Refiners Mull Lobbying Strategy on Crude-Oil Export Ban

RODEO, CA - JANUARY 25: Steam rises from stacks at the Conoco-Phillips refinery on January 25, 2011 in Rodeo, California. Gas prices continue to rise and have gone up 14% or $.39 a gallon over the past year. Crude oil is currently trading at just under $90 a barrell and some analysts speculate that it could skyrocket up above $150 a barrell in the coming year. (Photo by Justin Sullivan/Getty Images)
National Journal
Jan. 8, 2014, 3:59 p.m.

Go­ing against the vast ma­jor­ity of the oil in­dustry, a small group of re­finer­ies is plot­ting its way for­ward in the in­tensi­fy­ing de­bate over wheth­er to lift the dec­ades-old ban on crude-oil ex­ports.

In a call on Wed­nes­day, at least six in­de­pend­ent re­finery com­pan­ies and one air­line that owns a Phil­adelphia re­finery, Delta Air­lines, dis­cussed how much in­terest there was in or­gan­iz­ing a lob­by­ing ef­fort, ac­cord­ing to two in­dustry sources.

The par­ti­cipants in­cluded big names like Valero, Mara­thon Pet­ro­leum, and Delta, along with smal­ler com­pan­ies such as New Jer­sey-based PBF En­ergy and Phil­adelphia En­ergy Solu­tions (PES).

The com­pan­ies that are re­portedly plan­ning to take the lead are PBF En­ergy and Delta Air­lines, ac­cord­ing to an in­dustry source who was giv­en a readout of the call. Of­fi­cials of both com­pan­ies did not im­me­di­ately re­spond to re­quests for com­ment.

PES CEO Philip Rinaldi de­clined to com­ment about the call, but he in­dic­ated re­fin­ing crude oil be­fore ex­port­ing it ul­ti­mately helps the coun­try more. He ac­know­ledged it helps his com­pany’s bot­tom line, too.

“For the first time in a half cen­tury, there’s an op­por­tun­ity to re­store the coun­try to a man­u­fac­tur­ing-based eco­nomy, one where you add sig­ni­fic­ant value to cheap-based en­ergy and then ex­port that cheap en­ergy in the form of high-val­ued ad­ded product,” Rinaldi said in an in­ter­view Thursday. “As a large oil re­finer on the East Coast of the United States, that’s a policy that be­ne­fits my busi­ness. I re­cog­nize there is a busi­ness self-in­terest, but we think it’s the right thing to hap­pen for the coun­try too.”

A meet­ing is planned for next week in Wash­ing­ton to dis­cuss the po­ten­tial lob­by­ing ef­fort in more de­tail, ac­cord­ing to the in­dustry source. The source also said Valero and Mara­thon in­dic­ated they would not par­ti­cip­ate in the ef­fort.

Bill Day, a spokes­man for Valero, con­firmed the call oc­curred but did not provide de­tails. Day did say last week that his com­pany does not sup­port lift­ing the ban and in­stead sup­ports the cur­rent policy, which is that com­pan­ies must ap­ply for li­censes through the Com­merce De­part­ment to ex­port crude oil. Few of those li­censes are ap­proved, and most are to ship oil to Canada.

Na­tion­al Journ­al re­por­ted earli­er this week that a rift was brew­ing with­in the in­dustry between do­mest­ic re­finer­ies, such as the ones on Wed­nes­day’s call, and oil pro­du­cers, in­clud­ing U.S. com­pan­ies like Con­tin­ent­al Re­sources and in­ter­na­tion­al cor­por­a­tions like Ex­xon Mo­bil, which both pro­duce and re­fine oil. Be­cause the ex­port ban ap­plies only to crude oil, re­finers are profit­ing by ex­port­ing re­fined oil products like gas­ol­ine, dies­el, and jet fuel at re­cord rates amid the coun­try’s boom in oil pro­duc­tion, which is up 56 per­cent since 2008.

