The Obama administration made a surprise decision Friday to allow exports of oil to Mexico, although the decision likely means little compared to lifting a 40-year-old ban on oil exports that both industry and Republican members of Congress want.
The American Petroleum Institute and other industry groups have made lifting the 1970s ban on crude oil exports a top legislative priority when Congress returns in September. The Senate energy committee already passed legislation that would lift the ban, but observers say it will likely be a heavy lift to get it through the full Senate, as Democratic opposition will be fierce.
At the same time, industry is urging the administration to take executive action to remove the ban in its entirety, which it has the legal authority to do. The ban was put in place as an energy security measure by Congress in response to the Mideast oil embargoes of the last century.
The Obama administration has hinted in the past that the president is supportive of allowing partial exceptions to the ban, but is leaving the ban’s complete removal up to Congress, say industry officials. Oil producers, because of the shale energy boom, argue that the situation has changed from the ’70s, since the U.S. is now a leading oil and gas producer, making it less reliant on imports and able to sell surplus supplies into the global market.
The administration has allowed for the export of natural gas liquids from fracking in recent years, but that is very limited. Friday’s decision with Mexico is another limited exception to the ban.
On Friday, the Commerce Department allowed for oil exports to Mexico through a process described as “swapping,” where U.S. producers sell off their more expensive light-sweet crude oil in exchange for Mexico’s heavier oil. Generally, lighter oils take less refining to make into products than heavier oils.
U.S. refiners have historically been better able to process the heavier crude oil, although improvements are being made to process the lighter oils coming from shale.
Refiners that are set up to process the lighter oil are opposed to ending the ban, and are scratching their heads to understand how the Mexico decision helps the case for lifting it. Jay Hauck, representing the CRUDE Coalition comprised of these refiners, says the action taken Friday is already permitted under the law.
“Barrel-for-barrel swaps of crude oil with Mexico are permitted under existing law,” Hauck said in an email. “We expect the law and the proper procedures will be followed as the swaps take place.”
Groups for ending the ban, however, say the decision helps them make their case for more substantive action by the administration and Congress.
Louis Finkel, executive vice president at API, said the announcement is good, but the administration should go further to remove the ban entirely. “Trade with Mexico is a long-overdue step that will benefit our economy and North American energy security, but we shouldn’t stop there,” Finkel said. He said “study after study” shows that lifting the 1970s ban would improve the economy, continue to keep gasoline prices low at home and create jobs.
“At a time when the U.S. is working on a deal to allow Iranian crude [oil] onto the global market, policymakers should focus on preserving America’s competitive position as the world’s top oil and gas producer,” Finkel said. “By lifting our own self-imposed sanctions, we can give U.S. producers the same access to global markets and protect America’s competitive edge.”
He added that bipartisan legislation to remove the ban is being considered in both the House and Senate, “and we are optimistic that efforts to lift the outdated export ban will be a top priority for lawmakers when they return from the August break.”
Other proponents said the Mexico decision was a “small step” toward a real solution, and that the administration and Congress should work to lift the ban in the coming months.
The Mexican decision “is a very small step towards removing the crude oil export ban and allowing the United States to fully realize its status as a global energy superpower,” said Producers for American Crude Oil Exports executive director George Baker. “We look forward to working with the Administration and Congress in the coming weeks and months to take that next step and lift the ban on crude oil exports, which will create and protect jobs, spur investment and economic growth while providing meaningful consumer and national security benefits.”
