Lobbying Rift Brewing Over Oil-Export Ban

View of the Syncrude oil sands extraction facility near the town of Fort McMurray in Alberta Province, Canada on October 25, 2009. Greenpeace is calling for an end to oil sands mining in the region due to their greenhouse gas emissions and have recently staged sit-ins which briefly halted production at several mines. At an estimated 175 billion barrels, Alberta's oil sands are the second largest oil reserve in the world behind Saudi Arabia, but they were neglected for years, except by local companies, because of high extraction costs. Since 2000, skyrocketing crude oil prices and improved extraction methods have made exploitation more economical, and have lured several multinational oil companies to mine the sands.  
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Amy Harder
Jan. 6, 2014, 4:58 p.m.

Wash­ing­ton’s mount­ing de­bate about wheth­er to lift the dec­ades-old ban on crude-oil ex­ports is threat­en­ing to cre­ate a rift between pet­ro­leum pro­du­cers and re­finers.

If Con­gress elim­in­ates or sig­ni­fic­antly al­ters the ban, which has been in place since the mid-1970s, the fin­an­cial wind­falls that re­finer­ies are reap­ing right now from sur­ging ex­ports of gas­ol­ine, dies­el, and oth­er re­fined oil products would be put in jeop­ardy, and oil-pro­du­cing com­pan­ies would be poised to gain from ex­port­ing their crude product in­stead.

“The com­ing battle is go­ing to be between re­finers and the up­stream pro­du­cers,” a re­finery lob­by­ist said. “With­in the in­de­pend­ent re­fin­ing sec­tor there is be­gin­ning of a very ro­bust de­bate among folks who are nor­mally free-traders but who want to main­tain the status quo, at least for the time be­ing.”

The lob­by­ist, who would speak only on the con­di­tion of an­onym­ity, ad­ded: “We wouldn’t be do­ing as well fin­an­cially if it wer­en’t for that [the ban].”

That’s not lost on com­pan­ies that pro­duce but don’t re­fine oil, such as Con­tin­ent­al Re­sources, which has the biggest foot­print in North Dakota’s vast Bakken oil field. Along with Texas, North Dakota is largely re­spons­ible for Amer­ica’s oil boom of the last sev­er­al years.

“Ma­jor oil com­pan­ies are ex­port­ing re­fined products with no lim­it­a­tions, I might say, at re­cord rates,” said Har­old Hamm, founder and CEO of Con­tin­ent­al Re­sources, at a small din­ner in Wash­ing­ton last fall with re­port­ers and oth­er do­mest­ic-en­ergy ex­ec­ut­ives. “Why shouldn’t in­de­pend­ent pro­du­cers be al­lowed to do the same? I don’t think any of the do­mest­ic pro­du­cers will be their milk cows.” That com­ment promp­ted muffled laughter from the din­ner at­tendees, to which Hamm ad­ded with an equally muted chuckle: “Well, that’s how we feel about it.” The din­ner was or­gan­ized by the Do­mest­ic En­ergy Pro­du­cers Al­li­ance, which rep­res­ents com­pan­ies that primar­ily pro­duce (but do not re­fine) oil and nat­ur­al gas in­side the U.S. only. Hamm chairs the group.

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 gas­ol­ine, dies­el, and oth­er products re­fined from oil, which do not face the same fed­er­al trade re­stric­tions as crude oil.

In Oc­to­ber, com­pan­ies ex­por­ted about 3 mil­lion bar­rels of pet­ro­leum products per day, al­most a 150 per­cent in­crease since 2008, ac­cord­ing to the most re­cent data avail­able from the En­ergy In­form­a­tion Ad­min­is­tra­tion. Re­fined pet­ro­leum products brought in a re­cord-high $11.4 bil­lion in Oc­to­ber, ac­cord­ing to Com­merce De­part­ment data. In 2012, re­fined pet­ro­leum products were the single-largest ex­por­ted product out of the United States, and 2013 is ex­pec­ted to show sim­il­ar res­ults.

(Joey Carolino) National Journal

(Joey Car­olino)”It’s an ar­cha­ic rule that should be done away with,” Hamm said. “Ten years from now, I hope we’re wrangling with Con­gress over it. We need ex­ports.”

Since Hamm made those com­ments, the de­bate has taken off in Wash­ing­ton faster than even many in the oil in­dustry had ex­pec­ted. Last month, a seni­or of­fi­cial at Ex­xon Mo­bil, which like oth­er ma­jor in­ter­na­tion­al oil com­pan­ies both pro­duces and re­fines oil, told The Wall Street Journ­al the ban should be re­vis­ited. Speak­ing at a Platts event last month after the Ex­xon Mo­bil of­fi­cial’s com­ments, En­ergy Sec­ret­ary Ern­est Mon­iz signaled an open­ness to re­con­sider the ban.

