Large refiners comfortable with crude export push
East coast refiners, the most vulnerable in the US to European competition, remain staunchly opposed to selling domestic crude abroad. But large independent refiners have dismissed such concerns as two Congressional proposals repealing the 40-year-old ban gathered steam.
"I don't think it's going to be as big a deal as some people think," Phillips 66 chief executive Greg Garland said in an investor presentation last month.
Integrated refiners operating in the US have long embraced the idea of crude exports, willing to sacrifice downstream advantages for their upstream business. But exports only increased operating costs for the merchant approach of many US independent refiners. Those companies tied the export policy to changing long-standing shipping regulations and other legislative efforts that were very unlikely to pass.
A strong and rising products export business softened some of that opposition. Refiners cannot easily oppose exports of crude while sending growing volumes of refined products overseas. US gasoline exports through July climbed to an average 466,000 b/d, a 40pc increase compared to the same period of 2010. Diesel exports have increased by almost half over the same period, to an average 1,158 b/d through the first seven months of this year.
Resistance eroded further as larger refiners increased their ability to move crude. Refiners have increasingly used growing logistics subsidiaries to keep high quality crude in their own systems while collecting fees for moving other production to new markets.
US independent refiner Tesoro, which has spent years linking Bakken oil fields to midcontinent and west coast refineries, said last month the company supports crude exports unconditionally. The refiner would not comment on whether it would participate in exports itself.
Phillips 66 went a step further, describing its purchase last year of a terminal in Beaumont, Texas, in part to plans to directly participate in exports should policy change.
Legislative math, however, may offer the greatest relief for refiners opposed to exports as they watch Congress develop bills to end the policy. Supporters may simply not have the votes.
Crude exports have received support from Energy Information Administration studies showing little impact on fuel prices and a Congressional Budget Office study suggesting they would contribute a $1.4bn increase in royalties on federal lands. Valero last month said exports would have only limited effect on its business.
But strong partisan lines around the measure give it thin odds to pass Congress, ClearView Energy Partners analyst Kevin Book says. Senate Republicans added language to a crude export bill in that chamber tying the policy change to sanctions on Iran, and Democrats have targeted oil and gas tax breaks. Neither side will likely be interested in serious trading needed for a repeal to survive a vote, Book said.
It is better for refiners to appear conciliatory on an idea unlikely to move forward and to focus on more immediate issues, such as the biofuel mandates under the Renewable Fuel Standard (RFS), he said.
"If it were imminent that there could actually be a deal, I think you'd see a stronger opposition," Book said. "It doesn't do them any good to spend dollars on it now when there's nothing to fight."