Repeal Of Oil Export Ban Passes U.S. House
Last Friday the House passed a bill that would repeal the 1975 crude export ban; the bill now goes to the Senate. Jeff Reed from Oil Pro analyzes the factors that led to this vote while providing context around the original EPCA.

Repeal Of Oil Export Ban Passes U.S. House

By: Jeff Reed (Oil Pro)

In a 261 to 159 vote, the U.S. House of Representatives voted early Friday afternoon to repeal the general ban on oil exports imposed in 1975 amid the Arab oil embargo. The bill will now go to the Senate, where its prospects are less certain.

The Genesis Of Friday's Vote

In early September, H.R. 702, sponsored by Rep. Joe Barton (R-Tex), was passed by the House Energy and Power subcommittee by a voice count. The following week, the legislation was taken up and passed by the full Energy and Commerce committee.

This past summer, House Speaker John Boehner pledged his support for ending the ban, saying that he hoped repealing the prohibition would be a key piece of an energy legislation package to be introduced in the fall to "keep prices affordable, help create jobs and boost our economy." Friday's passage of the bill marks the realization of the Speaker's objective.

Earlier this week, the White House reiterated its threat to veto the House bill when it reaches the president, saying “legislation to remove crude export restrictions is not needed at this time.” The Obama administration has also said that the Commerce Department alone is invested with the authority to amend current oil export law.

Supporters of lifting the oil export ban in the Senate include Senators Lisa Murkowski, a Republican from Alaska, and Heidi Heitkamp, a Democrat from North Dakota, who coordinated the passage of similar legislation by the Senate energy panel earlier this summer. Another bill ending the oil export ban cleared the Senate Banking Committee last week. The only Democrat to support that bill was Senator Heidi Heitkamp (D-N.D.), who sponsored the measure.

Recent Measures Taken To Relax The Ban

One exception to current law is oil exports to Canada. Currently, US oil sales to Canada are 10 times higher as they were five years ago, due largely to the shale revolution. The Commerce Department earlier this year green-lighted U.S. crude exchanges with Mexico and has also rewritten regulations governing exports to make condensate legal to sell abroad.

In June 2014, the Commerce Department issued private rulings to allow two Texas companies to export lightly distilled condensate to foreign customers. Specifically, Enterprise Products Partners and Pioneer Natural Resources were given permission to sell unrefined condensate to foreign buyers who will convert the condensate to refined products like diesel, gasoline, and jet fuel abroad.

Upstream Vs. Downstream

The run-up to Friday's vote was marked by a growing divergence between the upstream and downstream sectors of the industry regarding the repeal of the ban.

Proponents of lifting the oil export ban have stepped up lobbying and advertising efforts in recent months, gaining momentum recently as the upstream sector has made the case that oil exports would create jobs and revenue.

Encana, Continental, and Chevron are among the companies that have been urging Congress for over a year to lift the ban. They argue that green-lighting oil exports would create jobs, eliminate market distortions, and catalyze more domestic oil production.

Meanwhile, many in the downstream sector, particularly US refiners and consumer groups and major unions (e.g. the USW) oppose rescinding the ban, arguing that doing so would raise gasoline prices for US consumers.

For example, Valero Energy Corp has expressed concern that its profits would decrease, as lifting the ban would possibly raise domestic oil prices and in turn push gasoline prices northward, leading to refinery closures that only recently recovered from earlier high oil import prices.

Context Is Key: The 1970s, The Arab Oil Embargo, & The Imposition Of The Oil Export Ban

The US government was in the early throes of Watergate in 1973. This meant that there was no one to lead the West on behalf of the world's oil consumers when, in October, the Arab OPEC states decided to institute an oil embargo on non-western customers. The embargo was retaliation for the US decision to increase its military support of Israel in the Arab-Israeli War.

The OPEC measure prohibited petroleum exports to targeted countries and introduced production cuts. Negotiations between oil-producing countries and oil companies in the years leading up to the embargo had already destabilized a decades-old pricing system, which exacerbated the effects of the embargo.

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