The U.S. crude oil export ban is an outdated policy from the 1970’s that today actually harms the American economy and makes domestic gasoline prices higher than they should be. Here’s a quick rundown of 10 essential questions and answers about the crude oil export ban.
Q: How will ending the export ban affect jobs?
A: According to IHS Energy, a global consultancy and think tank, “total US jobs increase due to free trade will be, on average, 394,000” while “peak job creation in 2018 is nearly 1 million.”
Q: How will ending the ban help to lower gasoline prices?
A: As the U.S. Energy Information Administration has noted, U.S. gasoline prices are tied to global oil prices. Repealing the crude oil export ban will increase both U.S. oil production and global oil supplies, which will make global oil prices fall. This, in turn, will help lower U.S. gasoline prices. According to the consultancy ICF International, lower prices as a result of ending the crude export ban “could save American consumers up to $5.8 billion per year, on average, over the 2015 – 2035 period.”
Q: What impact would ending the ban have on the U.S. trade deficit?
A: According to ICF International, lifting crude oil export restrictions would contribute to expanded U.S. exports and “could narrow the U.S. trade deficit by $22.3 billion in 2020.”
Q: Why can’t U.S. refineries just absorb all of the newly produced U.S. oil?
A: New sources of oil being produced in the U.S. are “light sweet” grades of crude, but many U.S. refineries are configured to process heavier, sour grades of crude. According to IHS Energy: “Over $85 billion has been spent in the past quarter century to reconfigure these refineries to process heavy oil imported from countries like Venezuela, Mexico and Canada.” As a result, “there are limits to how much of the new, domestically produced light tight oil (LTO) the refining system can efficiently and effectively process.” Furthermore, the U.S. refinery system is nearly at full utilization. According to the Energy Information Administration, refinery utilization in 2014 stood at nearly 90 percent, which is essentially full capacity given required downtime for maintenance.
Q: Besides lower gasoline prices, how will ending the ban help the U.S. economy?
A: Lifting the ban on crude oil exports will increase investment in the U.S. and generate greater economic growth. According to IHS Energy, it would “add investment of nearly $750 billion,” and potentially $995 billion, in the upstream exploration and production sector alone. Repealing the ban would also have a positive “multiplier effect” on the U.S. economy, as the benefits would be distributed through the entire energy supply chain.
Q: What would be the effect on the U.S. Gross Domestic Product (GDP)?
A: U.S. gross domestic product will increase if the ban is lifted. According to IHS Energy, “The higher US oil production resulting from a lifting of the ban will […] increase GDP by $135 billion.”
Q: How much oil is the U.S. now producing?
A: The U.S. Energy Information Administration (EIA) estimates that U.S. total crude oil production averaged 7.5 million barrels per day in 2013, an increase of 950,000 barrels per day from the previous year. The United States is now producing about 8.6 million barrels per day, which is the highest annual average since 1986. EIA projects this to rise to 9.6 million barrels per day in 2019, which is 3.1 million barrels per day more than in 2012. Accounting for oil and natural gas liquids (which is similar to “light” oil), the United States produced more than 11 million barrels of liquids per day in 2014. In the years ahead, production is expected to grow to more than 13 million barrels per day.
Q: What effect will repealing the ban have on production?
A: Lifting the ban on exporting domestically produced crude oil will encourage more U.S. oil production. According to IHS Energy: “Lifting the export ban and allowing free trade will, in our base case, increase US production from 8.2 million [barrels per day] B/D currently to 11.2 million B/D.” The Brookings Institution finds that if producers invest in producing more oil in the United States, about 1.3 million to 2.9 million barrels per day more in 2020 will result than under the ban, assuming the ban is lifted in 2015.
Q: Aren’t oil companies the only ones who want to end the ban?
A: No, nearly the entire U.S. economy stands to benefit from lifting the ban. In fact, many highly-respected media outlets have already come out in favor of ending the ban. The Wall Street Journal’s editorial board wrote: “The oil export ban is an example of self-defeating resource nationalism that hurts U.S. investment and the living standards of American workers. It was a bad idea in the 1970s, and today it is merely one more obstacle to America’s energy renaissance.” The Washington Post’s editorial board wrote: “The export ban was a desperate ploy in the 1970s to control commodities markets amid spikes in oil prices induced by the Organization of the Petroleum Exporting Countries. Keeping it in place now is an economically incoherent policy, particularly when removing it would encourage an industry that is transforming the fortunes of large swaths of the nation. Congress should lift the ban entirely. Until then, Commerce should allow as much oil as it can to flow through the ban’s exceptions.”
Q: Won’t there be unintended consequences if the U.S. “experiments” with exporting such a precious resource?
A: It wouldn’t be an experiment – and the United States’ experience with other energy exports provides a real-life case study. The U.S. already allows free trade of transportation fuels, such as gasoline and diesel. In fact, in 2013, the United States sold $150 billion in petroleum product exports, the largest in the world. As the Brookings Institution points out, these exports provide, “a financial boon to the U.S. economy,” adding: “The benefits of these exports raise the question of why crude oil should be treated differently from all these other crude-based products, including gasoline.”