U.S. Crude Oil Export Policy: Background and Considerations
Released: 2014-12-31T00:00:00

Introduction

As a result of advanced oil drilling and extraction technologies (primarily horizontal drilling and hydraulic fracturing), crude oil production in the United States is growing and, according to Energy Information Administration (EIA) reference case projections, may reach 9.6 million barrels per day (bbl/d) by 2019 (see Figure 1 )—up from 5 million bbl/d in 2008 . Production of light tight oil (LTO) is, and is expected to be, the primary contributor to U.S. crude oil production growth in the near to medium term. As U.S. LTO production has increased, some have called for crude oil export restrictions to be either eased or lifted altogether. However, according to the EIA, U.S. crude oil demand is forecasted to be approximately 15 million bbl/d through 2040. EIA's reference case indicates that crude oil imports are projected to range between 6 million and 8 million bbl/d over the same period. However, EIA's high resource case projections, if realized, could result in lower crude oil import requirements (2 to 4 million barrels per day from 2020 to 2040). This apparent disconnect between expected import needs and the desire to export crude oil can be explained when considering crude oil prices can be influenced by the following: (1) the geographical location of LTO production, (2) the type/quality (i.e., light, sweet) of crude oil being produced, (3) the types of crude oil that some U.S. refineries are currently configured to optimally refine, (4) the petroleum products that are derived from different types of crude oil, and (5) transportation and infrastructure challenges associated with moving certain types of crude oil to demand centers. Each of these aspects is discussed in more detail throughout this report.

While U.S. crude oil exports are restricted under current law, petroleum products such as naphtha , gasoline, diesel fuel, and natural gas liquids (NGLs) are not subject to export restrictions. As a result, production and export of these products have increased in recent years. In August 2014, approximately 4.1 million barrels per day (bbl/d) of petroleum products, NGLs, and other liquids were exported from the United States—up from an average of nearly 1.4 million bbl/d in 2007.

Members of Congress have taken various positions regarding crude oil exports, including (1) calling for the Administration to lift export restrictions, (2) maintaining existing restrictions, (3) opposing attempts to lift restrictions through the World Trade Organization, and (4) proposing bills to eliminate crude oil export restrictions (see section below titled "Legislative Action").

The crude oil export policy debate has multiple dimensions and complexities. As U.S. LTO production has increased—along with additional oil supply from Canada—certain challenges have emerged that affect some oil producers and refiners. While the economic arguments both for and against U.S. crude oil exports are quite complex and dynamic, there are some fundamental concepts and issues that may be worth considering during debate about exporting U.S. crude oil. This report provides background and context about the crude oil legal and regulatory framework, discusses motivations that underlie the desire to export U.S. crude oil, and presents analysis of issues that Congress may choose to consider during debate about U.S. crude oil export policy.

Background

Current crude oil export restrictions date back to the 1970s, during an era of U.S. oil price controls that motivated producers to export and sell crude oil at unregulated world prices. In response, crude oil, petroleum products, and natural gas liquids were placed on the Commodity Control List established by the Export Administration Act of 1969. In 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) imposed a total embargo of crude oil delivered to the United States. The oil embargo motivated Congress to enact laws that would limit U.S. crude oil export opportunities. The embargo resulted in rapid and steep crude oil price increases, thereby creating a perception of oil resource scarcity and prompting concerns about U.S. crude oil import reliance. In response to these concerns Congress passed legislation—including the Energy Policy and Conservation Act (EPCA)—to restrict U.S. crude oil exports, with some exceptions as determined by the President. Using these exceptions, the United States has exported crude oil for decades, although in relatively low volumes. Crude oil exports reached a level of 287,000 bbl/d on average in 1980. In 2002, crude oil exports averaged 9,000 bbl/d. Since then, crude oil exports have steadily increased and reached 401,000 bbl/d during the month of July 2014. The majority of these exports were sent to Canada.

In the context of exports, the Bureau of Industry and Security (BIS)—the Department of Commerce agency responsible for crude oil export licenses—defines "crude oil" as follows:

"Crude oil" is defined as a mixture of hydrocarbons that existed in liquid phase in underground reservoirs and remains liquid at atmospheric pressure after passing through surface separating facilities and which has not been processed through a crude oil distillation tower. Included are reconstituted crude petroleum, and lease condensate and liquid hydrocarbons produced from tar sands, gilsonite, and oil shale. Drip gases are also included, but topped crude oil, residual oil, and other finished and unfinished oils are excluded.

From 1970 to 2008, U.S. crude oil production was on a steady decline. During this time, there were periods when easing crude oil export restrictions was a national-level policy topic and presidential determinations were made to exempt crude oil exports that met certain criteria. In 2009, production of light/sweet crude in tight oil formations throughout the country started to increase rapidly, and production levels are expected to continue rising out to 2019, or perhaps later.

The physical and chemical properties of LTO, when placed into context of the crude oil slate desired by U.S. refineries, is one important factor that underlies the crude oil export debate. For more information about crude oil characteristics, see the text box below.

Prior to the advent of advanced drilling and extraction technologies, many U.S. refiners in the Midwest and Gulf Coast invested in equipment to process heavy crudes from Canada and Latin America. Generally, these investments were encouraged by price discounts for heavy crudes. Tight oil production has changed the situation and the entire industry is adjusting. Investments are being made to process more light crude. Transportation bottlenecks are being relieved. However, as LTO volumes increase, oil producers are bracing for continuing price discounts that may result from a structural oversupply of light crudes in certain regions. Whether the industry will be economically motivated to continue adjusting to accommodate expected light crude production and supply is uncertain.

Legal and Regulatory Context

The export of domestically produced crude oil has been significantly restricted since the 1970s by an array of federal laws and regulations, in particular the Energy Policy and Conservation Act of 1975 (EPCA) and the resultant Short Supply Control Regulations adopted and administered by the Bureau of Industry and Security (BIS). These laws and regulations are discussed below.

The Energy Policy and Conservation Act

EPCA directs the President to "promulgate a rule prohibiting the export of crude oil and natural gas produced in the United States, except that the President may ... exempt from such prohibition such crude oil or natural gas exports which he determines to be consistent with the national interest and the purposes of this chapter." The act further provides that the exemptions to the prohibition should be "based on the purpose for export, class of seller or purchaser, country of destination, or any other reasonable classification or basis as the President determines to be appropriate and consistent with the national interest and the purposes of this chapter."

This general prohibition on crude oil exports and the exemptions to that prohibition mandated by EPCA are found in the BIS regulations on Short Supply Controls at 15 C.F.R. §754.2. The regulations provide that a license must be obtained for all exports of crude oil, including those to Canada. There are enumerated exceptions to the license requirement for foreign origin crude oil stored in the Strategic Petroleum Reserves, small samples exported for analytic and testing purposes, and exports of oil transported by pipeline over rights-of-way granted pursuant to Section 203 of the Trans-Alaska Pipeline Authorization Act.

The regulations provide that BIS will issue licenses for certain crude oil exports that fall under one of the listed exemptions, including (1) exports from Alaska's Cook Inlet; (2) exports to Canada for consumption or use therein; (3) exports in connection with refining or exchange of Strategic Petroleum Reserve oil; (4) exports of heavy California crude oil up to an average volume not to exceed 25,000 barrels per day; (5) exports that are consistent with certain international agreements; (6) exports that are consistent with findings made by the President under certain statutes (see section below titled " Other Relevant Federal Statutes "); and (7) exports of foreign origin crude oil where, based on satisfactory written documentation, the exporter can demonstrate that the oil is not of U.S. origin and has not been commingled with oil of U.S. origin.

