Killing the ban on U.S. crude oil exports will be no easy task.

The laws banning exports, created in crisis and including the Energy Policy and Conservation Act of 1975 and other regulations, are anachronisms, opponents say. But the nation remains fearful that the U.S. is vulnerable to foreign exports. The gas lines of the 1970s and soaring gasoline prices still matter, says Jacob Dweck, an energy attorney for Sutherland Asbill & Brennan LLP.

“It’s important to understand that the law made then reflects our consciousness today,” says Dweck, who led a recent Wells Fargo conference call on the subject. “Almost subliminally in the U.S. consciousness is the idea that we are not energy independent because we are relying on imports.”

Jack Gerard, president and chief executive of the American Petroleum Institute, says the U.S. needs to grapple with those fears. “Our hope from the oil and gas perspective is to get us beyond the mindset of the past,” he says. “We no longer live in an era of scarcity. We live in an era of abundance. The question is, what will we do with that?”

The ban has a growing number of opponents, such as U.S. senators, industry organizations and producers, that are agitating for a change to the laws. Advocates for lifting the ban have ready ammunition. They say it continues to negatively affect U.S. production, will hurt the industry down the road, and runs counter to

U.S. free market ideals.

Others within the industry are more reluctant. They’re concerned about the longevity of shale oil resources and the rise of consumer costs. Some refiners, who benefit from lower domes- tic crude prices, oppose the ban.

Gerard says the U.S. has a once-in-a-generation opportunity to become the world’s energy superpower. Partly, that will be achieved through exports.

Imports of foreign crude have dropped dramatically in the past several years. By value, crude oil imports fell 16% year-over-year in 2013, according to the U.S. Energy Information Administration (EIA). In November 2013, the drop in net imports of crude and petroleum products was the major reason the U.S. reached its lowest net trade deficit since 2009.

Gerard says the U.S. energy infrastructure stands to benefit even more if decades-old restrictions are lifted. “It would be unforgivable for us to miss this window,” he says.

The black box

While most agree the crude export ban won’t be lifted anytime soon, changes could come piecemeal.

President Obama calls the shots on some aspects of oil exports, though his climate initiatives and environmentalist allies make ending the ban doubtful. Congress is also a dead end, says Marc Spitzer, former Federal Energy Regulatory Commission (FERC) commissioner. “The past two years suggest Congress is grid- locked and polarized on energy policy,” he says. “This is not like naming a post office. There exists vigorous disagreement on crude oil exports.”

Nevertheless, the ban is not absolute. The Commerce Department’s Bureau of Industry and Security (BIS) can, in certain circum- stances, grant licenses to export on a case-by- case basis. Licenses are granted based on criteria such as whether an export is in the national interest.

“The licensing system itself is, regrettably, a black box,” Dweck says. “While the regulations are public, everything else is confidential and not subject to Freedom of Information Act (FOIA) disclosure.”

By contrast, enforcement of the ban is public and severe. The BIS announced in November that Weatherford International Ltd. was acused of exporting oil and gas equipment to Iran, Syria and Cuba in violation of the Export Administration Regulations (EAR). Weather- ford resolved the accusations and others made by several federal agencies and paid fines total- ing $253 million.

While Obama hasn’t been a friend to the oil industry, he may yet be a factor in near-term re- lief for producers, Dweck says. An incremental step toward exports might be reclassification by federal agencies of what constitutes crude oil. Currently, lease condensate is considered too light to be crude but nevertheless is defined by law that way.

“Lease condensate is approximately 1 mil- lion barrels per day, or approximately 9% of total U.S. liquids production,” says Roger D. Read, senior analyst for Wells Fargo Securities, in a January report. “Since lease condensate is not optimal as a feedstock for refined products, any potential impact on gasoline and diesel prices would likely be minimal.”

Domestic production of oil, including lease condensate, is projected to increase by 0.8 mil- lion barrels per day through 2016, the EIA says. Dweck notes that Obama hasn’t moved to stop the shipping of diesel and gasoline overseas. The U.S. has become the world’s largest exporter of refined petroleum products.

In January 2014, petroleum exports climbed to 3.66 million barrels per day, about 20% higher than January 2012, according to the EIA. “While the president has the ability to control the export of refined products, he hasn’t exercised that authority and these exports can now be made unhindered,” Dweck says.

