WASHINGTON – As a new year settles in, the Obama administration and Congress find themselves grappling with a scenario that was unthinkable just a few years ago: What to do with the domestic oil flowing out of West Texas, North Dakota and other states?
The climb in domestic crude production has created a dilemma as lawmakers and the White House face new pressure from oil companies to relax the nation’s 38-year-old ban on exports of the unprocessed product.
The current restrictions — born in the aftermath of the oil embargo of the 1970s — benefit some domestic refiners, who are selling record amounts of gasoline and other refined products to foreign customers. But their gains are coming at the expense of oil producers who face the prospect of drooping domestic prices for the commodity, as the U.S. produces more light sweet crude than it can handle.
“If we wouldn’t have had this massive, huge increase in the development of oil and natural gas, we wouldn’t be having this discussion,” said Charles Drevna, head of the American Fuel and Petrochemical Manufacturers. “This is a good problem to have.”
Consider that the United States exported 2.6 million barrels of gasoline and other finished petroleum products each day in 2012, according to the government’s Energy Information Administration, more than double the 1.2 million barrels logged daily in 2007.
Meanwhile, there is a growing glut of light, sweet crude that is unearthed in the United States, and barred from export. Many U.S. refineries, particularly along the Gulf Coast, were designed to process heavier supplies from Venezuela, Saudi Arabia and Canada, and while some have adapted to handle more of the light sweet domestic product, bigger changes are unlikely soon.
Sen. Lisa Murkowski, R-Alaska, is set to officially launch the Capitol Hill debate over crude exports on Tuesday, with a white paper and speech touting the economic benefits of selling U.S. energy abroad.
But administration officials, major oil company executives and newspaper editorial boards all have been addressing the issue. ConocoPhillips and ExxonMobil did it first, with executives saying that it was time to end the export ban. Then, last month, Energy Secretary Ernest Moniz suggested that the crude export ban deserves re-examination “in the context of ... an energy world that is no longer like the 1970s.”
Prompt changes are unlikely
Changes could come from Congress, which could lift the ban imposed in 1975, or from the Commerce Department, which could opt to more liberally interpret an existing national-interest exception in the statute. Existing exceptions include exports to Canada as well as foreign sales of oil produced in Alaska’s Cook Inlet, some heavy crude produced in California and oil transported through the Trans-Alaska Pipeline System.
But any major upheaval in U.S. oil export policy is unlikely anytime soon, especially in an election year, when voters’ concerns about spiking gasoline prices — and lawmakers’ fear of being held accountable for them at the ballot box — are likely to hold sway on Capitol Hill.
The issue is a political hot potato for the White House, which may be worried as much about straining relations with Saudi Arabia as populist backlash from motorists here at home who might see higher gas prices at the pump if exports increase. Saudi Arabia is both a major U.S. ally and a leading crude oil exporter.
“We need to be thoughtful in how we reform those rules because there is a greater chance of upheaval in Saudi Arabia today than there has been in a long time,” said Amy Myers Jaffe, executive director of energy and sustainability at the University of California, Davis.
Critics say that allowing unchecked oil exports would be bad for U.S. consumers.
For instance, Sen. Robert Menendez, D-N.J., says exports could boost domestic crude prices, narrowing the gap between U.S. and global oil. Where the price of the global benchmark, Brent crude, averaged $108 per barrel last year, the cost of a barrel of U.S. benchmark West Texas Intermediate has been $10 less.
“Big Oil clearly wants to pad their record profits and fetch a higher price for their oil,” Menendez said. “I believe we should be more worried about the bottom line for American families.”
But export backers say more foreign sales of high-quality, coveted light sweet crude could help lower global oil prices, even as imported heavy crudes — including heavily discounted Canadian supplies — keep running through Gulf Coast refineries.