For the first time in 40 years, US companies ‎may now export US crude oil to most locations without an export licence from the Department of Commerce (DOC). 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, has eliminated the export licence requirement.

Background

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. This act directed the president to promulgate rules prohibiting the export of crude oil and natural gas produced in the United States, subject to certain 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, maintained and enforced by the DOC Bureau of Industry and Security (BIS), and required parties to obtain a licence to export crude oil to all destinations, including Canada. However, most domestically refined petroleum products are not subject to these restrictions and have not required government authorisation to be exported.

Consolidated Appropriations Act

The new law repeals Section 103 of the Energy Policy and Conservation Act 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 the national interest requires such a limit, 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 licence 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 US government authorisation.

As a result of the lifting of the export ban, crude oil is now classified as EAR99. 'EAR99' is a designation for non-sensitive dual-use items controlled under the Export Administration Regulations, but not described by any export control classification number on the Commerce Control List. EAR99 items can be shipped with no licence 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 on the president's signature on the Consolidated Appropriations Act, the BIS has announced that it will soon take steps to amend the Export Administration Act to reflect the change.‎ Companies holding current licences to export crude oil should note that the Export Administration Act terminates existing licence conditions on the termination of the requirement for an export licence.

'Crude oil' definition

The new law does not define 'crude oil', but the Export Administration Act defines 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."

The BIS issued two rulings in 2014 holding that where lease condensate has been processed through a distillation tower, it is no longer considered to be crude oil and is therefore exportable without a licence. It is possible that the BIS will address this issue when it amends the Export Administration Act. However, in the absence of further clarification, it would appear that if the president were to re-impose licence requirements on a temporary emergency basis, those requirements would not apply to lease condensate that has been processed through a distillation tower.

For further information on this topic please contact Andrew W Shoyer, Robert Torresen or Lana Muranovic at Sidley Austin LLP's Washington DC office by telephone (+1 202 736 8000) or email (ashoyer@sidley.comrtorresen@sidley.com or lmuranovic@sidley.com). Alternatively, contact Jim Rice at Sidley Austin's Houston office by telephone (+1 713 315 9000) or email (jrice@sidley.com). The Sidley Austin website can be accessed at www.sidley.com.

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