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Calls escalate to kill U.S. crude oil export ban

By   /   March 10, 2015  /   News  /   No Comments

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NO EXPORTS FOR YOU: Since 1975, the U.S. has banned crude oil exports to other countries.

By Rob Nikolewski │ Watchdog.org

With U.S. oil producers running out of storage space, some industry experts and academics are calling for an end to the country’s export ban.

“The policy rationale for the ban no longer exists, and there are compelling economic and national security reasons for lifting the ban at some point,” said Ted Kassinger, a partner in the international law firm of O’Melveny and Myers and former official at the State Department. “It think it will happen. When it will happen is a bigger question.”

The Obama administration and Congress don’t seem poised to change anything. And with them are ban defenders — ranging from environmentalists to domestic oil refiners that produce petroleum products for the domestic market — who are digging in.

“We all know how difficult things can get in Washington,” Kassinger told participants Feb. 26 during the Platts North American Crude Oil Summit in Houston.

The crude oil export ban was implemented in 1975, when the nation, reeling from the Arab oil embargo, passed the Energy Policy and Conservation Act in an attempt to control prices and ensure crude oil produced in the U.S. stayed in the U.S.

But the oil landscape has changed. Horizontal drilling and hydraulic fracturing ushered in the “shale revolution,” boosting domestic production to record levels. Consequently, the U.S. is importing less foreign oil.

Chart by Ed Morse, Citi Research. Sources: EIA, DrillingInfo,Citi Research

GOING DOWN: Net oil imports to the United States have declined steadily.

Even a drop in global oil prices hasn’t turned back the production surge.

In fact, the Energy Information Administration reported last week U.S. crude oil supplies are equal to nearly 70 percent of the nation’s storage capacity, the highest level in more than 80 years.

Critics blame the export ban — at least in part — for the storage problems.

And it’s not just oil companies that say it’s time to eliminate the ban.

The Center on Global Energy Policy at Columbia University issued a study last month that says ending the ban would allow domestic oil producers to compete in global markets, and that would help consumers by putting downward pressure on prices.

The Columbia study echoed the findings of a paper produced by the Brookings Institution, a left-of-center think tank, that called the export ban “an anachronism that has long outlived its utility and now threatens to impair, rather than protect, U.S. energy, economic, and national security.”

The Brookings study predicted that by lifting the ban, the U.S. gross domestic product could grow by as much as $1.8 trillion in the next 25 years.

Another factor in the debate centers on the oil itself.

Most of the crude getting tapped with new shale techniques in the U.S. is  “light, sweet” — oil that is relatively light in density and low in sulfur content. But most U.S. refineries are outfitted to process “heavy” crude, and the industry has spent $85 billion in the past 25 years refitting plants to process heavier crude.

“We don’t need all this light crude oil that is being produced,” Kassinger told Watchdog.org. “It can’t actually be efficiently absorbed. So it makes the most sense, from a U.S. policy perspective, to sell what we don’t need and buy what we want to buy.”

But many refinery companies in the U.S. want to keep the ban in place, saying it’s done a good job protecting consumers from price spikes and international market manipulation.

“It helps insulate the United States from volatility and unpredictable global crude markets,” Jay Hauck, executive director for Consumers and Refiners United for Domestic Energytold NPR. “For us to simply unilaterally disarm seems unwise.”

Environmentalists want to keep the ban because they don’t like the prospect of more oil being consumed globally.

“I think the last thing we need to be talking about is exporting fossil fuels,”Jeremy Nichols, climate and energy program director for WildEarth Guardians told Watchdog.org last fall. “We’re struggling to try to rein in carbon pollution as a nation … Fair enough, we have security issues. Those don’t trump climate change.”

On Capitol Hill, ban supporters include U.S. Sens. Edward Markey, D-Mass., and Robert Menendez, D-N.J.

The export ban can be lifted through congressional action or by the president, but for now it looks as though the White House is taking baby steps.

The U.S. Commerce Department recently allowed two companies to export some lightly processed crude, known as condensate, and Commerce Secretary Penny Pritzker held discussions in January to look into allowing exports of light crude to Mexico.

Those moves, as well as changes in gasoline prices, have eased some pressure on the Obama administration to make a comprehensive decision on the ban, John Podesta, said before he stepped down as White House adviser to work for Hillary Clinton.

The Obama administration is “not going to jump there by themselves,” Kassinger said. “They want some congressional cover, either legislation or some joint consensus on what to do.”

That consensus may keep building.

“It is folly geopolitically and economically not to take advantage of the opportunity,” former Obama cabinet member Lawrence Summers said.

Kassinger said violence from terrorist groups such as the Islamic State of Iraq and the Levant, known as ISIS, offers another reason to lift the ban.

Last summer, ISIS seized oil fields in northern Iraq and, on Monday, a Libyan spokesman said ISIS beheaded eight oil field workers after an attack on the al-Ghani oil field near the Libyan town of Zalla.

“It’s not only our own continued desire and need to purchase crude oil from places like Saudi Arabia, but it’s as much our commitment to friends and allies throughout the Middle East …,” Kassinger said.

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Rob formerly served as staff reporter for Watchdog.org.