As the U.S. increases its production of crude oil, pressure continues to build to allow crude exports

Update on Crude Oil Exports

Published
American Association of Petroleum Geologists (AAPG)

As the U.S. increases its production of crude oil, pressure continues to build to allow crude exports. A major proponent of changing the ban, which was created in the 1970s to address fuel scarcity concerns, is Senator Lisa Murkowski (R-AK), who would be the new Chair of the Senate Energy and Natural Resources Committee should the Republicans take the majority after the November elections. Senator Landrieu (D-LA), the current Chair has also been supportive of these efforts. Both Senators have asked the U.S. Energy Information Administration (EIA) to study the economic impacts of potentially lifting the ban and those studies are expected to be released in the late 2014/early 2015 timeframe. The two topics of these reports include: the financial impacts of lifting the ban on crude prices in the U.S. and on the global market; and the costs of processing light sweet crude in the U.S. as well as the technological needs.

The ban on oil exports was put in place in 1975 through the Energy Policy and Conservation Act (EPCA), which restricts most exports, but the President is given the discretion to make exceptions if they are found to be “in the national interest”. Current exemptions include:

  • Exports from Alaska’s Cook Inlet;
  • Exports to Canada;
  • Exports in connection with the U.S. Strategic Petroleum Reserve;
  • A limited amount of heavy crude exports from California

All licenses for crude oil exports are administered by the Bureau of Industry and Security (BIS) at the Department of Commerce. BIS is also authorized to review export applications that do not fit in any of these categories and makes decisions on a case by case basis. Earlier this year, BIS approved licenses for a limited amount of condensates, which are hydrocarbon liquids that exist as a gas in the subsurface, but condense to a liquid during production. However, the Administration has made it clear that these decisions do not necessarily mean that it would support a comprehensive lifting of the ban.

With the dramatic uptick of oil development in the U.S., the possibility of modifying or nullifying the ban has become an argument with traction. After all other hydrocarbons (ie. natural gas, natural gas liquids, and refined products including diesel and gasoline) have far less restrictive criteria and a more transparent process for exports. In addition, many believe that most of the refineries in the U.S. cannot handle the type or volume of crude that is currently being produced in areas such as the Bakken, which is predominantly light sweet crude. A recently released study by the Aspen Institute, which was funded in part by upstream oil interests, found that lifting the ban would also benefit the U.S. manufacturing industry.

Although there are an increasing number of proponents expressing support for lifting the ban, some refining companies look to be in opposition to oil exports. Many refining companies have said that they can handle the increased volume of light sweet crude. They also believe that lifting the ban would increase prices in the U.S. In anticipation of potential legislative or administrative action on the oil export issue in the next Congress, the Consumers and Refiners United for Domestic Energy (CRUDE) coalition has been formed. The group includes Alon USA Energy, PBF Energy, Monroe Energy (a Delta Airlines subsidiary), and Philadelphia Energy Services. Although the American Fuel and Petrochemical Manufacturers, the trade association that represents the refining industry in Washington DC, has not taken an official position, they have urged policymakers to also look at other policies such as the Jones Act, a law that was passed in 1920 as part of the Merchant Marine Act. The law, which was meant to protect U.S. maritime interests, requires that ships that run between two U.S. ports be owned and operated by U.S. crews, which increases costs relative to those with foreign crews. The refining industry, therefore, is likely to push for some flexibility in the Jones Act, making the argument that moving crude oil to refineries in the Northeast U.S. would be more economic than it currently is. Any attempts to modify the Jones Act would be politically difficult, however, because the maritime industry has historically strongly opposed such efforts.

Many Members of the House have yet to take a position on the ban, but House Energy and Commerce Committee Chairman Fred Upton (R-MI) is expected to hold hearings on the topic next year. The Obama Administration has also remained non-committal.

Look for this debate to heat up again early next year with the new Congress and the release of the EIA reports.

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