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Push to lift ban on crude oil exports gains steam

Tracey Samuelson Sep 29, 2015

Push to lift ban on crude oil exports gains steam

Tracey Samuelson Sep 29, 2015

The U.S. House of Representatives may be close to a vote on a bill that would eliminate a ban on exporting crude oil that has been in place for 40 years now. Those export restrictions were a reaction to the 1973 oil embargo by OPEC – the Organization of Petroleum Exporting Countries.

But the U.S. oil market looks very different now, thanks to a dramatic increase in domestic oil production in recent years. The U.S. imported just 27 percent of the petroleum consumed last year – the lowest level since 1985.

Even now, there are exceptions to the ban, such as exporting to Canada or “trades” with Mexico, where American light sweet crude is exchanged for Mexican heavy sour crude. Such swaps were approved by the Commerce Department last month and are supposed to help both refineries in both countries run better. 

But the push to lift the ban entirely has recently gained momentum.

“It’s going to create more jobs here at home,” said Louis Finkel, with the American Petroleum Institute, as he summed up the pitch for lifting the ban. “It’s going to have a positive impact on our trade deficit and, most importantly, it’s going to have a positive impact on consumers.”

He believes repealing the ban on crude exports will “create downward pressure on gasoline prices and benefit all American consumers.”

However, those who want to maintain the export restrictions worry it’ll have the opposite effect.

“We are concerned that repealing the 40-year-old statutory prohibition on exporting U.S. crude oil could harm consumers, businesses and our national security,” wrote Sen. Ed Markey in a June letter to President Obama, signed by 12 other Democrats.

The White House has said the decision of whether to lift the export restrictions should remain with the Commerce DepartmentMany independent refineries, environmentalists, and unions are also in favor of maintaining the status quo.

So what might lifting the ban actually do?

Lynn Westfall is the director for the Office of Energy Markets and Financial Analysis at Energy Information Administration. His non-partisan agency recently put out a report on this.

He said at most, by 2025, “we see effects on crude prices and therefore gasoline prices in the neighborhood of [a decrease of] about a penny a gallon. So it’s not a big effect on prices consumer pay, but it’s a fairly significant effect on the income of U.S. domestic crude producers.”

He thinks it could eventually add up to $30 billion a year of additional income for U.S. crude producers —revenue, he said, that would largely come at the expense of domestic refineries.

Westfall said this is the result of a couple years of research and seven previous reports.

But Ed Hirs, an energy economist at the University of Houston, looked at all the research out there and is not impressed that lifting the ban will have much impact at all.

“Until the United States gets to the point where crude oil is less extensive to produce than it is overseas, we can’t compete dollar for dollar, barrel for barrel against the larger producers in OPEC,” he said, noting that relative to some Middle Eastern oil producing countries, it’s harder and more expensive to pull oil out of the ground in the U.S.

“U.S. producers with shale plays costing $25, $35, $45, $55, $65 a barrel to produce cannot compete with OPEC producers where the cost of lifting and producing crude oil is less than $10 a barrel.”

But he said the ban is such a non-issue, he doesn’t see much argument for keeping it in place either. 

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