News / Economy

    US Opens Taps, a Bit, on Oil Exports to Europe

    FILE - A pumping unit sucks oil from the ground near Greensburg, Kansas.
    FILE - A pumping unit sucks oil from the ground near Greensburg, Kansas.
    Reuters
    The U.S. government has authorized limited crude oil exports to Europe, for the first time in years, raising new questions about how companies are testing the limits of a controversial, decades-old exports ban.
     
    The Department of Commerce has granted two licenses to export U.S. crude to the UK since last year and another two to Italy, according to data Reuters obtained through a Freedom of Information Act request.
     
    One application for German exports was filed in January and is awaiting a decision by the Bureau of Industry and Security (BIS), which is responsible for reviewing requests to export crude under a 1975 law that bans most shipments with a few exceptions, including sales to Canada and re-export of foreign oil.
     
    These are the first permits for shipments to the UK since at least 2000 and the first to any European country since 2008, according to data from the BIS. The bureau has approved 120 licenses since January 2013, nearly 90 percent of which were for sales to Canada, the data show.
     
    It was not immediately clear under which provisions BIS granted the European export licenses. The current regulation allows foreign crude to be re-exported from the United States if it is not commingled with U.S. crude, an option that some Canadian producers are said to be using.
     
    In rare cases, the regulation permits the exchange of U.S. oil for foreign crude or refined products of higher value, which has become an attractive option with the growing surplus of light, sweet shale oil.
     
    Whatever the case, the licenses could add to the growing debate in Washington on the benefits and pitfalls of lifting the ban, among the year's most urgent energy policy questions, as the relentless rise in shale oil production threatens to saturate domestic refiners as soon as this year.
     
    They may add to expectations that the Obama administration will allow companies to use provisions in the existing regulation to slowly increase exports, while stalling on a decision on whether to scrap the ban.
     
    With U.S. oil production at a 25-year high, many oil producers are eyeing other markets and have called for an end to the ban on exports, which they consider a relic of the 1970s, when the Arab oil embargo led to steep prices at the pump.
     
    Alaskan Republican Lisa Murkowski, the Senate Energy and Natural Resource Committee's top Republican, has backed that position.
     
    On the other side, independent U.S. refiners, which stand to benefit from cheaper domestic crude, have argued against easing restrictions.
     
    Senator Ron Wyden, chairman of the Energy and Natural Resources Committee and a Democrat of Oregon, warned at a hearing last week that “a number of influential voices” that want to export oil could drown out the risks for the average consumer.
     
    If more exports to Europe are allowed, refiners across the Atlantic may have cause to celebrate since access to cheap, high-quality U.S. shale oil would help revive their margins.
     
    The BIS did not respond to frequent requests for information on the nature of the licenses. It declined to comment on the identity of the exporting companies, citing exceptions in the Export Administration Act.
     
    The bureau's data does not show which permits were used, and the Department of Energy's oil export data does not show any crude shipments to Europe through November 2013.
     
    European exports a rarity
     
    Exports of crude to Canada were initially approved by President Ronald Reagan in the 1980s, and have picked up rapidly in recent years. The United States sent about 200,000 barrels of oil a day to Canada in November, the highest volume since 1999, data from the Department of Energy shows.
     
    A handful of licenses have also been regularly approved over the past decade for countries in central America or Asia, either for the export of heavy California crude or the re-export of foreign-origin oil, according to a BIS statement released last year.
     
    But European countries have rarely appeared on the list. Two permit applications filed in 2011 for exports to Switzerland and one for exports to the Netherlands were not approved.
     
    The two approved UK permits were for shipments with a total maximum value of $1.8 billion, while those to Italy were valued at $3.12 billion. The application for German exports was worth $2.6 billion, the data show.
     
    Theodore Kassinger, a partner with the law firm O'Melveny and Myers in Washington who previously served as the deputy secretary and general counsel of the Department of Commerce, said the bureau likely stuck to existing provisions to allow exports to Europe.
     
    “The licenses were likely within the confines of the current law and so they may have involved re-exports of foreign-origin oil,” he said.
     
    Without established trade routes or tanker rates, it is difficult to compare the economics of exporting Canadian heavy oil sands versus shipments of U.S. light-sweet oil to Europe. Few traders have examined the value of such unprecedented shipments.
     
    While Canadian crude trades at deep discounts to the U.S. benchmark futures contract, most European refiners are not configured to process the heavy oil.
     
    Ultra light, low-sulfur Bakken, on the other hand, would be welcome in Europe, but trades at relatively higher prices in the United States where local refiners are still eager to replace imported crude with the domestic grade.

    Export expansion suggests oil swaps

    Others said oil volume swaps - whereby companies can export U.S. light oil for a higher quality or volume of crude or refined fuels - may be behind the recent expansion in export licenses to Europe.
     
    “The implication is that we are not exchanging a higher value item for a lower value,” said Ed Morse, global head of commodity research at Citi, while noting that re-exports of Canadian heavy oil from U.S. shores are on the rise.
     
    Applicants for such licenses have to demonstrate that the trade is part of an overall transaction in the nation's interest and the oil cannot be sold for a reasonable price in the United States.
     
    Sellers also have to prove that exports will be terminated if U.S. supplies are seriously threatened.
     
