IHS: US crude oil exports would help lower US gasoline prices

A decision to lift restrictions on US crude oil exports would boost US production, lower gasoline prices, and support as many as 1 million additional jobs, IHS said, adding that the elimination of crude export restrictions would benefit gross domestic product and government revenues.

The study, US Crude Oil Export Decision: Assessing the Impact of the Export Ban and Free Trade on the US Economy, estimated a resulting boost in US oil production would cut the US oil import bill by an average $67 billion/year.

Researchers forecast $746 billion total in additional energy investments during 2016-30 and a boost in US oil production of 1.2 million b/d average each year of the study period.

Additional US crude oil production would help lower gasoline prices by an annual average of 8¢/gal, the study estimated. The 8¢/gal is a base case adjusted for inflation, and the figure potentially could reach 12¢/gal given a higher production rate, the study said.

Combined savings for US motorists would be $265 billion during 2016-30 vs. what they would pay if the restrictive trade policy remains in place.

In reaching its findings, IHS used proprietary models of both the upstream and downstream businesses to assess the combined investment and price impacts of US crude oil free trade. IHS also noted the US currently can export crude to Canada as long as the oil is processed and used in Canada.

US Sen. Lisa Murkowski (R-Alas.) said the IHS analysis reinforced her earlier suggestions that lifting the restriction will create jobs, boost oil production, and help lower US gasoline prices.

Separately, the American Petroleum Institute reported that a state-by-state analysis showed Texas could add up to 40,921 jobs and $5.21 billion to the state economy in 2020 if restrictions on US crude exports were lifted.

Kyle Isakower, API vice-president for regulatory and economic policy, said access to foreign oil customers will drive US job creation.

“When it comes to crude oil, the rewards of free trade are amplified wherever energy, manufacturing, and consumer spending drive growth,” Isakower said. “American energy exports mean new jobs, higher investment, and greater energy security.” API’s report was compiled by ICF International and EnSys Energy.

Lower net US imports

IHS said the removal of export restrictions would lower net US petroleum imports by nearly 1 million b/d in 2016 for a savings of more than $43 billion. The annual savings would continue to grow until peaking at a savings of nearly $87 billion (nearly 2 million b/d lower) in 2025.

The savings remains significant for the remainder of the study period, averaging more than $74 billion/year (1.8 million b/d lower) during that time.

“The 1970s-era policy restricting crude oil exports—a vestige from a price controls system that ended in 1981—is a remnant from another time,” said Daniel Yergin, IHS vice-chairman. “It does not reflect the dramatic turnaround in domestic oil production, led by tight oil, which has reversed the United States’ oil position so significantly.”

He noted oil imports have been cut in half since 2005, and US oil production has escalated in recent years.

“The economic contributions of this turnaround have been substantial,” Yergin said. “Allowing the free trade of oil would expand those gains for consumers and the wider economy.”

If exports restrictions were lifted, the economic benefits would come by way of relieving the gridlock in light tight oil supply that currently exists. The study said rapid growth in US “light tight oil production” has outpaced US refining capacity, consequently restricting additional investments in production.

Light tight oil production already increased domestic oil output to 8.2 million b/d as of March compared with 5 million b/d in 2008.

Refineries set for heavy crude

James Fallon, IHS director and study co-author, said, “Current export restrictions mean that light crude has to be sold at a sharp discount to compensate for the extra cost of refining it in facilities that were not designed for it. That gridlock is preventing additional investment and production—and the additional economic benefits—that could otherwise take place.”

The current oil export restriction discourages additional crude oil supplies from being brought to market, which actually makes gasoline prices higher than they otherwise would be, researchers said.

“If crude oil export restrictions were lifted, the resulting increase in oil production would increase supply and actually lower gasoline prices,” said Kurt Barrow, study coauthor and IHS vice-president, downstream energy. “The gasoline trade and price fundamentals are clear.”

The study concluded that if restrictions on US crude oil exports were removed:

• US oil production would increase, beginning with an additional 949,000 b/d in 2016. The ability to export crude would then result in more than 1 million b/d in extra production each year going forward, peaking at 1.3 million b/d of additional production in 2030.

• US crude exports would reach 665,000 b/d in 2016 and rise to more than 1.5 million b/d in 2020. Crude exports would peak at more than 1.7 million b/d in 2025 before averaging more than 1.5 million b/d for the rest of the study period.

• The resulting increase in crude production would support 359,000 more jobs in 2016 before peaking at 964,000 additional jobs supported in 2018. In 2020, an estimated 700,000 additional jobs would be supported in 2020.

• Gross domestic product would rise by nearly $73 billion in 2016. The amount would increase to more than $134 billion additional GDP in 2018 and settle at an additional $106 billion in 2020. It would then average an additional $73 billion/year for the rest of the study period.

• Total government revenues would increase by a combined $1.3 trillion over the course of the study period, beginning with nearly $29 billion additional revenues generated in 2016. That amount would rise to $42 billion in 2020 and grow to $105 billion in 2025 before reaching more than $158 billion in 2030.

• The average disposable income per household would increase by an additional $391 in 2018 as benefits from increased investment, additional jobs and lower gasoline prices are passed along to consumers.

Contact Paula Dittrick at paulad@ogjonline.com.

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