BREAKING: Congress Votes To End #oilexport Ban

By 18th December 2015 Industry News No Comments

Barring unforeseen bureaucratic obstacles, the US oil export ban will be rescinded within days.

In a 316-113 vote, the US House on Friday passed a $1.1 trillion spending bill that prevents a government shutdown and ends the 40-year-old general ban on US oil exports. The bill then went to the Senate, which passed it in a 65-33 vote. President Obama said he intends to sign the measure, which will finance the government through 2016.

House Speaker Paul Ryan

House Speaker Paul Ryan called the end of the oil export ban a “big win.” Democrats, on the other hand, say it’s a giveaway to oil companies. In return for their support for the legislation, Democrats secured extensions of solar and wind energy tax credits, along with other environmental measures.

The measure lifting the oil export ban was included in the legislation on Tuesday. The legislation gives the president the authority to halt oil exports for one year if 1) he or she declares a national emergency, or 2) declares that the crude exports are raising US oil prices or causing a domestic oil shortage.

Senate Majority Leader Mitch McConnell

“Let’s take steps – as the legislation we’ll consider proposed – to support more jobs, more opportunity, and more economic growth,” Republican Senate Majority Leader Mitch McConnell from Kentucky, said on the Senate floor Friday. “I think it’s legislation worth supporting.”

Read Chris Faulkner’s, “Why America Should Not Export Its Oil Now”

Steps Along The Way

One exception to current law is the allowance for oil exports to Canada. US oil sales to Canada are much higher today than they were five years ago, due largely to the shale revolution. The Commerce Department earlier this year green-lighted U.S. crude exchanges with Mexico and has also rewritten regulations governing exports to make condensate legal to sell abroad.

In June 2014, the Commerce Department issued private rulings to allow two Texas companies to export lightly distilled condensate to foreign customers. Specifically, Enterprise Products Partners and Pioneer Natural Resources were given permission to sell unrefined condensate to foreign buyers who will convert the condensate to refined products like diesel, gasoline, and jet fuel abroad. This was seen at the time as one of the first moves toward lifting the oil export ban.

Upstream Vs. Downstream

The run-up to Friday’s vote was marked by a growing divergence between the upstream and downstream sectors of the industry regarding the repeal of the ban.

Proponents of lifting the oil export ban have stepped up lobbying and advertising efforts in recent months, gaining momentum recently as the upstream sector has made the case that oil exports would create jobs and revenue.

Encana, Continental, and Chevron are among the companies that have been urging Congress for over a year to lift the ban. They argue that green-lighting oil exports would create jobs, eliminate market distortions, and catalyze more domestic oil production.

Meanwhile, many in the downstream sector, particularly US refiners and consumer groups and major unions (e.g. the USW) oppose rescinding the ban, arguing that doing so would raise gasoline prices for US consumers.

For example, Valero Energy Corp has expressed concern that its profits would decrease, as lifting the ban would possibly raise domestic oil prices and in turn push gasoline prices northward, leading to refinery closures that only recently recovered from earlier high oil import prices.

Context Is Key: The 1970s, The Arab Oil Embargo, & The Imposition Of The Oil Export Ban

The US government was in the early throes of Watergate in 1973. This meant that there was no one to lead the West on behalf of the world’s oil consumers when, in October, the Arab OPEC states decided to institute an oil embargo on non-western customers. The embargo was retaliation for the US decision to increase its military support of Israel in the Arab-Israeli War.

The OPEC measure prohibited petroleum exports to targeted countries and introduced production cuts. Negotiations between oil-producing countries and oil companies in the years leading up to the embargo had already destabilized a decades-old pricing system, which exacerbated the effects of the embargo.

The onset of the embargo yielded a spike in oil prices with global implications. The price of oil per barrel soon quadrupled, imposing skyrocketing costs on consumers and threatening the stability of whole national economies. Because the embargo coincided with a devaluation of the dollar, the world seemed on the cusp of a global recession.

