Crude-Oil Producers Welcome End of Crude-Oil Export Ban

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--U.S. crude-oil producers got a bit of welcome news last week when the U.S. overturned its longstanding ban on crude-oil exports. Ending the ban on exports was part of a $1.1 trillion, 2,000-page omnibus government spending bill that passed the House of Representatives early Friday morning by a 316-113 vote. The Senate soon followed with a 65-33 vote, and President Barack Obama signed the bill that day.

Like nearly all bills Congress passes, this one involved extensive horse-trading between Democrats and Republicans to make it palatable to both sides. Controversial "poison pill" riders and amendments were kept off the bill, which caused many Democrats to support it but several dozen Republicans to oppose it. Democrats initially were unhappy about including lifting the ban on crude-oil exports, worried about the effect it could have on retail gasoline prices. Republicans had championed ending the export ban. Democrats were convinced to support the spending bill when it included an extension of tax credits to support renewable energy.

Lifting the crude-oil export ban was a top priority for crude-oil producers and the U.S. Chamber of Commerce. "By voting to lift the ban on oil exports, Congress has made it possible to unleash American energy around the world," said Karen Harbert, president and chief executive of the Chamber of Commerce's Energy Institute (Washington, D.C.). "Lifting the ban will allow the world to choose a steady, reliable source of energy, and create jobs and boost communities around the nation. We applaud the work of Congressional leaders to understand the importance of this provision and find a way to achieve it."

"The fact that Iran and Russia can sell oil around the world, but America could not made no sense and was fundamentally unfair," Harbert said in a statement Friday. "Lifting the ban on oil exports is a much-needed step away from our nation's 1970s energy policy. We're hopeful that success on this issue will pave the way for common sense regulatory reforms." Her group has frequently been a critic of the Obama administration's energy policies.

Barry Russell, chief executive at the Independent Petroleum Association of America (IPAA) (Washington, D.C.), also welcomed the measure. "Thanks to investment and technological innovation, America's crude oil market has moved from one of scarcity to abundance," Russell said. "The current outdated policy of limiting the export of American crude oil must be updated to reflect the realities of today's modern world. With the loss of 250,000 oil and natural gas jobs this year and with Iran looking to soon re-enter the international oil market, it's crucial that immediate action be taken to lift the oil exports ban and level the playing field for the economic vitality and sustainability of an American-made industry." The IPAA said its members drill 95% of the nation's oil and natural gas wells and produce the majority of America's crude oil.

The American Petroleum Institute (API) (Washington, D.C.) also welcomed the move. In a statement, API President and CEO Jack Gerard said: "Today, the American people can cheer the House and now the Senate for putting the nation's energy needs ahead of politics. This is a historic moment in our energy renaissance. Lifting this ban will help put downward pressure on gas prices, create jobs, grow our economy and lower our trade deficit. With the administration's push to allow Iran to export its oil to the global market, it's time for U.S. producers to have the same opportunity. Our allies around the world are eager to reduce their reliance on energy from less friendly nations."

Although the move was broadly supported by oil & gas producers, the trade group representing Refiners and Chemical Processors was more guarded. In a statement, Chet Thompson, president of the American Fuel & Petrochemical Manufacturers (AFPM) (Washington, D.C.), said: "AFPM does not oppose lifting the ban, but has publicly stated that we do oppose tying a repeal to subsidies, mandates, taxes or other federal energy or environmental programs that intrude on the free market. We have also said we hope Congress works to remove other free-market barriers, such as the Renewable Fuel Standard and the Jones Act."

There is some possibility that lifting the ban could trigger some capital spending in the pipelines and terminals industries. "Rather than all flowing inward to the U.S., some [crude-oil pipelines] may have to be reversed to carry crude oil to export centers along the Gulf Coast," said Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals industries. "And some export terminals may need to add more arms and other equipment to handle the added volumes. But I would not expect any incremental capital investment to be significant. It's not like terminal operators will be switching from import-only to export-only mode, like they have had to do for liquefied natural gas (LNG)."

"The U.S. energy situation has changed dramatically from the 1970s, when the crude-oil ban was first instituted, and lifting it is a common-sense move," Davis continued. "Forty years ago, the prevailing assumption was that U.S. energy supplies were on an irreversible downward path, and that increased imports were a given. The only questions were, how much oil and gas would we have to import, what would it cost and where would it come from? But the shale revolution transformed all of those assumptions."

U.S. crude-oil production has nearly doubled in the last decade, but producers were prohibited from exporting nearly any of that production. Small exports of crude oil, mainly to Canada, have been permitted. But as the production of light sweet crude oil has soared, domestic refiners have had a limited ability to process much of that new crude oil. Refiners have reconfigured their plants to process a slate of heavier crude, such as has been imported from Mexico and South America. So much of the excess production has gone into storage at Cushing, Oklahoma, and elsewhere. For more on the crude-oil ban, see August 4, 2014, article --Would Scrapping Crude-Oil Export Ban Lower Gasoline Prices?, September 29, 2014, article --Opponents of U.S. Crude Oil Export Ban Make Their Cases, December 1, 2014, article --Gulf Coast Condensate Splitters: A Billion-Dollar Bet on U.S. Energy Policy and May 19, 2015, article -- Consultant: U.S. Oil & Gas Producers 'Collateral Damage' in Saudi Geopolitical Gambit.

Lifting the ban, while welcomed by crude-oil producers, is not likely to significantly improve their business outlook in the near term. The world remains over-supplied with crude oil, and sluggish demand growth has pushed down prices over the last 18 months. In addition, as Iran prepares to resume its crude oil exports following the lifting of sanctions against it, additional crude will hit the market, potentially pushing prices down further unless new demand surges. The price of West Texas Intermediate (WTI) fell to under $35 per barrel last week, down two-thirds from its mid-2014 high.

In an analysis released before last week's lifting of the export ban, API predicted ending the export ban could lift exports by as much as 1.2 million barrels per day (BBL/d) by 2017. Noting the roughly 580,000 BBL/d that was already permitted for export, API projected overall exports could reach 1.8 million BBL/d in 2017. "Exporting light sweet crudes and importing heavier crudes better aligns existing refinery configurations with crude type," API said it its report, "U.S. Crude Oil Exports: Benefits for America's Economy and Consumers."

"Additionally, it often makes sense to export a surplus of expensive, light oil from one region and import cheaper, heavy oil in another--rather than ship more expensive oil cross-country. This is especially true in the absence of sufficient infrastructure to efficiently transport crude to the refineries that could use it."

The API study continued, "A report from federal auditors at the Government Accountability Office (GAO) affirmed that removing export barriers could spur additional U.S. production, growing the American economy while reducing global crude oil prices, which the U.S. Energy Information Administration (EIA) confirmed are 'more important' than domestic crude prices in determining prices at U.S. filling stations." The study predicted ending the export ban would create up to 300,000 new jobs by 2020, reduce fuel costs by $5.8 billion annually and spur between $15 billion and $70 billion of new investment in Oil & Gas activities between 2015 and 2020, leading to an increase in domestic crude-oil production by up to 500,000 BBL/d by 2020.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.