Sen. Murkowski Calls for Lifting Crude Oil Export Ban

In a keynote speech at the Brookings Institution today, Sen. Lisa Murkowski (R-Alaska) called for an end to the decades-old ban on U.S. crude oil exports.

Murkowski, the top Republican on the Senate Energy and Natural Resources Committee, also released a white paper on U.S. energy export policy, A Signal to the World: Renovating the Architecture of U.S. Energy Exports.

Total U.S. energy production reached its highest level ever in July 2013, Murkowski noted in her speech. As a consequence, U.S. exports of coal, dry natural gas, and finished petroleum products are at their highest levels on record.

However, those welcome developments came about “in spite of the federal government, not because of it, as the president frequently seems to imply,” she said.

More importantly, U.S. energy trade rules “were written long ago for a now bygone world in which scarcity, not abundance, was the prevailing mindset,” Murkowski noted. Outmoded regulations hamper exports of liquefied natural gas and virtually prohibit exports of crude oil and condensates. This antiquated policy architecture holds back the leading source of new investment, job creation, and competitive advantage in the U.S. economy.

Worse, the current regime creates significant economic risk. U.S. refineries were not built to handle the light sweet crude produced in the Bakken and Eagleford shale plays. The export ban could soon create a glut, forcing producers to choose between losing money on sales or leaving the oil in the ground. The oil boom could become a bust, warns International Energy Agency executive director Maria van der Hoeven, whom Murkowski cites.

Status-quo defenders claim lifting the ban would increase gasoline prices by reducing the discount at which crude oil trades in U.S. markets. That reasoning is flawed. As Blake Clayton of the Council on Foreign Relations points out, the discount currently benefits a handful of refiners, not consumers, because gasoline prices reflect global crude and finished petroleum product prices, not domestic refiners’ production costs:

As it stands, the primary beneficiaries of the export ban are a few fortunate oil refineries in the central United States—not U.S. consumers—that are able to buy crude oil at depressed prices before selling it at prevailing market rates. Current law arbitrarily works to the benefit of these companies.

Crude oil exports would likely benefit consumers not only by fueling GDP growth but also by moderating gasoline prices. By spurring investment in production, freedom to export would accelerate the increase in global petroleum supply. That, in turn, would put downward pressure on global petroleum prices — the chief factor determining gasoline prices. As Murkowski’s white paper explains:

First, gasoline is a petroleum product and petroleum products are subject to global pricing, just like crude oil. To the extent that greater U.S. production of crude oil puts downward pressure on inter-national oil prices (e.g., the Brent benchmark), then production increases have benefited U.S. consumers by marginally lowering gasoline and crude oil prices.

By the same token, retaining the ban puts consumers at risk. A shale oil glut would depress production and slow the growth in global supply, putting upward pressure on gasoline prices:

To the extent that the crude oil export ban contributes to supply disruptions and decelerating oil production (which affects employment), then the American consumer will suffer the consequences. If the refining mismatch causes production to become shut-in, as some analysts suggest, then prices could actually rise and increase U.S. dependence on imports.

Murkowski believes the Obama administration already has the authority to lift the ban:

Although the President has the authority to declare it in the national interest to lift the ban, another path is for the Department of Commerce to approve an application for export of crude oil or condensate under a provision in the law permitting the application if it can be demonstrated that those fuels ‘cannot reasonably be marketed’ here in the United States. A mismatch then in our nation’s refining capacity has already emerged and common sense suggests that the mismatch should meet these qualifications.

Murkowski said she is prepared to introduce legislation to modernize the law if current statutory authority is insufficient or the administration is unwilling to act.

National Journal reporter Amy Harder observes that Murkowsi joins a “growing chorus” advocating repeal, a list that includes the Washington Post (“U.S.’s crude oil policy“), Chicago Tribune (“Editorial: Lift the U.S. ban on oil exports“), Bloomberg News (“Lift the Ban on U.S. Oil Exports“), and Financial Times (“Time to end the U.S. oil embargo“).

Whether Washington should lift the ban is the topic of this week’s National Journal Energy Insiders blog, which Harder hosts. Twelve policy wonks have posted comments so far, including yours truly. I argue that the crude oil export ban is a form of political plunder, conflicts with the principle of equality under law, and flouts international rules of free trade.