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13 Memorandum To: President Obama From: Tim Boersma and Charles K. Ebinger Date: January 23, 2014 Subject: Lift the Ban on U.S. Oil Exports Summary and Recommendations Under current U.S. law, crude oil produced in the United States cannot be exported without a license. Recent and expected developments in the U.S. oil market will lead to a continued increase in U.S. crude oil production: the U.S. Energy Information Administration expects U.S. domestic crude oil production and imports from Canada to be well above six million barrels per day through 2040. In addition, recent experience regarding the export of U.S. liquefied natural gas (LNG) suggests we should re-evaluate the existing legislative framework with a view to getting ahead of the curve of pending market realities. We recommend that you ask Congress to lift the ban on crude oil exports. The basic idea behind the ban (also referred to as “short supply controls”) was to protect domestic industry from energy shortages at a time of falling domestic oil production. We face, however, a surge of domestic oil production from shale rock layers (“tight oil”) and the prospect of rising volumes of Canadian oil. Domestic consumers do not substantially benefit from an export ban, and U.S. oil producers may soon be affected negatively by it. The Energy Information Administration forecasts suggest that North America has hydrocarbon supplies for many decades to come and that concerns about energy security are unfounded. Lifting the ban on exports is thus the logical course. Background The ban on the export of U.S. crude oil stems from the 1920 Mineral Leasing Act (authorizing the federal government to manage exploration and exploitation of minerals on public lands), the 1975 Energy Policy Conservation Act and BIG BETS 14 tim boersma and charles k. ebinger the 1979 Export Administration Act (the latter two further limiting crude oil exports as a direct response to the 1973 oil crisis). The Export Administration Regulations spell out the details of the “short-supply” controls. One major issue is the vagueness of the export ban; it is not a total prohibition . Exports of crude oil to Canada are allowed as long as the oil is used there, as are exports of Alaskan oil using the Trans-Alaskan pipeline and small amounts of specific heavy Californian crude oil. Moreover, companies may request an exemption, which you may grant if the exports are deemed in “the national interest.” This concept, however, seems to be open to multiple interpretations. This vague legislative framework has discouraged crude oil export requests. As the limits apply only to crude exports, the surge in domestic oil production has resulted in a major increase in the amount of exported refined products (no export restrictions apply to refined products), e.g., petrol and diesel, to a staggering 1.7 million barrels per day in 2012. This benefits primarily a handful of refineries on the Gulf Coast that are equipped to process light and sweet crude oil. Several reasons argue for lifting the ban on crude oil exports: Surging domestic production. Domestic production of crude oil has dramatically increased in recent years owing to the rapid rise in the production of oil from shale rock layers. Virtually all projections foresee a peak in production around 2020, after which production is expected to plateau for several decades. Continuous investments in infrastructure are likely to further exacerbate the difference between supply and domestic demand and thus have a downward effect on prices. Without export markets for domestic crude, there is only so much absorptive capacity in the United States unless new crude production in the United States were to become substantially cheaper than Canadian crude. If crude oil exports are not allowed, domestic prices could fall, which would make new investment in tight oil and shale oil production less attractive, similar to what happened to shale gas. The only reason that shale gas production has continued to grow is that it is associated with natural gas liquids, which continue to be profitable. Lessons from natural gas. The last decade’s natural gas boom shows that an export ban has only a few beneficiaries. The enormous increase in production of so-called unconventional gas sources caused domestic well-head prices to plummet. Manufacturing industries have lobbied—so far successfully—against unrestricted exports of LNG (which the market favors) despite the lack of convincing evidence that exports will substantially raise domestic prices. [3.142.196.27] Project MUSE (2024-04...

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