Lawmakers wonder: Does the crude-oil export ban even make sense anymore?
posted at 6:41 pm on February 3, 2014 by Erika Johnsen
Just a few short years ago, almost nobody was expecting the speed and intensity with which the United States’ 38-year ban on exports of domestically produced crude oil would suddenly become one of the biggest national energy issues du jour, but it’s yet another testament to the burgeoning strength of the shale revolution brought on by fracking.
Domestic oil production has grown so rapidly and so dramatically that we’re actually looking at the prospect of a glut on our horizon, and to take better advantage of our boom we really need to 1) begin work on new infrastructure projects that can help us most efficiently and safely transport the fruits of our newfound oil- and gas-production capacity, hem hem, and 2) get rid of the economic travesty that is that doggone crude oil export ban. The ban was never a good idea — there are very few scenarios in which restrictions on free trade ever are, if you happen to be into things like jobs and prosperity — but it makes even less sense in the context of our recent energy boom. Fortunately, a good few lawmakers have been keeping up with that increasingly obvious fact, and working on getting the ball rolling:
At a hearing of the Senate Energy and Natural Resources Committee, lawmakers and policy experts weighed the price stability of oil in the United States, job creation, and national security considerations relating to the 1975 Energy Policy and Conservation Act. Created in response to the famous Middle East oil embargo and subsequent oil crisis in 1973, the law keeps all U.S. crude oil business within the country, while still allowing the export of refined oil and gases. …
Lawmakers and experts said improved technology, a weakened job market and the current “energy renaissance,” which includes a natural gas boom, are all reasons to reopen debate about lifting the ban and adding American crude oil to the global market. Congress remains fiercely divided over energy policy in general, making consensus on a legislative change difficult to reach. With modest aims, senators painted the hearing as just the start of a process.
“[This] is the beginning of many very considered and thoughtful discussions on what is a very timely issue,” said Alaska Republican Sen. Lisa Murkowksi, the committee’s top Republican.
The biggest objections on the subject, all too predictably, came from lawmakers of the protectionist mindset who are evidently convinced that allowing crude oil to leave America’s shores will result in higher prices for consumers at the pump — but even completely ignoring the economic gains for America’s economy from more open trade, that might not even be true in and of itself. Because our country’s refiners are allowed to ship gasoline and diesel abroad, lower domestic crude prices don’t necessarily translate into savings for American consumers. Mary Duenwald has a usefully short and simple explanation up at Bloomberg:
After all, even though U.S. oil producers are confined to the North American market, U.S. refiners do business around the world. They sell diesel to Europe and South America, and gasoline to China. Thus, refined products in the U.S. are still heavily influenced by global prices.
To use hoarding as a strategy to keep American consumer prices low, you’d have to restrict exports of not only oil but refined products, too.
By allowing oil exports, Congress would let oil producers take advantage of the higher worldwide prices. And there is no reason to expect this would raise consumer prices in the long term. In fact, it might even lower them — by removing a barrier to the global oil trade. “The less bottlenecks in a market, the less distortions there are,” Amy Myers Jaffee, an energy expert at the University of California at Davis, said. “And generally the less distortions, the lower the price.”
America’s longstanding hoarding mentality isn’t really helping anyone, and the good news is that the Obama administration doesn’t seem dead set against the idea — but there’s still a lot of duking-out to be done in Congress.