Is the four-decade-old ban on U.S. exports of crude oil a useless relic or a valuable safeguard for American consumers? Or is the ban so full of holes that it doesn’t matter anymore?
A House bill that would end the ban is set to pass the Energy and Commerce Committee Wednesday, and House Majority Leader Kevin McCarthy (R-Calif.) said this week that the legislation could soon come to the floor.
“If there was ever a time to lift the oil export ban, it’s now,” he said in remarks prepared for delivery to a civic group in Houston. “Lifting the oil export ban will not only help our economy, it will also bolster our geopolitical standing.” He added that “as President Obama prepares to lift sanctions on Iran, including Iranian oil, it is unfathomable to think American crude wouldn’t have the same opportunity on the global market.”
Even if the House passes a bill, opposition awaits in the Senate, and President Obama would likely veto the measure.
White House spokesman Josh Earnest on Tuesday brushed aside McCarthy’s comments saying “the priorities of his party in Congress [are] to cozy up to oil interests” and that the group in Houston was “largely funded by four or five of the biggest oil companies in the United States.” Earnest said that the Commerce Department made export policy by issuing export licenses on a case by case basis, and added that “we wouldn’t support legislation like the one that’s been put forward by Republicans.”
That hasn’t stopped oil producers from beating the oil export drum louder and louder in recent years. Their sense of urgency has grown as U.S. shale oil production has soared and put downward pressure on the price of West Texas Intermediate crude, the U.S. benchmark price.
Leading economists, including former Treasury secretary and former Obama economic policy director Lawrence Summers, say that lifting the export ban makes sense and that free trade in oil will promote efficiency as it does in other areas of trade. At a Brookings Institution event a year ago Summers also cited concerns that Russia might curtail supplies of oil to parts of Europe and said “we have a long history of believing that export restrictions are not an appropriate policy tool.”
But lifting the oil export ban could hurt certain oil refiners by raising their raw material costs, and could hurt some consumers by raising prices at the gasoline pump — albeit perhaps slightly. The Energy Information Administration said nationwide average gasoline prices would remain “either unchanged or slightly reduced.” (While domestic crude prices would initially rise, international crude prices — including those for U.S. imports — would fall.)
Many lawmakers are worried about doing anything that might raise gas prices at the pump, fearful of a consumer backlash.
“No one knows what they pay for milk anymore,” Sen. Edward J. Markey (D-Mass.) said Tuesday morning at a National Journal panel sponsored by the American Petroleum Institute. “The only price they know is the price of gasoline because they’re staring at it for two minutes as they fill their tanks up.”
“Don’t think for a second that there aren’t going to be some Republicans that are going to have to really seriously consider whether or not they want to to dramatically increase consumer costs for oil in our country in order to benefit the oil industry from a small number of fossil fuel producing states,” Markey added. “That’s a very difficult vote.”
The crude oil export ban carries political symbolism beyond its economic importance. The ban was adopted in the wake of the 1973 Arab oil embargo, imposed to punish the United States for its support of Israel in the Yom Kippur war. In order to conserve domestic supplies, Congress adopted the Energy Policy and Conservation Act of 1975 and the Export Administration Act of 1979 making it illegal to export U.S. crude without a special license.
There have been over the years only a few exceptions, though they are growing in significance. The exceptions include oil produced from Alaska’s Cook Inlet near Anchorage, oil exported to Canada, and small amounts of heavy, difficult to refine crude produced in California. The Obama administration has also allowed some crude oil swaps with Mexico.
As a result, through the first five months of 2015, crude oil exports averaged 491,000 barrels a day, according a newly published report by the Energy Information Administration.
Columbia Business School professor Geoff Heal said the economic impact of lifting the crude oil export ban would be “small. It’s not a terribly big deal. It isn’t as if we have a big surplus of oil to export.” He noted that the United States still imports almost half of its crude oil and that the main reason to export would be to solve mismatches between domestic crude oil quality and the capacity of refineries to handle those grades of crude.