The regulations also direct BIS to review applications to export crude oil that do not fall under one of these exemptions on a "case by case basis" and to approve such applications on a finding that the proposed export is "consistent with the national interest and the purposes of the Energy Policy and Conservation Act." However, the regulations suggest that only certain specific exports will be authorized pursuant to this case-by-case review. The regulations provide that while BIS "will consider all applications for approval," generally BIS will only approve those applications that are either for temporary exports (e.g., a pipeline that crosses an international border before returning to the United States), or are for transactions (1) that result directly in importation of an equal or greater quantity and quality of crude oil; (2) that take place under contracts that can be terminated if petroleum supplies of the United States are threatened; and (3) for which the applicant can demonstrate that for compelling economic or technological reasons, the crude oil cannot reasonably be marketed in the United States For additional information about these types of transactions, see the text box below.

The Export Administration Act and the International Emergency Economic Powers Act

Although EPCA directs the President to promulgate regulations that restrict crude oil exports, it does not provide the regulatory framework for enforcement of that restriction and the issuance of licenses for eligible exports. As mentioned above, the BIS is tasked with that duty, which is handled under its "short supply control" regulations. The source of this authority is somewhat complicated. The Export Administration Act of 1979 (EAA) confers upon the President the power to control exports for national security, foreign policy, or short-supply purposes, authorizes the President to establish export licensing mechanisms for certain items, and provides guidance and places certain limits on that authority. These restrictions are enforced by BIS. Crude oil restrictions and licensing are found in the BIS short supply controls authorized by the EAA.

However, the EAA expired in August 2001. The provisions of the act, and the regulations issued pursuant to it, remain in effect by a presidential declaration of a national emergency and the invocation of the International Emergency Economic Powers Act (IEEPA). That act authorizes the President to "deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States, if the President declares a national emergency with respect to such threat." When the EAA most recently expired in 2001, the President cited this emergency authority in the issuance of Executive Order 13222, which provided for the continued execution of the EAA and the regulations issued pursuant to it. The continuation of emergency authority has been extended annually by the President since that time, most recently in August 2013.

Other Relevant Federal Statutes

In addition to the statutes described above, several other federal statutes either bar certain types of crude oil exports or mandate that certain crude oil exports be exempt from the general prohibition in EPCA.

Section 201 of P.L. 104-58: Exports of Alaskan North Slope Oil

Section 201 of P.L. 104-58 amended the Mineral Leasing Act (MLA) to authorize the export of oil transported by pipeline over the right-of-way granted pursuant to the Trans-Alaska Pipeline Authorization Act unless the President finds that export of this oil is not in the national interest. The President's national interest determination must, at a minimum, consider (1) whether the export will diminish the quantity or quality of petroleum available in the United States; (2) the results of an environmental review; and (3) whether the export might cause sustained material oil supply shortages or significantly increase oil prices above world market levels. The legislation required submission of this national interest determination within five months of November 28, 1995.

In April 1996, President Clinton issued a determination that such exports were in the national interest. BIS administers authorizations of Trans-Alaska Pipeline System oil exports pursuant to 15 C.F.R. §754.2(j), which carves out an exception to the general crude oil export licensing requirements provided that certain conditions regarding the physical transportation of the crude oil are satisfied.

MLA Limitation on Export of Crude Oil Transported via Federal Right-of-Way

Section 28(u) of the MLA clarifies that all domestically produced crude oil (except oil exchanged for similar quantities for purposes of convenience or efficiency) transported through federal lands via rights-of-way granted pursuant to the MLA "shall be subject to all of the limitations and licensing requirements of the Export Administration Act." Section 28(u) also provides that before such exports may occur, the President must "make and publish an express finding that such exports will not diminish the total quantity or quality of petroleum available in the United States, and are in the national interest and are in accord with the provisions of the Export Administration Act." The MLA further directs the President to submit reports to Congress containing these findings, and provides that Congress "shall have a period of sixty days, thirty days of which Congress must have been in session, to consider whether exports under the terms of this section are in the national interest. If Congress ... passes a concurrent resolution of disapproval stating disagreement with the President's finding concerning the national interest, further exports ... shall cease." The MLA restriction on exports of crude oil that are transported through federal lands via a right-of-way is incorporated into the BIS regulations at 15 C.F.R. §754.2(c)(ii).

Limitation on Export of Oil from the Naval Petroleum Reserves

10 U.S.C. §7430(e) provides that petroleum produced at the naval petroleum reserves (except petroleum exchanged for similar quantities for purposes of convenience or efficiency) "shall be subject to all of the limitations and licensing requirements of the Export Administration Act." Section 7430(e) also provides that before such exports can take place, the President must "make and publish an express finding that such exports will not diminish the total quantity or quality of petroleum available in the United States, and are in the national interest and are in accord with the provisions of the Export Administration Act." The Section 7430(e) restriction on exports of petroleum produced at the naval petroleum reserves is incorporated into the BIS regulations at 15 C.F.R. §754.2(c)(iv).

Limitation on Export of Crude Oil Produced from the Outer Continental Shelf

Section 28 of the Outer Continental Shelf Lands Act (OCSLA) provides that any oil or gas produced from the Outer Continental Shelf (OCS) "shall be subject to all of the limitations and licensing requirements of the Export Administration Act." As with the statutory export limitations discussed above, exports meeting this description are only authorized if the President makes "an express finding that such exports will not increase reliance on imported oil or gas, are in the national interest, and are in accord with the provisions of the Export Administration Act." The OCSLA requires the President to submit reports containing such findings to Congress and provides that Congress "shall have a period of sixty calendar days, thirty days of which Congress must have been in session, to consider whether exports under the terms of this section are in the national interest. If the Congress ... passes a concurrent resolution of disapproval stating disagreement with the President's finding concerning the national interest, further exports ... shall cease." The OCSLA restriction on exports of petroleum produced from the OCS is incorporated into the BIS regulations at 15 C.F.R. §754.2(c)(iii).

The Role of the Bureau of Industry and Security (BIS)

As noted above, exports of crude oil are licensed under the short supply controls of the Export Administration Act. The Export Administration Regulations (EAR) codify the requirements and provisions of the various statutes restricting crude oil exports, which are administered by the Bureau of Industry and Security. Except in certain instances, a license is required for the export of crude oil from the United States.

License applications are examined by the Office of National Security and Technology Transfer Controls at BIS. Only a U.S. exporter or entity may apply for a license. License applications are made electronically, thus one must register on the BIS Simplified Network Application Process Redesign (SNAP-R). Once registered, the applicant must list the exporter, consignee, the volume of the export and its monetary value, a description of the product, its end-use, and a certification of origin for the product.

All BIS license applications are handled according to Executive Order 12981. Within nine days, BIS must contact the applicant if additional information is required; return without action if additional information is required or if a license is not needed; or refer the application to another agency. Once an application has been submitted, BIS has 30 days to make a decision. However, unlike dual-use technology licenses, crude oil licenses are not referred to other agencies. Thus, most crude oil licenses are handled within a 7-10 day period. A license is good for one year and is non-transferable, unless it is part of the assets of a company being bought or sold.

