Today, Senator Murkowski (R-AK) released a report detailing the historic precedent for allowing crude oil exports following the enactment of the Energy Policy and Conservation Act of 1975. The Senator has been an outspoken advocate for modernizing the nation’s export restrictions for domestically produced crude oil.
The issue of crude oil exports is relatively new in terms of congressional debate, and many Members are seeking information and additional background materials on the current restrictions, why they were implemented, and what the consequences of lifting the restrictions would be. Below is a summary of publicly available information on the issue and considerations policy makers are looking at as they evaluate this issue.
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Lifting the US Crude Oil Export Ban
Crude oil exports from the United States are now largely prohibited by the Energy Policy and Conservation Act of 1975. The limitations were put in place following the 1973 Arab Oil Embargo. Limited exports are allowed to Mexico and Canada, and exports may be permitted if the President finds them to be in the “national interest.”
Surging production of oil from shale plays around the country has cut in half the amount of crude being imported into the United States. US domestic oil production rose 12 percent in 2013 after rising 15 percent in 2012. With EIA predicting production levels at 8.5 million bbl/d in 2014 and 9.3 million bbl/d in 2015, the US may soon exceed its highest production levels ever of 9.6 million bbl/d set in 1970.
On January 30th of this year, the US Senate Energy and Natural Resources Committee hosted the first hearing on this topic in the Senate in 25 years. Early this year, Senator Murkowski, the Ranking Member on the Committee, released a white paper urging modernization of the nation’s export policies for crude. Testimony was provided by Continental Resources, Delta Airlines, the University of California at Davis, and the Center for American progress. Legislative efforts to change the crude oil export restrictions are in very early stages, and most of the focus of the hearing and the discussions thus far have been on the impact such a change would have on the prices consumers face at the pump.
Below is a chart showing the rapid increases in production of US crude over the last few years compared to production changes since the 1920’s. Coupled with increased fuel efficiency standards and changing driving habits there is a tremendous increase in available crude in the US. While the US still imports 34 percent of the oil it consumes, that number is down from over 60 percent less than ten years ago. The rapid change has accelerated the discussions on crude exports as refinery capacity for the light tight oil coming from the Bakken and Eagle Ford plays encounter refinery infrastructure build to handle heavy crude from Canada and Venezuela.
One of the key issues that was brought up during the hearing was the fact that the US has already experienced a surge in oil exports over the last few years as exports of refined products have more than tripled since 2005, so the question posed is not whether the US resources will be sold abroad, but rather in what form. Below is a graph showing the growth in US exports of refined product.
How Could The US Ban On Crude Exports Be Lifted?
There are two main avenues for lifting the current ban on crude oil exports:
- Congressional action enacting legislation modifying the 1975 Act
- Executive Order lifting the ban after a find by the Department of Commerce that lifting the ban is “in the national interest”
Climate Change: While the US Department of Energy has approved a number of liquefied natural gas facilities to export natural gas and coal exports have increased in recent years, exports of fossil fuels in general appear to be at cross purposes with the Obama Administration’s Climate Action Plan which seeks to reduce carbon pollution by encouraging the use and development of energy sources that are less carbon intensive.
Congressional Action/Inaction: Congressional agreement is difficult to achieve in the current environment in the US House of Representatives and the US Senate. In general, the Republican controlled House has been more open to supporting policies promoting continued development of domestic oil and gas resources than the Democratic controlled Senate. However, even some House supporters of increased oil and gas development have worried about the potential mixed messages created by advocating for more domestic production while simultaneously making it easier to sell the crude to foreign buyers. Hearings and studies informing this debate will be conducted over the next year. However, as production levels rise and storage capacity diminishes, pressure for some kind of modification will take shape.
Disputes Adding Confusion and Complexity: While US oil and gas producers generally favor the ability to export crude, some refiners have expressed concerns about the impacts of lifting the ban since it would directly impact domestic refineries. Additional opposition has been voiced by trade unions who would prefer the processing of crude to be done domestically, airlines who testified that crude exports would raise fuel prices, and environmentalists who oppose domestic oil and gas production on the basis of climate impacts.
Trade Agreements: When the US was importing most of its transportation fuel and contemplating importing natural gas, little attention was paid to the whether the US limitations on exports violated any trade agreements. However, as the US has seen production levels surge and costs of feedstocks go down, the US has been able to attract energy intensive industries back to the US, which could result in challenges to the policies through the WTO and other trade bodies. These challenges would take years to resolve, but could add additional pressure for modifications to the current policy.
Given the current political environment, it is unlikely that modifications to this policy will occur this year. However, advocates for a change to the policy have initiated a major effort for an eventual change.
Administration officials and Members of Congress are seeking information on the impact that changes to the policy would have on production activities, refinery capacity, and costs to consumers. Additional questions are being raised about the transportation infrastructure challenges that such a change could have. Senator Wyden (D-OR) and Sen. Cantwell (D-WA) recently sent a letter to the Energy Information Administration asking for a study to be conducted evaluating these issues. While other assessments and studies will be important in shaping the public perception and awareness of the issue, the EIA’s reports, forecasts and testimony will likely be critical to the eventual outcome of this debate.