The big domestic news from yesterday was the hint, first reported in the WSJ [10], that the US is looking at loosening a four-decade ban on oil exports.
The US government was quick to refute this suggestion which nonetheless promptly managed to eat into the spread between WTI and Brent, a structural gap resulting from the inability of WTI to reach global markets. Moments ago, Bank of America's Francisco Blanch confirmed as much when he said, at a press conference in New York, that "from a legislative standpoint there is close to zero chance of the crude oil export ban of 1975 being repealed" in Washington, Francisco Blanch, head of commodities research at Bank of America, said at a press conference in New York. He added that the Obama Administration has a "fair amount of leeway" on the administrative front and more condensate exports may be approved. He concluded that "lifting the export ban is too hot a political button" for Obama Administration.
He is right.
But aside from the political rhetoric, there are fundamental considerations that also have to be taken into account. One of the better post-mortems on America's crude supply and demand picture comes from Leonid Bershidsky who, in Bloomberg, writes the following [11]:
The Commerce Department has issued [12] separate private rulings allowing two companies, Pioneer Natural Resources Co. and Enterprise Products Partners L.P., to export condensate -- a light hydrocarbon that remains liquid at normal temperature and pressure -- under the condition that the condensate will be stabilized and distilled. These are two early phases of the refining process that don't turn the light oil -- which is what condensate ultimately is -- into a finished fuel like gasoline, which U.S. companies are allowed to export.
U.S. oil production has increased by 66 percent, or 3.3 million barrels a day, since 2008, Daniel Yergin, author of the influential book about the oil industry, ``The Quest,'' said in recent congressional testimony [13]. That has been lucky for the U.S. 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."
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.
The U.S. government isn't about to open the floodgates, however. According to the U.S. Energy Information Administration's reference scenario [14], domestic oil production is going to peak at 14.6 million barrels a day in 2019 and then drop to 12.7 million barrels a day in 2040. Given the 2013 consumption level of 18.9 million barrels of crude a day, the U.S. will never be a net oil exporter under this scenario, or even under the EIA's most optimistic one, which puts 2036 output at 13.3 million barrels per day. Closing that gap would require a drastic reduction in the country's appetite for hydrocarbons.
The U.S. crude producers need the flexibility of exporting oil or selling it domestically. As for the political dreams of making the U.S. a major oil exporting power, or even of energy independence backed by the shale boom, they are just that -- dreams. Although the administration recognizes the importance of the political agenda, it is only going to make tiny steps toward liberalizing exports, akin to verbal interventions on the global oil market.
