The CEO of ConocoPhillips warned of an U.S. oil glut beginning in 2017 that would shut in oil development unless a 40-year-old export ban ends or refineries expand to process lighter forms of oil coming from domestic shale regions.
“We’re going to hit a wall,” Ryan Lance said Tuesday at a U.S. Chamber of Commerce event in Washington. Lance said his company is putting its emphasis behind ending the export restrictions, though he admitted the effort is running into political roadblocks.
“It certainly feels like we’re trying to push uphill a little bit to get some momentum behind it,” Lance said, adding that export advocates are “trying to figure out the politics of it.”
The oil industry contends that ending the export ban would allow producers to fetch the highest possible price and end a domestic oversupply of light sweet crude at Gulf Coast refineries equipped to handle heavy sour varieties imported from Mexico and Venezuela. But opponents, particularly those in the refining industry, say doing so would boost gas prices and cost refining jobs.
Many lawmakers, including some Republicans, are concerned that endorsing an end to the ban on crude exports would play poorly with constituents. That’s because most people believe exports would raise gasoline prices, and elected officials are loathe to put their names behind a policy that could be construed as increasing fuel costs.
“Building that bipartisan support is tough,” Lance told reporters.
Lance said there’s a time element to the legislative lift to avoid that 2017 wall. He noted Congress is likely to grind to a halt at the end of the year as the 2016 presidential election begins to form.
“We’ve got to get some traction going, especially heading into an election year,” Lance said.
The industry needs to do a better job of educating the public, Lance said. To most people, Lance said axing the ban appears “counterintuitive” given the U.S. imports about one-third of the oil it consumes per day, according the U.S. Energy Information Administration.
But some early studies have shown that expanding exports could lower gas prices. The nonpartisan Brookings Institution in September said tossing aside the restrictions would reduce pump prices by at least 9 cents per gallon this year by encouraging more oil and natural gas production. The Congressional Budget Office in a December report also envisioned a net gain to the economy.
Still, some refiners say the oil industry’s claims that there’s a backlog of light sweet crude that can’t be processed is bogus.
Upgrading refineries to handle more of the crude is possible, but unlikely, Lance said. According to internal calculations by ConocoPhillips, which doesn’t have a refining business, Lance said retrofitting refineries would cost $400 million per facility.
“We just don’t think they’re going to make the expansions,” Lance said.
