Talks Under Way in Nascent Oil Export Deal

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By Ari Natter

Oct. 6 — It may be a long shot, but Senate Democrats are seeking a long-term extension of wind and solar energy tax incentives in talks with Republicans about gaining their support to lift the 40-year-old ban on most crude oil exports.

“There are a number of pieces that I think are in play,” Sen. Martin Heinrich (D-N.M.) told Bloomberg BNA. “We are having those conversations with folks to figure out if we can't get to some sort of balanced, bipartisan energy package that makes sense for both sides of the aisle and frankly for the country.”

It remains to be seen what, if anything, Republicans will agree to in exchange for minority support to end the trade restrictions prohibition. Also unclear is whether the White House would go along with a deal.

US crude oil production

White House Press Secretary Josh Earnest has said that the Obama administration wouldn't support House legislation (H.R. 702) or Senate bill (S. 1372) to lift the ban.

In an interview, Sen. Bob Corker (R-Tenn.) said a policy rider ending the oil export ban “could very possibly end up” in a broader year-end budget deal to fund the government. Senate Majority Leader Mitch McConnell (R-Ky.) and other congressional leaders are discussing how to negotiate a two-year budget deal.

“There are a lot of things being talked about, but I think this is something that could be a consideration as a part of the spending bill,” Corker told Bloomberg BNA.

Joseph P. McMonigle, a senior energy analyst at Potomac Research Group, called Earnest's remarks a carefully crafted statement aimed at gaining “leverage for a potential deal.”

Chance for Compromise

Sen. Heidi Heitkamp (D-N.D.), the author of a Senate bill (S. 1372) that would lift the ban, said she sees a chance for compromise.

“There is still an opportunity to build a good coalition in the middle,” she said at a forum held by National Journal in September.

Unlike the House, where a simple majority is needed to approve legislation, 60 votes are effectively needed to advance a bill in the Senate.

With Republicans holding 54 seats, at least six Democrats would need to vote in favor of legislation to remove the trade restrictions, which were put in place in 1975 in the wake of the Arab oil embargo.

A number of Senate Democrats, including Senate Minority Leader Harry Reid (D-Nev.), have indicated reversing the ban on crude oil exports could win their broader support if it is part of a larger deal that could include a multibillion-dollar extension of the production tax credit for wind and other renewable sources or an extension of the solar investment tax credit.

Reid cracked open the door for a deal in August, when he said lifting the trade prohibition is “something we need to talk about.”

Reid 'Interested'

“Let’s see if we can come up with something that would be good for the country,” Reid said during a news conference at his annual Clean Energy Summit in Las Vegas, according to a transcript. “I’m interested in this to see if there’s something that can be done to help both parties.”

A Reid spokesman later downplayed his remarks, warning not to read too much into them.

Sen. Mark Warner (D-Va.), speaking at an energy forum earlier during the summer, said winning enough Democrats' support to end the ban would “require some kind of a trade.”

“To get the export ban lifted, you are going to have to make some kind of more comprehensive approach,” Warner said. “Whether it's tied back to infrastructure or sequestration, there is some kind of opportunity.”

“I do think that if there’s a realistic opportunity to get something like this passed it’s going to require a more comprehensive approach,” Warner said earlier this month. “I think that there are both environmental issues to be dealt with, there are job issues, and honestly there are revenue issues as well that could be part of the mix.”

Proponents of lifting the ban, which applies to most domestic crude oil exports, argue it is an outdated relic of the past and should be changed now that U.S. oil production is booming thanks to advances in hydraulic fracturing and horizontal drilling. U.S. crude oil production has increased from around 5 million barrels a day in 2008 to a projected 9.2 million barrels a day in 2015, according to the Energy Information Administration (EIA).

Oil Producers v. Refiners

Changing the law is supported by more than a dozen oil companies such as ConocoPhillips Co. and Hess Corp., but it is opposed by Valero Energy Corp. and other refiners who stand to lose profits of $22 billion a year in 2025 if the law is changed, according to the EIA (169 ECR, 9/1/15)(170 International Trade Daily, 9/2/15)(See previous story, 09/02/15)(170 DEN A-3, 9/2/15)(170 ECR, 9/2/15).

Both Heinrich and Sen. Angus King (I-Maine) hinted they could be persuaded to support Senate legislation that would end the trade prohibition—prior to voting against it during a Senate Energy and Natural Resources Committee markup in July.

The bill (S. 2011) by Senate Energy and Natural Resources Committee Chairman Lisa Murkowski (R-Alaska) was approved on a party-line vote of 12-10 and includes other policy changes, such as an expansion of offshore drilling and revenue sharing, but isn't expected to see floor action any time soon (147 DEN A-5, 7/31/15)(147 DEN A-5, 7/31/15)(See previous story, 07/31/15)(148 International Trade Daily, 8/3/15)(32 ITR 1383, 8/6/15).

“I think before we make such a monumental shift in U.S. policy, I hope we can agree to extend our existing policy incentives for carbon-free energy sources vis-a-vis the solar [Investment Tax Credit] and the wind [Production Tax Credit],” Heinrich said.

Renewables Required

King said the Senate bill, formally known as the Offshore Production and Energizing National Security Act, instead should be called the No Fossil Fuel Left Behind Act, but added he could be persuaded to vote for it.

