Progress on Crude Oil Exports

Mark Green

Mark Green
Posted September 10, 2015

An important step forward this week for legislation to end America’s outdated, 1970s-era ban on domestic oil exports: passage of the bill by a U.S. House subcommittee. Next a full committee vote and, perhaps before too long, a vote by the entire House. Yet, challenges remain, noted in this tweet by the Houston Chronicle’s Jennifer Dlouhy:

No doubt the full Energy and Commerce Committee debate will be more vigorous. But that doesn’t diminish this week’s historic progress on lifting the export ban – a true relic from America’s energy past.  “This has been a long day coming,” said Rep. Joe Barton of Texas, the bill’s author.

As Barton explained, we’re at this point largely because of America’s energy revolution – the surge in domestic oil and natural gas production resulting from American innovation, technology, shale reserves and hydraulic fracturing and horizontal drilling.

The U.S. is an energy superpower – the No. 1 oil and natural gas producer in the world – and letting domestic oil reach global markets will spur production here at home, boost our economy and benefit consumers. A number of studies from a range of organizations agree on this including the most recent, from the U.S. Energy Information Administration (EIA). Exporting domestic oil will strengthen U.S. competitiveness in the world and offer support to America’s friends abroad. Barton:

“No other nation in the world has the capability that the United States of America has to substantially increase our oil production, but in order to do that … we simply must repeal this outdated ban on crude oil exports.”

The effort to lift the export ban is bipartisan and gaining momentum. The House Blue Dog Coalition, a group of 15 fiscally conservative Democrats, is onboard. Rep. Kurt Schrader of Oregon, the group’s co-chair: “It makes no sense that the U.S. can export refined oil products, but not crude oil.”

The congressman is right. It makes no sense to maintain an anachronistic crude oil export ban, denying to ourselves the benefits of trade that are accruing to other major energy suppliers. That point likely will be part of the political debate ahead. This week’s subcommittee hearing offered a chance to hear some of the main talking points from those who want to keep the export ban in place. Let’s examine:

We still import oil, so how can we export it? – American energy isolationism is an argument that sounds good, but it pretty much denies the way crude oil markets work and fundamental economic principles – which argue for U.S. oil exports, not against them.

The U.S. energy revolution is producing volumes of light crude that are mismatched for much of our refining sector. Since it can’t be exported, that oil trades lower than the global crude price, which discourages domestic output. ConocoPhillips Chairman and CEO Ryan Lance explained earlier this year:

“The mismatch is in the fact that  U.S. light oil production currently exceeds domestic refining capacity from an economic standpoint during seasonal maintenance turnarounds, and this mismatch could reach 1.5 to 2 million barrels per day in the foreseeable future. To offset the cost of processing light oil in facilities not designed for it, U.S. refiners purchase light oil at a $5 to $10 per barrel discount from world oil prices. The discount incentivizes refiners to process more light crude oil, but negatively impacts producers and the U.S. economy, while putting domestic producers at a competitive disadvantage to peers in other countries.”

When market access is restricted, the impetus for new production and economic growth – more investment, jobs, equipment acquisition, materials and support services – is restricted also. Check out this Rice University study, which argues that this negative dynamic is exacerbated in a low-price environment like the one we’re in now.

So, while it’s often asserted that as an oil importer the U.S. shouldn’t be an exporter, it’s not supported by sound economic analysis. The import/export claim certainly isn’t applied to other tradable U.S. commodities.

What about U.S. consumers? – The argument goes like this: If the U.S. exports, the cost of that light oil will go up and consumers will be impacted. Major economic studies say otherwise – that, in fact, U.S. exports will put downward pressure on U.S. gasoline prices. A summary of the potential decline in U.S. motor fuel prices estimated by export studies:

consumers

So, although Rep. Kathy Castro of Florida said during this week’s hearing that it’s “entirely unsupported” that exporting domestic crude will benefit American consumers, it’s actually very widely supported.

Exports will impact the environment – Rep. Frank Pallone of New Jersey said if exports lead to more U.S. oil production, there will be greater environmental impact. That’s not what EIA said recently, analyzing the Obama administration’s decision to allow crude oil swaps with Mexico. EIA said trading U.S. light crude for heavier Mexican crude would help the environment because U.S. refineries are the best in the world at handling heavy crudes.

Other points will come up. It was said during the subcommittee hearing that U.S. exports would feed uncertainty into global markets. But U.S. allies abroad don’t feel that way – countries that would benefit from a more diversified global crude market are begging for the U.S. to begin exporting. Ambassador Petr Gandalovic of the Czech Republic from earlier this year, discussing legislation to lift the U.S. export ban:

“I cannot assure you that if you pass this bill there will be a direct purchase from our refineries … of U.S. crude oil. I can predict that if there is an alternative coming from the U.S., as a democratic state that doesn’t use natural resources as a political tool, the world itself will be a … safer place.”

As mentioned, the legislative process continues. America should lift its four-decades-old, anti-competitive ban on domestic oil exports. U.S. oil should be allowed to compete in the marketplace with crude from other suppliers. Louis Finkel, API executive vice president for government affairs:

“America is now a global energy superpower, and lawmakers are ready to bring home the economic and security benefits of crude oil exports. Study after study has shown that opening our doors to free trade will put downward pressure on fuel costs, create U.S. jobs, and improve our ability to compete with other suppliers, like Iran and Russia. … As lawmakers consider a deal that would put Iran’s crude on the global market, this vote would put U.S. producers on a level playing field. It’s an important step forward, and we urge House and Senate leaders to continue to make this issue a top priority in the days ahead.”

ABOUT THE AUTHOR

Mark Green joins API after spending 16 years as national editorial writer in the Washington Bureau of The Oklahoman newspaper. In all, he has been a reporter and editor for more than 30 years, including six years as sports editor at The Washington Times. He lives in Occoquan, Virginia, with his wife Pamela. Mark graduated from the University of Oklahoma with a degree in journalism and earned a masters in journalism and public affairs at American University. He's currently working on a masters in history at George Mason University, where he also teaches as an adjunct professor in the Communication Department.

Energy Tomorrow is a project of the American Petroleum Institute – the only national trade association that represents all aspects of America’s oil and natural gas industry – speaking for the industry to the public, Congress and the Executive Branch, state governments and the media.