Lost amid all the media buzz over the push in the new U.S. Congress to approve the Keystone XL pipeline are the seeds of a major energy policy overhaul.
Attached to the Keystone XL legislation could be an amendment to end the four decade ban on crude oil exports. The oil and gas industry has ramped up its efforts on this issue over the last few years, and has had incremental progress with the Obama administration. The most notable win for the industry came when the Commerce Department quietly gave a greenlight to several companies in June 2014 to export ultralight crude oil.
But rather than appeasing the industry with a loosened oil export regime, the move only fed momentum, leading to increased calls for a broader reform of the prohibition. The Commerce Department cracked open the door last summer with its decision, but with the policy ramifications unclear after the announcement, the industry wanted the government to go further. Individual companies pressed for their own waivers to export crude.
In December, the federal government inched forward again, clarifying its stance. It said that oil could be exported if it “has been processed through a crude oil distillation tower,” which would classify it as a petroleum product, rather than crude oil. Such a move will likely see more ultralight oil exported from American shores.
The White House indicated that it has gone as far as it is willing to go for now. John Podesta, a top Obama adviser, said that the December decision should have cleared up the administration’s stance on export policy.
“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,” Podesta told Reuters in an interview. He also dismissed the notion that more action is coming. “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,” he added.
Still, while the market may be satiated, some members of Congress have not let up. Senator Ted Cruz (R-TX) has indicated he will push for an amendment to be attached to legislation on the Keystone XL pipeline that would lift the oil export ban.
The fossil fuel industry spent at least $721 million on the last election cycle, helping to stitch together a very friendly Congress. That helps explain why legislative priorities for the industry top the new Congress’ agenda.
But lifting the ban appears to be an unpopular move with voters. A new Center for American Progress poll finds that 71 percent of likely voters oppose scrapping the ban. Eyeing these numbers, even some oil allies in Congress are nervous about pushing too hard for a vote. Senator Lisa Murkowski (R-AK), who has long called for lifting the ban, has suggested that she would prefer the administration to lift the ban, rather than Congress. Such a move would allow Congress to avoid the blame from a hypothetical rise in gasoline prices.
With the entire Keystone XL legislation threatened with a veto, the legislative push may not go anywhere in the short-term.
Ted Cruz may not get his wish right now, but the Obama administration is slowly eroding the oil export ban on its own. Mexico’s state-owned oil company Pemex is reportedly negotiating with the Commerce Department in a move that could lead to more U.S. oil exported to Mexico. Mexico exports heavy crude to the U.S., but is requesting light crude for its refineries.
If such a deal moves forward, it will strike another blow to the oil export ban. Citigroup projected last November that the U.S. oil exports could ramp up to about 1 million barrels per day given the litany of waivers and potential oil swaps.
Environmentalists strongly oppose the Keystone XL pipeline because the project would lead to more oil sands production. But the weakening of the oil export ban is arguably just as important. Exports will mean more demand, leading to more drilling. An October 2014 study from The Aspen Institute says that lifting the ban will lead to 1.4 to 2.1 million barrels per day in additional oil production by 2020.
Keystone XL has been cited as a symbolic fight between the oil industry and environmentalists. But between the pipeline and the crude oil export ban, both of which could see decisive action this year, there is quite a bit of future North American oil production on the line.
By Nick Cunningham of Oilprice.com
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