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Refiners oppose efforts to lift ban on crude exports

Jennifer A. Dlouhy

WASHINGTON -- Oil companies' zeal to sell U.S. crude overseas is alienating refiners, who on Wednesday took the first steps toward mounting a public campaign against easing the 39-year-old export ban.

Although oil producers stand to profit from greater crude exports, their gains would come at the expense of domestic refiners who are freely selling record amounts of gasoline, diesel and other finished petroleum products to foreign consumers. While refiners such as San Antonio's Valero Energy Corp. and Tesoro Corp. currently enjoy a discount on domestic crude -- which is priced well below the London benchmark -- that scenario could disappear with broad oil exports.

"The unlimited export of crude is not in the national interest," said Valero spokesman Bill Day. "We're not so sure who would support such a thing, unless you were a producer and wanted to get a higher price for what you are producing."

In the nation's capital, the issue is emerging as the biggest energy policy debate in this election year, with high-profile calls Tuesday from the head of the American Petroleum Institute and Sen. Lisa Murkowski, R-Alaska, to do away with the 1970s-era export ban. On Wednesday, Chamber of Commerce CEO Thomas Donohue added his voice to the clamor, saying the restrictions born from the 1973 OPEC oil embargo are outdated and don't match the reality of today's surging energy production.

A half dozen refiners, led by New Jersey-based PBF Energy and Delta Airlines' Monroe Energy, huddled on a phone call Wednesday to make plans to more aggressively lobby against easing the oil export ban, according to an industry source. Participants included other independent inland refiners who benefit most from the lower price for mid-continent oil, such as Dallas companies Alon USA and Holly Frontier.

The effort might include hiring new lobbying firms to battle on the refiners' behalf and ultimately could include a broader coalition of crude export foes, including consumer advocates and national-security groups worried about squandering America's current energy advantage.

Such a public campaign would expose the widening rift between downstream refiners and upstream oil producers. It also could put some refiners out front of their own industry trade group, the American Fuel and Petrochemical Manufacturers, which does not oppose oil exports.

"AFPM has been consistent in its promotion of economic development and free and open markets," said the group's president, Charles Drevna. But, he acknowledged: "There may be a couple of independent refiners who are a little more reticent about lifting the ban on exports."

A PBF Energy spokesman did not return a phone call seeking comment; Delta declined to comment.

Blake Clayton, an energy analyst at the Council on Foreign Relations, has predicted that oil companies would export several billion dollars' worth of crude annually if the ban were lifted, potentially more than 500,000 barrels a day by 2017.

Given the high stakes, any lobbying and PR battle between the oil and refining industries could be intense and expensive.

"We'd be going against some very deep pockets," Day acknowledged. "There's no way a company like Valero can outspend an Exxon Mobil or API in this kind of dollar-for-dollar marketing."

Any anti-export campaign could stoke fears about the United States' uncertain ability to sustain near-record levels of oil production over decades and the prospect that overseas crude sales could hasten the decline.

"We've made great gains on domestic production, getting into scoring position at the other end zone," said a refining industry source. "All of a sudden, we want to backtrack. We've heard a lot through the years from elected officials about energy independence, and we're making great gains on that. It doesn't make sense to backtrack now."

Critics also could raise the specter of higher oil prices -- a potent message in any election year. Kevin Book, with the D.C. analysis firm Clear View Energy Partners, notes that refiners enjoy "tremendous political leverage."

Even if pump price concerns "seem overblown," Book said, "opposition to crude exports led by some refiners may be bolstered by public concern that increased exports of raw energy resources will make domestic finished fuels and goods more expensive."

Election-year politics make substantive congressional action unlikely, though Senate Energy and Natural Resources Committee Chairman Ron Wyden, D-Ore., said he wants to have a hearing on the issue soon. In the meantime, at least one Obama administration official has signaled that the exports policy should get a closer look. In December, Energy Secretary Ernest Moniz suggested that the crude export ban deserves reexamination "in the context of . . . an energy world that is no longer like the 1970s."

Some oil exports are already allowed; in fact, Valero has been authorized to export crude to Canada. But they are largely limited to oil headed to Canada or produced in Alaska's Cook Inlet, some heavy crude produced in California and oil transported through the Trans-Alaska Pipeline system.

The Obama administration could take some steps immediately, even without Capitol Hill, to build on those exceptions. Options include a declaration by the Commerce Department that ending the ban is in the national interest. The administration also could approve an export application if it finds the oil "cannot reasonably be marketed" in the United States because most Gulf Coast refiners are currently designed to process heavy crude, not the light sweet supplies flowing out of U.S. fields.

A refinery bottleneck -- in particular the lack of refining capacity for the light sweet crude coming out of the Bakken and Eagle Ford formations -- is suppressing the price for mid-continent WTI crude, the Cushing, Okla., benchmark. Limited options exist for getting the light sweet crude to East Coast refineries.

jennifer.dlouhy(a)chron.com


By JENNIFER A. DLOUHY
Houston Chronicle