A study released Sept. 1 by the US Energy Information Administration was apparent cause for celebration for several oil and gas industry groups, which took its findings as confirmation that lifting restrictions on US crude oil exports would be a net positive for the industry as well as consumers.
EIA developed several analyses that examine the implications of removing the restrictions for the price of US and global marker crude streams, gasoline prices, crude production, refining activity, and trade in crude and petroleum products.
The study, Effects of Removing Restrictions on US Crude Oil Exports, was conducted in response to requests from US Sen. and current Senate Energy and Natural Resources Committee Chairman Lisa Murkowski (R-Alas.) and former chairman and Sen. Mary L. Landrieu (D-La.), (OGJ Online, Apr. 14, 2014), as well as current members Ronald L. Wyden (D-Ore.) and Maria E. Cantwell (D-Wash.).
Murkowski previously included language ending the 1970s-era ban in her Offshore Production and National Security (OPENS) Act, which was approved by the energy committee at the end of July (OGJ Online, July 24, 2015).
“Multiple studies have shown that lifting the export ban will improve our economic and energy security without harming American consumers,” Murkowski remarked in a statement welcoming the study. “It’s time to leave the old scarcity mindset behind and seize the opportunities provided by America’s energy resurgence.”
Higher output, bigger impact
The report applies EIA’s energy models to directly compare cases over the next decade with and without the removal of current restrictions on crude exports. Four baseline cases using EIA’s National Energy Modeling System are considered to reflect a range of outlooks for resources and technology as well as prices, which are key drivers of crude production.
For this analysis, EIA generally assumes that all streams with 50° gravity oil and above would be eligible for processing and export under recent BIS guidance.
The analysis finds no difference between projections with and without current export restrictions in two analysis cases in which projected production with current export restrictions remains below 10.6 million b/d over the next decade.
However, in two other analysis cases where production in 2025 ranges 11.7-13.6 million b/d, projections without export restrictions show increased production, higher crude exports, reduced product exports, and slightly lower gasoline prices to US consumers compared with parallel cases that maintain current export restrictions.
The variation in projected production across the four baseline cases used in the report reflect differences in the characterization of oil resources and technology as well as future crude prices. EIA notes there is a considerable spread in projected production across these cases. The removal of crude export restrictions does not lead to additional production in the reference and low oil price cases, where production remains at or below 10.6 million b/d through 2025.
However, the removal of crude export restrictions leads to additional production between 400,000-500,000 b/d by 2025 in the high oil and gas resource (HOGR) and HOGR-low price (HOGR-LP) cases that have significantly higher baseline production based on more optimistic resource and technology assumptions.
Gas prices could fall, not rise
Petroleum product prices in the US, including gasoline prices, would be either unchanged or slightly reduced by the removal of current restrictions on crude exports. EIA notes that petroleum product prices throughout the US have a much stronger relationship to North Sea Brent prices than to West Texas Intermediate prices.
In the HOGR and HOGR-LP high-production cases, the elimination of current restrictions on crude exports narrows the Brent-WTI spread by raising the WTI price. As producers respond to the higher WTI price with higher production, the global supply-demand balance becomes looser unless increased production is fully offset by production cuts elsewhere. The looser balance implies lower Brent prices, which in turn result in slightly lower petroleum product prices for US consumers.
Combined net exports of crude and petroleum products from the US are generally higher in cases with higher US crude production regardless of US crude export policies. However, crude export policies materially affect the mix between crude and product exports, particularly in the HOGR and HOGR-LP cases, which have high levels of production.
Crude exports tend to represent a larger share of combined crude and product exports in cases where crude exports are unrestricted. Also, in cases where the level of crude production increases with the removal of crude export restrictions, total combined crude and product exports are higher than in parallel cases with current crude export restrictions in place.
Although unrestricted exports of US crude would either leave global crude prices unchanged or result in a small price reduction compared with parallel cases that maintain current restrictions on crude exports, other factors affecting global supply and demand will largely determine whether global crude prices remain close to their current level, as in EIA’s low oil price case, or rise along a path closer to the reference case trajectory.
As noted by EIA, resource and technology outcomes as well as global price drivers will affect growth in US crude production whether or not current US crude export policies are maintained.
‘Win-win’ for US consumers
“Today’s EIA report is a win-win for American energy consumers and energy producers,” said Barry Russell, president of the Independent Petroleum Association of America, in a statement released subsequent to the report. “By lifting the 4-decades-old ban on US crude oil exports, Americans would see an increase in American energy production, which would, in turn, grow our economy, create good-paying American jobs, and help lower gasoline prices for hardworking American families."
Russell last month urged further administrative action on US crude exports after the Obama administration approved a crude exchange between the US and Mexico (OGJ Online, Aug. 14, 2015). Following news of a secured agreement with Iran that would allow Iranian oil to get traded on the world market, Russell questioned why America wouldn’t allow its companies to do the same with their American-made surplus of crude.
IPAA also voiced its support in May for Murkowski’s and Heidi Heidi Heitkamp’s (D-ND) legislation seeking to lift the ban (OGJ Online, May 13, 2015).
The American Petroleum Institute also noted that “consumers could save on fuel costs if policymakers act now to lift trade restrictions on US crude oil.”
Margo Thorning, senior vice-president and chief economist for the American Council for Capital Formation took it a step further, stating, “It’s not only the increased economic growth and lower gas prices that we stand to lose by keeping this outdated energy policy in place, but our global credibility as well. This begs the question why the government is standing in the way of a policy change that it itself finds will benefit American taxpayers?”