As domestic oil production continues its rapid increase, a growing number of producers are calling for an end to a 40-year ban on most domestic oil exports.
Some refiners and consumer advocates, however, say the export ban is still necessary and that a change could hurt consumers.
U.S. Energy Secretary Ernest Moniz said the Obama Administration is studying the ban and whether to end or change it.
“The nature of the oil we’re producing may not be well-matched to our current refinery capacity,” Moniz told the Wall Street Journal on Tuesday after an energy conference in Seoul.
Oil exports were banned as part of the Energy Policy and Conservation Act of 1975, which was designed to protect the country’s energy resources after the Arab Oil Embargo and as the country’s oil production steadily declined.
“Those controls were put in place for a reason that no longer exists,” said Earl Reynolds, president and chief operating officer of Oklahoma City-based Chaparral Energy Inc. “In the mid-70s, there were gas lines and geopolitical reasons for it, but those are gone now.”
Reynolds is chairman of the Oklahoma Independent Petroleum Association’s crude oil committee, which this week released a position paper calling for an end to the ban on domestic oil exports.
Domestic oil production declined for more than four decades until horizontal drilling combined with hydraulic fracturing and other technological improvements sparked the shale oil boom over the past five years. U.S. oil production this month reached levels unseen since 1986, according the U.S. Energy Information Administration.
Most onshore domestic oil is considered light sweet crude, which which contains relatively low sulfur content. Many of the country’s refineries, however, have been designed to handle blends of heavier crudes with higher sulfur content.
Flooding the market
As domestic oil production continues its rapid increase, industry leaders fear the export ban could lead producers to flood the market in a move that could cause prices to fall and drilling to slow.
“To see what would happen, you need only look at natural gas,” Reynolds said.
Drilling for natural gas boomed throughout the country until 2008 when producers flooded the market with more natural gas than it could handle. Prices plummeted as low as $1.90 per thousand cubic feet, down from more than $12 two years earlier.
When prices tumbled, drilling stalled and the country’s producers quickly turned to oil and away from natural gas.
In the natural gas-rich Barnett Shale near Fort Worth, Oklahoma City-based Devon Energy Corp. now has only two drilling rigs, down from more than 30 a few years ago.
Reynolds said he fears a similar result if domestic oil companies are not allowed to send some of their production overseas.
“Oklahoma is benefiting from low unemployment because of drilling projects throughout the state,” he said. “If I look three years from now and we are getting a $30 deduction from world prices, it would be difficult for us to make some of these projects work. The incentive would be to go find some place with world market prices.”
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