Pressure builds on US to ease crude export ban

The US may be the world's largest crude oil importer, but one of its main energy policy tussles is over oil exports.

Liberalising the 40-year-old US ban on exporting most domestic crude oil has become the subject of congressional hearings, intense lobbying and a multitude of studies.

The debate seems curious, because the US still has gross crude oil imports of 7m barrels a day. But the volume has been dropping thanks to resurgent domestic production. Supplies of "light," low-sulphur domestic oil from US shale formations have replaced most imports of similar quality.

Opponents mobilising against the ban warn these supplies will saturate the market, depress domestic prices and slow down further output gains.

The ban was passed in 1975 after the Arab oil embargo crippled US fuel supplies. At the time, economic policy included price controls, and crude export restrictions were needed to effect these controls, according to Columbia University's Center on Global Energy Policy. The ban restricts exports to everywhere but Canada, with few exceptions. For decades, the law was little more than cocktail-party trivia for policy specialists. US crude oil imports climbed steadily along with domestic fuel consumption to a peak above 10m b/d in 2005, making the question of exports irrelevant.

But it has come back into focus as oil supplies climb from states such as North Dakota and Texas. Last year, US production rose by 1.2m b/d, the largest increase in records dating to 1900. Commercial crude inventories this spring were at their highest for 84 years.

"For most of the past 40 years, the thought of exporting crude oil was not an issue. Folks had pretty much forgotten that when we lifted oil price controls in the early 1980s, we forgot to lift the ban," says Robert McNally, president of The Rapidan Group, a Washington-based consultancy.

The ballooning supply is reflected in prices. US benchmark West Texas Intermediate has fallen to a discount to Brent, the global marker. Keeping the export ban will widen this discount and result in "lower US crude oil production and higher prices for global crude oil and gasoline", says IHS, a consultancy, in a report sponsored by energy companies.

The refining industry, the primary consumer of crude, says there is no glut and is investing $5bn to process an additional 730,000 b/d of light crude by 2016. Opening the floodgates for US crude exports would be unfair, it argues, unless Congress also repeals a 1920 law requiring all tanker and barge shipments to go on US-flagged, US-built vessels. The law, called the Jones Act, makes it more expensive to ship Texas oil to Pennsylvania than to some foreign refineries.

US refiners may freely export petroleum products, such as petrol and diesel, and are doing so in record volumes. They have enjoyed fat profit margins by refining relatively cheap US crude feedstock into products sold at global prices.

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Exports of processed condensate so far have been modest. Yet even these volumes were sufficient to help drive Brent oil below $75 a barrel in the second half of 2014, says Colin Fenton, managing partner at Blacklight Research and a fellow at Columbia.

The White House has some scope to open the door wider under current law. One option is to allow US producers to swap their light oil with equal amounts of heavy oil from Mexico. In late March, according to Reuters, Mexico's state oil company Pemex was awaiting approval to swap some oil. A group of senators has urged the White House to go further and allow unfettered exports to Mexico.

Ending the ban would take an act of Congress. But lawmakers are sensitive to being blamed for higher petrol prices.

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