Oil export ban repeal would lower gas prices, studies show
The U.S. government has banned oil exports since the energy crisis of the 1970s, but that could change next year as Republicans take control of Congress and are backed by new studies showing that repeal of the ban would actually lower gasoline prices and be a surprising boon to consumers.
Sen. Lisa Murkowski, Alaska Republican and the expected new chairwoman of the Senate Committee on Energy and Natural Resources, has been the leading proponent in Congress for ending the ban, arguing that a sea change in the way oil and gas prices are determined in global markets has turned it into a relic of a past era of fuel scarcity, one that is increasingly harming the outlook for the nation’s booming shale oil industry.
Ms. Murkowski cites studies by the General Accountability Office and private firms that found lifting the ban would do the opposite of what politicians and consumers have always expected. Rather than raising gas prices as more U.S. oil is sent to global markets, it would drive pump prices down thanks to a recent change in the way gas prices are set.
“The price American drivers pay for gasoline at their local station is linked to the price of oil set by the global market,” she noted recently. “Exporting U.S. oil to our friends and allies will not raise gasoline prices here at home and should, in fact, help drive down prices” by lowering the global price for oil.
Ms. Murkowski’s argument is likely to get backing soon from an authoritative source: The Energy Information Administration is due to publish a definitive report on the subject, and is expected to largely agree with private assessments that the prices for gasoline, diesel and jet fuel would go down or be little changed by a resumption of U.S. crude exports.
Despite the growing arguments for lifting the ban, analysts expect Ms. Murkowski to go slow in broaching the subject in Congress next year because of lingering opposition and political minefields that might be laid by Democrats. Energy Secretary Ernest Moniz a year ago said he was open to the idea and would study it, but he has since backpedaled in the face of objections raised by congressional Democrats. In recent statements, he has stressed that the U.S. needs to be cautious as it still must import a lot of oil to meet its own needs.
“Changes to export policies are controversial and complicated,” said Josh Zive, analyst at Bracewell & Giuliani, noting that two key Democratic senators this summer erupted in anger when the Department of Commerce unexpectedly loosened its export licensing restrictions for lightly processed condensates produced in shale wells — a move that was welcomed by the shale drilling industry and led to a surge in crude exports since June.
The ban, imposed in the wake of the 1973 Arab oil embargo, allows the sale abroad of refined fuel such as gasoline and diesel but blocks most exports of oil itself. Canada is the one major economy not affected by the ban.
The Commerce Department move was hailed as a step toward lifting the export ban, but the department vehemently denied any change in policy after receiving a tongue-lashing afterwards from Sen. Edward J. Markey, Massachusetts Democrat, and Sen. Robert Menendez, New Jersey Democrat. That episode showed how some liberal Democrats are still determined to preserve the ban and are likely to fight any effort to end it, Mr. Zive said.
Moreover, the export issue is complicated by the fact that it pits drilling companies against another powerful petroleum industry interest group — refiners — which benefits from today’s depressed prices for U.S. crude oil and which has objected to allowing the oil to be exported to markets overseas, where it would fetch higher prices, he said.
“Refiners and elected officials concerned about U.S. gasoline prices have defended existing restrictions as being in the best interest of U.S. consumers and national security,” he said. “Because of the difficult commercial and political issues involved in the energy export debate, it is unlikely that the president and the Congress will agree on any large policy [changes]. In the short term, legislative movement will likely be slow and incremental.”
But many economists and oil experts say the need for change on the export ban could get urgent next year.
Rapidly falling oil prices, which have dropped below $80 a barrel for premium crude in New York this month from well over $100 during the summer, are putting a major pinch on shale drillers, many of whom cannot make money if the price goes much lower and may have to start cutting back production.