A new study from Harvard Business School (HBS) and the Boston Consulting Group (BCG) highlights the growing opportunity made possible by the responsible development of America’s unconventional oil and natural gas resources, noting that, “Unconventional gas and oil resources are perhaps the single largest opportunity to improve the trajectory of the U.S. economy, at a time when the prospects for the average American are weaker than we have experienced in generations.”
This new study, America’s Unconventional Energy Opportunity, is a joint project of HBS and BCG that “was established to develop a shared fact base, engage the key stakeholders, and advance a shared agenda for developing America’s unconventional gas and oil resources in a way that addresses the key objectives of all the stakeholders.”
The agenda, which the authors call a “win-win” strategy, includes a number of policy recommendations related to enhancing U.S. competitiveness, minimizing the environmental footprint of shale development and leveraging unconventional resources to transition to a lower carbon future. The study states that:
“America’s new energy abundance can not only help restore U.S. competitiveness but can also create geopolitical advantages for America. These benefits can be achieved while substantially mitigating local environmental impact and speeding up the transition to a cleaner-energy future that is both practical and affordable.”
One of the key policy recommendations is “eliminating outdated restrictions on gas and oil exports,” noting that “with abundant resources, restrictions on exports created in response to the 1970s’ energy crises are no longer needed, and exports would boost U.S. economic and job growth while benefitting friendly nations.”
This paper joins a growing body of research from government agencies, think tanks across the political spectrum and other academic institutions and economic consulting firms that have arrived at a similar conclusion: lifting the ban on crude oil exports from the United States will generate economic opportunity, benefit consumers and strengthen our geopolitical standing in the world.
Below are additional highlights from this study related to crude oil exports:
Export ban offers no clear “benefits for America or Americans”
The oil export ban is outdated and based on circumstances in the 1970s that since have been reversed. Today, the ban on crude exports to almost all countries is reducing market opportunities for producers and reducing U.S. growth, with no clear offsetting benefits for America or Americans. By 2030, oil and gas exports could create an additional $23 billion in GDP and around 125,000 new U.S. jobs.
Crude oil exports increase the competitiveness of domestic oil production without affecting U.S. consumers. The U.S. price for gasoline and other refined products is closely tied to global market prices for these products, because the U.S. places no restrictions on their import or export. However, the existing ban on crude oil exports hurts domestic producers while benefitting domestic refiners, because U.S. producers must sell their crude at a discount to U.S. refiners. Therefore, exports will not cause an increase in prices at the pump, and few, if any, other U.S. industries would be affected. Crude oil is the source of less than 1% of the fuel for power generation, and U.S. petrochemical companies are already using natural gas and related natural gas liquid products, rather than crude oil, as their primary feedstock. 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.
Export bans are also inconsistent with longstanding U.S. trade policy and undermine U.S. efforts in opening markets generally, which benefits U.S. producers and consumers across all industries.
Exports will benefit U.S. economy, allies
There is a sizable market abroad for the light-grade crude oil produced in U.S. unconventional basins. Today, the U.S. has a domestic mismatch in the types of crude produced from U.S. basins and the crude types required by U.S. refiners. Unconventionals skew U.S. supply toward light grades, but U.S. refineries have been built to operate with a mix of light and heavy crude oils. Currently, however, exports of crude oil are restricted by federal law, which forces U.S. refineries to adjust away from their optimal mix of crude grades in order to accommodate the overabundance of U.S. light grade oil. That has created an artificial discount for light grades that reduces U.S. income.
Opening up exports would allow a better U.S. balance in crude grades and would bring domestic oil prices in line with world market prices, which would increase the value of oil produced in the U.S. Exports will also create an incentive for increased U.S. production, which will be especially important if low oil prices persist. There are also opportunities to better trade oil among U.S. states if ocean shipping costs, now artificially inflated, are reduced.
Ban is “based on historical circumstances that no longer apply”
Natural-gas and crude-oil exports leverage America’s strengths, increase economic growth, and benefit partner nations, without compromising our competitiveness, environmental standards, or domestic prices. Current U.S. restrictions on natural gas and oil exports are antiquated and based on historical circumstances that no longer apply. The Natural Gas Act of 1938 was created to curb the monopolistic tendencies of pipeline owners in the early 20th century, a concern no longer relevant. Oil exports were restricted by the Energy Policy and Conservation Act of 1975, passed in response to the oil scarcity caused by the 1973–1974 international oil embargo. Restrictions were later expanded in the 1979 Export Administration Act. Today, ample new domestic resources mean that removing these antiquated restrictions will both reduce the U.S. trade deficit and bolster the value of unconventionals to the U.S. economy, while having little if any impact on consumer prices. Congress should pass legislation that amends the Energy Policy and Conservation Act and the Export Administration Act, allowing for the export of unrefined crude to all WTO members, not just to Canada. Likewise, Congress should amend the Natural Gas Act to formally allow exports of natural gas to all WTO member countries, without the need for the current project-by-project approval from the Department of Energy.
Learn more at www.OilExports.com.