Oil price: Lifting US crude export ban would support growth

According to a study released by consultancy IHS Inc. on Thursday, and paid for by oil production and service companies including ExxonMobil, Chevron, and ConocoPhillips, ending the US ban on exporting crude oil might prop up the country’s production by more than one million barrels a day on average during 2016-30, and add more than $1 trillion to government revenue through 2030.

“This would be a significant economic stimulus that would be paid for by the private sector, not by the government – in fact the government would make a lot of money,” Daniel Yergin, an energy historian and IHS vice chairman, said in an interview with Reuters.

IHS argues that the US oil system is set for an imminent ‘Gridlock’, because of a “mismatch between the rapid growth of light tight oil and the inability of the US refining system to economically process these growing volumes.”

In their estimates, lifting the 70s-era ban would allow for crude to be exported to foreign refineries, increasing overall US production from 8.2 million barrels per day currently to 11.2 million, and adding investment of nearly $750 million. The move would also narrow price differences between US benchmarks and their international counterparts.

“The driver, or the consideration, is that the nature of oil we’re producing may not be well matched to our current refinery capacity,” US Energy Secretary Ernest Moniz said in an industry event in Seoul on May 13. “Bakken in North Dakota and Eagle Ford in Texas shale produce very light oil that is not well-connected by infrastructure to the refineries that can process it.”

The consultancy attempts to invalidate the assumption that permitting exports would lead to higher domestic gasoline prices in the US. The reason they cite is that “unlike crude oil, [US gasoline] is part of a globally-traded gasoline market, meaning that US prices at the pump reflect global prices.”

The current policy limits the inflow of additional crude supplies to the market, which “makes gasoline prices higher than they otherwise would be.” Supplies that would emerge if the ban was lifted would cut gasoline prices by an annual 8 cents per gallon, which would translate as combined savings for “US motorists during the 2016-2030 period” of $265 billion.

The change in policy would create or support almost one million jobs by 2018, according to IHS.

Daniel Yergin, IHS vice-chairman, claimed the ban first introduced in 1975 had made sense only to support the US oil price controls of the 1970s, but had become superfluous since the lifting of those controls in 1981.

The US oil industry has been divided over whether to support the ending of the ban or not. While producers, such as Continental Resources, were in favour of it being scrapped; refiners including Valero Energy call for it to be retained, according to the Financial Times. Refiners benefit from using the lower-priced US crude.

If US production continues to outpace demand from refineries, the price of the West Texas Intermediate and the Light Louisiana Sweet crude might witness a further decline in their value relative to the internationally traded Brent benchmark. If this happens, as IHS believes it will, some US oil producers might come under pressure, leading to the choking off of marginal development projects.

The US Energy Information Administration (EIA) predicts oil production in the US will peak at 9.6 million barrels per day by 2019 and start to decline from there. IHS, however, puts the peak at 11.2 million in 2022.

Officials at the US administration have said they were studying the possibility of lifting the ban, and the EIA is carrying out research to determine the scale of the problem and the potential effects of a policy change.

Any potential backer to a reversal would have to “placate lawmakers from Northeastern states, where refineries are profiting by processing new bounties of crude from North Dakota’s Bakken region,” according to Reuters.