U.S. leaders agree to lift 4-decade ban on oil exports

A bill to lift the 40-year-old ban on U.S. oil exports, changing the dynamic of U.S. producers in the world energy market, could be pushed through Congress by week's end thanks to a deal reached this week.

The measure was folded into a massive tax-and-spending bill that averted another government shutdown. The move was favored by Republican lawmakers and oil industry leaders.

In return, Democrats won a five-year extension of credits for wind and solar energy producers and a renewal of a land and water conservation fund and nixed attempts to roll back President Obama's environmental regulations.

The ban on U.S. exports stretches back to the 1970s during chronic oil shortages. It was imposed after the Organization of Petroleum Export Countries placed an oil embargo on the U.S. when it sided with Israel in the Yom Kippur War of 1973, slamming the American economy and leading to long lines at the gas pump.

GOP and industry leaders have called the ban antiquated and applauded the proposal to lift it.

"We have the best technology, the best oil and over time we will drive out Russian oil, we will drive out Saudi, Iranian," Republican Rep. Joe Barton of Texas said in an interview with Bloomberg. "It puts the United States in the driver's seat of energy policy worldwide. It is a huge victory."

The move to abolish the ban on oil exports comes as crude prices have plummeted to some of its lowest points in years and technology has unlocked vast, formerly unreachable reservoirs of oil, creating an overabundance of U.S. oil. West Texas Intermediate crude was selling for less than $37 a barrel Wednesday, down from more $100 last year.

Industry experts and producers generally applauded the move but warn that the low price of oil remains the biggest hurdle in propping up the sagging balance sheets of producers -- something exports won't impact.

The low price and glut of oil is still keeping many producers from pumping at full capacity and forcing others to stop altogether, said Thomas Tunstall, senior research director at the University of Texas at San Antonio' Institute for Economic Development. Oil from South Texas or North Dakota's Bakken shale is a lighter crude that could fetch better prices on the world market than from U.S. refineries, which are optimized for heavier crude, he said.

"It will certainly help," Tunstall said. "But the effects are probably going to be pretty marginal."

Current law allows limited oil exports, such as to Canada and from Alaska's North Slope. The U.S. exports nearly 500,000 barrels a day, according to the U.S. Energy Information Administration. Led by booms in production in places such as Texas and North Dakota, the U.S. today produces more than 9 million barrels of crude a day, according to the EIA. It also consumes about 19 million barrels of crude and petroleum products a day, making it the largest consumer in the world.

Potential beneficiaries from the ban's repeal would be the welders, engineers, pipeline developers and others involved in building the added infrastructure needed to export the oil, said Kenneth Medlock, an energy fellow at Rice University's Baker Institute for Public Policy.

Allowing exports would create an estimated 630,000 new jobs and add an additional $165 billion each year to the GDP for the next six years, according to a report last year from the Aspen Institute.

The price at the pump, however, would barely budge, Medlock said. "A reversal of the ban sets the stage for a brighter future," he said.

For now, the situation remains precarious for drillers. In the oil-producing town of Midland, Texas, news of the export ban's potential withdraw received a lukewarm reception, as many drillers continue to struggle with the low price of crude, said David Arrington, an oil and gas producer.

"You’re going to see some relief," he said. "But it's not a panacea. It's not gong to fix everything."