Outdated Trade Barriers Limit America’s Energy Potential

Mark Green
Posted August 8, 2014

The U.S. Commerce Department’s newest trade report released this week shows increased exports of crude oil and petroleum products were a major factor in shrinking the trade deficit in June to $41.5 billion, down from $44.7 billion in May.

That’s great news. Energy exports are helping build America’s economic strength globally while creating jobs and opportunity here at home. America is more secure as a result of our energy revolution that is bringing opportunities to engage world energy markets and harness U.S. energy for good. Allowing more U.S. oil and natural gas exports is the logical course to support and expand America’s global presence.

According to the government, in June exports of crude and petroleum products totaled $12.7 billion, up more than $1.2 billion over June 2013. (The U.S. exports a relatively small amount of crude in a handful of special circumstances, listed here, so the vast majority of what we’re talking about is exporting refined petroleum products.)

Delve into the report’s exports data table (Exhibit 7, page 10) and see that oil and natural gas accounted for 10 percent of June’s exports of goods by value. Put another way, without oil and natural gas exports, the overall trade deficit would be 17.2 percent higher. “Domestic oil and natural gas production helped drive record exports last year, and our ability to impact global markets continues to grow,” said API Chief Economist John Felmy.

The tempering reality is that the U.S. continues to self-limit the impact of surging domestic oil and natural gas production by keeping a 1970s-era ban on crude oil exports and with a timid approach to the export of liquefied natural gas (LNG).

The crude oil export ban is a relic of another era, when the U.S. energy picture was clouded by domestic scarcity and uncertain import supplies. Today, thanks to shale energy safely developed with advanced hydraulic fracturing and horizontal drilling, the International Energy Agency estimates the U.S. will pass Russia and Saudi Arabia as No. 1 oil producer next year. Yet, surging domestic production is generating supplies of light, sweet crude that are greater than the refining sector’s ability to process it. Allowing crude exports will allow that oil to get to market – supporting more domestic production and job growth here at home.

As for natural gas, the U.S. is the world’s leading producer, yet is not among the globe’s leading exporters – at a time when friends overseas are practically begging for the opportunity to buy American LNG. The federal government continues to slow-walk approval for proposed LNG export projects,  more than 20 of which are pending. This slow process delays export infrastructure build-out that is needed for the U.S. to positively impact the global LNG market. Felmy:

America’s potential as an energy superpower remains limited by outdated trade restrictions that prevent more U.S. oil and natural gas from reaching global markets. Lifting these barriers will mean more jobs and a more powerful position – both economically and diplomatically.

Toby Mack, president of the Energy Equipment and Infrastructure Alliance, writes on The Hill’s Congress Blog that the United States risks missing oil and natural gas export opportunities:

America , along with its oil and gas producers, energy supply chain companies, and millions of American workers, are quite literally "missing the boat" as a result of the federal government-imposed ban on crude oil exports, and severe limits on liquefied natural gas (LNG) exports. Eliminating these restrictions would set the stage for dramatically more rapid growth in energy production and for the supply chain businesses that support energy operations.

This week a Washington Post editorial describes the U.S. as an “energy powerhouse” because of a leap in domestic oil production while noting the growing mismatch between lighter crude output and refineries that are configured to handle heavier grades. Allow crude exports, the Post says:

In the deeply interconnected global oil market, in which borders matter less than many people think, the obvious solution is to allow oil companies to ship the light crude to refineries suited for processing it, supporting U.S. profits and U.S. jobs in the process, and to tolerate imports of crude oil that U.S. refineries can handle. … The export ban was a desperate ploy in the 1970s to control commodities markets amid spikes in oil prices induced by the Organization of the Petroleum Exporting Countries. Keeping it in place now is an economically incoherent policy, particularly when removing it would encourage an industry that is transforming the fortunes of large swaths of the nation. Congress should lift the ban entirely. Until then, Commerce should allow as much oil as it can to flow through the ban’s exceptions.

The Heritage Foundation’s Nicolas Loris writes that the free trade of U.S. energy commodities promotes job creation and economic growth:

Put simply, free trade is a fundamental component in creating prosperity and promoting human well-being. When markets are open to more producers and consumers, competition provides people with more choices and better products at lower prices. Opening markets to both imports and exports fosters innovation as companies face more competition and meet challenges to retain or expand their market share. The result is innovative ideas, higher-quality products at competitive prices and an improving standard of living.

On energy exports, America has a choice. Growing domestic crude oil and natural gas production is creating a position of strength for the U.S. – reducing crude imports, strengthening our economy and making it possible, through a more vigorous energy export policy, to support America’s foreign policy interests while helping friends abroad. Felmy:

“If policymakers act now to allow free trade, U.S. energy exports can further reduce the impact of unrest overseas and limit the influence of foreign suppliers that dominate other markets. And studies show that American crude oil exports will promote higher energy production and put downward pressure on prices for consumers. … By acting now, we can send a major signal to world markets that competitors overseas cannot ignore. Congress and the administration must act quickly to accelerate Department of Energy approval of liquefied natural gas (LNG) projects and lift 70’s-era restrictions on crude oil exports.”

The opportunity is America’s, if we choose it.