Certain crude oil exports can be shipped with a license exception. A license exception is an authorization to export or re-export, under certain conditions, items subject to the EAR that normally would require a license. Basically, under a license exception, the exporter certifies that a lawful transaction is taking place while maintaining proper documentation. The three license exceptions available for crude oil exports are (1) shipments of foreign-origin crude stored in the Strategic Petroleum Reserve; (2) shipments of samples for analytic or testing purposes; and (3) Trans-Alaska pipeline shipments. In order to use the TAPS license exception, certain tanker routing and environmental restrictions must be observed. Additionally, vessels used to export TAPS crude oil must be U.S.-owned and crewed. In addition, the licenses allow no re-exports, thus, prohibiting, for example, trans-shipments to foreign destinations through Canada.

The number of crude oil license applications has steadily increased over the last few years, from 31 applications in FY2008 to 189 in FY2014. In the last several years, no licenses have been rejected, although some have been returned without action. This high approval rate is likely due to the specificity and exporters' knowledge of the regulations. The vast majority of licenses are for exports to Canada. For countries other than Canada, the exports can be attributed to re-exports of foreign crude oil (mostly Canadian crude) that has not been commingled with domestic crude.

Crude Oil Export Motivations

As tight oil production has rapidly increased, technical and economic factors are motivating some stakeholders to pursue lifting crude oil export restrictions. Some oil producers would like to receive higher prices for oil produced. However, some refiners are concerned that regional crude oil acquisition price discounts may narrow if exports are expanded. Narrow price discounts may affect refinery operating margins and may result in some refineries ceasing operations. Additionally, some refiners may need to consider capital investments necessary to absorb increasing volumes of LTO—along with the value of products yielded from refining LTO. As mentioned above, the geographic location of tight oil production, refinery configurations, infrastructure limitations, and prices received by some oil producers have been cited as justification for lifting export restrictions. However, it is important to realize that these factors are not static in nature. Rather, the industry is dynamic and is constantly changing. Refineries can adjust their operations. Transportation infrastructure can adjust based on market conditions. Therefore, oil values received by oil producers would likely adjust as well. In 2013, the Energy Information Administration stated:

Some recent commentary has suggested that it was likely or even inevitable that the growth in U.S. oil production from tight resources would be significantly curtailed unless there was a relaxation of current U.S. policies toward crude oil exports. However, this is likely an overstatement of the actual situation, because there are several other midstream and downstream adjustments that could help to accommodate changing production patterns.

The dynamic nature of the oil industry makes the debate about oil export policy inherently complex. Each of the three primary industry segments—production, transportation, and refining—will adjust based on changes to any one of the other segments. As a result, it can be difficult to assess the potential impacts of policy decisions on any one segment without considering how the other two might adjust to changing market conditions. With that caveat, additional detail about some of the motivations for crude oil exports is provided in the following sections.

Tight Oil Production Has Increased

In 2000, approximately 250,000 bbl/d of tight oil was produced in the United States. In 2013, U.S. tight oil production was approximately 3.5 million bbl/day, a nearly 14-fold increase. The Energy Information Administration (EIA) 2014 reference case projects that U.S. tight oil production will continue to increase in the near to medium term and projects that LTO production may peak at 4.8 million bbl/day in 2021. Most of this production is expected to come from three tight oil formations: (1) Eagle Ford in Texas, (2) Permian Basin in Texas, and (3) Bakken in North Dakota (see Figure 2 ). It is important to note that EIA projections for LTO production are subject to assumptions that are based on currently available information and current policies (e.g., export restrictions). These projections would likely change over time as new information becomes available and if policies are modified. For example, EIA's high resource case projects that tight oil may peak at 8.5 million barrels per day in 2035. Some degree of uncertainty exists in terms of how much LTO might be produced. Future projections, and actual production, may be either higher or lower than those included in EIA's 2014 Annual Energy Outlook.

Timing for a potential oversupply, and resulting price discounts, of U.S. LTO is also uncertain and depends on several factors. Some analysts estimate that price discounts related to the combination of LTO production volumes and export restrictions may occur as early as 2015/2016 or sometime after 2020. Some of the factors that will likely impact the timing and magnitude of price discounts include (1) actual LTO production levels, (2) potential for U.S. exports to Canada, (3) LTO access to West Coast markets, (4) potential to displace light sour and medium grade crudes in refineries, and (5) the amount of additional LTO processing capacity at refineries.

Based on EIA reference case projections in Figure 2 , LTO production is projected to rapidly increase and peak around 2019. The implication of the reference case production profile is that the window of opportunity for crude oil exports—depending on export volumes—may be temporary. The potential temporary nature of the export opportunity may reflect the continuous and rapid drilling that may be needed to maintain and increase LTO volumes. Although, EIA's high resource case indicates that LTO may continue growing out to 2035. As noted above, actual and projected production can, and does, change over time. The high resource case reflects how industry knowledge could expand and technologies could improve, thereby resulting in increased U.S. LTO production in the future. LTO production at scale is a relatively new industry development and, thus, it is likely too early to accurately predict the magnitude of future production levels.

One element of LTO production is the increase in extremely light hydrocarbons that might be classified as lease condensate, which is subject to export restrictions. While there is no quality characteristic (i.e., API gravity) that defines lease condensate, increasing production volumes of condensate and condensate-like material is one aspect of the crude oil export debate. For additional information, see the text box below.

Actual and projected LTO production levels are affecting the refining and infrastructure segments in a variety of ways, and vice versa. How these segments might adjust to changing market conditions (i.e., increased LTO production) will depend on multiple economic variables and investment considerations.

U.S. Refinery Configurations71

As of October 2013, there were 115 oil refineries in the United States with a total operable capacity of 17.8 million barrels per day of crude oil throughput. Each refinery has its own unique configuration that is generally designed to economically optimize the use of a certain crude oil blend and the production of oil products that will maximize profit margins. In the context of exporting crude oil, refineries located in the Petroleum Administration for Defense District (PADD) 3 provide an illustration of some of the emerging complexities and economic decisions that are being considered as LTO production increases in the Gulf Coast area, and as Canadian and Midwest crudes are delivered to the region.

There are 43 refineries located in PADD 3, with a total operable refining capacity of approximately 9.1 million barrels per day, the largest concentration of refining capacity in the country. Nearly half of the refineries in PADD 3 are equipped with coking units ( Figure 3 ), a refinery process that upgrades heavy residual material from a refinery's distillation unit and converts this material into higher-value products such as naphtha and distillate. Adding a coking unit to a refinery is an expensive endeavor, with estimated costs in the $1 billion+ range. Generally, the decision to add coking capacity to a refinery is based on an expectation that the refinery will be able to purchase heavier crude oils that generally sell at a discount, and can yield certain oil products that are highly valued in domestic and international markets. Approximately 60% of PADD 3 refiners are considered coking refineries ( Figure 3 ). Investments in coking capacity were made based on an expectation that price-discounted heavy crudes from Canada and Latin America would be increasingly available.

Increased production—both actual and forecasted—of LTO in PADD 3, primarily from the Eagle Ford and Permian Basin tight oil formations, may cause some refiners in this region to assess their optimal economic operating parameters. Each individual refiner will likely evaluate economic conditions—crude oil prices and product values—to determine if processing additional volumes of LTO is economically justified. While it may be challenging for PADD 3 refiners to process increasing volumes of LTO based on a refinery's current configuration, investments can be made to handle additional volumes of LTO. However, LTO price discounts, product values and volume commitments, investment requirements, and economic optimization for each individual refinery will dictate the additional volume of LTO that is ultimately absorbed. Whether such investments might actually be made is beyond the scope of this report.