Scott Sheffield, chief executive of shale oil producer Pioneer Resources, expects that lifting the export ban could end up allowing some U.S. light crude to go to Europe to displace Russian oil, which would go to China, while the United States would increase its imports of Canadian oil sands and Saudi heavier crude oil.
There have been no restrictions on the export of refined petroleum products, and large amounts of gasoline and diesel are imported and exported every year. Since 2011, the United States, with some of the world’s most advanced refineries, has been a substantial net exporter.
The Obama administration has been fending off calls to lift the export ban, but the Commerce Department has allowed certain very light types of crude oil known as condensate to be exported after minimal processing. At the time, oil producers were saying that up to 70 percent of the oil in the huge Eagle Ford region of Texas could be condensates. The EIA said that exports of processed condensate through the first five months of 2015 reached an average of 84,000 barrels a day.
Robert McNally, an energy consultant and president of The Rapidan Group, said increasing production of very light shale oil and condensates could create more need for exports. “This is about a problem they see on the horizon,” he said. “As long as people see the looming problem it’s going to discourage investment today. You want to remove this cloud.”
Last year, when John Podesta was serving as White House senior counselor, he told some oil company executives and officials of the American Petroleum Institute in phone calls and meetings that loosening the exception for condensates was as far as the administration would go on lifting the crude export ban, according to industry sources.
Some political analysts have speculated that the administration might use the ban as a bargaining chip in budget negotiations, and that there is no better time to lift the export ban than when gasoline prices are low. The national average price for regular gasoline is currently $2.37 a gallon.
But other analysts say that bargaining over the ban is unlikely because lifting it would undercut Obama’s argument for allowing drilling to go ahead off Alaska’s Arctic coast. Obama said he allowed Shell to drill there because more domestic oil production would make U.S. supplies more secure.
Markey said that lifting the ban would undercut the administration’s influence at the Paris climate talks in December, where Obama hopes to seal an international deal to lower greenhouse gases. And Markey said that the oil industry was pushing for lifting the ban while also pushing to cut tax incentives for renewable energy.
“More and more it looks not like an all of the above strategy but an oil above all strategy and there doesn’t appear to be any strategy other than an oil strategy,” he said.
The Eurasia Group, a consulting firm, said that Democrats and the administration would probably oppose lifting the ban unless Republicans were willing to agree to something significant, like long-lasting extensions of tax incentives for renewables. And White House spokesman Earnest twice mentioned the need to extend renewable incentives when asked about the export ban.
The top U.S. executive of one oil giant, who declined to be named for this article, said he thought the ban would eventually be lifted, but not during this administration.
In the Senate, Majority Leader Mitch McConnell (R-Ky.) has not announced any intentions to take up an end to the export ban. But legislation has been teed up for consideration: The Senate Energy and Natural Resources Committee sent a bill to the floor in July, and the Banking Committee is also considering a measure. Some Republicans have also floated attaching the export provision as an amendment to a chemical regulation bill that is expected to come to the Senate floor in the fall.
Senate efforts to end the ban have some bipartisan support, from Heidi Heitkamp (D-N.D.) and Joe Manchin (D-W.Va.). But more Democrats would need to join them in other to overcome a potential filibuster.
“Democrats aren’t going to agree to lift the ban unless Republicans are in a deal making mood, and there is little evidence this is the case,” Eurasia Group senior analyst Corey Boles and director of global energy Greg Priddy said Tuesday in a note to clients.
Heitkamp said Tuesday she believed Democrats can be convinced to back ending the ban.
“At the end of day there’s two camps,” she said. “The first camp is, ‘What do we get for it?’ And the second camp is, ‘I’m concerned that if oil prices go up, I’ll get blamed.’ I think we’ve moved away from that a little bit, and I think now it’s about how do we fashion a package that responds to some of my [colleagues’] energy concerns.”
One of those who might be convinced is Sen. Angus King (I-Maine), who opposed ending the ban in the July Energy Committee vote but says he could support it in a package that included, for instance, extensions of tax credits for renewable energy investments or caps on natural gas exports.
“I’m willing to consider this, but I need to see something coming on the other side,” he said.