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Lifting Oil Export Ban May Be Boon For Dispirited Economy, Cover For Obama

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A pumpjack doing its work in South Texas near the Eagle Ford shale play. Photo by Tony Cadwalader.

A pumpjack doing its work in South Texas near the Eagle Ford shale play. Photo by Tony Cadwalader.

Limited modified hangout by U.S. allows opening for oil exports

Perhaps it is a grudging concession by the Obama administration to allow a limited amount of united States oil to be exported, but a concession it is. On Tuesday the U.S. Department of Commerce announced it would allow the exports as a result of a petition filed by two independent Texas oil companies, Pioneer Natural Resources, a Dallas-based oil and gas producer, and Enterprise Products Partners of Houston, one of the country’s biggest pipeline operators.

The ruling would allow the companies to export condensate and not heavy oil, an important distinction in refining terms. But the ability to finally export this lighter crude product should alleviate some of the built up reserves from America’s booming shale market. Condensate is the slightly refined product that has been stripped of gases to make it less volatile, a minimal level of processing known as stabilization. “Under current rules, companies can export refined fuel, such as gasoline and diesel, but not oil itself; the government’s new approach reportedly redefines some ultra-light oil as fuel after it has been minimally processed, making it eligible for sale abroad,” a Seeking Alpha brief on the decision said. The first shipments could be made as soon as August and could mean an outflow of as much as 3 million barrels per day.

The ruling loosens a 1975 ban — the Arab oil embargo — that came about because of the OPEC-influenced U.S. oil crisis from the early 1970s. Politically this is probably as far as Obama is willing to go for fear of angering his leftwing, the grass-root Democrats who do not like the oil and gas industry, and in turn angering big oil and its lobbying arm, which has always had a protectionist streak in it, and does not really appreciate the independent drillers. The one area the bigs have the most control is at the refineries, and that is the one place that would be hit the hardest by fully lifting the export ban.

That’s not to say that the big oil companies are hard core Democrats. None of the states at the center of the oil and gas revolution voted for Obama, save Pennsylvania, according to this analysis from December 2013.

Elections have consequences, and the U.S. oil industry backed the loser in 2012. Not only that but oil and gas producers allowed themselves to be painted as an arm of the Republican Party. By contrast, environmental groups and clean-energy companies were among the president’s most important supporters in terms of fundraising and mobilization on the ground. Environmental campaigners have therefore wielded immense influence over the White House throughout the president’s first and second terms.

They are unlikely to be sympathetic to permitting oil exports if it means more domestic oil production and more fracking. While many environmentalists, and the White House itself, have grudgingly embraced natural gas as a cleaner-burning alternative to coal, that enthusiasm is unlikely to extend to crude oil.

Earlier this year, the International Energy Agency (IEA) argued “either U.S. crude is shipped abroad or it stays in the ground” But that is exactly what many environmental groups want.

That said, in an economy that is one quarter of bad numbers away from falling back into a recession, this stand does little to create new jobs. And the oil and gas boom has been a great provider of that. Indeed, export restrictions harm job growth in the oil industry, but they support thousands of jobs in the refining and petrochemical industries, many of which are unionized, and some of which are based in Democratic districts, the above linked article said. “So while the White House probably has the legal authority to lift the export ban, acting on its own if necessary, it is not a political priority for the president.”

Economically the decision has already shown in the markets where the distance between higher priced Brent Crude, which is linked to the world price of oil and gas, and its export-locked competitor West Texas Intermediate has narrowed. Bloomberg, citing Citigroup, estimates about 300,000 barrels a day of an ultra-light oil known as condensate could be exported by the end of the year. “In total 750,000 barrels a day of condensate is pumped from U.S. shale plays, according to Wood Mackenzie Ltd. Exports would give U.S. producers access to niche markets in Asia and Latin America, while having only a small impact on the price domestic refiners pay for crude.”

The U.S. pumped 8.45 million barrels of oil a day in the week to June 20, according to U.S. Energy Information Administration data. The Eagle Ford shale produced 205,000 barrels a day of condensate in the first quarter, according to data from the Railroad Commission of Texas. Pioneer Natural Resources pumped about 29,000 barrels a day of oil and natural gas liquids from the formation over the same period, according to a presentation on the company’s website.

There is probably no greater student of the oil and gas industries than Daniel Yergin, the author of The Quest, and vice chairman of IHS, an analytics think tank. Coincidentally Yergin spoke on Tuesday of the economic benefits of lifting the export ban. In summary he said:

  • Natural gas production increased 27 percent between 2007 and 2013. Estimates of recoverable natural gas reserves have more than doubled since 2005. U.S. oil production has increased 3.3 million barrels per day since 2008 – a 66 percent increase. This increase alone is larger than the output of 11 of 12 OPEC countries.
  • By 2012, the unconventional natural gas and oil activity was already supporting more than 2.1 million jobs across a vast supply chain. About 60 percent of these jobs – 1.3 million – were from shale gas activity; the rest from tight oil.
  • By 2012, the unconventional natural gas and oil activity was already supporting more than 2.1 million jobs across a vast supply chain. About 60 percent of these jobs – 1.3 million – were from shale gas activity; the rest from tight oil.
  • The total number of jobs supported is expected to rise to 3.3 million by 2020 – with 1.8 of those jobs from shale gas.
  • In 2012, this revolution added $74 billion to federal and state government revenues. IHS projects the number to rise to about $125 billion by 2020. Between 2012 and 2035, unconventional activity is expected to generate nearly $1.6 trillion in cumulative government revenues. 

According to Yergin, the increase “has almost exactly balanced the amount of oil currently missing from the world market owing to disruptions in countries like Libya and Iraq and sanctions on Iran. In other words, the increase in U.S. oil production has compensated for loss of oil elsewhere. Without that increase, we would be looking at much higher oil prices than today.” 

That’s via Zero Hedge where Tyler Durden notes the issue is too politcal to move any further:

“In other words, the enormous growth in U.S. oil production has helped to displace imports, but only at marginally lower prices than imported oil would have commanded. Unlike the shale-gas revolution, the growth in shale-oil extraction hasn’t led to a big price drop.

“Allowing exports on a large scale under these conditions wouldn’t be a good idea. Pioneer, a small producer, and pipeline operator Enterprise Product Partners, which doesn’t have its own extraction operations, aren’t going to make much difference to the U.S. energy balance if they are allowed to sell some lightly processed condensate abroad. What is valuable to President Barack Obama’s administration is the public-relations effect of the rulings: The world will now know that the U.S. is an oil exporter for the first time since the 1970s. Europeans may take U.S. promises to help wean them off Russian hydrocarbons a bit more seriously. The Organization of Petroleum Exporting Countries and Russia will keep in mind the threat of U.S. pressure on global oil prices.”



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