US oil exports - perspectives from a Washington DC insider

Shipping people need to be monitoring the US stance on oil exports of oil, though most observers, including Papavisas, are not foreseeing any legislation on this topic for another three years- until the next Administration begins its term. Papavisas cited the history of the export prohibitions, and talked about the numerous opinions as industry participants and policy-makers are wresting with questions of how shale oil will change the shipping landscape.

The Winston & Strawn speaker pointed out that even the US Department of Energy, which devotes enormous resources to its Energy Information Administration (EIA), was caught off guard by the enormous decreases in US imports of liquids (ie refined products). In Papavizas’ remarks, he noted that the regulatory regimes for natural gas, where permits for export, including to non free-trade countries, have been awarded, differ greatly from the crude oil landscape. “Unlike natural gas, which people feel is plentiful, crude oil is linked to availability and price of gasoline, a major consumer issue.” The speaker cited “dueling studies” in Washington DC, from pro-export factions - linked more to Republicans, versus those who want to maintain restrictions on crude exports - linked more to Democrats, regarding possible impacts on gasoline prices if crude were exported.

At meetings like this, it is often said that cargo does not vote but people do. As background for one of his slides Papavisas commented that, for now, politicians are taking a cautious approach to oil exports because of concerns about motor gasoline availability and prices.  One attendee at the meeting, maritime lawyer Raymond Burke, Jr., Senior Partner at Burke & Parsons, based in midtown New York, emphasized the political dynamic. Burke, a long time SMA supporter, told Seatrade Global: “If domestic crude oil were permitted to be exported, it would cause the price of domestic crude to rise to the higher international levels and gasoline prices would necessarily follow suit. Would that be allowed with elections on the horizon? I would doubt it.”

Papavisas talked about the regulatory restriction on US exports of crude oil, which date back to 1975- in the wake of the first oil shock, and exports of refined products, which were in effect for two years following the second oil shock, in 1979. He explained the legalities of which crude oils can be exported, most notably, movements to Canada for refining there- with consumption allowed in either Canada or the US. Definitional inconsistencies abound, concerning the exact definition of “crude oil”, rules regarding “lease condensate” and uncertainties regarding blending. He also offered a list of considerations regarding “swaps”, where light oil might be exported, and heavier oil, better suited for certain US refineries, could be imported.

Interestingly, though not brought up in the speech, the energy trading platform- NYMEX (part of the CME) was looking at the possibility of setting up Albany, NY, Houston and New York harbor as delivery points for futures contracts on light crude oil.  Such delivery hubs, which required economic analysis prior to any implementation, could stimulate additional coastal, and possibly export, tanker and coastal barge trades.