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GAO: end of export ban brought price rise
Government Accountability Office analysis looks at effects on crude oil markets of repeal in 2015 of US crude oil export ban Kristen Nelson Petroleum News
The U.S. Government Accountability Office used U.S. Energy Information Administration data and interviews with industry stakeholders to gather information for an analysis of effects of the 2015 repeal of the U.S. ban on the export of crude oil. The analysis, released in October, analyzed EIA data from 2009 through 2019, and examined prices from January 2009 through March 2020 and crude oil pipeline capacity in the U.S. from the first quarter of 2010 to the first quarter of 2020.
GAO said it found that U.S. crude oil exports increased from less than half a million barrels a day in 2015 to almost 3 million bpd in 2019.
“The repeal of the ban expanded the market for U.S. crude il to overseas buyers and, along with other market factors, allowed U.S. crude oil producers to charge higher prices relative to comparable foreign crude oil.”
Export ban Congress banned the export of most domestically produced crude oil in 1975, following the 1973 global oil embargo and resulting economic recession, GAO said. U.S. crude production generally declined from 1975 to 2009, and U.S. imports, with the exception of 1979 to 1985, generally increased.
Starting about 2009 the extraction of shale oil increased due to advances in horizontal drilling techniques and hydraulic fracturing technologies, almost doubling U.S. crude production from 5.4 million barrels per day in 2009 to 9.4 million bpd in 2015, with industry analysts projecting a continuing increase, GAO said.
“Increasing domestic production resulted in a surplus of U.S. crude oil that generally could not be exported and sold outside the United States,” contributing to domestic prices “significantly lower than international prices.”
Ban repealed Congress repealed the export ban in 2016, allowing U.S. crude to be freely sold on the global market.
Exceptions to the ban had allowed exports from Alaska’s Cook Inlet, exports to Canada for use there, exports of certain California crude up to 25,000 bpd and exports made by the president under certain statutes resulted in an export of about 5% of U.S. crude, nearly all of which, GAO said, went to Canada.
With the repeal of the ban, U.S. producers could sell on the global market, and exports increased from 465,000 bpd in 2015 to 10 countries to almost 3 million bpd in 2019 to 43 countries.
“The repeal of the ban expanded the market for U.S. crude oil, allowing domestic producers to obtain higher prices relative to comparable foreign crude oil, according to our analysis and interviews with stakeholders,” GAO said.
The expanded market and higher prices provided “stronger incentives for greater investment in domestic crude oil production,” economists told GAO, and production increased compared to what it would have been had the ban remained in place, with total U.S. crude production rising by about a third, from some 9.3 million bpd in December 2015 to about 12.8 million bpd in December 2019.
Refining, transportation GAO said profit margins for U.S. refiners likely fell because the U.S. price rose relative to international prices, forcing refiners to pay more for domestic crude after repeal of the ban.
But because gasoline prices are largely determined by the global market, “U.S. refiners could not pass on to consumers the additional costs associated with the increase in crude oil prices, resulting in a decrease in their profit margins.”
Sectors of the U.S. transportation industry related to movement of crude oil have also been impacted by the repeal of the ban, with the demand for Jones Act tankers and barges to transport crude oil falling.
Exports of U.S. crude from the Gulf Coast rose by more than 200% from 2015 to 2017, with shipments likely on foreign vessels with cheaper operating costs than Jones Act tankers and barges. Imports of foreign crude to the East Coast rose by 35% in 2016, “likely to replace the decline in shipments of domestic crude oil from the Gulf Coast,” GAO said.
An industry representative interviewed by GAO noted that some 80% of the Jones Act fleet was built between 2007 and 2016, and since the vessels have a lifespan of some 30 years, replacements are unlikely to be needed in this decade due to decline in demand.
GAO said refined products are still shipped on Jones Act vessels between domestic points lacking pipeline connections, as from Louisiana and Texas refineries “to consumers in Florida, due to a lack of pipelines connecting these states.”
The complete report: “Crude Oil Markets: Effects of the Repeal of the Crude Oil Export Ban,” GAO-21-118, is available on GAO’s website at https://www.gao.gov/products/.
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