The US should scrap its antique prohibition against the export of domestically produced crude oil. The sole argument for retaining the export ban is unsound. Perhaps unwittingly, it also conspires with antioil politics impeding another important element of North American petroleum logistics.
Congress banned exports of crude oil when it passed the Energy Policy and Conservation Act of after the Arab oil embargo of 1973-74. The law also extended oil-price controls, set vehicle fuel-use standards, and established the Strategic Petroleum Reserve.
Strategic concerns
Much has changed since 1975, when US production of crude oil was in a decline thought to be permanent and oil imports were rising. The changes demolish arguments for an export ban based on strategic concerns. For example:
• Oil production now is rising, and imports are falling.
• Oil trade, no longer dominated by long-term contracts between producers and refiners, is vastly more fluid than it was in the 1970s. Pricing is much more transparent. Computing and communications technologies that didn't exist when Congress passed EPACT enhance the flexibility, which makes the market much more resilient than it was when curtailment of shipments to only two countries created havoc.
• The SPR, strategic oil hoards elsewhere in the industrialized world, and a comprehensive international oil-sharing scheme discourage the politically motivated disruption of oil supply. Furthermore, major exporters have much more-sophisticated economies to support than they did in the 1970s and can less afford to cut production capriciously. Oil-importing countries can do without oil from rogue exporters more readily than exporters can do without oil sales.
While old strategic arguments against exports no longer apply, other changes since the 1970s make the export ban, along with that other issue important to petroleum logistics, bad for oil consumers.
The US refining industry has developed a world-leading ability to process heavy feedstock and convert residues of distillation into light products. Most of the essential equipment is on the Gulf Coast. There, refiners not only can run heavy, low-value feedstock; they need it to operate crude and processing capacities at optimum rates. Yet most of the recent production surge is of lighter oil with lower sulfur content—oil with greater value at refineries less sophisticated than many of those on the Gulf Coast.
Because price differences steer oil toward locations where its value is greatest, bitumen produced in Alberta gravitates to the Gulf Coast. Absent political opposition that makes sense only to extremists, the Keystone XL pipeline already would be under construction. If and when Keystone XL becomes operational, and if production continues to build from unconventional plays in the US interior, the country might find itself with growing amounts of medium and light oil worth more elsewhere. To continue banning exports under that scenario would make no sense.
Opponents to crude exports will say a foreign pull on supply would raise domestic prices. They will be overlooking the vitally important influences value and location differentials exert in the modern oil market. And they will be wrong.
Market efficiency
As always, the policies that moderate oil prices most successfully are those that help the market work most efficiently. In North America, that increasingly means expediting movement of bitumen blends from Alberta to the Gulf Coast and accommodating the sale of lighter crudes that might become surplus to domestic needs—in other words, approving Keystone XL and ending an obsolete export ban.
At this stage in a rapidly evolving market, no one can be certain how these trends will develop. Many Gulf Coast refiners might decide to reconfigure plants to run lighter domestic feeds; some already have done so. In that case, more of the oil flowing away from the US might come from Alberta. There's nothing objectionable about that. What's important, what's best for consumers, producers, refiners, and governments, is that the oil flows to where it has most value. Statutory relics, like antioil obstructionism, must not be allowed to stand in the way.