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By Robert Rapier on Oct 4, 2015 with 7 responses

President Hillary Clinton Will Oppose Crude Oil Exports

Another Clinton Administration Likely

I know some people cringe at the idea, but Hillary Clinton is the current favorite to win not only her party’s nomination, but the presidential election in 2016. An online Irish bookmaker lists Hillary at 11/8 odds to win the presidency, followed by Jeb Bush and Donald Trump at 9/2 odds, and then Bernie Sanders, Joe Biden, and Marco Rubio at 8/1 odds. (You can even bet on Kim Kardashian at 1,000 to 1 odds of winning the 2016 presidential election).

Some will argue that her unfavorable ratings are too high, but all of the leading candidates have significant negatives of one kind or another. I imagine that Hillary Clinton versus Donald Trump could result in the highest voter turnout in U.S. history — much of it from voters trying to keep the opposing candidate out of office. Others have argued that someone will rise up and knock Hillary out of the lead. That was my exactly feeling 8 years ago during the Democratic primaries when Hillary was in the lead — that Barack Obama would not only win the party’s nomination but would go on to win the presidency. I felt like he could beat McCain, but I didn’t think Hillary could have beaten McCain in 2008. But I don’t see a Barack Obama in the wings this time around. I think it’s Hillary’s election to lose, even though a large fraction of the population loathes her.

Hillary on Energy

Given the circumstances, let’s take a look at Hillary’s energy proposals. As I pointed out during the 2008 election campaign, her energy policy proposals have been rife with pandering and flip-flops. Of course they all do it to some extent. John McCain wasn’t above a bit of both, flip-flopping on ethanol and pandering by proposing a cut in gasoline taxes leading up to the election.

A good example of Hillary’s pandering can be seen in her approach to TransCanada’s (NYSE: TRP, TSE: TRP) proposed Keystone XL pipeline expansion. Back in 2010, then Secretary of State Hillary Clinton was asked about the prospects for the project, which was under review at the State Department. Clinton responded “We’ve not yet signed off on it, but we are inclined to do so and we are for several reasons.” Clinton got a lot of backlash from environmentalists for her stance, as they broadly opposed the project.

The State Department report ultimately concluded that the pipeline would be unlikely to significantly impact global carbon dioxide emissions. And up until recently, Clinton had never expressed any opposition to the project. Back in the summer she dodged a question from a New Hampshire voter who asked “As president, would you sign a bill, yes or no please, in favor of allowing the Keystone XL pipeline?” Clinton’s response was more politically calculating than her 2010 response: “I am not going to second guess President Obama because I was in a position to set this in motion. I want to wait and see what he and Secretary Kerry decide. If it is undecided when I become president, I will answer your question.”

Her position on the issue shifted a full 180 degrees recently in Iowa when she matter-of-factly announced her opposition as if there had never been any question: “I think it is imperative that we look at the Keystone pipeline as what I believe it is — a distraction from important work we have to do on climate change. And unfortunately from my perspective, one that interferes with our ability to move forward with all the other issues. Therefore I oppose it.”

What is behind her flip-flop on this issue? I think the reason is purely political. Senator Bernie Sanders is her closest rival for the Democratic party’s nomination for the presidency, and he has been adamantly opposed to the pipeline. Likewise, Vice President Joe Biden — who hasn’t declared but who has many supporters hoping that he does — has steadfastly stated his opposition to the pipeline. Thus, in order to keep Sanders and potentially Biden from peeling away support from environmentalists, she made the political calculation to rotate to the left on this issue.

Implications of a Flip-Flop

What does this mean? I think it has 2 implications. First, because no major Democratic candidate favors the pipeline, and because the Democrats are favored to win the presidency, unless the Republicans buck the odds then the Keystone XL pipeline project is probably dead.

But there is another implication in my opinion. Opponents have cited various objections to the Keystone XL pipeline, but the truth is that the pipeline is really all about climate change. Environmentalists believe the pipeline would be furthering a fossil-fuel dependent global economy that is leading to a climate catastrophe. And it turns out there is one more energy issue with similar characteristics working its way through Capitol Hill.

