymore, and we're wrong, and we're going to change the policy. So that's one set of issues. The other, without being too arcane about this in a trade law context, I think the United States would assert a national security defense. The U.S. position in the World Trade Organization is that the assertion of a national security exception is unreviewable. That is, the U.S. wouldn't even show up for a dispute to talk about it. This is the position the U.S. has taken in a series of contexts over both Republican and Democrat administrations since the GATT and at the end of World War II. So the U.S. position, I think, would be this is, you know, we're heavily relying on imports still. It's a fundamental national security matter, you know, how we deal with our energy trade, and we're not going to talk about it. That's how I think it would play out. Questions? I can't see over on the phone. You know, one of the other, oh, go ahead, please. Eric's time to move the mic right there. Your comments focused on the vast difference in policy between natural gas exports to free trade agreement countries and crude oil exports. And I'm just wondering, you know, how big do you judge the gulf to be between the U.S. policy with respect to non-free trade agreement countries for natural gas or LNG where there's a presumption that's rebuttable in favor of exports, that is, you have to show it's inconsistent with the public interest in order to block it as opposed to, when I take your comments on crude is, you've got to show that it is consistent with the public interest in order to export crude. Right, so, you know, that is the current framework today. You know, the presumption for natural gas was enacted really, you know, right at the same time NAFTA came into effect. So we had a free trade agreement with Canada from 1985 that provided for free trade rules on energy and you can see in 1992, NAFTA just finished being negotiated. You know, I think the provision was put in to deal, principally with Canada but also Mexico at the time, reversing the presumption. It wasn't done for crude, you know, I think probably wasn't a particular economic issue at the time but also pretty sensitive from a national security standpoint. You know, I think the same dynamic that drove the last three years of the policy review that resulted in now a consistent set of permits being granted in the LNG area for non-free trade agreement countries as well as free trade agreement countries should drive the crude oil debate too. It's just, you know, we're not there yet on the framework, you know, the administration could using its administrative authority make that national interest termination and they may do it incrementally. There are a couple things out there that could be real variables in the short term. Iran is one, you know, we all hope things go well there but if they don't there will be tremendous pressure to tighten sanctions even more. Our allies in Korea and Japan are, you know, going to be looking to us probably to help support and avoid these sanctions that could come into play, the secondary sanctions. So there are a lot of national security variables that are important to crude oil so someone of a different market in terms of downstream uses and how much Japan and Korea would take but the overall fact that we're becoming a net exporter and we need to export for our own reasons to get refinery balance and to actually sustain the production curve is I think pretty compelling. One of the things that we do in addition to trying to put really smart people in front of you to talk about interesting issues is get you out of here on time. And so we've just about run up to our wall. I want to thank John and Ted and our earlier panelists for a great discussion and please join me in thanking them for all their thoughts.