Gas Prices Loom Large Over Crude-Oil Export Debate

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Gas prices are displayed at a station in Alhambra, California on November 6, 2013.
National Journal
Amy Harder
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Amy Harder
Jan. 30, 2014, 9:49 a.m.

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.

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