American Oil and Gas Reporter - January 2015 - 38

2015 The Year For Action On Exports
By Del Torkelson
PALM BEACH, FL.-The intersection
is approaching and a wreck appears inevitable unless U.S. policymakers change
the rules of the road, predict a number of
oil and gas industry observers and advocates.
According to ConocoPhillips Chairman
and Chief Executive Officer Ryan Lance,
if the United States does not move this
year to allow more crude oil exports,
factors that include U.S. production trends,
refining capacity, market dynamics and
political reality are fated for a headlong
collision shortly thereafter.
"We have to fix this issue in 2015," he
told the Independent Petroleum Association of America at its 2014 annual meeting,
Nov. 11-13 in Palm Beach.
Otherwise, by 2016, Lance pointed
out, every policy proposal will pass under
the volatile and unpredictable scrutiny of
election year politics, and by 2017, U.S.
light oil output may have outgrown the
country's ability to efficiently refine it.
Lance suggested that a growing majority of American policymakers were
recognizing the merits of loosening U.S.
export restrictions. He credited much of
that development to a number of expert
analyses-including the Brookings Institution, ICF International, Resources for
the Future, and IHS CERA-all of which
had concluded that, to the extent that

U.S. exports were likely to move the
country's gasoline prices, all such motion
almost certainly would be downward.
"My frustration is that almost everybody on Capitol Hill seems to agree it
makes good policy sense from a geopolitical, economic growth, and jobs perspective," Lance related. "The hard part
is that everyone is looking at things
through a political lens."
Nevertheless, the U.S. Energy Information Administration chief Adam
Sieminski told IPAA, that political lens
simply reflects policymakers' deference
to voters' perceptions. "It is important to
go beyond only Washington," he advised.
"A lot of people in Washington understand
these issues, but some polling shows that
the general population is quite concerned
about what allowing exports will do to
gasoline prices."
Efforts to end or relax the U.S. crude
export ban also surfaced as a subject
during a number of items on IPAA's convention schedule, as did these public
policy subjects:
* The Endangered Species Act and
attempts to reform that statute;
* How federal tax reform might affect
the country's oil and gas producers;
* The Environmental Protection
Agency's plans to expand its Clean Water
Act jurisdiction, and to regulate methane
emissions from oil and gas sites; and
* New oil field initiatives from the
Occupational Health & Safety Adminis-

Pausing before the general session at IPAA's 85th annual meeting, Nov. 11-13 at the
Breakers Palm Beach, Fl., are, from left, EIA Administrator Adam Sieminski, IPAA Chairman
Michael Watford, and ConocoPhillips Chairman and Chief Executive Officer Ryan Lance.
During his remarks, Lance suggested that most elected officials recognized the likely
economic and geopolitical merits of U.S. crude oil exports even if political calculations
clouded the outlook for a shift in public policy.

38 THE AMERICAN OIL & GAS REPORTER

tration.
A Counterintuitive Argument
Sieminski's remarks highlighted some
key observations of EIA's report about
the relationship between crude oil and
gasoline prices, the conclusions of which
he said harmonized well with a number
of other studies. "It is pretty straightforward: U.S. gasoline prices are set in the
global-not the domestic-market," he characterized. "That means allowing crude
oil exports probably will not do anything
at all to gasoline prices. It certainly will
not make gasoline prices go up, and it
may make them go down."
U.S. production growth is surging the
most for light crudes with an API gravity
greater than 40 degrees, he noted, which
poses challenges for Gulf Coast refineries.
"Refineries are built to run particular
kinds of crude oil," he observed. "If you
build a refinery to run heavy crude oil, it
is not going to be very efficient at running
lighter grades. That is what this exports
debate is about."
Sieminski said policymakers seemed
to be exploring the possibility of at least
green-lighting exports of Eagle Ford condensates and other substances with API
gravities at or above 56 degrees. "Condensates are the 'Hamburger Helper' of
petroleum," he characterized. "Refiners
are happy to have it when it's a small
percentage of the flow coming out of oil
fields, but when those numbers increase-
as they are now-it creates a problem."
Lance noted that since running light
sweet crude through facilities designed
for heavy oil was less efficient, refiners
must compensate by discounting the
price at which they bought it. In the absence of more U.S. exports, he projected,
most Gulf Coast refiners will have to
invest an average of $400 million in
each of their facilities during a time in
which they already must invest in equipment to meet tighter federal air standards
as well as myriad regional gasoline specifications.
The mismatch between U.S. production
and the country's refining configuration
threatens to arrest U.S. oil development
and the many quantifiable benefits that
accompany it, Lance warned. But recognizing how exports can prevent that without hitting American gasoline consumers
requires some sophistication. "The argument is a little counterintuitive: To make
gasoline cheaper, we need to export more
crude oil," he said. "We have to tell our
complex story in a society that likes to

American Oil and Gas Reporter - January 2015

Table of Contents for the Digital Edition of American Oil and Gas Reporter - January 2015