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Testimony: Economic benefits of removing the crude oil export ban, Part 2

Hydrocarbon Engineering,

Further highlights from the testimony given by IHS Energy Senior Director, Jamie Webster to the US House of Representatives Subcommittee on the US crude export ban.

So why do we have the ban?

“In short, it is an anachronism that grew out of a period of scarcity in the 1970s when the US imposed price controls on oil and banned the export of oil in order to support the price controls. In the wake of the 1973 Arab oil embargo, the Emergency Petroleum Allocation Act of 1973 allowed President Nixon to set price controls and allocate oil to end users in the US. The Energy Policy and Conservation Act of 1975 prohibited the export of crude oil and natural gas produced in the US, with some exception. The US system of price controls on oil was abolished in 1981, as was, a few months later, the ban on the export of oil products. However, illogically, the ban on crude oil exports was retained even though the rationale provided by price controls had disappeared. The US now has the fastest growing oil economy in the world. Since 2008, American entrepreneurship has increased US crude oil output by approximately 81%, 4.1 million bpd principally of light tight oil, such as Eagle Ford in south Texas, Bakken in North Dakota and WTI. This increase is the fastest in US history and exceeds the combined production gains from the rest of the world.”

“More importantly, continuation of this ban hurts American consumers, causes unnecessary drag on American productivity, and does not let the US exploit fully the national security benefits from our energy resurgence. The reasons are intertwined with the nature of the American refinery system and the price discounts that American producers must take in order to sell their products competitively to refineries, particularly along the Gulf Coast, which holds over half of the nation’s total refining capacity. Over US$85 billion has been spent in the past quarter century to reconfigure these refineries to process heavy oil imported from countries like Venezuela, Mexico and Canada. The US contains the largest refining capacity of any country in the world, with 139 operating refineries with a combined crude oil distillation capacity of approximately 18 million bpd. The US refining system is characterised not only by the number and size of refineries but also by a high number of world class, high complexity, full conversion refineries with a substantial degree of petrochemicals and speciality products integration.

“In this complex refining system, if the crude quality varies enough, the refineries cannot run optimally within their designed operating parameters. In the Gulf region, most refineries are configured to process heavy crude oil. When using light tight oil Gulf refineries operate inefficiently.

“Unfinished products are the result of this crude mismatch, which have a lower value because they require further processing to be upgraded into gasoline, jet and diesel fuels. In some cases the crude quality mismatch is large enough that a refinery will have to reduce the crude oil throughput to process additional volumes of light tight oil. As a result, there are limits to how much of the new, domestically produced light tight oil the refining system can efficiently and effectively process. To fully use light tight oil, many Gulf Coast refiners often require a price discount. Allowing crude oil exports would allow light tight oil to sell at a higher world prices.”


“The country is eager to extend its imports of US natural gas to include oil. For now, Mexican oil production is in decline and gaining access to US light tight oil will help boost those refineries supply options. Mexico could enter into a swap arrangement, providing some of its own heavier Maya oil in exchanger for American light tight oil. However, the constraints of the crude export policy as well as the commercial requirements to put in this specific swap are causing difficulties in effecting a trade that would benefit both countries. Liberalising US oil exports would allow a more simple transaction, while retaining all the benefits. Mexico is working hard at its reforms, particularly as it relates to the upcoming bid rounds. The success of these reforms are very important to the US, because they will make the Mexican economy stronger, which will bring many benefits to US-Mexican relations.

“The Mexican prospects represent some of the last, attractive unexplored areas of the world and while the lower oil price does represent some near term challenges, the government appears committed to delivering terms that will allow a successful bid round for all parties. While we are now contending with an over supplied global oil market, additional volumes from countries like Mexico and Canada will continue to be important in the coming years particularly with supply from these nations potentially being heavier than US supply allowing it to be complementary to US production growth.”

Edited from testimony by Claira Lloyd

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