Calls to Drop 1970s-Era U.S. Oil Export Ban Stir Fight

Calls to Drop 1970s-Era U.S. Oil Export Ban Stir Fight

Almost four decades after the Arab oil embargo, political leaders are beginning to contemplate what was once unthinkable: lifting restrictions on the export of U.S. crude oil.Senator Lisa Murkowski of Alaska, the top Republican on the Senate’s energy committee, and the American Petroleum Institute held events yesterday to push for an end to the export ban. U.S. Energy Secretary Ernest Moniz has said it’s time to revisit the policy amid forecasts the U.S. will surpass Saudi Arabia and Russia to become the world’s largest oil producer by next year.

“This may well be the biggest energy issue of 2014,” Daniel Yergin, author of “The Quest: Energy, Security and the Remaking of the Modern World,” said in a phone interview. “Our logistics, our laws and our thinking are all having to play catch up with the dramatic change in the U.S. energy position” in recent years, he said.

Lifting the ban will run into political resistance, and it could take years, analysts said. Opponents, including some prominent Senate Democrats, yesterday said lifting the ban would enrich oil companies and drive up gasoline prices for consumers, signaling a contentious debate ahead.

Senator Edward Markey, a Massachusetts Democrat, said exporting U.S. crude “would hurt American consumers, businesses, and play right into the hands of” the Organization of the Petroleum Exporting Countries, a group of 12 nations that collectively influence world oil prices. Markey, in a statement, said that he will soon issue reports detailing the impacts that exporting crude will have on the nation’s economy and consumers.

2014 Elections

Murkowski, in a talk at the Brookings Institution in Washington, said President Barack Obama has the legal authority to end the restrictions now, and that she’s prepared to introduce legislation to modify the law if the president doesn’t act. She acknowledged that congressional elections in November will probably damp lawmakers’ desire to take up the export ban.

“We are already into full campaign season in terms of the 113th Congress,” she said. “When that happens, it’s just more difficult to advance legislation.”

Nonetheless, the conversation on easing restrictions that came to epitomize the U.S. energy crisis of the 1970s has begun.

Exxon, Chevron

Supporters such as Murkowski, whose state is the fourth-biggest U.S. oil producer by volume, and the American Petroleum Institute, a Washington-based industry group that lobbies on behalf of members including Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX), say it would increase domestic production and push down global oil prices.

“There are a lot of issues in the energy space that deserve some new analysis and examination in the context of what is now an energy world that looks nothing like the 1970s,” Moniz said at a conference in New York last month.

White House and Energy Department spokesmen declined to comment yesterday on the calls to end the ban. Eugene Cotilli, a spokesman for the Commerce Department’s Bureau of Industry and Security, which oversees export restraints, said the agency didn’t have a response to questions.

Murkowski’s remarks — the most pointed yet on the issue by a member of Congress — come as a plunge in oil imports pushed down the November U.S. trade deficit to $34.3 billion, the lowest in four years, according to U.S. Commerce Department data released yesterday. This is due in part to advances in drilling techniques that have propelled U.S. output to records.

Rising Exports

While exporting crude oil from the U.S. is mostly banned under a 1975 law, the Commerce Department can issue licenses for exceptions, according to the Congressional Research Service. Exports rose 57 percent to 105,000 barrels a day in the first eight months of 2013 compared with a year earlier, almost all going to Canada, according to the Energy Department.

The U.S. Energy Information Administration “expects annual U.S. crude oil production to come close to setting a new record high in 2015,” administrator Adam Sieminski said in a statement yesterday. By next year, U.S. oil production could be the highest since 1972, he said.

Imports will account for 24 percent of total U.S. liquid fuel consumption in 2015, the lowest level since 1970. That’s down from 33 percent in 2013 and 60 percent in 2005. Domestic production surpassed imports in October for the first time since 1995.

2019 Peak

In a report last month, the agency said it expects U.S. crude production to peak in 2019.

In recent years, advances in drilling techniques, including a process called hydraulic fracturing in which water and chemicals are injected underground to free oil from rock formations, have unlocked crude trapped in regions such as North Dakota’s Bakken shale.

The production boom has set off a debate in Washington about how to drop the restrictions and what effect it might have on the U.S. economy.

“The worst thing for the government to do is to distort the marketplace,” Jack Gerard, president and chief executive officers of the American Petroleum Institute, said yesterday in a Washington speech. He said U.S. oil producers shouldn’t be bound by a policy set under an oil embargo that ended decades ago.

Opponents say removing the ban will be costly for consumers because U.S. oil companies will look to foreign markets where they can fetch higher prices for their product.

‘Big Oil’

“Lifting the crude oil export ban means Big Oil will export oil until the world price and the American price are the same,” Senator Robert Menendez, a New Jersey Democrat who leads the Senate Foreign Relations Committee, said in an e-mailed statement. “We should keep American oil in America just as we have for the last 40 years.”

Senator Ron Wyden, an Oregon Democrat and chairman of the Senate energy panel, would be interested in holding a hearing on the export restrictions, according to Keith Chu, a committee spokesman.

“Senator Wyden agrees that it’s worth a public debate,” Chu said, noting that Wyden is primarily concerned about the effect on consumers.

While the president may have the authority to end the restrictions, “it’s hard to imagine a scenario where President Obama would choose to do that” because doing so would probably raise oil and gasoline prices , said Daniel J. Weiss, director of climate strategy at the Center for American Progress, a Washington-based research group with ties to the Obama administration.

OPEC Production

Weiss said any increase in U.S. production probably would be met with a decline in OPEC production to keep prices high. Although lawmakers could lift the ban, “that is a multi-Congress project,” he said. “I don’t believe there is adequate time to pass this legislation in this Congress,” he said.

While the restrictions could be eased or removed, “it’s really a political question,” Ian Goodman, president of The Goodman Group Ltd., a Berkeley, California-based energy consultancy, said in a phone interview.

“The restrictions are not beneficial to crude producers,” he said. “They are beneficial to U.S. refiners,” who may have to pay higher prices for crude if the limits were lifted.

Valero Energy Corp. (VLO), the largest U.S. refiner by capacity, opposes lifting the ban, Bill Day, a spokesman for the San Antonio-based company, said yesterday.

Murkowski said she wants Obama to act before a glut of light, sweet crude in the U.S. leads to disruptions in production. Most U.S. refining capacity is geared to handle a heavier grade.

Yergin, vice chairman of IHS Inc., a Englewood, Colorado-based research and consulting company, said consumers could ultimately benefit. “The better supplied the world market is, the more secure we are as consumers,” he said.

To contact the reporter on this story: Brian Wingfield in Washington at bwingfield3@bloomberg.net