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US oil industry may invoke trade law to challenge restrictions on exports

11.06.2013  | 

Industry officials say the push is just starting to lift the 1970s-era restrictions, and they acknowledge it will be an uphill fight. The US is producing more oil than it has in nearly a quarter-century, reducing its reliance on imports and putting it closer to energy independence than it has been since 1989.

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By JIM SNYDER and MARK DRAJEM
Bloomberg

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 we’re going to have to address,” John Felmy, the chief economist for the American Petroleum Institute trade group said in an interview. “It’s 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 approvals.
 
API is planning to “highlight potential violations of the World Trade Organization rules against export restrictions,” according to the draft document, prepared for the group’s 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 wouldn’t 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 our government.”
 

Lobbying spending

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 industry’s 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.
 
“It’s time it gets a full airing,” Brown said in an interview.
 
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.
 

Fracking boost

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 world’s 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 don’t 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.
 

‘National interest’

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 related products.
 
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.
 

Refinery capacity

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 consultancy group.
 
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.
 

Integrated companies

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 Continental’s crude is bound to the US market.
 
“It’s an archaic law,” Hamm said at Bloomberg energy conference in Houston last month. “Closed societies don’t work.”
 
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 document indicates.
 
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 don’t think it could be supported now,” Hufbauer, who published a paper earlier this year about natural gas exports, said. “I don’t think the arguments would prevail.”



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Jed A. Peeler
11.11.2013

The latest oil boom is taking place on private lands. The Obama Administration has no right to attack this industry. The oil industry, like any other industry, should be able to sell its' product to whomever it pleases, make maximum profits based upon competition, and pay the same taxes as any other industry. Period!

Chris Keilberg
11.08.2013

What should be seriously discussed is restricting the export of natural gas (and export LNG) until such point in time that such resources are being fully utilized to their potential domestically. Once clean, cheap, abundant U.S. produced gas has fulfilled the plethora of domestic energy requirements, then, by all means, export surplus gas, but NOT before.

Larry White
11.06.2013

Crude oil is OUR natural resource. No matter what anyone says, it is a limited resource. If we want to have a law or regulation that says we cannot export some product, but that product does NOT have a limited availability, that would be fine. But, any commodity or product that is in limited supply should be 'regulated' to preserve commerce even if the price goes up. Remember, if we lose the availability of crude oil in the future, the huge price increases in that future time far outweigh the small price increases that we may see now with a restriction on exports.
Maybe a small tax on every bbl of crude sold should be spent on research to find a replacement Pay me now or pay me later!

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