When the oil and gas industry heard that U.S. President Trump supported the idea of banning diesel exports, the industry responded with a “heavy weapon” to counter the situation.
According to The Wall Street Journal, shortly after Trump made this proposal on Tuesday, Mike Summers, the CEO of the American Petroleum Institute, the leading lobbying organization for the oil industry, issued a statement condemning the proposal. He said that restricting U.S. exports would only exacerbate the problem of rising diesel costs. The American Petroleum Institute also released a press release warning of the risks associated with an export ban.
Limiting US diesel exports will seriously disrupt the US domestic and international fuel markets, disrupt refinery operations stability, and deepen a global oil crisis that has already put upward pressure on US domestic prices. The organization said.
Around the same time, a group of CEOs associated with the American Petroleum Institute and the industry organization representing refiners, the American Fuel & Petrochemical Manufacturers (AFPM), also took rapid action.
According to people familiar with the situation, Mike Wirth, CEO of Chevron, Mark LaHir, CEO of Phillips 66, and other executives began calling their contacts within the Trump administration to oppose the proposed ban. These executives have various connections within the government, and they conveyed their dissatisfaction to those around them.
According to those who have been in contact, other companies involved in this effort include ExxonMobil and Valero. The industry also benefitted from the support of Texas Senator Cruz and Republican legislators from Louisiana.
As this full-scale offensive unfolds, the industry believes that its business is facing a threat to survival. Oil and gas producers sell a significant portion of their products to refiners, who then process them into fuels and export them. If diesel production is blocked domestically, the entire energy supply chain could be disrupted, potentially costing the industry billions of dollars.
On Wednesday, more than 30 business, energy, and manufacturing organizations, including the American Petroleum Institute, AFPM, and the Business Roundtable, wrote in a letter urging Trump to reject the export restrictions. "We understand the impulse to find a panacea, but there is no simple answer to this issue," said the letter.
Since the outbreak of the war with Iran, oil lobbies and executives have been preparing for possible energy export bans. Initially, they expected that only crude oil exports would be restricted. In the end, it was diesel that became the target of the Trump administration; diesel prices have risen significantly.
On Tuesday evening, after American oil industry executives expressed their concerns to Trump administration officials, Energy Secretary Rick Perry called the CEOs of several American oil companies. According to people close to the industry, Perry conveyed the position that he supported measures that would not lead to export bans, while still fulfilling Trump's desire to lower diesel prices.
In a series of public speeches on Wednesday, Wright said that the plans to restrict exports would be voluntary for American fuel producers. He mentioned that the details of these plans will be announced in the near future.
Including Secretary of State Mike Pompeo, the Trump administration continues to closely cooperate with other countries in researching various options to help lower US citizens’ energy costs. A spokesperson for the Energy Department said this is ultimately up to President Trump to decide on a final decision.
The industry expects that the ban will not be implemented immediately, and still hopes to abandon this idea. The industry is urging the Trump administration to loosen the approval requirements for exemptions under the Jones Act, which allow fuel to be transported between various ports in the United States. The industry hopes that Trump will promote more fuel production and exports from China, and is also encouraging Congress to implement a temporary suspension of fuel taxes. The federal tax on gasoline is 18.4 cents per gallon, and on diesel, it is 24.4 cents per gallon.
Executives also suggested that the blending requirements under the U.S. renewable fuel standards could be adjusted; some estimate that this could reduce gasoline prices by 40 cents per gallon. However, they said that reducing the prescribed amount of ethanol in fuel might severely impact the core voter groups in Iowa and other midwestern states, which rely heavily on corn for their economies.
Oil industry executives and their representatives have found common ground with Treasury Secretary Sebastian. People close to the industry say that Sebastian is considered one of the most influential figures around Trump when it comes to the challenge of an export ban. The industry believes that Sebastian does not fully support a ban on exports. Both Wright and Interior Secretary Burgum have publicly opposed such a ban.
Even within the government, there seem to be disagreements among Trump's advisors. Some within the government advocate restricting exports before the mid-term elections, while others oppose this or suggest less stringent measures.
People close to the industry said that Trump administration officials still seem to be considering measures to restrict exports, but it is not clear what specific forms such measures will take.
On Wednesday, during a break from the United Nations General Assembly, Wright said in an interview with The Wall Street Journal that governments must ensure global diesel supply.
The president is just trying to find a feasible and sustainable way to prevent diesel price increases in the United States, without disrupting the very complicated distribution system," said Wright.
