Lifting the Alaskan Oil Export Ban: An Intervention Analysis.

Frank W. Rusco [*]

W. David Walls [**]

In this paper we examine the price effects on crude oils of removing the U.S. export ban on Alaskan North Slope crude oil in 1996. We estimate the long-run

impact of removing the export ban through the use of a time series intervention

analysis. The results indicate that Alaskan crude oil prices increased between $0.98 and $1.30 on the West Coast spot market relative to prices of comparable crude oils as a result of removing the export ban. However, we find no evidence that West Coast prices for refined oil products--regular unleaded gasoline, diesel fuel, and jet fuel--increased as a result of lifting the ban.

INTRODUCTION

In this paper we examine the price effects resulting from removal of the export ban on Alaskan North Slope crude oil (hereafter ANS). We quantify the direct effects on crude oil prices as well as effects on prices of various refined products on the West Coast. [1]

Congress authorized the trans-Alaska pipeline during the 1973 oil crisis, but in a compromise with maritime unions and environmental groups the exportation of ANS was prohibited. The resulting production of ANS--beginning in 1977--led to a situation in which the supply of oil produced in the West Coast region exceeded refining demand. After reaching a peak in 1988, falling ANS production reduced the glut of oil on the West Coast market, and in 1993 West Coast crude oil production began to fall below refining demand. However, crude oil remains relatively abundant on the West Coast: Currently, Alaska and California each produce about a million barrels of crude oil per day, an amount equivalent to roughly 80 percent of demand. Figure 1 depicts West Coast production and refining volumes from 1989 through 1999 and shows the increasing role of imported crude oil as combined Alaska and California crude production has fallen.

The West Coast is the natural market for ANS because of its close proximity and consequent low shipping costs. However, the relative abundance of oil produced in the region has meant that a significant proportion of ANS produced since the pipeline was built has been shipped to the Gulf Coast and other markets at much greater transportation cost. Because exports were precluded until mid-1996, producers of ANS did not have access to the closest alternative markets of Asia.