Guest Blog Post by William Shughart
Having just surpassed Saudi Arabia, the United States is the number one oil producing country on the planet.
Despite massive government subsidies for “renewable” energy sources, such as solar, wind and geothermal power, America and the rest of the world will depend on petroleum-based fuels for the foreseeable future. Like it or not, China, India and other densely populated countries are becoming richer, using more oil, and adding considerably to the global demand for refined oil products.
Yet ever since President Carter signed the Export Administration Act in 1979, U.S. producers have been prohibited from exporting crude oil to other nations. Meant to preserve domestic oil reserves at a time when OPEC ruled the market (and manipulated crude oil prices to finance the lavish lifestyles of Middle Eastern princes), with the United States now in the driver’s seat, the export ban prevents us from selling the oil we lack the capacity to refine here at home.
U.S. oil refineries are working 24/7, 365 days a year, but they cannot keep up with the gushers of crude being extracted using horizontal drilling and more traditional recovery technologies.
Why can’t the US just add more refining capacity to process our newfound “black gold” riches into gasoline, heating oil and other petroleum products? Because building new refineries takes time and is incredibly expensive, especially when considering the mountain of environmental regulations with which refinery owners must comply.
But why should we incur that expense? Other countries have refining capacity available now and could process U.S. crude at a lower cost than we can. If you think that that sounds like a golden opportunity for mutual gains from international trade, you get an “A” on your Econ 101 test.
Canada is not subject to the U.S. export ban, provided that any crude oil imported from the United States is refined and consumed there. Here are the numbers: since 2008 crude oil exports to Canada have increased from 29,000 barrels per day (bpd) to 133,000 bpd in 2013, a 78 percent increase from 2012. If Canada were not our only export customer, the benefits to the United States would be eye-popping.
Jimmy Carter and Congress did allow U.S. oil companies to export refined petroleum products to the rest of the world. We produce and refine more oil than we consume. Many other countries do not produce enough oil to meet their demands for refined oil products, so they import gasoline and heating oil from us. In 1985, the U.S. was exporting the equivalent of 513,000 barrels per day (bpd) of refined oil products. That figure was 1.3 million bpd in 2007, and jumped to 3.3 million bpd at the end of last year.
Repealing the export ban would end the silly state of affairs in which crude oil produced in the United States is idle somewhere, waiting processing at domestic refineries and until that happens a potentially valuable, but unexploited asset. Allowing U.S. crude to be exported to nations other than Canada also would facilitate the matching of oil production and oil refining globally, leading to lower (and less volatile) global prices for both inputs and outputs.
Everyone, here and abroad, benefits from free international trade. It is past time to recognize the brave new world of crude oil markets, in which the United States is no longer a follower of OPEC, but the leader.
Repealing the Energy Administration Act is sound economics.