The People of America's Oil and Natural Gas Indusry

Understanding the Benefits of Trade

Mark Green

Mark Green
Posted December 26, 2013

Though there are compelling, Economics 101-type reasons the U.S. should lift its dated ban on crude oil exports and help clear the way for the export of U.S. liquefied natural gas (LNG), opponents of both continue to misunderstand the way global energy markets work – as well as the significant benefits accruing to the United States from free trade.

You’ve probably heard the rhetoric: Keep American oil and natural gas locked up here at home for U.S. consumers.

This misses the essential fact that crude oil is traded (and priced) globally, and that limiting LNG exports will only limit U.S. participation in an important, developing market – while effectively denying our country the infusion of overseas wealth in exchange for valuable American commodities.

Think about it: We don’t unilaterally isolate ourselves from foreign demand for U.S.-produced automobiles, computers, wheat or a number of other items. The free trade of all of these brings value into this country from willing buyers. And the demand for U.S. products helps spur more domestic output. Economics 101.

My guess is that this probably was part of Energy Secretary Ernest Moniz’s thinking earlier this month, when he basically said the crude oil export ban is an anachronism from a by-gone world:

"Those restrictions on exports were born, as was the Department of Energy and the Strategic Petroleum Reserve, on oil disruptions. There are lots of issues in the energy space that deserve some new analysis and examination in the context of what is now an energy world that is no longer like the 1970s."

Interestingly, opponents of U.S. energy exports often play the “energy independence” card, citing surging U.S. oil and natural gas production that has played such a big part in reducing imports from 60 percent less than a decade ago to 40 percent in 2012. Indeed, the U.S. Energy Information Administration projects imports will fall to 25 percent in 2016 because of growing domestic output and energy efficiencies here at home.

Yet, if we want America’s energy renaissance to continue and grow, we need increased access to domestic reserves and a sound approach to regulation – but also access to global markets to fuel growth in domestic production. An editorial in the Wall Street Journal (subscription publication) put it like this:

The opposition to lifting the ban will also play the energy "independence" card, but the best protection for America's energy supply is more domestic production that exports would induce. Some of the opponents don't want such production precisely because they want to stop the U.S. oil boom so world prices rise and renewable energy can replace fossil fuels. … 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.

During a recent teleconference with reporters, API Upstream Group Director Erik Milito talked about the importance of the United States gaining a larger role in the world crude oil marketplace:

“Greater access to world markets would also provide a needed outlet for surging domestic production of lighter crude. The U.S. has long been a refining powerhouse, but our refining capacity is largely designed to accommodate foreign, heavy crude. Trapping light, domestic crude within our borders only penalizes U.S. production, which could mean high costs for refiners and consumers.”

Blocking U.S. energy exports is a mistake that could squander America’s new global positioning as an energy superpower, thanks to dramatic increases in oil and natural gas production. This role means greater energy security but also trade opportunities that strengthen our economy. According to the Commerce Department, every $1 billion reduction in America’s trade deficit leads to 5,000 jobs. Spending on energy imports down $40 billion this year to date, contributing to a $48 billion trade deficit reduction by the oil and natural gas industry. That’s 240,000 jobs contributed by energy trade.

The good news is this effect could increase – if policymakers see the trade opportunities at hand instead of perpetuating short-sighted and misguided policies that dilute America’s energy strength.

ABOUT THE AUTHOR

Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Mark also was a reporter, copy editor and sports editor. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela live in Occoquan, Va., where they enjoy their four grandchildren.