Are you still driving a Pinto? Smoking in the office and wearing polyester bellbottoms? Probably not, because we don’t live in the 1970s any more. So why does our oil export policy remain stuck in a decades-old limbo, as an antique from the Nixon era?
Change has come fast to the energy sector in the past ten years as the full scale of growth stemming from technology and market changes has surfaced. The US is now poised to resume its role as the world’s largest oil producer, prompting widespread reassessments of economic and geopolitical forecasts for everything from trade flows and deficits to defense alignments.
Oil companies in the US can move refined products overseas, but because of the 70s era ban they remain unable to export crude oil except from Alaska. This contradictory situation, which has underwritten refinery profits by trapping crude supply in the US even as products are shipped, now threatens to limit benefits to the US economy as refineries run out of capacity to run that cheap oil through their systems. As a recent IHS Economics analysis of the US crude oil export decision amply demonstrates, trapping that oil in the US behind the walls of a refinery system that has spent three decades retooling for entirely different kinds of crude could literally cost the US trillions of dollars, and as many as a million jobs.
The oil export ban is a vestige of a panic-induced policy response to market interruptions in the 1970s, and is no longer a viable approach to the realities of the US oil sector.
Proponents of maintaining the ban talk of “keeping the supply at home” based on the uninformed notion that simply preventing exports is a way to bring down energy prices. That only works as long as oil producers continue to subsidize the US oil sector, which operates in a global context. Before long, and IHS analysts believe we are coming to the tipping point, investors and markets will move where returns are higher and then energy prices will actually rise for US consumers.
Real long-term growth lies not in the statistical manipulation of an extended attempt at oil sector micromanagement by inside-the-beltway commissars, but in principled planning rooted in facts about the oil market. And what facts they are!
Crude oil output in the US rose by 3.2 million barrels per day from 2008 through March 2014, the IHS study notes, and US dependence on imports fell to under 30% this year from more than 60% in 2005, a shift the authors say was “unimaginable” not long ago.
The oil sector is going to grow regardless based on current trends, but access to global markets for crude would boost the positive impacts considerably. The report envisions one million additional jobs, additions to gross domestic product of $135 billion in 2018 alone and most notably of all a $265 billion reduction in gasoline price forecasts for US motorists in the years from 2016-2030. Gasoline price direction, set on the world market and not on a national basis, would be pushed lower by the presence of additional US crude oil exported to world markets.
In managing our energy economy we have traditionally erred on the side of emphasizing downside risk management, an understandable position for a country long reliant on a complex web of import-related tradeoffs. But now the time has come to plan also for upside potential, in which new approaches can support a healthy and job-creating market.
A commitment to free markets and a reliance on facts rather than a narrative of old energy fears is vital to maintaining market flexibility. Freed from outdated regulations, companies can respond and invest in ways that support long-term economic growth and ultimately, better lives in a newly oil-exporting and energy-strengthened America.