The Fuse

Lawmakers Strike Deal to Lift Crude Oil Export Restrictions

by R. Kress | December 16, 2015

After four decades, U.S. lawmakers have announced an agreement to lift the nation’s ban on crude oil exports. The move came Tuesday night as part of a larger spending agreement in which Republicans will extend a package of renewable energy tax credits that have expired or that are nearing their expiration date.

Republican leaders have long been pushing for an end to the crude oil export ban—a move that the Obama administration had opposed unless it was part of a broader deal, which has emerged as a larger tax and spending package extending renewable energy credits. At least in part, the White House had pushed back on changing the policy citing the Commerce Department’s recently-attained right to greenlight some limited condensate exports and swaps. But given years of lobbying from oil producers, Republican leaders still sought to lift the export restrictions. Earlier this week, Senate Minority Leader Harry Reid (D—NV) tweeted that “at this point in our government funding negotiations, the major outstanding issue is Republicans’ insistence on ending the oil export ban.” In an eleventh-hour statement before the decision, Reid struck an unwavering tone: The export ban would stay unless renewables were bolstered by the deal: “If Republicans think reducing our carbon emissions and encouraging the use for renewable energy is an unacceptable price to pay, we can move the rest of the package without the oil export ban.”

With renewables now in tow, this 2,200 page piece of legislative compromise is set to speed through the House and Senate for votes before week’s end. At present, the White House is not expected to veto the measure, which includes provisions to limit exports in times of national emergency or price spikes.

At present, the White House is not expected to veto the measure, which includes provisions to limit exports in times of national emergency or price spikes.

Republicans are praising the lifting of the ban as a major victory. In particular, export advocates say that as sanctions on Iran are lifted, its oil could hit the world market and worsen conditions for American producers. Advocates for lifting the ban also criticized the export restrictions as hypocritical, given the fact that oil export sanctions were levied against Iran as part of diplomatic efforts to curb its nuclear program. In April, Sen. Lisa Murkowski (R—AK), Sen. John McCain (R—AZ) and Sen. Bob Corker (R—TN) wrote an impassioned op-ed in Foreign Policy magazine citing their reasons for supporting an end to the ban:

“For more than 40 years, U.S. laws have tightly restricted crude oil exports. This regulatory architecture is a decrepit edifice that must be modernized. Sales of U.S. crude oil are uniquely prohibited by outdated statutes and regulations. Full congressional repeal of these restrictions would still duly preserve the emergency authority of the executive branch to intervene in cases of national security. Oil export policy may be liberalized without infringing on the president’s emergency powers, which derive from entirely separate laws.”

But now, with a deal in place to end the restrictions, House Minority Leader Nancy Pelosi (D—CA) notes that American refineries may end up paying the price.

“Not only are we losing the oil, but we’re losing the jobs that go into refining it,” Pelosi said.

Oil and gas industry historian and expert R. Tyler Priest tells The Fuse that Pelosi’s argument doesn’t necessarily hold water.

“Our refinery jobs depend on the market demand for refined products. I don’t think they depend on domestic crude oil production,” says Priest, associate professor at the University of Iowa and former senior policy advisor to President Obama’s National Commission on the BP oil spill. “The argument for the [lifting of] the crude export ban is that we’ve had a lot of new light crude oil production after years in which the refineries have been redesigned to run heavier crudes. So we have all this light oil coming from the Bakken in North Dakota and it’s more profitable for the industry to export that.”

Lifting the ban, says Priest, will “provide a more logical market outlet for light crude oil.”

The United States continues to import roughly one-third of its oil supply. In fact, the country imports more oil now on both a volume and percentage basis than when the ban was put into place, when the foreign oil accounted for about one-quarter of supply. However, Priest says that times have changed greatly since the ban was first enacted forty years ago.

“It’s a policy that was introduced in 1975 in response to very unusual supply circumstances in the aftermath of the first oil shock,” Priest explains. “I think it’s anachronistic.”

Congress passed the export ban as a means of protecting the U.S. in the wake of the 1973 Arab oil embargo—as part of efforts to prevent any foreign countries from disrupting U.S. supply and sending prices soaring in the future. As Priest notes, fears of supply disruption are not currently a concern.

The United States imports more oil now on both a volume and percentage basis than when the ban was put into place, when the foreign oil accounted for about one-quarter of supply.

“I don’t think we’re in danger of supply disruptions that will dramatically increase oil prices. OPEC and Saudi Arabia are merrily producing as much as they can,” says Priest. “The global economy is more integrated than ever before. The oil markets are global. I don’t see a huge increase in an energy security risk by lifting the export ban. We’ve got crude oil embedded in these tight sandstones in the U.S., we’ve got all this oil in Alberta. If prices did go up again, they would supply the market. We’ve got Mexico moving forward with offshore drilling and opening up their oil market to foreign participation, you’ve got all this deep water oil from Brazil that would come online. So access to oil in the Western Hemisphere is very secure.”

However, with oil prices low, continued global oversupply, and the spread between international and domestic crude oil prices within an incredibly small range, it’s unlikely that meaningful volumes of American crude oil will be exported. The global market is already oversaturated.

“The great fear now is too much oil: You’ve got Iranian oil coming back after sanctions, Iraq in spite of the instability there and other parts of the world,” says Priest, noting that there has been a wave of bankruptcies among smaller companies in the industry stateside. “It’s a concern for the industry. They’re in a waiting game… For how long they can tolerate these low oil prices, nobody knows.”