The crude-oil ban dates back to the 1973 OPEC oil em­bargo, which sent do­mest­ic oil prices soar­ing and ac­cen­tu­ated Amer­ica’s oil scarcity. In the wake of that en­ergy crisis, Con­gress re­stric­ted ex­ports of crude in most cases as a means to lim­it fu­ture oil-price shocks (though the suc­cess was lim­ited). In the few cases ex­ports are al­lowed — mostly to Canada — com­pan­ies must ob­tain a spe­cif­ic li­cense from the Com­merce De­part­ment.

Two ma­jor speeches on Tues­day — one by Sen­ate En­ergy and Nat­ur­al Re­sources Com­mit­tee rank­ing mem­ber Lisa Murkowski, R-Alaska, spe­cific­ally on en­ergy ex­ports, and an­oth­er by Amer­ic­an Pet­ro­leum In­sti­tute CEO Jack Ger­ard — are both ex­pec­ted to touch on the crude-oil ex­port ban.

The fac­tions of the oil in­dustry call­ing to lift the ban are get­ting louder. In ad­di­tion to the vo­cal po­s­i­tions by Ex­xon Mo­bil and Con­tin­ent­al Re­sources, API, the largest trade group rep­res­ent­ing all parts of the oil in­dustry, held a con­fer­ence call last month to ex­press its sup­port for lift­ing the ban and to re­it­er­ate that the de­bate should be “all about free trade.”

When asked if API was get­ting push­back from re­finer­ies, Erik Milito, API’s dir­ect­or of up­stream and in­dustry op­er­a­tions, re­spon­ded simply: “We’re not. We are an or­gan­iz­a­tion that is at its core a free-trade or­gan­iz­a­tion.”

That’s not to say there isn’t or won’t be any push­back across the oil in­dustry. The de­bate is young. Many re­finer­ies are still de­term­in­ing their po­s­i­tions, and com­pany spokespeople con­tac­ted for this story ex­pressed at least cau­tious non-op­pos­i­tion to lift­ing the ban and at most out­right op­pos­i­tion to it.

“Valero does not sup­port lift­ing the ban on crude oil ex­ports. We sup­port the cur­rent sys­tem, where a po­ten­tial ex­port­er can ap­ply for a li­cense to send lim­ited amounts of crude out­side of the U.S.,” Valero spokes­man Bill Day said in an email last week. Not­ing that Valero has a li­cense to ex­port crude oil out of Texas to Canada, Day ad­ded: “In gen­er­al as a re­finer we be­lieve that the U.S. has ad­vant­ages keep­ing the bulk of the crude oil (and nat­ur­al gas) here so it can be turned in­to value-ad­ded products for use do­mest­ic­ally and over­seas.”

A spokes­man for Mara­thon Pet­ro­leum Cor­por­a­tion, an­oth­er ma­jor re­finer, soun­ded a sim­il­ar tone with re­spect to the trade be­ne­fits of ex­port­ing re­fined oil products, al­though the com­pany doesn’t op­pose lift­ing the ban.

“We be­lieve the eco­nom­ics of the glob­al pet­ro­leum mar­ket make it more ad­vant­age­ous for many coun­tries to im­port re­fined products from the U.S., rather than crude oil, be­cause the U.S. re­fin­ing in­dustry’s ca­pa­city and cap­ab­il­it­ies are second to none,” spokes­man Jamal Kheiry said in an email. “However, as to MPC’s po­s­i­tion, we don’t op­pose lift­ing the crude-oil ex­port ban, as we fully sup­port free mar­kets.”

The Amer­ic­an Fuel and Pet­ro­chem­ic­al Man­u­fac­tur­ers, a group that rep­res­ents re­finers in­clud­ing Valero and Mara­thon, does not op­pose lift­ing the ban on crude-oil ex­ports.

“We’re free-mar­keters,” said Charlie Dre­vna, pres­id­ent of AFPM. “We’ve his­tor­ic­ally been that. Right now, we’ve re­af­firmed that. I’m sure we’ll be ad­dress­ing it again go­ing for­ward.”

When asked about his mem­ber com­pan­ies not sup­port­ing lift­ing the ban, Dre­vna said: “There are some re­finer­ies who may not like it. There are some re­finer­ies who are neut­ral. There are some re­finer­ies who are sup­port­ive of it.”

If Con­gress does lift the ban, Dre­vna said an­oth­er law gov­ern­ing the ship­ment of goods in U.S. wa­ters should be re­pealed too. 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 be trans­por­ted on a ves­sel built in the U.S. “The Jones Act is really out­dated that hampers eco­nom­ic growth,” Dre­vna said.

How wide this rift with­in the oil in­dustry grows will de­pend on how much mo­mentum the de­bate gains. Last year, the Obama ad­min­is­tra­tion ap­proved a hand­ful of ap­plic­a­tions to ex­port nat­ur­al gas to coun­tries that are not free-trade part­ners with the U.S., but chan­ging the status quo with the crude-oil ex­port ban is a much big­ger task, in part be­cause the per­cep­tion of high­er gas­ol­ine prices makes politi­cians nervous, es­pe­cially in an elec­tion year.

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