In addition to making investments in refining equipment, reducing import volumes of light sweet crude into PADD 3 is one possible avenue for absorbing more domestically produced LTO, but some refiners may have already exhausted this option. Indications are that light sweet crude imports are approaching extremely low levels and there may be limited opportunities to further reduce light sweet imports—based on current refinery configurations—if U.S. LTO production continues to increase as projected. As an example, PADD 3 light sweet imports were near zero through August 2014 ( Figure 4 ).

Additionally, some estimates project that total North American light crude oil imports may go to zero by the end of 2014. Once total light crude imports are reduced to zero, refiners may begin evaluating options to reduce medium- and heavy-quality crude imports. However, foreign oil suppliers—notably Saudi Arabia and Venezuela—have ownership positions in some U.S. refinery assets. These countries could choose to continue providing oil, in some cases at discounts compared to available U.S. crudes, to their U.S. refineries in order to maintain presence in the U.S. oil market. Should countries elect this option, there may be limits to reducing crude oil imports. The ability of refiners to utilize more LTO is one consideration. However, transporting crude oil from production fields to refiners is another issue that can impact LTO price discounts and refining economics.

Infrastructure Challenges

One consideration for U.S. oil producers is the availability and cost of transportation infrastructure to deliver crude oil to refineries. Delivery infrastructure, and the cost associated with various transportation modes, can affect the value of oil that is produced in certain locations. LTO production growth in certain parts of the country is resulting in some constraints associated with moving crude oil to refiners.

Crude oil is transported via pipeline, rail, marine vessel, and truck. Pipelines are the primary means of crude oil transportation in the United States. Generally, the U.S. crude oil pipeline network was originally designed to move crude oil and petroleum products northward from the Gulf Coast to Cushing, Oklahoma, and other destinations (See Figure 5 ). The geographic distribution of LTO production—currently concentrated in North Dakota and Texas—is constraining the existing U.S. pipeline delivery system, thereby creating market access challenges for some oil producers.

To address these challenges, the crude oil transportation network is evolving: (1) some pipelines are reversing oil flow direction, (2) new pipelines are being developed, (3) rail shipments are increasing to deliver LTO from North Dakota to the east and west coasts, as well as the Gulf Coast, and (4) LTO waterborne shipments are also increasing. Waterborne shipments must comply with Jones Act requirements. Transportation costs and constraints contribute to different oil values at various delivery points throughout the country. While infrastructure adjustments are occurring, it is unclear how much LTO volume these adjustments will ultimately accommodate. Depending on their location and the cost of transportation modes available, some oil producers may argue that allowing crude oil to be exported would serve to equalize prices by alleviating some of the infrastructure-related price discounts in the market. Infrastructure limitations and resulting price discounts will impact the volumes of oil produced as well as refiner decisions to utilize incremental LTO production.

Crude Oil Producer Prices

Ultimately, the objective of U.S. oil producers is to maximize the value, or selling price, of each barrel of oil produced. U.S. oil producers throughout the country receive different prices, which can be affected by oversupply in a certain region due to production levels, refinery demand, and/or infrastructure limitations. Figure A-1 in Appendix A provides price history information for selected crude oil types. Allowing crude oil to be freely exported may have the result, all other things being equal, of reducing producer price discounts in some parts of the country, thereby equalizing the value of LTO to match global crude prices, adjusted for quality and yield characteristics and the cost of transportation. However, allowing crude oil prices to normalize may negatively impact certain refiners that are currently profitable due, in part, to regional crude oil price discounts.

For example, spot prices for Bakken LTO have experienced price discounts compared to the U.S. West Texas Intermediate (WTI) benchmark. EIA reports that Bakken discounts have been as high as $28 per barrel, but have since adjusted—a result of changes to the oil transportation network (see " Infrastructure Challenges " section above)—to lower levels as logistic constraints have been alleviated in the region. Eagle Ford LTO in Texas has not experienced significant price discounts like those observed in the Bakken, likely due to its relatively closer proximity to refining customers and fewer transportation challenges. Eagle Ford condensate prices are more difficult to assess (see "Condensate" text box above). While typical U.S. price information does not include a condensate category, some refiners do post prices for various crude types, including condensate. Price postings available to CRS indicate that condensate prices, and therefore discounts to crude oil benchmarks, can vary. December 2014 condensate price postings from two different refiners indicate discounts that range between $0.75 and $12 per barrel. This wide discount range suggests that specific refiners value condensate differently. As a result, certain, but not all, condensate producers may be financially impacted by condensate price discounts.

As LTO production increases, transportation bottlenecks and limited refinery demand for LTO and condensate feedstock may put downward pressure on LTO producer prices. While refining and transportation adjustments will likely occur, lower prices may result in less oil production, depending on the severity of the price discount and the economics of specific oil production projects. Furthermore, the relationship between producer prices and refinery acquisition costs is dynamic. As transportation networks and refinery configurations adjust to a changing crude oil slate, prices should reflect bottlenecks and limitations that exist. Under constraint conditions, the price discounts needed to motivate system modifications, in combination with price levels needed to incentivize incremental oil production, are uncertain and can be difficult to estimate due to the integrated and dynamic nature of production, transportation, and refining. Such estimates are beyond the scope of this report.

Considerations for Congress

Debate about U.S. crude oil exports is complex, dynamic, multidimensional, and includes many different stakeholder views. As a result, there are several issues that Congress may consider during future debate about crude oil exports. The following sections discuss some of these considerations. Also, in 2014 several organizations published analytical studies that assessed the economic and price impacts of potentially removing U.S. crude oil export restrictions. Appendix B includes a table that summarizes results from four studies based on parameters that might be of interest to Congress.

Price Effects

According to the economic theory of international trade, opening markets to world trade tends to push the domestic price of the traded good toward the world price. Additionally, if the volume of products entering the world market is sufficiently large, the world price may also adjust to account for the new world supplies. Although the U.S. oil market has been open to world trade for many years, it has generally been in one direction. While large volumes of imported crude oil have helped to provide for the consumption of petroleum products, exports of crude oil have essentially been prohibited. The price of oil is determined on the world market, and any changes in demand and/or supply which might be expected to affect the price of oil must be set against world levels of market activity. As the United States considers whether to allow the export of domestic crude oil to the world market, price changes are likely to occur consistent with those suggested by international trade theory.

Crude Oil Prices

The price effects of allowing the export of crude oil from the United States to the world market are likely to be threefold. First, the domestic price of LTO, or other grades of exported oil, is likely to converge toward the world price. Second, the price of the U.S. reference crude grade—West Texas Intermediate (WTI)—is likely to adjust relative to world reference grade crude oils, notably Brent. Third, the world price of oil is likely to adjust to reflect added U.S. supplies to the world total, all else being equal. See Figure A-1 in Appendix A for price history information for selected crude oil types.

The actual magnitude of these price effects will be determined by the volume of crude exports from the United States that actually materialize. For example, should U.S. exports of LTO settle at about 500,000 barrels per day, this would represent nearly one half of the total output from the Bakken field in 2013, 2.5% of total U.S. consumption, and 0.5% of world demand for oil. As a result, the observed price effects on Bakken, and other price-discounted domestic crude oils might be expected to be relatively large, while the effects on U.S. reference prices and the world price of oil might well be smaller.

