Energy industry leaders clash over oil exports

WASHINGTON — Oil industry leaders clashed Wednesday on the nation’s 39-year-old crude export ban, as a Dallas-based refiner insisted that lifting those trade restrictions would spike gasoline prices.

“There’s probably a 10-to-20 cent per gallon uplift in the cost of gasoline in the markets we serve which would result from this policy decision,’’ said Michael Jennings, CEO of HollyFrontier Corp.

But Erik Milito, upstream director of the American Petroleum Institute that supports oil exports, countered that ending the ban would deliver broad “consumer-level benefits.’’

“Additional exports could help increase supplies, put downward pressure on the prices at the pump and bring more jobs to America,’’ Milito said during a House Foreign Affairs subcommittee hearing on the issue.

Export economics

Pocketbook issues are emerging as a major factor in the debate over exporting U.S. crude. Domestic oil production is surging and imports are in decline, hitting a two-decade low last year.

Oil producers argue that exporting more domestic crude would help relieve supply bottlenecks and inefficiencies, allowing companies to sell more valuable light sweet U.S. crude overseas, while importing cheaper, heavier alternatives for refining.

Economists widely expect the change also would help narrow the gap between international and domestic oil prices, putting downward pressure on London Brent crude while giving a lift to West Texas Intermediate, the U.S. benchmark.

Some independent refiners who benefit from processing that discounted domestic crude and freely exporting the resulting gasoline, diesel and other petroleum products are eager to preserve the current trade policy.

Rep. Brad Sherman, D-Calif., said any moves to dismantle the crude export ban should allow it to be quickly reinstated in the face of a crisis.

“We want to be in a situation where it is both legal and practical to require U.S. crude to only be used inside the United States during a situation that looks like 1973,’’ he said.

Legislation introduced Tuesday by Rep. Michael McCaul, R-Texas, includes such a safety valve. McCaul’s bill would generally lift the crude export ban in most cases but allow it to be reinstated during national emergencies.

Effect on gasoline prices

Economists and academics are conducting at least three studies to better predict what would happen to gasoline prices in the wake widespread oil exports.

Kenneth Medlock, senior director of Rice University’s Center for Energy Studies, who is working on one of the analyses, stressed it’s no simple issue.

But he suggested Wednesday that most of the economic pain would be borne by U.S. refiners, whose current healthy margins would be squeezed if forced to pay more for domestic crude.

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Refiners have been propelled into “a new paradigm” from discounted domestic crude, cheap natural gas and excess capacity — producing more petroleum products than the U.S. currently consumes — Medlock told the House panel. They also are competing with fewer refineries globally, as some overseas facilities have closed.

But prices for the gasoline U.S. refiners produce have not fallen along with the cost of WTI crude. “Refiners are not passing the discount along,” Medlock said.

Exports would raise the price U.S. refiners pay for crude oil, but it’s not clear they would be forced to shut down, Medlock said. “Their bottom lines will be affected, but whether or not they close and lay off workers is not clear to me.”

F: fuelfix.com