The Brave New World of Crude Oil Markets

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.

Increased Domestic Oil Production Will Yield Economic Gains for Americans

Lifting the crude oil exports ban “would likely spark more domestic oil production” according to Jason Bordoff, founding director of Columbia University’s Center on Global Energy Policy and former energy adviser to President Obama. Over the weekend, the Wall Street Journal featured an opinion piece by Bordoff where he argued that “current statutory restrictions on oil exports are a legacy of a bygone era that doesn’t reflect today’s energy reality.”

Bordoff’s opinion is in line with a growing chorus of experts across the country.  Specialists at   ICF International, Brookings, The Aspen Institute, and IHS have all forecast the same predictions of increased production as a result of lifting the crude oil export ban, in turn spurring economic gains.

What does this mean for the average American consumer? According to Professor Bordoff, increased domestic oil production will lead “to increased U.S. economic activity.”  This means the injection of capital investment into the American economy, creating a ripple effect throughout a variety of domestic economic sectors.  Experts agree: unlocking crude oil exports will increase domestic oil production which in turn will increase investment and stimulate economic growth, benefiting consumers.

Here are some of the production estimates:

  • ICF International: “Lifting crude export restrictions is projected to increase U.S. crude oil production by approximately 110,000 to 500,000 BPD by 2020.”
  • Brookings: “Producers invest in producing more oil in the United States, about 1.3 million to 2.9 million barrels per day more in 2020 than under the ban.”
  • The Aspen Institute: “In the high export scenario, oil production rises to 11.53 million b/d in 2019 and 13.21 million b/d in 2025—an increase of 3.25 million b/d above the base case level of production.”
  • IHS: “Lifting the export ban and allowing free trade will, in our base case, increase US production–from 8.2 million B/D currently to 11.2 million B/D.”

Foreign Policy and National Security Benefits of Lifting the Crude Oil Exports Ban

This week, Bloomberg featured a piece analyzing the geopolitical state of play as a result of a “new age of abundant and cheap energy.” The article stated that the shale boom in the U.S. is “redrawing the worlds geopolitical landscape, weakening and potentially threatening the legitimacy of some governments while embracing the power of others.”

In the article, author Rich Miller quotes Robert Hormats, a former undersecretary at the U.S. State Department who is now vice chairman of Kissinger Associates in New York, who stated that “Increasing energy independence means the U.S. is less vulnerable to supply disruptions overseas… Independence also provides added leverage in international negotiations, whether with Iran over its nuclear program or with Russia over its intentions in Ukraine.”

America’s transformation from a dependent state to a global energy supplier has the potential to significantly change the global energy landscape. We now have the ability to influence markets, creating increased diversity of supply and removing the capacity of many nations to hold American consumers hostage or turn off the heat and lights to millions of our allies across Europe.

Among voices in Congress, Representative Michael McCaul recently referred to this change in Reuters, stating that lifting the ban will “give America a new foreign policy tool to provide greater stability in the world oil market.”

These statements capture the growing body of education among policymakers and expert testimony that speaks to the benefits of repealing the crude oil exports ban on the grounds of enhancing U.S. national security and foreign policy. It is important that we not only focus on the shorter term economic and commercial gains from lifting the ban on crude oil exports, but the long term geopolitical benefits of creating a system based upon free trade as well.

Congress Needs to Address Crude Oil Exports Ban

Congress is back to work after a hectic midterm election cycle. And while many question how much will get done in this lame-duck session, one issue that should not be overlooked is addressing the ban on crude oil exports. Experts agree repealing the crude oil export ban will have a positive impact on the U.S. economy, and nowhere is this more apparent than in benefits to U.S. GDP. Here are some of the forecasts:

  • The Brookings Institution estimates that the present discounted value of GDP could increase by as much as $1.8 trillion through 2039.
  • The Aspen Institute said unlocking crude exports would have “significant positive and durable effects on GDP,” measured as a boost of between 0.68 and 0.93 percent.
  • ICF International concludes annual GDP could increase “by as much as $38.1 billion in 2020.”

As Brookings discusses in their report, “Changing Markets: Economic Opportunities From Lifting the U.S. Ban on Crude Oil Exports,” there are very few policy instruments the United States can employ to make such a substantial impact on our economy’s growth.  Experts agree that unlocking crude exports will positively influence GDP.  The only question that remains is by what margin.  Congress has the ability to act on this substantial opportunity and it is essential that this issue not get lost among the serious discussions that will occur this year.

