Merits of Oil Exports are Clear

Mark Green
Posted September 10, 2014

A new report from Brookings’ Energy Security Initiative adds more scholarly weight to the analytical case for lifting America’s decades-old ban on crude oil exports. Echoing earlier studies by IHS and ICF International, the Brookings research finds that allowing the export of domestic crude would stimulate more oil production here at home, provide broad economic benefits and strengthen U.S. energy security. Brookings:

… we believe that the U.S. should allow the market to determine where crude oil will go and move immediately to lift the ban on all crude oil exports. … After 40 years of perceived oil scarcity, the United States is in a position to help maximize its own energy and economic security by applying the same principles to free trade in energy that it applies to other goods. By lifting the ban on crude oil exports, the United States also will help mitigate oil price volatility while alleviating the negative impacts of future global oil supply disruptions.

The Brookings’ report, based on analysis by NERA Economic Consulting, asserts that the 1970s ban on crude oil exports is a relic of the past and ineffective in making America more energy secure, and that lifting the prohibition is critical to future domestic production:

Our analysis shows categorically that the crude oil export ban does not, and for some time has not, advanced U.S. energy security. To the contrary, our analysis shows that lifting the ban will increase U.S. oil production, diversify global supply, reduce U.S. gasoline prices, and provide net benefits to the U.S. economy. An export option is indispensable to sustaining domestic production; absent the price support that exposure to international markets provides, U.S. production will not reach its full potential.

Some of the study’s key findings:

• Full impact – The U.S. should avoid “selective easing” of the ban, such as allowing exports only to certain countries. Likewise, the study doesn’t support as good policy only lifting the ban on condensates or limiting export volumes to a predetermined level. These types of selective actions could lead to market distortions or other negative results.
• Economic stimulus – Lifting the oil export ban will boost growth, wages, employment, trade and overall welfare. The present discounted value of GDP in the study’s high resource case increases through 2039 is between $600 billion and $1.8 trillion depending on how soon and how completely the ban is ended.
• Maximizing benefits – U.S. gains are greatest if the ban is lifted in 2015 for all types of crude.
• Household impact – Benefits to individual households derive from higher real incomes (from higher wages) and lower gasoline prices. In the report’s reference case, the decrease in gasoline price is estimated to be 9 cents per gallon for about five years. If oil supplies are more abundant than currently expected, the decrease will be larger – 7 cents to 12 cents per gallon – and for longer.

Brookings:

What is most important is our finding that in all these modeling scenarios, there are positive gains for U.S. households.

The study notes that rising domestic crude production and declining demand for petroleum products has reduced imports of crude while increasing U.S. exports of finished petroleum products, which aren’t subject to the export ban. There is a market distortion occurring, the study says, because large volumes of new crude supplies – reflecting the U.S. shale energy revolution – are light sweet crudes that are “ill-suited” for many existing refineries that are configured to handle heavier crudes.

Brookings says its legal analysis shows that the president can lift the export ban at any time by declaring them to be in the national interest under the 1975 Energy Policy and Conservation Act (EPCA). In the absence of presidential action, the report says, Congress could lift the ban by amending the EPCA.

Again, the analysis by Brookings parallels earlier studies, bolstering the argument for ending an anachronistic obstacle to the free trade of a valued U.S. commodity. As the studies have shown, the United States wins when it engages in global trade – in the world and at home. Lifting the ban on crude oil exports is another way we can harness the full benefits of America’s energy revolution. Lawrence Summers, former White House senior economic advisor told Politico (subscription publication):

“(W)e have for the first time a situation today that we have not had in at least two generations, namely that the market is sending signals that it is desirable on free market grounds to export U.S. oil. … The merits are as clear as the merits with respect to any significant public policy issue that I have ever encountered.”