The U.S. has a crude oil export ban in place that dates to The Energy Policy and Conservation Act (EPCA) of 1975. This energy bill was a response to the 1973 OPEC oil embargo, and contained measures designed to enhance U.S. energy security. One of the measures of the bill effectively bans crude oil exports to all countries besides Canada.

Thirty years later, as domestic oil production surged as a result of the shale oil boom, the export ban began to limit the markets for domestic producers. While the U.S. is still a large net importer of crude oil, U.S. refiners spent billions of dollars over the past 2 decades to install equipment to process heavy sour crudes. The crudes that have come online in the shale fields of the Bakken and Eagle Ford are relatively light. Thus, US refineries are limited in the volumes of this crude they can process.

As a result, the benchmark for U.S. crude oil — West Texas Intermediate (WTI) — which historically traded at a premium to internationally-traded Brent crude, began trading at a discount. To rectify this, oil producers and politicians in major oil-producing states began lobbying for an end to the crude oil export ban so some of this light oil could be exported — which would improve market conditions for domestic oil producers.

Beneficiaries of the Crude Export Ban

Not everyone in the oil industry favors ending the ban. Refiners, in particular, have benefited from the ban. Because there is no ban on the export of finished products (e.g., diesel, gasoline, etc.), U.S. refiners can buy discounted domestic crude oil and then export the finished products at very healthy margins. Thus, major refiners like Valero have come out strongly against ending the ban.

Some believe that the President’s opposition to the repeal is also a nod to the U.S. Steelworkers union, which opposes ending the ban because of the potential loss of refinery jobs. Ending the ban would in fact likely decrease the margins for refiners, while boosting the profits of the domestic oil producers that supply them.

Nevertheless, there is significant support for ending the ban. Energy Secretary Ernest Moniz has said that the ban should be revisited. Senate and House bills have been introduced to end the ban, and the House Energy and Commerce Committee recently voted 31-19 in favor of ending it. But following the vote, the Obama Administration came out against ending the ban, citing the potential for higher U.S. gasoline prices.

As with the Keystone XL pipeline, the president’s opposition is really about climate change and the continuation of a fossil-fuel based society. A number of studies — including one done by the Energy Information Administration — have concluded that ending the ban wouldn’t increase gasoline prices. The EIA reported: “Petroleum product prices in the United States, including gasoline prices, would be either unchanged or slightly reduced by the removal of current restrictions on crude oil exports. As shown in a previous EIA report petroleum product prices throughout the United States have a much stronger relationship to Brent prices than to WTI prices.”

What is likely is that some places (like the Midwest) would see higher gasoline prices, other areas (perhaps coastal markets) would see lower prices, and the net effect would be neutral to slightly lower prices. But when you understand that the real basis of the opposition to ending the ban is the same as the basis of the opposition to the Keystone XL pipeline, then you understand that the gasoline price argument is simply a politically convenient cover.

Conclusion: No Repeal of the Crude Export Ban

What does this have to do with Hillary Clinton? One of my 2014 predictions was that the crude oil export ban would not be overturned by President Obama, on the basis of the same stiff opposition from environmentalists that paralyzed him on the Keystone XL pipeline issue. Thus, since Hillary is the odds-on favorite to win the presidency and given her new-found opposition to the Keystone XL pipeline, President Hillary Clinton will likely follow the same path of on the export ban in order to appease environmentalists in the Democratic party. Refiners will be very happy, while domestic crude oil producer will continue to have their markets restricted.



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Link to Original Article: President Hillary Clinton Will Oppose Crude Oil Exports

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  1. By Russ Finley on October 4, 2015 at 3:17 pm

    With the current low price of oil, I wonder if environmentalists did TransCanada a favor by saving them from a big loss? Shell just incurred a huge loss from their arctic drilling rig thanks in part to low oil prices (environmentalists failed to save them) ; )

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    • By Optimist on October 6, 2015 at 6:12 pm

      Not sure the same economics apply. TransCanada still has to move product to markets, it’s just that the “environmentalists” are forcing them to use rail: dirtier, less safe and more prone to leaking.

      But hey, why let the facts get in the way of a feel-good movement?

