Report

Yergin: Crude Exports Would be a Win-Win

A new study adds fuel to the political debate over ending the 40-year old ban on oil exports.

Allowing U.S. companies to export oil would require changing the law but would be a big win for consumers, oil producers, the government and the economy as a whole, according to an extensive study published Thursday by energy consultants IHS.

The study comes as the gusher of U.S. oil production has suddenly made the question of oil exports a hot topic in Washington. Top lawmakers, including big voices on the Senate energy panel, want to deep-six the the nearly 40-year-old ban on U.S. oil exports-one of the last vestiges of command-and-control energy rules put into place in the 1970s. The restrictions, which seem unsuited for the world's crude-oil production growth leader, are under review, Energy Secretary Ernest Moniz said earlier this month.

The U.S. oil boom unleashed by the hydraulic fracturing revolution-better known as fracking-has the country awash in sweet, light crude oil. Oil production has grown about 50 percent in the last five years and is now at the highest level since the late 1980s.

The problem is that the U.S. refining sector is geared to process an entirely different kind of oil, creating a mismatch. Given that the law essentially forbids exporting crude oil, U.S. oil trades at a discount on the global market. What's more, the self-imposed export ban means the United States is leaving billions of dollars on the table.

"We have this one last vestige of old energy policies that didn't matter for decades because everyone thought the U.S. was finished as an oil producer," said Daniel Yergin, vice chairman of IHS and the report's lead author. "But lo-and-behold, you have this great production revival, and now we have this big traffic jam, and it's creating a really big distortion," he said.

According to the 120-page study, supplying U.S. crude to the export market would push global oil prices down slightly, which would shave about 8 cents off a gallon of gasoline for U.S. consumers through 2030. (U.S. gasoline prices reflect global, not national, crude oil prices.)

It would also incentivize further oil production, the report found, because U.S. crude wouldn't be penalized with a price discount compared to its global peers. Average U.S. crude-oil production through 2030 would jump to 10.7 million barrels daily, compared with 9.5 million barrels a day if the export ban stayed in place, the study estimated. That boost would drive U.S. GDP higher--by as much as 0.7 percent in 2018--and add $1.3 trillion to federal coffers, thanks to higher tax receipts.

Companies such as Chevron, Exxon Mobil, ConocoPhillips and others in the industry that would benefit from lifting the export ban sponsored the report. IHS says that it is "solely responsible" for the analysis and study conclusions, which largely echo similar recent analyses.

One major industry sector is leery of lifting the ban: Refiners. Other petroleum products-gasoline, diesel, jet fuel and the like-may be exported; but not oil itself. Those exports are soaring, totaling more than 4 million barrels daily. Access to relatively cheap oil, and being able to export it as a product, benefits U.S. refiners.

One of the biggest, Valero, supports the export ban and is investing hundreds of millions of dollars to upgrade refineries to better handle the glut of U.S. oil, said spokesman Bill Day.

The ban dates back to the early 1970s, when Washington enacted a flurry of oil-price controls. It was further codified in the wake of the 1973 OPEC oil embargo, which horrified U.S. consumers and policymakers with the specter of energy shortages. But most of the era's energy restrictions were lifted by the early 1980s, with the exception of the ban on oil exports.

Russia's incursion into Ukraine has elevated the export debate. U.S. lawmakers and many European politicians called for the United States to expedite the export of natural gas to Europe to help break Russia's energy stranglehold over the continent. But crude-oil exports, which don't require infrastructure upgrades, could materialize much faster and deal a blow to Russia much more quickly, Yergin said.

"If we see 500,000 barrels a day of U.S. crude exports to Europe, that would be taking market share away from West Africa and Russia. And this would be a message the United States could send tomorrow," he said.

Karen Bleier - AFP - Getty

Report

You Sank My Fishing Ship!

The sinking of a Vietnamese fishing boat is pushing tensions between Beijing and Hanoi even higher --and driving China's rivals closer together.

The dangerous game China is playing in Asian waters became more violent as Chinese vessels reportedly rammed and sank a Vietnamese fishing boat that wandered near a $1 billion oil rig Beijing planted earlier this month in waters claimed by both countries.

China's heavy-handed approach to foreign policy seems to be driving Asian nations into an anti-China bloc, tightening ties among one another and with the United States. Coming only days after Chinese fighter jets buzzed Japanese patrol planes over disputed islands, regional leaders are escalating warnings about what they call China's aggressive behavior, and all are articulating a more muscular response to Beijing.

