Modification of the U.S. policy restricting exports of domestic crude oil has been at the forefront of energy policy discussion due to the country’s recent emergence as a leader in oil and natural gas production. Committees of both the U.S. Senate and U.S. House have initiated and passed legislation seeking to lift the longstanding restrictions on crude oil exports, and a report released by the U.S. Energy Information Administration (“EIA”) earlier this month added fuel to the fire for those championing U.S. oil exports. On September 1, 2015, the U.S. Energy Information Administration (“EIA”) released its report, Effects of Removing Restrictions on U.S. Crude Oil Exports, which was prepared pursuant to 2014 requests from the Obama Administration and several Members of Congress, including Senator Lisa Murkowski, Chairman of the Senate Committee on Energy and Natural Resources. The EIA report followed recent steps taken by the Senate Energy and Natural Resources Committee to pass legislation to lift the restrictions, and was praised by Senator Murkowski as support for moving forward to broaden the scope of permissible U.S. crude oil exports. In July 2015, the Senate Energy and Natural Resources Committee approved legislation sponsored by Senator Murkowski that would remove the crude oil export restrictions. Although nestled into the Miscellaneous section of Murkowski’s Offshore Production and Energizing National Security Act of 2015 (OPENS Act), the language giving unrestricted authority to export domestic crude oil to any country not subject to U.S. sanctions, without a federal license, is anything but a miscellaneous item. Senator Murkowski has been pushing to loosen the export restrictions and urged the government to move forward in light of the EIA’s report: “This capstone report clearly points the way for Congress and the administration to act….The year of study is over. It is time to send a signal to the world by lifting the ban on oil exports from the United States.”
On September 9, the Senate Committee referred the OPENS Act to the full Senate and it was calendared under General Orders. Calendar No. 217. Shortly thereafter, on September 17, the U.S. House Energy & Commerce Committee passed its own bi-partisan Act to authorize the unrestricted export of crude oil, H.R. 702, which provides that “no official of the Federal Government shall impose or enforce any restriction on the export of crude oil.” It is expected that the full House will consider H.R. 702 this month.
The Current State of U.S. Crude Exports
The EIA report briefly outlines the state of current U.S. crude oil export policy and goes on to examine “the implications of removing current restrictions on U.S. crude oil exports for the price of domestic and global marker crude oil streams, gasoline prices, domestic crude oil production, domestic refining activity, and trade in crude oil and petroleum products.” The EIA notes that current policy does not impose an absolute “ban” on crude oil exports and crude oil exports and re-exports under the current policy regime actually have been increasing. As explained by the EIA report, the following exports currently are allowed:
Current laws and regulations allow for unlimited exports of petroleum products, but require licensing of crude oil exports. Exports of crude oil to Canada for use there are presumptively granted licenses, as are exports of crude oil from Alaska’s North Slope (ANS crude), re-exports of foreign-sourced crude, and certain exports from California. In addition, recent rulings by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) have clarified that condensate processed through a distillation tower is classified as a petroleum product and is therefore exportable without a license.
What if the Restrictions are Lifted?
The EIA report addresses several key effects that would result from unrestricted U.S. crude oil exports. Of particular note is the key finding honed in on by Senator Murkowski as support for lifting the restrictions, i.e. that domestic gasoline prices “would be either unchanged or slightly reduced” if current restrictions were lifted. The EIA reiterates that domestic gasoline (and other petroleum product) prices are more strongly tied to Brent crude oil prices than domestic WTI crude oil prices. The EIA explains that allowing unrestricted U.S. crude oil exports in high oil production scenarios would raise WTI prices and narrow the gap between Brent and WTI prices. The higher WTI prices would prompt more domestic production, which ultimately could impact the global supply/demand balance and lower Brent crude prices. The end result would be lower domestic gasoline prices. Another key finding of the EIA report does highlight that lifting restrictions on domestic crude oil exports would have little to no impact on global crude oil prices, noting that “other factors affecting global supply and demand will largely determine whether global crude prices remain close to their current level, as in the Low Oil Price case, or rise along a path closer to the Reference case trajectory.” Ultimately, allowing unrestricted domestic crude oil exports is seen as moving the needle on domestic gasoline prices slightly lower, if at all. In support of H.R. 702, members of the House Energy & Commerce Committee referred to a separate study by the Brookings Institution that similarly found “Lifting the ban actually lowers gasoline prices by increasing the total amount of crude supply.”
The debate regarding lifting the restrictions on U.S. crude oil exports has intensified in light of the possibility of lifting sanctions on Iran. The EIA’s latest report is another arrow in the quiver of those aiming to lift the restrictions. Chairman Murkowski espoused: “Multiple studies have shown that lifting the export ban will improve our economic and energy security without harming American consumers…. It’s time to leave the old scarcity mindset behind and seize the opportunities provided by America’s energy resurgence.” The Senate’s OPENS Act does provide some latitude for the President to impose 1 year restrictions on crude exports under certain conditions. It remains to be seen whether the OPENS Act or H.R. 702 can get U.S. crude oil freely flowing into the overseas markets. According to reports, the White House has stated that it would not support legislation seeking to lift the export restrictions. The White House Press Secretary was quoted as stating on September 15: “We’ve got a position on this, which is this is a policy decision made over at the Commerce Department, and for that reason we wouldn’t support legislation like the one that has been put forward by Republicans.”