Lifting the nation’s ban on oil exports has done little in the way of opening new markets for U.S. crude since Congress repealed the 40-year-old energy policy last year.
“Eventually, American crude exports will be a factor in the world market, but it could take several years to get there,” said Stephen Brown, vice president for policy with large San Antonio refiner Tesoro.
The problem is too much oil. That has led to low prices, which isn’t conducive for overseas sales. And the massive global glut has sent many drillers into bankruptcy and forced hundreds of thousands of oil workers into the unemployment line over the last year.
The result has been lower oil production, which can’t forge a new path for exports until prices rebound. Oil prices aren’t expected to significantly climb until later next year, according to the Energy Information Administration, the Energy Department’s research arm.
“Drawdowns in global oil inventories are expected to start in mid-2017, which will contribute to higher oil prices in the second quarter of next year,” said Adam Simienski, the head of the EIA, earlier this month. That would lead to increased oil production and eventually more exports.
The shipments that have made it to far-off shores, other than Canada, have been “sporadic” at best, the agency said.
Those exports, which have gone everywhere from Curacao to Norway, resemble “test” sales meant to demonstrate the high quality of U.S. oil, rather than a new source of sustainable demand, the EIA said in an analysis last month.
“Foreign refiners are still trying to figure out how to fit U.S. crude into their respective [production] runs,” Brown said. “Bottom line is that the jury is still out on the impact of lifting the ban.” He said exports will grow, but it won’t be easy, especially as Saudi Arabia has indicated it will defend its market share fiercely, especially in Asia.
Saudi Arabia has generally dominated the oil market in China, India, South Korea, Japan, Singapore and other Asian countries, according to the EIA. It has lost some share in China to Russia in the past year, which it has made up with new shipments to India.
However, the EIA said last year that the Saudis’ long dominance could change as more competition arrives.
While the landmark move by Congress in December to get rid of the 1970s-era ban may prove important in the long term, looking back, it only marked the beginning of a much broader conversation on the direction of U.S. energy, say the industry, free-market groups and members of Congress.
Even though U.S. crude oil is making its way to more countries than before the ban was lifted, 16 to be exact, the EIA is pretty blunt in its assessment.
“Sustained and significant increases” in oil exports will require “increased U.S. crude oil production” and a much bigger difference between the benchmark price in Europe and the benchmark for oil set in the United States, it said.
Neither of those factors is predicted to change significantly in the coming year, although production has increased slightly, Simienski said.
With that in mind, the bigger issue for the oil industry is not exports, but the numerous regulations being heaped on it by the Obama administration that are expected to continue if Democratic nominee Hillary Clinton is elected.
The rules are piling up “as the clock winds down” for President Obama and “every action now gets viewed through a climate change lens,” Brown said.
“Lifting the export ban was easy for the Obama folks to do because they correctly calculated impacts would be minimal on their watch and they had other things they wanted in return.”
The United States in a matter of years has become the largest oil and gas producer in the world because of fracking, or hydraulic fracturing, which uses water and sand to break up shale rock deep underground to release oil and natural gas. Yet regulations haven’t caught up with the boom, which was the impetus behind Republicans’ push to remove the export ban.
Now, going into the election, energy policy must focus on opening up federal lands to drilling to expand production, say free-market groups.
The conservative Heritage Foundation drove home that point earlier this month in a report pressing the next administration to make oil production its primary focus by rolling back regulations, speeding up energy permitting on federal lands and boosting offshore drilling.
Heritage used its in-house energy modeling system to determine what the economic impact would be if lifting the oil export ban were paired with the removal of other market barriers and restrictive regulations.
It found that lifting restrictions on energy production, in addition to lifting the export ban, would add 700,000 jobs and $3.7 trillion to the economy over the next two decades. Of the 700 million acres of mineral-laden land that the federal Bureau of Land Management manages, about 12.7 million acres were producing oil and natural gas last year.
“The benefits that we modeled in our paper come from an increase in oil and gas production that is not handicapped by a ban on crude oil exports,” said Nick Loris, energy research fellow with the group and one of the authors of the report. The point is to ensure an open and free market internationally and domestically, he said.
Lifting the ban gets at the international component. But that needs to be coupled with increased production on federal lands or it won’t mean much, he said. Increased offshore oil and gas production and removing market barriers through the expansion of pipelines and other energy infrastructure are required, his study says.
A “truly free-market energy policy” would open drilling on federal lands, while allowing states to manage the environmental review and permitting processes. Loris said the states have a track record of pushing through permits in a matter of days or weeks, “where the federal government is taking months if not years,” he said.
Rep. Rob Bishop, R-Utah, the chairman of the House Natural Resources Committee with jurisdiction over federal land policy, said Obama’s policies have pushed the country in the opposite direction, which may take the country too long to recover from. That would limit the effect of exports on the international market and make the country less secure.
“Hydrocarbon energy sources are the lifeblood of our economy, a concept this president has never really quite understood,” Bishop told the Washington Examiner in an email. “For him, energy policy has been used for political stagecraft rather than charting a realistic path to long-term energy affordability.”
Bishop said the EIA suggests the United States “could become a net exporter of oil as early as 2022.” Yet under Obama’s “anti-energy agenda and policies that would put everyone who works in fossil fuels out of work, we need to think about whether or not we will have enough of a commodity to export by then.”
“There are policies we can pursue to get ourselves out of this administration’s mess and keep production and energy jobs going in the United States,” he said. “Regulatory policies that provide certainty, that spur rather that spoil innovation, is the only path forward.”
As the November elections approach, opposition from the Left over fracking on federal lands has become more pronounced. Environmental groups are pushing their “keep it in the ground” campaign, which supports a total ban on fossil-fuel production, offshore drilling and, of course, oil exports.
Brown said the Obama administration began to “load up on the ‘keep it in the ground’ anti-fossil-fuel agenda” after the export ban was repealed.
Obama’s restrictions on fracking are coming from multiple agencies to control everything from well construction to methane emissions, while reversing previous plans to open new areas to offshore drilling, such as the Atlantic outer-continental shelf.
“I suspect that effort only continues under a Clinton administration, but perhaps with a little more respect for economic impacts,” Brown said.
Hillary Clinton has said she would be hard on the fossil-fuel industry, saying during the primary season that she would put coal miners out of work. But that message created a backlash that she has tried to soften in recent months, especially in areas hit hardest by job losses.
