The ongoing shale oil renaissance and the United States’ abundant natural resources has transformed our energy landscape, allowing American consumers access to affordable fuel supplies and spurring significant investment and job growth across our economy.
But in order for this renaissance to continue, it is critical that lawmakers ensure that U.S. policy keeps pace so that our energy resources are being leveraged to provide the maximum benefit to the nation’s economy and international geopolitical interests.
The hearing highlighted the fact that all this historic promise is jeopardized by a little known provision of law that was enacted 40 years ago in the wake of the Arab oil embargo, which restricts the export of domestically produced crude oil. And whatever the merits of this policy may have been then, in this new age of energy abundance, prohibiting the export of America’s excess supply of crude oil no longer makes any practical or political sense.
As the global leader in oil and natural gas production – recently surpassing both Russia and Saudi Arabia – the U.S. has turned global energy markets upside down. According to the U.S. Energy Information Administration, we now produce 9.2 million barrels of crude oil each day – the highest annual average in over three decades. Much of this growth is attributed to shale development and the production of light crude oil.
However, because much of our domestic crude oil refining capacity is configured to refine heavy grades of crude oil which are largely imported, we now find ourselves in a position where there’s a growing “mismatch” between the oil we produce (light) and the type of oil we can refine (heavy).
Domestically produced light oil has already reduced the volume of imported light oil by three million barrels per day. However, given the lack of refining capacity to handle the increased production, crude oil inventories are swelling to record levels, creating a glut of light oil that is depressing domestic crude oil prices. This is causing the spread between international (Brent) and domestic (WTI) crude oil prices to widen.
With the restriction on crude oil exports preventing U.S. producers from accessing global markets – while refiners have the ability to buy and sell freely – drilling rigs are being idled, jobs along the supply chain are being lost and the continued growth of the American shale oil renaissance is at risk.
As for concerns related to gasoline prices, the Subcommittee hearing last week made it quite clear that the reduced cost of domestic crude oil does not translate into lower gasoline prices for U.S. consumers. In fact, every analysis, thought leader and think tank that has weighed-in on this issue acknowledges that the price consumers pay for gasoline here in the U.S. is determined by the higher international crude oil benchmark.
According to ICF International, lifting the ban “could save American consumers up to $5.8 billion per year, on average, over the 2015-2035 period.” Moreover, while the domestic benefits to modernizing our nation’s energy policy are clear, the influx of U.S. crude oil to the global market would better enable our trading partners and allies to reduce their dependence on less reliable and unfriendly sources of energy.
This point was made clear by the White House last month in their National Security Strategy, which noted: “The challenges faced by Ukrainian and European dependence on Russian energy supplies puts a spotlight on the need for an expanded view of energy security.”
Our transformation from a period of perceived energy scarcity to one of energy abundance has been nothing short of a game changer for the United States. It has turned global energy markets upside down and positioned the U.S. to become a global energy superpower. For us to take full advantage of this opportunity, however, we first need to repeal the decades old oil export prohibition standing in our way.
Baker is executive director of the Producers for American Crude Oil Exports, a coalition of independent oil producers.