As US debates oil export ban, questions over what’s actually banned

It began with a trickle, and behind closed doors.

Last year the Department of Commerce quietly told two companies they could export lightly processed lease condensates, an ultralight form of oil, to foreign markets. When media reports of the rulings surfaced over the summer, industry insiders saw the move as a significant break from a policy that has governed US energy trade for decades.

The US bans most forms of crude oil exports for energy security reasons that stretch back to the oil shocks of the 1970s.

Commerce’s perceived shift in the rules, however slight, cracked open a door in US energy policy that had long been closed. It left oil companies wondering what exactly they could or could not ship overseas. Free-trade advocates encouraged further loosening export restrictions to promote greater efficiency in the global oil market. Environmentalists warned that curtailing the ban would result in more oil spills and increased carbon emissions.

“You have a 40-year-old law on the books. If you’re going to change it, you should make it clear why you would change it,” says Eric de Place, policy director of the Sightline Institute, an environmental group. “Even the industry doesn’t seem to know what’s going on.”

That's why, on Tuesday, several environmental groups filed a Freedom of Information Act request for Commerce to release documents on its easing of the decades-old ban. “The public has a right to know how [Commerce’s Bureau of Industry and Security] is interpreting and applying the crude oil export ban in its recent secret rulings,” the FOIA request says.

Regardless of their position on the oil export ban, everyone seems to be asking: What exactly is banned, and why? Those questions might be irrelevant if US oil output were flat or in decline. But over recent years, the US has seen a dramatic increase in the production of oil – and much of it is the kind of ultralight liquids that don’t fit neatly into traditional petroleum categories, and are processed in a variety of ways.

“We’re in this no man’s land where it’s not raw crude, but it’s not finished product either,” says Deborah Gordon, director of the energy and climate program at the Carnegie Endowment for International Peace, a Washington-based think tank.

As the US works its way toward being the world’s No. 1 producer of petroleum, there is confusion both over policies surrounding the newfound oil surge, and how exactly those policies are made.

“There’s always been a lack of transparency on crude oil exports in general,” says Charles Ebinger, senior fellow in the Energy Security and Climate Initiative at the Brookings Institution, a Washington-based think tank. Commerce’s individual decisions on applications to export aren’t made public, so when companies are trying to figure out what’s okay to export “there’s no regulatory history that you can go by.”

For its part, Commerce has attempted to clarify its position on exports. In late December, the department published an explanation detailing why companies could export condensates, including steps companies could take to avoid violating export law.

“The sense I get is that it’s Commerce saying – with a wink and a nod – that if you say it’s light stuff, we’re not going to fight you,” says Mr. Ebinger.

As clear as crude

Environmentalists and industry insiders alike say Commerce’s ruling does not offer enough clarity and transparency on an issue that plays an increasingly large role in the country’s economy and environment. What’s more, uncertainty over the ban’s ultimate fate makes it difficult address myriad other long-term issues surrounding US energy security.

“If they ‘clarify’ this any further, I’m going to be utterly confused,” Al Troner, president of Asia Pacific Energy Consulting, says of Commerce’s December policy allowing condensate exports, which are expected to soar in coming years. “Everything they answer raises two more questions.”

Uncertainty about what the export policy is and where it’s headed can be frustrating for companies looking to plan future ventures and for environmentalists seeking government transparency. Many are wondering about the internal Commerce decision-making process that precipitated the shift in policy on condensates.

“We don’t even know what the change in policy is,” says Mr. de Place, of the environmental group Sightline. “There’s the murkiness of [last year’s condensate export] licensing exemptions, and then there’s the murkiness of the motivation behind it.”

Environmentalists see a policy slowly eroding behind closed doors, and worry that scrapping the exports ban would boost drilling and lead to more carbon emissions.

For the industry, widening the marketplace for US oil is the desired result of lifting the ban. Its push to export condensates and crude more broadly comes at a time of US energy abundance, fueled by hydraulic fracturing and horizontal drilling in US shale plays.

Though current American production rivals Saudi Arabia’s, oil prices have plummeted nearly 60 percent since last June, presenting an enormous challenge for US producers that need higher prices to break even. That’s why US companies are eager to expand their pool of buyers, especially in higher-priced markets.

“The whole export discussion came about because there’s too much oil in the US,” says Erik Broekhuizen, head of research at Poten & Partners, a broker and adviser for the energy and ocean transportation industries, in a telephone interview Tuesday. The industry hopes that opening up exports would alleviate the glut of US crude.

Asked for comment, Commerce pointed to a December 30 statement from Eric L. Hirschhorn, Department of Commerce under secretary, saying the policy clarification was “informed by a review of technological and policy issues, together with interagency consultations.”

Oil politics

Environmentalists say the secrecy surrounding December’s clarifications could be an effort to protect Obama’s green credentials: “Eroding the ban raises questions about Obama’s environmental commitments,” de Place says.

In his second term, Obama has worked to cement an environmental legacy by proposing new limits on power plant emissions and reaching an ambitious climate accord with China.

For its part, the Obama administration has signalled it’s not particularly compelled to further lift the ban on exports.

“At this stage, I think that what the Commerce Department did in December sort of resolves the debate. We felt comfortable with where they went,” White House adviser John Podesta told Reuters in January. “If you look at what's going on in the market and actions that the Department took, I think that ... there's not a lot of pressure to do more.”

Congress has other ideas. Earlier this week, the GOP-led Senate Energy Committee touted an industry-backed poll showing a 69 percent majority of Americans support “allowing American oil producers to sell crude oil to customers in countries who are trading partners.”

To that end, Congressional Republicans are testing the waters on scrapping the oil exports ban all together. Rep. Joe Barton (R) of Texas last week introduced a bill to lift the ban entirely. Several weeks ago Sen. Ted Cruz (R) of Texas considered attaching an amendment lifting the oil exports ban to legislation approving the long-delayed Keystone XL pipeline.

Mr. Cruz dropped the amendment at the behest of oil industry lobbyists, who want more time to make their case to reluctant members of Congress. The industry argues that sending US oil abroad won’t raise domestic gasoline prices – a perennial concern for constituents and their pocketbooks. According to the American Petroleum Institute, an oil industry group, failing to lift the ban completely will “limit our growth as an energy superpower.”

Senate Energy Committee Chair Lisa Murkowski (R) of Alaska is a vocal supporter of lifting the exports ban, but has been mum about when or what the GOP-led Senate would do to change the 70s-era policy.

“So much of advancing legislation successfully is timing,” Ms. Murkowski told the Dallas Morning News. “And particularly when you’re attempting to change a policy that has been in play for decades.”

[Editor's note: A previous version of this article referred to the Commerce Department's "private letter rulings" on condensate exports as "permits." The Commerce Department does not issue "permits" to export crude oil.]