The People of America's Oil and Natural Gas Industry

A Step Forward on Oil Exports

Mark Green

Mark Green
Posted August 17, 2015

Late last week the Obama administration gave the go-ahead for limited domestic crude oil exports to Mexico, a positive move on oil exports – yet one that immediately underscores this question: Why stop there?

According to the Associated Press, license applications approved by the Commerce Department allow the exchange of similar amounts of U.S. and Mexican crude, a swap. The U.S. would send an as-yet unspecified amount of light crude to Mexico in exchange for heavier Mexican crude. AP:

While the Commerce Department simultaneously rejected other applications for crude exports that violated the ban, the move to allow trading with Mexico marked a significant shift and an additional sign that the Obama administration may be open to loosening the export ban. Exchanges of oil are one of a handful of exemptions permitted under the export ban put in place by Congress.

lanceTwo things: First, the arrangement with Mexico, while limited in scope, nonetheless is the administration affirming the inherent benefits of trade. The light crude in the deal represents some of the domestic oil that’s accumulating and trading at a discount to global prices, unable to reach the world market because it’s shut in by an outdated, anti-competitive oil exports ban.

Second, the U.S. needs to go further. The deal with Mexico is limited, and the overall export ban remains in place, denying global market access for a lot more domestically produced crude – suggested in the other export applications that Commerce rejected. API Executive Vice President Louis Finkel:

“Trade with Mexico is a long-overdue step that will benefit our economy and North American energy security, but we shouldn't stop there. Study after study shows that free trade in crude oil would promote the creation of U.S. jobs, put downward pressure on fuel costs, and reduce the power that foreign suppliers have over our allies. America is now a global energy superpower, and lifting ‘70s-era restrictions on U.S. oil exports will help bring the benefits of trade home to U.S. workers and consumers.”

The benefits of oil exports have been detailed by a range of studies and acknowledged by a number of voices. These include more domestic oil production, job creation, foreign policy benefits and big, positive economic gains – up to $70.2 billion in additional investment in energy exploration, development and production by 2020, according to ICF International, and between $200 billion and $1.8 trillion added to the economy between now and 2039, according to NERA Economic Consulting. For consumers, study after study projects that exporting domestic crude would put downward pressure on U.S. gasoline prices, ranging from 1.7 cents up to 12 cents per gallon.

The Mexican deal is welcome, but incremental steps like it won’t let the United States realize the broad benefits noted above. Piecemeal measures leave in place a trade-inhibiting system in which the federal government stands at the gate, licensing each export action. It’s inefficient and time-consuming, working against the competitiveness of American energy in the world marketplace while watering down the benefits that could accrue to the United States from the free flow of trade. The export ban should be lifted. The Wall Street Journal editorializes (subscription required):

The ban dates to the 1975 Energy Policy and Conservation Act, which Congress passed in response to that era’s oil crisis. The idea was that if we could keep oil produced within our borders for the domestic market, it would insulate Americans from price spikes. This thinking never made sense even in the days when oil supplies were scarce and prices were rising. It makes even less sense today, when America is becoming one of the world’s leading oil and gas producers. Today the main effect of the ban is to discourage some American producers from drilling for more supply, while leading others to get around the ban by exporting their oil in the form of refined gasoline and diesel, which can be exported.

Until the export ban is lifted, the U.S. will be at a competitive disadvantage when measured against other energy-supplying nations, and we will continue to miss the full trade benefits associated with the American energy revolution. Finkel:

“Much like our mutually-beneficial oil trading relationship with Canada, exports to Mexico will offer another example of how the free flow of commerce helps keep energy supplies more stable, more secure, and more affordable. At a time when the U.S. is working on a deal to allow Iranian crude onto the global market, policymakers should focus on preserving America’s competitive position as the world’s top oil and gas producer. By lifting our own self-imposed sanctions, we can give U.S. producers the same access to global markets and protect America’s competitive edge.”

ABOUT THE AUTHOR

Mark Green joins API after spending 16 years as national editorial writer in the Washington Bureau of The Oklahoman newspaper. In all, he has been a reporter and editor for more than 30 years, including six years as sports editor at The Washington Times. He lives in Occoquan, Virginia, with his wife Pamela. Mark graduated from the University of Oklahoma with a degree in journalism and earned a masters in journalism and public affairs at American University. He's currently working on a masters in history at George Mason University, where he also teaches as an adjunct professor in the Communication Department.

Energy Tomorrow is a project of the American Petroleum Institute – the only national trade association that represents all aspects of America’s oil and natural gas industry – speaking for the industry to the public, Congress and the Executive Branch, state governments and the media.