When the Commerce Department approved crude oil swaps with Mexico last month, the decision seemed to make a great deal of economic sense. America’s Gulf Coast refineries were built with heavier, more sulfurous “sour” crude in mind, but the oil being fracked from U.S. shale formations is by and large of a lighter, “sweeter” variety containing less sulfur. Mexico, in contrast, has three major refineries (constituting 42 percent of its refining capacity) that were built with light crude in mind, though much of the oil it produces is of the heavier sour variety. It’s therefore not hard to see why a swap isn’t just a boon to the “operational efficiency” of both countries’ refineries—it’s a downright neighborly thing to do. But as the EIA reports, the crude swaps don’t just make economic sense, they’re also good for the environment:
The partial substitution of Eagle Ford crude for Mexican crudes…in Mexican refineries would free up sulfur removal capacity in the Mexican refining system. This would, in turn, allow that capacity to be used to produce more lower-sulfur gasoline than is currently possible. Any increased supply of lower-sulfur gasoline to Mexico’s motor gasoline market, which consumed 761,000 b/d in 2013, would result in reduced sulfur emissions and other environmental benefits.
This is one of those rare policy moves that makes sense from whatever angle you examine it. It also represents the chipping away of America’s ban on crude oil exports—a policy that dates back to the 1970s when the U.S. was wrangling with Arab oil embargoes and scarcity at home. Today, the political debate about our oil has changed significantly, now focusing on what to do with a domestic abundance. That ban is looking more archaic by the day as the shale boom continues to propel the U.S. up the global ranks of top oil producers. As oil guru Daniel Yergin put it, “[i]t’s pretty clear, directionally, where things are headed. This ban becomes more and more awkward and ill-fitting. It doesn’t fit reality.”
In that context, these crude swaps represent a baby step towards ending that export ban; it’s a policy move small and sensible enough to avoid the political debate over the wider issue, but could build momentum for the more substantive strategy of repealing the ban altogether. The argument for that decision isn’t as clear-cut as the one for the crude swaps with Mexico, however. Arthur Herman makes the case that we’d be better off chipping away at the export ban in a slow, measured manner by making bilateral trade agreements with our allies as a way to retain the strategic advantage that our crude gives us in the global market.
Expect to be seeing more of this issue in the coming months—a bill to repeal the export ban just moved out of committee in the House of Representatives yesterday.