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FACT CHECK: Sens. Menendez and Markey Letter to Commerce Dept.

Senators Robert Menendez (D-NJ) and Ed Markey (D-Mass.) recently sent a letter to Secretary of Commerce Penny Pritzker requesting that her department re-evaluate the agency’s recent guidance (in the form of FAQs) that clarified existing policy on refined petroleum products and outlined specifically the process crude oil producers would have to deploy when processing lease condensate for it to be classified as a refined petroleum product.

Unfortunately, the letter mischaracterizes the agency’s guidance and perpetuates a number of inaccuracies on the impact this policy has on consumers. Below we take a look at a few of the claims made by Senators Menendez and Markey and linked here is an overview of the FAQs.

Myth: “These decisions by the Commerce Department were made despite the fact that the department’s regulations clearly include “lease condensate” within the definition of crude oil, and therefore subject to the export ban. The Commerce Department made these changes without a formal rulemaking process that would have allowed for public review and comment.”

Fact: The frequently asked questions (FAQs) released by the Commerce Department’s Bureau of Industry and Security (BIS) in December did not change policy, but rather provided guidance to clarify existing regulation.

Eric Hirschhorn, Undersecretary of Commerce for Industry and Security was quoted in the Financial Times as saying, “BIS is publishing these FAQs to clarify how it implements these regulations, informed by a review of technological and policy issues, together with inter-agency consultations.”

IHS Energy analyst Jamie Webster noted to reporters that, “This is no new real clear policy” but rather “better describe what many people had already suspected.”

Furthermore, BIS’s FAQs clearly state that, “Lease condensate that has been processed through a crude oil distillation tower is not crude oil but a petroleum product. Petroleum products are subject to few export restrictions.”

Myth: “[I]ncreased exports have increased the price of American oil relative to the world price of oil […] Lower American oil prices mean lower costs for American refiners, and, in turn, lower fuel costs for Americans at the pump. In fact, American consumers in some regions of the country have been seeing more than $1 billion in annual fuel savings in recent years, in part as a result of less expensive U.S. oil.”

Fact: Artificially low American oil prices may translate to lower costs for some domestic refiners, however the spread between the domestic price of oil (West Texas Intermediate, or WTI) and the international price of oil (Brent), does not translate to lower gasoline prices. While this may seem counterintuitive, the U.S. Energy Information Administration (EIA) recently issued a report that addressed this very point:

  • “Gasoline is a globally traded commodity and, as a result, prices and changes in prices are highly correlated across global spot markets […] The effect that a relaxation of current limitations on U.S. crude oil exports would have on U.S. gasoline prices would likely depend on its effect on international crude oil prices, such as Brent, rather than its effect on domestic crude prices.”

Put another way, because gasoline prices are tied to the global price of oil (Brent), the opportunity to export a portion of the United States’ abundant crude oil resources would put downward pressure on the global price of oil. That downward pressure would be reflected in the price consumers pay at the pump. In addition to the EIA analysis, the Congressional Budget Office, IHS Energy, ICF International, Columbia University and the Brookings Institution, among others, have all concluded through their own independent analyses that removing the current ban on U.S. crude oil exports would result in lower gasoline prices here at home.

Myth: “[Oil companies] now want to completely lift the ban on exports even though we still import nearly 30% of our crude oil.”

Fact: This statement assumes that all crude oil is the same and that all refineries can process any and all grades of crude oil. This is simply not true. Refineries are configured to process specific types and grades of crude. A recent Bloomberg story highlights this point further:

  • “’U.S. refiners built the capacity to use heavy crude, so this is the natural home for Latin American heavy oil,’ said John Auers, executive vice president of the Dallas-based consulting company Turner Mason & Co. ‘Those barrels still belong here, while the light and medium crudes from the Middle East and Africa are the ones being backed out by domestic production.’”

What’s this mean? Thanks to advancements in drilling technology and the responsible development of shale oil formations, increased domestic production of light tight oil, or LTO, is backing-out the light crude oil that has historically been imported from abroad. However, as noted in a recent Columbia University study, the U.S. has “a mismatch between domestic supply and refinery demand” which has led to surplus supply bottlenecks throughout the country, prompting reductions in the price of U.S. produced crude oil.

So while the United States will continue to import specific grades of crude oil that we do not produce here in order to match our nation’s refining capabilities, allowing oil producers to compete in the global marketplace by repealing the oil export ban will have little effect on the volume of crude oil we import. U.S. refineries would still have all the light oil they can process, and would enjoy a competitive advantage over foreign refiners due to the cost savings associated with shipping U.S. oil overseas.

Myth: “[B]asing policy on what is best for oil companies to the detriment of most American businesses, American consumers, American workers, and our national security simply does not make sense.”

Fact: This statement is not supported by any factual or independent analysis, yet is a convenient talking point by those who oppose the modernization of our nation’s energy policy. Both government and independent research has found that allowing U.S. producers to export crude oil would benefit our economy and consumers and enhance our national security. A recent Brookings Institution study found that as a matter of policy, there are few actions the government can take to enhance our economy more valuable than repealing the ban on oil exports:

  • “There are few actions that the U.S. government can take that as a long-term instrument of economic policy would make as measurable a difference on the economy.”

As it pertains to our national security, the Council on Foreign Relations found that:

  • “Liberalizing the crude oil export regime would advance U.S. foreign policy. It would demonstrate Washington’s commitment to free and fair trade, even in a politically sensitive sector, bolstering its negotiating position on other trade issues. It would also avoid putting Washington at odds with allies that would like to source their oil from the United States. If the United States were to become a major crude exporter, its leverage as an oil trade partner would grow significantly.”

Additional analysis from IHS Energy and ICF International have found that U.S. crude oil exports would increase gross domestic product (GDP) and investment by hundreds of billions of dollars, while creating jobs up and down the manufacturing value chain.

Interested in learning more about the economic and consumer benefits of oil exports? Visit the Oil Exports Library.

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