Debate swirls over lifting crude-oil export ban

Monroe Energy, which operates a refinery in Trainer, Pa., is opposed to allowing crude oil exports. Advocates for allowing exports say that the trade ban, enacted in 1975 during the oil crisis, is an anachronism. (MICHAEL BRYANT/Staff Photographer)

The U.S. oil boom has been a salvation for the Philadelphia area's embattled refineries, creating an abundant source of discounted petroleum that instantly improved their competitiveness.

Those refiners now fear that a movement in Congress to lift a ban on exporting crude oil will erase their newfound market advantage. They worry that overseas refiners will gobble up U.S. crude and sell it back to Americans in the form of gasoline, diesel, and heating oil.

"By lifting export restrictions and sending our crude overseas, we would be sending American jobs overseas, as well," Jeffrey Warmann, chief executive of Monroe Energy refinery in Trainer, testified at a Senate Energy Committee hearing in March. "Our refineries would lie dormant once again."

Warmann's company, owned by Delta Air Lines, helped form a coalition of refiners to lobby to retain the trade barrier. But export supporters are gaining momentum. The Republican House leadership has endorsed an end to the ban. A vote may come as soon as this month.

Advocates for allowing crude exports say that the trade ban, enacted in 1975 during the oil crisis, is an anachronism that now works against U.S. economic and strategic interests. If unshackled to export, they say, producers would extract more oil, energizing the U.S. economy.

"In such circumstances, I would suggest that we need all of the economic growth that we can get," Lawrence H. Summers, the former Treasury secretary and Harvard University president, said in a Brookings Institution lecture advocating lifting the ban.

U.S. Sen. Robert Menendez (D., N.J.), who supports retaining it, scoffs at the industry's claims that oil exports will both increase the price for American oil producers and push down prices at the gas pump for consumers.

"I must say that in my 23 years in the Congress this will be the first time that the oil industry will be lobbying for something that will ostensibly lower their prices and their profits," Menendez said at a July hearing of the Senate Banking Committee.

The refinery owners' alliance, known as the Crude Coalition, includes Carlyle Group's Philadelphia Energy Solutions, which operates the former Sunoco refinery in South Philadelphia, and PBF Energy, which owns facilities in Paulsboro and Delaware City, Del. They are among the largest buyers of domestic crude oil, mostly delivered here by rail.

The refiners have formed common cause with the United Steelworkers, which represents refinery workers. Some environmentalists, concerned that allowing exports will induce more domestic drilling and hydraulic fracturing, also support keeping the export ban.

Econometric studies by five nonpartisan organizations - the Brookings Institution, Resources for the Future, ICF International, the Aspen Institute, and IHS Energy - have concluded that lifting the ban would be a net positive for the U.S. economy.

The argument in favor of free trade is counterintuitive: Allowing exports will flood the international market with so much oil that it will push down the price of refined products, at the same time it lifts the constrained price of U.S. crude oil.

"Because of our abundance of crude oil, we can have it both ways," Jack Gerard, president of the American Petroleum Institute, said in a recent interview.

"Those studies use a lot of voodoo economics to arrive at their results," said Jay Hauck, executive director of the Crude Coalition, the refiners group. He cited a Stancil & Co. study commissioned by the coalition that concluded exports would cost U.S. households $170 to $257 a year.

The argument against a trade ban rests upon an understanding that not all crude oil is the same.

Much of the new domestic shale-oil production developed in North Dakota, Texas and Colorado is light, sweet crude lower in the dense hydrocarbons and sulfur that characterize heavy, sour crude. Typically, light crude sells at a higher price because it is easier to refine into high-value products.

As domestic light-crude production declined in the 20th century, most Gulf Coast refineries invested in the equipment needed to break down heavy crude oil and remove sulfur. They mostly handle heavy crudes from Canada, Mexico, Venezuela, and the Middle East.

When new U.S.-produced light crude came on the market in the last five years, not as many American refineries were configured to use it. So the benchmark price of domestic light oil, called West Texas Intermediate, fell relative to the global price of light crude, known as Brent Crude.

"Because of this mismatch between domestic crude production and U.S. refinery configuration, restrictions on crude exports have already begun to distort market outcomes, even though the United States remains a large crude importer, on net," a report this year by the Columbia University Center on Global Energy Policy explained.

But the discount for domestic light oil was a boon for refineries configured to use it, including those in the Philadelphia area. The discount more than paid for the cost of transporting the oil by rail. The new production displaced pricey imported crude, typically from Africa.

Though refiners of domestic light crude enjoyed a drop in their raw-material costs, they also benefited because refined products trade according to international market prices, which did not move in tandem with the decline in domestic crude costs. So the refiners' profit margins, and their competitiveness, improved immensely.

Lifting the export ban makes no sense, the refiners say: The United States still depends upon imported petroleum to satisfy its demand for fuel. Each barrel of exported crude oil will require import of a barrel of oil or refined products, they argue.

But export advocates say allowing the market to determine the best destination for oil would be more economically efficient. IHS Energy, in its 2014 report, said allowing U.S. exports would actually reduce net imports, which it called a key indicator of import dependence.

"Light crude is more valuable than heavy crude," IHS said, "so exporting surplus light oil improves the U.S. trade balance and supports more economic activity in the United States, rather than constraining activity as is the case under the current policy."

So sharply divisive is the issue that even a barely detectable shift in position can trigger a torrent of activity.

Menendez recently said the United States should consider licensing the export of oil to allied countries struggling with supply, sparking speculation from both sides that his support for the trade ban was wavering. Allied Progress, an advocacy group that supports the ban, launched a TV ad campaign aimed at pressuring Menendez to stay in the camp.

The senator's spokesman issued a statement, noting that some exports are permitted under the law's "national interest" exception, "but in no way does he support a blind expansion of crude exports to enhance the profits of Big Oil and possibly force U.S. consumers to pay even more at the pump."


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