Shale based LTO, since its entry to the U.S. market, has sold at a discounted price relative to other domestic crude oils of similar quality. As described in this report, the location of the oil, the lack of infrastructure to move the oil to refineries, and the technological characteristics of U.S. refineries all contributed to the need of suppliers to discount the price to induce refiners to purchase available supplies. The EIA reported that since 2012 the price of Bakken crude oil has been discounted by as much as $28 per barrel compared to WTI. While price discounts were less during most of the years 2012-2013, discounts were necessary to help cover the added cost of rail shipment of Bakken crude oil, which averages $10 to $15 per barrel nationwide. Rail shipment costs are as much as three times the cost of shipping oil by pipeline.

Allowing the export of LTO would likely create additional demand for these crude oils that could cause the price to rise from discounted levels in the U.S. market to approach those earned by other light, sweet crudes in the world market. This would have the effect of reducing or eliminating the discount experienced in the U.S. market. Transportation infrastructure limitations would likely limit the quantities of exportable oil and add to its cost, but the potentially higher price earned by producers could help expand the industry. Investment in the fields might increase and with it oil production and related job creation.

Introduction of LTO exports might also affect the price spread between WTI and Brent crudes. This could happen as the result of two price effects. First, as domestic LTO becomes relatively less available on the domestic market, reflecting the quantities entering the world market, the price of WTI is likely to rise as the domestic market tightens. Second, the price of Brent has been especially high since the Libyan revolution, which led to reduced supplies of light, sweet crude oil to Europe. While the direction of change in both prices may be estimated based on market theory, the actual magnitude of the price change would likely depend on the quantity of U.S. crude oil exported. A reduction in the WTI-Brent price spread as a result of these factors would be favorable for oil production and producers in the United States, with somewhat higher product prices for some U.S. consumers. A reduction in the price of Brent would primarily benefit European consumers, although the benefits of lower prices could extend to the world market.

An increase in supply of LTO to the world market of, for example, 500,000 barrels per day, or 0.5% of world demand, would not be expected to have a large effect on world oil prices. A qualification to this observation is that the elasticities of both demand and supply in the world market are very low. As a result, changes in the quantities demanded or supplied on the market can have exaggerated effects on price. Among the effects of U.S. exports might be a reduced call on Organization of the Petroleum Exporting Countries (OPEC) crude oil and an increase in effective spare oil production capacity in the world market.

OPEC provides crude oil to fill the gap between world demand and the total production from all other, non-OPEC, oil producers. Nations tend to use domestic crude oil and the supplies available from close exporters before calling on OPEC producers for supply. If the call on OPEC producers is reduced, this amounts to an increase in spare capacity in the sense that supplies, if withdrawn from the market, could re-enter the market in the event of an unanticipated demand increase or a supply emergency. An increase in spare capacity might be expected to reduce the potential for price volatility in the oil market. The escalating prices of the summer of 2008 were associated with a period of high demand that strained available supply, which caused excess capacity to fall to low levels.

Product Prices

Changes in the prices of petroleum products directly affect consumer costs and behavior at the pump. According to EIA, 68% of the consumer's cost of gasoline and 57% of the consumer's cost of diesel fuel is directly attributable to the refiner's cost of crude oil. Therefore, changes in the price of crude oil are likely to result in proportional changes in the prices of petroleum products. This implies that the crude oil price effects analyzed in the previous section of this report will directly affect U.S. consumers.

The observed price discounts on Bakken crude largely, but not entirely, accrued to refiners supplying the Midwest and Rocky Mountain regions. A result of the availability of discounted crude oil may be that gasoline and other petroleum product prices were lower in those regions, compared to the national average. For example, during the period January 2012 through January 2014 Midwest gasoline prices were lower than national average gasoline prices during 21 of 24 months. As the price of local crude oil supplies rises to reflect convergence with the world price of oil, the benefit of these lower prices to regional consumers is likely to be reduced.

If world oil prices decline as a result of U.S. exports, this could result in somewhat lower petroleum product prices for U.S. consumers as refiners use a mixture of domestic and imported crude oils that are tied to the world price of oil. This could occur if the quantity weighted reduction in world prices more than offset the quantity weighted increase in regional domestic prices. Although a fall in world oil prices might be predicted, its magnitude may be small should the amount of U.S. crude oil exports be small relative to the world market.

By contributing to an increase in world spare capacity, U.S. exports could contribute to less volatile prices in the world oil market. Price stability, coming from less reaction to the numerous supply problems that plague the supply side of the market, could reduce market uncertainty, possibly bringing benefits to national and international energy planners.

Energy Security and Geopolitics

Although there has been some debate over U.S. crude oil exports, the effects of rising U.S. oil production have already been felt in international markets and on geopolitics. While increased oil production has allowed the United States to alter its geopolitical posture, the U.S. government has not used its oil production as leverage over other countries, and has been critical of countries that do. Furthermore, the U.S. government does not directly control either oil production or the companies that produce oil.

The rise in U.S. production has decreased the need for imports, improving the U.S. trade balance, and leaving more oil and spare production capacity on the world market. It has also contributed to an increase in refined petroleum product exports, an activity not prohibited by U.S. law. The change in perspective of the United States being a major oil importer to possibly an exporter has altered the United States' place in world energy. Countries that may have viewed the United States as a declining economic power may now view it as having competitive advantages in new sectors related to petroleum. Some oil producing countries that viewed the United States as a market destination may now view it as a competitor.

If the United States changes its import/export position and potentially its rules regarding crude exports, the effects on geopolitics will differ depending upon how and when the changes occur in addition to the expected volume of exports. In the short term, as has already been raised, the United States may consider allowing more exports of crude oil to correct a possible market inefficiency due to refining capacity/configurations and crude oil specifications. In the medium term, whether U.S. laws will be changed to allow greater export of crude oil remains a key question. In the long term, if U.S. laws and regulations were changed to promote crude oil exports, how big of an exporter would the United States become remains the central question to the impact on geopolitics.

The U.S. posture toward sanctions against Iran, including by some Members of Congress, has become more stringent, in part because of the rise in U.S. oil production. Additionally, the decline in U.S. imports has made the United States less reliant on certain OPEC countries, particularly countries that provide light sweet crude oil (see Figure 4 ), such as Nigeria. OPEC, at least publicly, has "welcomed" the rise in U.S. oil production as stabilizing to the market. Saudi Arabia, the world's largest crude oil exporter, has also indicated support for increased U.S. oil production as well as exports. However, some analysts argue that the United States is shifting its interest (i.e., military presence) from key oil-producing regions, like the Middle East, because of its newfound resources. Additionally, other industry analysts speculate that Saudi Arabia may discount its crude oil and refined product exports to the United States in order to stay in the U.S. market for strategic reasons.

U.S. consumption of petroleum products was 19.04 million barrels per day in 2014 compared to the peak rate of 20.80 million barrels per day in 2005. In 2014, the United States produced 8.68 million barrels per day of crude oil and imported 7.34 million barrels per day with the difference between consumption and production plus imports being made up of non-crude oil inputs (i.e., natural gas liquids, biofuels, refinery gain) to the refining system. In 2005, the United States produced 5.18 million bbl/d and imported 10.13 million bbl/d. Over two-thirds of imports came from Canada, Saudi Arabia, Mexico, and Venezuela in 2012 and almost 60% in 2005.

Canada and Mexico are considered to be reliable suppliers. Saudi Arabia and Venezuela, both OPEC members, own extensive refining assets in the United States (Motiva and Citgo refineries respectively) and as a result might be expected to maintain a presence in U.S. oil markets. Beyond these 4 countries, over 30 other countries supply the United States with crude oil, none at levels expected to be difficult to replace if emergency conditions might develop.

