Oil Exports Are the Next Step in Obama’s Fossil-Fueled Presidency

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Oil Exports Are the Next Step in Obama’s Fossil-Fueled Presidency

U.S. President Barack Obama walks past an oil rig to a stage to speak at an oil and gas production fields on federal lands near Maljamar, N.M. (Photo: Mandel Ngan/AFP/Getty Images)

Since the 1970s, US law has prohibited the export of crude oil. There are exceptions—the US can export oil to Canada, for example. But otherwise, oil is banned from leaving American shores.

For nearly forty years that policy was not controversial. The US was such a massive importer of oil that there was never really the chance to export any. That all changed with the huge ramp up in oil production over the last five years.

Fueled by advances in fracking and a seemingly endless supply of cheap credit from Wall Street, oil companies managed to start extracting several million barrels of oil from shale rock every day. Production has jumped from 5.4 million barrels per day in 2010 to around 9.3 million today.

The debt-supported drilling boom caused prices to crash in 2014, slashing revenues for the industry across the board. The world’s largest oil companies, including ExxonMobil, Chevron, BP, and Total, borrowed a record $31 billion to plug holes in their balance sheets in the first quarter of 2015.

Smaller companies are faring much worse. Some have declared bankruptcy, and many more are desperately taking out more debt to keep the lights on. Yet Wall Street firms have not turned off the spigots, allowing them to continue drilling.

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With low oil prices draining corporate profits, oil companies have turned their attention to the four-decade old export ban. If markets can be liberalized, drillers will be able to sell their product to more customers abroad. That would lead to a bit of a boost in oil prices, something they are keen to see; higher prices would allow them to keep drilling much more than they otherwise would.

Calls for lifting the crude export ban began to grow last year with the formation of a lobby group called Producers for American Crude Oil Exports (PACE). That is translating into action in the US Senate, where legislation that would eliminate the export ban is gaining momentum.

Quietly, the Obama administration has been open to helping the industry out. In June 2014, the Commerce Department tweaked its longstanding definition of “crude oil.” Light oil, the agency said, is actually a “condensate,” and permissible to export. That swung open the doors for up to one million of barrels of oil per day to be sold abroad.

The administration insists there was no change in policy and thus no need for an act of Congress. But in reality, Obama unilaterally issued a partial lift on the export ban. Having already largely liberalized exports of liquefied natural gas, Obama is incrementally doing the same for oil.

The next step will be an “oil swap” with Mexico. While the US has a glut of light oil, Mexico produces a heavier variety. The Commerce Department may soon allow the two countries to swap their forms of oil, ultimately allowing US oil to reach the international market through Mexico. That will mark another crack in the export ban.

And with Obama’s push on the Trans-Pacific Partnership (TPP), oil and gas exports could be included in a massive trade liberalization deal with a group of Pacific countries.

President Obama has positioned himself as climate champion, hailing his achievements on greenhouse gas reductions. And indeed, he has done quite a bit. His 2009 stimulus bill funneled a lot of money into clean energy. He managed to get the car industry to sign up to some tough fuel economy standards for cars and trucks. And his new regulations on power plants—still working their way through the EPA—impose important, although soft, limits on greenhouse gases. Taken together, these actions amount to more progress on climate change than any previous President in history, he likes to say. True, but that is quite a low bar.

Meanwhile, skyrocketing oil and gas production has turned the US into the largest energy producer in the world. At every turn, Obama has offered the green light to major drilling projects. In March 2010, just a few months after the failed 2009 climate negotiations in Copenhagen, he proposed opening up the Atlantic Ocean and Alaska, lifting a decades-old policy and opening up many areas for drilling for the first time. He was embarrassed a few weeks later when a well blew out in the Gulf of Mexico and he had to quickly retract his plan.

With the BP disaster safely in the past, the Obama administration has returned to unfinished business. In January 2015, the Department of Interior once again proposed new oil drilling in the Atlantic Ocean, which The New York Times described as “a prize the industry has sought for decades.”

In May, Obama gave Shell the green light to drill in the Arctic Ocean, despite the company’s abysmal track record there; on May 29, the same day that he took questions on Twitter and boasted of the “highest possible standards” for Arctic drilling, his Department of Interior gave the go-ahead for the production of 10.2 billion tons of coal on public lands, an absurd move that could create ghastly levels of carbon pollution. According to Greenpeace, if fully developed and burned, that coal would emit more than three times as much greenhouse gas pollution as his power plant rules would reduce, vastly overwhelming the gains from his signature climate initiative.

The export of crude oil is merely the latest example of the Obama administration’s coddling of the fossil fuel industry. There will be heated debate in Congress, but if lawmakers can put together enough votes to scrap the export ban, the President will likely sign it.

Nick Cunningham

Nick Cunningham is a Washington DC-based writer on energy and environmental issues. Follow him onTwitter: @nickcunningham1

 

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