Today’s oil market looks very different than in the 1970s. US crude oil production has increased from 5 million barrels per day (b/d) in late 2006 to 9 million b/d in late 2014 according to a report released by Columbia University’s Center on Global Energy Policy. Total petroleum production is over 12 million b/d, making the US the largest liquids supplier in the world. Rising production and declining petroleum consumption has reduced US import dependence from 60 percent to 26 percent over the past eight years.
While price controls have long since fallen away, crude export restrictions remain.
When current crude oil export restrictions were first put in place, the US had adopted domestic price controls to fight inflation, and the restrictions were necessary to make those price controls effective.
Although the US will likely continue to consume more oil than we produce, and thus remain a net petroleum importer, there are growing concerns about the ability of the US refining system to absorb future growth in domestic crude production. Much debate circles as to what should happen to the existing ban on exporting oil in America.
Pros to Lifting the Ban
Economic benefits are one of the main reasons proponents advocate removing the ban. A study by ICF International, a consulting firm, reported that exporting crude would add more than $38 billion to the GDP and create 300,000 direct and indirect supply chain jobs by 2020. The study estimated nearly $70 billion in additional capital as well that could be used for energy production, exploration, and investments. Gas prices are also expected to decrease anywhere from 1.3 cents to 13 cents per gallon according to the Government Accountability Office.
Increased US crude production can also weaken the economic control, fiscal strength, and geopolitical influence of other large oil producing countries.
“It would, for example, reduce the ability of Russia or other ‘challenger’ nations to manipulate energy supplies for political and economic influence,” said Heritage Foundation economist Nicolas Loris.
Moreover, if export restrictions are modified or lifted, the nation can better maintain current crude trade relationships retained and new ones created, along with the potential for greater US diplomatic leverage need for sanctions or the like.
Cons to Lifting the Ban
Many refiners worry that allowing crude oil exports will raise domestic crude prices, harm their competitiveness and reduce the incentive for new refining investments.
“By lifting export restrictions and sending our crude overseas, we would be sending American jobs overseas, as well,” Jeffrey Warmann, chief executive of Monroe Energy refinery in Trainer, testified at a Senate Energy Committee hearing in March. “Our refineries would lie dormant once again.”
Up to this point, U.S. refiners have had a strong competitive advantage versus their counterparts in other regions. They can send a steady flow of refined products to markets outside the U.S. including Europe, Latin America, Canada, and Asia while feeding the high-demand of the U.S. market all while purchasing their feedstock at low discounts to compared to global prices.
Another fear, although for a relatively short time, is the increase in gasoline and diesel prices. Consumers are also worried this will leave the more vulnerable to future international supply disruptions.
A surge in drilling, shale development, and hydraulic fracturing are a concern for environmental groups who worry that allowing exports would fuel more greenhouse gas emissions globally.
Is the Ban Likely to be Removed?
First, the bill may never make it to the president’s desk. Right now, even though the bill passed through the committee, less than a third of the Senate right now is in favor of scrapping the ban, and the numbers are about the same for the House.
Second, it is highly unlikely a U.S. president would ever sign legislation that says domestic producers can freely export crude oil because the public is very thin-skinned to fluctuating gasoline prices. High gasoline prices have been noted as a key factor in the past in hurting approval ratings. If the ban were lifted and prices were to rise, no matter what the cause is, any president who lifted the ban would be subject to the public’s condemnation.
However, since an election year is around the corner, exporting oil still remains a possibility.
Article written by HEI contributor Aliyah Cole.