US Reverses Decades-Old Oil Export Policy & Other Energy Developments

Wednesday, December 23, 2015

In a monumental reversal in domestic policy, US Congress in December 2015 lifted a 40-year ban on the country’s oil exports. While the impact of this sea change in US energy policy remains to be seen, the shift should be welcome news for the US oil industry in a challenging environment that has been marked by persistently low oil prices and unnecessary restrictions on access to world markets.

The broad ban on US crude oil exports was enacted in 1975 after the Organization of the Petroleum Exporting Countries’ (OPEC’s) oil embargo against the United States and other countries in retaliation for their involvement in the 1973 Arab-Israeli War. There were a few limited exceptions where US oil was exported, including oil originating from Alaska’s Cook Inlet and North Slope, oil shipped to Canada for consumption, and certain heavy oil from California. More recently, the US Department of Commerce announced that it would begin to allow limited exports of US crude oil to Mexico in exchange for imported Mexican oil. Beyond this and some other instances, crude oil exports have largely remained prohibited. This prohibition was not particularly problematic given the limits on the capability of the United States to produce oil, however. Approximately 10 years ago, the situation began to change with technology advancements that allowed for substantially increased production of oil (and natural gas and natural gas liquids) from shale. These technology enhancements ushered in broad market changes, including lower prices. By the end of 2015, US production is expected to hit its highest level since 1972. Although the Energy Information Administration (EIA)—the analytical arm of the US Department of Energy—estimates that average production levels are expected to decrease somewhat in 2016, this still represents a major increase in US production from the start of the shale boom. The new legislation, passed on December 18, establishes a national policy that virtually eliminates oil export restrictions.

Read more about this rare shift in US policy in a recent LawFlash, “Congress Lifts Oil Export Ban.”

Separately, we invite you to read about the impact of a recent five-year tax credit extension for wind and solar power facilities in our LawFlash, “New Legislation Modifies Renewable Energy Tax Incentives,” and about a new ruling from the Federal Energy Regulatory Commission (FERC) on regulatory immunities for private equity investors and funds: “FERC Confirms Regulatory Immunities for Private Equity Investors and Funds.”

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