Buried in the latest government analysis on lifting the crude-oil export ban is a piece of data that shows why ending the limits will be a heavy lift: It would cut refiners’ profits by $22 billion a year.
The report shows that dropping the ban, which dates to the 1970s Arab oil embargo, could lower gasoline prices for drivers and boost domestic oil drillers. But refiners — one of the nation’s most powerful industries — would be the losers.
“The refiners will definitely be hurt, there is no question about that,” said Charles Ebinger, a senior fellow at the Brookings Institution who supports lifting the ban. “But the studies have shown that lifting the ban is good public policy.”
Congress is set to begin considering legislation to end the prohibition as soon as next week, though a split in the industry is complicating the effort to get it passed, particularly the Senate. Financial losses could be especially painful for refineries in the Midwest and Northeast, which now get discounted U.S. oil from surging shale production made possible because of hydraulic fracturing, Ebinger said.
That makes winning support from pro-trade Republican senators in Pennsylvania, Ohio, Illinois and New Hampshire, up for re-election next year, especially difficult. Already Allied Progress, a group that says it aims to hold powerful interests accountable, is running ads against ending the ban in Colorado, Maine and New Hampshire.
“If Republicans vote in favor of lifting the export ban, the ads write themselves,” said Jay Hauck, a lobbyist representing four refineries that joined together to fight the effort. “They are handing Democrats a fall campaign issue.”
Oil companies including Continental Resources Inc. and ConocoPhillips have spent much of the past two years pressing Congress to change the policy. They have relied on a series of economic analyses concluding that ending the restrictions won’t mean a rise in gasoline prices for drivers.
The latest report came from the Energy Information Administration, which on Sept. 1 released the last in its series of independent analyses. It said that if U.S. oil production were to keep rising, lifting the ban would cut the gap between domestic and global light crude prices, while gasoline prices at the pump would either be unchanged or slightly lower. U.S. producers could gain additional revenue of $29 billion.
The difference between the major benchmarks — West Texas Intermediate in the U.S. and Brent crude in the rest of the world — has averaged $5.70 so far this year and $6.64 last year after being more than $10 for three years, according to data compiled by Bloomberg.
Without restrictions, profits for refiners would be $22.7 billion lower in 2025 than with limits in effect, EIA predicts. “This outcome reflects the expectation that refinery margins would grow with increases in the Brent-WTI spread under current export restrictions in high-production cases,” the report said.
Still, even with that change, the expected spread will remain larger than it was last year, and U.S. refiners would continue to benefit from cheap natural gas, which they use both as a fuel and feedstock, according to the report.
Refiners have been the surprise winners of the shale era, raking in better returns than all other energy sectors since 2012, including in periods when oil was above $100 a barrel and now when it is below $50.
In the past three years, an index of refining companies on the Standard & Poor’s 500 Index has returned more than 100 percent to investors, more than twice that of the S&P and a far cry from the losses of the broad energy sector, according to data compiled by Bloomberg.
To be sure, not all refiners are aligned on the issue.
Integrated oil companies, which both produce and refine oil, support ending the ban. ExxonMobil Corp., BP Plc and Royal Dutch Shell Plc are all members of the American Petroleum Institute, which is leading the lobbying to lift the ban. Tesoro Corp., the San Antonio-based refiner with the most capacity in the western U.S., supports repeal, too.
“It is clear that some domestic refiners are going to be challenged; the question is which ones, by how much and for how long?” said Stephen Brown, a lobbyist for Tesoro.
Members of Hauck’s group are Alon USA, Delta Air Lines Inc.’s Monroe Energy, PBF Energy and Philadelphia Energy Solutions. In addition, Valero Energy Corp., the nation’s largest refinery, also opposes repeal.
These companies argue that domestic shipping protections and a U.S. ethanol mandate already distort the free market for oil, and wonder why a policy that’s been in place since the Arab oil embargo of the 1970s is suddenly on the fast-track for congressional action.
Outside analysts put a different spin on it.
“They are going to lose the bonus they’ve enjoyed,” said Charles Mason, a professor of petroleum resources at the University of Wyoming. “There is a discount on producers U.S. tight oil. If we would shelve the export ban, that discount would disappear.”