On December 18, 2015, the U.S. Congress passed and the President signed legislationrepealing the decades-old ban on exports of crude oil produced in the United States – a move that could provide substantial benefits for domestic producers. The legislation is a part of the year-end omnibus spending bill, which had been the subject of intense negotiations.
Current U.S. Crude Oil Export Restrictions
The previous ban on crude exports was put in place as a response to the Arab oil embargo of the early 1970s that disrupted U.S. markets and led to the imposition of extraordinary price controls and rationing of energy commodities. Specifically, in 1975, Congress enacted Section 103 of the Energy Policy and Conservation Act (EPCA), 42 U.S.C. § 6212, which required the President to implement regulations to prohibit the “export of crude oil . . . produced in the United States.” The ban applied to all U.S. crude oil with the exception of a few narrow categories (e.g., exports to Canada). In addition to the EPCA, several other statutes established restrictions on the export of more specific classes of crude oil based upon the location where the commodity was produced. The regulations implementing the export restrictions on crude oil are codified in the Export Administration Regulations at 15 C.F.R. § 754.2. In contrast to the broad crude oil export ban, most domestically refined petroleum products are not generally subject to restrictions and may be exported without federal authorization.
Legislation Lifting the Crude Oil Export Ban
Division O, Title I, Section 101 of the Consolidated Appropriations Act, 2016 repeals Section 103 of the EPCA entirely and will prohibit the executive branch from enforcing the regulations implementing the crude oil export ban. Further, the legislation will prohibit any official of the federal government from imposing or enforcing “any restriction on the export of crude oil.” However, the legislation does preserve the President’s ability to act under existing statutory authority to restrict crude oil exports in response to a national emergency, to enforce trade sanctions on countries and individuals, and to uphold the United States’ obligations for allocating commodities to its allies under international energy programs. The statute also permits the President to impose a licensing requirement or other restrictions on crude oil exports, for periods of no greater than one year, to the extent that: (1) the President declares a national emergency; (2) export restrictions are necessary to enforce trade sanctions imposed by the President or Congress; or (3) the executive branch finds that increased U.S. crude oil exports have caused “sustained material oil supply shortages or sustained oil prices significantly above world market levels.”
Ramifications for U.S. Producers
The repeal of the ban on U.S. crude exports may have profound impacts on U.S. producers. Increased access to international markets could spur economic growth within the domestic industry, which has been suffering due to lower oil prices and a slow-down in production. In addition, producers of some lighter crude oils from U.S. shale formations may be able to obtain higher prices among Asian petrochemical manufacturers and European refineries, which are designed to handle lighter crude streams than many domestic refiners.
The legislation lifting the ban on crude oil exports was a key part of the compromise on energy issues reached by Congress, which also included extensions to the production and investment tax credits available to wind, solar, and other renewable power projects. Those credits, described in further detail here, were retroactively re-instated and extended 5 years, subject to a phase out.