Up For Debate: US Crude Oil Exporting

By The Bakken magazine staff | March 23, 2014

In early February, the U.S. Senate Committee on Energy and Natural Resources held a hearing on exporting U.S.-based crude oil, the first hearing on the subject in 25 years. “America’s energy renaissance has sparked a conversation on whether exporting crude oil is in the national interest,” said Sen. Ron Wyden, D-Ore. “Our country is in the enviable position of having choices about our energy future.”

The hearing included testimony from four panelists with different perspectives: Harold Hamm, CEO for Continental Resources; Graeme Burnett, senior vice president for fuel optimization at Delta Air Lines, and chairman of the board at Monroe Energy, a refinery purchased by Delta that utilizes Bakken-based crude; Amy Myers Jaffe, executive director of energy and sustainability at the Institute of Transportation Studies, University of California, Davis; and Daniel Weiss, senior fellow and director of climate strategy for the Center for American Progress.

Research completed by the Congressional Research Service shows that the export of U.S.-produced crude oil is generally prohibited. Any company looking to export U.S. crude must obtain a license from the U.S. Commerce Department’s Bureau of Industry and Security. Between 2008 and 2013, the BIS received 338 export license applications, 304 of which were approved. All of the approved licenses, (outside of those that were approved for the export of foreign-based crude) were for exports to Canada. According to the BIS, the dollar value of the export licenses would reach nearly $480 billion.

During the Senate hearing, Hamm started the discussion, voicing his hopes that the export ban could be lifted. As the world has changed and post oil-embargo legislation has been phased out, he said, “The question has to be asked: Why does the U.S., a nation historically very supportive of free trade, continue to impose export barriers for domestic crude oil? The fact is, the supply and demand factors and scarcity mentality that originally led to the creation of these export restrictions in no way reflect the economic reality of the global energy marketplace of today.”

Hamm’s question was one of many that were raised during the hearing––the questions dominating the hearing focused on the impact of domestic crude oil exports on the U.S. consumer, the global oil price and supply, refining capacity and competition, and the retention or creation of crude oil-based jobs in the U.S. or Europe.

Burnett offered an opposing perspective to lifting the crude oil ban. “If we lift the export ban we would in essence be allowing the transport of crude out of a competitive market in this country and into a less competitive global one controlled by a few oil-producing states,” he said. “The results would be easy to predict: U.S. crude would flow out of this county and onto the world market. OPEC would reduce supply to maintain high global prices. The U.S.’s use of homegrown oil would diminish and prices here at home would rise to match the higher global price for a barrel of crude.”

Jaffe provided a counterargument  to Burnett’s assertion regarding OPEC’s possible reaction to the U.S. exporting crude. Sometimes people are unclear about how the international oil market works, she said. When or if the U.S. exports refined products globally, it typically means refiners in Europe have bought those products and reduced their own refinery runs, a move that affects OPEC. “Whatever OPEC policies they take, they will take whether we export the products or whether we export the crude oil, so that is not the issue,” she said.

Jaffe was in favor of lifting the ban, citing geopolitical stability as the main reason. Both Weiss and Burnett said lifting the ban would raise the price of gasoline in the U.S. Hamm pointed to the export ban’s impact on European refineries to exemplify his support of lifting the ban. “Many refineries overseas designed to only process light, sweet crude similar to U.S. grades find it difficult to compete profitably with U.S. refiners with access to domestic crude at artificially low prices, forcing many to close, thereby reducing supplies of refined products on the global market,” adding, “the true benefit to the American consumer will be competition for the refining of gasoline…lower prices are only brought about by increased supply, greater competiton amongst sellers, weaker demand or improved efficiency in the manufacturing and distribution process.”

Even with the viewpoints and testimony provided by both the panelists and the senators in attendance for the hearing, Wyden made it clear that a decision on lifting the crude oil ban is still a long time from happening.