Crude Exports: The Devil Is In The Details

When Rep. Joe Barton (R-TX) introduced his bill to repeal restrictions on crude exports, it was designated H.R. 666, which produced some chortles.  Although the bill was soon re-introduced with a different number, the numerology involved was a reminder that in the oil-export debate, the devil truly is in the details.

The House Energy & Commerce Subcommittee on Energy & Power will hold a hearing Tuesday on world energy markets and energy security.  The longstanding law restricting exports of American crude oil, the subject of Rep. Barton’s bill, will surely be discussed at that hearing.

Before Members of Congress begin to consider unraveling longstanding energy policy that would have profound and far-reaching implications for America’s economy and national security, they should take a closer look at the underpinnings of crude-export policy.  Because of the complexity of the issue, it doesn’t fit as neatly as one might think into any one particular spot on the ideological spectrum.

Take, for example, the policy’s history.  America has had a longstanding policy of refining domestically-produced crude oil here at home.  Back in the mid-1970s, America experienced a series of oil shocks – the OPEC oil embargo, exacerbated by a shortsighted policy of price controls, led to shortages and gas lines, which anyone over the age of 45 would vividly recall.

Ronald Reagan wisely lifted price controls, and the era of gas lines quickly ended.  But the national policy of energy security and independence remained – and has stood to this day.  And keeping American crude oil here at home is a critical component of that policy.

Our economy rests on a foundation of inexpensive, reliable energy, and will continue to do so for the foreseeable future.  Inexpensive, abundant energy translates into broad-based job creation and a rising standard of living.  Most would agree with that.

And U.S. refineries are a key component of America’s energy infrastructure.  They take about 15 million barrels of crude oil a day and convert that raw material into countless value-added products Americans need to keep their families and businesses moving – home heating oil, jet fuel, diesel fuel, gasoline, petrochemicals, and countless other products.  To borrow an analogy from the natural sciences, American refineries are the keystone species of the U.S. petroleum ecosystem.

But refineries are highly regulated by the government, tying their hands in myriad ways that few other industries have to deal with.  It should come as no surprise, then, that the last new American refinery opened about 40 years ago.

Nevertheless, refineries press on.  Take, for example, the once-moribund refineries in the Delaware River Valley, which represent more than half the East Coast’s refining capacity.  A few short years ago, they imported most of their crude from places like Nigeria and the Middle East.  At that time all were struggling to survive – four of six were closed (two remain shuttered).

As the American shale revolution has blossomed, those refineries, and many others in the United States, have replaced foreign crude with American crude out of Texas and North Dakota.  Of course, this been possible only because billions of dollars in private funding have been invested in new equipment.  That’s been done assuming a certain set of rules, but now some in Washington want to change those rules right in the middle of the game.

By repealing longstanding export policy in the name of helping prop up the producer sector (which is suffering – temporarily – under low oil prices), isn’t the repeal camp effectively using government policy to pick winners and losers?  Aren’t conservatives supposed to be against that?

With export restrictions repealed, U.S. refineries could compete against foreign refineries if there were a level playing field, but that’s a pipe dream. Instead, U.S. light oil would be shipped via low-cost tankers to Europe to be refined, with some of that crude sent back to America as finished products.  Or U.S. crude would be shipped to China to feed China’s nascent refining sector.  Meanwhile America would have to import more crude from less-stable parts of the world such as the Middle East, Libya, Nigeria, and Venezuela.

Meanwhile, American refiners would suffer – greatly.  In such a scenario, American refineries will shut down – because Washington changed export policy without looking at the entire petroleum ecosystem.  Our balance of payments would suffer.  It’s not hard to imagine a scenario where we become more dependent than ever on imported petroleum products.

Let’s not forget:  Crude oil is a strategically unique commodity.  Its singular importance to national security cannot be overstated.  That’s why access to about 85 percent of the world’s crude is controlled by governments and national oil companies.  To export crude is to repeal our dedication to energy independence, a bipartisan policy goal for over a generation.

As this session of Congress starts hearings on this issue, let’s hope lawmakers dig deep to understand why this is indeed a fiendishly complex issue, and proceed with caution.



Jay Hauck is the Executive Director of The CRUDE Coalition, a group of merchant refiners that includes Alon USA, Monroe Energy, PBF Energy, and Philadelphia Energy Solutions

Morning Consult