Crude Oil Exports, Imports and Fig Leaves

Mark Green
Posted September 18, 2015

First, they said it was about protecting consumers. Opponents of lifting the U.S. ban on crude oil exports claimed that allowing domestic crude to reach the global market would negatively impact Americans at the gas pump. But every major economic study looking at the issue has blown away that fig leaf:

As you can see, the studies – from Brookings Energy Security Initiative to IHS to the U.S. Energy Information Administration (EIA) – estimate that U.S. oil exports would put downward pressure on U.S. gasoline prices, benefiting American consumers.

There have been other fig leaves.

Exports opponents say America shouldn’t export crude as long as our country is an oil importer. They also say the U.S. should isolate its crude from the global marketplace for national security reasons and that for those reasons oil should be treated differently than other U.S. commodities that are freely traded. These, too, have been blown away by the facts and sound economic analysis.

So what’s it all about, really? Where do these arguments lead? U.S. Sen. Heidi Heitkamp of North Dakota has an idea, shared this week during an oil exports discussion hosted by National Journal:

“All of the arguments you will hear on the other side of this are really about we don’t want any development of any fossil fuel in any way shape or form, and we are not going to adopt any policy that promotes domestic drilling. Fundamentally, that is the argument. … It doesn’t make a lot of sense in my world. But just say what it is, that this is all about never drilling another barrel of oil in this country and really in the world, eventually.”

Sen. Heitkamp is right. In fact, one study after another has found that a benefit of exporting U.S. crude is that it would stimulate domestic oil production. That’s why those pushing an “off oil” agenda, are targeting U.S. exports – as well as the shale revolution, the Keystone XL pipeline, new access to public oil and gas reserves and more. To be clear: They’re not for safe and responsible oil and natural gas development – they’re opposed to development, period.

So, with the protecting-the-consumer angle discredited, let’s look more closely at a couple of the other attempts to divert from the facts pertaining to ending the U.S. exports ban.

Imports, Exports and Trade

Rather than accept economic realities, opponents of exports have simply moved on to more economic nonsense – that the U.S. shouldn’t export crude oil as long as it is importing crude oil. We discussed that flawed idea here. Let’s see how that notion might play out in the real world of trade. Here are a number of products whose imports to the U.S. exceed exports (and they’re not the only ones):

Maybe we’ve missed it, but you don’t hear folks who oppose U.S. crude oil exports advocating that these products shouldn’t be exported until there are no more imports. That’s because it’s a silly notion, not grounded in history or economic principles – one that would deny the broad benefits of free trade to the United States. BHP Billiton CEO Andrew Mackenzie, addressing the U.S. Chamber of Commerce on trade this week (photo below courtesy U.S. Chamber of Commerce):

“For 50 years, until this recent decade, trade growth has supported prosperity. But since then we’ve seen trade grow more slowly than GDP, which has hardly been accelerating, and the figures actually went backwards in the first half of this year. As a share of GDP, trade remains below its 2007 peak, and as a result, we’ve seen current projections for global growth falling. … There’s a number of developments that have been happening, even in recent weeks … where the political pressures to actually resist free trade, to roll it back, seem to be gathering and gathering strength. … Those opponents of open markets argue that they harm working people and working families, and that protectionism is the right response for resource scarcity. I totally reject this. … Free trade doesn’t take jobs on a net basis. It makes them, big time.”

Mackenzie said trade secures 40 million U.S. jobs and has added $1.5 trillion to the U.S. economy since World War II. He said 95 percent of the world’s consumers and three-quarters of the world’s purchasing power are outside the U.S. The oil export ban, Mackenzie said, is a relic of the past and should be lifted:

“If the U.S. were to … revise some of its remaining policies on trading in natural resources, and particularly its crude oil export ban, that would be a real stand against this misguided thinking. … Repeal of this somewhat outdated position dating back to the 70s could add hundreds of thousands of jobs to the U.S. economy. And the economic consensus says you have nothing to fear in general from stimulating world trade and world competition for the production of crude oil. Prices at the pump would fall, gasoline prices would fall. A lot of independent studies show this. … But importantly, it would really signal to the world … that the U.S. is committed to the economic freedom that I’m talking about and the promotion of global growth that comes with it. … It’s a win, win, win, win, win. It’s good for the economy and it’s good for the stance of the U.S. in the world, and it’s good to begin the fight back against opponents of free trade.”