After the mid-term elections Obama could make a finding, as President Reagan did in Canada’s case, to allow crude exports to Mexico, Dweck says. The U.S. exported 202,000 barrels of oil per day to Canada in November 2013, the most since April 1999. Mexico is keen to open its oil industry to investment, says Regina Mayor, co-leader of KPMG’s U.S. energy practice and advisory energy sector leader. Mexico could be a key part of the export equation and change trade dynamics.

“That could change the complexion where it becomes more of an Americas strategy, around natural resource optimization, as opposed to one where we’re shipping hydrocarbons to the East,” Mayor says. The type of crude that comes out of Mexico is well-suited to run in American refineries.

“But keep in mind that’s still 10 years away,” Mayor says. “That’s how long it takes to find and develop and produce crude oil.”

Inputs and outputs

Many proponents of lifting the export law believe the market should decide how crude oil moves. Bill Marko, managing director of Jefferies & Co., supports such an approach and says that if exports make sense, they will hap- pen. And, he thinks they do make sense. “We’re in a different situation than we were four decades ago.”

Still, he wants to see the underpinnings of future production estimates before going all-in on exports. “There have been a lot of predictions that we’ll be up 1 million barrels a day and that’s going to continue for two or three years,” he says. “But I’d like to see that play out before we get too overconfident.”

Charles Dewhurst, national leader of BDO’s National Resources practice, favors a more aggressive approach. While an argument could be made that the resources should be safeguarded for future use, the ban hampers exploration and limits production, he says. “The industry has shown over the past 10 to 15 years that it’s incredibly innovative when it comes to finding new exploration and production techniques, new ways of unlocking reserves that had previously been considered unrecoverable.”

Dewhurst says export restrictions jeopardize the boom in domestic oil and gas production. Artificially depressed prices and limited excess to refining capacity put added pressure on producers. “If the ban is allowed to continue, it could really curtail companies’ desire to increase production of crude oil and natural gas,” he says. A February RBC Capital Markets report projects production growth of 700,000 to 950,000 barrels of oil per day from 2014 to 2016. Until then, the North American refinery complex can handle the growth. But without approval for exports, the system will be overwhelmed in 2016, the report says.

A chief test for lifting the ban will be whether a clear benefit can be shown for U.S. consumers, says Paul Y. Cheng, an analyst with Barclays Capital Inc., in a January report. Arguments advanced by oil producers are unlikely to succeed unless they can show ex- ports lead to lower prices and job creation.

This is especially true since discounted WTI crude compared to Brent pricing gives a huge economic benefit to consumers of motor fuels. In 2013, drivers used 8.73 million barrels per day of gasoline, and they are estimated to use 8.79 million barrels per day in 2014. That translates to annual savings of more than $9.5 billion last year and an estimated $9.6 billion in 2014, he says.

A U.S. family that consumes 1,000 to 1,200 gallons of gasoline per year would see average savings of $71 to $86 annually due to discounted crude prices. “For families on the bot- tom half of the income spectrum, the savings can be significant, since discretionary spending is often a rather small portion of their income,” Cheng says.

Changes to the current export ban will hap- pen, but not before 2016. “It is also important to note that U.S. Lower 48 light oil imports still averaged close to 2 million barrels per day as of October 2013,” Cheng says. “In other words, recent wide differentials between Brent and Louisiana Light Sweet remain largely a logistics issue.”

On the other side of the equation, medium- grade crude imports fell by 41% between 2010 and October 2013. “The principle roadblock to lifting the crude oil export ban is the volume of seaborne imports still received in the U.S., which has been falling at a substantial rate over the past two years,” says Sam Margolin, an an- alyst with Cowen and Co.

The reduction in foreign barrels from the U.S. supply pool runs counter to concerns that light shale crude demand has topped out within the U.S. refining complex, Margolin writes in a January report. As imports are replaced by domestic supply, “there is no immediate need to approve crude exports in order to maintain a stable market and stimulate production growth.”

Gerard argues that there’s plenty of oil to go around. “Our resource potential in this country is vast, it’s large, it’s unprecedented even more so than any of us would have thought five or six years ago,” he says.

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