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Congress Considers Lifting Oil-Export Ban

— August 10, 2015

According to U.S. Representative Joe Barton (R-TX), Congress is expected to vote on legislation that would lift a 40 year-old crude-oil export ban for U.S. producers. In an August 6th phone interview with Bloomberg, Barton said “We’ve got green lights in the House all the way,” saying that “The whip, the majority leader, the speaker are all on board to move the bill.” Indeed, House Bill 702 does have some bipartisan support in the legislation’s early stages, with 13 Democrats joining 100 Republican co-sponsors. Although Congress is currently in the middle of its August recess, the bill is expected to be marked up by the Energy and Commerce Committees immediately after the break, and presented for a vote in early September. Meanwhile in the Senate, the Energy Committee passed a narrow 12-10 party-line vote on July 30th to advance similar legislation to lift the ban; however the push in the Senate faces a slightly more formidable challenge, not to mention the specter of a presidential veto of any bicameral legislation. If the Offshore Production and Energizing National Security bill does make it to the Senate floor, it would not likely be until early next year, as the Senate’s agenda is extremely full.

The ban was put into effect in 1975 when Congress passed legislation in a section of the Energy Policy and Conservation Act that prevented crude oil sales to most of the world. The legislation was a response to the 1973 OPEC Arab oil shock that led to recession in the U.S. throughout much of the 1970s. Although rising oil problems became a persistent consumer problem during the most of the 2000s, things have changed drastically over the past decade. Domestic oil production has risen 80 percent since 2007, largely due to the proliferation of hydraulic fracturing methods, or fracking, especially in the Dakotas. Although U.S. oil imports are at its lowest level in 30 years, the oil market may not be suited for an increase in exports at this time. Global oil prices are near $50 per barrel with global supply outpacing demand, while July domestic gas prices were the lowest since 2010 at $2.88 per gallon. Also, due to the increased cost of refining the lighter weight U.S. crude oil, it is usually sold to U.S. refineries, mainly on the Gulf Cost, at a discount leading to higher profits on refined petroleum products despite the higher production costs. The current ban does not include refined oil products like gasoline, nor does it impact the U.S.’s largest oil trading partner, Canada.

Some, like Senators Ed Markey (D-MA) and Robert Melendez (D-NJ) believe that increasing crude exports will raise consumer gas prices, eliminating the U.S. home-country discount of its domestic crude. Still, many analysts find that lifting the ban should ultimately work to lower gas prices for consumers by as much as 12 cents per gallon by 2025. Jason Bordoff, a former Obama energy policy advisor and researcher at Columbia University’s energy center, says “I do think there are strong economic benefits to easing restrictions on oil exports, but the timing and magnitude of those are highly uncertain.” According to Barton, “It’s common sense; we are the number one oil producer in the world.” Economic issues notwithstanding however, President Obama might face political pressure to sign a bill regardless given the recent nuclear negotiations with Iran. As easing sanctions should lead to Iran being permitted to export oil, a U.S. ban on its own exports would appear logically inconsistent. So far, the president has not commented either way on legislation in either house.

Despite the questionable economic timing, lobbying efforts from both oil companies and from states with large oil economies have led to the ban becoming a matter of Congressional debate. Over a dozen oil producers like Marathon, and especially Conoco Phillips’s CEO Ryan Lance have vocally advocated for lifting the ban. Likewise, officials from oil rich states like Texas, North Dakota, and Alaska are also strongly pushing to lift the ban due revenue-sharing provisions contained within the legislation. A coalition of independent refineries, Consumers and Refiners United for Domestic Energy (CRUDE), along with the U.S. Steelworkers union, and others have lobbied against the ban however; agreeing with Melendez and Markey that lifting the ban will raise domestic prices. CRUDE’s executive director, Jack Hauck told Bloomberg in an email, “This is an enormous political mistake. The American people do not want to pay more at the pump while their oil gets sent to China. The case for exports is built on myths.” Although oil producing states like OPEC members also oppose the legislation, one lobbyist opposing the lifting of the ban points out that that is not a supporting argument they are pursuing, saying “We do not seek and would not accept any support from foreign producers or OPEC; that would not be helpful.”



Bloomberg BNA – Ari Natter

The National – Anthony McAuley

Wall Street Journal – Amy Harder



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