An issue that will soon come to the forefront is the potential easing of export restrictions on crude oil.
For those that don’t know, primarily as a result of the wage and price controls of the Nixon administration, the U.S. is generally prohibited from exporting crude oil. These export restrictions (which come from several different statutes) relied generally on the idea that the U.S. was resource scarce with growing demand. With low prices, domestic demand grew and our production declined resulting in a situation where we were importing something like 60% of our crude oil.
Now we are faced with a complex situation where it makes sense to remove these restrictions. Behind the scenes the Obama administration is likely in favor of easing these restrictions, but they will tread lightly as this is a sensitive and misunderstood problem.
Misunderstandings generally arise because the public has been hearing for 40 years how we are resource scarce. It is confusing why we would need to export when we are still a large net importer.
Last week the Senate Energy Committee held a hearing on Crude Oil Exports. An archived video of the hearing can be found here. I was impressed with the tone and bipartisanship as well as the intelligent viewpoints and questions demonstrated in the hearing. Specifically, I thought Senators Wyden, Landrieu, and Murkowski were all very impressive in their ability to keep the meeting on point and generally void of typical BS talking points and one-liners.
The general issue is as follows. We allow without restrictions the exporting of refined petroleum products, but we do not allow the exporting of crude oil. The U.S. refinery system is geared to run on heavy crude oil. Much of the oil being produced as part of the shale plays is light. We now have a glut of light crude, which will soon grow to a point where we can not handle it in our refineries. We also have issues where we have regional gluts causing market distortions as the transportation system has not kept pace with the production gains. The primary beneficiary of this system are the refineries. Refined products such as gasoline and diesel are generally more correlated to global crude oil prices. Our situation in the U.S. is leading toward artificially low crude oil prices (U.S. crude being well below international crude prices). This has led to increased profit margins for refineries.
Following the midterm elections, I expect Obama to make a few minor changes. For example, crude oil condensate that is a byproduct of natural gas processing is allowed to be exported. Condensate separated out at the field level is not. On a molecular basis there is no difference, so the disparate treatment under the law is nonsensical. Obama can change this and likely will via executive order. Major change, however, requires legislation. I certainly do not expect the Obama administration to take a policy position on this prior to the mid-term elections, but I believe they ultimately will come out in favor of easing these restrictions.
I thought I would start this thread as a general debate topic to talk about the easing of exports of crude oil.