“I might be prepared to support it, but only if there is a more balanced package of changes in the bill, for example,” he said. It should include incentives such as extension of the investment tax credit for the solar industry and the production tax credit for wind and other renewables sources, he said.

“So that's where I just want to suggest that there may be further discussions before the bill comes to the floor,” King said.

A two-year extension of the 2.3 cents-per-kilowatt-hour credit, estimated to cost nearly $10.5 billion over 10 years, was included in legislation approved by the Senate Finance Committee in July, but its passage is far from a done deal, especially in the House where it has faced stauncher resistance (140 GINB, 7/22/15)(140 DEN A-2, 7/22/15)(140 DTR G-5, 7/22/15)(140 DTR G-5, 7/22/15)(See previous story, 07/22/15)(139 ECR, 7/21/15).

Hard Pill to Swallow

Likewise, an extension and modification of a solar investment tax credit, sought by companies such as SolarCity Corp., also would carry a multibillion-dollar price tag and would be a hard pill for some Republicans to swallow.

The 30 percent tax credit automatically drops to 10 percent for commercial projects and expires for residential solar projects at the end of 2016. Solar advocates have sought its extension as well as a tweak so that projects that begin construction, rather than begin operation, by Dec. 31, 2016, would be able to qualify for the full credit (06 IIPR 8, 7/27/15)(139 GINB, 7/21/15)(139 DEN A-3, 7/21/15)(139 DTR G-1, 7/21/15)(139 DTR G-1, 7/21/15)(See previous story, 07/21/15)(138 ECR, 7/20/15).

Extending the solar investment tax credit could cost between $20 billion to $40 billion over a 10-year period, according to ClearView Energy Partners LLC, a Washington-based consulting firm.

“I think it would be awfully hard for all the Republicans who railed against the green subsidies to go back and support them in the name of free markets,” Kevin Book, ClearView's managing director of research, told Bloomberg BNA. “I’m not sure [Democrats] can get anything.”

Still Republicans such as Sen. John Cornyn (R-Texas), who serves as majority whip, are leaving the door to a deal open.

“We obviously need to get some Democrat votes,” Cornyn told Bloomberg BNA. “My view is that export ban is the right policy on its independent merits on a stand-alone basis, but obviously we need to have a serious conversation about what’s possible.”

Added Murkowski in an interview with Bloomberg BNA: “I do have other colleagues that are very interested in finding out if there could be something else that is in the mix and I know those conversations are going on.”

Book, whose firm puts the odds of action before the 2016 election at 15 percent, said Republicans are unlikely to make a deal before 2017, when a new president takes office.

Presidential Race a Factor

“It still isn’t clear to us that Republicans are ready to come to the table to bargain for crude exports when they may have a shot at winning the White House and ending the ban free and clear,” ClearView said in a research note. “Arguably, the time to make a trade for green energy subsidies might be after Republicans lose, upon the inauguration of another Democrat.”

Earnest said the White House opposes House legislation to lift the ban because “this is a policy decision that is made over at the Commerce Department,” but he stopped short of saying President Barack Obama would veto the bill.

“We wouldn’t support legislation like the one that’s been put forward by Republicans,” Earnest said, repeating the White House's ongoing request to repeal billions of dollars worth of preferential tax treatment received by the oil and gas industry, and instead use that money to boost renewables (179 DEN A-12, 9/16/15)(See previous story, 09/16/15)(178 ECR, 9/15/15).

Rep. Joe Barton (R-Texas), author of House legislation (H.R. 702) to lift the export ban that is scheduled to be brought to the House floor the week of Oct. 5, said Earnest's remarks were intended to give the president negotiating room.

White House Deal Possible

“I took it as: I ask a girl for a date and she wants to know what we are going to do on that date. She didn't say ‘no,' ” Barton told reporters. “What the White House said was not ‘No way.' It was: ‘We'd rather do it a different way' than my bill does.”

Barton's bill was approved Sept. 17 by the Energy and Commerce Committee on a 31-19 vote, with three Democrats voting in favor of the measure (32 ITR 1648, 9/24/15)(181 International Trade Daily, 9/18/15)(181 DEN A-1, 9/18/15)(181 DEN A-1, 9/18/15)(See previous story, 09/18/15)(180 ECR, 9/17/15).

George Baker, executive director of a Producers for American Crude Oil Exports, a coalition made up of Marathon Oil Corp., ConocoPhillips Co. and other companies that support removing the trade prohibition, said talk of a deal in the Senate is too early.

“I don’t see those issues yet coming together until after the period we have this off the House floor,” Baker told Bloomberg BNA. “I’m not in a position to have a view on that whole package of discussions. I don’t think it's mature enough.”

McConnell threw his support behind ending the 40-year-old ban on crude oil exports for the first time Sept. 16, calling the trade prohibition “a relic of the 70s,” but he did not answer a reporter's question about when and if he would schedule floor time for a bill that would end the ban.

“I support eliminating the oil export ban and apparently the deal with Iran is going to go into effect, the Iranians are going to be able to export their oil and we're not?” McConnell said. “I do support lifting the oil export ban, and that will be among other items that we discuss with the administration and we look forward to resolving.”

The ban, which doesn't apply to refined products such as gasoline and jet fuel, prohibits the export of U.S. crude oil, with exceptions for crude from Alaska and California and crude destined for Canada.

To contact the reporter on this story: Ari Natter in Washington at anatter@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com