Analysis: Lobbying fight over U.S. oil exports may be one-sided battle
Analysis: Lobbying fight over U.S. oil exports may be one-sided battle
January 8, 2014
By Valerie Volcovici, Selam Gebrekidan, Anna Louie Sussman, Cezary Podkul, Jonathan Leff and Lisa Shumaker
WASHINGTON/NEW YORK (Reuters) – One of the most important U.S. energy policy lobbying debates this year is shaping up as a remarkably one-sided fight.
While a growing number of groups support ending a decades-old U.S. law that effectively bans crude oil exports, few companies and lobbyists publicly oppose the idea.
On Tuesday, top oil refiner Valero Energy Corp <VLO.N> became the first major company to publicly oppose relaxing the restrictions, a seemingly predictable stance from an industry that has reaped the huge benefits of buying cheaper U.S. crude oil and selling it as refined fuels, often abroad.
But some of Valero’s natural allies in the fight are steering clear, not wishing to compromise their free-market ideals in defense of a policy that most energy analysts and experts say has become a remnant of a bygone era.
“We don’t oppose lifting the crude-oil export ban, as we fully support free markets,” Marathon Petroleum Corp <MPC.N> spokeswoman Stefanie Griffith said in an emailed statement.
Phillips 66 <PSX.N> says exports of crude oil and other products “are good for our country and contribute to a strong balance of trade,” a spokesman said on Tuesday. The U.S. trade deficit fell to a four-year low in November thanks to shrinking net petroleum imports, government data showed this week.
The refiners’ lobby group, which helped lead a highly contentious but successful campaign last year to relax the U.S. ethanol mandates, is sticking to its free-market mantra despite the objections of some of its members, Charles Drevna, president of American Fuel and Petrochemical Manufacturers, told Reuters this month.
U.S. domestic shipping industry executives privately voice support for the ban, but the industry at large has been reluctant to take a position. The shipping industry is benefiting from a surge in rates for U.S.-flagged tankers, which are required by law to move petroleum products between U.S. ports.
There is still time for more foes to emerge, of course. Environmental groups that have sought to block coal exports and the Keystone XL pipeline may take up the issue more seriously.
Ahead of mid-term elections, some politicians may raise the specter of higher gasoline prices, as New Jersey Democratic Senator Robert Menendez did in a letter to President Barack Obama last month.
But without a cohesive lobbying force, even industry insiders see little standing in the way of rising exports.
LESSONS FROM GAS LOBBY
Thanks to the rise in hydraulic fracturing and horizontal drilling technologies, U.S. crude oil production has surged to the highest level in 25 years, threatening to inundate refiners with a light sweet crude that is easy to refine.
As a result, domestic oil prices have fallen to a discount versus similar varieties elsewhere, spurring calls to ease an export ban imposed in 1975 after the Arab oil embargo.
Understandably, big producers such as independent Continental Resources Inc <CLR.N> and oil major Exxon Mobil Corp <XOM.N> were the first to call for a review of the ban. U.S. Energy Secretary Ernest Moniz last year said the export ban should be reassessed by the Department of Commerce, which regulates licensing.
More surprising is the lack of unanimity among refiners.
“I would have thought the independent refiners would stay sort of united on this,” said Chi Chow, refining industry analyst at Macquarie Group. “It’s definitely in their economic interest to keep the ban in place,” he said.
The battle has echoes of a similar war over the past two years, as natural gas producers sought government approval for exporting liquefied natural gas – over the objection of big consumers such as Dow Chemical Co <DOW.N>.
But while industrial gas users mounted a compelling macro-economic argument to restrain exports – lower domestic prices will create more jobs – refiners are on a shakier footing given bumper profits and gasoline prices that remain high by historical standards. Exporting crude is unlikely to have a major impact on local pump prices, energy experts say.
“My interest is not to protect the refineries’ bottom line,” Senator Lisa Murkowski, the top Republican on the Senate Energy Committee, said on Tuesday after urging a review of the ban. “They are going to have to deal with it within the industry.”
America’s Energy Advantage, the coalition of companies led by Dow that opposed unfettered LNG exports, has not taken a position yet on crude exports and does not plan to weigh in on the discussion at this point, spokesman Brock Park said.
The coalition appears to be losing that battle: the Obama administration has approved four new requests to export LNG to non-free trade countries in the past year, and is expected to approve more this year, analysts say.
For refiners, any public effort to oppose exporting crude could draw more attention to their unfettered overseas shipments of refined fuels like gasoline and diesel, sales of which have trebled over the past 10 years to record highs.
A Reuters-IPSOS poll conducted in November showed that American voters are almost evenly divided on the question of U.S. oil exports. But a majority believe gasoline exports should be restricted.
ENVIRONMENTAL GROUPS KEEP MUM
A handful of lawmakers have already spoken out in opposition of the ban, including New Jersey’s Menendez and Senator Ed Markey of Massachusetts.
But the balance of power in Washington may be shifting.
Democratic Senator Mary Landrieu of Louisiana, a major energy state, is expected to take Democratic Oregon Senator Ron Wyden’s place on the committee. She recently suggested she would support lifting the ban if “scientific data” showed it necessary.
While opponents of the Keystone XL pipeline, such as 350.org, are already lining up to oppose crude oil exports, other environmental groups have yet to craft an approach – even as the debate rapidly accelerates in Washington.
The Natural Resources Defense Council “hasn’t been engaged on the issue of oil exports specifically,” said Kate Slusark Kiely, a spokeswoman for the group. She said the group is focused on “protecting people and the environment from the risks involved with its development and use.”
SHIPPERS STEER CLEAR
The U.S. shipping industry would seem a likely opponent of change. With overseas shipments restricted, oil producers have scrambled to secure so-called “Jones Act” tankers, the small fleet of U.S.-owned, U.S.-made, and U.S.-crewed vessels that are allowed to carry goods between U.S. ports.
Rates for Jones Act tankers and barges owned by companies such as Kirby Corp <KEX.N> and American Petroleum Tankers – being bought by Kinder Morgan Energy Partners <KMP.N> – have surged as a growing glut of south Texas crude is shipped to other U.S. ports. If exports were allowed, demand could wane.
One executive at a U.S.-flag ship company, who declined to be named, said that he was “fully supportive of the law.”
Yet the American Maritime Partnership, which represents the U.S. domestic maritime industry, does not have a position on crude exports, spokesman Joe Brenckle said.
With Jones Act rates already three times more expensive than foreign-flagged vessels, industry officials may worry about becoming a target of the debate themselves.
“I think there’s a fear of being seen as anti-competitive or protectionist. It’s a challenge when you compare the rates of, say an MR Jones Act tanker versus a similarly sized international vessel,” said Ben Nolan, director of maritime research at Stifel, Nicolaus & Company in Chicago.
The industry would make unlikely bedfellows with refiners, who have long complained that the Jones Act law inflates costs for refiners on the East Coast.
“If indeed this is truly the beginning of the debate, let’s make sure the debate includes all the parameters so we fully understand the ramifications of other obstacles of economic growth,” said Drevna of the American Fuel and Petrochemical Manufacturers.
“We can’t look at crude exports in a vacuum. We should also look at the Jones Act and how that hampers development.”
(Additional reporting by Anna Louie Sussman and Cezary Podkul; Editing by Jonathan Leff and Lisa Shumaker)