Is It Time for the U.S. to Lift Its Restrictions on Oil Exports?

It’s a whole new oil world for the U.S.

After decades of declining domestic oil production, the country is in the middle of an unexpected boom. Driven by new technology that reaches previously inaccessible reserves, production has soared by millions of barrels a day. This surge has been a key factor driving oil prices down.
Source:wsj     Time:21 Jan 2015

It’s a whole new oil world for the U.S.

After decades of declining domestic oil production, the country is in the middle of an unexpected boom. Driven by new technology that reaches previously inaccessible reserves, production has soared by millions of barrels a day. This surge has been a key factor driving oil prices down.

So, should U.S. oil companies be allowed to sell that oil overseas?

Because of a restriction dating back to the oil scares of the 1970s, producers for the most part can’t export their oil. The export ban was part of a series of laws passed to ease supply concerns and prevent U.S. producers from skirting price controls by selling crude into the world market at higher prices.

JOURNAL REPORT

Insights from The Experts
Read more at WSJ.com/Energy
MORE IN BIG ISSUES: ENERGY

Where Energy Policy Is Heading With a GOP Senate
The Outlook for a Revival of Nuclear Power
Should Endowments Sell Their Fossil-Fuel Holdings?
The Prospects for ‘Clean Coal’ Technology
Now there’s a growing call to lift that ban, from oil companies and others. The game has fundamentally changed, they argue. Allowing American oil to flow onto the global market will encourage more production, since the fuel will fetch higher prices than it could at home. It will also pump more cash into the U.S. economy and over time may end up driving down the price of gas for Americans.

Opponents say that isn’t the case. Lifting the ban, they say, will drive up prices of gas and oil for American industries that depend on them, discourage innovation among energy companies and hurt the environment.

Jason Bordoff, a Columbia University professor and former energy adviser to President Obama, argues in favor of lifting the ban. Tyson Slocum, director of the Energy Program at Public Citizen, makes the case for keeping the ban in place.

Yes: It’s Smart For Both Economic and Geopolitical Reasons
By Jason Bordoff

The oil-export ban was put in place to address scarcity concerns and keep U.S. producers from bypassing price controls by selling oil for a higher price abroad. Now, with U.S. output soaring and price controls jettisoned decades ago, it is time to lift that restriction.

Jason Bordoff. ENLARGE
Jason Bordoff. COLUMBIA UNIVERSITY
Although the magnitude of the benefits is uncertain, allowing 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.

Opening the Doors
Currently, many American refineries are set up to handle a different type of oil than we produce domestically. As U.S. supplies continue to grow, producers may increasingly need to discount their price to make it economic for refineries to buy their oil. As a result, the U.S. oil price may fall further below the world price.

Although the U.S. is expected to remain a net importer, allowing companies to export certain types of oil and import others means they can sell into the global market for a higher price than they can fetch domestically. That will spur more U.S. production—and thus reduce net imports.

Critics say keeping oil at home helps protect us from oil-price shocks, but the oil market is global. A disruption anywhere will cause prices to go up in the U.S., whether we export or not.

Nonetheless, cutting net imports means the macroeconomic impact of oil-price increases won’t be as severe. Why? More of the increased spending on oil circulates in the U.S. economy instead of flowing overseas. Exports also allow U.S. supply to better respond to global prices and temper supply shocks. Geopolitically, the oil-export ban can undermine U.S. credibility in challenging trade restrictions and promoting open markets elsewhere, while boosting U.S. output could erode OPEC’s market share and pricing power.

The Effect on the Pump
Another criticism is that exports will benefit producers but raise pump prices. But a recent Energy Information Administration study showed consumer gasoline prices move with the global oil price, not the domestic price. To the extent that lifting the ban increases U.S. production and overall world supply, it may cause global prices to decline slightly.

Then there is the argument that higher production hurts the environment. It is true that oil and gas development can have environmental impacts, and to the extent that exports boost U.S. supply, lower world oil prices and thus increase oil use, carbon emissions would rise. But trade barriers aren’t the appropriate response to environmental concerns. The U.S. is poised to produce vast quantities of oil whether we export or not, which is why adequate environmental regulation is essential along with robust climate policies.

