Senate crude exports hearing raises price, logistics, safety issues

Potential consumer price impacts dominated a US Senate Energy and Natural Resources Committee hearing examining whether to allow more exports of domestically produced crude oil. Witnesses agreed that permitting more US crude to be sold abroad could provide benefits, but were divided on whether changes need to be made in the Jones Act and other transportation regulations.

Potential consumer price impacts dominated a US Senate Energy and Natural Resources Committee hearing examining whether to allow more exports of domestically produced crude oil. Witnesses agreed that permitting more US crude to be sold abroad could provide benefits, but were divided on whether changes need to be made in the Jones Act and other transportation regulations.

Transportation safety also is an issue, Ranking Minority Member Maria E. Cantwell (D-Wash.) said at the Mar. 19 hearing. “You want a pipeline? Play by the rules. You want to transport it by train? Don’t skirt safety regulations,” she said as the Mar. 19 hearing ended. “Right now, we don’t have enough standards in place to make sure that’s the case.”

“The critical issue is price,” said Carlos Pasqual, a Senior Vice President at IHS who formerly was Special Envoy and Coordinator for International Energy Affairs at the US Department of State. “Every single study that’s been done by a major institution has concluded that lifting the export ban would reduce the cost of US gasoline, which is tied to Brent crude prices and not West Texas Intermediate. If we export crude, we add to the supplies that determine that Brent crude price.”

“In a domestic market awash with oil, keeping 1970s-era export restrictions in place discriminates against US producers and threatens investment in new supply, thereby jeopardizing economic, security, and trade gains from the energy boom,” said Elizabeth Rosenberg, a Senior Fellow and Director of the Center for a New American’s Security’s Energy, Economics & Security Program.

“Policymakers should lift the oil export ban to bring export policy in line with present market circumstances, to promote free trade and responsible growth in the sector, and to reap the geopolitical advantages of having a larger and more flexible role in the global oil market,” she told the committee.

“It is clear that exporting ‘made in the USA’ oil will benefit consumers,” said ConocoPhillips Chief Executive Ryan Lance. “There is compelling evidence that lifting the ban will help reduce gasoline prices, while also protecting and creating jobs, and spurring economic stimulus across our nation. The studies also note that lifting the ban will provide our government with significant revenue.”

Transportation issues

But 2 more witnesses representing US refiners said simply allowing more US crude to be exported would be a mistake if price disparities created by long-standing domestic transportation policies are not addressed. “There are a number of anti-free market policies that, if they are left unaddressed, will affect competitiveness of US light crude,” American Fuel & Petrochemical Manufacturers Pres. Charles T. Drevna said. “This debate also needs to be grounded in facts. For refiners, getting the crude is a bigger issue than processing it.”

“We need to look at a more complex and holistic solution,” suggested Jeffrey Warmann, Chief Executive of Monroe Energy LLC, which operates a refinery in Trainer, Pa. “There are markets in which to put the lighter ends on the Gulf Coast that are not present in the Bakken, where it has to be flared. I’d also look at the condition and inspection of the railroads. The [oil] industry is moving toward more sophisticated rail cars, but nothing has been put on the railroads concerning the condition of their tracks.”

US producers and refiners alike are at a competitive disadvantage, witnesses told the committee. “For me, it’s a matter of transportation,” Warmann said. “It costs me $3/bbl by pipeline and $5/bbl by maritime to get US light crude versus $2/bbl for Brent.”

Domestic producers also get up to $10/bbl less than overseas competitors because so much US light crude is effectively stranded, Lance said. “Every $1 difference is money we would reinvest back into this economy and create high-paying, blue collar jobs,” he said. “If the difference continues, companies will want to make Brent-based, rather than WTI-based, investments.”

In a statement submitted before the hearing, the National Stripper Well Association said continuation of a US crude export ban is harming the nation’s smallest producers’ ability to finance, invest in, and advance domestic crude production.

Contact Nick Snow at nicks@pennwell.com.

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