US needs more data before ending crude export ban, House panel told

Much more environmental impact information is needed before the US can reasonably remove crude oil export limits, a witness told a House Energy and Commerce Committee subcommittee during a Dec. 11 hearing examining energy policies enacted nearly 40 years ago.

“We just don’t know enough about these light, tight oils that are coming out of North America,” said Deborah Gordon, who directs the Carnegie Endowment for International Peace’s Energy and Climate Program. “Our refineries are set to handle heavier crudes. We’re setting ourselves up to be a refiner of heavier in greenhouse gases oils while exporting lighter grades.”

More information is readily available about Organization of Petroleum Exporting Countries members’ crudes than about what’s being produced domestically from the Bakken and Eagle Ford tight shale formations, she told the Energy and Power Subcommittee.

“The bottom line is that oils are changing,” Gordon said. “A more complex set of hydrocarbons is replacing crude oil. We know precious little about these new resources. The nation needs better information about the composition of these new oils.”

She said one reason there’s relatively less information about new North American light crudes is “they’re the new kid on the block.” She said, “In order to get information on oil, you do an assay, but everyone does this differently. Having consistent information is a problem.”

Another problem is that the White House Office of Management and Budget considers collection of additional data by the US Department of Energy—something the 1975 Energy and Policy Conservation Act’s sponsors would have encouraged—unnecessary because it would duplicate what producers already submit, Gordon said. “We have data on Gulf of Mexico crude, but nothing on these new tight oils,” she noted.

Comparing GHG impacts

Gordon said the Carnegie Endowment is developing an index with Stanford University and the University of Calgary that will compare global crudes’ GHG impacts from extraction through transportation and refining to combustion.

“Our preliminary findings (based on 28 sample oils) are that oils’ GHG footprints vary by at least 80%,” Gordon said in her written testimony. “In other words, replacing high-GHG oils with lower ones could almost cut climate impacts in half for every barrel consumed.”

Committee member Lois Capps (D-Calif.) observed, “The oil export market is complex. We need detailed, accurate information to properly assess increasing exports. I find it stunning that we have more data about OPEC than new American crude oils. If the industry is asking us to authorize more exports, it should be willing to provide data we need.”

A second witness, US Energy Information Administration Administrator Adam Sieminski, said DOE’s independent statistical and forecasting agency is examining US refineries’ capacities to absorb growing domestic light crude production, and expects to issue a report early in 2015.

“Independent refiners are very concerned about how they’d come out if we lifted the export ban,” he said in response to a question from subcommittee member Gene Green (D-Tex.). “If you look back over the last decade, billions of dollars were spent by Gulf Coast refiners to process heavier oil. Now, we have a surplus of light grades. There are upgrading projects under way at several refineries, including some in your district.”

Sieminski also suggested that developing consistent data could be difficult because different parts of the federal government often have their own approaches. The US Department of Commerce sometimes is more inclined to consider information proprietary than EIA, he said. “At EIA, we’ve been trying to understand the different definitions,” he told Green. “I suspect a one-size-fits-all definition wouldn’t work very well.”

Situation has changed

The world oil situation is much different from what it was in 1975, Sieminski said. “Total net petroleum imports were rapidly rising in the 1970s, reflecting both rapid growth in consumption and declining domestic production,” he testified. “US net petroleum imports nearly doubled from 3.2 million b/d in 1970 to 6 million b/d before reaching 8.6 million b/d in 1978. Net imports as a share of total US oil supply grew from 22% in 1970 to 47% in 1978.”

Overseas production that was more heavily concentrated in fewer countries than now made it possible for Arab producers to launch an embargo against the US in 1973 as a protest against this country’s support for Israel in the Arab-Israeli War, Sieminski said. The November 1973 Emergency Petroleum Allocation Act established a two-tiered pricing system for domestic crude but left imports unregulated, discouraging investments to maintain US production, he said.

He said EPCA established the US Strategic Petroleum Reserve and the first Corporate Average Fuel Efficiency standards in 1975 along with crude oil export limits. Restrictions were modified over time to allow exports under certain conditions, but US production declined until 2008 when hydraulic fracturing and horizontal drilling made production from tight shales possible and reversed the trend.

“Petroleum market conditions today are much different than they were in the 1970s when the ban on crude oil exports was enacted,” Sieminski said. “Oil production is far less concentrated, with OPEC’s share declining from 53% in 1973 to about 35% today. New entrants such as Brazil and former Soviet Union countries now have significant crude production. US production may soon hit an all-time high, surpassing the previous record of 9.6 million b/d set in 1970.”

Other witnesses and committee members said the US should be prepared to take better advantage of these generally improved conditions. “I think if we unleash markets, glorious things will happen,” said Mike Pompeo (R-Kan.) “But we’ve imposed regulations on our refiners from the Jones Act to the Renewable Fuels Standard which have driven their costs higher.”

‘An enormous benefit’

A third witness, Lucian Pugliaresi, president of Energy Policy Research Foundation Inc., observed, “A good way to counter concentration of reserves in unstable parts of the world is to increase production elsewhere, which is what has happened in North America. This price decrease is an enormous benefit to the world’s economy, and it’s being delivered through these North American production gains.”

Market power waxes and wanes, Pugliaresi told Pompeo. “If you have enough high-volume production outside cartels, they have less influence,” he said. “It’s a huge benefit. We need to pay more attention to how it performs and make sure we have a regulatory environment that encourages it.”

The recent global oil price decline could slow domestic tight oil production growth down, but only temporarily, he suggested. “Right now, there’s a race going on between low oil prices and advances in technology,” Pugliaresi said. “Across the US, 40% of the frac jobs are uneconomic. Technologies that are being developed could make what is a high-cost basin now more economic later. If we try to prescribe the future, we’ll be making a mistake.”

The fourth witness, Charles K. Ebinger, Energy Security Initiative Director at the Brookings Institution, said the latest precipitate crude price decline could become an engine for more global economic growth. “That happened in Brazil and India,” he told the subcommittee. “Low oil prices for countries which are huge oil importers and have fast-growing populations could be a boon. If we put more oil into the international crude market, prices should come down and refiners buying that oil around the world will pass this through if they expect to stay competitive.”

Asked what impacts would be on US consumers if low crude prices persist, Sieminski said the average family’s $800/year gasoline expenditure could fall by $30, effectively adding 1% to the gross domestic product. “If we stay at these levels, gasoline prices could be down as much as 77¢/gal,” he said. In general, I think energy policy should consider what it means for the economy, environment and security issues. I think the SPR is our key tool in security.”

Gordon said, “Global production is growing all over. So is refining. Saudi Arabia added more capacity last year than any other country. China added a significant amount. The whole market is shifting. I don’t think you can draw a circle around North America in this instance.”

Contact Nick Snow at [email protected].