Although the U.S. ban on exporting crude oil has been in place for 40 years, talk of lifting the ban—or at least reducing some of its restrictions—is growing in volume along with U.S. production figures.

In April, Sens. Mary Landrieu, D-La., and Lisa Murkowski, R-Alaska, called on the Obama administration to consider removing the export ban. Harold Hamm, Continental Resources chairman and CEO, told the House Committee on Foreign Affairs that exporting crude would be one way to counter Russian aggression in Ukraine.

The impact would be felt widely on the domestic front according to an ICF Consulting report released this year.

ICF and EnSys Energy found that lifting the ban would bring profound economic impact to the U.S. between now and
2020, including:

  • Up to $70.2 billion more invested in U.S. energy;
  • 300,000 more jobs;
  • A gain of $38.1 billion in GDP; and
  • Narrowing the U.S. trade deficit by $22.3 billion.

The U.S. crude oil supply glut is driving down U.S. light crude oil prices relative to international markets, ICF said in its report, “The Impacts of U.S. Crude Oil Exports on Domestic Crude Production, GDP, Employment, Trade and Consumer Costs.”

Between 2009 and 2013, U.S. oil production increased by 2.1 million barrels per day (MMbbl/d). ICF estimates that through 2020, that figure will increase by another 3.2 to 3.3 MMbbl/d. Much of that production is the light, sweet crude from the shale plays, such as the Bakken, Permian Basin and the Eagle Ford. ICF said that growth could mean the former bottleneck in the Cushing, Okla., trading hub could become a national bottleneck.

Exporting some of the light sweet crude would temper the glut in Cushing as well as an expected glut along the Gulf Coast.

Most U.S. refiners have converted their facilities to accept heavy crude, while the U.S. production glut is from the light, sweet stuff from shale plays. Because there is a lack of refinery capacity for that commodity, ICF said refineries are expected to make adjustments to accommodate lighter crudes.

Still, the conversion process could have a tough time keeping up with growing U.S. production of the light crude and condensate.

The prodigious production, then, has created a supply and demand imbalance, which has tilted the domestic West Texas Intermediate (WTI)-priced commodity to trade lower than the international Brent.

ICF said that expanding flexibility to export crude oil would allow refiners to operate more efficiently—running the heavier crude—and that exporting the lighter stuff would reduce international oil prices. That would slow the growing spread between WTI and Brent prices, as well as perhaps modestly reduce U.S. gasoline and diesel prices, according to the report.

Running a high differential model and a low differential model, ICF found that in both cases, “When exports are restricted, U.S. crudes are bottlenecked, which results in their pricing being discounted. With crude exports, U.S. and international crudes are in direct competition and will move WTI prices closer to comparable global oil prices.”

What’s more, ICF said, “the fact that the U.S. refinery sector participates in international product trade means that U.S. refined produced prices follow international markets.”

Jack Malone, an analyst at RCM Asset Management inChicago, said that initially, lifting the export demand may result
in higher gasoline prices.

“However, over time we would see equilibrium over the global market that would put downside pressure on prices. Refiners would see a smaller supply of crude to be refined, but they would still have good margins and the big companies are going to find a way to make money,” he told Midstream Business. “Overall, I see the lift on the ban having downside pressure on oil prices and upward pressure on natural gas.”

But altering the export ban would happen in small doses, and it would take time, he said. The government’s response may come in the form of revisions to the Jones Act, which prohibits most U.S. export of crude.

“The administration has made it clear they will react slowly to anything involving energy, especially petroleum,” he added. “I do think they will be pressured into doing something, but that something will be a very slow, gradual change. The Jones Act was passed in 1920 and is in desperate need of revising … I foresee a small revision will be passed but any major changes would force huge infrastructure changes.”

Malone said that lifting the ban may boost business in unexpected places—such as the crude-by-rail industry.

“The U.S. is the world leader in the exporting of jet fuel, mainly coming out of Houston,” he said. “I don’t see a lift in the export ban having a negative effect on the crude-by-rail transport industry. Inversely I would see this industry as picking up with the news. It has to be moved somehow.”

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