As prepared for delivery
Press briefing on the economics of oil and natural gas exports
Erik Milito, director of upstream and industry operations
December 20, 2013
Good morning, everyone. Thanks for calling in.
America’s energy outlook grows more positive with each new production forecast, leading to growing calls for the government to reexamine export restrictions. This week’s Energy Information Administration (EIA) report projects record-breaking production for domestic oil and natural gas. According to the report, U.S. oil production will approach 9.6 million barrels per day by 2016 – a level we haven’t seen since 1970. Natural gas production will continue to surge, hitting 100 billion cubic feet per day by 2040. Record production levels will drive record import reductions, shrinking the gap between domestic production and consumption by three-quarters by 2040.
Energy Secretary Moniz has noted the growing disconnect between domestic production levels and our outdated export approach, stating that export restrictions and other policies created in an era of energy scarcity and supply disruptions “deserve some new analysis and examination in the context of what is now an energy world that is no longer like the 1970s." Editorials in The Wall Street Journal and the Washington Post echo the secretary’s comments, calling on the government to relax restrictions on crude oil exports.
It’s undeniable that the American energy revolution has rendered our current export policies obsolete. By restricting the export of crude oil and liquefied natural gas, current policies also restrain job creation, economic growth and further production gains.
Multiple studies confirm that the export of liquefied natural gas -- or LNG – will generate significant employment and economic benefits without jeopardizing the domestic supply affordability that has fueled a manufacturing renaissance. As the EIA report makes abundantly clear, U.S. natural gas reserves are more than sufficient to supply both domestic and international demand without adversely affecting energy security or prices here at home. Increased access to overseas markets will stimulate even more domestic production, which is why studies consistently show the most robust export scenarios generate the highest levels of job and economic benefits.
The same supply and demand principles hold true for crude oil. As with natural gas, advances in hydraulic fracturing and horizontal drilling have facilitated oil production levels that would have been unthinkable just a few years ago. The International Energy Agency projects the United States will overtake Saudi Arabia and Russia to lead the world in oil production by 2015. Yet due to short-sighted policies and misguided economic theories, we’re at risk of jeopardizing our position as a global energy superpower.
Those who oppose lifting the ban on crude oil exports argue that doing so will raise gas prices for American consumers. This mistaken assumption ignores the reality that oil is a global commodity, and prices are determined by world markets.
Exporting a portion of our abundant crude oil supply would provide greater stability to the global supply while creating jobs and generating revenues stateside. The EIA’s new forecast projects that U.S. production will put downward pressure on prices, even as we increase exports.
Greater access to world markets would also provide a needed outlet for surging domestic production of lighter crude. The U.S. has long been a refining powerhouse, but our refining capacity is largely designed to accommodate foreign, heavy crude. Trapping light, domestic crude within our borders only penalizes U.S. production, which could mean higher costs for refiners and consumers.
America’s energy revolution has already put a significant dent in the nation’s trade deficit, as my colleague, API’s chief economist John Felmy, will explain later in the call. Expenditures on energy imports are down $39 billion this year to date, contributing to a $47 billion trade deficit reduction delivered by the oil and natural gas industry compared to just a $30 billion deficit improvement in overall trade. Considering Commerce Department calculations indicating that every $1 billion reduction in the trade deficit could lead to 5,000 jobs, it’s easy to see why the drumbeat for more exports is increasing. The potential 235,000 new American jobs contributed by energy trade so far could be just the beginning.
Current export policy is not suited to today’s energy reality. By easing 70s-era export restrictions and letting the market determine optimal export levels for crude oil and LNG, the U.S. can significantly reduce our trade deficit, support thousands of jobs and generate billions in government revenue and economic growth – while helping to meet President Obama’s pledge to double exports. We have the resources and technology to be a global energy superpower, and we need policies that will help fulfill – not impede – our potential.
Thank you. Now John Felmy, API’s chief economist, and I will be happy to take your questions.