Notes:BC1.TIs.WSJ.Oil Export Myths
2015/01/18 User:Jeff
Printed in WSJ Opinion page Jan 17, 2015
Oil Export Myths
Lifting the ban will increase U.S. supply and energy security.
The new Congress is set to make the biggest changes in U.S. energy policy in nearly a decade, against the backdrop of the domestic shale boom. This represents major progress, assuming that some Republicans aren’t intimidated by economic myths about energy security.
The first big Senate debate concerns approval of the Keystone XL pipeline, which seems likely to pass. The GOP majority also wants to speed up approvals for liquid-natural gas terminals, reduce limits on drilling, and block new regulatory roadblocks from the Administration. These are all pro-growth moves.
But the Keystone debate is taking place under new Majority Leader Mitch McConnell’s pledge to allow amendments, in contrast to Harry Reid ’s kindergarten class. Democrats naturally want to join the debate, and some of them plan to offer measures that would harm U.S. production under the false flag of reducing oil exports.
One liberal target is to prevent any easing in the 39-year-old ban on oil exports. The ban makes less sense each year as U.S. production increases, with the latest estimate at 9.3 million barrels per day in 2015, up from about nine million last year. But the ban makes for good populist politics, and New York Senator Chuck Schumer is promoting an amendment requiring that any oil that flows through the Keystone XL must stay in the U.S.
This makes no economic sense, starting with the fact that the oil market is global. What matters for prices are global supply and demand. To the extent more U.S. crude makes it to the global market, prices will be lower, other things being equal.
All the more so given that most U.S. oil is lighter crude that can’t all be processed by U.S. refiners. American refineries on the Gulf Coast were built to process heavy imported crude from the likes of Venezuela. Light crude is valuable and should be fetching a premium. Instead, U.S. producers are at the mercy of U.S. refiners, since the export ban means they have nowhere else to sell.
As U.S. supplies have swelled, those refineries have had more leverage to push down prices for U.S. shale oil. While the price of Brent crude, the world benchmark, is still about $50 a barrel, producers in the Bakken Shale in North Dakota this month are averaging about $34 a barrel for light crude. Exports would allow a more efficient oil market.
Opponents of lifting the ban argue that keeping U.S. oil here will enhance U.S. energy security, as if it can be stockpiled for use in an emergency. The feds already have the Strategic Petroleum Reserve, which can provide some relief in a genuine crisis. But companies are only going to drill if they can sell oil at a profit.
The best guarantee of energy security is robust American production capacity. Allowing exports will at the margin provide more incentive to drill. By the way, consumers don’t purchase crude oil. They buy refined products, of which the U.S. is already a net exporter.
The federal Government Accountability Office, Congressional Budget Office, the Brookings Institution, Aspen Institute and IHS consultants have published studies showing that more oil exports would benefit U.S. consumers. The studies estimate drivers would realize anywhere from a 1.5-cent to a 12-cent per-gallon reduction in gasoline prices, as well as lower costs for heating and diesel fuel.
The studies also show that oil exports would result in big economic and job gains, as producers plow higher returns back into production. A recent study by consultants ICF International for the American Petroleum Institute found that allowing exports would increase U.S. oil production by as much as 500,000 barrels a day by 2020, creating as many as 300,000 more jobs and adding $38 billion to GDP.
To the extent it increases supply, U.S. oil exports would also provide a strategic benefit. Lower world prices put pressure on rogue regimes that are big oil producers such as Russia, Iran and Venezuela.
Most liberals know all this, which betrays that their real reason for supporting the oil export ban isn’t energy security. It’s climate-change politics. They know the shale boom has undermined their drive for renewable fuels by providing cheap oil and natural gas. They also know that exporting U.S. oil will increase the U.S. incentive to drill, and they’d rather all that oil and gas stay in the ground.
There’s an inside-the-Beltway debate about the best timing for a vote to lift the export ban, and we’ll leave that to the pros. The point is that allowing oil exports ought to be as much a part of the GOP energy agenda as Keystone XL, liquid-gas exports or relief from the Environmental Protection Agency. It’s the kind of pro-growth policy that voters elected a GOP Congress to support.
