Lifting the 40 year old ban on crude exports should benefit Eagle Ford Shale companies and their workers in the long run. However, removing the export prohibition would not likely result in a significant amount of job creation from new drilling in the Eagle Ford Shale, at least anytime soon.
The White House appears willing to allow legislation repealing the crude oil export ban, which was enacted by President Jimmy Carter in 1974 as part of The Energy Policy And Conservation Act of 1975. A repeal of the ban is part of the latest budget bill which would keep the government funded until September 2016. If passed, it will be a rare example of compromise in today’s all or nothing political environment. In general Republicans are pleased that the oil export ban would be lifted, allowing US oil companies to export worldwide and in turn, Democrats are happy that the bill would allow for an extension of constituent – pleasing tax credits for Solar and Wind energy.
This change in oil export regulations would also come just one year after the Obama administration gave the oil and gas industry a rare year end gift; a removal of the ban on exporting condensate.
Above: Oil rig worker on a workover rig in Texas.
West Texas Intermediate (WTI) crude often trades at a steep discount compared to Brent Crude. A removal of the crude oil export ban could benefit Eagle Ford Shale and other US producers by raising US prices to a level closer to that of Brent prices. All of this may mean little to out of work oil and gas workers, who need the kind of upturn that only a re-balancing of the fundamentals of supply and demand would solve. The kind of major upturn that oil and gas workers are looking for is likely to be some time off regardless of a removal of the oil export ban.
Oil Prices May Not Respond Much To Lifting Of Export Ban
The world remains oversupplied with oil and until excess production falls off, prices will probably remain lower. At some point a balancing of supply and demand should occur but U.S. companies probably won’t significantly ramp up production until they and their investors know that the worst is over. EOG Resources VP of Exporation and Production, “Billy Helms” recently commented to the effect that it will take near $75 before the industry begins growing again. “I think really you’re going to see maybe $65 before people start turning things back around, and maybe $75 to start growing at healthy level. There won’t be anything near the million barrels per day level that we saw before crash, but $75 before we start drilling again.”
Headwinds to a recovery of oil prices include the “fracklog” as well as the millions of barrels of crude that have been stored in oil tankers along the Gulf Coast and elsewhere by speculators. Being able to sell tanker – stored oil at near Brent prices could help reduce that component of the oil glut.
A large number of “DUCs” or Drilled but Uncompleted wells exists in the Eagle Ford Shale. These 1,400 to 1,800 wells have already been drilled and only need to be completed. See: Sitting Ducs’s In Eagle Ford Shale Since much of oil and gas industry job creation comes from the drilling side, any significant increase in oil and gas jobs won’t happen until drill bits start turning again. The average oil rig creates 21 direct jobs and 124 indirect jobs, of which only 55 are fracking related jobs. Source: Petroleum Services Association of Canada
A reversal of the ban on oil exports is now more than ever likely to become a reality, yet some opposition to the new budget bill remains on both sides. Some conservative Republicans may vote against the new budget bill on the principle that it is too large, while some Democrats may vote against it because of the oil export language, which they claim was sneakily placed into the bill. Steny Hoyer, the second ranking house Dem, was quoted as saying “… that wouldn’t sink the deal.”
Let’s hope that the export ban, an outdated law and example of counterproductive government meddling in free market economics, will be lifted. In the long run it may help give a boost to the shale oil and gas industry by helping to stabilize the world oil market and possibly helping to create more level playing field. This change in US oil export rules ought to be a win for consumers, who should see more stable gasoline prices, and for oil and gas industry workers who hopefully will see fewer pink slips and more good jobs in the future.
by Eaglefordshaleblog.com contributor S. Brewer.