Continental Resources Inc. founder Harold Hamm said the country’s crude oil export ban plays into a "deliberate, calculated takeover of American refining" by foreign countries and companies.
Those foreign interests have converted U.S.-located refineries to process their heavy, sour crude, he said. And the export ban blocks U.S. producers’ access to refineries abroad that can process their light, sweet crude.
"Basically, they took over America’s refining capacity without firing a shot," Hamm said in an interview with EnergyWire. "It would be like farmers raising cotton that couldn’t get their cotton ginned."
The head of a refiners coalition that supports keeping the export ban called Hamm’s argument a "red herring." Jay Hauck of the Crude Coalition said crude exports would actually reduce the incentives for American-owned-and-located refineries to invest in expansion.
"If you allow exports, you aren’t going to hurt the refineries that Harold Hamm is talking about," said Hauck, whose group’s name stands for Consumers & Refiners United for Domestic Energy. "His anger is misdirected."
By lashing out at refiners and foreign oil companies, Hamm is taking a more combative position than other producers. Others have gone so far as to point out that allowing exports would counter the influence of traditional foreign policy adversaries such as Russia and Iran. But they have usually stopped well short of criticizing U.S. allies such as Saudi Arabia or Canada.
Hamm isn’t showing the same restraint.
"What they are trying to do is jump into the market that has been here in America for 50 years," Hamm said.
In the crude export debate, U.S. oil producers have argued that they should be able to sell their crude abroad to correct for the glut of oil produced in the country’s shale drilling boom. At the center of that boom is North Dakota’s Bakken Shale play, where Continental is the largest leaseholder.
Much of the crude coming out of shale formations is of a lighter variety than can be easily absorbed by U.S. refineries, which are typically better equipped to process heavier imported crude, producers say.
That forces U.S. producers such as Hamm to sell their oil at a discount compared with international markets. Producers say that reduces their incentive to expand their operations, sapping economic growth and forcing workers to be laid off.
Continental is not a member of the main group of independent producers advocating for crude exports, the Producers for American Crude Oil Exports (PACE). Instead, Hamm is pressing his case through a group he founded, the Domestic Energy Producers Alliance (DEPA).
DEPA has produced a presentation showing that of the 18 million barrels per day of American refining capacity, 4.9 MMbpd is foreign-owned.
Since the late 1980s, Hamm says, companies from Venezuela, Canada and elsewhere bought into U.S. refining and converted much of the capacity to the heavy, sour crude they produce. As an example, he points to a refinery in Lima, Ohio, purchased by Husky Oil.
DEPA’s presentation quotes a Husky report to investors noting the company invested in making the refinery better able to handle heavy oil from Canada. But Husky spokesman Mel Duvall said that project was deferred in December because of the oil price slump.
Foreign surprise
Hamm acknowledged that, at least before the shale boom, it made business sense to process the heavy, sour product that was available. But he still thinks foreign companies are exploiting the export ban for market advantage.
"They would have faced heavy scrutiny with [the Hart-Scott-Rodino Antitrust Improvements Act] and those types of antitrust laws if it had been known the extent this was happening in the U.S.," Hamm said. "But it wasn’t, so they got by with it."
Meanwhile, refineries outside the United States that can handle the light, sweet crude that U.S. drillers produce are going out of business for lack of supply, Hamm said.
The DEPA presentation lists seven foreign "light sweet" refineries in other countries closing and 12 others that are for sale or "under review."
It says the United States has the most sour-crude refining capacity in the world, but has only a "minuscule" amount of capacity to refine light sweet crude.
The level of foreign control is not widely known, he said. He said he spoke to a group of engineers on the topic two months ago who were unaware.
"It was like a tree full of owls," Hamm said with a chuckle. "They were just wide-eyed."
To the Crude Coalition’s Hauck, Hamm’s concern about the shuttering of foreign refineries shows that he’s putting the interests of those businesses ahead of U.S.-based refineries.
"He’s saying we should help out foreign refineries," Hauck said. "I don’t think members of Congress will be able to sell that back home."
The Crude Coalition — which includes Alon USA, Monroe Energy, PBF Energy and Philadelphia Energy Solutions — maintains that U.S. refineries can expand to handle the oil being produced domestically. But Hauck said companies are less likely to make that investment if the export ban is lifted.
"Within the U.S., we have a free market, and markets will balance each other out," Hauck said.
Hamm is also stressing a different history from most. The ban is commonly considered a result of the Arab oil embargo of the 1970s. But Hamm is stressing that the ban was enacted to enforce federal price controls. He said the ban should have been lifted when price controls were eliminated in the 1980s.
But Hauck said that while price controls and the export ban may have been enacted at the same time, President Reagan’s decision to keep the ban shows that it was important for national security.
Click here, here and here to see excerpts from the DEPA presentation.
