Lawmakers in U.S. oil heartland soften over export ban

Reuters News
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Posted: Sep 25, 2014 1:05 AM

By Edward McAllister

NEW YORK (Reuters) - In the oil drilling and refining heartland of Texas, the debate over U.S. crude exports is no longer a fight over whether a 40-year ban should be lifted. The question now is how soon it will end.

As Washington mulls reversing the ban amid a drilling boom that has swamped the U.S. Gulf Coast in oil, Texan lawmakers are already preparing for the prospect of crude oil exports from the state's major ports, and assessing what it means for constituents.

Even representatives of districts that include large oil refineries, the owners of which have expressed strong opposition to exports for fear it would increase the price of crude, told Reuters that they would support the shipment of oil overseas.

Their views represent a shift in the national discussion over crude exports in which elected officials increasingly acknowledge the likelihood that some of the United States' abundant reserves of oil will eventually find its way overseas for the first time since the 1970s. Already this year, the U.S. government has issued licenses to allow two companies to export ultra light crude oil known as condensate.

At stake is not just the state of the U.S. market where growing volumes of oil are logjammed without an outlet. Supporters of exports also see it as a powerful political tool abroad as Europe seeks greater independence from Russian energy and violence spreads across the Middle East.

"The decades old ban on crude oil exports is no longer justified given the current market conditions," said Representative Michael McCaul, the Republican who in April introduced the Crude Oil Export Act which proposes an end to oil export limits. "Lifting the ban will also give America a new foreign policy tool to provide greater stability in the world oil market."

Alongside McCaul, a growing chorus of Texas representatives say that a middle ground can be met between refiners who wish to maintain profits by limiting exports, and producers who favor unlimited markets for their crude.

Much opposition to exports remains, especially among refining interests who see their profits threatened. Others would like to see only limited volumes shipped overseas. But since the U.S. government began quietly issuing export permits for condensate earlier this year, many anticipate that full exports will soon become a reality.

Borrowing the Bluebell Ice Cream slogan, Republican Representative Randy Weber from Texas' coastal 14th district which includes Shell's Motiva refinery in Port Arthur, said: "Let's use all we can and sell the rest."

"I am a free market kind of guy. A rising tide raises all ships," he said.

Even though exporting crude oil could hamper growth of the U.S. refining industry, it will promote free trade and lower gasoline prices, said Representative Blake Farenthold of Texas' 27th district, home to several oil refineries. Republican Farenthold is co-sponsor on the Crude Oil Export Act.

"Do you vote for what is good for your district and your constituents or what is good for your country? I am going with the country on this," he said.

FREE MARKET

Texas' position is unique in the oil export debate. Its southern coast is home to some of the world's largest oil refineries that turn crude piped from across the continent into gasoline and other products that can be exported under current law.

Inland, however, lie some of the United States' oldest and most prolific oil fields that have been reinvigorated by new drilling techniques including fracking. In those plays, producers favor the export of crude oil.

Oil producers want to open up their product to global markets, while refiners fear that they could lose money if oil prices rise or could lose share of the refining market if oil can be processed cheaper overseas.

Crude oil production in the United States is now at a 30-year high. Refiners whose facilities are largely geared toward processing heavy crudes imported from Latin America and Canada are now inundated with light crude from new drilling frontiers like North Dakota. Updating refineries to process light crudes could take years.

Much of the debate in Texas revolves around that dilemma.

"Shell and Exxon support export, but refiners like Valero could end up paying more for the crude oil," said Gene Green, the Democrat representative from Texas' 29th congressional district in east Houston that has a number of oil refineries. "If you are in a producing region, things might be different."

Green has called for a wait-and-see approach on exports, in part to be sure that an oil production boom in the United States is here to stay.

"I want to take it one step at a time," he said. "I am not just for throwing the door open to exports."

STORM BREWS

While the debate might be changing, opposition to exports is expected and it could be years before the ban is fully lifted.

Refiners and consumer groups are lobbying against more exports, hoping to keep the glut of oil at home.

In a Sept. 4 letter, the Consumers and Refiners United for Domestic Energy (CRUDE) lobbying group urged the U.S. Commerce Department to stop issuing licenses to export condensate. Such licenses, it said, are "contrary to the letter and intent of the law."

Moreover, lobbyist sources said that an anti-export campaign could gather steam this autumn, led by CRUDE.

On the other side, pro-exporters including oil producers like Conoco Phillips and Continental Resources are expected to push for an end to the ban.

All the while, lawmakers are treading carefully, especially ahead of the U.S. midterm elections in November.

"We need to make sure it is done in a systematic way," said Republican Representative John Culberson from Texas' 7th district, in west Houston. "We need to take care of Americans' needs first."

(Reporting by Edward McAllister; additional reporting by Valerie Volcovici in Washington; Editing by Marguerita Choy)