U.S. Crude Oil Export Policy EIA Energy Conference

Jason Bordoff

July 14, 2014 Washington, DC

420 West 118th St, New York, NY 10027 | http://energypolicy.columbia.edu | @ColumbiaUEnergy

• Crude transported by pipeline over federal rights-of-way (with exceptions).

• Crude produced from OCS.

• Crude from Naval Petroleum Reserve.

Other restrictions (waived in the above cases) barring export of:

Current Crude Export Law

2

• Shipments to Canada for consumption or use therein.

• Crude exported from Alaska’s Cook Inlet.

• Heavy California crude oil.

• Exports connected to refining or exchange of petroleum reserve oil.

• Re-exportation of non-comingled foreign crude.

• Exports of Alaskan North Slope crude.

The Bureau of Industry and Security (Commerce Dept) grants licenses to export for:

Current Crude Export Law (cont.)

3

• They result directly in the importation of crude or refined product of equal or greater quantity or quality that is not less than the quantity or quality of product that would be derived from the refining of the crude oil being exported (swaps);

• The contract under which the crude is imported can be terminated if U.S. petroleum supplies are disrupted or seriously threatened; and

• Applicant can demonstrate that the crude could not be reasonably marketed in the United States for compelling economic or technological reasons.

In addition, the BIS can approve licenses if it decides in the national interest and the purposes of the EPCA. Such licenses will generally be approved if:

0

5

10

15

20

25

302

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20

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40

US Liquid Fuel Supply Million b/d

Domestic Supply

Domestic Consumption

Net Imports

US Will Not Be Net Exporter, So Why Are We Talking About Exports?

4

Source: EIA

Source: EIA

All Growth in US Production in Form of Tight Oil

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0

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142

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20

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27

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35

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39

US Crude Oil Production Forecasts by Type Million barrels per day

AEO 2014 Tight Oil

AEO 2014 Other

Source: EIA

Actual Production Tracks High Case Projections More Closely

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Jan

-10

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-10

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v-1

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r-1

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Sep

-11

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-12

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-12

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-14

Au

g-1

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Actual Production vs. EIA Projections Million barrels per day

AEO 2014 High Resource

AEO 2014 Reference

AEO 2013 High Resource

AEO 2013 Reference

AEO 2012 High Resource

AEO 2012 Reference

Actual Production

LT Forecast

Actual Production

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2011 2012 2013 2014 2015

US Crude Oil Production by Type Million barrels per day

Light (API >35)

Medium & Heavy (API <35)

Forecast

All Growth in Tight Oil is Light Oil

7

Source: EIA

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100

Jan

-83

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-84

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-85

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-86

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-90

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-91

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-99

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-00

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-01

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Jan

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-13

Jan

-14

US Crude Import by Type % of total oil imports

Medium & Heavy (API <35)

Light (API >35)

Source: EIA

Imports of Light Oil Have Been Backed Out

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Mar

-01

Oct

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-04

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r-0

5

No

v-0

5

Jun

-06

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-07

Au

g-0

7

Mar

-08

Oct

-08

May

-09

Dec

-09

Jul-

10

Feb

-11

Sep

-11

Ap

r-1

2

No

v-1

2

Jun

-13

Jan

-14

US Crude Oil Imports by Origin Million barrels per day

Other

West Africa

Middle East & North Africa

Latin America

Canada

Source: EIA

Most of That Light Oil Came from West Africa

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18.3

77.2

2.7 1.5 0

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US Rest of the World

Distillation vs. Heavy Oil Coking Capacity Million b/d

Crude Distillation

Coking

The US Has Two-Thirds of the World’s Coking Capacity

10

Source: Bloomberg

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-12

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-12

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-13

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r-1

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Jul-

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-13

Jan

-14

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r-1

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Crude Oil Prices $ per barrel

WTI

Brent

LLS

Source: EIA

Was Fall 2013 Oil Price Differential During Turnaround Harbinger of What’s to Come?

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80

90

100

110

120

130

Au

g-1

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Jan

-15

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-15

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v-1

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r-1

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Sep

-16

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-17

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-17

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-18

Oct

-18

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-19

Au

g-1

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WTI and Brent Futures Curves Jul 10, 2014 vs. 3 Weeks Ago $ per barrel

Brent Latest (Jul 10th)

Brent 3 Weeks Ago

WTI Latest (Jul 10th)

WTI 3 Weeks Ago

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-12

-10

-8

-6

-4

-2

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Au

g-1

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Jan

-15

Jun

-15

No

v-1

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Ap

r-1

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Sep

-16

Feb

-17

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Dec

-17

May

-18

Oct

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Mar

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Au

g-1

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WTI-Brent Futures Differential Jul 10, 2014 vs. 3 Weeks Ago $ per barrel

WTI-Brent Latest (Jul 10th)

WTI-Brent 3 Weeks Ago

WTI-Brent Spread Narrowed After BIS Condensate Decision

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Source: Bloomberg

2.3

0.3

1.2

0.13

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

IHS ICF

Average Oil Production Impact Million b/d

High Case

Low Case

-5.0

-1.05

-3.0

-0.6

-8.0

-6.0

-4.0

-2.0

0.0

IHS ICF

Average Brent Price Impact $ per barrel

High Case

Low Case-12.0

-2.3

-8.0

-1.4

-14

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-10

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-6

-4

-2

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IHS ICF

Average Fuel Price Impact* Cents per gallon

High Case

Low Case

• IHS assesses impact of lifting the export ban on US gasoline prices, while ICF assesses impact on weighted average wholesale petroleum product prices

