Mella McEwen | The Midland Reporter-Telegram (Midland, Texas)
Permian Basin oil and gas operators continue making the case for ending the nation’s four decadelong ban on exporting domestic crude.
They say decisions made over 40 years ago during an oil crisis have no place in today’s world of rising U.S. crude production, primarily from unconventional shale plays.
During the annual shareholders’ meeting in Midland in May, Chevron Chairman and Chief Executive Officer John Watson said the company is a “strong supporter” of allowing exports of both crude and natural gas.
“The U.S. is a free trade nation, and we shouldn’t be seen as hoarding resources,” he explained, adding that exports would promote economic development.
Like Watson, Scott Sheffield, chairman and chief executive officer of Pioneer Natural Resources, said lifting the ban on crude exports would underscore the nation’s support for free trade. He cited a report from Tim Boersma and Charles K. Ebinger of the Brookings Institute that said Republicans and Democrats alike, including President Barack Obama, express support for boosting U.S. exports in general and that crude should be no exception. Lifting the ban, the pair wrote to President Obama, would lend more credibility to U.S. arguments for free trade in the global economy.
He pointed out that U.S. gasoline is already freely traded globally, exporting gasoline from the Gulf Coast and importing it on the East Coast because it’s less expensive to import surplus gasoline from Europe than ship it by tanker from the Texas Gulf Coast to the East Coast. Such global trading means the nation’s gasoline prices are set by global gasoline prices, not domestic crude oil prices, he said.
Sheffield warned that continuing the ban would lead to lower commodity prices and, ultimately, a loss of jobs.
Explaining that all crudes are not the same, Sheffield noted that refineries are, as a rule, set up to handle certain crudes more efficiently than others and, thus, some crudes can only be handled by specialized refineries.
Domestic producers have used technological advances to unlock crude and natural gas deposits in the Permian Basin, Eagle Ford, Bakken, Marcellus and other basins, sending domestic crude production higher and helping the U.S. surpass Saudi Arabia and Russia as the world’s largest producer in just a year’s time. For the first time in over 60 years, the nation has become a net exporter of refined petroleum products.
But Sheffield said many of the nation’s refineries in the Midwest and along the Gulf Coast are not equipped to handle that new crude, much of it “light tight oil.” He noted that many refining companies had invested infrastructure to handle heavier, higher-sulfur crudes, whereas older refineries overseas are better equipped to handle the lighter crudes.
He cited a study from IHS that said this mismatch is causing the nation to approach “gridlock,” with the inability of the nation’s refineries to process the growing volume of light crude to result in a widening price discount that will reduce drilling investment, jobs and hurt the economy.
A late June editorial in the Washington Post, Sheffield noted, pointed out that allowing exports would give domestic producers incentive to increase production and create jobs.
He cites studies that find allowing exports could result in increased domestic production from as much as 500,000 barrels a day by 2020 to 2.3 million barrels a day over the next 15 years, along with new investments approaching $1 trillion. Studies show allowing exports could result in an additional 300,000 to 1 million jobs.
At the same time, the editorial noted that global supplies would increase, resulting in lower prices for the heavier crudes that U.S. refineries turn into gasoline and other refined products.
In the meantime, Sheffield said there are options to ease the gridlock. He called on the president to use his executive authority to waive export restrictions to serve the national interest and for Congress to amend the laws to permit greater flexibility while preserving the authority to limit exports for particular national security reasons. The Department of Commerce could also enact regulations to expand the available licensing exceptions, consistent with the national interest.
Not only would allowing exports of domestic crude result in more efficient distribution of crudes but a better use of refinery activity would result in better supplies of refined products at better prices and benefit the economy, he said, but it would improve national security.
Exporting U.S.-produced crude will reduce the influence of members of the Organization of Petroleum Exporting Countries as well as Russia. It would also reverse the transfer of U.S. wealth to OPEC nations that has been ongoing since the 1970s. In 2008 alone, Sheffield noted, the U.S. sent $400 billion to OPEC producers.
“Continuing to ban crude oil exports will not reduce either global demand or production of crude oil,” he said. “Eliminating the ban, however, will help ensure that more of global production will occur in the U.S., fully subject to U.S. safety and environmental regulations.”