Obama knows crude export ban is “bad economics,” North Dakota senator says

President Barack Obama arrives to speak on March 22, 2012 at the TransCanada Stillwater pipe yard in Cushing, Oklahoma. (AFP PHOTO/Mandel Ngan)
President Barack Obama arrives to speak on March 22, 2012 at the TransCanada Stillwater pipe yard in Cushing, Oklahoma. (AFP PHOTO/Mandel Ngan)

WASHINGTON — President Barack Obama “understands” the argument for exporting U.S. crude, a leading Democratic advocate said Monday.

“He understands,” Sen. Heidi Heitkamp, D-N.D., said on CNBC’s “Squawk Box.” “He is in that category of understanding. I think his State Department understands how significant this could be to soft power. I think his Energy Department understands that this is bad economics and bad for the resource.”

Heitkamp stressed that she couldn’t speak for the administration, but added that “at the highest level, they understand this policy is not a good policy.”

Still, when it comes to the politically treacherous subject of widely exporting U.S. oil — which has been under heavy restrictions since the 1970s — “everybody wants to get together and . . . make a bipartisan decision to do this,” Heitkamp added.

Heitkamp has been working with Sen. Lisa Murkowski, R-Alaska, to end the ban on crude exports, alongside a similar effort led by Rep. Joe Barton, R-Ennis, in the House.

All three face the same challenge: Lining up sufficient bipartisan support — with plenty of Democrats joining Republicans in the push for oil exports — to strip the issue of some of its political risk.

Related story: Ending oil export ban could help little guys too, small businesses tell House panel

In recent weeks, Barton has been able to lure more cosponsors for his bill, with seven Democrats and 61 Republicans now on board.

And the leading Murkowski-Heitkamp measure in the Senate now has 14 cosponsors. Although Heitkamp is the lone Democrat on that bill, Sen. Joe Manchin, D-W.V., has signed onto a similar, slightly more limited Heitkamp alternative.

The lineup suggests Murkowski has enough support to advance her pro-exports legislation through the Energy and Natural Resources Committee she heads, assuming Manchin is willing to join the effort.

Where it would go from there is unknown. Oil producers who want the freedom to export U.S. crude have been meeting with lawmakers to make their pitch, aiming to bolster the Barton, Murkowski and Heitkamp bills.

Heitkamp divided support into two camps: Those who “get it” and those are “going to do something about it.” “We have a lot of support for ‘yeah, I get it,'” she said. Moving people into that next camp is the goal.

The Senate hasn’t had a test vote yet, though the prospect of potential votes on recent export amendments forced some senators to begin weighing the issue.

“Frequently, in the Senate, people don’t make decisions until they absolutely have to,” Heitkamp noted. “Quite frankly, I think we have enough people that understand the economics of this that if we are voting straight up economics we win.”

Although most raw U.S. crude is barred for export, refined petroleum products, such as gasoline and diesel, can be freely sold overseas. There also are exceptions for some Californian crude, oil extracted on Alaska’s North Slope and shipments to Canada.

Some Northeast refiners are battling a change in trade policy, arguing that it would put them at a competitive disadvantage to European counterparts who could buy American oil and ship it on non-U.S. tankers for cheaper than they could.

And skeptics in Congress and the Obama administration argue that it makes little sense to change the policy when the U.S. is still importing foreign oil, partly to supply domestic refineries with a heavier-grade crude.

But domestic oil producers say the longstanding export ban is suppressing U.S. crude prices — now trading at about a $3.40 per barrel discount to the international Brent crude benchmark. The Brent-WTI differential has hit double digits in recent years.

“Our oil is literally trapped here because of a ban,” Hess Corp. CEO John Hess said on CNBC. “We export 3.5 million barrels a day of refined products — gasoline and heating oil. Why don’t we export the crude that makes those products? It makes no sense. I don’ know any other industry that’s treated this way.”

Amid relatively low oil prices, if U.S. producers capture just a small amount of that Brent-WTI differential, it could lead to more investment in domestic drilling and development, ConocoPhillips CEO Ryan Lance said.

“If you can sell us crude at a global price and eliminate that artificial differential that exists between global prices and U.S. prices for crude, it will increase the cash flow for companies like mine,” Lance said on CNBC. “And reinvestment will go back into the business, which will drive production down the road.”