Should the United States remove barriers to crude oil exports, the amount of exports may not matter as much as the psychological impact. The view that the United States is committed to the global energy market may have the greatest effect. Even in the long run, most industry analysts do not project that the United States will produce more crude oil than it consumes (see Figure 1 ). Nevertheless, any additional barrels that the United States produces will dilute OPEC's market share, assuming demand stays the same, and this may be viewed positively by most oil-consuming countries. Some countries have directly expressed interest in the United States removing crude oil and condensate export restrictions. For a brief overview of South Korea's interest, see the text box below titled "Global Interest in U.S. Crude Oil and Condensate."

U.S. oil production is rising and is projected to rise, at least, through the beginning of the next decade. If the EIA reference case projections turn out correctly, the United States would likely eventually resume its role as a growing importer of oil, assuming no other market changes. Changing geopolitical relationships because of the current situation may prove short lived if oil production does not continue to increase. Despite having a cartel supplier trying to manipulate prices, the oil market remains robust and competitive. Being a part of this market has helped many countries, both producers and consumers. As an example, when the United States needed petroleum products after Hurricanes Katrina and Rita in 2005, European countries were able to supply them from their strategic reserves. Similarly, when Japan shuttered its nuclear reactors after the Fukushima tragedy in 2011, the energy market reacted by sending more natural gas, coal, and oil resources to the country in order to meet energy needs. Unlike earlier periods, the United States is now a participant in energy agreements through the International Energy Agency to share the burden of supply disruptions on the world market. As part of its IEA membership, the United States maintains a Strategic Petroleum Reserve that can offset disruptions in imported supplies.

International Trade Policy

The potential exportation of U.S. crude oil may have implications for U.S. trade policy. The United States has undertaken certain obligations as a member of the World Trade Organization (WTO) and is a signatory to several regional and bilateral free trade agreements (FTAs).

As noted above, the United States licenses the export of crude oil under certain restrictive circumstances. The WTO generally discourages limitations on international trade such as import or export restraints. Underlying the WTO agreements are two basic principles: most-favored-nation (MFN) treatment and national treatment. MFN obligates a WTO member not to discriminate among the products of other member states. National treatment obligates a member not to treat another member's products as different from one's own. The General Agreement on Tariffs and Trade (GATT) Article XI, General Prohibition Against Quantitative Restraints, states:

No prohibition or restrictions other than duties, taxes or other charges made effective through quotas, import or export licenses or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party.

However, some exceptions are available. Article XX provides a generalized exception that allows governments to restrict trade based on the conservation of exhaustible natural resources or the necessity to protect human health. However, these exceptions are subject to the provision that the objectives are not used as a disguised restriction on international trade or to arbitrarily discriminate between countries where the same conditions prevail. In this case, for example, restricting the export of crude oil may be dependent on a member's restriction of its own production.

The crude oil restriction may also be subject to the WTO's Agreement on Subsidies and Countervailing Measures (ASCM) if it, by limiting demand, drives down the price, thereby conferring a subsidy for domestic industry. This was one facet of a successful U.S. challenge to Chinese raw materials and rare earth export restrictions.

The United States is in negotiations on two multi-nation free trade agreements (FTAs): the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (T-TIP). TPP includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. T-TIP is a proposed agreement between the United States and the European Union (EU). Countries in both of these negotiations may be interested in obtaining access to U.S. energy supplies. Both these agreements are directly relevant to exports of U.S. liquefied natural gas; according to statute it is in the national interest to approve LNG exports to FTA countries.

There is no such exception for exports of crude oil; however, the EU has sought to put access to U.S. energy—including crude oil—on the T-TIP negotiating agenda. The EU has sought a comprehensive energy chapter in the T-TIP that would guarantee access to U.S. energy supplies, which, according to a EU "non-paper," would include, "a legally binding commitment in the T-TIP guaranteeing the free export of crude oil and gas resources by transforming any mandatory and non-automatic export licensing procedure into a process by which licenses for exports to the EU are granted automatically and expeditiously." The United States reportedly has resisted EU attempts to include energy as a separate chapter, but to consider energy in terms of other goods trade in the agreement. On September 29, 2014, Senators Boxer and Markey wrote to U.S. Trade Representative Michael Froman contending that "automatic and unrestricted approval of U.S. oil and gas exports to the EU has the potential to harm consumers, our national security, and our environment" and urged him to oppose such provisions in T-TIP. EU attempts to lock in energy guarantees through T-TIP may take on increased urgency as a result of renewed tensions with Russia, a major oil and gas supplier to Europe.

Environment

Potential environmental issues that could arise from the removal of crude oil export restrictions are dependent on the specific consequences that might ensue from removing such restrictions. However, these consequences, particularly the long-term effects, are uncertain.

A primary question for policy makers is the net effect on domestic oil production from removing the export restriction. As illustrated in Figure 2 , EIA projects domestic production of LTO to increase dramatically in the near future. However, some observers have argued that the export restriction, coupled with current refinery configurations (discussed above), will effectively create a production ceiling for specific resources. Assuming this is the case, the next question concerns magnitude: How much additional domestic production would occur if the crude oil export restriction is removed? Estimates for expected U.S. crude oil export volumes are uncertain and actual volumes will depend on multiple variables. As noted above in the " Price Effects " section, some estimate a potential excess of 500,000 bbl/d of light sweet crude oil by the 2015 to 2016 time frame.

Assuming that lifting or modifying export restrictions would result in a substantial increase in domestic crude oil production—above what would otherwise occur—several environmental issues would likely receive some attention. These issues, discussed below, may include oil transportation, impacts related to oil extraction, and climate change.

Oil Transportation

A further increase in domestic crude oil production could amplify existing oil transportation concerns, which have received considerable attention. In particular, the current expansion of North American oil production has led to significant challenges in transporting crudes efficiently and safely using the nation's legacy pipeline infrastructure. In the face of continued uncertainty about the prospects for additional pipeline capacity, and as a quicker, more flexible alternative to new pipeline projects, crude oil producers are increasingly turning to rail as a means of transporting crude supplies to U.S. markets. According to EIA data, the volume of crude oil carried by rail increased 20-fold between 2008 and 2013.

While oil by rail has demonstrated benefits with respect to the efficient movement of oil from producing regions to market hubs, it has also raised significant concerns about transportation safety and potential impacts to the environment. The most recent data available indicate that railroads consistently spill less crude oil per ton-mile transported than other modes of land transportation. Nonetheless, safety and environmental concerns have been underscored by a series of major accidents across North America involving crude oil transportation by rail.

As with rail transport, crude oil transportation by barge has increased substantially in recent years, doubling between 2008 and 2013. However, the same dataset cited above indicates that tank vessels and barges consistently spill less crude oil per ton-mile transported than other modes of oil transportation. Nonetheless, spills from barges and tankers often occur in locations that may be particularly vulnerable to oil contamination.

Oil Extraction

Based on the geology of LTO, hydraulic fracturing ("fracking") is often required to extract the resource. While the use of high-volume hydraulic fracturing has enabled the oil and gas industry to markedly increase domestic production, questions have emerged regarding the potential impacts this process may have on both air quality and groundwater quality—particularly on private wells and drinking water supplies. The debate over the groundwater contamination risks associated with hydraulic fracturing has been fueled in part by the lack of scientific studies to assess the practice and related complaints. These issues could receive additional attention if LTO extraction were to increase, due to a change in the U.S. crude oil export policy.

