Big oil takes on big oil over crude exports

Shutterstock.com

Article Highlights

  • What happens when Big Oil gets in a lobbying war against Big Oil?

    Tweet This

  • Big Oil often faces off with environmentalists, and it is a favorite target of Democratic politicians.

    Tweet This

  • Allowing U.S. drillers to offer their oil to foreign buyers would raise the price domestic refiners pay.

    Tweet This

Big Oil often faces off with environmentalists, and it is a favorite target of Democratic politicians. Big Oil battling other industries, like ethanol or coal, isn't unusual, either.

But what happens when Big Oil gets in a lobbying war against Big Oil?

That's the fight playing out on the battlefields of Capitol Hill and the Obama administration these days, as oil producers spar with refiners over oil exports.

Since the 1970s, Congress has mostly outlawed the export of crude oil — the stuff that comes straight out of the ground.

The federal government grants a few licenses to some oil companies to export crude to some countries with which we have trade agreements. For the most part, though, if you pump oil in the U.S., you can’t sell it abroad unless you refine it first, into gasoline, diesel, jet fuel or kerosene. The result: U.S. crude oil prices are 10 percent lower than the world price.

This is why many refiners shot back when Sen. Lisa Murkowski, R-Alaska, argued last week that Congress or the administration should scrap the export restrictions. If the U.S. government allowed free trade in crude oil, “the price advantage would go away,” Bill Day, a spokesman for Valero Energy, told me.

In other words, refiners like Valero buy their raw materials at a discount, thanks to the export ban. But they sell the gasoline or diesel they produce on the free market. Allowing U.S. drillers to offer their oil to foreign buyers would raise the price domestic refiners pay.

“We wouldn't be doing as well financially if it weren't for” the export ban, one refinery lobbyist told National Journal.

The American Petroleum Institute is the main lobby for oil producers like Exxon, and API is lobbying to kill the export ban. “They're seeking the highest price they can get,” Day says. He's right. Producers want free trade because free trade will mean more profits for them.

So it looks like a good old-fashioned lobbying brawl: producers versus refiners. But, oddly, it's not quite so neat.

American Fuel & Petroleum Manufacturers is the leading lobby for the refining industry, but it’s not lobbying to keep the export ban that enriches the industry.

Brendan Williams, who heads AFPM’s lobbying operation, told me his group favored lifting the ban. Why would an industry lobby want to kill protectionist policies that boost members’ profits? “We’ve always argued for free and open markets,” Williams told me.

The refiners’ lobby, Williams told me, believes free trade is, on the whole, best for its industry. As a result, the group is not willing to support trade restrictions even when they benefit the industry. Williams said the question facing AFPM was: “What’s the best way to enhance free and open markets?”

More to the point, AFPM is currently engaged in other lobbying fights where it is relying on the principled free-market argument. The refiners are leading the fight to kill the ethanol mandate George W. Bush created. Also, refiners want to loosen another archaic trade rule, the Jones Act, which drives up the price of shipping goods (including refined fuel) around the U.S. Also, some refiners worry that environmentalist-minded lawmakers -- specifically, Sen. Ed Markey, D-Mass. -- are eyeing restrictions on the export of refined gasoline.

This is why the refiner lobby is taking the free-trade position. Why is refinery giant Valero taking the opposite tack? They don’t oppose free trade, but “Valero’s position is a little bit more nuanced,” Day tells me. “Free markets sound great in theory, but … we have to deal with realities, not theories.”

Day points to U.S. restrictions on oil exploration and shipment, and government-protected cartels in the global oil market (such as OPEC) and says, “The reality is there is no such thing as free trade in crude oil.”

Valero is trying to rally the rest of the industry behind keeping the export ban. One interesting ally in Valero’s fight to save the export ban: Delta Airlines. In 2012, Delta bought a refinery, and so it likes the government suppression of crude prices.

But the rest of the refinery industry doesn't see things the same way as Valero. Exxon, the largest member of AFPM, is also a major oil producer. Another AFPM member, Koch Industries, consistently lobbies against government regulations, even though it might benefit from them.

One theme highlighted by the divide between refinery giant Valero and refinery lobby AFPM: The wider the constituency of the lobbying group, the less likely it is to support regulations. Government interference can help specific parties, but they generally hurt the broader economy.

In the fight over exporting crude oil, the question is not which side is the industry on. The question is: Which side is seeking government favors?

Timothy P. Carney, the Washington Examiner's senior political columnist, can be contacted at [email protected] His column appears Sunday and Wednesday on washingtonexaminer.com.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Timothy P.
Carney

What's new on AEI

Defeating ISIS: AEI experts weigh-in before the president’s address on Wednesday
image Degrading, defeating, and destroying the Islamic State
image Wealth Building Home Loan: Building wealth through homeownership and retirement savings
image The $3 iPhone
AEI on Facebook
Events Calendar
  • 15
    MON
  • 16
    TUE
  • 17
    WED
  • 18
    THU
  • 19
    FRI
Tuesday, September 16, 2014 | 5:00 p.m. – 6:00 p.m.
The Constitution as political theory

Please join us for the third-annual Walter Berns Constitution Day Lecture as James Ceasar, Harry F. Byrd Professor of Politics at the University of Virginia, explores some of the Constitution’s most significant contributions to political theory, focusing on themes that have been largely unexamined in current scholarship.

Wednesday, September 17, 2014 | 8:10 a.m. – Thursday, September 18, 2014 | 1:30 p.m.
Third international conference on housing risk: New risk measures and their applications

We invite you to join us for this year’s international conference on housing risk — cosponsored by the Collateral Risk Network and AEI International Center on Housing Risk — which will focus on new mortgage and collateral risk measures and their applications.

Event Registration is Closed
Thursday, September 18, 2014 | 2:15 p.m. – 3:00 p.m.
Speaker of the House John Boehner on resetting America’s economic foundation

Please join us as Speaker John Boehner (R-OH) delivers his five-point policy vision to reset America’s economy.

Event Registration is Closed
Friday, September 19, 2014 | 9:15 a.m. – 11:00 a.m.
Reforming Medicare: What does the public think?

Please join us as a panel of distinguished experts explore the implications of the report and the consumer role in shaping the future of Medicare.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.