The surge in U.S. oil production in 2010 has left a glut of oil trapped within the United States. To be sure, the U.S. is by far the largest consumer of oil in the world, so it’s not like all that extra oil sloshing around can’t find a home. But, due to a mismatch between the light, sweet crude coming out of places like the Bakken and the Eagle Ford, and the preponderance of refineries on the Gulf Coast equipped to handle heavier, sourer types of oil, there are local surpluses in supply. As a result, prices are somewhat depressed – for the last few years there has been a large spread between the Brent and WTI benchmarks, at times as wide as $10 per barrel. This has drillers looking overseas for markets.
Yet, U.S. law largely prohibits oil exports. Producers have already had a warm-up debate over energy exports – the glut of shale gas has drillers pushing lawmakers and regulators to approve export terminals for LNG, and the Obama administration has obliged, albeit at a slower pace than the industry wants. Last year, the murmurings of a similar debate – this time over oil – began to emerge. That debate kicked into high gear after the annexation of Crimea by Russia. Producers had shifted back and forth between a litany of arguments to support exports – that LNG and oil exports will grow the economy, create jobs, provide geopolitical benefits, lead to energy independence – which at times fell flat. But, with the Ukraine crisis, the prospect of undercutting Russia’s political machinations finally began to resonate on Capitol Hill. At the same time, Senator Mary Landrieu (D-LA), a huge backer of exports, took the gavel on the Senate Energy and Natural Resources Committee. Working alongside her Republican counterpart Lisa Murkowski (AK), they are aggressively pushing a natural gas and crude oil export liberalization agenda. As far as LNG exports go, they seem to have won. Crude oil is next, and the recent geopolitical events make it relatively likely that the crude export ban will be lifted in the near to mid-term.
Who would win and who would lose should such a scenario play out? The divide within the industry points the way – drillers would win big time, and refiners would lose out. That much is known. But let’s take a closer look.
Losers – Refiners
The U.S. has the ability to refine 17.3 million barrels of oil per day, and 44% (7.7 million bpd) of that refining…