The U.S. is about to export up to 100,000 barrels per day of light crude to Mexico. Some correspondents have asked me what this means. Something to do with Mexico’s energy reform? A collapse in Mexican output? A huge change in American policy?
From the Mexican side, the news is not as earthshaking as it sounds. Mexico has a bunch of refineries that can’t process its heaviest crudes. What it does it export the heavy stuff to the U.S. and refine the light stuff at home, which leaves a bunch of its refineries below capacity. It imports gasoline and refined products from the U.S. to fill the gap. Now its decided that it will buy light oil from the United States and turn it into gasoline at home rather than buy gasoline directly from the United States.
The plan has been under consideration for quite a while. (Pemex thought hard about the cheapest place to get the crudes: America was not the only option.) It is not a response to falling crude prices: as you can see from the below chart, wholesale gasoline prices have been falling a little bit faster than crude prices. Rather, it is part of a long-standing plan to maximize the use that Pemex gets out of its existing refineries.
I should also point out that the U.S. has exported crude to Mexico before, albeit on a much much smaller scale. In 1996, Mexico imported 267,000 barrels of U.S. crude, followed by smaller imports through 2006.
So this is less than earthshaking for Mexico.
I’m not sure that the shipments are a big deal on the U.S. side either. The U.S. already exports crude to various countries. This year, exports to Canada have been running at 302,400 barrels per day, three times what Mexico is going to receive. For sixteen months in 1999 and the early part of 2000, the U.S. exported 40,400 barrels per day to Japan. Between 1996 and 2000, the U.S. exported 43,400 barrels per day to South Korea.
The American oil export ban, in short, is a little leaky. That is deliberate. Under U.S. law, Canada enjoys various blanket exemptions from the export bans. The laws also give the President the power to permit exports elsewhere. In 1992, President Bush the Elder allowed oil companies to export up to 25,000 bpd of California heavy crude; President Clinton gave such permission to Alaska in 1996. Their orders are still in effect. (The above links go directly to the relevant legislation and presidential authorizations.) A historical precis can be found here, including additional copies of the relevant legislation and presidential findings.
So I’m not seeing this as a major precedent. The President can authorize exports already, although future administrations could reverse that. And Congress can abolish the export ban permanently if it wants. I’m not opposed to that, although it will raise domestic oil prices, simply because cheap domestic oil is not in our national interest. (Not least of which is that American oil producers face high costs, so their revenues get plunged into new spending rather than accumulate in their shareholders’ pockets.) And
If the Republicans really want to do something this term, then repealing the oil export ban is something they could do. I suspect that President Obama would sign such a bill.
Of course, maybe they prefer the current world where the president has control over exports, even if they don’t approve of the current occupant of the office. After all, when the U.S. really does become oil independent, then the president really will be able to reduce oil prices at the stroke of a pen ...