Energy Export Restrictions Keep Production in the Past | Commentary
Over the past several years the United States has achieved an energy turnaround that few experts could have anticipated. Led almost singlehandedly by improvements in shale production, the country has transitioned from a position of foreign dependence to a global energy leader — bolstering American consumers, businesses and manufacturers at every turn.
Our energy transformation has been so remarkable, it has outpaced policy in Washington, which now threatens to slow the wheels of commerce. Today, restrictions on crude oil exports dating back to the 1970s have — given “tight” domestic refining capacity — created a glut of oil supplies here at home, that could disincentive further production and leave valuable energy resources to languish.
To secure continued growth, it’s time lawmakers modernize outdated energy export policies. Fortunately, with the midterm elections squarely behind us, there are signs Washington is ready to act.
Rep. Edward Whitfield, R-Ky., chairman of the House Energy and Power Subcommittee, held a hearing last week to review the Energy Policy and Conservation Act of 1975, which limits most crude oil exports. Although a growing consensus has emerged within the Capital Beltway mirroring the rest of the country’s eagerness to unshackle our global trade barriers, the hearing is the first step among members of Congress to reconsider the outdated export restrictions.
“Our energy landscape looks much different than it did 40 years ago,” Whitfield and Rep. Fred Upton, chairman of the House Energy and Commerce Committee, said in a statement prior to the hearing. “The time is now ripe to revisit and consider whether some of the energy policies rooted in the past still make sense today.” Additionally, Rep. Joe L. Barton, R-Texas, introduced H.R. 5814, which removes all restrictions on the export of crude oil from the United States.
That’s sensible leadership. And it’s bipartisan. Texas democrat Rep. Gene Green, who has served as a member of the House Energy and Commerce Committee for the past ten years, recently added his name to the chorus of lawmakers who have expressed support for reasonable exports.
Restrictions on U.S. crude oil exports were enacted following the oil shortages of the 1970s. At the time, and in the decades that followed, America’s reliance on foreign oil left the country vulnerable to shocks in the global market. Trade bans were intended to help mitigate such disruptions by keeping domestically produced oil and gas here at home.
Even as recently as ten years ago, domestic oil production was not sufficient to warrant consideration of repealing the bans altogether. But to borrow a theme from the late blues singer Esther Phillips, what a difference a few years makes.
Today, as a result of expanded shale development technology, the United States has become not only the world’s largest producer of oil and natural gas, but in 2013 U.S. proved reserves of crude oil increased for the fifth year in a row, exceeding 36 billion barrels for the first time since 1975. In fact, America’s limited exports of our abundant resources (to Canada) have helped alleviate fluctuations in the international prices. The Financial Times recently reported that in the absence of U.S. supply, oil prices would likely have reached $150 per barrel earlier this year, compared to the impressively low prices we see now.
Since 2011, domestic crude oil production has increased more than 50 percent and this week prices hit a five-year low. That’s been great for consumers, who saw gasoline prices at the pump fall more than 50 cents per gallon over the past year, but it has also pushed producers closer to a gridlock stage in which production exceeds refining capacity.
In order to ensure demand adequate enough to drive production, the United States needs to lift restrictions on crude exports. Only a handful of American refineries are equipped to process the light sweet crude oil produced domestically and a buildup of supply could be devastating to this booming industry. If left unaddressed by our lawmakers in Washington, export bans will gradually put the brakes on production in the U.S.
Importantly, lifting export restrictions won’t hurt consumers. In fact, analysis concludes that eliminating the crude oil export ban would tend to reduce domestic gasoline prices by adding U.S. supplies to international markets, where crude oil prices are determined, and by fostering greater production on U.S. soil. A study by ICF International predicts that American consumers will save up to $5.8 billion per year, on average, from 2015 to 2035 as a result of lower prices for gasoline and other petroleum products such as heating oil.
Finally, let’s not forget the benefit continued production will have for hard-working Americans. A multitude of macroeconomic studies have highlighted the economic benefits that will be seen here at home. The most recent study conducted by the Aspen Institute found that lifting the ban on energy exports would create as many as 217,000 new construction jobs by 2017; 148,000 professional service jobs; and about 37,000 new manufacturing jobs each year over the next decade. That is the kind of homegrown economic expansion policymakers speak of regularly.
Over the course of only a few short years, the United States has stepped into the role of a 21st century energy leader. We need policy that matches and is able to support that transition. Let’s ask lawmakers to act.
Margo Thorning is the senior vice president and chief economist of the American Council for Capital Formation and William F. Shughart II is a former Federal Trade Commission economist and a professor of economics at the Jon M. Huntsman School of Business at Utah State University.
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