    “I am skeptical that it was a swap because tests for such exports are very complicated,” Kassinger said, referring to sellers' onus to prove that they can't sell the oil at a profit within the country.
     
    “But the time will not be very far when it will not be commercially viable to market the crude in the country,” he said.

    You May Like

    UN Observes International Day of Peacekeepers

    The U.N. honors 3,400 peacekeepers killed since first mission in 1948

    Video Rolling Thunder Tribute to US Military Turns into a Trump Rally

    Half-million motorcycles are expected to rumble Sunday afternoon from Pentagon to Vietnam War Memorial for rally in event group calls Ride for Freedom

    The Struggle With Painkillers: Treating Pain Without Feeding Addiction

    'Wonder drug' pain medications have turned out to be major problem: not only do they run high risk of addicting the user, but they can actually make patients' chronic pain worse, US CDC says

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Chinese-Americans Heart Trump, Bucking National Trendi
    X
    May 27, 2016 5:57 AM
    A new study conducted by three Asian-American organizations shows there are three times as many Democrats as there are Republicans among Asian-American voters, and they favor Hillary Clinton over Donald Trump. But one group, called Chinese-Americans For Trump, is going against the tide and strongly supports the business tycoon. VOA’s Elizabeth Lee caught up with them at a Trump rally and reports from Anaheim, California.
    Video

    Video Chinese-Americans Heart Trump, Bucking National Trend

    A new study conducted by three Asian-American organizations shows there are three times as many Democrats as there are Republicans among Asian-American voters, and they favor Hillary Clinton over Donald Trump. But one group, called Chinese-Americans For Trump, is going against the tide and strongly supports the business tycoon. VOA’s Elizabeth Lee caught up with them at a Trump rally and reports from Anaheim, California.
    Video

    Video Reactions to Trump's Success Polarized Abroad

    What seemed impossible less than a year ago is now almost a certainty. New York real estate mogul Donald Trump has won the number of delegates needed to secure the Republican presidential nomination. The prospect has sparked as much controversy abroad as it has in the United States. Zlatica Hoke has more.
    Video

    Video Drawings by Children in Hiroshima Show Hope and Peace

    On Friday, President Barack Obama will visit Hiroshima, Japan, the first American president to do so while in office. In August 1945, the United States dropped an atomic bomb on the city to force Japan's surrender in World War II. Although their city lay in ruins, some Hiroshima schoolchildren drew pictures of hope and peace. The former students and their drawings are now part of a documentary called “Pictures from a Hiroshima Schoolyard.” VOA's Deborah Block has the story.
    Video

    Video Vietnamese Rapper Performs for Obama

    A prominent young Vietnamese artist told President Obama said she faced roadblocks as a woman rapper, and asked the president about government support for the arts. He asked her to rap, and he even offered to provide a base beat for her. Watch what happened.
    Video

    Video Roots Run Deep for Tunisia's Dwindling Jewish Community

    This week, hundreds of Jewish pilgrims are defying terrorist threats to celebrate an ancient religious festival on the Tunisian island of Djerba. The festivities cast a spotlight on North Africa's once-vibrant Jewish population that has all but died out in recent decades. Despite rising threats of militant Islam and the country's battered economy, one of the Arab world's last Jewish communities is staying put and nurturing a new generation. VOA’s Lisa Bryant reports.
    Video

    Video Meet Your New Co-Worker: The Robot

    Increasing numbers of robots are joining the workforce, as companies scale back and more processes become automated. The latest robots are flexible and collaborative, built to work alongside humans as opposed to replacing them. VOA’s Tina Trinh looks at the next generation of automated employees helping out their human colleagues.
    Video

    Video Wheelchair Technology in Tune With Times

    Technologies for the disabled, including wheelchair technology, are advancing just as quickly as everything else in the digital age. Two new advances in wheelchairs offer improved control and a more comfortable fit. VOA's George Putic reports.
    Video

    Video Baby Boxes Offer Safe Haven for Unwanted Children

    No one knows exactly how many babies are abandoned worldwide each year. The statistic is a difficult one to determine because it is illegal in most places. Therefore unwanted babies are often hidden and left to die. But as Erika Celeste reports from Woodburn, Indiana, a new program hopes to make surrendering infants safer for everyone.
    Video

    Video California Celebration Showcases Local Wines, Balloons

    Communities in the U.S. often hold festivals to show what makes them special. In California, for example, farmers near Fresno celebrate their figs and those around Gilmore showcase their garlic. Mike O'Sullivan reports that the wine-producing region of Temecula offers local vintages in an annual festival where rides on hot-air balloons add to the excitement.
    Video

    Video US Elementary School Offers Living Science Lessons

    Zero is not a good score on a test at school. But Discovery Elementary is proud of its “net zero” rating. Net zero describes a building in which the amount of energy provided by on-site renewable sources equals the amount of energy the building uses. As Faiza Elmasry tells us, the innovative features in the building turn the school into a teaching tool, where kids can't help but learn about science and sustainability. Faith Lapidus narrates.

    Special Report

    Adrift The Invisible African Diaspora

    World Currencies

    EUR
    USD
    0.8954
    JPY
    USD
    109.65
    GBP
    USD
    0.6827
    CAD
    USD
    1.3037
    INR
    USD
    67.037

    Rates may not be current.