Senators eye Pentagon bill for oil export changes

OREANDA-NEWS. June 08, 2015. A bipartisan group of senators wants to attach a provision that would sweep away decades-old restrictions on US crude exports to a defense authorization bill.

With oil producers clamoring for a way to export their burgeoning volumes of light, sweet crude, Senate Energy and Natural Resources Committee chairman Lisa Murkowski (R-Alaska) and North Dakota senators Heidi Heitkamp (D) and John Hoeven (R) want to offer an amendment to the National Defense Authorization Act that would allow crude and condensate to be exported.

The three are championing a second, non-binding resolution that would stipulate the "sense of Congress" that the president has the authority to approve the sale of US crude to the nation's allies and trading partners. The resolution said this would be consistent with a national security strategy for promoting diversification of energy fuels, sources and routes.

Senator John Cornyn (R-Texas) is sponsoring a separate amendment that would express the sense of Congress that the 1975 Energy Policy and Conservation Act already gives the president discretion to allow crude and natural gas exports, particularly to European and Asian allies vulnerable to "Russian aggression and Middle East volatility."

Lawmakers are pushing these proposals in response to intense pressure from producers. ConocoPhillips chief executive Ryan Lance, Marathon Oil chief executive Lee Tillman and executives from other members of the Producers for American Crude Oil Exports (PACE) coalition have been lobbying lawmakers and administration officials in recent months, pushing for a change in the regulations first imposed in 1975 in the wake of the Arab oil embargo.

The US exported 417,000 b/d of crude in March, the US Energy Information Administration reported. The bulk of that oil, about 378,000 b/d, went to Canada, with another 29,000 going to Switzerland and 10,000 b/d to India.

Cornyn's proposal would require the Director of National Intelligence within 180 days to assess the energy security needs of the US' Nato allies, as well as other European countries that border Russia and Moldova. The idea is to understand just how reliant these countries are on Russian oil and gas.

But the nonpartisan Congressional Research Service (CRS) is dampening expectations that US producers could supply crude to eastern Europe and lower the region's refiners' dependence on Russian oil.

CRS examined the configurations of 22 refineries in nine countries in the region. Those refineries typically are designed to handle Urals crudes, a blend of Russian, Kazakh and Azeri which generally are medium-to-sour grades. The US, in contrast, is producing an abundance of light, sweet crude from formations such as the Eagle Ford, the Permian and the Bakken.

"Being optimally configured to process a certain crude oil type/blend does not prevent a refinery from processing other crude oils with different quality characteristics," the report noted.

Eastern European refiners could invest in new processing equipment to handle alternative crudes. But those refiners likely would insist on a price discount to compensate for those higher costs or reductions in efficiency.

"This, in turn, may result in reducing the attractiveness to US producers to export crude oil to the region," the report said.

New port and pipeline infrastructure would have to be built for US crude to displace Russian supplies delivered by pipeline. US producers would have to deal with trans-Atlantic transportation costs of \\$2-4/bl. And Russia would probably respond.

"It is unlikely that Russia would keep prices static, should competitive crudes threaten Russia's existing markets, and it may decide to reduce prices to maintain market share," the report said.

The CRS analysts said one possible outcome would be that "very little" US crude makes its way to the eastern European market, but that refiners in the region benefit from the competition in the form of lower feedstock costs. And then "Russian oil revenues may be reduced."

PACE noted that lifting the export restrictions would open new markets for US producers. "How much oil will be exported and what refineries will ultimately process that crude is a function of the global market, which domestic producers currently cannot access," the group said.