Lift the ban on crude oil exports

It’s easy to understand why nothing irritates oil and natural gas companies more than government regulations.

Regulations are issued by scores of federal agencies, ranging from the Commerce, Energy and Interior departments to the Environmental Protection Agency, and the oil and gas industry is kept busy slicing and dicing the arcana of government rules controlling everything from energy production and distribution to exports. And this is on top of a labyrinth of state regulations that affect oil and gas companies. The industry spends hundreds of millions of dollars every year complying with all of the rules and regulations, even though many are unnecessary or even absurd.

Take the federal rule for exporting very light petroleum known as condensate that is flowing in large quantities from America’s prolific shale fields in Texas, North Dakota and Pennsylvania. Condensate can be exported, but only if it happens to be produced from a gas well. If the same material comes out of an oil well, it can’t be exported without special permission from the federal government. Domestic oil producers are being denied a premium that has been as high as $14 per barrel this year – the difference between the West Texas price and the more expensive Brent crude -- by not being allowed to export condensate and other types of domestically-produced oil.

US exports of petroleum products such as gasoline, diesel, and jet fuel have increased almost five-fold in the last decade and America is now both the world’s largest producer and largest exporter of those products. But there is still an outdated 1975 statute on the books that bans the export of actual oil – crude oil – unless the Commerce Department issues a special permit. Since few permits are issued, this is equivalent to a ban on exporting US crude oil.

When Congress approved the ban 40 years ago in the aftermath of the Arab oil embargo, there was no reason to expect then that the United States would ever have a surplus of domestically produced oil. But a new era of energy abundance has arrived in America in recent years as a result of the shale revolution. Petroleum imports have dropped to less than 27 percent of what we consume, down from more than 60 percent a decade ago – and the United States is more energy secure and self-sufficient than it has been in at least thirty years.

Today the crude oil ban is hampering domestic oil production. Drillers in the Bakken shale in North Dakota and Eagle Ford in South Texas have started scaling back production or have stopped producing oil altogether because in some cases they have no outlet for the oil, and storage tanks are nearing capacity. Thousands of oil workers are in danger of losing their jobs as a result.

It’s time for Congress to overturn the outdated ban on oil exports. Lifting the ban would not only provide access to an international market for shale oil but would also create a wide range of jobs in the oil drilling supply chain and broader economy, according to a new study by the research firm IHS. The study says that nearly a million new jobs could be created by 2018 if the ban on crude oil exports is lifted. Only 10 percent of the jobs would be created in actual oil production, while 30 percent would come from industries that support drilling, such as construction, oil field trucks and information technology. And 60 percent of the new jobs would come from the broader economy.

The current export ban represents an unacceptable repudiation of free trade, one of the bedrock economic principles of US foreign policy. Rescinding the ban would save U.S. consumers more than $200 billion over the next decade by reducing gasoline prices according to IHS, while generating new investment in U.S. oil production, creating jobs and revenue, and generally bolstering the nation’s economy with an energy-driven stimulus. Let’s make it happen.

Perry is a resident scholar at The American Enterprise Institute and a professor of economics at the Flint campus of The University of Michigan.