Climate Change

Some environmental groups want to keep the crude oil export restrictions in place for climate change reasons. They argue that lifting the export restrictions would lead to increased crude oil development, which could potentially alter the "global carbon budget." The global carbon budget is a scientifically estimated maximum amount of net worldwide greenhouse gases that could be emitted without exceeding a proposed temperature target of 3.6°F above pre-industrial levels (a 2°C target). Some consider that such a temperature target could avoid the worst effects of greenhouse-gas induced climate change, and it has been agreed as a political consideration in international negotiations to address climate change under the United Nations Framework Convention on Climate Change. Assuming this estimation is correct, all countries' emissions (net of any sequestration or "sinks") would have to stay within the carbon budget to avoid exceeding the 2°C temperature cap.

However, the degree to which a change in crude oil export policy would impact the carbon budget is beyond the scope of this report. Moreover, there is no political agreement in the United States on a domestic carbon budget, on the appropriateness of the global 2°C target, or on the validity of any target.

Federal Revenue Collections

As the debate about exporting crude oil has evolved, some groups have put forward proposals to assess a fee or tax on crude oil exports, should current laws be changed, as a way to increase federal revenues. However, Article 1, Section 9, Clause 5 of the U.S. Constitution directly states that "No Tax or Duty shall be laid on Articles exported from any State." This could be an obstacle to efforts that propose taxing crude oil exports. Additionally, an increase in federal revenue might result from increased tax receipts from crude oil producers and supporting industries, should profitability be improved as a result of exporting crude oil. However, calculating potential increases in federal revenues through additional tax receipts is complex and challenging and is typically based on multiplier assumptions as well as other income statement assumptions that could affect the amount of taxes collected.

Policy Options

In light of the considerations discussed above, and as the debate about exporting crude oil evolves, various proposals might emerge that fall within a spectrum of policy options that Congress may choose to consider. At one end of the spectrum are calls to remove export restrictions entirely. At the other end are calls to keep, maintain, and possibly expand current export restrictions. Additionally, there are various proposals to ease crude oil export restrictions on a limited basis. As of the date of this report, two industry groups have formed to advocate opposing positions to crude oil export policy changes: (1) CRUDE and (2) PACE. The following sections examine some policy options that may be considered.

Remove Existing Restrictions

One policy option that Congress may consider is to introduce legislation that amends EPCA. Legislation that modifies EPCA, and other export-limiting statutes, may be the most straightforward means of lifting crude oil export restrictions. However, some Members of Congress have called on the executive branch to use its existing powers to either lift or ease current export restrictions. For more information about executive branch powers related to crude oil export restrictions, see the text box below titled "Could the Executive Branch Amend or Eliminate Crude Oil Export Restrictions Absent Legislation?"

Should export restrictions be lifted entirely, U.S. oil producers would have access to global markets, domestic and international prices would likely converge to some degree, and domestic crude oil production may increase if the economics are justified. While this scenario might potentially benefit crude oil producers, some U.S. refineries may be negatively affected as a result of reducing regional crude oil price discounts. Additional crude oil production may also result in environmental concerns associated with expanded extraction, transport, and consumption. While unrestricted crude oil exports—all else being equal—may be expected to put downward pressure on global crude prices and domestic gasoline prices, whether actual prices will be lower is uncertain. Global crude oil prices are determined by a number of factors that are outside the control of U.S. policy makers (e.g., supply disruptions, Saudi Arabia and OPEC decisions, and emerging demand from Asia). Ultimately, effects from crude oil exports on prices, the environment, and other considerations will be a function of the volume of crude oil that is produced and exported and will be further affected by the actions of other players in the global oil industry.

Maintain Current Restrictions

Congress could also leave current restrictions in place, thereby maintaining the requirement for the President to limit U.S. crude oil exports. According to supporters of this position, maintaining crude oil export restrictions is warranted since the United States is, and will be, reliant on imports, and crude oil price discounts in the United States will be eliminated as domestic and global prices converge.

Should existing export restrictions remain in place, there may be several potential outcomes to consider. LTO production is expected to continue growing in the short/medium term and existing refinery configurations may result in an oversupply of certain types of crude oil in specific locations (e.g., Texas). While refineries can adjust their processes to accommodate changing crude oil qualities, they will likely make the necessary capital investments to do so only if the economics are warranted. Lower, or discounted, LTO prices would be an economic consideration—along with the expected longevity of price discounts—for refiners when making capital investment decisions. Lower/discounted oil prices may result in less LTO production from certain fields. However, the price discount needed to motivate refiners to make capital investments—and whether the price discount would be large enough to markedly reduce oil production—is uncertain. Additionally, the ability of oil producers to innovate and improve efficiencies that would allow for profitable operations in a price-discounted market environment is possible but also uncertain. Nevertheless, maintaining current export restrictions may result in some oil producers receiving lower prices—compared to global benchmarks—for oil produced. Lower prices may result in less U.S. oil production, and therefore less economic development associated with oil production. However, it is not clear at what price point oil producers might curtail production, and each producer location has different economic considerations. Financial break-even per barrel prices can vary significantly depending on a number of factors, such as the formation/well characteristics, liquid vs. gas content, and financial structure of the company producing the well. Analyst estimates for shale oil break-even prices range between $50 per barrel and $100 per barrel. Discounted crude oil prices in certain areas may also enable some refineries to operate profitably, especially those in locations that benefit from price discounts.

Furthermore, crude oil export regulations are open to interpretation, and it is likely that oil producers will seek more export opportunities that might be allowed under the existing regulatory framework (see Appendix C ). Inconsistencies in the crude oil definition (see "Condensate" text box above) as well as a lack of clearly defined terms (i.e., topped crude oil and unfinished oils) may be an opportunity for producers to seek to determine the minimum amount of processing necessary that would result in an exportable product. Barring any legislative or administrative action to remove or modify crude oil export restrictions, this is the likely path forward for oil producers to export more material into the global market. However, it is unclear how widely or narrowly BIS will interpret existing laws and regulations and the level of additional exports that might occur should producers explore export options within the current regulatory framework.

Modify Restrictions

Between lifting oil export restrictions altogether and maintaining them in their current form are a variety of policy options that might be considered. Some examples of such policies might include the following:

Exempt LTO from export restrictions: The increase in LTO production appears to be one of the underlying dynamics motivating exports. As a result, crude oil with a certain quality characteristic or crude oil that is produced in specific locations might be exempted from export restrictions. The President has some powers to exempt certain crude oil exports if doing so is determined to be in the national interest. Exempting exports of certain types of crude from specific locations has occurred in the past. In 1992, then-President George H. W. Bush issued an executive order allowing 25,000 bbl/d of California heavy crude to be exported. Remove "lease condensate" from the BIS crude oil definition: As discussed in this report, lease condensate is an aspect of the crude oil export debate that is receiving attention due to increased production of extra-light hydrocarbons. Removing the term "lease condensate" from the crude oil definition may result in some of that material being exported, thereby addressing some of the apparent oversupply, and price discount, issues that may emerge in the Gulf of Mexico region. However, crafting a definition for lease condensate may present some challenges, as there is not an industry standard for this material. Allow crude oil exports for a limited period of time: EIA 2014 reference case LTO projections indicate that production may reach an upper limit by 2019 and then start to decline. While actual LTO production levels are uncertain, one policy option may be to allow crude oil exports only for a defined period of time—five years, for example—after which the domestic production and export situation could be reassessed.

