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Will a Democrat in the White House reimpose US crude export limits?

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Will a Democrat in the White House reimpose US crude export limits?

Highlights

30% of US oil output in 2020 will be exported: Platts Analytics

Report argues ban would reduce emissions, discourage investment

Leading Democrats in support of reimposition of export limits

Washington — Environmental groups are ramping up pressure on US presidential candidates to reinstate limits on domestic crude exports, an outcome likely to cause a sharp decline in US oil output and put an estimated 4.7 million b/d in exports at risk.

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On Tuesday, Greenpeace and Oil Change International released a report which argued that reinstating limits on crude exports could lead to annual reductions in global emissions of between 73 million mt to 165 million mt of carbon dioxide-equivalent, roughly the same as closing 19 to 42 coal-fired power plants.

Reinstating US crude export limits would be "an admission that removing the ban in 2015 was an error that has deepened the climate crisis and made the needed transformation of the US energy system significantly more difficult," according to the report. "Reinstating the ban would also send a strong signal to energy investors that the fossil fuel era is drawing to a close, act as a failsafe against future export-directed investments and carbon leakage, and provide a useful policy level over emissions beyond US borders."

In December 2015, President Barack Obama formally lifted the 40-year-old limit on US crude exports as part of a compromise with congressional Republicans. US crude exports have since climbed from an average of nearly 465,000 b/d in 2015 to more than 2.9 million b/d in 2019, according to the US Energy Information Administration. S&P Global Platts Analytics forecasts US crude exports will average 3.9 million b/d in 2020, roughly 30% of forecast US crude output next year, and climb to 4.7 million b/d in 2024.

Any change in export policy of that magnitude would cause a dramatic shift in global oil flows and again create mismatches between the configurations of US refineries and available crude qualities, which was the leading economic argument for lifting the restrictions.

"The two most basic ways to 'keep it in the ground' are to disrupt throughput and capital," Kevin Book, managing director of ClearView Energy Partners, told S&P Global Platts Tuesday. "In this case, an export ban does both. Not only does it block physical transfer, but the glut resulting from impaired exports can diminish the commercial incentive to invest in future production."

Environmental groups fought the decision to lift crude export limits in 2015, but the fight is "intensifying as the impacts of lifting the ban begin to have real-world rather than hypothetical consequences, particularly the massive expansion of oil and [natural] gas extraction in the Permian Basin," Ryan Schleeter, a Greenpeace spokesman said Tuesday. Permian oil output will average over 4.8 million b/d in February, about 37% of total US output, according to EIA forecasts.

"The big picture here is that booming US oil and gas production is undermining our chance at hitting our climate targets," said Tim Donaghy, a senior research specialist with Greenpeace.

Would It Be Legal?

Included in the 2015 legislation that lifted US export limits is language that allows a president to impose export licensing requirements or other restrictions on crude exports for up to a year, with provisions allowing renewable one-year extensions, if a national emergency is declared. In order to impose those new requirements, the president would likely declare a national climate emergency, but would also face legal challenges, according to analysts with ClearView.

For example, US oil trade groups could argue that restricting crude exports would not prevent a climate emergency since buyers would find their barrels elsewhere.

"It is true that some portion of the lost US production would be made up by increased production elsewhere, but similar to other recent analyses, we find that overall there is a carbon benefit to this policy," Donaghy with Greenpeace said.

In addition to the economic argument against reinstating export limits, such a move would face arguments about the impacts on geopolitics and energy security.

In a report to Congress Tuesday, the Center for a New American Security, tied US crude exports, along with LNG exports, to the health of the US strategy toward China.

"The United States should continue US exports of crude oil and LNG to the Indo-Pacific, as well as promote free trade in these key commodities, avoiding calls for limiting US energy exports," the report states. "Abundant US supply to global oil markets has had a demonstrated calming effect on market prices during times of geopolitical turmoil, which has the benefit of avoiding price spikes even for countries that import little US crude oil."

While crude export limits will not happen if President Donald Trump, or another Republican, is elected in November, several Democratic candidates have pledged to reverse current US policy.

Vermont Senator Bernie Sanders, Massachusetts Senator Elizabeth Warren and Tom Steyer have called for reimposing export limits, while former Vice President Joe Biden has spoken in favor of phasing in such limits. Mike Bloomberg and Andrew Yang have said they would not support reimposition of limits. Minnesota Senator Amy Klobuchar and Pete Buttigieg have not commented on US crude export policy.