The Growing Crude Oil Exports Chorus

on August 14, 2015 at 2:00 PM

Fracking In California Under Spotlight As Some Local Municipalities Issue Bans

Add MIT professor and former CIA director John Deutch to the bipartisan list of those calling for an end to the ban on U.S. crude oil exports.

Deutch, a National Petroleum Council member who served in a number of posts during the Carter, Clinton and Obama administrations, argues in the Wall Street Journal that exporting domestic crude would grow U.S. jobs and increase American influence in world oil markets. Deutch writes:

The bottom line is that the U.S. has the potential to export large amounts of oil and refined products.

In his commentary, Deutch dismisses concerns about consumer impacts – perhaps aware of a number of studies from a spectrum of authors estimating that U.S. crude exports would put downward pressure on U.S. gasoline prices, lowering them from 1.7 cents to 12 cents per gallon.

Deutch makes an interesting argument in his analysis – addressing the counter-exports assertion that the United States shouldn’t export domestic crude as long as it remains an oil importer (discussed in this post). He says that oil imported from Canada (our No. 1 supplier) and Mexico should be counted as part of domestic supply, given the integrated nature of North American production and distribution systems. From that perspective he writes:

… the estimated U.S. imports of crude and other petroleum liquids in 2040 fall from 3.32 million barrels a day to below 500,000 barrels a day. That’s a small 3% of projected U.S. oil consumption. And while oil markets are volatile and uncertain, the outlook clearly points to sharply reduced U.S. dependence on oil imports.

Deutch points out that North American crude oil supply is growing. Thanks to unconventional oil and natural gas output (referring to shale energy developed with advanced hydraulic fracturing and horizontal drilling), U.S. production has great potential to increase. Canadian supply also is growing, and production from Mexico may rise with privatization of its energy activities, he writes.

Meanwhile, U.S. demand is slowing with a decline in the number of drivers, greater fuel economy and improved industrial energy efficiency. From a domestic supply-and-demand standpoint, Deutch writes, the U.S. should be exporting crude oil.

As mentioned above, Deutch is part of a distinguished chorus of voices calling for the ban on U.S. oil exports to be lifted (including a number of newspaper editorial pages). A sampling:

Lawrence Summers, former Obama economic adviser:

“I believe that the question of whether the United States should have a substantially more permissive policy with respect to the export of crude oil and with respect to the export of natural gas is easy. The answer is affirmative. The merits are as clear as the merits with respect to any significant public policy issue that I have ever encountered and it is an important test of the efficacy and functioning of our democracy whether within the next nine months we will get to that correct solution …”

Jason Bordoff, former Obama adviser, director of Columbia University’s Center on Global Energy Policy:

“[A]llowing U.S. producers to sell into global markets would likely spark more domestic oil production, leading to increased U.S. economic activity, a lower petroleum trade deficit, increased global oil supply and perhaps lower gasoline prices.”

Michele Flournoy, former Obama undersecretary of defense for policy:

“… we should not underestimate the degree to which becoming an oil exporter could impact perceptions of the United States as a vital global power, helping to discredit erroneous narratives of U.S. decline. … When more supply originates from producers who are not vulnerable to political instability, conflict or threats to their energy infrastructure, the overall market becomes more stable. … [A]llowing U.S. oil exports would enhance the energy security of key U.S. partners, from Poland to India to Japan. Indeed, our closest allies in Europe and Northeast Asia would welcome – and have asked for – the unrestricted export of U.S. crude oil. … Enabling U.S. oil exports would strengthen our geopolitical influence, leadership and leverage with allies and adversaries alike.”

Petr Gandalovic, Czech Republic ambassador to the U.S., referring to legislation that would lift the exports ban:

“I cannot assure you that if you pass this bill there will be a direct purchase from our refineries … of U.S. crude oil. I can predict that if there is an alternative coming from the U.S., as a democratic state that doesn’t use natural resources as a political tool, the world itself will be a … safer place.”

Ed Morse, Citigroup:

“It is incontrovertible that if the U.S. exported crude the price of gasoline would be lower. And it is incontrovertible that the trading interests of the United States have become increasingly dominated by energy.”

Bill Shughart, former Federal Trade Commission economist:

“With a recovery in oil exploration and refining, Americans have benefited from more jobs, increased wages, and greater efficiency. However, the federal government has limited U.S. prosperity significantly by restricting crude oil exports. Free trade is a key to sustained economic growth. Consumers are better off because the unhampered international movement of tradable goods gives them access to more, better and cheaper products than under a system in which every country tries to be self-sufficient.”

Washington Post editorial:

… resuming oil sales abroad could help the U.S. economy reap the full fruits of the shale revolution that has propelled this country back into the top ranks of global oil and gas production. … At the same time, increasing the world supply of crude oil would translate into lower world prices for other heavier grades of crude, which U.S. refineries do use, and for gasoline. That, in turn, would be reflected in moderate gas prices in the United States. The IHS study estimates free trade in U.S. crude oil could save U.S. motorists $265 billion between 2016 and 2030. This does not count the geopolitical benefits of bringing a stable new source of supply onto world markets to offset those from Iraq, Libya and other trouble spots.

Denver Post editorial:

For years the ban was relatively harmless, but today it inhibits domestic production and should be lifted. . . The president has the power to lift the ban on his own. Congress could do it, too. If they did, they’d be creating jobs and aiding consumers with a single stroke.

By Mark Green

Originally posted August 12, 2015

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