UPDATE 1-Refiner PBF starts talks on lobby effort to keep US oil export ban

Thu Jan 9, 2014 10:46am EST

By Cezary Podkul and Selam Gebrekidan

NEW YORK Jan 9 (Reuters) - Independent U.S. refiner PBF Energy has begun talks with a half-dozen of its rivals to consider jointly lobbying Washington against lifting a decades-old ban on U.S. crude oil exports.

New Jersey-based PBF, run by veteran refinery investor Thomas O'Malley, organized a telephone call earlier on Wednesday to discuss creating a lobby group that would seek to maintain existing restrictions on crude exports, according to two people with knowledge of the call.

HollyFrontier Corp., Delta Air Lines' Monroe Energy , Philadelphia Energy Solutions and Alon USA Energy joined the call, as did larger rivals Valero Energy Corp. and Marathon Petroleum Corp., one of the sources said. Valero spokesman Bill Day confirmed the call.

The discussion, which one source said was likely to be continued next week with many of the same participants, is the first evidence of a more focused lobbying effort that may counter rising calls to ease the ban, which was imposed in 1975 after the Arab oil embargo.

Valero was the first company to publicly speak out in support of the limits, which are already dividing the industry. Two of its largest rivals, Marathon and Philips 66 -- refining companies that were recently spun out of integrated oil firms -- have said they would not stand in the way of easing the ban.

But other allies are starting to emerge as the debate over one of this year's biggest energy policy issues heats up.

"In general, we think it's a good thing for the country to keep this crude oil contained here," Philip Rinaldi, chief executive of Philadelphia Energy Solutions, told Reuters on Thursday. "But there are tensions, and there are some issues of free trade, and that is worth debate."

Key among them is a nearly 100 year-old law known as the Jones Act, which limits domestic shipping only to U.S.-flagged vessels. Rinaldi said the restriction is raising the price of crude oil, driving up costs for East Coast refiners.

"I think the arguments that people will make for lifting the crude oil export ban will be largely about free markets. Oh my goodness, the greatest restriction to free markets right now is the Jones Act," Rinaldi said.

A spokesperson for PBF Energy declined comment. Spokespeople for Monroe's parent company, Delta Airlines, and PES also declined comment. HollyFrontier did not immediately reply to an email sent after working hours on Wednesday.

Alon has "started the process of becoming informed about a potential lifting of the ban," a spokesman said when asked about the call. He said the company would take a position once it gathered more information on the issue.

A spokeswoman for Marathon declined comment.

REFINERY SPLIT

Opposing the lifting of the crude oil export ban could weaken refiners' hand in pushing for reforms of the Jones Act, as they might be seen supporting one market obstacle while pushing for the abandonment of another.

That poses a thorny dilemma for refiners as they decide whether or not to join the PBF-led effort. It is not yet clear how many of the refiners will support the effort, or how much money they will put toward financing it. But Valero and Marathon are said to have indicated on the call that they will not join the lobbying effort, according to one of the sources.

PBF Energy and Monroe Energy -- both of whom were active in last year's successful effort to knock back rising ethanol quotas -- are the most likely leaders and financiers of any lobbying effort, the source said. A follow-up meeting or call is set for next week to set the strategy for the effort.

A growing number of oil producers and some politicians say it is time to reconsider the crude oil export ban, particularly now that the rapid rise in shale oil production threatens to exceed domestic refiners' demand for light, sweet crude -- potentially causing a drop in domestic prices.

But opening up overseas shipments would likely hurt refiners, who benefit from a glut of cheap, domestically produced crude oil that currently cannot be sold overseas.

The purpose of Wednesday's call was to gauge the refiners' interest in forming a lobbying group, according to one of the sources. The existing refiner industry group, the American Fuel and Petrochemical Manufacturers, will not oppose easing the ban because it supports free markets, its president has said.