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FACT CHECK: A Crude Reality

A recent op-ed in the Morning Consult by the CRUDE Coalition —a group of four independent U.S. oil refiners – claims that lifting the decades old ban on crude oil exports would harm consumers and weaken our national security.

Repeated often throughout the 700 word column, these claims fail to recognize the growing consensus of independent and government research that has soundly and consistently concluded that repealing the ban will strengthen our economy, enhance our national security, and place downward pressure on fuel prices.

In fact, as recently as September 2014, the U.S. Government Accountability Office (GAO) – the non-partisan investigative arm of Congress – published an analysis that found in part:

  • “The studies GAO reviewed and stakeholders interviewed suggest that removing crude oil export restrictions is likely to increase domestic crude oil prices but decrease consumer fuel prices.” (emphasis added)

Moreover, GAO goes on to say that repealing the ban:

  • “…is expected to increase the size of the economy, with implications for employment, investment, public revenue, and trade. For example, removing restrictions is expected to contribute to further declines in net crude oil imports, reducing the U.S. trade deficit.” (emphasis added)

In other words, repealing the ban will have a positive effect on consumers and the economy – including a reduction in the price at the pump for consumers; expanded public finances through the generation of additional tax revenue; a reduction in the trade deficit; as well as increased GDP, job creation and overall investment in the United States.

In late October, Pulitzer Prize winning author and historian Daniel Yergin – one of the world’s foremost experts on energy policy and economics – was interviewed by Reuters where he said:

  • “the intellectual case has become so strong that there’s no rationale for (the export ban).”

Perhaps this should be enough to show that the arguments advocated by CRUDE simply ignore the realities of widely accepted global supply and demand fundamentals, but let’s dig a little deeper and see exactly where these claims run counter to independent analysis.

CRUDE Myth 1: “lifting [the ban] risks raising the price of petroleum products here in the United States”

FACT: Virtually every independent analysis has concluded that repealing the 40-year old ban on crude exports will put downward pressure on the price at the pump.

  • 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.”
  • 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.”
  • Resources for the Future: “In this issue brief, we offer economic logic and estimates from our modeling and data analysis suggesting that the price of gasoline will likely fall by around three to seven cents a gallon [if the ban is repealed].
  • Brookings Institution: “Our analysis shows a direct correlation between increased U.S. oil production, net benefits to society, and lower gasoline prices. As a result, we find the ban an anachronism that has long outlived its utility and now threatens to impair, rather than protect, U.S. energy, economic, and national security.”
  • Aspen Institute: “[E]nding the ban would not raise the price of petroleum products like gasoline but would actually put some, if modest, downward pressure on these prices.”

While this may seem counterintuitive at first, as the Energy Information Administration explains, the price of gasoline and other transportation fuels is tied to global oil prices, not domestically produced crude. This, of course, means that while U.S. crude prices may rise, there would be corresponding downward pressure on the price at the pump, because additional U.S. supplies on the global market would put downward pressure on global prices.

CRUDE Myth 2: “Exporting U.S. crude oil will mean we import more foreign oil”

FACT: Crude oil comes in many different forms – a barrel of oil produced in South Texas can have different characteristics than a barrel produced offshore in the Gulf of Mexico or oil produced in Kansas, or even imported oil from our friends in Mexico or Canada. Depending on the geologic formation, you may produce varying degrees of “heavy” or “light” crude oil.

Importantly, most domestic oil refineries are configured to process mostly heavy crude oil with limited capacity to refine light crude oil. Since large quantities of light crude oil are being produced from the shale formations that underpin the U.S. energy supply renaissance, oil producers face a bottleneck restricting their ability to market these light crude oils because of U.S. refiners’ lack of light oil refining capacity.

A recent Bloomberg story highlights this point further:

  • “U.S. refiners built the capacity to use heavy crude, so this is the natural home for Latin American heavy oil, said John Auers, executive vice president of the Dallas-based consulting company Turner Mason & Co. “Those barrels still belong here, while the light and medium crudes from the Middle East and Africa are the ones being backed out by domestic production.”

So while CRUDE leads readers to believe that oil is oil, it’s not all created equally in terms of what our domestic refineries are configured to process and will have little bearing on if “we import more foreign oil.”

CRUDE Myth 3: “Lifting crude export restrictions is akin to unilateral disarmament”

FACT: Actually, maintaining the ban poses a far bigger risk for the U.S., as foreign policy experts have recently concluded. Take the Council on Foreign Relations for example, which published a policy memo titled “The Case for Allowing U.S. Crude Oil Exports”:

  • Liberalizing the crude oil export regime would advance U.S. foreign policy. It would demonstrate Washington’s commitment to free and fair trade, even in a politically sensitive sector, bolstering its negotiating position on other trade issues. It would also avoid putting Washington at odds with allies that would like to source their oil from the United States. If the United States were to become a major crude exporter, its leverage as an oil trade partner would grow significantly.” (emphasis added)

And while it’s always nice to invoke the name of the 40th President of the United States when making an argument, as CRUDE does, President Reagan’s famed “peace through strength” approach to foreign policy rings most true in repealing the decade’s old ban on oil exports, not in keeping it intact.

In this new age of American energy abundance, the United States has the ability to spur economic growth here at home through repealing this outdated, 40-year old policy, while also providing friends and allies around the world with the energy they need. Increased exports also mean more money flowing back into the United States, further reducing our country’s trade deficit.

One thing the CRUDE Coalition gets right, is that it’s “important to look at the implications of a change to our crude export policy.” Indeed, when one carefully reviews the independent research and government data, there is a clear, growing consensus that our economy and consumers stand to benefit as a result of crude oil exports.

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