Pending debate on US oil export ban, industry eyes alternatives
WASHINGTON - While debate heats up about whether to lift a 40-year ban on the export of most U.S. crude oil, producers are likely to focus first on using the flexibility of the current law as a way to increase the amount of crude they can ship abroad.
The potential for exports is an outgrowth of the huge U.S shale oil production boom of the past decade, especially in the Bakken oil formation in North Dakota. The issue became one of the biggest of the year after U.S. Energy Secretary Ernest Moniz in December suggested the ban was outdated.
But critics contend that lifting the ban would risk raising the price of gasoline for U.S. consumers. President Barack Obama, who could take steps to relax current rules, will likely avoid anything that viewed as "gas pump politics," particularly in a mid-term election year.
"Trying to have the administration lift the ban wholesale at this point is like swimming against a strong current," said Jacob Dweck, a partner at law firm Sutherland Asbill & Brennan, who represents energy industry clients.
Washington will confront the subject on Thursday at a Senate Energy Committee hearing entitled, "The opportunities and challenges associated with lifting the ban on U.S. crude oil exports."
Senators will hear testimony from, among others, billionaire oilman Harold Hamm, chairman of Continental Resources Inc , the largest leaseholder in the Bakken region; and Daniel Weiss, director of climate strategy at Center for American Progress, a liberal think-tank.
Recently, the American Petroleum Institute, U.S. Chamber of Commerce and a major petrochemicals group came out in support of easing the ban, citing the surge in domestic production and a potential boost to trade.
While lawmakers and lobbyists jockey, companies may attempt to test what is feasible under the 1975 Energy Policy and Conservation Act, which includes ways in which federal authorities can allow some U.S. crude to reach markets abroad.
The first way is for the president to approve a new export category as a matter of national interest - a move made twice before. Republican Ronald Reagan okayed U.S. crude exports to Canada, and Democrat Bill Clintonsigned off on export Alaskan crude oil.
The licenses to export crude, issued by the Commerce Department's Bureau of Industry and Security, are not announced publicly. Roughly 100 crude licenses were given out in 2013, according to a source familiar with the process.
Another way, said lawyer Dweck, would enable companies to work within the gray areas of the law.
The BIS can issue export licenses on a case-by-case basis if it determines the move is in the national interest. A company also needs to demonstrate that the exported crude could not be "reasonably marketed" in the United States for "compelling economic or technological reasons."
The basis for the BIS' decisions is opaque, but companies would likely find it easier to test the parameters of the existing regulation than to press the administration to change the law by decree.
"That is what I am counseling my clients," Dweck said.
Some forms of crude oil currently covered by the ban are thought to stand a good chance of getting export approval.
One anomaly is the way the current law treats "lease condensate," light hydrocarbons present in oil reservoirs in a gaseous form that condense to liquid form when they leave the well. Exports are banned although a similar substance - natural gas liquids - is freely exportable.
Such condensates trade at a heavy discount to the benchmark West Texas Intermediate crude and global oil futures, meaning oil producers could make an economic case for exporting it.
Citigroup analysts said in a research note that condensate exports could be between 100,000 and 300,000 barrels per day if the BIS grants licenses.
Citigroup cited another area where exports could be expanded - as part of swap deals with countries that have free trade agreements with the United States.
"This could well include exports to Mexico, on a swap basis, and processing cheaper light crude from the United States could increase the country's refinery yields of light products," the research note said.
Although producers and lobbyists are stepping up to lay the groundwork for a policy change, some analysts do not expect much additional export volume this year.
But many analysts contend that refiners can handle the capacity of domestically-produced oil until later in the decade, partly due to retrofitting of existing plants.
"The real need for exports begins in the 2017-2018 time frame," said Aures.
Turner, Mason & Company forecasts that the United States could export up to 1 million bpd of crude oil by 2022, mainly to Asian markets.
Rusty Braziel, president of market advisory firm RBN Energy, estimates the supply of light sweet crude and condensate are on track to be oversupplied by 500,000 to 600,000 bpd of light sweet crude within the next few years unless U.S. refineries are adapted.