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Fact Check: Activist Claims Don’t Match Reality on Oil Production, Exports

At a House Small Business Committee hearing this week, anti-oil and natural gas and activist Tyson Slocum testified that repealing the ban on crude oil exports would not generate consumer benefits, would not spur economic growth and would not enhance the United States’ geopolitical standing with allies and trading partners. If you’re scratching your head, we are too. It’s because this position flies in the face of a growing body of research from Pulitzer Prize winners, leading economists, government agencies, think tanks and other public policy and national security experts across the political spectrum that concluded precisely the opposite.

To be clear, Mr. Slocum’s position on oil and natural gas development is well known. He and his organization, Public Citizen, are opposed to American oil and natural gas development. But in the words of the late Senator Daniel Patrick Moynihan, who, by the way supported crude oil exports, “everyone is entitled to his own opinion, but not his own facts.”

Claim 1: “Changing rules to facilitate oil exports is inopportune, as U.S. oil demand is increasing sharply at the same time that onshore fracking production is set to peak and then decline”

  •  FACT: According to the U.S. Energy Information Administration’s Annual Energy Outline 2015, “U.S. energy consumption grows at a modest rate” between 2015-2040.
    • “U.S. energy consumption grows at a relatively modest rate over the AEO2015 projection period, averaging 0.3%/ year from 2013 through 2040 in the Reference case. The transportation and residential sector’s decreases in energy consumption (less than 2% over the entire projection period) contrast with growth in other sectors. The strongest energy consumption growth is projected for the industrial sector, at 0.7%/year. Declines in energy consumption tend to result from the adoption of more energy-efficient technologies and policies that promote energy efficiency.” (emphasis added)
  • FACT: U.S. proved oil reserves are at three decade high, thanks to advancements in technology, American ingenuity. According to EIA, “U.S. proved reserves of crude oil and lease condensate increased for the fifth year in a row in 2013, and exceeded 36 billion barrels for the first time since 1975.” (emphasis added)

U.S. crude oil and lease condensate proved reserves, production, and imports, 1981-2013

EIA_Oil_Chart_12.2014

Claim 2: “Nixing the Crude Oil Ban Will Raise Gasoline Prices for Families and Small Businesses”

  • FACT: There is not one piece of research that states repealing the ban on crude oil exports will increase the price at the pump. To the contrary, economists have found that families and small businesses would save at the pump if the export ban was repealed:
    • IHS Energy: “Since US gasoline is priced off global gasoline prices, not domestic crude prices, the reduction will flow back into lower prices at the pump – reducing the gasoline price 8 cents a gallon. The savings for motorists is $265 billion over the 2016 – 2030 period.”
    • Columbia University: “[W]e estimate lifting current crude export restrictions could …reduce domestic gasoline prices by between 0 and 12 cents per gallon.”
    • Harvard Business School: “Instead of raising domestic prices, then, the overall effect of lifting the oil export ban could actually reduce global prices for gasoline by increasing the global availability of crude oil.”
    • ICF International: Lowered prices as a result of the crude export ban “could save American consumers up to $5.8 billion per year, on average, over the 2015 – 2035 period.”
    • Congressional Budget Office: “U.S. consumers of gasoline, diesel fuel, and other oil products would probably benefit along with domestic oil producers, if the ban was repealed…”
    • Government Accountability Office: “A decrease in consumer fuel prices could occur because they tend to follow international crude oil prices rather than domestic crude oil prices, according to the studies and most of the stakeholders. If domestic crude oil exports caused international crude oil prices to decrease, consumer fuel prices could decrease as well.”
    • Energy Information Administration: “Gasoline is a globally traded commodity and, as a result, prices and changes in prices are highly correlated across global spot markets… The effect that a relaxation of current limitations on U.S. crude oil exports would have on U.S. gasoline prices would likely depend on its effect on international crude oil prices, such as Brent, rather than its effect on domestic crude prices.”
    •  Brookings Institute: “The increase in U.S. oil production makes world oil prices fall. Accordingly, so do U.S. gasoline and diesel prices, at least temporarily. This lowers the costs of production for all kinds of businesses and makes households better off.”
    • Rice University, Baker Institute for Public Policy. “Some have argued that crude oil exports would increase gasoline prices in the US. However, because refined products, such as gasoline, can be freely exported, the prices of refined  products sold in the US are in a parity relationship with international prices for refined products. Thus, the discounted prices of oil produced in the US are not reflected in US gasoline and refined product prices. Thus, removing the crude export ban, although it would raise the price of domestic crude  oil, would not increase the price of gasoline in the US.”
  • FACT: In his submitted testimony, Mr. Slocum cites a Barclays Equity Research note that purports to show that refiners are returning some savings to consumers. However, after a closer examination of this note – which looks at two periods in time to make the claim consumers are receiving a piece of the savings – you will find that the author fails to acknowledge that the 2008 hurricane season was marked by two significant storms (Gustav, Ike) which shut down a significant portion of U.S. Gulf Coast refining capacity. Since this type of disruption (an abrupt decrease in supply of refined products) caused gasoline prices to increase, it’s flawed analysis to compare the averages between two periods (one from pre-shale development and one from an active hurricane period), and claim consumers have benefited because of the difference in gasoline price.
  • FACT: A second analysis put forth by Barclays — also cited by Mr. Slocum – ignores the widely recognized principle that the price U.S. consumers pay at the pump is tied to the international Brent crude oil benchmark, not the U.S. benchmark (WTI). U.S. consumers are paying global prices for gasoline and are not receiving any domestic crude discount. This second Barclays report, by the same analyst, also makes no adjustments for seasonal outliers (i.e., harsh winter weather, unusually high/low maintenance outages) that influence underlying demand or supply, and consequently prices. In some cases, a single month or quarter can be such a large outlier that biases the entire year’s price level. Finally, this most recent Barclays analysis uses wholesale price data (Platts) and not consumer prices. Thus, inferences for consumer prices are indirect at best.

