Repeal the decades-old oil export ban to help energy renaissance

The Hill ^ | 03/11/2015 | George Baker

[E. Pluribus Unum]

The ongoing shale oil renaissance and the United States’ abundant natural resources has transformed our energy landscape, allowing American consumers access to affordable fuel supplies and spurring significant investment and job growth across our economy.

But in order for this renaissance to continue, it is critical that lawmakers ensure that U.S. policy keeps pace so that our energy resources are being leveraged to provide the maximum benefit to the nation’s economy and international geopolitical interests.

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This point was made clear at a recent House Energy and Commerce subcommittee hearing, where witnesses emphasized the enormous value that the changing dynamics in the global energy markets offered for the U.S. economy and America’s energy security.

The hearing highlighted the fact that all this historic promise is jeopardized by a little known provision of law that was enacted 40 years ago in the wake of the Arab oil embargo, which restricts the export of domestically produced crude oil. And whatever the merits of this policy may have been then, in this new age of energy abundance, prohibiting the export of America’s excess supply of crude oil no longer makes any practical or political sense.

Here’s why.

As the global leader in oil and natural gas production – recently surpassing both Russia and Saudi Arabia – the U.S. has turned global energy markets upside down. According to the U.S. Energy Information Administration, we now produce 9.2 million barrels of crude oil each day – the highest annual average in over three decades. Much of this growth is attributed to shale development and the production of light crude oil.

However, because much of our domestic crude oil refining capacity is configured to refine heavy grades of crude oil which are largely imported, we now find ourselves in a position where there’s a growing “mismatch” between the oil we produce (light) and the type of oil we can refine (heavy).

Domestically produced light oil has already reduced the volume of imported light oil by three million barrels per day. However, given the lack of refining capacity to handle the increased production, crude oil inventories are swelling to record levels, creating a glut of light oil that is depressing domestic crude oil prices. This is causing the spread between international (Brent) and domestic (WTI) crude oil prices to widen.

With the restriction on crude oil exports preventing U.S. producers from accessing global markets – while refiners have the ability to buy and sell freely – drilling rigs are being idled, jobs along the supply chain are being lost and the continued growth of the American shale oil renaissance is at risk. 

As for concerns related to gasoline prices, the Subcommittee hearing last week made it quite clear that the reduced cost of domestic crude oil does not translate into lower gasoline prices for U.S. consumers. In fact, every analysis, thought leader and think tank that has weighed-in on this issue acknowledges that the price consumers pay for gasoline here in the U.S. is determined by the higher international crude oil benchmark.

According to ICF International, lifting the ban “could save American consumers up to $5.8 billion per year, on average, over the 2015-2035 period.”  Moreover, while the domestic benefits to modernizing our nation’s energy policy are clear, the influx of U.S. crude oil to the global market would better enable our trading partners and allies to reduce their dependence on less reliable and unfriendly sources of energy.

This point was made clear by the White House last month in their National Security Strategy, which noted: “The challenges faced by Ukrainian and European dependence on Russian energy supplies puts a spotlight on the need for an expanded view of energy security.”

Our transformation from a period of perceived energy scarcity to one of energy abundance has been nothing short of a game changer for the United States. It has turned global energy markets upside down and positioned the U.S. to become a global energy superpower. For us to take full advantage of this opportunity, however, we first need to repeal the decades old oil export prohibition standing in our way.

Baker is executive director of the Producers for American Crude Oil Exports, a coalition of independent oil producers.

[dila813]

Is it possible that the export ban is a violation of the NAFTA agreement?

[Sacajaweau]

Obama says its one of the reasons he won't sign Keystone.

He hasn't yet figured out that we're refiners!! We import oil, refine it and ship it out.

He says he doesn't want anything shipped out.

[econjack]

It just amazes me that a bunch of bureaucrats can sit on their butts in DC and think they are capable of managing a bazillion transactions per second. The stupidity of it all comes crashing home when you hear the President, who has killed off shore oil leases, fought the Keystone Pipeline project, taken ANWAR off the table, enabled the EPA to just about kill the coal industry, say:

American citizens are experiencing the lowest energy prices in almost a decade. You're welcome.

Just how stupid does this hunk of hubris think we are? The American voters in this Republic are lucky they have enough brainpower to fog a mirror.