Three weeks of tension ratcheted up late Monday, May 26, when the Vietnamese trawler was apparently rammed by Chinese ships before capsizing and sinking. The Vietnamese Coast Guard blamed the incident, which took place about 17 miles away from the oil rig, on aggressive Chinese vessels, scores of which have become a permanent fixture in the area. Vietnam summoned Chinese diplomats on Tuesday to convey its displeasure over the incident.

Chinese Foreign Ministry officials offered a different version of events, saying that the Vietnamese boat rammed a Chinese ship, damaging itself and sinking.

"It's worth pointing out that the direct reason for this incident is that, in spite of the repeated representations, warnings, and dissuasions from the Chinese side, the Vietnamese side continues to forcefully disrupt the normal drilling operations of the Chinese company and take dangerous actions," said Chinese Foreign Ministry spokesman Qin Gang at a regular briefing Tuesday.

Chinese officials repeatedly claim that Vietnamese Coast Guard patrols are interfering with the operations of HD-981, the billion-dollar oil rig searching for oil and gas in the contested waters of the South China Sea. Yet early Tuesday, the company operating the rig successfully concluded the first phase of drilling and shifted to a nearby location even closer to the Vietnamese coast.

The fishing boat's mysterious sinking just adds to roiling nationalist tensions that have seized both countries since the dispatch of the rig. Anti-Chinese riots have spread across Vietnam, and one woman even immolated herself in protest. Users on Chinese social media largely applauded the ship sinking.

The biggest worry of the clash at sea isn't the loss of one fishing boat, but rather that such incidents harden nationalistic sentiment among domestic audiences in both countries, said Ely Ratner, an Asia-Pacific expert at the Center for a New American Security.

"They further galvanize the public on both sides and make it more difficult for national leaders to compromise" or find a way to defuse the tension, he said.

More broadly, China's ham-fisted foreign policy-- illustrated best by efforts to fence off parts of the seas and the skies that other countries consider part of the global commons -- is bringing countries as diverse as Vietnam and Japan together in their wariness of Beijing and driving the whole region closer to the United States.

One telling example: Indonesia and the Philippines just resolved a maritime border dispute that simmered in the background and soured relations between the two countries for 20 years.

Vietnam's prime minister, Nguyen Tan Dung, said that the oil rig dispute is fracturing an otherwise stable relationship and suggested that economic ties between Hanoi and Beijing won't be enough to repair it.

"We always wish for peace and friendship, but those things must be based on independence, self-reliance, sovereignty and territorial integrity. We will never trade these sacred things for a certain false and dependent peace and friendship," he said in written responses to questions from Western journalists.

Vietnam is mulling its limited response options, including moving closer to the United States and its allies and preparing to inflict "mutually assured destruction" if China raises the stakes.

Japanese Prime Minister Shinzo Abe told the Wall Street Journal that he wants to beef up Vietnam's Coast Guard and push back against Chinese aggression in both the South China and East China seas.

"We will never tolerate the change of status quo by force or coercion," Abe said. Under his watch, Japan is jettisoning some of the pacifist restraints on the use of military force outside Japan that has defined the country since the end of World War II. Abe will give the keynote speech at an Asian security summit in Singapore this weekend -- a first for a Japanese leader -- and observers expect him to reiterate why smaller Asian countries must confront China's expansionist behavior.

Tension between the Philippines and China over disputed maritime territories has also grown, leading President Benigno Aquino to take a tougher tone against Beijing.

Aquino recently told the Financial Times that China is playing a "dangerous game of brinkmanship and gunboat diplomacy." After entering office determined to forge closer ties with China, Aquino is now seeking better defense cooperation with the United States.

China's bid to assert control over parts of the South China and East China seas, as well as its blanket dismissal of other countries' concerns, illustrates what strategist Edward Luttwak called "great-state autism," or the inability of great powers to understand how their behavior is perceived by other countries.

For instance, Chinese officials defend the oil rig's position on the grounds that the Paracel Islands, known as the Xisha Islands in China, are Chinese territory, as are the waters nearby.

"The Xisha Islands are China's inherent territory; and relevant exploration and drilling activities are being carried out in waters that are indisputably under China's administration. We are going about our own business in our own waters without causing any trouble to anyone," China's Foreign Ministry spokesman said Tuesday.

However, the United States, Vietnam, Japan, and the Philippines point out that the rig sits squarely inside Vietnam's 200-mile exclusive economic zone, as laid out in the Law of the Sea treaty that China has signed and ratified.

Photo by Jason Pier - Flickr