GAO sees differing crude, product price impacts with more exports

Removing US crude oil export restrictions would likely increase crude prices and decrease consumer fuel prices, the Government Accountability Office said in a recent report. It also called for a reexamination of the size of the US Strategic Petroleum Reserve.

Removing US crude oil export restrictions would likely increase crude prices and decrease consumer fuel prices, the Government Accountability Office said in a recent report. It also called for a reexamination of the size of the US Strategic Petroleum Reserve.

The report said studies project that removing existing crude export restrictions would raise US production, which averaged 8 million b/d in April, by 130,000-3 million b/d from 2015 to 2035. US crude prices could rise $2-8/bbl as a result, bringing them closer to international levels, it indicated.

“At the same time, studies and some stakeholders suggest that US prices for gasoline, diesel, and other consumer fuels follow international prices,” the report said. This suggests that allowing more US crude exports would increase global supplies, which is expected to lower international prices and subsequently reduce consumer fuel costs, it said.

“Some stakeholders cautioned that estimates of the implications of removing export restrictions are uncertain due to several factors such as the extent of US crude production increases, how readily US refiners are able to absorb such increases, and how the global crude oil market responds to increasing US production,” the report said.

More US crude production could pose risks to the quality and quantity of surface groundwater sources, raise greenhouse gas and other emissions, and increase the risk of spills from transporting crude, it added.

“Removing export restrictions is expected to increase the size of the economy, with implications for employment, investment, public revenue, and trade,” the report said. “For example, removing restrictions is expected to contribute to further declines in net crude imports, reducing the US trade deficit.”

SPR implications

Changing market conditions have implications for the size, location, and composition of US Department of Energy’s Strategic Petroleum Reserve, GAO investigators also found.

“In particular, increased domestic crude production and falling net imports may affect the ideal size of the SPR,” their report said. “Removing export restrictions is expected to contribute to additional decreases in net imports in the future.”

It noted that, as an International Energy Agency member, the US is required to maintain public and private reserves totaling 90 days of net imports. As of May, the SPR held 106 days of reserves, worth about $73 billion, while private industry held reserves for 141 days, it said.

“DOE has taken some steps to assess the implications of changing market conditions on the location and composition of the SPR but has not recently reexamined its size,” the report said. Without such a reexamination, DOE cannot be assured that the SPR is the appropriate size, and risks holding excess crude which could be sold to fund other national priorities, it said.

Responding to a draft of the report, DOE concurred with GAO’s recommendation to reexamine the SPR’s operations, but added that it should examine issues in addition to size which are relevant to SPR’s mission of providing energy security to the US.

‘A welcome addition’

US Sen. Lisa Murkowski (R-Alas.), the Energy and Natural Resources Committee’s ranking minority member who requested the report, called it “a welcome addition to the growing body of analysis supporting the case for greater oil exports.”

She said, “Removing export restrictions is expected to increase the size of the economy, with implications for employment, investment, public revenue, and trade.”

GAO’s report confirms numerous other studies’ findings that removing crude exports could provide incentives for more US production, create more jobs, lower the trade deficit, and put downward pressure on gasoline prices, American Petroleum Institute Chief Economist John C. Felmy observed.

“The US is now an energy superpower, but our trade policies remain stuck in the 1970s,” Felmy said, adding, “The GAO report simply confirms what economists like [IHS Vice-Pres.] Daniel Yergin and [former US Treasury Sec. Lawrence H.] Summers have been saying for months, which is that American consumers and workers will be among the first to benefit if we lift restrictions on crude exports.”

Meanwhile, Jeffrey J. Peck, a spokesman for Consumers & Refiners United for Domestic Energy (CRUDE), told OGJ by e-mail that GAO’s study initially looks like a compilation of conclusions favorable to producers, although it points out that the effects of removing export restrictions depend on several uncertainties.

“Notably, in the survey of likely New Hampshire voters conducted by the University of New Hampshire Survey Center, 78% of the respondents want the government to be certain about the impact of crude oil exports on gasoline prices before the current law is changed,” Peck said.

“Thus, policymakers face a huge political risk if they vote to allow exports without being certain of the effect on gasoline prices—and they cannot come close to being certain, as the GAO report notes,” he said.

Contact Nick Snow at nicks@pennwell.com.

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