With a glut of crude oil filling up pipelines and storage tanks and pushing down U.S. oil prices, Texas lawmakers are calling on Washington to lift its 40-year-old ban on crude exports.
“Congress should update our national trade policy to benefit Texas producers and consumers,” state Rep. Drew Darby, R-San Angelo, said Monday at a joint hearing of the House Energy Resources Committee, which he chairs, and the chamber’s International Trade and Intergovernmental Affairs Committee.
More than 100 Texas House members have signed on to a proposed resolution that calls the ban a “relic from an era of scarcity and flawed price control policies” that should be lifted. All three Texas railroad commissioners voiced support for the legislation, saying that finding more buyers for U.S. crude would prompt drilling, pouring more cash into the state treasury.
“If we want to sustain the 'Texas miracle' and lead the way to energy security, we have to compete in the international market,” Commissioner David Porter told lawmakers.
American companies may export refined petroleum products such as gasoline or diesel, but most crude here is stuck at home.
That’s because of a policy dating back to the mid-1970s. The U.S. produced far less oil then, and the 1973 Arab oil embargo caused global oil prices to skyrocket. In 1975, President Gerald Ford signed the Energy Policy and Conservation Act, which banned crude oil exports with few exceptions – an effort to keep oil here and protect against price shocks.
Since then, the U.S. — led by Texas — has become the world’s top oil producer, largely due to technological advances like hydraulic fracturing allowing operators to tap resources once considered unreachable. But that surge of production is filling up the country’s pipelines and storage tanks, driving down U.S. prices and slowing drilling across the country, with big implications for the Texas economy.
U.S. refiners can only handle so much domestic oil, because many still run on imports of heavier crudes — imported from Venezuela, Canada or elsewhere — rather than the light “sweet” stuff pumped from Texas and North Dakota shale.
While global supply and demand have depressed crude prices worldwide, the American glut has made U.S. oil about $10 per barrel cheaper than what’s sold on the international market.
Supporters of lifting the ban say the move would bring U.S. prices more in line with international prices, softening the blow of the latest downturn. The status quo, they say, leaves on the table billions of dollars that would flow to Texas oil producers, royalty owners and into state and federal coffers.
“We’re sort of driving down the road with the windows open and hundred-dollar bills flying out the window for no reason,” said economist James LeBas, a former Texas chief revenue estimator who testified on behalf of two oil groups.
Critics argue that shipping U.S. crude overseas would threaten the country’s energy security and raise gasoline prices.
“It is inconceivable that you can export oil and take away the surplus and not have it result in an increase in cost to American consumers,” said Tom “Smitty,” Smith, director of the Texas office of Public Citizen — one of few people who registered as opposing the House resolution (though he chose not to testify Monday). “It is a fundamental violation of the law of supply and demand.”
Smith and other environmentalists also oppose lifting the ban on grounds that it would bolster drilling, unleashing more damage to the environment.
But it’s unclear how the change would affect prices at the pump. In an October 2014 report, the federal Energy Information Administration concluded that gasoline prices at the pump are more closely linked to global crude prices than the value of U.S. oil. The market research firm IHS agrees, estimating that exports could actually lower gas prices over time.
Some refiners have opposed lifting the ban, fearing they would lose their discount on domestic crude.
“The unlimited export of crude is not in the national interest,” Bill Day, spokesman for San Antonio-based Valero Energy Corp., the country's largest oil refiner, told Fuel Fix in January. “We’re not so sure who would support such a thing, unless you were a producer and wanted to get a higher price for what you are producing.”
But neither Valero nor anyone else testified Monday on behalf of refiners.
“We don’t have a specific comment at this time,” Day told The Texas Tribune.
Disclosure: Valero is a corporate sponsor of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.