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US Oil Export Debate

A Platts.com News Feature


Seconds out… oil export fight


December 16, 2014 -- By Brian Scheid, Bill Loveless, Herman Wang


In 1975, in response to the Arab oil embargo, the US Congress passed the Energy Policy and Conservation Act, leading to restrictions on nearly all US crude oil exports.


In the nearly four decades which followed, few in Congress and the White House gave much thought to loosening this export regime, as domestic production struggled and partisan rhetoric generally centered on ending US reliance on foreign oil, rather than pushing US crude on to the world market.


But leaps in drilling and extraction technologies and the subsequent US tight oil production boom have changed the debate.


For the first time in a generation, US oil market fundamentals have shifted enough for a serious reconsideration of export policy, and ignited a battle between producers, who claim market limitations could soon cause the US energy renaissance to slow, and refiners, who argue loosening export limits could price them out of a global competition.


Analysis continues below...


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The ongoing export fight is expected to last years, and, despite the recent Republican takeover of Congress, may not be decided until the next presidential administration takes over in 2017.


It's also ignited debate over several other long-overlooked federal policy issues, including a 100-year-old shipping act, data collection, and even commodity classifications.


Total US crude production has climbed from about 5 million b/d in 2008 to over 7.44 million b/d in 2013, according to the US Energy Information Administration.


That figure is expected to continue to rise to an average of about 8.57 million b/d in 2014 to 9.42 million b/d in 2015, the highest annual average crude oil production the US has experienced since 1972, EIA said in its November Short-Term Energy Outlook.


Light sweet imbalance


At the same time, the majority of this production growth has been in light sweet oil, while much of US refining capacity has been configured to handle heavier crude qualities.


This potential imbalance between production and capacity limitations has become the primary driver in the argument for liberalizing current US crude export policy.


With refining capacity rapidly shrinking and most crude locked within US borders, production will likely ratchet down, proponents argue.


"If you play this wrong, you actually lose production in the field and if that's what we have to wait for, is jobs to be lost or production to be shut in, you're way behind the curve," said Frank Verrastro, a senior vice president with the Center for Strategic and International Studies. "The danger is that you wait for the sign and then it's already too late."


Key officials in President Barack Obama's administration, including US Energy Secretary Ernest Moniz and White House adviser John Podesta, have said they are monitoring the imbalance between production and refining capacity.


But, Jeffrey Zients, Obama's economic adviser and director of the US National Economic Council, has indicated that an expansion of permitted US crude exports is unlikely until the amount of crude imported into the US sees a dramatic decrease.


"This is a changing landscape," said Zients during a recent Economic Club of Washington event. "We ... now produce more than we import, at the same time we still import a lot, so we are looking at policy implications of this changing landscape."


The US has imported an average of nearly 7.4 million b/d of crude oil in 2014, the lowest level since 1995 when the US imported just over 7.2 million b/d, according to the EIA.


US crude imports peaked in 2006 when the US imported more than 10.1 million b/d.


Article continues -- US crude exports: a priority issue?







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