Don’t let politics jeopardize our energy renaissance

When it comes to developing strong and effective policies, it’s imperative for our lawmakers to not overlook the facts. All too often though, in the heat of debate, it seems political rhetoric trumps those important — and sometimes inconvenient — facts.

Last week, 13 Democratic senators made the case to keep the outdated and restrictive ban on U.S. crude oil exports in an open letter to President Obama. In their letter, they conclude that lifting the ban stands to harm U.S. businesses, raise fuel prices and weaken U.S. energy security. As we find ourselves amid a booming energy renaissance, crude oil exports are a policy change that will further fuel this industry well into the future. Therefore, it is critical all the facts are on the table and do not get lost in misleading political rhetoric.

One of the more perplexing arguments advanced in the letter was that repealing or weakening the export ban could harm U.S. businesses and our ability to create good-paying American jobs. However, over the last year and a half numerous macroeconomic forecasts cite have predicted otherwise, finding that crude oil exports would increase U.S. gross domestic product, foster new investment in the U.S. energy sector and generate opportunities for small and mid-sized businesses along the supply chain. 

{mosads}While the refining sector is an important component in the downstream market, the cornerstone of U.S. success and growth in energy has been through production. Without sustained production rates, the refining sector along with the rest of the energy sector would feel the pain. New markets mean new demand, continued investment in upstream production and development and thousands of jobs across the country. The most recent study by IHS notes this multiplier effect stating, “For every job created in oil production, three jobs are created in the supply chain and six more in the broader economy.”

Additionally, the removal of the ban doesn’t mean the end of refinery investment and expansion as the letter implies. The same report mentioned by the U.S Energy Information Administration found overall that expansion projects would still occur if crude were allowed to be exported and $2.3 billion would still be invested into this industry. Ultimately, the overall health of this industry is what is at stake and the best way to maintain steady production is through oil exports.

The second argument the group of senators put forth for keeping the crude export ban is the routinely heard misconception that allowing crude oil exports would raise the prices of oil and gas. The letter spotlights that U.S. consumers saved $11.4 billion at the pump last year because of lower oil prices; however, this has nothing to do with U.S. policies. In fact, U.S. gasoline is a globally trade commodity that is directly tied to international markets. And while this is not a simple black and white scenario due to constantly changing demand forces, several econometric models, including ones conducted by our own government, conclude crude oil exports will not raise prices at the pump. The reality is that repealing the ban on crude oil exports would allow domestically produced crude oil to enter the global marketplace where economic principles dictate an increase in the global supply of oil would put downward pressure on the international price of crude oil.

The final misleading point made by the senators is the notion that removing the ban will harm our national security. Their letter argues that the U.S. crude oil import record is still too high and from an energy security perspective it is “premature to contemplate lifting the ban.” While the U.S. does import foreign oil, that is not valid reason not to export it. In fact, it runs counter to our economic principles of free trade and the way we treat nearly every other commodity in this country. For example, in 2014 the U.S. exported a record 3.8 million barrels of refined petroleum products, while importing 230 million barrels. There are other countless commodities the U.S. imports and exports including cars, computers and agriculture. And with the U.S. producing more crude oil than ever before, crude imports are estimated to fall to 4.9 million barrels per day in 2025 even with crude oil exports.

The benefits of finally removing the 1970s-era ban on crude oil exports are undeniable. Despite counterproductive efforts, the energy sector is booming as a result of the era of domestic energy abundance that we live in. In order to keep this renaissance alive, we must throw our hat in the ring that is the global energy market, capitalizing on the extraordinary opportunity before us. As Independence Day approaches, it’s a great time to reflect on what we can do to make our great nation even stronger and more prosperous. Allowing crude oil exports will promote that goal.

 

Thorning is the vice president and chief economist for the American Council for Capital Formation.

Tags Energy oil

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