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Oil Producers Plan for Open Crude Exports by 2020

Industry representatives and key lawmakers plan market studies, polls of Americans’ views and incremental moves on exports to sway public opinion in favor of allowing crude oil exports.

Plunging oil prices set the effort back, but the current strategy involves two to five years to change minds in Congress as proponents try to balance increased exports against consumer concerns over gas prices.

“It’s not going to be a completely safe vote and it’s not going to be a completely understood vote until voters get the idea that, you know what, we’ve got a bunch of crude oil in this country,” said Republican strategist Michel McKenna. “Until more of the voters know that, allowing for crude oil exports is always going to be fraught with peril.”

Alaska Republican Lisa Murkowski began in January 2014 to move the issue, urging administrative action and hinting at legislation. The White House announced that it would consider the options, and the Commerce Department in December clarified processes that qualified certain types of ultra-light crude for export. With a nod to those steps as progress, Murkowski, now the chairwoman of the Senate Energy and Natural Resources Committee, this month said she wants to move forward with legislation.

Don’t Write the Bumper Sticker

That remains a tough sell for most members. Lawmakers from states such as Texas, Colorado, Wyoming and North Dakota may include jobs in their calculation about legislation. Many will listen to refiners, who profit from export restrictions and resist a change. Others will be dissuaded by environmental concerns. But most members don’t want to get blamed for any resulting increase in gas prices.

“The problem is that’s a bumper sticker that takes four seconds to make that allegation,” said a leadership aide. “It’s far more complicated to make the counter-case.”

Texas Republican Sen. Ted Cruz tried to force the issue in a debate on the Keystone XL pipeline last month, but proponents wanted to avoid going off half-cocked with many still unconvinced.

“So much of advancing legislation successfully is timing, particularly when you are attempting to change policy that has been in play for decades,” Murkowski said.

Gas prices are important in the timing. The current low prices aren’t considered an ideal climate to ease exports because analysts expect prices to rise over the next two years, stoking lawmakers’ worries about campaign attacks tied to hurting consumers.

“That fear is reasonable at any given time, given politics in America today, but it is probably even more reasonable after prices have dived down,” said Kevin Book, who leads the research team at ClearView Energy Partners.

Better to act when prices are higher and have a chance of staying level or decreasing. 

U.S. production nearly doubled in five years, to 9 million barrels per day. A year ago, producers warned that they were going to exceed the nation’s refining capacity. With prices down, producers are planning to drill less, and there is less incentive to ship off boatloads of oil.

Two realities drive the desire for exports: the price difference between global Brent crude and West Texas Intermediate, called the Brent-WTI spread, and the mismatch between heavy oil refining capacity in the Gulf and light oil surging from shale production.

“The price decline makes congressional action less likely,” Book said. “The point of saturation is probably further away, and that means that the really compelling spread, the really strong case that might get lawmakers to look at this again is probably pushed back.”

The Brent-WTI spread, which narrowed from more than $6 to $0 as prices fell, bounced back above $9 in the past week, highlighting volatility in the market.

Thinking Like a Major Producer

The more comfortable Americans become with the country becoming a major oil producer, the more willing they will be to free up restrictions — or so advocates of exports hope. They see the effort succeeding between 2017 and 2020, coinciding with the expected price rebound.

“I don’t think Washington is yet comfortable with the idea of abundance,” McKenna said. “I don’t think they’re going to get comfortable enough in the next 24 months.”

Industry advocates, senior Hill staff members and key lawmakers are working on it. The Energy Department, Columbia University and the industry have put out studies supporting the counterintuitive idea, known as the bathtub theory, that more domestic oil going to the global market means cheaper gas prices for U.S. consumers. Expect more studies, more testimony and more polls to gauge whether the public is receiving the message.  

McKenna thinks the key public opinion question will be: “Do you think that America’s got plenty of oil?”

Strategists are considering a plan to avoid Cruz’s all-or-nothing approach in the hope that doing so will minimize the association with any price changes. They may want to handle crude export restrictions in phases, the way liquefied natural gas exports progressed. Such piecemeal easing would blunt the impact of any single piece of legislation and allow lawmakers and the public to see the results of partial loosening.

That approach is already working its way into the rhetoric. An industry-sponsored poll this month elicited 69 percent public support for opening oil exports “to countries who are trading partners.”

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