Finally, some maintain that oil exports will reduce the incentive for companies to innovate and develop ways to reduce oil use. But innovation is driven by policy, R&D investments, consumer response to prices and entrepreneurs, universities and national laboratories. Suppressing U.S. oil prices will not spur the breakthroughs we need.

The current statutory restrictions on oil exports are a legacy of a bygone era that doesn’t reflect today’s energy reality. On economic, security and geopolitical grounds, they should be lifted.

Mr. Bordoff, professor of professional practice in international and public affairs and founding director of Columbia University’s Center on Global Energy Policy, previously served as an energy adviser to President Obama. He can be reached at reports@wsj.com.

No: The U.S. Would Be More Vulnerable To Supply Disruptions
By Tyson Slocum

Removing the export ban is a shortsighted move that will have bad consequences both for consumers and for the economic future of the U.S.

Tyson Slocum. ENLARGE
Tyson Slocum. BRIDGETTE BLAIR
The current oil boom—coupled with flatlining domestic demand—has led to a huge glut that helps insulate the American economy from the uncertainty caused by oil-supply disruptions abroad. Opening exports would remove that protection, which would be disastrous.

Booming domestic production hasn’t brought us anywhere near oil independence: The American economy remains addicted to oil, and we remain vulnerable to international supply shocks and punishing price swings. Oil prices have jerked repeatedly since the mid-2000s in response to supply constraints and demand trends. The future will be no less volatile.

The Price at the Pump
What’s more, opening exports will make oil and gas much more expensive for Americans. As oil producers head overseas to fetch higher prices than they could get at home, domestic supplies will dry up, and the cost will rise. Oil is literally a fuel for economic activity. To increase the cost of that feedstock would benefit oil extractors at the expense of everyone else.

ENLARGE
What about studies projecting that unconstrained crude-oil exports will lower domestic prices rather than raise them? In general, they conclude that exporting oil will raise the key U.S. oil benchmark price (West Texas intermediate, or WTI) but will lower an international benchmark by which some portions of the U.S. gasoline market are priced (Brent).

Following the money, however, one sees that nearly all of these private studies have been funded by companies that benefit from exporting oil. And the studies dismiss the possibility that more U.S. gasoline markets could link to WTI and rise as the U.S. benchmark price rises.

It is true that Brent does price a lot of the gasoline market. But that dynamic is due to historic trends, where much of the U.S. market had to rely on imports and was exposed to Brent pricing. The recent glut in domestic oil can change this dynamic and potentially send gasoline prices lower. But if we allow exports, that glut will disappear.

Some supporters of exporting also say we need to allow exports to achieve credibility in trade talks. But crude oil has long been exempt from trade negotiations, so the ban is a nonfactor.

True Economic Strength
There’s a broader point here. We must learn from Nigeria, Russia and Venezuela that an economy that prioritizes raw natural-resource exports fails to properly develop true engines of prosperity. The strength of the U.S. economy will be in the development of a strong technology sector—which is at odds with a strategy to export crude oil.

Any informed observer of energy markets recognizes the real revolution is in clean-tech technology. Discarding the export ban would boost prices and dull the incentive to use oil as an industrial feedstock, including for photovoltaic cells, wind turbines and advanced batteries.

Then there is the environment. As with any extractive industry, the impacts of fracking on precious resources will be exacerbated by the increase in fracking should the ban be lifted.

The real issue: One segment of the economy—the oil industry—is waging a campaign to convince a skeptical public that an economic-protection statute is no longer needed and Americans will be better off shipping our crude directly to China. Domestic oil should be used domestically.

 
Membership: Sign In, Or Register now.
[ Close ]   [ Print ]   [ Top ]
Best Viewed With Internet Explorer 6.0
© 2008 DRS iNNOVATIONS GROUP LTD. All Rights Reserved