Business

Pressure builds to allow US exports of crude

US Senator Edward J. Markey is against the export of crude oil from the US.
Photo illustration by Lesley Becker/Globe Staff; AP
US Senator Edward J. Markey is against the export of crude oil from the US.

Senator Edward J. Markey is fighting an increasingly lonely, and perhaps futile, battle to prevent the overseas export of crude oil gushing from shale fields in North Dakota, Texas, and other parts of the country.

For nearly 40 years, US companies have been banned from exporting American crude, a policy imposed after the Arab oil embargo of the 1970s shook the US economy to its core. But as domestic production hits record levels, the administration of President Obama is loosening the longtime restriction, recently allowing two Texas companies to ship an ultralight crude oil known as condensate to overseas markets.

Those decisions, made earlier this year, are viewed as the first steps toward lifting the decades-old export ban — a policy that Markey and others view as short-sighted for a nation that until only recently relied heavily on foreign oil to meet its energy needs.

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“We have essentially begun a big change in American energy policy without a big debate,” said Markey, a Massachusetts Democrat and chairman of the Senate Foreign Relations Committee’s subcommittee on international energy and climate change. “We need a timeout for a national debate on where our energy policies are going and whether we want to be energy independent or not.”

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Political leaders have talked about achieving energy independence for decades, but for most of that time, it seemed out of reach. But in recent years, the controversial drilling technique known as hydraulic fracturing, or fracking, has opened vast reserves of fossil fuels in shale rock formations, leaving the nation awash in natural gas and oil.

Those who want to maintain the ban argue that it makes no sense to ship oil overseas when the nation still imports a third of its oil from foreign suppliers and remains vulnerable to oil shocks from international events, such as the turmoil in the Middle East.

But those who favor lifting the ban say exporting oil would help the US economy by creating jobs, narrowing the trade deficit, lowering prices in global markets, and ultimately benefiting American consumers and businesses. The United States now produces more oil, 8.3 million barrels per day, than it imports, about 7 million barrels per day, according to the US Energy Department.

Domestic oil production is up more than 50 percent since 2005, playing a key role in the recent plunge in oil prices — despite fighting in Iraq, Syria, and Gaza, and rising tensions with Russia, another major oil producer.

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Crude has dropped, from about $106 a barrel on New York commodities markets in June to $92 earlier this month. The price of gasoline for local consumers, meanwhile, has fallen to about $3.45 a gallon, down nearly 20 cents from a year ago and the lowest price in three years.

Proponents of lifting the export ban include giant oil companies such as ExxonMobil and Chevron, as well as congressional Republicans from oil-producing states, such as Representative Joe Barton of Texas and Senator Lisa Murkowski of Alaska.

Other proponents include Senator Mary Landrieu, chairwoman of the Senate Energy and Natural Resources Committee and Democrat of Louisiana, an oil producing state; and Lawrence Summers, the Harvard professor and former top economic aide to Obama. Summers earlier this month came out in favor of lifting the ban, concluding that the nation would benefit in a number of ways, including lower gas prices.

A recent report by the Brookings Institution, a left-of-center think tank in Washington, projected that US gasoline prices could fall by as much as 9 cents a gallon if export restrictions are eliminated. Charles Ebinger, author of the report, said arguments for eliminating the oil export ban “may sound very counterintuitive,” but allowing exports will ultimately benefit US consumers.

Recent surges in American oil production have indeed led to lower oil and fuel prices, which may well continue to fall, he said. But the type of oil extracted from American shale fields is largely light crude and can’t all be domestically refined into gasoline and other fuels because most US refineries are geared toward processing heavy crude.

Crude oil gushing from shale fields in North Dakota is a major factor in the surge in domestic oil production. The surplus has led to a debate over whether it is time to lift US restrictions on oil exports.
Karen Bleier/AFP/Getty Images
Crude oil gushing from shale fields in North Dakota is a major factor in the surge in domestic oil production. The surplus has led to a debate over whether it is time to lift US restrictions on oil exports.
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The result is US producers have to “discount” the price of the oil they sell to refiners with the capacity to handle light crude. If US oil production increases in coming years, as many analysts predict, a glut of domestic oil would be created, forcing producers to further discount prices, said Ebinger. At some point, falling prices will make it economically unattractive for companies to extract oil from domestic shale fields, leading them to curtail production and wiping out some of the economic benefits now enjoyed by consumers and businesses, warned Ebinger.

But if US oil producers can export their surplus light crude, which then could be refined and resold in foreign countries, then global oil prices would fall as more competition is introduced into world markets. “We should see prices drops in all areas of petroleum products,” said Ebinger.

Critics of lifting the export ban scoff at such reasoning, insisting that US oil companies looking to sell crude at higher prices would mainly benefit.

Jeffrey Peck is a lobbyist for Consumers and Refiners United for Domestic Energy, a group backed by major US refineries opposed to changing export policies. Peck said there’s no doubt refineries profit from lower crude prices from US suppliers.

But consumers and businesses benefit as well, said Peck. “There’s a reason why the arguments [of lifting the ban] are counterintuitive,” said Peck. “It’s because the arguments make no sense.”

He said there’s “no way” the Organization of Petroleum Exporting Countries, a cartel of oil-producing nations, would let US producers drive down global prices. OPEC nations would merely respond by cutting their production to limit global supplies and keep prices high.

“It’s a ridiculous proposition to think OPEC will do nothing,” said Peck.

The ultimate decision about lifting the export ban may well come down to the Obama administration — or Congress.

Though the White House insists its recent rulings allowing some oil exports don’t amount to an official policy change, the administration has acknowledged it’s currently reviewing oil export rules and laws. Under the 1975 bill that created the export ban, the president has wide executive powers to alter or even eliminate the restrictions.

In addition, the administration has recently loosened restrictions on the export of domestic natural gas — also in the midst of a production boom — by approving construction of three new liquefied natural gas- export terminals.

The administration’s recent moves on oil and natural gas are winning support from an unlikely source: Congressional Republicans. Robert Dillon, a spokesman for Alaska’s Murkowski, the ranking Republican on the Senate’s energy committee, said the “administration is moving in the right direction.”

For his part, Markey said he’s disappointed in the signals that the Obama administration is sending about oil and natural gas exports. “This needs to be done openly after extensive debate,” he said, “but we’re not doing that.”

Jay Fitzgerald can be reached at jayfitzmedia@gmail.com.