Lifting of 40-Year Statutory Crude Oil Export Ban Signed into Law

On Friday December 18, 2015 the President signed the Consolidated Appropriations Act, 2016, which funds the Federal government through the 2016 fiscal year. Among many other non-funding related provisions, section 101 of Division O of the Act removed the 40-year ban on the export of crude oil. It repeals Section 103 of the Energy Policy and Conservation Act (42 U.S.C. § 6212), the cornerstone of the prohibition on exporting crude, and provides that “[n]otwithstanding any other provision of law … no official of the Federal Government shall impose or enforce any restriction on the export of crude oil.”

In one stroke, all of the other statutory provisions imposing restrictions on exports of crude oil were wiped away as well, including the short supply regulations at Section 754.2 of the Export Administration Regulations, section 28(u) of the Mineral Leasing Act of 1920, and section 28 of the Outer Continental Shelf Lands Act.

The President retains the power to restrict exports of crude oil through the imposition of sanctions under the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) or regulations issued under that Act (other than section 754.2 of the Export Administration Regulations), the National Emergencies Act (50 U.S.C. 1601 et seq.), part B of title II of the Energy Policy and Conservation Act (42 U.S.C. 6271 et seq.), the Trading With the Enemy Act (50 U.S.C. App. 1 et seq.), or any other provision of law that imposes sanctions on a foreign person or foreign government, including foreign governments designated as state sponsors of terrorism.

In addition, the law gives the President temporary authority to impose export licensing requirements or restrictions for one year if:

1. the President declares a national emergency and formally notices the declaration in the Federal Register;
2. the export licensing requirements apply to countries, persons, or organizations in the context of sanctions or trade restrictions imposed by the U.S. for reasons of national security; or
3. the Secretary of Commerce finds and reports to the President that (i) crude oil exports have caused “sustained material oil supply shortages” or “oil prices significantly above world market levels” that are attributable to the export of U.S.-produced crude oil, and (ii) those supply shortages or price increases have caused or are likely to cause sustained material adverse employment effects in the U.S.

This latter authority is not likely to be exercised any time soon with the world currently awash in crude oil trading at less than $40/barrel.

President Obama had previously indicated his intention to veto H.R. 702, the House bill lifting the crude export ban, but a number of factors came together in the final omnibus bill negotiations. Laying the ground work were sustained low oil prices limiting any “price at the pump” impact, Saudi Arabia’s determination to maintain production to preserve market share and squeeze higher cost U.S. shale producers despite weakening global demand, and the prospect of Iran reentering the world market with production expected to increase to about 3.8 – 3.9 million/barrels per day. More immediately, the Keystone pipeline determination and Paris climate agreement protected the Administration against a possible green lobby backlash. Other congressional tradeoffs such as continued funding of Planned Parenthood and tax breaks for wind and solar power sealed the deal.

The Commerce Department’s Bureau of Industry and Security (BIS) has announced that, effective immediately, a Commerce Department license is no longer required to export crude oil, which is now classified as EAR99. Most exports of crude oil may now be made as NLR (no license required), subject only to generally applicable prohibitions on exports to embargoed or sanctioned countries or persons, including persons subject to a denial of export privileges. For companies holding current crude oil export licenses, license conditions terminate upon the termination of the requirement for the export license. BIS will be amending the Export Administration Regulations to reflect these changes.