In Pitch to End Crude Export Ban, Drillers Promise Cheaper Fuel

The oil industry has a new sales pitch for you: Support efforts to lift the 40-year-old ban on U.S. crude oil exports, and reap the reward of cheaper gasoline.

If you’re dubious, you’re not the only one. And that’s the challenge for critics of the export ban, who know they won’t get anywhere unless they can persuade consumers to come on board.

The politics are clear. Because voters think the ban saves them money at the pump, most lawmakers won’t touch it. The industry’s top leaders and Alaska Senator Lisa Murkowski, the Republican chair of the Senate Energy and Natural Resources committee, hope to offset that idea using reports from the Brookings Institution and the U.S. government that say the opposite is true.

“As long as lawmakers are fearful that there will be political retribution because of the price at the pump, it’s going to be hard to get the votes we need to lift the ban,” Murkowski told the industry’s largest annual conference in Houston last week.

Murkowski, who plans to bring a bill forward this year to overturn the ban, was part of a full-court press at the conference that included some of the wildcatters who sparked the shale revolution, including Harold Hamm of Continental Resources Inc. and John Hess of Hess Corp. With storage tanks brimming, the ban is emerging as a major policy battleground.

Critics say the 1975 ban is a relic of an era in which an OPEC embargo could bring a foreign oil-dependent American economy to its knees. They argue it’s out of sync with a free-trading nation that has overtaken Saudi Arabia and Russia as the world’s largest oil and natural gas producer.

Iran Sanctions

“At a time when the U.S. government is considering lifting sanctions on Iranian crude oil exports, it’s high time that we lift the self-imposed sanctions on U.S. crude exports,” Hess told attendees at the IHS CERAWeek conference in Houston. “Our crude oil is trapped here with no relief in sight.”

A poll released in December by Reuters/Ipsos showed 77 percent of voters thought oil produced domestically should be used at home to make U.S. gasoline prices cheaper. The Brookings Institution, in an analysis released in September, and the U.S. Energy Information Administration, in an October report, both concluded that ending the ban would lead to lower pump prices.

And perhaps not surprisingly, the reason, like just about everything else related to energy in the U.S. these days, goes back to the astounding growth of shale oil production.

International Price

The amount paid by U.S. consumers for gasoline is closely linked to the international price of oil. If the ban was lifted, and crude stockpiles in the U.S. were suddenly pushed into markets abroad, the international price of oil would fall and gasoline would likely follow suit, the two reports concluded.

While the argument has been verified repeatedly by people in the know, explaining it in a 30-second sound bite has been tough, according to Continental’s Hamm.

When the industry began pushing the idea on Capitol Hill, “people thought it was almost unbelievable,” Hamm told the audience in Houston last week. “It’s going to take a little while to change the mindset of Americans.”

Refiners’ Views

At the same time, the idea is being undermined by U.S. refiners, who want domestic crude to remain at home. Jay Hauck, executive director of the CRUDE Coalition, which is comprised of four independent U.S. refineries, has pushed to keep the ban.

“It doesn’t make economic sense for the producers at the wellhead to get an extra $1 or $2 a barrel and somehow, at the receiving end. users are going to pay less,” Hauck said in a telephone interview.

From the outset, there have been exceptions to the ban. Producers can ship crude to Canada, as long as it’s used within the country and Alaskan oil can be sent out via the Trans-Alaskan pipeline.

Last year, drillers were granted permission to ship abroad lightly processed crude, known as condensate. That’s raised hopes within the industry that the government is at least open to thinking about whether the ban could be lifted. Such exceptions may soon become broad enough to sail a supertanker through.

Before it's here, it's on the Bloomberg Terminal.