US moves closer to lifting ban on oil exports

The US edged closer to lifting its long-standing ban on crude oil exports last week as a bill passed an initial vote in the Senate, but a number of significant political hurdles remain before the law could be changed.

A lifting of the ban would weigh further on an already saturated world oil market, in which competition for market share has intensified in the past year as supply has continued to outstrip demand, especially in Asia, where most of the UAE’s oil exports are sold.

The initiative to lift the ban – which has been in place since the oil price shocks of the 1970s – moved a step forward on Thursday last week as Lisa Murkowski of Alaska won a majority vote in the Senate’s energy committee, which she chairs, to send the Offshore Production and Energising National Security bill for a full vote in the Senate.

The oil export ban is politically contentious in the US, however, where oil prices have been hardest hit as domestic oil production has doubled in the past four years thanks to a technological revolution led by hydraulic fracturing, known as “fracking”, that has unleashed supplies previously locked in impenetrable geological formations such as shale.

The heads of the big US oil companies – most vocally the ConocoPhillips chief executive Ryan Lance – are in favour of lifting the ban so they can get better prices for their oil.

Oil-rich states – including Alaska and Texas, as well as newer oil beneficiaries such as North Dakota – also are in favour of lifting restrictions as the bill includes revenue-sharing provisions for the states.

But the bill is opposed by independent US refiners as well as unions like US Steelworkers, consumer groups and environmentalists such as Sierra Club.

“We continue to work to make members of Congress aware of the negative impacts to consumers, the economy, and the US national security that would result from repeal of our 40-year-old energy independence law,” said Jay Hauck, spokesman for The Crude Coalition, which represents a number of oil refining companies.

While oil-producing countries – especially Opec members – also do not want a lifting of restrictions, US campaigners strenuously avoid any association on that front lest it hurt their cause.

“We do not seek and would not accept any support from foreign producers or Opec; that would not be helpful,” said one lobbyist who opposes the bill.

Despite the narrow Senate committee win (12-10), the bill has a long legislative road ahead and could ultimately face a veto by the US president Barack Obama even if it gets the necessary Congressional votes.

The bill may also run out of steam on its technical merits.

Skip York, an independent analyst at consultants Wood Mackenzie, argues that given the type of oil produced in the US, it would make more sense to sell different refined products to overseas markets rather than the crude oil itself.

“The quality of a US barrel that might be exported is not obvious,” Mr York said. “Our analysis suggests the best value for Eagle Ford condensate [which comes from one of the biggest recent shale oil finds, in Texas] is to split the barrel and sell cuts to a variety of markets,” with naphtha getting the best price in the US Gulf Coast, gas oil and diesel best going to Europe, and lighter products such as liquefied petroleum gas going to Asia.

But there are no legal restriction on those exports at present, which ultimately may undermine the need for a change in the law.

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