[Da Bilge Troll]

While I agree that the ban should be repealed, it’s effect is not as great as one might believe. Any domestic production consumed domestically is oil not imported. It’s effect on the world market is about the same either way - unless we begin to produce a surplus of our own, that is.

[thackney]

Actually, exporting to Canada is one of the easiest export licenses to get. In some parts of the US, that is the closest refinery. I don’t think there is much call for crude oil export to Mexico, but it has happened a few times.

Crude Oil Exports by Destination
http://www.eia.gov/dnav/pet/pet_move_expc_a_EPC0_EEX_mbblpd_m.htm

Notes: Crude oil exports are restricted to: (1) crude oil derived from fields under the State waters of Alaska’s Cook Inlet; (2) Alaskan North Slope crude oil; (3) certain domestically produced crude oil destined for Canada; (4) shipments to U.S. territories; and (5) California crude oil to Pacific Rim countries. Totals may not equal sum of components due to independent rounding.

http://www.eia.gov/dnav/pet/pet_move_exp_dc_nus-z00_mbblpd_a.htm

[thackney]

While I agree that the ban should be repealed, it’s effect is not as great as one might believe.

Mainly it will help encourage more domestic oil production, instead of those jobs going elsewhere.

[US_MilitaryRules]

As the price of oil keeps going down, it keeps climbing here in commifornca! It is around 3.40 a gallon at 47 dollars a barrel. Just wait until it goes back to 100 dollars a barrel. Gas will be 7 bucks a gallon here in communistfornia!.

[PGR88]

Do the same with the Jones Act for shipping.

[thackney]

The refinery strike resulted in only one refinery shutdown, the Tesoro’s plant in Martinez, California. Combined with the ExxonMobil refinery explosion in Torrance about 16% of California gasoline production has been shut down.

Combine that with California’s special recipes requirements that make it difficult to import finished gasoline from other areas and you get your price spike.

[thackney]

Do the same with the Jones Act for shipping.

BTTT

The Jones Act prevents moving oil from Texas to the East Coast refineries from being significantly cheaper than importing oil from West Africa.

[Da Bilge Troll]

"Mainly it will help encourage more domestic oil production, instead of those jobs going elsewhere."

Again, only if we produce more domestically then we consume (and net imports are zero). Otherwise, if our wells are pumping at 100% anyway, we're already getting the full benefit.

Naturally there are other economies we could take advantage of if the ban were repealed, as in a case where it might be cheaper to export from the west coast while we import the same amount to the east coast. These kinds of decisions should be left to the market - not the government.

[thackney]

Otherwise, if our wells are pumping at 100% anyway

I am talking about not putting restriction towards drilling additional wells and reducing our imports.

If oil companies can sell their oil produced in another country for a higher dollar amount in a foriegn nation, than they can in the US, that is were they will invest there money.

And the end result is more imports into the US and less jobs in the US with the export ban.

[US_MilitaryRules]

That’s commiefornica for us!

[Da Bilge Troll]

"I am talking about not putting restriction towards drilling additional wells and reducing our imports."

I am arguing in the weeds here, I realize, since I agree that the ban is (and always was) a dumb idea, but I just don't see the effects occurring that you expect. A commodity price is set by the open market - even if a particular barrel is in a restricted market. That's why the ban is so dumb in the first place.

[thackney]

I just don't see the effects occurring that you expect. A commodity price is set by the open market

Do you understand that oil has many grades, qualities and those are priced differently?

Do you also understand that much of our Gulf Coast had billions of dollars upgrading the refineries to use cheaper, heavier oil?

Do you understand that most of our increased oil production is light sweet and the Gulf Coast has essentially saturated the market available for that oil?

EIA tracking tool shows light-sweet crude oil imports to Gulf Coast virtually eliminated
http://www.eia.gov/todayinenergy/detail.cfm?id=19931

Market prices include transportation limitations. The pipeline bottle neck getting oil out of Cushing is the reason the WTI price separated from the Brent after beening nearly the same for many years, since their are essentially the same oil, but available in different locations.

[catfish1957]

DO IT!!!!

That one act would magically turn OPEC from a cartel into just another energy trade group.

[Da Bilge Troll]

Excellent information! Thanks!

So, in effect, were talking about a narrow market near saturation. From your data, it does appear that the price gap was closing as of the end of 2014. How much more could be expected?

[thackney]

Much of the pipeline bottle neck has been reduced, but storage capacity is becoming an issue in Cushing where the WTI market is priced.