Congress Wants to Give Oil Markets Exactly What They Don't Need — More Oil

A years-long push to get rid of the US ban on exporting crude oil may be bearing fruit, just as the market for that crude is in a nosedive.

The Republican-led Senate is haggling over whether the repeal the 40-year-old restriction as part of a year-end budget deal. The GOP-controlled House already has passed legislation that would get rid of the ban. It's a top priority for the oil industry, which wants new markets for all the oil it's been producing from new fields like those in North Dakota.

Critics say the last thing the world needs now is more oil, which is currently trading for less than half what it sold for at the beginning of 2014. And with US and international negotiators scrambling for a deal to reduce carbon emissions just outside of Paris right now, pumping more oil sends a lousy signal.

But observers say there's a possibility the measure will be tacked onto a massive budget bill that will fund the US government for 2016, making it hard to fight — and even some environmental groups are trying to come up with a plan B.

"If it doesn't happen as part of a bigger package now, the likelihood of it happening before the presidential election is pretty slim," said Collin O'Mara, president and CEO of the National Wildlife Federation.

The NWF says repeal would mean losing millions of acres of wildlife habitat to the projected expansion of oil exploration, as well as more emissions of planet-warming carbon dioxide and other gases from fossil fuels.

But if the skids are greased for the ban's repeal, O'Mara argued that it should be part of a package that helps blunt the environmental impact of more pumping and shipping —additional money for preserving wildlife habitat, millions of acres of which could be lost to expanded drilling and more support for renewable energy to offset increased emissions.

"We really can't afford any increases," O'Mara said. "But if you're going to have increases, you're better off offsetting them by a factor of one and a half or two, so you can say overall, emissions are going to go down. That way, you don't undermine at all what the president is trying to accomplish in Paris right now."

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The liberal Center for American Progress estimates that lifting the ban could pump another 515 million metric tons of carbon dioxide into the atmosphere every year — the equivalent of putting 108 million cars on the road. That's based on an estimated increase in production of 3.3 million barrels per day, far higher than what the American Petroleum Institute says would likely result. The industry group estimates lifting the ban would result in another 500,000 barrels a day.

The export ban dates back to the 1970s, when Arab oil producers slapped an embargo on the United States over its support for Israel in the 1973 Mideast war. The resulting gas lines highlighted a new vulnerability, and the administration of President Gerald Ford and Congress responded by keeping American oil on American markets.

But now the United States is the world's No. 1 oil producer again. The US Energy Information Administration estimates oil producers could make as much nearly $30 billion over the next decade if the ban is lifted, with little or no effect on US consumers.

Democrats and Republicans remain "pretty far apart" on the issue, and Congress is likely to need at least one more temporary spending bill to keep the government open, O'Mara said. Republicans have complained that Democrats keep adding demands for their support, making it less likely a deal will be struck before a budget bill needs to pass.

If supporters need a concession, there's another way to cut into the expected increase in emissions: Ban the flaring of methane from oil wells. As much as 30 percent of the natural gas that comes up with wells in North Dakota gets burned off, said Jim Krane, an energy researcher at the Baker Institute at Houston's Rice University.

"There are huge carbon emissions from that, as well as just a wasted resource," Krane said. Requiring producers to capture and sell that gas would be the equivalent of taking a million cars off the road, and it would stop a "horrendous waste of resources," he said.

And the oil market is awash in crude right now. Saudi Arabia and the Organization of Petroleum Exporting Countries actually stepped up production at the cartel's meeting last week, driving prices into the $30 range and escalating a year-long game of chicken aimed at undercutting the American boom. The plunge has idled rigs across the American oil patch as unconventional plays like North Dakota's Bakken Shale become less profitable.

"Right now, oil prices are so low that if the ban were lifted, it would have almost zero effect," Krane said. "There's too much oil on the market. There's no demand for even more US production."

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If prices climb back up to $60 or so, that would likely put drillers back to work, Krane said. Without the ban, refiners would lose a profitable advantage they now have over American producers and American oil would most likely sell for about the same price as the internationally traded Brent crude, which now goes for about $3 a barrel more. But, right now, ending the ban would be "counterproductive" for prices.

"OPEC doesn't look like it's in any mood to cut production, and I'd expect that to continue for a while," Krane said. "The Saudis aren't just going to get out of the way and relinquish markets to US producers."

But O'Mara said oil companies are looking past the current glut to a more stable market, betting that a new balance will be reached in the time it takes for would-be US exporters to ramp up production.

"It's so much about the price today," he said. "It's more about where the price might be in a year or two or three, or even further out."

Follow Matt Smith on Twitter: @mattsmithatl