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Congress Agrees to End Oil Export Ban, But Analysts Don’t See Near-Term Uplift

The decades-old ban on U.S. oil exports may be coming to an end.

Congressional leaders brokered an agreement late Tuesday on an omnibus spending bill that would include a repeal of the ban. The House released the full 2,009-page appropriations bill early Wednesday morning.

According to analysts and multiple news reports, an end to the ban -- a priority for the GOP and the industry -- became a bargaining chip in budget negotiations when Democrats agreed to include it in the omnibus in exchange for tax credit extensions for renewable energy.

In a press conference Wednesday morning, House Speaker Paul Ryan (R-WI) said he expects the omnibus bill -- along with an accompanying tax bill -- to pass with bipartisan support. Responding to a question about whether Republicans secured enough in negotiations, Ryan highlighted the export ban as a major policy victory.

“I’m very proud of what we’ve been able to achieve. Look, ending the 40-year ban on oil exports, do you know what that does for our foreign policy, what that does for job creators, what that does for infrastructure? It’s huge,” Ryan said. “It’s permanent policy that’s good for American foreign policy, good for energy, good for jobs [in exchange] for temporary measures. I think that’s very good.”

Sen. Heidi Heitkamp (D-ND), a vocal supporter of lifting the ban, likewise celebrated the budget deal.

Heitkamp described the legislation as “a huge win for North Dakota” as the state’s Bakken Shale is one of the biggest oil producing regions in the country. She also highlighted aspects of the compromise that appeal to Democrats, including a five-year extension of the Solar Investment Tax Credit and a five-year extension of the Production Tax Credit for wind energy.

“A year ago, most people couldn’t fathom such rapid progress to overturn the ban on exporting oil, but I continued to say that if both sides are willing to negotiate, we can make this commonsense policy change happen -- and that’s exactly what made this announcement that supports American economic growth and national security possible,” Heitkamp said. “Now Congress needs to keep working together and pass this bill.”

Ryan said the House is scheduled to vote on the omnibus bill Friday.

In a letter to congressional leaders Wednesday, American Petroleum Institute CEO Jack Gerard praised the appropriations deal and said “lifting the ban on crude oil exports is critical to the American energy renaissance.

“Extensive research has determined that lifting the ban on U.S. crude oil exports would create American jobs, bolster the U.S. economy and benefit consumers,” he wrote. “According to various studies, lifting the ban would create one million jobs at its peak in 2018, and add $38 billion to our economy, and lower our trade deficit by $22 billion and our federal budget deficit by $1.4 billion in the coming years.”

Environmental advocates criticized the deal Wednesday. 350.org policy director Jason Kowalski called ending the ban “a setback” in efforts to curb the use of fossil fuels.

“Supporters of climate action in Congress need to realize that caving on the oil export ban is like a group of firefighters giving an early Christmas present to local arsonists,” Kowalski said.

As recently as two weeks ago, analysts deemed it unlikely that the current Congress would repeal the oil export ban (see Daily GPI, Dec. 3). But the outlook changed as budget negotiations heated up on Capitol Hill and talk of lifting the ban as part of a compromise grew louder.

While an end to the ban is undoubtedly a victory for the industry, analyst sentiment on any immediate price uplift appears bearish at the moment.

“For oil prices, we don’t necessarily see this as a near-term spark for domestic oil price recovery as U.S. production is declining,” Tudor, Pickering, Holt & Co. (TPH) said in a note released Wednesday. West Texas Intermediate oil prices have “traded well under transportation cost economics since mid-2015...thus there’s limited economic reason for any domestic crude to leave U.S. shores at this point. Perhaps a long-term win for producers, but limited near-term impact on U.S. crude oil prices or relief on current upstream dynamics.”

TPH analysts expect the oil export bill to have “no significant economic impact on U.S. refiners.”

ESAI Energy LLC said in a memo the “global surplus and low global prices will limit if not prevent any net increase in U.S. crude exports” until 2018 at the earliest.

“Ironically, in 2016, when U.S. production will fall heavily and offer the most probable path to higher prices, the right to export will be granted,” ESAI said. “Republican legislators must recognize that a significant increase in exports is unlikely in the current market, but that greater trading flexibility within the global market will benefit U.S. producers in the long run.”

Echoing the sentiments of other analysts, Brookings Institution senior fellow Charles Ebinger told NGI’s Shale Daily on Tuesday that he would expect to see limited market impact from lifting the ban, with the United States exporting in the range of 50,000-100,000 b/d (see Shale Daily, Dec. 15).

Ebinger described the immediate practical effect of lifting the ban as “a collective sigh of nothingness after the contentiousness of debates the last several years.”

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