The booming U.S. energy industry is on pace to produce more oil than Saudi Arabia by next year, but it can’t sell a drop of that crude overseas.
The United States has banned crude-oil exports since 1975, two years after the Arab oil embargo sent gasoline prices soaring and made Americans nervous about energy security.
The gas lines of the 1970s are a distant memory, but the policies of that era live on. Some people in Washington are starting to talk about rescinding the export ban.
Sen. Lisa Murkowski, R-Alaska, said last week that retaining the export ban will eventually reduce U.S. production and cost jobs. The president of the American Petroleum Institute also argued that getting rid of the export ban would be “pro-growth” policy.
Even Energy Secretary Ernest Moniz said recently that the ban needs to be revisited “in an energy world that looks nothing like the 1970s.”
He’s right, but getting the rest of Washington to agree will require confronting some persistent energy-policy myths. The biggest one is that keeping American oil in America somehow results in lower prices for gasoline.
It’s not true. Although American producers can’t export crude oil, they can and do export refined products like diesel fuel and gasoline. Petroleum products, in fact, have been among the fastest-growing U.S. exports in recent years. Some European refiners have been driven out of business by the flood of U.S. products.
The result has been that U.S. gasoline prices track more closely with the European benchmark, Brent crude, than with the cheaper West Texas Intermediate. “The windfall has been going to the refineries,” says William O’Grady, chief market strategist at Confluence Investment Management in Webster Groves.
Allowing crude exports from the U.S. would reduce refiners’ profit margins, O’Grady says, but make no difference to the price we pay at the pump.
Nor is there a good national security argument for not selling oil to our trading partners. “It actually gives us a bit more geopolitical clout by being able to export.” O’Grady argues.
The export ban could hurt the U.S. as domestic production continues to grow. Refineries will eventually run into capacity constraints, and U.S. crude-oil prices will fall even farther below the world benchmark. That will put a damper on the very drilling activity that has made the shale-oil revolution possible.
“If we want this industry to continue to expand, lifting this export ban is one of the things we’re going to have to do to make sure that expansion takes place,” O’Grady says.
Even in a sharply divided Washington, and even in a congressional election year, this tweak to U.S. energy policy should be a no-brainer. It won’t affect the budget deficit, and it should reduce our trade deficit.
Some politicians might characterize allowing exports as a handout to Big Oil, but it’s not. In fact, part of the oil industry– the refineries – would be hurt by the policy change, because they would lose their monopoly on domestic crude. Drilling companies would be helped, but they’re the ones creating jobs and bringing the U.S. closer to energy self-sufficiency, a goal that has been illusory for every president since Richard Nixon.
Disco music, wide lapels and other 1970s artifacts have been out of fashion for a long time. It’s time for that era’s energy policy to join them on the scrap heap of history.
David Nicklaus is a columnist for the St. Louis Post-Dispatch. Follow him on Twitter at www.twitter.com/dnickbiz.