U.S. Energy Exports and Market Engagement

Mark Green
Posted November 18, 2015

Interesting analysis on energy independence in the Wall Street Journal by Columbia University’s Jason Bordoff, a former energy adviser to President Obama. It’s a good thing the United States isn’t energy independent, Bordoff writes. That’ll get your attention, right?

As Bordoff explains, “energy independence” is a dusty concept from the 1970s and 80s, after policymakers made it a goal to end U.S. reliance on global crude suppliers after the 1973 oil embargo.  It didn’t happen. To the contrary, U.S. imports steadily climbed in the 1990s and 2000s (chart) before the significant increases in domestic production, thanks to abundant American shale energy reserves and advanced hydraulic fracturing.

Now, with U.S. energy output surging, the inclination among some is to keep that energy here at home by maintaining the 1970s-era ban on crude oil exports, believing that it lessens others’ ability to disrupt our oil supplies. But Bordoff writes that an “isolationist” approach on energy misunderstands the reality that today’s global energy market is highly integrated and that the interconnectedness of the market has helped the U.S. compensate for supply disruptions here at home and overseas. “Free trade in a highly integrated global energy market made us more secure,” he writes. Bordoff:

To be sure, there are benefits to reducing import dependence. U.S. oil imports, for example, have fallen from 60% to 25% of U.S. consumption since 2008 as a result of both surging production and falling usage. That boosts U.S. economic activity, reduces our trade imbalance, and lowers our macroeconomic vulnerability to price shocks. But import dependence shout not be confused with energy independence. Even with reduced imports, the U.S. is better off because we are integrated into a global energy market. Our energy security will come not from the chimera of “energy independence,” but from more optionality, interconnectedness, competition, and interdependence.

Fair enough, but the interconnectedness argument also has implications for U.S. oil and natural gas exports. Again, a 40-year-old oil export ban remains in place, and federal approvals of projects to export liquefied natural gas (LNG) have come too slowly. Bordoff mentions LNG exports as an expander and diversifier of the global LNG market, with obvious benefits to our friends in Europe. He elaborated on that point in a follow-up post on the Journal’s blog:

Exporting U.S. LNG represents a stunning turnaround from the energy outlook just a decade ago. In 2005, it was projected that in 2015 the U.S. would be importing 25% of our daily gas use—a volume nearly twice what Qatar, the world’s largest LNG exporter, puts on the market today. Instead, we will now be a net gas exporter by 2017. . . With LNG exports now starting up, the U.S. is also emerging as a global gas superpower on par with Russia and Qatar that is going to alter the landscape of global energy geopolitics and security in profound ways in the years to come.

At the same time, U.S. energy exports could bring significant benefits here at home – sustaining domestic production, spurring job creation and economic growth and improving our trade balance.

An ICF study, for example, projects that lifting the crude oil export ban could help domestic output increase up to 500,000 barrels per day by 2020, increase U.S. GDP by $38.1 billion and create up to 300,000 jobs. Every major study has concluded that lifting the ban could benefit U.S. consumers with lower gasoline costs – between a penny per gallon up to 12 cents per gallon.

Globally, allowing crude exports and removing artificial impediments to LNG exports would increase American competitiveness in global energy markets, bring overseas wealth into this country and help America’s friends abroad.