A U.S. Department of Energy study says allowing exports of Alaskan North Slope (ANS) crude would increase oil production, state revenues, and jobs without increasing gasoline prices.
But Deputy Energy Sec. Bill White said the administration is not ready to ask Congress to remove the ban on exports until it resolves trade problems involving the use of U.S. flag tankers (OGJ, June 27, p. 21). He said, "Those issues are being weighed very carefully by the administration."
Some maritime groups have endorsed ANS exports if they are shipped in U.S. flag vessels. However, U.S. trade officials say such a requirement would violate treaties and jeopardize U.S. efforts to eliminate shipyard subsidies in other countries.
White said U.S. vessels must continue to be used to ship ANS crude to Lower 48 ports because of the significance of this trade to maritime employment.
He said, "It would be a very difficult decision to make to sacrifice those jobs. There ought to be a way in which everybody wins."
The export ban is contained in the Export Administration Act, which Congress is expected to reauthorize this year. Attempts to drop the ban from the law failed earlier this year.
White pointed out that the 1973 ban is a result of the situation that existed when the Trans-Alaska Pipeline System was built. "Some of the old conflicts that existed then do not necessarily exist today."
Prudhoe Bay field is supplying a little more than 20% of U.S. oil demand but is on the decline curve. "We need to do whatever we can to promote reinvestment in that oil field, to keep it alive."
BENEFITS SEEN
The DOE study said, "Exporting ANS crude would partially relieve the downward pressure on West Coast prices of ANS and California crude oils. Little, if any, increase in consumer petroleum prices would be likely."
It said higher crude prices would lead to more investments, and incremental production in Alaska and California could be as much as 100,000-110,000 b/d by the end of the decade.
Reserve additions in Alaska alone could be as much as 200-400 million bbl, about the size of reserves in major North Slope fields such as Point McIntyre or Endicott.
DOE also said higher prices for oil production would raise royalty revenues. During 1994-2000, federal receipts from royalties and sales of production from the Elk Hills Naval Petroleum Reserve in California would be $99-180 million in 1992 dollars.
Also during 1994-2000, Alaska would gain $700 million to $1.6 billion in severance taxes, income taxes, and royalties, and California's share of federal royalties, and state and local taxes would be $180-230 million.
The study said, "Exporting ANS crude would result in a substantial net increase in U.S. employment. In all cases examined, gains related to increases in oil industry investment and state and federal revenues would be much larger than job losses in the U.S. maritime sector."
It cited exports of ANS crude in non-U.S. flag vessels as the least expensive option, generating higher returns for producers and Alaska. But such shipments would cost as much as 3,300 U.S. maritime jobs because ANS crude is currently moved on U.S. tankers due to the Jones Act requirement that shipments between U.S. ports take place in U.S. flag ships.
"By 1995," DOE said, "the net increase in U.S. employment would be 11,000-16,000 jobs. By the end of the decade, exporting ANS crude could generate 10,000-25,000 jobs. The range of estimates grows over time due to uncertainty in future oil prices.
"The estimate of the level of net job generation is relatively insensitive to whether ANS oil is exported on foreign flag, U.S. flag, or Jones Act tankers.
The report said exporting ANS crude would have no significant environmental implications. It did not outline the implications of changing U.S. maritime law.
"The inability to export excess ANS crude depresses the open market price of ANS crude on the West Coast," DOE said. "This accounts for part, but not all, of the large differential between the refined value of West Coast crude oil and low prices refiners offer producers for indigenous crude oils.
"The result is that the West Coast generates the largest gross refiner margins in the world."
The study said California refiners buy local crude for prices that are 90cts to $2.50/bbl lower than its refined value relative to ANS crude.
"This market bias probably would remain even if exporting ANS crude raises the price of all West Coast crudes.
"The low cost of acquiring West Coast crude oil is not shared with consumers of refined products. West Coast petroleum product prices are, and always have been, at parity with those in other parts of the U.S. despite West Coast refiners' low crude oil costs. The result is a gross refiners' margin on the West Coast that averages $2.40/bbl, or 31% higher than the U.S. average."
The study said the margin on the West Coast is large enough to accommodate an increase in crude oil prices of $1-2/bbl without hampering refinery investments needed to meet future environmental standards.
"Currently, ANS and California crude oil production still exceeds West Coast requirements, although ANS production has fallen to the point that relatively little is being sold into the Gulf Coast spot market.
"If ANS production continues to decline sharply, the surplus may evaporate in the next few years. On the other hand, ANS production has shown a resilience that defies pessimistic predictions of some market analysts."
Copyright 1994 Oil & Gas Journal. All Rights Reserved.