Opponents say the products in the chart above are all different. But so is crude oil. There are all different kinds, which is another important reason for lifting the U.S. export ban.

The fact is America’s oil production growth is in light crude, imports of which have virtually ended. The shale revolution has created a mismatch between accumulating supplies of light crude and the domestic refining sector, much of which is configured to process heavier crudes. EIA, in a February report:

• “The increase in U.S. shale and tight crude oil production has resulted in a decrease of crude oil imports to the U.S. Gulf Coast area, particularly for light-sweet and light-sour crude oils.”
• “Historically, Gulf Coast refineries have imported as much as 1.3 million barrels per day (bbl/d) of light-sweet crude oil, more than any other region of the country. Beginning in 2010, improvements to the crude distribution system and sustained increases in production in the region (in the Permian and Eagle Ford basins) have significantly reduced light crude imports.”
• “Since September 2012, imports of light-sweet crude oil to the Gulf Coast have regularly been less than 200,000 bbl/d. Similarly, Gulf Coast imports of light crude with higher sulfur content (described as light-sour) have declined and have been less than 200,000 bbl/d since July 2013.”

What we see from this is that increasing production of light crude doesn’t displace the need to import heavier crudes that are optimal to run in much of the domestic refinery system.

By allowing the export of light crude, production will be stimulated, not discouraged – as is the case currently because volumes of light crude have no access to market. Ryan Lance, ConocoPhillips Chairman and CEO, in testimony to the House Energy and Natural Resources Committee earlier this year:

“A wide discount between U.S. light crude prices and global crude prices has a disproportionately negative impact on U.S. producers. We are already seeing this in the market today. Projects are not economic, producers are cutting back dramatically on spending, and we are experiencing a significant negative impact on jobs, as well as local and state economies. … The easiest, most efficient and immediate solution to the refining challenge would be to allow producers to sell their crude oil into the export market, as can currently be done with other energy commodities such as refined petroleum products, natural gas and natural gas condensates.”

National Security

Some argue that oil should be treated differently from all other commodities that are traded because it is a vital U.S. interest, one that historically has been protected by military power. But other commodities are vital, too. And as we’ve seen, America’s energy security would be strengthened with the domestic oil production the economic studies say would be spurred by exporting U.S. crude.

Certainly, U.S. allies want American oil on the global market. The Czech Republic’s U.S. ambassador, Petr Gandalovic, urged support for legislation ending the U.S. oil exports ban earlier this year:

“I cannot assure you that if you pass this bill there will be a direct purchase from our refineries … of U.S. crude oil. I can predict that if there is an alternative coming from the U.S., as a democratic state that doesn’t use natural resources as a political tool, the world itself will be a … safer place.”

The broader foreign policy and U.S. security impact is that the global crude marketplace would be more supplied and more diversified, lessening the ability of countries like Russia – and soon, perhaps, Iran – to exert power through energy.

This already is being seen in U.S. exports of refined products. America is exporting record amounts of refined products, which has helped our trade imbalance and also energy security.

We’ve discussed America’s long history as an oil exporter and the benefits of exports to boost U.S. competitiveness – as well as the positive impacts of trade that should be accruing to an energy superpower like the United States.

There’s a significant global market for crude oil, and the U.S., the world’s No. 1 producer of oil and natural gas, should be a player in that market. The economics argue for it, our energy security argues for it and overall U.S. security argues for it. Lift the ban.