For the first time in 40 years, U.S. companies may export U.S. crude oil to most locations without an export license from the Department of Commerce. The Consolidated Appropriations Act of 2016, a massive spending bill that was passed by bipartisan majorities in Congress and signed by President Obama on December 18, 2015, eliminated the export license requirement.
In response to the Arab oil embargo of the early 1970s, Congress enacted the crude oil export ban in 1975 through Section 103 of the Energy Policy and Conservation Act (EPCA). EPCA directed the president to promulgate rules prohibiting the export of crude oil and natural gas produced in the United States, subject to several exceptions. Several other statutes established restrictions on the export of specific classes of crude oil. Regulations implementing the crude oil export ban were codified in Part 754 of the Export Administration Regulations (EAR), maintained and enforced by the Commerce Department’s Bureau of Industry and Security (BIS), and required a license to export crude oil to all destinations, including Canada. Most domestically refined petroleum products, however, are not subject to these restrictions and have not required government authorization to be exported.
The new law repeals Section 103 of the EPCA in its entirety. It also prohibits any federal government official from imposing or enforcing “any restriction on the export of crude oil.” However, if the president determines and declares that a national emergency exists or that national interest requires such a limitation, or if the Secretary of Commerce, in consultation with the Secretary of Energy, finds that the export of crude oil is having adverse economic consequences in the United States, the president may impose short-term crude oil export license requirements of no more than one year, renewable for an additional one-year term. The new law does not define the conditions that might trigger a national emergency declaration. Exports to embargoed or sanctioned countries, regions or persons will continue to require U.S. government authorization.
As a result of the lifting of the ban on the export of crude oil, crude oil is now classified as EAR99. EAR99 is a designation for non-sensitive dual-use items controlled under the EAR but not described by any Export Control Classification Number on the Commerce Control List. EAR99 items can be shipped with “no license required” unless they are destined for an embargoed or sanctioned country, region, or person, or in support of a prohibited end-use.
Although the repeal of the export ban took effect immediately upon the president’s signature on the Consolidated Appropriations Act, BIS announced that it will soon take steps to amend the EAR to reflect this change. Companies holding current licenses to export crude oil should note that the EAR terminates existing license conditions upon the termination of the requirement for an export license.
The new law does not define “crude oil,” but the EAR currently define that term as
“a mixture of hydrocarbons that existed in liquid phase in underground reservoirs and remains liquid at atmospheric pressure after passing through surface separating facilities and which has not been processed through a crude oil distillation tower. Included are reconstituted crude petroleum, and lease condensate and liquid hydrocarbons produced from tar sands, gilsonite, and oil shale. Drip gases are also included, but topped crude oil, residual oil, and other finished and unfinished oils are excluded.”
BIS issued two rulings in 2014 holding that where lease condensate has been processed through a distillation tower, it is no longer considered “crude oil” and is therefore exportable without licenses. It is possible that BIS will address this issue when it amends the EAR. In the absence of further clarification, however, it would appear that, if the president were to reimpose license requirements on a temporary emergency basis, those requirements would not apply to lease condensate that has been processed through the distillation tower.