Calls to lift or at least re­vis­it the ban, which dates back to the af­ter­math of the 1973 oil em­bargo by Middle East pro­du­cers, have been grow­ing in the last couple of months. Sen­ate En­ergy and Nat­ur­al Re­sources Com­mit­tee rank­ing mem­ber Lisa Murkowski, R-Alaska, threw her sup­port be­hind the policy change earli­er this week. When asked about the emer­ging rift, she re­spon­ded bluntly.

“They’re go­ing to have to deal with that with­in the in­dustry,” Murkowski said. “From a policy per­spect­ive, it’s good policy, again, to al­low for that level of trade. My in­terest is not to pro­tect the re­finer­ies’ bot­tom line.”

Re­finers that op­pose lift­ing the crude-ex­port ban won’t get much sup­port from their trade as­so­ci­ations. Amer­ic­an Pet­ro­leum In­sti­tute CEO Jack Ger­ard said Tues­day that all of his more than 500 mem­ber com­pan­ies sup­port lift­ing the ban. Charlie Dre­vna, pres­id­ent of the Amer­ic­an Fuel and Pet­ro­chem­ic­al Man­u­fac­tur­ers, a smal­ler trade group rep­res­ent­ing primar­ily re­finer­ies, said last week his group’s of­fi­cial po­s­i­tion is to sup­port lift­ing the ban. Both lead­ers said their reas­ons were based on the no­tion that they sup­port a free mar­ket.

However, Dre­vna and Rinaldi of PES, soun­ded sim­il­ar tunes in cer­tain ways. They both called for a broad­er look at the de­bate rather than nar­row­ing lift­ing or chan­ging the crude-oil ex­port ban. They both said an­oth­er law gov­ern­ing the ship­ment of goods in U.S. wa­ters should be re­vis­ited as well. The Jones Act, dat­ing back more than 90 years, re­quires all goods — in­clud­ing en­ergy products — that are shipped in U.S. wa­ters from one part of the coun­try to an­oth­er to be trans­por­ted on a ves­sel built in the U.S.

“You have Jones Act re­stric­tions,” Rinaldi said. “How do you lift the ban and make this en­ergy cheap to every­body else in the world and then say ex­cept for oil re­finer­ies on the East Coast where we’re go­ing to pen­al­ize you an­oth­er five bucks a bar­rel by for­cing you on a Jones Act ves­sel?”

The re­finers’ po­ten­tial lob­by­ing ef­fort is still very much in its in­fancy stage, and how much if any trac­tion it gains is un­clear. For pre­ced­ent, the in­dustry doesn’t have to look far. Last year, a group of nat­ur­al-gas users, led by Dow Chem­ic­al, launched a co­ali­tion that op­poses a large in­crease in the amount of nat­ur­al-gas ex­ports, an­oth­er trend stem­ming from the coun­try’s skyrock­et­ing oil and nat­ur­al-gas pro­duc­tion of the last sev­er­al years. Ex­ports of nat­ur­al gas don’t face a ban like crude oil, but they do face sig­ni­fic­ant re­stric­tions on ship­ments to coun­tries that are not free-trade part­ners with the U.S. Those with free-trade agree­ments, in­clud­ing Europe, Ja­pan, and In­dia, all want U.S. nat­ur­al gas. Dow and oth­er users of nat­ur­al gas are con­cerned ex­port­ing that fuel could in­crease do­mest­ic prices, which are not set on a glob­al mar­ket like oil.

Aside from this nas­cent lob­by­ing force, the grow­ing chor­us of voices call­ing to lift the crude-oil ex­port ban faces tough odds at chan­ging the status quo. The grid­locked Con­gress rarely changes long-stand­ing law, and end­ing the ban could be seen as threat­en­ing to in­crease gas­ol­ine prices, a po­tent polit­ic­al at­tack dur­ing an elec­tion year. Murkowski hopes the Obama ad­min­is­tra­tion will be leg­ally able—and polit­ic­ally will­ing—to lift the ban it­self. But it’s un­clear wheth­er the ad­min­is­tra­tion could or would do that. 

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