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House Vote May Signal the Beginning of the End of Oil Export Ban

Brian Wingfield and Catherine TraywickSep 16, 2015 3:57 pm ET

(Bloomberg) -- House Republicans will test Thursday whether a once-unthinkable goal of U.S. energy producers could become reality: the end of a 40-year ban on exporting oil.

A mainstay of U.S. energy policy since the Arab oil embargo of the 1970s, the export limits have been targeted by domestic producers including ConocoPhillips and Continental Resources Inc., who see its repeal as a valve to relieve the glut of domestic crude.

A House committee Thursday will vote on a Republican bill to end the trade restrictions in what is being viewed as a test for bipartisan support. The House plans a floor vote later this month.

While analysts say the prospects of the measure becoming law are dim, momentum in Congress for repeal of the export ban is intensifying, and Democrats have signaled a willingness to participate -- for a price.

“Democrats are sort of smelling blood on this,” Peter Cohn, an analyst with Height Securities LLC in Washington, said in a phone interview. “They think, ’This isn’t going to be the end of the world if we pass the crude-export bill, but we’re going to make it hurt.’”

As recently as a few years ago the idea of lifting the ban was unthinkable. But Senate Majority Leader Mitch McConnell, a Kentucky Republican, today called for an end to the trade restrictions, and Democratic Leader Harry Reid of Nevada has said he’s open to a deal.

Driller Breaks

Trade offs that have been mentioned include: a permanent extension of renewable energy tax credits, support for refiners, benefits for minority-owned businesses, or ending tax breaks for drillers.

Supporters of lifting the ban view President Barack Obama as willing to work with them, despite White House spokesman Josh Earnest’s comments this week that the administration opposes the House bill and views crude-export policy as the Commerce Department’s domain.

“They’re not saying ‘no’ from the beginning,” Representative Henry Cuellar, a Texas Democrat, said in phone interview.

He said the White House opposes the House bill in its current form only, “which gives us the possibility of working out something later on.” Cuellar said support for alternative fuels might be a way to win Democrats’ backing at a later date.

There’s “small chance for compromise” and Obama’s opposition will probably remain, Bloomberg Intelligence analysts Rob Barnett and Caitlin Webber, said Wednesday in a research note. “However, the stalemate on the issue is beginning to thaw, and pro-export legislation faces better odds after next year’s election.”

Limited Exports

U.S. law allows a limited number of crude exports, mainly to Canada, and those shipments reached a monthly record average 586,000 barrels a day in April. Refined U.S. petroleum products can be freely traded internationally.

U.S. crude production reached a record average 351,000 barrels a day last year, according to the Energy Information Administration, and producers including Conoco, Hess Corp. and Exxon Mobil Corp. want access to global markets. They say lifting the U.S. export ban will minimize the price gap between international oil prices and less expensive domestic crude, reducing U.S. gasoline prices in the process.

The ban is a “legacy of the 1970s oil shock that today cuts jobs, pay and profits in the U.S. and worldwide,” BHP Billiton Ltd. CEO Andrew Mackenzie said in prepared remarks Wednesday at the U.S. Chamber of Commerce in Washington. Repeal “would add hundreds of thousands of jobs to the U.S. economy.”

A group of independent refiners including PBF Energy Inc. and Delta Air Lines Inc. unit Monroe Energy LLC -- which may see their profits decline if crude prices rise -- has led the fight to keep the ban in place, saying that gasoline prices will probably rise in tandem with U.S. crude prices.

Iranian Oil

Advocates of repeal are seeking swift action, saying that the Obama administration is preventing American crude exports, while allowing more Iranian oil to enter the market as part of a nuclear deal with the Middle Eastern nation.

“If Iran is able to sell its oil around the world,” House Majority Leader Kevin McCarthy, a California Republican, rhetorically asked during remarks in Houston this week. “Shouldn’t America have the same opportunity?”

In the House, where Republicans have enough votes to pass their repeal bill, Democrats are putting down markers for compromise. Representative Gene Green, a Texas Democrat, said by phone that he is seeking language that would allow the administration to reimpose the ban if doing so is in the national interest. Others are seeking a stronger offer.

“I certainly can’t support this bill in its current form,” Democratic Representative Michael Doyle of Pennsylvania, said in a phone interview.

Refinery Incentives

He said the measure needs to provide incentives to increase the ability of East Coast refineries to process light-sweet crude, which the U.S. has in abundance.

Senator Jon Tester, a Montana Democrat, said in an interview in the U.S. Capitol that he was “open” to the idea of ending the ban.

“I’d have to look at the proposal, I’d hope there’d be some targets or triggers in there in case the price didn’t go down and in fact went up, but I’m certainly open to taking a look at it,” Tester said.

The Obama administration within the last year has allowed some cracks in the export restrictions. In December the Commerce Department said it would permit the export of processed ultra- light oil known as condensate. Last month the agency approved a crude-oil exchange of as much as 100,000 barrels a day with Petroleos Mexicanos. In both cases, administration officials said they acted within longstanding U.S. policy.

“I am guardedly optimistic that we have an opportunity here to change this antiquated and archaic and wrong policy,” Senator Heidi Heitkamp, a North Dakota Democrat, said in an interview Wednesday. She and Senate Energy and Natural Resources Committee Chairman Lisa Murkowski are leading repeal efforts in the Senate, and Murkowski’s bill has cleared her committee.

“It seems really hard to me to construct legislation that is going to make both sides happy,” Height’s Cohn said. “At the end of the day, you need the Senate to actually move.”

--With assistance from Billy House and Kathleen Miller in Washington.

Link: http://washpost.bloomberg.com/Story?docId=1376-NURVU46JIJUQ01-00GVDG163AQF9QF619P9PAG194