There are a number of other options for modifying existing restrictions that might be considered. Each option could impact the market and individual stakeholders in different ways. Congress may choose to study and analyze various considerations associated with efforts to modify crude export restrictions.

Legislative Action

During the 113 th Congress, several bills were proposed that would eliminate current crude oil export restrictions. Essentially, each bill proposed to modify the Energy Policy and Conservation Act by removing the requirement that the President promulgate a rule prohibiting the export of domestically produced crude oil. Following is a list of four bills that were proposed in the 113 th Congress:

H.R. 4286 : American Energy Renaissance Act of 2014 H.R. 4349 : Crude Oil Export Act S. 2170 : American Energy Renaissance Act of 2014 H.R. 5814 : To adapt to changing crude oil market conditions

Appendix A. Crude Oil Price History

Appendix A.

Appendix B. Comparison of Economic Impact Studies

As debate about U.S. crude oil export policy has continued, several organizations have published analytical studies that assess the potential economic effects associated with removing crude oil export restrictions. Table B-1 compares four of the published studies in terms of major areas covered that may be of interest to Congress. Comparing these studies on a truly equivalent basis is difficult since each study uses a different methodology, approach, model, and set of assumptions to derive results. Additionally, study results can be influenced by oil market conditions, which can change over time, at the point the study was conducted. Finally, one of the unknown factors in the studies that is quite difficult to assess is how the Organization of Petroleum Exporting Countries (OPEC) might respond (i.e., maintaining production and accepting potentially lower prices or reducing production levels as a means of possibly maintaining oil price levels) to additional crude oil in the international oil market. Exactly how, or even if, OPEC might respond to a change in U.S. crude oil export policy is highly uncertain. However, an OPEC action could affect the economic and market impacts of a change in export policy.

Nevertheless, there are some general themes that are consistent among the compared studies. Assuming that crude oil export restrictions are removed, (1) U.S. domestic and international oil prices will likely converge, (2) there is expected to be downward pressure on U.S. gasoline and petroleum product prices, and (3) U.S. oil production and exports are expected to increase, along with economic activity needed to support this increase. The magnitude of these effects varies, in some cases considerably.

Table B-1 provides an overview assessment of results from the included studies . However, there are a number of variables and caveats associated with each study. Therefore, readers are encouraged to review the full study reports in order to obtain context and understand the assumptions and caveats associated with individual study results.

In addition to the four studies compared in Table B-1 , other impact studies and analysis from the Aspen Institute, the Government Accountability Office (GAO), and the Congressional Budget Office (CBO) have been published that consider economic, price, and budget effects associated with removing crude oil export restrictions.

Appendix C. Processed Condensate Exports: A Change in Energy Policy?

With some exceptions, crude oil exports are prohibited under current law, while many petroleum products may be freely exported without requiring a license from the Department of Commerce's Bureau of Industry and Security (BIS). Increasing U.S. production of light crude oil and condensate is resulting in price discounts—relative to domestic and international benchmarks—for some oil producers. Limited domestic marketability of "lease condensate," combined with crude oil export restrictions, is motivating oil producers to pursue export markets as a way to increase the value of this hydrocarbon material. In June 2014, it was reported that BIS ruled to allow processed condensate to be exported by two firms. Press reports about the BIS rulings resulted in debate about whether this represents either a change to crude oil export policy or an administrative ruling within the existing regulatory framework.

Crude Oil Definition: Open to Interpretation

The BIS crude oil definition specifically includes "lease condensate," which is subject to export restrictions:

" Crude oil " is defined as a mixture of hydrocarbons that existed in liquid phase in underground reservoirs and remains liquid at atmospheric pressure after passing through surface separating facilities and which has not been processed through a crude oil distillation tower. Included are reconstituted crude petroleum, and lease condensate and liquid hydrocarbons produced from tar sands, gilsonite, and oil shale. Drip gases are also included, but topped crude oil , residual oil, and other finished and unfinished oils are excluded. [Emphasis added]

However, the definition also includes language that may allow for processed crude oil and condensate to be exported. For example, the definition indicates that crude oil/lease condensate processed through a distillation tower is export eligible. As a result, the regulation allows for some degree of interpretation with regard to the amount of processing necessary to qualify as an exportable product. Lease condensate, typically produced with natural gas, is one aspect of the crude oil export debate with several complexities and considerations (i.e., no common definition, limited production and price data, and regulatory inconsistencies). Additionally, lease condensate has physical/chemical characteristics similar to exportable hydrocarbons such as naphtha, natural gasoline, and plant condensate.

BIS Commodity Classification

Restrictions on crude oil exports required by the Energy Policy and Conservation Act ( P.L. 94-163 ) and other statutes are administered by BIS through short-supply controls . Under the Export Administration Regulations (EAR), exporters must obtain a license to export crude oil. Some exports permitted by the regulations may be available for a license exception, under which the exporter certifies that a lawful transaction is taking place. For goods subject to the EAR, if an exporter is unsure about an item's classification and the resulting controls on that item, the exporter may request a commodity classification from BIS. Commodity classifications generally are used to determine the control status of sensitive or strategic "dual-use" products controlled for national security or foreign policy reasons. However, these procedures are available to classify any product subject to the EAR, including crude oil. To obtain a commodity classification, an exporter would provide BIS specifications for the good/technology, including blueprints, sales brochures, and catalogs. The end result is a determination that an item is described in an existing classification or is classified as an EAR99 . For raw material such as crude oil, BIS may concentrate on the process (i.e., distillation) by which the product is transformed. However, for most dual-use goods it is the control status of the product, not the process by which it is produced, that is being determined.

Processed Condensate Applications

Press reports indicate that two companies submitted separate applications to BIS requesting an official classification that would allow processed lease condensate to be exported as a product, without requiring a license. Details of the applications and BIS rulings, by law and in accordance with the Export Administration Act, are confidential. However, a July 2014 presentation provides some insight into the content and approach of one processed condensate application. According to the presentation, multiple parameters were used to argue that processed lease condensate being produced by this particular company should be eligible for export, including (1) the input lease condensate is processed enough whereby the output is distinctly different; (2) output from stabilization/distillation has suitable product uses—not just as a refinery feedstock (i.e., crude oil); and (3) resulting products have similar physical and chemical characteristics to hydrocarbons that are currently exported (See Figure C-1 ). After considering the application, BIS issued a ruling to the company that classifies the processed condensate as an EAR99—no export license required—product.

Policy and Market Implications

Some industry observers indicate that the BIS rulings represent a policy change and may result in large volumes of minimally processed crude oil being exported . However, the Administration has publicly stated that there has been no policy change and that the two rulings are within the scope of current regulations. Logic supporting the industry observers' argument is the following: Since, by definition, condensate is crude oil, then applying the same process to crude oil would result in exportable product. It is important to note that the rulings are specific to products that result from stabilizing and distilling condensate. Applying the same stabilization and distilling processes to crude oil may result in a different output stream and include products that may or may not be considered export eligible. However, the BIS crude oil definition does include language—exclusion of "topped" crude oil and "unfinished" oils—that could be interpreted and might allow for exports of minimally/partially processed crude oil. While the two BIS condensate rulings may not result in mass export volumes of domestically produced crude oil and condensate, they will likely result in an increased number of applications to BIS requesting classifications that push the envelope to determine how much crude oil and condensate processing is necessary to result in export-qualified products, especially in light of ambiguity and the lack of clearly defined terms within the crude oil definition. In July 2014, it was reported that processed condensate applications at BIS were being "held without action."