Battle lines drawn at crude export hearing

WASHINGTON — Deep divisions over selling American crude overseas — and big fears about what it might do to gasoline prices — were on display Thursday as the Senate held its first hearing on oil exports in a quarter century.

Continental Resources CEO Harold Hamm squared off with a Delta Airlines executive in the thorny policy debate over the nation’s 39-year-old ban on exports of unprocessed crude. Lawmakers, the oil industry and the Obama administration are weighing whether to preserve a ban created after the 1970s OPEC oil embargo now that U.S. crude production is surging.

Read more: U.S. oil surge stirs up political dilemma

The current dynamic benefits many of the nation’s refiners, which are processing lower-priced crude and have been selling record amounts of the resulting gasoline and diesel overseas.

“Major oil companies are exporting refined petroleum products without any limitations,” said Hamm, whose Oklahoma City-based firm is an independent producers, with no downstream refining operations. “Why shouldn’t independent producers be allowed to do the same? Are we going to be their milk cows forever?”

But Graeme Burnett, Delta Airlines’ senior vice president for fuel optimization, said lifting the ban would benefit only oil exploration and production companies, “at the expense of the American consumer who would pay more for gasoline, more for heating oil and more for the price of an airline ticket.”

In addition to its status as a big user of jet fuel, Delta is also a refiner, having purchased the Trainer refinery complex near Philadelphia from Phillips 66 two years ago.
Domestic price concerns — and not fears about U.S. energy security — dominated Thursday’s debate.

Sen. Ron Wyden, D-Ore., the chairman of the Senate Energy and Natural Resources Committee that held the hearing, said his “litmus test is how middle class families are going to be affected.”

“American families and American businesses deserve to know what exports would mean for their specific needs when they fill up at the pump or get their delivery of heating oil,” Wyden said. “Simply charging forward and hoping for the best is not the way you get the best policy decisions.”

At least two senators pressed witnesses to shed light on how oil prices affect the cost of gasoline, with Democratic Sen. Joe Manchin wondering why “we keep talking about energy independence,” but drivers in his home state of West Virginia are still paying high prices at the pump.

Amy Myers Jaffe, executive director for energy and sustainability at the University of California, Davis, said the answer was the “tyranny of geography” — that location of oil production and refining capacity, as well as bottlenecks along the way, can translate into big differences in pricing.

Supply bottlenecks — whether created by absent pipelines or regulatory policies — can exacerbate regional distortions, Jaffe said.

She suggested that if the ban were lifted, the nation could moderate gasoline price swings by mandating stockpiles, an option she said Japan and Europe have adopted.

Most of the discussion avoided talk of global politics — such as how the Organization of the Petroleum Exporting Countries might respond to new U.S. crude on the global market or whether the  ban violates World Trade Organization rules.

But Daniel Weiss, a senior fellow at the Center for American Progress stressed that while domestic production is soaring today, it might not last forever. That echoes the warning of some analysts who see potentially precipitous production declines evidenced by oil companies increasing capital expenditures for decreasing crude harvests.

The government’s Energy Information Administration projects that crude production will peak in 2019, before beginning a long, slow taper.

“This energy abundance could be a temporary phenomenon,” Weiss said.

Sen. Lisa Murkowski, R-Alaska, who informally kicked off the export debate with a Jan. 7 speech, argues that the administration has plenty of latitude to change the policy on its own, perhaps by determining that the light, sweet crude flowing out of American fields cannot “reasonably be marketed” in the U.S. — an exception under the 1975 export ban. Many U.S. refiners are geared toward processing heavier varieties, though some are adapting facilities to take advantage of domestic sweet supplies.

Sen. Rob Portman, R-Ohio, suggested that the U.S. could authorize swaps of American light sweet oil with heavy crude from Mexico.

Another option could be to relax the ban for certain unprocessed products, such as the condensate flowing as a byproduct out of some wells.

But two export foes — Sens. Ed Markey, D-Mass., and Robert Menendez, D-N.J., — bluntly warned President Barack Obama in a letter Thursday that the administration can’t act alone. The Commerce Department “does not possess the authority to authorize new categories of crude exports on its own,” they said.

One thing was clear Thursday: Any resolution to the debate over crude oil exports is a long way off.

“I don’t expect that we’re going to see either the administration moving forward with a decision next week or legislation coming from me or other members (soon),” Murkowski said.

“This conversation is not going to be resolved any time over the next few weeks,” Wyden said, promising that while the session was “the first hearing on this topic, it will not be the last.”