The People of America's Oil and Natural Gas Indusry

Good News on Oil Exports and Gas Prices

Mark Green

Mark Green
Posted September 19, 2014

A couple of recent polls indicate many Americans are concerned that lifting the 1970s ban on crude oil exports could increase prices at the pump. The Washington Examiner:

Most Americans think exporting oil will raise gasoline prices, according to a poll released Thursday. Fifty-two percent of respondents to a survey by the Morning Consult said they think sending crude abroad would cause more pain at the pump, though more support (38 percent) rather than oppose (34 percent) ending a 39-year-old ban on exporting oil.

Fuel Fix.com reports on a University of New Hampshire poll:

In the UNH survey, more than three-quarters of the respondents said the government should look before it leaps and be certain about how crude oil exports would affect domestic gasoline prices before making changes to the ban. And 85 percent of the surveyed voters agreed that the U.S. should limit crude exports if it keeps U.S. gasoline prices from rising.

gastankA couple of thoughts. First, it’s likely these opinions stem from an idea that restricting domestic crude oil output to the boundaries of the United States will favorably impact domestic pump prices. Yet, because crude oil is traded globally, the world market sets the cost of crude, which then is the chief factor in prices at the pump.

Second, the strong weight of new scholarship and analysis say that allowing exports of domestic crude will lower pump prices in this country – while also boosting economic growth, employment and wages and improving our balance of trade.

A study released this month by Brookings’ Energy Security Initiative:

The welfare benefits to U.S. households derive from higher real incomes (from higher wages) and lower gasoline prices. In the reference case, the decrease in gasoline price is estimated to be $0.09/gallon, but only for about five years. If oil supplies are more abundant than currently expected, the decline in gasoline prices will be larger ($0.07 to $0.12 per gallon) and more enduring. …. What is most important is our finding that in all these modeling scenarios, there are positive gains for U.S. households.

Brookings also projects significant economic gains:

… the present discounted value of GDP in the high resource case increases through 2039 is between $600 billion and $1.8 trillion, depending on how soon and how completely the ban is lifted.

An IHS study from earlier this year says that lifting the crude oil export ban would lead to further increases in domestic oil production, which would support an average of 394,000 additional U.S. jobs over the 2016 to 2030 period, with highs of 811,000 additional jobs supported in 2017 and a peak of 964,000 jobs in 2018. Lifting the ban supports economic activity across all states, the IHS study says, with a quarter of the additional jobs coming in states that essentially produce no crude oil. IHS:

The average disposable income per household would increase by an additional $391 in 2018 as benefits from increased investment, additional jobs and lower gasoline prices are passed along to consumers. … The additional crude oil supply that would be generated if exports restrictions were removed would lower gasoline prices by an annual average of 8 cents per gallon. The combined savings for US motorists during the 2016-2030 period would translate to $265 billion compared to a situation where the restrictive trade policy remains in place.

Kurt Barrow, study co-author and IHS vice president for downstream energy:

“If crude oil export restrictions were lifted, the resulting increase in oil production would increase supply and actually lower gasoline prices. The gasoline trade and price fundamentals are clear.”

Dan Yergin, IHS vice chairman:

“The 1970’s-era policy restricting crude oil exports – a vestige from a price controls system that ended in 1981 – is a remnant from another time. It does not reflect the dramatic turnaround in domestic oil production, led by tight oil, which has reversed the United States’ oil position so significantly. The United States has cut its dependence on foreign oil in half since 2005 and its production gains have exceeded that of the rest of the world in recent years. The economic contributions of this turnaround have been substantial. Allowing the free trade of oil would expand those gains for consumers and the wider economy.”

A study by ICF International, also from this year, parallels the other two. Lifting the crude export ban would increase U.S. production, create net employment gains and bring about lower wholesale product prices, ICF says.

Public opinion is important. Yet, as Americans and policymakers alike consider lifting the ban on crude exports, it’s critical for the discussion to be guided by fact and sound economics. There’s strong analysis that America’s outdated ban on crude exports, rather than making the U.S. more energy secure and prosperous, actually could work against the benefits promised by our ongoing energy revolution. Kenneth B. Medlock, senior director of Rice University’s Center for Energy Studies, speaking at an energy event this week in Washington:

“Two of the last three years we’ve seen year-on-year increases in crude oil production in the United States that are only talked about in one other country – in terms of annual increases in crude oil production in the history of oil production – and that’s Saudi Arabia. … What we’re seeing in the United States is nothing short of remarkable, but existing policy can actually stand to derail that growth.”

Our energy revolution is creating opportunity for economic prosperity and greater energy security in the world. But we need to choose the right energy policies to safely sustain and grow that revolution. Lifting the crude oil exports ban is one piece of that policy puzzle. API President and CEO Jack Gerard in House testimony this week:

“What this speaks to is the unprecedented opportunity created by America’s 21st century energy renaissance, which is a direct result of technical advances in the U.S. oil and natural gas industry.  If we seize this moment in our history and work together on energy policies that promote the safe and responsible development of our nation’s enormous energy resources, our industry will not only create and support millions of well-paying jobs far into the future, but also make America a global energy superpower for generations.”

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.