Louisiana Oil Industry Recovers From Katrina Devastation

Natural gas production gains spurred by the unconventional revolution upended long-held beliefs about resource scarcity in the US, leading to calls for exports. And the rise in US unconventional crude production has led to similar calls for exporting oil.

“Federal lawmakers should overturn the ban on exporting crude oil produced in the United States,” said Blake Clayton, Council on Foreign Relations Fellow for Energy and National Security, in a memo published on the Council’s website this week. Most exports of domestically produced oil are illegal under federal law.

Conditions for exporting domestically produced crude from the US are as follows, according to the testimony of US Energy Information Administration head Adam Sieminski at a hearing before the Senate Committee on Energy and Natural Resources on Tuesday.

“Any company wanting to export crude oil must obtain a license from the Bureau of Industry and Security (BIS), which is part of the US Department of Commerce. According to the regulations published in Title 15 Part 754.2 of the Code of Federal Regulations, BIS will approve applications for licenses to export crude oil for the following kinds of transactions:

– From Alaska’s Cook Inlet

– To Canada for consumption or use therein

– In connection with refining or exchange of Strategic Petroleum Reserve oil

– Up to an average of 25,000 bbl/d of California heavy crude oil

– That are consistent with findings made by the president under an applicable statute

– Of foreign-origin crude oil where, based on written documentation satisfactory to BIS, the exporter can demonstrate that the oil is not of US origin and has not been commingled with oil of US origin

Clayton says that these restrictions are robbing the US of a lucrative opportunity. “Were the ban overturned today, crude exports would immediately rise by several billion dollars a year, according to industry executives, likely surpassing five hundred thousand barrels per day by 2017,” Clayton said.

Clayton’s argument echoes similar calls for lifting oil export restrictions made earlier this week by Jeff Hume, Vice-Chairman of Strategic Growth Initiatives for Continental Resources, before the Senate Energy Committee.

“The conditions that originally justified the establishment of “Short Supply Controls” in the wake of the 1973 Arab Oil Embargo are no longer indicative of how petroleum supply and distribution channels function,” said Hume. “In today’s global economy, it no longer makes sense for our country to cling to regulatory relics from bygone eras that restrict the export of domestic crude oil.”

One frequently-cited argument for lifting restrictions is a mismatch between US crudes and US refining infrastructure. Heavy investment in upgrading US refineries has left them better suited to process heavier, more sulfurous crudes than grades produced from some of the major US onshore oil plays.

There is “a widening gap among the types of oil that US fields produce, the types that US refiners need, the products that US consumers want, and the infrastructure in place to transport the oil”, said Clayton. “Allowing companies to export US crude oil as the market dictates would help solve this mismatch.

Much of the oil produced in the US onshore could be more efficiently processed elsewhere, which could serve the interests of both market efficiency and US relationships with allies, said Hume.

“Since much of the domestic light-tight crude oil grades like Bakken that are contributing to the US energy ‘renaissance’ are very high quality, they are actually processed most efficiently at less complex refineries that are specifically designed to handle these low-sulfur grades,” said Hume. “Many less-complex refineries best suited to efficiently process our domestic, high-grade crude are located overseas.”

“By exporting our high-quality domestic crude to the overseas refiners who value it most – refiners in Free Trade Partner countries like Japan and South Korea that have struggled to source crude oil in the wake of Iranian sanctions – we can reduce our trade deficit while also increasing the fuel supplies the American consumer requires,” said Hume.

Hume is one of many critics of restrictions on oil exports – and potential restrictions on LNG exports – who point to the lack of any such restrictions on other energy sources, such as coal and refined petroleum products. And as with LNG exports, from a foreign policy perspective, a sustained effective oil export ban may prove difficult to justify with US oil in abundance.

“[Lifting restrictions] would demonstrate Washington’s commitment to free and fair trade, even in a politically sensitive sector, bolstering its negotiating position on other trade issues,” Clayton said.

Clayton added that keeping US oil at home might ultimately lead to a slowdown in the country’s oil sector.

“With few viable domestic buyers, producers are forced to choose between leaving oil in the ground and pumping it at depressed prices,” and “these artificially low prices slow additional US crude oil production”, Clayton said.

 

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