Claim 3: “Foreign policy benefits of exporting US oil are limited or nonexistent, and will only encourage expanded oil imports”

  • FACT: According to a recent EIA study, U.S. crude oil imports are not affected by repealing the export ban. According to this analysis, oil imports will account for 37 percent of U.S. demand in 2025 in a restricted environment and 36 percent if exports were permitted.
  • FACT: Public policy experts with decades of national security and U.S. foreign policy experience support crude oil exports.
    • Leon Panetta, former Secretary of Defense: “The U.S. has broken free of its dependence on energy from unstable sources. Only 27% of the petroleum consumed here last year was imported, the lowest level in 30 years. Nearly half of those imports came from Canada and Mexico. But our friends and allies, particularly in Europe, do not enjoy the same degree of independence. The moment has come for the U.S. to deploy its oil and gas in support of its security interests around the world.” (Wall Street Journal, 5/19/15)
    • William Cohen, former Secretary of Defense: “Energy exports would strengthen NATO and our broader transatlantic relationship at a time of increased Russian aggression. The European Union has responded to Russia’s energy stranglehold by proposing policies designed to avoid future crises of supply and promote self-sufficiency. […]Working with our allies and partners, a joint effort to reduce Europe’s vulnerability to Russian energy coercion would be an important legacy for President Obama and send a signal to President Vladimir Putin that as long as he chooses to use energy as a weapon, the West will defend itself.” (TIME, 5/27/15)
    • Stephen Hadley, former National Security Advisory: “Too often foreign-policy debates in America focus on issues such as how much military power should be deployed to the Middle East, whether the U.S. should provide arms to the Ukrainians, or what tougher economic sanctions should be imposed on Iran. Ignored is a powerful, nonlethal tool: America’s abundance of oil and natural gas. The U.S. remains the great arsenal of democracy. It should also be the great arsenal of energy.” (Wall Street Journal, 5/19/15)
    • Tom Donilon, former National Security Advisor: ““The US has consistently opposed efforts by countries to manipulate their exports…By allowing exports, we permit production decisions in the United States to be made fully on the basis of market forces rather than being influenced by artificially imposed regulatory constraints…This in turn will increase diversity of supply, increase competition, reduce volatility and lower prices in global markets.” (Platts, 1/27/15)
    • Michèle Flournoy, former Under Secretary of Defense: “The unconventional energy revolution in the United States over the last several years has brought about a new era of energy abundance in our country. Crude oil production has increased significantly, from 5 million barrels per day in 2008 to over 9 million barrels per day today… Lifting oil export restrictions will yield a variety of security dividends to the United States. These include stoking U.S. oil production growth, which will strengthen the U.S. economy and better support the ability of our nation to play a strong leadership role on international security and economic affairs. (Congressional testimony, 3/19/15)
    • Jason Bordoff, former special assistant to President Obama: “Allowing exports would make the US more resilient, not less, to supply disruptions elsewhere in the world. Greater integration into global markets would make US oil supply more responsive to international market developments, mitigating the impact on American consumers and the US economy of production losses in other countries.” (Columbia University, 1/16/15)
  •  FACT: U.S allies and trading partners are eager to diversify their crude oil supply with stable, more friendly and reliable sources of energy.
    • Maroš Šefčovič, vice president, European Commission: “Maros Sefcovic, the EU’s energy chief, said that easing flows of liquefied natural gas and crude oil from the U.S. to the EU is one of the bloc’s goals for the trans-Atlantic trade and investment partnership, or TTIP, that is currently under negotiation. The U.S. has so far resisted an energy chapter in TTIP, but the shale-gas boom in the U.S. and the EU’s trouble with Russia have pushed the issue into focus… We believe that the energy chapter in TTIP…could make a quite important contribution to the mutually beneficial trade exchange, but also to the energy security of the EU,” Mr. Sefcovic said.” (Wall Street Journal, 5/17/15)
    • Zygimantas Pavilionis, Lithuanian ambassador to the United States: US policymakers must move more aggressively to export more oil and gas so European nations can continue reducing their dependence on Russian supplies, Lithuania’s ambassador to the US declared. ““The whole Baltic region is suffering from Russian dependence, along with other former Soviet Union nations across eastern Europe,” said Pavilionis, who is concluding a 5-year assignment in Washington. “I would rather have a big, strong, reliable supplier. This is the US’s opportunity. This is your time.” (Oil & Gas Journal, 6/11/15)

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