THE CENTER for Energy Studies at Rice University's Baker Institute for Public Policy noted recently that US oil producers are receiving as much as 16% less for their product because they do not have access to international markets. Federal law currently prohibits the export of crude oil, although it allows the sale of refined products abroad.
The current export policy has a negative impact on capital investment, job creation, and tax revenues that are forgone as a result of the policy, says the Rice energy group.
Several studies have shown that repealing the ban on crude oil exports would boost employment, raise wages, encourage economic growth, and expand trade, thereby reducing America's trade deficit with other nations.
Sounds like a win-win, right? Well, not to some people. The folks in Congress and the Executive Branch have been reluctant to eliminate the ban on crude exports because they are concerned that selling US oil overseas will reduce domestic supplies and drive up prices at home.
Here is why that is not likely. First, we have entered a new age of plentiful oil and gas supplies in US energy markets. This is mainly due to technology that has made the US the world leader in extracting gas and liquids from shale deposits.
Porter Bennett, formerly head of Bentek Energy, recently wrote in RBN Energy's popular blog that, "The US and global markets have moved from an era of scarcity to one characterized by abundance....The ramifications of this transformation are - and will continue to be - profound."
Oil production in the US has continued to rise even as prices have plummeted. Even now, nearly a year after prices began to drop, producers in North American shale plays are drilling but not completing many wells due to the low price environment. As soon as prices reach a high enough level to make a profit, you can bet your boots that those wells will be completed and production will jump.
Nearly every upstream executive I have spoken with in the past couple of years has told me his company has far more prospective drill sites than they will ever have time to drill. This is why it's called the "Shale Revolution." It's changed the way we look at the subsurface. Once the reserves are proved, extraction becomes a manufacturing process.
This abundant supply of a highly coveted commodity has led most industry analysts to believe there will be no shortages in the near term that will drive up prices. Of course there are variables, and prices could spike for a variety of reasons. For example, California has higher prices at the pump than the national average in part due to problems at refineries such as strikes and technical failures. Also, tropical storms and hurricanes in the Gulf of Mexico could affect offshore production facilities, pipelines, and even refineries in coastal areas. But these cause temporary price fluctuations and could happen whether or not the US begins exporting crude.
Secondly, does anyone really expect energy demand to crater? Growth rates in some markets may slow, but others will continue to grow, some at a rapid pace. People who live in emerging economies, such as Africa and under-developed parts of Asia and South America, want the same conveniences as people in highly industrialized economies. Access to energy can help them achieve those goals.
The International Energy Agency said recently that global demand for oil will rise by nearly one million barrels this year. And this is in what is generally considered a downturn in many parts of the world, including China and Europe. What will happen to demand when these economies return to full strength?
Equilibrium between energy production and demand will continue to fluctuate as global economies alternately expand and contract. However, increased population generally means greater demand for energy, and hydrocarbons are still the fuel of choice by an overwhelming degree. That is not likely to change for many decades even if the US and other nations pour massive amounts of capital into developing and commercializing alternative energy sources.
But even though there is an oversupply currently, there is no doubt that US producers would benefit from opening up new international markets to US crude oil.
The Texas Independent Producers & Royalty Owners Association has said that it hopes Congress will change US national trade policy and lift the crude oil export ban. "Exporting surplus crude oil would benefit Texas and the US by any measure," TIPRO argues. "The Administration or Congress should take action to lift the ban on exports, and do so soon. Today's energy renaissance has long-term staying power, and we must ensure that it continues serving as an engine of US economic growth by recognizing the new realities and allowing crude oil exports."