Margo Thorning, Ph.D., Senior Vice President and Chief Economist, American Council for Capital Formation
As a congressional vote on removing federal restrictions on U.S. crude oil exports is expected to be held in the upcoming months, support for this policy change continues to gain momentum with lawmakers on Capitol Hill.
However, recently the Center for American Progress (CAP) published a column that distorts the well-established facts about the benefits of utilizing the United States’ energy resources, specifically crude oil. The CAP brief, which concludes that repealing the ban on crude oil exports would ultimately harm U.S. energy security and environmental interests, contains unsubstantiated claims that blatantly disregard energy market realities and sound economic logic.
One of CAP’s initial claims is that there are uncertain consumer impacts with allowing crude exports. They attempt to bolster their claim by arguing that with the analyses conducted to date there is a lack of “precise, independent, and credible estimates of the market and production effects.” This clearly ignores the insights from our own government agencies and influential public policy institutes. Just this week, the U.S. Energy Information Administration (EIA) released its latest analysis on the crude oil export ban and its effects on consumers and the domestic marketplace. The report notes specifically that “petroleum product prices in the United States, including gasoline prices, would be either unchanged or slightly reduced by the removal of current restrictions on crude oil exports.”
Additionally, the Government Accountability Office (GAO) and the Congressional Budget Office (CBO), also supported the point that U.S. crude exports would add overall supply to the global market, putting downward pressure on crude oil as well as gasoline prices and clearly benefiting consumers. Numerous analyses by think tanks and economic consulting firms have also come to the same conclusion.
CAP also alleges that “the U.S. refinery sector is capable of absorbing any new supply, making it unnecessary to lift export restrictions.” However, according to the EIA, new crude oil production means there is opportunity for both the domestic refining sector and exportation of crude. In EIA’s May 2015 analysis on the implications of increasing production and U.S. refining, they found that even under a high production and unrestricted exports scenario, the domestic refinery sector will still grow. Crude runs and domestic processing capacity will still increase as $2.3 billion is invested to build 0.8 million barrels per day of new stabilizer and splitter capacity (See Table 3 of the EIA report). It also found that U.S. refineries will maintain their competitive advantage even if the U.S. is allowed to export crude oil reserves. In fact, the EIA states, “With or without current crude oil export restrictions, domestic refiners are also expected to maintain a significant advantage compared to offshore refiners given the continued projected availability of low-cost domestic natural gas, which is used as both a fuel and feedstock by refiners.”
Exporting crude oil will increase overall domestic production and in turn increase rates of domestic job growth while adding significant value to the American economy. A recent IHS study demonstrates how this will ultimately create between 394,000 and 859,000 new jobs annually nationwide through the supply chain.
The CAP report also claims that enabling crude oil exports will lead to an increase in overall land-loss as a result of potential expansion of drilling activity. However, one of the most distinguished accomplishments of energy industry to date has been its continued ability to reduce the amount of land required for oil and gas development using new innovative technologies. In its analysis however, CAP uses outdated land use data to reach its conclusion, resulting in an inaccurate representation of industry activity and a forecast far greater than reality. The data from 2000 – 2012, half of which was in the early years of directional drilling and hydraulic fracturing, no longer applies and does not include new well drilling efficiencies, land remediation standards and serious reductions in land use. In addition, the number of rigs active in the main U.S. tight oil producing regions is down 58% over the last 12 months but production levels are continuing to climb.
CAP also argues that that lifting the ban on crude oil exports could lead to an increase in greenhouse gas emissions. They quote EPA data that “the combustion of a barrel of crude oil results in approximately 0.43 metric tons of carbon pollution. If U.S. production increases by an average of 3.3 million barrels per day between 2015 and 2035—the high range from the NERA report and the highest estimate in the reports CAP reviewed—then the combustion of those resources will result in more than 515 million metric tons of carbon pollution per year.” However, CAP admits that “it is unclear the extent to which more exports of U.S. crude will encourage additional oil consumption and, therefore, add new carbon pollution to the atmosphere” rendering their statistics and claims questionable. In fact, U.S. exports of crude oil are likely to replace exports from countries with weaker environmental controls than we have, thus tending to reduce the growth of emissions globally.
Finally, CAP lists a number of unsubstantiated claims regarding the production and transportation of energy as a result of permitting crude exports, including that the oil extracted as a result of an increase in production would go straight to rail cars. This statement is simply untrue. In 2014, only 4% of domestic crude oil was transported by rail with the majority being moved daily by highly-regulated underground pipelines.
In closing, the report states that the “economic, national security, and environmental impacts of changing long-standing U.S. crude oil policy are neither well-documented nor well-understood,” which cannot be further from the truth. From a national security standpoint, exporting our crude oil to other nations will actually increase U.S. influence. By allowing U.S. energy exports, we can step up as a global energy leader to better support and protect our allies while at the same time strengthening our own economic and national security.
As previously mentioned, multiple economic studies – from the government and the private sector – have been conducted over the last year that have “well-documented” the impacts of crude oil exports. And they are quite clearly “well-understood.” In the past year alone, over thirty editorial boards from publications all over the nation, including the Washington Post, The Oklahoman, and Denver Post, have chimed in on the economic and strategic importance of lifting the ban. And significantly, a number of elected officials from both sides of the aisle including House Speaker John Boehner (R – OH) and Senator Heidi Heitkamp (D-ND) have all come out encouraging crude oil exports, adding to the momentum on this important policy. In order to ensure the U.S. does not miss out on this tremendous economic opportunity, it is critical that our leaders – armed with the facts – take the right steps to ensure that the ban on crude oil exports is lifted.