A report Thursday from a respected oil historian argues for lifting a longstanding ban on U.S. oil exports in order to keep down gasoline prices for consumers. It's a view sure to raise eyebrows and comes amid a broader national debate about exporting America's new energy bounty.
The report by IHS Energy, led by influential author and energy consultant Daniel Yergin, comes as the Obama administration is weighing whether to lift the export ban put in place in the wake of the 1973 Arab oil embargo and during a past era of ill-fated price controls to protect consumers from higher pump prices.
The report, shared with McClatchy before publication, points to the skyrocketing U.S. oil and natural gas production that's resulted from new drilling techniques shorthanded as fracking. It argues the ban has outlived its purpose.
"You have this relic of an age long gone," Yergin said in an interview Wednesday. The export ban, by his estimate, makes oil and gasoline more expensive than it otherwise would be. That's because U.S. refineries are generally configured to handle heavier grades of crude oil. The lighter-grade oil coming from new production areas in Montana and the Dakotas can be sold for more abroad and would add to the international supply, thus potentially lowering global prices.
"The benefit to consumers of a crude oil free-trade policy is an estimated 8 cents per gallon . . . reduction in the price of gasoline and transportation fuels," according to the 120-page report.
The report said savings to consumers could be as high as 12 cents a gallon and that U.S. oil exports could reduce world oil prices by $3 to $5 a barrel over a 15-year window. It estimates the broader economy would grow between 0.7 percent and 1.2 percent faster over the period than otherwise would be the case, as a result of the cheaper gasoline prices and additional consumer spending power.
"The benefits of this in terms of investment would flow through to the entire economy in a pretty significant way," said Yergin, who won the Pulitzer in 1992 for his book "The Prize: The Epic Quest for Oil, Money & Power," which dissected the history and geopolitics of oil.
The federal Energy Information Administration is now engaged in its own research into the consequences of lifting the export ban in light of U.S. production, which last year rose by 15 percent, the largest single-year gain since 1940.
The IHS study was funded by a group of prominent energy and oilfield service companies including Chevron, ConocoPhillips, Continental Resources, ExxonMobil and Halliburton.
"Obviously people who don't like the study will point to that," Yergin said. "This is our reputation, our work, and this is where our research led us."
Exporting American energy is controversial. Yergin's report comes as U.S. manufacturers have banded together under the banner "America's Energy Advantage" to fight the growing export of natural gas. They warned Congress in late April that the exports will undermine investments made by companies that make products in the United States.
The call to export U.S. energy also comes after a brutal winter that saw unprecedented shortages of propane used to heat homes, even as propane was being exported at record levels. Several witnesses testifying before the Senate Energy Committee on May 1 blamed the surge in propane exports as a factor in the supply problems.
Some in Congress, particularly Democrats, are mustering forces to fight any lifting of the export ban.
Sen. Ed Markey, D-Mass., who has led congressional opposition, said America remains about as dependent on foreign oil as when the ban was put in place. American drivers are benefiting from the ban when they fill up with gasoline because it keeps oil prices lower than they are abroad, he said.
"We should use American resources to protect American consumers and enhance our energy security, not send these resources abroad to pad the profits of Big Oil," he told McClatchy.
The IHS Energy study argues that the ban on crude oil exports distorts the price for light-sweet crude oil produced and sold in the United States, causing it to sell at a discount to the price it fetches internationally.
Most U.S. refiners are equipped to handle heavier grades of crude oil from Venezuela and Mexico and would not use the light-sweet oil anyway, the report maintains. By selling it abroad, it would keep a lid on rising oil prices, and that translates into lower fuel prices, since gasoline takes its cue from international oil prices.
"If low prices for U.S. domestic (light) crude endure – and that risk is growing – investment in crude oil production will slow or even decline," the report cautions. "Export markets are needed to sustain U.S. crude oil production gains that cannot be absorbed by our refineries without significant and costly changes to the U.S. refining system."
The likely export markets, said IHS analysts, are Asia and Europe.
Importantly, Yergin doesn't expect oil and gasoline prices would be cheaper than what motorists are paying today. Rather, the price of these products over time would grow more slowly than they otherwise would have, he said.
That seems to be the case already with the rapid increase in U.S. oil drilling in the Dakotas and Montana. The AAA Motor Club doesn't have a position yet on lifting the ban on exports, but it feels the U.S. oil production boom "helped bring down peak gasoline prices," said Michael Green, a AAA spokesman.
The more readily available domestic oil has allowed for more production and export of gasoline, he said, and that's helped in recent years to prevent gas prices from going over $4 a gallon in spring and summer.
But he warned of a flip side.
"There is sort of a floor to how low prices can go," Green said, noting that refiners are profiting from buying domestic oil that is cheaper than what is traded internationally. "In many ways, this seems like a battle between Big Oil and big gasoline producers."
The United Steelworkers union opposes lifting the ban, warning of job losses at U.S. refineries if they start paying more for the oil they process.
"Severe job loss could result from lifting the export controls," said Gary Beevers, the union's vice president overseeing the oil sector.
Refiners such as Valero Energy Corp. like the status quo, in which exports are essentially banned except for some shipments going to Canada under special license from the U.S. Commerce Department. Valero spokesman Bill Day said his company's position is that the idea of easing the ban to allow broader exports of American crude oil "requires a lot of study."
But there is more political momentum for lifting the ban than in decades. Energy Secretary Ernest Moniz and Obama adviser John Podesta said the idea of easing restrictions is under consideration. The top Republican on the Senate Energy Committee, Lisa Murkowski of Alaska, is pushing to overturn the ban.
Some Democratic senators are wary of lifting the ban, citing among other concerns the increased transport of oil in railcars, a danger spotlighted by McClatchy in a series of stories.
By Sean Cockerham and Kevin G. Hall
McClatchy Washington Bureau
Alaska Dispatch Publishing