The People of America's Oil and Natural Gas Indusry

Rhetoric vs. Action – Exports Edition

Mark Green

Mark Green
Posted January 23, 2015

Earlier this month, then-White House advisor John Podesta said the Obama administration is unlikely to do more on the U.S. crude oil export ban beyond the Commerce Department’s recent effort to clarify the rules for exporting ultra-light crude known as condensates. Podesta told Reuters:

“At this stage, I think that what the Commerce Department did in December sort of resolves the debate. We felt comfortable with where they went. If you look at what's going on in the market and actions that the Department took, I think that ... there's not a lot of pressure to do more.”

It’s a strange conclusion given the weight of scholarship that says America’s 1970s ban on crude exports should be lifted – to spur domestic production, create jobs and put downward pressure on U.S. gasoline prices. It also would solve a growing mismatch between supplies of light sweet domestic crude and a refinery sector that’s largely configured to handle heavier crudes. ConocoPhillips Chairman and CEO Ryan Lance, speaking recently at the Center for Strategic and International Studies:

“(The condensates decision is) a help. … I question whether we’ll ever grow to a million barrels a day of condensate production, so it helps, but it doesn’t solve the problem. It doesn’t answer the issue that we’re going to have coming at us as a nation … crude that our refineries cannot refine. So it’s a help, but by no stretch does it solve the problem. We have to address the bigger issue.”  

Podesta’s comments came before the most recent exports study, by Columbia University’s Center on Global Energy Policy, which also supports lifting the ban. The study found:

  • The original reasons for imposing the export ban no longer apply.
  • If recent production growth rates continue, export limits likely will slow the pace of upstream investment and future production.
  • Lifting the ban likely would increase U.S. production, perhaps by as much as 1.2 million barrels per day on average between now and 2025.
  • Increased U.S. production could reduce domestic gasoline prices up to 12 cents per gallon.


The impact on domestic gasoline prices cited by Columbia parallels findings of other recent research. From the Columbia study:

Modifying or removing crude export restrictions would prevent (domestic production slowdowns) from occurring by allowing domestic producers to compete in global markets. Permitting companies to export crude oil in greater quantities … will likely decrease the price Americans pay for gasoline, diesel and other petroleum products and benefit the US economy as a whole.

And more:

Lifting crude export restrictions is consistent with past and present US trade policy priorities, would enhance US credibility in current and future trade negotiations, and avoid creating a precedent that could harm US trade policy objectives down the road. Increased US crude production can weaken the economic power, fiscal strength and geopolitical influence of other large oil producing countries.

API Chief Economist John Felmy recently joined Kyle Isakower, vice president for regulatory and economic policy, and Erik Milito, group director for upstream and industry operations, to talk with reporters about the compelling arguments for lifting the crude export ban. Felmy said according to the government, every billion dollars of improvement in the U.S. trade balance is worth about 5,000 U.S. jobs. Felmy:

“That’s really how important our role is and what our opportunity is. … We have an opportunity to move forward, the resources are there. The question is will we allow the market to do it and move forward. We can do ad hoc things like you’ve seen with condensates, but you really need policy change.”

Isakower said lifting the ban and exporting crude would incentivize domestic production, spurring more investment, creating more jobs and generating additional revenue for government:

“If you put additional crude on the global market, that puts downward pressure on (crude) price. … So when you’ve got downward pressure on global prices, you’re going to see downward pressure on price here in the U.S. … There are no credible arguments to the contrary.”

Milito said allowing crude exports is a key part of harnessing the U.S. energy revolution – that North America “can be where the rest of the world looks to for energy.” Lifting the ban is critical for growing light sweet crude supplies to find markets, which is critical for new development and production. Milito:

“One of the things we have to look at is making sure U.S. producers have the opportunity to get maximum value for their product. (If) they have a global market to look to, to make sure they are staying on competitive grounds all around the world, they’re able to sell it for the maximum value. Even in the low-cost environment, even with the outcome being downward pressure on global crude prices, they still need the flexibility to know that they can enter into a contract and get maximum value for what they’re trying to sell.”

Milito said a complete lifting of the ban is the right policy choice:

“We’re not pushing for any half measures. We’re pushing for repeal. I think the question is, are these announcements (on condensates), are these decisions that we hear coming out of the administration good or bad? Well, they’re positive, but  … our end goal is repeal of the ban. … We need to get past the point of studies and to the point of where we’re making decisions that are in the public interest, benefit consumers, put money in the pockets of consumers and allow the industry to create jobs.”

If there’s genuine intent behind President Obama’s words on expanding U.S. trade, repeated during this week’s State of the Union address, the administration will work to lift the anachronistic crude export ban. The condensate decision is a positive step, but it’s a half measure – one that won’t alleviate the pressures resulting from surging domestic crude production. The longer the ban remains, the longer the U.S. will be deprived of the benefits of exporting crude underscored by so much recent analysis. President Obama, during the State of the Union:

“21st century businesses, including small businesses, need to sell more American products overseas. Today, our businesses export more than ever, and exporters tend to pay their workers higher wages. … But 95 percent of the world’s customers live outside our borders. We can’t close ourselves off from those opportunities.”

The president’s rhetoric is right. Opportunity beckons from the global marketplace, thanks to America’s energy renaissance. The president and Congress should turn that rhetoric into action by lifting the crude oil export ban. 

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.