Unlocking Crude Exports: Employment Benefits

There is consensus building among experts that abolishing the crude oil exports ban will provide Americans jobs, increase economic prosperity, and enhance economic security.  Here are facts:

A recent study by researchers at IHS Global concludes that allowing crude oil exports will “lead to greater job creation and a lower unemployment rate.”  They predict anywhere from 394,000 to 859,000 new jobs resulting from lifting the ban. The firm ICF International estimates that “Lifting the crude export restrictions results in a net employment gain of up to 118,000—220,000 annual jobs over the forecast period.”  This means “[t]he U.S. economy could gain as many as 300,000 jobs in 2020.”  Brookings believes unemployment will fall anywhere from 200,000 to 400,000 on average over 2015-2020.  The Aspen Institute holds that 630,000 jobs will be added in 2019.  A recent Government Accountability Office report echoed these findings.

Opportunities to strengthen the United States economy by spurring employment growth are valuable and should not be ignored.  Overturning the outdated crude oil exports ban on the grounds of enhancing employment opportunities for American citizens makes sense, as demonstrated by unanimous expert agreement.

If President Obama Wants to Sell More American-Made Goods He Should Allow Crude Oil Exports

Yesterday, President Obama commented on the benefits of encouraging the U.S. to “sell more American-made goods to the rest of the world.”  Good news, there is a clear path the president can take to turn this belief into reality: repeal the crude oil export ban.  Since 2008, America has been blessed with an energy boom, giving us access to our country’s abundant natural resources that when sold on the open market will bring tremendous benefits to American consumers.  In order to “open new markets” and take advantage of the new energy reality, the president should allow crude oil to reach international markets.

The export ban was enacted in the aftermath of the supply shock caused by the 1973 OPEC embargo in an effort to insulate the United States’ economy from tumultuous international events in crude oil producing countries.  Today, the best way to ensure America is energy self-sufficient, which the International Energy Agency thinks will occur by 2035, is to encourage the continued growth of domestic energy production and remove any unnecessary policy barriers—namely the ban on crude oil exports.

Former Treasury Secretary Larry Summers accurately describes the current opportunity: “Exports will create the need for infrastructure, which will create jobs. Optimists think this could mean as much as 1 percent more GDP by the end of this decade. To generate just half a percent more with fiscal policy would require an extra $60 or $70 billion a year. That’s not likely to pass, and if it did it would have substantial debt consequences.”

Release the Resources from Restrictive Regulation

Guest Blog Post by Larry Penley 

The U.S. should release America’s abundant crude oil resources from restrictive and unnecessary export laws, unlike the suggestion of a recent opinion piece in the Minneapolis-Star Tribune
 (Oct. 20 “U.S. should maintain its ban on crude oil exports”). In fact, with oil production up 14% from a year ago, the federal government’s outdated policy toward crude oil is beginning to hurt American productivity.

Crude oil exports are expected to lower gasoline and heating oil prices, according to studies from organizations like the Brookings Institution, Aspen Institute, IHS, ICF International, Resources for the Future, and the U.S. Government Accountability Office. While lowering heating bills and prices at the pump, analyses have repeatedly demonstrated that crude exports will allow more production and create more manufacturing jobs.  Exports also support U.S. economic growth by reducing our nation’s deficit.

Here are the facts. The United States already exports refined crude oil in the form of gasoline. Opponents of U.S. crude oil exports are trapping U.S. crude here while supporting the export of gasoline abroad. In order to ensure the maximum benefit for all Americans from our vast supplies of crude oil we must lift the ban on crude exports and not let special interest groups distort the facts.

Time to Modernize American Energy Policy

Guest Blog Post by William Shughart

The current ban on crude oil exports from the United States was instituted during a very different time. Domestic oil production was thought to have peaked and very few policymakers grasped how international energy markets actually function. Over the past forty years, though, our position in the global marketplace has changed beyond anyone’s dreams.

Since 2008, U.S. oil production has risen by 56 percent, and our imports have fallen to their lowest level since the mid-1990s. While foreign influence on market prices cannot safely be ignored, we now have a unique opportunity to take control of our energy future. The time has come for the United States to leverage its abundant crude oil resources and dismantle outdated laws dating back to the 1970s. It is time to begin exporting crude oil from here at home to the rest of the world.

Poised to become the world leader in crude oil production this year as a result of the domestic shale boom, if U.S. oil companies could export excess supplies to the global market, colossal economic and geopolitical benefits would follow.