• Query Impact on Natural Gas Production: Associated gas production declines, but rigs shift liquids to gas

Results of Crude Export Impact Studies Vary Widely

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Source: IHS and ICF Reports

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US Gasoline Prices are Set in Global Product Market, So US Price Discount Does Not Pass Through to Consumers

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Jan

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Sep

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-11

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g-1

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Jan

-14

US Gasoline Prices vs. International and Domestic Crude Prices $ per barrel

WTI

Brent

Gasoline (NY Harbor)

Gasoline (US Gulf Coast)

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0.5

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2.5

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Jan

-09

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v-0

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r-1

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Sep

-10

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Jan

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Spot Gasoline Prices Cents per gallon

New York Harbor

US Gulf Coast

N.W. Europe

Singapore

Source: EIA, Bloomberg

No Net Imports No Exports; Minimal Gross Imports

• Are gross or net imports the key metric to energy security?

• What are the geopolitical and diplomatic impacts of energy trade restrictions?

Exports Restricted

Exports Permitted

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Security Implications of Crude Export Restriction

Production

19 Imports

1 Exports

0 Consumption

20 Net Imports

1

Production

20

Imports

10

Exports

10

Consumption

20

Net Imports

0

No Net Imports No Exports; Minimal Gross Imports

• US energy security enhanced by integration into global market

• Consistent with free trade principles and opposition to resource nationalism

• Support ongoing trade negotiations

Exports Restricted

Exports Permitted

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Security Implications of Crude Export Restriction

Production

19 Imports

1 Exports

0 Consumption

20 Net Imports

1

Production

20

Imports

10

Exports

10

Consumption

20

Net Imports

0

“We must continue to keep domestically-produced crude here to lower prices for consumers” --US Senator Robert Menendez “[L]ifting the ban on crude oil exports…would enrich oil companies by enabling them to sell their oil at the higher world price, but it could increase domestic gasoline prices and reduce our energy security.” --Center for American Progress

“[A]s a refiner we believe that the U.S. has advantages keeping the bulk of the crude oil (and natural gas) here so it can be turned into value-added products for use domestically and overseas” --Valero Spokesman Bill Day

“The prohibition on crude oil and condensate exports threatens record-breaking U.S. oil production and American jobs by creating inefficiencies, gluts, and other dislocations” -- US Senator Lisa Murkowski “Trapping light, domestic crude within our borders only penalizes U.S. production, which could mean higher costs for refiners and consumers” --Erik Milito, API “These outdated crude export restrictions have prevented domestic oil exploration and production from achieving its full potential – slowing potential job growth” -- Harold Hamm, Continental Resources

Anti-Export Statements Pro-Export Statements

Don’t Underestimate Political Sensitivity of Pump Prices

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The government should restrict gasoline exports to protect prices in the US

Agree Don’t know Disagree

76% 13% 11%

Public Opinion Not Favorable to Crude Exports

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The government should restrict gasoline exports

Agree Don’t know Disagree

57% 19% 24%

US oil producers should be allowed to export crude oil 39% 22% 39%

Agree Don’t know Disagree

US oil producers should be allowed to export oil even if it means gas prices go up 18% 12% 71%

Agree Don’t know Disagree

What do you think the US should do with all the oil we are producing? 13% 11% 77%

Sell it abroad Don’t know Keep it for US consumers to lower US gas prices

How much do you know about US oil production? 7% 21% 46% 26%

A great deal A fair amount A little bit Nothing at all

Source: Reuters/Ipsos poll recorded in March 2014

• Congressional modification of statute

• Flexible reading of existing regulation language

• Change to existing regulatory language

• Use of Presidential authority to find it is in national interest to allow crude exports in new category of cases (e.g., to free-trade agreement countries)

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Pathways to Ease Crude Export Restrictions

• Congressional modification of statute

• Flexible reading of existing regulation language

• Change to existing regulatory language

• Use of Presidential authority to find it is in national interest to allow crude exports in new category of cases (e.g., to free-trade agreement countries)

Prospects very unlikely

20

Pathways to Ease Crude Export Restrictions

• Congressional modification of statute

• Flexible reading of existing regulation language

• Change to existing regulatory language

• Use of Presidential authority to find it is in national interest to allow crude exports in new category of cases (e.g., to free-trade agreement countries)

Recent clarification ruling allowing export of condensate run through stabilizer with distillation tower

Potential applications for light oil similar processed, swaps, etc.

21

Pathways to Ease Crude Export Restrictions

E.g., definition of crude to exclude condensate (see recent Murkowski white paper) Note recent signs from Admin, e.g., Podesta comments about Eagle Ford at Columbia, Moniz on “nature of crude oil we are producing”

• Congressional modification of statute

• Flexible reading of existing regulation language

• Change to existing regulatory language

• Use of Presidential authority to find it is in national interest to allow crude exports in new category of cases (e.g., to free-trade agreement countries)

22

Pathways to Ease Crude Export Restrictions

Authority previously used for exports to Canada, from Alaska, etc. Politically heavy lift Don’t underestimate political sensitivity of gasoline prices

• Congressional modification of statute

• Flexible reading of existing regulation language

• Change to existing regulatory language

• Use of Presidential authority to find it is in national interest to allow crude exports in new category of cases (e.g., to free-trade agreement countries)

23

Pathways to Ease Crude Export Restrictions

Thank you

For more information contact

Jason Bordoff Professor of Professional Practice in International and Public Affairs Founding Director, Center on Global Energy Policy Columbia University

jbordoff@columbia.edu (212) 851-0193