For all the debate over whether Washington should lift the nation’s decades-old ban on exporting crude oil, the thing that matters most may be the price at the pump.
“Could someone help explain why West Virginia is still paying such high prices?” Sen. Joe Manchin asked during a hearing Thursday in the Senate Energy and Natural Resources Committee to examine the ban, which has been in place since the 1970s oil embargo.
Manchin, a West Virginia Democrat, was squaring off with Harold Hamm, founder and CEO of Continental Resources, an independent oil company with the biggest footprint in North Dakota’s vast Bakken oil field.
Hamm, like other domestic oil producers, wants Washington to lift the ban, which would enable him to export his product abroad, where he could fetch higher prices. Since 2008, U.S. oil production has increased 56 percent, and crude-oil imports have correspondingly fallen to the lowest level since the mid-1990s. In response to this oil boom, refineries have been exporting record amounts of gasoline, diesel, and other products refined from oil, which do not face the same federal trade restrictions as crude oil.
The International Energy Agency reported earlier this month that the U.S. ban on exporting crude could stall further growth in oil production. The ban restricts most oil from being exported, except in cases where the Commerce Department grants licenses for small amounts.
“We’ve seen a decrease of about 20 percent in both diesel and gasoline over the past 18 months,” Hamm, who has become one of the richest people in the world, told Manchin.
“They haven’t seen a 20 percent decrease at the price at the pump in West Virginia,” Manchin retorted. He said drivers in his state are paying roughly $3.80 a gallon, although the average there is $3.36, according to AAA. Hamm’s company is based in Oklahoma, where gasoline prices are about $3.10 a gallon.
Gas prices were at the top of the minds of many of the panel members from both parties in the hearing, which was the first time Congress examined the crude-oil export ban in 25 years, according to Senate Energy and Natural Resources Chairman Ron Wyden.
“The litmus test is how middle-class families will be affected,” Wyden said. Later, the first question from Sen. Rob Portman, an Ohio Republican, was another echo. “What I would like to find out today is whether the price at the pump is determined by the global market,” he said. Gasoline prices in his state average about $3.20 a gallon.
About 66 percent of the cost of gasoline is set by global oil prices, according to the Energy Information Administration. The remaining third is influenced in part by factors that vary regionally. Another witness at the hearing, energy expert Amy Myers Jaffe, referred to this gasoline-price disparity as the “tyranny of geography,” meaning where you live dictates what you pay.
“We need to consider how to avoid creating market distortions,” said Jaffe, who works at the University of California (Davis). “Whether they temporarily benefit some consumers in a particular region or industry, we want to make sure that we are doing things that are more helpful.”
Indeed, regional market distortions, which can be created by transportation bottlenecks or lack of storage facilities, can create temporary and artificially low gasoline prices. This may be politically convenient for the short term, but longer-term, experts say eliminating the market distortions would be best for consumers.
More than preserving the ban on crude oil, Jaffe argues that ensuring a stable world oil market and keeping inventories in case of disruptions would help keep prices at the pump in check.
Senate Energy and Natural Resources ranking member Lisa Murkowski, perhaps the most outspoken politician calling to lift the ban, argues that such a policy change would ultimately benefit drivers, despite temporary and regional differences. But Murkowski and others sharing her position face a big challenge responding to arguments — politically potent ones — that lifting the ban would lift energy prices of all kinds for Americans.
Graeme Burnett, senior vice president for fuel optimization at Delta Airlines, which owns a refinery in the Northeast, testified at the hearing that only oil companies would benefit if Washington lifted the ban. “It’s equally apparent who would lose: the American consumer, who would pay more for gasoline, more for heating oil, and more for the price of an airline ticket,” Burnett said.
Members of Congress who oppose lifting the ban revealed another tactic on Thursday that coincided with the hearing. Sens. Edward Markey and Robert Menendez sent a letter to President Obama laying out three legal arguments why the administration does not have the legal authority to lift the ban, something Murkowski has argued it does.
At least so far, the Commerce Department has shown no signs of planning to lift the ban. “There has been no change in policy on crude oil exports,” said Jim Hock, the department’s director of public affairs, in an e-mailed statement. “Existing statutes provide both specific restrictions and allowances regarding crude oil exports, which are administered and enforced by the Department of Commerce’s Bureau of Industry and Security.”
The department would not comment on the legality of ending the ban. “U.S. policy on crude oil exports are [sic] restricted by several laws,” Hock added, without elaborating.
This legal tangle is a critically important part of the debate. But Washington may not get around to resolving it if politicians don’t first settle their concerns about rising gasoline prices.