For Americans, the steep increase in U.S. supply of oil and gas has brought with it a bounty of benefits. The energy sector has increased employment in states that otherwise saw economic decline, and the growth in direct jobs has indirectly benefited communities throughout the country. At the same time, the taxes paid by the energy industry have helped bolster our national economy.
The same cannot be said of other nations.
Argentina sits atop oil and gas deposits said to rival one of the largest formations in the United States, yet its citizens are not seeing such benefits. Government control and mismanagement of the nation’s energy resources have left Argentines with few reliable institutions, a high investment costs, high inflation, deep debt, unexplored resources and a void of jobs.
In Venezuela, which boasts of some of the world’s largest oil and gas resources, the situation is even more severe. When former President Hugo Chavez kicked out 20,000 employees for not joining his 2006 “revolution,” those petroleum engineers, geologists and managers fled to other countries. Since then, Venezuela has fallen into despair. The buildings are crumbling, many shelves are empty across the country and the government is begging leaders of the Organization of the Petroleum Exporting Countries for a reprieve from the low gas prices because the high prices are funding it.
Fortunately, here at home, the energy industry hasn’t faced heavy-handed government regulation anywhere near the same level since the 1970s. That combined with access to private lands and advances in technology largely explain our success in reducing our dependence on foreign energy suppliers. But that’s not to say we haven’t edged in the wrong direction.
Our government has instituted restrictive policies in an effort to protect the United States from the global nature of the oil market. In 1975, President Gerald Ford signed into law the Energy Policy and Conservation Act that instituted restrictions on the export of most U.S. crude oil. The goal was to insulate the United States from the international market — a move that economists and policy makers alike since acknowledged was impossible. At the same time, exports of U.S. refined oil products were never restricted — so gasoline and diesel exports have steadily grown.
Despite being outdated and largely irrelevant, the ban on U.S. crude exports has gone unaddressed for the past 40 years simply because it remained a non-issue when U.S. energy production was declining. However, we have reached a turning point.
Most U.S. refineries, which were built when the country imports of crude oil were growing, are fitted to process heavy petroleum — not the light, sweet crude oil that represents the increase in domestic production. As a result, the impressive production growth over the last decade has largely outpaced our refining capabilities, creating a glut of light crude oil locked inside our borders.
That abundant supply is good for consumers only insofar as we can use it or make it available on the world market. Since most refineries can’t turn it into the products consumers use, and those that are able to are more or less at capacity, these resources are left to languish. As a result while crude prices have declined, they have not fallen as far as they would if exports were allowed to add to global supplies. Since most of the price of gasoline and diesel represents the cost of crude oil, lower world prices help keep prices low for U.S. consumers. At the same time, greater demand for domestic oil creates an incentive for continued domestic production.
Sadly, some activists have fanned public concerns about opening our energy trade borders. A recent poll that posited exporting oil “could threaten American energy security” and “would only increase gas prices here at home” (both wildly untrue) found about 7 in 10 respondents were wary of lifting export restrictions. Who wouldn’t be if those were the consequences? Fortunately, they’re not.
And the Center for American Progress’ analysis of the poll — which drew the conclusion the government should restrict exports and prescribe investment in domestic refining capacity — argues for the kind of central planning one would expect of Argentina or Venezuela, not a country founded on the principles of free-market economics. Americans expect responsible energy policy, but not a government-run system as CAP would suggest. We tried that before and it was a colossal failure.
Over the past decade, domestic energy production has rocketed, driven by improvements in technology. Today, the United States produces more than 9 million barrels of oil each day and is now the world’s biggest energy producer, ahead of Saudi Arabia and Russia. While the concerns that motivated lawmakers to enact restriction on energy exports decades ago are little more than a memory now, they should not be repeated.
Moreover, the United States has long embraced the principles of market based economics, and Americans strongly support open and honest trade. In 2010, President Barack Obama set the goal of doubling U.S. exports within five years. Competitive trade is one of the best tools we have to help reduce trade deficits and bolster economic growth. There is no reason we should exclude the energy sector, one of our strongest assets, from being part of that.
Sen. Lisa Murkowski, R-Alaska, has long recognized this, making repeal of the crude oil export ban one of her top priorities as the new chairwoman of the Senate Energy and Natural Resources Committee. Her fellow senators should fully embrace this effort. We shouldn’t let outdated policies, the reluctance to revise them, or the misconception that doing so could hurt American consumers undo the energy revolution that is happening here at home.
William O’Keefe, chief executive officer of the George C. Marshall Institute, is president of Solutions Consulting Inc.