The Obama administration will allow limited sales of U.S. crude to Mexico for the first time, a senior administration official told Reuters, marking another milestone in loosening a contentious ban on exporting domestic oil.
The Commerce Department is “acting favorably on a number of applications” to export U.S. crude in exchange for imported Mexican oil, the official said. Such oil swaps are one of several possible exemptions allowed in the four-decade-old law that otherwise bans most overseas shipments.
The approvals come eight months after Mexico formally sought permission for a swap, a historic step for a nation where oil self-sufficiency has long been a source of pride. The shipments, likely to be lighter, high-quality shale oil, will help Mexico’s aging refineries produce more premium fuels. U.S. refiners will continue to get Mexican heavy oil, a better match for them than the deluge of light oil coming from Texas and North Dakota.
The licenses, good for one year, will be formally issued by the end of August, the official said. He declined to offer further details on volumes, saying only that the number of approvals was “a handful.”
Mexico’s state oil company Pemex said in January it was seeking an exchange of about 100,000 barrels per day, equivalent to only about 1 percent of current U.S. output.
The department also denied several applications for swaps with other countries in Asia and Europe, which are not afforded the same special consideration as Canada and Mexico in the 1975 energy law, the official, who declined to be named, said.
Although limited in scope, the move toward freeing up trade will please U.S. oil producers such as Pioneer Natural Resources and ConocoPhillips, which say the restrictions force them to sell oil at below global market rates as shale oil boom created a glut of light crude.
It may also add momentum to efforts mostly by Republicans to repeal what they see as a relic of the 1970s Arab oil embargo era and fears of energy insecurity.
Two Texas lawmakers, Democratic Representative Henry Cuellar and Republican Representative Will Hurd, said in a joint statement Friday the development is a boon for the state’s Eagle Ford shale production area.
“These swaps will further positively impact energy exploration in Texas and the United States,” Cuellar said.
Repealing the overall ban would be a blow for refiners such as PBF Energy Inc., which have benefited from a sudden abundance of discounted domestic shale oil that their foreign rivals cannot buy.
President Barack Obama has the power to crack the door wider to oil exports, such as simply allowing exports to Mexico without the need for exchanges, or including shipments in upcoming regional trade deals.
But he faces pressure from some fellow Democrats and many environmentalists to move slowly. Critics say a full repeal could raise U.S. gasoline prices, although a slew of research studies suggest liberalizing trade would more likely lower the costs for U.S. consumers.
Environmentalists say crude exports would encourage more oil production and boost carbon emissions they seek to curb.