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  2. By Forrest on October 6, 2015 at 8:10 am

    The export ban is wholly a political solution. A solution with no historical record of long term success, but applied by politicians per naivety of voting public. Sad, that our education system and media will only dovetail with such actions per their desire to empower politics as well. A country attempting to engage public within the decision power needed for a free Republic to sustain is short circuited.
    These political decisions result in shooting ourselves in the foot and supported by portion of the public per some intangible benefit. Even if benefits scientifically evaluated and accounted for, to prove otherwise, the partisans will only laugh and glee over hurting petrol. An example of how nutty and powerful this thinking can become. I was an engineer working on the shop floor of UAW manufacturing site. I had friends and information on both aisles of the politics. You know the Union bias was so widespread and hatred so ingrained with shop workers that the majority motivated to shut the plant down. They valued sticking it to management more than protecting a future for younger generations. These were mostly older union workers with a boat load of savings.
    Politics can turn ugly and destructive when they just empower and inflate bad thinking skills of public. Leadership requires going against such per sake of countries future as compared to opportunist that will just inflate the flames of bias and hatred for political gain. We should be on high alert for such actions and cry foul. But again that requires good unbiased education. We talk of “Peak Oil” and the civilization destruction, but really it’s peak politics that does the destruction.

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  3. By Arthur Berman on October 6, 2015 at 10:22 pm

    Robert,

    Thanks for your thoughts on Hillary Clinton and energy. Perhaps you can help me understand the motive for producers to export crude oil.

    It strikes me that global refinery design is probably similar to U.S. design because the heavier, sour crudes dominate modern supply. So, if the export ban is repealed, U.S. producers may have more barrels per day of refinery capacity to compete for but they will have to compete and that means selling their crude at a discount.

    It also seems that putting more crude oil into an over-supplied global market will further lower the price of oil.

    So, for the near-term, it’s hard for me to see the profit motive in oil export. I’m all in favor of lifting the ban because regulations like this are silly and producers should be allowed to make decisions on profit.

    I must be missing something other than the long view that as oil supplies are depleted further and exports become more limited from increased domestic production, there will be profits in the future.

    Many thanks!

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    • By Robert Rapier on October 6, 2015 at 10:38 pm

      Even within the U.S. there are refineries that are tooled for lighter oil. They are mainly on the East Coast. Globally, there are lots of refiners that are primarily geared to handle light oil. The main reason WTI started trading at a discount to Brent — even though WTI is lighter and sweeter — is that WTI can’t reach these refineries. So by that token, if WTI could reach global markets it would likely regain its premium over Brent.

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  4. By Forrest on October 7, 2015 at 7:11 am

    So, environmentalists know stopping the XL pipeline will increase GW emissions, but still motivated by desire to gum up efficient operations of petrol. Same for support of export ban. The thinking goes, they can hurt U.S. most efficient and financial successful energy sector, but can not do so upon international community. Their actions and politics hurt U.S. in a critical period of financial stress. Currently, the economies of world are weak, even some are teetering on brink of financial collapse. The U.S. is looked upon per the scale of our economy as one bright star to invest in and hope for improved future. So, our politics willing to risk everything to win? Meaning their is no calculation as to the national damage inflicted. This is most unflattering as the political willingness to “never let a national emergency go to waste”. The politics of Roosevelt during the Great Depression the training ground for such modern political thinking. Partisans were actually excited to have a big government pass to justify their desires. Fixing the economy not a desired outcome as the public won’t be attributing popularity for quicker solutions. They rate politicians per the feel good rhetoric and easy to understand solutions and really comforted upon a long drawn out national crisis. The wording should be the Great Recovery Scam.

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    • By Forrest on October 7, 2015 at 7:32 am

      The scale of environmental damage upon the export ban and resulting dislocation of efficient trading goes well beyond the damage of XL pipeline loss. When politicians inflict a artificial constraint on the petrol sector, they inflict an international loss of peak efficiency, as well. For example the refineries of world forced to operate more times upon crude oil they were not optimized to process. This will naturally result in higher emissions and more expense. The action will hurt the gross sum total of all economies. The artificial constraint upon the biggest consumer and producer of crude oil will inadvertently increase international transportation emissions as well. Might as well place more crude oil within refineries that have higher emissions rates as compared to those within U.S.. We have a national crisis of politics that do not level with constituency nor lead them to sensible paths. Instead they inflame their biases to stimulate voter turnout and outrage. Sad.

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