Even with the shale revolution leading to booming US oil production, the head of the US Energy Information Administration said Wednesday he does not expect the country to become an oil exporter any time soon.
Beyond the political thorniness of getting Congress to reverse a 1979 ban on crude exports, the US market may yet be able to absorb the additional production of light sweet crude from its shale plays, said EIA administrator Adam Sieminski, at a forum on US tight oil hosted by the Bipartisan Policy Center in Washington.
"I don't think it's going to happen in the near term," he said.
The Export Administration Act of 1979 banned the export of US crude, except to Canada and Mexico, but with domestic production soaring due in large part to shale development, many in the oil industry and free market advocates have begun calling for the US to consider selling its oil abroad.
But Sieminski said if light sweet crude prices were to drop due to oversupply, refineries might be prompted to reconfigure their infrastructure to process that crude. Many Gulf Coast refineries have in recent years invested in equipment to process heavy crudes, which Sieminski acknowledged would be a big expense to swallow, if they were to switch to using lighter crudes.
"I'm not saying it'd necessarily be the most efficient path, but I'm saying it could happen," he said. "There is a discount of the light sweet crudes in the mid-continent to other available light sweet crudes. It provides an incentive for refiners to run that."
He said the EIA did run an analysis in its 2013 Annual Energy Outlook in which it envisioned a scenario in which high levels of crude production combined with lower domestic consumption due to automobile-efficiency rules and the substitution of natural gas for liquid fuels. In that case, the US could be a net exporter of liquid fuels by 2030, the report said.
However, Robin West, chairman of energy consulting firm PFC Energy, said the US could be facing an oversupply of light sweet crudes in as little as 18 months, with potentially detrimental impacts to US consumers if exports are not allowed.
Such a glut would cause prices to plunge, which may be beneficial to consumers in the short term, but would cause upstream exploration to halt and production to be shut in, he said during a panel discussion with Sieminski.
"If we don't allow exports, the North American boom is not sustainable and the geopolitical impacts will be enormous on the US," West said. "It is virtually impossible to build new refineries in the US because of the Clean Air Act. Unless there is the ability to export, the probability is pretty high there's going to be a surplus of light sweet crude. It's going to impact upstream production, onshore as well as offshore."
He said that given all the controversy about the US allowing expanded LNG exports, he is surprised there is comparatively little discussion about crude exports.
"I think that's far more significant than LNG," West said.
Changing the 1979 law to allow crude exports could be thorny in Congress, where significant opposition to LNG exports exists over concerns that it could cause domestic gas prices to rise.
Sieminski said one way companies could get around the export ban would be to set up swaps with other countries. For example, Bakken light sweet crude could be swapped with another country's heavier crudes, if that country's refineries are optimized to run the lighter crude, he said.
But the rules for such swaps, administered by the Department of Commerce, require getting an equal or greater volume of oil, which could prove problematic, he said. Bakken crude is priced below heavier crude, so an equal value swap would result in the US receiving a lesser volume of oil.
"You'd have to find a way to work around that," Sieminski said.
