Energy Pipeline: They ‘why’ behind the U.S. oil exports ban |


Linda Kane
For Energy Pipeline

In general, it's odd for the U.S. to have bans on exports. That's according to John Felmy, chief economist at the American Petroleum Institute. But, throughout history, the U.S. has been dotted with embargoes and sanctions across several industries, including oil.

"In many cases that's just not our policy," he said. Felmy has been studying the subject since the early 1970s. "In oil in the past we have aggressively exported oil at certain times to help our friends. And so what happened was — going back into the early '70s, back then we had the OPEC embargo and at the same time the appearance of gas lines — people couldn't get gas."

Going back to 1973, during the Nixon administration, the Arab-Israeli war was ongoing and members of the Organization of Petroleum Exporting Countries imposed an embargo against the United States as retaliation. OPEC was upset the U.S. had re-supplied the Israeli military.

The embargo banned petroleum exports to the U.S. and produced cuts in oil production. Oil prices already were unstable and the embargo caused strain on the U.S. economy, which had grown dependent on foreign oil.

What the nation saw as a result were long lines to the pump and hits to their pocketbooks. The price of oil quadrupled.

The Nixon administration began negotiations with oil producers to end the embargo, but it took several months to finalize.

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"Unfortunately, people interpreted the OPEC embargo as long gas lines. The knee-jerk reaction reveals a lack of understanding and why we should explore it. It's a complicated situation," Felmy said.

Then came the Alaska pipeline, built from 1974-77, after the 1973 oil crisis caused such high prices. Because the United States imported approximately 35 percent of its oil from foreign sources, Nixon began to lobby for the Alaska pipeline.

It was met with opposition from conservationists and natives, of course, but continued onward and transported its first barrel of oil in 1977.

The Alaska pipeline didn't have a major impact on global oil prices right away. This was partly due to the lengthy construction process and partly because U.S. production outside Alaska declined until the mid-1980s.

During the early '80s, OPEC decreased oil production nearly in half to maintain high prices. However, production was soon surpassed by non-OPEC countries. What resulted was a serious oversupply of crude oil. The global price of oil peaked in 1980 and fell drastically in 1986 as a result of slower economic activity and energy conservation brought on by high fuel prices.

It wasn't until the late 1980s that gas lines dissipated. Ronald Reagan was in office then and he decontrolled the oil industry. He signed an executive order to remove market controls from petroleum products so prices would be determined by the free market.

Oil exports were banned from Alaska in 1973 to protect domestic supplies and limit U.S. dependence on foreign oil. The ban lasted 22 years until the Clinton administration in 1995.

"Our citizens will no longer be discriminated against and kept from selling the state's most valuable resource in the world market," Sen. Frank Murkowski said at the time. He was an Alaskan Republican and chairman of the Senate Energy and Natural Resources Committee.

The Energy Policy and Conservation Act of 1975 allowed presidents to make exceptions in crude exports when market conditions called for it. And according to Foreign, former Presidents Gerald Ford, Jimmy Carter, Ronald Reagan, George H.W. Bush, and Bill Clinton all used executive authority to boost exports of refined products or crude oil.

Maintaining balance of global oil production, supply and demand, has been an ongoing struggle and will continue to be a battle. A resolution in Congress, however, is gaining steam. HR 702, which calls for an end to the ban, was passed by the House Energy and Commerce Subcommittee on Energy and Power on Sept. 10. It still has to make it through both houses of Congress.

The timing of it is certainly right. The American shale revolution has helped put a glut on the global market, reducing American imports. But the revolution is creating oil that is better suited for foreign refineries. American refineries were built to handle a different form of crude, and it would be expensive to tweak the programs to refine the "light, sweet crude" coming from America's shale revolution.

"The forecast going out to 2030-40 shows significant growth in all forms of energy, but especially oil," Felmy said. "Virtually all the forecasts show a growing use of oil."

Longer term forecasts show the global oil market growing from 92 million barrels a day to well over 100 million per day in the next decade, he said.

"More oil is needed because of massively growing populations like in the Middle East, and right now oil is really the only thing that supplies transportation," Felmy said.

He said the more opportunity to produce oil, the better. Its a job generator. "If an opportunity opens up, we think it's good for both consumers and producers," he said. That's among the reasons the American Petroleum Institute supports lifting current oil sanctions.

Another facet of the oil industry that's under consideration is the final phase of the Keystone XL pipeline. The line would runs from Alberta, Canada, to refineries in Illinois, Oklahoma and Texas. Three phases of the project are complete, but the fourth and final phase is yet to be determined. Phase four would include a line from Alberta to Nebraska and run through Montana. This phase has generated the most controversy because it would travel over the Sand Hills in Nebraska.

API encourages the sanctions be lifted. "We support lifting the export bans," Felmy said.

"Globally, if we make a decision to export, other countries are most likely going to buy into it and you don't have export bans in other countries to my knowledge," Felmy said.