The Obama administration approved limited crude oil trading with Mexico on Friday, further easing the long-standing U.S. ban on crude exports in a move that drew praise from an oil industry association executive in Louisiana.
“It’s a step in the right direction to eventually lifting the export ban,” said Don Briggs, president of the Louisiana Oil & Gas Association.
Mexico’s state-run oil company Petroleos Mexicanos, or Pemex, had sought to import about 100,000 barrels of light crude a day and proposed a deal last year in which Mexico would trade its own heavier crude for lighter U.S. crude. A major crude exporter for decades, Mexico has seen its oil production fall in recent years.
Briggs said one of the problems the industry has is that refineries in Louisiana and Texas were modified in the 1990s to handle heavy, sour crude from Mexico, Venezuela and Saudi Arabia. But the United States now produces millions of barrels a day of light sweet crude from shale formations.
The light sweet contains less sulfur, requires less refining and normally trades at a higher price than sour, high-sulfur crudes, Briggs said. But there’s so much of the light oil available that Gulf Coast refineries are paying about $10 a barrel less than the price on the global market.
Energy producers want to export so they can take advantage of higher prices, Briggs said.
Export supporters also have argued the U.S. doesn’t have enough refining capacity to handle the light oil being produced.
Refiners, who have opposed lifting the export ban, have said they have enough capacity, or can easily add enough, to handle the supplies of light oil.
The export push also has drawn opposition from environmental groups, who say exports increase the risk of spills.
The license applications to be approved by the U.S. Commerce Department allow for the exchange of similar amounts of U.S. and Mexican crude, said a senior Obama administration official, who wasn’t authorized to comment by name and spoke on condition of anonymity. The official didn’t disclose whether all 100,000 barrels requested would be allowed.
Briggs said the oil probably will come from Texas.
While the Commerce Department simultaneously rejected other applications for crude exports that violated the ban, the move to allow trading with Mexico marked a significant shift and an additional sign that the Obama administration may be open to loosening the export ban. Exchanges of oil are one of a handful of exemptions permitted under the export ban put in place by Congress.
The export ban is a relic of the 1970s, after an OPEC oil embargo led to fuel rationing, high prices and iconic images of long lines of cars waiting to fuel up. But Republicans, including House Speaker John Boehner, have said those days are long gone, arguing that lifting the ban could make the U.S. an energy superpower and boost the economy.
Republicans from energy-producing states hailed the Mexico-U.S. trade decision, as did trade groups representing the oil industry. Sen. Lisa Murkowski, of Alaska, who has pushed for lifting the ban, called it a positive step but added that she would still push for full repeal “as quickly as possible.”
“Trade with Mexico is a long-overdue step that will benefit our economy and North American energy security, but we shouldn’t stop there,” said Louis Finkel, executive vice president of the American Petroleum Institute.
But environmental groups have opposed lifting the ban out of concern it would spur further drilling for crude oil in the U.S. Pemex’s proposal also has drawn criticism in Mexico, where residents are sensitive about the country’s falling oil production despite warnings from officials that Mexico could become a net importer if it doesn’t explore new oil reserves.
The move to trade crude with Mexico comes as the Obama administration weighs a long-delayed decision about whether to approve the Keystone XL pipeline. That proposed project would carry crude oil from Canada’s tar sands to refineries on the Texas Gulf Coast, so the influx of heavy crude from Mexico could play into a decision about whether the controversial pipeline is necessary.
Last month, a Senate panel approved a bill championed by Murkowski that would lift the 40-year-old ban — plus open more areas of the Arctic, Gulf of Mexico and the Atlantic Ocean to oil and gas exploration. No Democrats on the committee voted for the bill. The environmental group Oceana called it “a massive giveaway to Big Oil.”
Associated Press writer Josh Lederman and Advocate business writer Ted Griggs contributed to this report.