U.S. pro­duc­ers by­pass ban on ex­port­ing crude

The Washington Times Weekly - - National - BY PA­TRICE HILL

Even as big U.S. oil com­pa­nies call for an end to a 1970s-era law ban­ning ex­ports of crude, they are ex­ploit­ing a loop­hole that last year en­abled them to ex­port record amounts of gaso­line and other petroleum prod­ucts.

The loop­hole al­lows oil com­pa­nies to ex­port prod­ucts that they re­fine from crude oil, though not the crude it­self. With a ma­jor sur­plus of high-qual­ity crude ex­tracted by shale oil wells from Texas to North Dakota — and a de­clin­ing ap­petite among Amer­i­can driv­ers — the lit­tle-known pro­vi­sion has re­sulted in an was dou­ble the 1.7 mil­lion five years ago.

“The U.S. is one of the largest petroleum ex­porters in the world,” even with­out lift­ing the ban on crude ex­ports, said En­ergy In­for­ma­tion Ad­min­is­tra­tion chief Adam Sieminski.

He said the U.S. is ex­port­ing gaso­line pri­mar­ily to Latin Amer­ica and diesel to Europe. He ex­pects the U.S. to be­come a net ex­porter of nat­u­ral gas and petroleum by 2017. The U.S. al­ready is ex­port­ing a lot of liq­uids that are pro­duced as byprod­ucts of drilling for nat­u­ral gas, such as naph­tha and con­den­sates, he said.

“It’s a trade op­por­tu­nity for the U.S.,” he told the Nat­u­ral Gas Round­table last week, al­though the rapid ex­pan­sion of ex­ports does raise ques­tions about fuel costs for Amer­i­cans be­cause they will be com­pet­ing with con­sumers over­seas who gen­er­ally pay higher prices.

Fuel prices in Europe are sig­nif­i­cantly higher than in the U.S., so lower-priced U.S. fuel is in de­mand. Coun­tries in Cen­tral Amer­ica, South Amer­ica and Africa im­port gaso­line and other re­fined prod­ucts from the U.S. be­cause their own re­finer­ies can­not meet grow­ing de­mand for fuel. Mex­ico im­ports gaso­line from the U.S. while ex­port­ing much of its crude oil to U.S. Gulf Coast re­finer­ies be­cause they have the tech­nolo­gies and fa­cil­i­ties needed to con­vert heavy crude into con­sum­able prod­ucts.

Stealth boon

The stealth surge in petroleum ex­ports drove down the U.S. cur­rent ac­count deficit to $81 bil­lion — the low­est in 14 years — in the fi­nal quar­ter of 2013. For all of last year, the trade deficit fell to $474.9 bil­lion from $535.7 bil­lion in 2012.

“The de­clin­ing trade deficit is good news,” and it is largely be­cause of rapidly grow­ing ex­ports of sur­plus petroleum prod­ucts in the past five years, said Jerry Jasi­nowski, for­mer pres­i­dent of the Na­tional As­so­ci­a­tion of Man­u­fac­tur­ers. “All of a sud­den the U.S. en­ergy pic­ture — thanks to re­fine­ments in frack­ing tech­nol­ogy — is much more ro­bust than any­one thought pos­si­ble.”

Be­cause U.S. shale oil must be re­fined at fac­to­ries on the Gulf Coast, East Coast or West Coast be­fore it is sent over­seas, the re­fin­ing re­vival also has con­trib­uted in a big way to the re­bound in U.S. man­u­fac­tur­ing out­put, ex­ports and jobs since the re­ces­sion. In­vest­ment in oil- and gas-pro­duc­ing fa­cil­i­ties has led all in­vest­ment by U.S. businesses in re­cent years.

More­over, the avail­abil­ity of in­ex­pen­sive oil and nat­u­ral gas has been an elixir for other U.S. man­u­fac­tur­ers and ex­porters that are heav­ily de­pen­dent on en­ergy, in­clud­ing plas­tics, chem­i­cals and agri­cul­ture. As a re­sult, the en­ergy re­vival has fed a re­nais­sance in man­u­fac­tur­ing. That, in turn, has served to drive up U.S. ex­ports of goods and ser­vices by 3 per­cent in the past year, help­ing nar­row the trade deficit.

“The fall­ing trade deficit is a clear con­fir­ma­tion of our com­pet­i­tive gains in both en­ergy and man­u­fac­tur­ing,” said Mr. Jasi­nowski.

Like Mr. Sieminski, he noted that the en­ergy ex­port boom has only be­gun. Con­struc­tion is un­der way on sev­eral ex­port ter­mi­nals for liq­ue­fied nat­u­ral gas, which the U.S. has the abil­ity to pro­duce in abun­dance as a re­sult of the shale revo­lu­tion.

“By 2016, we will prob­a­bly be ex­port­ing more oil and nat­u­ral gas than we im­port,” and will have achieved en­ergy in­de­pen­dence, he said.

Hit­ting a wall?

