Gas Prices Loom Large Over Crude-Oil Export Debate

Gas prices are displayed at a station in Alhambra, California on November 6, 2013.
National Journal
Amy Harder
Add to Briefcase
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.

What We're Following See More »
SCOTUS to Rule on Bathroom Rules for Trans Students
8 minutes ago

The Supreme Court has announced that it will hear a case to determine whether the Obama administration has the right to mandate that all public schools allow students to use the bathroom which aligns with their gender identity. Schools districts have struggled with this topic "in the face of conflicting guidance from the courts, the federal government and, in some cases, state legislatures that have passed laws requiring people to use public restrooms that coincide with the sex on their birth certificates."

New Emails Discovered in Anthony Weiner Investigation
16 minutes ago

The new emails related to Hillary Clinton, which FBI Director James Comey referenced in a Friday letter to Congress, came to light in the midst of an investigation of Anthony Weiner, former New York Congressman and estranged husband of Clinton aide Huma Abedin. Weiner is being investigated for allegedly sexting with an underage woman.

FBI To Investigate New Clinton Emails
1 hours ago
Trump Kicks in $10 Million of His Own Money
1 hours ago

Donald Trump "wired $10 million of his own money into his presidential campaign Friday morning," which "will be used to buy $25 million in new TV advertising in key battleground states." He's now put in a total of $66 million to his campaign.

TO AIR OCT. 31 & NOV. 1
Stein, Johnson to Participate in PBS Candidate Forum
2 hours ago

It was announced on Friday that Gary Johnson and Jill Stein will participate in a candidate's forum, to be filmed live on Oct. 31 and air in two parts. The forum will air on PBS's Tavis Smiley. Additionally, there will be a 30 minute discussion available exclusively online with questions selected from social media.


Welcome to National Journal!

You are currently accessing National Journal from IP access. Please login to access this feature. If you have any questions, please contact your Dedicated Advisor.