The US, confronted by a growing reliance on oil consumption (from 11.5 M/bd in 1965 to 17.3 M/bd in 1973) and falling domestic reserves, found itself significantly dependent on oil imports.

US refiners instituted short-term changes in oil purchasing and began importing crude oil from any source. Roughly 30% less of the more costly crude oil was imported during the embargo. At the time, Iran appeared to be a stable, long-term source. The country moved to expand sales to the US, and these imports served to offset losses from Libya and Kuwait until Libyan crude oil imports resumed in early 1975.

In total, crude oil imports more than doubled from 1973 to 1977, reaching a record level of 6.6 M/bd in 1977, representing nearly half of total US petroleum consumption.

By the end of the embargo in March 1974, the price of oil had risen from $3 per barrel to almost $12. The US responded to these seismic upheavals of the global balance of oil power by circling the wagon and putting into motion a series of proposals intended to secure domestic oil supplies, moderate prices and lessen overall dependence on foreign oil.

These efforts were crystallized in the 1975 Energy Policy and Conservation Act (EPCA), which created the Strategic Petroleum Reserve and allowed for the institution of the ban on oil exports.

The 1975 Energy Policy and Conservation Act (EPCA)

“The time has come to end the long debate over national energy policy in the United States and to put ourselves solidly on the road to energy independence…This bill is only the beginning,” President Gerald Ford said at the signing ceremony for the bill that spawned what we now know as the often referenced “US Oil Export Ban”.

President Gerald Ford

The EPCA was intended to shield the US from volatile and frequently unpredictable global crude markets in the wake of the aforementioned upheaval that ensued from the 1973 embargo.

Here is an excerpt from the text of the EPCA, specifying the nature and purpose of the legislation:

To grant specific standby authority to the President, subject to congressional review, to impose rationing, to reduce demand for energy through the implementation of energy conservation plans, and to fulfill obligations of the United States under the international energy programs;
To provide for the creation of a Strategic Petroleum Reserve capable of reducing the impact of severe energy supply disruptions;
To increase the supply of fossil fuels in the United States, through price incentives and production requirements;
To conserve energy supplies through energy conservation programs, and, where necessary, the regulation of certain energy uses;
To provide for improved energy efficiency of motor vehicles, major appliances, and certain other consumer products;
To reduce demand for petroleum products and natural gas through programs designed to provide greater availability and use of this Nation’s abundant coal resources; and
To provide a means for verification of energy data to assure the reliability of energy data.

The oil export ban was principally an outgrowth of Section 103 of the EPCA, which made explicit the president’s authority with regard to executing the provisions of the act:

“The President may, by rule, under such terms and conditions as he determines to be appropriate and necessary to carry out the purposes of this Act, restrict exports of –

coal, petroleum products, natural gas, or petrochemical feedstocks, and
supplies of of materials or equipment which he determines to be necessary (A) to maintain or further exploration, production, refining or transportation of energy supplies, or (B) for the construction or maintenance of energy facilities within the United States.”

The subtext here is clear. In the wake of the global oil market convulsions produced in the aftermath of the 1973 embargo, the US was circling the wagons, providing the executive and legislative branches the authority to craft and engineer energy policy according to US national interests.

Subsection B of Section 103 emphasized the authority of the president to directly ban oil exports and offer exemptions thereto based on the national interest:

“The President shall exercise his authority provided for in subsection a [above] to promulgate a rule prohibiting the export of crude oil and natural gas produced in the United States, except that the President may…exempt from such prohibition such crude oil or natural gas exports which he determines to be consistent with the national interest and the purposes of this Act.”

From 1975 to today, US presidents have overseen several amendments to the EPCA

Since the initial passage of the EPCA, there have been many accretions to the law, the most important of which was the 1979 Export Administration Act (EAR) of the Bureau of Industry and Security (BIS), an agency of the Commerce Department, which enacted many of the particular provisions currently governing oil exports.