‘10/12 Industry Report’: Some say lifting ban on oil exports is premature

In October of 1973, the Arab members of the Organization of the Petroleum Exporting Countries declared an oil embargo against the United States in retaliation for U.S. support of Israel during the Yom Kippur war.

As 10/12 Industry Report details in a feature from its new quarterly issue, the resulting oil price spike led to the Energy Policy and Conservation Act of 1975, which banned most oil and natural gas exports.

The hope was that keeping most American crude oil at home would prevent price shocks and keep the nation from becoming dependent on foreign oil. After years of debate, in December Congress passed and the president approved a measure to repeal the export ban.

Domestic oil producers, battered by recent price drops, would love to sell their light, sweet crude at the higher prices that it commands outside of North America.

While the export ban may have served U.S. national security interests in 1975, it actually was counterproductive to those interests today, the oil industry argues. Others say lifting the ban is premature when the nation still imports millions of barrels of foreign oil every day, and could lead to higher gas prices for consumers.

Gregory Upton, an economist and assistant professor with the LSU Center for Energy Studies, says many of the arguments on both sides of the issue have been overstated.

At the center’s annual Energy Summit in October, he argued that the move carries serious risks for Louisiana’s refining industry, but might also offer rewards that few people are talking about.

Louisiana isn’t really a big crude producer compared to Texas and North Dakota, says Ragan Dickens of the Louisiana Oil and Gas Association. But Louisiana’s pipeline and highway infrastructure support the industry, and many Louisianans work in the shale plays that are responsible for so much production.

“The way it affects Louisiana is that rock thrown into the lake,” Dickens says. “It’s that ripple effect.”

Economist Loren Scott says Louisiana refineries primarily are built to process heavy crude. The West Texas Intermediate crude produced at shale plays in Texas and North Dakota is light and sweet. That misalignment leads to a bottleneck, which means WTI oil sells for less here than it does overseas. So the shale producers want to sell their product where it will draw the higher price.

“The major beneficiaries of lifting the export ban would be the people who are drilling for oil and harvesting oil in the Bakken play in North Dakota and the Eagle Ford in Texas,” Scott says. “I wouldn’t think it would have a whole bunch of impact on us [in Louisiana].”

Read the full feature, which also includes notes from the LSU Center for Energy Studies annual Energy Summit. Check out the full lineup of stories from the new quarterly issue of 10/12 Industry Report. Send feedback, story ideas and company news to editor@1012industryreport.com.

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