The Economic Case for Permitting Crude Oil Exports | Commentary
Since the gasoline shortages of the 1970s, Congress has, with only a few exceptions, barred all U.S. crude oil exports. But an energy policy that may have made sense 40 years ago no longer does. Innovative drilling techniques have spawned an oil and natural gas boom in the United States. Since oil surpluses can create as many problems as oil shortages, it’s time to eliminate those export restrictions.
The good news is that Energy Secretary Ernest Moniz has indicated that it may be time to rethink the export ban on crude oil, though he recently downplayed the change. And Senator Lisa Murkowski, R-Alaska, the top Republican on the Senate Energy Committee, just called for an end to the exporting ban and released a paper to encourage Senate discussion.
But defenders of the ban still argue that lifting it would hurt U.S. businesses and economic growth. Not so. Allowing oil — as well as natural gas — exports would lower energy prices, increase supply and improve U.S. security. Here’s why.
New Markets Would Mean More Stable Supply. The U.S. Energy Information Administration, a government agency, just announced, “Rising crude oil production in the United States contributed to relatively stable global crude oil prices in 2013, around the same annual average levels of the previous two years.” Allowing crude oil exports would encourage even more production, which has the effect of stabilizing both the supply and the price.
Huge Economic Benefits. States that are exploiting oil and natural gas drilling, which is mostly done on private land, have seen economic explosions. For example, North Dakota is at the epicenter of the drilling boom. Its unemployment rate is 2.7 percent, compared to 7 percent for the country. Those states can’t find enough workers, especially blue-collar, so wages have gone up rapidly. That rapid rise is good, but it can create economic distortions, such as very expensive housing and strains on public education. If the federal government allowed more drilling on federal land and offshore, more states could participate in the energy boom, creating job opportunities at home. It’s our best immediate way to address concerns about income inequality and strengthening the middle class.
Swelling Government Revenues. Those states that have embraced the oil and gas boom are improving their budgets rapidly. In 2013 Texas received about $8.8 billion in oil and gas royalties and taxes. If the Obama administration opened up millions of acres of federal land and offshore regions to drilling, it would create a huge new federal revenue stream. Congress could take a lesson from Alaska by returning that money to the public, perhaps in the form of a contribution to a personal retirement account. Such accounts would give everyone a direct stake in a successful energy sector.
Lowers the Trade Deficit. The U.S. currently imports about 235 million barrels of crude oil a month, down from more than 300 million six years ago — thanks to the drilling explosion and reduced consumption. At $100 a barrel, that’s about $23 billion of our monthly trade deficit. However, estimates suggest the U.S. will be a net oil exporter in five to seven years. Exporting that surplus would reduce the trade deficit even more.
The Efficiency Factor. But if the U.S. is still several years from becoming a net oil exporter, why remove export restrictions now? The answer is economic efficiency. Crude oil must be transported to refineries, and some refineries are better suited to refining particular types of crude. It may be more efficient and less expensive to export crude oil drilled in the northeast to Europe and import crude from Mexico than it would be to require the northeast oil to be shipped to refineries on the Gulf Coast of Texas. Imposing artificial barriers, like trade restrictions, creates higher prices and economic inefficiency, and everyone pays more.
Increases Energy Security. Imagine a world in which we didn’t have to worry about whether oil-producers like Iran or Venezuela or Saudi Arabia were upset about U.S. foreign policy decisions. And what if our allies had a place they could turn to for oil if Russia cut off their oil or natural gas supplies.
For 40 years U.S. foreign policy has been constrained by the need to make nice with certain major oil-producing countries — many of which do not like us very much. That day could be coming to an end, but only if we have the ability to export oil.
Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas.