By JIM SNYDER and MARK DRAJEM
The US oil industry, riding a domestic energy boom, is
preparing to challenge restrictions on crude exports, possibly
by arguing that limits designed to keep petroleum in America
may violate international trade rules.
Export issues are something were going to have to
address, John Felmy, the chief economist for the American
Petroleum Institute trade group said in an interview.
Its a debate we have to have.
He declined to discuss lobbying strategy or trade rules, though
a June planning document on API letterhead obtained by
Bloomberg News says the group has begun to develop
the necessary legal analysis to support export
API is planning to highlight potential violations of the
World Trade Organization rules against export
restrictions, according to the draft document, prepared
for the groups executive committee meeting.
Industry officials say the push is just starting to lift the
1970s-era restrictions, and they acknowledge it will be an
uphill fight that raises sensitive political issues. The US is
producing more oil than it has in nearly a quarter-century,
though, reducing its reliance on imports and putting the nation
closer to energy independence than it has been since 1989,
according to the Energy Information Administration.
Reid Porter, a spokesman for the Washington-based group, said
he wouldnt comment on specific strategies, though he
confirmed the group supports lifting export restrictions.
Supporting the free market and supporting open trade is a
key priority for our industry, Porter said. It
creates efficiencies, creates jobs, and increases revenue to
The document indicates that the industry is more
focused on protecting tax breaks as Congress considers a
tax-code overhaul than on export restrictions. The organization
spent about $6.7 million on lobbying for the first nine months
of the year, according to public documents.
Still, removing trade restrictions is rising on the
industrys list of priorities as US production soars, said
Stephen Brown, vice president and counsel for federal
government affairs at Tesoro Corp., a San Antonio-based oil
refiner that is not a member of API.
Its time it gets a full airing, Brown said in
The push represents a shift in the US energy policy that since the oil embargo
imposed by Arab nations in the 1970s has focused on reducing
imports from places like Venezuela and Russia. The US still
imported about 11 million bpd of crude oil and refined
products in 2012.
Advances in techniques such as hydraulic fracturing,
known as fracking, and horizontal drilling have sparked a boom
in production. The International Energy Agency in Paris
predicted last year that the US would overtake Saudi Arabia by
2020 as the worlds largest producer.
Natural gas production has pushed prices for that fuel down and
led to a flurry of applications to the US Energy Department
from companies seeking permission to export a liquefied form of
the fuel to gas-thirsty markets such as Japan.
The department has approved four applications to construct
export terminals to sell natural gas to countries -- permission
that is necessary to export to nations that dont have
free trade deals with the US. The department is considering
another 20 applications.
Constraints on crude oil exports are governed by a different
law and date to the 1975 Energy Policy and Conservation Act, enacted
in the wake of the Arab oil embargo.
With few exceptions, that measure prohibits exports
unless the US Commerce Department finds those shipments to be
consistent with the national interest.
The restrictions apply to crude oil, not refined gasoline or
The US exported about 2.6 million bbl of refined petroleum
products a day in 2012, more than double what it exported in
2007, according to EIA data.
Some companies are setting up small refineries to process
certain grades of crude to qualify as refined so that they can
be exported, Bloomberg reported in February.
The US produced about 6.5 million bpd on average in 2012. In
August, production had risen to 7.5 million bpd.
Without additional exports, oil production may soon exceed the
capacity for the type of light sweet crude being produced in
North Dakota and elsewhere in the US, said Kevin Book, managing
director of ClearView Energy Partners, a Washington-based
While in the short term, that means lower gasoline prices, in
the longer term it hurts consumers because it will discourage
US production, Book said.
Anyone who looks at this objectively can see this is
something that should be addressed, Book said.
Other analysts said exports may not be a pressing concern for
producers for years.
It really depends on how fast production would continue
to ramp up, said Andy Lipow, president of Lipow Oil
Associates, a Houston-based consultancy. He said a capacity
crunch may not come until 2017.
Exporting oil would give producers greater ability to get a
higher price for their crude.
In an interview, Harold Hamm, CEO of Continental
Resources, the most active driller in the Bakken field in North
Dakota, said export controls put producers at a disadvantage to
the major integrated oil companies. Those big multinational
companies can still sell gasoline, diesel or jet fuel overseas,
whereas Continentals crude is bound to the US
Its an archaic law, Hamm said at Bloomberg
energy conference in Houston last month. Closed societies
West Texas Intermediate crude, the US benchmark price, dropped
$1.25 to $93.37/bbl for December delivery on the New York
Mercantile Exchange on Tuesday. Brent oil, the European benchmark price, for
December fell 90 cents, or 0.8%, to close at $105.33/bbl on the
London-based ICE Futures Europe exchange.
Neither Felmy nor Porter of API discussed whether the group
would argue that US restrictions on exports violate trade rules
developed by the World Trade Organization, as the planning
A country claiming harm from the restrictions would have to
bring a case before the body. Gary Hufbauer, a fellow at the
Peterson Institute for International Economics in Washington,
said a country would likely have a strong case that the US
restrictions do violate trade rules.
There is a national security exemption, but I dont
think it could be supported now, Hufbauer, who published
a paper earlier this year about natural gas exports, said.
I dont think the arguments would prevail.