While ex­ports of gaso­line have been soar­ing, an­a­lysts say, the trend could be cut short if U.S. re­fin­ers reach a limit on how much sur­plus crude oil they can ab­sorb. Be­fore the pre­mium shale oil boom, U.S. re­fin­ers spent bil­lions of dol­lars re­tool­ing their fac­to­ries to han­dle heavy crude that they ex­pected to im­port from the Cana­dian oil sands, Venezuela, Mex­ico and other sources. Now, they have too much ca­pac­ity for such heavy crude and may be near­ing the lim­its of how much light, sweet crude they can han­dle, some an­a­lysts say.

Michael Fitzsim­mons, an en­gi­neer and en­ergy an­a­lyst, said U.S. re­fin­ers may be un­able to ab­sorb much more sur­plus pre­mium crude. With U.S. re­finer­ies hit­ting ca­pac­ity, par­tic­u­larly those in the huge re­fin­ing com­plex along the Gulf Coast of Louisiana and Texas, he said, they are in a po­si­tion to take ad­van­tage of the crude pro­duc­ers up­stream, forc­ing drilling com­pa­nies to heav­ily dis­count the price of high-qual­ity crude and en­abling the re­fin­ers use the low-cost oil to fat­ten profit mar­gins on their own re­fined prod­ucts.

Re­fin­ers such as Phillips 66, Valero and Chevron have been prof­it­ing at the ex­pense of shale oil drillers such as Con­ti­nen­tal Re­sources and Whit­ing Petroleum, which don’t own re­fin­ing op­er­a­tions, Mr. Fitzsim­mons said.

Mr. Sieminski ques­tioned whether re­fin­ers are likely to reach a point where they can­not ab­sorb any more sur­plus crude oil. He noted that fa­cil­i­ties that process light, sweet crude do not have to be as big and com­plex as the re­finer­ies that process heavy crude, and “there’s a lot of con­struc­tion” right now to build those sim­pler re­finer­ies, called “split­ters.”

Mr. Sieminski es­ti­mated that U.S. re­finer­ies will have added enough split­ters by 2016 to process an­other 800,000 bar­rels of crude oil a day. The gaso­line they pro­duce will go mainly for ex­port.

Calls for crude ex­ports

The re­fin­ing bo­nanza has fu­eled a grow­ing cam­paign to lift the ban on crude ex­ports, which was en­acted dur­ing the 1970s oil cri­sis. Mr. Sieminski said his agency has re­ceived many re­quests from Congress for stud­ies on pos­si­ble ef­fects of crude oil ex­ports, in­clud­ing whether such ex­ports would re­sult in higher fuel prices for Amer­i­cans.

Squeezed by de­clin­ing prices for Mid­west­ern crude, ma­jor oil com­pa­nies such as Cono­coPhillips and Exxon Mo­bil have been ar­gu­ing to lift the ex­port ban so they can earn higher prices over­seas. Cono­coPhillips CEO Ryan Lance noted last month that Mex­ico and many South Amer­i­can and Euro­pean coun­tries have the ca­pac­ity to re­fine pre­mium crude and could serve as out­lets to ease re­straints at U.S. fac­to­ries.

Sen. Lisa Murkowski, Alaska Repub­li­can, has taken the lead in ad­vo­cat­ing an end to the ban in Congress. Short of lift­ing the ban, she said, Pres­i­dent Obama could use his ex­ec­u­tive author­ity to cre­ate ex­cep­tions to the ban if he de­ter­mines it is in the na­tional in­ter­est. For years, the U.S. has ex­ported crude oil from Alaska to Ja­pan, for ex­am­ple, un­der a pres­i­den­tial ex­emp­tion from the ex­port ban.

The Se­nate En­ergy and Nat­u­ral Re­sources Com­mit­tee held a hear­ing on the is­sue of crude oil ex­ports in Jan­uary, and Ms. Murkowski and Chair­woman Mary L. Lan­drieu, Louisiana Demo­crat, asked the En­ergy In­for­ma­tion Ad­min­is­tra­tion last month to study the ef­fects of lift­ing the ban.

“While we are aware that the EIA has limited re­sources and nu­mer­ous reporting re­quire­ments to the Congress, we would like to con­vey the in­ter­est of our com­mit­tee in the is­sue of crude oil ex­ports, which are largely banned by statute,” the law­mak­ers wrote.

Mr. Fitzsim­mons said he doesn’t ex­pect the govern­ment to al­low the ex­port of crude oil, which re­mains a po­lit­i­cally fraught topic. But even the idea that Mr. Obama could ap­prove ex­emp­tions from the ex­port ban is dis­cour­ag­ing re­fin­ers from tool­ing up to han­dle more pre­mium crude, he said, in­creas­ing the pres­sure on shale oil com­pa­nies and their prices for crude.

He ex­pects the re­fin­ing boom to con­tinue at the ex­pense of the shale oil rev­o­lu­tion­ar­ies who made the ex­port boom pos­si­ble. “Shale oil pro­duc­ers will be vic­tims of their own suc­cess,” he said.

AS­SO­CI­ATED PRESS

Oil re­finer­ies are key to turn­ing crude into petroleum prod­ucts that can be ex­ported. Ex­ports of gaso­line, diesel, dis­til­late, propane and other petroleum prod­ucts soared to a record 4.3 mil­lion bar­rels a day in De­cem­ber, more than twice the 2.1 mil­lion bar­rels a day of petroleum prod­ucts that the U.S. im­ported on aver­age last year.

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