Congress Repeals Ban on Exports of Crude Oil

December 21, 2015

More than four decades after mandating comprehensive limits on exports of crude oil, Congress on December 18 swept away this last vestige of 1970s-era price controls and supply shortages. In the Consolidated Appropriations Act, 2016 (CAA 2016), Congress (1) repealed Section 103 of the 1975 Energy Policy and Conservation Act (EPCA) (the core statutory basis for crude oil export restrictions), and (2) prohibited federal officials from imposing or enforcing “any restriction on the export of crude oil,” with certain narrow exceptions.1 As a result, effective December 18, 2015, crude oil in the United States, whether of US or foreign origin, may be freely exported without a license to most destinations.

The CAA 2016 preserves the authority of the President to bar exports of crude oil to countries or persons who are the target of US economic sanctions, such as Syria and entities controlled by various “Specially Designated Nationals” as named by the Department of the Treasury. Nothing in the legislation changes those regulations.

In addition, the CAA 2016 authorizes the President, in the future, to impose licensing requirements or other restrictions on the export of crude oil in limited circumstances. Specifically, crude oil exports may be restricted—for no more than one year at a time—in three cases: (1) The President declares a national emergency, (2) export controls are imposed for national security reasons, or (3) under certain adverse economic conditions. Two stringent tests must be satisfied in order to satisfy the third case: The Secretary of Commerce, in consultation with the Secretary of Energy, must find that (a) the export of oil has directly led to “material oil supply shortages or sustained oil prices significantly above world market levels” in the United States, and (b) such supply shortages or price increases are “likely to cause sustained material adverse employment effects in the United States.”2

In addition to EPCA Section 103, the CAA 2016 nullifies statutory controls and requirements regarding domestically-produced crude oil based on its place of origin or mode of transport, including crude oil transported by pipeline over federal rights-of-way, crude oil produced from the outer Continental Shelf, crude oil produced from the Naval Petroleum Reserves, and Alaskan North Slope Oil being transported by US flagged and US owned vessels. It will be unnecessary to acquire a license to “swap” crude oil cargoes with a Mexican partner, nor will the previous restrictions on re-exports of crude oil exported to Canada apply. For export purposes, there will be no distinctions regarding exports of crude oil and petroleum products, including processed condensate.

It is likely that, in due course, the Department of Commerce’s Bureau of Industry and Security will issue guidance regarding the lapse of authority to control exports of crude oil, and remove 15 CFR section 754.2 (the crude oil export control regulation) from the Export Administration Regulations.** The freedom to export crude oil, however, is not contingent on the government taking such administrative steps. The crude oil export provisions of the CAA 2016 are self-executing; exporters of crude oil may proceed.

[1] Consolidated Appropriations Act, 2016, Division O - Other Matters, Title I, Sec. 101 (a-b).
[2] Id. at (d).

**Update 12/22/2015: On December 22, 2015, the Bureau of Industry and Security released guidance stating in part: “Effective immediately, pursuant to section 101 of Division O of the Consolidated Appropriations Act, 2016, signed on December 18, 2015, a Department of Commerce license is no longer required to export crude oil. Crude oil is now classified as EAR99. Most exports of crude oil may now be made as NLR (no license required). Exporters should be aware that exports to embargoed or sanctioned countries or persons, including those listed in parts 744 and 746 of the EAR and persons subject to a denial of export privileges, continue to require authorization.” (See here)

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Theodore Kassinger, an O’Melveny partner licensed to practice law in Washington, DC and Georgia, and David Ribner, an O’Melveny associate licensed to practice law the District of Columbia and New York. The views expressed in this newsletter are the views of the authors except as otherwise noted.

Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding New York's Rules of Professional Conduct to O’Melveny & Myers LLP, Times Square Tower, 7 Times Square, New York, NY, 10036, Phone:+1-212-326-2000. © 2015 O'Melveny & Myers LLP. All Rights Reserved.