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Lifting 40-year-old Ban on Oil Export?

Bloomberg Business reports that several U.S. drilling executives met with Brian Deese, the White House senior energy policy adviser, to discuss lifting of the 40-year ban on U.S. oil exports. Since the 1973 Arab Oil embargo, the Energy Policy and Conservation Act has severely restricted crude exports. On the other hand, the policy does not apply similar limits to exports of products processed in refineries such as coal, gasoline, and (sometimes) natural gas. Exxon Mobil Corp. CEO Rex Tillerson argued that free trade in energy “can strengthen U.S. energy security and continue to pioneer the innovations that make possible the safe and responsible development of energy”.

Over time, the country has beeen producing more oil than it has in years. According to the Energy Information Administration, the U.S has now surpassed both Russia and Saudi Arabia as the world’s largest producer of oil and natural gas. The graph below depicts this trend.

Gross Energy Export over time
Gross Energy Export over time

The current law enforces crude oil producers to send their products to refineries before it can be shipped overseas. By lifting the ban, crude oil producers can reduce their total costs. Additionally, American oil is selling for approximately $10 less than the global average. Producers thus want to eliminate the ban and raise the price. Their demand became especially vocal since 2009 as it has become increasingly difficult to turn a profit by drilling in shale.

But what are the consequences of lifting the ban? The Washington Post article by Brad Plumer summarizes pros and cons of the reform very well. On positive outlook, the reform can lift constraints on increasing production. There are companies-notably in North Dakota and Texas-that produce lighter, sweeter types of crude oil, which cannot be processed by local refiners. It will be much easier and efficient for these producers to sell their crude oil than to continuously ship it to the refineries that specialize in handling lighter oil. Many conservative politicians also believe that lifting the ban will create more jobs in energy sectors.

However, there are valid arguments against the reform as well. First and foremost, many worry that lifting the export ban would raise the price of U.S. gasoline and hurt domestic consumers.Environmental lobbyists do not look favorably upon the new proposal either since they believe that eliminating the ban will motivate companies to drill for more oil.

So in the end, as usual, everything will come down to another cost-benefit analysis.

One Comment

  1. Yes, I knew refineries are “tuned” to particular types of petroleum, but apparently it is really hard to use oil that’s very different (more or less “light” distillates, more or less sulfur). So this makes sense — given transportation costs you’d not ship petroleum out for refining unless there were strong technical reasons, reasons that politicians didn’t want to try to understand in the 1970s when energy security was a hot topic.

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