By Deon Daugherty
Recent sessions of Congress have been notoriously slow to act, but there could be a different outcome this year if a tidal wave of independent producers, public sentiment and key makers reaches the shores of the Potomac.
Harold Hamm, CEO at Continental Resources Inc., a longtime advocate for repealing the ban told CNBC this week there is a “huge mismatch” between the heavy crude that U.S. refineries are equipped to service and the glut of light, sweet stuff pouring from the nation’s shale.
“It’s not good for producers and it’s certainly not good for consumers to be on this roller coaster because it all comes back about the primary problem of what we [can’t] export,” Hamm said. “We can’t access the world markets that should be available to us.”
Exxon Mobil Corp. CEO Rex Tillerson told a crowd at IHS CERAWeek 2015 that if the stars aligned between federal regulators and the industry, the U.S. could be a net energy exporter by the end of the next decade.
So you could say that when U.S. Sen. Lisa Murkowski, R-Alaska, introduces the legislation she announced recently that would repeal the ban on U.S. crude exports this year, she’s got some momentum from the industry.
Murkowski, now chair of the U.S. Committee on Natural Resources, was backed up during an IHS CERAWeek panel by industry titan Ryan Lance who is siding with the need for change.
Lance, CEO of Houston-based ConocoPhillips, said that continuing to ban the export of U.S. crude to exports is contrary to domestic economic growth.
As Lance explained, many U.S. refineries aren’t configured to run the light sweet crude produced so abundantly from the nation’s shale plays.
“They’re built for heavy oil out in Canada, Venezuela and Mexico, so there’s a mismatch between the new production that we’re bringing on as an industry and the refining capacity that we have in our country today,” he said.
To process light crude, U.S. refiners must operate inefficiently or at reduced rates, which challenges their economics because they have to buy the oil at a discount. If the price of Brent is $59 per barrel today, that discount ranges from $50 to $10 a barrel of that Brent price.
“That discount does hurt U.S. producers. Some projects becoming uneconomic below $70 a barrel; and certainly the vast majority become uneconomic below $40. So, that discount is a real threat to U.S. production growth. Simply put, the U.S. should export the oil it cannot economically process at home,” he said.
“The current ban on exporting crude oil is an anti-consumer policy,” Lance said, adding that to lift the ban would drop gasoline prices down, increase greater supply diversity from various stable sources. In short, the United States has a profound opportunity to influence the global commodities market.
Indeed, several economic studies have indicated that exporting crude would lower prices at the pump. IHS has estimated a decline of 8-cents per gallon of motor fuel; the Brookings Institute has projected a decline of 9-cents and Resources for the Future has said the decline could be up to 4.5-cents per gallon.
The American Petroleum Institute, a think tank in the nation’s capital, has long supported a repeal of the ban.
“America’s growth as an energy superpower has been a game-changer, but our trade policies are stuck in the 1970s,” Erik Milito, API’s director of upstream and industry operations told Rigzone. “Study after study shows that free trade in crude oil would promote the creation of U.S. jobs, put downward pressure on fuel costs, and reduce the power that foreign suppliers have over our allies.”
Lance noted the proliferation of shale had “shifted oil markets’ center of gravity,” and as such, the United States now has an abundance of light, sweet crude, but its refineries are designed for the heavier stuff.
“The U.S. should export the oil it cannot refine at home,” he said, adding a new energy policy would continue for the nation to import heavy stuff from the refineries in the United States.