Free Trade Benefits Consumers and Economy
Posted March 31, 2014
A new study by ICF International makes the case for lifting trade restrictions that prevent the export of U.S. crude oil – consumer savings, job creation, domestic production growth and more:
- $5.8 billion in consumer savings a year, on average, between 2015 and 2035 due to falling costs of gasoline, heating oil and diesel fuel.
- Up to 300,000 additional jobs created in 2020, both due to higher oil production and U.S. consumers having more money to spend on goods and services.
- As much as a 500,000 barrels-per-day rise in domestic oil production in 2020.
- A $22 billion decrease in the U.S. trade deficit in 2020.
- Economic growth totaling as much as $38 billion in 2020, with an average GDP increase of up to $27 billion a year through 2035.
- An additional $15 billion to $17 billion invested in domestic exploration, development and production between 2015 and 2020.
- An increase of as much as $13.5 billion in federal, state and local government revenues in 2020.
ICF’s chart below shows total employment changes from lifting export restrictions, including direct and indirect jobs and jobs created by additional consumer spending:
Each of the study’s numbers is compelling on its own, and taken together they depict a tremendous opportunity for the United States to parlay domestic energy abundance into economic muscle – strength that could elevate the U.S. into a position of greater energy and national security. Kyle Isakower, API vice president for regulatory and economic policy, discussed the ICF findings during a conference call:
“Consumers are among the first to benefit from free trade, and crude oil is no exception. Gasoline costs are tied to a global market, and this study shows that additional exports could help increase supplies, put downward pressure on the prices at the pump, and bring more jobs to America. Access to foreign customers could drive significant investment in U.S. production, helping to strengthen our energy security. Now that the U.S. is poised to become the world’s largest oil producer, the economic case for exports is clear.”
ICF notes that the U.S. has restricted domestic crude oil exports since 1973. A revolution in domestic production was launched by advanced hydraulic fracturing and horizontal drilling, increasing U.S. production by 2.1 million barrels per day between 2009 and 2013. ICF estimates output will increase another 3.2 to 3.3 mbd through 2020. Because most of this growth is in lighter oils, there is a “fundamental mismatch,” ICF says, between U.S. refinery capabilities, configured for heavier oils, and the country’s new supply growth. Although refiners are planning investments to increase their ability to process lighter oils it’s uncertain whether the investments “can keep up with growing U.S. light crude and condensate production,” the study says. ICF:
This outlook is expected to have ramifications for the U.S. economy as tight oil production grows and options to domestically process the light crudes and condensate become constrained. Historically, many U.S. refineries were adapted to process heavier crude oil. However, the new and growing U.S. production is primarily light crude oil and lease condensate. After backing out all light oil imports, the U.S. is still expected to have a net surplus of light oil production. Due to a combination of flat or declining domestic petroleum product demand, refinery capacity limits to process light oil feedstocks, and continued refinery demand for heavy oils (due to both refinery configuration and long-term import contractual obligations), the U.S. surplus of light oil is expected to increase.
Enter crude oil exports. Isakower:
“Much of the U.S. refining system is optimized to run the heavier crudes, and we’ve made significant investments in the refining sector to run those heavier crudes. With all the additional production of light sweet in the United States – and that’s really where virtually all of the growth in U.S. production is coming from. It’s coming from places like the Bakken, where it’s light-sweet crude – our refining system isn’t optimized for that. What exports allows us to do is to run the crudes that are lower priced and what our refiners are optimized to run while we can export the higher valued light sweet crude and put that on the world market. That trade enables us to increase the economic value of the production here in the United States.”
Key is removing crude oil export barriers that are four decades old, recognizing that they were erected when the U.S. found itself in a period of energy scarcity. Today, as Isakower pointed out, the U.S. is producing 50 percent more oil than it did in 2008. The International Energy Agency projects the U.S. will pass Saudi Arabia and Russia in crude oil production – two years earlier than its previous projection. Isakower:
“This is a new era for American energy, but our energy trade policies are stuck in the 1970s. The U.S. and China are the only major oil producers in the world that don’t export a significant amount of crude. It’s time to unlock the benefits of trade for U.S. consumers and further strengthen our position as a global energy superpower.”
Isakower said the ICF study corrects misperceptions about the energy market, oft repeated by free trade critics:
“Consumers don’t buy crude oil. They buy fuel. And the prices of refined products – like gasoline – are set by a global market. A temporary glut of oil in one region doesn’t significantly lower consumer costs, because gasoline is eligible for trade after the oil is refined. And, in the long-run, any oversupply of unrefined crude may create a disincentive to produce more energy here at home. But if oil can flow to the global market, then you begin to see higher global supplies, more production, and consumer-level benefits – as well as more American jobs.”
The ICF study details how crude exports would help the U.S. economically, and greater economic strength has strategic impacts as well. Gen. Martin Dempsey, chairman of the Joint Chiefs, recently told Congress:
“An energy independent and net exporter of energy as a nation has the potential to change the security environment around the world – notably in Europe and the Middle East. And so, as we look at our strategies for the future I think we’ve got to pay more and particular attention to energy as an instrument of national power, because it will very soon in the next few years potentially become one of our more prominent tools.”
It’s a compelling case for policy change, one that makes economic sense, one that will strengthen the United States in the world – helping America’s allies, expanding our influence and strengthening the global energy market against future disruptions.
About The Author
Mark Green joined API after a career in newspaper journalism, including 16 years as national editorial writer for The Oklahoman in the paper’s Washington bureau. Previously, Mark was a reporter, copy editor and sports editor at an assortment of newspapers. He earned his journalism degree from the University of Oklahoma and master’s in journalism and public affairs from American University. He and his wife Pamela have two grown children and five grandchildren.
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