According to multiple macroeconomic studies released over the past year, eliminating the ban on crude oil exports would inject billions of dollars into the domestic economy, save consumers millions of dollars over the next two decades from lower gasoline and heating oil prices, and generate tens of thousands jobs across virtually every sector of the economy. Analyses from organizations such as George Mason University’s Institute for Humane Studies, the Brookings Institution, ICF International, the Aspen Institute and Resources for the Future all conclude that adopting free market principles and treating crude oil just like any other commodity will deliver substantial net benefits to the U.S. economy.

In addition to eye-popping economic gains, the geopolitical returns to lifting the ban on crude oil exports will boggle friend and foe alike. By allowing American crude oil to enter the international market, global sources of supply will be diversified, the impacts of supply disruptions on our allies and us will be lessened, and the strategy of using energy as a political weapon will be undercut. (Vladimir Putin, call your office!). On the other hand, however, if the U.S. is unable to export crude oil, domestic oil production will suffer and other, less friendly nations will continue to hold the whip hand over gasoline prices at home and abroad.

Washington has the ability to act on this historic opportunity. From the Obama Administration, through his Department of Commerce, to Capitol Hill, the American people stand to gain considerably from oil-market-friendly political action.

Politics in the near future will determine if the United States, rather than OPEC, will sit in the driver’s seat of the worldwide crude oil market or be content with being a passive passenger.
It is my hope that our lawmakers will take advantage of the information on this new website and use it as the basis for reforming and modernizing the nation’s current oil policies in ways that reflect the realities of today’s global energy landscape.

Manufacturing Sector will See Economic Benefits of Crude Oil Exports

Another report has been released on the merits of removing the current ban on U.S. crude oil exports. This month, the Aspen Institute and the MAPI Foundation released a paper analyzing the possible effects crude oil exports will have our domestic manufacturing sector. According to the primary author Tom Duesterberg, executive director of the Manufacturing and Society program at the Aspen Institute, the report found that crude oil exports would have a, “substantial benefit to the industrial economy, to job creation, and to overall U.S. growth from lifting the ban.”

Manufacturing is a keystone of the American economy.  Supporting about 1 in 6 private sector jobs, more than 12 million American’s are employed directly by manufacturing. Therefore, it is imperative that this vital industry that touches almost every facet of our economy not be harmed by an obsolete law passed almost 40 years ago.

The positive findings of this latest report add to the cadre of studies indicating that the economic data is in favor of lifting the ban on crude oil exports. Like reports from Government Accountability Office, IHS, Brookings Institution, ICF International and Resources for the Future, the findings from the Aspen Institute linked crude oil exports to a decline in gasoline prices, a major benefit of lifting the ban for the American public. Competitive prices will catalyze more U.S. exploration and production of crude oil to keep this economic boon going for decades to come.

The study also noted that, in addition to gas and heating oil price reductions, the overall benefit to the manufacturing industry is big. They state, “Such higher production levels flow through to benefit the industrial sector in several ways. Most obvious is higher levels of employment and capital investment in production, transportation, and processing equipment, and the materials such as steel, concrete, and plastics required in this industry.” Notably, from their high export scenario, the report states that GDP will be higher by $165 billion in peak development years (2019-2021), flattening out to 141 billion per year in 2025, and that household income will grow by $2,000 to $3,000 in 2025, an increase of 2.2 percent.

With the U.S. refining industry unable to process a growing glut of our light crude oil produced from domestic shale formations like the Bakken and Eagle Ford, the U.S. must lift the ban on crude oil exports in order to maintain our current production momentum and fuel important industries like our domestic manufacturing sector.

If you missed the report, you can find the key messages here: Huffington Post.

America is Being Held Back

A prominent global energy consultancy group released a note last week in which they predict that by 2025 the United States will export more energy than we import.  The company, Wood Mackenzie Ltd., expects oil production to rise to 10.3 million barrels a day until more than 13 million barrels a day are pumped in 2030—the anticipated production peak.

The United States will not be able to maximize the benefits provided by this significant development until we lift our ban on crude oil exports. The ban was enacted during a tumultuous period in American history in reaction to misinformation and the 1973 oil embargo. In the 40-plus years since, America has witnessed the birth of a new energy reality.  Today, crude oil production “has risen to 8.9 million barrels a day, the highest level since 1985.”

By lifting the ban, the United States would have the potential to increase output by as much as 450,000 barrels a day.  This means lower gas prices, more jobs for Americans, enhanced energy security, lowered energy costs, and economic growth.

See more below:

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