The U.S. agreed to allow some crude to flow to Mexico in the latest step toward easing a 40-year ban on most domestic oil exports.
Up to 100,000 barrels a day of light oil and condensate will be exchanged for heavy Mexican crude, according to Petroleos Mexicanos, the state-owned oil company. Canada is the only other nation that is exempt from the prohibition on exports. Requests from less than a dozen other unidentified countries to import U.S. crude were denied, said a senior administration official who asked not to be named according to U.S. policy.
Energy producers including Exxon Mobil Corp. and ConocoPhillips have called for an end to the export restrictions after a drilling boom boosted U.S. oil production to the highest level in more than 40 years. Some members of Congress have also called for an end to the policy, as prices dropped by more than half since last June. Approval from the U.S. Commerce Department comes after the same agency allowed for exports of lightly processed oil last year.
“It shows the administration is going to be flexible within existing law to find homes for domestic production,” said John Auers, executive vice president of energy consultant Turner Mason & Co. “With crude prices being low, export restrictions are arguably causing an even greater impediment to domestic production.”
Under the permits due to be issued by the end of the month, Mexico can receive the oil in return for shipping similar quantities to U.S. refineries. The U.S. crude that goes to Mexico must be refined there.
The department has been reviewing Mexico’s exchange request since at least January. Pemex said the U.S. crude will help boost gasoline production at its refineries in Salamanca, Tula and Salina Cruz. Pemex exported 803,000 barrels a day of mostly heavy oil to the U.S. last year and Mexico imports about half its gasoline. Crude output from Pemex has been falling for a decade.
“With light crude coming from the U.S., the country will benefit given that Pemex will mix light and heavy crudes which will result in a greater production of gasolines and diesel,” Pemex said in a written statement. “In addition, less fuel oil will be produced and higher-quality fuels will benefit the environment.”
Mexico’s government approved energy reforms last year that allowed its refiners to import oil, after decades of relying on its own production.
The U.S. official declined to identify who will receive the license to export the oil or how much can move in the exchange. The official also wouldn’t say which other nations have petitioned for U.S. oil shipments.
The Mexican approval is different from Canada’s exemption, which doesn’t require imports of similar quantities of Canadian crude.
Supporters of ending the prohibition argue that it hinders free trade and say removing it could help improve global energy security. Opponents say lifting the ban will increase the price of gasoline.
The U.S. exported a record 586,000 barrels of crude a day in April, mostly to Canada.
The approval amounts to a “bone” for an oil industry clamoring for looser export rules, said Michael McKenna, a lobbyist with MWR Strategies in Midlothian, Virginia. It avoids the politically riskier step of full removal of the limits on overseas sales, he said.
“If you look at the regulations that the Commerce Department has set, they set a pretty low bar for swaps with Mexico, it’s just that nobody had asked before,” Jason Bordoff, founding director of Columbia University’s Center on Global Energy Policy, Bordoff, a former energy adviser to President Obama, said in a phone interview.