Ending ban on crude exports would lower gas prices, GAO says

WASHINGTON — Ending the United States' longstanding ban against most crude exports could lift oil prices inside the country while decreasing the cost of gasoline, according to a Government Accountability Office report released Monday.

The document — the first broad government analysis of proposed oil exports — dovetails with industry-backed studies predicting lower gasoline prices would result if repealing the export ban spurred more domestic crude production and helped lower world prices for the fossil fuel. Domestic gasoline prices tend to track the international Brent crude benchmark, rather than U.S. oil prices.

The GAO report — largely a digest of four existing studies and interviews with refiners, oil producers and other stakeholders — isn't the silver bullet that export advocates want. They are waiting for a more definitive analysis from the government's Energy Information Administration, expected later this year.

In the meantime, though, the GAO report provides fodder to oil producers and their allies on Capitol Hill who are pushing to dismantle the 39-year-old crude export ban.

"This latest review by the GAO is a welcome addition to the growing body of analysis supporting the case for greater oil exports," said Sen. Lisa Murkowski, R-Alaska, the top Republican on the Energy and Natural Resources Committee.

The American Petroleum Institute welcomed the report as fresh evidence that crude exports would be a win for American consumers. "Allowing free trade in energy will mean more jobs, downward pressure on fuel costs, and can further reduce the impact of global unrest on oil markets," said John Felmy, the group's chief economist.

But refiners argue that sending more domestic oil overseas could harm their industry and discourage future investments to process even more of the light, sweet crude surging out of U.S. wells today. Although the U.S. refining complex is geared toward heavier crudes, the industry has reduced imports and increased utilization to accept more light, sweet domestic oil. And refiners say they can take a lot more of that light, sweet crude, with both unused and planned capacity.


The GAO report is pegged to interviews, data analysis and a survey of studies from Resources for the Future; ICF International and EnSys Energy; IHS; and NERA Economic Consulting. All of them predicted ending the oil export ban would lift U.S. oil prices, but the results varied widely, from $1.74 per barrel to $7.89 per barrel. The GAO notes that all four studies predict a gasoline price decline as well, with forecasted decreases ranging from 1.5 to 13 cents per gallon.

But the government auditors noted that "several uncertain factors" could change the way gasoline prices respond to removing the crude export ban. For instance, GAO said, it's not precisely clear how much international oil prices dictate the domestic price of consumer fuels. And even less may be known about how the Organization of the Petroleum Exporting Countries would respond to new U.S. oil on the world market.

OPEC could seek to maintain international crude oil prices by pulling crude from the global market or increase production in a bid to maintain its large market share, even if it sends oil prices even lower.

Three of the four crude export studies "assumed that OPEC would not respond by attempting to counterbalance the effect of increased U.S. exports by reducing its countries' exports," GAO said.

With the fall of the oil price recently, some energy analysts suggest Saudi Arabia, OPEC's largest producer, is willing to keep its production up — and take a hit with lower prices — to preserve its market share.

The GAO also noted that potential refinery closures and changing transportation costs could cause wide regional variations in gasoline prices if U.S. oil starts widely flowing overseas. "Two stakeholders told us that because of requirements to use more expensive U.S.-built, -owned and -operated ships to move crude oil between U.S. ports, allowing exports could enable some domestic crude oil producers to ship U.S. crude oil for less cost to refineries in foreign countries."

Delta Air Lines' top fuel executive has made a similar argument, suggesting that oil could be shipped to European refineries at a lower cost than delivering the same supplies to a refinery on the East Coast.

Unlike some of the studies it analyzed, the GAO report boldly noted the potential cost to domestic refineries — in terms not only of higher prices for its primary feedstock but also potential closures.

"Because refineries are currently benefiting from low domestic crude oil prices, some studies and stakeholders noted that refinery margins could be reduced if removing export restrictions increased domestic crude oil prices," the GAO report said. "As a result, some refineries could face an increased risk of closure, especially those located in the Northeast."

The GAO noted that the Energy Information Administration two years ago warned that refinery closures in the Northeast could be associated with higher and more volatile gasoline prices.