In 1975, the United States enacted a ban on the exportation of crude oil. The Energy Policy and Conservation Act (EPCA) was legislated in response to the energy crisis that ensued as part of the Organization of Arab Petroleum Exporting Countries’ (OAPEC) 1973 oil embargo, which had quadrupled the cost of oil. At the time, many countries throughout the world were seeing their domestic oil production drying up, and the U.S. was no exception. Then, as now, domestic and world economies were heavily dependent on fossil fuels. The U.S. Congress sought to enact policies to protect domestic oil supplies by increasing and conserving energy production, particularly crude oil.
The ban on exporting U.S. crude was part of a multi-pronged strategy to try to insulate the domestic economy from volatile global crude markets. It included numerous conservation measures, as well as fuel standards for motor vehicles. A reserve of petroleum known as the Strategic Petroleum Reserve (SPR) was officially created to keep a supply of emergency fuel for the United States (the SPR is still with us, and currently holds 691.3 billion barrels of oil). The crude oil export ban played an important role in this overall strategy, with the goal to keep as much oil at home as possible to cut reliance on international imports.
A Changing Energy Landscape
While the crude oil export ban may have made sense in the context of the energy crisis of the 1970s, the domestic oil production landscape is far different today. There are certain conditions under which oil can be exported, such as if in the form of gasoline as well as when exported to Canada and Mexico under certain circumstances. However, the vast majority of crude oil exports remain banned under the provisions of the EPCA.
There is a growing constituency who believe that it’s time to lift this oil export ban. While energy production remains an important concern, circumstances have changed drastically since the ban was put into effect. In the 1970s, U.S. domestic oil production was slowly disappearing. The landscape is much different today, with innovative techniques such as hydraulic fracturing and horizontal drilling creating a new oil boom in recent years. Shale formations such as Eagle Ford in Texas and Bakken in North Dakota are seeing some of their highest levels of productivity in their existence. Given these new circumstances, many see the EPCA oil export ban as a hindrance—not only to the producers of American crude, but to the overall domestic economy.
Potential Benefits of Lifting the Ban
A recent paper published by the Council on Foreign Relations reports that crude exports could provide an important boost for the economy with an estimated $15 billion per year in revenue possible by 2017. While oil that has been refined into gasoline can be exported, much of the crude that is coming from U.S. shale formations is lighter and sweeter than what Gulf Coast refiners are designed to handle. This creates a bottleneck of unrefined light crude that depresses prices, ultimately constraining production and hampering a major domestic source of energy. The whole world still relies on crude oil, and many willing buyers abroad would be able to work with the lighter, sweeter crude being produced in the U.S. with their existing refineries.
The exportation of crude oil has a number of other potential advantages as well. The slowing of domestic production that occurs as a result of the ban increases America’s reliance on imported energy. By lifting the ban, the United States’ leverage as an oil trade partner could increase significantly, especially if the U.S. became a major crude exporter. It would also demonstrate a commitment to free and fair trade, and provide America’s allies with a stable source of crude. It also has the potential to further catalyze domestic oil production, increasing employment and local service economies.
Where the Ban Lift Stands Now
There are a number of methods that could be employed to lift the oil ban. The law allows for crude exports to occur if the Commerce Department determines that there are economic or technological reasons that certain types of crude oil can’t be marketed domestically. The president could also effectively reverse the law by declaring it counter to the national interest, but many experts believe that the current administration is unlikely to act on its own to lift the oil ban at this time. Perhaps the most effective method would be for Congress to change the law, and two senators are attempting to do just that. Senators Lisa Murkowski (R-AK) and Heidi Heitkamp (D-ND) have introduced a bill to lift the EPCA export ban. They hope to build bipartisan support on the logic that expanding exports will help the U.S. become a global energy leader while bolstering the economy at home.
While there is still some resistance to lifting the ban, supporters are hoping that the current bill (or one like it) will eventually succeed in reversing the 40 year old embargo. Both sides of the political aisle believe that increasing U.S. exports is key for improving the domestic economy. Supporters of lifting the ban argue that the current domestic abundance of oil is the perfect opportunity for opening trade doors. Only time will tell if the current bill will succeed in reversing the ban, but one thing remains certain: the constituency of lawmakers and industry representatives that believe the law is outmoded is growing all the time. If U.S. shale formations continue to contribute to the overall oil boom, the unrefined crude will eventually have to go somewhere.