US congressional study sees benefits in renewed crude exports

WASHINGTON (ICIS)–The US could lower domestic gasoline prices by as much as 13 cents/gal if it were to resume exports of crude oil, a congressional audit agency said in a report circulated on Monday.

The Government Accountability Office (GAO) said in its report that if the US were to end its 40-year ban on oil exports, it would “likely increase domestic crude oil prices but decrease consumer fuel prices”.

The GAO said that domestic fuel prices likely would decline despite the resulting increase in domestic oil prices because US prices for gasoline, diesel and other consumer fuels follow international prices and consequently would trend lower.

The report, titled “Changing Crude Oil Markets”, was done at the request of Senator Lisa Murkowski of Alaska, the ranking Republican on the Senate Committee on Energy and Natural Resources and a vocal advocate of more domestic US oil production.

With few exceptions, US crude exports were banned in 1975 in the wake of the 1973 Arab oil embargo against the US in connection with the October 1973 Arab-Israeli war.

As US domestic production of crude oil and natural gas from shale deposits has improved substantially in recent years, there have been repeated calls for increased US exports of liquefied natural gas (LNG) and for an end to the federal ban on crude oil exports.

The US is now the world’s largest producer of natural gas and is on course to become the largest single oil producer within a year or two, according to the US Department of Energy.

According to the GAO report, US monthly domestic crude production increased from an average of about 5m bbls/day in 2008 to around 8.4m bbls/day by April 2014, an increase of 68% in just six years.

In addition, according to NERA Economic Consulting – one of those consulted by GAO for the study – the US is the only major oil-producing country that restricts crude exports.

But petrochemicals producers and downstream chemical manufacturers, almost wholly dependent on natgas liquids as a feedstock, are wary of a large-scale increase in LNG exports, fearing that would raise their costs.

Similarly, US refiners are uneasy about a resumption of US oil exports, concerned that their cost-per-barrel of crude would increase.

The GAO study confirms that worry, saying that if the export ban were lifted, “US crude oil prices would increase by about $2 to $8 per barrel, bringing them closer to international prices”.

Despite those concerns, GAO said that resumed US oil exports could increase domestic crude output by as much as 3.3m bbls/day on average from 2015 through 2035.

The report also says that resumed crude exports would “increase the size of the economy, with implications for employment, investment, public revenue and trade”.

Among other things, the GAO said that crude exports would “contribute to further declines in net crude oil imports, reducing the US trade deficit”.

The report comes in the wake of a call for renewed crude exports issued last week by leading US manufacturers who contend that lifting the ban would spur domestic manufacturing, increase employment and raise the economy overall.

A bill pending in the US House, HR-4349, would end the ban on oil exports.

The GAO is the audit and investigative arm of Congress.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy