Senate Banking Committee’s crude export debate breaks along party lines

Congressional committee debate over the 40-year ban on exporting US-produced crude oil continued to break largely along party lines as the US Senate Banking, Housing, and Urban Affairs held its first hearing in years on the subject. Republicans on the committee called for the ban’s removal. Democrats generally opposed that idea, their positions ranging from quiet concern to loud skepticism.

“Consumers, US jobs, and economic growth could all benefit” from a rise in US-produced oil, said Chairman Richard D. Shelby (R-Ark.) at the July 28 hearing. “The export ban in place today is economically inefficient by artificially discouraging production.”

Lifting the ban also could benefit the US’s geopolitical position globally and reduce worldwide reliance on members of the Organization of Petroleum Exporting Countries as well as Russia, “not to mention Iran, which could be soon ramping up oil production under the terms of the administration’s nuclear deal,” Shelby said.

Ranking Minority Member Sherrod Brown (D-Ohio) said, “I want to hear from our witnesses about the effect ending the export ban would have on prices, domestic drilling, greenhouse gas emissions, and whether it would increase pressure to drill on federal lands or other environmentally sensitive areas of the country.”

Brown also called for consideration of alternatives to what he felt were all-or-nothing positions the export ban removal’s supporters and opponents have taken. “For example, should the administration use its existing legal authorities to expand licensing?” he suggested. “Doing so might give us more control over the process in the medium-to-long term, when some of the major shale plays currently in production tap out.”

The hearing’s first two witnesses—Senate Energy and Natural Resources Committee Chair Lisa Murkowski (R-Alas.) and member John Hoeven (R-ND)—called for the crude export ban’s removal. “I brought this issue to this committee’s attention a year ago,” Murkowski said. “Instead of calling for an end to the ban, I called for 2014 to be the ‘Year of the Report.’ Boy, did they do reports—over 20 of them that looked, primarily, at what the impact would be on the price at the pump. Every one of those reports said it wouldn’t be significant.”

Artificial discount

Hoeven said, “It might seem counterintuitive for more crude oil exports to be good for consumers at the pump, but the reality is that gasoline prices are set by Brent crude prices, which are driven by global supply and demand. We can’t compete in that market because of the export ban, which creates a $5 discount for what our domestic producers receive.”

Murkowski said, “This is our opportunity to become an energy superpower—to signal the world that we’re ready to empower our allies with energy and environmental technologies instead of arriving with boots on the ground. Whether it’s 6 months or 18 months, Iranian oil is returning to the global market while we’re going to keep telling US producers they can’t sell their crude to customers overseas. Continuing the ban means we won’t be able to sell crude oil to some of our closest allies, such as South Korea, which now has to buy its oil from Iran.”

Three of the four witnesses on a second panel also said that it’s time for the US to end its export ban. Michele Flournoy, chief executive and cofounder of the Center for a New American Security, said in doing so, the US would improve its economic position and strengthen its ability to play a major role in global affairs.

“Stimulating US oil production growth also expends energy security by increasing supplies to the global market from a reliable, stable producer,” Flournoy said. “Lifting the ban also would enable US producers to be more responsive to market signals, and would give US policymakers more options to use the Strategic Petroleum Reserve in ways that could counteract hostile attempts by foreign producers to manipulate prices. All in all, this would reduce risk to American consumers.”

Richard E. Muncrief, president and chief executive officer of Tulsa independent WPX Energy Inc., told the committee that his company’s growth and that of many of his competitors are restricted by not being able to compete globally. “Lifting the oil export ban would create new markets for us and unleash a new engine of growth so that our company and others can continue to ramp up investment and create new jobs,” he said.

Muncrief also noted that allowing US producers to export crude would give allies that now have to rely on supplies from less politically stable sources a more reliable alternative. “This diversification benefits our security too, because it limits the ability of other, less-friendly nations to disrupt the energy supplies of our allies, and provides more economic stability in the nations that are partners of the US,” he noted.

Benjamin Zycher, John G. Searle Scholar at the American Enterprise Institute, said discontinuing the ban would increase prices in the US by $2-3/bbl, which would largely be offset by eliminating the artificial differential between West Texas Intermediate and Brent crude that the ban created. Ending the ban also would put downward pressure on petroleum product prices worldwide, he added.

‘Every bit helps’

Zycher noted, however, that a broader US contribution to global crude markets ultimately could reduce prices. “This would have salutary effects in terms of reducing foreign exchange earnings by several unsavory regimes, the Iranians and Russians in particular,” he told the committee. “That impact might be modest, but as far as I’m concerned, every bit helps, particularly in terms of increasing energy security in Europe.”

The panel’s fourth witness, United Steelworkers Pres. Leo Gerard, said discontinuing the ban would hurt not just US refineries, which are exporting record volumes of products, but also other US manufacturers.

“Just in one year, American refiners, just by streamlining processes, have increased their production 100,000 b/d. We’re not opposed to exporting our energy, just the crude oil that would allow overseas refiners to realize the same benefits,” Gerard said. “We can keep the crude oil at home, realign our refineries, and process it here so our industries can gain more competitive advantages—or we can export it to the Chinese.”

One committee Democrat strongly supported ending the ban. “I could give you 50 reasons why this policy is wrong, but I’d like to talk about a couple of other issues,” said Heidi Heitkamp (ND). “This technological revolution has been driven by risk-takers like [Continental Resources Inc. Chief Executive] Harold Hamm, who is sitting in this room. But if it becomes uneconomic to take risks domestically, where do you spend your money?”

Some said they need better information on potential consequences of removing the ban before they can support it. “I think what could happen is that cheaper gasoline would be produced worldwide, but our own refineries would be at a competitive disadvantage against a monopoly like OPEC,” said Jack Reed (RI). “OPEC really isn’t a monopoly,” Zycher responded. “It’s just one big guy, and a lot of little fish.”

Others expressed outright skepticism. “It would be nice to hear from the many, many experts who believe that climate change is real, that it’s caused by humans, and that people should do something about it at a hearing about the crude oil export ban,” said Elizabeth Warren (Mass.). “Lifting this ban sounds pretty generous. It also would generate profits for the biggest oil companies, which is a good reason to be skeptical about study after study they have funded which conclude it’s not going to have a serious effect on gasoline prices for consumers.”

Contact Nick Snow at nicks@pennwell.com.

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