A new study from the Center for Energy Studies at Rice University’s Baker Institute for Public Policy joins a growing body of research which has found that lifting the ban on exports of U.S. crude oil will create net benefits for our economy and energy security.
Notably, the report assessed scenarios with a wide range of crude oil prices, from $30 per barrel to $150 per barrel, finding each time that addressing U.S. oil export policy remained crucial throughout. One particularly salient result from their econometric modelling is the following:
“The results indicate even in a low international crude oil price environment the importance of addressing the export ban is very high with discounts reaching as high as $8 per barrel in a $50 world, depending on the quality of the crude oil that is being produced and marketed.”
In other words, U.S. producers are receiving as much as 16 percent less than they would receive for their product if they had access to international markets. This has a direct impact on capital investment, job creation and tax revenues that are forgone as a result of the current export policy.
Additionally, the study’s author and the center’s senior director, Kenneth Medlock, finds that lifting the export ban will support the competitiveness of American producers and significantly incentivize further U.S. production. As the majority of light oil produced in the U.S. is of a higher quality than both WTI and Brent, if it were exported it has the capacity to fetch even higher prices in the international market.
“If the ban were lifted, it would immediately allow the sale of domestic crude oils into the international market where prices reflect differences in crude quality and therefore would be higher for the light crude oils being produced from shale plays. This would, in turn, incentivize investment in the midstream aimed at moving domestic crude oils to the coast – through pipelines and other means – for export through port facilities, where additional investment would also be required.”
Allowing U.S. producers to receive the most competitive price for their product is fundamental to ensuring the economic viability of domestic production. With our domestic refining system not designed to handle all of the substantial volumes of light oil being produced, but rather imported heavier crudes, there is a growing surplus of U.S.-produced light oil whose price is becoming increasingly discounted here at home.
“In turn this could dampen U.S. upstream investment,” said Medlock. “Opening foreign markets to U.S. crude would facilitate new investments in the upstream and midstream sectors, as domestic oil prices would move into greater parity with other international crudes.”
The cost savings that our refining industry gains by U.S. crude oil being landlocked are not, however, passed along to American consumers. Specifically, “[R]emoving the crude export ban, although it would raise the price of domestic crude oil, would not increase the price of gasoline in the US. In fact, the results […] indicate that the biggest determinant of U.S. gasoline price is the price of oil in the international market.”
Therefore, the influx of U.S. supplies on the international market – as supported by numerous other third party analyses including Brookings, the U.S. Energy Information Administration and IHS Energy – has the potential to put downward pressure on the international price and lead to lower prices at the pump for consumers here at home.
This will, in turn, support U.S. energy security by providing a reliable and consistent source of crude oil to the global market. As the study notes:
“Greater stability would lessen international market price volatility, which will affect petroleum product prices […] More generally, the U.S. has the opportunity to lead an oil industry transformation that would see lines of global oil trade would be redrawn as North American production, and Western Hemisphere production more generally, could capture a larger portion of the growing international market. This would, should it transpire, have tremendous benefits for U.S. foreign policy endeavors in its dealings with hostile oil producing nations. It would also lend greater stability to the global crude oil market thereby conveying benefits more broadly to the U.S. and its allies.”
In conclusion, as the report makes clear, the economic benefits of lifting the U.S. crude oil export ban have been well-documented at this point. What this analysis provides – crucially – is the significance of U.S.-produced oil garnering a competitive global price, how this will impact the future of U.S. energy production and what role the addition of U.S. supplies in the global market will play in creating energy security.
As our lawmakers in Washington, D.C. continue to review our energy policies and consider whether the 40-year-old crude export ban has outlived its usefulness, authoritative data-driven studies such as this are helpful in providing a big-picture framework on what impact U.S. crude exports will have. This report joins a series of other independent economic studies in underlining that lifting the crude export ban will have far-reaching benefits and is a clear win-win policy for the United States.